Jared Bernstein on Eddie Lazear

Jared Bernstein thinks Eddie Lazear has drunk too much of the koolaid. He writes:

Why’d Ya Do It, Eddie? When Good Economists Go Bad. By Jared Bernstein

Edward Lazear is a really interesting economist who just weeks ago took the job as chairman of the President’s Council of Economic Advisors. But as did Greg Mankiw, he has already drunk deeply of the magic elixir that flows from the CEA’s water coolers—the one that makes top economists say lowly things.

On Monday, May 8, Lazear and CEA colleague Katherine Baicker (L&B) had an oped in the Wall St. Journal that presented economic data with a level of spin I’m sure they’d never accept from an undergrad.

Essentially, L&B engage in two sleights of hand. First, they try to create the impression that growth over the past few years has been broadly shared, and secondly, they cite long-term tends with no reference to the fact that the gains occurred pre-2000. They then tout Bush economic policies with no regard to the fact that the trends they cite became uniformly worse over his tenure.

Here are a few examples of their misleading arguments.

The authors point out that “Per capita personal disposable income, a good measure of Americans’ spending power, has grown over 8%, or $2,100, since 2001.”

As pointed out in this recent EPI analysis http://www.epi.org/content.cfm/webfeatures_snapshots_20060503, when inequality is on the rise, this average measure of income is not at all representative of the typical family’s experience. Since 2000, despite the overall growth cited by L&B, the median family’s income is down 3%, or $1,500. These data are only available through 2004, but median weekly earnings of full-time workers fell 1.4% in inflation-adjusted terms, 2004q1-2006q1, a $500 loss of spending power for full-year workers.

They then turn to the tired explanation that it’s all about education, pointing out the college wages are up since 1980 while those of high-school dropouts are down. No one disagrees that a more education educated workforce is always desirable, but what about the fact that college-educated workers have struggled over this recovery? In fact, one reliable source shows their annual earnings to have fallen by 5% in real terms since 2000. That source: The CEA’s 2006 Economic Report of the President (Table 2-1).

Even skilled workers have fallen prey to the productivity/wage gap over the past few years, including a long jobless recovery with significant losses in high-end sectors, like IT, and increased offshore competition from skilled workers abroad.

Finally, a good example of their fun with numbers comes from the section on mobility. They point out that the “average worker who was between 25 and 34 years old in 1994 earned 52% more in real terms in 2004.”

According to this Census table, http://www.census.gov/hhes/www/income/histinc/p10ar.html, the mean income (not earnings) of 35-44 year-olds in 2004 was indeed 52% higher than that of 25-34 year-olds in 1994. But there are two problems with this point. First, the median growth was 33%, again revealing the problem of using averages when inequality is on the rise.

But here’s the bigger problem. Incomes almost always rise as families age, so L&B have that built-in a large bias into their comparison. As the table shows, however, all this growth occurred in the 1990s. Since 2000, the real income growth of both age cohorts has declined, by 6% for 25-34 year olds and 1% for the older group.

Real Average Income Growth by Age Cohort, 1994-2004

	1994-2000	2000-04
25-34	21.4%	-6.3%
35-44	14.2%	-0.8%

Source: Census Bureau

True, the table compares a boom with a bust (though 2001-04 are recovery years), but L&B are touting the impact of Bush economic policies on income growth, so this comparison is not only justified, it’s essential. Readers need to recognize that no matter how hard you twist the facts, you simply can’t make a believable case that the recovery has broadly reached working families.

L&B make a few other egregious claims in the piece—“the president’s tax cuts have made the tax code more progressive” (see http://www.washingtonpost.com/wp-dyn/content/article/2006/05/06/AR2006050600974.html for a discussion of how the opposite has occurred), showing that they’ve quickly learned the “up is down and left is right” logic of the Bush econ-agenda.

Such misleading analysis needs to be constantly challenged. Yes, this has been an exceptionally productive economy over the past five years, with output per hour up 18%, 2000-05. Yet the gap that so many Americans perceive between such top-line statistics and their own circumstances is real. When smart, reputable economists deny this reality, they do a disservice to their post.

Comments

[Ian D-B]

Bernstein here isn't that bad, but I do need to make one point about the EPI: they have the same problem that AEI, Heritage, and other policy advocacy organizations have -- I know the answer to the question before I read their opinion on it. The poor get screwed, somehow the market is broken and we need to do something to compensate low paid workers, median income is the best measure, etc. Their research certainly isn't wrong, per se, but they no doubt have a partisan line, and they always find data to support it (as an example of an alternative, maybe once they could release a paper that takes skill-biased technical change seriously, rather than just dismissing it out of hand (possible interpretations of my own work notwithstanding)).

[vtconomist]

Ian,

Isn't there something positive to be said for an organization such as the EPI that is watching out for the worst off among us? This is unlike the AEI and Heritage who generally are committed to (as Family Guy put it) helping those who can already help themselves.

I understand that you're concerned that the EPI has an angle that they are working from, but if their research is well-founded and logical is it right to assign them the same credibility gap of Heritage?

[save_the_rustbelt]

Power corrupts.

Apparently, being close to power also corrupts.

[pgl]

If all one had read was the opening and the closing paragraphs of this oped, one might have thought they were drunk on Kool-aid. While we can find some interesting portions of this oped, it does appear that Karl Rove had a hand in writing this. Alas.

[Charles]

By this same reasoning, Beethoven lived for 57 years, has been dead for 179, so 2.5% of his music has been written under George W. Bush.

(This is a Tom Lehrer gag, adapted for the occasion)

Ian, while it's possible for partisans to spin facts or select facts to create a false impression, it's impossible in a fair debate for falsehood to win. That's the essence of scholarship. If the EPI's view were wrong, I'm sure you could explain what they are missing.

As for me, the data paint a consistent picture of declining middle class standards of living. Lazear and Baiker's methods of presentation also paint a consistent picture: of hacks.

[joshb]

Ian

I work at EPI, so, I'm doubly-biased, I guess.

But, the foundations of my lefty politics are pretty empirically based: the poor do get screwed, many markets (insurance, say) are broken, many workers have indeed failed to share in produtivity gains, and, the median is surely a better measure than the average for talking about general trends in living standards.

Of course, many look at the same facts (and, that's what EPI argues with, facts) and come to different political conclusions. Fine, but, part of the value-added here is precisely to show that understanding economics does not dictate a particular political world view: too many people think that the discipline supports only conservative to centrist policy prescriptions.

I would think that pointing to a large fall in college graduates' wages is indeed "taking skill-biased technological change seriously". And, Jared and Larry have written a serious-by-any-measure evaluation of the SBTC argument in "Is the technology black box empty? An empirical examination of the impact of technology on wage inequality and the employment structure."

The link to it from our site is corrupted, but, it was serious enough to be cited by a bunch of the leading scholars in the inequality field.

I'd also argue that we don't really have a "partisan" line - we don't like Bush Admin policies, for sure, but, we (well, not me, i wasn't here yet) took plenty of shots at the Clinton Admin when they didn't do things we liked. We have a pronounced political outlook, but, it isn't partisan and it is driven by, not blind to, facts on the ground.

As evidence of the last, see the Benefits of Full Employment by Jared and Dean Baker - we're perfectly willing to point out when things are going well, like when the late 90s boom drove up wages for everybody.

joshb

[Miracle Max]

By Ian D-B's criteria, any academic economist who maintains a consistent position over a long period of time -- such as the dominance of "skill-biased technical change" in income inequality -- should be dismissed as an advocate. There is this common presumption that hewing to a centrist position or opinion makes one objective, while supporting a radical left or right one bespeaks bias. An economist who does well working for a corporation his or her entire life commands respect, while one working for a trade union does not.

Why are academics so stupid?

[Jared B.]

Here's a serious paper by us on SBTC, in a serious peer reviewed journal, with many serious implications:

"Technology and the Wage Structure: Has Technology's Impact Accelerated Since the 1970s?" (with Lawrence Mishel). Research in Labor Economics, Volume 17, JAI Press: Greenwich, CT. 1998.

I thought serious academics were supposed to keep track of this kind of stuff...

[Barry]

People who play that 'split the difference' game, IMHO, are more often dishonest than stupid. It's a way of avoiding having to take a position, and it favors both dishonesty and power. The liar doesn't mind splitting the difference between his lies and the truth; he gets more than he deserves, and can always lie more, to move that middle ground over some more. Power has more opportunity to propagate those views, and in that way can shift things over (not to mention that it's been a long time since I saw a 'contrarian' whose 'contrarianism' didn't end up supporting the position backed by more power).

[Barry]

People who play that 'split the difference' game, IMHO, are more often dishonest than stupid. It's a way of avoiding having to take a position, and it favors both dishonesty and power. The liar doesn't mind splitting the difference between his lies and the truth; he gets more than he deserves, and can always lie more, to move that middle ground over some more. Power has more opportunity to propagate those views, and in that way can shift things over (not to mention that it's been a long time since I saw a 'contrarian' whose 'contrarianism' didn't end up supporting the position backed by more power).