Arnold Kling  

David Henderson's Persuasive Case

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Me and the Return to Education... Over-Grazing...

In his book review, Henderson writes,


whatever explanation Cowen comes up with for the slower growth of median family income since 1973 should be one that is consistent with the relatively healthy growth of per capita GDP since 1973. Do his explanations do that?

It is certainly legitimate to prefer median family income as a measure of well-being. However, Henderson is correct to point out that the better performance of per capita GDP is a fact that cannot be overlooked as you to try to explain median family income.

If we have run out of low-hanging fruit (cheap land, technological innovation, better education), then that should affect both per capita GDP and median family income. If you want to say that those factors caused median family income to fall, then you are left with a task of explaining how per capita GDP growth managed to hold its own.

Taking account of the two measures of economic performance, the Great Stagnation becomes the Great Redistribution. It is far from obvious how the low-hanging-fruit story plays into redistribution.

Instead, the most plausible candidates that spring to my mind are immigration, changes in family structure, and changes in marriage patterns. And, contra Cowen, I believe that faster innovation played a role, also.


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COMMENTS (8 to date)
Vangel writes:

If we have run out of low-hanging fruit (cheap land, technological innovation, better education), then that should affect both per capita GDP and median family income. If you want to say that those factors caused median family income to fall, then you are left with a task of explaining how per capita GDP growth managed to hold its own.

One explanation is that it did not hold its own; that GDP growth is a product of statistical methodology rather than reality. GDP is what the BLS claims it is, not some valid number that can be verified independently.

effem writes:

perhaps if the fruit isn't quite so low-hanging only a small portion of the population can reach it. or perhaps zero-sum activities became the low hanging fruit and certain industries grabbed it to the detriment of others.

my gut tells me that the stakes got higher but harder to reach for most.

Craig writes:

Doesn't Cowen argue that GDP is likely overstated because government spending is valued at cost but is producing benefits well below cost?

Mr Econotarian writes:

1) Real compensation per hour has tracked well with productivity gains. The most productive people are seeing more money in non-salary benefits, such as health insurance costs.

2) On the bottom end, about half of families in poverty can be explained by working too few hours. It is unclear to me if this is due to the challenges of single-parent child care (combined with the cost of child care regulations), or simply the effect of the minimum wage reducing the ability of the least productive to get full-time work.

I would add the opening up of China and freer trade with China as a pretty big fruit that was picked up in these last thirty years.

The Engineer writes:

Following up on what Mr. Econotarian said in item 2, I've looked at the data from the Census Bureau and BLS on household income (http://www.census.gov/hhes/www/cpstables/032010/hhinc/new01_001.htm) and done a multiple linear regression on household income controlling for hours worked, number of income earners per household, and years of education.

96% of the variation in household income can be accounted for with those three controls. The statistical significance is off the charts as well.

So, if you are poor, my advice to you is to work more, get more education, and get your no good boyfriend/ husband to get a job.

Les writes:

An explanation may be that households increased in number faster than individuals. Why? Because the average number of persons per household has decreased, due to absentee fathers, overseas wars, divorce, etc.

Has anyone checked the numbers?

Guy in the veal calf office writes:

Is median family income determined on an after (local, state, federal) tax basis?

Further to others' points, has anyone looked at median individual adult income + nontaxable benefits?

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