From the Comments: Is US Economic Stagnation A Myth?

The short answer is “yes.”

In the ‘comments’ section of Dr Delacroix’s recent article on the myth of American economic stagnation, Dr Amburgey, who works at the University of Toronto’s business school, dropped three arguments at my feet. I gave him three responses and he chose to address Issue #2 first. I will await his responses to Issues #1 and #3 respectively, but I want to make sure that we are all on the same page before we get to Issues #1 and #3.

At the heart of this discussion lies Dr Delacroix’s observation:

So, the implication here is that when it comes to the unequal distribution or real economic growth you have to do two things:

A You have to slow down and make sure you understand what’s being said; it’s not always easy. Examples below.

B You have to decide whether the inequality being described is a moral problem for you or, otherwise a political issue. (I, for one, would not lose sleep over the increased poverty of the stock exchange players in my fictitious example above. As for the lady typists, I am sorry but I can’t be held responsible for people who live under a rock on purpose.)

With this in mind I think it is important to point out that because what we are discussing brings out a lot of passion, it is easy for people to look at some numbers and believe them just on principle. For example, Dr Amburgey writes:

The numbers I use come from [here]. Median household income for 1975-2012 in constant (2012) dollars. There is a picture on the wikipedia entry I gave above [found here - bc] that charts GDP per capita and median household income. Go look at it. It’s pretty much flat for median household income. In other words pretty stagnant. Numbers wise in 1975 its $45788. In 2012 it’s $51017 (less than it was in 1989 by the way). Plug the numbers into my handy dandy econometrics software and regress median household income on year and the average annual change is $232.32 per year.

I suppose ‘stagnant’ is in the eye of the beholder but I’d say that’s 38 years of economic stagnation for the American economy as a whole.

Can you see why Dr Amburgey’s statement above is untrue? I can spot two big errors in his logic (feel free to correct me or add your own in the ‘comments’ section):

  1. Median household income has, on paper, indeed stagnated. Yet this says nothing about economic decline or stagnation in the US because median household income cannot tell us what such income has been able to buy in the past 40 years. That is to say, the measurement used by Dr Amburgey, and the ensuing numbers they produced, tells us nothing about the purchasing power of the American consumer.
  2. This second error is huge in my mind. Dr Amburgey and others are plainly stating that the American economy has been economically stagnate for 40 years. This is a good example of looking superficially at some numbers and then kowtowing to proper social norms. After all, Dr Amburgey’s handy-dandy econometrics software was around in 1973, right?

None of what I am arguing denies that the US economy sucks today. I am not blaming this on the Obama administration (though it has certainly kicked us while down). Nor am I denying that there are real structural issues that need to be addressed. What I am arguing, and what I think Dr Delacroix is arguing, is that the numbers and the issues used by Leftist factions to push their beliefs through the political process are based on faulty assumptions and even faultier logic.

I am still waiting for Issues #1 and #3 to be addressed. Dr Amburgey actually has access as an author on this blog, so maybe Christmas will come early for me this year and I’ll be able to read one of his posts here at NOL.

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4 thoughts on “From the Comments: Is US Economic Stagnation A Myth?”

  1. Numbers 1 and 3 will have to wait, we seem to be far from done with 2. I’m not sure I’m properly communicating. The numbers above are constant (2012) dollars; real income not nominal income. What a dollar can buy is exactly why we have to use constant dollars to compare incomes over time.

    “The term constant dollars refers to a metric for valuing the price of something over time, without that metric changing due to inflation or deflation. The term specifically refers to dollars whose present value is linked to a given year…Constant dollars are used to compare the “real value” of an income or price to put the “nominal value” in perspective. For example, who was making more money, your father who made $5,000 at his first job in 1957, or you when you started at $18,000 in 1986? The answer depends on how much can be purchased by each salary. Is a gallon of gasoline more expensive in 1972 than it is today? It depends on how long a person needs to work to earn the money to buy the gas. Converting the nominal values into constant dollars compares what $5,000 could buy in 1957 to what $18,000 could buy in 1986.”

    If you’re interested specifically in the cost side of living, the Bureau of Labor Statistics has monthly values for the consumer price index back to 1913 at ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt but be forewarned it’s depressing.

    Keep in mind that I’ve said naught about why the economy has sucked for decades or what should be done about it. It’s just that, in contrast to teapublicans, I prefer a reality based approach to life. The economic numbers have been around for decades and in my opinion they are fairly straightforward.

    1. Dr Amburgey,

      It’s interesting that you claim to prefer a “reality based approach to life” but then go on to flaunt more data that has absolutely nothing to do with whether or not American living standards and purchasing power have been stagnating or declining over the past 40 years (though I do appreciate your short, albeit off-topic, lecture on the difference between real and nominal income).

      Again, throwing numbers at my feet does not make you correct. Throwing numbers at my feet and elaborating on why you think those numbers prove you right does not make you correct. You have to have some logic behind these data. You have to show that the shit on the paper comes from the right butthole.

      The (unfounded) assertion that the American economy has been stagnate for 40 years seems to me so incredibly absurd that I think I’m making my point in a much more roundabout way than I need to.

      What is it about 1973, Dr Amburgey, that would make me want to travel back in time for? Should I go back for the cars? Those really cool telephones that you could mount onto walls? Should I go back to 1973 so that I can get a good heart surgeon?

      Am I missing out on that fabulous, virtually guaranteed job on the floor of the steel factory? Was the Nintendo-playing experience to die for, or what? I heard that, at least in the 1990s, you could only play video games with people in your living room. Is that true?

      How was the food back in 1973, Dr Amburgey? What foods am I missing out on that I cannot get here – for roughly the same price or cheaper – in 2013?

      These questions cover the issues of food, health, transportation, and luxury (“standards of living”). Dr Amburgey’s argument plainly states that none of these issues have improved for Americans since 1973. He has thus far cited data that is wholly unrelated to the issue at hand (“standards of living and economic stagnation”). Answering my simple questions should help Dr Amburgey along the path to thinking soberly about Western society.

      No fairy farts or rainbow rides allowed, Dr A!

  2. I’m not often flabbergasted but you’ve succeeded. For a bit, I thought maybe you meant ‘quality of life’ instead of standard of living:

    “Standard of living is generally measured by standards such as real (i.e. inflation adjusted) income per person and poverty rate… It is the ease by which people living in a time or place are able to satisfy their needs and/or wants…The idea of a ‘standard’ may be contrasted with the quality of life, which takes into account not only the material standard of living, but also other more intangible aspects that make up human life, such as leisure, safety, cultural resources, social life, physical health, environmental quality issues, etc..”

    But upon several re-readings of your post it’s clear that you believe that real income “has absolutely nothing to do with whether or not American living standards and purchasing power have been stagnating or declining over the past 40 years”

    If you really believe that, then we really have nothing to say to one another, I’m speechless.

    1. You’re changing the subject again Dr Amburgey. Every time you change the subject you prove Dr Delacroix to be correct, and I can’t stand that, so please (please!) stop with the red herrings.

      I’ll repeat myself:

      The (unfounded) assertion that the American economy has been stagnate for 40 years seems to me so incredibly absurd that I think I’m making my point in a much more roundabout way than I need to.

      What is it about 1973, Dr Amburgey, that would make me want to travel back in time for? Should I go back for the cars? Those really cool telephones that you could mount onto walls? Should I go back to 1973 so that I can get a good heart surgeon?

      Am I missing out on that fabulous, virtually guaranteed job on the floor of the steel factory? Was the Nintendo-playing experience to die for, or what? I heard that, at least in the 1990s, you could only play video games with people in your living room. Is that true?

      How was the food back in 1973, Dr Amburgey? What foods am I missing out on that I cannot get here – for roughly the same price or cheaper – in 2013?

      These questions cover the issues of food, health, transportation, and luxury (“standards of living” Oops! I mean “quality of life”). Dr Amburgey’s argument plainly states that none of these issues have improved for Americans since 1973. He has thus far cited data that is wholly unrelated to the issue at hand (“standards of liv–” Oops! I mean “quality of life and economic stagnation”). Answering my simple questions should help Dr Amburgey along the path to thinking soberly about Western society.

      No fairy farts or rainbow rides allowed, Dr A!

      Or changing the subject, either.

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