Sad to see a Nobel Laureate mangling the numbers so:
With median household income already down some 4pc from 2000,
Now on the headline number of course he\’s correct. That is the published number. But we rather expect the giants of the economic world to tell us the truth, not simply repeat the government number.
There are three problems with this number.
1) Starting and finishing dates. 99/00 was the peak of the previous boom. 09 is of course the depths of the Great Recession. This is what is known in technical circles as \”being naughty\”. Peak to peak of trough to trough is fair enough but not peak to trough.
2) \”Income\”. The US definition is the cash income of the household. It does not account for benefits in kind. In most countries this isn\’t all that much of a problem. However, in the US, the vast majority of households get their health insurance as part of the compensation for their work. Thus \”household compensation\” is a better measure than \”household income\” in that country. And as you may have noted there\’s a certain sense over there that health care insurance costs have been rising faster than general inflation, faster than even income.Some figures I\’ve seen indicate that these costs have been rising by as much as 8% a year. And if health insurance comes to you as part of the compensation for your job then your compensation for your job has, in that part of it at least, has been growing at 8% a year (please note, this has nothing at all to do with whether other health care systems might be better or cheaper).
We can go a little further as well. Average health insurance costs in a high cost state can be around $20,000 for a family of four. Median household income is $52 k for the country (those high cost states tend to be those with higher incomes but it\’s also true that median household size is less than 4 people. So this is entirely indicative of the idea, not an actual calculation of compensation rises). So health insurance is some 40% of total household compensation but not of income, the way the Americans measure it.
8% growth over a decade doubles the sum. So that rise in compensation is really rather large (I would say that I\’ll leave this as an exercise for the reader as to how much but the truth is that this Sunday morning I can\’t quite bend my mind to working it out correctly).
3) Household size. The median household size has been falling since the creation of the Republic. It\’s gone from 5.9 to 2.4 (those are from memory, sorry) over the couple of centuries. Yes, there\’s a bit of it that has happened in hte last decade and, again from memory, it\’s not been a straight line decline, it\’s been accelerating in recent decades.
The point of all of this being that yes, it is true that median household income has fallen over the past nine years. But median compensation per head (the number we\’re truly interested in) has not. Which is why it\’s terribly misleading to use the median household income number as a measure of how well things are going.
Tsk Mr. Stiglitz, Tsk.
There’s a job waiting for him at the IPCC!