Daily Camera reports misleading statistics on Boulder County incomes

Last week the Daily Camera reported that median Boulder County household incomes had dropped “nearly 12 percent” since 1999.  But the Camera did not mention the less alarming news — that per capita incomes have increased over the same time period by 1.5 percent, adjusting for inflation.  This is according to two reports by the U.S. Bureau of Economic Analysis: “Personal Income for Metropolitan Areas for 2009” and “Local Area Personal Income , 1998-2000.”

This sounds strange, but household income figures can mislead. Higher per capita income can decrease household income.  As economist Thomas Sowell notes, “Increased real income per person enables more people to live in their own separate dwelling units, instead of with parents, roommates, or strangers in a rooming house.”

Per capita income statistics aren’t perfect, either. The city or county could pass more zoning laws that inflate housing prices. These exclude poor people, and hence per capita income increases.

If you want to more accurately compare 1999 with 2009 incomes, look at income mobility, which compares the same flesh-and-blood people each time. For example, the Tax Foundation reports that “nearly 60 percent of households in the bottom income quintile in 1999 were in a higher quintile in 2007.”

But income mobility doesn’t tell the whole story either, as it neglects the value of employee benefits. “Health insurance costs relative to payroll increased 34 percent between 1996 and 2005,” write economists from the RAND Corporation.

A version of this article was printed in the Daily Camera on October 2, 2010.

Thanks to Linda Gorman for the link to the RAND study.

For further reading, I recommend Thomas Sowell’s article “Income Confusion.” He discusses the issue in dept, including income inequality, in his book Economic Facts and Fallacies.

Investing in students

Thomas Sowell on the subject:

Why does college cost so much?

There are two basic reasons. The first is that people will pay what the colleges charge. The second is that there is little incentive for colleges to reduce the tuition they charge. …

[An alternative to funding college education for the poor] would be to allow students to sign enforceable contracts by which lenders would pay their college or university expenses in exchange for a given percentage of their future earnings.

That way, students would be issuing stocks to raise capital, the way corporations do, instead of being limited to borrowing money to be paid back in fixed amounts — the latter being equivalent to issuing corporate bonds.

Last week I read Thomas Sowell’s three-part essay on this. I found the above ideas intriguing. Here are some other parts that summarize his ideas:

What warrants explaining: equality or inequality?

Follow up to: Thomas Sowell on income inequality

Today Yahoo News reported the this Live Science article:

Conservatives Happier Than Liberals

Individuals with conservative ideologies are happier than liberal-leaners, and new research pinpoints the reason: Conservatives rationalize social and economic inequalities.

Regardless of marital status, income or church attendance, right-wing individuals reported greater life satisfaction and well-being than left-wingers, the new study found. Conservatives also scored highest on measures of rationalization, which gauge a person’s tendency to justify, or explain away, inequalities.

The rationalization measure included statements such as: “It is not really that big a problem if some people have more of a chance in life than others,” and “This country would be better off if we worried less about how equal people are.”

Upon reading this I smelled something fishy. My question, which reveals that I’ve learned something from Thomas Sowell, was: Why did the study assume that inequality was something to be explained? Why not ask people who expect equality (however defined) to be the “normal” state of affairs to explain why they think it’s normal?

In his essay, Race, Culture, and Equality, Thomas Sowell starts off listing several historical instances of inequality. He then asks

Why are there such disparities? In some cases, we can trace the reasons, but in other cases we cannot. A more fundamental question, however, is: Why should anyone have ever expected equality in the first place? …

Given similar educational disparities among other groups in other countries– disparities in both the quantity and quality of education, as well as in fields of specialization– why should anyone expect equal outcomes in incomes or occupations? …

Groups also differ demographically. It is not uncommon to find some groups with median ages a decade younger than the median ages of other groups, and differences of two decades are not unknown. …

It makes sense to blame human beings for biased rules and standards. But who is to be blamed for circumstances that are the results of a confluence of all sorts of conditions of the past and present, interacting in ways that are hard to specify and virtually impossible to disentangle?

The whole essay is worth reading.

Thomas Sowell on income inequality

Arnold Kling (Swarthmore ’75) has recommended a podcast by George Mason University Economics Professor Russ Roberts about basic economics. Kling writes that

If you had just one hour to learn essential, basic economics, listening to this talk would be the way to do it. The core topic is the reasons for income variation across people and over time. It is organized around refuting the claim that rich people need to keep poor people down. Along the way, he takes on (although not by name) the four main biases that Bryan [Caplan] has found among non-economists: anti-foreign bias, make-work bias, anti-market bias, and pessimistic bias.”

On that note, it’s time I quote one of my favorite passages from Thomas Sowell’s The Vision of the Anointed (pp.211-213).