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Brad DeLong Stole My Chart and Logged It

January 18, 2011

Someone seemed to like my chart enough to steal it. But then for some reason he felt the need to warp it all out of shape… ahh jeez, well when you’re done with it I want you to bend it back and fix it.

In all seriousness, what Brad DeLong is doing is taking income distribution by percentiles and logging it, to show how steep income changes are as you move along the income distribution in the United States. To clarify, a log is a mathematical expression which measures the change in a function. If you take a natural log of a function you get the growth rate, as the graph moves along the x axis (here is a recommended link for more on natural logs as they are often used in economics). So the graph above from Brad DeLong shows that the differences in income in the U.S. get much steeper (larger) when we get to about $250,000. Of course you can visually verify that in my charts, but here it is put forth in graphical form.

The reason Brad DeLong made this chart is because he is responding to a graph made by Catherine Rampell who stole my Lorentz Curve. She was arguing that the Lorentz curve shows why rich people feel bad about how much money they make (i.e. feel like they don’t make enough) because they compare themselves to other rich people, and in upper income brackets income varies significantly… leading to jealousy.

The phenomena of comparing ones-self to one’s neighbors is well-known in economics. However the fact it took a sub-field of economics, behavioral economics,  to come up with this statement should tell you how entrenched most economists’ world view is.  By now it has been shown empirically that people tend to understand their own welfare through comparisons. Of course in the developed world, individuals don’t compare themselves to starving third-world countries; instead they tend to look across the street at the Joneses. And if you’re rich you tend to live on a very nice street.

Analysis

Of course Paul Krugman brings up the point that because the logged income chart is steep for upper-income earners, they could potentially look at the next person below them rather than above them. If they did this they might feel very rich. While it’s true that the very rich have been getting significantly richer over the last 40 years, relative to everyone below them; I think that this tendency to compare yourselves to one’s economics betters is very American. Here pure economics may not be suitable to explaining the phenomenon. The “American Nation” was founded by pioneers and immigrants, and throughout the American social fabric is a desire to give a better life to one’s children. Wealth has historically been an important barometer for Americans’ self-worth and the wealthy represent many Americans’ hopes. Thus, it makes sense that most Americans are looking up (even those making above $250,000 a year).

What this graph should also tell you is: why the poor are not as angry as they might be about their relatively flat income growth over the last 40 years. If the poor people making less than $250,000 (I’m being ironic here… but those making less than $200,000 account for only 48% of all income in the country but are 96.8% of the population), look at those immediately above them on this chart it’s not that steep a jump. They are not that much poorer then their immediate betters. Thus for the lower 96.8% of the population it appears relatively easy to slightly move up and become wealthier… despite the fact that for the last 40 years there has been no change in income for this segment of the population. Of course the reason the distribution is so flat for the bottom 96.8% of the population, and they are resultantly content with their income, is because the rich hold so much of the total U.S. income.

I believe this qualifies as irony.

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