“In the midst of the Great Depression, New Hampshire’s Billy B. Van travelled the country, speaking to chambers of commerce, business conventions and civic leaders.   Mr. Van had a gimmick when his audience began to complain about hard times.  He was fond of tacking up a large white piece of paper and then marking the center with a small ink dot, asking his audiences what they saw. They all said the same thing: a little ink dot. With the setup complete, Mr. Van would respond:

“You all see the tiny little dot, but none of you see the big sheet of white paper.” [1]

This tale, from an obituary in our local paper, seems very apt today.   The media is full of stories about doom, gloom, destruction and despair in the United States.   But that strikes me as just focusing on the little dot.

There are 7.4 billion people in the world.[2]  The United States has something like 325 million people[3], less than 5% of the total population.   Yet, by many meaningful measurements, the US leads the entire world.   From large things like language, money, technology, military, philanthropy, higher education, natural resources, safety and even manufacturing, to little things like sneaker brands, the US sets the pace in a wealthier and healthier world.

English is THE language of communication.    Over 600 million people have received formal education in English as a second language, more than four times that of the next most popular second language.[4]  And even more amazing is that an estimated one-third of the entire world’s adult population, more than 2 billion people, can communicate informally using English.[5]

The US Dollar is THE currency of the world.  People often prefer the Dollar than their own currency.  63% of foreign exchange reserves are in US Dollars.[6]  85% of all foreign exchange transactions involve the dollar.[7]   Heck, more than 70% of US $100 bills are held outside of the United States.[8] [9]

 

pm-gr-dollardollarbillaway-616

 

The United States has an astonishing amount of wealth.  42% of the world’s financial assets are held in the United States.[10]  Half of the 100 largest companies in the world are based in the US.[11]   The US has as almost as many billionaires as the next nine countries combined. [12]  The US GDP is on a long and steady march upward, and is currently at over $56,000 per person, in current dollars.[13] [14]

 

us_gdp_per_capita

Technology is driven by the United States.   Fourteen of the 25 largest tech companies in the world hail from the U.S., including seven of the top 10.[15]  According to one count, more technology companies are started here than in the next nine countries combined.[16]    Citizens of the US have won almost as many Nobel Prizes in the Sciences as the next nine countries combined.[17]  The internet?  You name a global website, and the underlying computer coding is based on English.[18]  Even the address book of the internet, ICANN, is in California.

The US spends more on its military than the next nine countries combined.[19]  According to David Vine, “Although few Americans realize it, the United States likely has more bases in foreign lands than any other people, nation, or empire in history.”[20]   Depends on who is counting, but our country maintains something like 800 bases in 80 foreign countries.[21] [22]

 

 

Print

 

The United States has been named as “the world’s most generous country” for years.[23]    In 2015, charitable donations exceeded $370 billion, leading the world in total and as a percentage of GDP.[24]  76% of the population helped a stranger sometime in the last year.[25]   Our government provided over $31 billion in direct foreign aid in 2015, more than any other country.[26]

Higher education has flourished in the United States.    According to a variety of surveys, 19 of the top 25 Universities are located in the US.[27]  If you throw in the top Universities in Canada and the UK, 22.5 of the top 25 Universities in the world are taught in English.[28]   Not surprisingly, the US hosts more of the world’s international students than any other country.[29]

Our natural resources are glorious and wide ranging.    At one end of the spectrum, the US was the first country to establish a national park, in 1872.[30]   At the other end of the spectrum, our natural resources are worth approximately US $45 trillion, trailing only Russia in raw value.[31]  The US is the largest producer of oil and natural gas.[32]  Thanks to a variety of factors, the US is shortly expected to achieve energy independence for the first time since the 1950’s, where energy exports will equal imports.[33]

Much has been written about the decline of manufacturing in the United States.  But even so, the US still has the second largest manufacturing economy in the world.[34]   China, which passed the US in total manufacturing in 2010, has four times as many people as the US, but lags far far behind in productivity per person.[35]

Culture is a harder thing to measure, but the United States certainly dominates by many measures.   Movies, music, and brands from the US are pervasive throughout the world.   In what countries can’t you buy a Big Mac, or an Air Jordan or a cut from Beyoncé?

Safety?  By following Bill Clinton’s exhortation to “examine the trend lines, and not the headlines”, you can see that we are living in the most peaceful time in our species’ existence.[36]  Fewer people, measured as a fraction of the population, die now from war or murder than ever before.[37]   Long term global trends on health, nutrition, and literacy are all very good.[38]    Over a BILLION people have moved out of extreme poverty in the last 25 years.[39]   The United States is no exception to this general progress:  In the same 25 years, domestic crime rates have fallen 50% for BOTH violent and property crimes.[40]   Read that again – our crime rates today are half of what they were 25 years ago. [41]

 

crime-rates

So as far as I can figure out, the United States is an extremely dominant country in a rapidly improving world.   Our language, technology, currency, wealth, military, higher education, natural resources, and culture all set the pace.

Now please note that there are many things I am not saying.   I am not saying that the United Stated leads in every measure of every aspect of life.   Nor that “relative” leadership in each of these areas is not changing.  Nor that leadership is good.   Or bad.  Nor that the general studies cited here are without critics.  Most importantly, I am NOT saying that the world or the US are free of problems.  Nor that wealth or income are distributed the way we might like.   I am not saying that every death isn’t tragic.   Nor that discrimination doesn’t exist.   Nor that global warming isn’t a threat.   Nor that the world needs to make progress on human rights.  Nor that there are not local tragedies happening all the time.   All I want to do is to step back and take a look at the big white paper.  And recognize that the US has a pretty amazing position in the world.   The United States IS great.

 

 

References:

[1] Patrick O’Grady, “Newport Resident Sheds Light on Town’s Sunniest Man” in Upper Valley News, September 22, 2016, paraphrased paragraph
[2]World Population”, Wikipedia, October 4, 2016
[3]Demography of the United States”, Wikipedia, October 4, 2016
[4]List of Languages by Total Number of Speakers”, Wikipedia, October 4, 2016  Of note, Chinese speakers of a second Chinese language were excluded in comparison.
[5] David Crystal, “How Many Millions” in English Today, January 1985, pp 7 – 9.  Updated in 1997, 2003, and 2008.
[6]Reserve currency”, Wikipedia, October 4, 206
[7] Barry Eichengreen, “China’s Money Goes Global” in The Milken Institute Review, Fourth Quarter 2015
[8] Ruth Johnson, “Crisis and Calm: Demand for U.S. Currency at Home and Abroad from the Fall of the Berlin Wall to 2011” in Board of Governors of the Federal Reserve System International Finance Discussion Papers IFDP 1058 November 2012
[9] “Most $100 Bills Live Outside The U.S.” by Jacob Goldstein for Bamboo Innovator, April 17, 2013 from Ruth Johnson, “Crisis and Calm: Demand for U.S. Currency at Home and Abroad from the Fall of the Berlin Wall to 2011” in Board of Governors of the Federal Reserve System International Finance Discussion Papers IFDP 1058 November 2012
[10] List of sovereign states by external assets, Wikipedia, October 4, 2016, based on Allianz Global Wealth Report 2011, 2012, 2013, 2014, 2015 and 2016.
[11] “Global Top 100 Companies by Market Capitalisation”, PWC, March 31, 2016 update.
[12]The World’s Billionaires”, Forbes, 2016 and List of countries by the number of US dollar billionaires, Wikipedia, October, 4, 2016
[13] “World Economic Outlook Database”, International Monetary Fund, October 2015.
[14] “Economy of the United States” Frichmon for Wikipedia, October 5, 2016
[15] Samantha Sharf, “The World’s Largest Tech Companies 2016” in Forbes, May 26, 2016 
[16] “Startup Ranking”, StartupRanking.com, October 4, 2016
[17]List of countries by Nobel laureates per capita, Scientific prizes”, Wikipedia, October 4, 2016
[18] Top Programming Languages, Author, compiled from “Top Programming Languages for 2015” by IEEE Spectrum, “TIOBE Index for September 2016” by TIOBE, and “PopularitY of Programming Language for September 2016” by PYPL
[19] “Comparison of Military Budgets, Author, compiled from “List of countries by military expenditures”, Wikipedia, October 4, 2016, and “2016 Fact Sheet” by Stockholm International Peace Research Institute and “Top 15 Defence Budgets, 2015” by International Institute for Strategic Studies
[20] David Vine, “The United States Probably Has More Foreign Military Bases Than Any Other People, Nation, or Empire in History” in The Nation, September 14, 2015
[21] IBID
[22] “Top 15 Defence Budgets, 2015” by International Institute for Strategic Studies
[23] “Gross Domestic Philanthropy”, The Giving Institute, January, 2016
[24]Giving USA: 2015 Was America’s Most-Generous Year Ever”, The Giving Institute, June 13, 2016
[25] “CAF World Giving Index”, Charities Aid Foundation, November, 2015
[26] “List of development aid country donors”, Wikipedia, October 5, 2016
[27] “Top Universities”, Author, compiled from “World University Rankings”, Case Western Reserve, 2016 and “Best Global Universities Rankings”, US News and World Report, 2016, and “Academic Ranking of World Universities, 2016”, Shanghai Ranking and “World University Ranking, 2015 – 2016”, Times Higher Education.
[28] IBID
[29] “2015 Project Atlas Trends and Global Data Fact Sheet”, Institute of International Education
[30] “National Park” in Wikipedia, October 5, 2016
[31] Nancy Carroll, “Top 10 Countries with the Most Natural Resources” in CountryDetail.com, February 2, 2016
[32] “List of countries by oil production”, Wikipedia, October 5, 2016 and “List of countries by natural gas production”, Wikipedia, October 5, 2016
[33] Variety of Sources including “U.S. energy imports and exports to come into balance for first time since 1950s” in Today in Energy from the US Energy Information Administration, April 15, 2015  and Gregory Meyer, “US Close to Ending Era as Net Importer of Energy” in Financial Times, April 14, 2015
[34] Marc Levinson, “U.S. Manufacturing in International Perspective” for Congressional Research Service, April 26, 2016
[35] Dan Meckstroth, “China Solidifies Its Position as the World’s Largest Manufacturer” for Manufacturers Alliance for Productivity and Innovation, March 30, 2015
[36] Steven Pinker and Andrew Mack , “The World Is Not Falling Apart” in Slate, December 22, 2014 and Steven Pinker, “Violence Vanquished” in The Wall Street Journal, September 24, 2011.
[37] Max Roser, “War and Peace since 1945” in OurWorldInData.org, 2016
[38] “The Millennium Development Goals Report Summary” for the United Nations, 2015
[39] “Poverty” in Wikipedia, October 5, 2015
[40] United States Crime Rates 1960 – 2015” Compiled by DisasterCenter.com from FBI UCS Annual Crime Reports, 2015 and Lauren-Brooke “L.B.” Eisen and Oliver Roeder, “America’s Faulty Perception of Crime Rates” for Brennan Center For Justice, March 16, 2015
[41] Charles W Cook, “Careful with the Panic: Violent Crime and Gun Crime Are Both Dropping” in National Review, November 30, 2015

Are children born today destined to remain in the same economic class as their parents?    No.

Have the chances for changing economic class diminished over the past decades? Or over the past few years?   No.

The answers come from some recent research summarized in The Milken Institute Review.   Their rather bland conclusion is that “the trend line for relative mobility has been flat for the past few decades. . . .   It is simply not the case that the amount of intergenerational relative mobility has declined over time.”   Children today have the same chance of changing their lot as children in the United States have had for many a decade.

2016-09-01-miliken-institute-review

“Social Mobility, A Promise That Could Still Be Kept”, Richard Reeves and Isabel Sawhill in The Milken Institute Review, Third Quarter, 2016

Being poor sucks.   I remember walking miles at midnight in rainy New York because I didn’t have enough for the subway ride home.  Let alone for a meal.  I would not wish financial insecurity on anyone.

But I’ve been struck by recent studies on how poverty today is different from poverty in the past.   Over the last few decades, the price of many things has fallen, while their quality has increased.   97% of US households have a TV, and > 90% of adults in the US have a cell phone.    More choice has emerged, allowing for less costly substitutes.  Clothing, cars, communication, even housing, are less expensive than they have been.  A nice chart of this appeared in the New York Times recently:

Changing Costs for Americans

Changed Life of the Poor: Better Off, but Far Behind By Annie Lowrey.   New York Times, April 30, 2014

Economists, being fellow geeks, try to account for this increased quality and choice.  The Consumer Price Index, long used to adjust for changes in cost, has expanded into a variety of flavors that attempt to capture changes in quality and choice, as well as price.    Traditional CPI shows that the incomes of the bottom 10% are flat over the last forty or so years.    But measures of CPI that try to account for the changing nature and choice show that incomes for the bottom 10% have increased.   By some measures significantly:

10th Percentile Income over Time over CPI's

The Role of Prices in Measuring the Poor’s Living Standards.  By Christian Broda, Ephraim Leibtag, and David E. Weinstein  Journal of Economic Perspectives, Spring 2009.

A simplistic reading of this chart shows that wages of the bottom 10%, when adjusted by the traditional CPI (CPI-U above), are the same as they were back in 1979.   But if you attempt to adjust for both increased quality and increased choice along with price, (C-CPI-U-BW above), then wages for the bottom incomes are 30% higher than in 1979.

I am not at all trying to say that being poor is not terrible.   Just trying to learn how poverty is different today than it was five, ten, and forty years ago.   Many “luxuries” are affordable to even the very poor.   And “Indexing” on the changing nature of goods as well as price, paints a picture of rising incomes for the very poor.

While many goods and services are less expensive, the goods and services that are true pathways out of poverty are ever more expensive.    College.   Child Care.   Health Insurance.  As commentator said “In American luxuries are cheap, but true needs are expensive.”

Me?  I’m not so keen on helping poor with items that are inexpensive and within their reach.   But investing in true needs – pathways out of poverty – sure strikes me as reasonable goals for public policy.

 

 

Relevant Publications

2014.  “Changed Life of the Poor: Better Off, but Far Behind” in the New York Times, April 30, 2014.  By Annie Lowrey.

2009.  “The Role of Prices in Measuring the Poor’s Living Standards” in the Journal of Economic Perspectives, Volume 23, Number 2, Spring 2009.  By Christian Broda, Ephraim Leibtag, and David E. Weinstein

My mother, a spry 95, is full of pithy sayings.   “Climbing the greasy ladder”, as a euphemism for career struggles, has always seemed particularly apt.   And also turns out to be accurate.

A bunch of smart folks have compiled longitudinal tax records from many countries, including the US.   (The “World Top Incomes Database” or WTID.)    This data paints a picture for incomes over time.  For the US, the best metaphoric picture I’ve seen is that of a ladder, with each rung representing an income group.   Over time, the income ladder has become stretched.   The bottom rungs are actually a bit farther off the ground.   Not much, but some.   The top rungs?   Much farther off the ground, and much farther away from all of the other rungs.

While the ladder has stretched, movement up and down the ladder has remained constant.   The rungs may be farther apart and the ladder might be taller, but the chances of moving up, or down, are still about the same.   The ladder is still greasy.  Just taller.

Changes In the Income Ladder in the US

Executive Summary of NBER Working Paper 19844, January 2014, Raj Chetty, Nathaniel Hendren, Patrick Kline, Emmanuel Saez, and Nicholas Turner

I do worry about the rising spread of incomes.   Something about having the top incomes increasingly far from the bottom ones does’t feel right.   But I worry most about maintaining movement on the ladder.   Creating and increasing chances for betterment.   Helping people at the bottom rungs continue to have the opportunity to climb up a taller greasy ladder.

 

General Overview

The Equality of Opportunity Project

Relevant Papers

2014.  “Inequality in the long run” in Science 23, May 2014 by Thomas Piketty and Emmanual Saez

2014.   “Is the United States Still a Land of Opportunity?   Recent Trends in Intergenerational Mobility” in the National Bureau of Economic Research by Raj Chetty, Nathaniel Hendren, Patrick Kline, Emmanuel Saez, and Nicholas Turner

As a wise man said, if losing a donut makes you unhappy, don’t bet donuts.   But I’ll double down for a Boston Cream on this one:   Income inequality in the US is increasing.

  • Since 1970, incomes for the top 1% have soared.   After-tax, before-tax, what-tax.
  • The top 1% captures as much of the total US income as they did back in the Roaring 20’s.
  • Between 1979 and 2007, the top 10% has captured 63.1% of all growth in income.   The top 1%?  A measly 38.3%.

See handy dandy charts below.   And see references farther below.

The geek in me notes that many things have changed since the Roaring 20’s.   Marginal tax rates have fallen from rates in the 80%.   Social services are much greater.   And life is, well, just different.   But in any event, it sure seems that the top 10%, and the top 1%, are farther away than ever.

Average After-Tax Income by Income Group
“Average After-Tax Household Income”, from the Congressional Budget Office, June 2010        

 

top-percent-share-of-total-pre-tax-income

“Income Inequality in the United States, 1913 – 1998” in the Quarterly Journal of Economics, 118, 2003 by Thomas Piketty and Emmanuel Saez.   Updated 2008.

 

Share of the total household income growth attributable to various income groups, 1979 – 2007

Share of Household Income Growth by group, 1979 - 2007

“Sources of Income for All Households, by Household Income Category, 1979 – 2007” from the Congressional Budget Office Average Federal Taxes by Income Group as complied in The State of Working America, 12th Edition from the Economic Policy Institute

 

General Overview

The State of Working America

Economics Policy Institute

Historical Income Tables: Income Inequality, United States Census Bureau

Relevant Papers

2014: “A Guide to Statistics on Historical Trends in Income Inequality”, Center on Budget and Policy Priorities, by Chad Stone, Danilo Trisi, Arloc Sherman, and William Chen

2013: “Income Inequality: Evidence and Policy Implications” Arrow Lecture, Stanford, by Emmanuel Saez, UC Berkeley

2008:  “Income Inequality in the United States, 1913 – 1998” in the Quarterly Journal of Economics, 118, 2003 by Thomas Piketty and Emmanuel Saez.   Updated 2008.

I hate losing an argument.

In my liberal soul, I was sure that the middle class had lost ground over the past 30 years.   And that the bottom 20% had lost even more.  In more precise terms, I was sure that real incomes from the bottom 20% had fallen during the last 30 years.   I was so sure that I bet my currency of choice, a donut, on the outcome.

Turns out I was wrong.

We agreed to look at after tax and transfer dollars, adjusted for inflation.   We found pretty compelling evidence across multiple sources.  Here, as an example, is a 2012 graph from the CBO.    Yes, it shows that things have gone well for those at the top.   But it also shows that incomes for the bottom 20% have gotten better over time.   Not a lot better.   Not as much of an increase as the top.   But better.

And so I had to watch someone eat my donut.

Income growth by group, over time

Finally, our argument surfaced a bunch of other areas to examine.    How has real wealth changed over this same period?   What has happened to real incomes since 2007?  (Incomplete evidence seems to say flat at the bottom levels.)  How do income changes filter through changes in underlying prices?   (Some items, like education and health have become more expensive, while others, like communications and technology have become less expensive.)    All good questions.   But I’m going to research them first, before betting another donut.

 

 

 

General Overview:

Trends in the Distribution of Household Income, 1979 – 2007, Central Budget Office

A Guide to Statistics on Historical Trends in Income Inequality, Center on Budget and Policy Priorities

Relevant Papers:

2012: Comparing Real Wage Rates, by Orley Ashenfelter.  (This is more international in focus.)

2004: Income, Poverty, and Health Insurance Coverage in the United States: 2003, by Carmen DeNavas-Walt,
Bernadette D. Proctor, and Robert J. Mills.

Over the course of my life, I have made different amounts of money.   As a low-level non-profit employee, I was, well, starving.   Two bagels with butter was a once-a-week dinner splurge.   Now?   As a capitalist?   Not so much.

In the eyes of economists, I have been “economically mobile”.

Economic mobility, it turns out, is tricky to measure.   Do you look at income?  Or wealth?    Whatever you look at, how do you associate it with a person, and their partner/kids over time?    When measuring income, do you count governmental transfers?   Or not?   Is self-reported income or wealth data, drawn from a statistically valid population, a better measure than more accurate tax data, which by its very nature excludes non-filers?  I dunno.  Smarter people than I have made a profession of looking at this information.   And they have come one very suprising conclusions.

Income mobility in the US is relatively unchanged over long periods of time.   It is just as easy, or hard, to change your income now as it was back in the day.

 

The American Dream is still alive and well.

 

 

 

General Overview:

Equality of Opportunity Project, Faculty of Arts and Sciences, Harvard University

Economic Mobility Project, The Pew Charitable Trust

 

Relevant Papers:

2014: Is the United States still a land of opportunity? Recent trends in intergenerational mobility.  By Raj Chetty,  Nathaniel Hendren, Patrick Kline, Emmanuel Saez, and Nicholas Turner

2014: Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States.  By Raj Chetty, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez.

2014: A Guide to Statistics on Historical Trends in Income Inequality. By Chad Stone, Danilo Trisi, Arloc Sherman, and William Chen.

2012: Pursuing the American Dream: Economic Mobility Across Generations.  By The Pew Charitable Trust, team members Susan K. Urahn, Erin Currier, Diana Elliott, Lauren Wechsler, Denise Wilson, and Daniel Colbert

2011: Trends in U.S. Family Income Mobility, 1969–2006.  By Katharine Bradbury

2010: Earnings Inequality and Mobility in the United States: Evidence from Social Security Data since 1937.   By Wojciech Kopczuk, Emmanuel Saez, and Jae Song