February 27, 2008

THIS makes me so mad!

As unbelievable as it sounds, there are some really stupid people working at the Dallas Fed, namely W. Michael Cox and Richard Alm. Well, maybe calling them stupid is too harsh. They are more like idiot savants, so narrowly focused on one piece of data that they ignore the fact that their research is largely pointless.

Cox and Alm hypothesized that the gap between rich and poor isn't that large in terms of of per person consumption. And they've proved it!

Richer households are larger – an average of 3.1 people in the top fifth, compared with 2.5 people in the middle fifth and 1.7 in the bottom fifth. If we look at consumption per person, the difference between the richest and poorest households falls to just 2.1 to 1. The average person in the middle fifth consumes just 29 percent more than someone living in a bottom-fifth household.

To understand why consumption is a better guideline of economic prosperity than income, it helps to consider how our lives have changed. Nearly all American families now have refrigerators, stoves, color TVs, telephones and radios. Air-conditioners, cars, VCRs or DVD players, microwave ovens, washing machines, clothes dryers and cellphones have reached more than 80 percent of households.

They do acknowledge that the gap in income is 15 to 1. They also acknowledge that people in the lowest fifth of wage earners (also known as more than 30% of this country) are basically living on double what they earn. They explain this a number of ways...the poor are selling assets (because everyone knows that the poor are very asset rich), cashing in insurance policies (because everyone knows the poor are loaded in terms of fully vested insurance policies) and living off their savings (because everyone... you get the gist, right? On this one though, I have to ask these two idiots, When, exactly, were the poor supposed to build up positive balances in their bank accounts while spending more than they make?).

Ok, so I lied. These are two of the DUMBEST economists on the face of the planet. Seriously, they lump in here the working poor, retirees and people who are taking time off from work (or are between jobs). Now those people do have disposable savings and non-taxable sources of income. However, even these folks aren't living on 9k per year. But, let's think in terms of averaging. What do you do about the massive number of people in this group who are making the average or less and have nothing to fall back on? Obviously, they aren't living beyond their means. What is THEIR level of consumption? These two brill economists make no attempt to even consider that. Nor do they even bother to analyze the fact that at a certain level of consumption, income becomes largely irrelevant. Which is the most interesting bit of data that can be used to refute the claims of certain 'conservatives' who think if you pay the poor an actual living wage all they'll do is spend every dime. This data supports the progressive idea... the poor would actually build savings just like those in the middle fifth and above income groups if they actually made enough TO SAVE.

This data could have been very useful in terms of talking about wage inequality and the need for living wages. Instead, the two economists from the Dallas Fed choose to make it all about buying stuff. Nice work, guys.

For another excellent counterpoint, click here.

Posted by mcblogger at February 27, 2008 03:15 PM

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