How Accurately Do Income and Wealth Statistics Reflect Reality?

[mheslep]

Bad meaning that it's in decline.
...

If it is.

Our results, which pertain to the cohorts born between 1952 and 1975, do not reveal major changes in intergenerational mobility...

this paper shows that the transmission of high-income status significantly increased while the transmission of low-income status remained stable. These results suggest that it has now become easier for high-income sons to maintain their economically advantaged status than in the past. In contrast, low-income sons’ chances of escaping from their economic disadvantage have not increased to the same exten...

I find no evidence of a linear trend in the intergenerational elasticity of family income for those born into the Panel Study of Income Dynamics between 1952 and 1975 and observed as adults between 1977 and 2000...

We find that mobility increased from 1950 to 1980 but has declined sharply since 1980. ... Our preferred results suggest that earnings are regressing to the mean more slowly now than at any time since World War II, causing economic differences between families to become more persistent...

 

[Dale]

That is circular reasoning. What is your argument against fairness?

Arguments against fairness:
1) Factual: life is not fair
2) Ambiguity: there is no agreed upon objective standard of fairness
3) Motivational: concerns over fairness drain effort from productive activities
4) Moral: fairness is used as a moral justification for otherwise immoral acts
5) Maturity: fairness is a key focus of immature individuals

 

[chiro]

Arguments against fairness:
1) Factual: life is not fair
2) Ambiguity: there is no agreed upon objective standard of fairness
3) Motivational: concerns over fairness drain effort from productive activities
4) Moral: fairness is used as a moral justification for otherwise immoral acts
5) Maturity: fairness is a key focus of immature individuals

Ironically fairness is meant to be something that everyone can agree on, but this currently isn't the case so what people think fair is isn't fair at all since the definition is meant to be uniform, but in reality is riddled with so many exceptions.

When most people say life isn't fair, what they are really saying is that its not "fair for them" as opposed to "fair for everything".

 

[Astronuc]

Incomes Flat in Recovery, but Not for the 1%
http://www.nytimes.com/2013/02/16/b...ins-after-recession-went-mostly-to-top-1.html

. . . .
The numbers, produced by Emmanuel Saez, an economist at the University of California, Berkeley, show overall income growing by just 1.7 percent over the period. But there was a wide gap between the top 1 percent, whose earnings rose by 11.2 percent, and the other 99 percent, whose earnings declined by 0.4 percent.
. . . .
Excluding earnings from investment gains, the top 10 percent of earners took 46.5 percent of all income in 2011, the highest proportion since 1917, Mr. Saez said, citing a large body of work on earnings distribution over the last century that he has produced with the economist Thomas Piketty of the Paris School of Economics.
. . . .
After accounting for inflation, median family income has declined over the last two years. In 2011, it stagnated for the poorest and dropped for those in the middle of the income distribution, census data show. Median household income, which was $50,054 in 2011, is about 9 percent lower than it was in 1999, after accounting for inflation.
. . . .

 

[mheslep]

Incomes Flat in Recovery, but Not for the 1%

Given the 1% statistical bracket took the biggest losses in the financial crises, I think it make sense that group sees a larger bounce.

 

[russ_watters]

... the 1% statistical bracket took the biggest losses...

Just once, I'd like to see a news or scholarly article with that in the title! I guess it isn't popular to highlight that side of the coin.

 

[Tosh5457]

Those 3 points in the initial post are all true, but it's also true that US Gini coefficient is bad in regards to other developed countries. Though it also has to do with US population not being as homogeneous as other countries, not just policies. But I won't talk about this because I'd probably get banned given the warnings I got from talking about the role of race in society.
And it's also true that US economic mobility is bad comparing to other developed countries
And wow, 7% of the population are illegal immigrants... I'm perplexed how there are people in US who still oppose more border control, I guess they don't know the definition of illegal and what a country is.

 

[Vanadium 50]

Incomes Flat in Recovery, but Not for the 1%
http://www.nytimes.com/2013/02/16/b...ins-after-recession-went-mostly-to-top-1.html

I find the reporting very misleading (and Ann Lowrey knows better than this) The data makes it clear that the "top 1%" is not following a single cohort, as Lowrey implies, but is a different set of people every year. According to the US Treasury, who compared 1996 and 2005 tax filers, more than half of the top 1% in 1996 were not in the top 1% in 2005.

The mobility of the top 1 percent of the income distribution is also important. More than half (57.4 percent = 100 – 42.6) of the top 1 percent of households in 1996 had dropped to a lower income group by 2005. This statistic illustrates that the top income groups as measured by a single year of income (i.e., cross-sectional analysis) often include a large share of individuals or households whose income is only temporarily high. Put differently, more than half of the households in the top 1 percent in 2005 were not there nine years earlier. Thus, while the share of income of the top 1 per cent is higher than in prior years, it is not a fixed group of households receiving this larger share of income. As suggested by the Schumpeter hotel analogy, many of the more luxurious rooms are occupied by different people at different times.

Those 3 points in the initial post are all true, but it's also true that US Gini coefficient is bad in regards to other developed countries

Why is a low Gini coefficient "good" and a high one "bad"?

Imagine 20 people in a bar, each with $10 in their pocket. The Gini coefficient is zero. In walks a man with $3000, who proceeds to give each man $100. If I did the math right, the Gini coefficient is now 0.28. I would find it difficult to argue that the men are now worse off.

 

[russ_watters]

Those 3 points in the initial post are all true, but it's also true that US Gini coefficient is bad in regards to other developed countries.

That's a value judgement that Gini measures something bad. That's an opinion and not everyone agrees with that.

 

[Tosh5457]

Imagine 20 people in a bar, each with $10 in their pocket. The Gini coefficient is zero. In walks a man with $3000, who proceeds to give each man $100. If I did the math right, the Gini coefficient is now 0.28. I would find it difficult to argue that the men are now worse off

Of course you can't analyze GINI index alone, it only measures income inequality, not total income. For 2 countries with the same wealth/capita (measured by GDP/capita for example), if one has less income inequality than the other, there is a larger % of the population of that country that is better off than in the other. That's because above a level of income you don't really get better off than you were, at the very least your well-being doesn't increase nearly as fast as people with low incomes who get higher incomes, for the same % variation of income. That's why IMO a high income inequality is bad.

 

[russ_watters]

Of course you can't analyze GINI index alone, it only measures income inequality, not total income. For 2 countries with the same wealth/capita (measured by GDP/capita for example), if one has less income inequality than the other, there is a larger % of the population of that country that is better off than in the other. That's because above a level of income you don't really get better off than you were, at the very least your well-being doesn't increase nearly as fast as people with low incomes who get higher incomes, for the same % variation of income. That's why IMO a high income inequality is bad.

Typically when GINI is cited, it is cited alone and that's the main problem with its use. Liberals and conservatives tend believe different relationships exist between GINI and per capita income:

-Liberals tend to believe there is no relationship between GINI and per capita income. Hence, the naked citation of GINI.
-Conservatives tend to believe there is a positive - if weak - correlation between GINI and per capita income. Hence, high GINI may actually be reflective of a positive economic situation.

Moreover, economic conservatives tend to value freedom over forced equality, so whether a correlation exists or not is often irrelevant in policy preferences.

 

[mheslep]

...
And it's also true that US economic mobility is bad comparing to other developed countries
And wow, 7% of the population are illegal immigrants... I'm perplexed how there are people in US who still oppose more border control, I guess they don't know the definition of illegal and what a country is.

Arg. Not even the NYT or the reports they point to say that such is "true". They instead point to a report and say things like "studies in recent years have found", some of it conflicting. One fact likely to confuse the issue is indeed uncontrolled immigration, of which Canada (ref'd in the NYT) and the US do not have an equal share. That point was made in post #1:

2. Demographics matters. ...

Additionally, there has been an increase in the number of illegal immigrants to the US. Illegal immigrants make up about 7% of the population (according to the Bear Stearns remittances study), up from about 1.5% fifteen years ago. Today this group makes up a large chunk of the bottom decile in both wealth and income; that was much less true in the past. Any study needs to clearly state how this was treated for it to be interpreted.

This NYT was discussed before in this thread; I referenced it back in #66.

 

[mheslep]

(and Ann Lowrey knows better than this) ...

Why must that be? I doubt her bond to former organizer extraordinaire of the opinions of journalists, (journolist) Ezra Klein helps with objectivity.

 

[Vanadium 50]

I'm afraid Gini is an envy index, nothing more. Country-by-country the number of people in poverty is uncorrelated with Gini. Country-by-country, the 2nd, 3rd, 4th and 5th quartiles are negatively correlated with Gini, and the bottom half of the 1st quartile is fairly flat. So what this is actually telling us is that the top 10% drives that index, effectively erasing any information on poverty or the middle class.

There is actually a fairly strong correlation between Gini and per-capita income, but countries fall on three different bands: one for Africa, one for the Former Soviet Union, and one for everybody else. In light of the first point, I am not sure what this actually tells you, but it is interesting.

 

[Vanadium 50]

I discovered this plot while looking for something else. The internet is an amazing thing.

First, as a plot I think this does an outstanding job of presenting information.

Second, it shows very clearly that wealth and income are two different things. If they were good proxies for each other, this would be a straight line. That's not what we see.

It appears to me that there are two large populations. At the lower left, wealth is a function of income (and of the time you have had to collect it). At the upper right, income is a function of wealth. (Typically a few percent, and highly variable)

 

[Dale]

At the upper right, income is a function of wealth. (Typically a few percent, and highly variable)

There is very little systematic shading for age in that region.

 

[Vanadium 50]

I noticed that too. I think that's also an argument for that being a different population, and one where income comes from wealth, not the reverse.

 

[russ_watters]

I discovered this plot while looking for something else. The internet is an amazing thing.

Do you have a source for the actual data? Because I'd be interested in zooming-in a bit, to incomes between 10K and a million, and/which would show net worth under ten million. The verticality of that section is interesting, but it isn't super clear how age is a better correlation with wealth than income is in that presentation. It's an important issue, and I don't think most people get it -- and I'm not sure this graphic as it is presented shows it clearly enough.

Also; blue on blue on blue? I mean, I'm not color-blind, but still that's tough to read.

 

[Vanadium 50]

It comes ultimately from here https://www.federalreserve.gov/econres/scfindex.htm Unfortunately, it's in Excel format not well arranged to reproduce this graph.

 

[russ_watters]

At the upper right, income is a function of wealth. (Typically a few percent, and highly variable)

There is very little systematic shading for age in that region.

I noticed that too. I think that's also an argument for that being a different population, and one where income comes from wealth, not the reverse.

It's really hard to read the blue-and-blue color scheme. However, given that the top 5% of incomes starts at $250K, that seems like a good cutoff: you can save $5 million for retirement on a <$250k middle class income, but you can't earn >$250k on a $5 million middle class retirement savings (ehh - it's right on the edge).

I think I may have just devised a workable definition of "rich". It's an income that enables a retirement income greater than your mid-career income.

[edit] This seems like a logical formula for "retirement", so it is feeling less profound the longer I think about it...

 

[Vanadium 50]

I like the blue-on-blue. More precisely, I like using shade as opposed to chrome to convey the information. Too often I have had to ask myself "is orange bigger than green?" or worse "is orange bluer than green?"

I think this plot tells you a lot about who is in good shape for retirement and who is not. It also shows that while there clearly are some retirees in trouble, the majority are not, and that meshes with my day to day experiences.

I think I may have just devised a workable definition of "rich".

I think this shows a pretty clear distinction between "rich" and "everybody else' - are you in the top right or the bottom left population. This is nothing new - it goes back to "living off the interest of the interest of the interest".

It also shows data in regions where I would not expect data. There are people who make $200,000/year with a net worth of a few thousand. How does that happen? There are people who made a million dollars the year before and only have a million dollars now. How does that happen? I'll bet there are a half-dozen PhD theses buried in this data.

 

[Mark44]

There are people who make $200,000/year with a net worth of a few thousand. How does that happen?

They live and work in, say, Silcon Valley, and pay huge rents or house payments, and maybe a $100K or better school loan. Add a monthly payment for a Tesla, and lay out a bunch of your paycheck on "needed" items -- that'll do it.

 

[Vanadium 50]

While I love to hate on the $7 soy latte drinking Silicon Valley millenials, I don't think that is entirely it.

If it's driven by debt, why isn't there a point on the bottom of the graph for $200,000/year income? Someone with an income of $200K and a net worth of around $2K has a net worth of ~2 working days income. Already that's an amazing fact, but if we blame it on debt, how come we don't see someone with a net worth of less than 2 working days?

 

[Greg Bernhardt]

They live and work in, say, Silcon Valley, and pay huge rents or house payments, and maybe a $100K or better school loan. Add a monthly payment for a Tesla, and lay out a bunch of your paycheck on "needed" items -- that'll do it.

It doesn't even take living in a classic high cost of living city. Here in Milwaukee I have a few friends with $100k+ tech jobs that I am sure are living paycheck to paycheck because they eat out every day, hit the clubs every weekend and drive a Mercedes etc. Having a lot of debt and not saving is really not uncommon for my demographic from what I see.

 

[Bystander]

how come we don't see someone with a net worth of less than 2 working days?

There's only one quadrant on the graph? I'm not sure what the other three mean/represent in the "real world," trust-fund babies (the y-axis on the graph), welfare queens/kings, bums; nor do I have any clue what negative logs of negative numbers might mean.

 

[Vanadium 50]

Because it's log-log, I presume the data points on the axes are zero or negative.

It's also probably only two quadrants. While it's possible to have a negative net worth, it's harder to have a negative income. Usually we would call that an expense.

 

[WWGD]

It doesn't even take living in a classic high cost of living city. Here in Milwaukee I have a few friends with $100k+ tech jobs that I am sure are living paycheck to paycheck because they eat out every day, hit the clubs every weekend and drive a Mercedes etc. Having a lot of debt and not saving is really not uncommon for my demographic from what I see.

I believe it has to see with an overall lack of trust Millennials have on the future ( whether well-founded or not). Live and enjoy now, no telling if you will be able to 20+ years from now.

 

[Bystander]

"America's middle class is addicted to a new kind of credit." Headline in/on MSN Money; almost curious enough based on this discussion to subscribe...but, not quite.

 

[DrClaude]

"America's middle class is addicted to a new kind of credit." Headline in/on MSN Money; almost curious enough based on this discussion to subscribe...but, not quite.

I got free access here:
https://www.bloomberg.com/news/arti...lass-is-getting-hooked-on-debt-with-100-rates

 

[russ_watters]

They live and work in, say, Silcon Valley, and pay huge rents or house payments, and maybe a $100K or better school loan. Add a monthly payment for a Tesla, and lay out a bunch of your paycheck on "needed" items -- that'll do it.

While I love to hate on the $7 soy latte drinking Silicon Valley millenials, I don't think that is entirely it.

If it's driven by debt, why isn't there a point on the bottom of the graph for $200,000/year income? Someone with an income of $200K and a net worth of around $2K has a net worth of ~2 working days income. Already that's an amazing fact, but if we blame it on debt, how come we don't see someone with a net worth of less than 2 working days?

It doesn't even take living in a classic high cost of living city. Here in Milwaukee I have a few friends with $100k+ tech jobs that I am sure are living paycheck to paycheck because they eat out every day, hit the clubs every weekend and drive a Mercedes etc. Having a lot of debt and not saving is really not uncommon for my demographic from what I see.

Yeah, some many people are just genetically incapable of living within their means. I can see $100k, with a family to support, in San Fran being a struggle, but at $200k they should be able to make it work anywhere.

 

[Bystander]

but at $200k they should be able to make it work anywhere.

"Instant gratification" is the new American dream rather than the old which was "land of opportunity."

 

[jtbell]

Having a lot of debt and not saving is really not uncommon for my demographic from what I see.

I believe it has to see with an overall lack of trust Millennials have on the future ( whether well-founded or not). Live and enjoy now, no telling if you will be able to 20+ years from now.

Take it from this old geezer, there have always been people who didn’t save much money even if they had the resources to do it, and ended up living off Social Security and/or a pension. Probably even more common back in the days when pensions were more common.

 

[jtbell]

By chance, before I saw this re-awakened thread today, I happened to be reading a news article which made me wonder where we stood in terms of percentile of net worth. A Google search led me to these calculators.

First, one that gives the household net worth percentile relative to the entire US population:
https://dqydj.com/net-worth-percentile-calculator-united-states/
Second, one that gives the percentile relative to a specified age group:
https://dqydj.com/net-worth-by-age-calculator-united-states/
The site also has similar calculators for household income.

 

[Vanadium 50]

I can see $100k, with a family to support, in San Fran being a struggle, but at $200k they should be able to make it work anywhere.

Let's say your techie hipster spends 36% of his income on housing. That's a mortgage of $1.26M, close to the median house price. Remove that from his income and replace it with $1100/month, close to the national median. (Charlote, NC is around there) and you still get $141,000. That's 3.5x the median income and the 93rd percentile according to jtbell's calculator. How can this not be enough?