Economics & Finance

Engram has compiled some data on the after-tax income levels of American taxpayers, comparing them from the last three years of the Clinton Administration and the first three years of the Bush Administration. The raw data seems to suggest that the top 20% of taxpayers kept more money after taxes under Clinton than they did under Bush. This would refute the common canard that the Bush tax cuts only benefitted that amorphous class referred to as “the rich”.

There is more to the facts than Engram presents; but there’s always more to it than meets the eye. One salient factor lost among all the talk of class struggle is the very real question of socioeconomic mobility. The membership of the top 20% isn’t always the same; neither is the membership of the bottom 20%. As we approach the margins, of course, the membership tends to solidify; but even so, such economic classes are far less unchanging, and far more fluid, in the United States than in most other places.

Although it’s pretty easy to pay lip service to class warfare, my gut instinct is that American voters intuitively understand this fluidity. Our general national aspiration toward “moving up and out” saves us from the worst parts of Marxist struggle.

Be sure to read the article for the charts, and the interesting notes in the comments. By the way, Engram is a registered Democrat.

(via Instapundit)

(Ref Prizes Galore.) American wins 2006 Nobel for economics. I blame George Bush.
Edmund Phelps is a Chicago School monetarist.

Most investors and analysts seem to have concluded that inflation is not a serious problem, and that long-term interest rates will stay low for a considerable period of time. (The 10-year Treasury rate is now at 4.696%.) Writing in Financial Times (9/21), Joachim Fels, managing director and chief global fixed income strategist at Morgan Stanley, argues that such thinking is incorrect.

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I ran into something rather puzzling when I was looking into some of the things that determine the success or failure of countries. I know Fukuyama did a whole book on the subject, but it was not especially satisfying. It seemed to back into its conclusions without offering much empirical support.

I do think that Fukuyama was onto something, though. There is a paper, available online, by Bo Rothstein that approaches issues of trust from the direction of game theory. Start with the famous “prisoner’s dilemma,” in which two prisoners are being interrogated separately. If both remain silent, there will not be enough evidence to convict either, and they will both go free. However, the one who confesses first will receive a light sentence and the other will bear the greater punishment. This problem has two equilibrium points: one confesses and takes the intermediate reward (or less punishment), or neither confesses and both collect the reward of going free. In essence, countries can reach several equilibrium points in how the citizens of each country treat each other. Rothstein points out that we often act against our rational self-interest. For example, we refrain from stealing even when there is no chance of being detected. We will even give up some value for the opportunity to punish someone who we feel has cheated us, which makes no monetary sense. If we expect that we will be cheated, however, we will take the opportunity to cheat ourselves. We can reach a stable equilibrium of either trusting and acting on trust, or mistrusting and acting on that mistrust.

Measuring trust is not an easy thing, so I chose a close substitute. I figured that the index of perceived corruption by Transparency International was a reasonable estimate of trustworthiness. This assumes that the perception is accurate, and gives an idea of the degree of trust in that society. In Transparency’s corruption index, 10 is angelic and anything below 5 indicates a problem. As a measure of prosperity, I used per capita GDP, according to the CIA Factbook.

The correlation? 90%! You can’t get a much tighter correlation in real life.
The figures and more thoughts are on the jump page.

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