TIMOTHY NOAH OCTOBER 10, 2011
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In 1965, while Daniel Patrick Moynihan, then an assistant secretary of Labor, was assembling his study, The Negro Family: The Case For National Action, his researchers discovered something curious. Previously welfare caseloads had increased when unemployment went up and decreased when it went down. Now, however, the two indices were "disaggregated." Unemployment was going down but welfare caseloads were still going up. "The numbers went blooey on me," Moynihan told Nicholas Lemann, author of The Promised Land: The Great Black Migration and How It Changed America. The "disaggregation" suggested that the economic problems suffered by low-income blacks were about more than the economy. They were also about the "tangle of pathologies" that thrived in ghetto culture. This finding, though subsequently rendered respectable by William Julius Wilson and other sociologists--and also by HBO's critically acclaimed The Wire--was quite controversial in its day (in large part, Lemann argues in The Promised Land, because Moynihan's intellectual vanity eclipsed his interest in addressing the problem of inner-city joblessness). Critics accused Moynihan of blaming the victim.
Now it's 2011 and a different sort of "disaggregation" is taking place, according to a new study that Robert Pear writes about today on Page One of the New York Times. Since the start of the weak economic recovery in 2009, median income has fallen faster than it did during the recession of 2007-2009. Nous sommes tous disaggregated.
It was already true, you may recall, that productivity has been rising quite sharply during the past decade even as the median household income has gone down. Until the aughts most economists would have been glad to tell you that this can't happen. Also, corporate profits have lately been higher, as a percentage of gross domestic product, than at any time since 1950. Now we learn that whereas during the 18-month recession household income fell (in real terms) 3.2 percent, during the two years of recovery that followed household income fell (in real terms) 6.7 percent. The recovery has been twice as hard on the typical person's pocketbook as the recession was! This calculation doesn't include federal taxes and federal benefits, which no doubt soften the blow, but that isn't the point. The point is that median income appears to be divorced from economic recovery. Except no, it's worse than that. Median income bears a relationship to economic recovery, but the relationship is (temporarily, anyway) inverse. Recovery goes up, median income goes down.
Presumably there's some point at which economic recovery becomes so robust that median income will start to rise, or at least will stop falling. But until that happens, you might see some angry people march on Wall Street. Oh, wait, that's already happening.
18 comments
You might have mentioned that median income doesn't mean average income, it means the income that divides households into two equal segments, one earning more than the median income and the other earning less than the median income. Average income can go up even as median income goes down. Indeed, that is exactly what occurred during this period. How is that? Because more income went to the top segment. Now, I don't believe that has anything to do with pathologies in the bottom segment, but it may well have something to do with pathologies in the top segment. It depends on the definition of pathologies.
- rayward
October 10, 2011 at 5:02pm
about the only good thing going on now is that while median income has been going down, so have housing prices. For those having houses it really bites but since I am in the market for a house I can now afford what was only a dream before, my only problem is knowing how low the market will go before I buy. And as to median income, it would be nice to see the breakdown by industry. My wife is a nurse and her income has been rising quite nicely, and I would like to know how it has affected college grads and professionals. I suspect the real hit has been to non college grads.
- blackton
October 10, 2011 at 5:31pm
Perhaps this Median Income Statistic is a Lagging Indicator.
- CRS9TNR
October 10, 2011 at 6:38pm
rayward, I know you know this, but just to clarify for any mathematically-challenged readers out there for exactly the reasons you state, median income is the relevant stat, not mean income. Theoretically you could shift to an income distribution where all income went to a single individual and still not see any change in the mean value.
- AaronW
October 10, 2011 at 6:45pm
Bill Gates and I are in a bar. The mean (what most folks call the average) family income in the bar is so many millions. Gates leaves. The mean family income in the bar drops to . . . less than so many millions. My comment wasn't meant to question TN's post but to affirm it, or part of it. I don't agree with the pathologies part of his post. The pathologies Senator Moynihan refers to as responsible for the drop in income among African Americans in the 1960s has nothing, absolutely nothing, to do with the drop in the median income today. That's my view, anyway. It's attributable to a precipitous drop in aggregate demand and perverse public policies that concentrates so much of the nation's income and resources in a very few. To me, that's a pathology, for doing so necessarily means that the economy is unsustainable. How do I know? I can read history.
- rayward
October 10, 2011 at 7:03pm
Oops, the leftward rayward falters again. Reading history is not good enough - recessions are different one from another and so therefore, policies must differ, too. There is a huge gap between the know-it-alls and competent (or better) economists.
- liberalref
October 10, 2011 at 7:39pm
Well, look also at machines that are replacing people. This is affecting both corporate profits (up) and unemployment (up) as well as income (down). Plus, virtual slavery abroad, that isn't helping matters; "we," by which I mean our corporate overlords, exported "our," by which i mean "our" jobs overseas where people are in some cases paying their employers. Which is sorta what I have been doing lately, paying rent instead of getting paid; guess what, this is really, really bad for my bottom line. Ouch. However it's probably improving that of my already wealthy employer - I mean, landlord.
- Sophia
October 10, 2011 at 7:50pm
Oops, the incoherent liberalref sets himself against another poster again without addressing the poster's points or really saying anything at all other than to offer bald, unsupported assertions as to his own intelligence and erudition.
- AaronW
October 10, 2011 at 9:09pm
Good point. The problem is that we are defining recession by GDP changes, period. It doesn't matter how those GDP numbers are distributed. If you woke up tomorrow and suddenly the Koch brothers made all of the society's income, as long as that aggregate number went up, NBER would be predisposed not to count that as a recession. Given that we live in a consumer society and almost all of that consumption is driven by the 99%, this turn of events would very obviously constitute a depression. It's one of the clearest indications that nominal median income targeting might be a better economic indicator than GDP.
- chaitless
October 10, 2011 at 9:15pm
What it means is really quite simple: The capital share of output has been rising dramatically. Hence the labor share has fallen. We see this in the outsize profits and cash accumulating in corporations. The cause is lack demand that in turn results in lack of labor demand. Slack labor market leads to a fall in real wages. This is a real time experiment for neo-classical economics (the more mainstream version of supply-side stupidity) that claims that the solution to recession is a decline in wages. They claim that this will produce an increase in labor demanded because it is cheaper. It was always a dumb theory, beloved on the right, because labor is not simply a commodity but also the source of demand itself. Now we have a real time experiment that demonstrates that the right-wing, neo-classical narrative is dead wrong. Of course, Keynes was right. Because we are not following a Keynesian course but a neo-classical course, courtesy of the Republican party, demand remains slack, unemployment high, and labor income is falling. Duhhhhhh! Now, do you think that the Republicans and corporations are unhappy about this state of affairs? Nope. As long as they can rack up record profits, why should they care that they have slack capacity? The thing the love even more than money itself is screwing labor. Now they get both. We need a giant fucking demand replacement program in the form of $2-3 trillion of government infra-structure spending. Right now. We desperately need the infra-structure renovation anyway. When demand increases, labor demand will increase, labor markets will tighten up. THEN we will see labor income rising as unemployment declines. This really isn't all that complicated if you just stop and think about how the pieces fit together and can manage to avoid to swamps of ludicrous right-wing economic thought the sole purpose of which is to justify the wealth of the wealthy.
- roidubouloi
October 11, 2011 at 12:47am
One should also note that slack capital capacity and falling real wages are bad for investment. No need for more capacity and no pressure to replace labor with capital. Hence, no investment led recovery. With real wages falling, no consumption led recovery. Since we allow the world to screw us and we run trade deficits, no export led recovery. Only one sector left to lead a recovery: government. Gosh, it is so simple that even a ten-year old could understand it. Why did we need a genius like Keynes to explain it to us? Well, like so many things it is obvious once some genius has explained. What is remarkable is that economics is so politicized that the obvious is now routinely ignored. We need to flush Chicago and MIT down a rathole somewhere so that we can get on with life.
- roidubouloi
October 11, 2011 at 12:55am
Wait a second, not the whole city:)
- Sophia
October 11, 2011 at 1:50am
Never! Only that Fox News of universities, the University of Chicago.
- roidubouloi
October 11, 2011 at 7:35am
What a load of nonsense even by your standards, roid, comparing the University of Chicago to Fox News. Your mind vouchsafes you a cartoon view of the world. In the real world people make adjustments all of the time. The great recession turned Richard Posner into an admirer of Keynes. Yesterday Christopher Sims won the Nobel Prize in economic science, along with Thomas Sargent. One of Sims' major contributions has been to tweak Keynesian models, which have had their problems. Only in the world of ideologues is one side completely right and the other completely wrong. Paul Krugman must not be at all happy that a freshwater economist shared in the Nobel this year. You turn everything into a moral issue (after the fashion of children), as well as an issue of intelligence. You fancy yourself smarter than highly accomplished economists. So, Mr. Brilliant, why don't you make the next 10 year-old move and show us what we don't know? You might even win a Nobel. Keynes' General Theory is replete with very difficult passages and mathematical formulas, yet in your cartoon mind, what Keynes wrote was obvious. And a default assumption of yours is that all economies are alike and all recessions are templates of one another, so one has only to apply 10 year-old economics. Again in the real world, complexities and anomalies carry the day, as ever. According to Keynesian models, the Irish economy should not be doing as well as it is. Further, there is a legitimate debate as to whether we are in a liquidity trap. It is Krugmanite dogma that we are. But Tyler Cowen of Marginal Revolution makes telling points when he notes that the level of corporate profits, and the growth in consumer spending (however anemic, still) militate against the notion of a liquidity trap. Keynes himself said that he believed that he never saw a real liquidity trap, even the Great Depression. He also wrote in the forward to one edition of the GT that his economic nostrums could never be adequately tried in a democracy, whee there are various levels of power and checks and balances, that it would take an autocracy for his plan to really be tried. Put that in your peacepipe and smoke, it, r. Lastly, Paul Krugman is always worth reading, even when he is at his least persuasive. Krugman is what, about a billion times smarter than you are? In a beautiful piece in The New York Review of Books a number of years ago, he paid tribute to Milton Friedman, noting that Friedman didn't make just one major breakthrough, which would be the envy of the vast number of economists, but two major breakthroughs (Friedman's 10 year-old moments). That is something that you would never write, but then, your understanding of economics is, well, one-billionth that of PK's. Good night and have a great day.
- liberalref
October 11, 2011 at 11:57am
well said, Roi.
- GSpinks
October 11, 2011 at 1:49pm
Sophia: Well, look also at machines that are replacing people.. This is relatively new, and only just beginning. As the trend accelerates exponentially, humans will be less and less necessary to keep our economy going. Two problems that I wish TNR would address itself to: 1) As we (the non-genius and non-ultrausefully specialized humans) become less and less necessary to the functioning of the new semiautomated economy), how to we share the "spoils"? 2) As we (same pathetic group) become less and less necessary, how do we find purpose and meaning? Not all of us are satisfied to be artists, genius TNR comment posters, organic gardeners, and the like; psychologically most of us will be "John Henry" cast offs.
- skahn
October 11, 2011 at 3:04pm
Thank you, GS. Just because some things in Keynes are simple enough even for a simpleton like you to understand, lib, does not at all imply that everything he wrote is either simple or correct. But your desperate need to appear to know something when you don't puts even the simplest of ideas out of your reach. Some day, maybe, you will actually find something to say of substance. I doubt it though. You are a pompous ass to the very core, so extraordinarily pompous in fact that on any given day it obscures what an ass you are.
- roidubouloi
October 12, 2011 at 7:54am
By the way, lib, I make no claim to being smarter or even as smart as any of the people you mention. I am quite certain, however, that I am vastly smarter than you. It would be difficult not to be.
- roidubouloi
October 12, 2011 at 7:58am