Monday, July 23, 2012

Great graphs found by Krugman

Paul Krugman has found a great graph wrt violence in the USA and other countries over time (and, yes, it's been going down in the USA since 1975, and is currently at 1/2 of the 1975 level).

Last week, Krugman posted a great graph showing how wages stopped tracking productivity around 1970.  That is, productivity has increased 150% since then, and median wages, adjusted for inflation, have increased approximately zip (13% or so, mostly in the late 1990's).

Wonky note: Richard Bruce in comment #1 claims to see the flaw, the use of GDP deflator vs CPI as inflation adjustments.  However, what his seemingly wonky and authoritative comment seems to get wrong is that the CPI does indeed take "quality" into account (for example, new cars are much better now than they were in 1970, computers get faster ever year), there's a special econometric cottage industry devoted to determining this factor (which has a fancy name: hedonic regression).  Cynics might love that this factor does indeed reduce the reported CPI to a small degree, which is probably why expensive experts are paid to calculate it.  So you aren't getting more for your stagnated dollars just because some things are getting better while they increase in price--precisely because that change in quality has already been accounted for in calculating your inflation adjusted dollars.  Meanwhile, some things decline in quality also, and one can only hope that's been accounted for properly by the hedonic experts who are supposed to be taking everything into account.  BTW, this meme that Richard Bruce is presenting has been made by conservatives for a long long time, which is why I already knew the answer from reading a book by Doug Henwood ("After the New Economy").  It's similar to the old remark "you have (cars,refrigerators,tvs,ipods) now so why aren't you happy?"

Krugman merely notes that if you think he's overlooked something, you might be correct, but chances are that you are not, he's been working with these numbers for a long time.

Here's a link wrt hedonic regression (in case you think I just made this up):

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