Thursday, September 14, 2006

How Do You Teach "Rich?" (Part II)

Back in November 2005, I put up a post that discussed the term "rich" and how we get students to understand the difference between income and wealth.

The recent kerfuffle surrounding the release of the Census Bureau's findings on 2005 income has stirred up a lot of discussion in the blogosphere along similar lines regarding what the data means. I won't list all the blogs I've read that commented, good or bad, about the information, but suffice it to say that there's been a lot of use, abuse and misuse of the information, for all kinds of purposes.

I will however point to a post on TCS Daily by David Henderson that I read today that speaks to the practice/mistake of comparing income and wealth. It also raises the point that households in different quintiles have different compositions and work patterns. I will also throw in one further observation. People in one income quintile don’t necessarily stay in that quintile.

On that last point I will refer you to an article that appeared in the Federal Reserve Bank of Dallas 1995 Annual Report. I remember that the article was greeted with much debate and some disagreement when it first appeared. And you can feel free to disagree with the data and methods. But I suspect the premise, that income changes as we move through our careers, is probably sound. After all, there is a "life-cycle hypothesis" in economics that is based on the observation that income changes (as well as spending) over time. Now, I suspect that whether income changes significantly enough within a household to move one through one or more quintiles over time depends on the composition and work patterns.

Is this an issue worth discussing with your students? Your thoughts are welcome.

Posted by TSchilling at 5:22 PM Comments (0)

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