How can it be? (Walter E. Williams)

townhall.com ^ | January 14, 2004 | Walter E. Williams

[nopardons]

Where do YOUR columns appear, what books have you published, what radio/T.V. shows do you regularly appear on, what college/university do you teach at,and how well known and respected are your opinions, Willie ?

Leaving this thread and Walter Williams' column alone, for the nonce, I've read untold threads, wherein you have posted junk economic pronouncements.All you've done now, is to heap calumny on the author of this article, with no solid refutation. Par for the course for you.

[Straight Vermonter]

Sounds great but I don't know anyone who has paid cash for a house. Unless they are selling a house that they had paid a mortgage on.

[Willie Green]

Continuing your personal attack against me STILL doesn't rebutt my statement about debt.

Like I said, Walter's position is indefensible.

[riri]

Walter's views everything from his perch on the academic ivory tower.

Usually, on this board, that is criticized.

[LibertarianInExile]

Per capita GDP seemed to me a silly statistic to use anyway, especially since the profits from and production of a company's work overseas often 'remains here' in an accounting sense, depending on who's tabulating the numbers.

The latter info is certainly more damning of those who would have us believe the poor in this country really are in comparison to the world's poor.

On the other hand, the poor in this country don't compare themselves to Afghans or Russians--they compare themselves to Lifestyles of the Rich and Famous, and know they come up far short. Class envy is inevitable when you've lost your manufacturing job and know you have to start completely over. Every single person who tells me retraining is the answer just ignores the fact that many manufacturing industry employees are on the tail end of their careers, soon to be on social security. Companies won't hire them and they mostly don't even look for jobs where they are starting over as a peon after having been in charge. The taxpayers end up financing their 'early retirement.'

I don't know how to stop the class warfare in the U.S., but I know exporting jobs to maquiladora and China ain't it.

[nopardons]

Prior to building this house, we rented. :-)

Prior to buying the co-op, when my husband and I were in our 20s, we rented.

The money we made, when we sold that co-op ( which we redid the kitchen in, without a loan or mortgage )was a pittance, in what we subsiquently paid for the condo, that we bought, after renting an apartment for a year. We sold the condo and rented for the next 11 years, until we built this house. what we made on the sale of the condo, probably covered the cost of my kitchen...if that.

It may be rare, but it isn't nearly as unuaual,as one might imagine, for people to buy their homes outright.

[nopardons]

This nation has been in a state of debt, for a long time and it hasn't crashed and burned utterly yet.

[sixmil]

I wonder if Walter the idiot is including 10 million illegals in his per capita GNP calculations.

[xzins]

I hand jammed the annual inflation rates from 1980-1992.

The average was 4.065217391

We'll call that 4.07.

If I had 21500 dollars in 1980 I'd better have 52559 bucks in 2002 to say that I had stayed the same. That's 2.44 times higher to stay up with inflation.

The relationship of 21500 to 36000 is only 1.67 times.

A dollar had to grow 2.44 times in that time span to stay up with inflation. They're reporting in this article that the GDP dollar did not grow that much.

Whatever the reason for it, you lost per capita gdp value.

Whatever the reason for it (illegal immigration perhaps), your per capita "American" had more purchasing power in 1980 than in 2002.

[Triple Word Score]

I know too little about economics to know which one of you is right, but your discussion is instructive. You can't both be right, and the matter is a critical one.

I'd appreciate it if you could continue it as more of a debate, and less of a flamewar. Flamewars are definitely recreational, but I'd like to understand this better and I suspect that you two could help me tremendously in that if you'd be willing to quit making/responding to ad hominem arguments and just make your cases.

One thing I do not understand is why we can talk about the per-capita income in 2000 and the per capita income in 1990 or whatever, and translate it into...some other year's dollars. It seems that doing so would be bound to distort the information being imparted more than a little bit, just as translating text from English to French to German and back to English again with Babelfish would distort it. Aren't economists drastically decreasing the precision of the numbers when they do that?

Wouldn't an equation giving the rate of change be a more precise way to express the change?

And doesn't the amount of personal debt held by consumers drastically change the standard-of-living question? If you have more toys, but are paying so much interest that you cannot afford to fix what breaks, how are you really doing better?

I don't know but I think that personal debt has never been this high in our nation's history.

[gooleyman]

"Walter is just another shill for those who are mortgaging our future national security and sovereignty by increasing our National Debt."

Where do you get that Walter Williams is in favor of a National Debt? I haven't seen everything he's written of course, but that doesn't jibe with the way I think he thinks.

[Badray]

Did you miss this part? Or did it just not comport with your attempt to dismantle what Williams is saying?

" According to the 1995 Annual Report of the Federal Reserve Bank of Dallas, only 5 percent of those in the bottom 20 percent category of income earners in 1975 were still there in 1991. What happened to them? A majority made it to the top 60 percent of the income distribution -- middle class or better -- over that 16-year span. Almost 29 percent of them rose to the top 20 percent.

It sure looks to me like people (who are willing to work) are doing better.

[KC Burke]

You make a good point. There are some good and passionate minds here and the forum could use their plain spoken points.

The reason that the dollars are translated into another years to express them is for the ease of comparison. By picking one of the two years being compared, or better yet picking a separate base-line year that can then be used as other years are added to a study, the numbers can then be compared mathematically and by percentages and the like, with inflationary changes to the currency being taken into account.

For example, if a daily income of the average union carpenter foreman was 200.00 and bought a weeks groceries for four, 20 gallons of gas, and an average months utilities in 1990, while he earned 217.45 in '93 and 257.60 in '02, then it is best to look at the inflation rate for the standard package of consumer costs and then express all those dollars in terms of one base year. If the inflation rate was not compounding, but only 1% per year, then the package of goods, theoretically, cost 206.00 in '93 and 224.00 in '02. If we then express the earnings in '90 dollars, they are lower in the subsequent years as adjusted for comparison, but it gives a more true picture as to the value of the income being discussed.

Does that help?

If we were simply talking of percentage changes we would be saying the income has gone up 27% while prices have gone up 22% and that gives the impression that the changes were straight lines rather than fluctuating curves and would still not be too clear if we are 5% ahead.

I was listening to the radio this evening and someone was discussing the personal debt level of 2 trillion having doubled in the last 13 years. That's about 6% per annum compounded, or thereabouts. What wasn't mentioned is that the savings in general savings and retirement is also at an all time high, as I understand it. If that is the case, it somewhat tempers my concern about the personal debt level.

[Indie]

Dr Williams is one of my favorite conservatives....on everything except the subject about which he teaches. This is double-sepak at its very best, and I'm about as right-wing radical as you can get.

[cyborg]

I agree

[L_Von_Mises]

Here is some data that I got from the Bureau of Economic Analysis on income levels:

In 1980 income per capaita in 2000 dollars was $16,940, in 1990 it was $21,281, and in 2002 it was $26,320. During that time expenditures on housing and cars as a percentage of income remained at about the same level (within a percentage point) while expenditures on services as a percentage of income rose significantly (mostly due to expenditures on medical care). This was offset by a reduction in expenditures on nondurables (mostly clothing) I would suspect that this is the result of rising medical costs and decreasing prices on clothing. I point this out only to show that expenditures on the two biggest items (which are generally finced with debt) have not increased relative to income over the period in question.

Looking at debt - the actual debt level as a number by itself is pretty meaningless. What is important to look at is are people able to make the payments. Interest payments (less housing) as a percent of income was at 1.9% in 1980, 2.4% in 1990, and 2.2% in 2002.

The Federal Reserve tracks the debt/service ratios which are more meaningful. For all households the ratio was 15.7% in 1980, 17.2% in 1990, and 18.1% in 2002. That is less than a one percentage point rise over the twelve year period from 1980 to 2002.

The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt. The financial obligations ratio (FOR) is a broader measure than the debt service ratio. The FOR includes automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments.

The ratio I cited for debt/service was actually the financial obligations ratio but because it is broader it is probably more meaningful. If one only wants to look at debt obligations, the debt to service ratio was 10.9% in 1980, 12.0% in 1990, and 13.3% in 2002. Again, not huge increases.

In summary, this tends to show that income rose significantly in real terms from 1980 to 2002, but at the same time debt rose at a slightly higher rate. It is important to put things into perspective.

Sources: BEA NIPA tables 2.1 and 2.5.3 and Federal Reserve Board of Governors "Household Debt Service and Financial Obligations Ratios"

[Triple Word Score]

That is very helpful! Thank you.

I'm still undecided on the national debt issue. I think with an economy this large and this strong, it ought to be easier to reverse debt than it was to generate it. The tide goes out, the tide comes back in. It's cashflow, isn't it, the capability to depend on that tide coming back IN so long as rewards are sufficiently tied to effort and risk. Too much socialism could undo that, of course, but I don't think anything else could.

Debt for just war that will increase national security is a good risk... debt to make handicapped kids into taxpayers might be... debt to find out that drinking beer makes people fat isn't such a good idea.

If we could punish our lawmakers for promoting pork while the budget is in the red, we'd have nothing to worry about, I think.

[Bigun]

Walter Williams tells it like it is more often than not!

Thanks for posting this!

[The Old Hoosier]

If it were proportionate, then per capital GDP would always be the same.

[The Old Hoosier]

Wait, wait wait. This is what I'm trying to explain: The 1980 number and the 2002 number are both in 1999 dollars. If the number were in 1980 dollars, it would be smaller.

Also, don't confuse per capita GDP with purchasing power. The two are related, but not identical. Lawsuits, for example, produce no growth for the economy, but they help GDP growth, and the same goes for medical treatment.