Because most philosophies that frown on reproduction don't survive.

Wednesday, July 28, 2010

A Story in Graphs

Once upon a time there was a country -- it had its problems as any nation does, but it did well enough. Its people prided themselves on working hard, and they were comparatively well off: less so than the UK, more so than Spain and Italy.

They'd had the good fortune to have none of their infrastructure destroyed during World War II, and after the war they experienced a boom as an exporter. Things slowed, however, in the late 60s and early 70s. Some said this was because the rest of the world got better at growing their own food and manufacturing their own goods. Others said it was because they allowed too much immigration. Some said it was because the welfare programs they created in the 60s ate away at the motivation to work hard.  Others said it was because unions became weak. Whatever the reason, their average income in inflation adjusted terms grew much more slowly than it had, and there was a good deal of discontentment and disagreement as to what to do about it all and who was at fault. Here's a graph of their average family income in inflation-adjusted US Dollars.

Now, many of you may already see quite clearly what I'm playing at. This country is ours -- to be precise it's part of ours. The graph above is a graph of the income of the 20th percentile of US families in constant dollar terms (inflation adjusted to 2008 dollars). And if you want to see why it is that people get angry about the graph, one need only add a second trend, the income of the 80th percentile of US families:

When you put these two next to each other, what gains the 20th percentile has seen look pretty paltry. For whatever reason, the people who inhabit the 80th percentile in regards to earnings are doing much better in terms of increasing their income than those in the 20th percentile.

There are plenty of theories as to why this could be: immigration, technology, less unionization, welfare, low taxes, businesses being eeeeeeevilllllll, etc.

One of the things I've been wondering about lately is whether the global marketplace affects different segments of the US population very differently. I was trying to think of a way to look for this, and what I came up with was looking at the percentage of the world GDP which is represented by the US GDP. Unfortunately, the data source I found for this (the World Bank, see sources below) only had data since 1960, which is unfortunate because the theory I wanted to look at was this:

The US emerged from WW2 as the premier industrial power, and the only first rank power without significant damage to its infrastructure from the war. Thus, the whole world was one big market for American goods (manufactured, agricultural, etc.) in the period right after the war and up through the 60s. However, as the rest of the world recovered/developed, working class Americans increasingly experienced competition from abroad. However, because the the continued global dominance of the US, more skilled and educated US workers continued to reap the benefits of overall world economic growth.

This struck me as interesting, in that at a visual level it did seem to show that back when the income of the 20th percentile was growing rapidly in the 60s, the US made up a larger percentage of World GDP, and yet the rest of the world was growing rapidly. That would seem to fit with a story my story very roughly. It also seems interesting that the US percent of world GDP stablizes right around the time that the 20th percentile's income hit its plataeu, around 1970.

I'd need data going back to 1947 and a better way of representing the degree to which the US was the engine of global post-war economic growth. I'd also need to come up with some clearer idea of what changed around 1970.

So I don't think there's a clear conclusion here, but I thought the visuals were at least interesting enough to share.

SOURCES
US income data: http://www.census.gov/hhes/www/income/data/historical/inequality/f01AR.xls
World economic data: http://data.worldbank.org/indicator/NY.GDP.MKTP.CD?cid=GPD_29

7 comments:

cliff said...
This comment has been removed by the author.
TS said...

Very interesting. I wonder if what changed around 1970 was that OPEC formed and the all oil producing countries realized that oil was extremely valuable. Since we are far more dependent on oil than most countries (owing to our great size, which requires a lot of fuel to traverse) it would stand to reason that the flow of wealth from the U.S. to the Middle East might be part of the problem.

Anonymous said...

It would also be interesting to look at the incomes of the top 1%.

Anthony said...

There are two major factors which explain most of that graph: the sexual revolution and health-care costs.

Going backwards: health benefits for most employees are not included in most calculations of "annual income" for people. Many people in the bottom 20% do get company-paid health benefits. They cost about as much for those people as they do for people in the top 20% (with some variability because people in the bottom 20% skew younger than people in the top20%, and are often the same people at different points in their life). When health benefits go from $200/month to $600/month, the folks making larger incomes still see increases in their incomes, but that change eats all the increase at the bottom end.

The graphs show average *family* income. The average family in the 80th percentile is made up of a married couple who have no children by previous marriages (and probably no previous marriages), and who both work. The average family in the 20th percentile, these days, is a divorced or single "head of household" supporting child(ren) on one income, whether the wage-earner has custody or not.

Anonymous said...

One deceptive element of this type of analysis is the importance of immigration. Not the effect of immigration on wages or incomes, but the importance that you have immigrants coming in at the bottom 20%, so the 20% in 1960 is different from the 20% in 2010.

Darwin said...

Very salient point, Anon. I searched around for some data on what the income trend has been for those born in the US, but I wasn't able to find a data set filtered that way.

Darwin said...

Also, good point Anthony about family make-up.