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Tony Quain
Tony Quain is a commentator on free-market economic theory and policy. He has a Ph.D. in economics from George Mason Univ. More >>
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Inequality today
Redistribution today
Taxes today

Link: http://www.marketwatch.com/story/congress-wants-to-revive-lower-advertised-airfares-2014-07-30?siteid=rss&rss=1

Who could be against that?

The reason the VAT gets so much resistance from the right-wing is that the way it is done in Europe, business are forced to give you a net price only. If they gave you a retail price and added the tax on at POS (like we do with sales taxes in America), people wouldn't slouch into 20% VAT rates, they would be outraged. Same principle applies here.



Link: http://townhall.com/columnists/jackkerwick/2014/07/30/jesus-todays-church-and-inequality-n1871555/print

I thought this was a pretty good article, explaining that Christian sympathy for the poor does not translate into advocacy for the political project of reducing inequality.

Sympathy for the poor does not necessitate envy and hate for the rich. It doesn't even necessitate begging from the rich, let alone taking from the rich by force. It means giving of one's own time, resources, wisdom, and compassion in helping the poor and helping them help themselves.



Link: http://www.stlouisfed.org/on-the-economy/wealth-inequality-bigger-problem-us-income-inequality/

I have often pointed out the importance of the age-income relation in understanding income inequality. About a third of income inequality is due to age and life-cycle effects, and the greater these effects the better. So income inequality is a mixed bag of good and bad (article on this forthcoming).

So I noted with appreciation the St. Louis Fed's linked article (summary) that came out today about a study they did on income and wealth inequality in the U.S.

The income inequality takeaway was nothing new, apart from a short-hand metric they used to quantify it:

Waller and Ricketts used a simple measure to see how income inequality in the U.S. compared to other countries around the world (which will be discussed on this blog Thursday) and how it compared to wealth inequality in the U.S. They used the ratio of the median income of the top 10 percent of the income distribution ($203,900) divided by the median income of the bottom 10 percent ($9,900). “The resulting ratio of 21 quantifies the substantial divide between the rich and the poor in the U.S.”

And they measured wealth inequality the same way:

Using income distribution, Waller and Ricketts calculated the same ratio as used above. The median net worth of the top 10 percent of the income distribution ($1.194 million) divided by the median net worth of the bottom 10 percent ($3,100) yields a wealth inequality ratio of 385, notably higher than the ratio of 21 for income inequality.

Of course, to those familiar with the literature, there is nothing surprising that wealth inequality (as measured this way or in any way similar to income inequality) is wider than income inequality. However, the summary appears to indicate that this apples-to-apples comparison means that "wealth inequality is a much greater dilemma" than income inequality, which is just not the case. Wealth inequality has been and will always be more pronounced than income inequality. That alone does not make it a greater dilemma.

But I was pleasantly surprised to see the following:

Waller and Ricketts explained that some wealth inequality is a function of age, allowing people to maintain a stable path of consumption over their life spans. Young people have little wealth and tend to be unskilled, so they borrow money for school and their first home. In middle age, they start paying down their debt and accumulating wealth while entering their peak earning years. As they get older, they start spending down the wealth they accumulated. Waller and Ricketts said, “This natural life cycle of wealth accumulation hasn’t changed much, and most Americans will progress along a similar path. While the process is the same for most people, at any one point in time you’re going to have relative inequality: poor, middle and rich based on age alone. While this natural inequality doesn’t account for the entire wealth disparity across the population, it is important to understand that some inequality isn’t inherently bad.”

Thank you. Now, can we have the rest of the economics profession apply this same clear thinking to income inequality?



Link: http://www.usnews.com/opinion/economic-intelligence/2014/07/28/obamas-minimum-wage-data-leads-to-a-misleading-conclusion

Prof. Don Boudreaux and Liya Palagasvili note a new tack from minimum wage proponents:

Earlier this month, President Obama seized upon fresh data from the Labor Department to argue for a higher minimum wage. According to the president and a subsequent Associated Press report, the 13 states that raised their minimum wages in January of this year are now enjoying, on average, faster job growth than the other 37 states.

The conclusion that Obama (and each of the many media outlets that breathlessly repeated this finding) wants us to draw is that a higher minimum wage not only does not price some workers out of jobs, it positively enhances workers’ job prospects.

And then they skewer them:

It’s true that employment in the 13 states that raised their minimum wages in January was, on average, 0.85 percent higher in June 2014 than it was in December 2013. It’s also true that, over this same time span, employment in the 37 states that did not raise their minimum wages rose by only 0.61 percent. (These are the very figures that minimum wage proponents are now trumpeting.) But if we shorten this time span by just one month — looking now at January 2014 to June 2014 — we get a very different picture.

In June, the number of jobs in the 13 minimum-wage states was, on average, only 0.59 percent higher than it was in January, while, for the same time period, the number of jobs for the 37 states that did not raise their minimum wages was higher, on average, by 0.69 percent. Job growth since January (the month that these 13 states actually hiked their minimum wages) was slower in states that raised the minimum wage than in states that did not.

We don’t report these particular statistics as evidence that raising the minimum wage slows job growth. Our point instead is that finding simple trends, especially those that are highly sensitive to the time period analyzed, and then drawing policy conclusions is scientifically illegitimate. Using such a method makes it far too easy to cherry-pick from the data those numbers that support your preferred policy. So just as our comparison of January 2014 to June 2014 employment data is no evidence that raising the minimum wage reduces job growth, Obama’s comparison of December 2013 employment data to June 2014 data is no evidence that raising the minimum wage enhances job growth.

What happened was they cherry-picked the data. They found a drop of statistics that favors their cause in a sea of unfavorability ... and then claimed that their opponents were drowning.

Why don't the media do this fact-checking?



Link: http://www.washingtontimes.com/news/2014/jul/27/gop-2014-republican-governors-cite-their-economic-/

Republicans seem to be better stewards of state government, based on their economic performance ...



Link: http://www.washingtonpost.com/blogs/wonkblog/wp/2014/07/23/dont-think-obama-has-reduced-inequality-these-numbers-prove-that-he-has

In the critically acclaimed movie Downfall, there is this one scene where Hitler is reviewing the progress of his counter-attacks in the defense of Berlin in April 1945. After several dispiriting reports about Russian advances, Hitler replies, "Steiner's assault will bring it under control." With some reluctance, General Jodl informs him that "Steiner couldn't mobilize enough men, [thus] he wasn't able to carry out his assault." Hitler blows up, ranting and screaming, "That Was an Order!"

The second-hand viewer of such a spectacle is both fascinated and bemused. Fascinated that someone as powerful as Hitler (once was) could expect that wanting or ordering something by consequence necessarily obtains it, regardless of worldly realities. Bemused that, upon realization of this distinction, the expecting person throws a temper tantrum unworthy of even the slightest sympathy.

Now far be it from me to compare Hitler with President Obama, his administration, or his apologists on the left. There are plenty of other instances in history of someone acting in the same way as Hitler did in this movie, it was just one that I remember most. But when the Washington Post publishes pieces like the linked one by Zach Goldfarb, one has a sense of fascination and bemusement that makes one remember such things. The expectation of dictated-command-causing-sheep-effect is not so rare, but never quite so pure.

Goldfarb's article shows the income ratios of various economic strata, first pre-tax, then with the "Bush" tax policy (as applied to 2013 tax rates), then with the "Obama" tax policy (2013). He then claims that, "If you've wondered whether Obama has made any headway at reducing income inequality, here's evidence that he has." Evidence? Oh, because his policy, since become law, says we will tax the rich more! It was so ordered, so it must have happened! Nevermind that policies have behavioral responses, such as less work effort, more tax sheltering, and the like. Or that there are a number of other policies or economic developments that may reduce or increase inequality apart from taxes. Or that there is an entire discipline of economics dedicated to studying and quantifying the intended and non-intended effects of economic policies. According to Goldfarb, we changed a law to reduce inequality, and therefore inequality is less! So it shall be written, and so it shall be done!

Goldfarb then claims that actual inequality (not just inequity in tax law) has gone down under Obama, from 2012 to 2013 (based on a computer model put together by the left-wing Tax Policy Center). But, he admits, "This is still above the ratio in 2009, meaning that after-tax inequality in 2013 was higher than it was 2009." So even though he recognizes that inequality went up under Obama overall, he claims that it went down this past year. The headline for his column is: "Don’t think Obama has reduced inequality? These numbers prove that he has." Like Richard Murphy, he ignores the long-term trend in favor of a single data point. He could have said, "don't think Obama has reduced inequality lately?" which would be somewhat defensible. But he chose not to. The headline he used is totally misleading if not downright false. Don't trust this guy.

Another problem is that income inequality, as measured by the Gini coefficient, has been going up under Obama. The Census bureau number show that: Gini ratios for U.S. households increased from .466 in 2008 (or .468 in 2009) to .477 in 2012, and Gini ratios for U.S. families increased from .438 in 2008 (or .443 in 2009) to .451 in 2012. No numbers yet for 2013.

One last thing. His numbers all show the poor paying about the same taxes and the rich paying a lot more taxes. Who is better off here? No one. But re-distributionists will celebrate the numbers because they hate rich and upper-middle-class people anyway.

I don't doubt that Obama's re-distributionist tax policies will work to reduce income inequality somewhat, for whatever that is worth. But don't try to pretend that the policy's intention is enough to guarantee the policy's result, or that several other factors that result from his bad economic policies may not counteract these, or that Obama's overall record on inequality is positive.



Link: http://www.politico.com/story/2014/07/obamacare-subsidies-dc-appeals-court-ruling-109223.html?hp=t1

Looks like this will go to the Supreme Court (and nothing will happen until then), but this is a significant win for Obamacare opponents and defenders of liberty.



Link: http://www.wlrh.org/NPR-News/rubio-small-government-can-help-fix-economic-inequality

I still like Marco Rubio, but pieces like this really make it look like he's trying to find a way to get government involved, not the other way around.

And it also seems like he has a warped view of "equality of opportunity":

"The success sequence in America says you get an education, you get a good job, you get married, you have children," Rubio says. "People who do those four things have an incredible level of economic stability.

"But there are millions of people who aren't going to have one or any of those things," he says. "They are not going to have an equal opportunity to succeed unless something happens to equalize the situation.

This is the stroy of two Rubios: Tea Party Rubio and Big Government Rubio. The first paragraph is Tea Party Rubio: he recognizes that people have to do four things to live the American dream. But then for some reason in the second paragraph he morphs into Big Government Rubio. Suddenly its that people don't have these things. And, critically, that this means they do not have equal opportunity.

That is leftist talk. They had equal opportunity and did not do one or more of the four things. Then, because of this failure they struggle. But why do they get a reset? Why are now able to claim that their situation without an eduication, without a job, without a spouse, and without children is their starting point, and they want an equal opportunity now?

This is why equality of opportunity is such a dodgy thing to measure. Is it that we all have the same opportunity at some starting point (grade school? high school? 18?)? Or is it that we all have some level or equality of opportunity at any point in our lives, no matter how many mistakes we make?

And there's another thing. Going without one or more of these four things is not even necessarily a mistake. It is a choice. Many would say a bad choice, but a choice nonetheless. There are many reasons why either way could be a good choice, given one's situation. What Rubio is saying is that economically it is a good choice to do these four things the way he encourages. But economics is not everything (did I just say that?). Each individual has to make these choices considering their total impact, including the effects on their economic opportunities at the time and in the future, and then live with the consequences. When government gets involved, either by cajoling people to make one choice or another, or picking up the (economic only) pieces from that decision years later, then we lose the freedom to make the most important choices in our lives, and ceding them to bureaucrats or politicians who have no knowledge of our situation, at best just artificial sympathy.



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