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Archive for the ‘Mobility’ Category

I fully agree with my leftist friends who say that corporations want to extract every penny they can from consumers. I also (mostly) agree with them when they say corporations are soulless entities that don’t care about people.

But after they’re done venting, I then try to educate them by pointing out that the only way corporations can separate consumers their money is by vigorously competing to provide desirable goods and services at attractive prices.

Moreover, their “soulless” pursuit of those profits (as explained by Walter Williams) will lead them to be efficient and innovative, which boosts overall economic output.

Moreover, in a competitive market, it’s not consumers vs. corporations, it’s corporations vs. corporations with consumers automatically winning.

Mark Perry of the American Enterprise Institute makes a very valuable point about what happens in a free economy.

Comparing the 1955 Fortune 500 companies to the 2017 Fortune 500, there are only 59 companies that appear in both lists (see companies in the graphic above). In other words, fewer than 12% of the Fortune 500 companies included in 1955 were still on the list 62 years later in 2017, and more than 88% of the companies from 1955 have either gone bankrupt, merged with (or were acquired by) another firm, or they still exist but have fallen from the top Fortune 500 companies (ranked by total revenues).

It’s not just the Fortune 500.

…corporations in the S&P 500 Index in 1965 stayed in the index for an average of 33 years. By 1990, average tenure in the S&P 500 had narrowed to 20 years and is now forecast to shrink to 14 years by 2026. At the current churn rate, about half of today’s S&P 500 firms will be replaced over the next 10 years.

Here’s Mark’s list of companies that have stayed at the top of the Fortune 500 over the past 62 years.

Mark then offers an economic lesson from this data.

The fact that nearly 9 of every 10 Fortune 500 companies in 1955 are gone, merged, or contracted demonstrates that there’s been a lot of market disruption, churning, and Schumpeterian creative destruction over the last six decades. It’s reasonable to assume that when the Fortune 500 list is released 60 years from now in 2077, almost all of today’s Fortune 500 companies will no longer exist as currently configured, having been replaced by new companies in new, emerging industries, and for that we should be extremely thankful. The constant turnover in the Fortune 500 is a positive sign of the dynamism and innovation that characterizes a vibrant consumer-oriented market economy.

He also emphasizes that consumers are the real beneficiaries of this competitive process.

…the creative destruction that results in the constant churning of Fortune 500 (and S&P 500) companies over time is that the process of market disruption is being driven by the endless pursuit of sales and profits that can only come from serving customers with low prices, high-quality products and services, and great customer service. If we think of a company’s annual sales revenues as the number of “dollar votes” it gets every year from providing goods and services to consumers… As consumers, we should appreciate the fact that we are the ultimate beneficiaries of the Schumpeterian creative destruction that drives the dynamism of the market economy and results in a constant churning of the firms who are ultimately fighting to attract as many of our dollar votes as possible.

Incidentally, Mark did this same exercise in 2014 and 2015 and ascertained that there were 61 companies still remaining on the list.

So creative destruction apparently has claimed two more victims.

Or, to be more accurate, the needs and desires of consumers have produced more churning, leading to greater material abundance for America.

I’ll close with two points.

All of which explains why I want separation of business and state.

The bottom line is that an unfettered market produces the best results for the vast majority of people. Yes, people are greedy, but that leads to good outcomes in a capitalist environment.

But we get awful results if cronyism is the dominant system, and that seems to be the direction we’re heading in America.

P.S. Even when corporations try to exploit people in the third world, the pursuit of profits actually results in better lives for the less fortunate.

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Every so often, I mock the New York Times for biased or sloppy analysis.

Now there’s a new column by David Leonhardt that cries out for correction.

He’s very upset that upper-income people are enjoying higher incomes over time.

A…team of inequality researchers…has been getting some attention recently for a chart… It shows the change in income between 1980 and 2014 for every point on the distribution, and it neatly summarizes the recent soaring of inequality. …the very affluent, and only the very affluent, have received significant raises in recent decades. This line captures the rise in inequality better than any other chart or simple summary that I’ve seen. …only very affluent families — those in roughly the top 1/40th of the income distribution — have received…large raises. …The basic problem is that most families used to receive something approaching their fair share of economic growth, and they don’t anymore.

And here’s the chart that ostensibly shows that the economy is broken.

And what is the solution for this alleged problem? Class-warfare taxation and bigger government, of course.

…there is nothing natural about the distribution of today’s growth — the fact that our economic bounty flows overwhelmingly to a small share of the population. Different policies could produce a different outcome. My list would start with a tax code that does less to favor the affluent, a better-functioning education system, more bargaining power for workers and less tolerance for corporate consolidation.

Whenever I see this type of data, I’m automatically suspicious for two reasons.

  1. The people at various income levels in 1980 aren’t the same as the people at those income levels in 2014. In other words, there is considerable income mobility, with some high-income people falling to the middle of the pack, or even below, and some low-income people climbing the middle of the income distribution, or even higher. At the very least, this type of chart exaggerates the degree to which “the rich are getting richer.”
  2. Moreover, rich people getting rich doesn’t imply that poor people are losing income. This chart shows that all income percentiles generally enjoy more income with each passing year, so it isn’t grossly misleading like the charts that incorrectly imply income gains for the rich are at the expense of the poor. Nonetheless, a reader won’t have any way of knowing that more inequality and poverty reduction can go hand in hand.

But I think this chart from the New York Times inadvertently shows something very interesting.

As shown in the excerpt above, Mr. Leonhardt wants us to look at this data and support bigger government and class warfare.

Yet look at the annual data. The chart above has the numbers for 1980 and 2014. To the right, I’ve put together the numbers for 1987, 1996, and 2004.

One obvious conclusion is that prosperity (as shown by rising income levels) was much more broadly and equally shared in the 1980s and 1990s, back when the economy was moving in the direction of free markets and smaller government under both Reagan and Clinton.

But look at what happened last decade, and what’s been happening this decade. Government has been expanding (as measured by falling scores from Economic Freedom of the World).

And that’s the period, thanks to Bush-Obama statism, when lower-income people began to lag and income gains were mostly concentrated at the top of the income redistribution.

As the very least, this certainly suggests that Leonhardt’s policy agenda is misguided. Assuming, of course, the goal is to enable more prosperity for the less fortunate.

I’ll add another point. I suspect that big income gains for the rich in recent years are the result of easy-money policies from the Federal Reserve, which have – at least in part – pushed up the value of financial assets.

The bottom line is that Leonhardt seems motivated by ideology, so he bends the data in hopes of justifying his leftist agenda.

What makes this sad is that the New York Times used to be far more sensible.

Back in 1982, shortly after the Professors Hall and Rabushka unveiled their plan for a flat tax, here’s what the New York Times opined.

Who can defend a tax code so complicated that even the most educated family needs a professional to decide how much it owes? …President Reagan’s tax package will eventually roll back rates to the level of the late 1970’s, but it will not simplify the code or rid it of provisions that penalize hard work and reward unproductive investment. …the income base that is taxed has been so eroded by exceptions and preferences that the rates on what is left to tax must be kept high. Thus, the tax on an extra dollar of income for a typical family earning $20,000 is 28 percent and progressively higher for the more affluent. …The most dramatic fresh start, without changing the total amount collected, would be a flat-rate tax levied on a greatly broadened income base. Senator Helms of North Carolina would rid the law of virtually every tax preference and tax all income at about 12 percent. Representative Panetta of Cali-fornia would retain a few preferences and tax at a flat 19 percent. Either approach would greatly improve the efficiency of the system, simplifying calculations and increasing the incentive to earn.

And here’s what the editors wrote about Governor Jerry Brown’s modified flat tax in 199s. They started by praising the core principles of the flat tax.

Taking Jerry Brown seriously means taking his flat tax proposal seriously. Needlessly, he’s made that hard to do. By being careless, the former California Governor has bent a good idea out of shape. …Mr. Brown’s basic idea — creating a simplified code that encourages saving — is exactly right. …The present tax code is riddled with wasteful contradictions and complexity. For example, profit from corporate investment is taxed twice — when earned by the corporation and again when distributed to shareholders. That powerfully discourages savings and investment — the exact opposite of what the economy needs to grow. The remedy is, in a word, integration, meshing personal and corporate codes so that the brunt of taxes falls on consumption, not saving. …there is a reform that achieves all these objectives. Robert Hall and Alvin Rabushka, economists at the Hoover Institution, have proposed an integrated code that applies a single rate to both personal and corporate income. Their plan wipes away most deductions and exemptions, permitting a low tax rate of 19 percent. …Under the Hall-Rabushka plan, individuals would pay taxes on earnings and corporations would pay tax on interest, dividends and profits. That way, every dollar of income would be taxed once and only once.

And they rightly criticized Governor Brown for violating those principles.

Jerry Brown borrowed some of the elements of Hall-Rabushka. He too would eliminate wasteful exemptions, adopt a single rate and favor saving by exempting corporate investment. But at that point, he turns glib. He would impose on corporations a value-added tax, similar to a national sales tax. That eliminates the elegant symmetry of Hall-Rabushka. Indirectly, Mr. Brown’s variation would tax some income twice — which is why his supposed 13 percent rate would collect revenue equal to about 20 percent of total income.

Wow, this isn’t what I would write, but it’s within shouting distance.

The editors back then understood the importance of low marginal tax rates and they recognized that double taxation is a bad thing.

Now check out what the New York Times believes today about tax reform.

First and foremost, the editors want more money taken from the productive economy to expand the D.C. swamp.

Real reform would honestly confront the fact that in the next decade we will need roughly $4.5 trillion more revenue than currently projected to meet our existing commitment…. Even more would be needed if the government were to make greater investments.

And even though class-warfare taxation is unlikely to generate much revenue, the editors want both higher tax rates and more double taxation.

…it would make sense to increase the top rates on them and eliminate a break on income from investments. …the richest 1 percent pay 33 percent of their total income in taxes; if rates were changed so they paid 40 percent, it would generate $170 billion of revenue in the first year.

The editors want to take one of the most anti-competitive features of the current system and make it even worse.

It would also be a good idea to scale back accelerated depreciation allowances that let businesses write off investments faster than assets actually wear out. Speedy write-offs for luxuries like corporate jets could be eliminated altogether.

They also want to further undermine the ability of U.S. companies to compete on a level playing field in foreign markets.

…they should agree to close…the ability of corporations to defer tax on profits earned abroad.

In a display of knee-jerk statism, the editors also want new tax burdens to finance an ever-larger burden of government. Such as an energy tax.

New forms of taxation are also needed. Even prominent Republicans like James Baker III, George Shultz and Henry Paulson Jr. support a carbon tax imposed on emissions to reduce greenhouse gases. …revenue generated by carbon taxes could be used for other purposes as well, including investments in renewable energy and public transportation.

And a tax on financial transactions.

Revenue can also be raised by imposing a tax on the trading of stocks, bonds and derivatives. …Estimates show that a financial transaction tax of even 0.01 percent per trade ($10 on a $100,000 trade) could raise $185 billion over 10 years, enough to finance prekindergarten for 3- and 4-year olds, with money left over.

But the granddaddy of new taxes would be the value-added tax, a money machine for bigger government.

A value-added tax would be akin to a national sales tax, but harder to evade than traditional sales taxes and thus an efficient revenue raiser.

I’m genuinely curious whether there is any type of tax increase the NYT wouldn’t support.

But that’s not really the point of this column. The real lesson is that it’s sad that the editors have gone from being rationally left to being ideologically left.

P.S. I confess that I especially enjoy when the New York Times inadvertently publishes pieces that show the benefits of free markets and personal liberty.

Which is sort of what happened with Leonhardt’s data, which shows more broadly shared prosperity when economic liberty was increasing.

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I don’t know whether it’s because I’m dedicated or masochistic, but I woke up at 3:00 AM in Serbia to live-tweet the Democratic presidential debate.

In retrospect, staying in bed would have been a better choice. This debate was basically the same as the others, with both Hillary Clinton and Bernie Sanders competing on who could turn America into Greece at the fastest rate.

Both candidates argued for higher tax rates on evil rich people, as well as sinister corporations, ostensibly because bigger government will make America more equal.

For those who care about the real world, however, this isn’t such a good idea.

Larry Lindsey, a former Governor at the Federal Reserve, writes in the Wall Street Journal that leftist policies actually cause inequality.

…when you look at performance and not rhetoric, the administrations of political progressives have made the distribution of income more unequal than their adversaries, who supposedly favor the wealthy. …inequality rose more under Bill Clinton than under Ronald Reagan. And it wasn’t even close. While the inequality increase as measured by the Gini index was only slightly more during Clinton’s two terms, the Theil index and mean log deviation increased two and three times as much, respectively. Barack Obama’s administration follows this pattern… The Gini index rose more than three times as much under Mr. Obama than under Mr. Bush. The Theil index increased sharply during the Obama administration, while it fell slightly under Bush 43.

Larry explains what drove these results.

And two big factors are easy-money monetary policies that artificially push up the value of financial assets (thus helping the rich) and redistribution policies that make dependency more attractive than work (thus hurting the poor).

Democratic presidents presided over bubble economies fueled by easy monetary policy. There is no better way to make the rich richer than to run policies that push up the price of financial assets. Cheap money is a boon to those who have access to it. …Transfer payments under Mr. Obama increased by $560 billion. By contrast private-sector wages and salaries grew by $1.1 trillion. So for every $2 in extra wages, about $1 was paid out in extra transfer payments—lowering the relative reward to work. …the effective tax rate on the extra earnings—including lost government benefits such as food stamps, the earned-income tax credit, and medical support payments—is between 50% and 80%. This phaseout of the ever increasing array of benefits has created a “working-class trap” instead of a “poverty trap” that is increasing inequality and keeping the income of these households lower than they might otherwise be.

I especially like Larry’s conclusion.

He points out that statist policies have a long history of failure. The only real beneficiaries are members of the parasite class in Washington.

None of this should really be surprising. If the socialist ideal of “from each according to his ability, to each according to his need” worked in practice, the Berlin Wall might still be standing. …Redistribution through the political process is not costless—even in a perfect world there would be a large bureaucracy to feed. Special-interest elites also emerge when so much money is being moved around. They take their cut, introducing even more inefficiency into the system. …voters who think the progressives running today are going to reduce inequality are falling into the same trap as people entering fifth or sixth marriages—the triumph of hope over experience.

So why do our friends on the left have such an anti-empirical approach to the issue of inequality?

Instead of fixating on inequality, why don’t they focus on policies that will actually help poor people?

Some of them probably don’t care. They simply view class warfare as a way of creating resentment and getting votes.

But many leftists are doubtlessly sincere and genuinely want to help the less fortunate.

The problem is that they suffer from the fixed-pie fallacy.

My Cato Institute colleague Chelsea German explains this fundamentally flawed understanding of the world.

“The rich are getting richer and the poor are getting poorer.” Senator Bernie Sanders first said those words in 1974 and has been repeating them ever since. …A simple logical error underlies Sanders’ belief. If we assume that wealth is a fixed pie, then the more slices the rich get, the fewer are left over for the poor. In other words, people can only better themselves at the expense of others. In the world of the fixed pie, if we observe the rich becoming richer, then it must be because other people are becoming poorer. Fortunately, in the real world, the pie is not fixed. US GDP is growing, and it’s growing faster than the population.

Amen.

And it’s not just the U.S. data on how all income classes are climbing over time. Check out the “hockey stick” showing how the entire world is becoming richer.

Last but not least, Kyle Smith also addresses the topic of inequality in his New York Post column. He starts by explaining there isn’t a problem.

…there is no inequality crisis. …The US is only 42nd (out of 117 countries measured) in income inequality, according to the World Bank. We’re only 16th when it comes to the wealth held by the top 1%.

He then makes a far more important point, which is that it’s good to have an economy and a society where people can become rich by providing goods and services that the rest of us value.

Inequality is to some extent a residual effect of success: If there weren’t any billionaires or millionaires, inequality would be vastly diminished. America attracts and breeds success so brilliantly that we nearly beat the rest of the world combined in some respects: 42% of the world’s millionaires are Americans, and 49% of those with $50 million or more in assets. The American tendency to respect, and expect, success runs counter to the progressive plan to tax it away.

He basically reaches the same conclusion as Larry Lindsey.

In other words the left’s favorite policies help Washington insiders and hurt poor people.

A cap on incomes above, say, $100,000 would massively increase both equality and poverty as millions of middle-class people whose jobs depend on the rich in one way or another found themselves unemployed. …People tend to suspect, rightly, that government intervention in the name of fighting inequality will lead to exactly what’s happened in the Obama era: more inequality, with bureaucrats and their cronies standing to gain.

By the way, here’s a satirical Jonathan Swift version of what happens when you get rid of “rich” people.

P.S. Here’s my video on class warfare, featuring the clip of then-candidate Obama saying he favored a tax hike even if it imposed so much economic damage that the government collected no tax revenue.

P.P.S. The President isn’t the only leftist to have this spite-driven mentality.

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James Pethokoukis of the American Enterprise Institute has an intriguing idea. Instead of a regular debate, he would like presidential candidates to respond to a handful of charts from the recent Economic Report of the President that supposedly highlight very important issues.

We’d quickly find out — I hope — who has real deep knowledge on key economic issues and challenges facing America.

I don’t always agree with Pethokoukis’ views (see here, here, and here), but he has a very good idea. He may not have picked the charts I would rank as most important, but I think 5 of the 6 charts he shared are worthy of discussion (I’m not persuaded that the one about government R&D spending has much meaning).

Let’s look at them and elaborate on why they are important.

We’ll start with the chart of labor productivity growth, which has been declining over time.

I think this is a very important chart since productivity growth is a good proxy for the growth in living standards (workers, especially in the long run, get paid on the basis of what they produce).

So what should we think about the depressing trend of declining productivity numbers?

First, some of it is unavoidable. The United States has an advanced economy and we don’t have a lot of “low-hanging fruit” to exploit. Simply stated, it’s much easier to boost labor productivity in a poor country.

Second, to the degree we want to boost labor productivity, more investment is the best option. That’s why I’m so critical of class-warfare policies that penalize capital formation. When politicians go after the “evil” and “bad” rich people who save and invest, workers wind up being victimized because there’s less saving and investment.

But this isn’t just an issue of machines, equipment, and technology. We also should consider human capital, which is why it is a horrible scandal that America spends more on education – on a per-capita basis – than any other nation, yet we get very mediocre results because of a government monopoly school system that – at least in practice – seems designed to protect the privileges of teacher unions.

The next chart looks at the number of companies entering and exiting the economy. As you can see, the number of businesses that are disappearing is relatively stable, but there’s been a disturbing decline in the rate of new-company formation.

As with the first chart, some of this may simply be an inevitable trend. In a mature economy, perhaps the rate of entrepreneurship declines?

But that’s not intuitively obvious, and I certainly haven’t seen any evidence to suggest why that should be the case.

So this chart presumably isn’t good news.

Some of the bad news is probably because of bad government policy (capital gains taxes, regulatory barriers, licensing mandates, etc) and some of it may reflect undesirable cultural trends (less entrepreneurship, more risk-aversion, more dependency).

Speaking of which, the next chart looks at the share of the workforce that is regulated by licensing laws.

This is a very disturbing trend.

Licensing rules basically act as government-created barriers to entry and they are especially harmful to poor people who often lack the time and money to jump through the hoops necessary to get some sort of government-mandated certification.

By the way, this is one area where the federal government is not the problem. These are mostly restrictions imposed by state governments.

The next chart looks at how much money is earned by the rich in each country.

I think this chart is very important, but only in the sense that any intelligent candidate should know enough to say that it’s almost completely irrelevant and misleading.

The economy is not a fixed pie. Income earned by the “rich” is not at the expense of the rest of us (assuming honest markets rather than government cronyism). It doesn’t matter if the rich are earning more money. What matters is whether there’s growth and mobility for people on the lower rungs of the economic ladder.

A good candidate should say the chart should be replaced by far more important variables, such as what’s happening to median household income.

Lastly, here’s a chart comparing construction costs with housing prices.

This data is important because you might expect there to be a close link between construction costs and home prices, yet that hasn’t been the case in recent years.

There may be perfectly reasonable explanations for the lack of a link (increased demand and/or changing demographics, for instance).

But in all likelihood, there may be some undesirable reasons for this data, such as Fannie-Freddie subsidies and restrictionist zoning policies.

As with the licensing chart, this is an area where the federal government doesn’t deserve all the blame. Bad zoning policies exist because local governments are catering to the desires of existing property owners.

By the way, while I think Pethokoukis shared some worthwhile charts, I would have augmented his list with charts on the rising burden of government spending, the tax code’s discrimination against income that is saved and invested, declining labor-force participation, changes in economic freedom, and the ever-expanding regulatory burden.

If candidates didn’t understand those charts and/or didn’t offer good solutions, they would be disqualifying themselves (at least for voters who want a better future).

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Folks on the left tell us that they want to help the less fortunate.

I sometimes wonder if their real motive is to penalize success and punish the “rich,” but let’s be charitable and assume that many of them truly wish to help the poor.

Leftist FairnessThat’s a noble sentiment, to be sure, but this is why it’s also important to look at the consequences of policy, not just the intentions.

I explained last year that certain left-wing fiscal, regulatory, and monetary policies actually harm the poor and help the rich, and I augmented that analysis earlier this year by showing how farm policies line the pockets of upper-income people.

Let’s now add to this research by looking at a new study (h/t: Tyler Cowen) from Mario Alloza of University College London. Here are some of the key findings from the study’s abstract.

Household panel…between 1967 and 1996 is employed to analyse the relationship between marginal tax rates and the probability of staying in the same income decile. …higher marginal tax rates reduce income mobility. An increase in one percentage point in marginal tax rates causes a decline of around 0.8% in the probability of changing to a different income decile. …the effect of taxes on income mobility…is particularly significant when considering mobility at the bottom of the distribution.

And here are some of the findings from the study.

…to the extent that income mobility is a desirable feature of an economy, it is then relevant to consider how fiscal policy may affect it. …The results obtained suggest that higher marginal tax rates reduce income mobility. Particularly, I find that an increase of one percentage point in the marginal rate is associated with declines of about 0.5-1.3% in the probability of changing deciles of income. …The economic mechanism that induces this impact seems to be related to the labour market incentives created by changes in the tax schedule. …While some studies have pointed out to the importance of progressive taxation in addressing inequality, the results from this paper suggest that such changes may have a detrimental impact on income mobility.

Not surprisingly, it turns out that marginal tax rates are the most important variable, as we learned in our discussion of Cam Newton’s (fiscally) disastrous Super Bowl.

The effect of a percentage point reduction in marginal tax rates fosters relative income mobility across deciles…by about 1%. Similarly, households are about 6% more likely to stay in the same quintile of income when the marginal tax rates goes up by one percentage point… This evidence suggests that the economic mechanism that determines the effect of taxes on income mobility is based on incentives.

And here are more details on how higher tax rates appear to disproportionately harm the less skilled, while lower tax rates are more likely to help.

…non-college are, on average, more likely to move down in the income distribution, while college households are likely to move up (or, at least, less likely to move down) as a result of an increase in the marginal tax rates. …Fiscal reforms that homogeneously reduce marginal tax rates seem to contribute to income mobility by making households with non-college education more likely to occupy relatively higher positions within the income distribution (and vice versa for college-graduated households).

The bottom line is that some of our friends on the left want to shoot at the rich, but they wind up wounding the poor instead by greasing the rungs on the ladder of economic opportunity.

Which is why, for the umpteenth time, I’ll emphasize that market-driven growth is the moral and practical way to help the less fortunate.

P.S. Here’s an update on my travels. I’m in Beijing for a couple of speeches and I probably should say something substantive about how genuine federalism is an ideal long-run outcome for China, Hong Kong, Macau, and Taiwan. They can all be one country, if that’s what everyone wants (and that’s already the case for China, Hong Kong, and Macau), but that doesn’t mean there’s a need for a one-size–fits-all approach to domestic policy. In other words, a version of the advice I offered on Ukraine,Scotland, and Belgium basically applies in this part of the world as well. Call it one nation with three or four systems.

But the most memorable part of the trip (in a bad way) is that my communication lines with the world have been severed. The problem started when I left my phone in an airport security scanner on my way from Cambodia to Hong Kong.

Then I get to China and I learn that my laptop can’t access either the Cato remote desktop or my Gmail account. Or Twitter. Or Facebook.

This is a not a trivial problem since I got to Beijing in the evening, had a speech in the morning, but couldn’t access any of the information (and I’m not organized enough to print things out ahead of time). I eventually figure out a solution for my morning event by asking the front desk to connect me with the person who made the room reservation, which eventually leads to me getting in contact with someone else in the hotel who is there for the same event.

But that’s only part of the story. I still haven’t had email for several days. And I obviously don’t have a phone, either. So while I’m able to access a lot of stuff on the Internet using my laptop, I’m in the dark about what’s happening at Cato or what’s happening in the rest of my life. By the way, if you’re asking why I don’t create a new email address, that’s not as easy as it sounds since the widely-used email sites have security features such as asking to send you a text to confirm your new account, something that obviously wouldn’t work for me.

Oh, and I’m not able to access my blog while in China. So to maintain my pattern of producing a column every single day for however many years, I had to create a word document and then randomly approach someone in the hotel restaurant to ask if he could upload my column from a thumb drive and email it to friends back in Washington.

Oh well, nobody said the fight for liberty was easy.

P.P.S. Now that I’m done whining, let’s return to our original topic and look at a cartoon showing what Obama wants.

obama-economy-jobs-debt-deficit-political-cartoon-class-warfare-mathBut then let’s look at what Obama has actually delivered, which sort of confirms the research discussed above.

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The quality of economic analysis from politicians is never good, but it becomes even worse during election season.

The class-warfare rhetoric being spewed by Bernie Sanders and Hillary Clinton is profoundly anti-empirical. Our leftist friends genuinely seem to think the economy is a fixed pie and that it’s their job to use coercive government power to reallocate the slices.

The only real quandary is whether Bernie’s sincere demagoguery is more disturbing or less disturbing than Hillary’s hypocritical attacks on the top 1 percent.

Since I mentioned that the left’s rhetoric is anti-empirical, let’s look at the evidence.

I’ve previously shared very detailed IRS data showing that the so-called rich pay a hugely disproportionate share of the tax burden.

Let’s augment that analysis by perusing some data on income mobility.

Writing for Money, Chris Taylor explains that America is not a land of dynastic wealth.

…70% of wealthy families lose their wealth by the second generation, and a stunning 90% by the third, according to the Williams Group wealth consultancy. …When I asked financial planners why…second- and third-generation heirs turn out to be so ham-handed, the answers were surprisingly frank. A sampling: “Most of them have no clue as to the value of money or how to handle it.” “Generation Threes are usually doomed.” “It takes the average recipient of an inheritance 19 days until they buy a new car.”

But you don’t have to examine several generations to recognize that American society still has a lot of income mobility.

Tami Luhby looks at how people move up and down the income ladder during their lives.

The Top 1% is often considered an exclusive, monolithic group, but folks actually rise up into it and fall out of it quite often. …Some 11% of Americans will join the Top 1% for at least one year during their prime working lives (age 25 to 60), according to research done by Thomas Hirschl, a sociology professor at Cornell University. But only 5.8% will be in it for two years or more. As for holding onto this status for at least 10 years? Only a miniscule 1.1% of Americans are this fortunate. “Affluence is dynamic, said Hirschl… “The 1% really isn’t the 1%. People move around a lot.”

The same is true for the super-rich, the upper-middle class, and the poor.

The IRS looked at how frequently the same Top 400 taxpayers appeared on the list over a 22-year period ending in 2013. Some 72% ranked that high for just one year. Only 3% were listed for a decade or more. …While just over half of Americans reach the Top 10% at least once in their careers, only 14% stay in it for a decade or more, Hirschl found. …On the flip side, it’s not uncommon for Americans to spend some time at the bottom of the heap. Some 54% of Americans will be in or near poverty for at least one year by their 60th birthday, Hirschl said.

Here’s a table of numbers for those who like digging into the data.

Now let’s shift back toward public policy.

The good news (relatively speaking) is that the politics of envy don’t seem to work very well. This polling data finds that most Americans do not support higher taxes (presumably from the rich) to impose more equality.

And when you combine these numbers with the polling data I shared back in 2012, I’m somewhat comforted that the American people aren’t too susceptible to the poison of class warfare.

Let’s close with some ideological bridge building.

I certainly don’t share the same perspective on public policy as Cass Sunstein since the well-known Harvard law professor leans to the left.

But I think he makes an excellent observation in his column for Bloomberg. Smart leftists should focus on how to help the poor, not demonize the rich.

Bernie Sanders and Hillary Clinton have been operating within the terms set by Top 1 Percent progressivism. …For Top 1 Percent progressives, the accumulation of riches at the very top is what gets the juices flowing. They prioritize much higher taxes on top-earners, more aggressive regulation of Wall Street, restrictions on the compensation of chief executives, and criminal prosecution of those responsible for the financial crisis. Top 1 Percent progressivism emphasizes the idea of fairness — but it’s nevertheless a politics of outrage, animated by at least a trace of envy.  It’s as if “millionaires and billionaires” were the principal problem facing America today.

Sunstein correctly says the focus should be helping the less fortunate.

Bottom 10 Percent progressives  are not  enthusiastic about concentrations of wealth. But that’s not what keeps them up at night. Their focus is on deprivation and lack of opportunity. They’re motivated by empathy for people who are suffering, rather than outrage over unjustified wealth. They want higher floors for living standards, and do not much care about lower ceilings.

So far, so good.

I’ve also argued that our goal should be reducing poverty, not punishing success.

This is why I want pro-growth tax reform, a smaller government, and less suffocating red tape.

Unfortunately, Prof. Sunstein then wanders into very strange territory when it comes to actual policy. He actually endorses the utterly awful economic “bill of rights” proposed by one of America’s worst presidents.

Their defining document is one of the 20th century’s greatest speeches, delivered by Franklin Delano Roosevelt in 1944, in which he called for a Second Bill of Rights, including the right to a decent education, the right to adequate medical care and food, and the right to “adequate protection from the economic fears of old age, sickness, accident, and unemployment.”

If you think I’m exaggerating about FDR being an awful President, click here.

And if you want more information about FDR’s terrible “bill of rights,” click here.

So I like his diagnosis of why the left is wrong to fixate on hating success.

But he needs to look at real-world evidence so he can understand that free markets and small government are the right prescription for prosperity.

P.S. Here’s my video listing five arguments against class-warfare taxation.

There’s a lot of material in a short period of time, though I think the most disturbing part occurs at about 4:30. What sort of person would actually want to impose tax policy that is so punitively destructive that the government doesn’t collect any additional revenue?!?

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In conversations with statists, I’ve learned that many of them actually believe the economy is a fixed pie. This misconception leads them to think that rich people get rich only by somehow making others poor.

In this simplistic worldview, a bigger slice for one person means less for everyone else.

In reality, though, their fixation on the distribution of income leads them to support policies that hinder growth.

And here’s the ironic part. When you have statist policies such as high taxes and lots of redistribution, the economy weakens and the result is a stagnant pie.

In other words, the zero-sum society they fear only occurs when their policies are in effect!

To improve their understanding (and hopefully to make my leftist friends more amenable to good policy ideas), I oftentimes share two incontestable facts based on very hard data.

1. Per-capita economic output has increased in the world (and in the United States), which obviously means that the vast majority of people are far better off than their ancestors.

2. There are many real-world examples of how nations with sensible public policy enjoy very strong growth, leading to huge increases in living standards in relatively short periods of time.

I think this is all the evidence one needs to conclude that free markets and small government are the right recipe for a just and prosperous society.

But lots of statists are still reluctant to change their minds, even if you get them to admit that it’s possible to make the economic pie bigger.

I suspect in many cases their resistance is because (at least subconsciously) they resent the rich more than they want to help the poor. That’s certainly the conclusion that Margaret Thatcher reached after her years in public life.

So, in hopes of dealing with this mindset, let’s augment the two points listed above.

3. 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.

Let’s look at some evidence for this assertion.

And we’ll start with businesses. Here’s what Mark Perry of the American Enterprise Institute found when he investigated changes in the Fortune 500.

Comparing the 1955 Fortune 500 companies to the 2015 Fortune 500, there are only 61 companies that appear in both lists… In other words, only 12.2% of the Fortune 500 companies in 1955 were still on the list 60 years later in 2015… The fact that nearly 9 of every ten Fortune 500 companies in 1955 are gone, merged, or contracted demonstrates that there’s been a lot of market disruption, churning, and Schumpeterian creative destruction… The constant turnover in the Fortune 500 is a positive sign of the dynamism and innovation that characterizes a vibrant consumer-oriented market economy, and that dynamic turnover is speeding up in today’s hyper-competitive global economy.

Here’s the list of the companies that have managed to stay at the top over the past six decades.

Now let’s shift from companies to people.

The most famous ranking of personal wealth is put together by Forbes.

Is this a closed club, with the same people dominating the list year after year?

Well, there’s considerable turnover in the short run, as noted by Professor Don Boudreaux.

…21 of the still-living 100 richest Americans of only five years ago are no longer in that group today.  That’s a greater than 20 percent turnover in a mere half-decade.

There’s a lot of turnover – more than 50 percent – in the medium run, as revealed by Mark Sperry.

Of the 400 people in the 2001 Forbes list of the wealthiest Americans, 230 were not in the 1989 list.

And there’s almost wholesale turnover in the long run, as discovered by Will McBride of the Tax Foundation.

Of the original Forbes 400 from the first edition in 1982, only 35 remain on the list. …Of those on the 1987 Forbes 400 list, only 73 remain there in 2013.

In other words, it’s not easy to stay at the top. New entrepreneurs and investors constantly take the place of those who don’t manage to grow their wealth.

So far, we’ve focused on the biggest companies and the richest people.

But what about ordinary people? Is there also churning for the rest of us?

The answer is yes.

Here are some remarkable findings from a New York Times column by Professor Mark Rank of Washington University.

I looked at 44 years of longitudinal data regarding individuals from ages 25 to 60 to see what percentage of the American population would experience these different levels of affluence during their lives. The results were striking. It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution. …This is just as true at the bottom of the income distribution scale, where 54 percent of Americans will experience poverty or near poverty at least once between the ages of 25 and 60…this information casts serious doubt on the notion of a rigid class structure in the United States based upon income.

A thoroughly footnoted study from the National Center for Policy Analysis has more evidence.

…83 percent of adults born into the lowest income bracket exceed their parents’ income as adults. About 40 percent of people in the lowest fifth of income earners in 1986 moved to a higher income bracket by 1996, and roughly half of the people in the lowest income quintile in 1996 moved to a higher income bracket by 2005. …In both the 1970s and 1980s, 8 percent of children born in the bottom fifth of the income distribution rose to the top fifth. About 20 percent of children born in the middle fifth of the income distribution later rose to the top fifth.

And here’s some of Ronald Bailey’s analysis, which I cited last year.

Those worried about rising income inequality also often make the mistake of assuming that each income quintile contains the same households. They don’t. …In 2009, two economists from the Office of Tax Analysis in the U.S. Treasury compared income mobility in two periods, 1987 to 1996 and 1996 to 2005. The results, published in the National Tax Journal, revealed that “over half of taxpayers moved to a different income quintile and that roughly half of taxpayers who began in the bottom income quintile moved up to a higher income group by the end of each period.” …The Treasury researchers updated their analysis of income mobility trends in a May 2013 study for the American Economic Review, finding that about 75 percent of taxpayers between 35 and 40 years of age in the second, middle and fourth income quintiles in 1987 had moved to a different quintile by 2007.

Last but not least, let’s look at some of Scott Winship’s recent work.

…for today’s forty-somethings who grew up in the middle fifth around 1970…19 percent ended up in the top fifth, 23 percent in the middle fifth, and 14 percent in the bottom fifth… Among those raised in the bottom fifth, 43 percent remain there as adults. …30 percent made it to the top three-fifths… Mobility among today’s adults raised in the top fifth displays the mirror image: 40 percent remain at the top, 37 percent fall to the bottom three-fifths.

The bottom line is that there is considerable income mobility in the United States.

To be sure, different people can look at these numbers and decide that there needs to be even more churning.

My view, for what it’s worth, is that the correct distribution of income is whatever naturally results from voluntary exchange in an unfettered market economy.

I’m far more concerned with another economic variable. Indeed, it’s so important that we’ll close by adding to the three points above.

4. For those who genuinely care about the living standards of the less fortunate, the only factor that really matters in the long run is economic growth.

This is why, like Sisyphus pushing the rock up a hill, I keep trying to convince my leftist friends that growth is the best way to help the poor. I routinely share new evidence and provide real-world data in hopes that they will realize that good results are more important than good intentions.

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