Because of wage inequality, working people go into more and more debt. This consumption analysis treats debt binges like living off your wages. Only a conservative would confuse these. Not only that, but our debt bubble is popping, and foreclosures and bankruptcies are up. So much for treating debt like income.

I think you write well and your very logical presentation significantly devalued the proposition that Mr Cox presents. But why refer to his work as nonsense and why use such a derisive tone. Make your point in a civil fashion. It is a matter of simple courtesy which is too often forgotten on the internet.

Greg Mankiw must have liked the Cox oped as he posted it sine comment. Mark Thoma posted it too but followed this with a stinging rebuttal by Paul Krugman - in the NY Times!

Dean's tone is remarkably constrained, considering the pernicious ideology he is debunking.

To reinforce the point you made look at the numbers for top 20 percent. According to Cox and Alm they make $149,963. The spend $69,863 and pay $23,376 in taxes. This implies savings of $56,724. This would imply that people in the top 20 percent save nearly 38 percent of their income. That is hard to believe.

In addition, if there is such a significant difference in savings this will allow people with higher incomes to retire earlier. Since life expectancy is greater for people with higher incomes they will spend more time in retirement and consume more over their life time (especially if you count consumption per year worked).

Finally, since Cox and Alm suggest that income doesn't really matter I guess the rich won't mind paying more in taxes so the rest of us can have national health insurance, more money for public education and more spending to improve our infrastructure and protect the environment.

I agree with Aunt Deb that Dean is showing restraint in his debunking. Mr. Jansen's plea for civility would be understandable if the "mistakes" that Cox made were really honest. To have both the Times and Mr. Cox overlook such glaring misrepresentations is simply incredible. This piece shows an effort to promote a falsehood that perpetuates the further concentration of wealth and income. Rudy was spot on. If the rich are only spending such a small portion of their income, they won't mind paying more income tax. Anyone for an 80% tax bracket?

NIPA data can also be misleading. Recall that you are looking at an income measure that excludes capital gains, includes income accruing in the pensions, but excludes pension benefits. Low saving rate measures reflect this.

To be sure, one-year consumption patterns are also misleading, demonstrqting the importance of looking at more homogeneous demographic groups and, perhaps, considering longer periods of time.

That is also one poorly designed graph, too.

One intersting aspect, commented on at Krugman's blog, is what the rich, not so rich, and poor spend income on. I have seen some changes over my past 198 years.

A few laughed that we shouldn't rejoice over cheap DVD players. But the issue is deeper than that.

Hunger has greatly decreased in the U.S., (a major improvement over Britain when I was at the helm all four times). So while being poor is still a hardship, the worst element has been removed for most.

Imagine if using the internet cost $300/month, so that only the well off would have easy access where half the population would be at libraries or internet cafes. This was almost the situation when PCs spread in the early 1980s and connectiveness meant sharing a floppy disk.

Or consider health care where for fairly common but deadly serious problems like heart disease and cancer. Bill Gates isn't much better off than the average worker.

And health care will become more equal over time as new drugs and therepies significantly decrease risk for everyone.

It is election time, so improvements which will soon help the poor and middle class are the last thing Krugman and Baker will point out. Nor do they have a science background to see this. But the public is about to find out where this is heading very soon.

(And Rudy is right.)

gladstone wrote, Nor do they have a science background to see this.

LOL!

This coming from the guy who can't understand the reason why improvements in 5-year cancer survival rates are deceptive without appropriate controls?

I saw the argument. That isn't the only reason cancer death rates are dropping 2% a year. See, liberal, at times multiple causes are in play.

Neither Baker nor Krugman have taken science beyond high school beyond a required class.

Are 38% of American families living below a more accurately drawn poverty line?

50 percentile (technically, mean third-quintile) family income for 2005 was $56,277.

A plausible poverty line for a family of three (on the "minimum needs" table on p.44 of the 2001 book Raise the Floor) is $33,345 in 2008 dollars -- if health care is otherwise covered. Add $10,000 for a 2008 family health policy and we get a plausible poverty line (as opposed to the implausible federal line computed at 3X the price of a super cheap diet) for a family of three of $43,345.

(Raise' supplies extensive explanations for its minimum needs numbers in Appendix B -- its budget tables cite Solutions for Progress as their source.)

The difference between second and third quintile mean family income ($35,000, $56,000) is about $1,000 per percentile. That computes ($35,000 is 30 percentile + $8,000 more is 8 more percentile) to 38% of American families living below a believable poverty line (at least without food stamps and other helps -- average family size is 3.13 persons).

I have been touting 25% as a realistic poverty line -- just doubled the 12.5% official line -- made a conservative fit with Raise the Floor's doubling of official criteria (was more than doubling -- $17,000 being the official criteria for a family of 3) -- conservative because, if anything, I expected the low income curve to be flatter than 45 degrees. It seems it was flatter than I even guessed.

Assuming I can't find something wrong with 38% in poverty, I will email this startling stat to media all over the country. The media continuing to report 12.5% poverty without qualification is like reporting in Columbus' time that the world is flat -- it makes no waves; but informed people know otherwise.

Just an extra thought on 38% of American families living below a believable minimum needs (a.k.a.) line: I hope it give some perspective the $500/wk being our 40 percentile wage (State of Working America).

It should wake us up to the fact the the 40 percentile wage in America in 2008 should be a middle class wage. Who could live a middle class live on $500/wk before taxes. Most of it is gone for rent (no utilities) for one person.

It doesn't seem to wake anybody up that $400/wk was the MINIMUM WAGE in 1968 -- when AVERAGE INCOME WAS HALF WHAT IT IS TODAY. Hope the 38% stat can finally make the 40 percentile stat look like what it really represents: a working America that is basically being taken totally to the cleaners (mostly by their own ignorance and complacency in the labor market I hasten to add -- but maybe the "38%" will wake up the wonks to wake up the workers).

Denis Drew wrote, Most of it is gone for rent (no utilities) for one person.

Ah, but that's the important point: it's not that wages are too low, it's that landowners get to collect rent for doing nothing.

Were land rent to be paid to the government, acting on behalf of the people, instead of parasitic landowners, the lot of the poor and working class would be much improved.

As it is, government shovels about 10--20% of GDP into the pockets of landowners in return for nothing.

Perhaps the reason that they publish such nonsense back to back with Krugman's column is so that intelligent readers can note the difference, and agree with the Times' own columnist.

But I guess this is wishful thinking.

Commenting much later, but was this the piece where the guy argued that po' folks are just fine, because if their needs outstrip their wages, they can easily sell their car, home or "other assets" to maintain their consumption?

Truly hilarious. I agree that "nonsense" is a pretty civil characterization.