In early July 1944, delegates from 44 countries gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire. A three-week summit took place, at which a new system was agreed to regulate the international monetary and financial order after the Second World War.The U.S. was already the world’s commercial powerhouse, having eclipsed the British […]
In the minds of many people around the world, including in the United States, the term “capitalism” carries the idea of unfairness, exploitation, undeserved privilege and power, and immoral profit making. What is often difficult to get people to understand is that this misplaced conception of “capitalism” has nothing to do with real free markets […]
Some people are saying it is just what the doctor ordered. Others are saying that the cure is worse than the disease.The Affordable Care Act? Reengagement in Iraq? Tea Party bullying in the GOP?Not this time. Just as protracted in the corridors of Congress and the White House is the debate over the proposed reform […]
In 2012, money mandarins running the European Union chose stagnation over restructuring. Here’s a consequence of that choice: expectations for a self-sustaining economic recovery keep getting crushed.Two years ago, European Central Bank (ECB) chief Mario Draghi promised to do “whatever it takes” to hold the eurozone together. He bluffed nervous investors into believing in a […]
People jacked up about income inequality can find a new hobby. The 1% are victims of a doomsday machine, and the countdown is ticking. Machine, thy name is “family.”This came to mind as I was reading a preview of Columbia Professor Andrew Ang’s forthcoming, must-read book on Asset Management. Ang is that oxymoron, an exciting […]
It might sound like the latest new product from Apple, but IPAB is actually the newest major legal challenge to Obamacare.Recently, a three-judge panel in the 9th Circuit Court of Appeals in San Francisco heard arguments about the Independent Payment Advisory Board, or IPAB, a 15-member panel created by the Affordable Care Act and empowered […]
Americans have come to believe that the IRS and the income tax are inevitable parts of our lives. After all, most everyone alive today has lived his entire life under federal income taxation.It wasn’t always that way. For some 125 years, the American people lived without having any tax imposed upon their income.The obvious question […]
Here’s a fun fact: Although we all hate the U.S. dollar, as it continues to hemorrhage wealth, its foothold as the world’s reserve currency isn’t going to disappear overnight.A Russian gas deal with China won’t change that — as we’ll highlight below.But before we get to the nitty-gritty, let’s dive into a story that’s right […]
Franklin Delano Roosevelt famously used the term “forgotten man” in a 1932 speech to describe those at the bottom of the economic pyramid who, he felt, government should aid.But the originator of the phrase “forgotten man” had a whole different meaning in mind. He aimed to expose the seeming good intentions of government to reveal […]
The Keynesian disaster recovery plan has been to lower rates, force people to take more risk in search of yield, and entice others to borrow and spend and, magically, more jobs will be created. If people won’t buy stocks, central banks will.Back in 2011, Ben Bernanke, when asked if QE2 was driving up stock prices, […]
I want to share some insight and give you a front-row seat to America’s next big shale play.Let’s get to it…Over the past 10 years, the U.S. has turned the ship around, quite literally.We’ve gone from a country that was expecting to import massive amounts of oil and gas — to a country that’s sitting […]
Whatever your views on the role of government, one thing is clear: There will be no way to pay for it if the economy doesn’t grow. And I’m not talking by a measly percentage point or two. If we can’t find our way back to 5% annual economic growth or above soon, America’s accumulated federal […]
According to the Bureau of Labor Statistics, consumer prices are rising at a 2.1% annual rate. This suggests to us that the current stock market boom will die with a bang, rather than a whimper.Fed economists say they don’t think inflation rates are rising. They think the most recent reading is a fluke. But why […]
Politicians love raising the minimum wage because they don’t have to ask voters to pay more in taxes. They just dump the costs onto shop owners. But they don’t act like politicians and go into debt to pretend like they have all the money in the world. They face real world situations. And sometimes that means replacing workers with more affordable options...
Regulation is supposed to keep you safe and make the economy function smoothly. At least that’s what they tell you in the news. But there’s another cost to regulation. One that you won’t hear about unless you have to deal with directly. And for the people in the economy who do, they’re the ones who have to pay the final cost.
The experts will tell you the recession is over, but they’re only torturing the data to hide the truth. The economy never recovered from the downturn it experienced. But the downturn happened in 2000, not 2008. The country’s been in the middle of a 14 year recession and hardly anyone knows the truth.
Every time Bitcoin crashes, it winds up at a price greater than it’s previous high. Yet the experts still call it a currency fad that will fade away. But a little over a year since it really took up, the digital currency is still going strong, and is once again seeing its price rise. But is there another reason why people are buying Bitcoins.
All paper currency has a shelf life. It could be 5 years or 500 years, but at some point, the value of any paper currency eventually reaches zero. That's why, for centuries, people have turned to one shiny metal to safeguard their personal store of wealth. And, as Jim Rickards explains, you still have that option. Read on...
According to some estimates, one man - whose name you're probably not familiar with - has saved over a billion lives. Who is he? And how has he influenced the current crop of innovators? Josh Grasmick explains...
It’s a destructive cycle that comes around everytime your politicians ask you to take to the polls. The government’s meddling creates unexpected problems that eventually overshadow the planners’ original intentions. But that only leads the way for even more interventions.
Politicians love inflation. It’s a way to pay for the government’s debts without upsetting the public by raising taxes, or their special interests by cutting government. So they’ll flood the economy with easy money and eat away at your savings. But that’s only part of the story...
You can count the number of people who went to jail over the 2008 financial crisis on one hand. Which is strange considering the U.S. loves to put people away in jail. But as one author discovered in his most recent book, having the right connections and a big enough bank account, can protect you from even the worst crimes.
Obama recently claimed this was the “Decade of the Brain”. But it not the first time the government made that promise. The last time they did it, they wasted millions of your tax dollars. Now they’re back for round two. But this time, their failure could mean more than squandered money. It could mean making Alzheimer’s even worse for those who suffer from it.
“So we have, indeed, had a disappointingly slow recovery, and our consistent expectations for a pickup in growth have been dashed over a number of years… And the labor market is behaving in some perplexing ways and showing patterns that are novel.”–Federal Reserve Chairperson Janet Yellen in a speech to the Economic Club of New […]
When Michael Lewis’ new book Flash Boys came out, the author caused a stir while making the media rounds to promote it. “The stock market is rigged,” he told 60 Minutes flatly. His comments set off a firestorm of debate as to whether sharp techies and their fast computers are screwing small investors.As titillating as […]
Last November, when the Environment Protection Agency (EPA) proposed moderating years of escalating mandates by reducing the amount of ethanol that must be mixed into gasoline, a top ethanol lobbyist seemed perplexed. “We’re all just sort of scratching our heads here today and wondering why this administration is telling us to burn less of a […]
Back in the 1980s, John Nestor became infamous for single-handedly causing massive traffic jams on the Capital Beltway. But in his professional life, he created a completely different kind of traffic jam... one that may have contributed to the deaths of thousands of innocent people. Juan Enriquez has the full story. Read on...
“Inequality is the defining challenge of our time,” according to President Obama. It’s certainly the topic of the day for Paul Krugman, Joe Stiglitz and a whole raft of liberal pundits.
But have you noticed that hardly anyone else is talking about it? When is the last time you heard a shoeshine person or a taxi cab driver complain about inequality? For most people, having a lot of rich people around is good for business. But if average folks are not complaining should they be?
Unfortunately, a lot of what passes as serious commentary is actually myth. What follows are five examples.
Myth No 1: Income for the average family has stagnated over the past 30 years.
Here is an oft-quoted statistic: From 1979 to 2007, taxpayers’ median real income, before taxes and before government transfers, rose by only 3.2%. Cornell University economist Richard Burkhauser, via Greg Mankiw, shows why that statistic is misleading:
- If we combine the income of all the taxpayers within each household to get household median income, that meager 3.2% rises to a bit more respectable 12.5%.
- If we add in government transfer payments, that 12.5% number becomes an even better 15.2%.
- Factoring in middle class tax cuts over the period, the 15.2% figure rises to 20.2%.
- But not all households are the same size, and the size of households has fallen over time. Adjusting for household size increases that 20.2% to 29.3%.
- Finally, if we add the value of employer-provided health insurance, the 29.3% figure rises to 36.7%.
So there you have it: real income for the average household actually increased by more than a third over the past 30 years.
This conclusion is consistent with other studies. A CBO study of family income over the same period of time found an increase almost twice that size: the average family experienced a 62% increase in real income.
Economists have a way of measuring inequality that includes the entire population, not just the average family or the top 1%. It’s by means of a Gini coefficient, which varies between 0 (complete equality) and 1 (complete inequality). One study found that between 1993 and 2009, the Gini value actually fell from .395 to .388 — meaning that inequality has actually declined in recent years.
Myth No. 2: People at the bottom of the income ladder are there through no fault of their own.
In a study for the National Center for Policy Analysis, David Henderson found that there is a big difference between families in the top 20% and bottom 20% of the income distribution: Families at the top tend to be married and both partners work. Families at the bottom often have only one adult in the household and that person either works part-time or not at all:
- In 2006, a whopping 81.4% of families in the top income quintile had two or more people working, and only 2.2% had no one working.
- By contrast, only 12.6% of families in the bottom quintile had two or more people working; 39.2% had no one working.
The average number of earners per family for the top group was 2.16, almost three times the 0.76 average for the bottom.
“…average families in the top group have many more weeks of work than those in the bottom and, in the late 1970s, the 12-to-1 total income ratio shrunk to only 2-to-1 per week of work, according to one analysis.”
Having children without a husband tends to make you poor. Not working makes you even poorer. And there is nothing new about that. These are age old truths. They were true 50 years ago, a hundred years ago and even 1,000 year ago. Lifestyle choices have always mattered.
Myth No. 3: Government transfer programs, like unemployment insurance, are an effective remedy.
Government transfers can ameliorate the discomfort of having a low income and few assets. But at the same time they tend to encourage people to remain dependent, rather than achieving self-sufficiency. And the loss of benefits as wage income rises acts as an additional “marginal tax” on labor.
University of Chicago economist Casey Mulligan is the leading authority on welfare programs and how they affect employment. At The New York Times economics blog, he wrote:
“As a result of more than a dozen significant changes in subsidy program rules, the average middle-class non-elderly household head or spouse saw her or his marginal tax rate increase from about 40% in 2007 to 48% only two years later. Marginal tax rates came down in late 2010 and 2011 as provisions of the American Recovery and Reinvestment Act expired, but still remain elevated — at least 44%… A few households even saw their marginal tax rates jump beyond 100% — meaning they would have more disposable income by working less… work incentives were eroded about 20% for unmarried household heads… in the middle of the skill distribution, while they were eroded about 12% among married heads and spouses…with the same level of skill.”
Overall, Mulligan estimates that up to half of the excess unemployment we have been experiencing is because of the generosity of food stamps, unemployment compensation and other transfer benefits.
Myth No 4: Raising the minimum wage is an effective remedy.
One of the few policy ideas President Obama has for dealing with inequality is raising the minimum wage. He thinks this will lift people out of poverty. Paul Krugman says the same thing. The difference is that Krugman is an economist who must surely know that the economic literature shows that raising the minimum wage does almost nothing to lift people out of poverty.
Richard Burkhauser and San Diego State University economist Joseph J. Sabia examined 28 states that increased their minimum wages between 2003 and 2007. Their study, published in the Southern Economic Journal, found “no evidence that minimum wage increases… lowered state poverty rates.” Part of the reason is that very few people earning the minimum wage are actually poor. Most are young people who live in middle income households. For example, the economists estimate that if the federal minimum wage were increased to $9.50 per hour:
- Only 11.3% of workers who would gain from the increase live in households officially defined as poor.
- A whopping 63.2% of workers who would gain are second or even third earners living in households with incomes equal to twice the poverty line or more.
- Some 42.3% of workers who would gain are second or even third earners who live in households that have incomes equal to three times the poverty line or more.
Myth No. 5: Income is the best measure of wellbeing.
Why are we talking about income? The implicit assumption is that income limits our ability to enjoy life. But that turns out not to be true. One study found that consumption by those in the lower fourth of the income distribution was almost twice their money income. Moreover, consumption inequality is much less than income inequality.
A Bureau of Labor Statistics study found that:
“…in 2001, the Gini coefficient for consumption was only .280 (almost 30% lower than the Gini for comprehensive income, and about 40% lower than the Gini for money income), indicating that inequality with respect to this most meaningful measure of living standards is relatively modest. Moreover, according to the BLS, during the fifteen-year period between 1986 and 2001, consumption inequality went down slightly; from a Gini of .283 to a Gini of .280.”
Bottom line: the next time you hear someone complain about inequality, make sure they are not repeating these five myths.
– John Goodman
This article originally appeared here on Forbes.com.