Monday, November 21, 2011

This is How They Lie to You: Paul Ryan Edition Pt. 2

The introduction has little wrong with it, but I will touch briefly on two key points that I disagree with.  The reasons why will be argued more fully with data when I come to them in the report.

The question for policymakers is not how best to redistribute a shrinking economic pie. The focus ought to be on increasing living standards, expanding economic opportunity, and promoting upward mobility for all.

This displays rules of propaganda two and three, discrediting the opposition by a parody and manipulating the consensus values of the target audience.  No one in American politics is discussing redistributing a shrinking economic pie, there are disagreements over the causes of growth and over how to share the burden of expenses that have been democratically agreed upon.  This statement radically manipulates the opposition's position into something distinctly unAmerican and portrays them as opposed to the universal values of better living standards, opportunity, and upward mobility while portraying Ryan and the Budget Committee as its champions.  My disagreement with Ryan is that I think his proposals degrade all three of these, not that I believe there is a shrinking economic pie to cut up.  It is also true that expenses simply are a pie that needs to be distributed, our debt isn't going to go away by wishing it would so that particular pie does need to be shared out, confusing this with wanting to share out the economic pie, rather than the debt pie, is just transparently manipulative.

My second issue with the first page is this:

Conventional wisdom on government’s role in inequality often has it backwards: tax reforms have resulted in a more progressive federal income tax; government transfer payments have become less progressive (due in large part to growing entitlement payments to wealthier seniors).
 Explaining what is manipulative about this will take some length, I'll get into it in more detail in the relevant sections of the report.  It will become apparent as we proceed that much of the increased progressivity of the tax code is due to shifting anti-poverty measures from other departments to the IRS, this has also made transfers less progressive as the more progressive transfers are the ones that have been shifted to the IRS.  I don't really understand why shifting government assistance from Health and Human Services to the IRS should be understood as having changed the overall progressivity of American transfer programs, it is simply pedantic hair splitting meant to score political points.

Moving on, first a minor quibble.  The summary of the CBO report is reasonably accurate but I want to step aside for a second to look at this passage:

Considering the population as a whole, real average after-tax household income in the United States grew by 62 percent over this 30-year period. After-tax median income (half of the population is above the median, half is below) grew by 35 percent. But the trend of absolute gains across all income levels was not the focus of the study. Instead, the CBO sought to analyze the distribution of these income gains and their uneven growth over time.  Between 1979 and 2007, real average after-tax income grew by 275 percent for the top 1 percent. Average after-tax household income for the lowest quintile increased by significantly less, growing by 18 percent over the period studied (see Figure 1).
 I just wanted to briefly mention the implication of the bolded part.  This is meant to imply that what we should be focusing on is that everyone has gained, not just the rich.  But lets think about this a bit.  What is growth like in annualized terms.  Overall income growth is a rough annualized 1.74% a year, not great but not terrible in per capita terms.  However, median income growth has only been an annualized 1.08% and for the lowest quintile, 0.59%.  These are not healthy growth rates.

Now, if the choice was simply between growth and no growth, as Ryan's committee frames it, this would still be a hard to assail position.  However, the evidence does not point in this direction.  While there is some evidence that policies that promote growth at the top percentile spur growth overall (and even this I find questionable, I suspect the higher growth rate is possibly due to increased inflation on goods favored by the top percentile, such as land and nominal stock prices, that are not weighted sufficiently in the normal basket of goods used to calculate inflation), this additional growth seems to be at the expense of, not in addition to, median growth rate.  For a single data point that I could quickly look up, Atkinson, Piketty, and Saez find that family incomes in the US rose 32.2% between 1975 and 2006 while in France they rose only 27.1%  However, median income growth for the same period was 17.9% and French median income growth was virtually the same as average income growth, 26.4% (page 9).  This seems to be the norm for most countries, the extreme divergence between top income growth and median growth is quite rare in the data.  There is no global explanation for this effect, it is pretty clearly a result of US policies.  It also shifts according to US political fortunes, in the same paper, they find that median income growth was 2.7% in the Clinton expansion but only 1.3% during the Bush expansion (and 0.6 % for 1976 -2007)  Data could be multiplied and I may decide to due so later on.

This took longer than I expected, I'll have to stop here.  I'll go further into the report tomorrow.

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