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 .

Illegals Depress Worker's Wages in California.

Supply and demand. Supply and demand. When you import thousands of illegal immigrants every month, it will depress the wages of all lower skilled workers.  The folks in Silicon Valley and Hollywood seem to love this policy. They're doing just fine, and those illegals are cheap labor to tend their gardens and clean their homes.

Government=Higher Prices

It always amazes me that people who desire lower prices on goods and services think the way to get there is more government involvement. Just the opposite is true.  The data is clear. The categories with the highest government involvement (and subsidies) are the ones which have prices increases in excess of the general rate of inflation. Want lower cost healthcare? Lower cost college? Get government OUT of the process and let the market work the same magic it does in other industries.

Prosperity and Free Market Capitalism Are Utterly Linked

The linkage between classic liberalism (free choice, free markets) is so strong, it is a wonder that significant numbers of people -- e.g. virtually all the Democrat candidates for President -- want to move the US  in the opposite direction.  Are they just that ignorant? Or do they actually prefer lower living standards (as long as they get to make the decisions)?

Democrats' Welfare State Cannot by Paid for By The Rich (and they know it).

Heritage foundation makes the point that the sort of European welfare state that Democrats envision cannot be had without significant increases in taxation on the people who pay relative low tax rates today -- the middle class. Of course, Democrats cannot be honest about this because there is no support for raising taxes. The claim that all of this will be paid for by The Rich is simply a lie.

Taxes on the rich cannot raise the necessary revenue to fund large European-style welfare states. If left on the current trajectory, U.S. government expenditures will require large tax increases on middle-class Americans. The current progressive agenda to further increase spending on health care, education, environmental policy, and income supports will require even higher taxes on a larger share of taxpayers. If America’s spending continues to look more and more like that of Europe, U.S. tax policy will also need to shift. In European countries, lower-income and middle-class taxpayers pay an average marginal wage tax rate of 49 percent on income above $37,000 a year, and an average value-added tax (VAT) of 20 percent. Those same U.S. taxpayers face a marginal wage tax of 32 percent and an average sales tax of 6 percent. 

Your Income is Related to What YOU Do. Not White Privilege.

Mark Perry posted these two charts. It's almost as if your income level is more related to things that YOU do (or don't do) than racial issues. Or maybe Asians have some sort of Super White Privilege that they exert over ordinary Whites?

Minimum Wage Recession in Restaurant Employment

Mark Perry posted this chart showing that the effect of the increase in the minimum wage on labor demand is similar to what happens during full-blown recessions.  Too bad there isn't some sort of theory that would have predicted this -- that when you raise the price of something there will be less of it demanded.

Lower taxes and regulation=Rising wages.

To get growth in hourly earnings you need two things:

1. A tight labor (i.e. fewer people not working)
2. Employer optimism about demand

It's pretty clear that around 2017 something changed from the previous 8 years. My strong guess is that it was the election of a government that promised to lower corporate taxes and reduce regulatory burden. Any other guesses?

Want Lower Prices? Reduce Government Involvement.

Think medical care is getting too expensive? How about the cost of college? These are both categories in which the government is heavily involved and which get lots of government subsidies.
Now let's compare those to the costs of categories where the government is not as involved and where the free market generally sets prices. Huh. All of these have inflation adjusted decreases in price.
Huh. 

Income is Inversely Related to Unwed Births

Mark Perry has looked at the rather strong inverse correlation between having unwed births and household income. Clearly, the presence of a spouse adds to household income, so if you don't want to be poor, it's a bad idea to have children without marriage. Liberals, of course, fight this analysis because it does not fit with their conviction that racial discrimination by others is what keeps you from earning more. 

Educational Gaps Do Not Respond to Massive Government Spending

In a new paper researchers document that after 50 years of massive spending programs"gaps in achievement between the haves and have-nots are mostly unchanged over the past half century."
So why would you expect even more money to "solve" this problem? Isn't it more likely that there is something ingrained genetically or behaviorally that won't be erased by more of the same approach? 

Soak the Rich. Lower Marginal Tax Rates

The slogan Make The Rich (or the Tippy Top earners, to quote the au currant Alexandria Ocasio-Cortez) pay their Fair Share is repeated over and over again. But if that were your objective,  historical data (I know, not as persuasive as Feelings) would suggest that you do just the opposite of  what the Democrats want to do -- i.e. raise marginal rates of taxation. Would they really be happier going back to 1960 when the top 0.5% paid far less of the income taxes collected?

People Migrate Both To the US and Within It to Maximize Earning Potential

Just as people migrate from California, Illinois, Connecticut and New York to states like Florida, Texas and Arizona where they can earn more and be taxed less, so do ambitious people from foreign countries migrate to the US in order to maximize their earning potential. Asian countries in particular are suffering a "brain drain" of their most talented individuals. 

High Marginal Tax Rates Do Not Generate More Tax Revenue

The current media darling , Alexandria Ocasio-Cortez, was on TV yesterday telling Anderson Cooper that she would pay for all her lavish spending plans with higher tax rates on the "tippy-top" earners (didn't we used to mock Valley Girls?). But reality (as opposed to whatever is playing in AOC's head) tells us that revenues are not affected much by what the top marginal rate is. So what would be the point of a higher top tax rate? Other than to pander to people who are just as ignorant as you.

States of Change

One side effect of a strengthening national economy has been a widening disparity in state growth rates. The eight fastest-growing states by population last year were located in the West or South (Nevada, Idaho, Utah, Arizona, Florida, Washington, Colorado and Texas).

And what do you know? These states have also experienced rapid employment and GDP growth spurred by low tax rates and policies generally friendly to business and job creation. Nevada, Arizona, Texas, Washington, Utah, Florida and Colorado ranked among the eight states with the fastest job growth this past year, according to the Bureau of Labor Statistics. Nevada, Texas, Washington and Florida have no income tax.

And California is only experiencing growth because of foreign immigration (legal and illegal).

Will high-tax business unfriendly states learn anything? Doubtful. These states are dominated by the interests of unions and the Welfare Industrial Complex. Like other addicts, they will not change behavior until they hit bottom.  

The Myth of Declining Manufacturing the In the US

Michael Hicks published a paper which rightfully debunks the popular notion that manufacturing in America is declining. It is not. It has been increasing constantly over the last 100 years. 

Electric Car Subsidies for The Rich

Democrats voted unanimously against the last tax cut bill because (they said) it disproportionately benefits high income households. Yet they unanimously endorse electric car tax credits which (pretty conclusively) disproportionately benefit high income households. According to the Energy Department, 70% of all these vehicles are bought by people earning over $100,000.

ENVIRONMENTALISM IS A LUXURY GOOD 

The "Shortage of Women" in STEM Fields is FAKE NEWS

Mark Perry points out that the incessant cry from feminists and progressives that "there is a shortage of women in STEM fields" is not supported by the facts. That the news media is simply parroting the lie would make this a good example of Fake News, wouldn't it?

The Myth of Stagnate Incomes

If you've been listening to politicans a lot you probably believe that Americans' incomes are "stagnating". That, except for the fortunate few, hardly anyone is getting ahead.  If, instead, you listen to economists who research facts, you'd know otherwise. This chart is from data in a recent study released by the Congressional Budget Office.

The Myth of Stimulus Spending

Edmund Phelps. Nobel Laureate in economics, debunks the Keynesian notion that "fiscal stimulus" helps economies recover form recessions. If that were the case, countries that had larger debt (stimulus) would have recovered faster than those that implemented dreaded "austerity" budgets such as Spain, Portugal and France. Big deficits did not speed up recoveries. In fact, the relationship is negative, suggesting fiscal profligacy led to contraction and fiscal responsibility would have been better.

Yet, the next time we have a recession, count on the willfully ignorant in government and the media to call for more "stimulus".

60% of Households Receive More in Government Transfers than they Pay in Taxes

According to a report released this year by the Congressional Budget Office, only the top two income quintiles in the United States pay more in taxes than they receive in government transfers.  Fair share?

Factory Jobs Are NOT Coming Back, Mr. President

Those who think Donald Trump (or anyone else) is going to "bring back factory jobs" to America needs to study this chart for a moment.  I'm pretty sure The Chinese were not responsible for the declines prior to 1980. Nor those after 1980, for that matter.

How Socialism Destroys -- in One Chart

In this one chart from Mark Perry we see the power of capitalism to create economic activity and power of socialism to destroy it.

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).

Growth, Not Obama Fuels the Labor Force

A reminder. Only one thing affected the decline in labor participation -- economic growth. Economic growth fueled by actions that increase corporate profits and hence the need to hire more people.  For all of President Obama's preening this week, it should be quite clear from these charts what happened during his eight years in office. 

The Diversity Blob Just Keeps Growing

Ever wake up one day to see a sprawling bureaucracy and wonder how it got there? Below are the employees who work in the "Diversity Department" at the University of Michigan. It's almost 11 million dollars in payroll.  How many scholarships could Michigan provide for $11MM? This is just one university in the country. Now you know where all the people with degrees in woman's studies, black studies and queer studies go to "work". If you live in Michigan, your tax dollars go to support this blob. And you can bet there's a similar bureaucracy at every public university.

My favorite is the web designer who "earns" almost $100K. Every hire a web designer? They typically work for less than half that. But they're probably not "diverse" enough. This one is no doubt special.

Yes, Girls Outperform Boys

The NY Times took the data below and decided that it was a big story. And it is. Now you might think the obvious conclusion from this data was: Girls consistently outperform boys in English skills. That is a big story. But the Times decided the story was:

Boys Outperform Girls in Math:
Rich, White and Suburban Districts

Yes. Ignoring the most important aspect of the report, they chose to make this a story about . . . wait for it . . . White Privilege.  White Privilege doesn’t appear to affect English skills, only math skills. The Times doesn’t really explain that, but, damn, those rich white kids sure do get math better. And isn’t that unfair?   

Yes The Middle Class is Shrinking, But Why is That Bad?

Yes, it's true that the percentage of households earning "middle class incomes ($50-100,000) is declining. But it's declining because those earning more than that amount have been increasing so rapidly.  If you listen to politicians and the media they seem to think that's something to be alarmed about. Why?

The Rich Pay Everyone's Taxes

The Rich don't pay their fair share share of taxes. They pay everyone's taxes.

Chart courtesy of Mark Perry

The Short Term effects of Minimum Wage Increases

This will not come as a shock to anyone who has successfully completed Economics 101, but two professors from University of California San Diego felt it necessary to publish a paper that shows that labor has a demand curve as well. From their abstract:

As of 2015, We estimate that relatively large minimum wage increases(defined as those exceeding $1) reduced employment among low-skilled population groups by just over 1 percentage point.

What Do Universities Plan to Do About This Gender Disparity?

Progressives claim there are no inherent differences between genders. Ergo any male-female disparities must be explained by discrimination of some sort, which requires remediation. So my questions are this:

1. In light of the disparity in college degrees, what is it that colleges and universities are doing that discriminate in favor women over men?
2. Universities have been particularly active in doing things to narrow gender disparities. What do they plan to do about this one? Safe spaces for men? Extra points on exams for men? More tuition assistance for men and less for women? Inquiring minds want to know.

The Myth of Tax Cuts for the Rich

If you listen to Democrats in Congress and most of the media you'd probably think the recent tax legislation were "tax cuts of the rich". If you used facts instead of rhetoric, you'd know that isn't true.
The tax cuts will result in the highest earning Americans actually shouldering more of the income tax burden than in 2017. If your household earns  $150,000 (which doesn't exactly make you "rich" in most major urban centers), you get the privilege of helping to pay 87% of the country's income taxes. Middle income households in contrast will pay 4%.

More Evidence of the Perverse Effects of the Minimum Wage

A new study from Grace Lordan, London School of Economics and David Neumark, University of California at Irvine shows the  following:

1. Increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers. 

2. An increase of the minimum wage by $1 (based on 2015 dollars) decreases the share of low-skilled automatable jobs by 0.43 percentage point. 

The Balance of Payments Must Always Balance

Apparently Donald Trump didn't study Balance of Payments at Wharton because he is always wailing about a "trade deficit".  A trade deficit is always balanced by a surplus of foreign investment.
So, for example, if US businesses and consumers import more than they export, there is a corresponding increase in the capital investment from abroad -- e.g. buying the stocks and bonds of US companies, investing in US treasury debt. Why this would be bad is beyond me.

More on Cost-Benefit in Education

Here's another example where the education establishment ignores cost-benefit analysis.

A new study from CATO and the University of Arkansas examines student performance at charter schools and traditional schools in eight major U.S. cities, Washington D.C., Indianapolis, Boston, Denver, San Antonio, New York City, Atlanta, and Houston. These researchers also conducted a return-on-investment (ROI) analysis, comparing projected lifetime earnings of charter school students with those of traditional school students, relative to the cost to taxpayers. Their conclusion? They show public charter schools are delivering better results for students at significantly lower costs to taxpayers.

Yet the education establishment routinely opposes charter schools. Not surprising if your objective has more to do with employing people than educating students. 

Education is Exempted From Cost-Benefit Analysis

Most people grasp the idea of cost-benefit analysis. for instance, you wouldn't spend $100,000 on improvements to your home if it added only $10,000 to the selling price. And you wouldn't spend a million dollars on advertising your business if it only increased sales by $100,000.

However, when it comes to education, people seem to be living in a different universe. They are spending huge amounts of money and getting no benefit from it. If your local supermarket doubled your grocery bill so they could hire more people, but gave you the same amount of food at the same service level, would you continue to do business with them? Of course not. What if government forced you to pay that store even if you went elsewhere to shop? They would have no incentive to stop spending money for no benefit, would they?

International Trade=Lower Prices

Questions for today.
1. Do you think it's a coincidence that the categories with the lowest price changes are the ones that are traded internationally?
2. Do you think it's a coincidence that the categories with the highest rate of price change are the ones with the most regulation and government subsidy?
3. What do you think will happen if we adopt more protectionist policies?

Inflation Fears?

Some perspective on the media's sudden concern about inflation. 

Watching the Stock Market Work

Over the last 14 months, we have had a compressed demonstration of how the stock market works. At any given point in time, the intrinsic value of equity investments roughly reflects two factors.

1. A discounted present value of expected future earnings.

2. The expected returns from competing investments.

When Donald Trump was elected President the expectations of future earnings rose dramatically because he promised, then delivered on, reduced taxes and government regulation. Both of these actions greatly increased expectations of future corporate earnings versus what they had been under the Obama administration and what could be expected from another Clinton administration. Hence the significant market run-up immediately following his election.

The second factor we've seen play out in the last week. The Federal Reserve has made it pretty clear that we can expect higher interest rates in the future. This affects expectations for bonds, the primary alternative to equity investments.

Traders trying to guess which of these two factors will be dominant create a lot of day-to-day volatility, but over the longer run, it is the battle between these two expectations that counts. If corporate earnings continue to grow faster than expected, Factor #1 will prevail. Otherwise, you can expect a major correction in 2018. 

The MIddle Class IS Shrinking

Thanks to Mark Perry for updating this important chart.

So the next time you hear someone say, "the middle class is disappearing", you can respond, "Good!".

Government Involvement=Higher Prices. Imports=Lower prices

Gee, it almost looks as if the more government involvement in an industry, the faster prices rise. Who would have predicted that?
And (dare I say it?), prices also seem inversely related to the level of imports in the industry.

The Ignorance of E.J. Dionne

I understand opinion writers are supposed to write opinions, but wouldn't you want to consult someone who knew something about the subject before displaying your ignorance in public?

EJ Dionne writing in the Washington Post makes the claim that "government works" citing as an example the bailout of auto companies by the federal government.

"In the end, taxpayers invested some $80 billion in the effort and recouped all but approximately $10 billion of that."

Let's think about this, Mr. Dionne (regrettably, after rather than before you wrote this).

1. If your investment advisor came to you and said he should be lauded for losing 12.5% of your money, would you do so?

2. To what other uses could that $80 billion have been put? If the government had not confiscated $80B from the private sector and directed it to the auto industry, isn't it likely it would have been invested in something that had a return higher than -$10 Billion?

I'm not sure whether to damn Mr. Dionne by pointing out his ignorance of opportunity cost or to assume he is knowingly trying to mislead his readers in order to make lame excuses for government economic malfeasance.

Fair and Balanced?

Well, at least the most fair and balanced according to a new Gallup poll.

More Guns Do Not Cause More Homicides

While economists understand that correlation does not mean causation, the chart below certainly doesn't support the progressive's position that the solution to gun violence is to reduce the number of guns available.

Update: Minnesota just reported that gun ownership in the state reached an all-time high, while violent crime reached 50 year low.  At some point even the HYSTERICALS have to acknowledge that the data does not support gun ownership being positively correlated to gun violence.

High Earners Will Shoulder Even MORE of the Tax Burden

According to the Joint Committee on taxation they expect tax filers with incomes of $100,000 and over to pay 79.1% of all Federal Taxes. As opposed to 78.7% now.

1. The media claim that this is a "tax cut for the rich" is a crock as usual.
2. People earning at least $100,000 will continue to pay a hugely disproportionate share of federal taxes because . . .
3. Lower income earners will be getting a larger percentage tax reduction.

It's Not Easy Being Green in the Northeast

The Regional Greenhouse Gas Initiative (RGGI) is a cooperative effort formed in 2012 among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions via the much-touted "cap and trade" mechanism. While to date nobody has claimed that this initiative has done anything to reduce global temperatures, it has clearly reduced the number of manufacturing jobs in those states. Since 2012, the number of manufacturing jobs is the United States increased 5.4% while the number of manufacturing jobs in the RGGI states fell by 3.8%. I guess that's okay with the people who created this cooperative. They don't work in manufacturing. 

Migration Follows what Economic Theory Predicts

North American Moving Services just released its annual US Migration Report for 2017 based on household moves from one US state to another last year.

It's pretty obvious what's going on here. People are moving away from Democrat-controlled, high tax, anti-business states to states that are Right-to-Work, Republican-controlled, high growth, business friendly, low tax.

Gosh, if only there some sort of theory that would predict these things.

What Homeschooling Tells Us About Government Schools

Don Boudreaux offers this analogy at Hayek

Imagine that the only source of professional haircutting is government-operated hair-care salons that are funded exclusively with tax dollars doled out directly to the bureaucrats in charge of each salon. Imagine also that each citizen can use a salon free of charge, but is assigned exclusively to the salon nearest to his or her home. If this were how professional hair-care specialists were organized and compensated, these specialists’ salaries would be determined not by competition and consumer choice, but by politicians. Hair-stylists’ workloads and incomes would then depend only upon their skills at political lobbying and uttering clever sound bites for the news media. No premium would attach to quality hair-styling skills. Hair stylists inevitably would lose much of their ability to cut and style hair as they focus their energies increasingly on protecting and expanding their special political prerogatives. More and more people would cut and style their own hair at home.

In 1980 only 10,000 children were schooled at home. Today that figure stands at about one million. This means that fully 2 percent of all children are now homeschooled. And this number continues to grow, even though public education is “free.”

It's The Economy (Again), Stupid

Presidents are seldom responsible for the performance of the stock markets, but this one is an exception.  Market prices are always roughly reflect the present value of future income streams, the expectation of which ratcheted upward last November with the election of a President who promised, and appears to be delivering, lower taxes and regulation for businesses.  Economic growth is driven by corporate profits and the reinvestment that devolves from those profits. We have experienced this twice before when President Kennedy and President Reagan cut tax rates. Democrats -- stuck with their Keynesian assumptions -- seem not to have learned this lesson. Or don't want to. It appears that they will come out in unanimous opposition to lower taxes and higher growth. A rather peculiar platform to run on.  Maybe they ought to remember what James Carville said during the Clinton years -- it's the economy, stupid.

The Fed Is Worried About Bitcoin??

Takes quite a lot of Chutzpah for the Federal Reserve to claim it is worried about BitCoin losing it's value.

It's Hard to Cut the Taxes of Those Who Don't Pay Any

Democrats are wailing that the current tax reform proposal doesn't cut taxes enough for The Poor. It's pretty hard to cut taxes on people who don't pay any in the first place.

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.

Millennials Prefer Communism. Really?

According to polling firm YouGov, Americans currently between the ages of 18 and 29 have a more favorable view of Communism/Socialism than they do of Capitalism.

Why? Below is a chart from 1991 showing GDP per capita in geographically matched countries. The ones on the left were, at the time, Communist economies. The ones on the right were capitalist economies.

Millennials would really rather live under a system that robs people of 90% of their economic well-being? Or maybe they just enjoy being surrounded by poor people?

Another possible explanation would be that Millennials are grossly ignorant having been successfully indoctrinated by leftist ideologues who run our schools.

CO2 Reduction Isn't Really a Goal, Is It?

Liberals say they want reduced CO2 emissions. But do they? If they did, they would be applauding the chart below. Why aren't they? Because all of this reduction was accomplished by the free market exploring new sources of inexpensive natural gas that replaced a lot of coal in electric production.
The truth is that CO2 reduction is not really their goal. Their goal is to make conventional energy sources more expensive so that they can more easily justify their Utopian schemes using wind and solar energy. And create a new source of taxation to fund these schemes.