In their presumably well-intentioned zeal to ensure that the poor and the average fellow participate in the economic good times, mainstream media reporters often get it wrong. This is especially true when the issue concerns family income. A story in the Wall Street Journal (from back in March of this year) is typical. The article relates a conversation with then Treasury Secretary John Snow:
Economic output has increased at an annualized pace of almost 4% since mid-2003, and the unemployment rate has fallen to 4.8% from 6.3%. Despite that, polls show more Americans think the economy is worsening than think it is improving.
...
Mr. Snow distributed a fact sheet that showed after-tax income per person, adjusted for inflation, rose 8.2% from January 2001, when George W. Bush took office as president, through January 2006.
Mr. Snow's case relies on averages, which can be skewed by big gains among the wealthiest. Other data suggest the typical family has seen little advance in income or net worth since Mr. Bush took office. Census Bureau data show median family income -- half of families have income greater than the median, half have less -- fell 3.6% from 2000 through 2004. Incomes for the poorest families fell even further. The only group to gain was the family at the 95th percentile -- that is, richer than 95% of all families. Data for 2005 are unavailable.
The story included this helpful little graphic:
This is simply not serious, but I have seen variants of it over and over again. Oh sure (the reporter implies), the wealthy are doing well, but what about the average guy? He's getting screwed, with median income down 3.6%. Some recovery.
The median family income statistic is a pre-tax figure, and President Bush pushed through the Economic Growth and Tax Relief Reconciliation Act of 2001 to enhance after-tax income (which is the only income that matters to your average Joe). John Snow tried to provide some after-tax information to this reporter, but he provided a per-capita (i.e., an average) statistic, not a median statistic. An average value can be pulled up even if the rich alone are seeing their incomes increase. That's what the reporter thought he detected by looking at the median income statistic (which shows a decline). In truth, the story told by the average and the median statistics rarely diverge, but you'll never convince a liberal reporter of that, so it's best to stick with the median just to avoid the issue.
A competent reporter might have asked Snow about median after-tax income if he didn't like the average after-tax income figure. A reporter with an agenda, on the other hand, would just write an article designed to make you think that the middle guy is worse off now. And that's what this reporter did (while ironically noting that most Americans don't think well of their economy).
As a brief aside, you might be surprised that an article like this -- one that pushes a standard liberal talking point -- would appear in the conservative Wall Street Journal, but you shouldn't be. This newspaper is unique in that its editorial page is conservative (which is what you've heard), but their news operation is about as liberal as it gets.
Anyway, back to the issue at hand. First, here is the figure from the Census Bureau that the reporter was presumably citing (found on page 4 of this report):
These figures have been adjusted for inflation and are expressed in 2005 dollars. The first thing to note is that, with the added perspective provided by this chart (compared to the one the reporter prepared for us), it is clear that the median American is doing very well in terms of income. Even after adjusting for inflation (which takes into account higher healthcare costs, higher housing costs, higher eductaion costs, etc.), incomes are as high as they have ever been save for the brief but unsustainable bubble economy that occurred during the latter years of the Clinton administration (a bubble that was based primarily on "irrational exuberance").
You can see from the chart that we had a recession when the stock market bubble burst in 2000/2001 (the attacks of 9/11 didn't help either). And sure enough, median incomes declined between 2000 and 2004 (and then finally started to recover in 2005, as news reports have finally taken notice of). The reporter for the Wall Street Journal report did not have the 2005 information at the time the article was written, and he appears to have correctly interpreted the median income story from 2000 to 2004 (i.e., median incomes were headed down).
Except that, as I said, this is pre-tax median income. What does after-tax median income look like? After all, the tax cut was designed to help offset the effects of a looming recession, and one would like to know what the effect of the tax cut was for the typical person. Democrats often say that the tax cuts only help the wealthy, so it is surely not the case that after-tax median family income started increasing before 2005. No possible way.
Right?
Wrong. Here's a figure from a study by the Joint Economic Committee:
Folks, this is median income for families with two children. This is the "typical guy." And this graph shows the difference between after-tax income with vs. without the tax cut. The typical guy was doing pretty well (after taxes, adjusted for inflation) by 2003. Certainly nothing to complain about. As with all other economic indicators, after-tax incomes were improving way back in 2003 despite the income story that is relentlessly pushed by the media.
I've checked these values against household income figures supplied by the Congressional Budget Office, and a very similar trend is evident there. I found the data through 2003 here and I computed after-tax income for the 40%-60% income group (not technically the median, but close enough):
The exact income figures in this graph differ from the family income figures in the graph above because this one applies to all households (not just families with two children), but the pattern is the same. Household income began to recover in 2003, not 2005. Note that, in this graph, I've also highlighted the bubble economy years (shown in red) just to emphasize that it is silly to be comparing current income values against those artificially inflated values. But that's what reporters do (without noting the bubble), so I guess I will, too.
To reiterate: household income began to recover way back in 2003. Here's a good example of some reporters missing the boat:
Middle-Class Workers Ailing in Census Checkup
Household incomes rose from 2004 to 2005, but earnings fell among full- timers, the agency says. The ranks of uninsured grew by 1.3 million.
By Joel Havemann and Ricardo Alonso-Zaldivar, Times Staff Writers
August 30, 2006
WASHINGTON — The Census Bureau's annual snapshot of economic health in America offered a yellow warning light for the middle class, as an unchanged poverty level and a widening erosion of health insurance coverage tarnished news that household income was finally beginning to rise.
Household income rose from 2004 to 2005 for the first time since 1999, the agency said in its report, released Tuesday.
Well, yes, if you are talking about pre-tax income. A more curious team of reporters might have inquired into after-tax income, which is what really matters. What they would have learned is that after-tax median family income began to increase much earlier -- from 2002 to 2003 (despite the fact that pre-tax income fell over those years). To put this another way, the income recovery was underway for 2 years before any reporter noticed it. In those two years, reporters have consistently told a bleak income story, which has no doubt contributed to the fact that Americans hate their fabulous economy.
I don't have more recent after-tax income figures (I've looked everywhere), but I really wish I did because I am reasonably sure that the income story would look even better now given that various tax cuts were accelerated in 2003. When the 2004 and 2005 figures become available, I'll share them with you because I doubt that any reporter will.
Oh, and about the poverty rate figures that serve as a "yellow warning light" according to these reporters? Here is some perspective from page 13 of that Census Bureau report:
The poverty rate, which is the lower line, has bounced around in a constant zone for about 35 years now (i.e., it's not a warning light), and it showed some slight improvement due to the bubble economy as well. More on that some other time.
For now, my point is that the median family income story -- after taxes -- is brighter than the median family income story the media likes to tell. And the reason it is brighter is because of Bush's tax cuts, the ones that supposedly benefited only the rich (the graphs in this post show that isn't true) and supposedly caused the federal deficit to spiral out of control (also false).
Let's not have a National Enquirer-type election this November. Instead of casting your vote based on what is, in the grand scheme of things, a trivial micro-scandal, cast it based on something important, like the economy or the war in Iraq or the war on terror. And before you vote, consider which party is asking you to focus your attention on the important matters and which would rather have you focus on a trivial micro-scandal.
10 comments:
Once again John seems astounded that the recession of 2001-2002 ended and that after it did things got better. Of course median income goes up when a recession ends and recovery occurs. Of course recessions last a year or two then the economy recovers. This is what has almost always happened.
John, do you seriously think that if Gore had been elected the recession of 2001 would still be going on? What is the basis for this implicit belief you seem to have that if anybody but Bush had been elected, then the economy stays bad forever. It can't be recent history because Clinton came in, raised taxes, and the economy continued to recover from the 91-92 recesion.
By the way, if the Clinton economy had really been based on a bubble, the recession when it crashed would have been huge, not a relatively minor one. That is how you know it was a bubble, it pops with a huge bang. Clinton had a "normal" recession at the end his boom. This no more means his good economy was an illusion than the fact the Bush economy will certainly have a recession at some time means that things now are not going good. Or is it your belief that if Bush was made President for life we will never have another recession?
There is an enormous gap between the adjectives that you (John) use to describe what you present and the actual numbers. I find this surprising for a scientist with tenure at UC.
You call the economy "fantastic" and "fabulous". But when you actually arrive at after-tax median income, your numbers show that it still isn't back to where it was when Bush took office. Your graphs also show that after-tax median income rose substantially while Clinton was president.
Median income is not some derivative, second-string economic statistic. On the contrary, it is the most direct measure of the well-being of the average voter. All other economic measures, such as economic output or the unemployment rate, are politically less important than this one.
You have another graph for the median income among families with two children. You call these families "typical". But this is a bit of misdirection from Washington. They chose Beaver Cleaver families as believably typical, and used them as a sweet spot for their tax policies. (At least, as a sweet spot compared to the rest of the middle income range.) But as your other graph suggests, they are more stereotypical than typical. Beaver Cleaver families are doing better by a whopping half percent; the actual median household has still not completely recovered.
Besides, if the economy really were "fabulous" and "fantastic", then there shouldn't be any deficit at all. In fact I agree that the economy is expanding. I will also say that both economic output and median income are not mainly the doing of any president, Clinton or Bush or whoever. (At least, not in the near term. In other words, people tend to overattribute contemporaneous economic conditions to the president.) The president's main economic business is the budgets that he proposes and signs. What we see now is something that should never happen: strong federal borrowing in a time of plenty.
Great commentary backed up with real facts as always, Engram. Thank you.
Anonymous said:
"Of course median income goes up when a recession ends and recovery occurs."
You mean after-tax income always goes up 2 years after a recession, utterly unnoticed by the media, which writes as if the sky is falling? You just want to deny Bush credit (wild guess here: you're a liberal, and the thought of Bush getting credit for anything just kills you), but I mainly want the media to stop being misleading and to get the story right. If they did get it right, you'd still be free to deny Bush credit or to give him credit, depending on how you see things. But you would not be able to blame Bush for a bad economy (because there is no bad economy), which is what is happening now.
And you asked:
"John, do you seriously think that if Gore had been elected the recession of 2001 would still be going on?"
There is a decent chance that it would be since the Bush tax cuts seem to have accelerated the pace of recovery. But if Gore would have cut taxes (can't remember his plan for that), perhaps we'd be doing fine. But I'm not arguing that Bush is better than Gore (you brought up Gore). I'm arguing that the media is far off base in their coverage of our great economy, which is why a majority of Americans are preposterously unhappy with Bush's handling of the economy.
And you said:
"By the way, if the Clinton economy had really been based on a bubble, the recession when it crashed would have been huge, not a relatively minor one."
Well, it would have been huge, absent the Bush tax cuts, which appear to have saved the day. And I'm not bashing Clinton. The economy was good while he was president, but then he got a speculative boost on top of that. No one denies it, yet the media constantly compares our current situation to the years in which the economy was artificially enhanced by the undeniable bubble. You seem OK with that, but I have a problem with it.
In the second comment, Jim Harris makes precisely this move when he says:
"You call the economy 'fantastic' and 'fabulous'. But when you actually arrive at after-tax median income, your numbers show that it still isn't back to where it was when Bush took office. "
Bush took office with an economy that was artificially enhanced by a speculative bubble -- one that popped (as it had to) shortly thereafter.
And our economy *is* fantastic. GDP growth? It doesn't get much better - ever. Unemployment? It doesn't get much better. Inflation? It doesn't get much better. And on and on. Even income is at an all-time high except for the artificial bubble that occurred during a few years of irrational exuberance. Don't anchor your mind to that speculative bubble and judge Bush's performance based on it.
John - Thanks for taking the time to respond. Here is a surprise for you. I agree the media has underplayed how well the economy has recovered, and I agree that much of that has to do with their dislike for him. If Gore had been President, they would probably now been making a bigger deal about things being good right now. So having agreed with you on what you now say is your main point, let me now go ahead and disagree with you on your minor point that Bush is responsible for this recovery.
Look at the recent past. There is a recession in 1991-1992, Clinton comes in and raises taxes and the economy recovers and does well all through the 90's. Another recession in 2001-2, Bush comes in and lowers taxes and the economy recovers and does well up to 2006.
Does't the fact that the economy recovered well when the two different Presidents did opposite things about taxes suggest to you that the important thing about recovering from recessions is not the President's tax policies? Perhaps what is much more important is the basic fundamental strength of the American economy and good policy by the Federal Reserve Board, which has so much more power to move the economy for good or for evil than the President that it is not even funny.
Your statement about other people's reluctance to give Bush credit for the good economic numbers he has showing their bias comes off very oddly matched against your obvious reluctance to give any credit to Clinton when he had the same good numbers. The Clinton economy was not a bubble. Yes, good stock market numbers helped, but those were real good being produced and real jobs being created.
You are way too glib in saying it was a bubble but didn't pop with a bang because of Bush's competent management. The thing about bubbles is that they are beyond competent management when they burst. That is why bubbles are different than normal downturns. What happened in 2001 is pretty clearly a normal downturn, no different from a usual recession, even with the added force of 9/11 pushing it down.
And on the subject of bubbles, are you concerned that a good part of this recovery is financed on a whole boatload of money borrowed from China (and other countries)? Most likely this will not cause problems because the repayments will be able to be made gradually, but if the Chinese ask for all their money at once, as they might if we have a political crisis with them, then we might all see what a real bubble looks like.
Well, I'm glad you can see that the media isn't being completely fair with Bush. The economy isn't the only issue where that's true.
But what makes you think I give Clinton no credit? In a prior post, I said this:
Growth of the Gross Domestic Product (GDP) is, perhaps, the most basic measure of the health of any economy. A growth of 1% is often described as anemic, 2% is so so, 3% is good and 4% is excellent. Let's take a look at that measure during the Clinton and Bush eras (I got these numbers here):
Give the man credit: GDP growth was very good under Bill Clinton (averaging 3.7%). It took a hit during the early years of the Bush administration, but it has snapped back smartly since, right back to where it was during the Clinton years (the 2006 value is an average of the first 2 quarters of the year).
I have a positive opinion of Clinton's handling of the economy, especially for the lowest income folks (who I believe he helped a lot with his welfare reform package, though I haven't actually run the numbers yet). My point is just that the good Clinton economy had a bubble added on top of it. No one would suggest otherwise. Even leftwinger Paul Krugman says that the budget surplus was a reflection of the bubble, not fundamental economic strength. That being the case, it is not reasonable to say, in effect, "gee, what's so great about this economy -- it's not as good as the Clinton bubble years." But that's what the media does all the time, and that's what many liberal critics do, too.
I do think Bush deserves some credit because the income figures (pre-tax vs. after-tax) suggest that family incomes recovered several years faster than they would have had he not pushed through tax relief. You are suggesting that recoveries happen automatically, but they can happen in 2 years or in 10 years (and presidential policies may have an impact on that).
Although I am inclined to credit both presidents for their apparent economic successes, I don't strongly dispute the notion that neither Bush nor Clinton deserve any credit. Assigning credit is not what motivates me. Watching the media essentially blame Bush for a rotten economy is what motivates me. He does not deserve blame for a bad economy that is actually very good.
And, yes, I do have some economic worries. There is always something to worry about, and that will be true no matter who is president and no matter how well the economy is doing. My point is not that there is nothing to worry about. Instead, my point is that the media is preposterously blaming Bush for a bad economy, and that's why the majority of Americans are unhappy with his handling of the economy. Unlike you, the American public holds their presidents accountable for the state of the economy, which (a) is why the media should tell it like it is and (b) is precisely why they don't.
Even leftwinger Paul Krugman says that the budget surplus was a reflection of the bubble, not fundamental economic strength.
I don't think that it's accurate to call Paul Krugman left-wing. He has become deeply partisan since Bush was elected, but that is not the same thing as being far to the left. For instance, he supports free trade, not just in the abstract, but in the specific: WTO, NAFTA, "globalization", you name it. Free trade used to be the whipping horse of the true left wing, and sometimes still is.
It's hard for me to hide the fact that I see myself in the same camp. I think of myself as a capitalist, with qualifications. I'm also pro-American and not particularly a pacifist. Nonetheless, I think that Bush is one of the most divisive presidents in history. He even sows division by claiming that he isn't divisive. If you want to dismiss this as "Bush Derangement Syndrome", which I see in the title of one of your posts, then you have planted yourself on one side of the divide.
Instead, my point is that the media is preposterously blaming Bush for a bad economy, and that's why the majority of Americans are unhappy with his handling of the economy.
The simple truth is that most people draw their conclusions about the economy not from what they read in the papers, but they see in their bank accounts. That means real median income. The papers could brag every day that GDP is growing at 5% a year, but the median voter will not be impressed if median income does not rise with it. If you go by what median voter can see for himself, his own financial well-being, the economy is neither fabulous nor terrible, but rather mediocre.
Even low unemployment is not directly the point. Unemployment does typically affect median income, but in that respect, these times are atypical. The unemployment rate is not low because there is a labor shortage. Rather, the unemployment rate is low because the official status of being unemployed -- as opposed to being officially out of the job market -- is less useful now than it once was. There are many people who are not "unemployed", but who are not working and who could work for a good enough wage. Many others are simply underemployed.
But I agree with you that it is preposterous to blame the president, not just Bush but any recent president, for a bad economy. The real question of statesmanship is how the president responds to a good or bad economy, not whether the economy is good or bad.
Jim harris
But I agree with you that it is preposterous to blame the president, not just Bush but any recent president, for a bad economy.
You just cannot say it can you?
It's preposterous for the press to present a good economy as a bad economy then blame the president for it.
You just cannot say it can you?
It's preposterous for the press to present a good economy as a bad economy then blame the president for it.
I won't say it until I believe that most of the press is actually doing this. For instance, I just looked in Google News for CNN.com articles on this point, and I found this one. It opens:
The federal budget deficit estimate for the fiscal year just completed has dropped to $250 billion, congressional estimators said Friday, as the economy continued to fuel impressive tax revenues.
This is not the unrelenting negativism that this site claims is coming from the "mainstream media". (Not to mention that "mainstream media" is one of the most tired phrases in the blogosphere. I have no idea which of the media is "mainstream" or why I should care.)
The fact remains that no matter what the media says about the economy, most people will be more concerned with their own economic well-being.
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