From: jwh@citi.umich.edu (Jim Howe)
Subject: Re: "No New Taxes!"                 (*)For the rich
Date: Mon, 28 Sep 92 11:58:04 EDT
Organization: IFS Project, University of Michigan
Distribution: usa
Reply-To: jwh@citi.umich.edu

In article <25SEP199216410255@nssdca.gsfc.nasa.gov>, bschlesinger@nssdca.gsfc.nasa.gov (Barry Schlesinger) writes:
|> In article <ABy-l0=@engin.umich.edu>, jwh@citi.umich.edu writes...
|> >In article <23SEP199217234387@nssdca.gsfc.nasa.gov>, bschlesinger@nssdca.gsfc.nasa.gov (Barry Schlesinger) writes:
|> >|> In article <8rx-#fC@engin.umich.edu>, jwh@citi.umich.edu writes...
|> >|> > 
|> >|> >... All it takes is for one
|> >|> >income group to grow for the statistical distribution to change
|> >|> >dramatically. 
|> 
|> It's not my example; it's yours.  I just plugged in some numbers. 
|> Provide an example that increases the disparity between the top 
|> and bottom and let's see what the details look like.
|> 

Here's an example:

Suppose we had an economy where at time X there is an income distribution
of 10, 20, 25, 30 and 40.  Suppose at time Y the distribution is now
12.5, 20, 25, 30 and 40.  Obviously you can conclude that the people in
the bottom quintile are now better off, can't you?  Well, not really.
Look at how the results were obtained.  Suppose you had an island population
earning the following:

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.  Now if
nothing else changes, and 50 people move from 10 to 20, the quintiles
now look like this: 12.5, 20, 25, 30, 40.  Now while it is certainly
true that those 50 people are now better off, I believe it would be
inaccurate to say that the bottom 5th made a gain from 10 to 12.5.  The
people who still reside in the bottom fifth are still earning the same
amount of money as before.

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.

|> >Dealing with reality, during the years 1983 to 1989 (recession trough
|> >to growth peak, I believe), the real income of the bottom quintile
|> >rose by 11.8 percent, while the real income of the top quintile
|> >rose by 12.2 percent. [...]
|> > 
|> This was answered on the other thread, but since it's repeated here, 
|> and since viewers may not have caught the other thread.
|> 
|> The term "real income" is undefined.  What adjustments are made to 
|> income.  Some economists include certain government benefits.  This 
|> form of accounting is not universally recognized, as others would also 
|> include employer benefits as well.
|> 

Real income refers to income adjusted for inflation, a fairly reasonable
thing to do.  The numbers I refer to also use the same income definition
as those who claim that "the rich got richer, the poor got poorer".  If
the numbers used to show that incomes gained in all quintiles from 1983 to
1989 are somehow invalid, then so are the numbers used to show that
the rich gained and the poor lost.  In reality, the only change was
the time frame selected.

|> The question of special selection also applies to the years chosen 
|> above.  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.

|> >|> > 
|> >|> 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.

|> >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.

|> > 
|> >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.  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.

|> 
|> >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.  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.

|> 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.

|> 
|> >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.

|> 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.

|> 
|> 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.  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.

|> I'm going to be off the net until next Wednesday or Thursday.  Our 
|> news system expires postings quickly for large volume talk groups, 
|> like this one, so if there is an answer much before Wednesday, I won't 
|> see it.  So, viewers, if I don't answer earlier responses, it doesn't 
|> imply acquiescence; it means I didn't see them.
|> 

I'm e-mailing this reply as well as posting, so hopefully you will
see it.


James W. Howe                  internet: jwh@citi.umich.edu
University of Michigan             uucp: uunet!mailrus!citi.umich.edu!jwh
Ann Arbor, MI   48103-4943         
Newsgroups: talk.politics.misc,talk.abortion