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Home Publications Blogs Beat the Press Income Growth is Not Quite What Robert Samuelson Implies

Income Growth is Not Quite What Robert Samuelson Implies

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Monday, 02 June 2014 05:10

Robert Samuelson is correct to point out that income inequality in the United States at present is not anything like what it was back in the 1920s because of the social welfare state. We have programs like Social Security, Medicare, Medicaid, and food stamps that are a substantial source of income and security for the middle class and poor. So conservatives are correct to point out that inequality is not nearly as bad today as it was in the 1920s due to these programs.

However his column is somewhat misleading on the income gains over the last three decades for families at the middle and bottom of the income distribution. For those at the bottom, much of the 50 percent gain in income since 1979 is due to the increasing cost of Medicare and Medicaid. The measure being used refers to the amount the government pays for these programs. Using methodology, every time a heart surgeon raises her fees or Pfizer raises the price of its drugs the income of the poor rises. If we just treated health care as a service and priced it at its per person cost in the average wealthy country, the income gain for those at the bottom would be much smaller.

Much of the 40 percent gain in incomes for families in the middle is the result of an increase in the number of workers per family. In 1979 there were still many two parent families in which the women did not work outside the home. Such families are rare today. The additional number of workers is the main factor explaining the rise in income over this period since wages have increased little. It is also worth noting that these measures of income do not adjust for work related expenses like transportation or the cost of child care.

Comments (10)Add Comment
Samuelson Lectures Middle Class on How to Avoid Careless Historical Comparisons
written by Last Mover, June 02, 2014 8:17
Note that Burtless is not contending that inequality hasn’t increased dramatically. It has. By the CBO estimates, the after-tax incomes of the richest 1 percent have tripled since 1979. But just because they’re pulling away doesn’t mean that everyone else is standing in place.

The inequality debate won’t fade soon. The changes in relative incomes are too great. The political and intellectual appeals are too powerful. But in thrashing out what’s happened and why — and what, if anything, to do — we should stick to the facts and avoid careless historical comparisons.


Careless historical comparisons indeed. Conservatives repeatedly point to advances in technological innovation to remind the middle class how much better off they are under American capitalism in terms of what they consume - and how prices always fall dramatically as said innovations become mainstream. They have cell phones. Let them eat batteries.

At the same time conservatives bemoan the rise of the "welfare" state from nothing in the early 1900s, to a redistribution monster of today that offsets some of the inequality of the former - enough that the middle class is not "standing in place" just because the 1% is rising so fast.

Amusing. So the welfare state somehow didn't choke off all that innovation that makes the middle class so much better off. Which side of this story is to be believed?

Granted, decades ago the washing machine freed up women from grueling household labor and consumption of the same was a reasonable measure of welfare gained. But as Dean Baker notes the landscape has changed dramatically on this measure. A comparable expenditure on todays health care - even not subsidized - could easily result in nothing gained or even cause more expenses or bankruptcy, yet still counts as being "better off".

Excuse me Robert Samuelson, but since when was damage from economic predators of the early 1900s who were reigned in by government not comparable to damage imposed by economic predators of today not reigned in at all and actually advanced by government?

The economic and political power of todays economic predators is not simply offset by redistribution programs.designed to reduce inequality. These are band-aids on a failing system that survive amidst efforts by predators to dismantle them altogether. If anything they act to sustain todays crippled economic as automatic stabilizers of demand in a stagnating economy driven by predators wearing economic suicide vests.

But we understand the message don't we Robert Samuelson. KISS - Keep it Simple Stupid. How else are we going to avoid careless historical comparisons designed to hide how much inequality has actually come down since the early 1900s?

Thank you once again for reminding America how much better off we really are.
...
written by Larry Signor, June 02, 2014 8:39
"...every time a heart surgeon raises her fees or Pfizer raises the price of its drugs the income of the poor rises."

This would be a hilarious non-sequitur, but many people and economists believe it. Of course, the surgeons and Pfizers income must remain static since the income belongs to the poor and it is a zero sum game. Soon someone will suggest a value added tax on this windfall for the poor.
conservatives point to the safety net as an equalizer
written by Peter K., June 02, 2014 9:20
My favorite part of the inequality debate is the incongruity of conservatives pointing to the safety net - which they have been rolling back - as something that helps mitigate inequality. The cognitive dissonance must be raging in their heads.
Samuelson
written by Peter K., June 02, 2014 9:36
"The Piketty-Saez estimates of “market income” may have reflected the 1920s’ actual income distribution, because the market was all there was then. Now, its role is tempered."

No thanks to Samuelson who has been writing the same column over and over on how we should privatize Social Security.
Inequaltiy of Incomes is mitigated by programs we are anxious to destroy
written by sherparick, June 02, 2014 12:32
It is somewhat rich, as one commentator has already pointed out, that Mr. Samuelson and other Conservatives and VSP "Centrists" cites the great entitlement programs (Social Security, Medicare, and Medicaid) as mitigating the rising inequality in the United States when he spends about every other column demanding that these programs be "reformed" if not eliminated to reduce the amount of benefits people receive. So what he is really arguing is inequality should be greater and that would be a "good" thing (how?).
Welfare State Out of Control
written by John Parks, June 02, 2014 4:23
Please notify me when Robert Samuelson and his ilk provide an in depth, truthful, and factually based report on corporate welfare.
...
written by Mark Brucker, June 02, 2014 4:24
The measure being used refers to the amount the government pays for these programs. Using THIS methodology, every time a heart surgeon raises her fees or Pfizer raises the price of its drugs the income of the poor rises. If we just treated health care as a service and priced it at its per person cost in the average wealthy country, the income gain for those at the bottom would be much smaller.
don't include expenses
written by tew, June 02, 2014 7:07
Good column but that last sentence is a throw-away line. The entire context of this discussion is about income, not about expenses. If you bring up incremental expenses incurred to gain incremental income, then you've got to include expenses in the entire analysis.
healthcare cost - bad expenses vs. good expenses
written by tew, June 02, 2014 7:11
Dismissing all of the increase in Medicare and Medicaid payments is misleading.

If some of the increase goes towards additional overhead that does not increase healthcare quality, then it does deserve to be discounted. Also, if some of the increase goes towards real increases in medical salaries, then that also is not a real increase in the value to the patient unless accompanied by a proportional increase in skill / quality. HOWEVER, some of the increase is due to improved medicines, procedures, and care. That increase is indeed a valid increase in income.
Mr
written by Wallace, June 02, 2014 8:04
If I remember correctly, Samuelson said, when he began writing his column for Newsweek, that he was not an economist but rather was an "economics reporter." Thus, he has no credentials whatsoever and can only report what he deems to be important. But, lacking an education in economics, he doesn't know what is important and credible to report and what is not.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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