There's a problem with this article though, in the way they phrase their statements. I think it's actually kind of misleading. For example "Average family incomes, after adjusting for inflation, fell to $70,700 in 2004, a drop of 2.3 percent when compared with 2001." Here he's talking about the "mean" average. I doubt most people would be aware of that or what a mean is.
In case you're not familiar with statistical averages, the mean is what is commonly known as "the average".
mean
The sum of a list of numbers, divided by the total number of numbers in the list.
median
"Middle value" of a list. The smallest number such that at least half the numbers in the list are no greater than it
mode
For lists, the mode is the most common (frequent) value.
The problem with that in this case, though, is that the top end of the list is unlimited. That can give a greatly different picture from what's really happening. When you have a certain set of numbers that have a discrete high end and a discrete low end (i.e. tests with grades from 0-100), the "average" has a lot more meaning than when the high end is not discrete. For example, if 10 people took a test and ended up with four 70s, three 80s, two 90s, and one 100, the mean, or average, would be 80. If, however, scores were unlimited and some genius scored 1000 instead of 100, the average would be 170. This number does not reflect the fact that the vast majority made under 100.
So if they're taking the average of all family incomes, they're including the lucky few who make millions per year, versus the majority who make less than 100k a year. For that, a median number is better. I'm not sure where the numbers from the article came from, but they say that the median income is $43,200. The US Census says that as of 2004, it was $53,692. That means that half the family households in the US made less than that.
They also do not mention non-family households in this article, specifically, as the Census Bureau puts it "Female householder, no husband present", whose median income is $25,458. I believe that figure is lumped into the total.
Later in the article, they mention that the gap between the rich and poor continued to widen:
The top 10 percent of households saw their net worth rise by 6.1 percent to an average of $3.11 million while the bottom 25 percent suffered a decline from a net worth in which their assets equaled their liabilities in 2001 to owing $1,400 more than their total assets in 2004.
What that does not say is what the distribution of that wealth actually is. I don't understand if this author means that the 10% of households with the highest income gained this 6.1% on average or if they're averaging together numbers from the highest 10%. Same for the bottom 25%. If the same patterns hold true as almost always have, what this actually means is that the distribution widens out at the extreme ends. In other words, the poorest get hit the hardest while the richest gain the most. Even the upper-middle class hasn't gained a great deal from Bush's tax cuts.
Is that any surprise? Of course not.
"This is the continuing story of the rich getting richer," said David Wyss, chief economist at Standard & Poor's in New York. "Clearly, the gains in wealth are going to the top end."
Democrats used the new report to blast President Bush's economic policies, contending it would be wrong to make permanent his tax cuts which primarily benefited the wealthy.
"These statistics show why, even though GDP is rising, most people do not feel better off," said Sen. Charles Schumer (news, bio, voting record), D-N.Y.
The most frustrating thing is really that the common people still argue for tax cuts thinking that they'll be glad to get $100 back from the government. Well, I guess if tax cuts were actually aimed at my income level I'd agree, but as we know, the vast majority of us receive none of the benefit while the wealthiest pay less and less.
The quote at the end of the article is a good summation:
"This report shows a race between factors boosting net worth such as home ownership and factors pushing the other way such as weak wage growth," said Jared Bernstein, senior economist at the liberal Economic Policy Institute, a Washington think tank. "Unless we start to see better income growth from jobs and wages, it is hard to see major gains in net worth for the typical family."
I'm not sure exactly what the number would be, but for most of us the most important factor in household wealth would be income. It's probably not until you get to over $100k a year where investments become substantial enough to actually factor into your lifestyle. What we need is better wages and better jobs. Of course, that won't happen any time soon.
3 comments:
I wrote a post on this today, too. I think that the figures are misleading in that they take into consideration certain arbitrary sections of society. The top ten percent, for example. The average worth of that group is obscene enough, but how about the top ten percent versus the top five, or one, or one-tenth of one percent? In 2001, the top one-tenth of one percent of the US population owned as much as the bottom fifty percent, according to a recent study from the National Bureau of Economic Research. I would like to see an update of that statistic, which is not likely to come from the Federal Reserve.
Good post.
Given the statistics and studies, it is a proven fact that however well the economy does or does not do, income inequality has only increased over the past 20 years, and it appears to be increasing more quickly in the last 5 years, due in no large part to Bush's generous tax cuts which have disproportionately benefitted the wealthy. Which is why I find it absurd to hear economists and conservatives talk about how great the economy is. Great for whom? How can it be great for the country as a whole when it's clearly worse for the poorest of Americans? How is that improvement?
Well there is that dichotomy between GDP and per capita income. Economists really love to talk about GDP because that is the number one indicator of our nation's wealth. However, it's competely worthless as a benchmark of the wealth of individuals. GDP is all about the size of the pie, not the size of the slices. Economists who go by that measure don't really seem to take into account that there are some people who have the same net worth as 500,000 of the poorest. They don't really seem to care about it. And from one point of view, it's true that all that matters is GDP, not per capita income, because essentially, GDP is how wealthy the nation is, and how can America not be well off when the GDP keeps growing at a sufficient rate?
Of course that's missing the forest for the trees, or perhaps vice versa. America would eventually collapse if per capita income for the average person or family sank below the level necessary to survive. But as far as conservative economists are concerned, all that matters is that America keep growing as a whole, rather than growing as individuals.
Now from my liberal point of view, I think not only would the individual be better off if we reversed our priorities, but America as a whole would witness faster and greater growth if we made an effort to de-concentrate wealth by promoting higher wages and better education. But hey, all I care about is people, not the GDP, so what do I know?
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