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In Reply to McManus: Harping on Income Inequality Ignores the Data

“The Economist noted: ‘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 inequality has risen as much as claimed—or, by some measures, at all.'”

So I find that I am again called upon to cross intellectual swords with Professor Matt McManus, who is a quite able and talented foe. Regrettably, McManus has now seen fit to offer a favorable review of Michael Brooks’ new book Against the Web: A Cosmopolitan Answer to the New Right, even though Brooks is unable even to listen to contrary scientific evidence that severely undermines his misguided worldview—let alone carefully evaluate it. This is very sad. But let’s start at the beginning. Early in his review, McManus offers that, “To its fiercest critics, the IDW [Intellectual Dark Web] is a screen for advancing controversial views about race, ethnicity, and capitalism under the pretentious veil of being reasonable.” Then, McManus immediately adds that he simply wishes that “…the more sophisticated members of the IDW took their ideological opponents seriously enough to mount well-reasoned criticisms. All too often, figures such as Peterson and Shapiro take pot shots at straw men, rather than actually dealing with progressive arguments in a rigorous way.” Now, I am clearly unable to comment on the intellectual stature of either a Peterson or  Shapiro; however, as a retired economist who taught at the college level, I do believe that I am qualified to accept McManus’ challenge. Here is my attempt to deal with progressive arguments in a rigorous manner.

I assert that the primary goal of progressive movements is to attempt to level existing economic inequalities. And, it is a fact that inequalities exist in the United States, but they are almost always solidly rooted in immutable psychological traits such as IQ, industriousness, honesty, creativity, courage, etc. Take IQ, for example. According to the National Longitudinal Survey of Youth by age 28 to 36, the top 10% in cognitive ability have a median earned income of 4.8 times the median for the bottom 10%. Indeed,  as 1994 book The Bell Curve asserts in part one (“The Emergence of a Cognitive Elite”), IQ is one of the best single predictors of job productivity. More 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.”

For further proof that psychological traits are firmly riveted in nature and not in nurture, one need only read Robert Plomin’s 2018 book Blueprint: How DNA Makes Us Who We Are, which is one of the most recent scholarly works 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.” 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.” Relatedly, the Dec. 14, 2018 issue of Scientific American contains a very brief essay by Plomin entitled “In the Nature-Nurture War, Nature Wins.” 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.” I have, thus far, been unable to get Brooks to touch Plomin’s book—let alone read it and then (perish the thought) actually think about the impact of Plomin’s work on progressive dogma.

In spite of this scientific evidence that inequality is not rooted in economic factors, countless left-leaning economists, law professors, and political scientists and—I suspect Michael Brooks—insist, without foundation, that capitalism is the source for much of our nation’s inequality. One needs only to read Joseph Stiglitz’s 2012 book The Price of Inequality, Thomas Piketty’s 2013 tome Capital in the 21st Century, or Thomas Shapiro’s 2017 work Toxic Inequality 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. Even the International Monetary Fund (IMF) got it wrong. In a 2015 report entitled “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 the 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  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. Then, about ten millennia ago, humans mastered the science of agriculture, which resulted in a more stable food supply. As a consequence, the population levels of our lineage began to rise. But, our farming forebears still lived in a condition of almost total abject poverty

In all of history, things had never gotten better for everyone any faster. 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.

This state of affairs continued uninterrupted for almost 10,000 years until the advent of capitalism (individualism) in central England in about 1765. It is worth noting that highly regarded economic historian 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. It increased according to some estimates by up to 5,000% at the turn of the 21st century. In all of history, things had never gotten better for everyone any faster. 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 entitled “The Law of Accelerating Returns,” inventor Ray Kurzweil opined that the rate of technological change is exponential. Thus, the sharp upward trend in these measures of well-being has continued and even accelerated since 2000. Furthermore, it is not unreasonable to believe that the shift of ever-improving living standards and the rest will stretch further into the future. 

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. 

As evidence of this ill-advised tendency—and as I similarly wrote about in my previous reply to McManus in 2019—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 example should suffice. In a June, 2019 article in The New York Times entitled “The World is a Mess. We Need Fully Automated Luxury Communism,” Aaron Bastini insists 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 regarding the imagined phenomenon of increasing income and wealth inequality in the United States? (See here.) 

In his 1954 book How to Lie With Statistics, author Darrell Huff coined the term “statisticulation,” by which he meant “statistical manipulation.” This also describes very well the work of these many current day egalitarians.

These unfounded claims of growing income inequality—and the exaggerated concentration of wealth in the United States 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, therefore, 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 a point I also mentioned in my previous reply.) 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 term “statisticulation,” by which he meant “statistical manipulation.” This also describes very well the work of these many modern 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. However, income inequality in the United States has not risen in the last 60 years, and the U.S. Census Bureau data along with the work of Ivan Kitov 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. Thus, there has been virtually no increase in U.S. income inequality for individuals for six decades. (See here.) Also, most collectivist writers do not know that Professor Piketty in 2015 quietly recanted much (most?) of what he wrote in Capital in the 21st Century

What has been skewing upwards is the U.S. Census Bureau’s Gini coefficient for “US Households” (and “US Families”). And, in 2009 Robert Gordon found that “The rise in American inequality has been exaggerated both in magnitude and timing,” thereby confirming the assertion that Alan Reynolds made at the Western Economics Association’s July 2007 meeting that “There is surprisingly little U.S. evidence of any significant and sustained increase in inequality of income, wealth, wages, or consumption since the late 1980s.”

And, 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 in about 1970. But as Stanford economist Thomas Sowell put it in his 2008 book Economic Facts and Fallacies, “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, Sowell continues, “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.”

As I wrote in my previous reply:

“Perhaps a single specific example will help to dismiss the Left’s baseless trope regarding rising income inequality. If a young women in the 1950’s became pregnant out of wedlock, she almost always married the father thereby forming one household (and one family) with one caregiver and one breadwinner. Twenty years later mounting numbers of young women began bearing children without any intention of marriage (today, the figure in the U.S. stands at 39.8%), and this results in the formation of two families (and two households) one with a caregiver but no breadwinner and another with only a breadwinner. Both households (or families) are each poorer than the combined single household (or family). Obviously, this new trend began shifting the income inequality for both households and families upward.

There are many other sociological (but not economic) shifts 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 1950’s a doctor often married his nurse, but today a doctor marries another doctor or lawyer, which results in a very high two income household and family); and numerous other sociological kinetics, which raise the Gini coefficients for both families and households but not for individuals.”

In their 2016 book Unequal Gains, Peter Lindert and Jeffrey Williamson begin by dismissing in a footnote the U.S. 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 2001 “tax unit” research of Piketty and Emmanuel Saez. 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  economists assert 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 and 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, and this certainly is no picture of rising income inequality in the United States.

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 U.S. taxpayers for only a single year, while only 3% were among this top tier for ten years or more. (See here.) Thus, most U.S. taxpayers had ultra-high incomes only one time in their careers. Also, in 2017, a U.S. household required $421,926 to be in the top 1%. This is a very handsome sum but far less than many would imagine. In 2019, Gerald Auten and David 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 continue: “Our results suggest that the income shares are lower than the tax-based estimates and since the early 1960s increasing government transfers and tax progressivity have resulted in little change in after-tax income shares.”

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 inequality has risen as much as claimed—or, by some measures, at all.” Then, in November of 2019, James Elwell, Kevin C. Corinth, and Richard Burkhauser reported “…when we more fully account for taxes and transfers and use the proper sharing unit and unit of analysis … we show that while over this period (1959 – 2016) the rich got substantially richer, so did poor and middle-class Americans.”

The 15th century German merchant Jakob Fugger amassed a fortune worth an estimated $400 billion in today’s dollars, more than 250 years before the onset of capitalism.

Turning to 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 of the Mali Empire in sub-Saharan Africa as the richest man of all time. The 15th century German merchant Jakob Fugger 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. Basil II, Alan the Red, Nicholas II, William the Conqueror, and Muammar al-Qaddafi—none of whom owed their wealth to capitalism—were all far wealthier than Bezos, in U.S. dollars adjusted for inflation.Extreme wealth is not a modern phenomenon. 

In May of 2014, economists Wojciech Kopczuk and Allison Schrager wrote in Foreign Affairs “…there is limited evidence that wealth inequality has actually worsened in the US in the last 30 years.” A year later, Emmanuel Saez and Gabriel Zucman in their scholarly paper “Wealth Inequality in the US Since 1913” found that wealth inequality was not rising quickly below the top 0.1%. Furthermore, according to Harvard professor and economist Martin Feldstein, this increase in the wealth statistics among the highest earners was due almost entirely to their conversion from reporting their taxes as “C” corporations to “sub-S” corporations after the 1986 tax act. As such, there has been little in the way of accelerated concentration of wealth in the United States 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, such as 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 here.) The simple truth is that these other metrics are both getting better fast and also converging. They are not diverging, as many on the Left would have us believe.  

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.” Of course, many collectivists want to halt the expansion of human economic well-being asserting, that things are good enough today—as the title of Ariel Francais’ book Let’s Get Rid of Growth! makes clear. In further support of the OECD’s assertion, Raghuram Rajan, an economist at the University of Chicago and former chief economist for the IMF, in his latest book The Third Pillar writes: 

“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.

One should compare all of these facts with socialism’s record of rendering almost everyone to be only equally poor. And, progressivism’s emphasis on the imagined rising income inequality in the United States—due, in part, to capitalism—represents one of the world’s biggest economic hoaxes.

Richard W. Burcik is a retired economist and attorney.

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Tony Senatore
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Tony Senatore

Richard W. Burcik. You’ve done some terrific work in this piece.

E w
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E w

Citing the bell curve for stats is an instant red flag

John
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John

And why is that?

rick burcik
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rick burcik

EW,
I provided you with five scholarly sources to support my claim and you objected to one, the “The Bell Curve”. Okay, how about the other four? Do you believe that complex human traits are at least partially heritable?

Marvin Swan
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Marvin Swan

EW, Mr. Burcik wrote a terrific response and you cherry pick one point. It’s because you know you can’t make an argument 1/100 is good and he just single-handedly decimated your entire political project. Guess you’re busy picking up the pieces of your shattered worldview