San Juan Mountains

San Juan Mountains
San Juan Mountains: Grenadier Range

Tuesday, February 3, 2015

Has Real Income Really Gone Down?

I am sick and tired of hearing people who understand nothing about economics tell me that working class families have suffered through a ten year period in which their real wages have declined.  Politicians repeat that lie continuously.  I understand they have hidden motives for doing so.  Politicians who are not in power make the proclamation as a way to get people stirred up against those presently in power in order to get themselves installed as our next generation of rulers.  Politicians who are in power make the same argument in order to justify additional government spending programs which are also, not surprisingly, designed to keep them in political power.  Media lap-dogs repeat the words coming from the mouths of their chosen career politicians in order to increase their ratings by appealing to the political biases of their respective audiences.  The entire process is self-reinforcing and before long nobody has any idea what is true about income in the Socialist Democracy of America.  Until today.  Allow me to enlighten you about personal income.
Here is a graph of real personal income for the SDA over the past ten years.  Look at it carefully and tell me if real personal income has declined over the past decade.  It should not be hard to tell if it has:

"Real" income is income that has been adjusted to reflect the rate of inflation.  In other words, the income levels that you see are not the gross values but they have been adjusted downward to the "real" value of income after inflation has been accounted for.  The chart above shows me that real personal income in the SDA was ~11.1 billion dollars ten years ago and ~13.7 billion dollars today.  That represents a 23% real increase over the past ten years.  How can that be considered a drop?  Yes, there was a brief short term decline in real income during the Great Recession but that was quickly overcome by the economic growth that took place as the recession ended and the present economic expansion began.
Here is a graph showing the Real Disposable Personal Income.  Disposable income is lower than personal income because the folks who make the calculations subtract several expense items they consider to be fixed from the total income figure.  Look at this graph and tell me if real disposable income has declined over the past ten years:

As you can see, the graphs are almost identical with real disposable personal income rising by ~21% over the past ten years.   There are a handful of strange blips in the graph where real disposable income rose dramatically for a short period of time.  I have no idea why those blips are there and I am far too lazy to do the research required to find out why they are there.  It is sufficient for my purposes that the blips are upward rather than downward.  Clearly real disposable personal income continues to rise.
The next graph shows real personal income per capita.  Take a look at it and tell me if the average citizen of the SDA has experienced a real loss of income over the past ten years:

Do you see any evidence of a loss of per capital income over the past ten years?  All I see is a net gain of 9% over the past ten years.  Last time I checked a net gain of 9% was not a loss of income.  In fact, it was a gain.  Granted, it would be nice to have had a net gain of 109% in real disposable personal income over the past ten years but we did, after all, experience the worst recession since the Great Depression during that period.  I am happy to come out with a gain.
So where do the people who keep telling us income has gone down get their information?  The next graph answers that question.  Here is a graph of real median household income:

Ah....finally we have a graph showing a clear downward trend.  What would you think about my integrity if I took this graph and declared that it represents reality in the SDA and then I followed that up with an announcement that people are making less money today than they were ten years ago?  That is precisely what the media and career politicians have done.  Do you see the flaw in their argument?  Can you figure out how it can be that all statistical indicators of personal income have risen over the past ten years except real median household income?
If you have not figured it out yet, let me give you a hint.  What variable has changed from the previous three graphs?  The new variable in the calculation is that income is no longer being calculated for the entire country nor is it being calculated for each individual member of the country.  Income is now being calculated by the household.  The problem is that, unlike the entire country and unlike each individual citizen of the country, the number of people in a household is subject to change.   In fact, there are significant changes to the definition of a household that have taken place over the past ten years.
Over the past ten years the total number of single person households has risen.  A single person household has only one wage earner within it.  Does it not make sense if the number of households with only one wage earner increases it is possible or even likely that household income could go down?  The flip side of the coin is that over the past decade the total number of two earner households has declined.  These are households in which two or more people used to work but only one is working today.  Quite obviously if fewer members of a household are earning wages it is going to be the case that total household income will likely go down.  The reason the real median household income has declined over the past ten years is not due to a real decrease in personal income.  It is entirely due to a change in the number of earners in the households of this welfare-ridden land.
Over the past ten years the number of people receiving welfare payments has skyrocketed.  Current levels of welfare benefits are the highest in the history of the SDA.  Simply put, there are more people dependent on the federal government today than an other time in SDA history.  According to the Survey of Income and Program Participation taken by the SDA Census bureau, well over 100 million citizens are now enrolled in at least one welfare program run by the federal government.  That is roughly one in every three citizens.  Consider these tidbits:
  • In 2000 there were 17 million people on food stamps.  Today that number is 46 million.
  • The number of SDA citizens on Medicaid grew from 34 million in 2000 to 54 million in 2011.
  • The number of SDA citizens receiving federal housing assistance funds increased by 42% between 2006 and 2010.
These are just a few of the many grossly expanded federal welfare programs.  Now let me ask you a question.  If you were a member of a family that is living on the margin of a federal wealth transfer program would you choose to keep working or would you quit and get paid a little bit less to be on a permanent, government financed, vacation?  Millions of people have made the entirely rational decision to quit and let the federal government finance their permanent vacations.   Now let me ask you another question.  Do you think this behavior could be at least partially responsible for why fewer family members are working today?
I conclude that despite what we are being told, real personal income is rising.  I also conclude that median family income is going down but not because income is going down.  I conclude that median family income is going down because more people are getting divorced, more people are shacking up and more people are going on government welfare programs. 

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