We’ve Been Measuring Inequality Wrong

https://theconversation.com/weve-been-measuring-inequality-wrong-heres-the-real-story-56179

by testrun • 10 years ago

22 31 10 years ago

scotty79• 10 years ago

Another key finding is that U.S. fiscal policy acts as a serious disincentive to work longer hours or harder for more pay.

And yet they work longer hours than most of civilised countries an sometimes work two jobs. Either they are really stubborn or the research or the conclusions from it have some flaws.

dang• 10 years ago

Url changed from https://newrepublic.com/article/131517/weve-measuring-inequa..., which points to this.

tdaltonc• 10 years ago

Remarkably, this debate has taken place based on partial and inappropriate indicators of U.S. inequality. . . . First, spending inequality – what we should really care about – is far smaller than wealth inequality.

No one really care about the exact level of inequality. They care about the trend (that inequality is much higher then it used to be). If they showed that that trend was different then what everyone thought that would be interesting, but just showing that this measure reports a different level is not so interesting.

skywhopper• 10 years ago

There are lots of problems with this article.

The basic assumption--that "spending power" is more important than "wealth" or "income"--is questionable, but the authors don't really spend any time defending it. The reason the richest 1 percent spent a lower percentage of their income is because they don't have to, and because they are able to re-invest their money (not counted as spending) in making themselves more money. The poorest 20% do not have that luxury.

The arguments about how high taxes disincentivize work assume that income == work. But that's not correct. Productivity growth has been tremendous over the last two decades, and workers have been producing more and more, but that hasn't been translating into income gains, except for those in the top 2 or 3 percent, which is precisely what the income inequality gap reveals, which is apparently why the authors of this study chose to use a different standard.

"Facts and figures are hard things. They upset prior views and demand attention." Say the people who came up with an alternative model of measuring inequality because the simpler model upsets their preferred policy, and would rather ignore the problematic numbers by creating new ones.

ams61103• 10 years ago

Productivity growth has been tremendous over the last two decades, and workers have been producing more and more, but that hasn't been translating into income gains

People are (more or less) paid for their time and not their productivity. That they are not getting paid more suggests that the supply of worker hours has been more or less keeping up with the demand.

mdorazio3• 10 years ago

Yes, but for what reason? If productivity is going up, that means fewer hours are needed to produce the same amount of products/services, so demand for worker hours has remained roughly fixed (if you factor in population increases) while production has been increasing. Who's been getting the benefit of that increased production? Not your median household, which is the whole crux of the problem.

wtbob2• 10 years ago

The basic assumption--that "spending power" is more important than "wealth" or "income"--is questionable, but the authors don't really spend any time defending it.

Do they need to? Spending power which includes the estate one leaves one's heirs represents one's total quality of life (measured in money, anyway).

jnbiche2• 10 years ago

I highly disagree about the conclusion that spending inequality is more important to look at than wealth inequality. Wealth indicates security and lack of economic precariousness, spending does not. If you're middle income and in chronic debt because you have a disabled child and care for your aging parents, you might look just fine if you look at spending. However, your hardship will likely be clearly reflected in your lack of wealth.

The fact that they chose spending rather than wealth makes me wonder why it was chosen. The authors claim that spending inequality is the correct measure, but then provide zero research-based justification for this decision.

Reading the paper, they claim in regards to wealth and related forms of inequality, "none measures inequality in living standards, which should be the ultimate concern when assessing economic fairness". Well, that's a fine presumption, but perhaps we're more concerned by the increasingly capability of the top 0.1% of the wealth of this country (ie, the vast majority of it, as much as 80-90%) to buy our political process and start us down a feedback loop of no return.

Point being, these economists seem to bring in an awful lot of political and moral prejudgments into this study (as is their profession's frequent wont).

randomdata2• 10 years ago

On the other hand, I always think of farmers when the subject of wealth comes up. Their infrastructure can make them very wealthy, but through many years their income may not even push them across the poverty line, making living a struggle. Wealth gives no indication of how you are doing day to day. There is definitely security there, but only if you are wiling to give up your livelihood, which comes with its own problems.

mdorazio3• 10 years ago

I'm not sure that's the best example. Median farm family incomes are a good 30% higher than median non-farm family incomes in the US [1], and farming comes with benefits like really low cost of living. Farming is quite a lucrative profession.

[1] http://www.usda.gov/documents/FARM_FAMILY_INCOME.pdf

Gibbon12• 10 years ago

Point being, these economists seem to bring in an awful lot of political and moral prejudgments into this study (as is their profession's frequent wont).

I was reading this recently.

https://www.marxists.org/reference/subject/economics/keynes/...

Protip: Want to read any historical stuff on economics? You'll be slumming with commies.

Anyway what is amusing reading that it's apparent that the policies promoted by orthodox economists have not changed in 200-300 years. And actually predate economics as a field. It would be like going to the doctor circa 2016 and being told the results of your MRI indicate a vital need to apply leaches to your nether regions. So yeah does seem that for economics political and moral prejudgments trump theory 99% of the time.

jacobolus• 10 years ago

John Maynard Keynes is a “commie” now? Here’s what he had to say about the USSR:

“How can I accept a doctrine, which sets up as its bible, above and beyond criticism, an obsolete economic textbook which I know to be not only scientifically erroneous but without interest or application to the modern world? How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeois and intelligentsia who, with whatever faults, are the quality of life and surely carry the seeds of all human advancement? Even if we need a religion, how can we find it in the turbid rubbish of the Red bookshops. It is hard for an educated, decent, intelligent son of Western Europe to find his ideals here, unless he has first suffered some strange and horrid process of conversion which has changed all his values.”

wtbob2• 10 years ago

The authors claim that spending inequality is the correct measure, but then provide zero research-based justification for this decision.

I think it's self-evident, since they include bequests in total lifetime spending: spending is how much one actually gets to enjoy one's wealth.

Well, that's a fine presumption, but perhaps we're more concerned by the increasingly capability of the top 0.1% of the wealth of this country (ie, the vast majority of it, as much as 80-90%) to buy our political process and start us down a feedback loop of no return.

When most of the top ten political spenders are unions, I don't think it's the wealthy who are buying the political process; if anything they are buying it back.

a_thro_away• 10 years ago

The unions may spend more, no argument there, but in my mind it isn't the total amount spent, but the total amount spent per represented citizen.

takno• 10 years ago

The emphasis on lifetime spending power in this paper is odd, since most people wouldn't choose to starve through their 20s and 30s in return for the ability to spend more on luxuries towards the end of their lives. I suspect they are also assuming that young people today will end up with the same spending power as today's seniors, which is a pretty questionable scenario.

Overall the article leaves the impression of authors with a conclusion in mind and a determination to find data which matches

ams61103• 10 years ago

And yet if people did save and invest aggressively in their 20s and 30s we would not be talking about wealth inequality to nearly the degree we are now.

wott2• 10 years ago

Invest? Invest what???

spdy• 10 years ago

I never understood why cutting taxes creates more jobs. Before the full force of globalization "trickle down economy" made some sense as the investments would go locally (factories etc.) but at the current point in time it does not.

We have a distribution of wealth in the world that looks like a hockey stick and we actually need something like a bell curve.

lumberjack• 10 years ago

Did they really introduce a new bogus metric without even defining it, much less justify its use? Never heard of "spending inequality" until this article came along.

wott2• 10 years ago

Each parameter (declared or hidden) that they inject in their calculation is carefully designed to decrease the inequality. No wonder they obtain a measurement with less inequality. Anyway, they did not really need all to go to such great lengths to get this result, since they do really care about it and their conclusion is mostly unrelated to it.

Economists... Economic science... It would be more honest not to disguise oneself under scientific methods, and that should be renamed "economic politics" (and while we are at it, let's rename sociology to "politics" and philosophy to "religion", everything will be clearer).

ap22213• 10 years ago

The statement about economics rings true. When I think of science, I think of models that accurately and precisely reflect reality. That is, a tested and validated model should be predictive and consistent.

I have no trust for 'sciences' that cannot tell me precisely and accurately what the effect of an action will be. If the author's of the paper could tell me that an implementation of policy X would yield an effect of Y within an error of Z, within a certain timeframe then I'd have at least a small degree of trust. But, even then, they'd have to also specify metrics to track so that an observer could validate that the effect is 'on course'.

hifier• 10 years ago

Lots of hate here so far. I agree more explanation of their premise would go a long way towards convincing skeptics. However, I think this is an interesting perspective and deserves better conversation. Fiscal policy is progressive and has a dramatic impact on individual finances. Contrary to popular belief not everyone in the 1% pays the capital gains rate.

jnbiche2• 10 years ago

I read a lot of criticism, but no "hate". Can you show me a comment here that you consider hateful?

woodandsteel3• 10 years ago

The reason the wealthy spend less of their income is they have more than they need, and they put the rest into investment, which increases their own wealth.

In fact, that is the basic conservative argument as to why the government should let the rich keep their income. The idea is that investment by the wealthy increases total size of the national economy, which in turn leads to everyone's income going up.

The problem is that this process hasn't been working for about three or four decades. The rich keep investing their money and getting richer, but income for most other people is stagnant or going down.

woodandsteel3• 10 years ago

The authors claim that the progressive tax system provides a disincentive to work. So what they are saying is, on the one hand, things are just great, and on the other hand, things are just terrible because people are voluntarily not working.

Also, if the wealthy are not working, how come they keep getting wealthier? And furthermore, why is it that studies show that Americans work more hours than people in other industrialized countries?

The nice thing is that these sorts of propaganda attempts are failing because people know from their own experience that income is stagnating.

woodandsteel3• 10 years ago

Oh, and here is another thing. The authors say we need to take into account future income.

So on the one hand conservatives say Social Security is going to collapse in 15 or 20 years and no one will get anything, and on the other hand they say everyone is going to retire to a life of wealth and luxury.

Speaking of which, I wonder how many young or middle age conservative voters would consider it a good deal to sign away their future SSA income for one cent on the dollar.

We’ve Been Measuring Inequality Wrong

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