A Simple Statistic for Measuring Income Inequality

The traditional macroeconomic measures of economy-wide  performance are the unemployment rate and the inflation rate.  When both are low the economy is thought to be performing well.  When one or both are high, there are economy-wide problems of some sort.  But even when both of these measures are low, might it be that a significant fraction of the population is not benefiting from that overall good performance and, indeed, could it be that many are struggling?  While most can readily admit to that possibility, out of sight is out of mind, or if you prefer Daniel Kahneman's acronym from Thinking, Fast and Slow, there is WYSIATI.  In other words, unless there is a third statistic to go along with the unemployment rate and inflation rate, one for measuring income inequality, the income distribution issues become a tertiary matter only in thinking about economy-wide performance, so we don't really discuss those who are hurting economically in spite of the strong indicators. 

But the statistic that economists are likely to want to play this role, the Gini coefficient, hasn't caught on in popular discussions of income inequality.  It is my view that the Gini coefficient is too complex for most people to understand and thus a simple-to-understand statistic is needed to play this role. Admittedly, such a statistic will have its limitations.  I don't want to deny this.  But as politicians discuss the issue, the usual focus is on the middle class.  For that reason I think the statistic I suggest is compelling.  It is the ratio of median income to mean income.  (On the Fred Blog, the reciprocal ratio is graphed, though their data only goes through 2013.  They draw a similar conclusion to what I concluded below about this as an indicator that income inequality has been increasing, though they don't hazard an explanation for these results.)  I will illustrate this measure with a simple Excel workbook I put together from readily available data. Below is a brief discussion of how this workbook was constructed. 

I did a Google search on - mean household income U.S. - and soon found what I wanted.  The first hit was the U.S. Census; but that didn't have what I needed. At the second hit I found this page from the St. Louis Federal Reserve Bank.  Note that the graph says family income rather than household income.  With the aide of a friend, I found this definition of household at the Census.gov Website. From there, households are divided into two categories, family or nonfamily.  From what I know about the income data, family households must, on average, have higher income than nonfamily households.  Further, from elsewhere on the Website there is an issue of non-reporting.  I suspect the issue is more serious with nonfamily households.  Taken together, this may explain why the St. Louis Fed seemed to prefer family income to household income.  

I really liked the page I found because if you scroll down from the graph it provides links to a host of other graphs for related searches, median income distribution for example. And with a bit of further exploration I learned that each graph gives you the ability to download the data that generates the graph.  Initially I downloaded two worksheets, one for real median family income, the other for real mean family income.  They cover the same years, from 1953 to 2022.  I copied and pasted the data into a blank Excel workbook on the same worksheet.  So, the first four columns of my Excel (columns A and B and then columns D and E) are simply reposts of the St. Louis Fed data.  My contribution, meager though it is, can be found in column G, where the entry in column B is divided by the entry in the same row that's in column E, with the result expressed in percentage terms.  I don't believe the ratio of median to mean income to be very compelling on strictly theoretical grounds.  But I found the downward trend extremely interesting, something worthy of further discussion. 

To make sure I was on terra firma, I repeated the exercise, this time with nominal data.  There is a series of median family income that is not inflation adjusted and another series of mean family income not inflation adjusted.  The latter actually has two different series, either Vintage 2022-09-13 or Vintage 2023-09-12.  I chose the latter as it had data for 2022.  The former only goes as far as 2021.   I then did essentially the same thing as before in computing the ratios.   I compared the real and nominal results side by side (that is not shown in the Excel) and learned that while the results are not identical, they are quite close, within a few hundredths of a per cent in each case.  And the downward trend is still there.

Some Mechanics of Income Distribution and of the Trend in Question

I mean this essay to be available to non-economists and non-statisticians.  Anyone who has an interest in economics as it speaks to our national politics should find this essay accessible.  So here I'd like to explain a little about what's going on behind the scene to drive the results.  For those readers who don't need this type of hand holding, you can skip this section, puzzle for a bit over what explains the downward trend, and then resume reading the next section. 

If the income distribution were a bell curve, the median and the mean would coincide, so their ratio would equal 1 or 100%.  If you held all incomes below the median constant but added a fixed amount to each income above the median, then the median itself would remain unchanged but the mean would go up by half the fixed amount (as half the population received that income increase).  More generally, symmetric distributions, such as one that yields a bell curve, will produce an equal median and mean, while distributions that are skewed to the right will have the median less than the mean.  The greater the skewness the more the disparity between median and mean.  The U.S. income distribution is skewed in this way.  Evidently, the distribution was closer to a bell curve in 1953 than it was in 2022.  

Income in the U.S. has mainly been growing; both median and mean family income have been growing, the data say as much.  If median income grows at the same rate as mean income, then their ratio will remain unchanged.  For this ratio to fall requires mean income to grow faster than median income.  The reader should interpret this as incomes higher in the income distribution growing faster than incomes lower in the distribution.  That this has been the pattern for some time suggests that those who are lower in the distribution may have distinctly different views of the overall economy than those who are higher in the distribution. 

What Caused the Downward Trend?  Will the Trend Continue?

Here is some speculation on my part, which might be thought of as the start of an argument on these questions.  Post World War II, the U.S. economy really embodied the notions we associate with a "middle class society."  The GI Bill, in particular, repaid, in part, those who served in the military by helping them start on a middle class lifestyle, which I will note was far more modest than its equivalent today.  For example, the square footage of the family house or apartment was comparatively small and there might have been a single vehicle for the family car.  So, part of this is about attainment level.  Another part of this is about institutions that supported this attainment.  Unions were much stronger then and many more people were union members.  Unions helped their members lead a middle class lifestyle.

Now let's make a little conjecture that I deem likely - voting participation correlates with income.  The downward trend in the median to mean income ratio can be thought of as the system rewarding those with higher incomes, who in turn tend to vote their pocketbook.  In this view the surprise might be that the trend wasn't steeper earlier.  I do want to note that in my eyeballing of the data the trend happened under both Democratic and Republican Presidents, though it was somewhat steeper when Reagan was President.  

It can be argued that high marginal tax rates at upper incomes, which existed through the Carter administration, and have kept coming down for the most part since, inhibited the taking of very high income.  That inhibition lessened as the tax code changed.  The rich could then be more greedy and without shame.

Still a different way of looking at this, economic theory explains that a factor of production must be paid at least its opportunity cost (what that factor could earn at its next best opportunity) in order to elicit the factor's participation.  Payment in excess of the opportunity cost is called an economic rent.  Economic rents tend to exist where the factor is supplying something scarce.  And when there is excess demand for the product produced, those economic rents can skyrocket.  Earnings for those people will grow much faster than for those who merely earn their opportunity cost.  Parallel to this, certain sectors of the economy have experienced hyperinflation - health care and higher education are two such areas.  I believe that accounting and finance are also in this category.  These are just examples and are not meant to be an exhaustive list. The areas experiencing hyperinflation are likely the same areas where earnings have grown much faster than median income.

Is this slowing down now?  I'm not seeing it.

Naming the Median/Mean Income Ratio

Coming up with an idea is one thing.  Marketing it is quite another.  I'm including this cutesy section because I think the marketing calls for a compelling name, yet I couldn't come up with any that weren't too convoluted.  So I encourage those readers who want to make a go of if to suggest a name and then either do so in a comment or send me an email with it.  I'll post those and see if readers can identify a favorite.  

The Frequency in Updating the Measure

I believe that both the CPI and the unemployment rate are updated monthly.  Further, seasonal adjustments in CPI measures allow them to reconsider the earlier numbers in light of new information, going back at most 5 years to make such adjustments.  (Beyond 5 years the numbers are fixed.)  The data I used for computing the Median/Mean Family Income Ratio were annual.  Can a measure that only changes annually compete for importance with these other traditional measures of the macro economy?  Alternatively, might it be possible to get more frequent income measures so the numbers would be more timely?

I don't know the answers to these questions.  My thought is that if this remains just an idle curiosity then we're stuck with annual measures, which might then reinforce why the measure isn't taken more seriously.  Alternatively, if interest in the measure spiked, then perhaps there would be data forthcoming to support a more frequent adjustment of the numbers.  But that's just speculation on my part.  

Wrap Up

In the previous decade I wrote a fair amount about income redistribution, as a policy matter.   This post is probably the last one I wrote of that sort.  It was written while Trump was President and before Covid had manifest.  

I view the current post as several steps back from policy.  It's about how people perceive the economy.  It is not an unusual proposition to say that people will see the same thing differently depending on where they are standing at the time they make the observation.  Yet somehow when we talk about the macro economy, we lose this thought except for saying that Democrats will see it differently than Republicans.  I do think where people are in the income distribution matters for this perception.  It matters a lot.  Indeed, it matters much more now than it did in 1953, when the U.S. really was a middle class society.  We need a way to talk about that and I hope that the simple statistic I suggest in this post offers a vehicle for doing so. 

And, to be clear, I view income inequality itself as a proxy for wealth inequality.  Those who have a large debt burden relative to their income and "live paycheck to paycheck" have to endure every bump that the economy dishes out whereas those with enough savings and access to credit have buffers to allow them to be comfortable in spite of the economy's vicissitudes.  But getting direct measures on wealth and access to credit is much harder.  So proxy measures will have to do.  And the one I suggest is both readily available and easy to understand.

Eating as Consolation, Overeating as Habit

This piece is meant as something of a refutation to, A Year on Ozempic Taught Me We’re Thinking About Obesity All Wrong, an opinion piece in the NY Times from 10 days ago.  While my critique can readily be framed in theoretical terms, and I will do so next, after that I will be autobiographic in order to give some support to my claims.  I'm not trying to be a role model with this.  I only hope that my story can give readers enough fodder for them to work through their own personal examples.  There is one way that I'm unique in writing about this, as a former academic economist.  I can give a behavioral economics spin on the coping process.  I hope that part is helpful.

Johann Hari, the author of the linked essay, squarely puts the blame on the food companies, who design their products in a way that customers find them addicting.  (In this there is a remarkable parallel with the cigarette companies, as depicted for example by The Insider.)  Hari reports that he was born in 1979.  I'm more than a generation older, about 9 months younger than Jerry Seinfeld.  I surely don't want to get the food companies off the hook.  While the recent movie, Unfrosted, has been called a comedy, it easily could be considered a mockumentary about the big cereal companies.  I guess that most viewers would agree.  There is a lot of nostalgia in watching that movie, but also a feeling of entrapment from all the bad choices we made.

Nevertheless, I think it a poor approach to consider what the big food companies do as the the sole cause of obesity, leaving all the psychological issues as effect.  I much prefer to have a multi-causal approach, as I hope to explain below.  Here, let me get to just a few of those issues.  In adults, is overeating related to excess with alcohol or drugs?  Or should each of these only be considered separately?  It seems evident to me that in children it may be one thing, but in adults quite another.  Even if drugs like Ozempic are effective, are there reasons for good health and greater self-esteem from both getting the overeating under control and increasing physical activity?  That too seems evident, with an obvious answer of yes.  Further, while it is well known that there is a mental health crisis among young adults today, I will impute here that the primary cause is a lack of a sense of agency among these people.  To confer agency on someone, that person must try to address his or her own issues, perhaps failing frequently, but with the occasional success, and then learning how to do it better the next time based on the prior experience.  Generating a sense of agency about one's eating seems to me a key factor.  To do that one needs a multi-causal approach of obesity. 

I've struggled with my weight for much of my life and I still am struggling with it now.  So I don't want to maintain that I have some miracle cure for obesity.  I only want to argue that the struggle is necessary.

While I will mainly focus on psychological/motivational causes, I want to acknowledge the possibility of genetic/cultural causes for obesity.  I can remember that as a very young kid my mom would call me a fresser. (She was one as well.)  And in my high school yearbook, where friends would write something next to their photographs, one friend wrote that I was the hungriest kid he knew.  Saying that was a bit unusual, but it goes to show an unfortunate part of the reputation I had at the time.  I do want to note that for me it is impossible to parse the genetic causes from the psychological ones.

Now let me get to the title of the post.  Leading off with eating as consolation was intended to get the reader to ask - consolation for what?  The answer will depend on the reader.  In my case, the issues for which I needed consolation changed over my lifetime.  I will sketch some of them below.  Others who have struggled with obesity might do likewise in coming up with their own issues.

As a very young kid, the issue for me was poor self-image based on physical limitations.  For example, the schoolyards would have jungle gyms.  I was afraid of climbing them, though other kids were not.  In general, I was a klutz.  I was a very big kid and my coordination wasn't as good as the other kids.  Further, I was grouped from nursery school onward with kids who were somewhat older than I was.  (Being the biggest and the youngest is an odd combination.)  This was compounded by two other factors.  I had difficulty with fine motor activities, threading a needle for example, handwriting for another example.  My dad made a thing about the latter, which didn't help my self-esteem at all.  Then too, when we started to play ball sports, (see my post from a decade ago called Slapball) it was evident that I was worse at catching the ball than the other kids.  Right around the time that President Kennedy was assassinated, I was 8 then, I got my first pair of glasses.  Until then, I had a visual disadvantage compared to the other kids in following the flight of the ball.  All these physical issues were eventually overcome (except the handwriting, which has been abysmal for my entire life) but the psychological scars that formed remained.  

It can be argued that all young kids have some difficulties of this sort; angst in adulthood likely has its roots in early childhood.  But not all kids resort to eating as consolation for those difficulties.  Do these kids find other ways to cope at an early age?  I don't know.  I do believe the genetic explanation may matter here.   But it is also possible that parental intervention serves as a different sort of buffer for the kid.  I had less of that as my mother often wasn't home or when she was she was busy tutoring a student in a foreign language.  I often cite this piece by Hanna Rosin, The Overprotected Kid, which argues that parenting has gone too far in the other direction since I was a kid.  The kid needs to take some knocks, no doubt.  Where the right sort of balance can be found I will leave to others.  The only point to take here is that kids will look both for self-protection and for consolation when the self-protection is inadequate.  Some will find the latter in eating.

Let's move on.  I briefly want to turn to the boy-girl thing.  It terrified me in junior high school and thereafter for two reasons, one that should be already apparent.  Although I was a very good student, that did not offset the poor self-image I had and I was still the largest kid in the class, by far.  So, that I didn't think I was attractive to girls shouldn't be a surprise.  But the other reason might be more unusual and specific to me.  I often would not understand how I felt about something and would note that sometimes in the future I would change my mind about things.  If I told a girl I really liked her now, would I be implicitly leading her on that I wouldn't change my mind about her later?  I couldn't imagine being able to talk my way out of a situation like that.  This served as a big inhibition in getting started.  

There must be a huge amount written on eating as consolation, especially for teens, given a forlorn love life. I haven't tried to find references on this as the point seems so obvious.  And, quite clearly, I fell into this category.  

Now a bit about the second part of my title, on the overeating as habit. Any activity done repeatedly that is not done through the coercion of others has the potential for turning into habit. The point here is that a vicious cycle can readily form.  The overeating causes the person to put on weight, making the person less attractive to others, and thereby confirm the need for eating as consolation.

In 10th grade I went into a depression; there were a variety of causes for that.  One of them was putting on weight and feeling out of control in doing so.  I did see a shrink at the time, who helped me some, particularly with my limitation in making eye contact with authority figures.  And I saw the family doctor as well, who prescribed some medicine (I believe it was an amphetamine of some sort) to control my appetite.  I recall losing about 20 or 25 pounds that spring.  But I was unable to keep the weight off after the prescription expired.  It is an issue with any drug treatment for obesity.  What will happen after the treatment concludes?  Or will the drug be taken for the person's entire lifetime thereafter?

I put on a few more pounds in college and after I graduated (in January) I wanted to change things, so I went on a crash diet where I lost about 45 pounds.  It was one meal a day, dinner, with no seconds.  I did this without any drugs for around 2 months.  I have a vague memory of hanging around in my bedroom at home either watching TV or reading - not interacting with people much at all.  I seem to recall a belief that I could handle the intermittent fasting if I didn't have social interactions that would test my mettle.  It's why nowadays I would suspect that people can't both lose a lot of weight and work at a stressful job.  It's one or the other, but not both.  Let me return to that issue in a bit.

When I went to grad school there was nobody at Northwestern who knew me from how I was earlier.  I looked more or less normal (maybe a bit husky) but I still had the mindset of an obese person.  That presented it's own challenges.  

I will fast forward now 14 years, till when I got married.  The weight remained more or less stable.  I found a reasonable balance between eating, drinking, and physical activity, and for 2 more years after that, when our first child was born.  Parenting, with its chronic lack of sleep, brought about the first chink in the armor.  Fatigue lessens one's powers of self-restraint.  Then I changed careers in the mid 1990s, from being an academic economist to being an administrator for educational technology.  There was job stress in the latter position that I wasn't ready for.  My saving grace, weight-wise, was jogging, which helped relieve the stress and kept the weight somewhat under control.  While the weight did trickle up, the routine I had worked more or less until 9/11.  Right around then my knees gave out and I could no longer jog.  Perhaps 7 or 8 years later I took up walking, which is not a perfect substitute for jogging but it is definitely better than nothing.  Until then I was quite sedentary.  We did buy a stationary bike, but I don't think it was sufficient exercise for me.

I also experienced a work change in summer/early fall of 2002.  Where before I was running a small Center for Educational Technologies, which was much to my liking, the work stress notwithstanding, thereafter my center merged with the big campus IT organization and I became the Assistant CIO for Educational Technologies.  Nominally, it was a promotion for me.  In actuality, I ended up being involved in big IT matters much more than I cared for and was not nearly as happy with the work I was doing.  The reader should be seeing a big need I had for consolation at this time.

The major difference between then and my teens is that at Illinois alcohol had become an alternative way to console myself, often drinking with friends but also quite a lot on my own. And here's the thing to make that relevant to this piece.  Alcohol doesn't just lower one's inhibitions in social situations.  It also lessens (perhaps eliminates) one's sense of self-control with regard to eating.   When the work stress got particularly bad in fall 2004 and all of 2005, my weight ballooned upward.  Things came to a head in September 2006 when I had a very bad fall in my bother's house in Ann Arbor, severing all the tendons between the knee and the thigh in my left leg.  Reform happened very slowly after that and in different stages.  

I'm going to fast forward to now.  I'm about 100 pounds lighter than I was when I had that fall and within 10 pounds of the weight when I got married.  The motivation for losing weight during this entire time has been to promote better health.  Back in 2015 I was experiencing hip pain and found that I was a candidate for a hip replacement procedure.  But a few years earlier, I had a rotator cuff repair after which my shoulder got infected and I spent 5 days in the hospital for them to clean out the infection.  The memory of that lingered and I wanted to prevent a repeat experience.  I reasoned that if I lost about 30 pounds or so the chances to avoid infection would be much greater.  Lo and behold, while it took quite a while to lose that weight, what I found while walking is that the pain in the hip was largely gone and I could walk further without difficulty.  Other health issues motivate me now.  I will spare the reader from detailing those, but reducing drinking and eating less are part of the solution to each of those issues.

Recently, my diet has changed remarkably towards the fruits and vegetables end of the spectrum and I am much more conscious of getting some exercise, even if it is not aerobic exercise.  On the former, I think it worth noting that I'm quite comfortable financially, so a change in diet puts essentially no pressure on the family's savings.  For people of more modest means, high starch diets are likely less expensive.  Getting to a more healthful diet when on a tight budget is surely a challenge.  It seems to me that some form of government intervention, such as a tax on the food companies to fund subsidies on fruits and vegetables available to people of modest means, would make good sense here.  But the devil is in the details and I don't want to get sidetracked by those here.  So let's get to the last point.

I'm not big on willpower.  When applied to learning, I'm a strong advocate for intrinsic motivation and self-actualization.  I very much dislike the term - deferred gratification.  (See, for example, my post on Maslow's essay, The Creative Attitude.)  It is far better to be totally absorbed in now.  But that does not mean there shouldn't be any forward thinking, far from it.  In behavioral economics there is the notion of a nudge.  Simply put, a nudge is something you do in advance that either raises the cost of doing the bad thing or lowers the cost of doing the virtuous thing, thereby increasing the likelihood that you won't go astray in that moment of weakness.  

When I was a single assistant professor, well before I had heard of a nudge, I would nonetheless employ the concept by never buying ice cream to keep in my apartment.  The assistant professors would often walk to Green Street in the afternoon and get ice cream at Baskin Robbins.  That was okay and I indulged in the activity along with the others.  But by not having ice cream in my apartment, I would avoid the scenario where later in the evening I was alone and perhaps with something bothering me about work.  Had there been ice cream in the apartment, I might have eaten all that was left in the box.  But it was just too much effort to go to the grocery story to buy a box.  So, this particular nudge was effective that way.  

Once you're married, you lose some control of what is in the refrigerator and freezer as well as what's in the liquor cabinet.  If there is to be an effective nudge, it needs to be found elsewhere.  For me, I've got two things I need to control.  First, it has to be about limiting both food and liquor consumption.  I'm prone to overdo on both and if I drink too much I will then eat too much (and then stuff I shouldn't eat at all).  Second, the impulse to be a bad boy this way definitely depends on time of day.  It is much stronger in the evening then it is in the morning.  To control the evening weakness, I try to go to bed early - about 8 PM during daylight savings time, even earlier during standard time.  This is anti-social in many ways.  But it is far less anti-social as a senior citizen than it would have been as an assistant professor.  I'm disciplined enough that once I've gone upstairs to bed, I won't come back downstairs till the morning, when it's coffee that I want and which I won't deny myself.  

However, I'm not perfect with this and after a week or so of following the regime I will typically break down and have a few drinks, eating too much as a consequence.  I do need some break from the regimen.  The issue is whether I can get right back on the horse after that or if instead I have a period of indulgence that follows.  For me these days, a big determining factor of which happens is the extent of physical pain I'm feeling.  I'm not good about toughing it out.  If things hurt a lot, I will drink.  Moderate arthritis pain I can tolerate, as I've now come to accept it.  Sometimes I over exercise or have some minor accident and then the pain is more intense.  This is where returning to the regimen becomes very difficult.

So, I'm not advocating for this specific form of nudge, because everyone has a different life situation. But I would strongly encourage readers to experiment with their own approaches and see if they can find something that works for them. 

If you try this for a while, but nothing seems to work, have a Pop-Tart.  A sense of humor about the situation helps too.