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Connecting the dots

January 20th, 2007

Jonathan Chait connects the dots between dishonest conservative (fn1) claims about income inequality (coming in this case from Alan Reynolds) to similar arguments made about evolution and global warming. As he says, to construct an alternate reality in which income inequality is not increasing, global warming is not happening and the world is near the end of its 6000 years anyway, there’s no need to prove a case – just cast enough doubt on the facts and ideology or faith will do the rest. The Republican War on Science is so broad-based that here is now no academic discipline whose conclusions can be considered acceptable to orthodox Republicans.

Chait does a good job on all this but it’s a pity he doesn’t extend it to his reconsideration of the Iraq disaster. If liberal hawks like Chait had taken the (correct) view that everything coming out of the Bush Administration and its supporting thinktanks was advocacy designed to achieve a predetermined political goal with no regard for the truth, would they have been so keen to support the war?

If they had disregarded the ‘evidence’ on WMDs presented by Bush and Powell for example, and looked at the reports of UN weapons inspectors, would they have still accepted the casus belli on this issue. And if they had assumed that any Iraqi touted by rightwing thinktanks, such as Ahmed Chalabhi, was bound to be worthless as a guide to conditions in Iraq, would they have been so quick to believe that things in Iraq were likely to turn out well? Finally, if they regarded reality as an important basis for policy, wouldn’t they have realised that any enterprise run by people who prefer lies to truth is unlikely to succeed in a place like the Middle East, where reality tends to obtrude itself rather brutally?

And, while we’re on the topic of Iraq, the Project on Defense Alternatives has just released a plan for US withdrawal that seems at least as likely to produce a reasonable outcome in Iraq as any of the alternatives on offer (not that that’s saying much).

1. Of course, there’s nothing conservative about these guys: they are radicals in policy, not to mention epistemology. A better term might be ‘movement conservatives’ or just ‘Republicans’.

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  1. derrida derider
    January 20th, 2007 at 16:20 | #1

    At last someone has pointed to something which was shamefully ignored in the MSM at the time – the massive gap between what Bush, Blair, etc were saying and what the UN inspectors on the ground were saying. It’s understandable that RWDBs preferred white House spin, but utterly inexcusable for so called “organs of record”.

    But I reckon you’re overstating things a bit – the ‘War on Science’ is mostly coming from a small minority whose undue influence is clearly already on the wane.

  2. January 20th, 2007 at 19:51 | #2

    The Alan Reynolds paper being criticised is available at the following location:-

    http://www.cato.org/pub_display.php?pub_id=6880

    Measurements of inequality have also been affected by large reductions in income tax rates, particularly in 1986. Estimates by many economists indicate that the reported income of highincome taxpayers is very responsive to tax rates. When top tax rates on wages or capital gains fall, reported incomes rise, and a larger fraction of the incomes of those at the top show up on tax returns. International comparisons show that reported income shares of those at the top have risen the most where top tax rates have been cut the most (the United States, the United Kingdom, and India) and have risen the least where top tax rates have remained very high (France and Japan).

    In sum, studies based on tax return data provide highly misleading comparisons of changes to the U.S. income distribution because of dramatic changes in tax rules and tax reporting in recent decades. Aside from stock option windfalls during the late-1990s stock-market boom, there is little evidence of a significant or sustained increase in the inequality of U.S. incomes, wages, consumption, or wealth over the past 20 years

  3. jquiggin
    January 20th, 2007 at 22:42 | #3

    DD, while I agree that the War on Science guys are losing, they’re not a small minority of US Republicans. Every one of the major US conservative thinktanks backed the War on Science as regards global warming, and most also got the trifecta with evolution and Iraq.

    Terje, thanks for the link. I’ve read Reynolds’ stuff before, and it belongs in the same bin as global warming denialism. No serious economist denies the increase in income inequality that has taken place in the US. It’s evident in incomes of every kind, in the wage share of national income and so on, not just in tax returns.

  4. January 20th, 2007 at 23:23 | #4

    Ah… JQ, while the wage share of national incomes does indicate what you state, it only implies increasing inequality in its institutional context. If, say, distributism could ever be made to work – or even if it was started and would fail later – you would get increasing equality and decreasing wage share, at least pending failure. That’s because it addresses Chesterton’s critique, “the troble with capitalism is that there are not enough capitalists” (not a comment on the entrepreneurial spirit but on the ownership of resources).

  5. January 21st, 2007 at 00:04 | #5

    No serious economist

    What is your definition of a serious economist? Is it an ecomomist that never smiles?

  6. Mike Hart
    January 21st, 2007 at 09:57 | #6

    Terje, I think you will find a serious economist smiles often, they have an acute sense of irony and an open mind.

    Reynolds is disengenious, it is a carping dissertation attacking Paul Klugman and others and makes a simplistic argument based on taxable income elasticity. The high elasticity of high income and asset holders is astonishingly self evident and one would think requires no special effort to demonstrate.

    The arguments so presented are to deflect critical analysis of the massive transfers of wealth and assets from a few to a smaller few and the continued transfer of most economic costs to the broader many, that is the outcome of conservative economic management. Reynolds also claims income leakage via 401k plans (super) hides the true wealth of the other 80%, this a very dubious argument. Conservative ideology enshrines the view that the poor cannot manage their own situation and they (the rich) are not going to take it any more! So CEO’s have to be paid more because they are special, tax minimisation for the wealthy because only they can create wealth, restrict welfare to the poor because they need an incentive to get wealthy and dupe them into long term lockout systems called pension plans, while the financiers gouge the pot for fees and charges. So unless you are in posession of serious GF capital then your being shorn like the rest of us sheep. Meanwhile a few honest economists try to tell it as it is, Reynolds is not one of them.

  7. January 21st, 2007 at 10:12 | #7

    Pr Q says:

    1. Of course, there’s nothing conservative about these guys: they are radicals in policy, not to mention epistemology. A better term might be ‘movement conservatives’ or just ‘Republicans’.

    Bush Republican’s are not conservative. And many conservatives are not even Republican. The American Conservative is the ideological organ of conservatives opposed to Bush’s radical reactionaries. Its writers all subscribe to realism in politics, economics and cultural matters (BTW The scientific study of the socio-biological foundations of culture is an area where the New Left is hopelessly retarded). The AmCons do not get many invitations to the Bush Republican White House.

    Bush is a radical constructivist, not a conservative, in both political means and cultural ends. He suckers genuine conservatives with nominal genuflectiosn to symbolic conservative causes eg opposition to gay marriage.

    Bush’s post-911 strategic doctrine overturned the post-Westphalian presumption of national sovereignty and the general conservative tendency amongst Great Power statesmen established by the Viennese Congress. And his attempt to promote democratic multiculturalism, by force into Iraq and by stealth in America, violates all conservative precepts on the integrity of national culture.

    Bush’s epistemological principle construct reality to fit his political practice. A vision of reality is intellectually constructed in an alternative universe to fit a pre-determined course of action in this one. Lies, threats and bribes are then used to co-opt other players who do not see things the same way.

    I do not know if he is moved by an overall philosophical agenda. One suspects he just does what will most enhance the power of his class, clan and cronies and then invents a post-facto justification.

  8. January 21st, 2007 at 10:23 | #8

    Jonathan Chait says:

    the failure of a criminally negligent administration to carry out a highly challenging rebuilding task in the most hostile part of the world does not teach us everything we need to know about the efficacy of military power.

    Iraq-attack was wrong in both execution and conception. It was obviously a bad idea to entrust any large politico-administrative task to members of a gang who can’t shoot straight (don’t go hunting with Dick Cheyney).

    But it was an even worse idea to forcefullyy promote multicultural democracy in a land where secular dictatorship was the only thing stopping sectarian anarchy.

    Militarism is not an efficacious way to promote the national interest these days since it is either unnecessary or impossible to be used effectively.

    In conflicts with civilised states (eg PRC) it is cheaper and safer to use diplomatic and economic means of conflict resolution. And in conflicts with failed or rogue states (eg IRAQ) it is pointless to use the army to make them over since the underlying foundations are primitive to the point of barbarism.

    An international legalist course of action is indicated.

  9. January 21st, 2007 at 10:35 | #9

    I think the fact that Dick Cheyney can’t shoot straight became apparent only after the invasion of Iraq.

  10. Sinclair Davidson
    January 21st, 2007 at 11:29 | #10

    “a few honest economists try to tell it as it is”

    Yes, well. Have a look at the numbers.

    http://gregmankiw.blogspot.com/2007/01/federal-tax-progressivity-just-facts.html

  11. January 21st, 2007 at 11:57 | #11

    There is no proof for evolution, there is only the appearance of a proof. I find it extremely interesting, for example, that Tyrannosaursus Rex fossils that produce actual soft tissue remanants could possibly be 60 160 million years old. The idea is utterly preposterous given the timelines of evolution but there you have it: soft tissue has indeed been found in the thigh bones of T-Rex. I could care less whether the world is 5 billion years old or 300,000 years old but I do think that any scientist worth his or her salt would question the common timelines of evolution with the discovery of soft tissue in T-Rex bones. Have you heard a peep in this direction? Of course not.

    Epistemology relates to the science of knowledge, specifically how you know anything. Modern day evolutionists embrace a radical uncertainty principle when it comes to morality but when it comes to their beliefs, there is no uncertainty whatsoever. The religion of evolution is NEVER to be questioned. If we know anything, we know that soft tissue cannot possibly survive the timelines indicated by evolution. The timelines may have to be re-thought based on the kind of hard evidence that is now being discovered in fossils previously found and shelved, but don’t expect it to come from the pro-evolution crowd which can’t stand any evidence to the contrary when it comes to their religion. And what is their religion: the most magnificent fairy tale every concocted: that everything in the universe happened accidentally–that there is no organizing principle in a universe that is obviously highly organized.

    Life operates in actual opposition to the laws of thermodynamics. It winds things up and nobody, absolutely nobody can figure out why. Life and the principles of life seem to have escaped the academic boneheads who ignore the most astonishing thing of all–that they don’t know how life really works, that they don’t know where the energy of life comes from and they have no idea as to why the cellular mechanisms that control the appearances of life cannot be manipulated to produce life. No scientist has ever created life from scratch because they conveniently ignore the fact that to manipulate life is not to create it. They are like savages examining a television set who try to reach into the screen to extract the images by hand. Without a concept of broadcast and reception, scientists keep playing with the receiver, like hottentots, never looking for or conceiving of a broadcast mechanism. Espistemologically speaking–if you want to use such language–this is beyond absurd.

    If you want to gibber about the war in Iraq being based on a fundmental deception about WMD, you are wasting your time. Neither liberals nor conservatives seem to be able to grasp the notion that the belief systems of national patriots either at home or abroad in countries like Iraq may be based on fundamentally irrational and false notions. The single driving idea behind Islam–that you will be rewarded for sacrificing your life for the advancement of Allah’s wishes is no different in practice from the evolutionist’s belief that the universe is accidental. Both are false belief systems with predictable and destructive results in the social spheres of morality, spirituality and human progress.

    Islam is really just another Christian heresy, no different in genesis from the lunacy of Martin Luther, Henry the Eighth or the oddities of Joseph Smith.

    Some editing for civilised discussion – JQ

  12. gordon
    January 21st, 2007 at 14:24 | #12

    Jack Strocchi says: “One suspects he just does what will most enhance the power of his class, clan and cronies and then invents a post-facto justification”. Suspects!!?? Is Jack Strocchi the guy who, on regaining consciousness lying bruised and torn in the carpark, said to himself :”Hmmm; I have been knocked unconscious and my wristwatch, wallet and car keys are missing. I suspect I have been mugged!”

    Of course, the other possibility is that he has been attacked by a T. Rex.

  13. January 21st, 2007 at 21:09 | #13

    There is no proof for evolution, there is only the appearance of a proof.

    Evolution is a scientific theory. Scientific theories are not provable. They are refutable. If they are not refutable then they are not scientific. The issue is not whether there is proof for evolution but whether there is evidence for evolution. And there is. A very large body of evidence.

    I agree that the finding of soft tissue in T-Rex bones is amazing. I was impressed when I first read about it. It will most certainly require a lot of rethinking. I doubt very much that it will cause any significant problem for the theory of evolution. It may upset the applecart in other ways. An article on soft tissue in T-Rex bones for those interested:-

    http://news.nationalgeographic.com/news/2005/03/0324_050324_trexsofttissue.html

  14. MP
    January 21st, 2007 at 22:14 | #14

    JQ – you argue “No serious economist denies the increase in income inequality that has taken place in the US.”

    What about Smeeding (2006) “Poor People in Rich Nations: The United States in Comparative Perspective” Journal of Economic Perspectives Vol 20 No 1. Smeeding shows (Table 3) that both absolute poverty and relative poverty fell in the US over the period 1986 to 2000: relative by 0.8 pp and absolute by 4.3 pp. Only one other country (Sweden) in the Smeeding study had a fall in relative poverty over the same timeframe – a reduction of 1.0pp. The average change in relative poverty for the 11 country sample was an increase in poverty of 1.2 pp. So the change in poverty in the US was the second best out of all the countries in the sample.

    Note that Smeeding also shows that market income (ie wage) poverty is also lower in the US than in most other countries in the sample (Table 4). Wage poverty is 23.1% while the average is 27.0. The higher rates of poverty in the US are because their tax & social security system does a poor job of reducing poverty.

  15. Tim Curtin
    January 21st, 2007 at 22:46 | #15

    JQ said above: “No serious economist denies the increase in income inequality that has taken place in the US. It’s evident in incomes of every kind, in the wage share of national income and so on, not just in tax returns”.
    But while the rich there have got richer, so have the poor, if not so much. I would rather suffer inequality in the lower 1-5 deciles in the US than be in the top 6-10 deciles of those who in Australia “enjoy” native title over about 30-40% of the country but are nevertheless now as ever in the bottom decile of the whole country, still cannot own a house, or a farm, or develop a mine or any other business, have to send their children to schools that do not teach English in the early grades if ever, whose children’s prospects of earning access to tertiary education are close to nil, who enjoy health services worse than almost anywhere in the world (shown in life expectancies etc lower than in neighbouring countries) and who enjoy also either absent or oppressive law agencies, etc etc. They are however very equal in their enjoyment of this universal deprivation. Thanks, I prefer inequality and its opportunities. Technical note: unlike in Australia’s benevolent apartheid, those in the lower deciles of the USA and white Australia are a shifting population, comprising disproportionate numbers of the young and the old, such that many if not most of those in the lowest 10% 20-30 years ago are either dead or now in the top deciles – I suspect most of those in this bog were once in the bottom 10% but are not anymore.

  16. Simonjm
    January 21st, 2007 at 22:54 | #16

    Terje what do you make of these guys http://scalarparty.livejournal.com/tag/wtf -http://www.bureaucrash.net/??

    What do you think their take on environmental scientists would be if this seems typical of their views. What’s your stance? Science is Ok as long as it doesn’t get in the way of business and making money?

  17. jquiggin
    January 22nd, 2007 at 03:49 | #17

    MP, I’m happy to rely on Smeeding, since he is one of the leading authorities on the topic. In his forthcoming Palgrave article (with Brandolini) on this topic, he says:

    The temporal patterns show some similarity in the United States and the United Kingdom where inequality was considerably less in the 1940s than prior to World War II. It then moderately declined until the mid 1970s, when this trend abruptly reversed. But we have no consistent overall trends running this far back for other nations (see Gottschalk and Smeeding, 2000, Figures 6a and 6b for the longer term U.S. and U.K. trends). The best we can do on a reasonable comparative basis is shown in Figure 3, beginning in the mid 1960s.
    Indeed the 1980s saw a substantial rise of inequality, more pronounced in Britain than in the United States, though the starting level was lower. In the 1990s the two nations parted: income distribution kept widening in the United States, while it broadly stabilised in the United Kingdom.

    which seems about as clear-cut as you can get

  18. January 22nd, 2007 at 06:11 | #18

    Simon,

    I don’t have any opinion on the websites you offer. Maybe if I studied them more I would, but I’m not sure what the point is so I’m not going to.

    You seem to imply that science is incompatible with business. It may have a disrutive effect on specific businesses but I don’t think the concept holds up in any general sence.

    Regards,
    Terje.

  19. MP
    January 22nd, 2007 at 06:58 | #19

    JQ, I thought you would know that it is hard to be clear-cut about inequality. Smeeding’s Palgrave article essentially recognises two problems: how to measure income, and how to convert these income measures into an inequality measure. Smeeding acknowledges this on page 3 of the Palgrave article you reference: “International comparisons of income inequality crucially depend on the underlying measurement assumptions.”

    For a given income measure, you cannot do a clear-cut inequality comparison between two income distributions unless one distribution Lorenz dominates the other. Smeeding doesn’t do this in the Palgrave article. On page 7, he acknowledges that the international rankings do depend on the inequality measure.

    The other way you aren’t able to be clear cut is because of differences in measuring income. Smeeding uses one method, but there may be others (eg Reynolds?)

    Using different measures you end up with different results. Therefore, you can’t be clear-cut, at least based on this evidence.

    Even if you do accept that inequality has increased in the US, I think that poverty is a much more important measure (I acknowledge Reynolds was looking at inequality not poverty).

    PS The Smeeding Palgrave article shows that inequality in market income (ie wages) is lower in the US than in France and the UK, with the tax and transfer system in the US not reducing inequality by as much as in those other countries.

  20. MP
    January 22nd, 2007 at 07:59 | #20

    The Reynolds and Chait articles cited by Pr Q both miss the important point that you can’t make a definitive comparison between two income distributions unless one Lorenz dominates another. This strengthens Reynolds’ point and weakens Chait’s.

    There are a number of other clear problems with Chait.

    Chait misses Reynolds’ point that cuts in personal taxes mean high wealth individuals reduce their use of companies as a tax shelter – the main study used in Reynolds and Chait (Piketty & Saez) argues that almost all the increase in top incomes from 1981 to 1984 is due to this effect. A similar argument could be used about the large jump in top incomes over 1987 and 1988. He also misses the Reynolds argument about taxable income elasticity – cuts in top marginal tax rates dramatically increase reported income due to reduced tax avoidance.

    If this is correct, then most of the increase at the top is due to changes in tax avoidance activities, rather than any real change in income (good evidence if I’ve ever seen it to reduce the difference between company and individual tax rates).

    Chait argues that retirement savings accounts are held more by the rich (without citing evidence), but Reynolds cites evidence showing they are held more by middle income earners (page 7).

    Chait is also wrong to argue that Reynolds doesn’t provide an alternative explanation. Chait may not like Reynolds’ explanation, but it is there clearly in the article.

    Some of the other criticisms in Chait are probably valid, but the most important problems raised by Reynolds remain, as well as the Lorenz domination point.

    PS Reynolds cites the US Census Bureau’s measure of inequality has not increased since 1986.

    PPS It is ironic that Chait criticises Reynolds for not masking his ideological preferences, but then scarcely hides his own – calling Reynolds a hack and being “plucked from obscurity�.

    Postscript about climate change: note that the IPCC is not clear cut about this. There are heaps of uncertainties, the IPCC recognises this and uses terms such as likely and very likely in its assessment reports.

  21. Simonjm
    January 22nd, 2007 at 09:48 | #21

    Terje I thought you were of the libertarian ilk so I thought you may be able to provide some perspective. –there was a link to a young aussie Libertarian site with your post on it & recent posts on bias.

    Whether a war on science or a predictable take on what economics will show us on things like growing inequality, one wonders whether certain ideologies are capable of any sort of objectivity regarding matters that cut across the core of that ideology.

    There are of course extremes on all sides but in general it would seem whenever you come up against most libertarians most are super critical on anything that says humans are having an adverse affect of the environment or anything that questions the social utility of capitalism.

    This is not to say science is incompatible with business, far from it, good science and engineering are actually showing that there is a lot of money to be made you design your systems and use your resources in a more efficient sustainable manner.

    I just wanted to know if these young Libertarians, coming out with these extreme views, were typical of the sort of stance you could get from your young libertarian say as opposed to a group of tree hugger uni students. From these what I would consider extreme stances it would seem their minds are already locked in and whatever the science or economics if it isn’t with them it’s against them.

    It would be hard to have an objective debate with such people on inequality. Of course no insinuation that you are of the same mind. ;)

  22. January 22nd, 2007 at 12:22 | #22

    The core message of libertarianism is about freedom, not business or money. Advocating that people should be free to have gay sex or smoke dope or that governments should not wage pointless wars in far off places has little to do with business or money (except the war bit). However they are all typical positions taken by libertarians.

    As I said I have not reviewed the websites in question other than looking at the graphics and reading a few paragraphs so I can’t really comment. They may be great or they may be crap.

    If you want to know about Aussie libertarian views then check out the following:-

    http://www.libertarian.org.au
    http://catallaxyfiles.com

    Both sites have forums where you could discuss the issue and that would be better than us hijacking this thread.

    My personal blog says very little on the topic but it is here:-

    http://terjepetersen.wordpress.com

    I have a degree in Engineering and I am definitely not anti-science. I am more than comfortable with the libertarian lable but my views are at the end of the day my own and I spend plenty of time disagreeing with other people that also call themself libertarians.

    whenever you come up against most libertarians most are super critical on anything that says humans are having an adverse affect of the environment

    I agree with the global warming theory and I accept that most of the evidence points to human emissions of CO2 etc as the problem. I am not overly sympathetic towards some of the propose cures and I admit that there is an ideological edge to this position but I try to avoid being dogmatic about it. If in doubt I ask questions.

    or anything that questions the social utility of capitalism.

    Capitalism is defined differently by different people. I believe in free trade and low taxes and I’m not overly in favour of government initiated redistribution. However I believe that redistribution is central to any compassionate society. I am not entirely convinced about the merits of anti-trust laws or patents (I’m not unconvinced either).

    As an institution I think government is over extended and does things that would be better done by other institutions.

    Note that “BETTER DONE” does not necessarily equal “DONE BETTER”.

  23. O6
    January 22nd, 2007 at 13:46 | #23

    Back to Sean, no. 12, DNA was recovered more than a decade ago from Magnolia fossils over 60M years old, and science has taken this discovery in its stride. Tyrannosaurus isn’t much older than Magnolia.
    Interestingly, among the Magnolia sequences identified was part of one of the critical photosynthesis genes. The sequence was not identical to present-day sequences but differed in ways expected on our understanding of sequence change over time (i.e. according to standard population genetics).
    ‘Soft tissue’ is a description used to differentiate tissues in live organisms, not in fossils, and it does not describe the persistence of some molecules, such as DNA. The process of fossilisation is not totally understood yet, and all science (unlike revelation, for those who accept revelation) is provisional, but ancient DNA and other molecules from fossils add to science; they may disprove some particular hypotheses, but they strengthen our understanding of evolution.

  24. Simonjm
    January 22nd, 2007 at 14:09 | #24

    Thanks for the thoughtful reply Terje.
    BTW not looking to hijack I thought alternative realities by extreme libertarians is just as valid as alternative realities by some conservatives.

    The point being just like some creationists, uber global warming sceptics and undoubtedly many from the opposing side there is no room for debate or any evidence their minds are made up.

    I would be interested to have measures of inequality and social mobility compared, one could argue even if there was large inequality its not so bad as long as there is plenty of social mobility, but from what I understand that is not the case esp in the US.

  25. jquiggin
    January 23rd, 2007 at 01:42 | #25

    MP, I agree that there are plenty of issues that can be discussed here. For example, social mobility is a complex issue – the evidence suggests it is lower in the US than in Europe (in contrast to the 19th century when it was much higher, and US beliefs about being a land of opportunity were entirely justified), but (unlike the case of rising income inequality) this isn’t clear-cut.

    The point of the post is that Reynolds’ main claim that income inequality has not increased in the US is flat wrong, as is clearly shown by Smeeding and many others. He can argue otherwise only by twisting the evidence in the familiar manner of global warming and evolution denialists. There is simply no point in engaging with someone like this, other than to point out that they are not arguing honestly.

  26. PeterW
    January 23rd, 2007 at 03:10 | #26

    I should say at the outset that I do not think that income tax data are the best source for looking at trends in income inequality if one wants to get an overall picture of income inequality.

    This is because tax data are based on individuals and usually do not measure inequality at the household or family level (unless some form of matching is carried out). They are also subject to changes in what is declared (the introduction of capital gains tax in Australia seems to have been associated in an increased declaration of income for higher income groups – i.e. they had unmeasured incomes before), and most studies do not equivalise (adjust for household size), plus they may not include the impact of social security benefits (unless this is included in taxable income – for example, in Australia disability pensions and family payments are not taxable). So overall, what you get is a partial picture of income inequality.

    Having said this, absolutely everything reputable I have ever read about trends in income inequality in the US (in refereed journals or reliable working paper series) finds that household income inequality has risen significantly since the 1970s.

    It is true that in some years US household inequality has fallen (I think the second half of the 1990s), but the long term trend is undeniable.

    Also while relative poverty is related to inequality, poverty can go down while inequality rises. This has happened in the UK, for example, under “New Labour” – all this means is that the poor do get better off relative to the median, but the rich enjoy even bigger increases.

  27. January 23rd, 2007 at 06:08 | #27

    The following article takes a look at inequality on the global level. A few extracts follow.

    http://www.heritage.org/research/features/index/chapters/htm/index2007_chap1.cfm

    Researchers have long worried about world income inequality. Recently, policymakers have joined the debate. For example, in its 2001 Human Development Report, the United Nations Development Programme (UNDP) argues that global income inequality has risen based on the following logic:[14]

    Claim 1: “Income inequalities within countries have increased.”

    Claim 2: “Income inequalities across countries have increased.”

    Conclusion: “Global income inequalities have also increased.”
    To document Claim 1, analysts collect the Gini coefficients, which measure inequality, for a number of countries. They notice that the Gini “increased in 45 countries and fell in 16.” To document the second claim, analysts go to the convergence/divergence literature and show that the Gini coefficient of per capita GDP across countries has been increasing unambiguously over the past 30 years. This increasing difference in per capita income across countries is a well-known phenomenon that empirical growth economists call “absolute divergence.”

    Although it is true that within-country inequalities are increasing on average, and although it is also true that income per capita across countries has been diverging, the conclusion that global income inequality has risen does not follow logically from these premises. The reason is that Claim 1 refers to the income of “individuals” and Claim 2 refers to per capita incomes of “countries.” By adding two different concepts of inequality to analyze the evolution of world income inequality, the UNDP falls into the fallacy of comparing apples to oranges.

    and the conclusion

    The estimates of a WDI for the 1970–2000 period result in a number of interesting lessons.

    First, global poverty rates, defined as the fraction of the WDI below a certain poverty line, declined significantly over the past three decades. We have documented this claim for the four most widely used poverty thresholds. Poverty rates were cut by a factor of almost three, according to all four poverty lines, and the total decline in poverty head counts was between 212 million and 428 million people. We have shown that this is also true for all conceivable poverty lines. (See Table 1.)

    Second, the spectacular reduction of worldwide poverty hides the uneven performance of various regions in the world. East and South Asia account for a large fraction of this success. Africa, on the other hand, seems to have moved in the opposite direction.

    Third, after remaining constant during the 1970s, inequality declined substantially during the past two decades. The main reason is that incomes of some of the world’s poorest and most populated countries (most notably China and India, but also many other countries in Asia) converged rapidly with the incomes of OECD citizens. This force has been larger than the divergence effect caused by the dismal performance of African countries.

    Fourth, the decomposition of inequality into “within-country” and “across-country” components reflects that within-country inequality increased over the sample period. However, the decline in across-country inequality more than offset the first effect and delivered an overall reduction in global income inequality.

  28. January 23rd, 2007 at 11:01 | #28

    Terje and Peter make good points, but still overlook that while the poor are always with us, those poor now may not always be so. In 1990 the bottom decile of workers in Australia earned a third of the average income of all deciles, but a third of these “poor” were aged under 24, while only 1.6 of the top decile were in this age group. Similarly 12% of the bottom decile were aged 55+, i.e. retired, and only 6% of the 9th decile were aged 55+. I doubt this pattern will have changed, but what is wrong with it, and if it is wrong should we eliminate the young or the old to cure it at a stroke? But come to think of it those poor teenagers do grow up and migrate to higher deciles, to be replaced by the next lot of indigent students and the like. The only permanent poverty at all ages is that of the indigenes across northern Australia.

  29. Razor
    January 23rd, 2007 at 16:07 | #29

    Does income inequality matter?

    What is an acceptable level of income inequality?

  30. Terje
    January 23rd, 2007 at 17:05 | #30

    Tim,

    Yes I agree that income inequality becomes far less important once you consider that peoples incomes fluctuate across their life. If lots of people were permanently stuck at the bottom then it would be a bigger concern. However most people earn more as they get older and more experienced and then less as they get older again and the house is paid for and they wind down. The only real way to get a handle on the whole thing is with good temporal studies. However the results of such studies are not easy to communicate in a political sound bite or newspaper headline.

    Regards,
    Terje.

  31. PeterW
    January 23rd, 2007 at 17:13 | #31

    Tim Curtin is absolutely correct that on a long term basis income inequality and poverty are less than they are on the basis of a week’s income or annual income. This is true in the US and also true in all other rich countries.

    Speaking personally, I think that poverty is probably a lot lower than is measured on the usual basis of annual income – although this is mainly because I think that the virtually nobody has zero or negative incomes in any real sense, and roughly half the people below the poverty line in Australia(either relative or absolute) are people whose stated incomes are not plausible measures of their wellbeing. The same almost certainly applies in the USA but because I do not know the US data as well I would be less certain about speculating on the impact on poverty. However, I have no reason to believe that the impact of unmeasured income is greater in the US than in Australia or most other developed countries.

    We also underestimate the impact of welfare state spending on inequality and poverty if we do not take account of non-cash benefits in the area of health, education and housing. These reduce poverty and inequality, and studies I have seen suggest that this is the case in most welfare states, although their inclusion does not tend to change country rankings.

    However, we probably underestimate the level of inequality by not including employment-related fringe benefits, which are very large in the US, since they are the main vehicle for health care. (Also we should include the value of employer social security contributions in the measure of market income, and depending on the different systems we should also include the value of social security wealth in lifetime disposable income, which would have a big impact on a lot of European welfare states).

    However, this probably does not change trends in income inequality in the USA or alter the fact that income inequality in the US is much higher than in Australia or most other rich countries. As others above have pointed out, the US’s relative position on income mobility is not as good as is often assumed, and a large section of their private welfare spending benefits the middle class or higher. Also employer provided health spending and pensions in the US are not increasing in coverage, but if anything the opposite, and this decline in coverage is likely to affect the lower middle rather than the upper middle.

    So overall, I see no compelling reason for concluding that income inequality in the US has really gone down rather than gone up, if you look at the last 30 years or so.

    Tim is also absolutely correct about the appalling position of indigenous people in Australia on average; but again I doubt that this actually changes Australia’s poverty or inequality ranking relative to the US, simply because there are not enough of them. While African americans do not appear to be as badly off in a relative income sense as indigenous Australians, they are imprisoned (and therefore not included in income surveys) at about the same rate as indigenous Australians (about 9-10 times the average).

    However, I think that is the subject of a different discussion.

  32. January 23rd, 2007 at 17:58 | #32

    Income inequality probably doesn’t matter very much in itself, but it is a good proxy – in context – for some things that very much do matter. For instance, rapid increases in inequality – without overall gains, or without enough of them – mean some people somewhere must be going backwards. Also, it may indicate either the existence of destabilising tendencies, or a reduction of stabilising social tendencies that come from a hollowed out middle (fewer people with a “stake” in things).

  33. wilful
    January 24th, 2007 at 11:40 | #33

    There’s a hefty body of research saying that reduced inequality is good for a society across a whole range of measures, crime, health, social capital, democratic inclusion, economic performance, etc. Most well developed moral philosophies consider it to be a worthwhile good as well.

  34. Terje
    January 24th, 2007 at 16:11 | #34

    There’s a hefty body of research saying that reduced inequality is good for a society

    So lets burn down most of the houses in Vaucluse. That would reduce inequality in Sydney.

  35. Thinking in old ways
    January 24th, 2007 at 16:59 | #35

    “Most well developed moral philosophies consider it to be a worthwhile good as well”.

    This is true – but has well been pointed out by Sen the real issue is that they argue for equality in different, and incompatible ‘spaces’. Some would argue for inequality of income, others for inequality in opportunity (but allow for inequality in outcomes), others would argue for equality in outcomes – even if this means inequality of resources (income) – others argue for equality of rights – including property rights – and hence against redistributive taxation.

  36. January 24th, 2007 at 18:53 | #36

    Wilful, I read all the points you make as relating to the underlying stuff, not to inequality (let alone income inequality) per se. An anlogy might help: scar tissue – particularly on a chest X-ray – indicates damage, but the scar itself is a partial healing. It’s the damage that’s the problem, not the scarring by and large. Yes, scarring reduces functionality compared with not being damaged in the first place, but it improves it as compared with no repair attempt at all. (Don’t take the analogy too far, though.)

  37. Terje (say tay-a)
    January 26th, 2007 at 00:34 | #37

    Given a choice between income transfers and wealth transfers which would people here prefer to see as the basis for addressing inequality. Should we tax people mostly according to their balance sheet or mostly according to their profit and loss statement?

    For instance should the young worker who owns next to nothing but has a reasonable income be paying income tax so as to support the retired pensioner who owns their own home but has no private source of income. Or should we put a land tax on the pensioner to help finance a morgage deposit for the young worker. At the moment we seem to do both.

  38. MP
    January 26th, 2007 at 20:03 | #38

    While I’m not convinced that top incomes have increased strongly in the US or Australia, let us assume for a moment that they have.

    These large increases occurred around the time we saw large reductions in the top marginal tax rate. So one could conclude that top incomes are very responsive to changes in tax rates – ie the elasticity of income to tax is high at the top end of town.

    Policy conclusion – marginal tax rates on the top income earners have high efficiency costs.

  39. PeterW
    January 26th, 2007 at 21:55 | #39

    This is a good summary of what has happened in the US: http://www.brook.edu/views/papers/burtless/20070111.pdf

    As far as I can tell the tax cuts since 2001 in the US cut the top marginal rate from 39.6 to 35% (and cut lower rates by about 3 points). The cuts came into effect between 2001 and 2002.

    If you look at the Piketty and Saez figures at http://elsa.berkeley.edu/~saez/TabFig2004prel.xls you will see that incomes for top fractiles went down from 2000 to 2003, and then jumped between 2003 and 2004.

    The first part of the trend looks more like variaions in the stock market to me.

  40. James Farrell
    January 28th, 2007 at 13:27 | #40

    I liked the last two paragraphs of Chait’s piece, especially:

    Introducing ideology into a debate is one of the think-tank hack’s strongest weapons. It demystifies a complicated issue, moving it from the realm of science into the realm of politics. The think-tank hack confesses he has his biases but then claims that his opponents in academia or government do, too. Evolution is the secularist science establishment’s campaign to discredit religion; global warming is being pushed by regulators who would gain enormous power from new pollution controls; et cetera.

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