Daniel Lakeland

@economics-that-works #economics #ergodicity

Another economics discussion on Gelmans blog today, asking questions about how people in the future will be doing relative to their parents today. I had strong opinions and got called out for "cherry picking" my preferred CPI measure. In this post I point out how we have a major problem comparing broad averages. 🧵 https://statmodeling.stat.columbia.edu/2024/05/15/the-income-of-the-average-american-will-double-approximately-every-39-years-who-says-that-sort-of-thing-show-some-respect-for-uncertainty-dude/#comment-2372317

May 16, 2024 at 1:55amWeb
Show threadDaniel LakelandMay 16, 2024
@economics-that-works
The basic point is this. If you take a time machine to 40 years in the future and ask how people are doing relative to their parents... 100% of those future people will think back to **people today with young kids**... 0% of those people will think back and say "well my parents never had kids". So in comparing differences through time, only averages over people today with kids makes sense for this question. 🧵
Show threadDaniel LakelandMay 16, 2024

@economics-that-works
But the CPI economists use for inflation and to compare incomes through time is just a massive average over "space" of different people at different ages and different child bearing statuses today. "The share of adults living without children has climbed 19 points since 1967 to 71.3 percent." According to the census in 2017 https://www.census.gov/library/stories/2017/08/more-adults-living-without-children.html

So 71% of the households used in the CPI shouldn't be there for this question.

Fewer Married Households and More Living Alone

The number of married households has declined while the number of people living alone has risen.

Census.gov
Show threadDaniel LakelandMay 16, 2024
@economics-that-works
Furthermore, those 40 year olds in the future, some of them will chose not to have kids and some of them will have kids... And the ones that choose to not have kids will be avoiding presumably quite expensive stuff, living it up so to speak... While those who do have kids will be utilizing larger houses, more food, more healthcare more heating and cooling, more transportation, more education by FAR.
Show threadDaniel LakelandMay 16, 2024

@economics-that-works

So mechanically we expect the future people who have no kids to be doing better financially than their parents today because they avoid lots of child expenses, while the future people with kids may be doing better or worse than their parents today. So we need to split those two future groups. And only one of them has a sort of time symmetry, the one with kids.

Show threadDaniel LakelandMay 16, 2024
@economics-that-works
Actually that's not quite right you can go back in time and you can ask how are people today with no kids compared to people 40 years ago with no kids and this has a kind of symmetry but it's completely a separate question from comparing people with kids today to their parents in the past. And so if we look at these two time sequences we may find that people with no kids have explosive growth in their cost adjusted 🧵
Show threadDaniel LakelandMay 16, 2024
incomes while people with kids actually decline even. And so it can be the case that in every generation if we ask people with kids how they're doing they say I'm doing much worse than my parents were and yet CPI adjusted average incomes can be going up the whole time! @economics-that-works