Talking Economics - Mixed Signals

By K. Russell Carlsson, Rogue Economist

I’m back. Fart joke aficionados can just scroll on by… I am not the writer you seek.

A lot of friends and colleagues have been asking me the same question recently. “Keith,” they say, “every time I get a new piece of information on the economy, it seems to say the direct opposite of the last piece of information I heard. WTF? Who do I believe?”

To them, as well as to you, I say believe them both. Most of the economic information you hear is based on an “average”, and averages are more frequently and easily massaged and molded than an old sumo wrestler’s back fat. Brace yourself – boring-ass definitions ahead.

The two most common methods to state averages are the mean and the median. The best way to differentiate between the two is to take a list of numbers and arrange them from lowest to highest. Now, if I were getting paid by the column-inch, I’d give you a gloriously long example for visual clarity, but since I’m not I’ll have to rely on you to follow my verbal descriptions (and log Reason #188 To Give My Sorry-Assed, Weasel-Breathed, Mosquito-Dicked Agent A Righteous Kick In The Scrotum.) The median is the item right in the middle of that list of numbers you made, and the mean is the result of adding all your listed figures together, then dividing my the number of items in your list.

Those are your definitions. Now a verbal example. Oh boy – definitions AND a word problem? I bet your nipples are perkier than Rachel Ray after an espresso enema!

Let’s say there is a tire plant with 100 employees and an owner. In 2004, each of the employees received $25,000 and the owner pulled down $1 million. The salary in the middle of your list as described above (the median) is $25,000, while the mean is almost $35,000 (the total $3.5 mil payroll divided by 101 salaries.) The now-millionaire owner addresses the employees in January 2005 and says the company isn’t making enough money, so he’s going to cut all their salaries to $20,000 for 2005, all the while secretly giving himself a raise to $2 million. In that case, the company’s 2005 median salary would decrease to $20,000 but its mean salary increases to nearly $40,000.

My tire plant scenario is a very simplistic and exaggerated mirror to what is happening in today’s economy – overall national wealth is increasing, but settling more and more at the top, while leaving the middle and lower classes to divvy up an ever-shrinking pile of scraps – yet depending on one’s perspective or definition of “average”, all is either going straight to Hell or it's titties and beer. Mean salaries are rising, median salaries are falling, everybody is looking at the same set of numbers and nobody is lying. Thus when my friends and colleagues ask “Keith, who do I believe?” I truthfully reply “everyone and no one...” at which point they usually flip me off and stick me with the bar tab.

However, when my friends and colleagues ask “Who should I believe, K. Russell?” my response is an enthusiastic “Pfister von Punchenstein, meet my friend’s associate - Mr. Aiken Johnson!”