Friday, February 29, 2008

Another episode of Bikini Statistics


courtesy of Russell Roberts:

Martin Brock, in response to this post, writes:

Still, the median debt is up 151% since 1989, adjusted for inflation, and if the "wealth effect" theory of the personal saving rate is correct, much of this increase is consumer debt (the cars and such). I don't see how the clarification makes this increase any less gloomy. Maybe it's not very gloomy at all, but if it's gloomy before the clarification, it's still gloomy after.

It's funny how numbers can be used to scare and mislead. One hundred and fifty one percent seems like a big increase. But the size of that number tells you nothing. It does sound scary. But it tells you nothing. Nothing. All it tells you is that in 1989, the median family with debt had debt of 22,000. In 2004, the median family with debt had debt of 55,000. Good or bad news? You can't tell. It tells you nothing by itself. It could mean people are living more and more beyond their means. It could mean that people have more wealth and income and are buying bigger houses and nicer cars. There is nothing inherently gloomy or cheerful until you know more information.

The fact that net worth is up from 68,000 to 93,000 makes it more likely that it's cheery. But let's look a little deeper. Here's another chart from the Federal Reserve Board's Survey of Consumer Finances, the source of all of these data:

Debtkinds
Look at the line called Goods and Services. Flat. That's trying to measure people living beyond their means, using debt to buy furniture, food and so on. That's the line the Washington Post should have used to look at whether debt was being used for what the article called "day-to-day expenses." What this chart shows is that the increase in debt is due to people buying bigger houses and investing in a little more education.

The premise:
Statistics are like a bikini. What they present is suggestive, but what they conceal is vital--Aaron Levenstein
The previous BS installment here.

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