The Economy: Up, Down, or Sideways?: Ruy Texeira and EPI's View

Ruy Texeira writes about the state of the economy:

The Emerging Democratic Majority WebLog - DonkeyRising: Last week, I pointed out that, while views of the economy had improved somewhat toward the end of last year, that didn't mean the public now thought the economy was in good shape. They merely thought it was less bad than before. And this week we have a new poll from Ipsos-AP that indicates views of the economy may be declining once again. From the Ipsos report on the poll:

Despite strong job numbers for December, Americans' confidence in the economic state of the country declined in January, according to the most recent results of the RBC CASH (Consumer Attitudes and Spending by Household) Index. This was primarily due to low expectations in economic performance over the next six months and increasing fears about job security.

This stubborn failure of the public to get happy about fairly solid GDP and job growth has occasioned much head-scratching among the commentariat and, of course, among GOP operatives who smell a press plot to discredit Bush's alleged economic achievements. But there is a much, much simpler explanation for the available data: people don't think the economy is so great because it isn't so great. The indispensable Economic Policy Institute has produced a crisp one-page summary supporting this viewpoint. Here are some choice excerpts:

Profits are up, but the wages and the incomes of average Americans are down.

--Inflation-adjusted hourly and weekly wages are still below where they were at the start of the recovery in November 2001. Yet, productivity--the growth of the economic pie--is up by 13.5%....

--Consequently, median household income (inflation-adjusted) has fallen five years in a row and was 4% lower in 2004 than in 1999, falling from $46,129 to $44,389.

More and more people are deeper and deeper in debt.

--The indebtedness of U.S. households, after adjusting for inflation, has risen 35.7% over the last four years.

--The level of debt as a percent of after-tax income is the highest ever measured in our history. Mortgage and consumer debt is now 115% of after-tax income, twice the level of 30 years ago....

--The personal savings rate is negative for the first time since WWII....

Rising health care costs are eroding families' already declining income.

--Households are spending more on health care. Family health costs rose 43-45% for married couples with children, single mothers, and young singles from 2000 to 2003.

--Employers are cutting back on health insurance. Last year, the percent of people with employer-provided health insurance fell for the fourth year in a row. Nearly 3.7 million fewer people had employer-provided insurance in 2004 than in 2000. Taking population growth into account, 11 million more people would have had employer-provided health insurance in 2004 if the coverage rate had remained at the 2000 level.

There you have it. The public's not so crazy after all. Commentators and GOP operatives take note.

I would add a big caveat: If you own a house in what Paul Krugman calls the "Zoned Zone," the value of your house has gone up a lot. Of course, changes in the value of the existing housing stock are not additions to national wealth--they are redistributions of wealth from future to present homeowners.(1)

---

(1) Thinking about it, that's not quite right. If housing prices go up with real interest rates remaining the same, that's a redistribution from future to present homeowners. If housing prices go up because interest rates have fallen, that's... more complicated. It's a redistribution from future to present homeowners plus a whole bunch of other effects I have to think about...

Comments

[The Blue Nomad]

"Commentators and GOP operatives take note."

Sadly, it is not just the GOP. Senator Bacchus said just the other day that the educated, white collar middle class would have to eat cake, or at least get used to white collar outsourcing. During the 04 campaign, Senator Kerry like Mr. Bush was for middle class tax cuts, "investment" and "retraining." What were the struggling manufacturing workers of southern Ohio supposed to do with that message? Even Howard Dean said there was nothing that could be done about Wal Mart. How many Democrats voted for the bankruptcy bill?

The trouble today is that neither party is the party of the middle class majority, who understandably wants low taxes, premium services, robust growth, and a modicum of job security. What they want is a new fair deal, appropriate for the twenty-first century, and in the context of one of the greatest demographic shifts in human history, that is only going to be possible by significantly downsizing the military, radically downsizing the national debt and demanding an end to Asian monetary protectionism (if not a new international gold standard), as well as restoring progressive taxation, universalizing health care coverage (and introducing market forces to avert rationing), building enough new housing (especially in blue states) to meet demand, doing something (I don't know what) about the hyperinflation in higher education costs, and repealing the banruptcy bill, new overtime rules, etc.

[thinking]

You might add to the previous list by Blue Nomad that the US needs to control how much immigration occurs. It seems like this is a topic that we just cannot talk about. How much immigration is a good amount for the US? Can we agree that the country should have a discussion to determine the optimal number, and then have it occur legally and put a stop to illegal immigration?

[Keith Bloom]

>"The level of debt as a percent of after-tax
>income is the highest ever measured in our
>history. Mortgage and consumer debt is now
>115% of after-tax income, twice the level of
>30 years ago...."

Does that mean after tax yearly income? (That sounds about the right order of magnitude if mortgage debt is included.) Or if not yearly, what is it?

[bailey]

Come on Brad, help us out & start thinking about those "other effects". We could use a little savvy on this one.

[Howard]

just as a small side note, we shouldn't allow anyone to call what we have "strong" job growth.

george bush claimed that the 2003 tax cut would provide 5.5M new jobs between July 1, 2003 and december 31, 2004. that would have been "strong" job growth.

instead, here we are, one year later, and 1M jobs short.

that isn't "strong" job growth.

[The Blue Nomad]

"You might add to the previous list by Blue Nomad that the US needs to control how much immigration occurs. It seems like this is a topic that we just cannot talk about. How much immigration is a good amount for the US?"

As a fiscal matter, illegal immigrants are paying billions into the entitlement system every year. As an economic matter, I think the impact on the middle and working class is mixed. On the one hand, poverty wages are part of the reason our food is so cheap (though clearly not the only one), and no small number of ordinary middle and working class people have hired illegal immigrants (sometimes unknowingly) to weed the garden or deliver the new stove. On the other hand, there is certainly strong (at least anecdotal) evidence that illegal immigration has depressed wages in the skilled trades in California and the southwest, and perhaps elsewhere as well.

As John Judis points out in his great recent TNR piece though, the principal objection to illegal immigration is not economic or labor-related, but cultural.

As a political matter, Washington may need to "do something" about illegal immigration in the coming years. The bill the House passed has been commented on at length elsewhere, so I won't go on at length about its relative unseriousness.

What I would say is that there is probably no national solution to the problem of illegal immigration. Until there are more rational regional and global economic policies giving Mexico and Latin America's poor a shot at a better life in their home countries, they will keep coming. That probably means better access to education and capital, and for some the basics: clean water, functioning sewer systems, etc. What they need less of are big ticket infrastructure projects that put them and their children deep in debt to foreign creditors, and the selling off of their country's natural resources to foreign companies.

[me]

"white collar middle class would have to eat cake, or at least get used to white collar outsourcing."

This is the worst economy of my working career, and if my job had not been sent to India I would have been working 40 years.

[dilbert dogbert]

If the door to Mexico was closed, would Mexico do some serious work on fixing their economy? Does the Mexican government (elite) like the safety valve that a leaky boarder provides. We would suffer by not having that willing, hardworking and low paid workforce for a while but would Mexico be better off in the long run? What do all you smart folks think?

[The Blue Nomad]

"If the door to Mexico was closed, would Mexico do some serious work on fixing their economy?"

I'm fairly sure I don't qualify for the ranks of smart folk, but I'm not sure that "closing the border" is such a simple matter, nor am I sure it is such a desirable matter (for reasons having little to do with the relative merits of curtailing illegal immigration).

The House bill recently passed contains a provision to build a 700 mile long fence on the southern border. The border itself is 2100 miles long, and as every property owner who has tried to keep out the deer with a fence surrounding 1/3 of his acreage knows, its unlikely to be so effective.

My real concern are the symbolic implications of a razor wire fence along the border. As the right knows perhaps better than the left sometimes, symbols matter. Culture matters. Some have suggested such a fence would turn America into a gated community, but gated communities do not have razor wire fences, prisons do.

Part of the reason I have come to support a progressive school voucher system is the prisonization of our public schools (especially our middle and high schools) in recent decades. Armed guards, metal detectors, video surveillance, drug sniffing dogs, and lockdown are literal and symbolic markers of illiberalism, and have no place in the schools of a free society. They train children to accept authoritarianism. I'm afraid a fence along the southern border would do the same to people more generally.

[Glen Bowman]

The statement on the Emerging Demo Majority blog that "more and more people are deeper and deeper in debt" is misleading, since a key fact is missing: total net worth is at an all-time high.

Net worth trumpts debt, because net worth is left after you subtract debt from assets.

Certainly there are some who ARE individually deeper and deeper in debt, but as a whole there is no evidence that this is at crisis levels (low interest rates help here).

[The Blue Nomad]

"Net worth trumpts debt, because net worth is left after you subtract debt from assets."

You assume that real estate values, and equities will remain strong in the coming years. Maybe that will be the case, but the billionaires are worried, and not without reason.

[wkwillis]

It's not so much the immigration as the educationally unbalanced immigration. I would support unlimited immigration to America of anyone who could pass the GREs and was under thirty. Or at least balance every uneducated gardener with an educated professional.

[Ken Melvin]

Automation, offshoring, and illegal immigration; the economic gods must really hate the US worker.

[Jim S]

Those who attempt to justify a Miss Mary Sunshine view of the current economy try to pull the "total wages and compensation" rabbit out of their hat. Never let them do it. When they try it ask how much of the rent/mortgage/groceries expense the "other compensation" part pays.

I agree with anonymous about criminalizing the hiring of illegal immigrants. Something I've wondered about Blue Nomad's claim about how illegals pay into the entitlement system since by definition they are being paid cash under the table and don't have SS numbers.

[Howard]

Glen, since this is an economics site, please tell us that you really do understand that net worth and debt aren't distributed equally?

please tell us that you realize that half of american households don't own any stock, and of the half who do, the median ownership level of stock is some $65K?

please tell us that you realize that roughly 30% of americans don't own homes, and that of the 70% who do, household equity is at an all time low as people have extracted equity to sustain consumption?

please tell us that you realize that only some 3-4% of households have liquid assets worth north of $1M? that only some 7-8% of households have net worth of $1M including primary residence?

please tell us that you realize that four households alone - those occupied by messrs. gates, buffett, ballmer, and allen - represent north of $100B of net worth, whereas the poorest 20M households in america have essentially no net worth at all?

please tell us that you realize that debt is generally serviced by income, and that as a percentage of after-tax income, debt service is at an all-time high?

crisis? well, that's hard to say, but it isn't hard to say that net worth stats - given the enormous concentration of wealth in a handful of households - don't tell us that there isn't a problem with household debt.

[Glen Bowman]

Howard,

You are simply offering red herrings. My point was that it is misleading to focus on the debt outside of the context of net worth. Your points are nice, but they really do not address what I was saying: by ingnoring rising asset prices and net worth, Rudy T was lying with statistics.

INDIVIDUALS or GROUPS of individuals may have debt problems, but AS A WHOLE, servicing debt is simply not at this point a grave problem for American consumers.

If debt levels were rising while asset prices were falling or staying the same, that would be a problem. This may well happen in the future, but it is not happening now.

[Glen Bowman]

Blue Nomad,

I am NOT assuming that. If the economy weakened, of course there would be problems. But no one can predict the future consistently and accurately, and with precise timing. ANd for the most part, people should not even try.

I am talking about NOW.

[Howard]

Glen, simply not the case. Since you insist upon a rude word like "lying," then i must say that you are the one who is "lying" with statistics.

i'll repeat: the vast majority of american net worth is concentrated in a very small number of hands. Debt is much more widely dispersed. Debt is a very serious problem for some households, and a problem for most others.

that household net worth is high is a function of the high net worth of a small (relatively speaking) number of households. do you really not understand that?

when you see that household debt service is at an all-time high as a percentage of after-tax income, saying that aggregate net worth is high, too, is not a response. it's an irrelevancy.

[Glen Bowman]

Clearly you have never read Huff's book HOW TO LIE WITH STATISTICS. If you had, you would see my point, and that I am not being rude. There is no need to get emotional here. Or condescending, since you did say that "do you really not understand that?"

The statement cited by Rudy T that "The indebtedness of U.S. households, after adjusting for inflation, has risen 35.7% over the last four years" implies that the the sum total debt of ALL U.S. households has risen 35.7 percent. That you say "the vast majority of american net worth is concentrated in a very small number of hands" is not relevant to what Rudy T said. It is comparing apples "all U.S. households" to oranges, which corresponds to concentration.

If asset values have risen faster than debt, that is a good thing, right?

Much debt is serviced by income, but there is no rule saying that it has to be. If assets are rising, then they can be sold to service debt.

I never stated, nor was it implied, that there was no concentration of wealth or of debt.

My point was that Rudy T was not telling the whole story.

[Howard]

Glen, i know all about lying with statistics: it's what you're engaged in.

(it would also be helpful if you noted that Ruy is merely reciting someone else's statistics, which are accurate, but which aren't his own findings, if you're insistent on calling people liars.)

to deal directly with your remarks, if assets values rise faster than debt, and everyone owns the same amount of assets and bears the same amount of debt, then that's a good thing.

however, if asset ownership is concentrated amongst a much smaller number of households than debt, then it's an irrelevant thing that asset values are rising faster than debt, because discrete subsets of american households have differing outcomes.

there are 120M households in america, and a very substantial percentage of household net worth is concentrated in the top 24M, and especially concentrated in the top 1.2M, and even more concentrated in the top 120K, so the benefits of that increase in net worth that you're hepped up about have flowed almost entirely to those households.

on the other hand, most households in america have debt, and that debt has increased even though their net worth hasn't, because they don't own enough (or any) assets.

if you want to make claims for aggregate houshold net worth, then you need to live with claims for aggregate household debt. If you want to particularize household debt, then you need to particularize household net worth. you can't have it both ways.

i mean, we don't really have to go through the mean/median discussion, do we? i don't really need to point out that if i run up credit card debt of $10K and Microsoft stock goes up $1/share, then household net worth is up thanks to the ownership of Gates, Ballmer, Allen, and others, but it doesn't do a thing for me?

and that's what has happened: with real median income declining and yet consumption remaining afloat, there are two explanations. thanks to the bifurcation of income and wealth, consumption of high-end/luxury goods is soaring; thanks to credit cards, home equity lines of credit, and installment purchases, household debt for most people is also soaring. these are two different classes of households.

PS. as i noted above, only half the households in america own stock at all, and only 70% own houses. you can't liquidate assets to pay your debt if you don't own those assets in the first place.

[Glen Bowman]

Anonymous

Ironic, isn't it, attacking people as being "wanna be economists" while hiding under an anonymous monicker?

You have no right to question my humanitarianism (again, a cowardly response). If you cannot argue with facts and reason, then please do not bother answering.

Why is it so morally wrong to say that debt levels need to be seen in the context of net worth? Have you guys ever seen a corporate balance sheet, or even had obtained a loan?

[Glen Bowman]

Howard,

Did you read what I wrote?

Probably not. Go back and read it carefully. And stop putting words in my mouth.

[JT]

I'm a little late on this topic but...

Great List by The Blue Nomad. No one out there seems to be talking about a peaceful way of handling the greatest demographic shift.

Right now, we're not handling it very well. Making a few very wealthy and ruining our industry in the process. Which area of our workforce is next?

[Lord]

Higher returns justify higher prices. While housing appreciation is not smooth and can be considered borrowing from the future, before this episode it was lagging the future, and in another decade or so, we will again lag the future before borrowing from it again.

[Ninjaplease]

Anyone,

and I mean anyone,

who claims the economy is booming right now, or is even positive, is speaking solely from the perspective of a stock owner, or is someone who works in a financial field.

Believe it or not there was a commercial for BMW that implied "you should spend your christmas bonus on a new BMW SUV for your wife as a christmas gift!"

My company gave me $30 in cash in a generic christmas card this year. Down from the $40 of last year. I am an electrical engineer, not a dish washer, but this is my reality.

I keep hearing about retraining as the key to not being outsourced, from BOTH our parties. What the hell is going on? Do these people not realize that they are facilitating job loss? Do they realize that they will not be elected again as a result?

As someone said earlier, illegal immigration can be immediately halted by severely fining the people who employ them. There is no need for heavy border patrol, just fine the companies that hire them and enforce those laws. People go where jobs are, if they can.

The only field I can think of that can't be outsourced immediately is auto repair. Atleast right now it's too costly to ship it off to india or china to fix it.

I'm going to shoot dead the man who invents large scale teleportation. Primary use will be military. Secondary use will be to remove our jobs further.

[The Blue Nomad]

"All you'd have to do would be to make it a federal felony to employ illegal aliens, with a minimum amount of jail time, and a reasonable enforcement regime."

You mean like how making the sale of alcohol illegal and unconstitutional stopped people from selling and drinking it?

[piotr]

INDIVIDUALS or GROUPS of individuals may have debt problems, but AS A WHOLE, servicing debt is simply not at this point a grave problem for American consumers.

Yes Glen, this is the observation that started this discussion. Individuals do not see much the cheer about in this economy. Mind you, stocks gave a princely average yield of something like 5% in 5 years, so rising prices of assets affect people in the "Zoned Zone", and in that zone probably no more than 50% of inhabitants (home ownership rates seem to be lower in places with very expensive housing). So majority experiences no increase in net income from work (net after taxes, medical costs and inflation), and not that much of asset gains that could be used as a consolation.

About making felony of empoying illegal aliens: I think that it is at the very least subject of a fine, since about 1985. And it is not like construction crews made of illegal workers, or illegal farm workers etc. are hidden from daylight like meth labs. By the way, I read that during prohibition the consumption of alcohol was a fraction of that before and after.

[bob h]

What effect is the Iran war buildup going to have on our economy? Remember 2002-03? And now we have a more daunting task likely to send oil prices soaring.

[me]

"The only field I can think of that can't be outsourced immediately is auto repair. Atleast right now it's too costly to ship it off to india or china to fix it."

But even aircraft maintenance has been sent overseas.

[NinjaPlease]

Basically our future is going to mean very high employment in very low paying jobs (with no minimum wage, where people work long hours) with very cheap products from foreign brands, and no medical insurance, except for the absolute rich.

All by 2076. I'll be 98, so I won't care.

It's puzzling to me. How does the above sound like a great economy? The quality of life will have significantly deteriorated for the average worker.

I'm sure the most recent Benzene spill in China won't be the last of its kind, with no real oversite on pollution there.

I hope there's going to be a lot more rich people soon, because our future, that of the common worker, is to serve them. The more of them, the more service jobs we'll have, the higher the wages will climb, hopefully.

[Zach]

Profits being up is misleading, as Ritholtz mentions the increase in profits is largely due to stock buybacks rather than increased revenues.

[Howard]

Zach, you're confusing two different things. Profits-per-share are increasing due to stock buybacks, but profits themselves remain strong in absolute terms, unaffected by stock buybacks.

Glen, i have no idea what words you think i'm putting in your mouth. here's what you wrote: "My point was that it is misleading to focus on the debt outside of the context of net worth. Your points are nice, but they really do not address what I was saying: by ingnoring rising asset prices and net worth, Rudy T was lying with statistics."

And my point is that if you want to bring up net worth in this context, you need to understand that net worth is not distributed across households the same as debt. If 80% of households don't own enough assets for net worth to be a meaningful number (and they don't - to review my "nice" statistics, 50% of american households don't own stock, and of the 50% that do the median ownership is $65K, so 75% of american households own $65K or less of stock, and to add a "nice" statistic, the average house value is something like $250K, and the average (i'm sorry i don't have median numbers available) equity is a little north of 50%, and remember that 30% of american households don't own their home), and their debt is going up, that's a problem.

Speaking of putting words into people's mouths, "crisis" was, of course, your word, not Ruy's. He merely points out that for most americans, despite GDP growth (and despite net worth growth), the economy is not so great.

PS. i hadn't thought it necessary to go this far, but since you insist upon pursuing your wrong-minded position, let me also note that over the past 5 years, real net worth per household hasn't increased at all, once you discount for inflation and for the increased number of households.

PPS. so please tell me, glen: what words have i put in your mouth?

[Glen Bowman]

Calling my position wrongminded does not make it so. You persist in saying that I "lie" with statistics even though I did not introduce any statistics. I merely pointed out how someone else did not tell the whole story (one way of "lying" with statistics, acc to the Huff book).

My original point, again, is "INDIVIDUALS or GROUPS of individuals may have debt problems, but AS A WHOLE, servicing debt is simply not at this point a grave problem for American consumers." How do we know this? Because assets for US househols as a whole have increased at a greater rate than the debt to acquire and maintain them.

There are of course many, many individual exceptions. But for the SUM of individuals, debt is simply not a problem, since the assets are there to take care of it. And as for income, people who do not have the income to service their debt CAN sell their assets to pay down their debt. That happens every day.

To refute my argument, you are going to have to actually deal with what I say.

[Glen Bowman]

Howard,

Rudy T, quoting from someone else, wrote "The indebtedness of U.S. households, after adjusting for inflation, has risen 35.7% over the last four years."

Please tell me where a breakdown in terms of stock ownership and/pr home ownership is either stated or implied.

If you cannot, then by introducing them you are introducing red herrings. I am talking ONLY about US HOUSEHOLDS as a WHOLE. Why? Because that is what the quotation says: US HOUSEHOLDS.

Why, then, do you persist in breaking them down into categories? By doing so, you are really not addressing the substance of my argument.

[Howard]

Glen, not that it hasn't been delightful and all, but if you don't think i've dealt directly with what you've written, i'm unlikely to convince you now. nonetheless, i will make one last try.

Ruy was not making an accounting statement; he was making a socio-political statement, specifically, why is it that when gdp growth has been solid and job growth adequate, do so many people feel like the economy is not so good.

and his answer is, for many people the economy is not so good. As evidence, he cites a number of supporting statistics, none of which by itself proves anything but all of which, taken together, paint a picture that enables us to understand why people think the economy is not so good: real incomes are falling, health-care costs paid by houseolders are up, fringe benefits are declining, and debt is up.

He doesn't say this is true for every household in america; he merely points out this is true to such an extent that it explains an otherwise puzzling phenomenon, the high level of negativity towards the economy being picked up regularly in polling data.

Your response is to say, bah, net worth is up too, so what of the increased debt.

And my response to you has been that that's an irrelevant claim. Ruy is talking about very specific households in america: the ones who don't think the economy is good.

We can make a very reasonable guess who those people are: they are the people at the lower end of the income ladder.

And we have a lot of very clear data that shows us that by and large, households at the lower end of the income latter don't have much net worth, but they do rely on borrowing.

so i bring up the issue of "lying" with statistics partly because you accused Ruy of it in the first place when quite clearly the data point is of a piece with the rest of his analysis and partly because you're obscuring the discussion with an emphasis on aggregate net worth. I bothered to look up some numbers, and the best i can find as a current median household net worth number is from 2001, and it was $86K. A roughly contemporaneous mean household net worth was $400K. When you have that kind of delta between mean and median, it makes it very clear that significant net worth is concentrated, which, of course, is what i've been telling you (the ballpark i've come across is that bill gates' net worth matches that of the bottom 40% of american households).

Thus, when you talk about household net worth increasing, you are really talking about a highly concentrated share of households where that benefit is felt; when you talk about household debt increasing, that is much more broadly distributed.

Because your final, all-caps commentary is that you are talking about US HOUSEHOLDS AS A WHOLE. But Ruy isn't, and that's why you're off base so seriously here.

[kharris]

It is often the case that, if one can limit the terms of debate in a manner convenient to one's own position, one can "win" the debate. Good answers rarely result from such efforts, though. Whether Glen intended such a ploy I cannot say, but much of this discussion seems to be about limiting the debate in a way that is disadvantageous to EPI's point. EPI says there are problems in the economy that are not apparent simply from looking at GDP data. EPI says that debt levels are a problem, an and of themselves. Glen's answer seems to be to insist we look at aggregate data, and that EPI is somehow cheating by looking at liabilities but not assets. The whole point of the EPI piece was to give us a list of problems not evident from GDP and net wealth. Making EPI's arguments off limits doesn't seem a very useful answer to those arguments.

[Glen Bowman]

Howard said

"Because your final, all-caps commentary is that you are talking about US HOUSEHOLDS AS A WHOLE. But Ruy isn't, and that's why you're off base so seriously here."

YES, HE IS. Read it. I'll help:

1. According to the first paragraph, "Last week, I pointed out that, while views of the economy had improved somewhat toward the end of last year, that didn't mean the public now thought the economy was in good shape."
2. The conclusion states "The public's not so crazy after all."

By saying "the public" it seems fairly obvious that what is being discussed is, er, not a certain part of the American public, but the whole thing (Which Americans are NOT part of "the public"?) Remember, those are not my words. Those are Rudy's, as posted here (if you don't believe me, look above).

Answer me this: When it is said "The indebtedness of U.S. households, after adjusting for inflation, has risen 35.7% over the last four years," what exactly then IS meant by "U.S. households"? You tell me. I take it to mean "the public," because that is exactly what is said.

[Glen Bowman]

kharris says "EPI says that debt levels are a problem, an and of themselves. Glen's answer seems to be to insist we look at aggregate data, and that EPI is somehow cheating by looking at liabilities but not assets."

For the most part, yes, that is exactly what I am saying (thanks for following). At least in how the EDM blog lays it out, there is indeed some cherrypicking going on. It is impossible for debt levels to be a problem in and of themselves--they HAVE to seen in the context of other data, such as assets (and other data too).

Someone could look at Walmart's balance sheet and say, look at all that debt! Walmart's going under (yeah!!). But Walmart has a good balance sheet because they have the funds to cover it (and cash flow, and accum earnings). In the case of GM and F, I would say that they are indeed in trouble, because their balance sheets stink (less than investment grade bonds).

In terms of Americans as a WHOLR, the balance sheet is not as bad as some make it out to be. The naysayers need to look at ALL of the data. Not just debt levels.

[Michael Robinson]

Glen, if the economy is getting worse for a majority of Americans, then a majority of Americans are justified in feeling that the economy is getting worse.

And they are justified in feeling that way even if the economy for "Americans as a WHOLR" is getting better.

And that's the point.

[kharris]

Glen,

First, let's be realistic. Nobody looks at all the data. Looking at some data and not others is a necessity. Accusation of cherry-picking are too easy. Everybody is vulnerable when the standard for name-calling drops this low.

This is a question of whether it is legitimate to point to debt levels, debt as a share of household income, debt as a share of GDP, and find that historically high levels are troubling. Stamping your feet and insisting that your metric and your metric only is legitimate just isn't that impressive as an argument. If all discussion were held in a purely objective way, tone wouldn't matter so much. In this world, though, pointing and saying "bad dog" to EPI just isn't enough. Claiming that everybody has to debate on your terms, that the other guy's view of things is "impossible" just won't do. Household debts are, as others have pointed out, paid out of income. For many households, assets are highly illiquid, held as real estate or 401(k) investments. It is entirely possible to have positive net worth and run into real difficulty paying monthly bills. That is why debt ratios are relevant to the discussion. Yes, it is probably a good idea to look at this issue from a number of different perspectives. I have a very hard time, though seeing virtue in your insistance on net worth as the crowning metric of household welfare. It is also worth noting that the EPI piece is pretty explicitly a catalog of economic worries. It misses the whole point to insist that the piece function as something other than a catalog of economic worries. It borders on dishonest to claim that EPI is a pack of cheats for listing worrying features of the economy when that is exactly what they claim to be doing.

[Howard]

Glen, you know? i had actually thought that you were probably an ok guy who simply had hitched his wagon to the wrong horse, but after reading your 4:41 and 4:52 remarks, i need to reconsider.

Your notion of "obvious" is pretty much the giveaway. Look, 4+ years ago, George Bush had 90% approval ratings. By your standards, it wouldn't have been acceptable to state that the public supports George Bush because, after all, 10% of the public didn't.

here in the real world, we look at polling data and aggregate it in various ways: when roughly 60% of the public feels a certain way, for instance, we generally say "the public" feels that way, because treating journalism as though it were a footnoted academic paper is a pretty tiresome exercise.

So your notion that it's not acceptable to generalize from polling data is going to leave you writing a lot of silly letters to the editor.

but what really convinces me that i was wrong about your ok-ness is your continued stubborn assertion that what Ruy is writing about is the economy and not perceptions of the economy. It takes willful blindness to continue to holler about that. you keep thinking this is a discussion of america's balance sheet: it isn't.

it's a discussion of why, in the face of generally favorable economic data, a majority of respondents to pollsters don't think the economy is doing so well.

let's stick, just for a moment, with your inane example: wal-mart's is doing well. gm isn't. by your standards, if the aggregate of wal-mart and gm is favorable (and i haven't looked at the numbes), then that's all that matters. can you see why there's a certain problem in your logic?

meanwhile, i stirred myself to review household net worth a little further, just to refresh myself on the numbers. 5% of american households own, roughly, 65% of american net worth.

that means, of course, that 95% of american households own, roughly, 35% of american net worth (just to refine that, 40% of american hosueholds own .2% of american net worth, and 55% of households own 34.8% of american net worth).

i guarantee you that debt is not distributed the same way, that is, i guarantee you that the same 5% of american households that own 65% of american net worth do not owe 65% of household debt. even if you don't understand that, those households do, and they understand why their debt is rising: because their real incomes are falling.

and therefore, it makes sense that people, who understand their own economic condition better than you do, don't think the economy is doing so well, and it's legitimate to therefore conclude that the american public in aggregate doesn't think the economy isn't doing so well, even if it's doing smashingly for some.

why you think a quest for understanding constitutes "nay-saying" is something for you to try and come to grips with, but for the rest of us, "understanding" is something we try to do by looking at all the evidence.

now, if you want to discuss the american economy as a whole, then fine, we can have a disucssion about the strengths and weaknesses of the american economy as of january, 2006. but if you want to understand why a majority of people (let's call them "the public") don't think the economy is doing so well, then household debt matters far more than household net worth because, as i keep telling you, they aren't distributed the same.

otherwise, i would attend carefully to kharris: i'm not that nice a guy, especially in the face of foolishness, but kharris retains good manners in all circumstances....

[Glen Bowman]

Howard,

You still did not address my question: When Rudy T says, quoting from someone else, that "the indebtedness of U.S. households, after adjusting for inflation, has risen 35.7% over the last four years," what exactly then IS meant by "U.S. households"?

[Glen Bowman]

Howard said

"but what really convinces me that i was wrong about your ok-ness is your continued stubborn assertion that what Ruy is writing about is the economy and not perceptions of the economy."

I am sorry, but you simply are wrong. When he says that "the indebtedness of U.S. households, after adjusting for inflation, has risen 35.7% over the last four years," he is not citing perceptions. Rather, he is citing data. The data are correct, but taken out of context mean little.

I care little about your personal opinion of me. You can believe whatever you want--it does not make it true. :-)

[Glen Bowman]

kharris said " I have a very hard time, though seeing virtue in your insistance on net worth as the crowning metric of household welfare."

I never said such a thing. You are putting words in my mouth.

I'll say this again, and that's it--no more repeating myself. Liabilities mean little outside of the context of assets (assets are not just any number when one considers debt). Anyone familiar with a balance sheet understands that. Saying that debt levels have increased by some 34.7 percent is fine, as long as one also includes data as to the assets funded by the debt. The EPI data cited on the EDM blog fail to do that. Hence, the data was taken out of context (why, I don't know).

Period.

[Howard]

Glen, i didn't see any point in answering your question because it is of a whole with your trendline of thought.

But since you insist, why yes, when Ruy references household debt, he means each and every one of those 120M or so households. In fact, of course, some of those households have increased their debt more, some have paid down their debt, some have maintained status quo, some never had any.

and i'll let you in on another big secret: when he discusses median household income - get ready - he's only referencing one frickin' household: number 60M.

but we aren't children here: we understand that if real median income is falling, the odds are that it's falling for those above and below, and indeed, there are other stats available to us, such as the real hourly wages, that suggest that real income is falling for some 80% of american workers.

here's another shocker, glen: there are still millions of households who do have company-provided health insurance (roughly 72M of them, on the basis of 60% health care coverage and 120M workers, and ignoring that some of these workers live in the same household), despite the fact that fewer households have comapny-provided health insurance than did 5 years ago.

Yes, we're all for context and understanding, but in order to have context and understanding, we need to use our brains a little. And when we use our brains, we discover (yawn) that net worth is highly concentrated whereas household debt isn't.

that you don't want to accept this if, of course, your privilege, but don't expect us to be impressed by your arguments.

As for what you claim to be "sorry" about, really, you've got to work on your reading skills. For instance, you might try reading what we call, in journalism, the "lead," which generally tells you what the writer is writing about, in this case: "Last week, I pointed out that, while views of the economy had improved somewhat toward the end of last year, that didn't mean the public now thought the economy was in good shape. They merely thought it was less bad than before. And this week we have a new poll from Ipsos-AP that indicates views of the economy may be declining once again."

so that's what he's writing about.

and then he provides a thesis: "This stubborn failure of the public to get happy about fairly solid GDP and job growth has occasioned much head-scratching among the commentariat and, of course, among GOP operatives who smell a press plot to discredit Bush's alleged economic achievements. But there is a much, much simpler explanation for the available data: people don't think the economy is so great because it isn't so great."

and then he provides evidence to support that thesis.

your response to all that is simply to keep repeating, like a clock getting the time right twice a day, that net worth is up, so how dare he discuss debt. and if you don't know the answer to that by now, you clearly aren't going to learn it from me....

[kharris]

Glen,

Thanks for clearing that up. Now that you've added "period" to your argument, it all makes sense.

Just more stamping your feet and insisting you were right. Just insisting that your way is the only way. That is hardly firm ground on which to stand to criticize the folks at EPI.

[Howard]

kharris, if you're still reading, i had a few free minutes and i spent them digging into finding median household debt.

it turns out that what you need is the Fed's triennial Survey of Consumer Finance (which gives you, if i'm understanding correctly, the condition of the median hosuehold that has debt, which is probably most households). The most recent was conducted in 2004, and the info will be available in Q1 of this year: http://www.federalreserve.gov/pubs/oss/oss2/2004/scf2004home.html

Interestingly, the basic Fed debt-service measure, the ratio of after-tax income required to meet the minimum monthly debt service requirements of households, fell from 18.1 in '98 to 16.0 in '00. This makes sense: real incomes were rising. credit card and mortgage rates were continuing to decline. The explosion of household debt hadn't yet begun.

So i'm betting that the number for '04 at least retraces its steps back to the level from '98, and i'm betting that in part because as we see here: http://www.federalreserve.gov/releases/housedebt/default.htm

by the fed measure of debt-service obliations in Q3, '05, that excludes rent, we are at the highest level in the 25 years that the Fed has been keeping this stat; by the measure that includes rent (which, i needn't tell you, i'm sure, has been weak in real terms), it's the second highest.

[anne]

http://www.calvorn.com/gallery/photo.php?photo=3255&exhibition=87&u=11570|5|...

Scarlet Tanager (male)
New York City--Central Park, The Ravine.

Thanks, Howard :)

[Howard]

well, anne, as you know, i have a long-term interest in this problem because of what i think it does portend for the US economy, but were it not for glen, i would never have taken the time to dig around and look for the relevant stats to show off here, so it's really our good friend glen that you should thank!

[anne]

When you find important data sources or articles, always keep a record so they can immediately be drawn on again :) Remember, you can use Gmail to build a library.

[Glen Bowman]

Howard

I keep refuting your points (calmly, I may add) and you keep on going on to something else. Litte has changed. Before you talk about my reading, you should look at your own (see points above, where I point out that you are misreading Rudy T). You are really coming across as a jerk.

My point all along is that throwing out a statistic about growing debt without mentioning the even faster growth of the assets underlying the debt is deceptive. Simply put, you cannot understand one without the other. You have NOT refuted that. You have tried to insult me, but you have not refuted my point.

If you would like to refute my point, you must explain why asset levels are entirely irrelevant. Mentioning income will not work--it is a red herring (I am not denying that income is important). If they are relevant, then they should be included, shouldn't they?

Why weren't they included? Who knows for sure, but I have a guess: they contradict the thesis of EPI that the economy "isn't so great." It is easy to say that the economy stinks if one only looks at the data that shows that the economy stinks while ignoring the data that shows otherwise. Sure, debt levels have imcreased, but assets levels have increased at a greater rate. That is a sign (mind you, one sign) that the economy as a whole is not so bad after all. In other words, in this growing economy, the debt can be serviced (low interest rates help).

If the economy really were so bad, one would expect rising debt and declining or flat growth in assets.

Income is an important way of servicing debt, but it is only one way. Selling assets is another. Both are important That'w why a lender cares about BOTH income levels and assets before giving out a bank loan). But why was only one discussed, and not the other?

If you would like to respond, I ask that you keep the ad hom to a min.

[Glen Bowman]

Howard said

(Rudy) "and then he provides evidence to support that thesis."

But he ignores the evidence that does not support that thesis. That is called cherry-picking.

[Glen Bowman]

If household debt is such a problem, and the economy so fragile, then...

why are loan delinquencies on mortgages and other household debt at such historically low levels?

why has home equity as a share of household real estate increased (shouldn't cash-strapped homeowners be tapping out their rising home equity)?

why did households' cash assets in highly liquid deposits increase?

Considering all of the negativity on this board, I thought some good news would not hurt.

[Firebug]

The fact that Bill Gates and Paul Allen got richer is not "good news" to the rest of us. And that is what the current economy means, and it is the entire point. It's only a "good economy" for the top 1%. For everyone else, it's the worst things have been since the Depression.

Lying traitors like Bowman should be torn to pieces by a crazed mob. Sometimes I think it would be worth it to have a French or Russian-style revolution here - even knowing that as a member of the educated elite, I'd probably die too - just for the pleasure of seeing the outsourcers go under the guillotine.

[Howard]

Glen, my sweet, you're such a super guy and all, we'll cite the facts one last time.

net worth is highly concentrated. debt is not.

and you're still not reading ruy t correctly, due to your idee fixe that highly concentrated net worth trumps broadly dispersed household debt.

i'll leave you, now, to puzzle out the reaminder of the implications, and i'll leave the guy who calls others "liars" and/or "jerks" to study firebug if he wants to see what an ad hom looks like.

[anne]

http://www.harvardmagazine.com/on-line/010678.html

January, 2006

An Economist's Take On the Moral Consequences Of Material Progress
By J. Bradfold Delong

The Moral Consequences of Economic Growth
By Benjamin M. Friedman

[Ben Friedman has written a remarkable philosophical work, that deserves reading by all of us. The work shows that the progressive realization of enlightment ideals has been a product of economic growth. There is a special comfort in the work, but there is something peculiar and disturbing as Friedman told us a few days ago about a 5 years period of growth, soon to be 6 years, in which median income has fallen in each year. This is not a healthy period economically in ways that need close attention to be made clear.]

[anne]

http://www.harvardmagazine.com/on-line/010678.html

An Economist's Take On the Moral Consequences Of Material Progress
By J. Bradfold Delong

Economists have always been very good at detailing the material consequences of modern economic growth. It makes us taller: we are perhaps seven inches taller than our preindustrial ancestors. It makes us healthier: babies today have life expectancies in the seventies, not the twenties (and more than half that improvement is not directly related to better medical technology, narrowly defined). It provides us with leisure: eight-hour workdays (rather than "Man's work is from sun to sun, and woman's work is never done.") It provides us with enough clothing that we are not cold, enough shelter that we are not wet, and enough food that we are not hungry. It provides us with amusements and diversions, so that there is more to do in the evenings than huddle around the village campfire and listen yet again to that blind poet from the other side of the Aegean tell the only long story he knows—the one about Achilles and Agamemnon. As time passes, what were luxuries become, first, conveniences, and then necessities; what were utopian dreams become first luxuries and then conveniences; and what was unimagined even in wild fantasy becomes first utopian dreams and then luxuries.

Economists have been less good at detailing the moral consequences of economic growth. There are occasional apothegms: John Maynard Keynes observed that it is better for a man to tyrannize over his bank balance than his fellows (a rich society has an upper class that focuses on its wealth as power-over-nature, rather than on its power as power-over-people). Adam Smith wrote about how wealth made it attractive for the British aristocracy to abandon their feudal armies and private wars and move to London to take up positions in society and at court. Voltaire (who not even I can claim was an economist) observed that people who in other circumstances would try to kill each other for worshipping the wrong god (or the right god in the wrong way) were perfectly polite and civil when they met each other as potential trading partners on the floor of the London Exchange. Albert Hirschman (who is an economist) wrote a brilliant little book, The Passions and the Interests, about the eighteenth-century idea that commercial society made humans "sweet": polite, courteous, and civilized, viewing one another as potential partners in mutually beneficial market exchanges, rather than as clan members to be helped, clan enemies to be killed, or strangers to be robbed. But focus on the moral consequences of economic growth has—from the economists' side, at least—been rare....

[anne]

We have fine productivity growth, economic growth that in spite of shocks is fairly close to what productivity would allow, excellent corporate revenues, record corporate savings, reasonable dividends and stock buybacks, yet median income has fallen for 5 and likely 6 years. This is not healthy growth, there is a problem.

[anne]

ttp://www.harvardmagazine.com/on-line/010678.html

An Economist's Take On the Moral Consequences Of Material Progress
By J. Bradfold Delong

Friedman is very worried that unequally distributed prosperity is not really prosperity at all. During the past generation we have seen the U.S. government place its thumb on the scales on the side of making the distribution of income and wealth in America more unequal. Some of this has been for reasons of economic efficiency: withdrawing the regulatory umbrellas that allowed some unions to turn blue-collar jobs into occupations with middle-class salaries, or reducing tax rates while eliminating loopholes. Some has been for reasons of moral purity: the replacement of the idea that being a single mother raising children was an important social task that deserved support with the idea that single mothers ought to work. Some is simply a naked wealth grab by the politically powerful.

What will the moral consequences of unequally distributed prosperity be? Friedman fears, and perhaps for good reason, that they will resemble the consequences of economic stagnation. People who feel that they are living no better, or not much better, than their parents will search for enemies: Hollywood writers, foreigners, people of "loose" morals, and Harvard graduates. And America will become a less free and less democratic society. The argument follows the lines of the argument in Thomas Frank's What's the Matter with Kansas? Those for whom the American market economy is not delivering increasing prosperity do not reach for the right answer: policies to strengthen the safety net, provide security through social insurance, and improve opportunity through better education. Instead, they reach for the wrong answers: closing down society and denouncing enemies—anti-Hollywoodism as the social democracy of fools, one might say....