The Ridgewood Blog Brings a Free Market Laissez-faire Point of View to Local, New Jersey State and National Issues.
The world is now more complicated than ever, with tens of thousands of political parties that are vying for the votes of people and competing to influence all the different aspects of our life. One of the biggest and most noticeable differences are how men and female tend to think, it is common knowledge that is backed up by multiple studies. But why actually is that? We are going to be exploring this very topic in this male and female view of the world article.
Politicians aiming to reduce inequality end up unintentionally making it worse.
Redistribution of wealth schemes lead to more not less to the income gap between rich and poor
Ronald Bailey | February 20, 2015
Income inequality has been attracting the attention of politicians, policy wonks, pundits, and the public. In 2013, President Barack Obama declared that “a dangerous and growing inequality” is the “defining challenge of our time.” On 60 Minutes last month, Speaker of the House John Boehner argued that “the president’s policies have made income inequality worse.” Senator Mike Lee of Utah has said that “the United States is beset by a crisis in inequality” and that “bigger government is not the solution to unequal opportunity—it’s the cause.”
In his 2013 speech, Obama also said, “We need to set aside the belief that government cannot do anything about reducing inequality.” He’s right, but not in the way he thinks. Several recent economic analyses show that the best thing government can do to reduce income inequality is to get out of the way.
For example, according to a study comparing outcomes in all U.S. states in the January 2014 issue of Contemporary Economic Policyby Illinois State University economist Oguzhan Dincer and his colleagues finds that reducing economic freedom actually tends to increase inequality. “On average, as the size and scope of government increases, so does income inequality,” Dincer tellsReason.
The authors go on to establish “Granger causality.” Simplistically stated, this means they show a causal feedback loop, in which economic intervention produces economic inequality, which in turn leads to more economic intervention. Politicians often react to rising inequality with policies that, on average, end up making inequality worse—say, by increasing the minimum wage. (That is not to say that some policies, such as raising the top marginal tax rate, could decrease inequality. But taken as a whole, the effect moves in the other direction.)
First consider the big picture. Progressives are fond of citing data that shows that income inequality in the United States was falling throughout the 1950s and 1960s. The trend seemed to be following a hypothesis proposed by the economist Simon Kuznets. As economic growth takes off, Kuznets argued, income inequality initially increases as some workers move from low-productivity sectors into higher-productivity sectors. As the higher-productivity sectors absorb a growing proportion of workers, income inequality then begins to decrease, producing the famous inverse-U-shaped relationship between income inequality and economic growth.
https://reason.com/archives/2015/02/20/less-economic-freedom-equals-more-income#.8gw9uv:sDWF
Income Inequality Is Not Rising Globally. It’s Falling.
By TYLER COWEN
July 19, 2014
Income inequality has surged as a political and economic issue, but the numbers don’t show that inequality is rising from a global perspective. Yes, the problem has become more acute within most individual nations, yet income inequality for the world as a whole has been falling for most of the last 20 years. It’s a fact that hasn’t been noted often enough.
The finding comes from a recent investigation by Christoph Lakner, a consultant at the World Bank, and Branko Milanovic, senior scholar at the Luxembourg Income Study Center. And while such a framing may sound startling at first, it should be intuitive upon reflection. The economic surges of China, India and some other nations have been among the most egalitarian developments in history.
Of course, no one should use this observation as an excuse to stop helping the less fortunate. But it can help us see that higher income inequality is not always the most relevant problem, even for strict egalitarians. Policies on immigration and free trade, for example, sometimes increase inequality within a nation, yet can make the world a better place and often decrease inequality on the planet as a whole.
International trade has drastically reduced poverty within developing nations, as evidenced by the export-led growth of China and other countries. Yet contrary to what many economists had promised, there is now good evidence that the rise of Chinese exports has held down the wages of some parts of the American middle class. This was demonstrated in a recent paper by the economists David H. Autor of the Massachusetts Institute of Technology, David Dorn of the Center for Monetary and Financial Studies in Madrid, and Gordon H. Hanson of the University of California, San Diego.
It’s income mobility that matters, not income inequality
By John Stossel
Published June 04, 2014
FoxNews.com
“Young people are exploited!” “Income mobility is down!” “Poor people are locked into poverty!”
Those are samples of popular nonsense peddled today.
Leftist economist Thomas Piketty’s book “Capital in the Twenty-First Century” has been No. 1 on best-seller lists for weeks (with 400 pages of statistics, I assume “Capital” is bought more often than it is read). Piketty argues that investments grow faster than wages and so the rich get richer far faster than everyone else. He says we should impose a wealth tax and 80 percent taxes on rich people’s incomes.
When markets are free, poor people can move out of their income group. In America, income mobility, which matters more than income inequality, has not really diminished.
But Piketty’s numbers mislead. It’s true that today the rich are richer than ever. And the wealth gap between rich and poor has grown. Now the top 1 percent own more assets than the bottom 90 percent!
But focusing on this disparity ignores the fact that over time, the rich and poor are not the same people. Oprah Winfrey once was on welfare. Wal-Mart founder Sam Walton was a farmhand.
When markets are free, poor people can move out of their income group. In America, income mobility, which matters more than income inequality, has not really diminished.
Economists at Harvard and Berkeley crunched the numbers on 40 million tax returns from 1971-2012 and discovered that mobility is pretty much what The Pew Charitable Trusts reported it was 30 years ago.
Today, 64 percent of the people born to the poorest fifth of society rise out of that quintile — 11 percent rise all the way into the top quintile. Meanwhile, 8 percent born to the richest fifth fall all the way to the bottom fifth. Sometimes great wealth makes kids lazy and self-indulgent, and wrecks their lives.
Also, the rich don’t get rich at the expense of the poor (unless they steal or collude with government).
The poor got richer, too. Yes, over the last 30 years, incomes of rich people grew by more than 200 percent, but according to the Congressional Budget Office, poor people gained 50 percent.
https://www.foxnews.com/opinion/2014/06/04/it-income-mobility-that-matters-not-income-inequality/
Piketty’s Numbers Don’t Add Up
Ignoring dramatic changes in tax rules since 1980 creates the false impression that income inequality is rising.
By
MARTIN FELDSTEIN
May 14, 2014 7:31 p.m. ET
Thomas Piketty has recently attracted widespread attention for his claim that capitalism will now lead inexorably to an increasing inequality of income and wealth unless there are radical changes in taxation. Although his book, “Capital in the Twenty-First Century,” has been praised by those who advocate income redistribution, his thesis rests on a false theory of how wealth evolves in a market economy, a flawed interpretation of U.S. income-tax data, and a misunderstanding of the current nature of household wealth.
Mr. Piketty’s theoretical analysis starts with the correct fact that the rate of return on capital—the extra income that results from investing an additional dollar in plant and equipment—exceeds the rate of growth of the economy. He then jumps to the false conclusion that this difference between the rate of return and the rate of growth leads through time to an ever-increasing inequality of wealth and of income unless the process is interrupted by depression, war or confiscatory taxation. He advocates a top tax rate above 80% on very high salaries, combined with a global tax that increases with the amount of wealth to 2% or more.
His conclusion about ever-increasing inequality could be correct if people lived forever. But they don’t. Individuals save during their working years and spend most of their accumulated assets during retirement. They pass on some of their wealth to the next generation. But the cumulative effect of such bequests is diluted by the combination of existing estate taxes and the number of children and grandchildren who share the bequests.
The result is that total wealth grows over time roughly in proportion to total income. Since 1960, the Federal Reserve flow-of-funds data report that real total household wealth in the U.S. has grown at 3.2% a year while the real total personal income calculated by the Department of Commerce grew at 3.3%.
The second problem with Mr. Piketty’s conclusions about increasing inequality is his use of income-tax returns without recognizing the importance of the changes that have occurred in tax rules. Internal Revenue Service data, he notes, show that the income reported on tax returns by the top 10% of taxpayers was relatively constant as a share of national income from the end of World War II to 1980, but the ratio has risen significantly since then. Yet the income reported on tax returns is not the same as individuals’ real total income. The changes in tax rules since 1980 create a false impression of rising inequality.
In 1981 the top tax rate on interest, dividends and other investment income was reduced to 50% from 70%, nearly doubling the after-tax share that owners of taxable capital income could keep. That rate reduction thus provided a strong incentive to shift assets from low-yielding, tax-exempt investments like municipal bonds to higher yielding taxable investments. The tax data therefore signaled an increase in measured income inequality even though there was no change in real inequality.
The Tax Reform Act of 1986 lowered the top rate on all income to 28% from 50%. That reinforced the incentive to raise the taxable yield on portfolio investments. It also increased other forms of taxable income by encouraging more work, by causing more income to be paid as taxable salaries rather than as fringe benefits and deferred compensation, and by reducing the use of deductions and exclusions.
The 1986 tax reform also repealed the General Utilities doctrine, a provision that had encouraged high-income individuals to run their business and professional activities as Subchapter C corporations, which were taxed at a lower rate than their personal income. This corporate income of professionals and small businesses did not appear in the income-tax data that Mr. Piketty studied.
https://online.wsj.com/news/articles/SB10001424052702304081804579557664176917086
