Are Markets Better Described as Robust than Efficient?
by J Tzimeskes
Are Markets Better Described as Robust than Efficient?
Something that I think all of us with private sector jobs experience in our day to day lives is just how incompetent a large number of private businesses are. These may be our customers, suppliers, or another division. Yet, somehow, these businesses thrive despite not really having a good grasp of basic administrative procedures, financing, or sometimes even customer service.
Despite this, we often write and speak of private sector actors as if they are brilliant and efficient individually, despite the experiences of our everyday lives.* We simply assume as a result of mere market success that a business or individual has ability and competence. This isn’t surprising, the just world hypothesis is a powerful cognitive bias which leads us to believe that the system as a whole must be more just than what our individual experiences would lead us to conclude. However, there is no property of the market system which should lead to this belief.
What’s more notable is how little this impacts how we think about the market system as a whole. After all, given an immortal, perfectly rational, and omniscient central planner even the worst designed communist system would work beautifully. What’s remarkable about the market system is that it should lead to ever increasing levels of productivity and efficiency even if the individual actors are all completely incompetent. Competition and creative destruction should lead businesses to be ever better even if they only differ due to random variation alone.
Yet, somehow this doesn’t seem to impact how we think and write about markets and how they reward people much at all. Instead we often read in the popular press views about how market success means that an individual or business possesses unusual ability or competence despite the dearth of well established causal links between market success and any particular ability or trait. Creative destruction works as more of an evolutionary system, simple selection will lead to new forms to suit the environment they’re in without the need for any conscious planning.**
An example may help illustrate this. The need for a common computing platform caused the market to require that a single operating system would predominate. In the early years of innovation in the personal computer market a wide variety of operating systems developed, all with a business plan that was more or less plausible. It was inevitable, however, that only one of these would dominate the industry due to the structure of the market. Someone was going to make billions, and did, but the need for a common platform meant that this would have happened whether or not any of the competing platforms exhibited even the barest level of competence. In addition, once established the need for interoperability mean that structural factors dominate any actual characteristics of the competition.***
This makes me think that markets might be better described as robust rather than efficient. The incredible thing about markets is that even if all the individual actors are morons the systemic factors will still lead to good outcomes, unlike other forms of human organization. But somehow this doesn’t break into popular discussions of markets at all, much less into discussions about how our market system is distributing the fruits of our labors. I’m not sufficiently well versed in economic literature to know whether or not someone has done work on this, but I’m very curious if anyone has tried.
*I don’t mean to imply that all, or even many, private sector actors are incompetent. While there certainly are many extremely well run firms the striking thing is how many obviously incompetent ones there are at every level; though admittedly they become rather rare among the largest firms.
** Not that being able to foresee market shifts doesn’t help a great deal, but someone will turn out a winner even if there is no possibility of judging which plan will be successful from information beforehand; in other words the success of an individual strategy in no way implies that this strategy was better than the ones that failed.
***I don’t mean to say anything negative about Microsoft. But there is no way to judge from its success whether it had a better business plan than its rivals or if its success was simply the result of network effects among users. Determining causes would require a more fine grained analysis that takes into account what was knowable before the market drifted to favor it rather than working backwards from its present success.
I have noticed this when I am dealing with a free market enthusiast, a true believer. They will readily admit that the their boss is incompetent, that their company stumbles from one disaster to another. But it is the government whose incompetence causes all of the economic problems that we see, that the private sector is capable of doing any and everything better than the government.
I have gotten many of them to admit that the government deals with more complex problems than the private sector, the problems that can’t be solved by pursuing the simplistic goal of making a profit. And yet even then they can’t break away from their government is evil, private enterprise is good ideas.
I am going to formulate a new concept that fits here: that people rise to their level of incompitence and stay there. If they were compitnent they would get promoted higher. I am going to call it “The Peter Principal.”
well, private enterprise, the market, succeed up to a point. and the government is dangerous whether it is successful or not.
that said, private enterprise is also dangerous and self destructive without some government “balance.”
the trick is finding the balance. and we are not helped by the true believers of either stripe.
or maybe eternal strife is the best we can hope for in this world.
GOD BLESS the true believer and may HE keep them as far away from me as possible.—–Fagan.
Its a crap shoot, Folks., luck of the draw, a roll of the dice, business&government.
~~ drags out dead horse~~
Efficiency, IMHO, is a deficit in most systems, not a virtue. Not only do inefficient systems employ people who in an efficient system would be laid off in a mouse’s heartbeat, thus providing the rest of us with customers, parents, homeowners etc, rather than platoons of beggars, but they also exhibit robustness due to randomness and overengineering. Efficient systems are brittle, inefficient ones may be frustrating but they are also pliable.
~~ puts dead horse back in barn, with a handful of oats. ~~
Interesting that this question comes up today as one very much like it came up yesterday in a post by Eli Pariser on Facebook (to me via Rick Perlstein). He posted this question. “OK, curious: A friend and I are having this debate. One of us says that corporate behavior is almost entirely shaped by the rational maximization of profits. The other one says that companies, like people, are irrational and poor maximizers, and that other squishier things (like culture and a sense of what the company does and doesn’t do) often stop them from doing what would otherwise clearly make the most money. Who’s right?”
My comment there is, I think relevant here:
“Corporations do not make decisions. The question is wrong. The individuals who are employed within the corporation make the decisions, both individually and as a group. When you begin to ask what it is that a corporation does you’ve lost sight of the fact that people are doing all the thinking and making all the decisions. You’ll know better what to expect from a corporation,, or any other organized group, when you have a better idea of who it is within a group that is in the decision making positions. And do those decision makers have an ear to the ideas of the other members of the corporation is also a question that needs to be answered before one can have any idea of what it is that a corporation will do in any given situation. Being that a corporation is a business with the goal of making a profit I would think it fair to expect that the individuals that work within a corporate setting will make decisions based upon what will lead to the most certain level of profit. Of course there is the added question of whether the individuals of a corporation make profit oriented decisions to best benefit themselves or best benefit the corporation. The two are not equal to each other. Then recognize that many individuals within a corporation are competing for the best outcome, again with an eye towards self service within the corporate setting. It’s actually surprising that a corporation actually ends up making a successful result given the multiple individual decision makers all vying for what suits each best.”
We all talk too much about the actions of an organization, as in corporations and government, as though those actions were the result of the chartered group. Groups don’t think or act. Groups of individuals make the decisions that we attribute to corporations and government. That takes the onus off of the people involved. Except when some major catastrophy takes place. Then we look for some person to blame, though still the group takes a hit for whom ever screwed up. Corporations do nothing other than serve as a legal barrier to the responsibilities of the individuals within such corporations. We really should start to activate that point of view.
thanks for the oats.
The free market has always been here and will always be here. Life wouldn’t exist without the free market.
Although, I disagree with much of Austrian economics, I agree, the free market is a “miracle.” An article by an Austrian economist:
Giving Thanks for Capitalism, The Invisible Hand, The Miracle of the Market, and No Turkey Czars
Like in previous years, you probably didn’t call your local supermarket ahead of time and order your Thanksgiving turkey this year. Why not? Because you automatically assumed that a turkey would be there when you showed up, and it probably was there when you showed up “unannounced” at your local grocery store to select your bird.
Why was your Thanksgiving turkey waiting for you without an advance order? Because of “spontaneous order,” “self-interest,” and the “invisible hand” of the free market – “the mysterious power that leads innumerable people, each working for his own gain, to promote ends that benefit many.” And even if your turkey appeared in your local grocery stores only because of the “selfishness” or “corporate greed” of thousands of commercial turkey farmers, truckers, and supermarket owners who are complete strangers to you and your family, it’s still part of the miracle of the marketplace where “individually selfish decisions lead to collectively efficient outcomes.”
“The activities of countless far-flung men and women over the course of many months had to be intricately choreographed and precisely timed, so that when you showed up to buy a fresh Thanksgiving turkey, there would be one — or more likely, a few dozen — waiting. The level of coordination that was required to pull it off is mind-boggling. But what is even more mind-boggling is this: No one coordinated it.
No turkey czar sat in a command post somewhere, consulting a master plan and issuing orders. No one forced people to cooperate for your benefit. And yet they did cooperate. When you arrived at the supermarket, your turkey was there. You didn’t have to do anything but show up to buy it. If that isn’t a miracle, what should we call it?”
Has always been here?
You don’t believe in pre-market economies any place or any time in this world? Or does any kind of collaboration in sharing resources for mutual benefit constitute “free markets”? Including a Paleolithic hunter bringing home meat to his family/tribe “In exchange for” mutual protection/roots nod berries gathered by the women and young, or fire tending by the old?
I don’t think even the most devoted devotee of Austrianism would go so far as to deny economic development of SOME type. Or that ‘markets’ by any definition have to involve a least relatively autonomous actors. Otherwise you would have to call (totally theoretical) instances of Primitive Communism ‘free markets’. And so reduce al meaning of the words to, to hmmm? Thin gruel? Or —–
Bruce, even plants and animals benefited, or more accurately, survived, because of the “free market.”
I largely agree but I’d like to share a few thoughts to build on that. First, I’d like to make a caveat to the notion that groups don’t think. While it’s true that the thinking ultimately happens within individual skulls human beings do seem to share some degree of unconscious coordination with each other in a group setting. I know that personally I’ve realized that I’ve sometimes thought and acted rather differently when I am part of a particular group than I do with another group or when I am alone. Furthermore, it is pretty well established that culture and norms get established within organization giving some degree of implicit decision making that can be meaningfully attributed at least partially to the group.
That said, an organization like a firm or the government isn’t really structured to exhibit the kind of coordination necessary to give some semblance of thought to its actions. There are simply too many interest groups with goals in conflict within each. I wrote a post a while back addressing the notion that shareholders and employees tend to have interests that diverge as a company matures.
Open up these larger organizations, however, and distinct groups that make decisions do appear. A problem, in the US at least, is that we do tend to think of corporations as an individual entity and frequently as a stand in for the owners, even though employees in practice tend to wield decision making power as well and may have consistent differences in how they think and act then owners.
I’m not really certain what you’re trying to get at by saying markets have always been with us. As Bruce Webb says what we know of paleolithic economics doesn’t resemble modern markets much at all, the same could be said of Sumerian economics or even a medieval town. In addition, free markets covers a lot of ground, the medieval Chinese had an internal free market but some rather different ideas about property rights and some other institutional factors that resulted in some pretty sharp divergences from modern markets. Free markets covers a lot of ground and all forms of free markets are not equal.
But, assuming from your last comment that you simply mean a system using competition and containing evolutionary elements, sure that has always been with us. But that doesn’t really lead to the conclusion that markets are efficient in the sense that the press or free market fundamentalists tend to use it (I realize economists tend to use the term somewhat differently).
Evolutionary systems aren’t really at all like the kind of hyper efficient market that would result in in solving distributional concerns by having marginal product directly related to income or by having competitive pressures result in markets giving good matches between individual ability endowments and their jobs or even firms and their target market and profitability.
Biological evolution tends to result in highly inefficient systems that are highly robust, with some narrow exceptions particularly when resources are extremely scarce. But in normal conditions ecosystems or most organisms tend to be extremely robust and able to bounce back from even severe damage, if those weren’t so the amount of change we have wrought on the world would have long ago caused a massive failure of the ecosystem and our own extinction. I tend to think that this is fairly descriptive of the modern economic system, though I may be showing a combination of a natural predisposition in my thinking and my undergraduate biology degree, but this kind of system has very different implications for what the market will and won’t do well and the requisite relationship between markets and public policy then does the market thought about as a highly efficient system.
The key point of this post was to spur some thinking on the subject. The market can’t be both hyper efficient and robust, these things come at the expense of each other. They also have strong implications for how we think about markets interacting with society as a whole.
So which do you think the market is, the highly efficient system that will work like clockwork but as Noni Mausa said is also highly brittle or a more evolutionary system that manages to gradually make everything better despite having wide tolerances which mean that we can’t infer ability from how it distributes the wealth it generates?
There seems to be an awful lot of mysticism in discussions of markets. What 18th century philosophers called “free markets” were creations of 18th century government and supported by such government services as “private property”. When land was the primary form of wealth and its ownership tightly linked with the military service required to safeguard it, free markets were impossible at any scale. It wasn’t until the development of the centralized state and the elimination of private militias that free markets could be created.
I wouldn’t call free markets particularly efficient or particularly robust. They work at two levels. In the short term, there is the relatively static payoff function that actors must optimize against at the margin. This can get you a good result when you have a good function with a tractable equilibrium, not that there is any guarantee that any particular equilibrium is globally optimal. It depends on how you design the market. Computers aren’t inherently intelligent. It depends on the program you write. In the longer term, the payoff function changes, and actors can reshape it if they are big enough and powerful enough economically, intellectually or politically.
What you get out of markets is what you design them to produce. The marketplace is like fire. It is great for providing heat and light, but you heat with a stove or illuminate with a candle. The trick is to not burn your house down.
Markets, like all social phenomena, have so many moving parts, that they are impossible to describe using analytic techniques. Lacking the capability to rigorously assign cause to effect, and yet faced with the fact that in some manner, to some degree, markets seem to work, some resort to notions of things like “the invisible hand,” or a “miracle'” The Austrian fealty to the market gods is similar to the ancient’s worship of the gods who changed the seasons and brought the rains. Either a market mechanism adjust to its evolving environment, or it dies, and may be replaced by a more adept mechanism… or not. It is not an invisible hand which guides market mechanisms, but the survival of what works. The invisible hand and Austrian economics may help some to feel comfortable in an uncertain world, but they do not contribute to our understanding of it.
I think that things are simpler than that. A trade is not in general zero sum, but win-win.
The emergence of MS-DOS as a monopolistic operating system is hardly an example of the beneficial systemic aspects of markets. Microsoft ruthlessly and successfully attacked rivals such as DrDOS, Netscape, and Perfect Writer, which were arguably superior. (Yes, Netscape won the first round in court, but did not prevail.) Furthermore, Microsoft’s neglect of computer security has led to disastrous consequences that have affected nearly all of us.
Tzimiskes, I think, the free market is efficient, dynamic, and robust. It’s the foundation of economics. The power of the free market can be redirected to improve the lives of more people rather than trying to “crowd out” the free market (I’m sure, there’s some free enterprise even in North Korea). The free market works best when everyone has perfect information.
I wonder if sometime in the future when everyone is worth at least a million dollars in today’s dollars or makes at least a million dollars a year, if they will still be talking about income or wealth inequality, because someone else is worth or makes a trillion dollars.
Peaky, these are statements of belief, not statements of fact. Indeed, they sound to me a lot like the sermons I used to hear in church.
“…the free market (God) is efficient, dynamic, and robust (true, beautiful and good,) the foundation of economics (the world.) The power of the free market (God) can be redirected to improve the lives of more people (save our souls) …The free market works best when everyone has perfect information (when we all submit to God’s will.)
Religious discourse has to be that way, I think, but economic discourse is not, or should not be, a belief system based on faith instead of proofs.
Also, just because the power of the free market CAN be redirected to do this, that or the other thing, doesn’t mean it will be. Generally, the redirection works in the opposite direction.
As for your second paragraph, so what? If my million dollars buys me only a modest house, a good used car, and a couple years of groceries, utilities, and moderate freedom from financial stress — as is the case right now — then in real terms I still inhabit the same economic niche as I did in Austen’s days when a thousand a year was real security. We are too captive to the habit of thinking that any dollar amount ending in “illion” is a fortune.
a cancer is pretty efficient and robust at what it does.
there is nothing wrong with free markets or capitalism
but worship of Free Markets and Capitalism is a cancer that will destroy us.
see the difference?
i’ll take the modest house etc… even if it’s “only.” We are just as foolish as Peak if we insist upon the poor becoming rich. Enough is enough. beautiful, in fact.
Noony, maybe, you should go to where there’s no free market and then wake up to reality.
And, if you lived in a million dollar house, would you still complain if Bill Gates or Tiger Woods improved their houses substantially?
Coberly, the free market is not cancer. See the difference?
Well Peaky, I do live very modestly these days, being retired.
But if I lived in the US today, I would be far poorer and probably on assistance of some sort. What’s the difference between retired Noni in the US and retired Noni in Canada?
Probably I wouldn’t have my pension. It would have been wiped out as a 401k in the ’08 crash. Our stringent bank regulations prevented that happening here. My modest health care needs (two minor surgeries in the past five years) would either have wiped out my savings or left me disabled if untreated. My electricity bills and car insurance costs alone would be about $150 more a month than I pay here. (Both electrical and auto insurance are governed by Crown Corporations where I live. And yes, they make money, they aren’t run at a loss.)
Where in the world would you recommend I move, to experience your wonderful unfettered free market? If America isn’t it, then where? If America is the closest to pure freedom, yet I am far healthier and more secure here than there, your advice seems a bit unhelpful.
Noony, yes, prices are higher than they’d otherwise be in highly regulated industries, like U.S. health care. Fortunately, you didn’t have a serious health problem in Canada. And, the average house in Canada is much smaller than the average house in the U.S. in square feet (that’s one way to save money on heating, even in a country with lots of space, like Canada).
Perhaps, you need more lighting where you live and spend a little more on electricity. 401(k)s in the long run are much higher, because Corporate America has been very competitive on a global scale.
And if you drive a smaller and cheaper car, than you could in the U.S., your car insurance could be cheaper.
You’re more stable in Canada, because you’re more static. Of course, if you lived in San Francisco or New York before moving to Canada, it’s cheaper. Maybe, you should’ve retired to the Rocky Mountain West, like Utah 🙂
Also, it should be noted, Canadians tend to buy houses when they’re much older, because of stricter lending standards (and enjoy homeownership over fewer years), pay more to banks (which prevent banking crises, and Canadian banks take less risk than U.S. banks), home prices are much higher, and square feet is much lower. Furthermore, Canadians cannot deduct mortgage interest.
So, Canadians pay much more and get much less than Americans, and Canadian banks benefit enormously. Perhaps, somewhat similar to Canadian health care.
Oh Peaky, you’ve given me my big laugh of the day, bless your heart.
American health care is “highly regulated” compared to Canadian? Hee hee hee.
And maybe I haven’t had a serious health problem here, yet, but my best friend’s leukaemia treatment was covered totally, including her current Gleevec prescription. http://en.wikipedia.org/wiki/Imatinib#Costs
You should really fact-check your replies before you hit send. For instance, you can get an estimate for auto insurance in Manitoba, where I live, on this handy website — http://apps.mpi.mb.ca/Irc/intro_2.asp?Lang=0
I pay about $1100 a year for $200 deductible, loss-of-use, and $2M liability. The car is a five year old hatchback, but for the same coverage I would pay only a couple hundred more a year for a minivan.
My electrical is better and cheaper than anywhere else in North America. Our rates are to be found here — http://www.hydro.mb.ca/regulatory_affairs/energy_rates/electricity/current_rates.shtml
Canadian average home sizes are smaller than in the US, but only by about 160 SF, one extra room. http://shrinkthatfootprint.com/how-big-is-a-house
Finally, stability. Economies need stability. They need a stable context in which to operate. The rules need to be reliable, over decades, or people will take many inefficient precautions due to lack of trust in the social environment. Risk isn’t a good in itself … It is risky! That’s why they call it risk! Those who gamble and win are the minority, otherwise it wouldn’t be risk. They aren’t heroes, they are gamblers who didn’t get slapped down by Lady Luck, at least not for the moment. A country of gamblers is a nation of losers, by definition.
i knew the lights would never go on at your house, but i hoped that others more casually under the influence of the free trade religion would understand that understanding half of an equation, or less, is the same as not understanding it at all.
Coberly, I suspected, you’d respond to part of an equation again and then declare it all wrong.
Canada static? LIS latest info shows that Canada’s median and mean income is higher $6500/$5692 respectively than the US as of 2010 and their poverty rate per total population is lower by 5.2 points.
Yeah, that’s real static.
Noony, you twist my statements to create new statements and then respond to your own statements, or maybe you just don’t comprehend english.
According to the Canadian Homebuilders Association the average size of a new house in Canada is “about 1,900 square feet,” and “expect them to get smaller.”
U.S. new houses are about 2.600 square feet:
Daniel, U.S. per capita GDP is $10,000 a year more than Canada:
Also, I may add, it seems, less than 3% of Canada’s population is Black and less than 2% is Hispanic.
Peak, please take the time to consolidate answers to avoid stings of short responses.
The LIS studies have the best data for cross comparisons of income including some forms of investment and also gov subsidies. Median incomes have changed and trend differently thasn you seen to assume.
The side comment on Canadian/US healthcare is simply snide and does not illuminate on comparison. You know that. Nick Rowe at Worthwhile Canadian Initiative http://worthwhile.typepad.com/ offers a good source of accurate information in a systematic way. Nick is thorough.
Dan, there are many studies. However, I’ve tried to present solid facts, e.g. differences in housing square footage and better comparisons, e.g. a difference in immigration from poor countries. My point has often been you cannot get something for nothing, which some commentators imply, and there are other factors. Some people are not realistic. They’re deluding themselves.
Here’s an article:
“…according to a report from the Conference Board of Canada… Canada’s per-person income is approximately $6,400 less than the U.S. average income, a gap that has doubled between 1984 and 2006.
“Lower labour productivity accounts for the largest component of the income gap between Canada and the United States,” the conference board said.
Productivity measures how much each worker makes. In Canada, the measure has trailed American productivity growth for at least a decade.
Jim Stanford, chief economist with the Canadian Auto Workers, said Canada’s high dollar and the country’s concentration in energy industries are bigger threats to national productivity than the tax regime.
“The very poor performance of Canadian productivity during the last three years reflects the structural effects of Canada’s energy specialization as a producer and exporter of natural resources,” Stanford wrote in a recent study for the Canadian Centre for Policy Alternatives.”
Peaky, you imply that Canada might be doing better than the US because we have so few blacks and Hispanics. Why would you say that? I would be interested in your logic attributing poverty loading to the presence of people both historically and currently confined to the most poorly paid work and endemic prejudice.
Meanwhile, every country has its own variety of shame. Here, we have a huge aboriginal population to take the place of your blacks and Hispanics. My province has roughly 17% aboriginal people, many of them poor and badly employed. Yet, we and they all have universal health care, at about half what America has till recently paid for theirs.
What all free market promoters seem to forget is that all markets operate within a structure of laws, and that those laws have been decided upon, and modified from time to time, by governmental agency. There is no market wherein the players are free to do what ever they see fit to do. All players in the market, and that means all of us as we all participate in one market place or another, are restrained to the extent proscribed by the laws that govern business activities.
It seems very apparent to even the most strident free market adherent that criminal behavior is not acceptable within a free market, or any other market, paradigm. Once one accepts that premise the only issue is how the participants in the market place, and within the society wherein the market functions, define criminal behavior. Stealing a product from a vendor is obviously a criminal act to most market participants. What about offering toxic products for sale without constraint? Or manufacturing products in such a way as to create a toxic physical environment for the workers or the community?
There are no free markets. There are only endless arguments regarding the extent to which market participants must adhere to the legal constraints that have been decided upon by the communities within which the markets seek to perform.
Peak, the world has turned since 2008. The Canucks REALLY ARE doing better than WE are here in 2014. UPDATE, my Friend, update.
Noni Mausa: Most Americans are racist, its cultural, traditional, and legal here. And Peak is, I’m guessing here, White.
Why do you quote averages when medians are called for??
Tzimiskes, “…human beings do seem to share some degree of unconscious coordination with each other in a group setting. I know that personally I’ve realized that I’ve sometimes thought and acted rather differently when I am part of a particular group than I do with another group or when I am alone.”
Unconscious coordination is stretching your point a bit too far. Unconscious is the condition of being without thought, for the moment. Possibly you mean subconscious, as in Freudian psychology. either way it misses the point that you make, which I agree with. That point being that actors modify their actions and their ideas in accordance with their expectations or understanding of the thoughts and actions of the others in a group setting, or a market place. We don’t act and think exactly the same way in each of our roles nor upon the stages where we act out our roles in the markets of our lives. We are affected by what we believe to be the actions and ideas of others.
That doesn’t change the basic point, that being that the group as an entity does not behave in a manner dissociated from the individuals that make up the group. Example from the current news. Boy Scouts of America revoked a charter from a Seattle Scout troop because its Scout leader was openly gay, married to the same other man for twenty years. In fact the BSofA did nothing. The individuals who make up the leadership of the BSofA made a conscious decision to take an action against a member troop because those individuals didn’t like some aspect of that troops’ structure, the gay leader. To think that the group, or a corporation, made a decision is to remove the individuals who direct that group, or corporation from responsibility for their actions.
Dan, I think that when you say, “Why do you quote averages when medians are called for??” you mean to say, why do you quote means when…etc. They are all averages, but calculated in different ways and each has better use depending on the distribution of the data or the character of the data itself, ie parametric vs nonparametric measurement.
And again, Am I the only one who thinks that PeakTrader is making a conscious effort to derail many of the discussions that take place here? Look at the long string of nonsense on this thread alone, and it is nearly every thread where the topic is not too esoteric for him(her?,it?) to understand. So much of PT’s commentary is so rote as to seem to be coming from some form of automated reply and comment program. It’s boring to say the least.
Yes. Was thinking general reader.
And for Peak’s benefit, from the NY Times comes this sudden discovery, “The American Middle Class Is No Longer the World’s Richest” http://www.nytimes.com/2014/04/23/upshot/the-american-middle-class-is-no-longer-the-worlds-richest.html?rref=upshot&_r=0&module=ArrowsNav&contentCollection=The%20Upshot&action=keypress®ion=FixedLeft&pgtype=article
The lead in, “While the wealthiest Americans are outpacing many of their global peers, a New York Times analysis shows that across the lower- and middle-income tiers, citizens of other advanced countries have received considerably larger raises over the last three decades.”
Jack: EXACTLY on all counts. Also, should one look at Peak’s links, they are 2008 and before. Ah, living in the past. I was young back then.
Dan, median income can be an inaccurate measure of living standards too, particularly between countries.
For example, in Western Europe, a larger proportion of income = GDP = output represents government.
Workers can be overpaid and output can be overstated.
Western Europeans compared to Americans iive in much smaller houses, drive much smaller cars, or ride bicycles, there are much fewer shopping malls per capita (U.S. consumption represents 70% of GDP, while Western European consumption represents 60% of GDP), etc..
U.S. real median household income rose sharply in the 1980s and 1990s, even with increasingly larger trade deficits, which subtract from GDP, and bounced back in the 2000s, on top of those huge gains, while trade deficits continued to increase. However, since the U.S. economy peaked in 2007, U.S. real median household income has fallen sharply.
yes, PT reminds me of an automated program. he kind of amazes me with his ready supply of factoids, but i think even a computer would be embarrassed by the lack of “meaning” in those toids.
of course, i for one, figure that smaller cars and fewer shopping malls demonstrates that Europeans are smarter than us. And while i don’t know what “consumption” is (used to be a fatal disease, maybe still is) I would have to guess that if they only spend 60% on it while we spend 70%, they may have found a more efficient way to satisfy their needs and wants than we have. “Government” paid health care for example?
Median income is virtually always used as the measure of central tendency for data on the income of a population. Mean income (what many think of as the “average” from their lessons in grammar school) would be misleading when the total distribution of the measured data is seriously skewed. The mean income would only be informative if the income distribution followed the so-called normal bell shape. With the top quintile earning about 50% of all income, “The top fifth saw its share of pretax income rise from 43 percent in 1979 to more than 50 percent in 2010. Much of the gain went to the top 1 percent, whose share increased from 9 percent to 15 percent over that period” Forbes,12/09/2013 report of CBO data, using the mean income as a descriptive of the distribution of income would be meaningless.