Chelsea Follett: Joining me today is mathematical economist John Early, an adjunct scholar here at the Cato Institute and president of Vital ULLC, a consultancy applying the methods of mathematical economics and quality disciplines to solve a wide range of problems facing government and business leaders. He has twice been assistant commissioner of the Bureau of Labor Statistics and he is the co-author of the award-winning book, The Myth of American Inequality: How Government Biases Policy Debate, co-authored with former Senator Phil Gramm and Robert Ekelund. We’ll be discussing that book today along with various other things as his expertise spans so many different areas but they are all connected in some way to progress and human flourishing and are thus relevant to our audience. So John, thank you for joining me. How are you?
John Early: I am good and I’m so glad to be here. This is a great topic to talk about.
Chelsea Follett: So let’s start with the book. It was a Wall Street Journal Best Book of 2022 and it won the Manhattan Institute’s 2024 Hayek Book Prize earlier this year. So congratulations on it’s really amazing book. I think all of that recognition really speaks to the depth of the work. So before we get into the substance of the book, tell me what inspired it?
John Early: Well, it’s a long story. Its genesis was actually in a Cato policy analysis back about four or five years ago where I addressed that topic but in considerably less detail. And then Phil Gramm, and there’s a long story to that too but we’ll let it be short, became aware of it, looked at it, said, “Hey I’m trying to write a book about that.” He and Bobby Ekelund and John seems to know something about it. So they gave me a call and we joined forces and the rest is history.
Chelsea Follett: So it is. All right, so let’s talk about the book. Why is everything that most people think they know about income, inequality, poverty and other measures of economic well-being in America dead wrong?
John Early: Well, it’s in some ways, it’s a perhaps a somewhat boring question about facts but that’s what makes it important is we got to get the facts straight. Is that the numbers that are used, the opinions that are offered are based on facts that are not correct. And there are a variety of ways in which they aren’t, but the two biggest things are when census measures income it does not count two-thirds of what are called transfer payments. That is to say money that government gives to people for not doing anything. In other words, it’s not what we pay civil servants or what we pay the military. That’s not a transfer payment. A transfer payment is food stamps or Medicaid.
John Early: Those are all transfer payments. And those are two examples of something that census does not count. But they do not count two-thirds of all those transfer payments. And what is more, they don’t count 88% of the transfer payments that go to the people that are classified as poor. So that skews it even more because things that are counted fairly well that are transfer payments are Social Security. Well, Social Security goes to a wide range of people including people who are still working full-time, for example, but they’re still drawing Social Security. So it counts that so that that shows up not as a major redistribution of income, but as income to a wide variety of people.
John Early: But things that they don’t count besides food stamps and Medicaid, they don’t count Medicare for the senior population. They don’t count what are called SSI, Supplemental Security Income. They don’t count many of the state and local transfer payments to poor people. They don’t count the subsidies to public housing, where people get either free or reduced rent housing from the state and local governments. They count some housing subsidies, the so-called Section 8 subsidies, but they don’t count the other part. But when you add all the pieces up, two-thirds of the total aren’t counted. So that’s one big piece. The other big piece is taxes. They don’t adjust for taxes.
John Early: So at the bottom end of the income scale, people pay about seven and a half percent of their income in taxes, mostly sales taxes and excise taxes. At the upper end of the income scale, people pay between 35 and 40% of their income in taxes, mostly income taxes. So if you don’t adjust for those taxes, you have a much more skewed view of what it looks like. In fact, I could actually show you some charts that kind of illustrates what the effect is. Okay, so this is some data from the book that we were talking about. So this is a picture here of what they call the distribution of income, and it’s put together by census. The data are, they don’t have to draw this particular picture, and the income of people, this is of households, incomes of households in the United States are broken into five groups that are called quintiles.
John Early: The bottom has the least income, the top has the most. And using the official census definition of income, which they call money income, it says that the bottom is down there around a little over $10,000, and the top is up over a little over $200,000. And the ratio between the top and the bottom is 16.7 to 1. So the top end quintile has 16%, I mean 16 times more income than the bottom does. And you can use a number of different measures, although the measure that you use, the numbers will be different, but the story that they tell isn’t much different. But this is an easy one to understand. It’s the difference between the top and the bottom of the fifths of the population.
John Early: Now, within that, there are two types of income. Earned income, what you make from working, or the income you earn from saving and investing those savings, or putting them in a bank account. And transfer payments, money that government gives you. And it shows that that transfer payment, as census measures it now, this is a census measure, is a fairly small slice. At the top it’s almost all Social Security, and at the bottom it is Social Security and a variety of other things, but it doesn’t include the really big ones. And so that’s a ratio of 16.7 to 1. Now, the first thing we did is we went through and we said, well, what income is missing? ‘Cause this wasn’t just an exercise to try to make inequality look smaller. It says, what’s missing? Well, the first thing that we found a lot of missing was capital gains. Capital gains are not counted as income, for reasons that aren’t clear.
John Early: Actually, the survey collects it, but they don’t put it in the numbers. And that, of course, is missing mostly from the top half of the income distribution. At the low end of the distribution, there’s all sorts of misreporting. Not terribly large, but there is some. And some serious studies have shown how big that is, that people just don’t report all their income. And in the middle, employer paid benefits, which is our income. If the employer pays for part of our health insurance, that’s income. If the employer is putting money into our retirement, that’s income. If we’re getting a pension that the employer, a defined benefit pension from our employer, that’s income.
John Early: But those aren’t counted in a lot of the census data. So in any case, we got all the income data, and that made the difference from top to bottom to be a lot bigger. So we said, well, are you going in the wrong direction here? But the story, but this shows that we built up a solid base of the real data. So it’s 60 times bigger from top to bottom of what people earn. But then that’s our earned income there, the yellow distribution. Now, here’s what census said was the transfer payments that we saw in an earlier slide. But here’s what’s missing. Here’s the two-thirds that’s missing. As you can see, the vast majority of it is missing down at the bottom quintile. So it’s seriously understating that. So that two-thirds that’s missing. And if we add all the transfer payments, the difference between top and bottom now goes to 5.7 to 1. So we moved from 16.7 to 1, what census says it is, we’ve cut that by two-thirds by just getting all the transfer payments. Are you with me?
Chelsea Follett: I am with you.
John Early: Okay. So that’s the money coming in, but census ignores the money going out that you never get to use. It’s not the money you spend on anything, it’s the money the government takes from you, and that’s what taxes. Pardon me. The red here shows what happens to that. That shows what the income that’s taken away. And at the top end of the scale there, they’re losing more than 35% of their income to taxes. At the bottom end, they’re only losing about 7.5%. And if we subtract those taxes and compare only after-tax income and after-transfer payment income, the difference is now only 4.0 to 1. So we’ve gone from 16.7 to 1 to 4.0 just simply by what? Counting all the money. We didn’t have to redefine anything. The transfer payments that are missing, I mentioned some of them already, but another important one are the earned income tax credits and the child tax credits that are refundable. We don’t count the offsets.
John Early: If you have a $1,000 tax bill and your earned income tax credit offsets all of that, we don’t count that as a transfer payment. But these tax payments are refundable. That is, if you have a $500 tax bill, let’s say, and you have a $2,000 earned income tax credit, you therefore get a check for $1,500 from the Treasury Department. That’s real money. But census doesn’t count it.
Chelsea Follett: That seems like such a basic error when measuring inequality to completely overlook taxation, transfer payments, and the other thing you also identify would be inflation adjustments. Is that correct?
John Early: Yeah, and that I haven’t talked about here. And for this purpose, that’s not an issue, ’cause these are all in the same dollar amounts, if you would. This is one year. This happens to be the year 2017. Okay? So inflation adjustment doesn’t apply here, but it does apply later in some other things we will talk about.
Chelsea Follett: That is incredible. Tell me, what are the implications of this gross mismeasurement? How does this bias the policy debate?
John Early: Well, it means that, you know, President Obama said, inequality is something to the effect, I don’t have the direct quote here sitting with me, but inequality is so bad, it is the one thing I worry about every day. Well, that is a gross exaggeration. Either that or he should have been impeached ’cause he has other duties. As I recall, income inequality wasn’t one of the 18 powers of government, but in any case, it’s extreme statements like that. And that even has moved over to people like Senator Rubio, who say income inequality is a big and growing problem. I’ll talk about that growing piece here in a minute. But that leads people to exaggerate, and then they just simply pull up the census data.
John Early: Now, I should mention, and we probably won’t have time to go into it in detail, but there is what’s called a supplemental poverty measure the census has put out, which is in some ways even worse than this one. But interestingly enough, they count the refundable tax credits as income in that one, but they don’t in this one. They do some other things in that one, which may lead us a bit astray, but if we have time, we may come back to that. But they have that alternative measure, but as I said, it’s worse than this one in terms of errors that it makes.
Chelsea Follett: So you have government entities overstating the level of American inequality through these basic errors, not including the effects of taxation, not including the effects of transfers, and so on. Does that contribute to widespread public misconceptions about the state of American inequality?
John Early: Oh, absolutely. I mean, because look at what’s happened in the last two years. We’ve passed all sorts of gimmies. Increase the refundable child tax credit, you know, extra unemployment insurance. During the COVID, maybe you could argue for it, but it went on for another year beyond the end of COVID. And it was doubling in effect the unemployment insurance because incomes were so perceived to be so unequal.
Chelsea Follett: When in fact, according to the book, income inequality today is actually lower than at any time post World War II America.
John Early: Let’s get to that in a second. Let me hit a couple other points here, if I might, that are related, that are building part of the story. Look at my little revolving purple rectangle there down at the lower left of the chart, because it’s not only that the difference between the top and the bottom became smaller, the differences between the bottom, the next to the bottom and the middle virtually disappeared. The earned income is that broken line. That’s what people, the money people actually have. And there’s virtually no difference in the bottom 60% of Americans. They have almost all the same amount of income. And let me amplify that just a bit.
John Early: This is the same data. And here we have each of the quintiles shown as a bar graph. And the data are exactly the same as on the previous chart for the after-tax, after-transfer payments. And you’ll see there that how close together the bottom three quintiles are. And the second quintile or the yellow bar there is only 8% more than in the bottom. And yet there are 2.8 times more people are working in those households. And when they work, they work 1.8 times more hours. They work nearly 40 hours and the bottom would work less than 20. And if you look at the middle, there is 32% more income, but more than three times more people are working and they work more than twice as many hours.
John Early: So they put out a whole lot more effort and don’t get much more income. Now there’s another important wrinkle or a useful wrinkle here anyway. And that’s adjusting those households for size because households in the bottom quintiles tend to a lot of them be single individuals, retired individuals and people who’ve just graduated from college living alone and so on. And the households become larger as you go up the income scale. And when you adjust for size, look at what happens there. The bottom quintile actually receives 5% more income adjusted for size than the second quintile does. And only 7% less than the middle. So here in the 40% of the population in the second and third quintiles, that 40% of the population are working hard. Lots of people are working and they’re working full time. People in the bottom quintile generally aren’t. Very few, only a third of the working age people in the bottom quintile actually have a job. And when they have a job, they work less than 20 hours a week. So basically, huge difference in effort, no meaningful difference in income.
John Early: Okay, now you talked about size. I mean, sorry, change over time. I was talking about size. There’s something called the Gini coefficient. Now there’s some other measures too, but this one’s kind of popular. And this doesn’t have anything to do with something popping out of a bottle to give you your wishes. It’s a guy’s name. But it’s a measure that’s set up that at zero, you have perfect equality. That is to say every household has the same income. And at 1.00, all the income is in one household. And so it’s roughly, so it’s a fraction in there. And it’s roughly the fraction of income that would have to be redistributed to get everybody to exact equality. But here is the measure over time. And census publishes this.
John Early: And it’s a measure of income inequality using the Gini coefficient. As you see, it has risen. It has been rising, although it has actually kind of slowed down the last several years in terms of this increase. But the long-term trend has been for it to rise. So when President Obama or Chuck Schumer says income inequality is awful and it’s getting worse, this is kind of what they’re referring to. But because they don’t count the transfer payments, which have gone from being like 10% of our federal budget to 75% of our federal budget over this time. If you count all the transfers and take away the taxes, in fact, the Gini coefficient has remained essentially flat and slightly gone down, it’s gone down 3%. So that’s the trend over time you were asking about, it has gotten not worse, but slightly better because we’re giving away so many transfer payments and because the taxes become more and more so-called progressive. Because the marginal rate the people pay is greater in the upper half of the income, and in the lower half of the income, fewer and fewer people are not paying any income taxes, they’re only basically paying sales taxes and excise taxes. Now, any thoughts on that?
Chelsea Follett: So many. So if you are trying to solve the problem of inequality as a policy maker, but you don’t count any of the effects of the transfers that you are enacting, you can never actually reach your goal, even if your policies are decreasing in equality, that will never show up in the measurements. And so you’ll have to continue transferring.
John Early: And either the people that are making this argument are incredibly ignorant, I won’t say stupid, or at least uninformed, or they know and they’re just misleading us.
Chelsea Follett: Which do you think it is? Because these seem like very basic errors.
John Early: It’s a combination.
Chelsea Follett: A combination. Wow, and then…
John Early: I’ll give people the benefit of the doubt is they’re just ignorant.
Chelsea Follett: Right, we don’t want to impune motives, but it is fascinating that something so basic has been missed. And then there’s the question of mobility, economic mobility, and I know you’ve written on this a lot. In a previous paper, you found that two-thirds of children reared in the lowest quintile at some point escape to a higher quintile as adults. You found that some 61% of households earn in the top quintile for at least two consecutive years during their lives. I don’t think people realize that these categories are not static and just how mobile Americans are. Do you have any comment on mobility?
John Early: Your last point there is really important for understanding any of this income distribution data, is that every one of them, well, there are a couple of exceptions, but almost all of them are a slice in time. And so, mathematically stupid statement, is the poor are getting poorer and the rich are getting richer is just wrong because people that were poor 10 years ago are rich today, and some of the rich folks have fallen into poverty, or are into at least lower income levels. Because they move around and it’s not the same people from one time to the next. Now, there are some studies, and I’ll show you some here in a minute if you like. That track the same people through time, or basically children with their parents, is another way of looking at it. But the mobility is, it’s during one’s lifetime, you generally move up. Almost all people’s income goes up, except for those who choose not to participate in the labor force. Although their income goes up too because we keep raising the transfer payments.
Chelsea Follett: So your research suggests that the American dream is alive and well, and yet there is this pervasive narrative or sense that it has become much harder to achieve upward economic mobility, you see this narrative on both the left and the populist right. Where do you think that narrative comes from, and what explains its staying power?
John Early: Well, there are a couple of things. When you’re having a debate in the public square, if you would, the current condition will be your principal level of average. If you’re going to elect the Congress to come and fix the country, well, doesn’t need fixing it, my comparison is how am I this year versus say four years ago. And that can deteriorate, it’s just that in the long run, it has not deteriorated, so there’s a difference. Because when inflation has been rising, now it’s rising more slowly, but there’s still like a 20% increase in price level by the consumer in the last four years. That is something you can talk about, but if you look at the long run, the income of households has grown much faster than prices have, but in the short run, it grew less and therefore people are feeling the pain. So there’s a mixture of… It’s what have you done for me lately? And that’s not a bad thing to ask, ’cause I elected Congress or the president or the governor to deal with me today, not to fix history. So there’s our tendency to focus then, but we can generalize from what happened in the last three or four years or five years, to what has happened in the last 50 years. And let me show you a graph of that effect, if I may.
Chelsea Follett: Please do.
John Early: So this is the income in 1967, all expressed at 2017 dollars. Now, you were mentioning inflation earlier, this is inflation-adjusted, okay? So this is in real dollars. And in 1967, the top quintile, the highest income people in our income household, were making from a little less than $60,000 going up to unlimited possibility at the top. And so what we have there are each of the five quintiles, and the people in the bottom quintile made between zero and $15,000 in 2017 dollars, in 1967 dollars they are making a lot less. But in 2017 dollars, so this is all inflation adjusted. So that’s what the income distribution looked like then. Here’s what it looked like in 2017, and you can see that nearly 80%, 77%, to be exact, of the population in 2017 was making incomes that would have placed them in the top quintile 50 years earlier. That’s inflation adjusted. And fewer than 2% of the people in the bottom quintile in 2017 would have been in the bottom quintile 50 years ago. So throughout the income distribution, we’re all a whole lot better off and just stop and think about it. We replaced our cars every five years ’cause they wore out.
John Early: Now my latest one is over 20 years old and my son’s still driving it. Our recovery from serious diseases is a whole lot… The cure rate in cancer is a hundred times better than the cure rate in cancer was 50 years ago. And all those better things about life is also reflected in our income. The houses we live in are much bigger, we go on vacations in more opulent vacations, we eat better, or at least we eat better food now, whether it’s better for us is another question, but that’s our choice, right? So in any case, this answers that question that you asked, I think fairly succinctly. Is that almost universally, we are better off than we were 50 years ago. Now, are we better off than five years ago? Well, some of us are and some of us aren’t, and that would be true even here to some degree, but the overwhelming majority of us are far better off than our parents and our grandparents were 50 years ago. Far better, not just a little bit better, a whole lot better.
Chelsea Follett: So there’s been progress and it’s been widely shared, but then that brings up the question of where does all of this progress come from? And I know you’ve also written about the connection between freedom and prosperity. Could you tell me about that?
John Early: It took almost 100 countries and using the human freedom index as a measure, but the human freedom index has multiple components, and they don’t… All of them have the same impact on economic growth and so on, but nevertheless. So we selected some of those by statistical testing, which ones had the biggest effect, and about six or seven measures of human liberty and economic liberty can account for two-thirds of the difference between the economic prosperity of countries across the entire range of countries. So, if you take the time… For whatever reason, people who analyze countries and their economic success do so in fourths or quartiles rather than fifths and quintiles, which they do in the household incomes. Why? I don’t know, but I follow along with the crowd. But anyway, the top fourth of countries, which of course would be the United States, Europe, Japan, Korea would be in that one. And those are the well-developed countries. It applies within that group too, very strong. In fact, it applies most strongly within that group, the stronger your freedoms are, the stronger your economic growth has been.
John Early: But it also applies within even the poorest group, the stronger your freedom is, the stronger your growth is, and the difference between the groups is as you go from the lowest group to the highest group, freedom, it becomes greater. And the answer as to why is very simple. I can’t express it as eloquently as he did, but if you have a bunch of bureaucrats society, what’s good for you, they won’t make the same decision that you had make and therefore you won’t be as happy and you won’t go out and you won’t invest. And if the government’s gonna take away what you make investing, “Well, hey, I’m not gonna invest it, I’m just gonna go spend it on beer.” So, economic growth comes from liberty, because people are free to make the choices that make them, that satisfy them. And then the people are free to create the capability of satisfying those needs, and people are free to select the things that do satisfy them, and people will therefore pour their money into producing those things. And so, as I said, others have said it more eloquently, but that’s the basic factor, the more liberty you have in a society, the more productivity you have, and this was clear up and down, and because the human food of indexes have been expanded in recent years to cover more countries and more time.
John Early: I was able to run some tests that other people hadn’t before, and it’s not a shockingly new result other people have, but it’s much more robust because we had more data, and we were able to identify which are the ones that do it. And across all countries, the degree of liberty can account for two-thirds of the differences in economic growth. And among the top countries that can account for, I think it was 88% of the difference. And all you have to do is this thought experiment is the US versus the EU. 50 years ago, the GDP, or even 30 years ago, GDP in the US and the EU were about at the same level. The US was maybe 4 or 5% bigger, but now GDP per capita is twice in the United States what it is in Europe, and it’s that difference in liberty that makes a difference. Now, there are individual countries within the larger European structure that actually have very good liberty experience, even better than ours and good economic growth, but the average across the total where you have the bigger economy that, they’re not bad compared to, say Algeria, they’re great. But compared to the United States, we still have more liberty and I hope we keep it that way.
Chelsea Follett: Another way that things are getting better that many people may not be aware of that you’ve done, some were gone, would be the shrinking gender wage gap. Could you tell me about that?
John Early: Oh, that’s an interesting one. And there’s a good deal of, shall we say, energy wasted on it. And it comes from, and it’s been around a long time, and it’s been talked about consistently, it’s the difference in the average weekly earnings of women versus men over the age of 19, I think, I forget that cut off age, but anyway, who work full-time. Full-time being defined as 35 hours more per week. And so there’s been a difference, but a couple of things about that difference that are important. One is the difference has been systematically shrinking, okay? And if you look at the generations, the Baby Boomers, the Generation X, the Millennials and Generation Z, now they are with us.
John Early: You can see also in those generations differences as well, in other words, each successive generation, that gap has gotten smaller. So, it’s also structural in the way people choose to behave, the choices that they make. Now that said, that is the underlying reason why there’s a difference at all, is the choices that people make. It’s not because employers are bad or government is too weak, in fact it’s probably ’cause the government does some things that get in the way, but that’s another story. But in this full-time category is 35 hours a week or more, but for women between 35 and 40 hours a week, in other words, they’re full-time workers, but working less than 40 hours a week make 104% of the income that men do. In other words, women working less than the 40 hours makes slightly more, and women working part-time, that is to say less than the 35 hours, make more than the men do. So it’s strictly the men who work more than 40 hours a week make more than women, is the sole source of that 16-cent difference.
Chelsea Follett: Why do you think that is?
John Early: Well, and we know why that is [chuckle] Well, part of the reason for the difference in the hours of course, is the differences in the way people divide their at-home work. And again, one of the supporting pieces of information that understands how that works is, Bureau of Labor Statistics has a new survey that they started not quite 20 years ago, it was in 2003, I think was the first year. And it’s how people spend their time. And the percentage of time that is spent on home activities and parenting, the difference between men and women has declined by 21% in that 20-year period. So that’s part of the reason. In other words, adults, especially as these generational changes occur, are making choices, different choices, and how they split up the traditional male, female roles. And I know that from my own children, they’re very different, they’re different from each other too but they split their roles very differently. And that is one of the reasons why the difference is declining, which leads into the difference in the hours. The hours are describing that two-hour difference average per week, hours that men work accounts for like 25% of that difference. That gets further exaggerated by the fact that census does another one of their funny number games. Are you ready for this one?
Chelsea Follett: I am.
John Early: Are teachers full-time year-round in public schools?
Chelsea Follett: No, not in the summer.
John Early: Now, they on the average work 38 weeks. Since it’s just EPSO facts decides, well they really work 52 weeks. It’s just that they don’t report it, they’re doing something. So what they do is they take the reported annual earnings of teachers, and instead of dividing them by the 38 weeks that they work on average, they divide them by the 52 weeks. What happens? Their average, weekly earnings go down, and women are about two-thirds or three quarters actually, of elementary and secondary education teachers. And that accounts for perhaps another 10% of the difference between them, ’cause you can go in and I figure this stuff out. But then add to that difference in occupational choices. So in the choice of classes that women and men make when they go to college, women choose to major in one of the top 10 earning, well, at the top 10 earning occupations. For example, medicine is one of the top 10. But women out number men in only one of the top 10. Women outnumber men in nine of the bottom 10. So they make different choices. Now, those choices have been changing. In medical school, now women make up more than half of the enrollees that’s a big one that’s changing.
John Early: And while women are still in the broad engineering category, less than half of the total, they were less than half a percent 25 years ago. So, there are big shifts going on, but those occupations drive it. I mean, doctors make a whole lot more than librarians make. But in one of the sciences and or not one set of sciences, the medical sciences and the life sciences and biology, women make more than men. So, and they dominate those particular disciplines. 25 years ago, they didn’t, 50 years ago they didn’t at all. So, there are a lot of changes going on. In other words, the number has been slowly coming down, but it’s structural. In other words, a 40-year-old person is not gonna go back and major in something different given a choice they made 30 years ago.
John Early: Well, a 50-year-old person made a choice 30 years ago. And so it takes time for it to change. Some of this is baked in. ‘Cause another one of the factors that drives it is that over the age of 40, women on average have two years less experience in the labor force because they’ve taken time off. But that also takes away time that they have for earning seniority and for gaining skills and for making contacts and so forth. So, that’s another reason why they’re making less. Now, that said, there is there room for improvement? Sure. But it’s coming. It’s here. It’s just that it takes a while to show up.
Chelsea Follett: And yet many people will cite that number of the gender wage gap without all of the context that you just described, and all of the different caveats that explain large portions of it. And another area where statistics can be misleading that I know you’ve analyzed, would be governments collection of evermore granular and confused racial and ethnic statistics collection. And this is something where we’ve seen, movement last year, the Biden Harris Office of Management and Budget added a new category, the middle East and North Africa designation. I know that you, at the time, blogged about that decision to yet again alter the classifications of people on racial and ethnic lines. Can you discuss some of the issues with measuring people, dividing people up in this manner?
John Early: Yeah. That’s an interesting problem. They not only added this north, I mean Middle Eastern and North African “racial category”, which used to have been included in white. But they also made another change is they changed Hispanic from being an ethnicity to being a race. So therefore, if you’re Black Hispanic, you’re Hispanic, not Black. If you’re White Hispanic, you’re Hispanic, not white. See, before they collected, first of all, they asked, are you of Hispanic origin? Now, why they do Hispanic and not Greek or Russian or Hmong or something else, I don’t know. But they’ve picked that one, partly ’cause it’s just a large number of people, but they’re now calling that a race. Although by the old standards, there were multiple races within it. And because people identified as multiple races, but yet of Hispanic origin, because they spoke, they or their ancestors spoke Spanish.
John Early: So, they’ve now made Hispanic a race equivalent to Black, White, Asian, Native Hawaiian, Native American. So, is they’ve changed the meaning of the word. Not that it had a terribly good meaning to begin with precise, but they’ve all of a sudden cut, they’ve made one more category that we can separate people into and give them privileges or take away privileges or give them money or take away money based on some new categories. Now, it gets even more interesting in that, one quarter of new marriages, and I think it’s within the last 10 years, but one quarter of new marriages that had been identified, the couple is of a different race. In other words, the racial composition of the country is becoming more E pluribus unum, right? There are more multiracial by the census definition, multiracial couples.
John Early: And so we’re moving in a direction where race is not even important in the most intimate of our human relationships in marriage. And now the census wants to take and chop us up and put us in all sorts of little boxes. So we’re becoming more and more, I’ll say homogeneous, more and more integrated, I think is maybe the better word. We don’t differentiate by where your grandparents were born and what language you speak and what color your skin is or any of those things. We differentiate by who we are inside, much as Martin Luther King wanted us to do. And they’re pushing us to differentiate. So, not only are like a quarter of new marriages in some in some of these ethnicities or races, rather, it’s as high as half, for example, among Hispanics, it’s as high as half are of a different race in the new marriages. So, we’re becoming less differentiated in reality, but government is trying to differentiate us more, and it should actually be doing it going in the opposite direction.
Chelsea Follett: Right. And it can be hard to categorize people, as you point out in this increasingly diverse and globalized world, where more and more people have parents of completely different backgrounds or origins. One of the major candidates for the presidency, her father was of Jamaican origin, her mother was of Indian origin. So, I guess that’s two boxes to check. I am Latino, my husband is Caucasian White, so I guess our children could check two boxes. Why do you think there’s this obsession with ticking people into boxes?
John Early: My children can do four too. [laughter]
Chelsea Follett: Four boxes? Well, good for them. Where do you think this, oh, what are some of the problems that can arise from trying to fit everyone into these little boxes that, as you point out, are somewhat arbitrary and often aren’t even a good fit?
John Early: Yeah. Well, the example you just cited there makes it an an interesting point. ‘Cause in addition, they differentiate African American or Black. They use both terms. Between those who were slaves, but not just slaves, but slaves in the United States. So, a Jamaican who was clearly descended from slaves just in Jamaica is classified as Jamaican. Whereas a person who doesn’t know where their ancestors may have ultimately come from, African American is classified as African American of slave origin.
Chelsea Follett: I didn’t realize that was also, we’re collecting statistics on that as well?
John Early: Yeah.
Chelsea Follett: Wow. And what is…
John Early: And this, yeah, this is an OMB thing that says certain statistics must be collected at this level of detail. And you’re strongly encouraged to do all statistics at this level of detail.
Chelsea Follett: Wow. What do you think is the…
John Early: And then they also differentiate, ethnicities that cut across different, that don’t have national boundaries. Armenians, for example. Well, so they collect, are you of Armenian origin? So, you’re an Anema Armenian.
Chelsea Follett: What are some of the possible repercussions of collecting data in this manner?
John Early: Well, at least the thing I worry about is that when you’ve got the data, you’re gonna use it for something. And then this means that you can now give Armenians special treatment, but not Hmong because you’ve got a box that says that. And interestingly enough, let me see here. I’ve got the quote here. It’s real, if I can find it real quickly.
Chelsea Follett: Is this the quote from John Cowperthwaite?
John Early: No. That’s a good one too. But I was quoting OMB itself.
Chelsea Follett: What you’re saying does reminds me of a quote by John Cowperthwaite, the civil servants who has been called the architect of prosperity in Hong Kong, which is that his proudest achievement was that he prevented the office of statistics from gathering the stats that would be used as an excuse to intervene or interfere with the economy. And the economy of Hong Kong was able to flourish because he prevented those statistics from being gathered according to him. And that seems to me like a running theme in your work is, in a similar vein to try to prevent mismeasurements that can then lead to a justification for unsound policies. Would you say that’s a fair assessment?
John Early: Yeah. Absolutely. Well, I’m still looking for that quote. Oh, I know what it is. In France, they actually forbid the collection of data by ethnicity. There’s some very limited uses of it in immigration. But in general, you cannot do that because of the horror of the Vichy government against Jews.
Chelsea Follett: That is kind of the ultimate extreme example of what can be done with those kinds of statistics.
John Early: Yeah. Now when I made that point in some form, some French woman, arose to say, well, that’s a terrible policy and we’re fighting to change it because there was no proof that that had any effect. And maybe not, but it’s still a great caution. And it doesn’t hurt anything not to do it.
Chelsea Follett: Furthermore, it’s a nonpartisan widely believed position. I think that whatever policies we enact, they should be based on facts not by mismeasurements, not based on some arbitrary categorization that doesn’t make sense. And because this is the Human Progress Podcast, and we try to end on a positive note. Could you say what you believe is the most hopeful or heartening actual fact about the US economy right now that people may not be aware of?
John Early: Yeah. And the one year trend or the two year trend may not be positive, but the overall trend is not only is inequality becoming slightly less, but poverty has dropped from like 14% back from when the war on poverty began to like 1.1%.
Chelsea Follett: Wow.
John Early: If you measure it right. In fact, let…
Chelsea Follett: That’s a powerful statistic.
John Early: Yeah. If you have half a second here…
Chelsea Follett: Absolutely.
John Early: I can pull up a chart that will illustrate that very nicely. Okay. So, this was the trend on poverty before Johnson declared the war on poverty, it had declined from in the 30% down to less than 20%. It was like, 17% when he announced his war on poverty. Now, what happened after that? Well, poverty continued to decline at the same rate it had declined for another four or five years. Then it stopped going down, and it started going up and down with the business cycle. Now, we know enough from what I said earlier, why do you suppose that happened?
Chelsea Follett: Mismeasurements.
John Early: Exactly. We declared a war on poverty. We started giving people a lot of money, but we didn’t measure that money as income. And so it bounced between 11% and 15% back and forth, back and forth. Now, it dropped below 11% last year. But that, it’s still in the same range, up and down, up and down. But if we count all the transfer payments, it’s only 2.5%.
Chelsea Follett: Wow. That is…
John Early: And if we correct for the CPI overstating inflation, in other words, there’s an inflation measure that the Bureau of Labor Statistics issues that measures it much more accurately, it would be only going up like less than 2%. I mean, poverty would be less than 2%. So, poverty has really virtually disappeared. The people in that 2% are people that are especially challenged, either mentally or physically. And they may need help, but most people are simply getting lots of money from the government, that are called poor, and they’re not poor anymore. Certainly not by the standard that was set back here. And Johnson had two objectives for the war on poverty. One was to alleviate the suffering of those who were poor, but the other was to enable them to become productive citizens and we completely failed at that one. In fact, I mentioned one statistic earlier that only one-third of the work age adults in the bottom quintile actually have a job. Back when Johnson started the war on poverty, two-thirds of them did. In other words, the proportion of work age adults who have jobs has been cut in half because why? The government’s paying them to do nothing. So, they select, do nothing.
Chelsea Follett: Do you have a sense of how these trends in this chart you are displaying have evolved post COVID or in recent years?
John Early: Yeah. In fact, it’s a little hard to dis… It’s only now do we have, since it’s just earlier this week, released the data that we can use to start to analyze that because, this is the data for 2023. And 2022 and ’21 are still too contaminated by COVID to figure anything out. But the ’23 data should give us something. And I’ve starting to analyze it, but it takes a while to do that. We’ll have it by the end of the year, if not sooner.
Chelsea Follett: Absolutely. I advise everyone tuning into this podcast to check out your work, keep up to date on how these trends evolve. And this is a really striking chart. So, I think this is a good note to end on. Thank you again for speaking with me.
John Early: Well, thank you for having me. I’ve enjoyed it. Have me back sometime.