The Compass

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THE TRUTH CONCERNING ALLEGED RISING INEQUALITY IN THE USA Background It is a fact that inequalities exist in America but they are almost always solidly rooted in immutable psychological traits such as IQ, industriousness, honesty, creativity, courage, etc. [See: AEI Monograph (1998) "Income Inequality and IQ" ]. Take IQ. According to the National Longitudinal Survey of Youth by age 28 to 36, the top 10% in cognitive ability have a median earned an income of 4.8 times the median for the bottom 10%. Indeed, "The Bell Curve" (1994) in part one, "The Emergence of a Cognitive Elite", found that IQ is one of the best single predictors of job productivity. Most recently, researchers have found that DNA plays a role in social stratification. These investigators concluded that "Human DNA polymorphisms vary across geographic regions, with the most commonly observed variation reflecting distant ancestry differences." [See: Nature: Human Behaviour October 21, 2019 "Genetic Correlations of Social Stratifications in Great Britain" Abdellaoui et al or https://www.nature.com/articles/s41562-019-0757-5 ]. For proof that all psychological traits are firmly riveted in nature and not in nurture one need only read Prof. Robert Plomin's new book, "Blueprint: How DNA Makes Us Who We Are", (Nov. 2018) which is the most recent scholarly work on the psychology of human genetics. In "Blueprint" Plomin, one of the very top experts in the field of behavioral genetics asserts that "A century of genetic research shows that DNA differences inherited from our parents are the consistent life-long sources of our psychological individuality -- the "Blueprint" that makes us who we are." Prof. Plomin also reports that "... genetics explain more of our psychological differences -- not just mental health and school achievement but all psychological traits, from personality to intellectual abilities. Nature, not nurture is what makes us who we are." [Note: The Dec. 14, 2018 issue of Scientific American contains a very brief essay by Prof. Plomin titled "In the Nature-Nurture War, Nature Wins." and in it, Plomin admits that "Environmental influences are important… too, but they are largely unsystematic, unstable and idiosyncratic -- in a word, RANDOM." (Emphasis added) Plomin continues "These findings call for a radical rethink about parenting, education and the events that shape our lives. It also provides a novel perspective on equal opportunity, social mobility and the structure of society."] In spite of this contrary scientific evidence that inequality is not rooted in economic factors, countless left-leaning economists, law professors, and political scientists insist, without foundation, that capitalism is the source for much of our nation's inequality. One needs only to read Prof. Joseph Stiglitz's "The Price of Inequality" (2013) or Prof. Thomas Piketty's tome, "Capital in the 21st Century" (2014) or Prof. Thomas Shapiro's "Toxic Inequality" (2017) and their calls for redistribution to understand that their driving motivation is a search for almost totally equal economic outcomes. They undertake this crusade in spite of the fact that even Lord Keynes believed that efforts to fight inequality hinder economic growth. [See: Foundation for Economic Education Aug. 11, 2018]. Even the IMF got it wrong. In a 2015 report titled "Causes and Consequences of Inequality," this organization errantly asserted that "Widening inequality is the defining challenge of our time. In advanced economies, the gap between rich and poor is at its highest level in decades." Interestingly, this barrage of unsupported claims prompted an author like Edward Conrad to produce a book, "The Upside of Inequality" in which he mistakenly states that capitalism is a cause of inequality but asserts that the overall impact is positive in that growth (rising GDP) has markedly improved everyone's standard of living. But the unifying and driving force exhibited by all of these millenarian collectivists is a desire to eliminate economic inequality of outcomes. This deep-seated human drive for equality likely stems from our ancestral days living as small hunter-gatherer bands that wandered the several continents (except Antarctica) for over 100,000 years. Sharing the "wealth" was a possible adaptation that probably helped to ensure the survival of the group. Individualism likely played a subservient role to the collectivism of each clan. Of course, these people all lived on the edge of starvation at a level of servile poverty that is almost unimaginable today. [See: https://en.wikipedia.org/wiki/Hunter-gatherer ]. Then about ten millennia ago humans mastered the science of agriculture which resulted in a more stable food supply and as a consequence population levels of our lineage began to rise. But, our farming forebears still lived in a condition of almost total abject poverty. [See: http://j-bradford-delong.net/TCEH/1998_Draft/World_GDP/Estimating_World_GDP.html ]. This state of affairs continued uninterrupted for almost 10,000 years until the advent of capitalism (individualism) in central England about 1765. [Note: Highly regarded economic historian, Prof. Deirdre McCloskey, places this critical conversion in the northern Netherlands roughly 100 years earlier but the result is the same.] With the development of capitalism the Industrial Revolution began, GDP surged ahead and human-kinds overall levels of economic well-being soared, increasing according to some estimates by up to 5,000% at the turn of the 21st century. [See: https://www.bankofengland.co.uk/KnowledgeBank/how-has-growth-changed-over-time ]. In all of history, things had never gotten better for everyone any faster. [See: https://en.wikipedia.org/wiki/Great_Divergence.] The following graph shows this remarkable upward trend in life expectancy, GDP per capita, energy capture, democratic governance, and war-making capacity along with a remarkable decline in extreme poverty. Moreover, in a 2001 essay titled "The Law of Accelerating Returns", Ray Kurzweil opined that the rate of technological change is exponential. [See: https://www.kurzweilai.net/the-law-of-accelerating-returns ]. Thus the sharp upward trend in these measures of well-being has continued and even accelerated since 2000 and it is not unreasonable to believe that the shift of ever-improving living standards and the rest will stretch further into the future. [See: https://fattailedandhappy.com/rise-of-asia-global-growth-since-2000/ ]. Regrettably, ever since Jean Jacques Rousseau wrote his famous essay, "Discourse on the Origin and Basis of Inequality Among Men" in 1754 some (many?) collectivist scribes have sought to return our species to its hunter-gatherer roots when everyone was equally hungry and always desperately poor. [See: https://en.wikipedia.org/wiki/Jean-Jacques_Rousseau ]. As evidence of this ill-advised tendency, every day I read an almost endless array of pro-socialist and anti-capitalist articles in a variety of newspapers, magazines, and web sites and almost all of these focus on alleged rising levels of inequality. A single recent example should suffice. In a June 6, 2019 article in the NY Times, titled "The World is a Mess. We Need Fully Automated Luxury Communism", Aaron Bastini insisted that "We live in a world of low growth, low productivity and low wages, of climate breakdown and collapse of democratic policies. A world where billions, … live in poverty. A world defined by inequality." Next, I ask myself -- How could so many bright well-informed authors be so apparently unaware of the actual realities concerning the facts regarding the imagined phenomenon of increasing income and wealth inequality in the US? [See: https://www.amazon.com/product-reviews/0691143617/ref=acr_dpx_hist_3??ie=UTF8&filterByStar=three_star&showViewpoints=0 ]. These unfounded claims of growing income inequality and the exaggerated concentration of wealth in the US due to capitalism are easily rebutted. Many left-leaning economists are at heart closet "levelers" who favor more equal economic outcomes and these same people therefor support almost any move towards socialism. They thus espouse every misleading set of statistics that they can find in an effort to attain their goal. This is often called "data mining" and it is not useful. In his 1954 book, "How to Lie With Statistics" author Darrell Huff coined the word "statisticulation" by which he meant "statistical manipulation" which also describes very well the work of these many current day egalitarians. For example, some socialist commentators have contended that with a slew of data, Thomas Piketty confirmed what those on the left had long believed: that extreme inequality and the clustering of wealth are the natural outcomes of capitalism. [See: https://newrepublic.com/article/154186/bernie-sanders-democratic-socialist-failure-envision-world-without-capitalism ]. But, income inequality in the US has not risen in the last 60 years and the US Census Bureau data (along with Kitov & Kitov 2012) [See: https://www.academia.edu/4383266/The_Dynamics_of_Personal_Income_Distribution_and_Inequality_in_the_United_States ] prove it. Since 1960 the Bureau's Gini coefficient (one of many important measures that almost all economists use to track inequality) of income for "All US Persons" (individuals) has remained almost totally flat. [See: Table PINC-01 Selected Characteristics in the March Supplement which is published each year by the US Census Bureau as part of its Annual Demographic Surrey or visit https://politicalcalculations.blogspot.com/search?q=gini#.XR4aendFwuU ]. Thus there has been virtually no increase in US income inequality for individuals for six decades. [See: https://voxeu.org/article/human-capital-and-income-inequality ]. Also, most collectivist writers do not know that Prof. Piketty in 2015 quietly recanted much (most?) of what he wrote in "Capital in the 21st Century". [See: "About Capital in the 21st Century" American Economic Review 2015, 105(5): 48-53 or go to http://dx.doi.org/10.1257/aer.p20151060 ]. What has been skewing upwards is the US Census Bureau's Gini coefficient for "US Households" (and "US Families"). [Note: In 2009 Prof. Robert Gordon found that "The rise in American inequality has been exaggerated both in magnitude and timing." See: https://www.nber.org/papers/w15351 thereby confirming the assertion that Alan Reynolds made at the Western Economics Association's July 2007 meeting that "... inequality in income, wages, consumption, and wealth among the US population as a whole does not appear to have increased significantly since 1988." See: https://www.cato.org/publications/policy-analysis/has-us-income-inequality-really-increased ]. But nearly 100% of any increases have been caused by sociological (and not economic) factors (i.e. alterations in the size, make-up, and constitution of both US households and families.) For context, any divergence of these two data sets from the stable status of the statistics for "All US Persons" (individuals) began about 1970. [See: https://politicalcalculations.blogspot.com/search?q=gini#.XTMahXdFwuU ]. But as Stanford economist, Thomas Sowell, put it in his book, "Economic Facts and Fallacies" (2008), "Income comparisons using household statistics are far less reliable indicators of standards of living than individual income data because households vary in size while an individual always means one person." Later Prof. Sowell continued "Household income data can, therefore, be very misleading, whether comparing income differences as of a given time or following changes in income over the years." Perhaps a single specific example of this household trend will help to dismiss the lefts baseless trope regarding rising income inequality in the US. If a young woman in the 1950s became pregnant out of wedlock she almost always married the father thereby forming one new household (and one new family) with one caregiver and one breadwinner. Twenty years later mounting numbers of young women began bearing children without any serious intention of matrimony (today this figure in the US stands at 39.8%) [See: https://www.cdc.gov/nchs/fastats/unmarried-childbearing.htm ] and this results in the formation of two new families (and two new households) one with a caregiver but no breadwinner and another with only a breadwinner. Both of these freshly formed households (or families) are each poorer than the combined single household (or family). Obviously, this emerging cultural (not economic) change began shifting the income inequality for households (and families) upward. There are many other sociological (but not economic) trends that have resulted in similar skewing of the household (and family) data. These include (but are not limited to) elevated levels of divorce which split one household (and family) into two needier units; increasing numbers of elderly women who outlive their spouses; rising instances of assortative mating (i.e. In the 1950s a doctor often married his nurse but today she marries another doctor or lawyer which results in a very high two-income household and family. Indeed, according to Greenwood et.al. (2014), the US Gini coefficient in 2005 would have fallen from the observed 0.43 to 0.34 if all US mating had been random. And the authors of this research thus concluded that "... assortative mating is important for income inequality.") [See: https://www.nber.org/papers/w19829?utm_campaign=ntw&utm_medium=email&utm_source=ntw ] [Note: For a contrary point of view see:https://www.nber.org/papers/w20271.pdf ]; and numerous other sociological kinetics which markedly raises the Gini coefficients for both families and households but not for individuals. In their 2016 book, "Unequal Gains", Profs. Lindert and Williamson begin by dismissing in a footnote the US Census Bureau's data as "faulty official numbers" but later admit that the racial and gender inequality gaps have been converging since 1970 along with a declining gap in the North-South levels of inequality. But these two authors are unable to reconcile why these American "countercurrents" are moving in the opposite direction of their "new" measure of inequality which is the "tax unit" research of Piketty & Saez (2001). [See: https://www.nber.org/papers/w8467 ]. Lindert and Williamson revealed their true colors in "Unequal Gains'" last paragraph. "If there were any fulcrum at which historical insight might be applied to move inequality, it would be political. As we have said, no nation has used up all its political opportunities for leveling income without harming economic growth." Even worse, these two liberal economists asserted that "The South was the richest of the colonies, and even its slaves had higher living standards than did the poorest in England." Most collectivist economists (including LIndert & Williamson) always examine inequality using only pre-tax data and before taking into consideration any government transfer payments which each highly distort the real situation in America. The following graph depicts the true status: [See: https://www.cato.org/blog/different-look-after-tax-income-inequality ]. This certainly is no picture of rising income inequality in the US. For context, one should also note the following: According to the IRS data from 1992 to 2014 over 70% of "tax units" (a very close proxy for families) were among the top 400 individual US taxpayers for only a single year while only 3% were among this top tier for ten years or more. [See: https://taxfoundation.org/turnover-among-richest-americans/ ]. Thus, most US taxpayers had ultra-high incomes only one time in their careers. Also, in 2017 a US household needed $421,926 to be in the top 1%. [ See: https://www.epi.org/multimedia/unequal-states-of-america/#/United%20States ]. This is a very handsome sum but far less than many would imagine.In 2019, Auten & Splinter reported that "Top income share estimates based on only individual tax returns, such as Piketty & Saez (2003) are biased by tax-base changes, major social changes, and missing income sources." These authors continued "Our results suggest that the income shares are lower than the tax-based estimates, and since the early 1960s increasing government transfers and tax progessivity have resulted in little change in after-tax income shares." [See: "Income Inequality in the United States: Using Tax Data to Measure Long-Term Trends" Or see: Davidsplinter.com/autensplinter-tax_data_and_inequality.pdf ]. The Economist, noted regarding this research, that "Just as ideas about inequality have completed their march from the Academy to the frontlines of politics, researchers have begun to look again. And some are wondering whether inequauality has risen as much as claimed -- or, by some measures, at all." The results of this research paper have also been reported by Vox, PBS, The Hill and the WSJ. Turning the alleged accumulation of wealth due to capitalism. This misleading claim made by many collectivists also lacks important framing. Augustus Caesar was worth an estimated $4.6 trillion but economic historians name Mansa Musa I (1280 - 1337) of the Mali Empire in sub-Saharan Africa as the richest man of all time. Jakob Fugger (1459 - 1525), a German merchant, amassed a fortune worth an estimated $400 billion in today's dollars more than 250 years before the onset of capitalism. Today the world's richest man is Jeff Bezos with a net worth of about $125 billion. He is followed by Bernard Arnault with just under $108 billion and Bill Gates at slightly more than $107 billion. [See: https://www.msn.com/en-us/money/markets/arnault-overtakes-gates-to-become-worlds-second-richest-person/ar-AAEqfUQ?ocid=spartandhp ]. Basil II, Alan the Red, Nicholas II, William the Conqueror, and Muammar al-Qaddafi, along with all of the "Robber Barons" of the late 19th and early 20th centuries were also far wealthier than Mr. Bezos in US dollars adjusted for inflation. [See: https://en.wikipedia.org/wiki/List_of_wealthiest_historic_figures ]. As an aside and for further context, several large family fortunes have been divided by inheritance. The combined Walton family fortune today stands at $191 billion, the Mars estate has a total worth of $127 billion and the Koch family wealth is now $125 billion. [See: The Jewish Journal reporting from Bloomberg Aug. 11, 2019]. In the May 15, 2014 edition of Foreign Affairs magazine in an article titled "The Inequality Illusion" economists Wojciech Kopczuk and Allison Schrager reported that "... there is limited evidence that wealth inequality has actually worsened in the US in the last 30 years." A year later Zucman & Saez in a scholarly paper, ("Wealth Inequality in the US Since 1913") found that wealth inequality was not rising quickly below the top 0.1%. [See:https://berkeley.edu/~saez/saez-zucmanNBER14wealth.pdf ]. According to Harvard professor and economist, Martin Feldstein, this increase in the wealth statistics among the top 0.1% was due almost entirely to the 0.01%'s conversion from reporting their taxes as "C" corporations to "sub-S" corporations after the 1986 tax act. [See:https://object.cato.org/sites/cato.org/files/pubs/pdf/anti-piketty.pdf ]. Thus, there has been little or no concentration of wealth in the US since 1970. For some unexplained reason, many socialists confine their analysis of inequality to measures of income (annual earnings) and wealth (accumulated economic assets less debt) thereby ignoring many other important benchmarks (mortality, morbidity, literacy, consumption, gender, race, etc.) and one might assume that these other unmentioned norms may not support their collectivist claims of inequality that is skewing out of control. [See: https://mortality.org/ ]. The simple truth is that these other metrics are both: getting better fast and converging while not diverging as many on the left would have us believe. [See:https://www.un.org/esa/desa/papers/2005/wp2_2005.pdf ]. The Organization for Economic Co-operation and Development (OECD) has firmly asserted that "Economic growth is the most powerful instrument for reducing poverty and improving the quality of life in developing countries." [See: www.oecd.org/derec/unitedkingdom/40700982.pd ]. Of course, many collectivists want to halt the expansion of human economic well-being asserting that things are good enough today. [See: https://www.amazon.com/Lets-Get-Rid-growth-Globalization/dp/1484036557/ref=sr_1_28_sspa?keywords=capitalism&qid=1564929398&s=books&sr=1-28-spons&psc=1 ].Thus, any effort that might slow economic growth via socialism would be a virtual "death sentence" for our planet's needy. Interestingly, Michael O'Sullivan in his new book "The Leveling" insists that while globalization has ended the next major trend will be a worldwide equalizing of wealth, income, consumption, etc. In further support of the OECD's assertion Prof. Raghuram Rajan, an economist at the University of Chicago and former chief economist for the IMF, in his latest book, "The Third Pillar" (2019) reports that "We are surrounded by plenty. Humanity has never been richer as technologies of production have improved steadily over the last two hundred fifty years. It is not just developed countries that have grown wealthier; billions across the developing world have moved from stressful poverty to a comfortable middle-class existence in the span of a generation. Income is more evenly spread across the world than at any other time in our lives. For the first time in history, we have it in our power to eradicate hunger and starvation everywhere." This is capitalism's real historical economic record. Moreover, the editors of The Economist magazine on May 23, 2019, opined that "Capitalism is improving workers' lot farther than it has in years … (and) … the zeitgeist has lost touch with the data." They added that the bleak picture painted by the left "... is at odds with reality." In other words, many news outlets are apparently not reporting the economic truth about capitalism. Indeed, Prof. Richard Baldwin, president of the Centre for Economic Policy Research (CEPR) in London, in his 2016 book, "The Great Convergence" notes that "From 1820 to 1990 the share of world income going to today's wealthy nations soared from 20% to 70% and that share has recently been plummeting. Today, their share is now back to where it was in 1914." According to Dr. Baldwin "This new trend … is surely the dominant economic fact of the last two or three decades." This leads one to inquire -- Why does this critical new trend go virtually unreported? Summary One should compare all of these facts with socialism's record of rendering almost everyone to be only equally poor. Thus, liberals imagined emphasis on rising inequality in the USA due in-part to capitalism represents one of the world's biggest economic hoaxes.