
Do the Rich Capture All the Gains from Economic Growth? - josephpmay
https://medium.com/@russroberts/do-the-rich-capture-all-the-gains-from-economic-growth-c96d93101f9c
======
rwcarlsen
While attempting to refute the idea that the poor haven't improved their
station since the 70s, they cite a lot of stats that show most households make
more income than their parents did (inflation adjusted), but they completely
neglect to account for the _huge_ factor that is the number of people working
(or cumulative hours worked) per household in order to achieve that
improvement. In the 1970s, there were a lot more single-income households. The
new standard of multi-income households, I expect, entirely accounts for any
gains made by the lower income quintiles of people.

~~~
curun1r
They also likely use inflation statistics that are problematic, at best.

When considering consumables, we've had pretty reasonable inflation and people
are making more than their parents. But if you were to calculate inflation
based on prices for things that don't benefit from advances in our production
abilities (commodities, equities, housing, education, health care, etc), we'd
be making nowhere near as much as previous generations when adjusted for
inflation using that calculation.

Affording a car, TV, computer and food to feed ourselves isn't that difficult
for many people. It's the life-altering purchases that are slipping farther
and farther from the reach of the middle class.

~~~
maxxxxx
Exactly. Low inflation doesn't help much if your salary increases get eaten up
by housing, education hand healthcare. Rent, health care and education should
be counted into inflation numbers.

~~~
onlyrealcuzzo
Wait. Aren't rent, healthcare, AND education all included in the eight
components of CPI? Isn't that how the government measures inflation?

I think one of the big things left off is housing prices. But I'm pretty sure
rent, healthcare, and education are part of it:

[https://www.bls.gov/cpi/factsheets/medical-
care.htm](https://www.bls.gov/cpi/factsheets/medical-care.htm)

[http://webapps.dol.gov/dolfaq/go-dol-
faq.asp?faqid=94](http://webapps.dol.gov/dolfaq/go-dol-faq.asp?faqid=94)

~~~
skybrian
The inflation rate does include rent, or "imputed rent" for home owners.
However, it's an average of what people actually pay, including people who
somehow got a sweet deal on housing costs, through rent control or buying
their house a long time ago or whatever. It's not going to match the prices
you see advertised when you're looking to move.

~~~
gruez
>However, it's an average of what people actually pay, including people who
somehow got a sweet deal on housing costs

which is arguably the more accurate way of measuring consumer prices.

~~~
Gibbon1
That not accurate because important information about the spatial distribution
gets filtered out. Economists are pretending their statistics are filtering
out 'noise' when they are really filtering out data they don't want people to
see.

~~~
skybrian
Inflation is an average. Newspapers usually report the national average, but
there are a lot of other averages and they aren't being kept secret. This page
has data for California:

[http://www.dof.ca.gov/Forecasting/Economics/Indicators/Infla...](http://www.dof.ca.gov/Forecasting/Economics/Indicators/Inflation/)

I don't think anyone is all that interested in a bunch of dry statistics. No
conspiracy is needed.

~~~
Gibbon1
The problem is while other statistics exist in practice policy makers,
political leaders, businessmen, and economists in general have come ignore
them. Rather than believing some small brained primate on the internet, here
is Paul Volcker saying the same thing.

[https://www.bloomberg.com/opinion/articles/2018-10-24/what-s...](https://www.bloomberg.com/opinion/articles/2018-10-24/what-
s-wrong-with-the-2-percent-inflation-target)

------
rconti
This is an astoundingly bad comparison if it's missing the point I think it's
missing. It's arguing that the average person makes more than their parents by
comparing _household income_. I searched the article a few times for a few
keywords trying to make sure I hadn't missed anything, but I see _no mention_
of number of wage earners per household.

All the rest, about "fringe benefits" and the conclusion that everything's not
perfect because we still have excessive occupational licensing and minimum
wages is just garbage hand-waving.

edit: I re-read it, and the panel data that shows the same income gains per
cohort is not clear on how the data was gathered, but the Pew and Brookings
data is CLEARLY household data, NOT individual data.

edit2: the Splinter data also appears to be household-level:
[http://www.davidsplinter.com/Splinter-
Mobility_and_Inequalit...](http://www.davidsplinter.com/Splinter-
Mobility_and_Inequality.pdf)

Splinter mentions "Some reasons for increased household-level income
inequality include skill- biased technological change (Acemoglu, 2002),
decreased marriage and employment rates (Larrimore, 2014), and the exclusion
of employee benefits and government trans- fers from most income definitions
(Burkhauser, Larrimore, and Simon, 2012; Auten and Splinter, 2018)."

So, he's discussing how decreased marriage rates might drive down household
wages (increasing inequality, particularly among the poorer groups), but a
quick command-F is not finding any mention of how the impact of these
decreased marriage rates may be counterbalanced (and possibly/likely?)
outweighed by increased total number of wage earners per household.

~~~
kimmeld
From past podcasts he doesn't see the problem with having two people working
to get that gain while ignoring the individual stagnating/declining worker
pay. That stance is not logical to me, but it seems to fit his view on the
world.

~~~
rconti
Okay, so he's being intentionally misleading in this piece, rather than
presenting an academic view.

I'm fine with that stance, too. He's welcome to argue that the average
household is "better off" as long as he's willing to subtract the added costs
this situation creates. Or you can calculate doing the reverse; calculate the
value generated with a greater number of stay-at-home parents in the 70s, so
that this opportunity cost is reflected in the numbers when a second earner
enters the formal workforce. Then at least we're comparing apples to apples
and we can see where we end up. It's totally possible those lower-income
cohorts are better off now, but he hasn't attempted to prove it.

Also, it's a lie to present this as individuals earning more money unless you
acknowledge that you're averaging individuals across households, and not
comparing ACTUAL working individuals.. And admit that you're factoring in some
number of individuals in the 70s earning $0 and some other number of
individuals today earning $0.

------
roymurdock
The author Russ Roberts runs the EconTalk podcast and is a well respected
economist/journalist/thinker in the field, definitely worth reading for a fair
assessment.

Here he presents a few studies that go against general economic consensus
popularized mainly by Piketty in "Capital in the 21st century" and through
papers/writing by Krugman, Saez, Zucman, Stiglitz, etc. that most of the
economic gains in the past 100 years have gone to a concentrated few owners of
capital.

Roberts highlights a few studies that use panel data (same people tracked over
time) instead of cross-section data (snapshots of different populations at
different times) and show that 70% of children from low-income households
generally earn more than their parents, and usually end up with about 2x more
income (only 33% of high-income children earn more than their parents.)

Another study looks at people age 35-40 in 1987 and then how they did when
they were 55-60 in 2007. Median income was down for the top 5%, middle
quintile was up 27%, and bottom quintile median income rose 100%.

Basically - absolute mobility (how much people gain over time) is still
decently healthy today in percentage terms in the US, but relative mobility
(how easy it is to move between classes) is widening and the wealthy in 1980
still have a much higher income on average than the poor in 1980.

Also, the poor in 2014 were actually _worse off_ than the poor in the 1980s
which Roberts attributes to poor people reporting less income in 2014, that
there could be more poor immigrants in 2014 with less education, and that 2014
could be an unrepresentative year.

Personally I don't buy Robert's "glass half full" argument, but I appreciate
him bringing some panel data into the discussion to temper the prevailing
economic narrative.

I think if he looked at studies that include _wealth_ and _net worth_ panel
data, not just income, that account for assets such as homes, the results
would be much much different.

~~~
kimmeld
Russ' political views have been drifting steadily right over time so the data
that he cherry picks regarding inflation, total household income, income
inequality, is not surprising. I used to listen to his podcast pretty
frequently to get a different perspective on econ but now it's pretty painful
due to his increasing inability to see outside his own bubble.

~~~
sarcher
There was a guest this summer who noted that unmarried and areligious people
are "emasculated". The guest also received zero push-back while implying that
immigrants were purposefully being directed by the government to avoid
assimilation and that we should return to harsh methods for dealing with
immigrants. Russ just let the whole statement slide by without comment.

Have conversations with difficult people, sure, but have a _conversation_ ,
don't just let stuff like that slide by! Not sure how long I'll be subscribed
if those attitudes keep receiving clear air.

------
russroberts613
The whole point of much of this analysis (and the videos shown) is that
household income can be very misleading. But most if not all of the analyses I
report on are for individuals over time. So changes in the number of earners
are actually more of a problem for most of the gloomy studies that look at
households by quintile. Incredibly, the proportion of households with two
earners is LOWER in 2014 than in 1980 because of the large increase in
households with one or no earners. Marriage is not nearly as common as it used
to be. The data are here in Table H-12:
[https://www.census.gov/data/tables/time-
series/demo/income-p...](https://www.census.gov/data/tables/time-
series/demo/income-poverty/historical-income-households.html)

I also would add as I did in the essay, that I am not claiming that everything
is OK in the economy. I am trying to respond to the relentless claim that the
rich got all the gains of the last few decades. It's simply not true. That
doesn't mean everything is fine. But just figuring out what actually happened
is surprisingly complicated. The people who claim that the economy is only
helping the rich should be more nuanced.

~~~
tanderson92
I think it is generally well-understood that individuals more senior in their
career have generally higher incomes. So, when it is stated that "the rich"
are obtaining wealth gains, it is explicitly looking at structural changes
rather than simply an earnings cycle for individuals continuing to be true.
Your first sentence is "Adjusted for inflation, the US economy has more than
doubled in real terms since 1975" \-- but it was the case even in 1975 that
there was absolute income mobility as one progressed in their career. So, your
argument purports to disprove the relative mobility or inequality arguments of
Saez/Piketty but in fact cannot.

That is why there is so much pushback on this piece of yours: because it
appears to be attacking a strawman unrelated to real inequality in the system.

------
old-gregg
The gains have been looted by the healthcare providers. It is not uncommon for
health coverage to exceed $2k/mo for a typical family of 4, that's $24k/year.
The median US household income is $59k, so the total comp is $83k/year. See
the gains now?

This absurd amount is not reflected in a paycheck and one may think "my job
pays for it" but that is still your money.

~~~
corey_moncure
This is correct. I dropped my "Affordable" Care Act plan in January when BCBS
quoted a monthly principal increase from $696 to over $2200 for the Silver
level plan my family of four had been enrolled in. We are young and healthy.

$2200 is monthly rent on a luxury condominium in Honolulu.

I asked the agent on the phone if he had children, and if he could afford such
a plan. He replied that he could not.

~~~
shard972
Well thats just going to make health insurance more expensive for more people
now isn't it? IIRC poor people get subsidised healthcare now so if the middle
class workers aren't paying for healthcare... who is?

------
TulliusCicero
The whole thing he is explaining is just regression to the mean. Yes, if you
take people who are currently rich and people who are currently poor, over
time the poor will likely go up in income and the rich go down.

Using this as a counterpoint to accusations of the rich taking all the gains
is like pointing out that a wealthy duke could only pass his whole dukedom to
one of his children, and the others would have to make do with much less.

It is simultaneously true that the gains of the last few decades have largely
gone to "those who are rich", and that the identities of "those who are rich"
are not completely stable.

~~~
NickM
_The whole thing he is explaining is just regression to the mean._

The author directly addresses this further down in the article. Regression to
the mean _is_ a possible explanation of the numbers he cites, but it doesn't
refute the main point he's making, which is that some numbers suggest poor
people capture more of the gains from economic growth than is widely thought.

~~~
TulliusCicero
It's not just _a_ possible explanation, it's the most obvious one. It's a well
understood phenomenon that results in exactly what he's discussing here.

> some numbers suggest poor people capture more of the gains from economic
> growth than is widely thought.

Some individual poor persons will, yes. "The poor", as a class, will not.

------
resu_nimda
This reads like research sponsored by a tobacco company showing that
cigarettes are actually not that harmful.

I like how it frames the economy as this independent entity that we just sort
of observe and hope for the best. Oh our divining rod produced these arbitrary
statistics so the glass is half full guys!

In reality, though, the forces of human nature driving the economy don't
change. Since the dawn of the surplus, there have always been a handful of
kings and many serfs, and there probably always will be.

~~~
Hoasi
> Since the dawn of the surplus, there have always been a handful of kings and
> many serfs, and there probably always will be.

One thing is different though: the thralls of today possess costly devices
that simultaneously entertain and surveil them, among other things. Past kings
would never even have dreamed about that.

~~~
resu_nimda
I think it's largely irrelevant. Do the kings of today have a harder or easier
time maintaining the status quo? I think most changes and fluctuations there
are more attributable to chance (i.e. mechanisms we don't understand) than our
conscious efforts. The same devices that surveil can also empower, in the end
it could be a wash. We change the world around us but I'm convinced there's a
certain homeostasis to our social and cultural experience, at core we're
having the same conversations and dealing with issues analogous to the ones
they had 3000 years ago.

------
randyrand
The income divide increasing int he past few decades is due to globalization.
This much is obvious.

Many huge American companies have done super well as we move to a global
economy - tech is a great example. There's more money to be made when you can
start selling more iPhones to India and the development costs stay the same.

Whether this new global revenue wealth goes workers vs corporate pockets
depends on the supply of labor. Does Apple mostly want to employ Americans? If
so, these rich global companies need to compete for a limited supply of
American workers - our salaries rise. Tech workers in the USA make much more
money than other countries - we have many successful companies here all
wanting American tech labor.

On the flip side , not all American labor falls under this category. If
companies don't care if the labor is domestic or outsourced or immigration is
easy (flexible supply), then American workers don't see much gain from these
global companies making more global money - the new wealth is split between
top American executives and developing countries..

Most companies fall into the latter category - which is why we've seen the
income divide grow, the average American worker's wage stagnate, and
developing countries wages grow.

------
TheBeardKing
This bullshit article tries to paint a rosy picture of the economy by
dismissing proportional median income gains between quintiles and instead
argues that absolute income gains of individuals over time is enough evidence
to suggest everything is actually great. This chart [1] seems to be the crux
of their argument, as in - Surprise! Over 30 years poor people gained an
average of almost $30k in income! I sure fucking hope someone who started at
minimum wage in 1980 is making $30k more today.

And even though the median income of the top 1% went from $189,000 to $843,000
in that sime timeframe, that's not important because in our sample, the
average income of those in the top QUINTILE actually FELL $7k. Guess you
couldn't find any 1%ers for your study?

Bottom line - if the economy can't support a living wage for the working
class, it's not doing all that great.

[1] [https://cdn-
images-1.medium.com/max/2000/1*Z5rBoco1CtNVHYZdh...](https://cdn-
images-1.medium.com/max/2000/1*Z5rBoco1CtNVHYZdhWn4QQ.jpeg)

~~~
munificent
Thank you for writing this comment so that I don't feel like a crazy person
after reading this article. It came across to me as so obviously flawed that
it's hard to even apply Hanlon's Razor to it.

Not once does he mention of any correction for the obvious bias that people
make different amounts at different points in their careers.

Using his exact same process, you could also show that the average height of
Americans has increased significantly in the past thirty years, possibly up to
a foot! Because, duh, people are shorter when they're kids.

If you're trying to measure how the economy is doing over time, you _don 't_
want panels, you want to compare equivalent people at different points in
time. Comparing a 20 year old in 1980 to a 50 year old in 2010 confounds the
differences between 1980 and 2010 with the differences between being 20 and
being 50.

There are reasonable criticisms that identifying representative "equal" people
over time is hard, but the author's solution seems dramatically worse than all
of them.

~~~
chrismanfrank
From the article: "The study looks at people who were 35–40 in 1987 and then
looks at how they were doing 20 years later, when they are 55–60. The median
income of the people in the top 20% in 1987 ended up 5% lower twenty years
later. The people in the middle 20% ended up with median income that was 27%
higher. And if you started in the bottom 20%, your income doubled. If you were
in the top 1% in 1987, 20 years later, median income was 29% lower."

~~~
crazygringo
In other words, regression to the mean. Of course the poorest people are more
likely to gain in income -- when you start at the bottom, there's really only
one direction you can go.

You can still have regression to the mean among individuals while society
itself is becoming horrifyingly unequal.

~~~
chrismanfrank
"Of course the poorest people are more likely to gain in income -- when you
start at the bottom, there's really only one direction you can go."

But doesn't this claim in itself refute the thesis that all the income gains
are going to the top? If we find people at the bottom gaining income far
faster than people at the top, which is what my quote claims, isn't that
evidence that we live in a just society, not an unjust one?

~~~
krisgee
Firstly as pointed out in other comments they were measuring income. People at
higher incomes in the 80s were probably more likely to retire early or "on
time". A more representative number would be wealth which I would imagine is
probably horrifying in the vein that the parent and grandparent meant. People
living hand to mouth in the 80s were probably doing the same in 2014. People
who could save probably weren't.

Even just from the numbers presented imagine the lower percentile person who
was making say 10k in constant dollars in the 80s. They're making 20k (100%
increase) in same dollars in 2014.

Imagining the person in top was making 1,000,000 dollars in constant dollars
they dropped 29% so they're now "only" making 750kish.

I know which group I'd rather be in.

------
kazinator
_Adjusted for inflation, the US economy has more than doubled in real terms
since 1975. How much of that growth has gone to the average person? According
to many economists, the answer is close to zero._

First of all, the population has increased from around 200M to 325M. The
inflation-adjusted economic output would have to increase by that same factor
just to say the same _per capita_.

~~~
rst
And it has increased by well over the ratio; two is substantially greater than
325/200, which is 1.625. What's your point?

~~~
jstanley
2 is less than 25% more than 1.625.

------
esotericn
The problem with most economic analysis is that adjustments are generally
based on arbitrary metrics like PPP or inflation.

If a child (or couple) in Britain earns three times as much, in "real" terms,
that their parent (or parents) did at that stage of life, they will probably
have to live in a smaller house, further from the center of town, with a worse
commute.

Pretty much the biggest QoL improvements knocked out. The fact they can buy a
few more toys or nicer food is not really that consequential.

~~~
ryandrake
Exactly. I probably earn 2X what my father made, inflation adjusted, when he
was my age. Buuuut, I pay 5X what he paid for housing, 20X what he paid for
healthcare, ∞X what he paid in student loans, have a commute 6X longer than
his, live in a house 75% the size of his (he also had two houses at my age, by
the way), work 1.25X his hours and have a crappy 401k rather than a nice
defined-benefit pension. Comparing just salary misses the story.

~~~
jimbokun
Shouldn't those things be factored into the "inflation adjusted" calculation?
(housing, healthcare, student loans...)

~~~
esotericn
Yes, they should, but they are not, and realistically cannot be.

Inflation statistics are almost useless in calculating quality of life for
this reason.

They calculate an average over a population. An example of why this is silly,
is that the average 40 year old both has lower personal inflation _and_ can
weather inflation much more readily than the average 20 year old.

------
TangoTrotFox
On top of the studies within the article, there are other really interesting
papers. Some time back I was searching information on the chiseling out of the
middle class, and I found this paper [1]. And the paper does describe that
chiseling out. In 1979 the middle class controlled 46% of all income, and the
upper/rich classes controlled 30%. Today (as of 2014) the rich and upper class
control 63% with the middle class left with 26%. There's even been a chiseling
out of the middle class as a whole declining from 38.8% of society to 32% of
society. That's where most media outlets leave it. It sounds grim.

But the eye opener is this. This is the change in the size of each economic
group between 1979 and 2014 as a percent of the total population:

\- Rich: 0.1% -> 1.8%

\- Upper Middle Class: 12.9% -> 29.4%

\- Middle Class: 38.8% -> 32%

\- Lower Middle Class: 23.9% -> 17.1%

\- Poor or Near-Poor: 24.3% -> 19.8%

Statistics like this are certainly subject to biased interpretation and
'massaging'. If one is curious about the source, wiki has a section on the
political stance of the Urban Institute [2]. Though the paper itself is very
transparent in their methodology and extremely readable. I found it all eye
opening to the point that it literally changed my worldview. This change is
only since 1979! We are doing something _incredibly_ right from an economic
point of view. I don't understand the media motivations in choosing to omit
these crucial, and greatly encouraging, data when writing on this topic.

[1] - [https://www.urban.org/research/publication/growing-size-
and-...](https://www.urban.org/research/publication/growing-size-and-incomes-
upper-middle-class)

[2] -
[https://en.wikipedia.org/wiki/Urban_Institute#Political_stan...](https://en.wikipedia.org/wiki/Urban_Institute#Political_stance)

~~~
fzeroracer
I'm more curious as to why you chose to omit the critically important data
behind the study. What exactly is your motivation there?

First, let's look at how they define the income brackets:

-Poor and near-poor $0 $29,999

-Lower middle class $30,000 $49,999

-Middle class $50,000 $99,999

-Upper middle class $100,000 $349,999

-Rich $350,000 None

A quote from the publication: "The study did not adjust for regional
differences in the cost of living, the underreporting and exclusion of certain
sources of material support, or taxes."

As with all statistics it is incredibly easy to look at one and yell out 'The
economy is doing FINE!' while ignoring the economic realities for many people.
Income levels may rise, but the average costs for middle-class workers has
skyrocketed as well. Someone living in SF earning over 100k would count as
upper-middle despite likely barely being able to survive.

~~~
TangoTrotFox
Indeed. And similarly, as the paper mentions, there are many places in the US
where someone earning just under $100k would only be counted as middle class,
even though they'd be _well_ into the upper middle class. So the important
question then is there a big bias in one direction or another? The paper
concludes that the answer to this is no.

So why would they use such an ostensibly broad metric in the first place? The
paper also goes into this. The reason is that on a micro level there are often
extreme quality of living differences that are not accurately reflected by any
data. For instance the CPI inflation rate of San Francisco, according to
California, is only 11% higher than the US average. By any metric you'll be
able to point to various little bubbles throughout the nation and indicate,
accurately, that the macro level data does not hold true.

So you need to try to pick aggregate data that most likely balances out the
biases so much as possible. Do you think this fails to do so?

------
SrslyJosh
"Some studies leave out important components of compensation such as fringe
benefits which have become increasingly important in recent years."

And why are those fringe benefits increasingly important, eh?

~~~
komali2
And what kind of fringe benefits are minimum wage earners pulling? I hear
Starbucks gives health insurance, for example, anyone else?

~~~
maxxxxx
My company gives only nominal raises each year but we get bagels and donuts
once a week.

~~~
komali2
Hah well, I guess that'd be pretty fringe, especially if you're on keto /
don't eat sweets / can't eat gluten or whatever.

------
anonunt
I have nothing against this article.. its all analysis and information.. but
is it just me or does it have very little to do with what we actually think of
when we consider where the benefits have gone?

Where are the numbers on average expected spend, including spending
expectations for disposable income. so that we get a reasonable idea of
someones saving power. and compare this to various income levels. We don't
live in a vacuum and we all have to be living up to the expectations of those
around us.

Also looking at social mobility, security to find a job etc. numbers are
irrelevant freedoms are relevant.

If the poor earn lots more than the rich (in comparison to previous
generations) do these days but rich people living expenses have not gone up
and tax evasion has increased and the spending expectations on the poor have
increased then I would still say the benefits have gone to the rich.

if the poor are still working 40 hour weeks and a few people are becoming so
rich that if they reduced their income to millions per year that they could
reduce average working hours to 30 hours per week i would still be hard pushed
to say that the benefits were not being hoarded by the rich.

I don't know.. there are many ways to look at this but these numbers seem
among the least relevant - like they have absolutely no causal link with the
concerns that people have.

Are there any articles that go attempt to put numbers on some of these vaguer
but more relevant things? i feel like even data with huge error bars could be
very damning - or am i just naive and jealous of my parents :)?

------
JAlexoid
Two issues:

\- Income levels indicate practical income that market is willing to pay,
therefore claiming that unreported income boosts poor people's income is
bogus. Unreported income going into poor peoples pockets will not exceed
median levels. It may shift what is considered median, but I absolutely
disagree that all of that money drastically changes the state of poorer
people.

\- Adding up poorer people gains and saying that their gains are 70%, while
rich people's gain are 33% is also misleading. Wealth transfer and
accumulation is totally ignored by this.

Wages have stagnated is a technically incorrect statement. If you take wealth
accumulation, you'll have to change the tune... Wealthy people become
wealthier, at a rate considerably higher than the average individual.

Just mere tax "optimization" options are way more readily available for rich
people, than to poor people. According to Warren Buffet - his taxes are lower
even in relative terms, than his own secretary's. Which makes an employee's
wage growth of 70% not even close to 33% of a rich person's.

------
peisistratos
If you look at that first report of increased family income, also in the
referenced Pew report it says 59% of sons make as much or more then their
fathers, which means 41% are doing worse. So 4 of every 10 sons does worse
than his father in this time of economic growth.

Two more factors come into play. US working class stagnation started in the
early 1970s and got going in the 1980s. The study starts in 1968, which means
some of the growth pointed to for the children is actually what is kept from
late 1960s and early 1970s growth, not now. If the study had started five
years later, the results would look worse.

Also the politically influenced Boskin commission revised historical inflation
estimates in the mid 1990s, also making things look rosier. If you believe, as
I do, that inflation estimates were correct in 1996 and that Boskin was wrong,
then things look bleaker in that light as well.

Although 4 in 10 sons doing worse than their fathers (from the Pew report _he_
cites) is bleak enough.

------
rukittenme
I'd like to add to this argument.

If Ohio's steel industry grows by 500% who reaps the benefits? Me? The guy
writing code in Portland, Oregon?

No... its pretty clear that a specific subset of people receive the benefits.
The people who own the steel mill. The people who receive employment from the
steel mill. The governments which tax the steel mill. But not me.

Economic growth isn't uniform. Its an uneven field that benefits some and not
others. That's why people move and change jobs. That's why societies abandon
old interests and embrace new interests.

I don't know why anyone should feel entitled to economic growth if they didn't
participate in it in any way.

~~~
rhacker
I think the thing that is at odds with this attitude is that more and more
prevalently "The people who receive employment from the steel mill." don't
actually benefit from 500% growth. Instead they might have 6 additional months
of job security with little to no raises. And that job security isn't a favor
it's because that's the amount of time those workers are needed to get through
whatever contract and not any further. In other words, the absolute maximum
profit the steel mill can make.

And of course your argument is on the side of the people that risked
everything to start a steel mill. So yeah, it's a complex system - but that
doesn't mean we have to shit on everyone else.

~~~
weberc2
It's not "shitting on" anyone; it's how (efficient) economics works. You don't
earn more money unless you're producing more value. If a steel mill increases
its output by way of some new automation, the accounting department and
janitorial staff are unlikely to see a wage increase. The folks on the
assembly line are also unlikely to see a wage increase because they're not
more productive. The people who will be principally rewarded are the people
who developed (including investing) the automation.

In other words, as I understand it, economic rules aren't arbitrary--it's not
like some cabal of mean rich guys is preventing us from flipping the switch
that would make everyone obscenely rich (which is distinct from a cabal of
mean rich guys _interfering_ with an economy to make themselves wealthy at the
expense of the efficiency of the economy).

~~~
eiaoa
> It's not "shitting on" anyone; it's how (efficient) economics works. You
> don't earn more money unless you're producing more value. If a steel mill
> increases its output by way of some new automation, the accounting
> department and janitorial staff are unlikely to see a wage increase. The
> folks on the assembly line are also unlikely to see a wage increase because
> they're not more productive. The people who will be principally rewarded are
> the people who developed (including investing) the automation.

In your example, _all_ the steel mill owners have to do to make more money is
to _passively own_ the steel mill while their employees work to improve it. If
"efficient economics" works by compensating the people who _create value_ ,
why are the passive owners getting most of the compensation? They're not
creating _any_ value. By your logic they probably should get less than the
janitors and assembly line workers, who at least create some value.

~~~
weberc2
Good question! That’s the “investment” part. They risked the funds to create
the value in the first place in exchange for returns on their investment.

~~~
eiaoa
> Good question! That’s the “investment” part. They risked the funds to create
> the value in the first place in exchange for returns on their investment.

That's not really an answer. You're just saying their entitled to the passive
returns from ownership because they owned something else. It's circular.
Anyone could take a risk with the funds if given access to them, even the
janitors and line workers.

~~~
weberc2
Then I'm not sure what answer you're hoping for.

> You're just saying their entitled to the passive returns from ownership
> because they owned something else.

Not sure what you mean here, but I agree that investors are entitled to the
returns stipulated in the investment agreement. Hopefully this isn't a
controversial position.

> Anyone could take a risk with the funds if given access to them, even the
> janitors and line workers.

Yes, janitors and line workers can (and regularly do) invest their finances as
well, frequently for the very company for which they work (although they are
very likely not investing enough to be principal owners, because even very
small companies tend to be very expensive relative to the average salary of a
janitor or line worker).

~~~
eiaoa
> Not sure what you mean here, but I'm saying investors are entitled to the
> returns stipulated in the investment agreement.

You said "...(efficient) economics [means y]ou don't earn more money unless
you're producing more value." However, an owner can be nearly _completely
idle_ yet still profit handsomely, by simply paying others a modest fee to
increase her fortune, so your statement isn't really true.

~~~
weberc2
I think you misunderstand investment. Enterprises are risky; someone has to
lose money when they fail or otherwise lose value. Those people are investors.
Employees can also be investors (e.g., employee owned companies or other
arrangements in which employees buy stock in their companies). By definition,
the people who get returns on investment are the investors. Buying risk (aka
investment) is inherently valuable.

If you think employees should get returns on investment, then you're
necessarily advocating for forcing them to take home less money and risking
the difference on the performance of their company.

The good news is that many employees do invest in their own company or in
other companies, and they're free to choose their investments such that they
can tune the knobs of 'amount' and 'risk' to suit their personal goals.

~~~
eiaoa
> I think you misunderstand investment.

I understand investment, I'm just telling you that your original statement is
wrong. If you're an owner, you don't have to _create_ any value to get paid.
_Mere ownership_ gets owners paid. Sure, they can actively invest if they want
to, and they may be better off for it, but that kind of activity is _strictly
optional_.

~~~
weberc2
> I understand investment

I'm ... not sure you do...

> If you're an owner, you don't have to create any value to get paid. Mere
> ownership gets owners paid. Sure, they can actively invest if they want to,
> and they may be better off for it, but that kind of activity is strictly
> optional.

This isn't true. Owners are investors by definition; owners are the sole
investors in their companies. Like all investors, owners don't "get paid"
unless they sell their shares at a higher price than they bought them. I'm not
sure if you take issue with those definitions or if you're trying to nit-pick
what it means to 'create value', but I'm pretty sure I've simplified this as
much as I can. Good luck.

------
pierrebai
Am I completely mis-reading the report? By following the same people, the
report grossly states that someone's salary tend to go up with age. How
revolutionary! I'm pretty sure the vast majority of people draw better
salaries with teh more experienced they get. This has nothing to do with the
repartition of the increase of the economy.

------
xupybd
>This does not mean that everything is fine in the American economy. There are
special privileges reserved for the rich that help them reduce their risk of
downward mobility — financial bailouts are the most egregious example.

That is such an important thing to note. It's so important to make an even
playing field. Equal opportunities allow people to climb that ladders. The
economy does much better when people are able to take risks,like start
businesses. Also business opportunities open up when the big incumbents fail.
To me, the financial bailouts are the worst thing to happen to the economy in
a long time. Risks were taken by investment companies and they shifted the
burden of those risks not working out on to the tax payer, that is so wrong.

------
imh
This is an important way to look at the data. By looking at individuals over
time, it essentially quantifies social mobility. But then you have to take it
a step further. Does the difference in individuals' mobility over time change
over time? In other words, has social mobility gotten better or worse? Only
then are you comparing apples to apples in pessimism/optimism.

------
namirez
One flaw here, as others have noted, is the number of wage-earners per
household.

But there is even a greater factor: the inflation-adjusted GDP per capita! In
1968 it was $24k; in 2008 it was $50k. Is the author really surprised that a
lot of households make more than their parents?

------
alexnewman
I can only speak of my experience. Adam smith pointed out that the rich will
always dominate the poor, as we are small and we can talk to each other. This
has been my experience as well.

~~~
conanbatt
Sorry, when did he pointed that out? I don't think that is true at all.

In fact, he claims that the worst and most pernicious oppression of the poor
is done by the measures and people that claim to do it in their aid.

~~~
alexnewman
I could point out a few but I’m currently partying. Here’s my favorite and
tell me if it is close enough to convince you “People of the same trade seldom
meet together, even for merriment and diversion, but the conversation ends in
a conspiracy against the public, or in some contrivance to raise prices.”

~~~
conanbatt
He continues to say that any attempt to prevent it would be either ineffective
or cause the monopoly itself. He gives as examples the regulations of “making
a registry with name and address of every tradesman makes it easier for them
to congregate” and “the requirement to make a retirement fund makes
congregation a necessity”. Praphrasing

~~~
alexnewman
He also advocated for free education, free clothing. People want to pain adam
smith as an extremist, but having read him a couple of ties, he'd be
considered a centrist today.

------
jdlyga
We're definitely due for a major shift in our political and economic systems
over the next hundred years. At some point, the inequality and gains going to
the top are going to boil over into something like the European-wide
revolutions of 1848. Back then, much of central europe was still ruled by
absolutist monarchs, with even the wealthiest business owners not having
representation in government. Basically, people were scared of what a kingless
republic is capable of after the reign of terror during the French Revolution.
Within a few decades, and especially after WW1, the entire continent
transformed republics. It's bound to boil over again at some point.

~~~
trophycase
The surveillance-advertising-entertainment complex will likely keep these
forces in check for far longer than you'd expect.

------
mindviews
>Adjusted for inflation, the US economy has more than doubled in real terms
since 1975. How much of that growth has gone to the average person? According
to many economists, the answer is close to zero.

Simple question to ask yourself and anyone you know: would you rather be alive
in your income bracket (inflation adjusted, etc.) today or 30 years ago?

I keep asking this question to people I've met and have yet to have any takers
for the 30 years ago option. Clearly these types of economic measurements are
missing something important. Deflationary technology improvements not being
properly taken into account? Something else?

------
angel_j
Using income, instead of wealth, to argue economic trends, is like using
weather, instead of climate, to argue global warming.

~~~
someguydave
Sure, weather and climate have no relationship and the author is a simpleton.

------
skookumchuck
It's never been easier or cheaper for anyone to invest in the stock market and
capture a share of those gains.

~~~
jimbokun
If you have free cash flow.

~~~
skookumchuck
The US is not divided into two categories - 1% with everything and 99% who
have nothing.

~~~
ionised
No, but it is filled mostly with people living paycheck to paycheck without
any savings.

------
peisistratos
> possible overstatement of inflation

This has been the drum beat for well over two decades. Conservatives revised
CPI and CPI markers to their liking in the mid 1990s with the Boskin
commission. Yet if you look at inflation over the past two decades and see
idle class heirs enriched and the workers creating the wealth stagnant, it's
back to the old inflation-is-overstated argument. I mean, Trump is saying it
this week in criticizing the Fed chair.

An odd counterpart to German conservative bankers, who seem more obsessed with
low inflation and currency stability.

------
gibblz
So the trend disappears when the groups are disaggregated - I'm surprised that
the author does not mention Simpson's Paradox:
[https://en.wikipedia.org/wiki/Simpson%27s_paradox](https://en.wikipedia.org/wiki/Simpson%27s_paradox)

------
irq11
I find it somewhat unsurprising that if you follow _individuals_ over time,
you would see that poor people gain more than rich people on a percentage
basis.

The question is, what percentage of people are gaining? One success story can
significantly affect the mean when you’re starting from a small number.

~~~
xhrpost
Another issue with just using averages and math: say you're looking at the
housing crisis 10 years ago. Math says that the middle class actually had a
net gain in wealth because when your house gets foreclosed on, you no longer
have all that debt. 2006 -> buy $200k house with $190k mortgage. 2008 -> House
worth $130k, still owe $175k. So net worth is -$45k. (This is not yet
accounting for toxic assets in which you could assume the house not to be
sellable and the owner thus a full $175k in debt). Owner defaults, net worth
is now $0. A mathematical net worth increase of $45k, even though most people
would agree this is a bad thing.

~~~
wahern
A home mortgage is secured by the home and is usually non-recourse. Your
personal net worth can never go negative because of the mortgage liability.
It's all upside as far as the homeowner is concerned, or at least loss is
limited to your initial down payment. The price for this is the interest rate
you pay, which has factored into it a risk premium; and if you don't make the
industry standard 20% down payment you literally pay for additional mortgage
insurance.

A secured, non-recourse loan is _not_ a personal liability. In terms of
accounting, it's its own thing, like a limited liability company. That's how
you need to think of it. For better or worse there's no place in a cut-throat
capitalist society for people who can't wrap their heads around that.

------
abvdasker
This study is laughable given that dual-earner households are now the norm.

~~~
conanbatt
The author mentions in the comments that dual-earner households went down in
comparison to 1978~

------
std_throwawayay
We have to share our resources with an increasingly larger proportion of a
growing humanity and nobody can do anything about it. We just don't want to
hear or see the facts until it's already a fact of the past.

------
Floegipoky
Tl;dr: Wealthy and poor cohorts are not necessarily stable over time,
generational boundaries in particular seem to be a relatively strong predictor
of change. However people who are now poor are just as poor as the poor of the
70s, while those who are now extremely wealthy are even more extremely wealthy
than the rich of the 70s.

~~~
metalchianti
I bet that compound earnings are the main contributor here. It's much easier
to save more money because you're wealthy and have more money. Across
generations this effect is massive.

~~~
marricks
That will certainly be compounded by the demise of the estate tax. That said
it’s not like intergenerational wealth is a new thing, wouldn’t that be the
case way before the 70s?

It seems the trickle down economics approach taken since the 70s from both
Democrats and Republicans hasn’t really helped anyone but the rich.

~~~
metalchianti
The same inter-generational wealth logic would apply pre-1970s.

I think that 1970 is used as a starting point because that's also when real
wages started dropping relative to production output.

I'm don't think it's fair to blame US politics. I bet this is a universal
phenomenon.

~~~
marricks
Your argument is wealthy inequality has been rising universally since the
birth of the USA?

It’s not hard to find a chart and it was OK and exploded since the 70s,
perhaps coincidentally with trickle down economics and neoliberalism.

[https://static-
ssl.businessinsider.com/image/54610db56da8113...](https://static-
ssl.businessinsider.com/image/54610db56da811360c3cf8af-960-720/the-swings-in-
inequality-over-the-twentieth-century-are-even-more-dramatic-when-looking-at-
wealth-rather-than-income.jpg)

------
yuhong
This is one of the reason I dislike the current debt-based economy that relies
on extracting more dollars from "consumers".

------
dreamdu5t
TLDR Not so simple.

First, purchasing power is not considered. If wages are stagnant, but most
consumer goods have gotten cheaper, then the bottom 50% with stagnant wages is
capturing productivity gains.

Second, there’s no account for economic mobility. Wages for the bottom 50% are
stagnant but most people don’t stay the same income all their life. There’s no
account of economic mobility.

From the article: “As in the other panel studies, when you follow the same
people, the biggest gains go to the poorest people. “

~~~
rfugger
If wages are stagnant with respect to the consumer price index, they are not
capturing productivity gains, because the CPI accounts for lower prices on
goods.

~~~
michaelmrose
While health insurance captures an increasing share of the stagnant income.

------
perkee
> And some studies include the elderly which lowers measured progress because
> the elderly are an increasing share of the population and they are less
> likely to be working full-time if at all

Should probably just burn them for fuel, right?

> And many of the most pessimistic studies about the fate of the American
> middle class ignore the fall in marriage and the increase in divorce since
> the 1970s and the effects that demographic change has had on the way we
> measure changes in household income

The right wing culture warrior says that if people got and stayed married
they'd be better off. The left wing materialist says that if people were
better off they'd be getting married more and staying together longer. Which
is more likely: every young person got brain worms at the same time that made
them want to not do monogamy/family things, or the stratum of society that has
always tried to capture as much of its productivity as possible has made gains
in its project?

As to the rest of it: I don't particularly care if the same exact individuals
have effected a greater capture of the economic output of this country, I do
care that as a whole the top Xtile captures a larger slice. That does, in
fact, matter materially to me even though I'm imminently comfortable. I'll
leave it to the real stats nerds to punch holes in the math.

