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Archive for the ‘Inequality’ Category

I periodically see tweets that deserve attention because they reveal something very important, usually in a clever and succinct fashion.

Today, let’s add to this collection.

I’ve argued, over and over again, that the best way to help the poor is to focus on policies designed to boost growth rather than policies designed to reduce inequality.

Simply stated, the former approach is a recipe for making everyone more prosperous, while the latter approach means everyone fights for bigger slices of a shrinking pie.

When making this argument, I sometimes ask people whether they would rather be a poor person in Hong Kong or France? There’s no welfare state in the former, but lots of opportunity, whereas France has plenty of handouts but not much hope for upward mobility.

But no matter how often I’ve tried to analyze and explain why we shouldn’t fixate on inequality, I’ve never come close to cramming this much insight into such a concise observation.

Kudos to @Jon_StewartMill. In just ten words, he captures the key insight that I’ve tried to get across in several dozen columns.

I’ll close with some speculation about why some people fixate on inequality. What makes them focus on trying to drag down the rich instead of finding ways to build up the poor?

I’m not sure, though there is polling data to suggest that some people really are motivated by envy and resentment of success.

But I suspect that politicians who play the class-warfare card simply think it’s a way of maximizing votes.

Even worse than the politicians are the “poverty hucksters” who deliberately lie about poverty in hopes of advancing a redistributionist agenda.

P.S. The most powerful numbers on why growth matters more than inequality come from China.

P.P.S. The most reprehensible effort to reduce inequality (by making everyone poorer) came from the IMF.

P.P.P.S. The most accurate political analysis of inequality came from Margaret Thatcher.

P.P.P.P.S. The best satire on the issue of inequality can be found in this “modest proposal.”

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Last year, I wrote a column that investigated why the left is fixated on the unequal distribution of income and wealth, yet doesn’t seem to care at all about unequal distribution of attractiveness.

The question becomes even more intriguing when you consider that attractiveness is oftentimes nothing more than luck, simply a matter of winning the genetic lottery.

People with lots of income and wealth, by contrast, generally work very hard to offer goods and services of value to society, so they actually earn their riches.

Let’s review some additional evidence about good luck for people with good looks.

The Economist shares data from a new book about the advantages enjoyed by attractive people.

Just why are pedestrians likelier (three times as likely, according to one study) to defy traffic laws to follow a man across the road when he is wearing a suit than the same man dressed in denim? Similarly motorists stuck at a traffic light are slower to honk their horn if the car in front has a prestige brand. …A further piece of research cited by the authors involved undergraduates who were shown photos of 50 chief executives from the Fortune 1000 list of big firms. Half of these bosses were from the most profitable groups and half from the least profitable. The undergraduates were asked to judge, on looks alone, which executives had qualities such as competence and dominance. Remarkably, the students tended to pick out those executives who led the most successful companies. …it seems more probable that people with a certain type of appearance are likely to get promoted than it is to believe they are innately more competent than everyone else. …When participants in a study were shown pictures of male employees of a business consultancy, with similar clothes and masked faces, they perceived the taller men more positively in terms of team leadership skills. Indeed, research has shown that taller and more attractive men earn more than their shorter and plainer colleagues. …Physical characteristics also affect recruitment at lower levels. A group of Italian researchers sent CVs to a range of employers, some with photos and some without. Applicants deemed attractive by independent scorers were 20% more likely to get an interview than the same application without a photo.

Being attractive doesn’t just help people get better jobs and earn more income.

Here’s some data that may be even more important to a lot of people.

This study was conducted to quantify the Tinder socio-economic prospects for males based on the percentage of females that will “like” them. Female Tinder usage data was collected and statistically analyzed to determine the inequality in the Tinder economy. It was determined that the bottom 80% of men (in terms of attractiveness) are competing for the bottom 22% of women and the top 78% of women are competing for the top 20% of men. The Gini coefficient for the Tinder economy based on “like” percentages was calculated to be 0.58. This means that the Tinder economy has more inequality than 95.1% of all the world’s national economies. In addition, it was determined that a man of average attractiveness would be “liked” by approximately 0.87% (1 in 115) of women on Tinder.

Here’s a chart showing that only the most attractive men have an advantage on the hook-up site.

Here’s an explanation of the chart, as well as some discussion of how the system is wildly unequal.

The area in blue represents the situations where women are more likely to “like” the men. The area in pink represents the situations where men are more likely to “like” women. The curve doesn’t go down linearly, but instead drops quickly after the top 20% of men. Comparing the blue area and the pink area we can see that for a random female/male Tinder interaction the male is likely to “like” the female 6.2 times more often than the female “likes” the male. …the wealth distribution for males in the Tinder economy is quite large. Most females only “like” the most attractive guys. …Figure 3 compares the income Gini coefficient distribution for 162 nations and adds the Tinder economy to the list. …The Tinder economy has a higher Gini coefficient than 95.1% of the countries in the world.

And here’s the chart from the article showing how Tinder inequality compares to economic inequality among nations.

Regular guys don’t do very well and unattractive guys get the short end of the stick.

…the most attractive men will be liked by only approximately 20% of all the females on Tinder. …Unfortunately, this percentage decreases rapidly as you go down the attractiveness scale. According to this analysis a man of average attractiveness can only expect to be liked by slightly less than 1% of females (0.87%). This equates to 1 “like” for every 115 females. …The bad news is that if you aren’t in the very upper echelons of Tinder wealth (i.e. attractiveness) you aren’t likely to have much success.

Whether your goal is income/wealth or sex/relationships, the bottom line is that it helps to be attractive.

And being attractive is largely the result of luck. Which brings us back to the issue of why leftists don’t try to address this very meaningful form of inequality. Where are their plans to prevent discrimination against those of us who didn’t win the looks lottery? And to imposes taxes on those who wound up with favorable genes?

P.S. Libertarians are sometimes accused of being autistic dorks, and you don’t find many females at libertarian events, all of which presumably means male libertarians might benefit from government redistribution of dating partners. But we are moral and don’t favor government coercion and intervention, even when we might gain an advantage.

P.P.S. Here’s what would happen if Elizabeth Warren applied her class-warfare approach to dating.

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I’ve created a new page to showcase various “Poverty Hucksters.”

These are people and institutions that use data about income distribution to mislead and lie about the prevalence of poverty in the United States.

This rogue’s gallery includes:

What is their dodgy tactic? Here’s how I described the methodology in 2018.

…the bureaucrats…have put together a measure of income distribution and decided that “relative poverty” exists for anyone who has less than 50 percent of the median level of disposable income.

More recently, I explained why this approach is senseless, at least if one wants to measure actual poverty

…an artificial and misleading definition of poverty. One that depends on the distribution of income rather than any specific measure of poverty. Which is insanely dishonest. It means that everyone’s income could double and the supposed rate of poverty would stay the same. Or a country could execute all the rich people and the alleged rate of poverty would decline.

Now we have a new member of this ill-begotten group of hucksters.

Here’s an excerpt from an article in the latest issue of the Economist.

…international comparisons…make…America a true outlier. When assessed on poverty relative to other countries (the share of families making less than 50% of the national median income after taxes and transfers), America is among the worst-performing in the OECD club of mostly rich countries (see chart). Despite its higher level of income, that is not because it starts with a very large share of poor people before supports kick in—it is just that the safety net does not do as much work as elsewhere. On this relative-poverty scale, more than a fifth of American children remain poor after government benefits, compared with 3.6% of Finnish children.

And here’s the accompanying chart.

Needless to say, any chart that purports to show less poverty in Mexico than the United States is laughably inaccurate.

But that’s the kind of perverse outcome that is generated when using a ridiculously dishonest approach.

I suppose the Economist deserves a bit of credit. In both the article and in the chart, they acknowledge (at least for careful readers) that they’re measuring the share of the population with less than 50 percent of a society’s median income, not the share of people living in poverty.

So why, then, do they refer to the “poverty rate”?

I have no idea if the reporter is dishonest or incompetent, but I can say with certainty that the Economist has done a disservice to readers.

P.S. The Economist relied on dodgy data from the Organization for Economic Cooperation and Development. And if you read the columns about the other Poverty Hucksters, you’ll find that most of them also relied on numbers from that left-leaning, Paris-based bureaucracy. Yet another example of why the OECD is the worst international bureaucracy, at least on a per-dollar-spent basis.

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Here’s a simple quiz to determine whether you should support a candidate like Bernie Sanders or Elizabeth Warren: Would you embrace a policy that increased income for poor Americans by 10 percent if it also happened to increase income for rich Americans by 15 percent?

Normal people automatically say yes. After all, they don’t resent rich people and they want lower-income people to enjoy better living standards.

Some of our left-leaning friends (including at the IMF!), however, are so fixated on inequality that they are willing to deprive the poor so long as higher-income people have even larger losses (Margaret Thatcher nailed them on this issue).

Let’s look at some analysis of this issue.

The Wall Street Journal has an editorial that starts by highlighting some good economic news.

…low- and middle-income folks are reaping more economic benefits than during the Obama years. …Worker earnings increased by 3.4% while the poverty rate declined 0.5 percentage points to 11.8%, the lowest level since 2001. Benefit rolls are shrinking as low-income workers earn more. …the number of full-time, year-round workers increased by 2.3 million in 2018, and employment gains were biggest among minority female-led households. The share of workers in female-led households who worked full-time year-round increased by 4.2 percentage points among blacks and 3.6 percentage points among Hispanics. …The jobless rate for black women last month fell to a historic low of 4.4% and neared a nadir for Hispanic women at 4.2%. …The share of households making less than $35,000 in inflation-adjusted dollars has fallen 1.2 percentage points since 2016 while those earning between $50,000 and $150,000 and more than $200,000 have both increased by 0.8 percentage points.

It then makes to all-important point that policy makers should fixate on growth rather than inequality if the goal is to help he less fortunate.

Democrats focus on income inequality… What really matters for a healthy democratic society, however, are economic opportunity and income mobility. …The Obama policy mix, which Democrats want to return to only more so, put a priority on reducing inequality rather than increasing economic growth. But higher taxes, hyper-regulation and income redistribution resulted in slower growth and more inequality during the Obama Presidency. …This is a lesson for the left and those on the big-government right who want to use tax policy and subsidies to redistribute income to reduce inequality. Policies that hurt growth hurt lower-income workers the most.

José Ponce, in a column for FEE, sagely observes that “Gini” numbers can be very misleading because they tell us nothing about a society’s overall prosperity.

…inequality on its own is insufficient for any means of understanding. By definition, it measures the level of income or wealth that a group of people receive or own relative to another group of people within a society. The key word here is relative. That means it provides no information in regards to whether the bottom quintile has a low or high level of income or about the quality of life… For instance, Cuba, with a Gini index of 0.38 and Liberia with 0.32 have much less inequality than the highly-developed Singapore and Hong Kong, with Gini coefficients of 0.45 and 0.53, respectively. Citizens in a poor country with low inequality are equitably poor. …Elaborating on this point, rising inequality may not necessarily be a negative outcome just as declining inequality may not necessarily be positive. A developing society where both the rich and the poor have growing incomes, but the rich are rising faster than the poor, will experience a surge in inequality. However, since both the rich and the poor have increased incomes, everyone is better off than before.

Let’s close with a chart from Mark Perry showing that ever-greater numbers of Americans are climbing the income ladder.

P.S. This data from China is the most powerful and persuasive that I’ve seen on why growth matters far more than inequality.

P.P.S. This bit of satire also illustrates why inequality numbers are grossly misleading.

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I religiously read just about everything from Thomas Sowell, John Stossel, Walter Williams, Tim Carney, and other libertarian-minded experts

But I also make a point to regularly read non-libertarians such as Desmond Lachman, Will Wilkinson, Dalibor Rohac, and Noah Smith even though I sometimes – or even often – disagree with their policy prescriptions.

What matters is that they generally have intelligent and thoughtful observations on issues that I care about.

But they’re not necessarily accurate. For instance, Noah Smith recently wrote an interesting column for Bloomberg about whether people are poor because of their own behavior or because of external factors.

Here are the passages that caught my attention.

…there is at least one rich country where people…work hard, avoid risky, self-destructive behavior and make wise life choices. That country is Japan. And it still has plenty of poverty. …Given all of this good behavior, conservatives might expect that Japan’s poverty rate would be very low. But the opposite is true; Japan has a relatively high number of poor people for an advanced country. Defined by the percentage of the population earning less than half of the median national income, Japan’s poverty rate is more than 15% — a little lower than the U.S., but considerably higher than countries such as Germany, Canada or Australia… This suggests that there is something very wrong with the conservative theory of poverty.

Fortunately, I don’t need to explain what’s wrong with Smith’s analysis.

Writing for National Review, Kevin Williamson has already pointed out his errors.

Smith here relies on a useless measure of “relative” poverty, the share of the population earning less than half of the median income. You can see the limitations of that approach: A uniformly poor society in which 99 percent of the people live on 50 cents a day and 1 percent live on 49 cents a day would have a poverty rate of 0.00; a rich society with incomes that are rising across-the-board but are rising much more quickly for the top two-thirds would have a rising poverty rate… It would be far better to consider poverty in absolute terms, but our progressive friends are strangely resistant to that.

It is indeed strange that so many folks on the left have decided to use an artificial and misleading definition of poverty. One that depends on the distribution of income rather than any specific measure of poverty.

Which is insanely dishonest. It means that everyone’s income could double and the supposed rate of poverty would stay the same.

Or a country could execute all the rich people and the alleged rate of poverty would decline.

No wonder the practitioners of this approach often produce absurd data, such as the OECD’s assertion that there’s more poverty in the United States than in basket case economies such as Greece and Italy.

Shame on Noah Smith. He should know better.

I’ll continue to read his work, so he’s not being kicked out of my club of non-libertarian writers.

But I will add him to list of people and groups who are guilty of peddling fake poverty data. These “poverty hucksters” include the OECD, of course, and also the United Nations, the New York Times, the Equal Welfare Association, Germany’s Institute of Labor Economics, the Obama Administration, and the European Commission.

P.S. A “poverty pimp,” by contrast, is someone who personally profits from administering the welfare state.

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Looking at issues such as mobility, fairness, and inequality, I’ve recently shared excellent videos from Russ Roberts and John Stossel.

I also had an opportunity to discuss these issues yesterday on CNBC.

As you can see, I started with a political observation about the American people being naturally inclined to support growth and upward mobility, which suggests limited appeal for the spiteful agenda of Bernie Sanders, AOC, and the rest of the class-warfare crowd.

I hope I’m right about that, and a quick online search found this bit of somewhat-encouraging polling data from 2014.

Since I’m a bit of a bleeding-heart libertarian, I then took the opportunity to condemn various forms of cronyism (such as the corrupt TARP bailout) that transfer unearned money into the pockets of undeserving rich people.

I suggested that honest people from across the ideological spectrum could – and should – come together to curtail such nauseating policies. That’s the kind of fairness government should promote.

Though I’ll confess I’m not very hopeful. I concluded the discussion by observing that Senator Sanders recently chose to sacrifice the interests of poor children in order to curry favor with the union bosses at the National Education Association.

P.S. As indicated by his question about the desirability of millionaires, the host (Robert Frank) seemed sympathetic to good policy. He also was sufficiently well informed to know about how China’s partial liberalization has lifted hundreds of millions of people out of abject poverty.

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In the debate over “fairness,” my statist friends mistakenly see the economy as a fixed pie. This leads them to claim that rich people are rich because poor people are poor.

But there’s no data to support this position (other than in kleptocracies such as Venezuela where a ruling socialist elite steals wealth).

So some folks on the left will back down from that extreme claim and instead assert that the rich are the only ones enjoying more prosperity as time goes by.

For evidence, they cite data showing that incomes have been mostly flat over the past 30-40 years for poor people and middle-class people, particularly when compared to the rich.

But there’s a big problem with their data. They look at income levels in some past year and then they compare that data with income levels in a recent year.

But, as I wrote back in 2015, this means they are comparing apples and oranges.

There is considerable income mobility in the United States, which means today’s rich and today’s poor won’t necessarily be tomorrow’s rich and tomorrow’s poor.

I don’t necessarily expect people to automatically believe me. So if you’re one of the skeptics, watch this video from Russ Roberts. It is almost eight minutes and it is filled with rigor and data, but it’s worth watching since it masterfully demonstrates that lower-income and middle-class households actually enjoy larger gains than rich households.

As Russ says, you have to follow the same people over time if you want legitimate analysis.

And he shares lots of data showing that the rich actually have smaller-than-average gains in income over time.

It’s also worthwhile to investigate what happens with families over time. What we find is that children from poor households are more likely to exceed their parents’ income than children from rich households.

In other words, Russ’ conclusion was right. The American dream still exists. And if we can convince politicians to focus on growth, we can achieve better outcomes for people of all income levels.

P.S. The above video is a great addition to John Stossel’s recent video.

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