King for a Day, Reconsidered

A couple of weeks ago, I critiqued a number of David’s pieces on the topic of income inequality. In those pieces, David seemed to accept that income inequality had grown over time, but claimed that it was no big deal because people move up and down the income distribution over the course of their lives—what economists call ‘income mobility’. I pointed out that one of the main sources for David’s claims—a study conducted by the U.S. Treasury in 2007—seemed to 1) confirm the notion that income mobility is low in the U.S., yet still managed to 2) overstate the amount of income mobility we actually have. David promptly composed a follow-up post responding to the former but ignoring the latter, arguing that

A deeper look at economic mobility

I recently wrote several posts on the issue of income differences. My central argument is that, to meaningfully measure the economic gap, one must observe individuals and how they fare over time.

Regrettably, most studies instead take a snapshot of statistical categories in time—such as the “top one percent” and the “bottom 99 percent”. Problem is, categories are not people, which is why major studies that track individuals over time contradict the popular studies.

My counterpart Tim differs with me, and in a recent post he makes his case in large part by critiquing a study from the U.S. Treasury, which shows high income mobility. There are a few points he raises that are worth further reflection.

King for a Day

Over the past few months, David has posted several times on the topic of income inequality (for example, see here, here, and here), which he deems to be a non-issue. To support his case, a recurring point of his is that comparing percentiles of the income distribution—such as the ‘top one percent’ and the ‘bottom 99 percent’—is fallacious. In a recent column, David explains that

"The late economist Joseph Schumpeter compared income groups to hotel rooms: just as the former ranges from high to low, so the latter ranges from high-end to low-end. But the different categories fail to reflect who occupies them and whether occupants move to higher categories over time." 

In other words, if we have high income mobility—that is, lots of movement up and down the income distribution—then comparisons between different portions of the distribution are meaningless. But unfortunately, we don’t have high income mobility.

Misinformation on economic inequality

A recent piece of mine titled "Bernie Sanders’ Inequality Fallacies" created confusion among readers. Typically, those who disregard an argument and reply with misinformation can be ignored. But given the pervasiveness of misinformation among the intelligentsia and general public, it merits a response.

My article pointed out that a widespread fallacy about economic inequality is drawing conclusions based on statistical categories rather than human beings. This point seemed to escape many commenters:

“So the fact that real wages have been flat or declining while GDP triples and productivity doubles in the past four decades are meaningless?”  

“Wages have been frozen since 1969, but actual physical productivity has increased approximately 90 % over that time period.” 

“The result of more than forty years of conservative driven economic policies is that wages have stagnated for forty years, not six. That is just a fact.”

Who Cares if People Work Less?

In a post Tim wrote partly as a reply to my piece on the Congressional Budget Office’s (CBO) recent revelation that Obamacare will drive Americans to work less, he asks why we should care.

While acknowledging that Obamacare will cause workers to “withdraw their labor,” Tim maintains that these workers “will also take home a proportionally smaller share of the economic pie because they will be earning less. So the question is, why do you care how much other people work?”

If people were freely making choices, conservatives would not object. After all, Milton Friedman taught that free people make the best choices for themselves given the incentives they face in the private marketplace.

When Unemployment is Celebrated

In light of recent news that Obamacare discourages employment, the left has applauded the notion that working less is a good thing. But why should we celebrate forced unemployment?

Work disincentives have, until now, been universally recognized as negative for both individuals and society. Liberals, for instance, have agreed that unemployment benefits and food stamps may discourage work to some degree, but have maintained that, on the whole, the benefits simply outweigh the costs.