The State of The USA is an organization that receives federal funding with the mission to measure “the nation’s progress… with the best quality measures and data on the most important issues facing the country” by creating a “Key National Indicator System.” Unfortunately, the organization is anti-medianism. Not only do they ignore the median income, they incorrectly opine that its virtues are actually flaws. They begin by recognize that “some economists” prefer median income:
Some economists emphasize the usefulness of median statistics to measure income. Doing so, they say, gives a better picture of more people’s living conditions by using traditional per capita income measures to avoid giving undue weight to those at the top of the income spectrum.
And then they try to knock this down by arguing that rich people deserve added weight in measuring wellbeing!
…using the median statistic minimizes the importance of extreme values in the income spectrum, and it may be that an added weight to those values is desired. In the median income example, it could be argued that using median income paints an economic picture that is perhaps grimmer than it actually is, as the fact that people have a chance to obtain high incomes is arguably downplayed. …using the median doesn’t take into account the positive effects of having some people with very high incomes.
This sentiment is simply wrong. First, who ‘desires’ that the rich should deserve “added weight”? In a democracy, everyone should get the same weight and the median does a much better job (albeit still imperfect) than the mean income at treating people equally rather than weighing people according to their wealth. What reason is there to valorize the rich over the median? Second, there is diminishing marginal utility of wealth. Adding $10,000 to a billionaire’s income makes an unnoticeable difference in his life. Adding $10,000 to someone with the median income is an incredible bonus. Third, what are “the positive effects of having some people with very high incomes” if it doesn’t trickle down to help the median income? The usual argument that supports higher inequality is that it will be great for everyone including the poor, but if it is great for everyone, then the positive effects should help the median income too and the median income will rise in correlation with the fortunes of the rich.
Fourth, they claim that mean income is “unbiased” which is also false. A mean is only unbiased for data with a normal distribution, but even in this case the median is just as unbiased as the mean because mean is exactly equal to the median for normal data. However, most of the income distribution is lognormal and most statisticians argue that the median is less biased for lognormal data. Finally, economists have often claimed that the utility (welfare generation) of money can only be measured ordinally and it is impossible to use a mean for ordinal data, but a median works fine. Only a mmutilitarian who thinks that money=utility=wellbeing would claim that mean income is less biased than the median.
I searched The State of The USA for “median” and only found 35 hits, so they don’t use it much because they prefer mean GDP. Most people neglect median income because it is hard to find good data about median income, but The State of the USA neglects it because of their mmutilitarian philosophy. They just simply prefer mean GDP.
In Jon Gertners excellent survey of GDP at the NYT he wrote why the income of high-income people are less important for wellbeing than the middle class:
“There’s an enormous inequality of suffering in society,” Daniel Kahneman told me recently. By his estimate, “if you look at the 10 percent of people who spend the most time suffering, they account for almost half of the total amount of suffering.” Kahneman suggested that tremendous social and economic gains could therefore be made by dealing with the mental-health problems — depression, say — of a relatively small fraction of the population. At the same time, he added, new measures of emotional well-being that he has been working on might soon give us a more enlightened perspective on the complex relationship between money and happiness.
Currently, research suggests that increased wealth leads us to report increased feelings of satisfaction with our lives — a validation, in effect, that higher G.D.P. increases the well-being in a country. But Kahneman told me that his most recent studies, conducted with the Princeton economist Angus Deaton, suggest that money doesn’t necessarily make much of a difference in our moment-to-moment happiness, which is distinct from our feelings of satisfaction. According to their work, income over about $70,000 does nothing to improve how much we enjoy our activities on a typical day. And that raises some intriguing questions. Do we want government to help us increase our sense of satisfaction? Or do we want it to help us get through our days without feeling misery? The two questions lead toward two very different policy options. Is national progress a matter of making an increasing number of people very rich? Or is it about getting as many people as possible into the middle class?
Median expected lifetime income won’t completely solve these issues, but at least it is a step in the right direction.