US stocks showed little interest in moving either up or down yesterday.
So they just sat tight.
As we keep saying, you can get any opinion you want. The problem is you can also get any fact you want…
Lies and misunderstandings
Yesterday, our friend and economist Pierre Lemieux challenged the numbers in Monday’s Diary on the US manufacturing recession:
‘You write, “In real terms, the typical man of working age in the US earns less today than he did in 1975 — 40 years ago.”
‘Where did you get this data?
‘Even the notably unreliable data of the Census Bureau on median family income are not that dark.
‘All data I know show that, in the US, real incomes have grown over the last 40 years. I am sure it is the same in Europe. Some prices have increased, like home prices, relative to other prices, and it is quite certainly more difficult to buy a house now than back then.
‘Most other things are easier to afford — including for the typical worker. This is confirmed by casual observation: Look at their cars, their TV sets, their boats, their vacations, their appliances, their restaurants (not to speak of computers).
‘Look at their children’s cars, iPhones, shoes, etc. Indeed, look at their hunting or hiking boots with Thinsulate and Gore-Tex!’
In general, we have little confidence in numbers or statistics. Except in the world of science, where they mean something precise, they are mostly lies and misunderstandings.
Many of them are plain wrong. Many are pure inventions.
We don’t trust them — especially our own.
You’d think it would be a fairly simple matter to tell if wages, after you account for inflation, have gone up. But it’s not.
You can begin with the raw data. Then you need to adjust it for inflation…which is where the trouble comes in.
How much is a 1975 dollar worth today?
We don’t want to mislead readers with faulty numbers, so we put the issue to our research team.
‘The data supports us,’ says Bonner & Partners researcher Nick Rokke. ‘Real income for men was higher throughout the 1970s.’
The data from the Census Bureau has the average American working man’s income, in 2012 dollars, at about $37,000 in 1972 — its highest level of the decade. Today, it is close to $34,000.
We also have the news of lower incomes reported as ‘fact’ in the New York Times on October 22, 2012:
‘[T]he real earnings of the median male have actually declined by 19% since 1970. This means that the median man in 2010 earned as much as the median man did in 1964 — nearly a half-century ago.
‘Men with less education face an even bleaker picture; earnings for the median man with a high school diploma and no further schooling fell by 41% from 1970 to 2010.’
But wait. It’s not that simple. Pierre again:
‘The data makes (a bit) more sense for males. But, as I suspected, the figures come from unreliable Census Bureau data.
‘The Census Bureau gets it from its Current Population Survey, which amounts to asking people what they earn. This data is inconsistent with NIPA (National Income and Product Accounts) data, which contains multiple cross-checks (total income must be equal to total expenditure and to total value added).
‘Note also that the Census data do not include in-kind transfers (such as food stamps, Medicaid, and employee benefits)…’
Right. Add in the free company T-shirts and state welfare handouts, and you seem to have a working man who is better off.
But he can’t be much better off.
Just taking the unvarnished numbers, the average working stiff in 1975 earned $8,853 (in 1975 dollars). Now, he earns $36,302.
Ford introduced its F-150 in 1975. We weren’t able to find an exact price, but it appears to have been sold at about $5,000. Today, an F-150 SuperCab sells for about $28,000.
The average new home sold for $39,000 in 1975. Today, it sells for $364,100. In very raw terms, if a man wanted to buy a house and a car in 1975 he had to work just under five years to pay for them.
If he wants a house and a car today, he has to work almost 11 years…
Happier, healthier, richer?
Whoa! This makes it sound like his real income has been cut in half.
Of course, it’s never that simple. He gets more house and more car for his money today.
Still, the remarkable thing is that we are doing this calculation at all. We shouldn’t be wondering about it. It should be obvious that we are all far better off today than we were a half-century ago.
This should have been the easiest period in human history in which to make financial progress.
Never before had there been so many inventors and entrepreneurs. Never before had they so much accumulated science and capital to work with. Never before had there been so many people making things… and so many consumers with money in their pockets to buy them.
And never before were there so many earnest lawmakers, PhD economists, curious researchers, diligent policymakers, and nonprofit-employed do-gooders — millions of people all doing their level best to make us happier, healthier, and richer!
Something seems to have gone wrong on the way to the future…
For Markets and Money, Australia