For today’s “Economics for Dummies” lecture, and we can only hope those in thrall to the “income inequality” hucksters running for President will somehow hear it, we have Chris Marschner. What inspired his discourse was this chart,
from #3 in the 1/12 Warm-Up, regarding Michael Bloomberg’s deliberately dishonest statement, “The U.S. economy is working just fine for people like me. But it is badly broken for the vast majority of Americans.”
Here is Chris Marschner’s Comment of the Day on the post, “Sunday Ethics Warm-Up, 1/12/2020: Broken Ethics Alarms, An Ethics Conflict, And “Who Are You Going To Believe, Me Or Your Own Eyes?”
One of the great fictions of economics lies in how data is portrayed. Growth rates are one of my favorite methods of telling lies. The wage growth rate above requires a bit of basic math and economics understanding to fully capture its relevance.
The lowest quartile or quintile will have substantially higher rates of growth even if all incomes rise at exactly the same amount. For example if someone making the highest limit of the lowest quartile (say $25,000) gets a $5000 raise that earners wage growth is 20%. As we move up the line, if the highest limit of the second quartile is $50,000 and a $5,000 raise, that rate of increase is a mere 10%. As we move up the ladder the basis or denominator gets progressively larger and if the numerator – the raise – remains constant, the rate of growth falls. Most people know this or should know this.
Is it true that a person at the top got more in total even if his or her rate of growth of wage growth was less than half of what the bottom quartile realized? Sure, but having more does not translate into higher standards of living. If the wage earners at the bottom see their incomes double they have a much greater chance of improving their standards of living than someone at the top. A doubling of the wage at the lowest levels can allow people to purchase normal goods versus having to get by on inferior goods. I am using the economic definition of inferior goods; examples: owning rather than renting your home; buying a new car or late model car rather than buying someone’s beater car that has a limited life expectancy. Even the ability to buy in bulk to save money because the cash flow is improved, or to obtain a bank loan instead of paying outrageous expenses to expand ones’ businesses are substantial improvements to one’s standard of living.
There is also the law of diminishing marginal returns that must be considered. Even if the top quartile and the bottom quartile both find themselves with a million dollar windfall, who is more likely to gain more emotional gratification knowing that they have an additional million dollars? The first owned home is far more gratifying than the purchase of second and third homes that will lie abandoned at least a third of the year.
In real and emotional terms wage growth of some substance will have a much greater impact on those at the bottom of the income spectrum than that at the top even if the growth rates are the same. There is some truth in the notion that one can have more income one needs simply because you have no place to spend it right now that will give you any measurable satisfaction. HOWEVER, AND THIS IS A HUGE CAVEAT: There could be a point in time that an uber-wealthy person finds a thing, cause, or other reason in the future in which it is crucial to have those resources available to him or her. Simply because a person is wealthy today does not mean that they are insulated from the vagaries of the market,s or that something of great importance to them may arise.
Capping incomes at any level is an abridgment of the fundamental belief that we have a right to pursue our own happiness. For me, happiness is making the decisions on how to spend that which I alone earn.
Ethics Alarms 
No, you’ve lost me here.
Firstly Bloomberg’s opinion is hardly ‘controversial’. I imagine you don’t take issue with his first sentence? “The U.S. economy is working just fine for people like me.”
But you get riled up about the second sentence: “But it is badly broken for the vast majority of Americans.”?? According to you this is a ‘deliberately dishonest statement’!
This is just an opinion and one shared by many analysts. ‘Broken’ is a pejorative word, but quite reasonable in such an opinion. You write plenty of such opinions. Why shouldn’t Bloomberg?
Chris Marschner also has plenty of ‘opinion’, and he is quite entitled to that. It doesn’t invalidate any of Bloomberg’s rather pithier opinion. He does however possibly cross a red line by saying: “Capping incomes at any level is an abridgment of the fundamental belief that we have a right to pursue our own happiness.” He seems to be implying Bloomberg is recommending capping income by law, and I certainly have never heard him say that. There is a technical term for this devious manoeuvre (putting false words in your opponents mouth so you can demolish them) and I would have thought Jack you would have picked this up.
The statement is a lie, not an opinion. It deliberately continues the false narrative that the middle class and lower economic groups are suffering under the Trump economy. They aren’t. If the poor are suffering, it’s because the poor suffer: blaming Trump is ridiculous. That’s fact. Everything, and that’s everything, is improved and significantly so: income, jobs growth, unemployment. By what standard is that “not working”? OK, you can argue that it’s vague enough to encompass some utopian idea of “working,” like guaranteed income, other socialist fantasies. If so, then let him say so. Otherwise it’s pure deceit, and a deliberate misrepresentation of fact. He has an obligation to say, if that’s what he means, “if we take away rich people’s property and give it to poorer people, that’s what I call ane economy that “works.” Fine. We can rebut that, and a lot of people also find the idea un-American, naive and repugnant.But at least its clear and honest. Most Americans think “the economy’s not working” rightly see that statement in the context of this system, not nanny states like the UK. And Bloomberg knows that.
He’s lying.
However, nothing in Chris’s comment was directly about what Bloomberg said, but about the issue raised by the graph, and the general topic of income growth. How can you say he put words in Bloomberg’s mouth? Chris’s comment doesn’t mention Bloomberg or refer to him!
Andrew
The point I was making was that people use economic data to illustrate all kinds of things. Typically they use charts and graphs to illustrate a point THEY want to make. The values within those charts and graphs need full examination before drawing a conclusion. For example, Reagan dropped the unemployment rate overnight by including the military in the labor force. In that case the number employed went up and the labor force went up as well. Given that the unemployment rate is the number unemployed/labor force if the denominator rises the UE rate falls.
Conversely, between 2008 and 2012 the unemployment rate showed a downward trend because the Labor force participation rate (LFPR) shrank and not because more people got jobs. People gave up looking for work so they were no longer treated as unemployed and the number of people working grew relative to the LFPR. Since 2016 the LFPR has been growing and the UE rate is dropping. That means that there are more people are working. That is a good thing because it puts upward pressure on wages.
For some, higher wages have overtaken what is known as an individual’s reservation wage. The reservation wage is the minimum amount needed to get a person to accept the offered job. Unfortunately, we have a great number of people whose true reservation wage has been distorted in both psychological and real terms. Reservation wages have been growing because of the growth in governmental income maintenance programs. Imagine how many will decide to live only on Yang’s guaranteed $12K a year. Couple that $1000 a month with housing assistance, food stamps, childcare, Medicare, and WIC you can live quite well on the dole. Oh I know, Yang says he would replace all those other programs to fund his guaranteed minimum income. Name a program that ever went away. We just layer one atop another.
These are not my opinions but well established facts and fundamental economic theory that is taught in first year Econ classes. I know because I taught those courses for 20 years.
I did not put any words in Bloomberg’s mouth. In fact, the remark about capping income was based on comments President Obama made regularly about people at some point have enough money. Many on the stump right now are mimicking that sentiment. The government can effectively cap incomes through tax policy . Currently, there are two rationales for increasing taxes on the uber-wealthy that have nothing to do with correcting income differentials: First is that they are not paying their fair share; the second is that they have more money than they can ever spend in a lifetime.
Let’s address the first sentiment. I challenge anyone to define fair share. Tax rates should reflect what society determines each quintile should pony up to fund public operations. If we say that the one percenters should pay 20% of the total tab then the rate should reflect that amount. If overall taxable income rises then the rate should fall and vice versa. But to be fair since that is the crux of the matter, shouldn’t the one percent get a larger say in how big that total tab will be? Should the top 20% of income earners that pay about 80% of all the government’s costs have 80% of the say in how much that will be; to be fair of course? That is not how it works. If we are going to demand fair share for payment then we must also demand a fair share in the overall decision process and not simply let the majority that have more votes determine the size of various entitlement programs.
On the second rationale; “they have enough already”. This is a function of envy. What someone else has is irrelevant to me if the income was legitimately earned. This philosophy of “having to much is unfair” permeates far too many. What is the difference between a street gang that mugs you because you have something they want and a electoral mob choosing candidates that will strip you of your wealth because you have too much in their eyes. Elizabeth Warren and Bernie Sanders have pledged to do just that.
As we go down the road of demanding other people pay taxes so we don’t have to, many will argue that corporations make money from the roads and bridges that tax payers fund. I disagree. Consider that the actual benefits accrue to consumers. Businesses are value creators. They make things consumers want. Consumers trade their dollars for things that make their lives better. Does an iPad sitting on the shelf at BestBuy deliver any satisfaction to the stockholders of BestBuy? Of course not. Without roads and transportation infrastructure most people would starve to death, find income generating suitable work that best suits their talents, be unable to download the latest video because they would have to go to the factory wherever that is (if it exists) to obtain products to do so. You also need to consider that corporations are inanimate beings. The income earned winds up in someone’s household and unless the cash is hoarded in a mattress it becomes someone else’s income.
In addition most of the funds that pay for education and first responders are locally derived. Given that the average cost to fund one kid in public school is about 12 grand and that property taxes pay for education but a homeowner in MD with a property with an assessed value of 200,000 only pays about $4,000 annually in property taxes. Business taxes, whether they are property taxes, inventory taxes, franchise taxes and so many more at the local level subsidize virtually every citizen. So when you see that mega corporation eyeballing your town for expansion you need to realize that they will be providing you with more money for education, more opportunities for income growth for everyone, and more revenue that could lower everyone’s tax rate if constant yield is the law.
When I see charts and graphs being used to promote X or Y I know that they portray what the presenter wants to convey which may be factual but does not represent a true picture of reality.
Great, now you’ve set a new EA first, a Comment of the Day on your own Comment of the Day.
Yep. Chris is on a roll.
jvb
OK I agree. I was wrong to imply criticism of Chris. Sorry. I read his comments as linked to your comment on Bloomberg and the graph.
There are loads of possible analyses that might reasonably support Bloomberg’s opinion that the US economy is ‘broken’ for the vast majority of Americans. There are also as you suggest loads of analyses and data that support your opinion that it is not (broken). I don’t know what was particularly in his mind. I think I know what is in yours. Neither of you are lying. You just disagree.
There are two obvious obvious areas that might generate your differences in opinion. Firstly the expansion of government debt. I recall your frequently expressed view in Obama times that increases in government debt were at the expense of future generations, somehow a form of intergenerational stealing, and clearly unsustainable. You seem no longer to hold that view. Maybe Bloomberg still holds to your earlier view? If he does, the current figures and projections are alarming.
Secondly Bloomberg may well have in mind analyses on economic mobility; the extent to which those born into relatively poor and disadvantaged circumstances can by their own efforts escape into relative affluence. This used to be regarded as a great strength of the US economy. There are plenty of analyses that suggest economic mobility in the US is declining. Maybe Bloomberg agrees with Thomas Piketty?
I am not taking a position in any of this, although I like you and Michael Bloomberg I have my opinions.
No, now you’re putting words in MY mouth. The expansion of the national debt is one continued unethical policy, and the failure to address infrastructure deterioration is another. My position hasn’t changed.But you are right: I haven’t written or reposted enough debt/deficit pieces since Trump took over. I need to fix that: I did post one about the infrastructure neglect in 2018, here. The preview for that one would also work for a debt piece: “It is not a good sign when six year old posts about a worsening national crisis are still accurate in 2018.”
But you must have missed the post last July (2019) when I wrote:
2. When the U.S. becomes Greece, think of these days, these unethical leaders, and the incompetent public that supported them. The recent budget deal between the President and Congress to explode the budget, ignore the deficit and bring the national debt even closer to a suicidal level is bipartisan betrayal. Although it is especially galling for a President with a “bottom line” orientation to capitulate, Trump is no worse in this respect than Obama, or any of his predecessors going back to Lyndon Johnson. At some point, the American public can only look in the mirror and admit that it has had the power to demand responsible fiscal government, and refuses. We will regret this.
I voted for the late Ross Perot in 1992 for many reasons, but the main one was that I felt he deserved credit for making the debt his signature issue, and for his courageous and clear explanations of the crisis. Since his candidacy, there have been no serious political leaders who have tried to muster consensus that spending has to be cut, that so-called entitlements are out of control, and that our debt is unsustainable. Rand Paul was recently savaged for simply insisting that a new expenditure–expanded assistance for 9-11 first responders–be paid for. Our economy is suffering because of a ridiculously antiquated infrastructure, but it will take trillions to repair. Politicians are waiting for a crisis, like when city sewer systems break down all across the East Coast, or bridges start collapsing with cars on them–and this is coming. Social security is nearing the point where someone’s going to have to give up something. California could have retrofit its buildings in anticipation of the Big One, but would rather play Russian Roulette. I’m just picking these out of the air randomly—I’m impaired, after all—but I could go on and on.
While the President rammed through tax cuts without cutting expenditures, his likely opposition tried to buy the votes of the fiscally idiotic with promises of expensive goodies, like “Medicare for All” (more trillions), guaranteed income and free college. The absurd Sen. Kirsten Gillibrand, (who has no chance, but really how much worse is she than Warren, Sanders, Harris and the rest?) has proposed a thoroughly irresponsible “climate change” plan with about a 10 trillion dollar price tag, and it is mostly made up of Authentic Frontier Gibberish, virtue-signaling and unsupportable assumptions. Before a public even slightly aware of the dangers of the exploding debt (or a public that has anything but the vaguest notion about what real science is and the uncertainty of climate change projections,) such a proposal would be political hara-kiri. Gillibrand considers it a last ditch effort to rescue her campaign….”
In my own defense, Trump’s only realistic choice is to either accept continued debt building or have another government shutdown. The only way to meaningfully address the debt is to raise taxes significantly and cut social welfare programs, which make up the largest segment of the non-essential budget (by far). That means only a Democratic-controlled government can do it in a bi-partisan effort, and a non-bi-partisan effort is literally political suicide for whichever party tries it.
Andrew
Would you consider the possibility that declining economic mobility has occurred due increases in income maintenance programs and other entitlements that cap the recipients ability to amass any real measure of wealth?
Economic mobility is a function of the amount of sacrifice one is willing to endure to achieve a realistic goal. If we teach that sacrifice is something that is unfair because others with more have some special privilege then it can be expected to see declines in upward mobility. It is also possible that some programs have an inherent bias against achievement because it would threaten the livelihoods of the social workers whose jobs and incomes are dependent on having increasing caseloads.
Yes, that certainly appears to be true and is very common sense.
But there is this: transfer of wealth or the undermining wealth through political or economic machinations over some decades. I think that this is how the decline of American wealth — among the working class — is explained. A general decline from the 1960s-1970s through the present.
Did such really happen do you think?
The only way wealth can be transferred in a market economy is through voluntary transactions. If you want to talk about involuntary transfers of wealth by government one has to look at the recipients of the funds from such involuntary transfers.
Musk, Steyer, Bloomberg, Trump as well as the Walmart clan accepted money from those willing to part with it in exchange for some value they perceived they would receive.
Even banks that charge ridiculous fees that we hate to pay cannot make a profit if we choose not to use their services. The fact that we willingly if not grudgingly patronize these organizations is that we think we are better off if we do. If the opposite were true we are not rationally self interested. And that is hardly the case.
The only way wealth can be transferred in a market economy is through voluntary transactions.
What about inflation? Devaluation?
Neither of these things can be considered “transfers” in any reasonable sense. They are changing economic conditions, not transfers.
Yes but you are now shifting to semantics.
The ‘changing conditions’ could involve a host of different policy choices that resulted in ‘wealth transfer’. In any case, that is the opinion of certain writers I have read.
My basic theory is that under the present régime (which involves numerous administrations) — call it what you will, define it as you may — things do not work out well for the American working class. I am supposing that these are the conditions that have led to so much anomie.
But I am cynical, and I do not trust. Make of that what you will.
The only way wealth can be transferred in a market economy is through voluntary transactions. If you want to talk about involuntary transfers of wealth by government one has to look at the recipients of the funds from such involuntary transfers.
While I do understand what a ‘voluntary transaction’ is, I am interested in the analysis that has been made that since around the 1970s, and through mechanisms and processes I do not claim to understand, the value of the dollar decreased while the dollars paid remained the same. The cost of things went up, generally, and ‘buying power’ has not recovered.
Now, I can conceive that a culture, an economy, could become less wealthy than it was and impoverished, and perhaps this is all that is needed to explain what happened to the American worker at that time.
But I can also visualize other mechanisms and processes by which wealth is transferred from one class or sector to another. You could say ‘by voluntary transactions’ but as I say what about devaluation, inflation, and what about government policy and transactions that move wealth from one section to another?
And though it is true that every transaction, unless forced, is voluntary, it is not hard to conceive of a general system where every transaction one makes, for things one needs, slowly and surely ‘transfers’ wealth away from you and your sector, to others.
What about operations that patriate funds outside of the economic system where they were generated?
Yes Chris. I don’t have any difficulty considering that one cause of declining income mobility might be “increases in income maintenance and other entitlements”. To some extent that must be true.
This is of course part of a bigger and convenient (to the rich) argument that any assistance program saps motivation, initiative and self reliance, and generates dependency. It is therefore best and kindest to do nothing : the wonderful free market will solve all such problems. Individuals will more readily move, adjust, work harder, train or retrain etc. if faced with the stark alternative of humiliating failure. Sometimes you have to be cruel to be kind. And there is always the comforting biblical warning not to ‘spare the rod and spoil the child’. (Proverbs 13: 24 etc.). Maybe such an environment might produce measurably higher economic mobility? (I think Thomas Picketty would argue ‘not’ and I lean his way.)
But as a mildly left leaning ‘progressive’, I haven’t given up on our obligation and readiness to intervene and support each other when needed. I also vote for the freedom to do what I want and to support a decent meritocracy. I realise this is hard and involves balancing various conflicting objectives. That is why we need our best and smartest in the public policy arena, and plenty of civilised debate.
Jack writes:
No one has any sound reason to *believe* Bloomberg for the simple reason that all the political figures — the Titans — lie. How could you be a politician on the American (and possibly any) landscape and not lie? But lying also would have to be better defined. Reducing a political narrative to a ‘fighting minimum’ is a way of lying. In this sense one could from our present perspective critique Trump’s general political promises. How many of them have been realized? Were Trump’s political and campaign lies different from any other politician of recent memory? I don’t think so.
They all lie because the system requires such reductions in discourse.
Bloomberg is dealing in ‘partial truths’ or ‘tendentious truths’ within his (stated) campaign to undermine Trump. Most people — don’t they? — recognize that when the titanic figures go to battle (images of Godzilla in cheap Japanese movies appear before the imagination) that they do so on the basis of lies. But a ‘partial truth’ is also a form of lie. They do and say whatever they have to.
If the question is: Has the American worker over the course of the last 50 years benefitted in the strength of his economic position? Or has his position been weakened? my impression is that it is generally recognized that his position has weakened. I read that it was right about in the 1970s when ‘the bottom dropped out’ and real wages began to drop. It is true that many of the sources for this information are Left-oriented. But is the reality they describe a real reality . . . or is it a political lie?
It might be true — it seems to be true — that in the Trump economy there has been progress. More people working, strong economy, etc. But can that be taken to mean that the American worker is gaining in real terms? That is, when compared to former times when (as they say) a husband could work and support a family on what was earned? When the buying power of the dollar was high? What if one determined that that level of wealth was the desired level? And will the decisions now being taken by political leadership really lead, in the long run, to a better outcome for ‘average people’ and the American worker generally?
To ask such questions leads into the sort of analysis that is not uncommon today and which, if I am not mistaken, many of Trump’s supporters try to engage in: what happened in America? What happened to my livelihood? My community? How did this happen? Who is responsible?
What I notice is that ideas and concerns which had traditionally been ‘of the left’ and also ‘socialist’ are beginning to arise among people who had traditionally shunned those ideas. For example, the average worker in the American center-lands.
But that is not what one should focus on. What I mean is that it is not Trump that should or shouldn’t be looked at but rather the entire group of policies that Trump’s *lieutenants’ have put in motion. According to the Left-analysis they are ‘reversing’ or ‘gutting’ the (so-called) public policies that Obama had enacted. Is this a lie, a truth or a partial truth? Is it good to do that, or is it bad? Is this determined by ‘opinion’ or through a grounding in real facts?
Aliza, if you examine the current market basket of goods relative to ye olden times when you think the dollar bought more you will find that for the most part you are getting more value than before. Sure a car in 1971 cost about $ 2500 but AC and FM were luxuries only the wealthiest could afford. Those cars got about 12 miles to the gallon and todays cars regularly twice that and more so in real terms the cost per mile driven has fallen if you evaluate the total costs of ownership. Housing is the same. Government mandates – for good reason- that new construction meet higher standards. People demand high end finishes that were unheard of even 25 years ago. My home was built in 1949 and needed to bw rewired to get grounded outlets and to increase my ability to use all the power all those new gadgets and gizmos like central air and smart appliances demand.
The fact is you cannot compare wellbeing from 10, 20, 30 or 50 years ago to today. You are not seeing a falling of standard of living you are witnessing standards of living that are growing exponentially. What family say 20 years ago provided a portable wireless phone with a separate number to their kids? The list of differences is extensive. Some can keep up and have the capacity to keep pace with the trendiest of lifestyles while the rest of us do the best we can with what we have. Complaints about real buying power falling really is the verbal manifestation of financial envy.
Yet you just did what I supposedly cannot do: made a comparison. And I am not at all sure if the measure of wealth — and the real product of wealth — is to be seen in access to gadgets. All that I am saying is that many different people have made the assertion that in former times a man on his own earned enough to support his family and his children.
If the people who are saying this are engaging in lies and distortions, I am open to hearing about that. If my basic premise is that *everyone lies* I have to at least suspect those I hold in some esteem!
Those are not the measures of wealth that I see as being the products of wealth. ‘Trendy lifestyle’ is not wealth. In fact it can be defined as a manifestation of poverty.
I tend to say what I think — it gets me into trouble — but here I would suggest as a possibility that you are speaking from bias and are relating opinion.
But this fits. If all critique of the present economic system is an expression of ‘financial envy’ then those who critique the system are merely ‘envious people’.
Please don’t misunderstand: I believe that you may be very right in some and perhaps many instances. To be envious of other’s wealth is possible. Except in noticing the process I am speaking about or being concerned about it — transfer of wealth over years and decades from one sector to another — may arise from other sensibilities than ‘envy’.
The only way wealth can be transferred in a market economy is through voluntary transactions. If you want to talk about involuntary transfers of wealth by government one has to look at the recipients of the funds from such involuntary transfers.
Musk, Steyer, Bloomberg, Trump as well as the Walmart clan accepted money from those willing to part with it in exchange for some value they perceived they would receive.
Even banks that charge ridiculous fees that we hate to pay cannot make a profit if we choose not to use their services. The fact that we willingly if not grudgingly patronize these organizations is that we think we are better off if we do. If the opposite were true we are not rationally self interested. And that is hardly the case.
There is something in your view — in your tone perhaps? in your assumptions? — that reveals to me too much trust in ‘market forces’ as they are called. I suppose that you come from a sort of libertarian economic school of thought? It would fit with many of your other ideas. It seems that you trust too much. More than I can in any case.
What I notice is that in different sectors, and among people that you wouldn’t imagine as thinking such things, there is re-analysis of the present economic arrangements (among many different things).
As in nearly everything that is discussed on this blog — that is if I am right in my perception — the denizens here come from nearly-entirely conventional orientations. In politics, in social questions, in progressive-conservatism with all of its established tenets.
That is fine. But I am committed to breaking out of all conventions of thinking. The reason I am asking the questions I ask is obviously because I am pushing against the boundaries you establish as impassible.
We ‘patronize’ establishments sometimes because there is no alternative. And if a ‘system’ develops where those entities and forces have the power to define the landscape of transactions, then they will do so in service to their own interests. There you have, again, my preoccupation with Power.
The reason I say this — make reference to these alternative ways of seeing — is because in many different areas and spheres people I read are doing this. Asking questions. Examining structures. That is the nature, I guess you might say, of the Dissident Right to which I feel related.