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What Viral Economic Content Misses
A good understanding of economics is important to live a successful life. Our economic world is becoming more complex, governments introduce new policies, and we are expected to navigate the changes and make decisions that help us improve our lives. However, most people have not been taught how to navigate these complex decisions.
Once in a while, the general public gets really interested in understanding the economic behaviors and I start to field questions. In 2021, it was the GameStop stock trading insanity. Last year, it was how to manage the soaring inflation and the expensive housing market. This year, it is the discussion of a “Silent Depression”. Each time, I am reminded of the importance and need for economic education.
Are we Living in the Silent Depression?
A recent trend on social media has a group of creators referring to our current economy as the Silent Depression. The premise is that our living standards today are worse than they were during 1930’s and the Great Depression. This content is misleading yet it is popular and going viral.
Today, I will share with you some thoughts and claims that these videos get wrong.
The videos usually make two main claims.
Our incomes are lower today than they were during the depression.
Housing and other essentials are more expensive today compared to the 1930s.
Claim: The Average income today is lower than in 1930
In the above video, the video creator finds the average income in 1930 was $4,887. They do adjust for inflation and convert $4,887 to today’s dollars, and find it’s equivalent to making $85,000 today. Then, they compare the converted number to the “average” salary in 2023, which is $56,940. They conclude that our living standards are worse than they were in 1930.
Response: What they got wrong!
Here is what this analysis gets wrong. The average salary in 1930 was not $4,887. In 1930, the threshold to file taxes was $3,000. Only 6% of the U.S. population filed taxes. Most had incomes below that threshold. Therefore, by looking at the average income for individuals filing taxes, the analysis relies on a sample of high income earners. I spend so much time teaching my students how to access data and understanding the implications of using the wrong data. This mistake, is common in public discussions. If you use the wrong data, you will arrive at the wrong conclusion.
What was the median income in 1930?
This report by the census finds the average income in 1930 to be $1,368. Now we need to convert that to 2023 dollars.
Adjust for inflation and convert to current 2023 dollars.
There are several online calculators that help you convert prices across time and adjust for inflation. In good Economics with Dr. A fashion, we will show you how to make this adjustment by hand.
To adjust for inflation we need the Consumer Price Index (CPI) in 2023 and the CPI in 1930.
The CPI in 1930 was 16.7
The CPI in 2023 is 304.3
To adjust for inflation we will use the following equation
Compare the number you get to the actual median 2023 income.
Now that we have converted the 1930 wages to 2023 dollars. We can compare adjusted wages to actual wages. According to the most recent BLS report, the median weekly income is $1,100. That is $57,200 on an annualized basis. Therefore, we are earning $57,200 compared to the $24,927 that we would have earned if we made the 1930 equivalent.
Clearly, our financial wellbeing (based on income) is drastically improved compared to the Great Depression. Claims of a silent depression are inaccurate.
There is more.
Comparing 1930 Cars and Houses to Today’s Cars and Houses.
The viral videos go on to compare average house prices and car prices. In that analysis what they miss is that the average car or house in 1930 was of inferior quality compared today’s cars and houses. Therefore, comparison must also adjust for quality differences. I am quite confident that no one is interested in purchasing cars or homes with the quality of those produced in 1930. Comparing prices only doesn’t do this analysis justice and we therefore must account for differences in quality too.
Show me the Data
As an economics professor, I am passionate about economics and the importance of understanding economic data. A good understanding of macroeconomic data will quickly show that our standard of living has increased drastically over the decades.
In 1947, the real per capita GDP (adjusted for prices and population) was $14,213. Today, the per capital GDP is $60,852. While GDP misses some important things, it is a great measure of the overall wellbeing of the economy.
I am not sure what’s the reason behind the viral Silent Depression videos. What I do know is that there are no facts to support those claims. The numbers they share are inaccurate, and the conclusions are unsubstantiated. A good reminder why it is important to understand economics and economic data.
I teach two main courses at Haile College of Business at NKU. The first is an introductory macroeconomics course. My focus in that class is to provide understanding of macroeconomic indicators, and the policies that might cause them to change. The other course is Data Tools for Economic Analysis. In that course, we focus on how to use publicly available data to create insight for public consumption. Both classes invest heavily in understanding and communicating economics.