Arnold Kling  

Fighting With Numbers

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Tyler Cowen writes,


Here is coverage from Arnold Kling, though I think he (like some MR commentators) is spending too much time on impressions and not considering (at all) the numbers presented in chapter one.

The numbers do not tell an unambiguous story. The productivity number says that we have done well, and the median household income number says we have not done well. If Cowen thinks he has demonstrated that the productivity number is dodgy but the household income number is not, then I have to say that I disagree.

There are plenty of other numbers to throw into the mix. People are retiring earlier and living longer. That is a good thing, but my guess is that it depresses median household income.

I don't think that we are going to be able to determine the validity of the stagnation hypothesis any time soon. Same with the Recalculation Story. I give the Recalculation Story a somewhat better chance of panning out, though. Most past predictions of long-term stagnation have not fared well. We may not be as wealthy as it appeared we would be in 1999, but my guess is that we are nowhere near as poor as we appeared to be in 2009.


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TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/4567
The author at Eli Dourado in a related article titled Winning the Stagnant Future writes:
    I’m tempted to do a serious review of Tyler’s book, but I’m happy to outsource most of my comments to Arnold Kling. Instead, I’ll just make one brief point about the validity of the various numbers used to justify claims of stag... [Tracked on January 27, 2011 3:01 PM]
COMMENTS (13 to date)
Noah Yetter writes:

I don't think that we are going to be able to determine the validity of the stagnation hypothesis any time soon.

Certainly not using Median Household Income figures. It simply doesn't measure what most people claim it does, including educated commentators who should know better.

Elvin writes:

Tyler morphs into Tyrone more each day.

Tyler Cowen writes:

Keep in mind, that even if one accepts the productivity numbers (and I don't; see chapter two), they don't measure the *median*, or the living standard of the typical household. They don't contradict the median numbers at all. And most researchers in the field use the numbers which I cite and use myself.

Pat writes:

I'm immediately skeptical of anything referencing household income. It's the go-to stat for saying that things are getting worse when it's really that households are different now. Did Cowen control for the changing makeup of households?

If everyone lived with their parents until they were 30, things would look great.

Lord writes:

People are retiring earlier and living longer. That is a good thing, but my guess is that it depresses median household income.

So, all those women entering the workforce was a bad thing but failed to raise median household income?

fundamentalist writes:

I've never seen a major dispute settled with numbers, regressions or any of the empirical methods.

RD writes:

Income statistics are often badly abused when making intertemporal comparisons, in part because a significant chunk of the returns to labor in recent years are in the form of benefits, such as employer-paid health insurance (which itself is due to tax laws). It is harder to do, but median consumption statistics are a better guage of individual welfare.

Ted Craig writes:

Don't forget that while people are working, they are opting for jobs that are more fun. STEM enrollment has declined in most categories since 1970. Fun tends to pay less.

Silas Barta writes:

I like how Tyler_Cowen's thesis has to regard the entire internet aspect of the economy as an anomolous outlier (indeed, "magic") to a solid trend he's identified.

But I guess it doesn't matter as long as you have famous bloggers cooing over their free review copies that they don't mention were free and given long in advance of the rest of the unwashed masses.

Daublin writes:

"I don't think that we are going to be able to determine the validity of the stagnation hypothesis any time soon. Same with the Recalculation Story"

I'm surprised you are so charitable to Tyler's stagnation hypothesis. Even if you *only* include the Internet, today's people are way, way better off. I find it a shining example of someone who has mired themselves in politics babble and has completely lost touch.

Anton writes:

The stagnation hypothesis is indeed difficult to follow. For example, what if instead of taking medium income per capita for the whole population we take medium income per capita for the working population? By that measure there is no stagnation at all as the labor force has substantially shrank as a percentage of the population. You can argue whether that is structural and whether that is positive (as in intentional - for example in the case when consumers becoming producers as well ala Alvin Toffler's characters). But one thing is for sure medium incomes have not risen as fast as GDP - the economic gains have mostly been concentrated to the top of society - Robert Reich has written extensively about it in his latest book and just recently in articles in both the NY Times and the FT. Btw, to test whether the stagnation hypothesis is valid Japan offers tons of relevant data given the widely accepted belief that they have lost now two decades of growth - and the (my) conclusion is that that is hardly the case...

JBrazier writes:

If the goal is to determine whether or not income growth is stagnating, it would make much more sense to look at the total compensation per employed worker (pay+benefits)over time.

As others have mentioned, the composition of households has changed dramatically since the early 70's. Moreover, the changes in what constitutes an average household have varied across income quintiles.

MernaMoose writes:

I don't think that we are going to be able to determine the validity of the stagnation hypothesis any time soon.

Do we even have a definition of what this "stagnation" is, that is supposedly crashing down upon us?

I'd take stagnation to mean "still", "nothing happening", "nothing changing", "no progress", or something like that. End of the story necessarily being, that we're either no better off than decades ago and possibly worse off due to population growth. Or something like that.

But maybe, common sense is all we need to cut through this veritable (but I believe quite tiny) fog bank that has imposed itself upon us?

Whatever has been going on since 1970, it hasn't been "stagnation" by any definition that I've heard of. But then, I was in grade school learning English in 1970 and perhaps the English language has changed since then.

People may have had automobiles in 1950, but compare the 1950 experience (no power steering, no power brakes, probably no A/C, and an AM radio only) to today's experience (power everything including substantially safer braking systems, auto climate control, AM/FM/XM radio plus CD and mp3 players, backup cameras with night vision in some models, GPS and soon, an IP address, etc etc etc). Today's car tires are perhaps an order of magnitude better than what you could buy in 1950.

That's before we consider the higher reliability and greater number of miles that you can expect a given auto to go on average.

Automobiles are not the only thing in life where we could tell this kind of story. We have, by far, better materials available to us today for most things we'd want to build. We have, by far, faster and cheaper fabrication methods available to us today.

How much more do I have to add to this list before the point is made, and we all realize that we've exited The Tiniest Fog Bank In the World?


If Tyler would rather have lived in 1950 he's welcome to it. I don't expect many people will be stepping into the Back in Time machine with him. Maybe not even Tyler himself.

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