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Tuesday, March 09, 2004

Populism and Presidential Candidates

I've often wondered why presidential candidates running on a populist message have fared so poorly in the past. Surely, if the majority of the national income accrues to the top 20% of income earners, there must be some appeal to a populist message. Recently, via a convoluted path, I stumbled across some data that might shed some light on why the populist message has been unsuccessful. The convoluted path is interesting, so I'll start there.

Not only do I complain about errors in liberal articles, I am also often dismayed by conservative articles as well. I just don't trust the media - any of it. I occasionally email authors who publish ridiculous statements. They usually don't respond. For example, I've emailed Krugman in the past but got no response.

In a recent article by Thomas Sowell, a conservative economist, I saw a statement that seemed absurd to me:
Not only is the average real income per person rising in the bottom 20 percent of the income distribution, people seldom stay in the bottom brackets for more than a few years. Over the course of their lifetimes, most of those same people are in the top 20 percent at one time or other.
Most of the bottom 20 percent end up in the 20 percent? Seemed rather far fetched to me. So I emailed the author asking for some supporting data and got the following response:
The information you quoted is from a larger discussion of income differences in chapter 9 of my "Basic Economics." The sources are listed in the back of the book. I happen to have extra copies of the galleys and will send you one if you give me a mailing address.
I sent him my mailing address. I wasn't exactly sure what a galley was. I thought it was the where you cook on a boat or a ship that was powered by rowing (I was wondering if it would come complete with ancient Roman slaves to do the rowing). So I was quite curious to see what was going to come in the mail.

Turns out a galley seems to be a copy of the book before they've filled in the page numbers in the table of contents. In other words, some sort of early printed draft of a book. Oh well, not nearly as interesting as I had hoped, but probably more useful for the task at hand.

Sure enough, in chapter nine, Sowell writes something similar:
An absolute majority of those Americans who were in the bottom 20 percent in income in 1975 were also in the top 20 percent at some point over the next 16 years.
Also, as promised, the sources were listed in the back of the book.

The primary source is the 1995 Annual Report of the Federal Reserve Bank of Dallas. The following table appears in the report:
Income quintile in 1975 Percent in each 1975 quintile in 1991 In 5th 1975 quintile sometime in 1976-91
1st 2nd 3rd 4th 5th
5th (highest) .3 2.5 7.7 20.1 69.4 98.4
4th 1.0 6.6 16.0 30.0 46.4 78.6
3rd (middle) 2.2 15.6 24.1 32.0 26.1 48.2
2nd 2.1 19.9 19.9 25.2 32.9 52.6
1st (lowest) 2.3 14.0 17.6 26.9 39.2 57.0

In the report, the table has the following caption:
Judging by a constant measure of living standards -- income quintiles of 1975 -- 39.2 percent of those individuals in the lowest income quintile in 1975 managed, by 1991, to achieve a real income comparable to that of the highest income group in 1975. Only 2.3 percent of this group remained at a living standard equal to the lowest of 1975. Of those individuals who were at the highest living standard in 1975, 69.4 percent were able to at least maintain that standard.
From this table, Sowell's second quote is technically correct. However, to be clearer, I think it probably should have been written:
An absolute majority of those Americans who were in the bottom 20 percent in income in 1975 were also in the top 20 percent of 1975 incomes at some point over the next 16 years.
However, this change doesn't have a whole lot of impact on the meaning.
Sowell's first quote isn't quite right. I'm guessing its creation was mostly sloppiness. He based it on his other quote which wasn't tightly worded and based on other data. So my guess was right that the first quote was incorrect.

However, the quote isn't nearly as far fetched as I had anticipated. The FRB report does show incredible income mobility. If the data is correct and the FRB's interpretation of the data is reasonable, it would easily explain why class warfare doesn't work very well. Most of the "poor" will soon not be, and they probably know it. No reason to increase taxes on higher brackets since they will be there soon.

Is the data correct? I don't know. The data is taken from the Panel Study of Income Dynamics, a large "nationally representative longitudinal study of nearly 8,000 U.S. families. Following the same families and individuals since 1968, the PSID collects data on economic, health, and social behavior." Hundreds of studies which have influenced policy have utilized this data so I hope it's good. The study design looks reasonable, but studying people is hugely difficult, so you never really know.

Is the interpretation reasonable? I don't know. However, the data is available on line and I've added it to my list of things to do to see if I can derive similar results.

The results are so stunning that if the data and analysis are any good at all, it shows the people in the U.S. have surprising income mobility. There aren't really any stable classes, so class warfare and populist messages are going to have limited appeal.

Senator Kerry might want to consider that as he hones his political rhetoric over the next few months.

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