Russ Roberts is skeptical of The Great Stagnation

Panel data that tell a different story? Go here for one example: when you follow the same people over time, you see that since the late 1970′s, children grow up to have a much higher standard of living than their parents, (even with lousy measures of inflation) and the biggest gains are for the poorest people. This is inconsistent with the Great Stagnation.

Let put the chart Russ links to front and center

There are two issues here that both have to do with looking at parents and children.

The first is simple regression to the mean, and its well on display in the black families. That is, the children of poor parents did better than there parents, the children of rich parents did worse than there parents.

Suppose there is some underlying family income propensity plus a random variable. The random variable could be anything including the particular circumstances of the year in which you interviewed them.

Then we are going to see this. Some poor parents will be poor precisely because they had an unusually low random draw, we would expect the children to do better. Conversely, some parents will be rich precisely because they got a high random draw. We would expect the kids to do worse.

In the white family data you can see the same thing if you extract an upward trend. That would suggest family income growing on average but poor families likely growing more and rich families likely growing less.

However, the upward trend doesn’t tell us much either because people can change classes.

A story where all of the GDP was going to the top one-percent would be completely consistent with this data, so long as the every white kid has some positive probability of making it into the top one percent.

On average every white parent should expect that his or her child will be richer because every white parent has some chance of producing a child that will be in the top 1%.

Also Russ says

The other challenge to the Great Stagnation is that per-capita GDP is way up since the 1970′s. The left argues that the rich got all the gains. The mechanisms they propose to explain this (lower rates of unionization, slow growth in the nominal minimum wage) are not convincing. Unionization rates have been falling steadily since the 1950′s and the minimum wage never covered enough people to make it important. How does the left (or Tyler) then explain this disconnect between national growth and the effect on the middle? They don’t have a convincing story.

So to echo Peter Thiel the first question is whether or not the phenomenon exists. Jumping ahead to why just confuses the matter. Why might be something that we never thought of. It could be something totally off the wall.

First, we try to figure out if this is actually happening. Then if it is we can think about why.

There are a bunch of other points that Russ makes, some of which Tyler addresses and some of which I think call for more data.

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