Home -> Law Blog Directory -> Legal Commentary Blogs -> Agoraphilia

Legal Commentary

: Agoraphilia

How Is This a Problem?

By Tom W. Bell and Glen Whitman

Business Insider?s Chart of the Day purports to show the ?dismal? state of America?s household net worth. The authors describe the chart as showing the ratio of household net worth to disposable personal income ?falling back to levels last seen in the late 1980s and early 1990s.?

Now, the main thing that makes our current position look bad is those two big spikes on the far right. As the authors note, those correspond to the dot-com bubble and housing bubble, respectively. And since those were, y?know, bubbles, they don?t really represent the value of fundamentals. Those years should arguably be ignored. But once you ignore those years, a quick eyeball reveals that the profile is pretty much flat. The ratio has hovered around 500% for over half a century, with the exception of a dip during the 1970s and early 1980s. And 500% is where we are now. How is this a problem?

Maybe the authors think the figure should be rising over time, and the flatness of the graph (once the bubble are removed) reflects stagnation. But that?s a non sequitur. Since the figure is a ratio, it?s perfectly consistent with both rising net worth and rising disposable income. For the ratio to trend upward, net worth would need to rise more quickly than disposable income. But as far as I know, there?s no reason to expect that. Am I missing something?

Full post as published by Agoraphilia on July 27, 2010 (boomark / email).