Category: Economics

The Seen Versus the Unseen

George Noga
What we see is frequently far less important than what we don’t see. This is true
particularly for economic growth, international trade, climate change and poverty.
The Seen Versus the Unseen
By: George Noga – October 23, 2016

       Election issues, both real and fake, are viewed through the prism of what is readily seen and are juxtaposed against what is opaque or occult to most Americans. The seen versus the unseen is singularly germane for economic growth. The data Americans readily see are many years of positive economic growth and unemployment rates approaching historic lows. Looking only at what is seen, many people conclude the US economy is performing satisfactorily. But let’s look at the unseen.

     The US, in its eighth year of economic recovery, is averaging 2.0% growth in real GDP. Real economic growth since 1945 averages 3.3% and is 4.3% for the years following the prior 10 recessions. Had the US grown at the 4.3% post-recession average from 2009 onward, today real GDP would be $10,300 higher for every man, woman and child in America. The unseen 900-pound gorilla of economic growth is the $26,700 that is missing from every American household each and every year – forever. Had Obama simply achieved average results, we would be infinitely better off.

For foreign trade deals, what we can see are job losses, harm to affected industries and deleterious effects on communities impacted. The pain is visible, immediate, and concentrated, whereas the benefits are unseen, long term, opaque and diffuse. Every American household benefits $2,500 per year just from China – even if they manipulate their currency, subsidize exports and use cheap labor. The unseen benefits to Americans from foreign trade vastly outweigh short-term job losses and other impacts.

     For climate change, we see media reports of warming, melting glaciers, polar bears on ice flows, extreme weather events and receding arctic icecaps. The largely unseen is: (1) no warming for 20 years; (2) glaciers receding for the past 150 years; (3) record polar bear populations; (4) no increase globally in insurance claims for weather events; and (5) an increasing antarctic icecap which is 10 times the size of the arctic icecap. Completely unseen are the immediate benefits to humanity that could be realized if the trillions now being totally wasted on infinitesimal reductions in temperature were diverted to human needs such as disease eradication, clean water supply and nutrition.

     We are bombarded by media reports and images of poverty, homelessness and hunger although none of these conditions exist per se in America today. What we don’t see is that these conditions (which do still exist) result nearly exclusively from untreated mental illness and from a small cohort of Americans of low ability, i.e. those who struggle to fill out a simple form. These conditions, and their attendant social pathologies, are what result in poverty, hunger and homelessness. Political correctness prevents us from identifying and addressing the real underlying problems.

     We see gun violence whenever there is a shooting; we don’t see the 2.5 million times each year guns are used lawfully to prevent or to stop crime. We see that more Americans have health insurance; we don’t see the armies of under employed 29ers and 49ers and the high premiums, deductibles and co-pays. We see the spending but the debt and deficits go largely unseen. We see what is reported by the media; we don’t see many stories covered that run counter to the progressive narrative. We see what we recycle; we don’t see it going into the same landfill as all our other garbage.

What we see is often vapid and illusory and intended to beguile us into accepting progressive shibboleths and dogma. The unseen is frequently much more important.

The next post in our 2016 election series is scheduled for October 30.

Fake Solutions to Fake Problems

George Noga

America is facing economic stagnation, failed schools, a nuclear Iran and is fighting global Islamic terrorism. Progressives are fighting for men to use the ladies’ restroom.
Fake Solutions to Fake Problems
By: George Noga – October 2, 2016

      As we approach the election, we are bombarded from the progressive side with a panoply of phony issues to which they proffer equally phony solutions. They don’t have real solutions to real problems; all they can offer is maskirovka and rope-a-dope.

     The most serious issues America faces are: weak economic growth with income stagnation, radical Islamic terrorism, Iran as a nuclear threshold state, chronic debt and deficits approaching critical mass, and failed government schools. Progressives don’t want to discuss any of these issues; instead, they talk of climate change, gun control, a war on women, transgender restrooms, and environmentalism – all phantom issues.

     Climate change is fake because it is man-made in only an inconsequential way, if at all, as well documented in prior posts. It is a classic Baptists-bootleggers political coalition of true believers (environmentalists) and their fellow travelers (government) who stand to benefit. The latest fake solution is the climate deal signed earlier this year in Paris where politicians from 175 countries agreed to keep doing whatever they intended to do anyway and with no consequences for non compliance. In an ultimate irony, the fake climate deal to fight a fake enemy was signed in the same city where just a short while earlier a real enemy, Islamic terrorism, slaughtered 130 real people.

     Gun control is progressives’ go-to issue. We published a series, Guns in America, available at http:\\www.mllg.us which proves to any scient person there is no positive correlation between guns and crime and there likely is a negative correlation, i.e. more guns equals less crime. We followed that up with a Harvard study showing social, cultural and economic factors (and not guns) are the determinants of violent crime.

     Gun control is a phony issue for which progressives have proposed a long train of phony solutions. Not one proposed measure would have prevented any mass gun violence in America. Their most recent phony solution is the “no fly, no buy”  proposal to ban gun sales to anyone on the no-fly watch list. This is a small and notoriously inaccurate list that excludes all recent terrorists; it would have no effect on terrorism.

     A war on women and the campus rape culture likewise are imaginary issues. Duke, UVA and Harvard (The Hunting Ground) have been debunked. College campuses actually are safer for women than elsewhere. Women’s pay is equal to or higher than men’s when making proper adjustments for education, experience, danger, etc. Liberal solutions also are imaginary such as constant ongoing affirmative consent for sex. Progressives refuse to criticize the real war on women in Moslem countries, replete with, inter alia, genital mutilation, no driving, burkas and Sharia law. Go figure!

     Transgenders constitute .00006 of the population, making this issue a tempest in a teapot. Progressives insist anyone who self identifies as any gender can use any public facility at anytime. They demand young girls accept showering with men and that they simply get over any discomfort. Yet, they dictate transgenders not be required to use facilities conforming to their biological gender because it may cause them discomfort.

     Environmentalism is a totally ersatz issue. Every metric (100 of them) shows both human and environmental well being to be the best they have been in the past 50-75 years and getting better all the time. Their fake solution is to spend ever more and more money to eke out ever less and less imperceptible benefit and to elevate a tiny fish (delta smelt) over the well being of hundreds of thousands of real human beings.

     Take the real issues identified in this post and contrast them with the phantom issues and solutions put forth by progressives. They use misdirection, smoke, mirrors, and rope-a-dope for emotional appeals to low information voters. They never address serious issues with serious solutions. They choose instead to fight for transgenders against young girls but not for all Americans against radical Islam and a nuclear Iran.

The next post in our 2016 election series addresses political correctness.

Are International Trade Agreements Bad for America? Part 1

George Noga
Trade between nations always is an unalloyed benefit even when workers are displaced
and trading partners manipulate their currency, subsidize exports and use cheap labor.
International Trade – Part 1
By: George Noga – September 12, 2016

        This post and the next one address international trade, including trade agreements such as NAFTA and TPP, which has become an issue in the 2016 election. There are so many myths about foreign trade it requires two posts to debunk them all. Upcoming posts between now and November address several hot-button presidential election issues including: (1) policing in America; (2) political correctness; (3) real versus phony issues; (4) Uber and gay marriage; and (5) economic growth. Stay tuned!

     Both parties and candidates are demonizing international trade making it their bete noire. They have leveled numerous charges and criticisms including, inter alia, the following list. This post and the following one next week will address each of them.

    • Trade agreements are not really free trade but managed trade
    • Trade deals are poorly negotiated and unfair to the US
    • American companies are harmed and workers displaced
    • Trade is competition as in the US versus foreign trading partners
    • Foreign countries subsidize goods being exported
    • Currencies are manipulated and undervalued by other countries
    • Tariffs and barriers are needed to support vital domestic industries
    • Cheap labor is being used to gain unfair advantage
    • The US incurs harmful large and perennial trade deficits

     Tariffs and trade agreements are asymmetrical in terms of perception about those harmed relative to those benefited. Take the sugar tariff; it benefits a handful of big US sugar producers (mainly in Florida) enriching some by $100 million per year. The tariff costs each American (all 320 million of us) $100 per year but is opaque because it is buried in the cost of products – a few cents here, a penny there. Because the benefits are so concentrated and the costs so diffuse, the sugar growers spend a small fortune lobbying Congress for the tariff while there is no broad based popular opposition.

       Trade agreements are the reverse of tariffs; harm to the industry affected is visible, concentrated and immediate whereas the benefits diffused among all 320 million Americans and realized over a longer period of time. Therefore, opposition to trade agreements is populist and political with the industries affected, and of course labor unions, spending a small fortune on lobbying while there is no natural constituency to support the agreements. It is ripe for media and political demagoguery.

      In all cases – tariffs, barriers and trade deals – a small but highly concentrated cohort forces its will on the American people because of politics fueled by money and abetted by media economic illiteracy. In all cases, Americans would be far, far better off without domestic tariffs or barriers and with all trade agreements – even flawed ones. Best of all would be unfettered free trade without any government involvement.

Consider an example – US imports from China – currently $500 billion per year. Let’s say, a arguendo, China cheats by undervaluing its currency and subsidizing exports; moreover, they employ low cost labor. Let’s further stipulate China’s cheating amounts to 33%, i.e. they are dumping $750 billion worth of goods for $500 billion. This is an unmitigated godsend to America which receives a $250 billion gift each year from China – equal to $780 per American or $2,450 per family. The benefits ($2,450 per family annually) far outweigh the costs of some temporarily displaced workers.

     Take the case of Carrier Corp, excoriated by Trump for moving its manufacturing to Mexico from Indiana. It made the move to stave off Asian competition and it enabled Carrier to retain higher paid US jobs in R&D, marketing and high end components.

      In a personal anecdote, I once wanted a Traeger BBQ smoker but never bought one because they were too expensive. Traeger shifted manufacturing to China and the cost plunged so much that I bought one. Sales skyrocketed and Traeger created hundreds more (and better) US jobs than before they shifted manufacturing to China. The new US jobs are in sales, wood pellets, customer service, BBQ supplies and delivery.

The next post is the final part of our analysis of international trade and tariffs.

Hurricane Warning!

George Noga

Hurricane season began on June 1 and provides the common thread for this post. It addresses hurricanes, climate change, price gouging and economics of storms

By: George Noga – June 5, 2016

    To observe the beginning of hurricane season, we address a trio of hurricane related topics: (1) climate change; (2) storm economics; and (3) price gouging. As you have come to expect, our analysis of these issues is not the usual pap you find elsewhere.

Hurricanes and Climate Change

    The last hurricane to hit Florida was Wilma in 2005. This 10-year hurricane-free streak dwarfs the prior record of 5 years that stood for 165 years. This is especially remarkable considering 40% of all hurricanes impact Florida. This decade of  clement weather follows dire predictions by global warmists that hurricanes would be more frequent, last longer, have stronger and more intense winds and cause more damage.

    Warmists also warned of  many more severe weather events worldwide. Munich Re, one of the world’s leading reinsurance companies, performed the first ever analysis of global weather-related losses incorporating normalization adjustments for inflation, population growth, wealth increases and other variables. Its study concluded there was “no statistically significant trend for total weather-related events in the past 20 years“.

    Let’s suppose a hurricane hits Florida. Global warmists and their media sycophants instantly will cite it as incontrovertible evidence of climate change. I hope we avoid hurricanes again in 2016; but if one should hit, brace yourself for the inevitable onslaught of self righteous prattle – but remember, it has been 165 years since there have been fewer hurricanes and weather losses are trending downward worldwide.

Hurricanes and Putative Economic Benefits

    It is a testament to economic illiteracy that this question persists in the 21st century. Yet, in the aftermath of any disaster, the media trot out this fusty canard. A reductio ad absurdum is all that is needed to give it the lie. If a mega-disaster struck destroying everything, we clearly are worse off despite any increased economic activity it may spawn in the short run. Following is an example of the relevant economic analysis.

    Postulate there is a small island with aggregate wealth of $1 million in homes and property. Economic growth is slow and some on the island are unemployed. A storm destroys the entire wealth of the island. The whole population works for one year and succeeds in rebuilding everything. Looking at statistics, GDP was $1 million, much higher than normal, and unemployment was zero. Yet the overall wealth of the island is unchanged and, in fact, is much less than it would have been without the storm.

Hurricanes and Price Gouging

    Americans accept that prices for the same product vary under different conditions. They understand why hotel rooms in small college towns cost more the weekend of a big game and why tickets for the big game cost more than a regular game. We readily accept all these things; why should it be any different following hurricanes?

    Take the case of generators. Entrepreneurs, at some peril, drive to other cities to buy generators to sell for what buyers willingly pay. Some may pay a lot if they stand to lose thousands of dollars of food stored in freezers; some just may want the convenience of electricity. Every decision and price is voluntary and non-coercive. Soon, the price of generators returns to equilibrium. With anti-gouging laws, everyone does without generators; any intrepid souls who supplied them are subject to arrest, public scorn and to pandering by economically illiterate politicians and media.

    There is no such thing as price gouging. Prices in free markets convey accurate, truthful and valuable information about the value of a good or service at a point in time. In contrast, government prices (think: rent control, rationing) always are lies. In which kind of society would you rather live – one based on voluntary cooperation of people in free markets or one based on government lies, force and coercion?

The next post on June 12th revisits the 2016 US national election.

Inequality in America V – Putting it All Together

George Noga

Surprising answers to questions about inequality in America

By: George Noga – May 29, 2016

   Even socialists agree inequality from newly created wealth (even massive wealth a la Gates and Jobs) is an unalloyed benefit to society because it is the best metric for how well an economy is innovating, becoming more productive and responding to the needs of all people. Inherited wealth is mostly dissipated in a few generations, heavily taxed and often used charitably. Last, if Social Security and Medicare benefits were capitalized and included in wealth measurements, inequality would plunge markedly.   At the outset of this series, I promised to explore and to answer many questions about inequality in America based on facts and logic. Following are the answers.

    It is nigh impossible to get an accurate picture of inequality of income due to deeply flawed statistics based on AGI and household income, inconsistencies between income cohorts and flawed comparisons that don’t track the same people over time. One conclusion is certain. Accurate data would show much less inequality of income. Progressives oppose disparity in pay between CEOs and workers but are okay with similar clefts for athletes and movie stars. Steve Jobs took a nearly bankrupt Apple and created $750 billion of value; he made $2 billion, or 0.27%; was he overpaid?

    Data based on spending shows sharply less inequality; the lowest income cohort spends $2 for each $1 of income. There is no inequality based on taxation (including payroll taxes) as America has one of the most progressive tax systems in the world. Nor would a $15 minimum wage reduce inequality; less than 1% earn the minimum and their average household income is $50,000. Young, poor, minorities and the unskilled are harmed by minimum wage laws. The truly poor need jobs not a higher minimum wage. Progressives claim a moral imperative to increase the minimum wage knowing aforehand it creates unemployment. Where is the morality in that?

    The chasm between reality and rhetoric is wide. All measures of inequality, Gini, Theil and MLD, are markedly worse under Clinton compared to Reagan and under Obama versus Bush 43. Inequality is fueled by progressive policies including: (1) tepid economic growth; (2) higher taxation; (3) opposition to school choice; (4) energy policies; (5) ObamaCare; (6) opposition to trade; and (7) spending, debt and deficits. It is progressive dogma that creates inequality despite its self righteous rhetoric.

    All metrics show less inequality in Europe; however, we must ask if that is a good thing or a bad thing. Many Europeans lead lives of quiet desperation with no economic mobility and a permanently moribund economy; they even refuse to reproduce or to defend themselves. Europe produces no innovations in electronics, software, drugs or even pop culture. The former USSR would have scored favorably on measures of inequality as does Botswana; where everyone is poor, there is no inequality. The Gini coefficient for happiness in America is the highest in the world; that says it all!

    There are some things we should do to reduce inequality. Foremost is to stop corporate welfare as wealth created by government is illegitimate. Too big to fail needs to be eliminated as this is but another form of government largess. Capitalism must be based on both the carrot and the stick. Most Americans understand and accept inequality created by the marketplace; their beef is with government playing favorites.

    At its beating heart, inequality is mostly an imaginary problem. The vapid dogma of progressivism is incapable of solving real problems; therefore, it creates a series of phony problems for political maskirovka. As demonstrated in this series, progressives have created the very inequality they now hypocritically rail against. In sum, inequality in America is not a serious problem except when created by government.

The next post June 5th entitled “Hurricane Warning” is particularly pithy.

Inequality in America IV – Reality versus Rhetoric

George Noga

There is an abyss between what progressives say and do. They vehemently condemn inequality while advocating policies that create and exacerbate it.

By: George Noga – May 22, 2016

    There is a staccato drumbeat from progressives asserting there is a grave and metastasizing crisis of inequality in America. In this fourth part of our series, we reveal the specific policies of Obama and progressivism that result in greater inequality.

1. Tepid economic growth is the 900-pound gorilla. Under Obama, coming off a bad recession, there has never been a year with 3% growth. It is the worst economy ever under these circumstances. The lack of growth is due to Obama’s policies for taxes, regulation and health care amidst great uncertainty. A languishing economy coupled with tiny wage gains is radioactive for poor and minorities and exacerbates inequality.

2.  Black youth unemployment is over 50%. Obama refuses to consider a temporary entry level wage. Instead, he wants to increase the federal minimum wage by 40%.

3.  Higher taxes are like steroids for inequality. Obama’s tax increases on dividends, capital gains and small business constrain capital investment and are a death-knell for job creation. His refusal to lower the corporate tax rate keeps trillions locked up abroad instead of financing jobs at home. Tobacco taxes have skyrocketed, disproportionately harming the poor; one pack a day costs $1,000 a year more in taxes – more inequality.

4.  Opposition to free trade is harmful. Obama deserves credit for the TPP; however, progressives led by Clinton and Sanders are demagoguing it to death and want to kill it. The underclass benefits more than any other group from free trade. For liberals however, obeisance to labor unions trumps the welfare of the underclass.

5.  Opposition to school choice keeps poor kids in failing schools. School choice is not only the civil rights issue of our time, it is a potent economic issue. Liberals choose to pander to teachers unions while throwing poor kids under the school bus. Lack of school choice could very well be the number one contributor to increased inequality.

6. Higher prices for food and energy wreak havoc on the poor. Food prices have surged due to Obama and progressive support for ethanol subsidies. Energy takes 25% of the income of poor families but only 10% for a high income household. The average price of a kilowatt hour was up nearly 40% under Obama – until the recent drop in oil and gas prices – which occurred despite, not because of, Obama’s policies.

7.  ObamaCare is a disaster and poor Americans bear its brunt. Health care costs are rising along with taxes to fund it while access and quality of care plummets. Doctor shortages, rationing and death panels will have more impact on the poor. Meanwhile, the legions of 29ers and 49ers are growing due to perverse incentives in the ACA.

8.  Obama’s spending, debt and deficits savage savings. Poor elderly Americans have seen incredibly low interest rates damage their lives. For every $25,000 a retired couple has in savings, monetary policy under Obama costs them $100 per month.

9.  Increasing the minimum wage fuels inequality. Progressives claim a moral imperative to raise the minimum wage knowing it costs poor and minority jobs. The real minimum wage always is zero, and that is exactly what the wage will be for many.

10.  Obama has created a poverty trap. If a low-middle income family with children has a second worker enter the labor force, the effective tax rate on the extra earnings is up to 80% due to phaseout of benefits. Under Obama, the number of single earner households has increased 2.6 million and households with no earners by 5 million.

    Every one of the above factors increases inequality and every one is a creature of progressive dogma. The difference between progressives’ rhetoric and reality is indeed a bottomless abyss. Progressives created the inequality in America they now demonize.

Part V, the final post in this series, is scheduled for May 29th.

Inequality in America III – The $15 Minimum Wage

George Noga

Advocates of the $15 minimum wage agree it is bad economics but justify their support on moral grounds. What is moral about putting poor people out of work?

By: George Noga – May 15, 2016

   The reference in the preheader is to California Governor Jerry Brown. His actual quote is: “Economically, minimum wages may not make sense but morally, socially and politically it makes sense. . . .” The previous year Brown stated raising the minimum wage would “put a lot of poor people out of work“. It seems that for progressives, creating more unemployment among the poor now has become a moral imperative.

    Governor Brown has company. As with all progressive causes, there are two groups of supporters. At the core there always are special interests, in this case labor unions. Many union contracts contain automatic built-in differentials over minimum wage. Unions also support it because it prices the poor and minorities out of the labor market, reducing competition for lower paying jobs. The second group consists of do-gooders who are both soft-hearted and soft-headed; they are, in-effect, shilling for the unions.

    Minimum wage has been a leitmotif in America since 1938 when it began at $.25 per hour. In nearly eight decades since, it has been thoroughly studied by economists and there is virtual unanimity among them that the economic effects are harmful. Economics doesn’t get more basic than when the price of anything (labor) is increased, there will be less of it. Children with lemonade stands understand this. Following are some other things you may not know about minimum wages in America.

1. Minimum wage affects less than one percent of all workers and most who earn the minimum wage do so for six months or less before receiving raises. Virtually no heads of households or full time workers earn the minimum wage.

2. The average household income for a family with someone earning the minimum wage is $50,000. Most receiving the minimum wage aren’t poor; they are spouses or teenagers living at home, like the kid who delivers pizza to buy gas for his BMW.

3. A majority of those in poverty don’t work; they need jobs, not a higher minimum wage. Raising the minimum wage makes it much harder for them to find jobs.

4. The young, poor, minorities and unskilled are disproportionately harmed by raising the minimum wage. Raising the minimum reduces the EITC (earned income tax credit) thereby negating much or all of the benefit of a higher minimum wage.

5. There is consistent and copious empirical evidence that raising the minimum is a death-knell for the poor and minorities; every time it goes up, they lose hundreds of thousands of jobs. With each increase, business has more incentive to automate or to relocate (if it is a state increase) and to put even more people out of work.

    It seems clear enough that raising the minimum wage does not reduce inequality in America; it does the opposite. Even though only one percent of workers earn the minimum, that still amounts to 1.25 million people. The last increase resulted in over 300,000 jobs lost – nearly all poor and minority. That is a recipe for more inequality.

    Progressives claim a moral imperative to raise the minimum wage, even knowing it puts poor people out of work. They do this for their own self esteem. However, the real minimum wage always is zero, zilch, nada and not what progressive kool-aid drinkers deign to make it. And zero, zilch, nada is exactly the wage many more poor people will receive with a $15 minimum wage. I have one word to describe this: immoral!

Part IV of Inequality in America – Reality versus Rhetoric – will be posted May 22.

Inequality in America III – The $15 Minimum Wage

George Noga

 Advocates of the $15 minimum wage agree it is bad economics but justify their

support on moral grounds. What is moral about putting poor people out of work?
By: George Noga – May 15, 2016

    Governor Brown has company. As with all progressive causes, there are two groups of supporters. At the core there always are special interests, in this case labor unions. Many union contracts contain automatic built-in differentials over minimum wage. Unions also support it because it prices the poor and minorities out of the labor market, reducing competition for lower paying jobs. The second group consists of do-gooders who are both soft-hearted and soft-headed; they are, in-effect, shilling for the unions.    The reference in the preheader is to California Governor Jerry Brown. His actual quote is: “Economically, minimum wages may not make sense but morally, socially and politically it makes sense. . . .” The previous year Brown stated raising the minimum wage would “put a lot of poor people out of work“. It seems that for progressives, creating more unemployment among the poor now has become a moral imperative.

Minimum wage has been a leitmotif in America since 1938 when it began at $.25 per hour. In nearly eight decades since, it has been thoroughly studied by economists and there is virtual unanimity among them that the economic effects are harmful. Economics doesn’t get more basic than when the price of anything (labor) is increased, there will be less of it. Children with lemonade stands understand this. Following are some other things you may not know about minimum wages in America.

  1.    Minimum wage affects less than one percent of all workers and most who earn the minimum wage do so for six months or less before receiving raises. Virtually no heads of households or full time workers earn the minimum wage.
  2.    The average household income for a family with someone earning the minimum wage is $50,000. Most receiving the minimum wage aren’t poor; they are spouses or teenagers living at home, like the kid who delivers pizza to buy gas for his BMW.
  3.    A majority of those in poverty don’t work; they need jobs, not a higher minimum wage. Raising the minimum wage makes it much harder for them to find jobs.
  4.    The young, poor, minorities and unskilled are disproportionately harmed by raising the minimum wage. Raising the minimum reduces the EITC (earned income tax credit) thereby negating much or all of the benefit of a higher minimum wage.
  5.    There is consistent and copious empirical evidence that raising the minimum is a death-knell for the poor and minorities; every time it goes up, they lose hundreds of thousands of jobs. With each increase, business has more incentive to automate or to relocate (if it is a state increase) and to put even more people out of work.

It seems clear enough that raising the minimum wage does not reduce inequality in America; it does the opposite. Even though only one percent of workers earn the minimum, that still amounts to 1.25 million people. The last increase resulted in over 300,000 jobs lost – nearly all poor and minority. That is a recipe for more inequality.

Progressives claim a moral imperative to raise the minimum wage, even knowing it puts poor people out of work. They do this for their own self esteem. However, the real minimum wage always is zero, zilch, nada and not what progressive kool-aid drinkers deign to make it. And zero, zilch, nada is exactly the wage many more poor people will receive with a $15 minimum wage. I have one word to describe this: immoral!

Part IV of Inequality in America – Reality versus Rhetoric – will be posted May 22.

Inequality in America II – Income, Taxation and Spending

George Noga

Part II of our series, Inequality in America, focuses of inequality of income.

By: George Noga – May 8, 2016

  There are numerous and mind-numbing statistical methods for calculating income inequality. The Census Bureau alone reports the Gini coefficient, Theil index and MLD (mean logarithmic deviation). Many of these statistics do indeed show more inequality now than in past decades; however, peeking inside the numbers is revealing. Note: Most data herein are from US Census Bureau and BLS reports published in 2013-2014.

   By every measure extant, inequality rose more under Clinton than Reagan – Theil at double and MLD at triple the rate. The same is true with Obama’s first six years vs Bush 43. The Gini coefficient rose triple the rate under Obama; MLD rose 37% more; and Theil is up sharply while it fell under Bush 43. It is not a giant leap to deduce that most of the putative increase in income inequality results from progressive policies.

   Despite all the esoteric statistics, we really know very little about income inequality because all the data are – to use a highly technical term – crapola! Every study is fatally flawed by inconsistencies and limitations affecting source data; the major flaws are:

  1. Statistics are based on AGI (adjusted gross income) and not on all income. Much income is not included in AGI, such as contributions to IRA and 401(k) plans. AGI excludes the non-taxable portion of Social Security, EITC, Medicare, Medicaid and SNAP. Every one of these, if included in AGI, would significantly reduce inequality.
  2. Data use household instead of individual income. This renders all comparisons between time periods and income quintiles meaningless because the number of people per household changes over time and also changes between quintiles. For example, the number of one-person households has sharply increased in recent years (mostly in the bottom income quintile) making it appear there is more inequality among households even though, in reality, there is much, much less inequality among individuals.
  3. Quintiles are inconsistent. The top quintile has 3.2 people per household whereas the bottom quintile has 1.7; the income in the top quintile must be spread among twice as many people as the bottom quintile. It also means there are 25 million more people in the top quintile versus the bottom. Use of household data paints a deeply flawed picture of increased inequality between income cohorts – inequality that doesn’t exist.  
  4. Aggregate statistics don’t compare the same groups. Statistics showing inequality increasing over time don’t track the same people. New people (most poor immigrants) keep entering the back of the line, skewing all data downward. If they tracked the exact same people (and excluded new people), the data would show decreasing inequality.

   Does our tax system result in inequality? In one word, no. The US has one of the most progressive tax regimens in the world. Even Social Security and Medicare are somewhat progressive when taking (as should be done) the benefits into account. Moreover, increasing marginal tax rates on the wealthy would not result in their paying more in taxes – a principle well documented and even codified in Hauser’s Law.

   No discussion of income inequality would be complete without genuflecting to the so-called gender gap. However, economic analysis shows that the gap between incomes of men and women completely disappears when properly adjusting for level of education, type of degree, experience, hours worked and level of danger.

   The Census Bureau also reports data on spending by income quintile. The lowest quintile spends $2 for every $1 of reported income. Some of this comes from the underground economy – which logically is the province mostly of that cohort. If we were to gauge inequality based on actual spending rather than on fatally flawed measures of income, the effect would be a signal decrease in inequality in America.    

The next post in this series on May 15th addresses the $15 minimum wage.

Inequality in America Part I – Wealth and Inequality

George Noga

Is inequality of wealth beneficial or detrimental to society?

By: George Noga – May 1, 2016

    A persistent meme in America during this political season is inequality. We hear it from presidential candidates and Occupy Wall Street; it has been a liberal shibboleth for well over a decade. But what is inequality; is it good or bad; how is it measured; how much is too much; how much is too little; what is the reality versus the rhetoric?

    How much inequality exists in wealth, income, taxation and spending; is it increasing or decreasing? Does increasing the minimum wage alleviate inequality? Which government policies create or exacerbate inequality? How does inequality in America compare to Europe? What, if anything, should we do to increase or reduce inequality? We analyze these questions and more with facts and logic in this five-part series.

    Let’s begin with wealth. Socialists and Utopians want no inequality whatsoever but that has proven disastrous throughout human history. Nor is the paradigm of a few oligarchs or caudillos with great wealth amidst grinding poverty for the masses a desired model. In the real world, there is no Goldilocks point where inequality is just right. So, what, if anything, can we discern about inequality of wealth in America?

    An economic analysis of wealth in a market economy provides some lessons. It is a cardinal economic principle, and one recognized even in the former USSR, that the amount of newly created wealth is a good measure of how well an economy (or society) is serving the needs of all its people. In a capitalist economy, wealth is created by providing a product or service consumers voluntarily buy. Thus, a society minting many new millionaires is a boon to everyone – rich and poor alike – as it proves that the economy is innovating, becoming more efficient and serving people’s needs.

    Dynastic wealth often is viewed differently. Many who accept the nouveau riche rail against old money that was inherited rather than earned. Consider though, that one motivation of the person who created the wealth was to provide for his family and progeny, a universal human sentiment. If wealth was confiscated after the death of the creator, this surely would diminish the incentive to create the wealth in the first place.

    History informs that most dynastic wealth is dissipated within three generations by spreading it over more heirs and by poor stewardship. Furthermore, federal and state estate taxes take a 40% to 50% bite each generation. An additional large tranche of generational wealth is bequeathed for charitable purposes. Foundations (Ford, Hughes, Getty, Rockefeller, Gates, Templeton, et al.) have long played a key role in health, education, the arts, science and improving life for all Americans.

    The dynastic wealth remaining in tact after three generations is truly minuscule due to (1) spreading it over  an ever-expanding pool of future beneficiaries; (2) prodigal spending and poor investment decisions by heirs; (3) estate taxes every generation; and (4) charitable giving. Moreover, it continues to provide investment capital, benefiting the entire economy. Arguably, the acceptance of a modest amount of residual dynastic wealth is a small price to pay for the societal benefits of the original wealth creation.

    A logical deduction is that inequality in wealth is not only acceptable but desirable. People like Bill Gates or Steve Jobs  accrued great wealth because their efforts benefited hundreds of millions, or even billions, of people. Newly created wealth often is in proportion to the number of people benefited. Therefore, we can further deduce that even billionaires accruing great wealth (the top tenth of one percent), and the vastly increased inequality that results therefrom, is beneficial to everyone in society.

Part II  – Inequality of income, taxation and spending will be distributed May 8th.