December 31, 2005

Does Paul Krugman of the New York Times Read His Own Newspaper?

Filed under: Economy,MSM Biz/Other Ignorance — Tom @ 11:01 am

New York Time economist Paul Krugman continually wails about how real incomes are declining, the middle class is disappearing, and “woe is us,” to the point that you want to make sure you’re in a ground-floor building whenever you’re reading his columns.

What Krugman claims about declining incomes can’t be true if housing is more affordable than ever, and if the percentage of Americans who own their own homes continuing to climb, both of which are the case, as reported in his own newspaper (HT Cafe Hayek):

Despite a widespread sense that real estate has never been more expensive, families in the vast majority of the country can still buy a house for a smaller share of their income than they could have a generation ago.

A sharp fall in mortgage rates since the early 1980′s, a decline in mortgage fees and a rise in incomes have more than made up for rising house prices in almost every place outside of New York, Washington, Miami and along the coast in California. These often-overlooked changes are a major reason that most economists do not expect a broad drop in prices in 2006, even though many once-booming markets on the coasts have started weakening.

The long-term decline in housing costs also helps explain why the homeownership rate remains near a record of almost 69 percent, up from 65 percent a decade ago.

Nationwide, a family earning the median income – the exact middle of all incomes – would have to spend 22 percent of its pretax pay this year on mortgage payments to buy the median-priced house, according to an analysis by Moody’s Economy.com, a research company.

The share has increased since 1998, when it hit a low of 17 percent before house prices began rising sharply in many places. Although the overall level has reached its highest point since 1989, it remains well below the levels of the early 1980′s, when it topped 30 percent.

I’ll add something I believe The Times missed. People are spending a higher percentage of their income on housing now than they were seven years ago because they want more bells and whistles on their houses. Builders are responding, and building them, making the median price go up.

As to Krugman’s central complaint, Jim Glassman of TCS Daily (formerly Tech Central Station) notes the reality:

Stephen Moore of the Wall Street Journal and Lincoln Anderson of LPL Financial Services recently pointed out that the latest Census data show that, far from shrinking or losing ground, the middle class in America has become a good deal richer.

“Back in 1967,” they write, “the income range for the middle class [that is, the third of five quintiles] was between $28,800 and $39,000 (in today’s dollars). Now that income range is between $38,000 and $59,000.” In 1967, one family in ten had an income of more than $75,000 (in 2004 dollars); today, it’s one in four.

The only partially-valid counterargrument is that it takes more income-earners per household to achieve the higher real incomes. Without a doubt, there are more income earners per household now than there were 40 years ago, and there is of course a heated debate over whether many of these two-income choices have been good ones. But for this post the point is that the “real incomes are falling” argument is just not valid, and Paul Krugman needs to get over it.
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UPDATE, Jan. 3, 2006: Independent Sources points to a publicly available post of the full Stephen Moore-Lincoln Anderson piece at the John Batchelor Show web site.

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1 Comment

  1. Ssssh! Don’t tell anyone, people are better off.

    We’ll tell this to you as long as you don’t pass it along. It will upset too many constituencies that have vested stakes in things being worse off than ever before. It turns out that new reports by the Census Bureau and the Federal Reserve…

    Trackback by Independent Sources — January 3, 2006 @ 10:58 am

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