Sasho Simov, income and difficult statistics

В началото на седмицата Институтът за пазарна икономика (ИПИ) представи пред публика своето детайлно проучване на подоходното разделение в България – „Разрези на бедността - образованието и заетостта като фактори за кривата на доходите и щастието в България“. Изследването е продължение на дълготраен интерес, който ИПИ има в областта – дори самият аз писах по темата „средна класа“, когато прекарах половин година като икономист в Института. Още тогава ми стана ясно (по трудния начин), че коментирането на темата публично ще е изключително сложно поради две причини: нуждата да се обясняват статистическите особености на данните и голямата емоционална натовареност на темата.

Too complicated to comment on sensibly

Both issues are being exposed in attacking works by our friends on the left. A prime example is Alexander Simov’s blog post – “ Hey, minimum wage proletarian, have you enrolled in the middle class!?” After accusing the economists from the Institute of Economics of using illegal substances, Simov proceeds to the theses of his criticism. The first thing that always strikes people who look at income distribution graphs without reading or understanding the data behind them is that the “middle class” is too big. In the case of this study – 4.2 million people. And what’s more, the lowest and most extreme of people with middle incomes starts at 286 leva, which Simov points out is a number less than the minimum wage, which is currently 420 leva.

Unfortunately, Mr. Simov has not used an iota of the efforts that the authors of the study have invested in getting acquainted with it and presenting a meaningful criticism. These 286 leva are not a malicious invention of the IME, but the method adopted by Eurostat for marking the poverty line - it is 60% of the median equivalent disposable income in a household. In other words, the money that a family member in a household has after deducting various transfers. Now, hardly anyone would argue that the median equivalent income (i.e. the one where half of the people have more and the other half have less) for the country is low, but this has nothing to do with the methodology of the study - rather with 45 years of planned economy, socialism, belated privatization, hyperinflation since 1997 and other factors that have no connection with the organization of which Simov is a member.

The moment with the methodology is important and this is where Simov could have criticized the authors if he had done his homework or aimed to give constructive comments. The approach of the sections and the comparison, which is made in the study, is based on the idea that we are looking for the class with average incomes for Bulgaria. We are not talking about someone's idea of what a member of the middle class should look like (in terms of consumption) - but actually how much income the "people in the middle" have in our country. The first would be another study, potentially with interesting results, but it does not appear as a topic in the post-comment of the journalist from "Duma".

In the second half of his critique, Simov makes an interesting assumption - that the IME is trying to "convince the poor that they are rich". Taken as a whole, Bulgarians are certainly richer, if we look at data such as GDP per capita and take into account factors such as technological development and the diversity of products we have access to now compared to the past. But this does not apply equally to everyone, especially, as the authors of the study themselves show - to pensioners. Pensioners are among the poorest members of Bulgarian society thanks to a fraudulent and bankrupt pension system, emptied of funds by Mr. Simov's colleagues (bosses).

Criticism can be for other reasons

If we are looking for something to pick a fight with the Institute about this study, let's focus on the connection they draw between higher education and prosperity. It is true that, as the data indicate , the poverty rate among university graduates is below 5 percent, and their equivalent income is about 1,000 leva. In contrast to the data, the conclusion put forward as a headline in Dnevnik that lack of education is a sentence to poverty, supplemented by the thesis that "higher education guarantees that a person will not fall into poverty in Bulgaria," is not so solid.

This educational romanticism is extensively criticized in Charles Murray’s book, True Education. In short, the causal link between education and prosperity, which is strongly implied in the study, is at best unproven and at worst nonexistent. In fact, the conditions that are associated with prosperity and with obtaining a higher education are quite close – belonging to a certain social class, having a suitable family environment, intellectual abilities, etc. In other words, both higher education and good income are much more likely to be consequences, not causally related phenomena.

The worrying thing is that by concluding that higher education makes us richer as a society, we will bring it to the European policy in the field – which aims to mechanically increase the number of people passing through universities by 2020. The effect of this will mainly be an inflation of the signaling value that diplomas have – not an explosion of unprecedented prosperity. However, thanks to the efforts of the IME, we have the opportunity for the first time to talk about the real income situation of Bulgarians, as shown by the NSI statistics – it is simply that the Bulgarian left does not have the preparation to understand, make sense of and interpret the data, which is why the level of criticism is simply a reheating of the classic red poverty.

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