Statistics Matter: Why Averages Aren’t Useful When Talking About the American Economy

 
 
  

When people talk about economic statistics and how people in the country are doing, they tend to use the word “average” a lot. We hear about the average family’s wealth, or the average personal income, or the average amount of debt. But thanks to out-of-control inequality, the average, or the total amount divided by population, is actually a pretty unhelpful statistic. 

Let’s say we have ten people who make $50,000, $51,000, $52,000, etc, up to $59,000 per year, and those ten people have a meeting with Mark Zuckerberg. Mr. Zuckerberg sold a small part of his stock in Meta/Facebook last year for $4.6 billion. (All of these numbers are rounded)

The average income for the people in the room is the total income divided by the number of people:

($50,000 + $51,000 + …. + $59,000 + $4,600,000,000) / 11 = $418 million

Now, to say that the average income of this group is $418 million is technically true, but it’s pretty misleading. No one makes anything close to that. One person makes 99.99% of the total income.

One person makes over 1,000% of the average. The other ten make a fraction of 1% each.

Now the median, or the middle point where half of the people make less, and half make more, is $55,000. 

The thing with the median is that it is more robust than the average. “Robust” is a term of art, but the basic idea is that the median won’t drastically change if one person in the group is totally different. If you add one person to the group, or take away one person, the median might change to $54 thousand or $56 thousand, but no matter what the next person makes, the median won’t change very much, and it will still be a reasonable representation of the income of most of the people. 

This robustness, and the fact that the median is much less affected by outliers, makes it a much better depiction of the reality of most people in a sample size. And in most cases when we’re talking about the economic state of the American population, the median shows us a much more dire picture than the average, or mean.

The average personal income in the United States is about $54,000. But that number is significantly bumped up by the small number of people who make significantly more. The median personal income, on the other hand, is just under $36,000. This means that more than half of people in the US make less than $36,000, a significant drop from the $54,000 average. This difference is even more pronounced when you look at wealth. The median net worth of US households is $121,700, yet the average net worth is a whopping $748,800. 

Because the reports of how well the economy is doing include the huge gains made by the one percent even as millions of Americans are falling further behind, there is a massive disconnect  between reports and the experience of many Americans. It’s therefore especially important for us to analyze the economy using statistics that tell the entire story.

Related Posts