To Get Rich is Glorious

Thoughts regarding On the Run

2015-01-14T07:13:00.000-05:00

Even though author Alice Goffman did not set out to write a book about the drug war, it nonetheless serves as perhaps the defining subtext to On the Run: Fugitive Life in an American City. Lurking ever present in the background, Goffman's work helps bring the drug war's destructive effects more into focus, particularly for those unfamiliar with life among the urban poor. Besides violent police conduct while enforcing drug laws, another negative impact of this policy highlighted by the book is the snowballing of fines and court dates related to drug offenses, oftentimes producing a downward financial spiral through various knock-on effects. Reason magazine's J.D. Tuccille provides a good description of this dynamic in his review of the book:

The police presence in 6th Street is pervasive. Residents, young black men in particular, can expect to be frequently stopped, questioned, and searched. Many initial arrests are for drugs, often possession of marijuana. After that, as Goffman records, the system takes on a horrible logic of its own. Criminal records make employment hard to find, and recurring court dates devour time that might be devoted to work, job searches, or family responsibilities. Without regular income, court fees add up and may prove unpayable. Many of the people Goffman writes about are essentially constant low-level fugitives, hunted by police for missed appointments. Some end up committing additional crimes to pay their accumulating debts to the courts [Indeed, I recall one individual in the book breaking into someone's house to steal items so that he can post bail for a friend arrested on a drug charge].

(It should be pointed out, however, that this problem is not caused by the drug war alone. Both National Public Radio and Cato Institute veteran Radley Balko have written about secondary impacts of fines and court fees on low income individuals, while Charles G. Koch (of eeeevil Koch brothers fame) and Mark V. Holden authored a recent piece in Politico regarding the country's overcriminalization problem.)

Perhaps equally insidious, the drug war also serves to undermine personal and familial relationships, severing fathers from children, brothers from siblings (a relationship that may be particularly important in the absence of a father figure), romantic partners, etc. While in many (most?) cases those being hauled off to jail are far from model citizens, a father who sells small amounts of drugs on the street corner may still have a more positive impact on a child's life than one that is in jail. As George Mason economist Tyler Cowen notes, just the mere threat of prison time has a pernicious impact:

A core point of “On the Run” is that “young men’s compromised legal status transforms the basic institutions of work, friendship and family into a net of entrapment.” For instance, the police round up fugitives by monitoring and contacting their relatives — and that frays family relations. A young man might avoid showing up at the hospital to witness the birth of his child because he knows he could be caught or turned in. Family gatherings become another hazard, so in-person appearances are often surprise visits. People stuck in this kind of limbo are also reluctant to visit hospitals when they need treatment, and a result, the book says, is a “lifestyle of secrecy and evasion,” driven by the unfavorable incentives set in motion by the law.

...As every friend or relative becomes a potential informant, cooperation plummets and life degenerates into a day-to-day struggle to remain outside the reaches of the law. Professor Goffman offers a chilling portrait of tactics used to encourage relatives to turn in possible lawbreakers: For example, the police may tell mothers that if they don’t report their errant men, the authorities will yank their children, a threat that may be backed by a charge of harboring or aiding and abetting a fugitive. “Squealing” thus becomes more likely. A community becomes divided between those who are on the clean side of the law and those who are not. And trust breaks down in personal relationships.

If one believes in the vital role of family bonds and a solid upbringing in shaping lives, then this policing approach is absolutely counterproductive to the goal of forming productive citizens.

Lastly, with regard to the drug war, it should be no surprise that respect for the police suffers when they are perceived to be engaged in a campaign of harassment that is justified on the dubious grounds of halting a victimless crime:

It may come as a surprise that the majority of women I met who learned that spouse or family member was wanted by the police initially expressed anger at the authorities, not the man, and promised to support him and protect him while he was hunted. In part, I think these women understood how easy it was to get a warrant when you are a Black young man in neighborhoods like 6th Street; they understood that warrants are issued not only for serious crimes but for technical violations or probation or parole, for failure to appear for one of the many court dates a man may have in a given month. A second and related reason for women's anger is that the police have lost considerable legitimacy in the community: they are seen searching, questioning, beating, and round up young men all over the neighborhood. As Miss Regina often puts it, the police are "an occupying force."

It's not hard to imagine that such low regard for the police contributes both to the culture of "stop snitching" and a cultural norm against cooperation with the police, thus removing a traditional avenue for the resolution of conflict within a community. That's bad for everyone.

Besides the drug war, however, the book also struck me as a tale of self-sabotage on an enormous scale. Examples:

A group of young men (perhaps teens, I can't recall) are shooting dice, when one of them pulls out a gun and announces that he is robbing another one of the players. Not taking him seriously, the rest then burst into laughter. Humiliated, the individual with the pistol then shoots someone in the head to demonstrate his seriousness. Everyone was high on PCP at the time. This then touches off a gang war which claims several more lives.

The author, a twenty-something white woman raised by two professors in a nice part of town, has trouble for something like the first six months of her study simply engaging in verbal communication with those she interacts with due to their use of slang and, as she calls it, African American Vernacular English. How can someone be successful in society when they can't effectively express themselves with someone from mainstream society? What does a job interview for any position outside of those with very low pay look like?

Babies, often more than one and invariably outside of marriage, appear more the rule than the exception by age 22 or so.

For his 23rd birthday party, one of the main characters of the book rents out a hotel room and then spends $250 on liquor and drugs. Call me judgmental, but if you're poor that's not where you should be spending your money. It beggars belief that this was that individual's only highly questionable financial decision.

At several points in the book the author references homes that are not merely messy or cluttered, but rather filled with trash, animal droppings and -- no surprise -- insect infestations. This seems to speak to a broader values problem, for there is no rule that just because someone is poor that they have to be dirty (indeed, not all homes described -- and they are all from humble circumstances -- are so filthy). Anecdotally, in my own mixed-income neighborhood the amount of trash found in the streets seems proportional to its proximity to low income housing despite plentiful numbers of trash receptacles (Indeed, I've actually seen people drop trash while being literally within an arm's length of such a receptacle).

Such examples would seem to suggest a need for tempering expectations of what may be achieved through an end to the drug war and/or less aggressive punishments for minor offenses. While it would no doubt be beneficial and result in some marginal improvements, the social ills that plague neighborhoods such as the one described by On the Run plainly run deep, perhaps reflecting a deeper cultural rot that, having set in over the course of many decades, will not be easily eradicated.

State violence

2015-01-05T20:55:00.001-05:00

In On the Run: Fugitive Life in an American City, author Alice Goffman gives a first-hand description of what it's like when the police burst through the door in the middle of the night:

I'd spent the night at Miss Regina's house watching Gangs of New York with Mike and Chuck for maybe the hundredth time. I had fallen asleep on the living room couch and so hear the banging in my dream, mixed in with the title page music, which the DVD played over and over.

The door bursting open brought me fully awake. I pushed myself into the couch to get away from it, thinking it might hit me on the way down if it broke all the way off its hinges. Two officers came through the door, both of them white, in SWAT gear, with guns strapped to the sides of their legs. The first officer in pointed a gun at me and asked who was in the house; he continued to point the gun toward me as he went up the stairs. I wondered if Mike and Chuck were in the house somewhere, and hoped they had gone.

The second officer in pulled me out of the cushions and, gripping my wrists, brought me up off the couch and onto the floor, so that my shoulders and spine hit first and my legs came down after. He quickly turned me over, and my face hit the floor. I couldn't brace myself, because he was still holding one of my wrists, now pinned behind me. I wondered if he'd broken my nose or cheek. (Can you break a cheek?) His boot pressed into my back, right at the spot where it had hit the floor, and I cried for him to stop. He put my wrists in plastic cuffs behind my back; I knew this because metal ones feel cold. My shoulder throbbed, and the handcuffs pinched. I tried to wriggle my arms, and the cop moved his boot down to cover my hands, crushing my fingers together. I yelled, but it came out quiet and raspy, like I had given up. My hipbones began to ache -- his weight was pushing them into the thin carpet.

A third cop, taller and skinnier, blond hair cut close to his head, entered the house and walked into the kitchen. I could hear china breaking, and watched him pull the fridge away from the wall. Then he came into the living room and pulled a small knife from its sheath on his lower leg. He cut the fabric off the couch, revealing the foam inside. Then he moved to the closet and pulled board games and photo albums and old shoes out onto the floor. He climbed on top of the TV stand and pushed the squares of the drop ceiling out, letting them hit the floor one on top of the other.

I could hear banging and clanging and clattering from upstairs, and then Miss Regina screaming at the cop not to shoot her, pleading with him to let her get dressed. All the while, the cop with his foot on my yelled for me to say where Mike was hiding. It would be my fault when Miss Regina's house got destroyed, he said. "And I can tell she takes pride in her house."

Goffman describes other experiences with the police:

The summer was punctuated by more severe police action. On a hot afternoon in July, Aisha and I stood on a crowded corner of a major commercial street and watched four officers chase down her older sister's boyfriend and strangle him. He was unarmed and did not fight back. The newspapers reported his death as a heart failure. In August, we visited an old boyfriend of Aisha's shortly after he got to county jail. Deep lacerations covered his cheeks, and his eyes had swollen to tiny slits. The beating he took while being arrested, and the subsequent infection left untreated while he sat in quarantine, took most of the vision from his right eye.

In interviews, Warrant Unit officers explained to me that this violence represents official (if unpublicized) policy, rather than a few cops taking things too far. The Philadelphia police I interviewed have a liberal understanding of what constitutes reasonable force, and a number of officers told me that they have orders from their captains that any person who so much as touches a cop "better be going to the hospital."

On a side note, the dust jacket features a laudatory quote from Cornel West calling the book "the best treatment I know of the wretched underside of neo-liberal capitalist America." West's blithering about neoliberalism is pretty rich considering the book is in large part not a tale of unfettered markets but rather draconian state intervention. His failure to grasp this point brings a certain graphic to mind:

(click to enlarge)

Overall thoughts on the book will be the subject of a future blog post.

Incentives: government vs. market actors

2015-01-04T16:05:00.002-05:00

In his book Boom Towns: Restoring the Urban American Dream, author Stephen J.K. Walters uses the decision of Indianapolis to place its water treatment facilities under private management to illustrate the relative inefficiency of government in comparison to the private sector:

The political obstacles were formidable. Regulators feared that a private firm would sacrifice environmental quality in pursuit of profits. Public employees' unions were certain that talk of "cost reductions" and "efficiency gains" were code for wage cuts and job losses. In addition, there seemed little reason to hope that privatization would do much good. Two consultants' reports on the treatment plants concluded that they seemed reasonably well run; one estimated that private management could, at most, trim about 5 percent from operating costs.

Nevertheless, [Mayor] Goldsmith and the City-County Council plowed ahead. They opted not to sell the treatment plants outright, but put a five-year concession contract up for bids. The winner was the White River Environmental Partnership (WREP), a consortium that included one of the big French water companies, a Denver-based environment management company, and the city's own (private) water supplier. WREP's winning bid was not 5 but 40 percent below the city's prior costs. Actual savings exceeded initial projections, with utility, maintenance, and capital costs all coming in well under budget.

And environmental quality improved: the number of effluent violations decreased from about seven per year under city management to one. Though some of these efficiency gains did, indeed, come from a one-third reduction in operational staff (which led the union to fight the privatization tooth and nail in both the courts and media), the city provided a safety net for displaced workers by offering them a severance package or transferring them to other positions as they became available; within a year all had been placed. Those that remained actually banked higher wages, experienced fewer workplace accidents and injuries (which, in turn, cut workers' comp insurance costs), and reduced the frequency with which they lodged grievances with their union.

But Indianapolis did not realize such dramatic gains in the performance of its wastewater treatment system by merely eliminating some redundant staffers. WREP had access to the technical expertise of the best engineers in the world; more important, it had a strong incentive to heed their advice. Under city management, innovative ideas--simply figure out better ways to operate or adopting new technologies--usually went nowhere because they brought nothing back to the innovator. Any realized costs savings would revert to the city's general fund to be spent on other constituencies.

With shareholders and managers operation under a long-term concession contract, however, such savings would go do the bottom line and fuel dividends, bonuses--and even the aforementioned higher wages. Indeed, once workers are freed of unions' work rules and across-the-board compensation formulae, they frequently offer up the most useful suggestions about how to get their work done better for less--and find private managers far more willing to listen than their public-sector counterparts.

It's not a matter of smarter people, but rather the differing incentives which face actors in market-based and public sector settings. Given this reality, shouldn't we desire as much of our world as feasible to be subject to market incentives rather than those faced by government? It's also notable that this kind of innovative thinking occurred at the local government level, which--unlike Washington--often can't simply borrow its way out of trouble.

Indonesia Etc.

2015-01-01T08:57:00.002-05:00

Finished reading Indonesia Etc. the other day and wanted to share a couple of excerpts related to economic matters. The first is on the impact of culture and customs on economic outcomes:

Outwardly, the gift of a buffalo is a mark of respect to the person who has died, and to his or her clan. Its splendid horns will be nailed to the front of the clan house, perhaps displacing some earlier, lesser sacrifice. To that extent, it's a gift that keeps giving; it visibly contribute to the honor of the clan for evermore. But in truth, Mama Bobo's trophy buffalo wasn't just about respect. It was about revenge.

Nothing, but nothing, in Sumba is really a gift: it's always an exchange. If I 'give' you a fatted buffalo, you are immediately in my debt for a beast with horns at least as long. It's a debt you absolutely must repay whenever it falls due, that unpredictable time when my granny dies, or my husband does, or I do. If you don't have a buffalo to spare, what then? You do whatever you have to. You can call in debts from other people, or deepen your web of obligation by borrowing. If payback means taking your kids out of school, selling your rice fields, or just stealing a buffalo in one of the cyclical cattle raids that does the calendar of Sumba, so be it.

...I met many young people in Sumba who had to drop out of school because some adat obligation fell due. What agony, to have to lead a prize buffalo into a ceremony and slit its throat, knowing full well that you are watching your hopes for the future drain away with the blood that seeps into the dust between the graves. When I ask young people if this makes them angry, they shrug. 'Adat is adat. What can you do?'

The second excerpt notes the distortionary effects which occur when subsidies interfere with pricing signals, and the accompanying efficiency losses:

Over the course of my travels in Indonesia, I spent hundreds of hours burning up fuel in intercity minibuses, not getting from A to B, but just driving around town for an hour or two before departure, looking for extra passengers. With subsidized petrol at just 4,500 rupiah a liter, bus drivers didn't have to worry too much that they'd burn up more in fuel than they'd make in extra fares.

Households pay less for their electricity than it costs to generate it. In places with twenty-four-hour electricity, Indonesians seem to leave the TV on permanently and the lights on all night, if not in the bedroom itself, then certainly in the sitting room and on the veranda. The fear of ghosts outweighs the price of electricity.

Power is subsidized for domestic consumers, not for industry, so the money the government shells out does little to create jobs or stimulate the economy. Through energy subsidies, the government is channelling a fifth of its total spending into the pockets of middle-class people with cars, air-conditioners and microwaves. Every mention of a price hike brings people out onto the streets and revives the ghosts of 1998, when a demo about rising fuel prices spiralled into the nationwide protests that brought down Suharto.

Voter turnout in Indonesia's 2014 presidential election has been placed at 80% for the voting age population, yet another reminder that there is no relationship between high voting rates and good governance or smart policymaking.

Bruenig on Inequality

2014-11-30T08:56:00.000-05:00

While Matt Bruening has attracted notice in recent days for his column making the sensational claim, in the context of recent events in Ferguson, that riots are good, it's the bracing honesty in his post earlier this month on inequality that I find more noteworthy. Frankly, a more unadulterated view of the lefty position on inequality will be hard to find. Rather than go through the whole thing, I'd like to just focus on a few key parts. First up:

[The distribution of market income] is not at all what people are worried about in most inequality circles. The concern that income inequality hurts the living standards of the poor and middle class is not implicitly about inequality produced by markets. The concern is that high disposable income inequality (relative to other countries) is strong suggestive evidence that the bottom and middle could be made better off by increasing taxes and transfers. That is to say, where disposable income inequality is high, that suggests there is money out there going to the rich that could be hoovered up and shot out to the non-rich.

It doesn't get much more plain-spoken than this, with an approach that can essentially be boiled down to "these people have a lot of money, these other people don't have that much, so we should take from this group and give to that group." In fact, it's not terribly far removed from certain Marxist dogma.

Notice that completely absent from the argument is any conditional or moral component, with seemingly all non-rich people deserving of money belonging to the rich regardless of individual circumstances. All that is apparently required to justify a wealth transfer is one person having less than another. Thus, someone who has diligently worked to start a successful business that produces useful products or services for the rest of society -- and is well compensated for that effort -- is presumably obligated to transfer some of their earnings to an NBA star who blew through tens of millions of dollars on frivolities and is left with nothing (an admittedly extreme scenario used to illustrate the point).

There is apparently no place for the role of life choices and decisions in assessing need or the moral claim to someone else's money. That's interesting because later in his piece Bruenig provides this chart:

As can be seen, even in Scandinavia there is a high correlation between single motherhood and pre-transfer poverty rates. Thus, it would seem that if the left and income inequality worriers more generally were truly concerned with reducing both poverty and income inequality that they should be among the fiercest critics of single motherhood. Yet how often does one encounter members of the left inveighing against single motherhood and advocating for being in a stable long-term relationship before having children (indeed, Bruenig's wife recently critiqued Rod Dreher for having the temerity to characterize the decision to have multiple children out of wedlock as foolish)? While many on the left have a great affinity for Scandinavia and its envious social indicators, almost invariably unremarked upon is the role of behavior in such outcomes. As Tino Sanandaji has noted, only about 3% of children in Sweden are born to single mothers.

One could almost be forgiven for thinking the left is only concerned about poverty reduction to the extent it involves an expansion of the state and/or confiscating wealth from the well-off.

Bruenig, meanwhile, concludes his piece on this note:

The concern about inequality has very little to do with the market distribution itself (the market is, after all, just a creature of policy, a government program like any other). Rather, the concern is that high and rising inequality signals that we are throwing away opportunities to relieve the want and humiliation of the bottom (and to a lesser extent, the middle), and are opting instead to shovel more and more of the national income to the rich for no good reason.

There are some amazing assertions made here:

The market is a government program, apparently because it is subject to government policy. By the same logic, since our lives are also subject to government policy then life itself can be considered to be one big government program.

It is desirable to relieve the want of the bottom (which for most humans is almost endless). We've seemingly moved beyond needs -- a tacit admission that they have largely been satisfied?

Apparently money is not earned by people nor has much to do with things like effort and individual decision-making, but rather is obtained by luck or the operation of a great cosmic shovel which allocates large amounts of money to some people but not others on a mysterious basis.

There is no good reason for the rich to gain additional money. The fact that they may have that money because of contributions made to society via products, services and/or investments is left unexplored.

The inequality agenda isn't about the creation of more opportunity. It isn't about ensuring the basic needs of each citizen is met. It's about redistribution for its own sake. If only the rest of the left was as unvarnished in presenting its views as Bruenig...

Inequality update

2014-04-08T17:56:00.001-04:00

The evidence continues to mount that the ongoing uproar over income inequality is much ado about nothing. Exhibit A is this recent piece from New York Times columnist Eduardo Porter (bolded parts mine):

As the income gap in the United States has exploded over the last three decades, blowing past the previous record set in the Roaring Twenties, scholars in fields from sociology and economics to psychology and epidemiology have tried to answer what turns out to be a difficult question: “So what?”

“The most common moral arguments for and against inequality rest on claims about its consequences,” Professor Jencks [described earlier in the column by Porter as "a renowned professor of social policy at Harvard"] wrote more than a decade ago. “If these claims cannot be supported with evidence, skeptics will find the moral arguments unconvincing. If the claims about consequences are actually wrong, the moral arguments are also wrong.”

For all the brain power thrown at the problem since then, however, specific evidence about inequality’s effects has been hard to find.

Porter then notes some of the various arguments that have been mounted by the inequality doom-mongerers, such as The Spirit Level's claim that income inequality leads to higher crime, greater teen pregnancy and even diminished life expectancy:

But does the data really back this up? One problem with these analyses is that they are based on correlations between levels of inequality and variables like life expectancy or the odds of poor children climbing the income ladder. But such correlations can’t prove inequality causes other social ills. They can’t disentangle inequality from the myriad things pushing American society this way and that.

Porter then offers up this:

Lane Kenworthy, a sociologist at the University of Arizona, is all too aware of these limitations. He was to be Mr. Jencks’s co-author on the book about inequality’s consequences. Now he is going it alone, hoping to publish “Should We Worry About Inequality?” next year.

“People that worry about inequality for normative reasons have been very quick to jump on plausible hypothesis and a little bit of evidence to make sweeping conclusions about its consequences,” Professor Kenworthy told me.

To avoid misleading correlations and better isolate inequality’s impact, Mr. Kenworthy studied its evolution over time, comparing how changes in income concentration across the world’s industrialized nations related to changes in a whole set of social and economic outcomes, from growth and employment to health and educational attainment.

He came up mostly empty-handed: “My tests suggest it seems to be a small player in the overall story.”

Professor Stiglitz notes that the United States grew faster during the decades of low inequality immediately after World War II than it did after inequality started rising in the 1980s. But Mr. Kenworthy finds no meaningful impact of inequality on growth one way or the other. “Income inequality isn’t the only thing that differed between these two periods,” he said.

Similarly, Mr. Kenworthy found no significant relationship between increasing inequality and life expectancy, infant mortality or college graduation rates, among others. Even when some patterns do mesh — teenage pregnancy rates fell a little more slowly in countries where the share of income going to the top 1 percent grew fastest — the relationship is weak. If you take the United States and Britain off the list, the relationship disappears.

Kenworthy expands his thoughts on income inequality in an interview with Porter posted on the Times' Economix blog:

The evidence supports a number of the most prominent [income inequality] hypotheses only weakly or not at all. As best I can tell from the available data, income inequality hasn’t reduced economic growth. It hasn’t hindered employment. It may or may not have played a role in fostering economic crises, including the Great Recession. It hasn’t reduced income growth for poor households. It may or may not have contributed to the weakening of household balance sheets by encouraging too much borrowing. It may or may not have reduced equality of opportunity.

It hasn’t slowed the growth of college completion. It either hasn’t reduced the increase in life expectancy or the decrease in infant mortality or, if it has, the impact has been small. It looks unlikely to have contributed to the rise in obesity. It hasn’t slowed the fall in teen births or homicides since the early 1990s. It may or may not have weakened trust. It doesn’t appear to have affected average happiness. In the United States it has had little or no impact on trust in political institutions, on voter turnout, or on party polarization. And while it may have boosted inequality of political influence, we lack solid evidence that it’s done so.

Keep in mind that, like Porter -- who should be classified as at least center-left based on a fair-minded reading of his columns -- Kenworthy is a man firmly rooted in the leftist camp (indeed, he has been praised by Matt Yglesias for his book calling for an expansion of the welfare state) who does not seem predisposed towards dismissing or downplaying possible negative impacts resulting from income inequality. And in fact he argues that income inequality is not cost-free:

On the other hand, income inequality has reduced middle-class household income growth. It very likely has increased disparities in education, health, and happiness in the United States. And it has reduced residential mixing in the U.S.

While Kenworthy presents it as established fact that inequality has reduced the income growth of the middle class, it is actually far from agreed upon. Indeed, in Porter's column he quotes Harvard's Professor Jencks that "'Most economists don’t feel there’s a logical mechanism that really is persuasive' linking the rise of the 1 percent and the stagnation of incomes for the rest."

As for the "very likely" idea that income inequality corresponds with disparities in education, health and happiness, this is fairly unremarkable. Given that money can purchase higher quality goods, including in education and health, it would be surprising if the two weren't related. But, as with income, the real issue is the absolute conditions of health and education, not their relative states (everyone having equally poor health or being equally ignorant would not be a victory). With regard to residential mixing, it seems logical that income inequality is in fact only a proximate cause, with the real culprit being found in restrictive zoning laws which depress housing supply and drive up its cost.

Kenworthy and Jencks aren't the only ones questioning the alleged desultory impacts of income inequality. Reviewing Thomas Piketty's new book on the topic, which has created a great deal of excitement among leftist intellectuals (Paul Krugman has called it "the most important economics book of the year — and maybe of the decade"), Ira Stoll highlights Piketty's quote that "inequality is not necessarily bad in itself: the key question is to decide whether it is justified, whether there are reasons for it."

Assuming the quote is not taken out of context, Piketty's apparent concession that inequality per se is not a bad thing seems a fairly stunning admission. After all, how often do we see hand-wringing about income inequality attached with any kind of qualifier? Rather it seems the issue is typically presented with very little nuance, leaving people with the impression that income inequality should always be considered a grave problem regardless of the particulars.

Piketty, of course, is in fact very concerned about income inequality -- that's the entire point of his book. Stoll explains why:

Piketty writes that "confiscatory tax rates on income" were "an impressive U.S. innovation of the interwar years" that deserve to be "reconceived and revived."

How does Piketty justify, morally, what he concedes to be confiscation?

To me the weakest part of his argument is his assertion that the money he is proposing to tax, now in private hands, was stolen in the first place.

He writes, "the courts cannot resolve every case of ill-gotten gains or unjustified wealth. A tax on capital would be a less blunt and more systematic instrument for dealing with the question." After all, he writes, "Broadly speaking, the central fact is that the return on capital often inextricably combines elements of true entrepreneurial labor (an absolutely indispensible [sic] force for economic development), pure luck (one happens at the right moment to buy a promising asset at a good price), and outright theft."

Here Piketty is speaking "broadly" indeed, tarring as "outright" thieves anyone who has managed to amass a million dollars or so worth of assets, and proposing to deal with the problem not by enforcing the criminal laws against theft, but by taxing everyone. He acknowledges his own ignorance here—"To be frank, I know virtually nothing about exactly how Carlos Slim or Bill Gates became rich." Surely the decent thing would have been to have looked into the matter and learned something about it before tarring the two men as thieves and proposing to tax away billions of their fortunes as punishment for their supposed crimes.

Again, assuming Stoll's characterization is accurate, Piketty's problem with inequality isn't due to demonstrable harm, but rather his belief in the unseemliness of it all. If the accumulations of vast sums of money is in large part the result of luck and thievery, the justification for its redistribution becomes much easier than if it is mostly due to personal enterprise and the provision of valuable goods or services.

I suspect that most of the left's anger over income inequality is similarly reasoned. Fighting income inequality isn't about curing an economic ill so much as correcting a cosmic injustice through the redistribution of ill-gotten gains (recall that suspicion of capitalism is a key part of the leftist creed -- otherwise they wouldn't constantly clamor for more government power to restrain it and taxation to ameliorate its perceived negative effects). Making that argument to the American people, however, does not seem to be a winning one at the current time, hence the continued futile quest for proof of income inequality's negative effects in order to justify their desired interventions.

Inequality update

2014-03-10T21:24:00.000-04:00

First up, a mostly sensible column in last Sunday's New York Times from Harvard economics professor Sendhil Mullainathan:

I worry about growing income inequality. But I worry even more that the discussion is too narrowly focused. I worry that our outrage at the top 1 percent is distracting us from the problem that we should really care about: how to create opportunities and ensure a reasonable standard of living for the bottom 20 percent.

Our passion about the widening disparity in wealth and income is easy to understand. After all, studies often find that unequal incomes reduce happiness. Of course they do: Jealousy and envy are strong emotions. They are also very basic ones that develop as early as 4 months of age. There is even evidence that great apes are averse to inequality. And though there is debate about that point, at least it produces enjoyable videos. Our outrage at inequality is primal.

But primal emotions are not always noble ones. Of course, when I see a colleague receive some award, I covet it. But this is not me at my best, and these are not the feelings we would instill and promote in our children. So why would we want public policy to cater to such feelings?

While Mullainathan's message that anger at the 1% is a distraction from finding ways of helping those at the bottom is absolutely correct, there are a couple of points worth quibbling with here. When Mullainathan references "our outrage" at the top 1% he seems to take it as a given that anger at the rich is widespread, but it's unclear how true this is. How much outrage against the 1% really exists outside of academia, Occupy Wall Street veterans and other assorted leftist ideologues? While it isn't hard to imagine that considerable ire exists among many Americans towards the financial sector and those who made their riches there given the huge public bailouts it has received over the years, it isn't obvious there is blanket outrage towards the 1% per se.

This ties into another point: it's instructive that when Mullainathan references his own personal envy and jealousy, it isn't in the context of the 1% but rather his colleagues -- people more like himself. Intuitively, this seems likely to be the case for most people. After all, who really measures their welfare against the 1% or uses people like Warren Buffet, Bill Gates or Hollywood celebrities as a personal measuring stick? Conversely, who gets any real satisfaction from outperforming (however one measures such things) those from a much lower socioeconomic demographic?

Rather, it seems much more plausible that people measure themselves against other people from a similar background -- friends, neighbors, family, colleagues, acquaintances from high school and college, etc. I would submit that much more jealousy is generated when someone's close acquaintance gets a new car, house or takes a fabulous international trip than when that same person discovers that some famous person just bought a 5th home.

These are, however, minor issues in what is overall a solid column which helps move the inequality conversation in the right direction (I would also disagree, however, with his argument that higher tax revenue is needed to promote greater opportunity).

Now let's move on to the bad, in the form of another New York Times column written by an academic economist, this time from -- surprise, surprise -- Paul Krugman:

[I]f generous aid to the poor perpetuates poverty, the United States — which treats its poor far more harshly than other rich countries, and induces them to work much longer hours — should lead the West in social mobility, in the fraction of those born poor who work their way up the scale. In fact, it’s just the opposite: America has less social mobility than most other advanced countries.

Actually, contra Krugman, there is no reason to think why the US approach to dealing with its poor would produce greater social mobility than countries with more elaborate social welfare schemes. The reason for this is very simple: social mobility -- a measurement Krugman also relies upon in a recent blog post -- is a terribly flawed measure of progress, as this example nicely illustrates:

Reihan Salam, a writer for The Daily and National Review Online, has calculated that a Danish family can move from the 10th percentile to the 90th percentile with $45,000 of additional earnings, while an American family would need an additional $93,000.

In other words, one method of boosting social mobility would be to simply reduce the earnings of the rich, thus compressing income percentiles and making it easier to skip from a lower percentile to a much higher one. Why that would be desirable, however, is unclear. If presented, for example, with the choice between getting a raise of $20,000 and jumping from the 10th percentile to the 90th in Country X, or getting an extra $80,000 and only jumping from the 10th percentile to the 20th in Country Y, how many people would choose the former?

To make this even simpler, just consider the fact that in a country where each person doubled their income year after year that social mobility would be zero, as everyone would remain in the exact same income percentile. For those obsessed with social mobility such a country would be a pariah, even though it would represent an amazing growth in living standards for its citizens.

The real intellectual bankruptcy of the income inequality issue, however, is to be found in a recent Twitter exchange I had with Sean McElwee. McElwee, who has extensively written about income inequality for such publications as Salon, The New Republic and The Huffington Post, caught my eye with this claim in a recent HuffPo piece:

The actual data show that higher government expenditures increase upward mobility. That's why countries like Denmark have much higher levels of mobility. We find the same correlation at the local level within the U.S.: Higher government spending leads to more mobility.

When I pointed out the meaninglessness of Danish mobility statistics to McElwee he simply responded that he would "rather live in a more equal society." Doubting whether he actually meant this or fully appreciated his statement's ramifications, I then asked if he would prefer to live in a society where everyone made $15,000 per year (perfectly equal) or a range of $10,0000-20,000 per year (somewhat equal) over the status quo found in the US. Unsurprisingly he declined to answer, instead calling such scenarios "absurd situations."

After some more back and forth in which I argued that absolute welfare trumps relative welfare measurements (such as social mobility), McElwee stated that "I think relative welfare is intimately tied to absolute welfare." This is where the conversation took a very interesting turn. Wondering how McElwee's claim could be true, I then asked how my welfare would be harmed, for example, if Bill Gates were to accrue another billion dollars (in fact, Bill Gates gained another $4 billion in the last six months alone). McElwee's response? With his extra money Bill Gates could get more health care, which harms the rest of us because such purchases would come at the expense of others who require health care.

Think about this for a second. McElwee has spilled a lot of proverbial ink over the income inequality issue and has presumably given it considerable thought. When pressed for an example of how inequality can hurt others he, presumably reaching for his strongest argument (after all, he's had plenty of time to think the issue over), argues that inequality can deprive others of health care. Let's unpack just some of the ways in which this claim is absurd:

Bill Gates is worth $76 billion. Presumably that should be sufficient to cover every conceivable health care expense he may incur. Can anyone conceive of even an outlandish scenario in which Bill Gates receives an extra billion dollars and then proceeds to purchase additional health care with it because the $76 billion he already had was apparently insufficient to meet his needs? Does that even begin to make sense?

Conversely, if giving Bill Gates an extra billion dollars would result in someone being deprived of health care, then doesn't it also logically stand that taking a billion dollars away from Gates and dumping it into the ocean -- thus reducing inequality -- would then pave the way for someone previously denied health care to obtain it? Is that at all plausible?

Even if Gates did want to spend his extra money on health care, does anyone really think that the US is currently at its health care production possibilities frontier and that it would be impossible to create additional health care resources to meet additional health care demand from other people? That any additional demand from Gates would come at the expense of others? When pressed on this, McElwee just notes that there are limited resources and that scarcity is the central tenet of economics. True enough, and maybe someone would have to give something else up to obtain additional health care (for example, spending on a vacation or a new television), but the idea that we have already created all of the health care resources we possibly can is nonsense.

Let's also note that if we are currently at our health care production maximum that Obamacare is essentially an exercise in futility, as it is totally pointless to extend health insurance to more people if there is no more health care to be obtained.

Lastly, if billionaires buying up all the available health care, and thus denying it to others, one would think this issue would have been raised by the left during the great health care debate which proceeded the passage of Obamacare. It was not, presumably because it is not true and anyone who seriously made such a claim would have been laughed out of the room.

Lastly, I'll note that McElwee has deployed The Spirit Level in support for his inequality arguments, including a January Huffington Post column as well as a Rolling Stone piece published just the other day. When I pointed out that the book was both eviscerated by Tino Sanandaji (among others) years ago as well as labeled as "largely debunked" by The Economist (in October 2012), McElwee's response was to simply note that some people still believe the book's arguments to hold some validity and to label The Economist as "libertarian"and presumably thus hostile to The Spirit Level's arguments.

That The Economist is libertarian will no doubt come as a surprise to those active in libertarian circles. Let's note, for example, that the publication has endorsed Democrats in the last three US presidential elections and, in a 2012 economic "report card", gave President Obama an A- for his bailout of GM and Chrysler and a B+ for the 2009 stimulus package. Say what you will about either policy, they can't be accurately described as libertarian.

Given the frequently absurd arguments trotted out by the left on the topic of income inequality, it begs the question of why the issue animates them so deeply. Why do they continue to bang the inequality drums when the weaknesses in their arguments are so glaring? While it is impossible to know for sure, this recent statement from a leading member of the California state Democratic Party likely provides us with some real insight:

"I'm going to say something, and it's probably going to get me in trouble, but there are some people who are just too rich," said party secretary Daraka Larimore Hall in a last effort to rally the rank and file before delegates dispersed. "If we don't solve the problem of income inequality we will lose our souls and we will lose our republic."

This is the game right here. Ranting about income inequality isn't about raising up the fortunes of the poor, leveling the playing field or having a discussion about how best to increase the opportunities available to the less fortunate, but rather tearing down the rich (who frequently amass their fortunes in the marketplace, which leftists are distrustful of -- hence their constant calls for additional regulations to be placed upon it). As an added bonus, taking the rich down a peg via higher taxation helps provide more revenue for government do-gooding. Apply this template for understanding the inequality debate and everything begins to make sense.

PBS funding

2014-02-19T17:43:00.001-05:00

Michael Hiltzik writing in Monday's Los Angeles Times:

[A] PBS unit that funded independent documentaries canceled a film about the Koch Brothers last year, fearing the reaction of one of its major donors, David Koch.

That underscores the cynicism of the steady withdrawal of public funding from PBS since the Reagan administration. It's another example of the old story of big government getting off the horse, so big business and the wealthy can saddle up [the column begins by noting PBS's decision to return a $3.5 million donation from a billionaire to help fund documentaries about the state of pensions for state and local government employees]. As David Sirota, the author of the PandoDaily expose, wrote in its aftermath, PBS doesn't stand for "Public Broadcasting Service" anymore. As it becomes more addicted to big-bucks donors, it risks becoming the Plutocrat Broadcasting Service.

Hiltzik, it seems, would have no problem if our tax dollars, via PBS, were used to support the anti-Koch Brothers documentary he references. From a moral and philosophical perspective, forcing other people to provide money to subsidize your preferred political views is reprehensible.

More practically, Hiltzik's example nicely illustrates the pointlessness of taxpayer funding for PBS. The canceled anti-Koch documentary, Citizen Koch, ended up receiving more money from donations than what PBS had originally promised its producers ($170,000 in a Kickstarter campaign vs. $150,000 from PBS). So everyone was left better off; the taxpayers didn't have to fund something they might disagree with and the producers ended up with more money. This is cause for outrage?

Furthermore, even if the fundraising campaign had failed, the idea that anti-Koch crusaders need PBS to reach a wide audience is ludicrous (and if one acknowledge's that PBS' role isn't vital to spreading that message, then why do we care if they support the documentary or not?). If there is one thing the media does not lack for, it is information about the alleged nefariousness of the brothers Koch.

Anyone with an internet connection -- which is to say, the vast majority of Americans -- can read the 2010 The New Yorker article which arguably kicked off the anti-Koch frenzy. Salon.com has four pages devoted to Koch-related articles (sample headline: "Koch-backed Conservatives Go Pro-Cervical Cancer"), while The Huffington Post, Mother Jones (sample: "How the Koch Brothers Backed Public-School Segregation"), The Nation, Washington Monthly, Talking Points Memo, Daily Kos, etc. offer hundreds if not thousands more. The hour-long documentary Koch Brothers Exposed can be viewed in its entirety on YouTube along with plenty of other anti-Koch pieces.

Taxpayer funding of PBS is both morally problematic and practically unnecessary. Hiltzik's hand-wringing over reduced funding suggests he either desires others to pay for the spread of his political message or is simply against any cuts to government on principle, regardless of the practicalities. Possibly both. It's not a message worth taking seriously.

Krugman vs. Mankiw

2014-02-17T15:59:00.000-05:00

Paul Krugman, last spotted around these parts refuting his own arguments on income inequality, is upset with Harvard economics professor Greg Mankiw for penning a defense of the top 1 percent income earners in Sunday's New York Times (Krugman's own turf -- one could be forgiven for suspecting that a partial motivation for Mankiw's authoring of the piece was the joy of trolling Krugman). In his column Mankiw notes the huge sums earned by movie stars, top athletes, best-selling authors and the like, and speculates that the lack of public ire over such incomes is due to a sense by most people that the money was deserved as their talents are readily observable and obvious (e.g. Robert Downey Jr. was paid $50 million for Iron Man 3, but his acting ability also helped produce well over $1 billion in revenue for the movie). In sharp contrast, Mankiw speculates that anger over the compensation of CEOs and those who work on Wall Street may stem from their talents and the benefits they generate being much less apparent.

In a Sunday morning blog post Krugman responded by managing to totally miss Mankiw's point:

Greg Mankiw has written another defense of the 0.1 percent — and this one is kind of amazing.

Before I get to the amazing part, however, can I say enough with the movie stars. Yes, a handful of media stars make a lot of money. But they are a trivial part of the story (pdf):

The upper tiers of the income distribution are overwhelmingly occupied by executives of one kind or another — corporate, finance, real estate, and lawyers who are surely more corporate than Perry Mason. And even the biggest names in media aren’t real players. Remember, the 40 top-paid hedge fund managers and traders made an average of more than $400 million each in 2012.

That's great, but Mankiw explicitly acknowledged in his column that entertainers and media types comprise a minority of top earners:

[A]ctors, authors, and athletes do not make up the entire ranks of the rich. Most top earners make their fortunes in ways that are less transparent to the public.

After raising a point irrelevant to Mankiw's column (whose argument depends not at all with how many people in the media, arts or sports are earning big bucks), Krugman then blasts the Harvard professor for advancing the idea that, given the important role of Wall Street in allocating the country's capital, "It makes sense that a nation would allocate many of its most talented and thus highly compensated individuals to the task."

Has Greg been living in a cave since 2006? We’re now in the seventh year of a slump brought on by Wall Street excess; the wizardly job of “allocating the economy’s investment resouces [sic -- Krugman was evidently in such a rage and so eager to get the piece published that he didn't even run a spell check]” consisted, we now know, largely of funneling money into a real estate bubble, using fancy financial engineering to create the illusion of sound, safe investment. We also know that there is a real question whether hedge funds, in particular, actually destroy value for their investors.

Whatever one thinks of Krugman's ranting, a sophisticated argument (excess!) against the value of Wall Street it is not. Indeed, it is not at all apparent what exactly Krugman is getting at here. So, because of the financial crisis, then Mankiw is wrong that capital allocation is an important task which attracts very talented and richly compensated people? Also unaddressed by Krugman is Mankiw's point that "recent research establishes that those working in finance face particularly risky incomes. Greater risk requires greater reward."

In any case, if Krugman wanted to make a more sensible case against Mankiw he should have taken issue with his blanket description of Wall Street as "decentralized and competitive." As but one example, the credit ratings agencies which were at the heart of the real estate bubble and its aftermath are a regulated oligopoly, facing less competition that it would under a free market. But for Krugman to make this line of attack would have required being on the side of smaller government, and so his avoidance of it is unsurprising.

Mankiw, meanwhile, responded to Krugman's post on his own blog, via a link to his economics textbook, that a variety of players -- including government regulators -- were responsible for the crisis.

Lastly, Krugman concludes his blog post by discussing tax fairness:

One more thing: Mankiw argues that our tax system is fair because the top 0.1 percent pays a higher share of income in federal taxes than the middle class. This neglects the partial offset of this progressivity by regressive state and local taxes. But surely the main point is that to the extent that taxes on the 0.1 percent are high (they aren’t really, in historical context) that’s largely because Mitt Romney lost the 2012 election, so that Obama’s partial rollback of the Bush tax cuts and the high-income surcharges that partially finance health reform remained in place and the Ryan budget didn’t happen. It’s kind of funny to claim that our system is fair thanks to policies that you and your friends tried desperately to kill.

A few points:

Krugman is apparently unaware that even if Mitt Romney would have won in 2012 that Democrats still would have controlled the Senate, thus almost assuredly blocking the path for any tax reduction on top income brackets.

Even if the Ryan budget -- or any other conceivable GOP budget plan -- had passed, the rich still would have paid much more in federal tax as a percentage of their income than the middle class. As Mankiw points out in his column (but Krugman declines to note), the top one-tenth of 1 percent of the income distribution paid 33.8% of their income in federal taxes while the middle class, defined as the middle fifth of the income distribution, paid 12.4% -- a 21.4 percentage point gap. Slash this by 10 percentage points (an extreme scenario) and the rich are still paying a good bit more than the middle class (also recall there is no tax cut plan in existence which only cuts taxes for the rich but not the middle class as well, further complicating the math).

One can play these counterfactuals all day. It's not hard to imagine that had Al Gore prevailed in the 2000 election that the Clinton-era top tax rate of 39.6% would have been maintained for all of last decade -- but so what? If ifs and buts were candy and nuts...

Little wonder that Scott Winship labeled Krugman's blog post "one of the most disingenuous things I’ve read of his in awhile."

Krugman self-refutes

2014-01-28T06:26:00.004-05:00

Paul Krugman in yesterday's column:

Extreme inequality, it turns out, creates a class of people who are alarmingly detached from reality — and simultaneously gives these people great power.

While Krugman uses this language as a lead-in to some criticism of people who have compared President Obama to Nazi Germany, he could have been describing himself. In the column's opening paragraph he says the following:

[Rising inequality] also has big social and human costs. There is, for example, strong evidence that high inequality leads to worse health and higher mortality.

Now, anyone who has not drunk deeply from the inequality kool-aid would probably cast a skeptical eye towards such an assertion. Does it even make the slightest bit of sense that, for example, Bill Gates sees his wealth double -- thus increasing inequality -- and suddenly someone else's health worsens and they head to an earlier grave? Is that at all plausible? How does that work exactly?

Those who have been keeping a close eye on the inequality debate might also be mindful that perhaps the leading proponent of the argument that inequality imperils health, the Richard Wilkinson and Kate Pickett-authored The Spirit Level, has been thoroughly discredited, with The Economist noting that the book's conclusions have "been largely debunked."

Beyond his failure to apply common sense or keep up with the state of the inequality debate, more damning is that Krugman obviously failed to either read or comprehend the very piece he links to as evidence for his claim. Here is an excerpt from the Angus Deaton-authored article (who recently spoke at the Cato Institute on inequality), in which I have bolded some of the most relevant parts:

Inequality, Race, and Health

Why might income inequality be a health hazard, and what accounts for the fact that people die earlier in American states and cities where income inequality is higher? If income is protective of health, and the relationship is concave, then redistribution from rich to poor will improve aggregate health, although this effect appears to be too small to explain the geographical patterns in the United States. If health depends on others' incomes, for example if health is linked to relative deprivation, then income will be protective of health for individuals, and income inequality will be hazardous to health in the aggregate. But if the [National Longitudinal Mortality Study] is used to look at the probability of death as a function of income for white males and females on a state by state basis, there is no evidence of any link between the estimated coefficients and state-level measures of income inequality.

Darren Lubotsky and I have investigated the relationship between income inequality, race, and mortality at both the state and metropolitan statistical area level. In both the state and the city data, mortality is positively and significantly correlated with almost any measure of income inequality. Because whites have higher incomes and lower mortality rates than blacks, places where the population has a large fraction of blacks are also places where both mortality and income inequality are relatively high. However, the relationship is robust to controlling for average income (or poverty rates) and also holds, albeit less strongly, for black and white mortality separately. Nevertheless, it turns out that race is indeed the crucial omitted variable. In states, cities, and counties with a higher fraction of African-Americans, white incomes are higher and black incomes are lower, so that income inequality (through its interracial component) is higher in places with a high fraction black. It is also true that both white and black mortality rates are higher in places with a higher fraction black and that, once we control for the fraction black, income inequality has no effect on mortality rates, a result that has been replicated by Victor Fuchs, Mark McClellan, and Jonathan Skinner using the Medicare records data. This result is consistent with the lack of any relationship between income inequality and mortality across Canadian or Australian provinces, where race does not have the same salience. Our finding is robust; it holds for a wide range of inequality measures; it holds for men and women separately; it holds when we control for average education; and it holds once we abandon age-adjusted mortality and look at mortality at specific ages. None of this tells us why the correlation exists, and what it is about cities with substantial black populations that causes both whites and blacks to die sooner.

In a review of the literature on inequality and health, I note that Wilkinson's original evidence, which was (and in many quarters is still) widely accepted showed a negative cross-country relationship between life expectancy and income inequality, not only in levels but also, and more impressively, in changes. But subsequent work has shown that these findings were the result of the use of unreliable and outdated information on income inequality, and that they do not appear if recent, high quality data are used. There are now also a large number of individual level studies exploring the health consequences of ambient income inequality and none of these provide any convincing evidence that inequality is a health hazard. Indeed, the only robust correlations appear to be those among U.S. cities and states (discussed above) which, as we have seen, vanish once we control for racial composition. I suggest that inequality may indeed be important for health, but that income inequality is less important than other dimensions, such as political or gender inequality.

Social versus Medical Determinants of Health

Most of the work on inequality, income, and health looks at cross-sectional or geographic data, with the time-series relatively unexplored. Paxson and I look at income, income inequality, and mortality over time in the United States and the United Kingdom. The postwar period usefully can be broken in two. In the quarter century up to the early 1970s, there was steady productivity growth, with mean and median income growing in parallel, and very little change in income inequality. After 1970, in the United States, productivity growth was much slower; although there was a good deal of income growth at the top of the income distribution, real median family income stagnated or fell. Slow income growth was accompanied by rapid growth in income inequality. The United Kingdom shared the rise in income inequality, which was even more marked than in the United States, but did not experience the same slowdown in the growth of real incomes. If income and income inequality are important determinants of mortality decline, and even allowing for some background trend decline in mortality, then the United States and the United Kingdom should have similar patterns of mortality decline up to the early 1970s, followed by slower decline after 1970, particularly in the United States which had an unfavorable trend in both growth and inequality. But the data show precisely the reverse. Mortality decline accelerated in both countries after 1970, and there is no obvious difference in the patterns in the two countries. Indeed, the most obvious distinction between Britain and the United States is that changes in trends start a few years earlier in the United States. These findings suggest that, as argued by Cutler and Meara, changes in mortality over the last half century in the two countries have been driven, not by changes in income and income inequality, but by changes in risk factors or in medical technology, with the changes being adopted more rapidly in the United States.

In other words, while Krugman claims there is "strong evidence that high inequality leads to worse health and higher mortality," the very piece he links to shows precisely the opposite. Once race is controlled for, income inequality has zero impact on mortality in the US and -- even worse for Krugman -- growing income inequality in the UK and US after 1970 actually corresponds with accelerating mortality decline.

We can rest assured that if Krugman had more solid evidence of a negative relationship between income inequality and health inequality that he would have cited it. That he mustered supporting evidence which contradicted his assertion suggests incredible sloppiness and/or straw-grasping. The prophets of income inequality doom are growing increasingly desperate.

Middle class progress since 1987

2014-01-04T12:47:00.000-05:00

Writing his final column for the Wall Street Journal before decamping for the Brookings Institution to direct its Hutchins Center on Fiscal and Monetary Policy, David Wessel uses the piece to bemoan the lack of middle class progress over the last quarter-century:

In a 1998 book, my colleague Bob Davis and I argued the U.S. was on the cusp of an era of broadly shared prosperity that would boost the middle class. We were wrong. We correctly saw the potential of information technology, but we expected the gap between winners and losers to narrow. It didn't.

Output of goods and services per person has grown by about 45% since 1987. That's substantial, but the percentage increase is only half the 90% increase of the preceding 26 years (1961-1987).

For folks in the middle, the past quarter century doesn't look so good. The cash income of the median family, the one at the statistical middle, barely kept up with inflation. Add in health insurance and other noncash benefits, and it has risen significantly more. But here's an arresting fact: Adjusted for inflation, the typical man who worked full-time made less in 2012 ($49,398) than his analog did in 1987 ($50,166). Because more women were educated and landed better-paying jobs, they did better: Median earnings rose 16%.

Where did the money go? Disproportionately to the best off, the best educated, the two-professional couples, the winners on Wall Street and in Silicon Valley. Technology and globalization favored the best-educated. The rise of finance paid some handsomely. Earnings of those at the top of almost every field rose faster than at the middle.

Different measures show differences in degree, but the trend is clear: The latest Census data show the share of pretax income going to the top 5% of families rose from 15.7% in 1962 to 17.2% in 1987 to 21.3% in 2012. Higher tax rates on the well-off and benefits aimed at the bottom damp the trend, but that wealth redistribution hasn't offset inequality-widening market forces.

While perhaps not exactly grim, the picture painted by Wessel of middle class fortunes certainly suggests little worth celebrating. But how well do these monetary figures reflect the state of the middle class now versus 25 years ago? Wessel throws out income stats as a proxy for well-being, but isn't one's standard of living the real measure? Income, after all, is simply means to an end, which for most people is used to better one's living conditions.

Using this measure, is there any reason to think that standard of living for the middle class has essentially stagnated since 1987? Would anything other than a small minority, when offered a $50,000 inflation-adjusted annual income in either 1987 or 2012 either choose the former or be indifferent to the outcome? Think about just some of the things someone opting for a 1987 life over 2012 would have to deal with:

Letters instead of email
Calling someone and hoping they were home; no text messages
No free long-distance and Skype/Facetime
No Google maps, and certainly no maps/GPS on your phone or car
Travel plans a much bigger hassle (no Kayak price alerts, Priceline or Tripadvisor)
Meeting with friends a much bigger hassle (forget sending a group text message to see what's up or calling someone to let them know you are running late)
No online shopping (closest analog is catalogs, where, among other hassles, price comparison is much more difficult)
No Tivo/DVR, ESPN3.com or Netflix streaming. Want to watch something? Better be home when it airs and plan your bathroom breaks carefully.
Basically, far less efficient use of time (the list of IT/telecom related advancements are too long to list), with more of our day spent doing things we enjoy
Thin, cheap, widescreen HDTVs (no small thing when the average American watches 34 hours of television per week)
Very unlikely to own a cell phone, and certainly none that fits easily in your pocket
VHS/cassette tapes instead of DVD/Bluray and CD/mp3, with the attendant winding of tape to find the right song or scene. Plus, music is now downloadable and no more trips to the video store.
More expensive flights with far fewer entertainment options (no DirecTV, personal video entertainment, inflight wifi, Kindle, Angry Birds, iPad or iPod -- last four also applies to road trips)
Film instead of ubiquitous digital cameras. Capturing memories on video requires bulky and expensive camcorders.
Must forgo all medical advances since 1987
No access to all art created since 1987 (e.g. music, movies and television)
Less safe, efficient and dependable automobiles
Indeed, qualitative improvements all over the place. How many products were superior in 1987 to their 2012 versions?
Likely no access to Whole Foods (only had 3-4 stores at the time) and generally less exciting and nutritious food options, including restaurants, than were commonly found 25 years ago (how common, for example, was Thai food in the late 80s vs today?).

How does this not qualify as broadly-shared prosperity? How many items on this by-no-means-comprehensive list are accessible only by the rich or a select few? Let us further remember that much of the inequality Wessel decries and the gains experienced by the top few percent are due to many of the products and services listed.

Take Apple for example, which revolutionized the smartphone, introduced the tablet computer and makes one of the most popular laptop computers. Without Apple consumers would either not have acess to such products or would be using inferior versions of them. On the other hand, Apple has also resulted in the creation of hundreds of millionaires and at least one billionaire, thus contributing to a slight rise in inequality. How many people would like to forgo the products developed by Apple in exchange for a tiny dent in income inequality? Likely almost no one save for a relative handful of far left ideologues.

The same no doubt holds for other products as well. The co-founder of Whole Foods, John Mackey, is worth somewhere in the neighborhood of $100 million, the godfather of online shopping, Jeff Bezos, is a multi-billionaire and Netflix founder Reed Hastings is worth over $250 million. Redistribution of their combined wealth -- about $29.5 billion -- would amount to just under $94 per American. Again, how many people would be willing to trade away access to the products and services they have helped create in exchange for a small slice of their fortune? How many people doubt their existence is anything other than a huge net win for most Americans (and citizens in other countries where their products and services are offered)?

Now, admittedly, there are a few financial downsides to life in 2012 vs. 1987. These include:

More expensive health care (although most people are insulated from this via insurance, and have only felt the impact through a greater share of their compensation going to employer-provided insurance than wages. Furthermore, again, the state of medicine in 2012 is superior to that of 1987)
Higher college tuition
Higher housing costs in many cities and coastal areas (due in large part to government zoning/building restrictions)

On net, however, how much does the picture really change? While it is no doubt true that the middle class could have performed even better over the last 25+ years than it actually did, what actually transpired hardly counts as a sob story, and one can only speculate what further leaps in human progress await over the next quarter century. Perhaps the constant improvements in our standard of living are now regarded as so commonplace and unexceptional that Wessel and others have forgotten how remarkable they truly are.

The welfare state as agent of calm

2013-12-21T10:22:00.000-05:00

Using his latest column to justify the welfare state, Bruce Bartlett makes the following bizarre assertion:

Lastly, we all know that there are negative consequences to living in a society with many people who may be starving or freezing to death or living perilously close to it. Such people have nothing to lose by fomenting revolution, organizing into criminal gangs or engaging in sabotage of basic services such as the water and power supply that everyone depends upon.

There are many countries like this. Even the moderately well to do must live behind walled communities and travel only with bodyguards, ever fearful of assassination and kidnapping. No American wants to live that way.

While Barlett is correct that no American would want to live that way, it is not apparent what any of this has to do with the welfare state. Show me a country where many people are living at the margins of existence and barely clinging to survival and I will show you one that is far from a libertarian paradise where freedom is prized as a central organizing principle. The idea that only a welfare state will head off such scenarios is unproven and unfounded.

More to the point, there is also no obvious reason to think that the welfare state either calms the political waters to head off revolution or reduces crime, which Bartlett also warns against. The Founding Fathers who helped inspire the American Revolution were typically well-off (some, let us recall, were slave owners) and material privation has never been cited by historians as a leading cause of support for the revolution (although onerous government has). Despite the absence of a welfare state for most of American history there was also never any serious attempt to overthrow the US government (Civil War, which had nothing to do with poverty, possibly excepted), and it is perhaps worth noting that none of the attempted or actual assassinations of US presidents were carried out by people who were simply angry and poor.

With regard to crime, meanwhile, if one dates the establishment of the American welfare state to President Johnson's Great Society initiative began in 1965, here's a look at what happened to crime rates (both charts are for per 100,000 of population) in the subsequent years:

Now, while it very well may be the case that crime spiked for reasons other than the welfare state's establishment, it would seem very hard to make the case that the establishment of a social safety net helped reduce crime. When I pointed this out to Bartlett via Twitter, he responded that US crime rates are still above those of every social democracy. I then asked if that was not also the case pre-welfare state and pointed out this passage from wikipedia:

In the long term, violent crime in the United States has been in decline since colonial times. However, during the early 20th century, crime rates in the United States were higher compared to parts of Western Europe. For example, 198 homicides were recorded in the American city of Chicago in 1916, a city of slightly over 2 million at the time. This level of crime was not exceptional when compared to other American cities such as New York, but was much higher relative to European cities, such as London, which then had three times the population but recorded only 45 homicides in the same year.

In other words, elevated levels of American violence compared to countries which have adopted the social democratic model appears to predate the welfare state.

Bartlett never responded.

Dasani's story and the inequality debate

2013-12-14T09:56:00.000-05:00

The New York Times recently ran a series of articles profiling a 12 year old homeless girl (in the sense of not having a fixed address, not that she sleeps in the streets) named Dasani. The fact that she shares her name with that of a brand of bottled water is not a coincidence -- her mother was inspired after spotting the product on the shelves of her corner store. Her sister's name, Avianna, is derived from Evian. The mother's name? Chanel. This is only relevant in that names are a socioeconomic marker -- indeed, some parents go so far as to employ baby name consultants -- and the wrong name can impact one's employment prospects. If one is named after a bottle of water, it is not difficult to imagine that this could lead to all sorts of negative connotations making an already hard life even more difficult.

Other items we learn about the family: Chanel is married to a man who goes by the name Supreme (unclear if this is his given name) with whom she has four children. Supreme brought to the family two other children from a prior marriage while Avianna and Dasani were from prior relationships as well, for a total of eight children. Mind you the cost of raising a child in a middle-class environment until age 18 is quickly approaching $250,000. We also learn that Supreme is on the hook for child support for two other children. Neither Chanel nor Supreme is employed, both are addicted to methadone (although Supreme seeks treatment), and Chanel lacks even a GED.

Other details about their personal lives:

On Dasani's diet:

The [citywide bus] strike has worn on for a month when, on Valentine’s Day, Dasani stops into a corner store outside McKinney. She scans the aisles before settling on an iced honey bun, a bag of nacho-flavored sunflower seeds and some red gummy bears — a rare $3 breakfast earned as part of her allowance for watching Baby Lele all weekend.

On the family's money management skills:

Suddenly, Supreme leaps into the air. His monthly benefits have arrived, announced by a recording on his prepaid welfare phone. He sets off to reclaim his gold teeth from the pawnshop and buy new boots for the children at Cookie’s, a favored discount store in Fulton Mall. The money will be gone by week’s end.

Supreme and Chanel have been scolded about their lack of financial discipline in countless meetings with the city agencies that monitor the family.

But when that monthly check arrives, Supreme and Chanel do not think about abstractions like “responsibility” and “self-reliance.” They lose themselves in the delirium that a round of ice creams brings. They feel the sudden, exquisite release born of wearing those gold fronts again — of appearing like a person who has rather than a person who lacks.

Interestingly, the consequences of wasting even small amounts of money are not lost on Dasani:

Dasani sees the chasms of Fort Greene more plainly, reasoning that wealth belongs to “the whites” because “they save their money and don’t spend it on drinking and smoking.”

On the family environment:

A few nights later, the children are roused by shouts and a loud crash. Uncle Josh has punched his hand through a window and is threatening to kill Uncle Lamont.

Josh lunges at his brother with a knife. The men tumble to the floor as Chanel throws herself between them. Upstairs, the children cower and scream.

Dasani calls out orders: “Nobody move! Let the adults handle it!”

Sirens rattle the block. Josh is taken away in handcuffs as an ambulance races Lamont to the hospital with a battered eye. They had been fighting over a teenage girl.

Mom's aggression, which is probably not coincidental to Dasani's own proclivity for fighting seen throughout the piece:

Dasani has grown up hearing her mother’s stories of street-battle glory, and watching her in the throes of countless slug matches with anyone who crosses her, including the owner of a local laundromat.

...When they reach Myrtle Avenue, Chanel goes searching for a beer at her favorite corner store. Dasani trails her.

Inside, the short-order cook, a Mexican girl, stares at Chanel suspiciously.

“Don’t look at me,” Chanel says.

“You so nice, that’s why I see you,” the girl responds cockily.

“You better watch that grill,” Chanel says. “I don’t want to scare you.”

“You think you scare me?” the girl yells.

“Let’s fight right now!” Chanel shouts.

“Wait for me outside!” the girl calls back.

Chanel moves toward her, reaching for a mop.

“Mommy!” Dasani screams.

Now let's look at the environment in which the family operates, starting with the schools:

Miss Hester knows that students learn when they get excited. It bothers her that McKinney lacks the sophisticated equipment of other public schools. She shelled out more than $1,000 of her own money, as a single mother, to give her classroom a projector and document camera.

Dasani knows about charter schools. Her former school, P.S. 67, shared space with one. She never spoke to those children, whose classrooms were stocked with new computers. Dasani’s own school was failing by the time she left.

The description of the city-operated shelter in which the family lives is stomach-turning:

Over the last decade, city and state inspectors have cited Auburn for more than 400 violations — many of them repeated — including for inadequate child care, faulty fire protection, insufficient heat, spoiled food, broken elevators, nonfunctioning bathrooms and the presence of mice, roaches, mold, bedbugs, lead and asbestos.

Lately, it is the family’s sink, with its rotting wall and leaky pipe, that fails to get fixed. For weeks, the pipe drips through the night. Finally, Dasani is fed up. She crouches down and examines the pipe as her siblings watch. “Nobody thought about pushing it in and twisting it,” she says in her cocksure manner. A few quick jerks and she triumphs. The children squeal. It goes unremarked that here, in this shelter with a $9 million annual budget, operated by an agency with more than 100 times those funds, the plumbing has fallen to an 11-year-old girl.

All this despite the article elsewhere noting that the city spent $10 million in renovations and repairs on the facility during the Bloomberg administration. A couple of photos drive the picture home:

The dysfunction extends not only to the physical building, but the personnel operating the facility:

There is no place on the inspection forms for the most common complaint: the disrespect accorded to residents by the shelter staff. Were there such a box to check, it could never capture how these encounters reverberate for days, reinforcing the rock-bottom failure that Auburn represents. Even egregious incidents are sometimes mentioned in passing. One mother summarizes her grievance, at the top of the form, as “All of my belongs went in garbbage.” In explaining how her possessions were discarded, she mentions, tangentially, that her caseworker had “groped” her. She ends the complaint on a conciliatory note: “Peace.” The signature at the bottom belongs to Dasani’s mother, Chanel. After she filed the complaint in September 2011, the worker was taken off her case, but kept his job and recently got a raise. Chanel never told Dasani, for fear of passing on the shame she feels whenever she sees the man.

City officials declined to comment on the reports of sexual abuse [sexual predation and abuse at the shelter is repeatedly referenced in the article]...In the past decade, Auburn’s directors have fared well, receiving raises even as the shelter’s problems persisted. One former director, Susan Nayowith, was promoted to head of client advocacy at the Department of Homeless Services.

Lastly, this tidbit about Chanel's mother seems noteworthy:

[Chanel's mother] Joanie turned her life around after President Bill Clinton signed legislation in 1996 to end “welfare as we know it,” placing time limits and work restrictions on recipients of government aid. She got clean and joined a welfare-to-work program, landing a $22,000-a-year job cleaning subway cars for the Metropolitan Transportation Authority. “This is the happiest day of my life,” she told Chanel.

Analysis:

While many on the left decry income inequality and the surging wealth of the top few percent -- indeed, Ezra Klein yesterday called the issue the "organizing economic concern of the American left" -- one cannot help but notice in the article that absolutely none of the misery experienced by Dasani's family has anything to do with American millionaires or billionaires. Rather, the vast majority of blame falls on the shoulders of Dasani's mother and stepfather and government-provided services such as the homeless shelter and public schools. Discussions of endemic government mismanagement and individuals experiencing bad outcomes as a consequence of their own bad decisions, however, does not appear to be what most inequality worriers are interested in.

That the publicly-funded but privately-managed charter school has far better equipment than the publicly-managed and funded school Dasani attends suggests that charter schools are a welcome improvement rather than threat to public education. The fact that one of Dasani's teachers has to spend $1,000 of her own money at a time when funding for NYC public schools was surging also speaks towards resource waste and misallocation.

If one believes that government spending is key to improving the fortunes of the poor then income inequality is arguably a good thing, as it subjects more income to higher tax rates than if income were more evenly divided.

The condition of the city-run homeless shelter is shoddy and the behavior of its staff despicable. But remember, letting private charity and civil society take the lead on the provision of such services instead of government is libertarian crazy talk.

Obama's inequality speech

2013-12-10T13:12:00.000-05:00

President Obama recently delivered an address on inequality which was quickly hailed by the usual suspects, with Ezra Klein declaring it his "best speech on the economy" and Paul Krugman stating that it was deserving of a "serious hearing." So let's give it one.

After reciting a bunch of statistics regarding income inequality and providing a slanted version of recent economic history (points ably addressed by Russ Roberts and James Pethokoukis), the president appears to get at the heart of this argument about here:

The problem is that alongside increased inequality, we’ve seen diminished levels of upward mobility in recent years. A child born in the top 20 percent has about a 2-in-3 chance of staying at or near the top. A child born into the bottom 20 percent has a less than 1-in-20 shot at making it to the top. He’s 10 times likelier to stay where he is. In fact, statistics show not only that our levels of income inequality rank near countries like Jamaica and Argentina, but that it is harder today for a child born here in America to improve her station in life than it is for children in most of our wealthy allies -- countries like Canada or Germany or France. They have greater mobility than we do, not less.

This argument, which relies on the use of quintiles and relative mobility as a statistical sleight of hand, has already been addressed by this blog here. In short, under such a measurement it is possible for someone to advance to a different quintile with a $20,000 increase in income in one country but would stay in the same quintile with a $30,000 increase in another country where the quintiles are further apart. That the former is actually better off or more mobile in any consequential sense is not at all apparent.

Moving along:

The idea that so many children are born into poverty in the wealthiest nation on Earth is heartbreaking enough. But the idea that a child may never be able to escape that poverty because she lacks a decent education or health care, or a community that views her future as their own, that should offend all of us and it should compel us to action. We are a better country than this.

True enough (at least with regard to health care and education -- it is not apparent what "a community that views her future as their own" means), but what does this have to do with inequality or mobility? Lack of a decent education or health care is a problem in its own right. It doesn't suddenly become a problem because the number of billionaires is surging or movement between income quintiles is stagnating.

Inequality and resentment

2013-10-26T13:22:00.001-04:00

One of the arguments typically employed by inequality doom-mongers in justifying their demand that wealth be forcibly redistributed from the rich to the rest is that gaping inequalities of income and wealth pose a threat to social cohesion. Absent such redistribution, the thinking commonly goes, the seething masses will produce widespread unrest, manifesting itself through higher crime, disengagement from the political process, a loss of respect for valued institutions, etc. At a minimum such continued inequality could make for some real unpleasantness and at worst could threaten our very way of life and/or system of government.

There are at least two problems with this school of thought, not the least of which is moral. Even if we accept full-blown revolution in the streets as a likely consequence of income and wealth inequality, then is not the redistribution of wealth some claim is needed to stave it off little more than protection money? How is this any different from terrorist or mafia figures who threaten violence unless their demands are met?

A more practical objection to such thinking, meanwhile, is that most people either don't compare themselves to the very rich or are very resentful about how much money they have, a point made very well by Tyler Cowen on an episode of Econtalk last month:

What people resent are the people who are close to them -- their colleagues, people they went to high school with, in-laws. For the most part, Americans do not resent the wealthy...For ordinary Americans the home of envy is Facebook...That's where envy blossoms. You look at the people you grew up with, the people you know, you see how well they are doing; if they are doing better than you, you feel bad. That's what I observe. You're not worried about the Titans of Silicon Valley -- you know, he earned another billion, I hate that guy. I don't see much of that.

Exactly right. For the vast majority of people the very rich, the 1 percent if you will, are an irrelevance and an abstraction. When people turn to others for use as a measuring stick to evaluate their own well-being or success, they use those they are familiar with from similar circumstances, not those they only recognize through television or magazine articles.

Econtalk host Russ Roberts then makes a couple of good points of his own:

I think part of the reason we think we have an inequality problem is we spend a lot of time telling people we have one. So they start to think it's true. And as you point out, I think people look at the people around them, and in fact -- they like rich people who aren't near them. They love looking at, reading about Bill Gates's house and the lifestyles of the rich and famous. They don't find -- it doesn't enrage them. They find it entertaining.

In other words, not only are most people not resentful of the rich, they oftentimes actually enjoy following them, which helps explain the celebrity status enjoyed by figures such as Bill Gates, Warren Buffet or the late Steve Jobs. As an aside, I'll add that to the extent the rich are resented it isn't for their wealth per se, but for the unfair manner in which they are perceived as obtaining it, with Wall Streeters who enjoyed federal bailouts a prime example.

Roberts' comment that "we spend a lot of time telling people we have [an inequality problem]" is another good observation. To the extent people express anger or resentment over inequality, one can only wonder how much of this is a result of drawing their own conclusions and how much is simply a product of repeatedly being told by members of the media and intelligentsia what a problem inequality is and how angry they should be.

In any case, the notion that huge swathes of the populace -- driven by anger over inequality -- are on the verge of taking to the barricades appears to be mostly leftists (and, in fairness, more the extreme left) projecting their own wishes and desires rather than an objective analysis of the country's mood. This is why the short-lived Occupy Wall Street movement provoked such near-delirium in leftist circles, as the long-awaited rebellion against capitalist institutions and the rich appeared to finally be at hand. Maybe next year.

Another inequality column

2013-10-20T14:51:00.000-04:00

The inequality scribblings have come thick and fast of late, with David Lazarus -- a business and consumer columnist for the Los Angeles Times -- one of the more recent to serve up a big batch of half-truths and nonsense on the subject. I posted a number of my objections to his piece on Twitter where, as a fairly active Twitter user, he no doubt saw them but declined to respond. Since he didn't, I'll lay out my objections in more comprehensive fashion in this blog post. Here's how the column begins:

Let's get our heads around that. Only a tiny fraction of the roughly 7 billion people in the world accounts for 46% of the estimated $241 trillion in money, property and other material resources available.

The richest 10%, meanwhile, can claim 86% of global wealth, leaving 90% of the world's population to divvy up whatever's left.

These extraordinary figures were included in a report this week from Credit Suisse Research Institute. It found that the gravy train is chugging along, but with relatively few passengers.

Right away the agenda is transparent, less from the facts themselves than the way they are used. The claim that "90% of the world's population [is left] to divvy up whatever's left" implies that the world is one giant piñata, where wealth mysteriously appears and is subsequently claimed by a lucky few. The reality, however, is that wealth must first be created before it can be consumed, and many of those who account for an outsize share of global wealth also account for an outsize role in its production. Lazarus's reference to a "gravy train" is similarly ridiculous, with its strong implication that some people are simply lucky enough to get a ticket to board while other unfortunate souls are left at the station -- it's all just down to good fortune.

He continues:

Former Labor Secretary Robert Reich has been sounding the alarm over wealth inequality for years. He's at the center of a recent documentary, "Inequality for All," which explains the problem in frightening detail.

"When so much of the purchasing power, so much of the economic gain, goes to the very top," Reich told me, "there's simply not enough purchasing power in the rest of the economy."

Robert Reich, readers will recall, is the guy chronicled by this blog as peddling unsubstantiated statistics and advancing a bizarre interpretation of history to support his views on income inequality.

That has profound implications. In the United States, consumer spending accounts for about 70% of all economic activity. If most consumers are getting by with less, the inevitable outcome is that they'll have fewer dollars to pump into the economy.

But why should we assume people are getting by with less? Does Lazarus not realize that while someone's slice of a pie can shrink that its overall size can still increase as long as the pie is also growing? It's also not apparent why the 70% figure is significant. While it's true that household final consumption expenditure accounts for 72% of US GDP according to the World Bank, it is only 54% of GDP in Australia (which has not experienced a recession in a generation), 58% in Canada and 48% in Sweden, neither of which are considered economic basket-cases. Why then must this figure be maintained?

Reich noted that wealth inequality was greatest in this country in 1928 and 2007. In both years, the top 1% represented about a quarter of total income.

And shortly thereafter, in 1929 and again in 2008, the U.S. economy tanked, dragging down the rest of the world with it.

Note that no causal connection is presented, likely because none exists. It should furthermore be kept in mind that Reich is discussing wealth inequality rather than income inequality, which is much more dependent on asset prices such as real estate or stocks. Both 1929 and 2008 saw the popping of massive asset bubbles which had driven up the wealth of those with large holdings in those assets -- i.e. the rich. The bubbles were the problem, and the fact that wealth inequality had zoomed upwards was a symptom of that rather than the underlying cause.

Other nations, Reich said, have taken steps to address wealth inequality. They've invested more in infrastructure and education in an effort to create more economic opportunities throughout the social spectrum.

The United States, for its part, has been content to let the problem grow.

"We are far more unequal than any other advanced society in the world, and we are surging toward greater and greater inequality," Reich said.

It is unclear how infrastructure is related to wealth inequality, or how education would impact the equation. Indeed, it's worth noting that the US, as measured by the percentage of its population with a tertiary degree, already ranks 4th in the world. Also note Lazarus's assertion that wealth inequality is a problem, even though he has yet to explain why it should be regarded as such.

The Credit Suisse report bears that out. Average adult wealth in Switzerland is $513,000, the world's highest, followed by Australia ($403,000), Norway ($380,000) and Luxembourg ($315,000).

Average adult wealth in the United States is $301,000, but that number is heavily skewed by the fact that this country has, by far, the greatest number of "ultra-high net worth" individuals, with personal assets exceeding $50 million.

Where to begin? Perhaps let us first note that while Lazarus makes a special effort to downplay the significance of average adult wealth in the US, he makes no effort whatsoever to note special factors which impact the other countries he cites. While he argues, for example, that the US figure is skewed by rich individuals, the Credit Suisse report notes (page 24) that Switzerland has 3,460 ultra-high net worth such persons, which translates to about 1 in every 2,321 of its roughly 8 million citizens. For the US, meanwhile, the comparable figure is 1 in every 6,878 (314 million divided by 46,650) -- about three times less!

Other unique circumstances go unremarked upon, even though they are highlighted in the report. On page 52, for example, the report points out:

Most of the rise in [Swiss] wealth since 2000 is due to the appreciation of the Swiss franc. Measured instead in Swiss francs, household wealth fell in 2001 and 2002, and then showed a gentle upward trend, interrupted only by the global financial crisis.

Australia (page 57):

Interestingly, the composition of wealth is heavily skewed towards real assets, which amount on average to USD 294,100 and form 59% of gross household assets. This average level of real assets is the second highest in the world after Norway. In part, it reflects a sparsely populated country with a large endowment of land and natural resources, but it is also a manifestation of high urban real estate prices.

Unlike Switzerland and Australia, Norway and Luxembourg are not profiled by the report, but it is fairly common knowledge that Luxembourg is a tax haven where banking constitutes the largest economic sector, while Norway is a small country (population of 5 million) sitting upon enormous natural resource wealth and is home to the world's largest sovereign wealth fund. Curiously, Lazarus found none of that worth remarking upon -- it's almost as if he's more interested in advancing an agenda than the truth or something!

Furthermore, given how easily it seems this figure can be skewed, it's not even apparent why Lazarus has seized upon wealth inequality as a useful metric.

Being successful, obviously, isn't a bad thing. There's much to be said for the whole land-of-opportunity idea, in which people are rewarded for a job well done.

But that's not what's actually happening. The rich are gaming the system so they can accumulate a greater share of wealth to the detriment of others.

They do this by using their financial (and hence political) clout to reduce their share of taxes, thus placing a greater burden on the rest of society to fund government programs and the public sector's investment in economic growth.

Reduce their share of taxes? No, sorry, that is just empirically not true. Rather than declining, the percentage of the tax burden borne by the rich has steadily risen over the last 30+ years and their share is higher in the US than many other industrialized countries. This is not a matter of opinion -- Lazarus's assertion that the rich are "using their financial clout to reduce their share of taxes" is simply false.

While the column continues on, I think the evidence presented thus far is sufficient to demonstrate that Lazarus is not a man searching for truth or to educate his readers, but to push a preferred narrative. If he has to present misleading data, obfuscate or say things that aren't true, so be it apparently. That those who warn about inequality do this so often suggests a group not fully confident of winning their argument on a level playing field. If that's the case, I don't blame them.

Income inequality update

2013-10-14T12:50:00.001-04:00

Scott Lincicome highlights this short video discussing income inequality from a global perspective:

Among other factoids mentioned: the median US household earns more than 93 percent of the world's households. Something to chew on next time someone claims to be part of the victimized 99 percent.

And while we're on the subject of global income inequality, The Washington Post's Max Fisher produces this world map based on a new metric, the Palma ratio, which some economists evidently believe is superior to the Gini coefficient as a measurement of inequality:

Click to enlarge

While there are a number of countries with worse inequality than the US that few Americans would want to collectively trade places with -- Bolivia, Namibia, Zambia, Central African Republic and Nicaragua readily spring to mind -- be sure to also note some of those with greater equality than the US. Among them: Pakistan, Egypt, Ethiopia, Mali, Bulgaria and Kyrgyzstan. This would appear to lend support to the theory that income inequality is neither necessarily a good thing or bad thing, but rather just a thing.

Lastly, UMass-Amherst economics professor Nancy Folbre has a new post on the New York Times' Economix blog which attempts to link inequality to the government shutdown. Among the column's assertions:

Cross-national comparisons suggest that inequality can literally undermine democratic institutions, perhaps because the very rich find them inconvenient. The political scientist Christian Houle finds that inequality is associated with an increased “probability of backsliding from democracy to dictatorship.”

"Associated with" basically means that that the author found some correlation but no causal relationship, so the notion that inequality undermines democratic institutions remains without foundation. Folbre continues:

Many of the causal links are obvious. Those with money to invest in campaign contributions and lobbying exercise a disproportionate influence on political outcomes. Apparently, a few super-rich individuals can supersede the influence of a business community that has more to gain from political compromise.

Folbre's first link is to a Charles Blow opinion column whose only seemingly fact-based reference to a causal link is this sentence:

As The New York Times pointed out this weekend, Republicans — financed by the billionaire Koch brothers — began plotting this government shutdown over Obamacare soon after the president began his second term.

That's great, except Slate's Dave Weigel has already pointed out that the Koch brothers don't seem to actually want a government shutdown and that Americans for Prosperity, which is chaired by David Koch, "has been absent from the shutdown fight, from rallies in support of it."

Folbre's second sentence, meanwhile, which cites the influence of "a few super-rich individuals" contains a link to a story which says nothing about the influence of individual donors. Indeed, it actually appears to suggest the opposite through its statement that "business lobbyists acknowledged that the mere suggestion they were considering backing primary challenges next year could enhance grass-roots support [emphasis mine] for the very lawmakers they want to defeat." In any case, that a progressive like Folbre is mourning the demise of corporate influence in the GOP is equal parts funny and strange.

Like Paul Krugman, Folbre then decides to engage in some armchair psychological analysis:

Furthermore, what people feel may be at least as important as what they think. The shutdown is fueled more by anger than by analysis. Its hot-tempered, intransigent mood seems entirely consistent with a new wave of social science research documenting the relevance of phenomena below the surface of the conscious mind, like loss of trust, emotional frustration and displaced aggression.

Richard Wilkinson and Kate Pickett provide a broad summary in “The Spirit Level: Why Greater Equality Makes Societies Stronger,” showing that income inequality across states within the United States, as well as across countries, is associated with a higher level of socially dysfunctional outcomes in a variety of domains, including health, education, obesity and incarceration.

They contend that increased inequality intensifies social stress, making it difficult for individuals to successfully collaborate. While they don’t insist this dynamic is biologically hard-wired, they mention evidence that primates and monkeys living in strict social hierarchies often behave more aggressively than others, attacking their inferiors and seeking to appease their superiors.

Newsflash about The Spirit Level: its conclusions are garbage as The Economist noted last year:

“The Spirit Level” caused a sensation when it was first published in Britain, probably because it reflected the post-crash Zeitgeist. Its conclusions, however, have been largely debunked. In a devastating critique, published by the Democracy Institute, Christopher Snowdon showed that Mr Wilkinson and Ms Pickett made highly selective use of statistics.

Tino Sanandaji has also comprehensively debunked the book. How can Folbre, a professional economist, be unaware of this? Perhaps with little other evidence around to support her preferred narrative, she simply must grasp at any straw available. Par for the course with the income inequality doom-mongerers.

Krugman, again

2013-10-13T17:35:00.000-04:00

When Paul Krugman isn't engaged making thinly-based accusations of racism, he apparently likes to spend part of his time as an amateur psychologist. Or at least that is a reasonable conclusion based on one of his recent blog posts on the debt ceiling brouhaha:

Republicans are getting a lot of pressure from business, which doesn’t like what’s happening. And some pundits are already speculating about the possibility either of a split within the GOP or a kind of coup in which the business-backed party elders take control back from the crazies.

So I’ve been thinking about this, and have managed to convince myself that it’s wishful thinking.

Now, it’s true that Republicans are bad for business — and they didn’t start being bad for business when the latest hostage crisis erupted. Ever since Republicans retook the House, federal spending adjusted for inflation and population has been dropping fast:

Real federal spending per capita

This is exactly the wrong thing to be doing in a still-depressed economy with interest rates at zero; my back of the envelope says that GDP would be at least 2 percent higher, and corporate profits at least 6 percent higher, if this wrong-headed austerity weren’t taking place. So even before the current crisis Republican obstructionism was costing corporate America a lot of money.

Note how Krugman repeatedly states opinion as fact ("Republicans are bad for business"; "Republican obstructionism was costing corporate America a lot of money") and refuses to entertain alternative points of view. That his calculations and/or model may be wrong/open to question, or that corporate America may believe that reduced federal spending is a prudent movie, are not mentioned as possibilities. Then Krugman decides to dial the crazy up to 11:

But here’s the thing: while the modern GOP is bad for business, it’s arguably good for wealthy business leaders. After all, it keeps their taxes low, so that their take-home pay is probably higher than it would be under better economic management.

Also, when you make as much money as the 0.1 percent does, it’s no longer about what you can buy — it’s about prestige, about receiving deference, about what Tom Wolfe (in an essay I haven’t been able to find) called “seeing ‘em jump.” And there’s clearly more of that kind of satisfaction under Republicans; under Democrats, as Aimai at No More Mister Nice Blog points out, tycoons suffer the agony of having to deal with people they can’t fire.

In a way, this is an inversion of the usual argument made by defenders of inequality. They’re always saying that workers should be happy to accept a declining share of national income, because the incentives associated with inequality make the economic pie bigger, and they end up better off in the end. What’s really going on with plutocrats right now, however, is that they’re basically willing to accept lousy economic policies from right-wing politicians as long as they get a bigger share of the shrinking pie.

This may sound very cynical — but then, if you aren’t cynical at this point, you aren’t paying attention. And I suspect that the GOP would have to get a lot crazier before big business bails.

Again, the possibility that business leaders/corporate America may simply disagree with Krugmanomics and/or the notion that Republicans are bad for business is not allowed. Instead, the support of business leaders for GOP politics -- strangely they aren't bowled over by the awesome weight of Krugman's back of the envelope calculations -- is simply chalked up to a bizarre theory based on prestige and relative standing. Evidence presented? None (his one link is to a harangue which relies mostly on theories about tipping). Mind you this is the same guy who recently stated that "the other side doesn't care about evidence."

When given the choice between the pretty simple and well-grounded theory that business leaders lean Republican because they think their policies are better for business than those proffered by the political left/Democrats -- literature indicating such a belief system is not hard to find (note, for example, the considerable overlap between common GOP policy positions and the US Chamber of Commerce's 2013 American Jobs and Growth Agenda) -- and an outlandish one concerning business leaders motivated by the pleasure they derive from their power over minions, Krugman opts for the latter. That he has the temerity to reference GOP "crazies" is a classic case of the pot calling the kettle black.

Oh, and what's this about a "shrinking economic pie"?

Ladies and gentlemen, I give to you one of the political left's leading intellectual lights.

No racial slur? No problem

2013-10-13T10:45:00.002-04:00

Paul Krugman earlier this week:

Lots of people have been referencing this Democracy Corps report on focus-group meetings with Republicans, and with good reason: [Democratic pollster Stan] Greenberg has basically provided a unified theory of the craziness that has enveloped American politics in the last few years.

What the report makes clear is that the current Republican obsession with attacking programs that benefit Americans in need, ranging from food stamps to Obamacare, isn’t about some philosophical commitment to small government, still less worries about incentive effects and implicit marginal tax rates. It’s about anxiety over a changing America — the multiracial, multicultural society we’re becoming — and anger that Democrats are taking Their Money and giving it to Those People. In other words, it’s still race after all these years...Meanwhile, a key takeaway for us wonks is that none of the ostensible debates we’re having — say, the debate over rising disability rolls — can be taken at face value. Yes, we need to crunch the numbers, but in the end the other side doesn’t care about the evidence.

It's deeply hilarious that Krugman concludes his piece by claiming that the other side disregards evidence, when an actual read of the Democracy Corps report produces little to support its claims of racism/racial consciousness underpinning GOP opposition to Obama and big government. Indeed, what the report actually reveals, or at the very least strongly suggests, is that the ones with minimal regard for facts and/or prejudicial thinking are Krugman and Greenberg. This passage from page 5 is fairly illuminating, if not stunning:

We conduct homogeneous groups to replicate real life homogeneity where people can feel free to talk about their feelings and emotions. We think this is what people say around the water cooler or a family dinner. But for the first time for me, it felt like we were creating a safe space where Republican voters could express feelings freely -- and they did.

We expected that in this comfortable setting or in their private written notes, some would make a racial reference or racist slur when talking about the African American President. None did. [emphasis mine]

Greenberg appears to think that Republicans are so driven by racial animus in their antipathy towards President Obama that the possibility one of his focus group participants would make a racial reference or slur about President Obama was not merely entertained but *expected*. Right away it's apparent what kind of game is being played. Greenberg continues:

They know that it is deeply non-PC and are conscious about how they are perceived. But focusing on that misses how central is race to the worldview of Republican voters. They have an acute sense that they are white in a country that is becoming increasingly "minority," and their party is getting whooped by a Democratic Party that uses big government programs that benefit mostly minorities, create dependency and a new electoral majority. Barack Obama and Obamacare is a racial flashpoint for many Evangelical and Tea Party voters.

The lack of explicit racial animus, in other words, is not going to deter Greenberg from advancing a race-based narrative. Indeed, the document's first page flatly states that "Race remains very much alive in the politics of the Republican Party." Now, if you're going to throw around those kinds of accusations, you better have the evidence to back it up. The supporting material, however, is thin at best.

Here is the word cloud supplied for focus group comments about President Obama:

See anything even vaguely racial there? And what does "kniving" mean? Is that perhaps anything like "conniving"?

This is the closest Greenberg comes to laying out racial animus as an animating element of Republican opposition to Obama:

Let's be clear here: questions regarding President Obama's religious views or citizenship are without foundation and wrong. However silly, repugnant or misguided some of these opinions are, however, they are not racial in nature. Xenophobic and anti-Muslim, yes, but not racist. If President Obama had the same mixed-race ancestry but was born and raised Barry Smith in Kansas to a father who was a plumber, would these same questions be raised? It's not apparent.

Let's move onto Greenberg's evidence for his contention that Republicans see government programs as a means of buying off support from racial minorities and that Obamacare is a "racial flashpoint." In the section starting on page 10 entitled "Big government and dependency Democrats: Obamacare," the report argues that the first strand of opposition to big government/Obamacare is "big programs, spending and regulations that undermine business" while the second is "a concern with intrusive government that invades their privacy, diminishes their rights and freedoms, and threatens the Constitution."

The report then says this:

And the third is the most important and elicits the most passions among Evangelicals and Tea Party Republicans -- that big government is meant to create rights and dependency and electoral support from mostly minorities who will reward the Democratic Party with their votes. The Democratic Party exists to create programs and dependency -- the food stamp hammock, entitlements, the 47 percent. And on the horizon -- comprehensive immigration reform and Obamacare. Citizenship for 12 million illegals and tens of million getting free health care is the end of the road.

These participants are very conscious of being white and valuing communities that are more likeminded; they freely describe these programs as meant to benefit minorities. This is about a Democratic Party expanding dependency among African Americans and Latinos, with electoral intent. This is why Obama and the Democrats are prevailing nationally and why the future of the Republic is so at risk.

Serious stuff! The section includes 23 quotes from focus group participants meant support these conclusions. Here they are:

Of these 23 quotes, a grand total of one makes reference to goodies being provided to minorities ("every minority group wants to say they have the right to something"), while another discusses the legalization of illegal aliens. One other person, meanwhile, says that "The government's giving in to a minority," but giving in to a minority would seem a quite different claim than giving to minorities. This is ambiguous at best.

The rest of the statements all seem like quite general claims that apply to all Americans rather than select minorities. Indeed, a woman in Roanoke complains that "I don't think they let us be responsible for ourselves," while one in Colorado Springs says "They want us to be dependent upon the government" and another Colorado Springs resident argues that "[Democrats] want us dependent on them."

How does Greenberg or anyone else at Democracy Corps get the impression based on these quotes that the chief strand of GOP opposition is a belief is that government goodies are being used to buy minority votes? Does it not bother them that despite their contention that Obamacare marks a "racial flashpoint" that they cannot muster a single quote regarding Obamacare which references race? Are there other supporting quotes that they simply chose not to include? Can this really be considered sufficient support for the broad claims they make?

Perusing the rest of the report doesn't reveal a great deal of evidence to support the Greenberg/Democracy Corps claims either. While the report makes repeated references to self-consciousness on the part of GOP voters of being white ("the base supporters are very conscious of being white in a country with growing minorities"; "they have an acute sense that they are white in a country that is becoming increasingly 'minority'"; "these participants are very conscious of being white"), the evidence provided reveals this to be a tangential consideration at best.

Of the more than 200 quotes from Republican supporters found in the report, here are the only ones which reference a white self-consciousness:

It's a little bubble. So everybody -- it's like a Lake Wobegon. Everybody is above average. Everybody is happy. Everybody is white. Everybody is middle class, whether or not they really are. Everybody looks that way. Everybody goes to the same pool. Everybody goes -- there's one library, one post office. Very homogeneous. (Evangelical man, Roanoke)

The context for this response is that the man was asked to describe the town he lives in. Given that some of the small towns in the Roanoke area -- and with his reference to one library and one post office, it would seem logical to conclude he hails from one of these towns rather than Roanoke proper -- are in fact overwhelmingly white (nearby Hollins, VA for example -- only 5.5 miles away -- is 90 percent white), this seems more like a statement of fact than revealing someone for whom being white is a big part of his worldview. At the very least it is inconclusive.

Another quote:

I think that [President Obama's] picture of the people in this room would be that we're all a bunch of racist, gun-clinging, flyover state, cowboy-hat wearing yokels. Because we didn't go to Harvard, and we're not from New York, and we're pretty white, we're pretty middle class. We like to go to church, we like our Bibles. And so we're just not him. We're not on his agenda. (Evangelical man, Roanoke)

Unfortunately we don't know what elicited this quote, with the only context provided being that "It is from this perspective (referencing the previous Lake Wobegon quote) that [Evangelicals] view President Obama." It is not difficult to imagine, however, that the participants were simply asked to describe how they think Obama sees them. And in light of President Obama's comments regarding rural Pennsylvanians, it's not obvious the man's speculation is ill-founded. Yet again it is unclear that being white is a central part of the respondent's worldview or simply his -- not entirely absurd -- perception of how he and others are viewed by those on the left.

The only other quote regarding white people found in the entire report is a quote from a moderate Republican who provides the response of "white 54 year old man in a business suit" when asked to describe her perception of the Republican Party.

That's it folks. That really is the sum total of the evidence presented to support the idea advanced by Democracy Corps that Republicans are self-conscious about being white in a country turning increasingly minority (literally not a single quote by Republicans mentions shifting demographics) where Democrats are using government programs to purchase minority support. They may hold some nonsensical views about President Obama personally, but the notion that, in the words of Paul Krugman "it's still race after all these years" is simply not supported.

One has little choice but to conclude that Krugman is either so lazy that he felt free to repeat the report's conclusions without reading it for himself, or did read it but was unpeturbed by both its lack of evidence to support its sweeping conclusions (ironic, given his charge that "the other side doesn't care about the evidence") and self-admitted prejudice towards its interview subjects. With accusations of racism/racial antagonism among the most serious that can be leveled in US politics, Krugman's decision to engage in such polemics with minimal supporting facts -- an apparent secondary consideration when advancing an agenda -- reflects extremely poor upon him.

Inequality and social cohesion

2013-09-22T12:33:00.000-04:00

Robert Reich in the New York Times:

I’m 67 and have lived through some angry times: Joseph R. McCarthy’s witch hunts of the 1950s, the struggle for civil rights and the Vietnam protests in the 1960s, Watergate and its aftermath in the 1970s. But I don’t recall the degree of generalized bile that seems to have gripped the nation in recent years.

The culprit for this alleged rise in bile? What else -- income inequality:

Widening inequality thereby ignites what the historian Richard Hofstadter called the “paranoid style in American politics.” It animated the Know-Nothing and Anti-Masonic movements before the Civil War, the populist agitators of the Progressive Era and the John Birch Society — whose founder accused President Dwight D. Eisenhower of being a “dedicated, conscious agent of the Communist conspiracy” — in the 1950s.

Inequality is far wider now than it was then, and threatens social cohesion and trust.

Let's see if this stands up to even rudimentary scrutiny. Here's one typical measure of inequality:

If Reich's theory is correct, the rise in inequality starting around 1980 should correlate with a breakdown in social cohesion.

In the 1960s the US witnessed the assassination of a variety of political figures: President Kennedy, his brother Sen. Robert Kennedy, Martin Luther King and Malcolm X (while the former two were not elected officials, they certainly were prominent political voices). In the early 1970s George Wallace was shot while campaigning for president. President Reagan was shot less than three months into his presidency in 1981.

Since Reagan's shooting the US has experienced zero shootings of presidents, presidential candidates or members of Congress. The US did experience a huge incident of domestic terrorism in the 1994 Oklahoma City bombing, but there is no evidence that this was driven by Timothy McVeigh's anger over insufficiently high tax rates on the rich or any other issue related to inequality.

Wikipedia's list of US riots and civil disturbances, meanwhile, counts 68 for the 1960s and 49 for the 1970s compared to 14 for the 1980s, 11 for the 1990s and 24 for the 2000s. Both violent and property crimes, arguably other indicators of social cohesion, have declined since 1980.

Robert Reich and his ideological fellow travelers remain convinced that inequality is the root cause of all sorts of social and economic ills. Someday they might even come up with some supporting evidence.

Stress as poverty trap

2013-09-22T09:17:00.001-04:00

Recent weeks have seen a growing spotlight placed on a novel explanation for why so many of the poor stay poor: mental stress. Quite simply, the argument is that poverty places a mental strain on people which leads to a poor decision-making and thus a reduced ability to break free of their condition. Drawing on a new book released by Sendhil Mullainathan, a Harvard economics professor, and Eldar Shafir, a cognitive psychologist at Princeton (both of whom also collaborated with two other social scientists on this recent paper on the subject published by Science), Paul Hiebert of the Pacific Standard says that their research "shows how poverty can often be a self-perpetuating trap."

Slate's Matt Yglesias has also seized on their work, using it to argue against those who want to pare back the generosity of welfare state while calling money-related worries "a substantial barrier to the smart decision-making that people in tough circumstances need to succeed." Mullainathan, meanwhile, was given a guest-column in today's New York Times to further explain his theory.

While it is not difficult to imagine that poverty is stressful, I'm not as credulous as Yglesias or Hiebert as to the explanatory power of this theory regarding the cycle of poverty. If the mental stress placed by poverty was so significant, shouldn't most Americans still be trapped in this condition? After all, it is not difficult to imagine that a majority of American families -- in one generation or another -- have found themselves in dire financial straits.

How many families, for example, immigrated to the US in well-off or wealthy circumstances? How many weathered the Great Depression without severe financial strain and its accompanying stress? Yet it would seem that a majority of those who experienced such trying times did not then become forever trapped in vicious cycle of mental stress leading to further poverty. Thinking about this, I posed the following question to Yglesias on Twitter:

@mattyglesias curious how you think your theory that poverty promotes bad decision-making comports with... (1/2)
— Colin (@richisglorious) September 4, 2013

@mattyglesias ...economic success of refugees from Vietnam upon their arrival in the US. See second paragraph: http://t.co/d5RjFBlcGo (2/2)
— Colin (@richisglorious) September 4, 2013

As the wikipedia article I pointed out to Yglesias notes:

Vietnamese Americans have come to America primarily as refugees, with little or no money. While (on a collective basis) not as academically or financially accomplished as their East Asian counterparts, (who generally have been in the US longer, and did not come as war or political refugees but for economic reasons), census shows that Vietnamese Americans are an upwardly mobile group. Although clear challenges remain for the community, their economic status improved dramatically between 1989 and 1999. In 1989, 34 percent of Vietnamese Americans lived under the poverty line, but this number was reduced to 16 percent in 1999, compared with just over 12 percent of the U.S. population overall.

Let's further consider that not only did these refugees arrive with "little or no money" nor were as well educated as other East Asian immigrants, but that they also typically did not speak English and came from a country that had been at an almost constant state of war since World War II. Between a lack of money, education, knowledge of English and war, if anyone had a right to complain about stress it was the Vietnamese! Yet by 1989, less than 15 years after the fall of Saigon, only one-third of Vietnamese immigrants were in poverty while another ten years later that number had been cut in half.

After initially providing me with an answer that wasn't really germane to my point, and then denying that he had called the mental stress associated with poverty a barrier to getting ahead, he then conceded that the issue was probably worthy of further attention:

@richisglorious Aha. Got me. Well it’d sure be interesting to re-run the experiment just with Vietnamese immigrants.
— Matt Yglesias (@mattyglesias) September 4, 2013

It's a point Mullainathan and Shafir should probably address before anyone further cites their theory as an explanation for why so many Americans remain mired in long-term poverty.

On the trail of a dubious stat

2013-09-16T18:16:00.000-04:00

Banging the drum about income inequality in her Washington Post column last week, Katrina vanden Heuvel advanced this fairly amazing factoid:

In 1978, according to [Robert B.] Reich, a “typical male worker” made $48,302, while the typical top 1 percenter earned $393,682, more than eight times as much. In 2010, even as overall gross domestic product and productivity increased, the average male worker’s wage fell to $33,751. Meanwhile, the average top 1 percent earner was making more than $1.1 million — 32 times the average earner.

This should strike anyone with even a passing familiarity with the US economy as extremely questionable. Are we actually supposed to believe that the typical male worker has seen their earnings plunge by almost $15,000 -- a 30 percent drop -- since the halcyon days of the late 70s? Does that really make sense?

If one performs a google search for "male 1978 $48,302" virtually every result that comes up has Reich's name associated with it, which would suggest that it's a figure that, if he did not simply pluck it out of thin air, arrived at by some method of statistical alchemy. While I initially decided to leave these questionable numbers alone after first reading vanden Heuvel's column last week -- as correcting the economic misinformation spewed by Reich and Nation columnist vanden Huevel could be something close to a full-time job -- last night I noticed the stat repeated by the @urbandata twitter feed:

Seeking once again to establish where this number came from, I sent the following tweet to @urbandata:

@urbandata how is "typical male worker" defined? Where does Reich gets his data from? Looked for this info last week to no avail.
— Colin (@richisglorious) September 16, 2013

Getting radio silence, and disturbed that these stats were being further propagated, I then sent the following tweet to vanden Heuvel:

@KatrinaNation @RBReich how is “typical male worker” defined and what is the source for the stats re: typical male worker income? Gracias.
— Colin (@richisglorious) September 16, 2013

Shen then gave a one-word response:

@richisglorious @RBReich Median
— Katrina vandenHeuvel (@KatrinaNation) September 16, 2013

According to the US Census Bureau (Table P-5), median male income in 2010 was $33,221 (2011 dollars). This isn't the same as the Reich/vanden Heuvel figure of $33,751, but it's fairly close. What is not close, however, is the median male income figure for 1978. Rather than the $48,302 claimed by Reich/vanden Heuvel, the Census Bureau provides a figure of $34,596 -- a discrepancy of over $13,000! I sought to alert vanden Heuvel to this fact:

@KatrinaNation @RBReich in that case the data is completely wrong, as http://t.co/xG3t88UQE9 lists 1978 male median inc as $34.6K, not $48K
— Colin (@richisglorious) September 16, 2013

An answer has thus far not been forthcoming. Additional searches for where Reich could have produced his figure for money made by male workers in 1978, produced this post from the New York Times' Economix blog regarding male and female wages. This chart in particular is fairly interesting:

As can be seen, earnings for male workers since 1970 -- rather than falling to less than $34,000 -- have consistently remained above $40,000. The $33,000 figure cited by Reich and vanden Heuvel only makes sense if one looks at earnings for all men (not just workers), which appears to be approximately $33,000 for 2010 (of course, since Reich/vanden Heuvel specifically said male "workers" rather than all men, this provides zero vindication/validation).

Furthermore, even if we take the all men figure, the income for this group in 1978 appears to be around $43,000 for 1978 rather than the $48,000 claimed, so they are still wrong. The only possible explanation, which still doesn't make much sense, is comparing stats for male workers in 1978, which appears to be about $45,000, against all males in 2010, which is a case of apples and oranges.

Either way, it seems that Reich has a duty to explain where his figures -- which appear to be both at odds with those of the Census Bureau and the Brookings Institution -- come from. More likely, given the lack of supporting evidence, it seems he owes a correction.

"Toxic" inequality

2013-09-14T09:45:00.001-04:00

While our friends on the left constantly warn us of the alleged dangers of income inequality, what they seem to struggle with is finding actual concrete examples of inequality's negative impact on society. It's the left-wing equivalent of the search for the Loch Ness Monster. Paul Krugman, however, thinks he finally found proof of Nessie. In a blog post this week entitled "Toxic Inequality" Krugman points to a recent New York Times story on the class divide at Harvard Business School as a "fascinating portrait of a society being poisoned by extreme inequality."

So what does the story say? Are some HBS students being ground down under the the boots of the well-heeled? Are only the rich receiving an education and the relatively less fortunate students deprived? Not really. Rather than uncovering any tragedy or demonstrable harm, the upshot of the NYT piece is that some HBS students can't afford to party with others. No seriously, here is how the story begins:

Is class a more divisive issue at Harvard Business School than gender?

As soon as new students arrive, they are expected to write checks of $300 or $400 to their “sections,” the groups with whom they take first-year classes, if they want to participate in social events. In recent years, second-year students have organized a midwinter ski trip that costs over $1,000, while others, including members of “Section X,” a secret society of ultrawealthy students, spend far more on weekend party trips to places like Iceland and Moscow. Tickets to the winter ball, called Holidazzle, have cost $200 or more in recent years.

First off, $300-400 in the context of tuition that is $56,000 and an overall cost projected of enrollment at over $90,000 is barely a rounding error, so it's rather ludicrous to think this constitutes a real dividing line in the ability of students to participate in their sectional social events. Secondly, and most important, who really cares if someone can't do a midwinter ski trip or take a trip to Iceland? This isn't the stuff that nightmares are made of.

Rather than a one-off, the article continues in this vein, such as this paragraph about halfway through:

The result is a school that mixes students of relatively modest means with extremely wealthy ones, including in recent years the children of Leon Black, a private equity investor, and Gerald D. Hines, the founder of one of the world’s largest real estate firms, among many others. In interviews, some students mentioned the Instagram feed of Michael Hess, a member of the class of 2013, who has posted photographs of Mick Jagger close-up in concert, courtside seats at a Knicks game and stops on his trips around the world.

If this isn't the ultimate first world problem, it's hard to know what is. Add this to the list of tragedies inflicted by inequality: the Instagram feeds of the rich and well-connected.

Fortunately it seems that the business school's collective brainpower was able to find ways to at least ameliorate the damage wrought by such toxic levels of inequality:

After hearing complaints from students, the co-presidents of the class of 2013, Kunal Modi and Laura Merritt, worked to introduce less expensive activities, including trivia nights, visits by food trucks and coffee hours. They persuaded administrators to install lawn furniture on campus so students would have another setting where they could relax without spending money.

Whew! Lord of the Flies averted!

Krugman, meanwhile, sums up the article's deeper meaning:

The point is not that we should weep for middle-class HBS students, most of whom still have better prospects than the great majority of Americans. It is, instead, that what’s going on at HBS is a microcosm of what’s happening to America, and an excellent illustration of the harm extreme inequality can do.

So what is the microcosm of what's happening to America? That some people have access to luxuries that others don't? That some people will segregate themselves by means? That some people are jealous of others? Was there ever a time in this country in which this was not true? Really, one would think that if inequality is even half the disaster that doom-mongers warn about that more dramatic examples of its alleged dangers could be found in abundance.

EPI peddles more inequality nonsense

2013-07-13T10:38:00.001-04:00

The left-wing Economic Policy Institute -- the same guys who brought us the Robert Reich video fact-checked earlier this week -- have set up a website devoted to the inequality issue (featuring the Reich video, this time in flash format). Unsurprisingly it presents facts in a deceptive, if not entirely dishonest, manner. Seeking to explain why inequality is a problem, the EPI features the following graphic of two workers toiling away while being overseen by a guy in a top hat smoking a cigar:

In the animation, the workers remove items from the conveyer belt at an ever faster pace as the years go by, but much of their increased productivity accrues not to them, but to Cigar Man. The not so subtle message is that the rich are getting richer not through their own hard work, but by taking the fruits of the working man's labor.

The EPI seeks to further bolster its case through this chart:

As can be seen, since the end of World War II the wages of the top 1 percent have surged while compensation of workers has stagnated. Well that settles it, no? Not quite -- the chart is an apples-to-oranges comparison. Worker compensation in the chart is measured against not worker productivity, but total productivity. While the EPI literally paints a picture in their animated graphic of the typical worker producing more than ever, they supply no evidence that this is actually the case.

Furthermore, on an intellectual level the idea that workers would be increasingly productive while experiencing meager increases in compensation makes little sense. After all, if a worker were highly productive and low-paid, no doubt some greedy capitalist would hire that worker away at at least a somewhat higher compensation level to help bolster their own firm's productivity (and hence profit) levels.

The only way this would not be the case is if one assumes an endless supply of highly productive labor whereby workers have almost no leverage to demand raises or seek alternative employment. While this may be episodically true during bouts of high unemployment, notice that during the go-go late 1990s when the US was basically at full employment that typical worker compensation still only barely budged -- suggestive that these typical workers did not experience a surge in productivity even as overall productivity increased (or else, again, they no doubt would have been hired away at an increased wage). Pointing to China or other less developed countries as examples of endless labor which holds down US worker compensation doesn't really work since they are also much less productive than American workers.

The question that must be asked is why the EPI is presenting such misleading data and -- in the case of Reich video -- simply making things up in its effort to gin up anger over income inequality. The answer can be found in the EPI's prescription of measures which should be taken to help solve this alleged problem:

The list of prescribed actions basically looks like this:

Less free trade
Higher taxes on the rich
More regulation
Union-friendly legislation
A macroeconomic emphasis on full-employment over low inflation

If this seems familiar, it should, as they are all long-time left-wing/Democratic policy goals. This is the real purpose of the income inequality doom-mongering -- furthering long-held goals and policy aspirations. Inequality just happens to be the latest fashionable argument wielded in order to make these policy goals a reality, and if facts have to be twisted or even invented to achieve them, so be it.

Now, let's take a look at what's really going on. First off, the middle class does appear to be disappearing. Not because they are joining the ranks of the poor, however, but because they are becoming rich:

More evidence here:

The Pew study found that some of the shrinkage in the middle class came from people moving into the upper-income tier, which represented 20% of the nation's adults in 2011, up from 14% in 1971. The lower-income group rose to 29% of all adults, up from 25%.

In other words, more people were moving up than down. And look what else Pew has found:

Eighty-four percent of Americans have higher family incomes than their parents had at the same age, and across all levels of the income distribution, this generation is doing better than the one that came before it.

Ninety-three percent of Americans whose parents were in the bottom fifth of the income ladder and 88 percent of those whose parents were in the middle quintile exceed their parents’ family income as adults.

When trying to push a big government activist agenda, good news is the enemy, for without a crisis the justification for government interventionism falls apart.

Fact-checking Reich

2013-07-09T21:28:00.001-04:00

Robert Reich, former Secretary of Labor in the Clinton administration, provides the voiceover in a new video from the left-wing Economic Policy Institute about the evils of inequality which makes the following claims:

Since the 1960s, tax rates on very high incomes have been slashed dramatically, starving public investments in schools and roads and everything else needed to build our economy, and providing ever-greater incentives to rig the economy’s rules to send more money to the top.

Since these are about the only items presented in the video which can be objectively fact-checked, let's see how these comport with reality. The first claim is that tax rates on very high incomes have been slashed dramatically. As can be seen in this chart from the Tax Foundation, this is true:

The top tax rate in 1965 was 70 percent, which hit those making over $100,000 (about $720,000 in 2012 dollars) while today it is 39.6 percent. But the story is a bit more complicated than what Reich and the EPI let on. First off, recall that such rates only apply to taxable income, and that people in the 1960s were very good at avoiding taxes. As wikipedia notes, in the late 1960s legislation was passed by Congress implementing a minimum tax because so many high-income households had avoided paying any federal income tax whatsoever:

A predecessor Minimum Tax was enacted by the Tax Reform Act of 1969 and went into effect in 1970. Treasury Secretary Joseph Barr prompted the enactment action with an announcement that 155 high-income households had not paid a dime of federal income taxes. The households had taken advantage of so many tax benefits and deductions that reduced their tax liabilities to zero. Congress responded by creating an add-on tax on high-income households, equal to 10% of the sum of tax preferences in excess of $30,000 plus the taxpayer's regular tax liability.

While this chart only goes back to 1980, it also helps shed some light on the subject:

In 1980, before President Reagan took office and with top tax rates still at 70 percent, the top 1 percent -- the fattest of the fat cats -- earned something like 9 percent of all income while paying around 19 percent of total income taxes for a spread of 10 percentage points. Thirty years later the top 1 percent were earning 17 percent of total income while paying 37 percent of total income taxes for a spread of 20 percentage points. This may be many things, but an example of getting away with tax murder it is not.

No matter. The heart of the Reich/EPI claim is that this lowering of taxes led to a "starving" of public ~~spending~~ investments on schools and roads. Is this true? Let's first look at revenue. According to USGovernmentRevenue.com, total government revenue in 1965 was $193.6 billion, or $1.39 trillion in 2012 dollars. Given a population in 1965 of 194,302,963, that works out to revenue of about $7,150 per person. In 2012, meanwhile, the relevant numbers are $5.114 trillion and a population of 314 million, which works out to $16,300 per person.

In other words, this alleged starvation of revenue in reality has seen the amount of money collected per person more than double. While this does not exclude the possibility that money was taken away from education and spending and spent elsewhere -- hard to believe on the education spending side given that the Department of Education didn't even exist in the 1960s and spends over $68 billion today -- it does mean that any lack of spending was not due to a decline in revenue from tax cuts.

If the income inequality argument is so compelling, why can't those who scream the loudest about it do so without engaging in such sleights of hand, distortions and outright lies?