Ch. 5: "I've Seen the Future, And It Works": Growth Under Extractive Institutions

[Robert Tulip]

I tried to save then upload this image, but I couldn't get it to work. In this Huffington Post article, there's a graph that represents what I was saying above.
http://www.huffingtonpost.com/2014/02/0 ... f=business

Interbane, I am astonished that with your critical thinking skills you could endorse such lying junk. The article states "Over the past forty years,... the lowest-earning 60 percent of Americans have been making less and less." It then seeks to justify this utterly false statement by a graph showing "change in shares of adjusted household income by quintile."

Can you see the glaring statistical fallacy? From the fact that the poor earn a lower proportion of the growing income total, the Huff Piece promotes the malicious and stupid lie that the poor are "making less", when in fact the poor are making more.

Again, we see the socialist lie of equalism grounded in the view that poor people are upset about seeing rich people innovating and producing wealth and jobs that make everyone's lives easier and better. The equalists would like to stop the rich from performing these valuable public goods. Something there about spite, noses and faces.

http://www.advisorperspectives.com/dsho ... bution.php explains that since 1967 US census data shows the poorest quintile of households have on average become 19% richer in real terms. The average real % increases in household income by quintile from rich to poor shown in census data from 1967 to 2012 are

1. 70% 2. 38% 3. 20% 4. 11% 5 19%.

Admittedly, things have been getting worse for all quintiles since 1999, but it looks like the Huff Piece deliberately lied for political reasons.

[Taylor]

Many of the Macro-Economic issues covered in this thread have at the root a single cause and that is
the duplicity of conservatism, Especially American conservatism which brought about the central bank,
Glass-Steagall, social security, the new deal, the EPA and clean water and air among other rules or
regulations, But yet American Conservatism has no export value, not at the present at least,
otherwise we would see similar institutions growing in the world of emerging economies as yet we don't,
Why ? Because that same Conservatism has destroyed collective bargaining and fostered excessive
consumerism to the detriment of savings, both which weakened the strength of the state side middle
class, the U.S. labor force is now unorganized, and service sector oriented, both which have tremendous
export value, Why Nations Fail? because the people of those nations fail in their individual due diligence,
to keep in check not only their employers, but also their collective benefactors, bureaucrats and politicians.
Extractive has a dual meaning, but its essence should be extraction from the earth those necessary base
product ores and minerals that are the first link in any solid market economy.
As for Subsidized growth in any form all we need for example is the currant state of the affairs of man and
the proper idea of the new conventional wisdom.

[Interbane]

So what if it represents shares? Are you dismissing what the graph represents? Right back at you, Robert. The graph you posted did not account for inflation. The poor are in fact making less, according to your chart, when you consider the purchasing power of their money. That's why it's the direct graphs such as the one you used that are misleading. Once you adjust the chart for inflation and get closer to the truth of the matter, you can clearly see that the poorest quintile are in fact not making more, but less. Oh the tricks the plutocrats use to pull the wool over our eyes. "Technically speaking we're correct." Right?

[Dexter]

You can make the income data tell many different stories. The left wants to tell a stagnation story. The right sometimes tells the same story, depending on what rhetoric they decide to use (some want to tell a story about how the decline in manufacturing has ruined us).

You might find this interesting:
http://www.econtalk.org/archives/2012/0 ... _on_t.html

Burkhauser shows that changes in the standard of living of the middle class and other parts of the income distribution are extremely sensitive to various assumptions about how income is defined as well as whether you look at tax units or households. He shows that under one set of assumptions, there has been no change in median income, but under a different and equally reasonable set of assumptions, median income has grown 36%.

[Interbane]

What are the assumptions, do you know? I read through the podcast transcript a bit but couldn't find where he explains his point. I think the key change was looking at household income vs tax units. But I can't really sort through it all.

I looked up a few peer reviews of his work to see if they could explain the difference. The NYT had 3 negative comments from other economists:

Lawrence Katz, a Harvard economist, wrote in an e-mail that the data used by Burkhauser in his 2013 paper

are not up to the task. And the results are likely to be greatly overstated and hinge on what seem to me to be rather implausible assumptions in which the authors impute the annual accrual of capital gains income from quite poor household data on asset classes combined with the assumption that everyone gets the average rate of return so that no one is lucky, no one is skilled in investing. If you eliminate the possibility of anyone doing really well in terms of their investments, you can make it look like the capital incomes of the top end did not do so well.

Emmanuel Saez, a University of California, Berkeley, economist considered by many to be a leading expert on income trends, wrote:

For the U.S., you should not trust any paper on top incomes that uses Current Population Survey data. Survey data cannot get at top incomes well because the surveys have too small samples of top earners to be reliable. That’s the very basic reason why our research on top incomes estimated with tax data adds value. In a nutshell, Burkhauser et al. will never say anything interesting about top incomes if they start from CPS data, although they might say interesting things on bottom 99 percent incomes.

Edward N. Wolff, an economist at New York University, noted in an e-mail that work he did with Ajit Zacharias, using methods similar to Burkhauser’s, reached the opposite conclusion:

I am surprised by the Burkhauser result. We did something very similar in 2012 and did not find his result. We included imputed rent to owner occupied housing and a yearly estimate of annual capital gains (both realized and unrealized). Our data went through 2007. If anything, we find a sharper rise in inequality using our measure of comprehensive income than using standard income.

[geo]

I think it may be true that that there's a growing divide (inequality) between the rich and poor. And it's also true that the poor are better off than they were 50 years ago.

The reason there are more people living below the poverty line today is that poverty is typically measured relative to the wealth of a society. This would seem to indicate there's some truth to the whole "trickle down" concept. We are a wealthier society today than we were fifty years ago and when wealth is created, there's always a few fats cats at the top.

Interesting article from Slate:

http://www.slate.com/articles/news_and_ ... eople.html

[Interbane]

I don't think that article supports trickle down theory. It states that the reason the poor are doing better is because of government subsidies, and non-cash benefits such as medicare and medicaid. What that tells me is that our poor are surviving in spite of the lack of trickle down, due to safety nets from the government.

Dexter hit on a point that is critical. The issue is simply too complex to fully understand. You can build nearly any story with the available data. When I consider the 'thin slice' signals that I always refer back to, they're hard to get away from. Such as, how can we justify the fact that a person makes 10 million times more than another person, when the lower earning person works at least 40 hours a week? Is there even a philosophical model that deals with this? I simply can't parse it, it doesn't make sense to me.

I've tried thought experiments as well. Take any large corporation, say one with 175,000 people like Taco Bell. If this group of people were somehow to be put in isolation as a test case, we would have to reclassify the group. The compensation for the efforts of the majority of the group aren't enough for them to raise a family. They need additional help. But a handful of this population live like kings, with far more resources than they could ever need. What sort of social structure is that?

I don't know if government safety nets are a good idea. They promote laziness. But to resolve this moral hazard, I don't think simply doing away with the safety nets is the solution. Because then the good, hardworking people within that population suffer disproportionately. This begs the question I keep asking, why can't companies pay more to those at the bottom, so that we can do away with the safety nets that otherwise support them? Many companies likely couldn't afford this, but the largest offenders can. There is profit going to people with stocks and shares, while employees of the corporation require government subsidy to make ends meet.

I could see myself being a lazy bum in the same situation. Why work hard when the amount you're reimbursed is $300 per week pre-tax? To impress your supervisor and move up, sure. But the job position must be filled. The position itself is a joke. Take a kid who flips burgers and put him somewhere that he shines, and his work ethic will flip 360 degrees. That's not the case for everyone, but I've seen it time and again. There is some truth to it.

[Dexter]

Emmanuel Saez, a University of California, Berkeley, economist considered by many to be a leading expert on income trends, wrote:

For the U.S., you should not trust any paper on top incomes that uses Current Population Survey data. Survey data cannot get at top incomes well because the surveys have too small samples of top earners to be reliable. That’s the very basic reason why our research on top incomes estimated with tax data adds value. In a nutshell, Burkhauser et al. will never say anything interesting about top incomes if they start from CPS data, although they might say interesting things on bottom 99 percent incomes.

(emphasis added)

I'm certainly not an expert on the data. That doesn't seem like a very damning criticism.

I've heard Thomas Sowell say something to the effect that anyone using household income data is likely trying to tell a stagnation story -- the size of households has declined, making the income data look worse. That's one of the adjustments that Burkhauser made.

Also keep in mind that unsophisticated users of this data (e.g. journalists, probably not these economists) interpret it as if you are talking about the income of actual families over time. You are looking at snapshots of different people that are in those groups. So even if you showed no income growth in say the bottom quintile over 20 years, it's not saying the average family saw no income growth. If relatively poor people entered the population being measured, it could drag down the average while everyone is actually better off.

[Robert Tulip]

So what if it represents shares? Are you dismissing what the graph represents? Right back at you, Robert. The graph you posted did not account for inflation. The poor are in fact making less, according to your chart, when you consider the purchasing power of their money. That's why it's the direct graphs such as the one you used that are misleading. Once you adjust the chart for inflation and get closer to the truth of the matter, you can clearly see that the poorest quintile are in fact not making more, but less. Oh the tricks the plutocrats use to pull the wool over our eyes. "Technically speaking we're correct." Right?

Come on Interbane, please read a bit more carefully before you make false statements such as in this post. The link I gave to the census data since 1967 has data both for current prices (ie cash at the time) and for constant prices (ie converted into equivalent of 2012 dollars). As I already said, the changes I gave were based on constant prices, ie correcting for inflation, contrary to your false statement. In real terms, ie in constant prices, the census data shows the poorest quintile now has average household income about 20% higher than half a century ago.

The bad thing, as I mentioned, is that since 2000 the situation has reversed, with a steep drop in income for the poor, and a smaller drop in average household wealth for the rich. I don't know if this drop for the rich is because the rich have become better at concealing their income. I think the takeout is that America under Bush jr became a more extractive society, corrupting the economy to cause stagnation and recession through regulatory reforms designed by and for elite vested interests.

[Interbane]

You're right Robert, I didn't see the second chart. Not that it impresses me, it is the differential between the two that concerns me. It doesn't convince me that "trickle down" works, because if trickle down worked it would have been working since 2000 or even earlier. Trickle down is a plutocratic concept to keep us happy under extractive policies.

In both comparisons, the charts are lacking the top 1% and top .1%, which tell a much different story. The rich may have lost wealth in their quintile, but if you chop it up into smaller bits the story changes.