Another One Of Those Spotting What They’ve Done Things

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So, the US has grown increasingly unequal over recent decades. This is because the rich folks have been sucking up all the income growth leaving the poor to fight over scraps. This probably isn’t true, at least not in hte sense we’re being told it is. So, what’s been done to prove this to us?

Hanauer and Rolf cite a report released by the Rand Institute that concluded if the “more equitable income distributions of the three decades following World War II (1945 through 1974) merely held steady, the aggregate annual income of Americans earning below the 90th percentile would have been $2.5 trillion higher in the year 2018 alone.”

They correctly observe that’s “equal to nearly 12 percent of GDP—enough to more than double median income—enough to pay every single working American in the bottom nine deciles an additional $1,144 a month. Every month. Every single year.”

Another – and entirely true – manner of putting this is that if this is Nick Hanauer on economics then clearly it’s wrong.

The report is here. And here’s what’s wrong with it:

In this paper, we explore these trends in income growth and relate to the overall economic
growth using a new metric that measures the degree to which overall economic growth is shared
across the income distribution. Using this metric, we first characterize the trends in income
inequality described above and then use it to explore the nuances of these trends by demographic
group.

Our focus throughout this work is on taxable income as opposed to other income measures.
Compared to more expansive definitions of income, taxable income is more convenient because
of the data limitations and subjectivity involved in assessing the value of employer benefits.

Benefits have become – for the bottom 90% – a much larger portion of the compensation from having to go to work over these decades. That rising cost of healthcare first, then add in 401(k) matching and then maternity pay – sure, no legal requirement but many do get it – and all that. Measuring the income distribution by not measuring income is always going to bring analysis to some sort of grief.

But it’s also true that benefits for the top 10% – more accurately, the top 0.1% but they’re a number that really do matter – have become a smaller portion of income. At least, what were previously untaxed benefits have now been moved over into being taxable, the effect of which h been for people to say bugger the benefits I’ll take the cash.

This actually being, as Jamie Galbraith will point out if you give him half a chance, the entire point of the 1986 tax reforms. So that all that Barbarians at the Gate stuff, private air forces, 15 country clubs and apartments scattered around the country – they’re taxable now and weren’t before.

So, concentrating upon taxable incomes captures this change in the form of compensation of CEOs etc, sure it does, but it registers it as a rise in come, not a change in the form of income.

So, by analysing taxable income only we underestimate the change in total income of the bottom 90%, that rise in non-wage income, and we over-estimate the change in top incomes by registering a change in the form of income even if it hasn’t increased at all.

Isn’t that fun? And do note what it also means – Hanauer hasn’t broken his run yet.

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jgh
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jgh

It’s the same when people assert that the UK state pension is crap compared with, eg, the German state pension, and omit to include that in the UK if you have no other income, you get a 100% pension regardless of contributions*, and you also get free healthcare, and if you need it, free housing. The German state pension compared to is invariably one that you would only get by paying the top whack of contributions, plus you have to use that to pay for health and housing. *Full contributions gives you 100% pension, less than full contributions gives you… Read more »

Bloke in Germany
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Bloke in Germany

The German state pension is remarkably high if you’ve managed to pay in at full whack for most of your working life, and is sufficient for basic survival if you’ve been on the dole most of your non-working life. The UK pension is sufficient for basic survival. So yes, the UK state pension is crap compared to the German one. The wider question is whether the state’s obligations (and hence draw on the income of future pensioners) extend beyond providing that survival pension, or whether your pension beyond mere survival should be left to individual saving/investment/market-based pension schemes. Even more… Read more »

Spike
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Spike

And I do; on the grounds that the state’s obligation to provide chiefly benefits individuals who do not provide for themselves (and encourage many not to do so); and one of the greatest con jobs is: Pay me this tax and I will invest it better than you could and my successors will pay it back to you when you get old.

Barks
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Barks

These “revelations” done be cherry-picking selected portions of Americans’ gross income are a staple of the left. Other than used as evidence of lying, distortion or stupidity they are useless.

Spike
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Spike

There is a problem more basic than Tim’s observation that the measurement of inequality is flawed: The fact that inequality is not a problem at all; different degrees of income and wealth are healthy indications that we are rewarding skill, scarcity, gumption, and ability to please the customer. Salon’s thesis is that if we merely savaged the rich, we would have “more than enough” loot to double the pay of every poor person. Assuming the rich held still for it, and that we would actually do that with the loot. This con is perennial, and would continue to be played… Read more »

Bloke in Germany
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Bloke in Germany

Also, “The Rich” always starts at the guy with a few dollars more than I have.

Spike
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Spike

Aye; the “Millionaire’s Tax” is always a popular name for taxes and tax brackets that kick in well under one million. Al Gore’s Millionaire’s Tax rebutted analysis by insisting that it was “a million over four years.”

Quentin Vole
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Quentin Vole

In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: “If you don’t work you die.

Rudyard Kipling

Esteban
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Esteban

Note the phrase “more equitable income distributions of the three decades following World War II” – on what grounds are they more equitable? Have you researched how many hours everyone worked, what investments they made in their careers, what sacrifices they made for success?

It isn’t “more equitable” to take income from someone who’s earned it and give it to someone who hasn’t.

Spike
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Spike

They’re surely using “equitable” for “equal,” and exploiting the fact that the average reader won’t think about the difference.

Michael van der Riet
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Michael van der Riet

Somewhat off topic, Major Tom is back in the news. All praise for the little platoons, but the idea that some bureaucrat fund-manager has a better idea what to do with my money than I do is plain BS.