Every year or so, the NYT feels obligated to print a piece of nonsense masquerading as economics from W. Michael Cox, the senior Vice-President of the Dallas Federal Reserve Bank. The first item in this series that I recall was a piece that argued that there was great mobility in the United States because those in the bottom quintile at any point in time were likely to move up to higher quintiles, including even the top quintile, in future years. This looked very impressive until you found our that Cox used all adults in his sample, not just prime age people, as serious economists would do. This means that the law students and medical students, who are likely to be low income this year, are the basis for much of Cox's upward mobility story, since they will have relatively high incomes when they are lawyers and doctors. This year's nonsense concerns consumption. Cox tells us that there is much less inequality in consumption than income, so therefore we should not really be concerned about inequality. I won't go through all the problems in Cox's analysis (there are many). I will just point out that the data set that he uses, the consumer expenditure survey (CEX) is not very well-suited for this sort of analysis. The CEX misses a great deal of consumption. This can readily be seen by simply looking at the aggregate statistics. The average after-tax income reported in the survey is $58,101. Average consumption expenditures are $48,398. This implies a savings rate of 16.7 percent. The National Income and Product Accounts data show a savings rate of less than 1 percent. This suggests that the CEX is missing a great deal of consumer expenditures, which makes this sort of analysis very dubious. You may wonder why the NYT would print columns from someone with such a consistent reputation for getting things wrong. I guess that is the price that we pay for having a regular column from Paul Krugman. Too bad they can't find a conservative who could at least make an honest argument.
--Dean Baker