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Voodoo Inequality

from The Wall Street Journal, The Mumbo-Jumbo of ‘Middle-Class Economics’ by Alan Reynolds

excerpts:

Amazingly, these same statistics also show there has been no increase for the “bottom” 90% since 1968. Measured in 2013 dollars, average income of the bottom 90% was supposedly $32,730 in 1968, $32,887 in 1980, $35,326 in 2007 and $32,341 in 2013.

This is totally inconsistent with the data the Bureau of Economic Analysis uses to calculate GDP. For example, real personal consumption per person has tripled since 1968 and doubled since 1980, according to the BEA. Are all those shopping malls, big box stores, car dealers and restaurants catering to only the top 10%? The question answers itself.

Instead of the White House concoction, consider the Congressional Budget Office estimates of actual median household income. Measured in 2013 dollars, after-tax median income rose briskly from $46,998 in 1983 to $70,393 in 2008 but remained below that 2008 peak in 2011. The sizable increase before 2008 is partly because the average of all federal taxes paid by the middle fifth has almost been cut in half since 1981—from 19.2% that year to 17.7% in 1989, 16.5% in 2000, 13.6% in 2003 and 11.2% in 2011.

Census Bureau estimates of median “money income,” on the other hand, do not account for taxes, so they miss a major source of improved living standards. They also exclude realized capital gains, public and private health insurance, food stamps and other in-kind benefits. Even so, the Census Bureau’s flawed estimate of median income rose 13.7% from 1984 to 2007 before falling 8% from 2007 to 2013.

Both CBO and Census estimates show only six years of middle-class stagnation, not 40.

The Piketty and Saez data are crucially flawed. The total income reported on individual tax returns, which is the basis of their estimates, is substantially less than any official measure of total income, and the difference keeps getting wider. In their original 2003 study, Messrs. Piketty and Saez mentioned one rapidly expanding source of missing income—disappearing dividends in tax-return data. These were “due mostly to the growth of funded pension plans and retirement savings accounts through which individuals receive dividends that are never reported as dividends on income tax returns.”

The same is true of interest and capital gains accumulating inside such tax-free savings accounts. These have grown to nearly $20 trillion, according to a 2014 report by Tax Foundation economist Alan Cole.

Messrs. Piketty and Saez shrink the total income numbers further by subtracting all transfer payments, such as Social Security and unemployment benefits, and excluding all health and retirement benefits provided by private employers or government agencies. The result, as Brookings Institution’s Gary Burtless noted, is that, “The Piketty-Saez measure [of total income] excluded 24% of NIPA [National Income and Product Accounts] ‘personal income’ in 1970, but it excluded 37% of ‘personal income’ in 2008.” It excluded 40% of personal income by 2011.

People often form strong opinions on the basis of weak statistics, but this “bottom 90%” fable may be the worst example yet. The Economic Report of the President’s description of “middle-class economics” rests on a far-fetched claim that middle incomes have stagnated for four decades rather than from 2008-13—most of these years during the Obama presidency.

HKO

Income inequality is not so easy to measure, and the media does a very poor job of vetting what is used for political purposes.

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The Gradual Encroachment of Ideas

“It was perhaps John Maynard Keynes who said it best, in the closing chapter of The General Theory:

the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.”

“Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.109”

Excerpt From: F. A. Hayek. “The Road to Serfdom.” University of Chicago Press, 2010-04-06. iBooks.
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Unexpected Results

“We are ready to accept almost any explanation of the present crisis of our civilization except one: that the present state of the world may be the result of genuine error on our own part and that the pursuit of some of our most cherished ideals has apparently produced results utterly different from those which we expected.”

Excerpt From: F. A. Hayek. “The Road to Serfdom.” iBooks. https://itun.es/us/vAe3H.l

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Socialist Means and Ends

“What he denied was that they could maintain those values and still carry out their proclaimed program of extensive central planning. As he succinctly put it, “socialism can be put into practice only by methods which most socialists disapprove.”104 Even if it were to begin as a “liberal socialist” experiment (none of the real-world cases have ever done so, one might add), full-scale planning requires that the planning authorities take over all production decisions; to be able to make any decisions at all, they would need to exercise more and more political control. If one tries to create a truly planned society, one will not be able to separate out control of the economy from political control. This was Hayek’s logical argument against planning, one that he had succinctly articulated in 1939 in “Freedom and the Economic System.”

“In the end agreement that planning is necessary, together with the inability of the democratic assembly to agree on a particular plan, must strengthen the demand that the government, or some single individual, should be given powers to act on their own responsibility. It becomes more and more the accepted belief that, if one wants to get things done, the responsible director of affairs must be freed from the fetters of democratic procedure”

Excerpt From: F. A. Hayek. “The Road to Serfdom.” University of Chicago Press, 2010-04-06. iBooks.
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Check out this book on the iBooks Store: https://itun.es/us/vAe3H.l

 

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Liberty and Liberalism

“The fact that this book was originally written with only the British public in mind does not appear to have seriously affected its intelligibility for the American reader. But there is one point of phraseology which I ought to explain here to forestall any misunderstanding. I use throughout the term “liberal” in the original, nineteenth-century sense in which it is still current in Britain. In current American usage it often means very nearly the opposite of this. It has been part of the camouflage of leftish movements in this country, helped by the muddleheadedness of many who really believe in liberty, that “liberal” has come to mean the advocacy of almost every kind of government control. I am still puzzled why those in the United States who truly believe in liberty should not only have allowed the left to appropriate this almost indispensable term but should even have assisted by beginning to use it themselves as a term of opprobrium. This seems to be particularly regrettable because of the consequent tendency of many true liberals to describe themselves as conservatives.”

“It is true, of course, that in the struggle against the believers in the all-powerful state the true liberal must sometimes make common cause with the conservative, and in some circumstances, as in contemporary Britain, he has hardly any other way of actively working for his ideals. But true liberalism is still distinct from conservatism, and there is danger in the two being confused. Conservatism, though a necessary element in any stable society, is not a social program; in its paternalistic, nationalistic, and power-adoring tendencies it is often closer to socialism than true liberalism; and with its traditionalistic, anti-intellectual, and often mystical propensities it will never, except in short periods of disillusionment, appeal to the young and all those others who believe that some changes are desirable if this world is to become a better place. A conservative movement, by its very nature, is bound to be a defender of established privilege and to lean on the power of government for the protection of privilege. The essence of the liberal position, however, is the denial of all privilege, if privilege is understood in its proper and original meaning of the state granting and protecting rights “to some which are not available on equal terms to others.”

Excerpt From: F. A. Hayek. “The Road to Serfdom.” University of Chicago Press, 2010-04-06. iBooks.
This material may be protected by copyright.

Check out this book on the iBooks Store: https://itun.es/us/vAe3H.l

This recalls:

“The whole modern world has divided itself into Conservatives and Progressives. The business of Progressives is to go on making mistakes. The business of Conservatives is to prevent mistakes from being corrected. Even when the revolutionist might himself repent of his revolution, the traditionalist is already defending it as part of his tradition. Thus we have two great types — the advanced person who rushes us into ruin, and the retrospective person who admires the ruins. He admires them especially by moonlight, not to say moonshine. Each new blunder of the progressive or prig becomes instantly a legend of immemorial antiquity for the snob. This is called the balance, or mutual check, in our Constitution.” ― G.K. Chesterton