“Since President Biden took office, families have lost the equivalent of $7,400 worth of income.”
— House Speaker Kevin McCarthy (R-Calif.), in a speech at the New York Stock Exchange, April 17
McCarthy on Monday gave a major address concerning his battle with the White House over raising the debt limit. His speech contained several dubious claims, some of which we’ve fact-checked before. But this claim jumped out as especially interesting and worth exploring.
McCarthy’s staff did not respond to a query, but we tracked down the source of the statistic — E.J. Antoni, a research fellow in regional economics with the Heritage Foundation’s Center for Data Analysis. He walked us through the numbers in a telephone interview and several emails.
But caveat emptor: Wage data can be tricky because there are so many different sources, with different favored concepts, and correspondingly different benefits and costs. Other economists pointed to another calculation as a more reliable guide to what has happened to incomes under Biden.
McCarthy was citing a figure that Fox News promoted in January. The numbers may change from month to month, and so it’s slightly improved since then. Antoni’s most recent calculation is that the average American family is $7,100 poorer since Biden took office. That still doesn’t sound good.
Antoni uses two calculations to come up with his overall number — a change in purchasing power and a change in borrowing power.
To calculate the change in purchasing power, he takes the average weekly wage calculated by the Labor Department’s Bureau of Labor Statistics. Then, using the change in the consumer price index (CPI), he calculates how much inflation has reduced earnings.
“Nominal earnings are multiplied by CPI in Jan. ’21 and divided by the latest month’s CPI,” he said. That yields a loss of $2,802.77 or 5.1 percent. He assumes a typical family has two parents working, so he doubles that figure to come up with $5,605.53.
Higher borrowing costs add another $1,500 to the figure, for a total of about $7,100. His calculation is based on higher mortgage rates on the median sales price of an existing home that have resulted as the Federal Reserve has jacked up interest rates in an effort to tame inflation.
Antoni concedes that many families are not looking for a new home mortgage. But he argues that the borrowing figure is a conservative estimate because it does not include the higher interest rates on credit cards or higher insurance and property taxes since Biden took office.
Other economists raised their eyebrows at Antoni’s math, in particular his reliance on average weekly wages. The measure does not follow the same workers across time and consequently they said it is an imperfect basis for families’ income changing over time.
“We lost a disproportionate number of low wage jobs during the early stages of the pandemic,” said Donald R. Grimes, a regional economic specialist at the University of Michigan, in an email. “As the economy recovered more fully from the pandemic (which is what occurred during the first couple years of the Biden presidency) the average went down because we were disproportionately adding more lower wage workers in industries like accommodation and food services.”
As for borrowing costs, economists noted, a majority of American families are not trying to get financing at higher rates and so their mortgage costs have not changed. Meanwhile, higher interest rates has meant that people with money in the bank are earning better returns.
Several economists pointed to another metric — real disposable personal income per capita — as a better gauge. That figure is produced by the Bureau of Economic Analysis at the Commerce Department.
“I would use real disposable income per capita,” said Mark Zandi, chief economist of Moody’s Analytics. “It is the most comprehensive consistent measure of how well Americans are doing from a government source. It accounts for all income, and it is after-tax and appropriately accounts for inflation.”
“Real disposable income per capita is much better measure,” said Martin Neil Baily, former chair of the Council of Economic Advisers.
“The personal income per capita does incorporate the additional income that is earned by more people working,” Grimes said. “The personal income per capita data also includes unearned income, for example it includes all those stimulus checks, unemployment benefits, etc. So it really is a broader measure of economic welfare than wages.”
This metric is basically flat from December 2020 to February 2023, in contrast to the plunge in income shown by Antoni’s calculation. Per capital income, after inflation, was $46,790 in December 2020 and $46,682 in February 2023 — a decline of just $108. (We couldn’t start in January because stimulus checks sent the number soaring that month.)
Antoni responded that this is “a very complicated issue, but it depends on what precisely you what to measure.” He said the two measures — weekly wages and disposable income — adjust for inflation differently.
He noted that our calculation of a $108 loss started in December 2020 because the numbers spiked the next month because of stimulus checks.
“If the goal is to remove changes from temporary covid relief packages, which first show up in the Apr. ’20 data, then we arguably should be using the pre-pandemic trend, which would put us at $49,183 for Feb. ’23, the most recent datum point,” Antoni said. “That means we’re $2,501 or 5.1 percent below trend, which is coincidentally precisely the percentage drop in real wages since Jan. ’21.”
Grimes said personal income per capita usually increases when the economy is not in a recession. “A three-year period without real income growth is comparable to what you would historically see in the years bracketing a recession,” he said. “But what is unique this time, which probably dramatically changes people’s perceptions, is that real wages and income went up during 2020 and have fallen during the recovery.”
Grimes said this poses a serious challenge for the Biden administration. “Economists would say that people should be happy now. The unemployment rate is low, jobs are easy to find, the stock market is down compared to January 2022, but it is still well above where it was in 2019,” he said. But, he added: “I don’t know if we will get back to 2020 real disposable personal income per capita levels before 2030 — which is pretty depressing.”
McCarthy cited the $7,400 figure as if it were an established fact. It’s a calculation that is subject to dispute among economists. The different metric from a government agency ends up with a much less eye-popping figure. But even that one shows how U.S. incomes have suffered in this period of high inflation.
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