The Standard of Living for the 20th and 40th Percentiles
|The use of
averages is very misleading in economic discussions. This creates
a challenge to find measures that have validity. One approach we
experiment with here is simply looking at the standard of living
for the 20th and 40th percentiles. We reason thus, if the lower
percentiles see a small drop in incomes, they suffer great challenges.
In contrast, if the upper incomes experience a significant drop,
they will still have enough. Or in other words, the standard of
living of the lower classes is a better measure of the economy's
ability to create opportunity, than measure which include the upper
classes. However, the data shows similar trends to what we show
here are true for most of the upper half.
Incomes for the 20th and 40th percentiles
In this graph, we use the inflation adjusted income of the 20th
and 40th percentiles to examine economic trends.
An initial look shows incomes tending upwards under Reagan and
Clinton, and incomes tending downward under Carter, Bush and Bush.
But this picture is missing something. While Carter was president
baby-boomers were still rapidly entering the work force. This rapid
increase in laborers could potentially drive wages down. We can
account for this by looking at wealth concentration instead. That
is how much were they earning times how many workers were earning
that wage. This is a better measure of how things actually changed.
To consider both job growth and income growth, we graph the less
publicized but more meaningful wealth concentration. How do these
For emphasis we we extrapolate the mid-Reagan trend in purple,
the Bush 41 trend in red, Clinton trend in green, and the GWB pre-bubble
trend in black. At the beginning of the graph we can see the late
Carter years (Arab oil embargo) are about level. Had the Reagan
or Clinton patterns persisted most Americans would be better off.
Had the Bush 41 trend persisted most would be worse off. By the
end of 2009, the economy returned to the same place it was before
The graph does not tell us why distinct trends exist over periods.
The graph merely shows us that distinct patterns do exist for certain
periods. We must be cautious when making assumption about what choices
would make various trends persist, or end undesirable trends.
For a closer look we might graph annual change. We can see the
early Carter years, the mid-Reagan years, and the Clinton years
are distinctly positive. We have a few notable negatives: 1980-1982,
1990-1992, 2001-2003, and 2007-2009.
Change in Standard of Living by Administration
The information above would lead some to ask, how did the economy
fare during each administration. So we look at the annual averages.
For this graph we include the 20, 40, 60, 80, and 95 percentiles.
|Most groups fared best during the Clinton years and
suffered loss during the Bush administrations. It is interesting to
note that even with the oil embargo and higher tax rate, average annual
growth under Carter was slightly higher than under Reagan.