When it comes to public discussions of economic well-being, one must be beware of misleading statistics. Take, for example, a recent feature in The New York Times on the strength of the U.S. economy. Recapping whether prosperity is widely shared among Americans, columnist David Leonhardt writes that “since 2000, per capita G.D.P. in the U.S. has risen 27 percent, but median household income has risen only 7 percent. Income for the top 0.1 percent of earners, by contrast, has jumped 41 percent.”
Note that Leonhardt compares three separate statistical measures: “per capita G.D.P.,” “household income,” and “the top 0.1 percent of earners.” The problem is that each of these statistics measures different things, so comparing them is like comparing apples to oranges. For example, “households” consist of multiple people (as opposed to per capita G.D.P., which by definition measures just one person) and have been shrinking over time. This means that if, say, three people as a “household” earned $100,000 in 2000, but the same “household” today has only two people and earns $107,000, then “household income” has risen only 7 percent. In fact, however, income per person has grown by over 60 percent in this case, which is close to what per capita income data in fact reveals over the last handful of decades. So we must be careful about drawing conclusions based on household data.
Furthermore, we also need to be attentive to the fact that statistical categories do not represent a fixed group of people. The “top 0.1 percent of earners” is a statistical category, and different people belong to it at different times. That is why an important question here is whether people’s incomes tend to rise over time. In other words, do we have robust economic mobility in the United States? Major long-term studies from the University of Michigan, the U.S. Treasury, and the Federal Reserve have all shown that people do indeed tend to ascend to higher income categories over the course of their lives, which is unsurprising given that people generally expand their skillset and earn raises throughout their working years.
For example, a 20-year-old may start out in “the bottom 20 percent” of earners, yet after decades of experience and wage increases, end up in the “top 5 percent” of earners by the end of his career. Thus, talk of gains among “the top 0.1 percent” assumes that a fixed group of human beings are getting richer than everybody else. But this is an unfounded assumption.
To better see why, consider an illustration from the late economist Joseph Schumpeter. Imagine looking at a hotel in the year 2000 and comparing it to today, and seeing that its nicest suites have gotten 41 percent nicer, while the average rooms have gotten only 7 percent nicer, and therefore concluding that the wealthy have simply gotten wealthier. The problem, of course, is that the data says no such thing, since it tells us nothing about the individual occupants of the various hotel rooms and whether those occupants move to nicer rooms over time, or whether a higher percentage of occupants can afford the nicest suites today than the percentage that could do so in the year 2000. And those are surely relevant questions (which the studies mentioned above positively answer) when it comes to assessing our economic prosperity.
Leonhardt also casts doubt on our economic well-being because, he says, we have both low life expectancy compared to other countries and “uniquely poor access to health insurance.” While it is true that life expectancy has dropped in the last few years, part of the reason we appear to have lower life expectancy relative to other countries is that our healthcare system goes out of its way to save people in situations that are often hopeless, including babies born prematurely who have little chance of survival, and their deaths drag the average U.S. life expectancy down, while other countries do not count such cases, so their life expectancy appears higher.
Furthermore, because we lack a “universal” (which typically means a single-payer or “Medicare for all”) health system, graders tend to penalize us for “lack of access.” But whether a universal Medicare system is preferable is debatable, and many policy experts contend that there are better ways to achieve widespread coverage. Nevertheless, when it comes to vital health care outcomes, such as response time to critical medical situations, available cancer treatments and surgical procedures, as well as research and development in medicine and medical technology, our healthcare system ranks among the highest in the world.
Of course, there is legitimate debate about which policies best promote prosperity and improved health care, but the truth is we remain a wealthy country that offers unique opportunities to rise, and we must not let deceptive statistics trick us into believing otherwise.