RALEIGH – Are North Carolinians, and Americans as a whole, losing ground or gaining ground economically? You can tell a lot about people’s politics based on their answer to this question.
On the Left, it has become an article of faith that recent economic trends are downward. They believe that the richer has gotten richer, the poor poorer, and many in the middle-class are sliding downward towards poverty. Most recently, my friends at the North Carolina Budget and Tax Center have released a new report that appears to show about half of the state’s families fail to receive enough income to “meet their basic needs.”
A couple of years ago, I was critical of a previous version of the report advancing the even-more-eye-popping suggestion that 60 percent of North Carolinians failed to receive a “living wage.” I suggested that if this were actually true, there would be far greater tangible evidence of destitution, starvation, penury, and flight from the state than actually exists. Subsequently, the center released a correction that indicated the previous proportion should have been a third lower, but this year I notice that the formula has been changed too much to allow for comparisons back in time.
As far as I can tell, most of the previous criticisms still apply to the center’s new living-wage study (though the methodology now does appear to exclude obviously risible inclusions of “necessities” such as cable television in the living-income standard of consumption.) More generally, I would suggest that the finding that half of North Carolina families fail to earn enough income to meet their basic needs simply doesn’t pass the smell test. I am a big fan of statistical analysis, but it is important to recognize its limitations. Errors in data collection by government agencies, complex calculations, fuzzy definitions, and problems in interpretation can yield results that seem statistically valid but have little connection to reality.
That’s the case here. Since the number of families doing without basic necessities such as food, shelter, and health care is obviously far, far lower than half – as is the percentage of families receiving cash or in-kind welfare benefits from the government, forms of income not measured in the study – what is going on? Potential explanations include a mismatch of the household expenditure and income data, the insufficiency of reported wages as a measurement of actual income, the fallacy of the average (the price of goods and services vary widely for many reasons, including local cost differentials and quality, so using average prices to compute a living standard is problematic), and living arrangements that do not fit the assumptions of the model.
On the overall question about the direction of long-term economic trends, copious evidence tells us that they are mostly positive. Yes, the percentage of families making between, say, $30,000 and $50,000 in inflation-adjusted dollars may have declined – but not because most middle-class families are backsliding. It’s because the definition of “middle-class” has been shifting upward. As Steve Moore and Lincoln Anderson describe in a Wall Street Journal piece Wednesday, the share of families with real incomes less than $50,000 was more than 70 percent in the 1960s and is now down near 50 percent. The share receiving more than $75,000 went from 9 percent to nearly 30 percent.
More direct evidence for economic progress and upward mobility can be found in consumption data showing that even “poor” people lay claim to goods, services, and assets at which previous generations would have marveled. Folks, apply a little common sense, here.
Hood is president of the John Locke Foundation.