April 12, 2012

“New study undermines economic rationale behind ending Bush tax cuts, the Buffett Rule and the work of Piketty and Saez, Obama’s favorite economists”

Pethokoukis:

[H]ere’s Obama this week: “What drags our entire economy down is when the benefits of economic growth and productivity go only to the few, which is what’s been happening for over a decade now, and gap between those at the very, very top and everybody else keeps growing wider and wider and wider and wider.”

Underlying Obama’s entire thesis is the work of two economists, Thomas Piketty and Emmanuel Saez. According to them, median American incomes rose just 3.2% from 1979 through 2007.  (All figures are inflation adjusted.)

So what happened to the rest of the dough? The top 10%, 1% and 0.1% grabbed all the money. Or pretty much most of it. Time to crank up taxes on the rich and spend more on the middle class. It’s not overstating things to say that the findings of Piketty and Saez form the very heart of Obamanomics, giving a powerful economic rationale for Obama policies such as ending the upper-end Bush tax cuts to Obamacare to the Buffett Rule.

But it’s just not true, according to a new study in National Tax Journal from researchers at Cornell University. (Here’s an earlier, working-paper version.) The academics, led by economist Richard Burkhauser, don’t say the findings of Piketty and Saez are wrong — just incredibly, massively incomplete. According to the Cornell study, median household income – properly measured – rose 36.7%, not 3.2% like Piketty and Saez argue. That’s a big miss.

[…]

And all income levels got richer. Yes, the very rich did exceptionally well, mostly due to technology and globalization. Incomes rose 63% for the top 5%, 56% for the top 10% and 52.6% for the top 20%.  But everyone else made out pretty well, too. Incomes rose 40.4% for households between the 60th and 80th percentiles, 36.9% for the next quintile, 25.0% for the next, and 26.4% for the bottom 20%. There’s the “shared prosperity” Obama says he wants, right in front of his eyes. (Indeed, the study finds, income inequality has actually been shrinking since 1989, with the Gini index falling to 0.362 from 0.372.)

As the Cornell study concludes:

Income inequality increased in the United States not because the rich got richer, the poor got poorer and the middle class stagnated, but because the rich got richer at a faster rate than the middle and poorer quintiles and this mostly occurred in the 1980s. .. the apparent failure of the median American to benefit from economic growth can largely be explained by the use of an income measure for this purpose which does not fully capture what is actually happening to the resources available to middle class individuals.

See, Piketty and Saez made lots of odd choices about what to measure and how to measure it. They chose to measure something called “tax units” rather than households, a move which ignores the statistical impact —  including economies of scale — of couples who cohabitate, kids who move back in with their parents after college, and senior parents who live with their adult children.

They chose to ignore the value of all government transfers — including welfare, Social Security, and other government provided cash assistance — received by the household.

They chose to ignore the role of taxes and tax credits.

They chose to ignore the value of healthcare benefits. In short, Piketty and Saez ignored a lot of stuff. […]

[…]

[T]he tax and regulatory polices of the past three decades did not lead to stagnation for the middle class at the hands of the rapacious rich. Claims to the contrary — such as those made by Obama, the Occupy movement, and many liberal economists — never really passed the sniff test of anyone who lived through the past few decades. And now we know why: The inequality and stagnation alarmists were wrong. And so, therefore, is the economic rationale of the president’s class-warfare economic policies. Not that economics ever had much to do with them anyway.

Of course, studies are only numbers and in many ways they deal with theoreticals or probabilities.  Which are only, like, probable.  And made up of numbers.  Which can sometimes disguise more important truths.  Like, for instance, not numbers.  Meaning there’s a good chance the study is racist.

 

 

Posted by Jeff G. @ 3:54pm
36 comments | Trackback

Comments (36)

  1. All you fucking deniers are seriously bringing me down, man.

  2. I feel crimethink. Yawn. Sleepy time.

  3. Of course. Science is only useful as it advances the desires of the collective.

  4. It’s worth remembering, as Thomas Sowell has been trying to tell anyone willing to listen for god knows how long now, that quintiles aren’t people.

    That MC Hammer dude* he’s been in all five of ‘em, at one time or another.

    Unlike teh Donald, who’s probably moved between the top and bottom, without passing through the middle. But only for as long as it took to be discharged from bankruptcy.

    *yeah, that dates me, but it was the first “celebrity” bankrupty to come to mind.

  5. A fucking “tax unit”.

    I just can’t…

  6. Besides, the rationale for ending the Bush tax cuts isn’t economic, it’s social.

    Jay Carney’s already said as much.

  7. The monetary system in the US is intensely, utterly corrupt*. This is a fact.

    What you are told about the economy it interferes with is a giant, serial lie. This is a fact.

    There is no free market. There is no sound currency. There is no free trade. There is no accountability. There is no truth.

    There is only The Game.

    So. Why play? You can better state with certainty that the Earth is the Moon and somehow force these fuckers, by dint of the stranglehold on reality known as progressivism, together with its press and academy, to counter the claim.

    (I see Romney is in a dead heat with probably the most dishonest, most manufactured, most damaging tool of a President in American history.)

    Meaning: These be pathological liars and pathological thieves. The system is fraudulent and attempts to equalize it fail by way of the covetousness and envy of Socialism one tenth of one percent as badly as they fail by way of The Game.

    Of course that rich get richer. Look at who most of them are and what strings they pull. It’s called a Client State. A command economy.

    Did we really expect some other treatment than that? This is their Game, not ours.

    *An exclusive monopoly of a relatively few very, very powerful thieves.

  8. Washington insiders have reported that the Justice Department is explicitly choosing not to prosecute seemingly illegal bank activities. Indeed, in my previous column I noted that the audits released by the Office of the Inspector General of the Department of Housing and Urban Development detailed activities by senior banking officials associated with the robo-mortgage scandal that seem to constitute clear evidence of multiple federal felonies, and most likely violated state laws as well. Yet no one has been indicted.

    In an entirely different sector of financial services, the venerable American Banker just completed a three-part series on past credit card debt collection practices. Many of these activities are now under investigation by the Office of the Comptroller of the Currency. But if the past is prologue, it’s unlikely that any criminal indictments will result, no matter what these investigations uncover.

    Indeed, as has been repeatedly documented, when illegal activity is detected, the SEC settles with the banks in civil lawsuits for sums that, while appearing to be large, are a pittance compared to the profits of the institutions involved. While these same activities would in many cases constitute criminal violations, no prosecutions have occurred. The bankers who operate our largest financial institutions can rightfully assume that they are above the laws that constrain everyone else.

    The evidence that crime does, in fact, pay is perfectly clear. Before the 1990s, the total profits of the financial services sector rarely accounted for more than 20 percent of the total corporate profits of the nation’s economy. By 2005, they averaged about one-third of all corporate profits. After sinking as a result of the crash, they rebounded dramatically. By early 2011, the sector once again accounted for about 30 percent of total corporate profits. As The Wall Street Journal noted, “That’s an amazing share given that the sector accounts for less than 10 percent of the value added in the economy.”

    Finance serves a valuable function. Its principal role is to ensure that capital is most efficiently allocated in a society. However, financial services are also an intermediate good. They grease the wheels, through capital allocation, so that real goods and services that people consume or experience can be created. Yet, as the Journal noted, the sector’s profits are far in excess of the value the sector adds to the overall economy. At the same time, recent academic research has suggested that the financial sector has become less efficient over time, with the gains from information technology cancelled out by increases in trading activity (whose social value is certainly open to question).

    This will ultimately lead us in a downward spiral: A few large powerful entities and people operate above the law, inequality is extreme, citizens have lost faith in their political systems, real societal wealth is not created, and political instability becomes a potential reality. John Adams held that “We are a nation of laws, not men” for a valid reason. Now, we need those charged with enforcing our laws to do their job.

  9. And, in one comment…JHo spoils the next three seasons of Game of Thrones.

  10. When Securitization was invented it soon wrested control of the money supply away from nations and gave it to the banks. Nations still printed and controlled their currency. But securitization gave banks the ability to print their own currency. And this new securitized currency, based on debt, was theirs to print, control, spend, and ultimately to debase. In short, it gave banks a power to rival nations.

    […]

    Remember the market’s promise of liquidity – that the ‘currency’, the securities – will always be exchangeable, depends on there always being someone willing to buy. But an increasing number of those people were also starting to accumulate the risk that had been ‘taken away’. Would they really be willing or able, even to buy when other people wanted to sell, if it came to a moment of panic and doubt?

    Well now we know the answer. When it came to a moment of crisis everyone suddenly saw the risk was all around. No one wanted to buy because everyone knew that everyone else was as poisoned as they were. And no one wanted to buy a bit of someone else’s poison to add to their own. Liquidity didn’t peter-out. It froze in a day, an hour, moment. It only takes a second for a promise to break. And without the market promise there was no market.

    The market had poisoned its own promise. Without it, there was no worth behind the currency. It was all just empty promises and printed paper.
    But this is not actually the worst of it. The devil is more subtle than that.

    […]

    What I have argued so far tries to describe how the system was poisoned and why it ‘froze’ as suddenly as it did. What I want to argue now is far more important. I want to show how Securitization and the Shadow Banking System, will, by necessity of their design, always accelerate towards the point of their own poisoning, crash and wreak. The devastation this rains down on our lives and societies, is, I want to show, inevitable and built in. If I am in any way correct, then the conclusion is, that attempting to ‘fix’ the system with regulatory tinkerings, back to any semblance of how it was, will put us back on the same path again. We will start towards a next crash: one even bigger than the present one. I believe our leaders and their financial masters are already pushing us on to that path.

  11. While the epically underfunded status of the US, by all definitions a ponzi scheme, whose combined liabilities have a net present value of about $100 trillion, is known to everyone, most can simply shake it off for too reasons: 1) it is a number too big to comprehend, and 2) by the time the ponzi blows up it will be some other generation’s problem. However, it may not be so easy for California’s retiring teachers. Minutes ago, CalSTRS, or the California State Teachers’ Retirement System, with a portfolio valued at $152 billion as of February 29, 2012, and is the largest teacher pension fund in the United States, reported that its underfunding increased by a massive 15%, or from $56 billion to $64.5 billion, which happened despite the market being relatively flat over the past year. In fact this is supposed to be good news: as CalSTRS states, its underfunding was supposed to be even worse by $4.3 billion. So this is really good news. We wonder how good the news will be to tens of thousands of retiring and retired teachers once they understand that their obligations are only funded 69%. And dropping.

  12. Back on topic:

    We have extensively discussed the Buffett Rule before (which incidentally will achieve nothing to fix America’s gaping deficit problem, but will certainly succeed in driving many wealthy people away from this country). We thought this issue was closed. Apparently it wasn’t, and Obama is once again warming up the class divide wagon – remember: the number one rule in politics when electioneering is keep everyone as divided as possible – under the guise of tax reform. So here is a reminder on same simple issues of perspective, courtesy of Rick Santelli.

    As a reminder, as we pointed out yesterday, the US just posted the largest ever March budget deficit in history of nearly $200 billion, which followed the single largest monthly budget deficit on record of $232 billion. Keep those numbers in mind, because they frame, in a very, very, very aggressive case, the bottom and top range of what the entire Buffett Rule would offset in terms of gained revenue. As rick explains, assuming one taxes an upper estimate of those eligible for the Buffett Rule (indicatively 225,000 people but realistically far less) an incremental $1 million, the offset would be $225 billion over the proposal’s life. Which is not enough to even plug one month of US deficit. And that is what all the posturing is about.

  13. Hey I just had someone use my Discover card fraudulently in Nashville, Tennesee. They paid a $1000 hospital bill and then tried to buy $400 of crap from a fragrance store , a jewelry store, and overstock.com

    I’m not sure but I think that Murfreesboro is in Nashville isn’t it? Kind of a coincidence eh?

    I wonder if some doughy little anti-semitic space titty artist might be involved somehow?

  14. StrangernFiction, I’m going to put your link in the Zimmerman thread.

  15. How would he have gotten your card # palaemerus? (By the way, the doughy little anti-semitic space titty artist in question who may or may not be the one who used your card is Marc Elliott L’Hommedieu.

    (He goes by Elf, Elfradiowave, elfradio, sinister, and RyanBacon, too. But really they’re all just that same fat piece of pork round who likes to bang off to heavily-armed space kittens, Marc Elliott L’Hommedieu.)

  16. I’m thinking he might have been able to guess my e-mail password or get the e-mail provider to give it to him through customer support. Then he could have pieced together enough from receipts and emails to do online charges and such.

    But I’m by no means sure that it’s him. It’s quite possibly just a coincidence. Discover has blocked the card and credited me.

  17. Since it’s a credit card it could have been someone at a convenience store when I bought gas and coffee, or a restaurant or almost anything. I ran a scan for keyloggers and other malware but it didn’t find anything but a few cookies.

  18. Speaking of the sewer-plant troll, has been annoying/threatening you any more? I’d like to think he had enough brain cells to give that up, but people continuously underwhelm my expectations.

  19. Murfreesboro is in Nashville isn’t it?

    Not “in,” but not far away either. About a 45-minute drive.

  20. Interesting piece, Jeff, but while we play whack-a-mole with the lies of these muck suckers, it’s necessary to not lose sight of the bigger picture: namely, to control the narrative. These lying liars lie, but they’ll always be able to come up with new ones quicker than it takes to knock them down. If we’re always chasing after the last lie, we’ll never catch up.

  21. Indeed. Sad but likely true is the fact that the loathsome Hilary Rosen’s slip about Ann Romney will do more to hurt the One than serious work undermining the rationale of his economic program.

  22. True, but he sells his bullshit a lot better than he sells his math, so it’s good to blow that crap up.

  23. $100T in unfunded liabilities JHo, or as we will be saying soon, 100 Obamas.

    You got me catching up at ZeroHedge, which discusses another piece of fabulist scholarship on the cause of the flash crash, which reminds me of the overall high quality of academic research, not just in vagina scholarship or Obamanomics, but cancer research too.

    I blame Nixon, fucking loser.

  24. For the wholesale self-induced collapse that swept the Left to power everywhere in 73-74, not for The Vagina Monologues.

  25. $100T in unfunded liabilities JHo, or as we will be saying soon, 100 Obamas.

    About $120T plus the official $15.5T in recognized debt and soon you’re talking real money. Then add in unfunded pensions across the fruited plain and we start pushing that magical quarter quadrillion – 250 Obamas.

    Which is so large a number it doesn’t really exist!

    What can you say about the lip-lock between the USSA and the printing press that puts us all another quarter million upside down about every second of every day? I say nothing can be done, meaning we’re probably boned.

    And they made such a nice couple. Best to not talk about them anymore.

  26. And of course, Old Europe’s PIIGS finally go parabolic. Yay Socialism.

  27. Then add in unfunded pensions across the fruited plain and we start pushing that magical quarter quadrillion – 250 Obamas.

    Which is so large a number it doesn’t really exist!

    I thought an Obama was equal to zero. 250 of them…?

  28. Quick usage question: is the economic study racist, or raaaaacist? I thought it was the latter, but now I’m wondering if perhaps the study itself is simply racist, while the researchers who wrote the study are raaaaacist. Is true raaaaacism limited to humans?

  29. You broke my spreadsheet, McGehee. No matter.

  30. That study is doubleplusungood.

    OT: Don’t let this happen to you! Dumbbell shot when he drops weight on bullet proving once again that guns and weightlifting don’t mix. I think I’ll just stick to gunz.

    And have a Happy Friday the 13th!

  31. Here‘s some more on the corporate blackmail campaign against APEC members; this may even be one of the key ulterior motives in the Left’s choosing to push the Trayvon shooting.

    Still waiting for Sharpton and the rest of the Indignity for Cash Coalition to protest this shooting of an unarmed black man in front of his two children. Wait, a Marine on his way to a prayer walk? No way to make that fit the narrative, so down the memory hole it goes.

  32. How ’bout instead of seeking to control the narrative, we all agree to pretend that there’s something called “objective truth,” a thing which bears more than passing resemblence to reality, and therefore we refuse to be controlled by “the narrative,” irrespective of who’s in control of it?

  33. Ernst, I’m with you. Okay, that’s two of us. Think any Dems will climb aboard?

  34. You broke my spreadsheet, McGehee.

    At least we weren’t dividing by Obama…

  35. At least we weren’t dividing by Obama…

    Rimshot! Thud! Sound of body being dragged off-stage..

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