57.4 Percent of 1996′s Privileged 1% Are Now Among the Beleaguered 99%

Another great letter by Don Boudreaux of "Cafe Hayek."

"Here’s a letter to the New York Times:

Paul Krugman labels those who interpret data on income distribution differently than he does “obfuscators” (“Oligarchy, American Style,” Nov. 4). Mr. Krugman is surely aware, however, that people can legitimately disagree over how best to construe the vast quantities of data gathered on so complex a topic as the varied and changing income-earning profiles of 150 million workers living in 121 million households, all in an economy as dynamic as America’s.

For example, is Mr. Krugman warranted in dismissing the claim that “the rich are an ever-changing group” with a simple and parenthesized “not so”? Who are the “rich”? And how much income mobility is necessary for well-meaning observers to justifiably claim that “the rich are an ever-changing group”?

Is the following description, from the IRS, of data on individual households merely obfuscatory – something that no reasonable person can possibly interpret as evidence of substantial income mobility – or might it describe a plausible reason for well-meaning people to disagree with Mr. Krugman’s insistence that the rich are NOT an ever-changing group?: “More than half (57.4 percent = 100 – 42.6) of the top 1 percent of households in 1996 had dropped to a lower income group by 2005. This statistic illustrates that the top income groups as measured by a single year of income (i.e., cross-sectional analysis) often include a large share of individuals or households whose income is only temporarily high. Put differently, more than half of the households in the top 1 percent in 2005 were not there nine years earlier. Thus, while the share of income of the top 1 percent is higher than in prior years, it is not a fixed group of households receiving this larger share of income.”*

Sincerely,
Donald J. Boudreaux

*“Income Mobility in the U.S. from 1996 to 2005,” U.S. Department of the Treasury (Nov. 2007). The passage quoted in the letter is found on page 8."

Helping struggling homeowners by writing down some principal on their mortgages may not be justified

See Wonder If He’s Ever Read David Hume by Don Boudreaux of "Cafe Hayek."

"Here’s a letter to the New York Times:

Joe Nocera argues that a policy of government “helping struggling homeowners by writing down some principal on their mortgages” is justified exclusively by “the data”; it’s science and not “ideology” (“To Fix Housing, See the Data,” Nov. 5). Therefore, save for those who are blinded by ideology, all well-meaning people must support this policy.

This Gradgrind-like argument fails.

Not only do the data that so impress Mr. Nocera speak only about existing mortgages – and, hence, say nothing about the possible altered incentives of future homebuyers to take on excessively large mortgages, or about government perhaps becoming locked in to a policy of granting mortgage relief – the very notion that certain homeowners are entitled to financial relief at the expense of taxpayers springs from an ideology. That ideology might or might not be wise, well-grounded, and humane. But ideology it undeniably is.

Here’s a fact: no conclusion about the proper role of government rests only ‘the facts.’ Ideology is inescapable. And it turns most lethal when smuggled into arguments in the guise of ‘just the facts.’

Sincerely,
Donald J. Boudreaux"

Another Reason The Trade Deficit Is Not A Problem

See Moricinomics by E. Frank Stephenson of "Division of Labor."

"Our favorite tv copier salesman is peddling more nonsense. To wit:

Oil and trade with China account for nearly the entire $550 billion trade deficit. This deficit is a tax on domestic demand that erases the benefits of tax cuts and stimulus spending.

This is a common fallacy--and one that Don Boudreaux has been especially vigorous in challenging. Trade deficits--be they for oil or stuff made in China--are merely the accounting flip side of net captal inflows, something that may increase domestic demand.

But suppose Americans didn't buy several hundred billions of dollars worth of oil from abroad (and ignore the resulting decreasing net capital inflow). We'd have to do without a key input for many goods and a commodity that is important for both commercial and personal transportation.

Prof. Morici might well reply that Americans could use the several hundred billion dollars that Americans spend on imported oil to purchase domestically produced energy. True perhaps, but the fact that Americans import the oil suggests that we cannot get a comparable quantity of domestically produced energy for similar prices. So we might well have eliminated Prof. Morici's dreaded "tax on domestic demand" by effectively levying a tax on actual consumption, namely by reducing the amount of energy that Americans actually consume.

It's worth noting, too, that one doesn't just increase domestic energy production by several hundred billion dollars simply by waving a magic wand. The workers and capital necessary for such an increase might well be redirected from other industries thereby reducing their output."

More evidence against the idea that World War II ended the Great Depression

See The Roaring Thirties by David Henderson of EconLog. He reviews Alexander J. Field's book A Great Leap Forward: 1930s Depression and U.S. Economic Growth. Excerpt:

"One other myth Field dispels about World War II, probably one of the most widely-believed myths, even by economists, is that World War II ended the Great Depression. Field notes that unemployment was falling rapidly in 1941 and that the unemployment rate for the last quarter of 1941 (the government did not collect monthly data back then) was down to 6.3 percent."

Maybe we don't have an infrastructure problem

See The U.S. infrastructure argument that crumbles upon examination by Charles Lane in the 10-31 Washington Post.
Excerpts:

"For all its shortcomings, U.S. infrastructure is still among the most advanced in the world — if not the most advanced. I base this not on selective personal experience but on the same data alarmists cite."

"When you compare America’s WEF (World Economic Forum) rankings with those of the 19 other largest countries, it stands second only to Canada, which is lightly populated — and whose infrastructure is linked with ours.

Among the 20 most populous countries, the United States ranks behind France, Germany and Japan, in that order. This would seem to confirm the case for U.S. inferiority in the developed world.

But France and Germany, in addition to being substantially smaller than the United States, are part of the European Union, a borderless single market from the Baltic Sea to the Black Sea. Sure enough, when you average out the scores of all 27 E.U. nations, the United States beats them by a clear margin."

"And while that D from the American Society of Civil Engineers is undoubtedly sincere, the organization has a vested interest in greater infrastructure spending, which means more work for engineers. The engineers’ lobby has given America’s infrastructure a D in every one of its report cards going back to 1998, except for 2001, when the mark was D-plus.

Top-notch though it is, the U.S. infrastructure could use an upgrade; by their very nature, roads, bridges and the rest require constant maintenance. The effort could boost both current employment and the economy’s capacity to grow in the future.

But it’s not just a matter of turning on the money tap and letting it flow. Though roads, rails and levees represent huge, upfront capital expenditures, the long-term benefits are often difficult to calculate objectively. The whole business is fraught with uncertainty, trade-offs and pork-barrel politics.

Nor are the economics of public works simple. After its economic bubble burst, Japan tried to restart growth with more than $6 trillion in infrastructure spending between 1991 and 2008. It ended up with little to show for it but a swollen national debt and lots of bridges to nowhere."

The "Imaginary Hobgoblin" of Income Inequality

Great post by Mark Perry of "Carpe Diem."

The charts above were prepared using Census Bureau data (Table E-2) on the Gini coefficients (a statistical measure of dispersion that quantifies income inequality on a range from 0% for complete equality to 100% for complete inequality where one person receives all of the income) for full-time, year-round workers. Like other measures of income inequality for families and households over time presented recently here, income inequality for full-time , year-round workers follows the same pattern:



The Gini coefficient for full-time workers increased gradually through the 1960s, 1970, 1980s, and then stabilized in the mid-1990s (after rising from 34% in 1967 to 39.5% in 1994, see top chart) and hasn't changed at all in the sixteen-year period from 1994 (39.5%) to 2010 (39.7%).



Bottom Line: Whether we look at Census Bureau data on Gini coefficients for U.S. households, families, or year-round workers, or look at the share of income going to the top fifth of Americans, there is absolutely no statistical support for the commonly held view that income inequality has been rising recently. So why are we even having this national debate about solutions to the "non-problem" of rising income inequality. Is this another "imaginary hobgoblin" (see below)?



H.L. Mencken: "The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary."

Matt Ridley says there is no Unprecedented Change or Harmful Change from global warming

See Ridley: "I Can't Find One Piece of Data That Shows Unprecedented Change, or Harmful Change." posted by Mark Perry of "Carpe Diem."

"From Matt Ridley's "Angus Millar Lecture of the Royal Society of the Arts" in Edinburgh, titled "Scientific Heresy":

"Stalagmites, tree lines and ice cores all confirm that it was significantly warmer 7000 years ago. Evidence from Greenland suggests that the Arctic ocean was probably ice free for part of the late summer at that time. Sea level is rising at the unthreatening rate about a foot per century and decelerating.

Greenland is losing ice at the rate of about 150 gigatonnes a year, which is 0.6% per century. There has been no significant warming in Antarctica, with the exception of the peninsula. Methane has largely stopped increasing. Tropical storm intensity and frequency have gone down, not up, in the last 20 years. Your probability of dying as a result of a drought, a flood or a storm is 98% lower globally than it was in the 1920s. Malaria has retreated not expanded as the world has warmed.

And so on. I’ve looked and looked but I cannot find one piece of data – as opposed to a model – that shows either unprecedented change or change is that is anywhere close to causing real harm.""