A little message for Richard Murphy

Richard,

If you\’re going to try and play in the sandpit of economic statistics please do try to understand that little sandpit of economic statistics.

Now, yes, I agree that here you\’ve taken the word of a Nobel Laureate in economics. However, I would suggest that when you do take such word you take his word when he\’s being an economist, not when he\’s being a political shill shouting for his tribe.

Here is Paul Krugman (for it is of course he) being an economist:

The question here is not why Lind got these numbers wrong. It takes considerable experience to know where to look and what to worry about in economic statistics, and one should not expect someone who does not work in the field to be able to get it right without some guidance. The question is, instead, why Mr. Lind felt that it was a good idea to make sweeping pronouncements about this subject, when he clearly was unwilling to invest time and energy in actually understanding it. The short answer in this case is surely that Mr. Lind, who is always looking for ways to enhance his enfant terrible status, saw this as a perfect opportunity. Free trade is a sacred cow of economists, who are well-known to be boring, stuffy types; what could be a better way to reinforce one\’s credentials as a radical, innovative thinker than to skewer their most beloved doctrine? (It seems not to have occurred to him that there might be a reason other than ideological rigidity that the striking fact he thought he knew has not been noticed by economists).

So if I might offer that guidance to economic statistics which is so sorely needed?

One of the known problems with comparing US household income over time is that the size of the household has changed and the Census numbers do not adjust for this. Fewer children, more divorce, more single adult households (through divorce, single parenthood and so on). So over decades unadjusted household income is a very bad guide to  how people are doing: which is of course the thing we\’re interested in, how people are doing.

Those numbers for the changes in household size are here.

You will see that throughout the 1950s and 60s, household size stayed just about static. 3.37, 3.20, varying in that range. So whatever the increase in income per capita was would be almost exactly the same as whatever the increase in household income was.

However, from 1970 or so to today we\’ve seen a quite large shrinking of average household size, down to 2.56 (in 2002 note). That\’s a roughly 20% shrinkage in household size: and that 20% must therefore be a guide to how widely there has been a divergence between individual incomes (which of course is what we are interested in) and household incomes.

Another way we can put this is that we should upgrade latter household incomes by 20% in order to take account of the falling household size. This isn\’t really very accurate but it\’s useful enough as a rule of thumb.

That would put 2007 household incomes at about $78,000….and thus the slowing down of the growth in them pretty much disappears from the whole calculation.

Now, that Professor Krugman knows all of this and doesn\’t make the adjustment tells us simply that he\’s not being an economist there, he\’s being a tribally political hack. But then we knew that about Professor Krugman anyway, he is both an excellent economist and also a………

So, as I say, might I proffer a little advice? If you wish to be taken seriously as an interpreter of economic statistics, that you go and learn about those economic statistics, so that you know what they mean, what they show and do not show, the already known problems with them?

And a piece of more specific advice: when taking the word of Professor Krugman, take his word on one of the days he\’s being an economist for on those days he really is one of the world\’s finest. It\’s just that he\’s not so every day.