No, We’re Not Inventing 1973 as the Starting Point for “Income Inequality” Stats
Judging from the comments in a previous post, you’d think that Dave Howden made up the idea that income inequality starting rising in 1973. No, that’s the low point, using the Piketty-Saez figures. Howden didn’t pick that number, progressives typically do when quoting figures. Just from a quick one that I googled:
As Isabel Sawhill of Brookings pointed out in one of the finest studies of income mobility, made with the Pew Foundation five years ago, “from 1947 to 1973, the rate of growth of the typical family’s income was unusually rapid, roughly doubling in a generation’s time. However, since 1973 the increase over a generation’s time has been much smaller, about 20 percent.”
The reason these stats do this, is that it gives them the biggest juice to their numbers. If you want to make Reagan look bad, for example, they’ll do stuff like quote “gains in the top 1%” from 1973-1992.
Whatever rate of growth of the typical family’s income shows, this data is very clear:
http://piketty.pse.ens.fr/files/capital21c/en/pdf/F0.I.1.pdf
Anyone can see that income equality exploded in the early 1980s. The early 1970s and even late 1970s rise are minor and do not depart from the same type of minor changes in the 1950s and 1960s.
It was Reagan’s tax cuts that was a major cause of the explosion in income inequality.
Before or after taxes?
Then why the steep climb (steeper than in the ’80s) during Slick Willy’s reign? He raised taxes.
lK,
Why do you advocate INCOME tax? Income tax is not a WEALTH tax.
I grew up POOR and am remain poor yet every time I raise my income, your beloved guberment swoops in and confiscates 39%. You tax my labor not my wealth.
My net wealth is a negative number.
Why?
He does that because government taking your income/wealth away and spending it, ostensibly on welfare and infrastructure building, can and does lead to greater overall well-being.
Yes, it is true that reducing theft from the wealthiest, will statistically result in them having more take home income and thus statistically would increase inequality.
But that’s not the only cause for inequality.
Reductions in taxes is a “good” cause for inequality, but the resulting taxation scheme would still be bad, the same way eliminating rapes for all 25 year olds would be a “good” while the remaining rapes would still be bad.
Inflation on the other hand is a “bad” cause for inequality, as it is based on coercion and not consent.
The latest “round” of increasing inequality began, according to the chart, in the early 1970s. That was the low. Just because the rate of increase in inequality was relatively lower, it doesn’t mean an absence of an increase.
LK and Philippe are both claiming “the early 1980s” for political ideology reasons, not factual data.
If you are talking about the data I linked to, the low point came in the early 1950s, and the fluctuations in band (32%-37%) owing mainly to minor tax rate changes do not prove some major round of increasing inequality began at any point until the early 1980s when Reagan’s major changes happened.
Anyone who can read graphs can see this for himself. Oh, wait, we know M_F can’t read graphs.
When the signficant increase in deficit spending began.
Apparently you can’t either because you refuse to explain why inequality exploded in the ’90s after Clinton raised taxes.
Because Reagan’s major cuts to the tax rate for the highest income earners continued into the 1990s. Simple.
Yet the average standard of living of the entire society increased, so I guess its irrelevant?
Wrong.
Bush raised taxes on the highest income bracket in 1990 from 28 percent on incomes over $29,750 to 31 percent on incomes over $82,150.
In 1993, Clinton raised the top tax rate to 39.6 percent on incomes over $250,000, and that rate stayed in place until Bush II cut them.
http://www.irs.gov/uac/SOI-Tax-Stats-Historical-Table-23
Care to try again? Simple, is it not?
lol.. changes of 28-39% in the highest tax rate are minor compared to the 90%-70% rates that existed from the 1940s- early 1980s before Reagan.
Lol, ya, when you ignore the loopholes.
LOL so now it’s the percent change in the increase in taxes that make inequality explode, not just that taxes were raised.
You also said that Reagan’s tax rates stayed the same during the ’90s!
You are pathetic.
I misunderstood your comment.
Yes, the rates were lower but the income group was much higher. In 1945, for example, the top tax rate was 94 percent – on incomes over $200,000. Adjusting for inflation, today that would be on incomes over $2.6 million.
At Reagan’s lowest point of 28 percent (1988), the top income group was $29,750, which in today’s dollars is ~$60,000.
This is too easy.
This is easy. You had a perfect storm with internet based startups and the panic over Y2K.
Stock options and outsized gains in the market were a huge.
Companies were spending millions of dollars upgrading to Y2K compliant hardware OR paying college grads insane amounts of $$ to rewrite code so it was Y2K compliant.
The hangover wasn’t until after Cliton left office.
LK,
I said the latest round of increasing inequality. That is, local min.
Sure, if you back further, then there are lower mins.
The point is, 1970 inequality was lower than 1980 inequality, according to the chart.
That is the fact. If you dispute this, then YOU can’t read charts.
The trend in the of increasing inequality over the past 30 years began after Reagan tax rates changes. That is fact.
And, yes, the minor fluctuations from 1940s to the early 1980s are within a band of 32%-37% and showed no long run trend upwards but stability until the early 1980s.
I expect you are going to tell us that Reagan’s tax cuts had nothing whatsoever to do with this data?
You mean if we limit the range to 30 years, and we see a rising trend in those 30 years, that inequality has increased over the last 30 years?
Lololol
How about if we expand the range to the last 40 years? OMG, inequality has been rising for 49 years!
9 should be a 0.
Did Reagan’s tax cuts have a role in this inequality data and the steep rise after 1981?
Yes or no?
This is almost as funny as the typical Keynesian claim on the total absense of depressions from 1945 to 2008.
in other words, too cowardly to answer the question?
Are you bling LK?
I already said that yes, if you tax people more if they earn more, then removing said taxes would statistically result in a return to inequality.
But you have to be aware that there is more than one cause for inequality.
Reducing taxes for all, or towards an equal percentage, is a “good” cause, whereas inflation is a “bad” cause, because the former is based on peace and productivity whereas the latter is based on coercion and violence.
Look at real and relative wage stagnation charts. Early 1970s just like this chart on this board.
LK:
Do try to give me MORE THAN A MINUTE TO ANSWER YOUR QUESTIONS
“I already said that yes, if you tax people more if they earn more, then removing said taxes would statistically result in a return to inequality.”
All your rubbish above has just collapsed.
Yes, the tax system has a big influence on income inequality.
The 1940s to 1981 had a tax system with large taxes on high income. That is why the data shows a stability in that era with minor fluctuations in the band 32%-37% and no long run upwards trend.
Those high taxes were consistent with very strong economic growth in that era — the best per capita GNP growth in the modern era, not just in the US but all over the Western world , where taxes rates on high income earners were quite high.
The turning point in the US came after 1981, with Reagan’s tax reforms.
LK:
“All your rubbish above has just collapsed.”
No it hasn’t, and I challenge you to show how it does.
Crickets I imagine.
“Yes, the tax system has a big influence on income inequality.”
No, what you mean by that is that the PRESENCE of productivity differences would, in the absense of unequal taxation, lead to income (after tax) inequality.
If A is twice as productive as B, and earns twice the income, and neither A nor B steal from each other, or let us even assume that A taxes B one cent a year, then it would be absurd to say that the theft system between A and B is responsible for the inequality.
No, the inequality is the result of differences in ability and economic value production.
Similarly, if taxes on the highest income earners “collapses” from a draconian 70% to a “paltry” 35% or whatever, such that the tax rates are more equal across the board, which allows differences in productivity to manifest in statistical inequality, then it would also be absurd to attrbute the cause of this to an absence of something. The cause is the PRESENCE of productivity differences.
“The 1940s to 1981 had a tax system with large taxes on high income. That is why the data shows a stability in that era with minor fluctuations in the band 32%-37% and no long run upwards trend.”
You are ignoring the loopholes.
“Those high taxes were consistent with very strong economic growth”
What the heck do you mean “consistent with”?
Do you simply mean it co-existed? Really? Correlation is now causation?
Economic growth takes place DESPITE taxation, not because of it.
If taxes were even lower than they were, then economic growth would have been even higher than it was. Even Christina Romer agrees with this.
LK, please don’t tell me that you believe taking people’s money from them enables them to produce more.
“The turning point in the US came after 1981, with Reagan’s tax reforms.”
No. you have already admitted that inequality was lower in 1970 than in 1980, which means the turning point was no later than 1970.
“If taxes were even lower than they were, then economic growth would have been even higher than it was.”
That does not necessarily follow.
There are significant differences in the marginal propensity to consume between lower and higher income earners.
Given this, highly progressive rates rates and wealth redistribution increases demand for output, and in a world of mostly mark-up prices and firms responding to demand signals, more demand means more production and more real wealth.
Yet again we have no reason to believe your libertarian fantasies.
“Similarly, if taxes on the highest income earners “collapses” from a draconian 70% to a “paltry” 35% or whatever, such that the tax rates are more equal across the board, which allows differences in productivity to manifest in statistical inequality, then it would also be absurd to attrbute the cause of this to an absence of something. The cause is the PRESENCE of productivity differences.” Major_Freedom, you seem to be using the cause in a way that I’m not familiar with. At least in my understanding of what cause means, “A caused B” roughly means “A happened before B, and if A had not happened then B would not have happened”. Do you have a different definition of cause?
LK:
“That does not necessarily follow.”
It follows from economic theory, and the data is entirely consistent with it.
There is no sound economic theory that taxation is stimulative.
“here are significant differences in the marginal propensity to consume between lower and higher income earners.”
Keynesian gobbledygook.
Consumption shrinks economies.
Savings and investment increases economies.
Period.
“Given this…”
…falsehood…
“Highly progressive rates rates and wealth redistribution increases demand for output”
A higher real demand for output comes at the expense of a higher real demand for inputs, and it is real demand for inputs that grows economies.
“and in a world of mostly mark-up prices…”
Blah blah blah, everything else you say is also false.
Yet again we have no reason to believe your anti-libertarian fantasies.
Keshav:
Yes, I do have a different definition of cause than the post hoc ergo propter hoc fallacy.
Major_Freedom, the post hoc ergo propter hoc fallacy would be to say that “A caused B” simply means “A happened before B”. But what I’m suggesting is that “A caused B” means “A caused B AND if A had not happened, then B would not have happened.” Do you disagree with that, and if so why?
Keshav, you just deleted “A happened before B”.
Now you’re saying A caused B means…”A caused B (which is weird, because it’s tautological) AND if A had not happened, then B would not have happened.”
Even if B does not occur if A did not occur, that is not enough to know A causes B, for there could have been a C that caused D, where D eliminates B due to D and B being mutually exclusive, such that B would have occurred if A and D did not occur.
Well, liberals tend to consider inequality to be bad as such, independent of what caused it.
Not only are they unconcerned with causes, but they are also apparently unconcerned with effects, seeing as they ignore the average increase in the standard of living of the entire society. Can you please point me to a demonstration of why inequality in itself is the proper end of policy?
“liberals tend to consider inequality to be bad as such”
I don’t know any liberals who say that everyone should have the same income and wealth.
I don’t know of any liberals who are aware of the logical conclusions of their economic equality advocacy.
No, I didn’t mean that liberals consider any inequality at all to be bad. I just meant that they consider high inequality as such to be bad, as opposed to just being bad because of what caused it.
High meaning according to what principles exactly?
Only a certain amount of “bureaucrat approved” inequality is Ok then? What, o what, my dear boy, is this amount? Inquiring minds want to know.
It may determine my next place of residence…
So make the case for inequality or at least point me to somewhere. All you do is beg this question. You say liberals don’t consider inequality to be bad in itself, yet you don’t show anything to support this view.
“yet you don’t show anything to support this view”
As I said I don’t any liberals who think everyone should have the same income and wealth. Not having the same income and wealth implies inequality.
Philippe… you are begging the question yet again.
If they don’t see inequality as bad in itself, then explain (or provide something) the importance of the issue.
eating food is not bad, but eating food until you become obese is bad.
So inequality is good, as long as it is within the limits of progressive sentiment, whatever it happens to be?
Is this a metaphor? Why are you being so elusive?
I don’t want to engage in guessing what the particular aspects of this metaphor is referring to. Just explain it.
I didn’t think it was complicated. If someone is opposed to extreme inequality that doesn’t mean they are opposed to all inequality. Liberals tend to be concerned with extremes, and perceived unfairness or injustice.
“Liberals tend to be concerned with extremes, and perceived unfairness or injustice.”
This is called kicking the can down the road. Can you guess which question you are begging here?
I’m not begging the question, just explaining that liberals can be opposed to certain types of inequality without being opposed to all forms of inequality, or inequality in itself.
Certain types meaning according to subjective opinion not constrained to any principle, just emotion.
Wow! This is a truly insane roadblock Philippe.
“liberals can be opposed to certain types of inequality without being opposed to… inequality in itself.”
So if they aren’t opposed to inequality in itself then explain why they are opposed to it.
there is absolutely nothing insane about my comment.
“So if they aren’t opposed to inequality in itself then explain why they are opposed to it”
Are you capable of understanding that it is possible to be opposed to something in a certain form, but not necessarily in all forms. For example it is possible to be opposed to eating to excess whilst not being opposed to eating per se. Are you capable of understanding that point.
I did not say it was impossible. That is not an answer. I asked:
“why they are opposed to it?”
You said:
“it is possible to be opposed to something in a certain form, but not necessarily in all forms.”
Again, that is not an answer to the question. Simply answer the question and I will not call you an insane person.
“why they are opposed to it?”
They tend to be opposed to extreme inequality or unfair/unjust inequality, not inequality per se. Do you understand this point.
Is your question why are they opposed to extreme inequality? There are different reasons, which also depend on the context. If most have very little whilst a small group are drowning in riches this could be seen as unfair or unjust. The ideal is assumed to be a world in which most people do well, not just a small group.
Excessive wealth concentration can also lead to capture and corruption of government, see this comment by Mark Thoma for example:
http://economistsview.typepad.com/economistsview/2014/06/the-rich-have-advantages-that-money-cannot-buy.html
“this could be seen as unfair or unjust.”
This is more kicking of the can.
“The ideal is assumed to be a world in which most people do well, not just a small group.”
You have not demonstrated why extreme inequality would imply this.
“Excessive wealth concentration can also lead to capture and corruption of government”
This is an actual answer, congratulations. You could have pointed to this much earlier.
I get the impression you actually have difficulty understanding what I write.
It is not kicking the can to say that people believe something is unjust after having described that thing. You initially expressed complete incomprehension at why liberals are opposed to inequality in itself. I had to patiently explain to you that this is not actually the case as you have apparently never been confronted with this idea before.
“You have not demonstrated why extreme inequality would imply this”
It is not my job to explain everything to you. I described a situation in which most have very little and a few are drowning in riches, and that this could be considered unjust.
“It is not kicking the can to say that people believe something is unjust after having described that thing.”
Of course its kicking the can. You are begging a further question as to the reason for it being unjust.
“It is not my job to explain everything to you.”
A larger difference in wealth does not automatically imply the lower end has decreased in absolute terms, only in relative terms. This is the implication when you say “just a small group” have benefited when in fact both groups have become wealthier.
as I said it depends on the context.
What context? Liberals aren’t giving any. They are always just complaining about inequality, period.
Philippe:
You just keep using different words for the same undefined concept of “significant” as in significant inequality.
You are not answering the challenge by simply saying “by significant I mean large, and by large I mean extreme, and by extreme I mean…”
Get the picture yet? What is the principle for when inequality goes from “tolerable” to “bad”? You aren’t defining your terms. You’re dodging and saying evasive things like “it depends on the context”, which you are also not defining by the way.
“as I said it depends on the context.”
Philippe, you CANNOT tell me that you are not begging the question here right?
You are an insane person. I recommend taking antipsychotics. I would like everyone to take note my attempt to reason with this person has failed. He says he has not begged the question for our entire conversation, which is a delusion as shown here.
Yes LK, the data is very clear. The increase in inequality began in the early 1970s, as that was the low point, and kept on increasing since.
But isn’t the graph almost flat in the 1970’s?
But isn’t the graph almost flat in the 1970’s portion?
Isn’t there an increase?
There’s some increase in the 70’s, but it seems to be really minor. The graph is almost flat. It looks like the sort of routine fluctuations that was there even before the 70’s, as opposed to the clear and sustained rise that happens later on.
An increase is an increase is an increase, Philippe.
Credit expansion accelerated in the 1980s, which also contributed to income inequality.
Major_Freedom, let me put it this way: what do you think would happen if we graphed the slope of the graph, i.e. the time derivative of the graph? Don’t you think that it would be very close to zero during the 70’s, and then a large positive value during the 80’s?
I prefer a 5 period lag GARCH model with a seasonal adjustment and a qualititative variable for political ideology.
Then we will see the theory in the data.
the low point was in the 1950s, not the 1970s.
Glad you too admit 1970 inequality was lower than 1980.
according to that graph it was lower in 1980 than in the late 1960s.
Glad you admit it wasn’t just Reagan.
Plain lying about your opponent’s beliefs shows intellectual bankruptcy.
Not a lie LK, because Reagan wasn’t President in the 1960s.
I haven’t mentioned Reagan.
Clinton didn’t mention a cigar.
No, it did not: the low point came in the early 1950s, and even then the minor fluctuations showed no long run trend upwards or downwards but stability until the early 1980s.
LK,
Glad you agree inequality was lower in 1970 as compared to 1980, lol.
That is true but a red herring.
The question is: why the explosion in inequality after 1981?
I expect M_F thinks the Economic Recovery Tax Act of 1981, and its major changes in high income tax rates, had nothing to do with it.
It was all a mysterious accident!
True and not a red herring. Inequality changes is the topic LK.
Please try to keep up.
Funny for LK to mention red herrings since his contention is only one possibility out of many (in his system). What about other possible explanations? We will just decide to ignore these… for some reason…
I just can’t stop chuckling at how first we were told that inequality started rising in 1980, and now all of a sudden we’re being told the 1960s.
Almost as if there is an aversion to the early 1970s.
Hilarious.
Not only that!
Their contentions can be shown wrong from the very beginning by picking an even smaller bracket than 1% as shown by Murphy:
http://mises.ca/posts/blog/dont-trust-piketty-or-krugman-on-inequality-evidence/
And ultimately coming from this paper:
http://www.nber.org/papers/w10399.pdf
So we don’t even have to admit inequality rose whatsoever! It remained basically flat throughout the second half of this century!
according to that chart inequality was roughly flat on average through the post-war period until the 80s. Not completely flat of course. Then in the 80s you can clearly see a large and sustained rise which is unprecedented in the post-war period. This then continues through the 90s, and mid 2000s.
Reagan raises taxes. There was an increase in inequality. Guess we should decrease taxes then, right?
Or am I forgetting that any decrease in state power is the wrong conclusion?
Hank, Reagan reduced taxes on net. He cut them dramatically and then raised them by a small amount.
Philippe:
According to that chart, inequality was lower in 1970 than it was in 1980. Thus, according to that chart, inequality began rising starting at least 1970.
it was lower throughout the 70s than it was in the late 60s, which means an average fall, not an increase.
Any normal person can see that it is roughly flat on average through the post war period, with some fluctuations. Then in the 80s there is a large and sustained increase which is unprecedented in the post-war period. This is obvious.
Keshav,
Since I thought it was generally accepted that Reagan’s 1981 tax cut effectively raised taxes through bracket creep and social security, I think it lies on you to prove otherwise.
Philippe:
It was lower in 1970 than it was in 1980, which means the inequality increase started prior to 1980.
Any normal person isn’t trying to advance a political ideology of anti-Reaganism would readily admit this.
Notwithstanding all of this, credit expansion accelerated significantly during the early 1980s as well. The debt boom. That adds to inequality.
it is very obvious that you are the ideologue here.
Philippe:
It is as obvious as obvious can be that you are an ideologue.
I am just describing the statistical facts, of when the changes occurred. You even agree with me on this, you just want to communicate it differently, using such terms as “minor”, or “relatively flat”, so as to maximize the appearance of evil post 1980 politics.
“You even agree with me on this”
I don’t agree with you. I said that the low point on that chart is in the 50s. Only an ideologue would argue on that basis that rising inequality started In the 50s.
Philippe:
I meant you agree with me that inequality was lower in 1970 than it was in 1980.
It is only AFTER I brought up that obvious point that you switched gears away from saying inequality has increased post 1980, to the 1960s instead.
Anything to avoid the 1970s, righ? Lol
MF, the thing that cracks me up about this whole debate is the fact that libertarians have no dog in this fight, ideologically speaking. What difference to libertarianism does it make if a rise in inequality started in 1950, 1960, 1970, or 1980? For that matter, libertarians don’t give a shit about inequality to begin with. As long as you don’t take my money by force, I don’t care how much you make through peaceful means.
Besides, we’re not the ones who wanted to bailout a bunch of extremely wealthy bankers because they were going to take some losses.
Dan, you’re right.
Still, it’s fun to fly over the cuckoos nest.
MF,
“anything to avoid the 1970s”
No, the argument presented on this site was that rising inequality is due to the US closing the gold window and floating the dollar. If you look at the chart I linked to there is no evidence there to support that claim. The line is flat through most of the 1970s, then there is a rise in the late 70s which brings it up to a level below that which existed before the 70s in the post-war period. Then in the 80s there is a massive rise which is unprecendented in the post-war period, taking it up to level way above that which existed through the 1945-1980 period.
Philippe:
“If you look at the chart I linked to there is no evidence there to support that claim.”
Sure there is. Inequality did indeed increase from 1971 to 1980. And, real wages began a secular stagnation around that time (1971) as well.
You are only trying to dismiss this because you’re stuck between a rock and a hard place.
On the one hand, you want an inflationary system because you believe cash hoarders should be punished as evildoers, and you believe inflation is needed for “the little guy”, so that when corporations refuse to pay wages, the benevolent government doctor can swoop in and save the day by inflation financed welfare, cheaper money, etc.
On the other hand, you would therefore have a percieved need to find ways to minimize or dismiss any evidence and/or argument that would suggest inflation INCREASES income inequality. Ergo, you feel a need to dismiss the rise in inequality since 1970, because to even admit it took place, you would then be faced with having to explain it without blaming Reagan and lower tax rates.
Philippe:
The same reason you don’t know.
“It was lower in 1970 than it was in 1980, which means the inequality increase started prior to 1980.”
This is wrong. 1970 may have been just a low year. Having a graph rather than a table means you can see the trends more easily.
Overall, there is a gentle upward trend from 1955-1968 of about 0.08% / yr. then a sharper fall from 1968-1973 of about 0.22% /yr, then pretty flat until 1978 followed by a sharp rise of about 0.66% / yr from 1978 onwards.
The rise from 1970 to 1971 may not be part of the rise from 1978 onwards. It is incorrect to say that because 1970 was lower than 1980 “the inequality increase” started in 1970.
Yeah, that’s why we have graphs, to see the trend.
http://upload.wikimedia.org/wikipedia/commons/0/0f/Share_top_1_percent.jpg
Clearly 1970 is not just a low year, there’s a flat area from about 1970 to 1973 which very obviously is the bottom of a broader “dish shaped” curve from about 1953 to 1985 to there abouts.
I don’t trust Piketty’s graph directly because he is known to cook his data.
Hmmm, I note on close inspection that the Wikipedia data ALSO comes from Piketty.
Double Hmmmm, during the second Regan term he introduced the “Tax Reform Act of 1986” which actually did a bunch of things, it reduced the top tax rates, but also removed a lot of tax shelters and tax deductions.
Since just about all of the available data for these charts comes from Emmanuel Saez and Thomas Piketty, and since those two based their study on IRS data… you don’t think perhaps it really could be all back to Regal after all… but not in the way the Socialists are claiming.
The simplest explanation that fits the facts is that with a lot of tax shelters removed and tax deductions disallowed, we simply had larger taxable incomes declared. That’s why it suddenly jerks up around 1986.
Another day, another case closed. What do you say, Detective Data Sniffter?
“Woof!”
Harold:
“This is wrong.”
No, it’s correct.
“1970 may have been just a low year. Having a graph rather than a table means you can see the trends more easily.”
A trend is a time period in which there is a pattern.
The pattern from 1970 to 1980, and 1980 to 1990 and 2000, is a rising trend BY DEFINITION.
“Overall, there is a gentle upward trend from 1955-1968 of about 0.08% / yr. then a sharper fall from 1968-1973 of about 0.22% /yr, then pretty flat until 1978 followed by a sharp rise of about 0.66% / yr from 1978 onwards.”
Pretty flat = rising trend without saying rising trend because of a desire to advance a theory of taxation and inequality.
“The rise from 1970 to 1971 may not be part of the rise from 1978 onwards. It is incorrect to say that because 1970 was lower than 1980 “the inequality increase” started in 1970.”
No it isn’t. It is correct to say that.
I would like to point out the usual selective use of facts. According to LK’s worldview, Reagan’s tax cuts were the “major” cause. Of course, actions such as Nixon’s severing the connection to gold or any federal reserve action is probably not a “major” cause. What qualifies as “major” in this case is 100% ideological, not based on any standard or perhaps an arbitrary standard based on his own opinion. Yet, as you may have heard, LK says he is a non-ideological empiricist, which is an obvious oxymoron in the context of economics. You may chalk this down as another illustration of this fact.
He also won’t explain the rise in inequality during the Clinton years when taxes increased.
Clinton’s tax changes relating to high income earners in 1993 were minor and essentially continued the large reduction in such rates under Reagan:
“Previously the top individual tax rate of 31% applied to all income over $51,900. The Act created a new bracket of 36% for income above $150,000, and 39.6% for income above $250,000”
http://en.wikipedia.org/wiki/Omnibus_Budget_Reconciliation_Act_of_1993#Specifics
Looking at the data, there was also a rise in the amount of federal regulations overall. I guess the data speaks for itself here.
“there was also a rise in the amount of federal regulations overall”
There was substantial deregulation in certain areas, such as finance
Yes Phillippe I am aware.
You are missing my broader point. You see, I was mocking a particular method of argumentation through my cherry picked stat.
You cannot just bring in a historical fact and just say “there’s my point,” without any supplementation.
This demonstration shows why the science of economics does not rely on mere generalizations based on facts. The fact you MUST explain their relevancy demonstrates the necessity of an a priori theory.
Therefore, I don’t care about your data point unless you describe the connection you are implying.
Deregulating the banks in a fiat system is actually an increase in centralized power, because it reduces the constraints on inflation.
Reagan’s top bracket started at $29,750, which in today’s dollars would be ~$60,000. By today’s standards, many people would be in the top income bracket, me included.
Reagan a tax cutter? Don’t make me laugh.
http://thinkprogress.org/politics/2011/02/05/142288/reagan-centennial/
Reagan raised taxes 11 times, tripled the federal budget deficit and expanded the size of fed.gov.
Yeah, a real Austrian, that guy.
LK,
Your chart seems to perfectly demonstrate Bob’s point that income inequality starting rising in 1973.
Perhaps the fact you “know” the real cause was Reagan’s tax cuts stops you from seeing this ?
It’s a little bit late, but I want to explain why Lord Keynes is wrong. He is wrong on two accounts. First, although he is right that the data on top income tax rate shows large cut after 1979-1980 and remained as low even after the Reagan-Thatcher era (See here), he is wrong when we consider that before and after tax, the trend in top incomes is virtually the same. See here. Second, there is a much better explanation than this. Since 1980s, the top 1 and 0.1 percent incomes have rised more among the financial and real estate jobs. See here.
http://en.wikipedia.org/wiki/Great_Divergence_(inequality)
The number one reference is Paul Krugman, so you know it’s the real deal.
To answer Andrew’s question above, the graph shown lists “Share of pre-tax household income” and looks very similar (but not identical) to Piketty’s graph. It is indeed a good question as to how tax cuts could cause pre-tax income to shoot up, I would expect the opposite since with lower taxes the incentive to work is greater… but there you go.
the graph on that Wikipedia page shows an increase in the 80s, continuing on through the 90s and beyond. Before that it’s basically flat.
The graph shows a declining inequality until the 1970s, and then a rising trend thereafter.
Incorrect. There was a rise in the late 60s, but we’re not interested in slight rises.
Philippe, right, especially when the tax system was highly progressive in this era and only minor changes in it happened here and there.
Glad you admit again that 1970 inequality was lower than 1980 inequality.
Phillipe
LK
Did I get that right? We should refuse to see a rise in inequality, for any era where the politics doesn’t fit the desired narrative?
Empiricist huh?
Tel,
“Did I get that right?”
No, as usual.
How is it wrong?
Can anyone explain why a highly progressive era in politics should change the way we read a graph?
Or does it just change the things we are interested in seeing?
False. The bottom is in the early to mid 1970s according to that chart.
Yes, we are concerned with changes in inequality, not just the change since 1980.
To me it looks as though the rise starts at about 1977/78 after a flat period in the 1970’s. No matter where the lowest point is there is a sharp increase in gradient at the end of the 1970,s.
Looks to me that 1970 is lower than 1980.
1970 IS lower than 1980. That does not mean that the trend through the 1980’s started in 1970. All it means on its own is that 1970 was lower than 1980.
If 1970 was lower than 1980, and 1980 was lower than 1990 and 2000, then yes, I can say that there is a rising trend that started prior to 1980.
I’ll leave it to you to explain to Krugman how he’s wrong.
http://krugman.blogs.nytimes.com/2007/09/18/introducing-this-blog/
Yes Krugman does go on to blame tax cuts for causing pre-tax income to rise. Da inequality!!!
Taxes.
IF people and corporations paid for services rendered and consumed, rather than the current tax structure, I wonder how much some tax bills would be and how this would effect wealth?
If we moved to a 100% free market, the big producers and big consumers would pay the lions share. Roads, and other infrastructure is not cheap.
I will start talking to the equality pushers when they can tell me why the world would be better if the Relative-Rich-In-A-Particular-Geographic-Area-That-Ignores-Real-Poverty were poorer.
I honestly don’t understand people who care about inequality to begin with. People who whine about it just sound like a bunch of envious thieves.
Dan – I have been an economist for over 30 years and still can’t figure out why anyone would care about income inequality in a relatively free market. Sure, if you live in a kleptrocracy or a police state inequality is a good measure of corruption, but the fact that Bill Gates is worth zillions should be of no concern to anyone from an economic standpoint.
Of course the Keynesian types will babble something about marginal propensity to consume, but the idea that economics is about consumption and not production is hokum.
In the end, income inequality is a pretty irrelevant indicator. I can be a law student at Harvard with no income but that does not mean that I will not eventually be a partner in a white shoes firm later in life and at the top of the income scale.
The real debate is about fair and proper ways to collect taxes, or how government policies impact inequality (generally by favoring one group over the other) but that is something different than general changes in the Gini Coefficient.
“Keynesian types will babble something about marginal propensity to consume, but the idea that economics is about consumption and not production is hokum”
Bingo.
Ultimately this desire of reversing economic reality stems from a particular philosophical view of man. The Keynesian doctrine is propelled by the tide of irrationalism, of the decline in the confidence of human reason. It is no coincidence whatsoever that LK is hostile towards rationalism. In this view, man is essentially no different from the lower animals. On such a view, it therefore follows that man’s needs and desires are not “naturally” significantly different from the lower animals either. The fact that man’s needs and desires do extend beyond that of the lower animals is held to be caused by “social conditioning”, advertising, artificial desires, etc.
In other words, the needs and desires to consume are fundamentally fixed, and that the ability to produce constantly poses a threat to outrun them.
This undercurrent is the only reason Keynesianism was able to get out of the laughter bin and into mainstream discourse. Keynesianism could never have arisen during the age if reason. Economists at the time demolished all species of consumptionism that popped up. It wasn’t until the philosophical attacks on reason became so pronounced that it infiltrated economics, could the rot of Keynesianism fester.
It is because I purposefully seek out those who disagree with me. Of course “most people” I debate would find me wrong. I am bringing that statistic about!
By your comment, it is clear that younare not concerned with truth, but rather consensus. To you, a lot of people disagreeing must mean there is something wrong with what you’re saying. But that isn’t the standard for truth.
And made up? What does that even mean? Like if it weren’t for me, then the statements I make would not otherwise have been made? Or are you just claiming what I am saying is false? If the latter, then again, YOU HAVE NOT SHOWN what I said to be false.
This is coming up a lot lately. “the decline in the confidence of human reason.” “In this view, man is essentially no different from the lower animals.” What does this mean?
See, that “essentially” is a can of worms. The physiology of humans is pretty much the same as the physiology of other mammals. So you could say that man is “essentially” the same as animals. Or you could say that the essence of man is intellect, and say that “essentially” man is different from animals. Neither is wrong, but it does not tell the whole story to say man is either essentially the same or essentially different from animals.
Clearly we share some things with animals and do not share other things. We share more with chimps than with dogs and cats, and more with these than with lizards.
Chimps, dogs and other animals have quite complex behaviours. MF siad in a recent post ““For humans, you must have the idea to eat. You don’t eat automatically. If you don’t think of picking the fruit, or harvesting the crops, you won’t eat.” Does this apply to chimps as well? Or to dogs?
Man is different from chimps, dogs and cats. But when it comes to eating they all exhibit pretty similar behaviour. There is a strong argument that for basic drives like eating, man is essentially the same as chimps and dogs.
Where do you stand on these things, MF?
Harold:
“This is coming up a lot lately. “the decline in the confidence of human reason.” “In this view, man is essentially no different from the lower animals.” What does this mean?”
It means the abandoment of philosophical Rationalism from mainstream philosophy, the rise of monistic materialism, and the resulting cultural devaluation of man.
Reason is the primary distinguishing feature of mankind. To abandon reason leaves mankind with the appearance of man being essentially no different from other animals. Yes, there is still an acceptance of difference, but it is a radically different type of difference. Man is now viewed in the mainstream as different from chimps the same way chimps are viewed as different from orangutans, rather than fundamentally different by virtue of reason. You see this everywhere now. I often hear people say to the effect that we’re just a somewhat smarter breed of chimp. That human reason is not as special as prior philosophers believed.
“See, that “essentially” is a can of worms. The physiology of humans is pretty much the same as the physiology of other mammals.”
You see that? You are doing it too. You’re saying “pretty much” the same. You too are thinking in line with the mainstream devaluation of mankind, and as a result, you are a priori more hostile to all thought grounded on Rationalism, including economics (meaning praxeology, or the “Austrian” school of thought).
“So you could say that man is “essentially” the same as animals.”
I don’t see how that “So” is justified. We are radically different from all other animals on Earth. Maybe we’re essentially the same as a particular race of intelligent aliens, but nothing on Earth is anywhere close to us in our cognitive faculty.
“Or you could say that the essence of man is intellect, and say that “essentially” man is different from animals. Neither is wrong, but it does not tell the whole story to say man is either essentially the same or essentially different from animals.”
If you are aware of the fact that it is our reason of which I am positing is that which makes us “essentially different” from other animals, then that tells enough of the story. I don’t intend, nor could I, tell you the WHOLE story.
“Clearly we share some things with animals and do not share other things. We share more with chimps than with dogs and cats, and more with these than with lizards.”
Won’t disagree.
“Chimps, dogs and other animals have quite complex behaviours. MF siad in a recent post ““For humans, you must have the idea to eat. You don’t eat automatically. If you don’t think of picking the fruit, or harvesting the crops, you won’t eat.”
“Does this apply to chimps as well? Or to dogs?”
I don’t know, but I don’t have to know that, before I can know whether or not I have to think of eating,
Man is different from chimps, dogs and cats. But when it comes to eating they all exhibit pretty similar behaviour. There is a strong argument that for basic drives like eating, man is essentially the same as chimps and dogs.
Where do you stand on these things, MF?
Dang, hit submit too early.
“Chimps, dogs and other animals have quite complex behaviours. MF siad in a recent post ““For humans, you must have the idea to eat. You don’t eat automatically. If you don’t think of picking the fruit, or harvesting the crops, you won’t eat.”
“Does this apply to chimps as well? Or to dogs?”
I don’t know, but I don’t have to know that, before I can know whether or not I have to think of eating, in order for me to eat.
“Man is different from chimps, dogs and cats. But when it comes to eating they all exhibit pretty similar behaviour.”
The goal of my argument is to establish what is true for humans, not how we are similar to other animals.
Yes, from an observational perspective, eating looks the same between man and chimps. But regardless of what is going on in the brains of chimps, I know what is going on in my mind when I eat. It is the idea of eating.
“There is a strong argument that for basic drives like eating, man is essentially the same as chimps and dogs.”
There is a stronger argument to be made that if a hungry human doesn’t think to eat, then he won’t eat. If I just sit on the floor, food isn’t going to magically appear in front of me. I have to have the idea of eating, if I am to eat.
“Where do you stand on these things, MF?”
Hope I answered to your satisfaction.
Thank you MF for the detailed reply. I will get back after some thought.
“Reason is the primary distinguishing feature of mankind. To abandon reason leaves mankind with the appearance of man being essentially no different from other animals.”
MF, you must be able to see that this is doubtful. Even if the human species did not exhibit rationality, they would still have strong differences that separated them from other species of animals. Also evidence of this fact is that if another animal were to exhibit rationality, they would not fall under the same species of human.
My point is that yes humans are rational. However, this is a very minor difference within the biological classification of species.
Did the discovery of black swans in Australia call for a separate species? No, they were still swans with the acknowledgment that color was not one of their characteristic notes.
In fact, some humans don’t exhibit rationality. Do they cease to be human? No, they still fall under the species homo sapien.
“The goal of my argument is to establish what is true for humans, not how we are similar to other animals.” This is an important point, but you did say that “in this view man is essentially no different from lower animals”, so you presumably see some value in the comparison.
Perhaps reason is the difference. You say that in order to eat you must have the idea to eat. You also say that you do not know if dogs or chimps also need to have the idea to eat in order to eat. So the argument for man being essentially different from animals based on reason is something you say you do not know.
You say in another post “I don’t separate emotions from reason. I treat them as connected via hierarchy, where passions are the handmaiden of reason. In other words, if you feel emotional about something, it’s because of specific intellectual convictions you have, whether they are at this moment clear in your conscious thinking or not. If you don’t know why you feel a particular way about something, then it is because you haven’t yet become fully aware of the intellectual roots.”
If we take the idea to eat as an example. Humans eat for different reasons, but primarily it is because we get hungry. This causes a feeling of discomfort, a feeling we find undesirable. This causes us to take certain actions that we hope will produce the end result of eating. It is overwhelmingly likely that we evolved this mechanism to ensure that we eat, probably before our ancestors were human. Hunger strongly predisposes us to eating behaviours. We can (some more than others) sometimes override these directions using our reason. We can turn down the cake because it will make us fat. However, this is not always successful, as the current obesity levels indicate.
Our eventual behaviour (or action, if you wish) is a combination of our reason acting on our unconscious drives. It sounds crazy to me to say that our unconscious drives or emotions are a product of our reason.
Harold:
“MF, you must be able to see that this is doubtful. Even if the human species did not exhibit rationality, they would still have strong differences that separated them from other species of animals. Also evidence of this fact is that if another animal were to exhibit rationality, they would not fall under the same species of human.”
The fact that in the absence of reason, two animals might differ in other respects, does not serve as an argument against reason being a unique and sufficient distinguishing characteristic to ground economics or ethics. You say “doubtful”. Based on what?
“My point is that yes humans are rational. However, this is a very minor difference within the biological classification of species.”
Minor compared to what? Saying something is minor or major doesn’t tell us anything.
“Did the discovery of black swans in Australia call for a separate species? No, they were still swans with the acknowledgment that color was not one of their characteristic notes.”
Humans are not swans.
“In fact, some humans don’t exhibit rationality. Do they cease to be human? No, they still fall under the species homo sapien.”
The better question is what is ethical to do.
“The goal of my argument is to establish what is true for humans, not how we are similar to other animals.”
“This is an important point, but you did say that “in this view man is essentially no different from lower animals”, so you presumably see some value in the comparison.”
I was just describing other people’s view there, not my own.
“Perhaps reason is the difference. You say that in order to eat you must have the idea to eat. You also say that you do not know if dogs or chimps also need to have the idea to eat in order to eat. So the argument for man being essentially different from animals based on reason is something you say you do not know.”
I said I do not know if lower animals are thinking of eating when they eat.
I am saying I know I am thinking of eating when I eat.
“You say in another post “I don’t separate emotions from reason. I treat them as connected via hierarchy, where passions are the handmaiden of reason. In other words, if you feel emotional about something, it’s because of specific intellectual convictions you have, whether they are at this moment clear in your conscious thinking or not. If you don’t know why you feel a particular way about something, then it is because you haven’t yet become fully aware of the intellectual roots.”
“If we take the idea to eat as an example. Humans eat for different reasons, but primarily it is because we get hungry. This causes a feeling of discomfort, a feeling we find undesirable. This causes us to take certain actions that we hope will produce the end result of eating. It is overwhelmingly likely that we evolved this mechanism to ensure that we eat, probably before our ancestors were human. Hunger strongly predisposes us to eating behaviours. We can (some more than others) sometimes override these directions using our reason. We can turn down the cake because it will make us fat. However, this is not always successful, as the current obesity levels indicate.”
Being obese does not prove a person is eating against theirnwill, or despite their will.
Being obese means the person is choosing to eat a lot.
Obese people do not “indicate” reason is being trumped by passions. For it is not inconsistent with the theory that their reason is trumping their passions.
To have reason does not mean a person is guaranteee to make healthy food choices.
“Our eventual behaviour (or action, if you wish) is a combination of our reason acting on our unconscious drives. It sounds crazy to me to say that our unconscious drives or emotions are a product of our reason.”
Why? Why is it crazy to you? Because lower animals seem to behave according to passions? Because people make poor choices? None of this has anything to do with whether or not human reason trumps passion.
If you look at the philosophers who have written about this debate in great detail, and you do some detaioed thinking of your own, you will find that every single one of them implicitly or explicitly slide in a natural rights or natural law framework.
Sorry, that last one was for Hank.
Because something something people are equal something something alienated productive forces controlling humanity something something need to initiate force something something return man to himself something something utopia something something.
The whole gospel of Karl Marx can be summed up in a single sentence: Hate the man who is better off than you are.
Never under any circumstances admit that his success may be due to his own efforts, to the productive contribution he has made to the whole community. Always attribute his success to the exploitation, the cheating, the more or less open robbery of others. Never under any circumstances admit that your own failure may be owing to your own weakness, or that the failure of anyone else may be due to his own defects, to his laziness, incompetence, improvidence or simple stupidity. — Henry Hazlitt
(H/T Tom Woods)
Not exactly. Kapital is a commentary on the capitalist manufacturing system of the 1850s where industrialization and economies of scale were creating large monopoly producers. The real contribution was Marx’s laws of motion of capital which are just as valid today.
A system of powerful monopolies will lead to a society where consumers and workers are at the mercy of a few individuals who control all of the means of production. This is what actually was created in the Soviet Union, the Third Reich, and still exists in North Korea.
The revolution in the Soviet Union would have been predicted by Marx.
Kapital only discusses inequality in this sense. I would think that Marx would be very pleased to see that his revolution actually happened in the US, where for all intents and purposes the workers now own the means of production through pension funds, mutual funds, etc.
It makes sense that this would be a core part of Marxism, since Marx vehemently rejected individually centered creative activity, i.e, egoism. He blew a gasket, literary speaking, in his critique of German Ideology which was largely egoist in nature.
Marx vulgarized his own theory and basically believed all minds are “socially determined”, with the possible exception of the working class of course, but even there it was group and class based, not individual.
Which was odd as Engels initially showed a lot of appreciation for Stirner early on.
Sorry, in which text are you referring? The only one I know of is The German Ideology, and in that one they skewered Stirner.
You’d have to read Engels’ personal writing and letters
“But what is true in his principle, we, too, must accept. And what is true is that before we can be active in any cause we must make it our own, egoistic cause-and that in this sense, quite aside from any material expectations, we are communists in virtue of our egoism, that out of egoism we want to be human beings and not merely individuals”
It might be silly, but Engels was clearly less obtuse than Marx.
Thanks.
Engels was the more rigorous academic of the two.
Engels was to Marx, as Tesla was to Edison.
There’s an easy way to resolve this dispute, wages definitely stagnated in 1973, when compared to the previous decades. So something *significant* happened. Thanks to Reagan and Volcker (or because of those idiots) wages started increasing again but unequally than before.
Sound reasonable to everybody?
Anybody?
(I previously put this in the David Howden post but it seems more fitting here, my apologies)
As I quote above, Krugman regards a 13% improvement in real wages to have “unravelled America” but only because someone somewhere did better.
Why not include a bunch of wealthy Swiss in the picture as well as some Arab oil billionaires? I mean, if the real problem is that someone else got something, we should be condemning wealth the world over, not just in America.
Right, I’m sure it’s been said before, but much of this inequality talk looks more like envy than concern for the poor.
Not just envy, but strategic and selective beating the envy drum, in such a way as to target particular political outcomes.
Putting rich Arabs into the envy crosshairs doesn’t achieve political gains for the Democrats (at the moment) but encouraging envy/hatred against the Koch Bros makes more useful political mileage. Looking at the huge percentage gains achieved by factory workers in Vietnam, Indonesia, Thailand, etc. is inconvenient for unionists in the USA so you won’t hear mention of it from either Piketty or Krugman. The capital works improvement in China is totally irrelevant because, da inequality!!!
Of course, very good point. Looking into it, is modern politics not just a friendly war between the extremely wealthy?
Ones on the Democrat side are just so gifted that no one cares or notices that the people controlling their party are billionaires and millionaires too. I can’t help but admire them.
Does anybody have the actual numbers from Piketty-Saez? Rather than pulling out rulers and guessing at years in the graph we’ve all been putting under a microscope, the actual numbers would make this easier.
Until cooler heads prevail, I’m having a blast arguing over eyeballing consistent with ideology. It is like we’re all at a WWE wrestling match, pretending it’s real.
Bob, here it is in PDF format:
http://piketty.pse.ens.fr/files/capital21c/en/pdf/supp/TS0.I.1.pdf
Or you can see it in an Excel spreadsheet here:
http://piketty.pse.ens.fr/files/capital21c/en/xls/Chapter0TablesFigures.xlsx
Just clck the worksheet labeled TSI.1
Using the spreadsheet that Keshav linked to the change each decade are as follows:
50s -4.39%
60s 1.34%
70s 4.84%
80s 15.74%
90s 16.23%
00s -2.33%
In each case I took change between the first year of the decade and the last is taken as a % of the first year
You guys are nuts. LK is absolutely right. Inequality ballooned post-Reagan. The top quintile, and especially the top 1% and 5%, paid an increased share of total federal income taxes and the bottom half’s share decreased, widening the overall tax burden on the higher tax brackets. Effective tax rates on top brackets were reduced by a smaller percentage than the bottom tax brackets. Reagan’s tax cuts were a major cause for increased tax burden inequality.
Nobody is diaputing that inequality increased post 1980!
disputing
No they weren’t.
Lok at what he wrote again. I think we were snookered.
Ah!
Yeah, sorry fellas. Just felt like throwing a curveball to have a little fun.
In addition, we may also conclude inequality remained relatively flat post Reagan:
http://mises.ca/posts/blog/dont-trust-piketty-or-krugman-on-inequality-evidence/
Great, thanks Keshav for giving us this link. Now then. Everyone remember LK wrote:
Anyone can see that income equality exploded in the early 1980s. The early 1970s and even late 1970s rise are minor and do not depart from the same type of minor changes in the 1950s and 1960s.
It was Reagan’s tax cuts that was a major cause of the explosion in income inequality.
And yet, as the numbers show, from 1970 – 1980, the inequality increased 2.0 percentage points. From 1980 – 1984, it increased 2.1 percentage points.
Nobody is denying that the graph jumped up more during the entire 1980s than during the entire 1970s. I am just pointing out how LK’s prior belief that the early Reagan tax cuts caused it to surge “in the early 1980s” is what’s going on, led him to say demonstrably false things about the graph.
Last thing: I don’t know why these figures are different, but I have seen other series (and I thought from Piketty-Saez) that make inequality bottom out in 1973, and they really rise significantly from 1973-1980. Maybe that was for top 1%. (These figures that we’ve been looking at are the top 10%.)
Top 1%, in 1973 their share bottomed out at 7.7%
Here’s another fun chart with a link to its source paper.
http://www.cepr.net/index.php/graphic-economics/graphic-economics/income-share-of-the-top-1-percent-1913-2012-annotated
“And yet, as the numbers show, from 1970 – 1980, the inequality increased 2.0 percentage points. From 1980 – 1984, it increased 2.1 percentage points.”
Pathetic.
You compare 10 years in the 1970s years to just 4 years in the 1980s? — in a desperate move to skew the data to get the result you want.
From 1944-1946, the percentage rose from 32.5% to 36.7%, and from 1953 to 1961 it rose from 32.3% to 34.3% but nobody in their right mind would claim that this was PART of long run new trend that emerged in 1981 owing to tax changes.
The proper measure would be to compare 4 years of 1970s to 4 years from 1981-1884. Of course, that will not get you the result you want.
Garbage.
We’re supposed to identify a 2% increase over 4 years in the aerly 1980s as skyrocketing and nothing like the 1970s?
Oh, and glad that you again admit inequality was lower in 1970 than it was in 1980.
“We’re supposed to identify a 2% increase over 4 years in the early 1980s as skyrocketing”
No, it is clearly the beginning of a new long run trend for quite clear reasons associated with the reforms to the tax system.
“Oh, and glad that you again admit inequality was lower in 1970 than it was in 1980.”
Inequality was at its lowest point in 1953 at 32.3%:
http://piketty.pse.ens.fr/files/capital21c/en/pdf/supp/TS0.I.1.pdf
From the late 1940s to 1981 it fluctuated from 32 to 34%, mainly owing to the tax system at the time.
The data is very clear.
LK:
“No, it is clearly the beginning of a new long run trend for quite clear reasons associated with the reforms to the tax system.”
No, the early 1970s was clearly the beginning, since inequality was lower then than it was in 1980.
“Inequality was at its lowest point in 1953 at 32.3%”
Glad you again admit that inequality was lower in 1970 than it was in 1980.
All you’re saying when you say the early 1980s was the beginning, is that that is when there was a change in tax policy. In other words, you’re jjst talking about your theory, not merely the facts.
Also, do you think it is a coincidence that the conclusion of Volcker’s deflation “experiment” around 1983 was also the beginning of when the rate of inequality growth began a much larger surge as compared to 1980-1983?
ALsop 19070 is a particualry low year. If we use 1969 instead we get 1969-1980 rose 0.7 %, or 0.06% per year. From 1980-1984 wit rose 2.1 percentage points, or 0.6 % / year. the difference here is a factor of 10, which is quite striking.
As a test of anomolous data, how does the picture change if we alter the dates a litle bit? We saw that changing from 1970 to 1969 caused a big difference, which might give us pause. Lets try 1972 then. We get 1972-1980 1%/8 years, or 0.125% / year. Then alter 1884 to 1985 – rate is 0.62% / year. Slight change, but nothing drastic. The rate in the 1980s is larger than the rate in the 1970s by a clear margin.
By picking the year before and after 1970, we get a rise of about 0.1% / year. By picking 1970 we get 0.2%/year. Doubling the rate by choosing the middle year hints of poor selection of data.
Oh one last thing: I am not denying that the major changes to the tax code during the 1980s had a lot to do with these trends; indeed I am working on an EconLib article making just this point. I just thought it was funny that LK is berating us for being unable to read a graph, when clearly he is “seeing” things that aren’t there.
The argument made on site was that increasing inequality is due to the US closing the gold window and floating the dollar in 1973.
“What happened in the early 1970s to explain the divergence? Maybe it was the end of the Bretton Woods system, and with it any nominal restraint on the Federal Reserve (and other central banks) to inflate at will.”
If this story was true we would expect to see lower inequality during the gold-standard periods prior to 1973.
This chart shows the top decile’s share of national income in the US:
http://piketty.pse.ens.fr/files/capital21c/en/pdf/F0.I.1.pdf
as you can see income inequality as measured by this chart was higher during the gold standard period prior to WWII than it was during the 1970s and 80s, and it was higher during much of the gold standard period prior to WWII than it was in the 90s.
There was then a large fall in income inequality as measured by this chart during the period in which the gold standard was suspended (see the fall after 1940).
Income inequality was then roughly flat, with fluctuations, during the Bretton Woods period, in which only foreign central banks could exchange dollars for gold with the federal reserve.
Following the closure of the gold window and the floating of the dollar, income inequality as measured by this chart remained roughly were it had been prior to the 1970s for the rest of the 1970s.
So nothing in this chart supports the claim that increasing inequality is due to severing all links with gold and floating the dollar.
“What happened in the early 1970s to explain the divergence? Maybe it was the end of the Bretton Woods system, and with it any nominal restraint on the Federal Reserve (and other central banks) to inflate at will.”
If this story was true we would expect to see the same trends in other countries with fiat money post 1973:
The following charts are from Piketty. As you can see different countries have different trends:
http://piketty.pse.ens.fr/files/capital21c/en/pdf/F8.1.pdf
http://piketty.pse.ens.fr/files/capital21c/en/pdf/F9.2.pdf
http://piketty.pse.ens.fr/files/capital21c/en/pdf/F9.3.pdf
http://piketty.pse.ens.fr/files/capital21c/en/pdf/F9.4.pdf
Also note the high income inequality during the gold standard periods prior to WWII in these different countries.
I think we can conclude that David Howden’s story is false.
Bob I have a comment awaiting moderation above.
edited version of my comment, with less links (prior version of my comment has not been moderated):
“What happened in the early 1970s to explain the divergence? Maybe it was the end of the Bretton Woods system, and with it any nominal restraint on the Federal Reserve (and other central banks) to inflate at will.”
If this story was true we would expect to see the same trends in other countries with fiat money post 1973.
Click on this link and scroll down to Chapter 9, then look at figures 9.2 (Income inequality in Anglo-Saxon countries), 9.3 (income inequality in Continental Europe and Japan), 9.4 (Income inequality in northern and southern Europe).
As you can see different countries have different trends.
Also note the high income inequality during the gold standard periods prior to WWII in these different countries.
I think we can conclude that David Howden’s story is false.
http://piketty.pse.ens.fr/files/capital21c/en/Piketty2014FiguresTablesLinks.pdf
It is safer to conclude your story is false. You’re both committing correlation is causation, and you are ignoring the multiplicative factors that affect inequality.
Prior to WW2 the market was more free, and so it is reasonable to attribute inequality, partly, to productivity differences. But again, there are other factors. Post 1970 inflation significantly contributed more than it did prior.
I know you will always conclude that your prior beliefs are always correct no matter what any data shows.
I know you will always conclude that your a priori beliefs are always correct no matter what any data shows.
There is a reason you only “think” his story is false and you don’t “know” its false.
The reason is because there is no time machine in which we can go back, change the conditions, and see how it plays out.
The only way this experiment could be performed is through the use of a time machine, which doesn’t exist.
Therefore, there are no experiments, only making empirical claims falsifiable if we happen to find contradictory data.
As an aside: even the law of non-contradiction is only a possible statement according to LK’s logical system, so have fun with that.
Back to the point: literally every single thing you say can be explained away by an unmeasured data point.
I could literally say dog-ownership increase has contributed to inequality, which, if true, no empirical fact by itself may invalidate.
Therefore, I am putting forth the claim: dog-ownership increase is the source for inequality, please tell me why this is invalid.
Of course to question the importance of inequality itself yields endless question begging, so I won’t try that again.
know-nothing. That is the correct term for your ideology.
I would seriously like for you to explain why the increase in dog ownership has not contributed to inequality.
“The fool doth think he is wise, but the wise man knows himself to be a fool.”
-William Shakespeare
“To know that you do not know is the best. To pretend to know when you do not know is a disease.”
-Lao-Tzu
“The only true wisdom is in knowing you know nothing.”
-Socrates
do you even know what begging the question means? Did you read it in a newspaper the other day and decided that you liked the sound of it?
If you say something and my response is ‘it depends on the context’, that is not ‘begging the question’.
Please teach me O Master of Question Begging!!!
The context begs no question!!!
Please tell me more!!!
begging the question refers to a logical fallacy in which the proof is just a restatement of the premise.
It does not mean saying something which leads someone to ask another question.
Master of Question Begging!!
Master Google says you are incorrect!!
Philippe, it may help your case if you explained what you mean by “extreme” inequality, and, why that level of extreme is bad but not another level, and why initiating force against people is justified based on how much they earn in exchanges.
I don’t agree with your deceitful rhetoric regarding ‘intiating force’.
Yes you do. Otherwise, how do you wish to solve this inequality “problem”?
No I don’t.
Yes, you do. Otherwise, how do you wish to solve this inequality “problem”?
Philippe:
51% voting to take more money from the richest 1% is initiating force.
Just because it happens on a large scale, and given a stamp of approval by….the “representatives” of the 51%, i.e. the government, it doesn’t mean it isn’t an initiation of force.
I am absolutely not “deceiving” you.
The reason why 10 men harrassing an individual in the name of “we outnumber you” is violence, is the same reason why 51% voting in government to harrass and take money from a relatively wealthy individual, is violence.
No Philippe, the argument is that ONE of the reasons for rising inequality is inflation.
Nobody is saying anything that would require inequality prior to 1973 to be lower than post 1973. You are of course ignoring the myriad of other factors that change over time and affect inequality in various ways.
And inequality did in fact rise from 1970 to 1980. You know this, which is why you have to say “essentially” flat, as opposed to flat, or falling.
On a related note, if you look at charts of real wages, you can see a distinct kink at around the early 1970s mark. You can also see a persistent divergence between wages and productivity.
“Thomas Piketty thinks that the growing divide between the haves and the have nots is caused by a lack of educational opportunities, a too low minimum wage and an insufficiently progressive income (and wealth) tax system…. Maybe the answer is much easier. After all, his central thesis that the wealth divide has grown since the mid-1970s. This is easy to reconcile with much research that shows that income inequality has grown over this same period.
As I’ve wrote about before, the bottom 99% of income earners performed very well until 1973. That was the fateful year that the 1% surged ahead and never looked back.
What happened in the early 1970s to explain the divergence? Maybe it was the end of the Bretton Woods system, and with it any nominal restraint on the Federal Reserve (and other central banks) to inflate at will…
If you’re worried about income or wealth inequality, why not go to the most obvious source. End central banking and take the unearned advantage away from the financial sector that everyone seems to be pointing the finger at anyway.”
I don’t read that as a claim that it is the only reason. I see that as a proposal to look at inflation as the most likely reason.
I strongly doubt if you asked Murphy point blank if he thinks inflation is the only cause, that he will say yes.
He even added a post in the thread saying that he thinks there are other factors, like taxation.
While inflation might in some cases increase income inequality, inflation erodes the value of rich people’s money too, so this argument is dubious at best.
Furthermore, since the rich tend to be creditors and the lower income groups debtors, inflation erodes the real value of their debts at the expense of creditors actually decreasing income inequality.
Yet again M_F is off in his fantasy world.
LK:
It is clear you don’t even understand the mechanism of wealth erosion due to inflation. The reason why inflation isnsaid to erode wealth is due to the presence of initial recievers who end up spending more money and raising prices BEFORE others experience an increase in their incomes.
In other words, inflation does not erode EVERYONE’S wealth by way of purchasing power decline caused by monetary devaluation. Inflation erodes wealth FOR SOME people, and the reason it takes place is because prices are rising for them faster than their incomes, and the reason prices are rising for them is due to other people SPENDING more money. Those who are spending more money are doing so before prices rise for them.
Yes, inflation does erode wealth for rich people, but that only occurs because OTHER people recieved the new before them. The rich people whose wealth is eroded, are being preceded by other people whose wealth was eroded less because they are closer to the money spigot and are able spend more before everyone else.
The faster the money spigot, and the more often rich people continue to recieve new money primarily first, the more pronounced this wealth inequality generation becomes. Wall Street has historically primarily recieved the new money first before everyone else. OMOs are not being done with Main Street, and to the extent Main Street recieves new money first from a fractional reserve bank, the bank gets that money back plus interest, so the spread widens there too.
“In other words, inflation does not erode EVERYONE’S wealth by way of purchasing power decline caused by monetary devaluation. Inflation erodes wealth FOR SOME people, and the reason it takes place is because prices are rising for them faster than their incomes, etc.”
Even that argument does not work with respect to wealth inequality, for
(1) plenty of low to middle incomes earners get credit for personal loans, mortgages, refinancing etc., so the effect you mention — even if prices were highly flexible — would benefit them! (lol..), and
(2) the degree of price flexibility in the modern world is grossly overestimated anyway, so that such effects are also grossly overestimated.
————–
It is the tax system that is the main driver of income inequality.
LK:
” plenty of low to middle incomes earners get credit for personal loans, mortgages, refinancing etc.”
Those are loans, no money. The wealth transfer process being claimed is on the side of money, not loans per se, so in the case of loans extended by fractional reserve banks unbacked by savings, the transfer goes towards the banks, as they end up with money interest, whereas the borrower only recieved money and has to pay interest.
“the degree of price flexibility in the modern world is grossly overestimated anyway, so that such effects are also grossly overestimated.”
That statement is your personal subjective opinion about an unspecified standard and that unspecified standard does not even apply to what I am saying.
Prices do indeed rise over time due to monetary expansion, so that is sufficient for my actual argument to hold true.
Your statemeng is also a tacit admission that wealth transfer does take place.
Finally, it is contradictory to your other Keynesian position that central banks have to “ease policy”, especially during recessions, lest prices fall, and “deflationary death spirals” ensue.
You can’t claim that prices will collapse if not for government “stimulus”, but then say that such stimulus doesn’t much change prices.
Inflation is a key component of inequality.
No, lowering taxes on capital is not the cause of inequality. Such an event would allow the actual cause, namely productivity differences, ceteris paribus.
Inequality incressijg began prior to 1980.
Inflation devalues both debt and wages, to the extent wage earners do not recieve new money, without it being debt, first.
But nominal wages can and do rise to offset inflation, but nominal debt contracts are not generally speaking so adjusted.
So now wages are no longer sticky? Lol
Nominal wages for every individual do not rise as soon as the Fed prints money. Some wages rise first, then other wages. That transfers wealth as well. Primarily though, profits rise before wages when it comes to monetary expansion.
lol… The phrase “wage stickiness”, as everyone who actually has knowledge of economics knows, means **strong downwards nominal rigidity,** not upwards.
Presumably you are too stupid to know that too. No surprises there.
LOL, change the subject when the going gets rough. You are evading the point about wealth transfer from inflation.
On a side note, the reason why wage rates, and most other prices, are historically rising over time, thus giving the appearance of prices being “sticky downwards”, is due to the historical persistent increases in money and spending, i.e. inflation from the state’s counterfeiting imposition.
Of course people will become more hesitant to ask for lower prices when they expect to pay higher prices in the future. When you have a counterfeiter promising price inflation each and every year, then it shoild be surprising that people would develop the psychology of finding ways to avoid losses through increasing, or not decreasing, their asking prices. Coiple that with welfare and almosg the whole economics establishment conflating falling prices with depression and constsnt yammerings to the state to prevent falling prices, and it is one of the most obvious things to understand in economics that this hysteria is due to the strong tendency of prices falling without their activity of trying to prevent them from falling. In other words, the strong tendency in a free market of prices to fall over time.
But back to the point. Inflation does indeed transfer income producing real wealth away from the late receivers (typically wage earners, pensioners, and other fixed income earners according go contracts) towards the initial receivers (typically Wall Street, primary dealers, and profit earners).
Even according to your shallow a priori framework with fallacious interpretations of history, profit changes tend to precede wage changes. This is precisely due to the heterogeneous nature of the inflation transmission mechanism.
LK
Yes, wages do indeed rise because of monetary expansion. Nobody is denying that. What is being claimed however requires the readed to explicitly integrate TIME into the argument.
Wages do not rise all at the same time nor at the same rate when the Fed hits CTRL-P. That time lag is when the wealth transfer takes place, which means if inflation is constant, then so is the wealth tranfer.
Nah, M_F, the issue here is how nominal wages can and do rise to offset inflation, but that nominal debt contracts do not, generally speaking, adjust.
Consequently, inflation DOES benefit lower and middle income earners with debt.
Since you cannot refute this, you are back to your ramblings about prices, and your absurd fantasy world ravings about how everything would adjust smoothly by definition in an imaginary free market fantasy world.
” Inflation does indeed transfer income producing real wealth away from the late receivers “
The effect, while real, is grossly overrated and in our world — where prices are largely mark-up prices — and also does not significantly contribute to wealth inequality in the way the tax system does.
Moreover, if this process **per se** were really immoral, it would prove that any commodity money system where the money supply expands by new production of the money commodity would also result in immorality, for the very same thing would happen there too with the first people who spend newly mined gold.
Nice way to blow up your own theory.
Consequently, inflation DOES benefit lower and middle income earners with debt.
So if I printed a bunch of paper with numbers on it and called it “money”, you think it would help you and the poor if you were to accept it from me?
Sweet deal, for me.
LK:
Lets pretend a state wanted to build a new rail system. There is a survey overwhelming support. In addition it shows that people are willing to take higher taxes for the new railway.
The state builds the new railway and raises the taxes needed to pay for the railway.
The people then become very upset about the increase in taxes and the railway becomes very unpopular.
What does this tell you about surveys?
LK:
“Nah, M_F, the issue here is how nominal wages can and do rise to offset inflation, but that nominal debt contracts do not, generally speaking, adjust.”
Nah LK, the issue here is that not all wages rise as soon as the Fed inflates.
Consequently, inflation DOES transfer wealth, contributing to inequality when the initial recievers are already relatively wealthy.
“Consequently, inflation DOES benefit lower and middle income earners with debt.”
No, you’re fallaciously assuming an interest rate model that presupposes inaccurate assumptions.
A wage earner who has oustanding debt is NOT benefited inflation just because the value of the debt is reduced in an exchange context. For the wage earner still owes the contracted principle and interest, and his wages are not guaranteed to rise as fast as the prices of goods he buys.
An indebted wage earner csn only benefit from inflation (in the short run) if he is the initial reciever, or sufficiently early on before other people.
“Since you cannot refute this…”
Already refuted.
Since you cannot understand the refutation, you remain stuck in your false worldview.
I never claimed “everything woild run smoothly in a free market.”
I have only said it is relatively better than all other alternatives, including your impoverishing violence advocating gobbkedygook.
” Inflation does indeed transfer income producing real wealth away from the late receivers “
“The effect, while real, is grossly overrated ”
Grossly overrated relative to what?
Anything is grossly exaggerated relative to some standard.
You haven’t shown I subscribe to the standard by which you claim the transfer of wealth is grossly exaggerated.
“and in our world — where prices are largely mark-up prices — and also does not significantly contribute to wealth inequality in the way the tax system does.”
Taxing the rich less does not contribute to inequality. An absense of taxes allows productivity differences to be the actual cause.
“Moreover, if this process **per se** were really immoral, it would prove that any commodity money system where the money supply expands by new production of the money commodity would also result in immorality, for the very same thing would happen there too with the first people who spend newly mined gold.”
Not at all. For the millionth time, in a free market you are not legally forced to accept any commodity whose supply increases.
“Nice way to blow up your own theory.”
Nope. You are again just dodging it.
… but nominal debt contracts are not generally speaking so adjusted.
If people weren’t tricked, by artificially low interest rates, into making malinvestments, this wouldn’t be an issue.
Had the government not been protecting the banks’ acts of inflation, the price signals would have informed certain businessment that, for them, those investments would be malinvestments.
In other words, the higher interest rates that would otherwise have been in place would have dissuaded some from making investments that would be bad for those particular individuals.
Money interest rates, by your ABC theory, can only be artificially low when compared with the non-existent unique Wicksellian natural rate of interest.
That rate cannot defined outside a one commodity world, and is totally irrelevant to any real world economy.
It follows that the ABCT is also irrelevant as a theory of real world business cycles — or indeed any economic process in the real world.
LK:
No, money interest rateS can be low relative to market determined interest rateS.
It is not necessary to ABCT that a single natural rate be assumed.
You can add an s to every time the phrase “natural rate” is mentioned.
You have been corrected on this before, and you keep spewing it as if you haven’t.
And you have not shown any “fantasy” a first time in my writings, so you saying “Yet again” as if you have, is inaccurate.