Thursday, October 27, 2011

If you are against economic inequality, you are for recession!

Economic falsehoods, like Green ones, have created a lot of misery and continue to do so. Myths like "Government spending stimulates the economy", "Government policies create jobs", "Anti-poverty programs reduce poverty", "Planning commission is staffed by knowledgeable experts", "Manmohan Singh is an intelligent economist" and hordes of others.

One such pernicious myth is that income inequality is bad, like you know, really bad.

Wrong! A CBO study finds that economic inequalities increase during good times and decrease during recessions.

Income inequality increases during good times and decreases during bad times, as the CBO noted:
[T]he distribution of market income became more unequal almost continuously between 1979 and 2007 except during the recessions in 1990–1991 and 2001.

This pattern is seen during every recession. It is a good thing for the federal government, too, that incomes have increased at the higher end since 1979, as this has resulted in a huge inflow of tax revenues. One of the reasons for Washington’s current deficits is that upper incomes are depressed, so that a relatively low share of GDP is being paid in income taxes.
Stories about the “richest” 1%, 5%, 20%, or whatever are inherently misleading because they implicitly assume that those groups are static. Of course, they are not. The two biggest reasons why families are in one quintile or another are 1) age and 2) the number of jobs held by members of the household. At any given moment, by definition, only 20% of households are in the top quintile, but probably more than half of all households are in that quintile at some point. It is a great thing for incomes in the top quintiles to be much higher than those in lower quintiles. That means that workers are not stuck in dead-end jobs that pay the same at age 50 as at age 20, but rather are able to take advantage of training, education and a growing economy to move up the ladder. “Income inequality” is another term for opportunity.

The CBO noted another interesting trend–membership in the top 1% is more meritocratic than ever:
The composition of income for the 1 percent of the population with the highest income changed significantly from 1979 to 2007, as the shares from labor and business income increased and the share of income represented by capital income decreased. That pattern is consistent with a longer-term trend: Over the entire 20th century, labor income has become a larger share of income for high-income taxpayers, while capital income has declined as a share of their income.

In other words, the top 1% earn their money, they don’t clip coupons.
(emphasis mine)

So if you are against economic inequality, you are for recession!

However, as the article notes, the usual idiots will see it as a justification for higher taxes on the rich. For like Pavlovian dogs, that is all they know to do.