Archives: 04/2015

Can Inequality Get Worse If Poverty Gets Better?

Jim Tankersley of the Washington Post believes he has discovered “The Big Issue With Hillary Clinton Running Against Inequality”:

“Inequality got worse under Bill Clinton, not better. That’s true if you look at the share of American incomes going to the 1 percent, per economists Emmanuel Saez and Thomas Piketty. It’s also true when you look at the share of American wealth going to the super-super-rich, the top 0.1%, per research by Saez and Gabriel Zucman.”

What this actually reveals is the absurdity of (1) defining inequality solely by top 1% shares of pretax income less government benefits, and (2) judging any strong economic expansion as a failure because top 1% income shares always rise during strong economic expansions.

The graph uses the Congressional Budget Office estimates of top 1% shares, because (unlike Piketty and Saez) they include government benefits as income and subtract federal taxes.  What it shows is that both affluence and poverty are normally highly cyclical. When the top 1 percent’s share of after-tax income jumped from 11.2% in 1996 to 15.2% in 2000, the poverty rate simultaneously dropped from 11% to 8.7%.  Meanwhile, median income, after taxes and benefits, rose from $50,900 in 1993 to $61,400 by 2001, measured in 2011 dollars. 

 

Conversely, when the top 1% share fell from 16.7% in 2007 to about 12% in 2013 (my estimate), the poverty rate rose from 9.8% to 15%.  If we adopt the egalitarians’ top 1% mantra, must we conclude that inequality “got better” lately as poverty got worse?Top 1% and Poverty

The income peak of 2000 is a tough act to beat, and few of us are ahead of it today – least of all the top 1%. The brief surge in top incomes of 2006-2007, like the related speculative surge in housing prices, proved unhealthy and unsustainable. But weak economic performance and high poverty in the past four years is no reason to dismiss the 3.7% average economic growth of 1983-2000 simply because such prolonged prosperity made more people rich.

Tankersley also asks us to “look at the share of American wealth going to the super-super-rich, the top 0.1%, per research by Saez and Gabriel Zucman.”  As I’ve explained in The Wall Street Journal, however, the Saez-Zucman estimates misinterpret shrinking shares of capital gains and investment income still reported on individual tax returns, or shifted from the corporate tax to a pass-through firm, rather than (like most middle-class savings) sheltered in IRA, 529 and 401(k) plans.

It is easy to envision Republican partisans welcoming and adopting the Tankersley theme that Hillary Clinton should now be ashamed of the strong economy of 1996-2000 because “inequality got worse” as many new firms were created and stock prices soared. Yet whenever stocks crashed and the top 1% share fell (making inequality “better”?) the poverty rate rose and median incomes were flat or down.

Some Republican candidates have already alluded to the same pretax, pre-transfer “top 1%” figures to claim inequality worsened under Obama – meaning since 2009.  According to Piketty and Saez, real average incomes of the top 1% were indeed higher in 2013 ($1,119,315) than in the crash of 2009 ($975,884).  Before crashing below $1 million in 2009, though, top 1% incomes had been much higher in 2007 (the equivalent of $1,533, 064 in 2013 dollars) and in 2000 ($1,369,780). The rising tide has not lifted many small boats or big yachts since 2009, because the tide hasn’t risen much; higher tax rates in 2013 certainly didn’t help.

The trouble with Republicans using highly cyclical top 1% statistics as a political weapon against Democrats is that doing so requires capitulating to the divisive and dishonest leftist fallacy that poor people and middle-income people do best when the top 1% is doing badly.

The truth is that the poverty rate fell sharply and middle-incomes rose briskly in President Clinton’s second term, and the top 1% gladly reported more taxable income and paid more taxes as the tax on capital gains was cut from 28% to 20%.  There is a lesson to be learned here, but it is not to denigrate the so-called rising inequality of the late 1990s.

State Spending vs. College Prices

Professor Paul Campos, something of an antagonist of our higher education system, caused a bit of ruckus last week when he wrote in the New York Times that skyrocketing college prices cannot be blamed on falling state appropriations to schools. The reality, of course, is that declining public support could explain some of the increase in prices (though not much at private colleges) but it seems unlikely it would explain all of the increases.

Let’s look at the trends.

First, note that overall state and local support, at least for general operations at public institutions, is indeed down over the last several years. Using data from the latest State Higher Education Finance report – released just yesterday – total state and local support for general operations at public colleges, adjusted for inflation using a higher education-specific index, fell from a peak of $83 billion in 2008 to $73 billion in 2014, a pretty big drop. That said, in 1989 total spending was only $64 billion, which means it has risen since then.

Conrad Black on American Criminal Justice

Conrad Black, writing at National Review Online, blasts the “plague of unjust prosecutions” in the American legal system.

Here is an excerpt: 

Another disturbing recent development in the saga of gonzo American prosecutors is New York State attorney general Eric Schneiderman’s prosecution of the Evans Bank for violating consumer-protection regulations by not adequately making loans available in lower-income, largely minority, areas of Buffalo. These laws are sloppily written and are just pandering to specific income-level and ethnic voters, and enable opportunistic prosecutors to intensify their campaigns for higher office by pandering to targeted voting blocs and trying to superimpose affirmative action over commercial criteria on how banks treat their depositors’ and shareholders’ money. A competing bank chairman, not involved in any such case, Frank Hamlin of Canandaigua National Bank, wrote last month in a letter to his shareholders that he was “extremely suspicious of the arbitrary and capricious manner in which [prosecutors] are abusing the legal system in order to further their own political and economic interests.” Of the prosecution of Evans and another bank, he wrote that “the regulations are vague on explaining what conduct is actually prohibited. The media, of course, does the people no service by merely assuming these prosecutions are based in sound legal theory and fact … [unaware that the] legal system has mutated its focus from time-honored legal principle and justice to efficiency and political expediency… . The reason that 98 percent of prosecutions are settled and not taken to trial … has to do with a fundamental and reasonable lack of faith that our legal system is working properly.” It is a brave stand for a community banker to take opposite an attorney general who seeks votes by abusive grandstanding in the Spitzer-Cuomo tradition (that propelled both of them to the governor’s chair)….  The United States is afflicted by a plague of unjust prosecutions, almost automatic convictions, and often one-way tickets to a bloated, corrupt, and frequently barbarous correctional system. This is not what the founders and guardians of the sweet land of liberty intended.
 
Read the whole thing.
 
For related Cato work, go here and here.
 

Checking in on the Minimum Wage in the TPP

A few weeks ago, I wrote about the possibility of the Trans Pacific Partnership (TPP) saying something about the minimum wage, which the White House had been suggesting it would.  I was a bit skeptical that the TPP would really do anything on this issue, and subsequently, I spoke to a U.S. government official who seemed to indicate that the whole thing was overblown, and nothing much would happen with the minimum wage in TPP.

But now I see that Victoria Guida of Politico has been speaking to higher ranking U.S. government officials, who said the following:

The Trans-Pacific Partnership pact, which the White House is negotiating with 11 countries, would require members to set and enforce laws on minimum wages, maximum work hours and occupational safety and health standards — things no other U.S. trade agreement has done.

Labor Secretary Tom Perez, too, is practiced at explaining why the TPP should matter to its critics, calling the labor provisions of NAFTA and the Central American Free Trade Agreement “woefully insufficient.” Labor obligations, he acknowledges, must be in the main text — as they have been in the most recent free-trade agreements — and coupled with sanctions if countries don’t comply.

The worker protections in the deals with Peru, South Korea, Colombia and Panama stemmed from the “May 10 agreement” that House Democrats reached with the George W. Bush administration in 2007, which covered freedom of association, collective bargaining rights, the elimination of forced or compulsory labor, child labor and employment discrimination. The TPP would go further with its minimum wage, hours and workplace safety standards, Perez said.

More on Krugman’s Missing Libertarians

I wrote last week about Paul Krugman’s claim that “there basically aren’t any libertarians” because “There ought in principle, you might think, be people who are pro-gay-marriage and civil rights in general, but opposed to government retirement and health care programs — that is, libertarians — but there are actually very few.” I offered some evidence from Gallup, Pew, and other polls that in fact there are substantial numbers of voters who hold libertarian-ish views on both economic and social issues.

Bryan Caplan runs some regressions to find that voters’ positions on a variety of issues don’t line up the way Krugman assumes they do. Ilya Somin explores various problems with Krugman’s claims, including this:

It’s also possible to try to justify Krugman’s claim by arguing that most of those people who hold seemingly libertarian views haven’t thought carefully about their implications and are not completely consistent in their beliefs. This is likely true. But it is also true of most conservatives and liberals. Political ignorance and irrationality are very common across the political spectrum and only a small minority of voters think carefully about their views and make a systematic attempt at consistency. Libertarian-leaning voters are not an exception to this trend. But it is worth noting that, controlling for other variables, increasing political knowledge tends to make people more libertarian in their views than they would be otherwise.

Nate Silver, Krugman’s erstwhile New York Times colleague who now runs the FiveThirtyEight website, writes, “There are few libertarians. But many Americans have libertarian views.” He notes:

If Krugman is right, you should see few Americans who are in favor of same-sex marriage but oppose government efforts to reduce income inequality, or vice versa.

As it turns out, however, there are quite a number of them; about 4 in 10 Americans have “inconsistent” views on these issues.

Not actually inconsistent, of course, just not consistently “liberal” or “conservative.” Those “inconsistent” Americans just might be consistently libertarian or anti-libertarian. Silver has a nice matrix, grounded in data from the General Social Survey unlike Krugman’s off-the-cuff matrix:

Nate Silver 2015 chart on libertarian voters

On those two issues, the largest group take liberal positions on both. Substitute different issues – cutting taxes, say, or internet censorship – and you’d get larger numbers of libertarians. But whatever set of issues you choose, you’re likely going to find significant numbers of voters taking positions that don’t fit into Krugman’s two boxes.

Silver speculates on why there seems to be so little political representation for these large groups of voters:

…the hard-core partisans who vote in presidential primaries are much more likely to take consistently liberal or conservative positions than the broader American population, as Krugman’s colleague Nate Cohn points out.

And the parties themselves — who have disproportionate influence in the primaries — have highly partisan views by definition. Almost all voting in the U.S. Congress, on social issues and economic issues alike, can be reduced to a single, left-right dimension.

Does this make any sense? Why should views on (for example) gay marriage, taxation, and U.S. policy toward Iran have much of anything to do with one another? The answer is that it suits the Democratic Party and Republican Party’s mutual best interest to articulate clear and opposing positions on these issues and to present their platforms as being intellectually coherent. The two-party system can come under threat (as it potentially now is in the United Kingdom) when views on important issues cut across party lines.

Maybe that’s why we have so much trouble convincing people that there are libertarian voters.

Nate Silver looked at growing libertarian sentiment back in 2011.

Remaining Obstacles to the Iran Nuclear Agreement

The Obama administration is hailing the framework agreement regarding Iran’s nuclear program as a great diplomatic triumph. It is clear, however, that several significant obstacles remain—any one of which could fatally undermine that achievement. The most obvious threat is the unrelenting hostility to the accord by hawks in the United States. The ink was barely dry when William Kristol, editor of the flagship neoconservative magazine The Weekly Standard, published an editorial openly urging Congress to kill the agreement. Outspoken congressional hawks, including Senator Tom Cotton and Senator Lindsey Graham, have made it clear that this is their objective as well. Given GOP control of both houses of Congress, such opposition is more than a minor worry.

But there are other sources of potential trouble. Just days after Kristol’s screed, Iran’s supreme leader, Ayatollah Ali Khamenei, insisted that all economic sanctions against his country must be lifted once the final version of the nuclear accord is signed. Yet even the Obama administration has adopted the position that sanctions will be lifted only in stages as Tehran fulfills its commitments. Clearly, that dispute could unravel the entire accord.

Disagreement about the timing and extent of terminating sanctions reflects the continuing lack of trust between Tehran and Washington. Although most Americans would argue that Iran is the untrustworthy party, I point out in a recent article in Real Clear Defense, that there is also reason to doubt Washington’s willingness to abide by its commitments. The U.S. track record is not especially reassuring. During the latter stages of the Cold War, for example, the United States proposed a procedure of “cross recognition” regarding North and South Korea. In other words, if Moscow and Beijing established diplomatic ties with Seoul, Washington would recognize the government in Pyongyang. China and Russia have since done so—and now enjoy a wide range of diplomatic and economic relations with South Korea. But the United States has yet to normalize relations with North Korea.

From Iran’s standpoint, an even more worrisome precedent is the action that the United States and its NATO allies took with regard to Muammar Gaddafi’s government in Libya. Gaddafi abandoned his nuclear program in exchange for promised diplomatic and economic concessions. Within a few brief years, those nations turned on Gaddafi, openly funding and arming an insurgency to overthrow his regime. That campaign culminated with NATO (primarily U.S.) cruise missile strikes to support the successful rebel offensive.

The Libya episode hardly creates an incentive for Iran, North Korea, and other potential nuclear-weapons states to forgo such ambitions. Indeed, it likely reinforces the opposite incentive. The pertinent lesson seemed to be that only a very foolish government would give up the nuclear option in exchange for the mere promise of normalized relations with the West.

The challenge for the Obama administration is to demonstrate to Iran that it can and will deliver on the U.S. commitment to lift sanctions, if Tehran fulfills its obligations under the new nuclear agreement.  Given the extent of the opposition in Congress, though, it is uncertain whether the administration can prevail, even if it is serious about keeping the U.S. side of the bargain.  Celebration in response to reaching the framework accord is decidedly premature.  We are still a long way from the implementation of an effective settlement to this dangerous feud.

Will the Real Herbert Spencer Please Stand Up?

In a hit piece on Rand Paul posted on ThinkProgress, Ian Millhiser has taken guilt by association to new heights, and, in the process, fundamentally misrepresented the views of Herbert Spencer.

In “Rand Paul’s Favorite Philosophers Think Poor People Are ‘Parasites,’” Millhiser attempts to connect Rand Paul to 19th-century classical liberal philosopher Herbert Spencer. He does this by constructing a stunningly attenuated chain of influences: Rand Paul to his father Ron Paul, who was unquestionably influential on his thinking; Ron Paul to Murray Rothbard, by whom Ron Paul was greatly influenced; and Murray Rothbard to Herbert Spencer, whose book Social Statics Rothbard called “the greatest single work of libertarian political philosophy ever written.”

Millhiser offers no direct evidence that Rand Paul himself is a fan of Herbert Spencer, even though he implies so in his title. Despite this bit of journalistic malfeasance, Millhiser marches bravely forward with further misrepresentations about Spencer’s ideas, and, by implication, Senator Paul’s. Here Millhiser is joining a long, if not admirable, tradition of people misrepresenting Herbert Spencer’s ideas in order to attack proponents of capitalism. As usual, those critics are wrong about what Spencer himself actually wrote and believed.