Tag: Income Inequality

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The high-tech socialist who gave all his employees, regardless of skill level or seniority, $70,000 a year is, by now, well-know. But it’s not just high-tech startups who are learning this lesson the hard way. More

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Contributor Post Created with Sketch. On Hillary, Income Inequality, and the GOP

 

HillaryDuring her economic policy speech Monday, Hillary Clinton said the “evidence is in: Inequality is a drag on our entire economy.” But it is far from clear that’s empirically the case with advanced economies (vs. developing ones), studies suggest. For instance: There was a big jump in 1%-99% inequality during the 1990s to 21.5% in 2000 from 13.4% in 1991. (It’s actually a bit less today.) Yet both income growth and GDP growth were very strong. Clinton may credit her husband’s policies for that, but whatever. It is an example that greater inequality and broad-based income gains can coexist.

Inequality also rose in the 1980s but, again, strong income growth. As Brookings scholar Rob Shapiro wrote recently about the 1980s and 1990s: “… households of virtually every type experienced large, steady income gains, whether they were headed by men or women, by blacks, whites or Hispanics, or by people with high school diplomas or college degrees.” That even though high-end inequality doubled.

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Contributor Post Created with Sketch. Income Inequality is Rising Again. What Should We Think About That?

 

063015saez1Is this good news, bad news, or a bit of both? From the Associated Press and CNBC:

Incomes for the bottom 99 percent of American families rose 3.3 percent last year to $47,213, the biggest annual gain in the past 15 years, according to data compiled by economist Emmanuel Saez and released Monday by the Washington Center for Equitable Growth. “For the bottom 99 percent of income earners, this marks the first year of real recovery from the income losses sparked by the Great Recession,” Saez, a professor at the University of California-Berkeley, said in a summary of his findings. … Still, income inequality worsened in 2014. The richest 1 percent of Americans posted a much bigger increase in pay: their incomes soared an average of 10.8 percent to $1.3 million. The wealthiest 1 percent also captured 21.2 percent of all income in 2014, up from 20.1 percent the previous year.

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Contributor Post Created with Sketch. How Whom We Marry Affects Income Inequality

 

A recent Economist issue highlighted the role of assortative marrying in the US inequality story. From its review of Inequality: What Can Be Done by Anthony Atkinson:

In America, for instance, incomes at the top of the scale began pulling away from the rest quite soon after 1945. Yet household inequality—taking account of taxes and transfers—did not rise until what Mr Atkinson calls the “Inequality Turn” around 1980. Several factors contributed to this, including changes for women and work. After the second world war, when female labour-force participation grew rapidly, high-earning men tended to marry low-earning women; the rising numbers of working women reduced household inequality. From the 1980s on, by contrast, men and women tended to marry those who earned like themselves—rich paired with rich; rising female participation in the workforce exacerbated inequality.

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Contributor Post Created with Sketch. Is the US Economy Immoral?

 

shutterstock_259200614When Democrat Jerry Brown ran a long shot presidential campaign back in 1992, he snarkily referred to Bill and Hillary Clinton as “Bonnie and Clyde,” the Depression-era bank robbers. Brown, now the governor of California, thought he had a legitimate chance to win the nomination. He wasn’t going to let some delicate notion of political etiquette stand in his way.

Don’t expect that kind of tough talk from Bernie Sanders, another longshot Democratic presidential candidate challenging a Clinton. During his announcement Tuesday, all the socialist Vermont senator had to say about Hillary Clinton was that his campaign “is not about Hillary Clinton.”

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Contributor Post Created with Sketch. The Progressive Tax Triumph That Wasn’t

 

shutterstock_259200641It is often said that conservatives suffer from entirely too much nostalgia for the past. To be perfectly honest, there is a degree of truth to that criticism. We would do well to remember that the good old days were never quite as good as we remember them. Liberals would do well to remember that this phenomenon is hardly exclusive to the right. Bernie Sanders is a self-identified socialist, Democratic candidate for president, and all around crackpot (but I repeat myself). He also longs for the days of a top marginal tax rate of 91%.

“Ninety-nine percent of all new income generated today goes to the top 1 percent. The top one-tenth of 1 percent owns as much wealth as the bottom 90 percent. Does anybody think this is the kind of economy we should have. Do we think it’s moral?”

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Contributor Post Created with Sketch. The Libertarian Podcast: Should We Worry About Income Inequality?

 

This week on The Libertarian podcast, I’m leading Richard Epstein through a discussion of income inequality. Is it the disaster that liberals are making it out to be? What do progressive proposals to address the situation get wrong? What are some free market approaches that could help the poor? And are conservatives destined to lose this fight because of the Left’s appeal to emotion? All that below or on your mobile device if you subscribe to The Libertarian via iTunes or your favorite podcast service.

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Contributor Post Created with Sketch. The Conceptual Flaw in Income Inequality Concerns

 

It is already becoming clear that one of the major issues that the 2016 presidential election will turn upon is income inequality. Republicans should be able to win that struggle if they turn the conversation to economic growth. As I note in my new column for Defining Ideas, there are plenty of conceptual weaknesses in the progressive argument that the GOP can seize upon:

Let’s start with this fundamental observation: It is possible to reduce income inequality in one of two ways: lower the income at the top or raise it at the bottom. Indeed, it is possible, but only by extreme measures, to eliminate all inequality by spreading the wealth of the richest individuals around so that everyone has the same income. Yet none of the critics of income inequality will go that far, because they realize that that strategy will depress the income of the poor as well as the rich. So instead these critics moderate their demands: they are willing to sacrifice some measure of overall social welfare to obtain greater benefits at the bottom. Their theoretical position is that the substantial gains in utility for the poor will override the relatively small losses in personal satisfaction and living standards that the top income earners will experience as a result of redistribution.

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Contributor Post Created with Sketch. Why Does Hillary Clinton Want to ‘Topple’ Americans Making $346,000 a Year?

 

081613incomeshare

Oh, Piketty and Saez, what you have wrought? From the New York Times:

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Promoted from the Ricochet Member Feed by Editors Created with Sketch. What Is Wrong with the Bay Area?

 

4527587396_b44cd17089_zI had no idea the coastal elite cities were this bad. I’ve lived in the San Francisco Bay Area for only a short time (since June), and I’ve already decided to leave early next year for greener pastures. I grew up only a hundred miles east of here near Sacramento, yet the Bay Area is more alien to me than Amsterdam was (where I worked one summer).

I was shocked the other day to read a Brookings Institute report that claims the wages of poor working-class Bay Area residents have fallen $4,000 since 2007:

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Promoted from the Ricochet Member Feed by Editors Created with Sketch. Still More on the Piketty Wars

 

Piketty_in_CambridgeResponding to Thomas Piketty’s response (linked here) to the charges raised by the Financial Times, Chris Giles notes that there remain concerns with Piketty’s presentation:

There are a few things on which we agree. First, the source data on wealth inequality is poor. I have written that it is “sketchy” and Prof Piketty says it is “much less systematic than we have for income inequality”. Second, it would have been preferable for Prof Piketty to have used a more sophisticated averaging technique than a simple average of Britain, France and Sweden to derive an estimate for European wealth inequality. Third, the available data suggests a broad trend of reduction in wealth inequality during most of the 20th Century.

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Promoted from the Ricochet Member Feed by Editors Created with Sketch. The Piketty Wars Continue

 

shutterstock_130262303Thomas Piketty has now come out with a substantive response to the criticisms issued by Giles and Giugliano in the Financial Times. I am glad that he has done so and I suspect that there is much to chew over in the response, so I will look forward to reading the response of others to Piketty’s defense. For the time being, let me offer the following somewhat random observations (I am not going to comment on every paragraph or sentence in the letter, though I have read it all. I certainly encourage readers to read it all as well):

— Piketty tells us that he “certainly agree[s] that available data sources on wealth inequality are much less systematic than what we have for income inequality.” I am glad he states so; it is nice to establish that the data sources for wealth inequality are sketchy and incomplete. But while Piketty tells us that he is sure the data set can be improved, he also claims that he “would be very surprised if any of the substantive conclusions about the long run evolution of wealth distributions was much affected by these improvements.”

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Contributor Post Created with Sketch. Why Not Tax Tenure?

 

Over at Bloomberg Views, Megan McArdle writes a provocative reflection on the nature of wealth. An excerpt: “I’ve been reading Thomas Piketty’s Capital in the Twenty-First Century. You’ll have to wait on my thoughts on the book until they’re a bit more fully formed. As I’ve been reading, though, I keep returning to a question I heard at an economics conference a couple of months back: If we did implement a wealth tax, should it tax tenure?”

Professorial tenure is, after all, a valuable asset. As long as you show up and teach your classes, and you don’t make passes at your students or steal from the department’s petty cash drawer, you can draw a paycheck for the rest of your working life. And since the abolition of mandatory retirement ages, that working life can be as long as you like.

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Promoted from the Ricochet Member Feed by Editors Created with Sketch. Understanding Paul Krugman on Thomas Piketty

 

Gentle readers, whenever Paul Krugman issues a defense of Thomas Piketty regarding the charges against the latter, by all means, be sure to read that defense. Be sure to consider its merits seriously. Be sure to closely and carefully examine the data Krugman might present in defense of his point and if Krugman actually makes a good point — or several — in defending Piketty, be gracious enough to acknowledge as much.

But of course, let us all remember that thus far, Krugman has failed to issue a serious and persuasive defense of Piketty’s findings and position in light of the Giles/Giugliano findings. And no matter how overwhelming the case against Piketty may become, Krugman may never be willing to admit that he is simply on the wrong side of this debate.

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Promoted from the Ricochet Member Feed by Editors Created with Sketch. The Tragedy of Thomas Piketty

 

PikettyThe latest Pikettian response to Giles’s and Giugliano’s assertions regarding the quality of Piketty’s data and research is to accuse Giles and Giugliano of being “dishonest.” (Hat tip in comments here.) I suppose this means that Piketty’s is employing a classic I-am-rubber-and-you-are-glue defense, but there is little substance to the accusation; at best, Piketty can assert (without evidence) that the flaws found with his data do not change his conclusions, and that other studies find widening inequality “by using different sources.”

The response to this is (a) there is, in fact, plenty to suggest that the flaws in Piketty’s data change his conclusions (see my original post and my follow-up for more on this issue), and (b) just because other studies find widening inequality “by using different sources” does not mean that they are right or that, even if they are, Piketty is justified in finding widening inequality through a flawed data set. It is worth noting that Piketty issued a reply via the Financial Times that sought to address Giles’s and Giugliano’s concerns, but, as Tyler Cowen pointed out, Piketty’s reply “was quite weak. Maybe he’s not to be blamed for what was surely a rapid and caught-off-guard response, and perhaps there is more to come, but it doesn’t reassure me either.”

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Promoted from the Ricochet Member Feed by Editors Created with Sketch. What the Piketty Errors Mean

 

PikettyRemember the Reinhart/Rogoff spreadsheet error? In the event that you do not, here is a summary. Those who follow debates between economists will recall that the spreadsheet error led to all kinds of excoriations of Carmen Reinhart and Kenneth Rogoff on the part of liberal economists, who claimed that they were responsible for austerity policies that killed off economic growth. Even Stephen Colbert got in on the act. Their spreadsheet error was considered to be the worst tragedy that befell the planet since that one time when Oedipus and Jocasta had a super-awesome first date.

Of course, the excoriations were vastly overstated, but that didn’t stop intellectual opponents of Reinhart and Rogoff from engaging in hyperbole on a grand scale. Now that Thomas Piketty has been caught making his own significant errors, comparisons have naturally been made between Piketty on the one hand, and Reinhart and Rogoff on the other.

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Promoted from the Ricochet Member Feed by Editors Created with Sketch. Facts Are Stubborn Things . . . As Thomas Piketty Is Beginning to Find Out

 

I have bought Thomas Piketty’s book Capital in the Twenty-First Century, and while I have posted many an item that takes issue with the books claims and conclusions concerning wealth inequality, I do plan on reading Piketty; his book has made quite the intellectual and cultural impact, and although I know what his basic arguments are, I want to be sure that I read the whole of the book to be fully aware of his claims.

But even before reading the book, one can conclude certain things about Piketty, as my previous blog posts indicate. And today, we learn that we may well be able to conclude one more thing still about Piketty, his research, and his arguments: They may be completely wrong. And yes, those words were worth emphasizing.

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Contributor Post Created with Sketch. Piketty’s Focus is in the Wrong Place

 

It says something about how much attention the French economist Thomas Piketty’s new book, Capital in the Twenty-First Century, is getting — and something about how deeply flawed Piketty’s thinking is — that I have, for the second straight week, dedicated my column at Defining Ideas to rebutting the arguments made in the book. As I’ve noted before, one of Piketty’s greatest errors is focusing on inequality to the exclusion of economic growth. We should welcome any increase in wealth to the rich or the poor that does not leave other people worse off, whether that change increases or narrows the gaps in wealth between rich and poor—any such Pareto improvement meets the gold standard of economic welfare.

As I write in this week’s column:

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Contributor Post Created with Sketch. What Piketty Gets Wrong

 

In this week’s edition of my column for Defining Ideas at the Hoover Institution, I look at Capitalism in the Twenty-First Century, the new volume by French economist Thomas Piketty laying out the evils of income inequality.

Many critics of Piketty’s book have rightly pointed to the economic destruction that would result from his proposed regime of heavily progressive taxation. Piketty also suffers, however, from a deeper analytical failing: a misunderstanding of the significance of inequality. As I note:

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Contributor Post Created with Sketch. The Income Inequality Chart the Media Never Shows You — James Pethokoukis

 

050514inequality-600x491When economists talk about income inequality, what exactly do they mean by “income?” Usually they are talking about market income, which is, as described in an enlightening new Minneapolis Fed paper, “wages, salaries, business and farm income, interest, dividends, rents and private transfers (such as alimony and child support), of all household members.”

Then you have disposable income, which includes market income but also adds in “all government transfers (such as Social Security, unemployment insurance and welfare) and subtracts tax liabilities. This is a measure of resources actually available to household members for spending.”

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