In terms of labor hours unemployment, it seems likely that unemployment went up two ticks ...

... because while the headcount unemployment rate was up 0.1%, the average hours worked number was also down 0.1% ... so it seems likely that quantitative underemployment rose along with headcount unemployment.

I heard the sky was falling.  But as 'm not in the top quintile of the wealth, I bump my head on the sky everyday anyway.

I take your point re the noisy stock market--it's not the tail that wags the economic dog.  But the volatility around the downward trend is probably telling us something important, and negative, about credit, investing, and the forthcoming pace of economic activity.

For what it's worth, I just got in to the office and received a new forecast from Merrill Lynch based on the dynamics I describe in the post.  They've sharply reduced their GDP forecast to 1.5% next year, about half the underlying potential.  They predict unemployment will be up to 5.8% by late '08! 

I hope they're wrong and don't imply that one should necessarily take such a forecast seriously--economists compete with weather-persons on this front.  But it does clearly unfold from the economic dynamics I describe, which is why you wouldn't want to ignore them. 

I did read that book review, and had a similar reaction to yours,  I think.  Gross and Frank are right that relative comparisons are important, but absolute income trends matter a lot too.

As I see it, the first economic question many middle and lower-income families face is not, "how am I doing relative to others like me," but "how am I going to make ends meet, given I just filled the tank, did the shopping, bought the school supplies, paid the health care premium, and barely had enough left for a vente, much less putting a little something away for a rainy day/college fund, etc..."

I've argued elsewhere that absolute income matters not very much at all. In your example, you didn't say "barely enough for a donut" but rather a "vente", a Starbucks offering. Why Starbuck's? Because Dunkin' Donuts is frequented by a different class, who often don't have a tank to fill.

If we still reflect our heritage from the last hundred thousand years, we will echo the behavior of our ancestors, who had lots of free time in which to argue and compete. It is because of this need to compete that wealth disparity matters. Even when one is near the bottom, if one has reasonable hope one can be energetic in striving, like lots of garage bands and backlot basketball players. The various forms of show business still allow for the possibility of making it all the way to the top even when starting from way back.

But this is not the case in society overall, where, starting from a bad neighborhood, one will absolutely never be welcomed to the Skull and Bones Society. One will never be a hedge fund manager, or President.

The American Dream has lots of fine print these days, and everyone knows it. That this may be less the case in France or Canada is likely a major factor in their greater happiness.

I found the book review puzzling because Gross seemed to think that Frank has a new idea.

The notion that wealth is relative has been around at least since Marx who wrote: "A house may be large or small; as long as the surrounding houses are equally small it satisfies all social demands for a dwelling. If a palace rises beside the little house, the little house shrinks into a hut."

As usual,Mencken put it more succinctly:"a wealthy man is one who earns more than his wife’s brother-in-law."

Of course, if you're homeless, you're not worrying about the size of the house next door.

And so, to an extent, I agree with Bernstein that
people who are worried about making ends meet
spend a lot less time comparing their wealth to others.

Nevertheless, I do think that even the working class and middle class try to "keep up with the Jonses." Certainly their children want to wear the clothes that other kids wear, and so everyone's idea of a decent pair of sneakers has
soared in the last twenty-five years.

And in other ways our idea of a middle-class standard of living has risen: in very warm regions of the country middle-class families expect to have air-conditioning (if only in certain rooms.) They hope that their children will go to college (if only a community college).
They expect to have a dishwasher and an array of electronic devices in their kitchens. The neighbors have micro-waves so it seems reasonable that you should have a micro-wave . .

But--and this is a big But--many middle-class famlies can afford to have the things they associate with a middle class lifestyle only by going deeply into debt: carrying large balances on their credit cares, taking out student loans for college that it will take years to pay off,
refinancing their homes until they have little or no equity left, while saving very, very little for retirement.

So while our notion of a middle-class lifestyle may have risen, this is not a sign that the middle-class is better off. Because real wages haven't risen, they are not earning enough to support a middle-class lifestyle.

These famliies are at risk. One minor catastrophe (a fire, an illness that isn't fatal, but requires a few weeks of hospitalization) and these families can go from being "middle-class" to being bankrupty and homeless.

The problem is that people are forced to spend more than they earn. Sure, some of that money is spent on gadgets that they could do without (like the microwave) but much of it is spent on things that are necessary to middle-class life--the college education, a home in a relatively safe neighborhood, back-to-school clothes so that other children won't tease your kids . . .

Re: They've sharply reduced their GDP forecast to 1.5% next year, about half the underlying potential. They predict unemployment will be up to 5.8% by late '08!

2008 is an election year. When was the last time there was a serious increase in unemployment during a presidential election. Not 1992: the recession was already easing. Not 2000: the fall was postponed until 2001. So, 1980? And we all know what happened to the party in power that year. For that reason I expect the Bush administration to do whatever it takes to fob off any increase in unemployment next year (even at the risk of greater inflation). Of course, it is possible that the administration's celebrated incompetence will be in play in this too, and the result will not be what was hoped.

Not sure of all the reasons, but it's partly a result of the surge in incomes at the top of the scale, where, even with reduced tax rates, the system is still progressive enough to pick up more than the expected revenues.

As this CBO doc explains, much of the increase in revenue is from higher receipts from corporate taxes:

http://www.cbo.gov/ftpdocs/81xx/doc8116/05-18-TaxRevenues.pdf

And no, this doesn't prove supply side economics.  Under that witchcraft, revenues rise not because rich people and corporations claim all the growth, but because labor supply, investment, and productivity increase, none of which have occurred.

Good post, Jared. Appreciate the amount of data in it as well as the judiciousness shown in eschewing hyperbolic rhetoric. Only comment that comes quickly to mind is that you don't discuss the extent to which foreign labor competition is driving the outcomes you identify.

But fyi, both unemployment and avg hours per week can fall if more part-timers get jobs...not sure if that's happening now.

The unemployment rate, certainly, but if those part-timers are not voluntary part-timers, and are replacing full-time work, it is easily possible for the headcount unemployment rate to decline, while unemployment itself is increasing. Spreading unemployment around by having more people employed part time for fewer hours than they wish to work does not eliminate unemployment, it simply avoids it being counted in the headline unemployment rate.

I was called in to work two weeks ago to help move furniture around ... that showed up on my paycheck as a total of 2.3 hours of work for the week, and in the headline unemployment rate I would be counted as employed, but that is far from being fully employed for the week.

Ley's remember that having wealth when others don't is not just a matter of a nicer car. It matters for the survival of one's progeny. The dying-off of lower classes in the Middle Ages has meant that most people in the UK are descended from upper classes. This is the conclusion of an economic historian, Gregory Clark, who tallied ancient wills. The results surprised him (although they shouldn't have); the rich had more surviving children, generation after generation. (The work will be published in a book "A Farewell to Alms", Princeton University Press.)

BTW, don't know if it's made-up like the mommy wars, but a recent radio piece maintained the wealthy are heading back to large families.

Farmers were wealthy, if you mean the landowner.

The work will be published, it uses publily available data, and I imagine the correlation is valid, as long as one accepts the sample criteria. I don't know how wealth was measured.

It's not only, or even mostly, health that matters. Even if both classes had equal health, the upper classes would marry off everybody, while the lower classes would miss opportunities while waiting to marry upward. Mate selection acts both more quickly and more completely than small survival differentials like disease resistance.

But the survival issue comes up when disaster strikes. For example, a catastrophic epidemic would separate out those that have somewhere to go and ride it out (very effective disease resistance). This was common in the plague years, with both Galileo and Newton escaping to the country during their respective bad times. And Trent Lott will be rebuilding.

Re: For example, a catastrophic epidemic would separate out those that have somewhere to go and ride it out (very effective disease resistance).

Did the rich really have superior disease resistance way back then? Medicine was primitive so even though they could afford doctors those doctors may have done more harm than good. There are too many examples of high childhood mortality even among the richest. For examplee Queen Anne of England had ten (I think) children, not a one of whom lived past nine years of age. And from the age of the Black Death we have the Danse Macabre, a weird mime act in which Death leads all members of societym, rich and poor alike, off to the grave, reflecting the reality that the plague scythed through all classes.
As far as mate selection goes, the upper classes tended to have family-arranged marriages, contracted for reasons that took little account of compatibility let alone love. Childless marriages were not unknown when husband and wife found each other unendurable and yet lacked the remedy of divorce.

Hmmm, re: richer=got better nutrition. I don't think you can look at it that simplistically.

Where you might be able to make a generalization is in rural v. urban. There's a gazillion anecdotal examples in literature of rural farm life being considered much more healthy than living in urban situations. There was a reason you went to the country for a "cure," sewerless towns and cities breeding grounds of infections and with fetid transported or poorly preserved food.

The urban rich in many periods ate dangerous junk, too, just expensive dangerous junk. As to massive infant mortality rates, just think about the old nostrum of getting yourself a stout hale and hearty country gal with a big pelvis for yourself if childbearing is what you want, the slyph-like anemic aristocrat poetry reader can't handle childbirth. Come to think of it, using the knowledge we have now about the benefits of breast milk, one area where the aristocracy might have had a leg up in bringing children to adulthood was that they used women of peasant stock as wet nurses, and perhaps a variety of them was better than using just one. But I dare suggest that country people got better "health care" with midwives and folk treatments than with quack doctors serving the wealthy.

Don't forget the effects of daily violence of life as well. The more you stayed with tribe, the less traveling and mixing, the better chance in avoiding it.

There's just so many factors....

The funny thing about selection is that it happens whether you notice or not. To conclude there is no trend in selection in response to astonishing changes in living conditions for humans, compared to the thousands of years before history, and more recently, the industrial revolution is to ignore reality.

But what is the trend? That's harder, of course, and I don't endorse this conclusion. It's merely a possible factor among others. Her's one of those other factors affecting selection--droit du seignuer. How many lower-class men had the opportunity to impregnate multiple women they weren't married to? I hear the genetic signature of Genghis Khan is found in several million Mongols. "This American Life" had a story segment on a blues singer that knew of fifty children to his "credit".

It is a mistake to discount genetic drift due to selection, and say everything is cultural, meaning learned after conception. The payoff for achieving higher status (more mate choice) neatly explains the need to keep ahead of the other guy, and the lack of overall happiness in spite of our apparently better economic conditions now (as opposed to a hundred years ago, say). It explains why someone with a fortune in the billions keeps increasing it. It explains why a country's leader, having run out of competition at home looks for wars.

No one claims there is only genetic evolution, but many people claim there is only social evolution. Just ask, who has children and do they marry and have their own? We have been through ups and downs in this, with only the wealthy having large families in some eras, and only the poor in others. And of the poor, large, families, in some eras only one or two made it to adulthood. I've read novels from Victorian England and a common circumstance was someone not considering marriage because he lacked a good "position", a job. This likely was more an issue in middle classes than lower, but it's been an issue for a long time. Versions of this are involved in arranged marriages and in the practice of dowries. Also involved is primogeniture, eldest sons inheriting the land (and income). To whatever extent the character of that firstborn is genetic, his attitude gets replicated preferentially.

For there to be no effect (by the industrial revolution) is not credible, but exactly what is debatable.

I agree Clark's argument isn't compelling, but it would be expected that some effect would occur.

Accumulation of random mutations takes a really long time, but events can accelerate that, witness the genetic signature of resistance to the Black Death, very visible in parts of Europe. Smallpox resistance conferred some advantage to Europeans in the New World.