New York Times economics writer David Leonhardt has a nice column today on the money-happiness connection, centered around a new Wolfers-Stevenson paper that provides some evidence against the Easterlin paradox. But that connection is not what I want to talk about.
At the very end, Leonhardt writes:
"Affluence is a pretty good deal. Judging from that map, the people of the world seem to agree. At a time when the American economy seems to have fallen into recession and most families’ incomes have been stagnant for almost a decade, it’s good to be reminded of why we should care."
Here we go again. Most families' incomes have NOT been stagnant for almost a decade. What I suspect he's thinking of here is the data on stagnant median household income. However, a stagnant median says nothing about whether individual households did better or worse over time. Median income has been fairly stable (though even that doesn't account for non-wage compensation), but a constant median between time X and time Y is consistent with each household in the population at time X having had their income rise, IF by time Y the right number of new households have entered the population at incomes below the median. Increased immigration and more people entering the labor market as young workers can cause the median to stay constant even as most households see real income increases through time.
Put differently, a constant median over time where the population at each point in time differs says nothing about how well or poorly any individual households in the original population did over that whole period. Leonhardt's little throwaway line is simply wrong on the facts. Not only that, it is overwhelmingly likely the case that the majority, if not a substantial majority, of American households have higher real incomes now than ten years ago, even as the median has remained stagnant.
This is how economic myths get started.