Bad economics at National Review

Writing at National Review Online, Jerry Bowyer illustrates the painfully stupid and misleading economics writing that Brad DeLong so often documents at the magazine:

Imagine for a moment that you are a financial planner and you are advising a family that makes about $130,000 per year. Their total assets, including a house, stocks, and bonds, add up to about $660,000. They owe roughly $130,000. Over the past three years their assets have been growing in faster increments than their liabilities.

So, should you be worried about these people? Neither would I.

Now, if you were to add 8 zeroes to these numbers, you’d be dealing with an actual family in the real world — the Unites Sates of America. However, the pessimistic and moralistic factions of the right wing are doing a lot of hand wringing about U.S. debt these days, both public and private. So are the if-Bush-is-president-everything-must-be-awful left wingers.

As a recovering financial accountant, this BuzzCharts' author always feels a little queasy about any report that mentions liabilities but not assets. It’s hard-wired into me to weigh debits against credits.

Thus, when we treat the U.S. as one family, we can create a balance sheet that’s quite admirable: Assets: $66 trillion. Liabilities: $13 trillion. Owner’s Equity (or Net Worth): $53 trillion.

Watching left-wing bloggers and right-wing nail-biters contort this data into bad news is priceless.

To support these meaningless data -- what does the combined net worth of all US households and nonprofits mean? -- Bowyer offers what might be the most useless bar chart ever created:

Bowyer's chart has three primary flaws: (1) it combines Bill Gates with homeless people and everyone in between, giving us no sense of how middle class or poor families are doing; (2) it lumps together nonprofits and households; (3) it gives us no sense of how household net worth has changed over time. The first flaw is analogous to President Bush using "average" tax cut statistics that are skewed upward by high-income individuals.

Instead of using Bowyer's meaningless aggregate data (which you can find here [PDF]), we need to look at change in net worth over time for representative families in different parts of the income distribution -- a much better way to assess the state of the US economy. Those data are also available (PDF), and they tell us a much different story.

Here is a chart of changes in median net worth for different portions of the income distribution:

Not surprisingly, net worth is vastly unequal across the income distribution, and has become more so in recent years. And if we zoom in on the bottom sixty percent of the income distribution, we can see that the picture is relatively grim for the 0-20th percentile group as well as the 20th-40th percentile group:

Does Bowyer even understand what's wrong with his article? And does National Review know what's wrong with publishing it?

[Disclosure: I went on Bowyer's radio show a couple of times when I was doing Spinsanity.]

Comments

[Sean]

NR is a laugh a minute. They just had a fund raiser where if their goal was reached they'd start selling Star Trek related NR merchandise.

Have they ever kissed a girl?

[David B.]

Mr. Nyhan,

The article had nothing to do with equality of income distribution. It was about the Republicans and Democrats who are so worried about the national debt. The author was merely putting the debt into perspective.

Yes, the income distribution is equal amongst all. As far as that goes, do you propose to force everyone to be equal? Move the bottom 20 percentile up 20K?

It would be interesting if you could provide a graph of what people at the 90th percentile are making, people at the 91st percentile are making, and so forth. I think the Bill Gates in the 90-100 group is pushing that line way up. And the people near the 1st percentile are pushing the 0-20 group way down.

[Ned]

Check out this recent link at NRO about the cost of tax increases (http://article.nationalreview.com/?q=MTQwNmY5NWU3NWYzNmRiYjRhZTVjOTZkMDM4NjA1ZTM=). It seems just like another justification for the Laffer curve which has been laughed out of credibility.