Wealth Inequality Facts II

In a bit of rather good timing, just a week before President Obama will stand before Congress and declare there to be a crisis in income inequality and economic mobility, a group of economists led by Raj Chetty of Harvard University have published an extensive paper which concludes that "contrary to popular perception, economic mobility has not changed significantly over time".  This is a somewhat polite way of saying that the President has no factual support for his assertion.  He, understandably, desires to change the subject from the myriad failures of his administration to something that will sound good -- at least to those willing to ignore the facts. 

The chart below plots the difference in average income percentiles for children born to low vs. high-income parents in each year from 1971-1993. On average, children from the poorest families grow up to be 30 percentiles lower in the income distribution than children from the richest families, a gap that has been stable over time. 

The Wealth Inequality Facts

As if we needed more proof that the "Wealth Inequality" claptrap is simply a political gambit by Democrats and the media to divert attention from actual real problems like Obamacare. Why on earth would it suddenly be a crisis that the wealthiest 1% of Americans actually have a slightly smaller share of total wealth than they did 25 years ago? Once again, for the political class the level of noise is inversely related to the amount of supporting factual evidence.

The Magic of 50

Here's a quick intelligence quiz.

Q. Why does France have 2 1/2 times as many companies with 49 employees as with 50?

A. Because the French government commands that companies with 50 employees must create three worker councils and submit any employee terminations to those councils for approval. They must also create a formal profit sharing plan for employees.

Now the IQ quiz.

Q. What will happen in the US when Obamacare kicks in for companies with 50+ employees?

Does This Look Like We're Headed in the Right Direction?

The President is patting himself on the back for reducing the unemployment rate again. But only because he continues to  incent more people to drop out of the workforce. Does this really look like we're headed in the right direction?

Trickle On

In order to divert conversation from Obamacare, Democrats and the media (I repeat myself) have decided to latch on to some old buzzwords -- "Income inequality" and "Trickle Down economics" -- the idea being that we are somehow worse off when a relatively small number of high producers enjoy hugely disproportionate success.

At the risk of allowing economic facts to intrude on frothing rhetoric, consider this.

1. In 2010 companies launched by entrepreneurs backed by venture capital generated more than 20% of US GDP. 
2. In 2010 companies less than five years old generated more than 100% of all the new jobs that year (the older ones collectively lost jobs).

So if you're in the job market, you'd better hope that the activities of a very few productive people "trickle down" to you.

Poverty and Globalization

Mark Perry notes that economists Maxim Pinkovskiv and Xavier Sala-i-Martin published this paper at the National Bureau of Economic Research.  Using parametric methods to estimate the income distribution for 191 countries between 1970 and 2006 they show how dramatically the level of abject poverty ($1/day threshold in constant dollars) has declined since 1970. That's 250MM fewer people living on $1 per day. You may not see this too many places because it runs counter to the media mantra that free trade and globalization have hurt the poor. Does it look that way?  

Economic Questions for the New Year

If government spending is counted in GDP and financed by debt, what exactly is the meaning of the debt:GDP ratio?

If economic growth is achieved by producing more with fewer resources, how does devoting more and more land to producing energy from corn, wind-farms and solar-farms produce economic growth?

If the only manufacturing plants that are allowed to operate in the US are those that produce near-zero emissions and China has no such requirement, why is anyone surprised that manufacturing has moved to China? And what exactly should we expect if the US begins taxing carbon emissions?