August 16, 2013

“Stunning new study dismantles Obama’s ‘1% vs. 99%’ inequality argument”

Wait. There was an argument attached to that propagandist catch phrase?

And here I thought it was all about selling bumper stickers to clueless morons who like to wear the trappings of political activism without having to do the difficult work of knowing what the fuck it is they’re talking about.

Guess I have egg on my face!


“This growing inequality,” President Obama said during his recent Knox College speech, “is not just morally wrong, it’s bad economics.”

A strong statement — but one not supported by data, suggests a blockbuster new study by economists Steven Kaplan (University of Chicago) and Joshua Rauh (Stanford University). They examine two possible explanations for the rise in top-end inequality in their paper “It’s the Market: The Broad-Based Rise in the Return to Top Talent”:

1. The Superstar Syndrome. Technology and globalization has enabled highly talented and educated individuals to manage or perform on a larger scale, “applying their talent to greater pools of resources and reaching larger numbers of people, thus becoming more productive and higher paid.”

2. The “Greed is Good” Syndrome. Then again, maybe compliant corporate boards overpay CEOs, social norms against “exorbitant pay levels have broken down, or tax policy affects the distribution of surpluses between employers and employees.”

In their paper, Kaplan and Rauh conclude “it’s the market” rather than some class-wafaresque malfeasance at play. Here’s why:

1.The increase in pay at the highest income levels is broad-based: Public company executives, private company executives, hedge fund and private equity investors, Wall Street bankers, lawyers, and pro athletes have all experienced big jumps in pay over the past few decades. The researchers:

If the reason for growth of incomes at the very top is, say, managerial power in publicly owned companies, then one would expect the increases in income at the top levels to be much larger for that group. But the breadth of the occupations that have seen a rise in top income levels is much more consistent with the argument that the increase in “superstar” pay (or pay at the top) has been driven by the growth of information and communications technology, and the ways this technology allows individuals with particular skills that are in high demand to expand the scale of their performance.

2. Typical measures of high-end income inequality are incomplete. Inequality alarmists typically point to data from Thomas Piketty and Emmanel Saez which show the share of taxable income accruing to the top 1% up markedly since 1980 and at levels not seen since the Roaring ’20s. Yet once you add back transfer and taxes, as the Congressional Budget Office does in its analysis, you find that government policy — including the tax code — has already been restraining the rise inequality. Kaplan and Rauh: “In the most recent data from 2009, the aftertax, after-transfer income share of the top 1 percent was around the same level as in 1987–1988, 1996, and 2001.”


The researchers conclude:

Our evidence is not obviously consistent with those who suggest that the increase in pay at the top is driven by a recent removal of social norms regarding pay inequality. While top executive pay has increased, so has the pay of other groups, who are and were less subject to disclosure and, arguably, less subject to social norms. This is particularly true of private company executives and hedge fund and private equity investors.

Overall, we believe that our evidence remains more favorable toward the theories that root inequality in economic factors, especially skill-biased technological change, greater scale, and their interaction. Skill-biased technological change predicts that inequality will increase if technological progress raises the productivity of skilled workers relative to unskilled workers and/or raises the price of goods made by skilled workers relative to those made by unskilled workers. For example, computers and advances in information technology may complement skilled labor and substitute for unskilled labor. This seems likely to provide part, or even much, of the explanation for the increase in pay of professional athletes (technology increases their marginal product by allowing them to reach more consumers), Wall Street investors (technology allows them to acquire information and trade large amounts more easily) and executives, as well as the surge in technology entrepreneurs in the Forbes 400. Globalization may have contributed to greater scale, but globalization cannot drive the increase in inequality at the top levels given the breadth of the phenomenon across the occupations we study.

Also keep in mind that Obama is almost certainly wrong in his Knox College claim that the “link between higher productivity and people’s wages and salaries was severed – the income of the top 1 percent nearly quadrupled from 1979 to 2007, while the typical family’s barely budged.” As the Washington Post points out:

The CBO finds that, before taking taxes and transfers (like Social Security or the Earned Income Tax Credit) into account, real median household incomes grew 19.9 percent between 1979 and 2007; after taking transfers but not taxes into account, they grew 30 percent; and after taxes, they grew 38.2 percent … real median household incomes in America are growing, and it’s inaccurate of Obama to suggest otherwise.

So high-end inequality is likely a) being mainly driven by market forces and b) not having an obvious impact on the economic well being of the American middle-class. And keep in mind inequality is only a 1% vs. 99% thing. As Northwestern University economist Robert Gordon has pointed out, there’s been “no increase of inequality after 1993 in the bottom 99 percent of the population, and the remaining increase of inequality can be entirely explained by the behavior of incomes in the top 1 percent.”

In other words, the core thesis of Obamanomics — the rich have immorally gaffed all the income gains of the past 30 years and its time to redistribute — doesn’t seem to hold up. Rather than attacking the 1% or 0.1% or 0.01%, Washington should be focusing on boosting growth and economic mobility through education reform and improving innovation-driven productivity.

All rather compelling, and if you click over to Pethokoukis’ piece you’ll see charts and graphs as well that provide additional heft to the arguments presented by bourgeois capitalist apologists.

Having said that, I can refute all this information in two words:  Trayvon Martin was murdered and a White Hispanic walks free.

Okay, sure.  So my math was off. But that’s the problem with Pethokoukis and the professors and economists who produce studies like this:  they’re all about the numbers and never about the people behind them.

Which, tell me that doesn’t suggest a certain methodological affinity for control  with Joseph Stalin, who himself had something to say about turning people into statistics and thus removing the appeal to humanity from his ruling equations.

Enjoy your “research,” Professor’s Gulag.

Meanwhile, Trayvon is still dead.  And you don’t seem to have anything to say about that in your “study.”

Social Darwinists.  Racists.  Haters of children and supporters of Hispanic violence against school lads.

Shame on you.


Posted by Jeff G. @ 11:44am

Comments (7)

  1. You wrote “school lads” but we both know you were thinking “school boys.” It’s difficult for us enlightened whites to overcome our inborn racism, but we must strive to do so anyway.

  2. This study involves the use of Math. Mathematics is patriarchal and racisss and therefore irrelevant to Teh Narrative™.

  3. JUSTICE FOR TRAYVON !!!eleven

  4. I tried to do a non-scientific breakdown of the “1%” (like who are they) and I decided that a large number of the one who earn over a million/year are professional athletes and high paid movie actors and musical artists (and of course I don’t need to point out that we are talking about “high earners” not those already with money in the bank).

  5. Leigh, there are 5 A’s in maaaaath!!!!1!!

    Also six exclamation points and a randomly placed 1.

  6. A ha! It’s like raaaaacism!!!!1! I get it now.

  7. taaaaake onnnnnn racism