I thought the chart below that Tyler Cowen highlighted yesterday was fascinating, precisely because it begs Tyler's question, "What happened in 1980?"  Unfortunately, the discussion got immediately sidetracked.  The Incidental Economist guys argued that the chart was somehow wrong and there was no big jump in health care inflation in 1980.  But as Kevin Drum points out in a comment to the post, their trend basically looks just like in the chart they are criticizing.  Then Tyler posted an email excerpt from Austin Frakt of Incidental Economist that focused on why things flattened out in the late 1980s.
Let's dial this conversation back.  The fascinating thing about the original chart is how the U.S. pulls away from all the other countries starting in 1980.  So, fine, maybe there's not a dramatic change in trajectory in the U.S. beginning in 1980, but American health care inflation departs from the relatively tight pack of countries that it was part of prior to 1980 in a dramatic way.  I'd love to hear the IE guys and other health care experts hypothesize why that is.

My main interest in the chart is related to my (on-going, but much delayed) research into inequality trends.  Richard Burkhauser and Kosali Simon have shown that the rising cost of health insurance basically explains the (small) increase in income inequality that occurred in the late 1990s and 2000s.*  The exceptionalism of the American health care inflation trend in the 1980s mirrors the sharp increase in measured income inequality in that decade.  Might the two be related somehow?  Perhaps accounting for health insurance would reduce the apparent rise in inequality.  Alternatively, perhaps the rise in income inequality might explain the American exceptionalism.  Inquiring minds want to know! (mine anyway...)

Sorry for the light posting, by the way--there is a very cute 7-month-old to blame.

*Disclosure: my employer funded the research they conducted, and I played a primary role in the decision, but rest assured that my employer wants a big distance between this blog and its own work!

(cross-posted at ProgressiveFix.com and FrumForum)
*added note: Mike informs me that I missed the joke in his title, a Scott-Pilgrim-Versus-The-World nod.  I like to think I'm clever and witty, but clearly my lack of sleep from parenting a newborn has left me not so quick on the uptake...)

Mike returned from vacation and promptly put up a
post criticizing my take-down of Edward Luce's horrible Financial Times piece on "the crisis of the middle class".  It's become apparent to me over the past few years that I've been in D.C. that you can't refute a specific empirical question about the situation of the poor or middle class (e.g., is it in crisis? as in much worse off than in the past?) without being attacked on much broader grounds than you staked out and being called an opponent of these groups or an insensitive jerk.  I actually don't disagree with much that Mike writes "against" my "views".

What I do disagree with is the contention that the middle class is in crisis.  And I think that it's bad to believe (and assert for mass audiences) that that's true because it hurts consumer sentiment, prolonging high unemployment, and diverts attention from the truly disadvantaged who really
are in crisis.  Mike can say that that pits me against the middle class (his post was titled, "Scott Winship versus the Middle Class"), but then let me ask Mike and others who would disagree with me a simple question:  Why do you think Americans are deluded about their economic conditions, since in June, 7 in 10 American adults said their "current household financial situation" is better than "most" Americans' (Q.25, disclosure: the poll was commissioned by my old employer)?  Why are you against the middle class?

Mike says that when I say some problem affects a tiny fraction of the population, that's like a hit man saying that he doesn't kill that many people as a fraction of the population--the "
Marty Blank gambit" as he calls it.  But look, that's not an apt analogy.  If I were saying that we shouldn't give a rat's ass about the tiny share of the population that experiences a bankruptcy, that would be using the Marty Blank gambit.  I never said that, and I wouldn't.  But if you convince everyone in the middle class that they are just one bad break away from bankruptcy, then you shouldn't be surprised when they don't spend their money and the recovery continues to stall.  It's important to convey the facts correctly.  Mike is stalling the recovery!  Why are you against the middle class, Mike??

Finally, I think the best chart I've seen that puts all of this into perspective (which I made myself) is the following showing health insurance trends:

Anyone who wants the data can email me at scott@scottwinship.com.

And contrary to Mike's assertion, the fraction of under-insured has not increased.  You can read the
conclusion of my dissertation if you want to see what the facts show.

I'll keep being concerned about the people who are in crisis, but I'm not going to buy in to the conventional wisdom among progressives that the middle class is in crisis.