How Accurately Do Income and Wealth Statistics Reflect Reality?

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Discussion Overview

The discussion revolves around the accuracy of income and wealth statistics in reflecting reality, examining the distinctions between income and wealth, the impact of demographics, and the implications of accounting methods on perceived disparities. Participants explore theoretical and conceptual aspects of these statistics, as well as their implications for understanding economic inequality.

Discussion Character

  • Exploratory
  • Technical explanation
  • Conceptual clarification
  • Debate/contested

Main Points Raised

  • Some participants assert that income and wealth are fundamentally different, suggesting that using one as a proxy for the other can lead to misleading conclusions about economic status.
  • There is a discussion about the importance of demographics, with some arguing that age-corrected statistics are necessary to accurately reflect changes in income and wealth over a lifetime.
  • One participant emphasizes that a plot of income percentiles does not track individual cohorts, as people move in and out of these percentiles, particularly in terms of wealth.
  • Concerns are raised regarding the treatment of illegal immigrants in wealth and income statistics, with a suggestion that their increasing presence in the bottom decile should be clearly stated in studies.
  • Accounting methods are debated, particularly the differences in how defined benefit and defined contribution plans are treated in wealth calculations, which can skew perceived disparities in wealth.
  • Another viewpoint suggests that welfare recipients may have a more secure financial situation than low-wage workers, raising questions about the implications of social services on wealth comparisons.
  • Some participants propose that wealth inequality is often misinterpreted as a direct measure of poverty, challenging the notion that wealth is a zero-sum game.

Areas of Agreement / Disagreement

Participants express a mix of agreement and disagreement on various points, particularly regarding the interpretation of statistics and the implications of accounting methods. There is no clear consensus on how to best represent or analyze income and wealth data.

Contextual Notes

Participants highlight limitations in current statistical methods, including the need for age adjustments and the treatment of social services in income calculations. There is also a recognition that the presence of illegal immigrants in statistical analyses may affect interpretations of economic data.

Who May Find This Useful

This discussion may be of interest to economists, policymakers, social scientists, and anyone studying economic inequality or the implications of income and wealth statistics.

  • #91
I like the blue-on-blue. More precisely, I like using shade as opposed to chrome to convey the information. Too often I have had to ask myself "is orange bigger than green?" or worse "is orange bluer than green?"

I think this plot tells you a lot about who is in good shape for retirement and who is not. It also shows that while there clearly are some retirees in trouble, the majority are not, and that meshes with my day to day experiences.

russ_watters said:
I think I may have just devised a workable definition of "rich".

I think this shows a pretty clear distinction between "rich" and "everybody else' - are you in the top right or the bottom left population. This is nothing new - it goes back to "living off the interest of the interest of the interest".

It also shows data in regions where I would not expect data. There are people who make $200,000/year with a net worth of a few thousand. How does that happen? There are people who made a million dollars the year before and only have a million dollars now. How does that happen? I'll bet there are a half-dozen PhD theses buried in this data.
 
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  • #92
Vanadium 50 said:
There are people who make $200,000/year with a net worth of a few thousand. How does that happen?
They live and work in, say, Silcon Valley, and pay huge rents or house payments, and maybe a $100K or better school loan. Add a monthly payment for a Tesla, and lay out a bunch of your paycheck on "needed" items -- that'll do it.
 
  • #93
While I love to hate on the $7 soy latte drinking Silicon Valley millenials, I don't think that is entirely it.

If it's driven by debt, why isn't there a point on the bottom of the graph for $200,000/year income? Someone with an income of $200K and a net worth of around $2K has a net worth of ~2 working days income. Already that's an amazing fact, but if we blame it on debt, how come we don't see someone with a net worth of less than 2 working days?
 
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  • #94
Mark44 said:
They live and work in, say, Silcon Valley, and pay huge rents or house payments, and maybe a $100K or better school loan. Add a monthly payment for a Tesla, and lay out a bunch of your paycheck on "needed" items -- that'll do it.
It doesn't even take living in a classic high cost of living city. Here in Milwaukee I have a few friends with $100k+ tech jobs that I am sure are living paycheck to paycheck because they eat out every day, hit the clubs every weekend and drive a Mercedes etc. Having a lot of debt and not saving is really not uncommon for my demographic from what I see.
 
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  • #95
Vanadium 50 said:
how come we don't see someone with a net worth of less than 2 working days?
There's only one quadrant on the graph? I'm not sure what the other three mean/represent in the "real world," trust-fund babies (the y-axis on the graph), welfare queens/kings, bums; nor do I have any clue what negative logs of negative numbers might mean.
 
  • #96
Because it's log-log, I presume the data points on the axes are zero or negative.

It's also probably only two quadrants. While it's possible to have a negative net worth, it's harder to have a negative income. Usually we would call that an expense.
 
  • #97
Greg Bernhardt said:
It doesn't even take living in a classic high cost of living city. Here in Milwaukee I have a few friends with $100k+ tech jobs that I am sure are living paycheck to paycheck because they eat out every day, hit the clubs every weekend and drive a Mercedes etc. Having a lot of debt and not saving is really not uncommon for my demographic from what I see.
I believe it has to see with an overall lack of trust Millennials have on the future ( whether well-founded or not). Live and enjoy now, no telling if you will be able to 20+ years from now.
 
  • #98
"America's middle class is addicted to a new kind of credit." Headline in/on MSN Money; almost curious enough based on this discussion to subscribe...but, not quite.
 
  • #100
Mark44 said:
They live and work in, say, Silcon Valley, and pay huge rents or house payments, and maybe a $100K or better school loan. Add a monthly payment for a Tesla, and lay out a bunch of your paycheck on "needed" items -- that'll do it.
Vanadium 50 said:
While I love to hate on the $7 soy latte drinking Silicon Valley millenials, I don't think that is entirely it.

If it's driven by debt, why isn't there a point on the bottom of the graph for $200,000/year income? Someone with an income of $200K and a net worth of around $2K has a net worth of ~2 working days income. Already that's an amazing fact, but if we blame it on debt, how come we don't see someone with a net worth of less than 2 working days?
Greg Bernhardt said:
It doesn't even take living in a classic high cost of living city. Here in Milwaukee I have a few friends with $100k+ tech jobs that I am sure are living paycheck to paycheck because they eat out every day, hit the clubs every weekend and drive a Mercedes etc. Having a lot of debt and not saving is really not uncommon for my demographic from what I see.
Yeah, some many people are just genetically incapable of living within their means. I can see $100k, with a family to support, in San Fran being a struggle, but at $200k they should be able to make it work anywhere.
 
  • #101
russ_watters said:
but at $200k they should be able to make it work anywhere.
"Instant gratification" is the new American dream rather than the old which was "land of opportunity."
 
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  • #102
Greg Bernhardt said:
Having a lot of debt and not saving is really not uncommon for my demographic from what I see.
WWGD said:
I believe it has to see with an overall lack of trust Millennials have on the future ( whether well-founded or not). Live and enjoy now, no telling if you will be able to 20+ years from now.
Take it from this old geezer, there have always been people who didn’t save much money even if they had the resources to do it, and ended up living off Social Security and/or a pension. Probably even more common back in the days when pensions were more common.
 
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  • #103
By chance, before I saw this re-awakened thread today, I happened to be reading a news article which made me wonder where we stood in terms of percentile of net worth. A Google search led me to these calculators.

First, one that gives the household net worth percentile relative to the entire US population:
https://dqydj.com/net-worth-percentile-calculator-united-states/
Second, one that gives the percentile relative to a specified age group:
https://dqydj.com/net-worth-by-age-calculator-united-states/
The site also has similar calculators for household income.
 
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  • #104
russ_watters said:
I can see $100k, with a family to support, in San Fran being a struggle, but at $200k they should be able to make it work anywhere.

Let's say your techie hipster spends 36% of his income on housing. That's a mortgage of $1.26M, close to the median house price. Remove that from his income and replace it with $1100/month, close to the national median. (Charlote, NC is around there) and you still get $141,000. That's 3.5x the median income and the 93rd percentile according to jtbell's calculator. How can this not be enough?
 
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