Statistical sour grapes

So the rich are getting richer. What does it mean for the rest of us? Not much.

When the U of T Cities Centre announced a couple weeks ago that middle-class neighbourhoods are disappearing in Toronto, the Globe and Mail latched onto the study and squeezed it for all it was worth. Or, rather, what little it is worth and then some. The Globe used the study to craft a news article with a horror-movie lede, to order up a nostalgic Margaret Wente column, and to conduct a live online chat debating the issues raised. In the chat a user named “Paul” brought up a technical question for the study’s lead author, David Hulchanski:

I note that the maps drive off AVERAGE income. Do we know what they would look like if they drove off MEDIAN income? The published maps tell us that there is a growing class of people with super-high incomes. I think maps based on the median would be more informative about the middle class.

Let’s raise a glass to Paul. Even if you don’t understand why his point is important, you can see in the chat that Hulchanski’s answer is unsatisfactory: he says both that his team didn’t have median-income numbers going back far enough to make them the focus of the study and that he’s confident it wouldn’t make any difference. I think a criminal lawyer would call this “presenting an alibi and a justification at the same time.”

Hulchanski’s study found that the proportion of middle-income neighbourhoods in Toronto was 66% in 1970; it is now just 29%. Low-income neighbourhoods made up 19% of the city in 1970; that figure’s now 53%. Paul’s problem is that these types of neighbourhoods are defined relative to the mean individual income for the whole city ($88,400 in 2005). A middle-income neighbourhood is one whose residents are within 20% of the mean either way, while a low-income neighbourhood is 20%-40% below it. But a mean or average, unlike a median (i.e., the income that half the city makes more than and half makes less than), is sensitive to scale changes in individual outliers at the top of the distribution.

We can see the problem if we perform a thought experiment and imagine another city; we’ll call it Otnorot. In 1970, Otnorot had an unusual economic structure: it was divided into 100 equal-sized neighbourhoods numbered 1 to 100, each with an average real income corresponding (by total coincidence) to its number. In miserable Neighbourhood 1, the residents scrape by on 1 credit per year per person. In Neighbourhood 47, they make 47 credits on average. In Neighbourhood 100, they make 100 credits apiece, the filthy plutocratic bastards.

What would the Prof. Hulchanski of imaginary Otnorot report back to us about the economic structure of his city? The average income of the neighbourhoods (and the people in them) is, as the young Carl Friedrich Gauss could tell us instantly, the sum of the numbers 1 to 100 divided by 100: 50½ credits. Neighbourhoods 41 to 60, or 20 in all, are “middle-income” neighbourhoods within 20% of that mean. The “low-income” neighbourhoods are numbers 31 to 40; there are 10 low-income neighbourhoods.

By 2005, the vast majority of Otnorotians are living just as they and their forefathers always did. In Neighbourhoods 1-99, real incomes have not changed at all, nor have the relative population sizes changed. Neighbourhood 1 still earns 1 real credit per person, which buys exactly what it did in 1970. Neighbourhood 99 still earns 99. Only in Neighbourhood 100 has there been a change. Perhaps the residents held shares in the wildly successful Otnorotian version of Trivial Pursuit; perhaps they put their heads together and invented smell-o-vision. For whatever reason, they have gone from wealthy to superwealthy (at nobody else’s particular expense, or at least nobody’s in Otnorot), and they now earn a fantastic 8,000 credits per citizen every year.

For most Otnorotians, life hasn’t changed. The presence of the one new hyperrich neighbourhood would certainly have social effects, probably a mix of good and bad; you could, for example, almost certainly expect the Royal Otnorot Museum to acquire a hideous new glass mega-extrusion. But you wouldn’t say that the Otnorotian middle class had disappeared.

And yet—Shock! Concern!—that is exactly what Otnorot’s version of Prof. Hulchanski finds, unwisely using average incomes as his baseline. The overall average income for Otnorot is now a whopping 129½ credits a year, so no group at all outside lucky Neighbourhood 100 reaches the lower middle-income cutoff (103.6). The lower bound for a “low-income” neighbourhood, however, is now 77.7 credits. Where we once had just 10 low-income neighbourhoods out of 100, now everybody from 78 to 99 is defined as low-income, so we have 22.

It so happens that in Otnorot, lukewarm social science performed at public expense and promoted by newspaper editors is punished by means too horrendous to translate into English. Things are done differently in the real Toronto, a mercifully liberal-minded place. But the processes that so confused our alterna-Hulchanski are surely, in an oversimplified way, the same processes that have confused the real scholar. Observers of inequality have observed a genuine, dramatic numerical increase in it over the past two or three decades; one only need have been looking at business-magazine “rich lists” for a while to see that billionaires, all but unknown in the early 1980s, are now as common as seagulls.

There are real social and political dangers from this, to the degree that we allow economic power to translate into social and political power. But it does not mean that the “middle class” has really disappeared or dwindled. It only means that the logarithmic scale of possible incomes has stretched out at the top in a new Gilded Age, a realm of pervasively low marginal taxes and new deregulated industries.

Toronto might really, in some sense, have become bifurcated more arrestingly between rich and poor. But the Cities Centre’s measurement procedure cannot prove that this has really happened. Would it be a good thing for social conditions in Toronto if the Bridle Path were annihilated by a meteor? If that happened, Prof. Hulchanski (and the Globe) would probably be able to report several “low-income” neighbourhoods magically re-entering the “middle class”.

Respectable social science of this sort will ordinarily work with medians or with log-income (as the UN Human Development Index does), or it will approach inequality questions with the aid of the Gini coefficient—a metric totally absent from the Hulchanski study. No doubt Prof. Hulchanski would give the same sour-grapes defence he gave to our friend Paul: don’t have the numbers, don’t need the numbers. But there’s a further question. Why should we necessarily be concerned with between-neighbourhood inequality at all? The Cities Centre would use the same “average income” figure to describe and classify both Neighbourhood X, where everybody makes a healthy $100,000 a year, and Neighbourhood Y, where half the residents make $200,000 and half make nothing, bartering and stealing for their living. Funny sort of egalitarianism, if you ask me.