The Standard of Living for the 20th and 40th Percentiles

The use of averages is very misleading in economic discussions. This creates a challenge to find measures that have validity. One approach we experiment with here is simply looking at the standard of living for the 20th and 40th percentiles. We reason thus, if the lower percentiles see a small drop in incomes, they suffer great challenges. In contrast, if the upper incomes experience a significant drop, they will still have enough. Or in other words, the standard of living of the lower classes is a better measure of the economy's ability to create opportunity, than measure which include the upper classes. However, the data shows similar trends to what we show here are true for most of the upper half.

Incomes for the 20th and 40th percentiles

In this graph, we use the inflation adjusted income of the 20th and 40th percentiles to examine economic trends. We extrapolate a few multi-year trends.

An initial look shows incomes tending upwards under Reagan and Clinton, and incomes tending downward under Carter, Bush and Bush. The extrapolation lines show how much better off people would be if the Reagan or Clinton trends had continued, and how much worse off people would be if the Bush Sr. trends had continued.

To get a closer look at this we can measure the annual change. We show the annual change and the two year average lines.

This shows what we described above. Most of the Reagan and Clinton years are positive. The Carter years are mixed, and the Bush and Bush years are nearly all negative.

Wealth Concentration

A problem arises here in economic discussions. If the number of houses needing incomes rises rapidly, supply and demand forces might tend to force incomes down. Ideally, our measure of economic growth should account for this.

To account for that, we take the total income earned by all the households in the 20th and 40th percentiles. This will show overall economic growth in terms of standard of living.

This shows that more increases in the mid-70s resulting from a rapid increase in total households as the baby boomers entered the workforce, where incomes appeared to have been decreasing, otherwise. The same extrapolations as before compare past trends to the current trend.

Similarly, we can measure the annual change in wealth concentration.

Here we notice mostly positives with a few negatives. The big negatives were 1975, 1980-1982, 1990-1992, and 2001-2003 (the end of the published data.) The first two negative correspond roughly to the Oil Embargoes, the last two correspond roughly to the Bush administrations.

Change in Standard of Living by Administration

The information above would lead some to ask, how did the economy fare during each administration. So we look at the annual averages. For this graph we include the 20, 40, 60, 80, and 95 percentiles.

Most groups fared best during the Clinton years and suffered loss during the Bush administrations.

Last Modified 3/25/06

 

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