Monday, March 03, 2008

The Conehead Economy

Economic growth is a good thing. (Well, there's some big questions over both the possibility and desirability of perpetual growth, but let's ignore them for now.) On average, economic growth means that more people can afford more things, which means they can live happier and healthier lives and not need to worry about starving to death.

Ah, but there's a trap hidden in that statement: on average. Average growth is a very different thing than real growth, especially if you measure average with the "arithmetic mean" that you probably learnt about in school. A toy example will show what I mean: suppose our toy economy consists of five workers: Homer, Moe, Apu, Barney and Mr Burns. In 2006, Homer, Moe, Apu and Barney make $30,000 a piece, and Mr Burns makes $3,000,000. In 2007, Mr Burns' income has increased by $1,000,000, while the others earn exactly the same amount. The result is that the average income increases from $624,000 to $824,000. Lo and behold, Mayor Quimby can crow that his Millionaire Friendly Policies has led to the average worker getting a 32% increase in income in just one year! Marvellous! Obviously a rising tide raises all boats.

Drawn out in detail like that, it seems so obvious that nobody could possibly be fooled by it. Lies, damned lies and statistics. But in fact, that is precisely what the miracle of American economic growth since the late 1970s is made up of. Only the numbers are different, the principle is the same: the vast number of Americans have seen virtually no economic growth, or even a loss of income, while the overall average is inflated by enormous gains at the top of the pyramid. There's been growth, and plenty of it, but only a relatively small number of people, the richest 1%, have seen much benefits.

As Ezra Klein writes:

In the past, I've called this "The Conehead Economy." Plenty of growth in the economic body, but all of it happening in the top percent. Were that to happen to a person, you'd see six inches of growth in their forehead and doctors everywhere would be puzzling over how to correct the grotesque deformity. As it is, the media trumpets the growth, the politicians backslap over the roaring economy, and everyone wonders why the average American seems so unhappy. [...]

Meanwhile, government policy is explicitly aimed at accelerating the income distortions. [...] But don't object, o' Democrats, lest you be accused of class warfare which, as we know, only happens when the middle class wants their wages to keep up with productivity, as they did in the last generation.

Lest anybody conclude from this that statistics are essentially dishonest, consider this: there are many ways to calculate the average. The method used above, the mean, is just one way of many, and while it has its uses, it is very vulnerable to being distorted by a few very high or very low values. When it comes to income, a better measurement of average is usually the median, which for the above toy economy works out at $30,000 a year, with zero growth on average. Not quite so useful a figure for either the economists or for Mayor Quimby's re-election chances, but it reflects better the actual experience of 4 out of 5 people.


Anonymous said...

Don’t believe one optimistic word from any public figure about the economy or humanity in general. They are all part of the problem. Its like a game of Monopoly. In America, the richest 1% now hold 1/2 OF ALL UNITED STATES WEALTH. Unlike ‘lesser’ estimates, this includes all stocks, bonds, cash, and material assets held by America’s richest 1%. Even that filthy pig Oprah acknowledged that it was at about 50% in 2006. Naturally, she put her own ‘humanitarian’ spin on it. Calling attention to her own ‘good will’. WHAT A DISGUSTING HYPOCRITE SLOB. THE RICHEST 1% HAVE LITERALLY MADE WORLD PROSPERITY ABSOLUTELY IMPOSSIBLE. Don’t fall for any of their ‘humanitarian’ CRAP. ITS A SHAM. THESE PEOPLE ARE CAUSING THE SAME PROBLEMS THEY PRETEND TO CARE ABOUT. Ask any professor of economics. Money does not grow on trees. The government can’t just print up more on a whim. At any given time, there is a relative limit to the wealth within ANY economy of ANY size. So when too much wealth accumulates at the top, the middle class slip further into debt and the lower class further into poverty. A similar rule applies worldwide. The world’s richest 1% now own over 40% of ALL WORLD WEALTH. This is EVEN AFTER you account for all of this ‘good will’ ‘humanitarian’ BS from celebrities and executives. ITS A SHAM. As they get richer and richer, less wealth is left circulating beneath them. This is the single greatest underlying cause for the current US recession. The middle class can no longer afford to sustain their share of the economy. Their wealth has been gradually transfered to the richest 1%. One way or another, we suffer because of their incredible greed. We are talking about TRILLIONS of dollars. Transfered FROM US TO THEM. Over a period of about 27 years. Thats Reaganomics for you. The wealth does not ‘trickle down’ as we were told it would. It just accumulates at the top. Shrinking the middle class and expanding the lower class. Causing a domino effect of socio-economic problems. But the rich will never stop. They will never settle for a reasonable share of ANYTHING. They will do whatever it takes to get even richer. Leaving even less of the pie for the other 99% of us to share. At the same time, they throw back a few tax deductable crumbs and call themselves ‘humanitarians’. IT CAN’T WORK THIS WAY. Any 'humanitarian' progress made in one area will be lost in another. EVERY SINGLE TIME. IT ABSOLUTELY CAN NOT WORK THIS WAY. This is going to end just like a game of Monopoly. The current US recession will drag on for years and lead into the worst US depression of all time. The richest 1% will live like royalty while the rest of us fight over jobs, food, and gasoline. Crime, poverty, and suicide will skyrocket. So don’t fall for all of this PR CRAP from Hollywood, Pro Sports, and Wall Street PIGS. ITS A SHAM. Remember: They are filthy rich EVEN AFTER their tax deductable contributions. Greedy pigs. Now, we are headed for the worst economic and cultural crisis of all time. SEND A “THANK YOU” NOTE TO YOUR FAVORITE MILLIONAIRE. ITS THEIR FAULT. I’m not discounting other factors like China, sub-prime, or gas prices. But all of those factors combined still pale in comparison to that HUGE transfer of wealth to the rich. Anyway, those other factors are all related and further aggrivated because of GREED. If it weren’t for the OBSCENE distribution of wealth within our country, there never would have been such a market for sub-prime to begin with. Which by the way, was another trick whipped up by greedy bankers and executives. IT MAKES THEM RICHER. The credit industry has been ENDORSED by people like Oprah, Ellen, Dr Phil, and many other celebrities. IT MAKES THEM RICHER. Now, there are commercial ties between nearly every industry and every public figure. IT MAKES THEM RICHER. So don’t fall for their ‘good will’ BS. ITS A LIE. If you fall for it, then you’re a fool. If you see any real difference between the moral character of a celebrity, politician, attorney, or executive, then you’re a fool. WAKE UP PEOPLE. ITS ALL ABOUT THE MONEY. The 1% club will always say or do whatever it takes to get as rich as possible. Without the slightest regard for anything or anyone but themselves. Vioxx. Their idea. Sub-prime. Their idea. NAFTA. Their idea. Outsourcing. Their idea. The commercial lobbyist. Their idea. The multi-million dollar lawsuit. Their idea. $200 cell phone bills. Their idea. $200 basketball shoes. Their idea. $30 late fees. Their idea. $30 NSF fees. Their idea. $20 DVDs. Their idea. Subliminal advertising. Their idea. The MASSIVE campaign to turn every American into a brainwashed credit card, pharmaceutical, love-sick, celebrity junkie. Their idea. All of which concentrate the world’s wealth and resources and wreak havok on society. All of which have been CREATED AND ENDORSED by celebrities, athletes, and executives. IT MAKES THEM RICHER. So don’t fall for their ‘ good will’ ‘humanitarian’ BS. ITS A SHAM. NOTHING BUT TAX DEDUCTABLE PR CRAP. Bottom line: The richest 1% will soon tank the largest economy in the world. It will be like nothing we’ve ever seen before. and thats just the beginning. Greed will eventually tank every major economy in the world. Causing millions to suffer and die. Oprah, Angelina, Brad, Bono, and Bill are not part of the solution. They are part of the problem. EXTREME WEALTH HAS MADE WORLD PROSPERITY ABSOLUTELY IMPOSSIBLE. WITHOUT WORLD PROSPERITY, THERE WILL NEVER BE WORLD PEACE OR ANYTHING EVEN CLOSE. GREED KILLS. IT WILL BE OUR DOWNFALL. Of course, the rich will throw a fit and call me a madman. Of course, their ignorant fans will do the same. You have to expect that. But I speak the truth. If you don’t believe me, then copy this entry and run it by any professor of economics or socio-economics. Then tell a friend. Call the local radio station. Re-post this entry or put it in your own words. Be one of the first to predict the worst economic and cultural crisis of all time and explain its cause. WE ARE IN BIG TROUBLE.

Metro said...

I'm not convinced it's as big a gap as 'nony here seems to feel. But I'm always curious when our public figures trumpet "growth".

I mean, if something just keeps growing endlessly in the human body, we call it cancer and recognize it as a destructive force.

I'd quite like it, I think, if the Canadian economy kept growing at about 1% per annum.

However, it has been doing that or better since at least the late nineties. And yet in Ontario, for example, 77,000 people are known to have lost their jobs.