It looks like David Brooks is training for an Olympic event, he can really stuff a great volume of misinformation into a 750 word oped. Let's see what we've got: 1) Brooks says "after a lag, average wages are rising sharply. Real average wages rose by 2 percent in 2006, the second fastest rise in 30 years." The Bureau of Labor Statistics shows that the average hourly wage is 1.2 percent higher than its year ago level and still below its December 2002 level. That's almost five years of zero growth. In the late 90s, real wages were growing 1.6 percent annually. 2) Brooks then cites Brookings economist Ron Haskins' assertion based on data from the Congressional Budget Office that "between 1991 and 2005, 'the bottom fifth increased its earnings by 80 percent'." If we turn to the CBO study (Figure 2), we find that earnings for the bottom fifth of families with children actually increased by 120 percent (welfare reform), but this was between 1991 and 2000. Earnings for this group has fallen by about 20 percent in the last five years. [I am reminded by Mark Greenberg that Brooks refers to all households, whereas the CBO analysis only examines families with children. The CBO analysis found no income gain for the bottom quintile of families without children. Also, the income gain for families with children over the whole period from 1991-2004 was 35 percent, not 80 percent. Most of the increase in earnings was offset by a loss in benefits. More work also means higher work related expenses (e.g. child care and transportation), so the picture even from 1991 to 2000 is not as bright as Brooks leads readers to believe.] 3) Brooks comments that "the third complicating fact is that despite years of scare stories, income volatility is probably not trending upward. A study by the C.B.O. has found that incomes are no more unstable now than they were in the 1980s and 1990s." This is partly right in the sense that CBO did not find an upward trend, although it did find that income has been more volatile in the post-1980 era than in the pre-1980 era. 4) Brooks asserts that "that recent rises in inequality have less to do with the grinding unfairness of globalization than with the reality that the market increasingly rewards education and hard work. A few years ago, the rewards for people earning college degrees seemed to flatten out. But more recent data from the Bureau of Labor Statistics suggests that the education premium is again on the rise." I haven't seen data for the last month, but between 2001 and 2005, analysis from the Economic Policy Institute (EPI) there was a considerable rise in wage inequality, but no increase in the gap between workers with college degrees (but not advanced degrees) and without degrees. 5) Brooks tells us that the increase in inequality is due to the more frequent use of "performance pay" -- yes, like the $200 million that Home Depot CEO Bob Nardelli got paid to leave after mismanaging the company for two and a half years. 6) He tells readers that "inequality is also rising in part because people up the income scale work longer hours." Actually, most of the economists I know focus on the increasing inequality in hourly earnings, as in pay per hour, not total pay (see EPI's State of Working America). 7) The filthy rich are hedge fund managers and not CEOs, and therefore the problem is not a breakdown in social norms. Actually, my bet is that once the current bubble bursts, and it turns out that many hedge fund managers were paid hundreds of millions of dollars for some really poor returns, there will be an effort to string up the bozos who run pension funds for giving away vast sums of money for nothing, talk about a breakdown in social norms. 8) "Globalization boosts each American household’s income by about $10,000 a year." What does this mean? Is this compared to a world in which we can't get coffee from Brazil or oil from the Middle East, but rather have a completely autarkic economy? It will be great when the proponents of the current trade agenda stop arguing against straw men in making their case. No one is advocating autarky. Suppose we had globalization with complete free trade in intellectual products (e.g. no more patent and copyright protection) and huge efforts to eliminate the barriers that sustain the wages for highly paid professionals in the United States (e.g doctors, lawyers, accountants, and economists). This would lead to huge economic gains and greater equality. In his celebration of the economy Brooks doesn't mention the $700 billion trade deficit, the housing bubble and meltdowns in the mortgage market, and the productivity slowdown that the Fed is now projecting to continue at least through 2008. No doubt these items will appear in Part II.
--Dean Baker
