Boy, how out of touch is this Michael Kinsley column asking “Are we poorer than we used to be?”
Kinsley bases his case that it’s more of a feeling than reality on the fact that the nation’s gross domestic product has pulled even with what it was in the summer of 2007, before the recession.
Life did not seem so terrible for most people back in 2006 or 2007, did it? So why are so many people glum now? Why are so many actually suffering, losing their houses or their jobs? Why are there so many stories like the one on the front page of The Washington Post on Nov. 19 about a woman who used to be a nursing-home executive with a six-figure income and this year will clear $11,000 selling chicken dinners? Changes in GDP are not a perfect reflection of changes in the average citizen’s prosperity at any given time. But it’s not a bad one. Why does $13 trillion feel poor today, although as recently as 2007, it felt rich?
You’ve got to be kidding me. There aren’t any jobs, dude! The headline unemployment rate is camped out at 9.6 percent, twice what it was in 2006 and 2007 (and 0.1 percent below the annual rate in the nasty early 1980’s recession). The U-6 underemployment rate, which measures people who can’t find jobs, people who’ve quit looking because they’re so discouraged, and people who work part-time because they can’t find full-time work, is at 17 percent. More than one in six workers can’t find a full-time job. And jobs aren’t being created anywhere near fast enough to make a dent in those numbers. There is one job opening for every five unemployed people—and half that if you include all the underemployed.
Another reason Americans feel poorer than they did three years ago is that they are, in fact, much poorer than they were three years ago. The Federal Reserve measures this stuff. The recession has wiped out $12.4 trillion of American wealth—from a 2007 total of $65.9 trillion. That’s a 19 percent tumble in average net worth. Inflation has eaten away another 5 percent, too.
Where’d all that money go? The Dow Jones Industrial Average ended the summer of 2007 at 13,820. It ended today at 11,006 and you can bet lots of folks sold in 2009 as it ran toward its low of 6,626.
Meantime, most Americans’ wealth is tied up in their homes. The Case-Shiller national index shows the average value of a home is down more than a quarter since the end of the summer of 2007—and 30 percent from the peak. When your main asset tumbles like that while your 401(k) gets massacred and you lost your job or are on tenterhooks around the office, you tend to feel bad about stuff.
In fact, nearly one in four homeowners owes more on their mortgage than their home is worth. In the Las Vegas region, which in 2007 was still the fastest growing boomtown in America, more than 80 percent of homeowners are upside down.
Then there’s median income, which stagnated during the last decade and which has tumbled since. Since 2007, median household income has fallen 4.2 percent to $49,777. Four percent may not sound like much to well-off Washington pundits, but it’s a big hit when you’ve got bills to pay on fifty grand a year.
And far more Americans are really, actually poor—not just feeling poorer. The number of folks on food stamps has soared from 26 million in 2007 to 42 million this year, a whopping 62 percent increase. And while you qualify for food stamps if you earn 30 percent above the official poverty line, I can tell you having been on them as a kid—if you have to use them, you’re po’.
Kinsley doesn’t touch on any of this. He mentions two reasons for this “feeling,” one of which is soaring income inequality, which is indeed a big factor. The other is not:
Among them, the relation between making or having money and feeling prosperous is far from linear. America’s GDP in 1985 dollars back in 1985 itself was $6.8 trillion — barely half what it is today. Yet 1985 was the apogee of President Ronald Reagan’s “morning in America” boom, when you were far more likely to find stories in the media about chicken-dinner sellers who became nursing-home executives than the other way around. In judging our own prosperity, we don’t compare it with long ago — or even 20 years ago. We compare it with how other people are doing and how we ourselves have been doing recently. It’s no comfort to be told that you’re a thousand times richer than a caveman. If a caveman killed a wildebeest, he felt rich and actually was rich by the standards of his time.
A more important reason that $13 trillion doesn’t feel as rich this time as the last time we passed through it is the increasing inequality of wealth and income. In 1984, a family income of $81,365 (2009 dollars this time) put you in the top fifth of all American families. In 2009, it took 23 percent more, an even $100,000. To make the top 5 percent required income of $180,000 in 2009, compared with $68,500 (in 2009 dollars) back in 1984.
Why would you use 1985 dollars to talk about 1985 GDP, and 2010 dollars to talk about 2010 GDP, but use 2009 dollars to talk about 1984 median income a paragraph later? There’s no good reason. And sure enough, using uniform numbers seriously undermines Kinsley’s case.
If 1985 GDP was “barely half what it is today,” as Kinsley says, what’s a dollar worth in 2009 compared to 1985? Fifty cents. Comparing these two numbers without adjusting for inflation is totally misleading.
If 1985 GDP was $6.8 trillion in ‘85 dollars, then 2010 GDP (as of the third quarter, which I think is Kinsley’s measure) was $7.3 trillion in ‘85 dollars. That’s a real increase of just 7.3 percent over a quarter century. To put it another way, 1985 GDP was “barely” 93 percent of what it is today.
But that’s not all the mess Kinsley makes of the numbers. Check out his second paragraph:
I ask because after the most severe recession since the Great Depression, and with a slow recovery, the U.S. economy, nevertheless, is back to producing about as many goods and services as it did in the third quarter of 2007. Adjusting for inflation and using 2005 dollars, our seasonally adjusted gross domestic product was $13.268 trillion in the third quarter of 2007. Three years later, it was $13.277 trillion. If you want to account for population growth, push the time machine back to the fourth quarter of 2006, when Jack Abramoff copped a plea and the real seasonally adjusted GDP was $13.060 trillion.
Say what? Why would you adjust for inflation to 2005 dollars? And how does this account for population growth?
More to the point: Why would you write this column?Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at email@example.com. Follow him on Twitter at @ryanchittum. Tags: Adjusting for Inflation, Economy, Michael Kinsley, Politico, Poverty