Sloppy economics

I'm going to blow off a little steam about sloppy economic arguments, so the next time I make one, feel free to have at me. I happened to come across this comment by Elizabeth Warren in the Democratic Strategist this afternoon, and I've seen several other similar comments recently:

In post-war America, wages and productivity rose together, but starting in the mid-1970s, income (adjusted for inflation) flattened while productivity continued to rise. In other words, workers got a smaller share of the value they produced. Today, a fully-employed, median-earning male makes about $800 less than his counterpart made back in 1972. But costs for many of the basics-housing, health insurance, transportation, college educations-continued to rise.

Here's my beef. If the inflation adjusted income is roughly the same now as it was in the mid-1970s, then the inflation adjustment has already taken account of the fact that costs for many of the basics have risen. That's the very definition of “inflation adjustment.” So, if inflation adjusted incomes have remained the same, that means that nominal income (before inflation adjustment) has risen just enough to keep pace with rising prices (of the basics and other things in the market basket of goods and services that is used to put together the price index being used to inflation adjust). What Ms. Warren appears to have done is to compare apples and oranges – inflation adjusted income with non-adjusted prices for certain goods and services.

Now, Ms. Warren may have a more subtle and sophisticated point. She may believe that the mix of goods and services in the market basket used to inflation adjust the income is not reflective of workers' needs. Or, her main point may be that wages haven't kept up with productivity gains. But, if that's what she means, she should say so.

I'm certainly sympathetic to the argument that working families aren't keeping up, but let's not make that argument by distorting the truth.