Thursday, October 10, 2019

The U.S. Economy has never been better

If your chief concern is how the poor and middle class are doing in the Trump Economy, it's hard not to like the latest figures from the U.S. Census Bureau (PDF).

A few highlights from the report:
  • Real median family income rose 1.2% and real non-family median income rose 2.4%.
  • Real median wages and salaries (most important to lower income families) rose 3.4%.
  • Full-time gainfully employed labor rose 2.3 million.
  • The poverty rate dropped 4% and 1.2 million people left poverty.
  • In 2018, for the first time in 11 years, the official poverty rate was significantly lower than 2007, the year before the most recent recession.
  • Conditions improved for all Americans regardless of race, gender national origin or age.
Regardless of who you are or where you live in this country, you are better off today than you were this time in 2017 or 2016. 

A modest sum of $1,000 invested in October 2016 a 401(k) or IRA that tracks the growth of the S&P 500 Index is worth approximately $1,410 today. Financial markets are historically stable, historically healthy and are in a long term trend of gentle and healthy growth. Interest rates are historically low as well, meaning that families just starting out today face very good chances of securing a mortgage and owning a home (outside major metropolitan areas). 

Middle and lower income Americans still face a few challenges. An aging population and rising demand for medical services have healthcare costs rising faster than inflation. Unsecured/personal and student loan debt is uncomfortably high. But these are not insurmountable or panic-inducing problems for an economy growing healthily like this. 

You would think that good news like this would be major headlines. It's not, and Aaron Brown at Real Clear Markets talks about this, too.
However, 2018 worked for everyone. The economy did well, all the real measures of economic well-being were improved, and the Gini coefficient went down. More money, more equality. But you wouldn’t know it from the headlines.

· Ben Holland wrote at Bloomberg under the headline, “Census Says U.S. Income Inequality Grew ‘Significantly’ in 2018” and suggested the culprit was, “the impact of President Donald Trump’s end-2017 tax bill, which was reckoned by many economists to be skewed in favor of the wealthy.”

· Business Insider’s take was “US income inequality jumps to highest level ever recorded” , and quoted Professor Timothy Smeeding, "Wages remain low, there is a lack of childcare for single-parent families, and so on."

· Mike Schneider’s AP headline was “Census: US inequality grew”.

These are just three examples, the sentiments were echoed in many other news outlets, and chewed over by many opinion columnists. How did people get things so wrong? I can’t explain overlooking all the good news in the report except perhaps by the old newspaper adage, “If it bleeds, it leads,” meaning bad news sells more papers (or collects more clicks) than good. Or perhaps reporting good economic news would be considered support for Trump and might reduce enthusiasm for anti-poverty spending.
Brown goes into some detail on the Gini Index, which is a heavily cooked statistical distribution that attempts to measure how wealth is distributed within a country. It was developed in 1912 by Italian demographer, statistician and sociologist Corrado Gini (1884-1965).

Today's Gini Index is 0.486, which fell a three thousandths of a point from 0.489. In the U.S. the number has risen about 0.14 points since 1979. Since 1998, it has risen about 0.08.

The Gini Index has its uses in getting a big picture view of how poor people fare vis-a-vis the wealthy. An index reading of zero is the leftist utopia of perfect distribution of wealth. An index of 1.0 is perfect inequality, which is where the left thinks we are today. A relatively stable Gini indicates less economic uncertainty and less turmoil. A wildly fluctuating Gini indicates broad uncertainty and unrest.

A key takeaway from using Gini to gauge economic well-being is that it is independent of total economic wealth and output. A very wealthy nation with a high Gini number would likely see everyone living comfortably. A very poor nation with a low Gini would likely mean nobody has anything.

A slowly rising Gini Index has been a long time favorite tool of the left, and they've used it for decades in arguing for more spending to combat poverty and income inequality. Never mind that total wealth has grown faster over the same period. Never mind the glacial pace of its rise. That it's rising at all is cause for action!

But the drop in the Gini Index confounded them, so they chose arbitrary starting and ending points to cover up the fact that things are pretty good and getting better. Hence the headlines Brown lists above. 

Another key takeaway about the Gini Index is that its father was a fascist. He was a celebrated friend of Italian Dictator Benito Mussolini and a professed eugenicist. It was his intent to use his Index to measure the economic performance of genetically managed populations over time and to compare the performance of a pure race to the populations of less desirable or mongrel nations. He fervently supported Fascist Italy and Nazi Germany. How's that for irony?


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