Income Inequality Revealed (addended)

George Rebane

[This is the addended transcript of my regular KVMR commentary broadcast on 6 November 2019.]

Income inequality in America has become a hot button issue.  People in the street are being convinced daily that the inequality is somehow morally reprehensible since they are made to believe that the inequality comes from the rich stealing from the poor.  And to nail this notion into people’s heads, we are told that the top fifth or quintile of households’ average earnings are 17 times more than the average of the bottom quintile.  The problem with this number is that it is a blatantly false statistic. 

But few people bother to inform themselves of the real factors that make up gross and net income.  Gross income is the total of the cash you get in a year, and pay income taxes on.  Net income is the actual amount you get to spend for what you need and want – that’s the amount that determines your quality of life.

Former senator Phil Gramm and Labor Bureau statistician John Early, both economists, have done an extensive analysis of the income inequality issue, and have published their findings in a recent piece titled ‘The Truth About Income Inequality’.  Their conclusions are confirmed by the government’s own data.  The information they have assembled supports a number of previous findings by various universities and institutions, findings which continue to be under-reported. (more here)

The popularly published information about America’s income inequality is developed by the US Census Bureau.  The kindest assessment of their treatment of widely available income data is that it is faulty; a more sober examination might conclude that its reporting is tinged with partisanship.  So let’s get to the specifics using the fewest necessary numbers, for which we know radio is not the best medium.

It’s the spendable cash where the rubber meets the road on such comparisons.  The Census Bureau claims, and all media outlets dutifully echo, the 17-times multiple that the top quintile household average exceeds that of the bottom quintile.  This number is quietly calculated by ignoring that the top quintile pays one third of all federal, state, and local taxes, in addition to the fact that they pay two thirds of all taxes.  When we ignore this, we wind up substantially overstating inequality.

Then there’s the matter of the Census Bureau ignoring $1.9T of annual public transfer payments for such items like Medicare, Medicaid, food stamps, and over 90 more federal programs that issue checks.  The point here is that such government transfer payments make up 89% of all income available to the bottom quintile of households, and more than half for the second quintile.  So when we ignore the taxes of the upper quintile and the transfer payments to the lower quintile, the result is that the 17-multiplier overstates inequality by more than 300%.  But when those realities are taken into account, the correct answer is 3.8.  That is the ratio of the average net monetary resources available to the top quintile to the lowest quintile – let me repeat that, it is 3.8 not 17.

Another oft-quoted dog whistle number for our progressives is the 60:1 ratio of earnings of these two extreme quintiles that also excludes taxes and most transfers.  However, when we take actual spendables into account to compare dollar amounts, then the average bottom quintile household income is almost $51,000.  The average top quintile reduces to $195,000, so that’s where correct 3.8 multiplier comes from. (see nearby graph)  Drs Gramm and Early conclude their report with – “Any debate about further redistribution of income needs to be tethered to these facts. America already redistributes enough income to compress the income difference between the top and bottom quintiles from 60 to 1 in earned income down to 3.8 to 1 in income received. If 3.8 to 1 is (still) too large an income differential, (then) those who favor more redistribution need to explain to the bottom 60% of income-earning households why they should keep working when they could get almost as much from riding in the wagon as they get now from pulling it.”

My name is Rebane, and I also expand on this and related themes on Rebane’s Ruminations where the transcript of this commentary is posted with relevant links, and where such issues are debated extensively.  However, my views are not necessarily shared by KVMR.  Thank you for listening.

[Addendum] Since RR’s launch, these pages have extolled the munificent benefits to humanity of capitalism and minimally regulated markets.  This is motivated by my own long ‘world line’ which has given me the opportunity to see, experience, and study what the alternative forms of collectivism – communism, Nazism, fascism, socialism, … - have to offer.  The bottom line is that collectivism in any and all of its forms ALWAYS leads to eventual autocracy.  And the road to that destitute future is always painful, and one that requires state-induced sacrifices, which in its final miles turns utterly brutal.  (‘To make an omelet, one must crack a few eggs.’)

The message to the hopeful naïfs in every population targeted by socialism/communism is that the state, in its wisdom, when sufficiently encompassing and powerful, will bring ‘social justice’ to the land by first declaring class warfare during which the wealth of ‘the greedy and idle rich’ will be redistributed to ‘the working class and poor’.  As we have seen, with the Left’s control of public education, this becomes a powerful organizing message to those who have been carefully taught.  These true believers are not even left with a language, let alone an accurate history, that supports critical thinking and/or criticism of the state.  (The collectivist elites have been the true practitioners of Sapir-Whorf in education.)

Social science and history can only point to sustainable applications of socialism within small culturally cohesive populations that are mostly limited to family and tribe.  Any larger collection of especially diverse people needs to be governed by either an autocracy, or in recent centuries by the alternative of nascent republicanism based on liberal principles of democracy, capitalism, open markets, entrepreneurship, and individual liberties.  However, the latter quickly leads to inequalities in both opportunities and achievements, simply because people come with a wide variety of capabilities and interests.  And sooner or later the resulting inequalities in people’s wealth and abilities to produce result in an unequal distribution of wealth that invites the power hungry and naïve to use our natural tendencies toward envy to embrace ideologies that promise them ‘more’ without asking more from them in return.

The great bamboozle of the French Revolution that promised “Liberté, égalité, fraternité!” lives on today in the minds and machinations of the Left, and is still the main ingredient of the Kool-Aid unquestioningly gulped by their minions and the new acolytes of their state religion.  The only problem is that liberty, equality, and fraternity are existentially incompatible – liberty and equality sit on opposite ends of the see-saw, as do equality and fraternity.  In any social order, equality can only be enforced by removing liberties, and enforced equality does anything but support fraternity, as has been demonstrated by every communist and strongly socialist regime.

The solution for those who have suffered under various forms of elite-run collectivism continues to be a hopeful return to more liberty, capitalism, and open markets.  Then wealth can be created in amounts that lift even the poorest and least capable among a population.  Another Frenchman, Frederic Bastiat, made that clear to us almost two hundred years ago which today is summarized in the so-called Bastiat Triangle of mutually supportive principles of security, liberty, and property.  All three are needed for a sustainable beneficial social order; weaken any one of them and the other two also fall victim to the eventual collapse of the entire triangle.

Today the EU countries that drank most deeply from the socialist flagon are quietly attempting to return to governance supported by principles laid down by our Founders, Bastiat, and the Austrian school of economics.  To better understand the siren song of socialism and its profound maladies, it is instructive to read (here) the historical journeys of Israel, India, and the UK as they implemented post-war socialist orders which ultimately had to be abandoned.  Add to these journeys what other totalitarian countries, led by Red China, are now in the process of implementing within their borders.  And then compare all this to how our leading Democrat candidates are promising to fundamentally transform America into a demonstrated tragic social order that has never worked.

Comments

[Ben Emery]

George,
I guess your age makes it so you're not embarrassed by many of your KVMR commentaries.

The failure to see your life "success" as a symptom of what is driving the global inequality, climate change, and 6th mass extinction is understandable but not acceptable.

Capitalism has failed on so many levels it is not surprising that the likes of yourself, ignore measurements of its "success".

Unearned income along with compound interest needs to be banned globally. They are both immoral and perpetuate the idea of constant growth, which is cancer. They both justify and legalize the theft of wealth from workers and the plunder of natural resources that took hundreds of millions of years to create.

Bioregionalism is the answer for human survival along with millions upon millions of other species trying to live on Earth.

[Walt]

Seems to me Ben that people no longer care to work for what they get. They feel it should be given to them. The entitlement class. So many go to college for worthless degrees.(but they can say that have one)

"Plunder of natural resources". Yet there you are. With a roof over your head most likely made of wood. Bitching on a computer made of mined materials. Nice bit of hypocrisy there.
Bet you have a cell phone, made in China by labor that was paid in chump change.(by our standards.)

How's the illness coming a long? getting better I hope?
Now did you refuse to take any meds for that? Medical scans?
Now I wonder how those came to be, and what they are made of.

But by all means,, keep the complaining up.

[Todd Juvinall]

Ben Emery | 06 November 2019 at 06:40 PM
Always good to read your lefty tripe to remind myself why we love American and capitalism.

[Bill Tozer]

Compound interest is bad? Lost me on that one.

[Scott O]

Whatever it is that Ben suffers from, it's clear that the disease seems to affect his ability to reason.
Or maybe Ben is ignorant of world history.
"Inequality" was far, far worse just a hundred years ago and even far worse than that for most of recorded history.
And capitalism didn't even exist for 99% of the time period I'm talking about.
Capitalism (coupled with a free market and liberty) has done more for the masses than any other system.
Ever.
It's not even close.
The poorest humans in this country live a life of ease and luxury.
Is there 'inequality'? Of course there is. Some are smarter and have better discipline and upbringings. And they tend to congregate and marry with others of the same ilk. And their children are brought up in an atmosphere of hard work, real education, and a sense of duty to society.
Ta Da!
They prosper.
Look - some folks go home after work and crack a few beers and watch the tube. Others go to the gym and work out and watch their diets.
Is it unfair that those who actively work towards good health are in better health than the sluggards?
We do not await any sort of educated answer from the left.

[Scott O]

BT 7:45 - You're not lost. It's poor Ben and his fellow travelers.
Look at his misery.
"Bioregionalism is the answer for human survival along with millions upon millions of other species trying to live on Earth."
In order for any human to live - millions of creatures trying to "live" must die every day.
If you don't believe this, I would suggest a trip to the hospital where someone is dying of sepsis.
Of course I'm talking about the 'yucky' critters that seem to have less value than the furry little 'cute' creatures.
Humans happily hunted all sorts of creatures into extinction long before capitalism. Why capitalism is the source of animal extinction is lost on me. Ben should probably hie himself to those countries where most of the endangered critters are being hunted into zero population and explain his theories to them.
But of course he won't.
Too many non-whites live there.
And they aren't about to listen to his ignorant yap.

[Walt]

Is Ben eating air? What died to make his meals today? And yesterday,, and the day before,, and ,, and,,,,,......

Welcome to the law of life B. Emery.
When that day comes,, will you be food for the worms?(the new "in thing") or will you cheat nature and go up in a million BTUs and a BIG carbon footprint to match?

[Scott O]

If you really want to dig into 'male supremacy' and 'white supremacy' you have to start eons ago and make a note of why any humans alive today have the intelligence and physical capabilities that we have. There was competition and struggle. There was 'inequality'. It was a matter of who had food and who didn't. Horrors! In those days, it was the quick and the dead. And the dead tended to not pass along any genetic material.
If you wish to be apologetic about inequality, then start apologizing to the lower classes of the animal kingdom.
Every human alive today has abilities and intelligence that outstrip any other living creature on earth.
And they didn't get that way because of govt programs to make everything fair and equal.
Capitalism has been the major player in helping more people than ever live lives more equal than before. Do away with it at your peril.

[Bill Tozer]

Ben

I am still in the dark about compound interest is immoral and should be banned. We all have seen those charts that if an 18 year old put $2,000 in an investment vehicle and let it ride for 47 years, then there is one’s retirement. And everybody wishes they knew then what they know now. Rule of 72 and all that stuff. But, perhaps you were referencing something else. Banks, Big Pharma, Big Ag, etc should all be non-profits? Heck, Jamie Diamond hires 7,500 workers just to keep up with and adhere to banking regulations and those 7,5000 employees feel they are not being paid enough.
Anyway, socialism can be summed up easily: They have too much, you have too little, I will get you more. Who justified and legalized the theft of wealth from workers in Venezuela?
———————
VDH

“Many of these immigrants flee from poor areas of Latin America, Mexico, Africa, and Asia that were wrecked by statism and socialism. Often, they arrive in the U.S. unaware of economic and political alternatives to state socialism.

When they reach the U.S. — often without marketable skills and unable to speak English — many assume that America will simply offer a far better version of the statism from which they fled. Consequently, many take for granted that government will provide them an array of social services, and they become supportive of progressive socialism.“

https://www.nationalreview.com/2019/11/history-shows-socialism-not-the-cure/

While income inequality is a problem and should not be dismissed out of hand nor swept under the carpet, the solutions being put forth are worse than the problems.

[Scott O]

BT - "While income inequality is a problem and should not be dismissed out of hand nor swept under the carpet, the solutions being put forth are worse than the problems."
Agreed.
Folks talk about automation relegating humans to the sidelines, but the growing number of humans that don't have jobs are mostly unemployable due to physical or mental disabilities, and or a general attitude of not wanting to be useful to society.
Along with this group, there are the ones working but never at any kind of skilled position and always in danger of falling into inescapable debt and poverty.
The left offers a solution of various fabricated 'rights' of free material wealth they are due from the govt. It doesn't matter what kind of govt system or 'ism' you wish to have implementing those 'rights' - it will always end up badly. No one on earth has any sort of right to any material goods.
We do however, have an obligation to care for everyone and see to it that they are treated humanely. Part of that humane treatment is to make sure that everyone at least tries to find a way to contribute back to society. My wife and I raised our children to have a desire to earn any and all material wealth. Why would I want any other child raised differently?
The left wants humans raised to be either a member of the elite ruling class, exempt from the rules the rest of society have to follow or be part of the lower prole class - with a lifestyle of animals in a very deluxe zoo.
The way forward will be difficult as there is no general consensus as to which of the 2 highly divergent views will prevail.

[George Rebane]

ScottO 818am - If only one view of governance is to "prevail", then my money is on autocratic collectivism - the kind that BenE and his kind fervently are working to achieve. However, the great hope going forward according to my lights (and years of Rebane Doctrine screeds in these pages), is for some peaceful implementation of the Great Divide. Not only is there "no general consensus" between the two sides, but no one can even identify sufficient common ground in the two belief systems to begin a reasonable dialogue toward a search for rapprochement, should one exist. My conversation with Victor Davis Hanson last year kind of put the last nail into that coffin.
https://rebaneruminations.typepad.com/rebanes_ruminations/2018/10/an-evening-with-victor-davis-hanson.html

[Gregory]

re B'rer Ben 640pm

"The failure to see your life "success" as a symptom of what is driving the global inequality, climate change, and 6th mass extinction is understandable but not acceptable."

Wow! A born again global warmista in the digital flesh!

Sorry, Ben, but your imagination is having its way with you.

[Gregory]

GR 1019am

The prevailing would be short lived... soon to run out of other people's money and then, to run out of food and fuel.

By 2024's elections, the Zharkova Solar Minimum should be evident even to Ben. What to do?

[Bill Tozer]

The urge to save humanity is almost always a false front for the urge to rule—H. L. Mencken

[Gregory]

Toes 7 Nov 615am

My fave VDH sentence in the piece you linked:
"Add up a lost generation of woke and broke college graduates, waves of impoverished immigrants without much knowledge of American economic traditions, wealthy advocates of boutique socialism, and asleep-at-the-wheel Republicans, and it becomes clear why historically destructive socialism is suddenly seen as cool".

Woke and broke... a great label.

My wife has traveled to her parents' native Serbia, and not all state socialism in central and eastern Europe was imposed by the Soviets... Tito was Croatian. Independent state socialism is also impoverishing and Serbia is still suffering, helped along by being bombed by the USA in the late 90's.