White Male Privilege

Mark Perry serves up this chart showing the income of American white men relative to female non-white women. 

Yes the Middle Class is Shrinking

 Yes, the middle class (of income) is shrinking. But it's not because people are getting poorer. 

Income Inequality is NOT increasing

If you turn on CNN or MSNBC you will hear constant reference to "increasing income inequality". If this were true and not just propaganda, you'd expect real data to support that claim. Yet it doesn't. The level of income inequality in the United states hasn't changed in the last 25 years. So, if this wasn't keeping you up at night in 1998, why is it in 2019?

The Gini index, or Gini ratio, is a measure of statistical dispersion intended to represent the income or wealth distribution of a nation's residents, and is the most commonly used measurement of inequality. It was developed by the Italian statistician and sociologist Corrado Gini.

A Gini coefficient of zero expresses perfect equality, where all values are the same (for example, where everyone has the same income). A Gini coefficient of 1 (or 100%) expresses maximal inequality among values .

Income Inequality is Something You Control

Mark Perry at U of Michigan created this summary chart about income distribution for those who think income inequality is something that is externally foist upon us. It pretty clearly demonstrates that:

1. The more people you have working in your household, the higher will be your HH income
2. If you want higher income, get married
3. The highest income households are those with people in peak earning years (35-64). In other words, people just starting out or those who are retired earn less than a 50 year old with a 30 year work history.
4. If you want to earn more money, don't drop out of high school. Earn an advanced degree.

While these points may seem obvious, they don't seem to penetrate the skulls of those in the media who decry "income inequality" as if it is a disease that randomly attacks people.  If you don't like being in the bottom quintiles of income you CAN do something about it -- e.g. get married, get a job, finish high school, GROW UP (literally and figuratively).

The Rich Are Not Paying Their Fair Share

Democrats are right. The Rich are not paying their Fair Share of income taxes. They're paying more than everyone else's share.

A Thought Experiment for Equalitarians

Here's a thought experiment regarding the benefits of greater equality.

Imagine you are participating in a company 401k plan. Your plan has two choices for investment. (A) An investment fund run by Dick that has consistently produced an annual rate of return of 5-7%. (B) An investment fund run by Jane that has consistently produced a 2-3% annual return.

What percent of plan participants do you think will choose Dick's fund? Suppose, not illogically, that 80% of plan participants choose Dick's fun. Is this fair to Sue? Sure, Dick appears to be a more capable investor than Sue, but should Dick really get four times Sue's income for doing the same thing? Especially since it turns out that women who run investment funds attract fewer investments than those run by men?

Now suppose your company (being progressive thinkers) ordered some of the plan's participants to take money from Dick's fund and give it to Sue. Would the plan participants as a whole be better off by doing this? Would the rate of return for the plan be better or worse? Do you think anyone here (other than Sue) would think this was a good idea? How much of your retirement investment are you willing to give up so that Sue is treated with greater equality?

Why, then, is it a good idea in general to re-allocate resources from the members of society who produce high returns to those who produce lower returns. The latter, like Sue, may be nice people and work hard, but what they produce just isn't quite as valuable. Are the members of society better off in total by doing this? Would the total rate of economic growth be better by doing this? How much economic growth are you willing to give up so that the lower producers receive resources more nearly equal to high producers?

Oxfam Blames the Wealthy for Poverty

Oxfam (a UK based charity whose mission is "fight poverty") recently sent out this appeal (see below) in which they imply that poverty is caused by businessmen who are wildly successful. They are repeating the falsehood that wealth is a zero sum game -- that the less successful would be wealthier if, somehow , the really successful were less so.

The fact of the matter is that the number of people who are desperately poor (living on $1/day) has been declining steadily and significantly over the last fifty years -- i.e. the time frame over which all the wealthy people whom Oxfam disparages accumulated their wealth. The poor have become less poor precisely because of that wealth creation. Bill Gates wealth via Microsoft is not the reason the poor are poor; it is why they are less poor. Mr. Gates did far more for the world's poor by making Microsoft a success than he will ever do with his foundation (and the two are non mutually exclusive).

Oxfam's sloppy thinking (I'm being generous here) is deplorable.

	January Newsletter
	Just 8 people now have the same wealth as the poorest 3.6 billion
	Have you seen the news this week that just 8 men own as much wealth as the poorest half of the world's population? This news comes after the release of our new report "An economy for the 99%". Here at home and across the world, millions of ordinary people have been left behind by an economy for the 1%. We must take urgent action to reverse dangerous inequality – not accelerate it. The poorest people in our societies have been hit hardest – particularly women who suffer high levels of economic discrimination, work in the lowest paid jobs, and take on the lion's share of unpaid care work. Read more about staggering inequality and how you can take action >> Find out more

Explaining Income Inequality With Demographics.

This is an updated chart from the Census Bureau's report Income and Poverty in the United States: 2015. What it shows is that differences in household income are primarily related to differences in the households themselves.

1. High income households earn more because they have more people in them who are actually working at something.
2. High income households have a much higher rate of marriage.
3. High income households are composed of better educated people, who have higher earning capabilities.
4. High income households have more people in their peak earning years (35-64).

In other words, contrary to popular political rhetoric, household income inequality is not something that is "done to you", it is mostly a product of decisions that you have made and where you are in life stage. The good news is that these are factors that you can influence. You can choose more education. You can choose to work. You can choose to marry and have more earners in your household. And if you're 25 you will eventually be 35 or 40 (sorry, but if you're 65, your earning power won't increase with age).  

Also, keep in mind that "income" here is only earned cash income. It does not include transfer payments (e.g. welfare, Medicaid, social security, housing subsidies, etc.)

Using Household Data for Income Analysis is Misleading

Democrats constantly make the "income inequality" argument by citing household data from the census bureau. But they don't cite a number of important facts about the household data itself. One being that the number of people in households varies considerably (and directly) with income. Another is the composition of the households with respect to age. Higher income quintiles have more people of working age in them. This shouldn't be terribly surprising, but apparently nobody in the media is smart enough to research and report on it.

Imagine you read a report that asserted that fans in Boston spend more more on ballpark concessions than fans in Oakland do, but that report didn't mention the fact that Fenway Park is always full of people while Oakland-Alameda is not. Would you think the reporter incolved was a) stupid or b) purposely misleading?



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Federal Government Is Big Source of Income Inequality

Chris Edwards at the Cato institute points out that the average Federal government worker's compensation is almost 80% higher than the average worker in the private sector. In fact just last year the VA Administration handed out over $140MM in bonuses (and they say that incompetence doesn't pay!).  The next time you hear Bernie Sanders or Hillary complain about income inequality, can we have a discussion of the Federal government's rule in that?

Income Inequality Is a Symptom, Not The Disease

Harvard  professor Robert Putnam has some revealing data in his book "Our Kids" that echoes the themes about which Charles Murray has been writing. Namely that America is becoming rigid. It is settling into immobile classes that don’t mix.  Not in neighborhoods, not in schools, not in marriage and not in work. 

The current fad is to focus on "Income Inequality". But this is focusing on the symptoms of a disease, not the disease itself.  It's akin to providing pain killers to cancer victims rather than chemo therapy . The disease is a growing class of people who, for a whole host of reasons other than not having much money, engage in adverse behaviors. Worse, they "infect" their children with those behaviors, as the two charts below demonstrate. 

AA figured this out out a long time ago. You can cite a dozen reasons why you're an alcoholic (including bad genes from your parents), but you can't stop being one until you take some personal responsibility for your condition. 

Why Bashing High Income Earners May Not Resonate So Well

Mark Perry points out why bashing high earners may not be getting as much traction with the public as Democrats would like.

It Depends On How You "Define" Income Inequality

The President says that income inequality is "the defining issue of our time." Really? Of course, when you ignore the facts, you can say just about anything that pops into your head.



Do you think it's just a coincidence that income inequality became the defining issue after the previous defining issues -- Obamacare and Global Warming -- blew up on the President?

Thanks to Mark Perry and the Census Bureau.

Income Inequality and Household Size

Those who complain about income inequality generally disingenuously use household statistics without disclosing that that measurement itself is the source of much "inequality". Households in the top quintile have FOUR TIMES the number of earners in the household as those in the bottom quintile. Do you think maybe that has a big effect on income? When earners marry and form a household unit are we supposed to be incensed about that? Should they be punished for doing so?

The Really Productive Driver Behind Income Inequality

As the uproar over income inequality reaches ever higher decibel levels, it is worth reminding ourselves that technology is the principal driver that is responsible. Technology allows the best people to leverage their skills in ways that could not have been done before. Think about these examples:

1. When Babe Ruth was playing baseball, he was one of the best. He and the Yankees were able to monetize that greatness every time he played in front of 30,000 or so people. Today, you might argue that Miguel Cabrera has similar greatness. When he plays he, the Tigers and MLB can monetize that greatness over perhaps millions of people who can watch him play via electronic media.

2. Imagine you were a good trader on the NY Stock Exchange 60 years ago. How many shares could you trade every day? A few hundred thousand? How many could you today? A few hundred million? What's that worth compared to the same job 60 years ago.

3. Assume you are a really good tax accountant. Sixty years ago you might leverage that ability over, say, 20 clients. Today with software you might be able to leverage it over hundreds of clients. And if you created TaxAct software you'd be leveraging it over millions of clients.

4. Assume you were a really good merchant. Sixty years ago you might have worked for Macy's or Marshall Field and made them quite a bit of money.  Today, if you're name is Jeff Bezos and your store is Amazon.com, think how much more your skill is worth today.

Scale matters. Being the best performing manager for a hedge fund matters A LOT. Designing a whole new social media network matters ever more. If you're working at a job that doesn't scale well -- e.g.  as a waiter or a a school teacher -- the gap between what you can produce and what someone harnessing technology can do is increasing. Of course it's increasing. Would you want it not to?  But if you're Hillary Clinton, you consider it a "cancer".

The Cancer of Inequality

Hillary Clinton labelled income inequality a "cancer." If it is, it's a very slow growing one.

The Inequality of Disposable Income versus Earned Income

The chart below tracks the ratio of income of those in the 95th percentile of income to those in the 50th percentile -- in other words how well the highest earners fare compared to middle income earners. The media and hysterical liberals (admittedly there is a lot of overlap) focus on the blue line below. Market income is “wages, salaries, business and farm income, interest, dividends, rents and private transfers (such as alimony and child support), of all household members.” Disposable income is Market Income minus taxes plus government transfers like social security, welfare payments, food stamps, medicaid, etc. The former is a good measure of how much more top earners earn than middle income earners earn. The latter is a better measure of how much better off one is versus the other.

It's pretty clear from the chart below that upper earners, despite more top-line income, are relatively not any better off today than they were 20 years ago. The reason, of course, is that they are disproportionately high payers of taxes and disproportionately low receivers of welfare and other government transfers. 

Income Mobility -- A Lifetime of Data

In Sunday's NY Times, Mark Rank from Washington University provides a take on "income inequality" looked at from an individual longitudinal perspective, rather than from a desire to create hysteria about abstract statistical groupings. Here are some of his findings:

• Almost three-quarters of the population will be in the top 20% of income earners at least once in their lives.
• Only 12% of the population will be in the top 1% of earners more than one year during their lifetime.
• Only 0.6% of the population will be in the top 1% for more than 10 consecutive years. 

This paints a very different picture than the President and his friends who would like you to think of "The Rich" as a small monolithic group standing at the gates of wealth barring others from entering.

Common sense would tell you that if you took a snapshot of people in their twenties and compared it to a snapshot of people in their fifties, there should be a very large difference in income between the two groups. Should you be upset by this? Would you conclude that those in their 20s are doomed to low incomes for the rest of their lives?

The hysteria that Democrats are trying to generate would be akin to looking at major league baseball batting data, observing that only 1.4% of all hitters batted over .325 in 2013, and then trying to convince players that they have no chance of having a number of multi-hit games during this season. Might as well hang up the spikes and turn to the commissioner to fix this awful situation.

The Astounding Ignorance at the IMF

A new paper from the International Monetary Fund concerning "Fiscal Policy and Income Inequality" starts out with this remarkable gem:

“In the United States, the share of market income captured by the richest 10 percent surged from around 30 percent in 1980 to 48 percent by 2012, while the share of the richest 1 percent increased from 8 percent to 19 percent."

According to the International Monetary Fund income is "captured". Not produced, earned or generated. Captured. Apparently income is like rain. It just happens. And if you have a really big bucket or a tarp you can capture more of it as it falls than others can.

I have a question for the IMF. Steve Jobs and Bill Gates were two of the wealthiest people in the world. How exactly did they "capture" all that wealth? Did they hold a gun to the heads of the public and force them to buy iPhones and Xboxes? I vaguely recall people sleeping on sidewalks to be able to purchase them early.

The ignorance of the International Monetary Fund is simply breathtaking -- and probably helps to explain some of the really stupid decisions they've made in the past.

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.