Tuesday, December 12, 2006

Krugman Gathers No Moss

In a recent article I otherwise like, Paul Krugman [1] writes:
"...last fall ...the House and Senate passed rival tax-cutting bills... The Senate bill was devoted to providing relief to middle-class wage earners: According to the Tax Policy Center, two-thirds of the Senate tax cut would have gone to people with incomes of between $100,000 and $500,000 a year. Those making more than $1 million a year would have received only eight percent of the cut." -- Paul Krugman
I think this can give the misleading impression that income between $100K and $500K is "middle income". I know that elsewhere in the article Krugman gives figures that show otherwise.

I found out about this article from this bit of silliness:
"Still recovering from the mild case of indigestion I developed after reading Paul Krugman's ignorant, communistic screed in the latest issue of Rolling Stone magazine..." -- Taylor

[1] I'm generally not all that happy with Krugman as an economist.

1 comment:

Anonymous said...

«the misleading impression that income between $100K and $500K is "middle income"»

But note that Paul Krugman writes «relief to middle-class wage earners», not "middle income".

That is sort of right: the «middle class» is defined in terms of function, not in terms of income, and its income is anything but middle.

From USA tax returns the middle income earners are in the 3 middle quintiles (by definition :->), but the middle class is in the top quintile, with individual (''adjusted'') incomes of $60,000 and over, up to the top 5% with $100,000 and over.

In practice "rich" means top 5%, "middle class" the next 15%, "working class" the next 60% (household incomes between $20-60,000), and "poor" the bottom 20%.

«I know that elsewhere in the article Krugman gives figures that show otherwise.»

Sure, but look at bit more closely and you see that he is not far off the $100,000 mark:

«In 1969, General Motors [ ... ] average paycheck for production workers in the auto industry was almost $8,000 -- more than $45,000 today. GM workers, who also received excellent health and retirement benefits, were considered solidly in the middle class.»

That is $45,000 plus benefits, let's say at least $60,000 ''package'' value, per worker. In the 2003 USA tax stats, $60,000 per taxpayer is roughly in the top 25% of incomes. A two-income family with one GM worker in it would have had a good chance of earning at least the equivalent of today's $100,000 indeed; and note that a significant proportion of GM employees in 1969 would earn more than the average $8,000/$45,000 base salary.

In another posting you mention Prescott:

«Prescott said then, "It's easy to get over $200,000 in income with two wage earners in a household."»

Sure he is right and this is indeed what easily happens to the top 5-10% of the population, the ''politically active'' or ''professional'' middle class. Which is what most (white, educated, native citizen) people understand as *the* middle class.

Which middle class of course always moan about their struggle to remain middle class and maintain their $100,000 and higher train of life.

The rest of the population simply don't matter. Why worry about the losers? :-)