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Explaining “The most important chart about the American economy you’ll see this year”

October 4th, 2014 1 comment

See update at bottom.

Pavlina Tcherneva’s chart has been getting a lot of play out there:

Vox/Matthew Yglesias labeled it “The most important chart about the American economy you’ll see this year.”

Scott Winship at Fortune came back at it on methodological grounds, with the headline “No, the Rich Are Not Taking All of the Economic Pie (In 8 Charts).” He ends up with what he calls the “money chart,” supporting his headline:

Yglesias responded, and Winship responded to him.

The basic contention at this point: who is actually “explaining” the situation?

Do Scott’s corrections explain the situation better? Do they paint a 1. more accurate, and/or 2. more complete picture? By those two standards, is he more honestly and fully informative? Let’s run through his changes.

1. The household method as opposed to tax-unit method is at least a useful additional measure, and is arguably more accurate and explanatory. It’s also less complete because the data only goes back to ’79. But he completes it with Tcherneva’s (by this standard less-accurate) earlier data. It’s a useful addition to understanding, but with little change in the story it tells.

2. The full-business-cycle approach (as opposed to just showing expansions) is also arguably more accurate hence informative. But it (necessarily?) ignores the post-2007 period because the current business cycle isn’t over yet. By Tcherneva’s measure this period is far and away the most egregious demonstration of the inequality trend we’re examining. Scott could have included recent years, with visual and verbal caveats explaining that the cycle is not complete, so the measure that period is not directly comparable. It has less explanatory power, but that doesn’t mean it has none. Omitting the very period that by Tcherneva’s measure are the “money proof” of the trend (and so omitting explanations of that period) arguably explains less about that trend.

3. Looking at the non-elderly population is arguably more accurate and is at least quite informative. It paints roughly the same picture, though less extreme.

4. Post-tax-and-transfer measures are arguably more accurate and informative, but again with the completeness problem. And he should explain that the pre-’79 picture would look quite different if it displayed post-T&T data; the bottom 90% would have been getting more of the pie, which would make the inequality trend look more pronounced than it does in his graph.

I do wish he’d shown a graph as he suggested, including health/medical benefits in T&T (assigning a value other than $0), despite the methodological difficulties he points to. I have no idea how or how much this would change the picture.

5. Omitting capital gains (because they’re hard to measure) for the final “money chart” — suggesting that it’s the most accurate, complete, informative, and definitive chart — is a massive hit to accuracy and explanation. Cap gains are the very vehicle, the primary means, by which the increasing inequality we’re trying to understand is realized. “The data might not be accurate” begs the question: Is excluding that data more accurate? To use Scott’s own words, “assigning a value of $0 is surely not right.”

So some of Scott’s corrections help to usefully and informatively explain the situation better, or at least more. But to summarize the changes that are less informative or downright misinformative:

• The blatant inaccuracy of ignoring cap gains in #5. It completely misrepresents the situation.

• The omission of recent years in #2 — the very years where the trend is arguably most apparent and egregious. Hiding the elephant under the rug?

• The blithely dismissive headline of Scott’s first post.

With these combined, I hope Scott can understand why many see his post as an effort to pooh-pooh and obfuscate the whole subject — the very antithesis of “explaining.”

Part of that hand-waving, obfuscation, and general chaff-dispersal is the proleptic but of course you’re right” rhetorical ploy, right up front in Scott’s second paragraph:

Let’s stipulate that income inequality is at staggering levels in the U.S., and that income concentration at the top has probably risen (probably)

One really must ask: if income inequality is at “staggering” levels, how did it get there…if it hasn’t risen?

How do you square that staggering stipulated reality with Scott’s headline assertion: that “the Rich Are Not Taking All of the Economic Pie.”

I can’t see how to draw any other conclusion from this direct self-contradiction: he’s talking out of both sides of his mouth. I’ll leave it to my gentle readers to decide why.

Takeaway: obfuscation is the opposite of explanation.

Update: Scott has taken issue with my only-barely-implicit imputation of his motives. He’s right on that. I both regret that and apologize for it. I still think the import of his post (especially the “money chart” and title) — that inequality’s not that bad and not that important — contradicts his “staggering” stipulation, and is rhetorically pernicious. But that’s not the same as bad faith. I withdraw and apologize for any suggestion of the latter.

Cross-posted at Angry Bear.

Liberal Economists: Don’t Bring a Knife to a Gunfight

September 29th, 2014 No comments

Jared Bernstein has offered a muscular and cogent response to my recent take-down of his CAP paper on inequality and growth. (I called it “week-kneed.”)

I’d like to respond to his many excellent points in just two ways.

1. My critique is primarily of his rhetoric, not his reasoning. Progressives, IMO, should be shouting the manifest reality from the rooftops: progressive administrations in the U. S., over many decades and looked at every which way from Sunday, have delivered resoundingly superior economic performance by pretty much every economic measure. (Occam’s explanation: better economic policies.) By contrast, the skyrocketing wealth and income concentrations delivered by the Reagan Revolution have been accompanied by stagnation, instability, and — by many important measures — decline.

Is there incontrovertible evidence that the wealth and income concentration caused that? No. But: is there incontrovertible evidence that cutting taxes and shrinking government creates growth and prosperity? Quite the contrary. Does this prevent conservative economists from endlessly laying claim to such “manifest’ benefits? Hell no.

Liberal economists like Jared tend to be — and understandably like to see themselves as — reasonable, curious people. They like to look at the evidence and suss out what they can say definitively, then speak carefully when going beyond that. That’s understandable. But it’s also crippling to the progressive agenda. Economics and the constructs on which it is built are inescapably normative — centuries of faux-positivist theorizing notwithstanding. Conservatives pretend otherwise while unabashedly overstating their supposedly positivist case, to further their normative goals. Liberals — admirably, but unfortunately for the cause — do not respond in kind. Again: I think it’s time for liberal economists to start taking their own side in this inevitably normative argument.

2. I didn’t offer an alternative to Jared’s statistical construct because I don’t have the statistical chops. I’m an amateur. I dismissed his construct without offering an alternative — very fair point. But I did suggest the multiple-lag-based statistical methodology (Dube’s or similar) that I think professional economists should be employing. (And I showed a little amateurish example of it that I did manage to cobble together.) It requires some serious statistical skills that Jared may not have handy in his holster, but that he and his circle could easily lay hands on within his economics milieu.

Now maybe the newly launched Washington Center for Equality and Growth is currently funding exactly this kind of sophisticated analysis of the MPC/Velocity of Wealth hypothesis (a.k.a. “underconsumption”), and I just haven’t heard about it. But I am quite sure that liberal economists have not pursued that promising hypothesis with even a scintilla of the spectacular energy that conservatives have devoted to trickle-down, inequality-drives-growth arguments.

Should liberal economists be cherry-picking economic measures and analytic methods, and distorting the import of their findings, the way conservatives do? No. Should they at least be seeking out promising data and methodologies to explore (and support) the MPC argument? With only a hint of trepidation, I say yes. Don’t bring a knife to a gunfight.

The judicious thoughtfulness that Jared displays does have rhetorical value. It gives credibility to the progressive movement that he represents. Tyler Cowen is a great example on the other side. His curious thoughtfulness on so many subjects is a remarkably effective camouflage for the Mercatus Center that he heads, even while Mercatus is broadcasting blizzards of tweets about Fox-News hobby-horses like the Export Import Bank — relatively unimportant but base-rabidizing topics that Tyler (sensibly) has little or no time for.

Liberals have the judiciousness, but not the fire-eating that the judiciousness supports.

If you want to look “reasonable” in a gunfight, bring a gun.

As usual, Steve Randy Waldman has said this all far better — and more judiciously — than I.

Cross-posted at Angry Bear.

Lefty – Libertarian Cage Fight! Get Out the Popcorn…

September 29th, 2014 No comments

Matt Bruenig and Demos have thrown down the gauntlet against libertarian ideology. Trevor Burrus at Cato has picked it up. Should be worth tuning in.

Matt pulls no punches. He’s emerged in the last year as one of the mediasphere’s most convincing voices for progressive ideas and policies, based (IMO) on air-tight arguments and thinking, backed by solid, well-presented facts and data. He’s front and center for DemosGordon Gamm Initiative to counter libertarian ideology.

Matt’s not fussy about “civility” when incoherent, self-contradictory, bad-faith arguments are thrown in his face.

Trevor is one of those “voices of reason” at Cato (like Tyler Cowen, front-man for Mercatus) who mask the dark underbelly of libertarianism behind a facade of judicious, Reason-able moderation.

I’d like to offer up one knife for this fight. Trevor:

Libertarianism is the only prominent political ideology that consistently has to deal with questions about the imperfectness of our solutions as if they were de facto refutations of our position.

What cave has he been living in? Progressive ideas have been under unremitting and steadily-escalating attack by conservatives for four decades — actually since well before The New Deal — with many of those attacks based on the “imperfectness” of progressive policy solutions. (With all those attacks built on a scaffolding of libertarian truisms.)

“There’s Medicare fraud!” So progressive thinking must be incoherent. Progressives have been forced into an endless game of “imperfectness” Whack-a-Mole, with hundreds of billions in libertarian-enabled corporate funding backing the moles.

This reality is apparently invisible to Trevor, which speaks volumes about the reality orientation of libertarian ideology, and of its adherents.

Cross-posted at Angry Bear.

The Pernicious Prison of the Price Theory Paradigm

June 5th, 2014 3 comments

Steve Randy Waldman has utterly pre-empted the need for this post, cut to the core of the thing, in the opening line of his latest (collect the whole series!):

When economics tried to put itself on a scientific basis by recasting utility in strictly ordinal terms, it threatened to perfect itself to uselessness. 

But I’ll try to help a little. What that means:

In the mid 20th century, economists decided:

It’s impossible to measure absolute utility. We can’t say what the value to you is of a heart bypass for your mother, or the value of a college education for your kid, or the value of (you or someone else) buying a third or fourth Lamborghini.

So we’re simply going to punt, and only talk about ‘preferences’. For our discipline, in its scientific impartiality, absolute utility — because we can’t measure it — will effectively not exist.

Inside our hermetic logical construct, we not only aren’t able to think about absolute utility — actual human value — we are forbidden to do so. Barred.

And with this spectacular piece of rhetorical legerdemain, the discipline disavowed itself of any responsibility for the implications and effects of that rhetorical legerdemain. (It’s hard not to be impressed.)

The effects? Economic analysts must assume, prima facie, that a billionaire buying a third or fourth Lamborghini delivers the same value as buying a college education for your kid or a heart bypass for your mom.

Who are we to second-guess preferences? They’re all the same price, right?

The (inexorable) implications? Concentration and distribution of wealth and income not only don’t matter. For economists who aren’t willing to tear open the prison door (at serious risk to tenure and employment), they can’t matter.

Steve explains it all far better, with circles and arrows and a paragraph on the back of each one explaining how each one is to be used as evidence against us. But I hope this little summation helps.

Cross-posted at Angry Bear.

When Do Humans Want to Share the Wealth?

March 16th, 2012 1 comment

Jonathan Haidt reports an interesting experimental result:

Two three-year-olds walk up to a marble-delivery machine that has two bins. Each stands in front of one bin. Three scenarios:

1. One bin has three marbles in it, the other has one: the winner is unlikely to share to equalize the takings.

2. There are two ropes to pull; one delivers one marble, the other three: the winner is unlikely to share to equalize the takings.

3. Two ropes, but both must be pulled together to deliver the one/three marbles: the winner is likely (75%!) to share to equalize the takings. (Either spontaneously, or on request from the loser.)

If people feel that they must work together to get the goods, they also feel that they should (or even want to) share the goods.

Haidt’s take (my emphasis):

If there’s a problem with the ultra-rich, it’s not that they have too much wealth, it’s that they bought laws that made it easy for them to gain and keep so much more wealth in recent decades.

Sarah Palin gave a speech last September lambasting “crony capitalism,” which she defined as “the collusion of big government and big business and big finance to the detriment of all the rest – to the little guys.” I think that she was on to something and that she was right to include big government along with big business and big finance. The problem isn’t that some kids have many more marbles than others. The problem is that some kids are in cahoots with the experimenters. They get to rig the marble machine before the rest of us have a chance to play with it.

Now add this:

The losers know the game is rigged, so their innate intution tells them that the winners should share.

The winners refuse to know that the game is rigged — deny it vehemently — so they think the losers are unreasonable in their expectations of sharing.

Contributing: The American cult of individualism — the widespread belief among the successful that their success is a result of their efforts only, so they deserve their winnings — means that their natural human work-together-share-together instincts aren’t invoked. This even when they’re wrong about the relative contribution of their individual efforts.

So the winners are deluded about two things: 1. the relative contribution of their individual efforts (compared to A. luck and B. the rules/playing field), and 2. the (rigged) state of the playing field.

Here’s the problem: the losers are also deluded about #1 (because the rigged game provides the winners with the necessary resources to delude them through tens of billions of dollars of propaganda and economist-buying).

So here’s the rhetorical challenge faced by those who seek greater equality: convince the losers that much or most of the winners’ success is in fact the result of everyone pulling on ropes together (and luck), not just the winners’ industrious rope-pulling. Not an easy task, but one worth focusing on.

To add, a problem with Haidt’s analysis: if big business and big finance (and rich people) couldn’t buy big government to rig the game in their own favor, big government wouldn’t be the problem. Absent that buy, government is essentially indifferent to relative distributions — or arguably even more inclined to sharing the wealth widely to garner lots of votes — one person one vote versus one dollar one vote.

He suggests a three-way symmetry for a situation that is not symmetrical.

Cross-posted at Angry Bear.

 

Why Doesn’t Warren Buffett Give All His Money to the Government?

November 4th, 2011 1 comment

Psychohistorian’s comment over at Modeled Behavior gives the best answer I’ve seen to this question (a specious rhetorical question that — since it ignores the obvious issue of collective action — Tyler Cowen acknowledges to be worthy of a fifteen-year-old).

If I say, “We should all bring a dish so we can have a potluck,” but people don’t agree, I am not a hypocrite if I later fail to show up with food. If I suggest to my two brothers that we should all pitch in to buy our parents a vacation, I am not morally obligated to pay for a third of a vacation regardless of their decision. If I advocate that our cities zoning laws should limit houses to three stories, there’s nothing hypocritical about building a 4 story house if that ordinance fails – doubly so when all my other neighbors are building four story houses.

There is nothing inconsistent about being willing to bear a larger part of a reciprocal burden, but being unwilling to pitch in absent a larger framework. This is particularly true at the high reaches of wealth, where income is significantly positional. If other people’s incomes are also reduced by taxes, there’s an overall downward shift in the demand for certain luxury services. If I pitch in without this reciprocation, my ability to pay shifts, but the equilibrium price does not.

Nor is there anything hypocritical about adopting that stance.

Update: Steve and Barry Ickes give more great examples in the comments to Tyler’s post:

Barry: “So I believe in a draft for national service and we don’t have one I suppose I must volunteer for the army. I should serve while others skate. I don’t buy it.”

Steve: “I don’t think being ONE soldier landing in Normandy did anything for anyone.”

Tyler suggests at the top of his post that he grasped this fairly simple and obvious issue when he was in high school. So why does he now feel the need to obfuscate it with contortionate logicalizing? I would suggest that it’s a form of false signaling, a behavior that is collectively corrosive, and cheap or free if we don’t all punish it.

Proofiness!

May 5th, 2011 1 comment

Intolerable Socialism

March 12th, 2011 Comments off

Best line of the week (with a couple of elisions by moi):

Any effort to reduce government spending on health care … is intolerable socialism, and any effort to increase government spending on health care … is also intolerable socialism.

via Yglesias » Making Sense of the Rationing Switcheroo.

Pacifism: Bryan Caplan Gets It (Almost) Totally Right

November 24th, 2010 3 comments

I often disagree with Bryan Caplan — often quite vehemently — but not always, by any means. He’s one of the people who I’m constantly testing my thinking against.

He gets it so right with the following post that I’m going to make an exception (first time?) and reproduce his whole post here.

Cliches of Anti-Pacifism

I’m a pacifist.  I realize that it’s an unpopular position, but I’m still surprised by how quick people are to dismiss the position with cliches.  Here are three of the most common.

1. “If you want peace, prepare for war.”  This claim is obviously overstated.  Is North Korea really pursuing the smart path to peace by keeping almost 5% of its population on active military duty?  How about Hitler’s rearmament?  Was the Soviet Union preparing for peace by spending 15-20% of its GDP on the Red Army?

No on all three counts.  The truth is that preparation for war often causes war by frightening and provoking other countries.  That’s why the collapse of the Red Army made the inhabitants of the former Soviet Union safer from nuclear attack than they’d been since 1945.  This doesn’t mean that disarmament always makes countries safer.  But it does mean that military preparation frequently has the perverse effect of making countries less safe.  Discovering the conditions under which this occurs takes a lot more than a one-liner.

2. “Those who beat their swords into plowshares, will plow for those who don’t.” In earlier centuries, this was usually true.  But almost all rulers treated their subjects like chattel in those days.  The main reason to fear war wasn’t that policies would change if “your” government were defeated, but that you’d suffer or perish before the conflict was resolved.  From the point of view of the ruled, pacifism would usually have been an improvement.

In the modern world, the plowshares cliche is even more misguided.  Take a look at this list of military spending by country.  The U.S. naturally leads the pack, but is any sensible person worried that the U.S. will invade their country in order to take their stuff?  While the U.S. has the power to literally enslave most of the world, most Americans think it would be wrong, so it’s not going to happen.  The same clearly holds for five of the other top-ten military powers: the UK (#3), France (#4), Germany (#6), Japan (#7), and Italy (#9).  Even China, at #2, has far less awful intentions than the plowshares cliche suggests: While it might invade a totally disarmed Taiwan, the next step would be One Country, Two Systems – not mass enslavement of the Taiwanese.

3. “Pacifism didn’t work with Hitler.”  True enough.  But then again, nothingworked with Hitler.  The man was a monster.  Poland tried resistance, and was virtually destroyed.  Stalin tried alliance, and was stabbed in the back.  The Allies tried unconditional surrender, and left most Europe in ruins, and half under Stalinism.  Sure, with 20/20 hindsight, Britain and France could have invaded Germany in 1933 – or interrupted his parents a few minutes before his conception in 1888.  But two can play at the hindsight game: Pacifism could easily have prevented World War I, leaving no room for the likes of Hitler to rise to power.

I would add my pet concept of “mercenary morality”: Adopting a truly superior moral position — in deeds as well as words — in many cases delivers true power: the ability to convince your friends and coerce your enemies (and vice versa). The Bush administration’s words and deeds post-9/11 epitomize the squandering of such a morally (or in rhetorical terms, “ethically”) superior position, and the power that accrues to it.

Which points out one key place that Bryan gets it less than totally right:

is any sensible person worried that the U.S. will invade their country in order to take their stuff?

C’mon! Are you serious? Does any sensible person — even the nuttiest neocon — believe that the Halliburton presidency would have chosen to invade Iraq if Iraq didn’t have oil? How does that look if you’re not an American? It’s not crazy to understand why other countries have reasonable concerns on that point.

Is the Social Security Trust Fund a Liberal Own-Goal?

November 12th, 2010 13 comments

The Social Security trust fund is one key rhetorical crux of our budget debates. (I’m punting on Medicare here for the moment; it’s obviously the elephant in the room.)

• Liberals think of the trust fund as a big national savings account. They point to the trust fund’s promises to future retirees, their multi-decade contributions to the trust fund, its solvency (it’s been banking >$150 billion in surplus revenues every year [except -- for obvious reasons -- 2009]), and its projected longevity, to assert that Social Security is in great shape. Just some slight tweaks needed.

• Conservatives say the trust fund is a sham, because it contains nothing but promises from the government. Social Security is just a(n unaffordable) transfer program — from younger working people to retirees, the disabled, and widow(er)s and orphans.

Who’s right?

• Liberals are totally correct that minor tweaks in revenues and/or spending are all that’s needed. (75-year projected deficits are about 2% of future payrolls, .6% of GDP. Since our country currently taxes about 30% less than most other prosperous countries — 28% of GDP compared to 40% — filling that .6% gap would not be onerous.)

• Conservatives are right that the trust fund is basically a chimera. Social Security is for all purposes (you can argue intents amongst yourselves) a transfer program.

If we eradicated the trust fund today (along with the debts that government owes to that trust fund), arithmetically it would change exactly nothing. We’d still have revenues and outlays for Social Security. Subtract outlays from revenues, and you’ve got the SS surplus or deficit. It just doesn’t matter whether those revenues and outlays pass through the trust fund, shifting its balances up and down. It’s the same thing as shifting overall government debt up or down.

All of a sudden you’d see $1xx billion dollars a year in additional government revenue (the current annual Social Security surplus). But the government would spend all that instantly, right? We’d owe it to future generations, because we have promised it to them. But that’s exactly what’s happening today. The government is spending those revenues and issuing bonds a.k.a. promises to the trust fund. That’s already a fact, as embodied in the unified budget (combining “on-budget” revenues and spending with the trust funds for Social Security, Medicare, etc.)

But here’s what really bothers me: by insisting on the reality of the trust fund, liberals are putting themselves in a rhetorical trap.

Want to make the Social Security trust fund sustainable long-term without cutting benefits? The obvious solution is to increase its funding source: payroll taxes. The only alternative is for general government to pay for future shortfalls, which would mean admitting that … it’s a transfer program.

But this is an illiberal proposal because payroll taxes are horribly regressive. 1) They only tax earned income — which people presumably actually worked to acquire, and 2) You don’t pay payroll taxes on earned income above $106,800/year.

There is one progressive solution even within this rhetorical box: Remove the $106,800 cap. But once again the liberal rhetorical position precludes it: that cap only justifiable if you buy into the trust-fund/savings account concept. “People shouldn’t have to put in more than they take out.” If you acknowledge that Social Security’s a transfer program — and that people’s inputs don’t necessarily match their eventual receipts (they don’t, even now, especially if you compare generations), there’s no a priori reason to retain the cap.

Simply removing the earnings cap on payroll taxes would fill the .6% Social Security gap beyond the predictable future. To 2083, to be (falsely) precise. See the CBO’s July 2010 Social Security Policy Options (PDF), pages xi and 18. (Thanks, Bruce.)

It sounds reasonable given that our tax system (state, local, federal combined) is currently not progressive at all above about $60,000 a year in income.

But still: you’re only taxing earned income. And — conservatives will be happy to point this out, correctly — taxing earned income discourages people from working and building overall prosperity. Acknowledging that Social Security is a transfer program lets us fund it with more economically efficient and more equitable taxes like carbon taxes or even — gasp — increased taxes on investment income.