From: bschlesinger@nssdca.gsfc.nasa.gov (Barry Schlesinger)
Newsgroups: talk.politics.misc
Subject: No new taxes                  (*) for the rich
Date: 2 Oct 92 20:54:00 GMT
Distribution: na
Organization: NASA - Goddard Space Flight Center
News-Software: VAX/VMS VNEWS 1.41

The subject line starts over, without the Re: because I am editing 
this off a copy kindly electronically mailed by Mr. Howe, as it would 
have expired on my system before its return.

> In article <ABy-l0=@engin.umich.edu>, jwh@citi.umich.edu writes...

> Here's an example:

		[simple example deleted; detailed model follows]
> Income  Number Earning

>   5           25
>   7           50
>  10          125
>  15          150
>  20          200
>  25          330
>  30          410
>  40          130
>  50           50
>  70           15
>  90           10
> 100            5

> For this sample, the quintiles occur at 10, 20, 25, 30 and 40.  
				...
> Taking the same numbers to start as above, assume 100 additional workers
> enter the system at low wages (young, inexperienced).  Also assume that
> the workers in the middle represent mostly a particular age group and have
> gained more experience and are earning more money.  The distribution now
> looks like this:

>   5           25
>   7          100
>  10          125
>  15          150
>  20          250
>  25          130
>  30          335
>  40          280
>  50          165
>  70           25
>  90           10
> 100            5

> The quintiles now look like this: 10, 20, 30, 40, 50.  Now comparing the
> two quintiles, you could make the simplistic claim that the top 5th gained
> a lot, the middle quintile gained some and the rest didn't gain at all.
> However, the improvement actually occured because a large number in the middle 
> quintiles (20, 25, 30) moved up.  Only a small percentage of top quintile 
> people moved up (this assumes that theincrease in the 50 and 70 categories 
> came from 40, not necessarily a realistic assumption.)  These examples show
> how you can easily make erroneous conclusions if you only look at the
> aggregate numbers and you don't stop to look at what is really going on
> underneath.

I've kept all this because readers may have lost the previous post by 
now. 

I computed the average income for each of the quintiles, rather 
than the median.  I think that average is the statistic most commonly 
used.  Another reason for going to the average is that the use of 
discrete incomes in the example, rather than the continuous incomes of 
reality can have dramatic effects on a single median point.  

If averages are used, one finds, going from low to high quintile, to 
one decimal place and rounding even...

BEFORE  10.8 20.0 25.3 30.0 42.8
AFTER    9.8 18.8 27.7 35.2 50.0
Change  -1.0 -1.2 +2.4 +5.2 +7.2

Now this change has the overall property of the actual change in 
incomes: a decrease at the bottom and an increase at the top, although 
the change is not monotonic.  But look at the size of the income 
shifts that were needed to produce it.  The additions required to the 
lower income groups were 25% in the bottom 3 and 18% in the bottom 5!  
If we use a more plausible, though still high, increase of 5%, then 
the change is on the order of 1/4%, not very significant.  In the 
higher income range, 30% of the population in the 25-70 ranges has 
been moved from the two lower bins to the three higher bins, resulting 
in a change of 7% in the income of the highest quintile.   The 
assumption that this kind of shift will occur, without some other 
shifts, albeit smaller, to fill the vacated bins, is highly 
artificial.  Again, if a high but more realistic _net_ shift of about 
5% is used, then the change is on the order of 1%, not large enough to 
explain the observed income shifts.  

This model also fails to reproduce another property of the observed 
income statistics, the increase in the fraction of total income going 
to the high echelon.  If we calculate the fraction of total income 
earned by the top n%, we obtain...

n        20   10    5
BEFORE 33.2 20.0 12.2
AFTER  35.4 20.2 11.4

|> The question of special selection also applies to the years chosen 
|> above [1983-1989].  If 1981-1983 are charged to Carter, than 1989-1991, when the 
|> consequences of 80s economics hit home, should be charged to Reagan.
|> 

> I believe the numbers being quoted generally are for the years 1979 to
> 1989.  From 1979 to 1983, there was a big decline in lower quintiles.
> This decline can be reasonably attributed to Carter's policies.  I
> would be interested in seeing the numbers from 1983 to present.  I'll
> bet they don't show near the disparity as the 1979 to 1989 figures.

What is really needed is the year-by-year statistics.  That set of 
figures will eliminate any set of bias caused by special selection.

On the new issue of the cause of the recession.  The price of petroleum 
skyrocketed because of political events in Iran in 1979, the result of 
a previous - and disastrous - bipartisan policy of support for the 
Shah of Iran in the face of his unpopularity, leading to a violent
revolution and the rule of extremists.  This led to more money chasing
fewer goods -- the same amount of oil, and increased costs throughout
the economy.  The economy stagnated and the rate of inflation soared. 
Carter's Federal Reserve Chairman instituted tight money policies,
which had the combined effect of choking down inflation and the
economy at the same time.  When inflation finally subsided in the
Reagan years as a result of these measures, the economy was able to
recover. 

|> >|> > 
|> >|> Has anyone demonstrated that this [shifting demographics]
|> >|> effect is responsible for the 
|> >|> growing inequality of income?
|> > 
|> >"While there seems little doubt that the income distribution has
|> > become somewhat less equal over the past 20 years, the reasons
|> > for this trend are not as clear.  ."
|> >            ...
|> >The Bureau of the Census, "Money Income and Poverty Status in
|> >the United States, 1989, Current Population Reports, Series P-60,
|> >No. 168, Sept. 1990.
|> > 
|> Executive branch reports, particularly in recent years, are subject to 
|> political pressure.  [...]
|> I'm not saying that it did happen, but the possibility of political 
|> influence is enough to cast a shadow on that report. 
|> 

> To anyone who has even a cursory knowledge of statistics, the arguments
> put forth to claim that other factors may have contributed to the
> difference are quite reasonable.  Household sizes do change, peoples
> incomes do vary with age, people do age.  If someone is going to
> make claims that particular policies were largely responsible for
> a shift in distribution, it is up to them to show that the other
> reasonable factors did not contribute in any meaningful way.  I have
> yet to see that claim made.

[again, a lot left in because of the disappearance of the old posts]

If the burden of proof to answer all qualitative objections is on the 
authors of a study, then no study could ever be accepted.  Those 
arguing that the income shifts are the result of household size and 
mobility during individual lifetime must show that these effects are 
large enough to produce the observed changes in income distribution to 
effectively refute the original study.  Simply to say that these 
effects exist, without showing that they are significant is not 
enough.

> |> >Note that I'm not claiming that age group effects totally explain
> |> >the changing distribution numbers.  I'm only claiming that it
> |> >is intellectually dishonest to bandy about these numbers and make
> |> >the assertion that the poor suffered and the wealthy benefited.
> |> 
> |> What you then have to do is to examine the effect of social mobility 
> |> on income distribution and see.

> Income mobility has been studied by various people.  The conclusions
> have all been that most people do move around among different quintiles
> throughout their life.

But it is still necessary to demonstrate that the effect of this 
mobility on income levels is large enough to produce the observed 
shifts, using realistic models for this mobility.


> |> > 
> |> >The people publishing the statistics are stating a fact.
> |> >It's their analysis which is faulty.  The people publishing the stats
> |> >aren't interested in valid analysis, they are only interested in 
> |> >publishing numbers which seem to support their view.  They realize that
> |> >even if counter-arguments are made, they will have less impact than
> |> >their original announcement.
> |> > 
> |> 
> |> The implication here is that the studies you are citing, favoring your 
> |> view, are produced totally as the result of an objective view of the
> |> statistics and society, totally independent of any point of view,
> |> while the studies with which you disagree are presented solely to make
> |> a point, without any concern for accuracy.  "Your" economists are 
> |> honest and objective; "their" economists are presenting distorted
> |> arguments driven by a point of view.  I'll leave the plausibility of
> |> that to the viewers to decide.  I think it begs the question. 

> I don't agree.  The statistics and studies I've cited cast severe
> doubt on the conclusions reached by the organizations claiming
> gloom and doom.  I don't claim that "my" economists are all completely
> honest and objective.  

Well, it looked that way above.

> The arguments that I have seen, however, 
> do appear to make both intuitive and empirical sense.  They certainly
> raise enough red flags as to make the original claims highly suspect.

Let's look at the kinds of mobility discussed.  First of all, as 
people graduate from school, others replace them.  So unless the 
income of certain occupations as a class are changing, as long as the 
mix of people remains the same, the income mix will be unaffected.  
Now, let's look at the the issue of increases in entry level people or 
promotions.  If pay were based strictly on seniority, the effects 
would be as claimed.  But in other jobs, pay goes with position.  If 
too many people are in the age group for promotion, some won't get 
promoted.  So, in spite of aging, not everyone moves up.  The job mix, 
and hence the income mix, remains the same.  Similarly with entry 
level.  If there is a large influx of entry level people and not very 
many people above them, some will get promoted rapidly and move out of 
the low income brackets. 

In point of fact, the population statistics suggest a decrease in the 
number of individuals of entry level age, as the baby bust hits the 
20s.  So this effect would tend to increase the income of the lowest 
percentile.

Now, in addition to the job mix, there is the question of individual 
mobility.  The contribution of students to the lowest levels has been 
cited.  But what fraction are students and what fraction are 
pink-collar single mothers in dead-end jobs and what fraction are the 
underemployed of Appalachia?  And what are their counterparts at the 
higher end, the temporarily rich?  What fraction of people gradually 
work their way quintile by quintile, and what fraction enter at a 
particular level and stay there until retirement.  A lot of the higher 
income people are the doctors and lawyers and business executives who 
move immediately into the high paying classes when they get out of 
school and stay there until retirement.  If they have invested wisely, 
even after.  For many people, once they start work, their income class 
is fixed.   

|> >On what criteria are you basing this statement?  Income levels grew
|> >for all groups.  More jobs were created.  
|> 
|> Has the income been corrected for inflation?  The income graphs I've seen 
|> indicate stagnation over the past 20 years, with ups and downs.  There

> The reports deal with 'real' income, i.e. income which has been corrected
> for the effects of inflation.  Of course, there are different measures
>  for inflation.  Using standard CPI, the graph that I'm looking at shows
> a decline from 78 to 83 with a rise from 82 to 86 (the last year on the 
> chart).  When income is adjusted for CPI and decreasing family size,
> the dip and rise still exist, but are smaller.  Moreover, the long term
> trend changes from negative to positive.  

A long-term trend needs a longer baseline.  1978-1986 is recession and 
recovery.

> It seems perfectly reasonable
> to me to adjust figures to take into account varying family sizes.
> If a family is smaller, it requires less income to achieve a given
> comfort level.  If the goal is to determine if people now are better
> off than people from years ago, these adjustments need to be made.
> An additional change which has occured over the years is the increase
> in non-wage benefits and other wage supplements, which are not
> counted as family income.  Again, this is reasonable.  If people are
> receiving more benefits, such as health insurance, now than they
> were several years ago, this can offset a decline in actual salary.
> Obviously at some point, a decline in salary will more than offset
> the value of the non-reported benefit, but to ignore the benefit
> in determining income improvement (or decline) is wrong.  When income
> figures are adjusted to take into account decreasing family size,
> real median family income trends upward, rising by 20 percent between
> 1970 and 1986.  When adjustments are made to account for the
> growth in non-wage income, the rise may be over 28 percent.

Adjustments are tricky; economists have argued at great length about 
what is reasonable.  
> |> was a temporary rise out of the early 80s recession, but that is over,
> |> and the longer term pattern shows no permanent resumption in the rise
> |> of incomes as existed from the start of World War II to 1973.  Jobs
> |> have not been created as fast as the number of people in the job
> |> market has increased.  That is why unemployment is up. 

> We're in a recession, that is why unemployment is up.

Unemployment is up; that's why we call it a recession.  A recession is 
a title, not a cause.  More to the point, the high employment of 1989 
is as atypical of the long term as the low employment of the present.  
That's why you have to look at the long term.  If you look long 
enough, you'll notice that even the best periods of the past 20 
years do not have as full employment as the 50s and 60s. 

> |> 
> |> > Median income can be influenced by all sorts of things.  How many newcomers
> |> > were there in the workplace.  The 80's created an enormous quantity of
> |> > jobs.  As has been shown, new workers make less than more experienced
> |> > >workers.  A large quantity of new workers will drag the median down.
> >| > 
|>   Thirty years ago, there were a lot of well-paying jobs that required
|> little skill, in the steel mills and the auto factories for example. 
|> The new jobs available to workers with the same skills pay much less. 

> Workers with limited skills will find it tougher to earn high wages.
> This much is true.  It is not true, however, to conclude that on the
> whole, job creation at the high end doesn't exist.  The jobs are 
> there, they're just being filled by different people.

Job creation at the high end isn't the problem.  Job creation in the 
middle is.

> |> So the decrease in income isn't due simply to entry-level workers
> |> replacing experienced workers. There has been a change in the job mix.

> The job mix has changed, no question.  Do you have some references
> which show that it is this change in job mix which has affected
> income? (whether there is a decrease or increase is a matter of debate)
> Looking at income statistics and noting that there has been an alteration
> of the job mix does not allow one to conclude that the changeing job
> mix caused the change in income statistics.

Nor more than stating that incomes change as the result of mobility 
allows on to conclude that mobility is the cause of the changes.  
There was a story in the September 25 Washington Post talking about the 
disappearance of well-paying manufacturing jobs and their replacement 
by poorer paying service jobs.  The experience of one individual was 
used as an illustration. 

> |> 
> |> No study can be accepted uncritically.  Not the ones you criticize; 
> |> not the ones you cite.  The only way to approach the truth is to 
> |> examine the arguments and methodologies of both sides, and the 
> |> criticisms by each of the others.  I would find it interesting to know 
> |> what the authors of the income studies say about the ones you have 
> |> cited. 
> |> 

> I would love to see the counter-counter arguments.  

Try publications of the Brookings Institution, the Institute for 
Policy Studies, or the AFL-CIO.  I don't think they will be in the 
National Review, just as I would not expect to see Thomas Sowell
invited to write an article for Mother Jones.  

>The information
> that I have posted has generally been finer grained analysis of the
> original claims.  It's easy to make sweeping generalizations when
> you are looking a aggregate data.  I've tried to show that when
> you disaggregate, you find that the original conclusions are not
> as easily supported.  If anyone has information on why the information
> I posted is not applicable, or has been mistated, please post
> those arguments.

The arguments have been qualitative.  While the mobility effects look 
plausible, the numbers don't seem to show that they can be the prime 
contributor to income disparities.  In addition, many claims for 
increasing long-term prosperity are based on special selection.  If 
you look over the last 50 years, the last 20 don't look very good to 
the average American.

If this looks a bit ragged, the connections have been acting up, 
making editing difficult.

			as always, just my opinion
			
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