On the CBO’s Income-Differences Report

by Don Boudreaux on October 28, 2011

in Data, Inequality, Myths and Fallacies, Video

Here’s a letter to the Washington Post:

Eugene Robinson is made apoplectic by the CBO’s report that, between 1979 and 2007, the growth in incomes for households in the top income-earning groupings (such as the top quintile, or even the top one percent, of income-earning households) was much larger than it was for households in middle- and lower-income groupings (“The study that shows why Occupy Wall Street struck a nerve,” Oct. 28).

For too many reasons to list here, Mr. Robinson is completely out of line to suggest that this study shows that most Americans are victims of “theft” by upper-income Americans.  But consider just two such reasons.

First and most obviously, the vast majority of rich Americans – people such as Kobe Bryant, Jeff Bezos, Sergey Brin, and Ralph Lauren – steal from no one.  They create valuable goods and services that millions of people voluntarily pay for.

Second, Mr. Robinson mistakes statistical categories for being flesh-and-blood people.  As University of Michigan (Flint) economist Mark Perry reports about a study that tracks the fate of actual individual households over time, in even as brief a period as 2001-2007 50 percent of households moved from one quintile to another.  Most relevantly, 44 percent of households in the lowest quintile in 2001 had moved into a higher quintile six years later, while during this same time 34 percent of households that were in the top quintile had fallen into lower quintiles.

Of course, the data reported in the previous paragraph aren’t the end of the story.  They can (and should) be questioned, parsed, examined in detail, and put into context.  But the same can (and should) be said about the CBO data that Mr. Robinson latches onto, so utterly uncritically, as confirming his bias that the marginal-tax-rate reductions and (rather modest) deregulation that we’ve had in the U.S. over the past three decades cannot possibly have helped any but the richest Americans.

Sincerely,
Donald J. Boudreaux

And check out also this video of the WSJ‘s Mary Anastasia O’Grady discussing this CBO study.

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{ 127 comments }

Jon October 28, 2011 at 4:31 pm

I do not understand the jealousy about incomes. What does it matter to me what Bill Gates, or Kobe Bryant, or Don Boudreaux make? None of that is going to help me pay the bills. All that matters is how much I make.

Methinks1776 October 28, 2011 at 4:46 pm

Right. And the fantasy is if you can take it from them, you can pay your bills more easily. After all, they must have taken something from you to get so rich in the first place. It all makes sense if you’re an ignorant drone with the morals of a criminal

Your weakness in trying to understand their thinking is that you’re not.

Jon October 28, 2011 at 4:51 pm

I don’t know, Methinks, I was accused a few posts ago of advocating murder :-P

Methinks1776 October 28, 2011 at 4:54 pm

Leftist like to project. We just have to live with it.

(by whom, BTW?)

Jon October 28, 2011 at 5:03 pm

It was either our Russian friend Nikoli or the FDR guy. I asked a moral question if homicide to protect another is evil, and they said that I was a horrible person for saying it’s ok to kill your wife if she has an affair (I said only adultery and sex crimes are purely evil).

Methinks1776 October 28, 2011 at 5:06 pm

That’s so stupid it could be either one of them. BTW, I’m Russian. I don’t think Luzhin is. He misses too many references. We Ruskies have enough problems without being burdened with that idiot.

Dan H October 28, 2011 at 5:16 pm

Methinks, my fiance agrees with you. He’s not really Russian.

J. W. October 28, 2011 at 5:29 pm

If I remember correctly, his first two comments were (irrelevant) references to Slovakia and the European Union, which I suppose were meant to suggest (along with his handle) that he’s from eastern Europe or Russia. After that, his comments came off sounding just like any other troll’s comments on this blog. I think he’s an American. There may be evidence to the contrary in his later comments, but I wouldn’t know because I’ve stopped reading them.

Methinks1776 October 28, 2011 at 5:30 pm

I really like that future Mrs. Dan H. She’s always agreeing with me :)

Methinks1776 October 28, 2011 at 5:31 pm

Dan H., she understands why I call him a luzha, yes?

Jon Murphy October 28, 2011 at 7:37 pm

I know Nik’s no Russian, but his name is the main character from the movie Eastern Promises (a good movie, by the way) who is a member of the Russian mafia.

Jon Murphy October 28, 2011 at 7:48 pm

And I was wrong, it was Economic Freedom who accused me of advocating murder. Apologies to the other two.

J. W. October 28, 2011 at 8:08 pm

“but his name is the main character from the movie Eastern Promises”

Oh thanks, I had no idea.

Methinks1776 October 28, 2011 at 8:10 pm

whatever, Jon. Our resident idiots are fungible .

Invisible Backhand October 28, 2011 at 5:18 pm

Fine, if they pay back the $1.2 trillion, they can have their houses back and we’ll call it even. Sound fair?

http://www.politifact.com/ohio/statements/2011/sep/28/dennis-kucinich/rep-dennis-kucinich-says-fed-created-12-trillion-o/

lamp3 October 28, 2011 at 7:47 pm

What wrongdoing did private actors engage in? Nothing was illegal, banks that did need to repay did so. That they accepted money coerced out of the population ignores the fact that wealth was coerced to begin with — why not address this, the prerequisite that enables actions we don’t like?

That the fed wanted to stabilize companies is not the fault of the 1%. That’s pretty much the point of my worldview — change the incentives created by government to enhance the operation of market discipline.

Invisible Backhand October 28, 2011 at 9:39 pm

What wrongdoing did private actors engage in?

Someone put it on a sign for you:

http://i.imgur.com/aTxJI.jpg

Methinks1776 October 28, 2011 at 10:48 pm

Hey! It’s on one of Barry’s Kids’ signs. It MUST be true.

Andrew_M_Garland October 29, 2011 at 6:16 pm

To Invisible Backhand,

That sign shows a touching concern about how one wealthy economic participant (bond buyer) might have been fooled by another wealthy economic participant (bond packager and seller).

It shows no concern about the actions of our sainted government (politicians) who actually turned over gobs of public money to pay off their (publicly denied) guarantee of the bond buyers. Our government made the bond buyers feel safe buying the results of bad government policy, and then in fact made them safe.

The only party that injured the public was the government when it guaranteed housing bonds and then paid out public funds.

We Guarantee It – The Government Caused the Economic Crisis
( easyopinions.blogspot.com/2008/10/we-guarantee-it.html )

House of Cards & Economic Freedom October 28, 2011 at 11:56 pm

Ah, Dennis Kucinich — the guy who bankrupted Cleveland as mayor; now there’s a sharp mind!

Kucinich has even admitted on air to having had an “extra-terrestrial” experience. He admitted this in an interview with Tim Russert. Additionally, according to his friend, actress and fellow wingnut, Shirley MacLaine:

Kucinich “had a close sighting over my home in Graham, Washington, when I lived there. Dennis found his encounter extremely moving. The smell of roses drew him out to my balcony where, when he looked up, he saw a gigantic triangular craft, silent, and observing him. It hovered, soundless, for ten minutes or so, and sped away with a speed he couldn’t comprehend. He said he felt a connection in his heart and heard directions in his mind.”

http://blog.cleveland.com/openers/2007/10/kucinich_see_ufo_new_book_clai.html

I believe Invisible Backhand mentioned recently that he, too, feels a connection in his heart (which his psychiatrist originally diagnosed as gas) and hears directions in his mind from space aliens in triangular spacecraft regarding what to post on Cafe Hayek.

That explains a lot.

Invisible Backhand October 29, 2011 at 10:33 am

There’s an important difference you forgot to mention. There’s more evidence that UFO’s exist than there is that Austrian economics exists outside of textbooks.

House of Cards & Economic Freedom October 30, 2011 at 9:06 pm

@ Invisible Backache:

There’s more evidence that UFO’s exist than there is that Austrian economics exists outside of textbooks.

It depends on whether you accept the claims of a twit like Kucinish, a twat like MacLaine, or a genius like Hayek.

Being impervious to reason, logic, and evidence, you’ve obviously made your choice.

Invisible Backhand October 28, 2011 at 5:15 pm

I do not understand the jealousy about incomes.

It’s not jealousy about incomes, no matter how hard Foxnews tries to sell that narrative. They are angry about getting their lives ruined by the 1%.

Methinks1776 October 28, 2011 at 5:22 pm

Nobody cares enough about you to go to the trouble of ruining your miserable life.

Randy October 28, 2011 at 8:51 pm

Good point. There does seem to be a significant element of narcissism here. “I’m special and shouldn’t have to work at a crappy job”. “My ‘education’ should be free”. “Those rich people are picking on me”. Etc.

Dan H October 28, 2011 at 5:28 pm

The 1% never ruined my life. On the contrary. They’ve made it better.

Randy October 28, 2011 at 8:55 pm

Yep. I’ve been working for 1%ers most of my life. They can be damned hard to please. But I’ve been working. Which makes me wonder who these OWSers think they are going to be working for. Do they imagine that their current actions are going to look good on a resume?

Darren October 28, 2011 at 6:53 pm

As I look back on my own life, any destruction of it was due to my own actions and bad decisions. I guess I’m just the exception, though.

scott October 29, 2011 at 11:45 am

Who and How exactly were lives ruined? I already know your answer, just want to hear you explain it and what the actual causes were.

GiT October 28, 2011 at 6:44 pm

“All weekend I was thinking about this “jealousy” question, and I just kept coming back to all the different ways the game is rigged. People aren’t jealous and they don’t want privileges. They just want a level playing field, and they want Wall Street to give up its cheat codes”

http://www.rollingstone.com/politics/blogs/taibblog/owss-beef-wall-street-isnt-winning-its-cheating-20111025#ixzz1c7ONLelI

While Taibbi is certainly being somewhat disingenuous by not recognizing that many people at OWS are interested in so-called ‘entitlement’ spending (on education and health care, in particular), and while it is not the case that everyone in OWS has the good old fashioned American respect for the wealth Taibbi alludes to (though it likely is shared by the 50%+ of Americans who sympathize with OWS), the point about what most people are outraged about is nonetheless apt.

It’s not jealousy, it’s injustice – that is to say, it’s not suffering for the consequences of one’s actions, or receiving exclusive benefits not extended to others for no good reason whatsoever.

muirgeo October 28, 2011 at 7:08 pm

“It’s not jealousy, it’s injustice…”

Very good.

The complacency of those who try to make this an issue of jealousy is simply stupidity.

From my perspective when one of these complacent dopes finds themselves in an understaffed emergency room bcause we’ve decided to pay so much of our income to shisters on Wall Street and CEO’s of multinational corporations they might think twice but will likely just neve make the association.

There are a ton of us baby boomers getting older and if we keep shoveling resources to unproducitve wall street casinos the health care system is going to be far more stressed than it already is. Same with mechanics inspecting your plans, with bridges and police protection and on and on.

These people are unthinking… I’ve got mine so everything must be fine.

Jon Murphy October 28, 2011 at 7:40 pm

So what is just, then?

GiT October 28, 2011 at 8:37 pm

Well, that’s the subject of politics. But we can go with a provisional definition.

“not suffering the consequences of one’s actions, or receiving exclusive benefits not extended to others for no good reason whatsoever.”

Or, to use Taibbi’s examples:

Banks being extended 0% loans while individuals aren’t extended such loans.
Banks having their debt forgiven while homeowners don’t have their debts forgiven.
Banks being insured against their own risky investments while homeowners aren’t.
Paying a lower rate of taxes on your income than someone who earns less.

Jon Murphy October 28, 2011 at 8:45 pm

I understand all the points but the last.

GiT October 28, 2011 at 8:47 pm

Why?

What’s so difficult about the idea of a progressive, or even a flat, tax?

Do you think government should be funded purely by use and service fees?

Good luck with that one.

Jon Murphy October 28, 2011 at 8:49 pm

No no no, I think we should have a flat tax. It’s just the idea of taxing people more just because they make more is unjust.

Personally, I’d like to see income tax eliminated and a national sales tax enacted, but I realize that is a pipe dream (and regressive, some people tell me).

GiT October 28, 2011 at 9:00 pm

An income *tax*, by necessity, makes people who make more pay more. Sort of goes with using a percentage. Whether a progressive tax is more just than some form of flat tax is an area of debate that is not germane to the point, as what Taibbi is pointing to is people whose effective tax rate is lower than that of many who make less than them.

Randy October 28, 2011 at 9:10 pm

Jon: So what is just, then?

GIT: Well, that’s the subject of politics.

Me: No it isn’t. Political organizations exist to exploit populations. The closest they get to justice is their interest in stability, and they enforce systems that are frequently unjust in order to achieve stability.

scott October 29, 2011 at 11:58 am

Banks being extended 0% loans while individuals aren’t extended such loans. – Banks still have to pay the loans back, and please cite an example of a 0% loan. Also, banks have assets that were put up as collateral. When individuals have the same, they get better rates. There are federal programs that could help homeowners, but most people dont like the deals because it extends their obligations or reduces their eventual equity in the home.

Banks having their debt forgiven while homeowners don’t have their debts forgiven. – Please cite an example of a bank that had its debt forgiven. Banks had to pay back the infusions with interest in TARP and the fed’s 1.2 Trillion money from nothing scheme. The issue is that the fed created money from nothing and then didnt wipe it from their books when it was paid back.

Banks being insured against their own risky investments while homeowners aren’t. – homeowners are required to have mortgage insurance when the loan to value is under a threshold. Individuals are given two chapters in the bankruptcy code for this very reason.

GiT October 29, 2011 at 2:08 am

I imagine you’re assuming some a priori natural conception of justice that is naturally given.

Not being disposed to arcane and mystical faith, I don’t see there to be such a conception of justice available to us.

As such, we have to come to some sort of agreement about what counts as justice, if we are to live in a society which punishes injustice. And that, I’ll repeat, is politics.

Randy October 29, 2011 at 5:45 am

GIT,
There may be natural justice, but I doubt it. It doesn’t seem to me that nature gives a rat’s ass. What I do know is that political organizations do not produce justice. Sure, they talk about it all the bloody time, but what they mean by it is a system that rewards their friends and punishes their enemies, and frequently the classifications of each are based on purely selfish motives.

GiT October 29, 2011 at 6:13 am

How could we know what produces justice if we don’t know what it is?

It seems to be an article of faith around here that it is just that people maintain full possession of what they ‘earn’ via their income. Of course, the concept of ‘earnings’ loads quite a bit of normative weight into the simple reality of people receiving payment. It implies that they ‘deserve’ what they’ve gotten – that their payment reflects ‘just compensation’ for their work – and that it would be an ‘injustice’ to tax it away to government so as to redistribute these earnings.

But we can no more say that ‘free exchange’ produces justice than government, unless we import some rather substantive assumptions about what is and isn’t just. I’d be inclined to agree that it produces economic efficiencies quite well a lot of the time, but economic efficiency isn’t justice.

Funnily enough helping one’s friends and hurting one’s enemies is the popular Greek conception of justice used as a foil by Plato in the Meno, but also implied in the Gorgias in the conversation on doing and suffering wrong.

“Meno: if you want the virtue of a man, it is easy to say that a man’s virtue consists in being able to manage public affairs and thereby help his friends and harm his enemies – all the while being careful to come to no harm himself.”

Randy October 29, 2011 at 6:47 am

GIT,

Re; “It seems to be an article of faith around here that it is just that people maintain full possession of what they ‘earn’ via their income.”

I don’t think that the productive part of society makes much use of the term “justice”, whatever that is, in dealing with one another. The term used is “contract”. The sales price is what we agreed to. My wages and job description are what I agreed to. So politicians taking a significant part of my wages isn’t a problem because it is “unjust”, whatever that is, its a problem because there is no contract. And no, the existance of political organizations through all of recorded history does not imply a contract – it implies only human nature.

Interesting point about the Greek conception of justice. It has happened to me on more than one occasion upon rereading something I had not read for years to find the writer making a point that I had long since determined to be my own original idea. Ah, well…

Randy October 29, 2011 at 8:25 am

And now that I mention it, I’ve been looking for a way to accurately determine who is in the productive class and who is in the political class. It occurs to me that a test could be devised to determine a bias towards “justice” vs a bias towards “contract”, and that the chosen preference would very closely align with the associated class.

GiT October 29, 2011 at 7:14 pm

But the notion of contract is intricately tied up with the notion of justice. I’m not sure how you would separate them. Contracting assumes a particular conception of what is and isn’t just.

Randy October 29, 2011 at 7:50 pm

GiT,
My point is that the ideas of contract and justice are not intricately tied. The idea of contract is solid and real, while the idea of justice is illusory. They are both useful, but the idea of contract is useful to the multitude who participate in real transactions, while the idea of justice is useful only to ivory tower mystics and propagandists. Further, the idea of contract is a tool which allows productive people to work together, while the idea of justice is a tool of the political elites to allow them to divide and rule.

muirgeo October 30, 2011 at 10:35 am

“Jon Murphy October 28, 2011 at 7:40 pm
So what is just, then?

Do you think it is just that the Congressional Super Commitee members being swarmed by lobbyist from wealthy people and their corporations is a just arrangement.

On their site they take suggestions from average Joe’s on how to meet their deficit reduction mandate. These were my two;

1) Simply get rid of the mortgage interest deduction for for all second homes and anything above $2 million on a primary residence. Also get rid of subsidies to the oil companies and resume collecting royalties from them as well

YOUR PROBLEM IS SOLVED!
You are welcome.

2) Please make available all the suggestions made to you by individuals like myself.

House of Cards & Economic Freedom October 30, 2011 at 9:12 pm

They just want a level playing field, and they want Wall Street to give up its cheat codes

Taibbi’s a moron at Rolling Stone magazine. “Level playing field” for many OWSers means “You owe me because I deserve.”

Here’s an interview with Peter Schiff and some Occupy Wall Street children:

http://www.safehaven.com/article/23113/in-defense-of-the-1

Last week, I spent the afternoon visiting the Occupy Wall Street demonstrations in lower Manhattan. I brought a film crew and a sign that said “I Am The 1%, Let’s Talk.” The purpose was to understand what was motivating these protesters and try to educate them about what caused the financial crisis. I went down there with the feeling that much of their anger was justified, but broadly misdirected.

Indeed, there were plenty of heated discussions. I did little more than ask how much of my earnings I should be allowed to keep. In return, I was called an idiot, a fool, heartless, and selfish. But when we started talking about the issues, it seemed like the protesters fell into two categories: those who generally understood and agreed that Washington caused this mess, and those who could only recite Marxist talking points. It was the latter who usually resorted to calling names once I pointed out the hypocrisy of their positions. They might shout, “the banks have taken over the regulatory agencies, so we need more regulations!” Obviously, this is paradoxical. If they’re blaming government for causing this problem, why would they suggest more government as the solution?

See the video of Schiff’s interview at the above link.

muirgeo October 28, 2011 at 7:00 pm

“All that matters is how much I make.”

We are not talking about the Kobe Bryants or the Bill Gates. We are talking about the megabanks and the multinational corporations who purchase our policy enriching themselves at everyone else’s expense. If you think what you make is all that matters you are not paying attention. This country has about $14 trillion dollars of debt. Some one got rich off of that government spending and some one will need to pay the bill.

The big banks have received some $16 trillion dollars of free loans to shore up all their bad investments. The blind assumption that all earnings are proportional to productivity is amazing.

Do you think maybe there is a reason 3 of the four richest counties flank Washington DC?

You must be assuming the rent seeking is insignificant or that somehow it doesn’t affect you… again I would ask you to think about $14 trillion in national debt… who was that paid to and who is going to pay for it? Who received $16 trillion in fee loans?

CalgaryGuy October 28, 2011 at 9:21 pm

So, are you calling for reduced government spending? My guess as to why 3 of the 4 richest counties flank Washington, D.C. is because that’s where the money is. Reduce the power of government and you reduce the incentive to curry favour from government and rent seek.

muirgeo October 29, 2011 at 1:26 am

“Reduce the power of government …”

You guys say this like it’s a simple solution but if I walk one of you through what this means you’ll quickly see it makes no sense.

We need to make lobbying for hiring the equivalent of bribing a public official and limit campaign donations to $100 dollars per person and also have a constitutional ammendment stating that corporation are not people. Those are things that are doable and which could make a huge difference.

Randy October 29, 2011 at 5:52 am

I don’t understand why you would set a dollar limit at all. I mean, if money is the problem, then why not remove money from the political system entirely? No donations. No salaries. No taxes.

Randy October 29, 2011 at 6:00 am

P.S. If you disagree, I must assume that what you really want to do is to limit the ability of the people you want to steal from to defend themselves – in other words, that you are defining THE problem with pure Democracy.

Methinks1776 October 29, 2011 at 9:37 am

I think you uncovered the truth in your P.S., Randy.

scott October 29, 2011 at 12:15 pm

corporations aren’t people and thats not what the Supreme court upheld. They said that the first amendment applies to all entities, including corporations. It also applies to churches, OWS, ACORN, the NAACP, etc. If you reverse that, you remove the ability for individuals collectively to express themselves. Is that what you want?

CalgaryGuy October 29, 2011 at 12:21 pm

Walk me through it then.

Methinks1776 October 29, 2011 at 12:24 pm

Calgaryguy, you might as well ask your dog to explain string theory to you.

thedirtymac October 28, 2011 at 11:29 pm

I have to say that this is as libertarian as any comment on this thread.

Sam Grove October 28, 2011 at 11:58 pm

Some one got rich off of that government spending and some one will need to pay the bill.

Tell us something we don’t know.
The difference here is that your prescription does not account for systemic incentives the manifest in some getting rich off of government spending.

Government spending must necessarily be paid for by the efforts of those that labor to produce goods and services. You dream that you can alter that reality, but it is a fundamental and unalterable reality.

scott October 29, 2011 at 12:11 pm

A) who is actually purchasing our policy and how? How does one go about buying a policy? What specific resources are sold in that exchange? And once determined, who is actually doing the transactions?

B) What is a “free loan”? Does it mean Not paid back or does it mean 0% interest. And please cite one example of when either case happened, and whether or not collateral was used as part of the
contract.

C) China was the largest so called ‘recipient’ of the $14 trillion debt, but there are actually hundreds of ‘leinholders’. The actual recipients were insurance companies, unemployed, visitors to hospitals, visitors to grocery stores, farmers who wont be growing corn, farmers who will be growing corn for ethanol, pakistan and other foreign nations, soldiers who put themselves in harm’s way, and so on. Which of these would you prefer didnt exist?

Jon October 28, 2011 at 5:01 pm

I have a good friend who is in Occupy Wall Street. She’s been down there for a quite some time (not since the beginning, but long enough). I called her the other day and I asked what was going on down there. She said they were fighting for economic justice. I must say I found that answer to be less than satisfying.

At the risk of opening a huuuuuuuuuuuuuuuuuuuuuuuge can of worms, what is economic justice?

She argued that prices were too high (gas, food, college), and the only just thing to do is lower them. I proposed a question: Who does a better job serving his community: the man who sells everything for a dollar but his shelves are empty or the man who’s prices are higher, but his shelves are stocked? The gas station that sells gas for $0.50/gal but has lines and shortages or the man who sells at $3.40/gal but has gas?

Is it just to offer prices so low you never have the goods?

What about wages? At what point does income become unjust? What kinds of income are unjust?

The argument is made that the rich get rich off of capital gains so we should tax them higher. But what about Mr. Johnson who lives off his retirement account that is funded by capital gains? Should he have to pay more in taxes? Or me, a 22 year-old just starting out who lives off a decent paycheck and some wise investments?

Frankly, I don’t see how robbing the rich to give to the poor is just. Yes, I was that kid in school who attacked Robin Hood.

Methinks1776 October 28, 2011 at 5:08 pm

What was her answer?

Invisible Backhand October 28, 2011 at 6:43 pm

Just make something up like Jon did.

Jon Murphy October 28, 2011 at 7:01 pm

Well, she says justice is that all who want can have. That, of course, led to a whole other discussion which there is neither time nor space to get into now.

And before anyone takes a cheap shot at her, this girl is wicked smart smart. Just…misguided

Methinks1776 October 28, 2011 at 7:16 pm

I have friend who has a genius IQ. She’s the one who told me to “live simply so that others can simply live”. She also couldn’t explain how that works.

Jon Murphy October 28, 2011 at 7:40 pm

I had a friend from high school who had a free ride to Harvard. Refused that to go live with a cult in Nevada.

Methinks1776 October 28, 2011 at 7:46 pm

We must all follow our bliss. I only become concerned when they want to force the rest of us to live in a colony in Nevada.

Invisible Backhand October 28, 2011 at 7:30 pm

Girls like that are just unreal, aren’t they?

vidyohs October 28, 2011 at 8:40 pm

Just so you know, Jon. I have known a lot of people in my life that were wicked smart, who should never be allowed to leave their house without a harness and a leash held by someone dumber but more attuned to reality. They cause a lot less problems for humanity that way.

@Methinks
Yeah live simply. Seems to me in study of anthropology that that simple life style really sucked for our ancestors (Lucy eating grubs and running from lions), and our human history is one of one long eager effort to get beyond that and have a little luxury and security as well.
LOL!

Methinks1776 October 28, 2011 at 9:25 pm

I live simply well :)

Methinks1776 October 28, 2011 at 5:10 pm

Oh, and tell her it shouldn’t matter because she’s supposed be living simply so others can simply live. She needs a reminder before she turns into a greedy, self-interested, acquisitive capitalist pig in spite of herself and has to go through the whole re-education process again.

Ken M October 28, 2011 at 5:38 pm

I proposed a question: Who does a better job serving his community: the man who sells everything for a dollar but his shelves are empty or the man who’s prices are higher, but his shelves are stocked? The gas station that sells gas for $0.50/gal but has lines and shortages or the man who sells at $3.40/gal but has gas?

There’s a great exchange with Elliot Gould in “The Night They Raided Minskey’s”. Gould, looking to by some prop for his act, complains to the store owner that another store has the item that he has priced at $4 for only $3. The owner replies, “so buy it from him.” Gould says he would, but the other guy is out of them. The owner nods and says “well, if I were out, you could have it for $2.”

Bill October 28, 2011 at 6:08 pm

Great anecdote. Thanks.

Darren October 28, 2011 at 6:55 pm

Funny.

muirgeo October 28, 2011 at 7:15 pm

Jon wrote,

Jon imagine it’s January 2009 and you alone were the one to decide who to give $16 trillion dollars of loans to. Maybe the right choice is NO ONE but if you were forced to decide to give it to one of the two following groups of people who would you give it to and why?

A) the 10 largest banks on Wall Steert banks to shore up their finances afflicted with billions and billions of dollars of toxic assetts.
or
B) 10 million families ( say 40 million people) with bad mortagages to pay off.

Methinks1776 October 28, 2011 at 7:23 pm

Well, idiot, if the 10 million families paid back the money they borrowed from the banks, then the banks wouldn’t need to be recapitalized.

I’m tired of you droning on about this particular thing you have no hope of understanding. When can we expect you to go back to whining about others things you don’t understand? How about OTC derivatives?

Invisible Backhand October 28, 2011 at 8:56 pm

“But the Fed, uniquely among institutions in our society, gets to create money out of thin air,” Todd said.

It does so by simply increasing the balance in a member bank’s account. No actual money is printed. It just shows up in the electronic ledger, new money that never existed before that’s now in circulation, boosting the aggregate money supply.

Each bank, however, did have to put up assets as collateral in case the money wasn’t repaid. Some of those assets, according to Bloomberg, were junk bonds.

Eventually, all the money was repaid, with interest. But according to Todd, rather than wipe the money off its books, the Federal Reserve chose to use much of it to further stimulate the economy by purchasing Fannie Mae and Freddie Mac mortgage-backed securities on the open market. So that money remained in circulation.

1. Create money out of thin air
2. Buy securities
3. ???
4. Profit!

Methinks1776 October 28, 2011 at 9:13 pm

If only your comprehension could hold a candle to your cut and paste skills.

muirgeo October 29, 2011 at 1:50 am

“Well, idiot, if the 10 million families paid back the money they borrowed from the banks, then the banks wouldn’t need to be recapitalized.”

Yeah? And? So which would you give the free loans to?

Jon Murphy October 28, 2011 at 7:35 pm

If I absolutely had to choose, the answer would be irrelevant.

If I give it to the banks, it creates a moral hazard and they would have no incentive not to make bad loans in the future. They would be recapitalized, eventually the economy would recover and the cycle would begin again.

If it give it to the families, it creates a moral hazard and they would have no incentive not to take bad loans in the future (also have the moral hazard of the banks, see above). The loans would be paid off, the economy would eventually recover and the cycle would start again.

So it doesn’t matter who bailouts go to, whether it go to the first group or the last. In both cases, moral hazard is created, incentives remains perverse and the cycle continues and we’d face the same problem another 20 years down the road.

Ken M October 28, 2011 at 8:28 pm

You could always give it to the those who aren’t behind on their mortgages, but that would have almost no effect, since most of the money you’d be “giving” them would be money that you’d already taken from them or proposed to take from them in the future.

muirgeo October 29, 2011 at 1:55 am

Really Jon? No difference? Do you know any families that have lost their homes?

We DID the first scenario and the economy is NOT recovering and people our losing their homes and their still in debt. And the bankers have taken in enormous profits and bonuses.

That you see no difference in which option you chose is either a matter of intellectual dishonesty or cognitive dissonance.

Jon Murphy October 29, 2011 at 9:00 am

And the situation would have been exactly the same had we bailed out the families. In the short run, they’d keep their homes, banks would still make profits, families would continue to take out risky loans and 10-15 years from now, they’d be on the verge of losing homes again.

Moral hazard is moral hazard, regardless of how you cut it. When you give money away, whether it be to a company or an individual, when you subsidize the risk, you only perpetuate the problem. If we want, really really want, to prevent such a crises again, then we cannot keep bailing out the losers. That is not capitalism; it’s favoritism.

You may not believe this, but yes, I do feel for those who have lost their homes. Is it not the American Dream to own a home with a white picket fence, a dog and 2.5 kids? But these subprime loans were taken by those who knew they were outside their means, so they must also be held responsible (that’s not to say banks are blameless, just not the only ones who have blame).

Whether you bail out the debtor or the creditor doesn’t solve the problem. It just perpetuates. What I want is to stop this from ever happening again. No more subprime loans; no more massive delinquencies; No more underwater mortgages. But bail outs don’t stop that. Nor does excessive regulations. We can only prevent such a crises from happening again by removing the perverse incentives and moral hazard.

Randy October 28, 2011 at 9:16 pm

Don’t attack Robin Hood. The idea that he stole from the rich to give to the poor is a myth. What he actually did (according to the story) was steal taxes back from the politicians. And I’m thinking that is exactly what is needed now.

Jon Murphy October 28, 2011 at 9:21 pm

C’mon! Robin Hood is such a douche!

Randy October 28, 2011 at 9:46 pm

“Unlike some Robin Hoods, I can speak with an english accent”.

Jon Murphy October 28, 2011 at 10:04 pm

Hahaha good movie

W.E. Heasley October 28, 2011 at 5:38 pm

“But the same can (and should) be said about the CBO data that Mr. Robinson latches onto, so utterly uncritically, as confirming his bias that the marginal-tax-rate reductions and (rather modest) deregulation that we’ve had in the U.S. over the past three decades cannot possibly have helped any but the richest Americans“. – Don Boudreaux

Eugene Robinson, notional-ist at large, is apparently hemorrhaging data points. A statistical injury as it were.

Hopefully, Mr. Robinson’s data hemorrhage is treated at the statistical trauma unit at the William Graham Sumner Hospital for data disorders and notional propositions:

“Who are those who assume to put hard questions to other people and to demand a solution of them? How did they acquire the right to demand that others should solve their world-problems for them? Who are they who are held to consider and solve all questions, and how did they fall under this duty?

So far as I can find out what the classes are who are respectively endowed with the rights and duties of posing and solving social problems, they are as follows: Those who are bound to solve the problems are the rich, comfortable, prosperous, virtuous, respectable, educated, and healthy; those whose right it is to set the problems are those who have been less fortunate or less successful in the struggle for existence. The problem itself seems to be, How shall the latter be made as comfortable as the former? To solve this problem, and make us all equally well off, is assumed to be the duty of the former class; the penalty, if they fail of this, is to be bloodshed and destruction. If they cannot make everybody else as well off as themselves, they are to be brought down to the same misery as others“.

– William Graham Sumner, What Social Classes Owe to Each Other, 1883

vidyohs October 28, 2011 at 5:43 pm

What? What? Do you mean to suggest good sir that the richest 1% of Americans includes people that Eugene Robinson likely admires and appreciates in some fashion or the other, and not just another evil Jewish banker?

How dare you! That is dirty pool!

Sam October 28, 2011 at 5:44 pm

Using a linear scale to compare human wealth seems arbitrary and inconsistent with the measurement of other human perceptions. Doubling the perceived loudness of a sound, for instance, requires a tenfold increase in power (10dB).

Anyone who has ever doubled his income in a short amount of time (as I was fortunate to do some years ago) learns that twice as much money doesn’t feel anything like twice as much wealth. The experience is surprisingly disappointing. Perhaps this is related to diminishing marginal utility.

indianajim October 29, 2011 at 8:05 pm

Diminishing marginal utility yes, possibly, but what about the progressive tax system; didn’t this mean that your take home income less than doubled. Also, it takes time to change peer groups; hanging out with people who have half your income can be a drag, so maybe you need to find some wealthier pals.

Dan D October 28, 2011 at 5:50 pm

If we ignore the fact that income quintiles are not actually people, and also that incomes are created, not distributed, and just grant the assumption that the 275% vs 18% increases are accurate, I still can’t understand the problem. The numbers sure look big over 28 years, but on an annual basis it’s a 4.8% increase vs. a .6% increase. Is it unreasonable to think that the most productive 1% of the citizens in this country were at least 4.2% more productive every year than the bottom 20%?

Randy October 28, 2011 at 8:46 pm

Exactly.

Jon Murphy October 28, 2011 at 8:52 pm

Only problem with that, Dan, is that it assumes that those who are richest are most productive. I mean, Paris Hilton is in that 1% and no one would call her productive.

Randy October 28, 2011 at 8:59 pm

I would. She sells (sold) a product that people want(ed). Its not up to me to decide what people should want. And this is a luxury economy.

Methinks1776 October 28, 2011 at 9:16 pm

Jon, they’re talking about income, not wealth. Randy is correct. She has several businesses and, apparently, people enjoy watching her TV shows.

However, even if she did nothing, he grandfather (who willed her his fortune) was.

Jon Murphy October 28, 2011 at 9:20 pm

Ok, I’ll concede that point.

muirgeo October 28, 2011 at 6:19 pm

” First and most obviously, the vast majority of rich Americans First and most obviously, the vast majority of rich Americans – people such as Kobe Bryant, Jeff Bezos, Sergey Brin, and Ralph Lauren – steal from no one.”
Don

That is an assumption based on nothing. Most of the big gains come at the extremes of incomes where we see a lot of Wall Street types that arguably detract from the economy while making huge incomes. Over the same time period when income disparity shot up the share of corporate profits that went to Wall Street rose from like 15% to 40%. Your Bezos and Brin’s are likely the exception not the rule. Your statement is completely conjecture and likely false.

Methinks1776 October 28, 2011 at 6:26 pm

Oh, look. The Friday night show has started. And it’s already stuttering.

W.E. Heasley October 28, 2011 at 6:50 pm

MeThinks:

“The Friday Night Show” starring Merr-a-go-Meth! Reset your weird-sh*t-o-meter!

Invisible Backhand October 28, 2011 at 7:05 pm

You can make it stutter? I knew a girl who could pick up quarters with it.

Methinks1776 October 28, 2011 at 7:26 pm

I knew a girl…..

HA HA HA HA HA HA HA!!!!!!!

Dan H October 28, 2011 at 7:37 pm

You shouldn’t refer to your mom as “a girl”.

muirgeo October 29, 2011 at 1:57 am

Oh look its the 5th Grade regressive has come out to play…..

Invisible Backhand October 28, 2011 at 7:04 pm

Yeah, this is twice in a couple months now he’s done the old quintiles misdirection. Two days ago ( http://cafehayek.com/2011/10/mark-perry-on-income-differences.html ) he used numbers where capital gains were excluded from the income calculation. I doubt the WaPo does any fact checking on LTTE’s though.

Methinks1776 October 28, 2011 at 7:25 pm

Still too stupid to understand that capital gains are not income?

Mock shock.

Invisible Backhand October 28, 2011 at 7:35 pm

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

They are income. You may have a choice of when to realize them, but once realized, but they are income. Want me to explain basis while I’m here?

Methinks1776 October 28, 2011 at 7:53 pm

If you are going to consider every form of household revenue “income”, then that’s fine. But, in that case, what Jon Murphy and Mark T said.

And it still doesn’t matter. the smarter and more productive will always be richer than you.

Jon Murphy October 28, 2011 at 7:44 pm

Income depends all upon on what we call it. Perry’s analysis did exclude capital gains, but it also excluded benefits such as health insurance paid by companies, social security, unemployment insurance, etc. So, the argument remains the same. The main source of income (as you define it) by the top 5th is excluded as well as the main source of income (as you define it) by the lowest 5th.

Mark T October 28, 2011 at 6:21 pm

1) The study does not include the value of employee health insurance as income. It is discussed in Appx C but the main report excludes it.

2) The study uses the Census Bureau’s fungible value calculation of Medicaid and other government health programs. That approach deems the same medical treatment to be less income to a poor person than a middle clas person. See footnote 31 This obviously exacerbates the inequality findings.

3) The study ignores the underground economy which is estimated to be 5-10% of GDP and mainly distributed in the lower 80% of the popultion.

4) The study fails to correct for the growth in low income households due to increases in divorce, increased unwed motherhood, elderly people living on their own due to demographics during the period..

5) The study does not include all subsidies, such as housing subsidies, rent control etc, or the ability to have your kids get a free public education when you pay little of the cost. Those subsidies are only recorded as income to the professionals providing the subsidized service. The in-kind benefits are ignored, valued at nil. This meaningfully exacerbates the calculation of inequality.

6) The bookend years start with 1979 when Volcker launched his anti-inflation program (pro-capital, anti-wage income), interest rates in the double digits, money was moved physically between banks, and the Dow in the 800s, and ends in 2007 when interest rates were 50% lower, inflation was 70-80% lower, money was digital and moved at the click of a mouse, and the Dow hit its all time high, 1700% higher than at the start of the period. Had they continued into 08 and 09, obviously the inequality would have declined; as Greg Mankiw’s blog pointed out, the average income of the top 1% fell 1000% more than the median percentile’s.

7) It is obvious that the policies outlined in item 6 increased the value of capital assets. The dollar value of the US capital markets increased in nomial terms by at least ten fold in this period. Domestic nonfinancial debt, according to the Fed flow of funds went from $3.2T to $31.7T, nearly tenfold. Total capitalization of the stock market by more than twenty fold.

The finance sector and executives with stock pptions basically are paid in a commission like fashion, whether it is a commissionon a trade, a fee priced as a percentage of assets under management or of a deal, or a set of 5 year options to buy X shares at a fixed price. So these methods of compensation – although designated as labor income – are really functions of asset prices, unlike many other workers. And thus they have gone up with wealth.

Yet against that the average income of the top 1% have not gone up 10 fold or 20 fold, they have only increased three fold as I understand it. This can only mean that wealth has spread out quite significantly and capitalism has worked well.

Methinks1776 October 28, 2011 at 6:23 pm

Nice. Thanks.

Randy October 28, 2011 at 8:42 pm

Just realized that I was in the lowest quintile in 1979 and that I’m at the lower end of the 4th quintile now. The thing is, I don’t recall that the climb took any great effort or any special skills. I just kept working and studying.

Randy October 29, 2011 at 6:19 am

P.S. And the ability to make such a climb without any great effort is in and of itself a form of wealth. Could any political distribution system offer the same? I can’t imagine it. Political distribution systems throughout history have always been caste systems.

kev October 28, 2011 at 10:22 pm
Jon Murphy October 28, 2011 at 10:39 pm

An interesting report from Dr. Greg Mankiw: http://gregmankiw.blogspot.com/2011/10/rich-getting-poorer.html

Summation: the rich are getting poorer.

morganovich October 29, 2011 at 9:38 am

this data gets even more pronounced over long periods.

it’s called a career cycle. you start low, work your way up, then retire and drop.

that’s why half the top 20% drops down every decade and why

The authors analyzed University of Michigan Panel Study of Income Dynamics data that tracked more than 50,000 individual families since 1968. Cox and Alms found: Only five percent of families in the bottom income quintile (lowest 20 percent) in 1975 were still there in 1991. Three-quarters of these families had moved into the three highest income quintiles. During the same period, 70 percent of those in the second lowest income quintile moved to a higher quintile, with 25 percent of them moving to the top income quintile. When the Bureau of Census reports, for example, that the poverty rate in 1980 was 15 percent and a decade later still 15 percent, for the most part they are referring to different people.

Cox and Alm’s findings were supported by a U.S. Treasury Department study that used an entirely different data base, income tax returns. The U.S. Treasury found that 85.8 percent of tax filers in the bottom income quintile in 1979 had moved on to a higher quintile by 1988 — 66 percent to second and third quintiles and 15 percent to the top quintile. Income mobility goes in the other direction as well. Of the people who were in the top one percent of income earners in 1979, over half, or 52.7 percent, were gone by 1988. Throughout history and probably in most places today, there are whole classes of people who remain permanently poor or permanently rich, but not in the United States. The percentages of Americans who are permanently poor or rich don’t exceed single digits.

muirgeo October 30, 2011 at 11:41 am

80% of all income growth over the last 30 years has gone to the top 1%. If some one thinks that’s no problem because the top 1% have become so much more productive as opposed to the fact that policy has been bent to their favor is completely disconnected with reality. I mean can’t even pretend to be concerned about economic efficiency and are so clearly blinded by personal ideology. Yeah we all hold ideological based positions but there are differences in degree that allow some to completely ignore mountains of contrary facts just to hold an unyielding obviously ridiculous position.

Jon Murphy October 30, 2011 at 3:21 pm

The problem with a statistic like that is it assumes the top 1% is static. I bet if we look at the top 1% in 1981 (30 years ago) and today, they will be mostly different. Bill Gates wouldn’t be in 1980. Nor would the Google Guys. All the athletes. Maybe a few of the celeberties.

If I may paraphrase/corrupt a Princess Bride quote: You keep using that statistic. I don’t think it means what you think it means.

Jon Murphy October 30, 2011 at 3:40 pm

Actually, here we go:

Richest Americans in 2011 in Order (according to Forbes):

1) Bill Gates (Technology)
2) Warren Buffett (Finance)
3) Larry Ellison (Technology)
4 & 5) The Koch Bros (Manufacturing)
6) Christy Walton (Walmart)
7) Geroge Soros (Hedge Funds)
8) Sheldon Adelson (casinos)
9 & 10) Jim and Alice Walton (Walmart)
11) Rob Walton (Walmart)
12) Michael Bloomberg (Media)
13) Jeff Bezos (Amazon)
14) Mark Zuckerberg (Facebook)
T-15) The Google Guys (Google)
17) John Paulson (Hedge Funds)
18) Michael Dell (Dell Computers)
19) Steve Ballmer (Microsoft)
20) Forrest Mars (Mars candy bars)

This is the so called 1%. Of these guys, 2 were teenagers in 1980. 1 wasn’t born. 2 were 8 years old. 6 more had companies that didn’t exist yet in 1980 (or were fledgling). So, 11/20 of the richest people in America were not on that list. the other 9 I am not sure as I cannot find the list from 1980.

So, when you say that quote that state above, does that mean that all the wealth that went to the highest income group went to people already entrenched? In fact, it does not. It went to people who were hardly rich, but worked their way up. So, realistically, that statistic is rather useless.

GiT October 30, 2011 at 4:41 pm

If you’re going to look at when people are born you might want to take a look at inter-generational wealth mobility (more like rigidity) and its role in predicting both income and wealth, rather than using fatuous data about when people were born or started their current companies.

http://www.americanprogress.org/issues/2008/07/wealth_mobility.html

So, no, it’s not people who were hardly rich but worked their way up.

Jon Murphy October 30, 2011 at 4:45 pm

My point was that saying the oddly specific 80% of income growth went to the top 1% and implying that it means the gap is increasing between people is false. It’s an illogical conclusion as the richest people change every generation. From what I understand, the claim is that this distribution is unjust. Well, the top figures change all the time and the composition of the top always change, so it is hardly rigid. Likewise, you cannot single out a single group (such as finance people) to target, as the make-up is so varied.

GiT October 30, 2011 at 5:04 pm

Actually, the make up is not especially varied.

That’s another question one might want to consult data about.

Motherjones puts it in an easy to read graph here, but the link to the study at the site is more informative.

http://motherjones.com/mojo/2011/10/one-percent-income-inequality-OWS

As to the richest people ‘changing’ every generation, the point may be logical but it’s entirely fatuous. Of course the composition changes every generation. People die and are born. Mortality begets change.

And yet familial wealth stays relatively constant across generations.

Jon Murphy October 30, 2011 at 5:18 pm

Of course wealth stays in families. What else would you expect?

But the conclusion remains the same: you cannot say that 80% of income gain goes to the top 1% says that the issue is unjust.

You’d expect the majority of income gain to go to the top 1%. If, for example, a poor man invents some new item and it makes him a billion dollars, he’ll now be in the top 1% and his income gain would have been counted to that. Likewise, you’d see the greatest income lost among the lowest 1%.

vikingvista October 30, 2011 at 3:11 pm

Imagine if each of us were productive enough in just five years to earn enough to live the rest of our lives in leisurely semi-retirement. What would those income distribution statistics show then?

GiT October 30, 2011 at 7:28 pm

You’d only expect a disproportionate amount of income gain to go to the top 1% if you expect increases in the productivity of labor (or whatever works as a determinant of income) to be highly divergent rather than convergent. Of course you’d expect an unequal amount of income to go to the top 1%, that’s what makes it the top 1%. Nothing at all suggests that the gains to income of the top 1% would take up a majority of all gains in income.

I see no a priori reason to even expect that gains in income would be divergent. I’d have to see data and theory. Intuitively I can even think of decent grounds for thinking that gains in income would tend toward convergence, not divergence (roughly parallel to the arguments about international inequality).

But at this point I’m not quite sure what your point is. It has been, variably:

1. The top 1% is not static (classes are not rigid)
2. The individuals in the 1% change. (income follows patterns of maturation)
3. 80% of income going to the top 1% doesn’t evince injustice.
4. You’d expect the majority of gains in income to go to the top 1%.

1 and 2 just caricature the argument. Yes, people live and die and their income usually grows over their life time. That doesn’t mean income and wealth strata can’t be rigid.

3 is baseless. You may be able to show that 80% of income growth going to 1% of the population does not evince injustice for some particular reasons. You have not shown that there are no reasons to see this disparity as unjust, or any reason to assume that such disparity is what we would expect a just distribution to look like.

4 Is, as I’ve said above, is not an evidenced claim.

Muirgeo’s argument, if I were to offer a rational reconstruction, might look something like this:

1. Gains to income are highly unequal and prejudiced towards the rich
2. This inequality would be justified if it corresponded to real increases in productivity among the rich.
3. For many individuals who are rich it does not appear that their increases in income correspond to a commensurate increase in their productivity.

As far as I can tell you have not addressed it.

GiT October 30, 2011 at 7:29 pm

Sorry, this was supposed to be in reply to Jon Murphy two posts above.

brotio October 31, 2011 at 9:38 pm

You have not shown that there are no reasons to see this disparity as unjust, or any reason to assume that such disparity is what we would expect a just distribution to look like.

Why should anyone here be compelled to show that income disparity is just? If you have evidence that some of the people on Jon’s list are unjustly earning their income, then present it.

So far, Yasafi’s argument has been: “If you earn your income doing something I (Yasafi) don’t comprehend, then you must be stealing it.”

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