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Some new criticisms of Piketty.
The linked article by Nick Bunker argues that we should take the Palma Index (which measures inequality as a ratio of the percent of income received by the top decile (10%) over the percent of income received by the two bottom quintiles (40%)) more seriously, and if not replace the Gini with it, make it an equal partner in explaining unequal outcomes. His reasoning:
You can see its appeal to the left. For those who bemoan the earnings of the "1%", chasing tails has been an obsession. But the Palma exposes their base motivation: they are only obsessed with one tail (the "rich"), not two, and are thus more occupied with envy than with sympathy for the poor. Why is it not 10%/10%? Or 40%/10%?
Another reason they like it is because total inequality, as the author admits, is just not that stunning. Tail inequality has more statistical backing for being an urgent concern, which means that middle inequality has actually improved.
The Palma Index gives four times as much weight to the top 10% as it gives to the bottom 40% and gives no weight at all to the middle five deciles. For a measure of inequality, propounded by supposed defenders of equality, it is a truly discriminate and unequal statistic.
MURPHY: On inequality - With any search for answers, it helps if people can first agree on the question
An excellent article.
Murphy identifies three definitional frames that discussions of income inequality must come to terms with before they start talking statistics:
1) Are we looking at inequality of households or individuals?
I won't go into the reasoning behind each one of these, but Murphy would appear to agree with me that household inequality is a bogus measure: unfairness if it happens is due to individuals' income, not their choice of who they live with. He would also agree that upon reflection, most people wouldn't care if there is vast inequality due exclusively to age: everybody will get his share if that is the case. The first two items are pretty close to being open-shut cases where the only two reasons for not looking at the right data is the absence of such data (which is certainly a concern, especially for getting lifetime income statistics) or the nefarious intentions of the researcher (which is a larger concern).
On the third item, it is more about what the purpose of the research is. If you are trying to assess how economic inequality really is, as exhibited by people's conspicuous consumption, then you should use post-government data. That would be the case 90% of the time. But if you are trying to assess how economic inequality would be, without some or all of the government interferences, you may need to use pre-government data, possibly in conjunction with post-government data. With that caveat out of the way, I agree with Murphy that in general researchers make the mistake/offense of using pre-tax, pre-benefit data all too often.
Then there is this big revelation:
Looking at the correct statistics, the supposed "rise in income inequality in recent years" is a sham. There is no rise in income inequality.
Some further questions for Murphy (and others) to consider, beyond the three he identifies:
1) Are we looking at inequality of (implicit) wages or of income regardless of work effort? Do people really feel it is unfair for someone working twice as many hours to get twice as much pay? Or is it just unfair if they are getting twice the (explicit or implicit) wage? Income inequality statistics almost never adjust for work effort. And if they did, would they include previous work effort to acquire skills and education?
Murphy finishes his article saying that the only real solution is equality of opportunity through better or more even-handed education. That may be where a middle-road political solution develops (though whether that means more or less state intervention is not pre-determined), but the improvement of education is an on-going battle anyways. With respect to economic inequality, the best policy is simply to ignore it.
Excellent article in today's WSJ.
As with so many left-wing projects, the title (in this case, Affordable Care Act) is unintentionally Orwellian.
Some of the nice points:
Prof. Caplan seems in a charitable mood ...
Before you get your eyes checked, or think Caplan has gone lefty on us, read the crux of his argument:
Sorry I forgot to post this earlier in the week (this article came out last week and was published on RealClearPolicy on Monday).
And the conclusion:
More good words on the right solution to tax inversions: corporate tax reform.
Amity Shlaes on the increasingly competitive tax system in Canada, compared to the U.S.'s increasingly un-competitive one:
Instead of making our corporate tax code more competitive, President Obama blasts corporations for leaving the country and calls tax inversion an unpatriotic tax loophole. Would he call an individual who left America to live someplace else, even if that individual still does business here, unpatriotic? Do we call immigrants unpatriotic when they leave Mexico or China or India to come to the U.S. to enjoy our freedoms? What if the person who leaves the U.S. was once an immigrant, and now they are simply returning to the country of their birth? Are they unpatriotic?
Patriotism in the U.S. is for the most part (to put it lightly) about our freedoms and our ideals, not our ethnicity, language, or even culture. It is about the principles that underlie low taxes. So if someone leaves the U.S. because we have betrayed those ideals, who is to blame?
Saw this from yesterday. Let's apply supply and demand principles to ... labor markets! Why people have to be told this is sadly a great failure of the economics profession.
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