Alan Reynolds

The growth and distribution of income is a topic that generates strong opinions based on weak facts. But if the facts are wrong (and they usually are), then the opinions are, too. People seem far more willing to accept differences of opinion on these issues than to have their assumed facts questioned.

In 1987, I was invited to Harvard University to debate "The Declining Middle Class" with Lester Thurow, Frank Levy, Barry Bluestone and the late John Kenneth Galbraith. Someone complained the panel seemed slightly out of balance. I explained that those in left field had tried to get a few more on their team, to make it fairer, but the other fellows chickened out. I must have said something impolitic (politically incorrect), because Harvard neglected to ask me back.

As a result, it was only with great trepidation that I recently accepted an invitation to Manhattan to debate Nomi Prins of Demos and David Leonhardt of The New York Times on the topic, "Economic Anxiety: The new normal or a result of bad policies?"

Having tried to support a family from 1974 to 1982 with the help of a 14 percent mortgage rate, I couldn't imagine what could possibly be considered new about economic anxiety. Luckily for me, Peter Orszag, the newly appointed head of the Congressional Budget Office, wrote about it in the Boston Globe three days before my talk.

"For the past three decades," he said, "macroeconomic growth has not made American families feel sufficiently secure. Median wages have stagnated, and families now face substantial new risks. According to Yale's Jacob Hacker, the average family had a 7 percent chance in the early 1970s of seeing its income drop by half or more. By 2002, that probability rose to nearly 17 percent."

To say "median wages have stagnated" surely suggests the past five years or even the past three decades. But where did he get that idea? There is no government data on "median wages," so Orszag was probably referring to estimates from the Economic Policy Institute (EPI).

Measured in 2005 dollars, the EPI estimate of the median wage fell from $13.31 in 1992 to $12.83 in 1996, before rebounding to $13.88 in 2000. But the median wage kept rising every year until it hit $14.46 in 2004. It briefly slipped to $14.29 in 2005 with the energy price spike. Yet the real median wage was still 3 percent higher than in 2000. Because inflation has now dropped to 1.3 percent, all measures of real wages are up strongly for 2006.


Alan Reynolds

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