Re: Offshore Outsourcing

From: Gerry Quinn (gerryq_at_DELETETHISindigo.ie)
Date: 05/15/04 

Date: Sat, 15 May 2004 09:27:15 GMT

In article <i6Knc.7344$qP2.15506@news.indigo.ie>, gerryq@DELETETHISindigo.ie (Gerry Quinn) wrote:
>In article <f5dda427.0405091608.76208927@posting.google.com>,
> spinoza1111@yahoo.com (Edward G. Nilges) wrote:

>>According to the CIA World Factbook, since 1980, 20% of Americans have
>>done well while all others have been made worse off. 1980 was of
>>course the election of Ronald Reagan and in the 20+ years since 1980,
>>NO administration has departed from free market ideology. Clinton was
>>indeed more activist in this direction that either Bush or Reagan in
>>both NAFTA and the end of traditional welfare.
>
>The way you change and distort facts is interesting. Actually, the 2003
>handbook says: "Since 1975, practically all the gains in household
>income have gone to the top 20% of households." First you changed the
>date to suit your political predilections, and then you added an
>assertion that is not there, i.e. that the other 80% are worse off, as
>distinct from not being much better off, or failing to get comparable
>benefits to those in the top tier.

I left something important out of the equation here, which significantly
changes the implication of the above. You see, the naive interpretation
of the above facts (assuming they are facts) is that the people who were
poor in 1980 are little better off. But that's not what it says at all,
because it doesn't make any statement about whether the top 20% of
households in 2003 were the same households as the top 20% in 1980!
Quite obviously, some households will have changed places over a quarter
century, some households will have disappeared, and some new households
will have appeared. Furthermore, the changes in wealth for a given
household over time will have an impact that is hard to disentangle from
the other effects in any sensible way.

Let's look at a very simplified example. We shall ignore the confounding
factors of temporal change as people age and give birth, of households
splitting and amalgamating, etc. We'll assume that households fall into
exactly two wealth categories, and that a person who has over the
years entered one category will on average now have the same income as
someone who has always been there. Gross assumptions, but they will
suffice to illustrate why the obvious conclusion from the data above is
dead wrong.

In 1980 (say) the poorest 80% of households have an income of $20000
p.a. and the other 20% have an income of $40000. In 2003, the figures
are $20000 and $60000 respectively. Obvious conclusion: the poorer
people are no better off, the richer people are 50% better off. But
this conclusion is dead wrong.

Suppose 10% of people (over 23 years this seems a very modest amount)
changed category. 5% went from the bottom to the top category and 5%
went the other way round. Whether the changes were due to luck,
to differences in talent and industry, or to the arbitrary application
of my 20% dividing line, is neither here nor there.

The average income of those originally in the bottom 80% is now
(75x20000+5x60000)/80 = $22500. The average income of those originally
in the top 20% is (15x60000+5x20000)/20 =$50000.

So in fact, the originally poorer 80% are 12.5% better off on average,
and the originally richer 20% are now 25% better off on average. This
compares with the naive extrapolation from the figures, which gives 0%
and 50% respectively.

A useful point to remember in such contexts. Changes in wealth
distribution over time cannot be taken to directly apply to all
individuals of the selected cohorts.

- Gerry Quinn

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