Thursday, October 25, 2012

Welfare Queens in McMansions

Conservative economists Kevin Hassett and Aparna Mathur at the American Enterprise Institute write in the Wall Street Journal to take on the various pesky studies that show a big increase in inequality i.e. in the share of total income accruing to the richest households. After some vague doubt-raising about statistics (in which they never explain how the issues they complain about specifically affect the studies they are disputing), the AEI team gets to their killer point --

Yet the access of low-income Americans—those earning less than $20,000 in real 2009 dollars—to devices that are part of the "good life" has increased. The percentage of low-income households with a computer rose to 47.7% from 19.8% in 2001. The percentage of low-income homes with six or more rooms (excluding bathrooms) rose to 30% from 21.9% over the same period. Appliances? The percentage of low-income homes with air-conditioning equipment rose to 83.5% from 65.8%, with dishwashers to 30.8% from 17.6%, with a washing machine to 62.4% from 57.2%, and with a clothes dryer to 56.5% from 44.9%. The percentage of low-income households with microwave ovens grew to 92.4% from 74.9% between 2001 and 2009. Fully 75.5% of low-income Americans now have a cell phone, and over a quarter of those have access to the Internet through their phones. 

In other words, Chinese Communism has reduced American poverty: with their factories churning out home electronics resulting in glut-pricing, the access of everyone, including the poor, to these goods has increased. Which is as true of poor people anywhere as in the USA -- remember when American politicians would take helicopter flights over Baghdad and proclaim that Iraq must be doing well because of all the satellite dishes?

In any event, having spent the first part of their article complaining about data problems with other studies, you'd think they've approached their own data source with a somewhat questioning perspective. The above is an important table from their source database (US Department of Energy Residential Energy Consumption Survey). According to it, most households with total income below US$40,000 a year are not receiving any assistance with food or housing -- for example, of the households with income below US$20,000 a year, 2/3 are not getting food assistance ("food stamps") and 80 percent are not getting housing assistance. But a big chunk of the low income group has at least 6 rooms in their homes. Note to Washington DC think-tank economists: US$20,000 per year is not a whole lot of money.

In short, something ain't right with this data. There are households in the measured low income groups that don't have the typical profile for being poor, which likely means that they are not. One possibility is that it's picking up people immediately post-college and retirees, who will have low measured income but assets. But actual poor people living the high life as they nuke a packet of ramen noodles? Probably good enough for a President Romney to proclaim that they are doing just fine.