Third Way Lost
Promising to "explode the myths of populism," the Third Way issued a new report today with rosy statistics about the prosperity of the middle class. The problem is that the stats are loaded.
The lead statistic is that median income in the US is "around $70,000, not the $45,000 that most progressive economists cite." The numbers cited by "progressive economists" are plain old Census numbers, not some flukey, small-sample study. What Third Way doesn't say in the press release is that they arrived at the new $70,000 number by cutting out all young earners and all old earners. Since those age groups tend to have lower incomes, income for the remaining subset increases. This is just a third-grade math trick: cut out those who make less money, and the median rises. Third Way might have added that if you cut out those who earn more money, the "median" income is lower. Either way, cutting out wide swaths of the population doesn't change the fact that the family in the middle earns $45,000.
Third Way engages in a similar sleight of hand by noting that married couples are earning more each year. I wrote a whole book about that, but I didn't see it as good economic news that the only way a typical family in America has been able to increase its income has been to send more people into the workforce. Yes, two paychecks tend to be larger than one. But the harsh reality remains: A fully-employed male today earns less (in inflation adjusted dollars) than his father earned back in 1972. That's not progress. And for everyone trying to live on one income, or paying for childcare and more transportation costs to try to pull in a second income, life looks a lot tougher than it was a generation ago.
Some of the Third Way proposals are good, but I don't understand this enterprise. The Third Way paints in hues of pinks and reds by leaving out the old, leaving out the young, and leaving out the singles. Then it criticizes others for "mischaracterizing" what is really happening to American families.
Is the Third Way Lost?
Elizabeth highlights the complete unreliability of statistics in supporting facts anymore. You can find a set of statistics to support just about any position you have.
For example, you can use government statistics on black home ownership to prove that black Americans are doing better than ever in this country. Is that true? Not if you review the stats issued by the NAACP. One set of stats says seniors are happy with the prescription drug benefit. Another says they want changes.
Americans are assaulted every day with numbers from stats and polls that quickly become meaningless for the objective mind. However, for the ideologically-driven thinkers they've never had it so good. They can find all the stats they need to back up their particular POV, and re-inforce their pre-conceived notions. Could this be one reason America seems to be more polarized?
February 14, 2007 8:42 AM | Reply | Permalink
Brook's comment seems excessively cynical in a way that introduces unintended bias. Certainly one can lie with numbers. One can also lie with words, and Bush did that extremely well with Iraq and Iran, say. Pehaps the liars are better than even under Nixon or Reagan, but more likely just more consistent, more ruthless, more able to count on lockstep behavior from Republicans in Congress and media spokesmen, and more easily swallowed by the media. (See the joke in Tom Tomorrow's blog this week that Michael Gordon of the Times coverage of Iraq is really a tape recorder bought by Bill Keller at Radio Shack as a gag.) And there's no evidence that numbers themselves have a greater tendency to lie than before.
John
http://www.haberarts.com/
February 14, 2007 9:07 AM | Reply | Permalink
I saw a David Brooks column on Third Way the other day, in which he portrayed the group of economists as internationalists, and argued that the Democrats have few presidential candidates enthusing about international trade, economy and expansion.
Prof. Warren: What's your take on the Brooks column's points?
Here's a link: Who's Afraid of the New Economy?
February 14, 2007 9:32 AM | Reply | Permalink
What's Brooks's point? He's simply regurgitating the same misleading statistics Prof Warren outlines in her critique. From Brooks:
Dissent Protects Democracy.
February 14, 2007 9:58 AM | Reply | Permalink
I may lack the instincts of a true progressive and I’m not sure exactly who the neo-populists are, but I find the reports assertion about middle-class incomes somewhat cheering:
“The “real” middle class is made up of households in their prime working years, ages 25-59, 75 percent of whom are couples and 56 percent of whom are couples with two earners.
The median income of these prime age households is more than $61,000.
If it is a married-couple household, the median is more than $72,000.
And if both spouses work, the median is more than $81,000.
This is not an exuberant standard of living, but it is a comfortable one. And it is the difference between struggling to get by (as the neopopulists posit) and struggling to get ahead.”
I confess that I am cheered at the thought that the median ( 25-59 yr old) married couple is making better than $70K.
Yes, this includes households where both spouses are working, but “hey”, this is the 21st century and many folks want to live in households where both spouses work – not to buy a second Lexus, but because that is what they see as an appropriate way to spend a middle class life in America.
Sure, things could be better, but my fast read of “The New Rules Economy” from The Third Way is more comforting than distressing.
I don’t find their approach to slicing the data deceitful. Firstly, they are completely transparent about the slicing and,secondly, households headed by 22 year olds and households headed by 74 year olds really do have a different pattern of consumption and needs than the cohort in the middle.
I am sure that Robert Reich can slice the data in ways that seem more worrying – he is very talented at the Chicken-Little use of economic statistics.
But I think that The Old Rules/NewRules concept which is at the center of the paper’s argument seems intuitively correct. Middle Class life in 2007 is different from middle class life in 1957 – but that is not necessarily bad….just different.
Are you shocked by these differences:
Old Rules
1. Success required a high school diploma
2. “Good” jobs were in factories
3. Climbing the ladder meant rising up the ranks within a single company
4. The American dream meant owning a home
5. Wealth was managed on behalf of workers
6. Most mothers expected to stay home
7. A family raised its children
8. Successful companies built
9. Competition was limited
New Rules
1. Success requires a college degree
2. “Good” jobs are in offices
3. Climbing the ladder means chasing opportunities with multiple employers
4. The American Dream means owning a home and a stock portfolio
5. Workers need to manage their wealth
6. Most mothers expect to work
7. A family now raises children and cares for parents
8. Successful companies create
9. Competition is fierce
Yes, we can argue at the margins about the data, but for a big slab of families in the middle, life ain’t so bad.
Life at the bottom sucked then, and it sucks now.
And, for sure, “W” has improved the quality of life of the very rich.
There is work to be done, the human enterprise is not yet perfected. But the sky is not falling in on the American middle class.
Professor John Stuart Blackton
February 14, 2007 10:24 AM | Reply | Permalink
I am not sure what as a poliitical matter is gained by adding older and younger workers. I the Democratic party is going to advocate policies whose primary goal is to raise the incomes of peole that are largely age related then over the land term it will be a losing argument. Shoring up retirement and healthcare via smart social insurance programs makes a lot of sense. However, just as Bush can't convince people they are economically better off than they feel, a staple on CNBC, Demcrats are unlikely to make most Americans feel poor.
Daniel A. Greenbaum
February 14, 2007 12:04 PM | Reply | Permalink
Excellent reply. I wasn't going to say anything, but I think I will.
I agree with much written on the Warren Reports and I agree with Professor Warren’s overall views on the struggling middle class, but this post is disappointing. Professor Warren, you can critique Third Way’s decision on how to analyze the data, but to act like it was just a “trick”, implying it was unethical, I would have hoped was beneath you.
They openly say in both the press release and the report what they did. They looked at those aged 25 to 59. They did not try to hide it. Most people involved in data analysis make decisions about what data to use, and they are expected to have justifications for what they do. It seems to me there are valid, though debatable, reasons for what they did. People under 25 are very often in college or school of some form and are not set in what career to pursue. They may make a little bit of money during summer vacations, but nothing else. Do you really think a “family” consisting of a 19 year old working part-time in the summer should be included in an analysis of how the American family is faring? Relatedly, people 60 and over are very often retired and are living off savings. Both of these groups should have lower costs (no kids, less likely to have mortgages (either paid off or not started), parental support, etc.) The typical American family with kids at home, mortgages, saving for retirement and college, etc., is in the age range they chose.
I thought you yourself analyzed numbers, so surely you know that if you are going to critique someone’s analysis decisions you should criticize the justifications, the ages they chose (why not 65 and 23 instead of 59 and 25?), etc. To imply that they just chose that group to boost their numbers and not address justifications (the fact that the people in the ages they cut out have a different set of “goals, pressures, and desired outcomes”) is unfair. Surely you eliminate outliers, choose groups on certain criteria, etc. I doubt you would like it if someone implied that you cut out outliers with no justification or that you chose to analyze something a certain way just as a “trick.”
Like I said, I actually agree with you on many things and I hope you didn't mean the post to come off as implying they were being unethical, but I think it did.
February 14, 2007 12:08 PM | Reply | Permalink
Ms Warren says:
Apparently the good folks at Third Way are out to debunk "populism," as the title of their press release indicates:
They also are eager to paint progressives as "out of touch" with ordinary Americans:
Now let's see, on their "Middle Class Project" page they have press releases favoring expansion of the H1-B visa program; (sort of) warning against using "direct negotiation" to bargain down prescription drug prices, and absolving drug companies for any of the problems associated with the Medicare part D fiasco; and arguing that deficit spending hurts the middle class. Not exactly Lou Dobbs material.
Then if you look at their board of trustees, you have: the global head of equity trading for Goldman Sachs, a founding general partner of a private equity firm, a former associate of "a New York-based investment fund with over $15 billion in invested capital," a managing director of Morgan Stanley's investment banking division, the former CEO of a mall development corporation etc. etc.
Of the 17 trustees listed, at least 14 are closely connected to finance, real estate, or corporate law.
So yeah, I wonder why they are so intent on debunking populism and progressivism.
February 14, 2007 1:29 PM | Reply | Permalink
It would seem very reasonable if comparing changes in median household income to exclude the very old. This is because over time this group is growing and the purpose of comparing median income over time is to assess improving ot diminishing wellbeing. Since the very old spend more than their income, their incomes unlike younger working people understates their wellbeing.
Most people see their peak earning years from about 45 to 55 years of age. Its not uncommon for non-rich to be income rich for a few years in that time span.
The sons of the prophet are noble and bold,
and quite unaccustomed to fear.
But the bravest by far in the ranks of the Shah
was Abdul Abulbul Amir
February 14, 2007 1:42 PM | Reply | Permalink
Re: 2. “Good” jobs were in factories
Factory jobs may have paid well (at least in heavily unionized areas) but they were never “good” jobs: they were monotonous, exhausting and sometimes even bad for one’s health and downright dangerous. The good jobs were in white collar work even in the 1950s. We should shed no tears over the disappearance of so many factory such jobs as such. The issue is rather that nothing has taken the place of factory jobs for those with only a high school diploma: most are stuck in dead end service jobs, with poor pay and few and no benefits.
Re: A family now raises children and cares for parents
This was certainly true in the past as well, perhaps even more so as the affluent elderly were far less numerous and the impoverished elderly more common. Both my grandmothers lived with their children in their final years.
February 14, 2007 3:20 PM | Reply | Permalink
The "CPS" or "Current Population Survey" is a joint effort between the BLS and the Census Bureau,
http://www.census.gov/cps/
and was used by the Third Way in their report.
http://www.third-way.com/data/product/file/71/new_rules_economy.pdf
Third Way focussed on "family" households.
http://www.third-way.com/press/release/32
This means that single people don't count. Big problem. See the defs below**.
Also, I would like to see the numbers re-run with families of people aged 60-64 included. According to the link immediately below, more than 50% of such people are employed. The really big drop in employment does not occur until age 65+. Most people aged 59-64 are married, and most are working because they need to, so why exclude them?
http://stats.bls.gov./cps/cpsaat3.pdf
I also object to the exclusion of people under 25 from a survey of "family" households. Under the definition "family household," income of students living at home and working part-time would count to make their parent's family household seem wealthier; but the income of poor students (ah, memory) living at college and working part-time does not appear in this survey of "family households," because they would be counted in "non-family households" unless they are married, see the defs below**, but then again even if married they are likely to be under 25, so they're probably excluded either way.
So, Third Way is ignoring families where the wage earners are between 20 and 24, perhaps the poorest segment of the working class. Further, according to the immediately above BLS link, 68% of people aged 20-24 are employed. In light of their situation, why exclude them? What would the effect on their numbers be if this segment had not been carved out?
To sum up, they exclude single people of whatever age; they exclude families of people age 20-24; and they exclude families of people aged 60-64. All of these segments participate substantially in the workforce, and IMO should not have been carved out in a good-faith study.
**http://www.census.gov/population/www/cps/cpsdef.html
February 14, 2007 3:53 PM | Reply | Permalink
This seems suspect to me. You take only the prime earning years and then you take only those with "prime" family and working situations. People divorce, one spouse loses a job or is out of the workforce for a variety of reason including the kind of chronic disabling illnesses that may strike in your 50's. Next, they'll be claiming that no safety nets are needed because they've excluded anyone likely to need a safety net from their sample.
Funny how Lou Dobbs seems so much easier to relate to than so many Democrats these days.
Point me to the 4th Way, please.
February 14, 2007 4:00 PM | Reply | Permalink
I would add that The Third Way's definition of the Middle Class should be respected when it comes to politics. (20-24 year olds and the very poor don't vote in large numbers)
Are Kansas voters really voting against their economic interests when they vote Republican? Are middle class voters really hanging on by their fingernails? Should the Democratic Party go down the populist road?
A $70,000 family income can, as David Brooks points out, purchase a reasonable middle class life style in most areas of the country not to mention the fact that employers cover the bulk of health insurance costs for over 50% of their workers.
Voters don't appear to be doing as poorly as some would make them out to be, and the Democratic Party should keep that in mind.
N.B. Anayses that tell us how the median voter -- not class, not gender, not age group but voter -- is doing should be welcomed.
February 14, 2007 5:28 PM | Reply | Permalink
A majority of persons aged 20-24 and, separately, persons aged 60-64, are employed. The big retirement drop-off happens at 65.
http://stats.bls.gov./cps/cpsaat3.pdf
February 14, 2007 6:29 PM | Reply | Permalink
Maybe this example will help. Assume that all 25 year olds make $25,000 a year, and all 45 year olds make $45,000 a year. Further assume that holds true over time.
Now assume that the population is 60% 25 year olds and 40% 45 year olds in 1987. The median income is below $35,000.
Now assume that 20 years later the population is 40% 25 year olds and 60% 45 year olds in 2007. The median income is now above $35,000!
But so what? There has been ZERO change in anyones income prospects. This why it is good to compare like age groups over.
The sons of the prophet are noble and bold,
and quite unaccustomed to fear.
But the bravest by far in the ranks of the Shah
was Abdul Abulbul Amir
February 14, 2007 6:35 PM | Reply | Permalink
We certainly welcome criticism, but we were taken aback by Professor Elizabeth Warren accusing us of using “a third grade math trick” in the report. As John Stuart Blackton notes, the methodology is logical, appropriate, and painstakingly laid out.
Economist and sociologists who study well-being virtually all agree that “permanent income” (i.e., the average family income over a lifetime) is the best measure of an individual’s status. For example, it makes little sense to classify graduate students in professional schools as being part of the poverty population even though their current income would put them in this category. Counting older people is also problematic because they have lower expenses—e.g., no taxes to be paid, often no mortgages, etc. In one survey of the retirees, 75 percent said that they lived as well or better than their life styles in their early 50s despite currently having incomes that were only one-half of those earlier incomes (http://www.ebri.org/pdf/briefspdf/EBRI_IB_01-20061.pdf).
For these reasons, the report follows the common practice of looking at the incomes of 25 to 59 year olds as being the most accurate reflection of people’s permanent incomes. In other work, 15 year averages of family income also find that the share of households with low incomes declines dramatically as compared with the single year estimate based on the entire population. Nonetheless, we used a single year (the most recent one available) in this report in order to get the most conservative number.
Perhaps, there are other numbers in the report (http://third-way.com/products/71) that Professor Warren would find objectionable. If there is a better, more accurate number or methodology we’ll use it. But we are ready to stand by every number and explain why it was used rather than a different one. Dueling statistics can be dull; but it is necessary in this field because a lot of people do “cook their numbers” to make their point.
Stephen Rose, Senior Economics Fellow, Third Way
February 14, 2007 7:08 PM | Reply | Permalink
I strongly disagree that it is "unproductive" to point out who is paying for your research, or that the resulting economic policy recommendations seem to favor a pro-corporate line. I will, however resist the temptation to retaliate in kind.
Instead, let's extend the story back to get a better picture of what populists and progressives are complaining about.
These family income data come from the US Census website. It's CPS data for all families, not just married families, but I think they are comparable to what you have used.
Family Income, All Races, 1947-2005
Percentile
Year 20th 40th 60th 80th 95th
2005 $25,616 $45,021 $68,304 $103,100$184,500
1979 $24,570 $40,402 $57,239 $78,817 $126,442
1947 $11,758 $18,973 $25,728 $36,506 $59,918
So the income of the 60th percentile here is close to the median for your data.
Translate into average annual growth rates. The growth rates for 1979-2005 are similar to the ones you report for the 10th-90th percentiles of the distribution in your data.:
Family Income Growth
Percentile
Years 20th 40th 60th 80th 95th
1947-79 2.3% 2.4% 2.5% 2.4% 2.4%
1979-05 0.2% 0.4% 0.7% 1.0% 1.5%
Family income growth was practically the same for all income groups between 1947 and 1979. Income growth since 1979, however, has been skewed toward the top of the distribution, and families well up into the upper half have been impacted. Although income growth is slower for everyone, the top 5% of families saw their income growth rate fall by 40%, while those even in the 60th percentile saw their growth rate fall almost twice as fast
This, in a nutshell, is the core of the populist/progressive critique of the US economy. it is not delivering the goods as it once did. Overall income growth has been slower since 1979 and less equally distributed. Progressive/populists think that (if I may be allowed to speak for them), with the right policies, that the economy can grow faster and that the fruits of growth can be shared more equitably.
These policies might include -- refocusing fiscal and monetary policy on fighting unemployment, defending and strengthening social insurance by preserving or even expanding Social Security, beefing up income supports like unemployment insurance, the minimum wage and EITC, and establishing universal health care, and instituting global labor standards to mitigate trade-induced downward pressure on wages.
These policies would help reestablish the kind of economy middle-class families enjoyed between the 1950s and 1970s - one in which prosperity was more equitably shared by poor, middle class, and rich alike.
February 14, 2007 10:30 PM | Reply | Permalink
Ellen:
I would love to make $70K a year here in Oklahoma, but, in reality, most of those $70K family incomes are in places like California, where it probably costs more than that to maintain a middle class existence.
Satellite Sky Blog
Find the Truth. Do Justice.
February 15, 2007 5:45 AM | Reply | Permalink
Is it not, perhaps, the case that the populist/progressive critique tends to put too much weight on an era which is unrepresentative of the historical American economy -- namely the period 1947-1979 known to economists as the Great Compression?
If the natural state of a capitalist economy is a condition of substantially unequal incomes, then, the modest "insurance" proposals we liberals are suggesting would seem to be little more than modifications around the edges.
February 15, 2007 6:36 AM | Reply | Permalink
Some of you may be interested in these comparative international stats:
More fun statistics on 'culture' and 'prosperity'One of the failings of libertarian type thinking is that everything is reduced to measurement by money. Since the US just came out second to last (the UK was at the bottom) in a UNICEF report on child welfare we can see that wealth is not an adequate measure of a society's success.
ThirdWay seems to be another on the increasingly popular astro-turf organizations. When a group proposes policy changes it doesn't help their credibility if they obscure the source of their funding. In case you haven't heard the term yet the astro-turf groups that now set up blogs to shill their agendas are being called "flogs" - that is fake blogs.
--- Policies not Politics
Daily Landscape
February 15, 2007 7:03 AM | Reply | Permalink
No, I don't think so. I'm not enamored of theories about "the natural state of a capitalist economy." With good policies and well-designed institutions you can have better economic outcomes.
February 15, 2007 7:57 AM | Reply | Permalink
Re: We certainly welcome criticism, but we were taken aback by Professor Elizabeth Warren accusing us of using “a third grade math trick” in the report.
What in the world is sound about eliminating several classes of low-income people from the study and then drawing the conclusion that prosperous people are, well, prosperous? Haven't you just proved a tautology? You could justify removing the retired and full-time students from your study, but not people who are in fact in the work force full-time.
February 15, 2007 9:23 AM | Reply | Permalink
You beat me to it. These guys probably donate to the DLC. The Third Way creeps are trying to pull the Democratic party to the right. Why, I have no idea. Their statistics are easily debunked, as Ms. Warren does exactly that.
February 15, 2007 10:10 PM | Reply | Permalink
Taken back? Face it, your board is filled with very wealthy people. Is there anyone on your board that has a net worth under a million dollars, much less a half a million? You are pushing pro corporate positions. Have you tried living on $30,000/yr lately? I didn't think so.
February 15, 2007 10:15 PM | Reply | Permalink
Speaking of people under 25, these same people who want to exclude this group from U.S. income statistics are keen to include them when claiming large unemployment in European economies.
February 17, 2007 9:45 AM | Reply | Permalink
Regarding the average income being "comfortable enough" for most people: It has almost no meaning on a national basis. I assure you th at $72,000 is indeed sufficient to live a comfortable existence where I grew up, in Pittsburgh, but I would be shocked and amazed if $72,000 is any kind of average income there, even for couples. I don't remember the distribution of population, exactly, but a big chunk of that $72,000 is probably attributable to those living in California and the Northeast Corridor where I can assure you $72,000 is more tight than comfortable, especially if you aspire to home ownership and a college education for your offspring. The other thing that this report does not do is to chart the income equivalent of the "r" value in investments: how stable are their incomes? This is something that has clearly changed -- even if you make a specific income there is a much higher chance that your individual income will be lower five years hence. You might be making more money but you are at full risk for what happens when the money goes away for whatever reason.
The sky might not be falling but it is increasingly frayed around the edges. In any event, the point of progressive policies, as far as I am concerned, is to meet the needs of those who cannot attain the average -- those who are laid off and told to retrain at the age of 40, those who are expelled from the work force through early retirement and cannot buy health insurance even if they can meet their monthly mortgage.
February 20, 2007 11:44 AM | Reply | Permalink