Jared Bernstein on Eddie Lazear

Jared Bernstein thinks Eddie Lazear has drunk too much of the koolaid. He writes:

Why’d Ya Do It, Eddie? When Good Economists Go Bad. By Jared Bernstein

Edward Lazear is a really interesting economist who just weeks ago took the job as chairman of the President’s Council of Economic Advisors. But as did Greg Mankiw, he has already drunk deeply of the magic elixir that flows from the CEA’s water coolers—the one that makes top economists say lowly things.

On Monday, May 8, Lazear and CEA colleague Katherine Baicker (L&B) had an oped in the Wall St. Journal that presented economic data with a level of spin I’m sure they’d never accept from an undergrad.

Essentially, L&B engage in two sleights of hand. First, they try to create the impression that growth over the past few years has been broadly shared, and secondly, they cite long-term tends with no reference to the fact that the gains occurred pre-2000. They then tout Bush economic policies with no regard to the fact that the trends they cite became uniformly worse over his tenure.

Here are a few examples of their misleading arguments.

The authors point out that “Per capita personal disposable income, a good measure of Americans’ spending power, has grown over 8%, or $2,100, since 2001.”

As pointed out in this recent EPI analysis http://www.epi.org/content.cfm/webfeatures_snapshots_20060503, when inequality is on the rise, this average measure of income is not at all representative of the typical family’s experience. Since 2000, despite the overall growth cited by L&B, the median family’s income is down 3%, or $1,500. These data are only available through 2004, but median weekly earnings of full-time workers fell 1.4% in inflation-adjusted terms, 2004q1-2006q1, a $500 loss of spending power for full-year workers.

They then turn to the tired explanation that it’s all about education, pointing out the college wages are up since 1980 while those of high-school dropouts are down. No one disagrees that a more education educated workforce is always desirable, but what about the fact that college-educated workers have struggled over this recovery? In fact, one reliable source shows their annual earnings to have fallen by 5% in real terms since 2000. That source: The CEA’s 2006 Economic Report of the President (Table 2-1).

Even skilled workers have fallen prey to the productivity/wage gap over the past few years, including a long jobless recovery with significant losses in high-end sectors, like IT, and increased offshore competition from skilled workers abroad.

Finally, a good example of their fun with numbers comes from the section on mobility. They point out that the “average worker who was between 25 and 34 years old in 1994 earned 52% more in real terms in 2004.”

According to this Census table, http://www.census.gov/hhes/www/income/histinc/p10ar.html, the mean income (not earnings) of 35-44 year-olds in 2004 was indeed 52% higher than that of 25-34 year-olds in 1994. But there are two problems with this point. First, the median growth was 33%, again revealing the problem of using averages when inequality is on the rise.

But here’s the bigger problem. Incomes almost always rise as families age, so L&B have that built-in a large bias into their comparison. As the table shows, however, all this growth occurred in the 1990s. Since 2000, the real income growth of both age cohorts has declined, by 6% for 25-34 year olds and 1% for the older group.

Real Average Income Growth by Age Cohort, 1994-2004

	1994-2000	2000-04
25-34	21.4%	-6.3%
35-44	14.2%	-0.8%

Source: Census Bureau

True, the table compares a boom with a bust (though 2001-04 are recovery years), but L&B are touting the impact of Bush economic policies on income growth, so this comparison is not only justified, it’s essential. Readers need to recognize that no matter how hard you twist the facts, you simply can’t make a believable case that the recovery has broadly reached working families.

L&B make a few other egregious claims in the piece—“the president’s tax cuts have made the tax code more progressive” (see http://www.washingtonpost.com/wp-dyn/content/article/2006/05/06/AR2006050600974.html for a discussion of how the opposite has occurred), showing that they’ve quickly learned the “up is down and left is right” logic of the Bush econ-agenda.

Such misleading analysis needs to be constantly challenged. Yes, this has been an exceptionally productive economy over the past five years, with output per hour up 18%, 2000-05. Yet the gap that so many Americans perceive between such top-line statistics and their own circumstances is real. When smart, reputable economists deny this reality, they do a disservice to their post.