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Thursday, February 3, 2011

Real Disposible Income Per Capita

Over at econbrowser, James Hamilton is optimistic that we have An improving economic outlook In comments, Stagflationary Mark disagrees, and shows why, with graphs of real disposable income per capita.

I think he's on to something.  So I used his data source (FRED - Mark has the links) and made my own graphs.  I like to put time series data on a log scale, to see if there is a constant growth rate.   Here is a simple, clean graph, on a log scale, with a trend line (Mark used an exponential trend line on a linear scale.)

Not too surprisingly, this is pretty similar to GDP/Cap.  Also, there might be a break point around 1980, as with GDP.  Let's have a look.

The years up to '80 are in green, from '80 on in red.  Now there are 3 trend lines.  The green line is quite different from the other two.  The post '80 line (red) has the lowest slope.

Lane Kenworthy, looking at income data, puts a break point at 1973.  Let's give that a try.  Up to '73 is in blue, post '73 in red, total data set trend line is in yellow.

Here, I think the 1973 breakpoint is even more convincing than in LK's graph.

Stagflationary Mark highlighted the last 10 years to emphasize the current stagnation.  Let's do that, too.

Here we can see the gap of the current condition from the long ago trend line (blue.)  Even worse, we're falling away from the total data set trend line (yellow.)  Even still more worser, we're falling away from the post '73 trend line.  Mark concludes:

Real disposable personal income growth is currently not back on track. I can pretty much assure you of that.

Like I said, I think he's on to something.  And doesn't that golden age look golden!


Jerry Critter said...

So, does that mean that personal required/necessary expenses have grown faster than personal income, thus leaving less disposable income?

Jazzbumpa said...

Jerry -

I hadn't thought about that specific aspect of it - but probably not, since the whole whole thing is inflation adjusted.

The point is wealth redistribution - from most of us common people - into the hands of the (already) wealthy elite.

It's the real road to serfdom.


nanute said...

I wouldn't discount Jerry Critter's point so quickly. Just think about how much the cost of health care expenditures ALONE, have risen in the time period in question.

Jazzbumpa said...

nanute -

But that's talking about expenses.

This post is talking about inflation adjusted income. To the extent that HC costs are greater than headline inflation, a alternative HC adjusted inflation index would be greater than CPI inflation, and therefore, disposable income now lower still by that measure.

Which opens the door to how inflation is measured - a can of worms I am not prepared to deal with.

Looking at it another way - disposable income minus HC costs would have an even lower slope, and probably be trending negative by now.

There are two major points here: 1) income (and therefore wealth) has been redistributed upward since ca. '73-80, and 2) real disposable income per cap has been dead flat for 5 years, with no end in sight.

Pretty grim,

Jerry Critter said...

So, it is lack of wage growth, not expense growth, that has reduced disposable income?

Lack of wage growth results is larger profits which are then distributed to high wage earners in the form of bonuses and dividend?

Jazzbumpa said...

Jerry -

That's on the right track.

Also, executive salaries have sky-rocketed. Forty years ago, the difference between CEO and employee was on the order of 25x. Now it's on the order of 250x.

Disposable income is take-home pay minus taxes.


Jerry Critter said...

Oh, OK. I was thinking of disposable income as "extra" income; income after paying all "required" expenses like food and shelter. Thanks for the clarification.

Jazzbumpa said...

Jerry -

Don't feel bad. I had to look it up.