Wednesday, February 08, 2006

The myth of declining wages

Next time you read lamentings about how people's real wages have declined, keep this column by Thomas Sowell in mind:

Economists' estimates of how much the consumer price index exaggerates inflation range from an estimate of one percentage point by former Federal Reserve chairman Alan Greenspan to an estimate of 1.5 percent by Michael Boskin, former chairman of the Council of Economic Advisers to the President.

Even if we take the lower estimate of one percentage point, over a period of 25 years, that under-estimates the real income of the average American by nearly $9,000. In other words, a working couple will have their real income under-estimated by nearly 18 grand, using the consumer price index to correct for inflation.

No wonder the income statistics look so bad, even while the standard of living is rising and Americans have a higher net worth than before. Nothing is easier than to turn reality upside down, especially if you are just trying to score points, instead of getting at the truth.

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