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  • Poverty and Statistics

    Posted by Michael Kennedy on 18th July 2011 (All posts by )

    I am repairing a gap in my education by reading Thomas Sowell’s classic, Vision of the Anointed, which was written in 1992 but is still, unfortunately, as valid a critique of leftist thought as it was then. As an example of his methods, he constructs an experiment in statistics. This concerns poverty and inequality and, in particular, the poverty of leftist thinking.

    He imagines an artificial population that has absolute equality in income. Each individual begins his (or her) working career at age 20 with an income of $10,000 per year. For simplicity’s sake, we must imagine that each of these workers remains equal in income and at age 30, receives a $10,000 raise. They remain exactly equal through the subsequent decades until age 70 with each receiving a $10,000 raise each decade. He (or she) then retires at age 70 with income returning to zero.

    All these individuals have identical savings patterns. They each spend $5,000 per year on subsistence needs and save 10% of earnings above subsistence. The rest they use to improve their current standard of living. What statistical measures of income and wealth would emerge from such a perfectly equal pattern of income, savings and wealth?
     

    Age

    Annual Income

    Subsistence

    Annual Savings

    Lifetime Savings
     

    20

    $10,000

    $5,000

    $500

    $0
    30

    $20,000

    $5,000

    $1,500

    $5,000
    40

    $30,000

    $5,000

    $2,500

    $20,000
    50

    $40,000

    $5,000

    $3,500

    $45,000
    60

    $50,000

    $5,000

    $4,500

    $80,000
    70

    $0

    $5,000

    $0

    $125,000

     

    Unfortunately, even with an Excel spreadsheet, I cannot get these numbers to line up properly.

    [Jonathan adds: Many thanks to Andrew Garland for providing html code to display these numbers clearly.]

    Now, let us look at the inequities created by this perfectly equal income distribution. The top 17% of income earners has five times the income of the bottom 17% and the top 17% of savers has 25 times the savings of the bottom 17%. That is ignoring those with zero in each category. If the data were aggregated and considered in “class” terms, we find that 17% of the people have 45% of the all the accumulated savings for the whole society. Taxes are, of course, ignored.

    What about a real world example ? Stanford California, in the 1990 census, had one of the highest poverty rates in the Bay Area, the largely wealthy region surrounding San Francisco Bay. Stanford, as a community, has a higher poverty rate than East Palo Alto, a low income minority community nearby. Why ? While undergraduate students living in dormitories are not counted as residents in census data, graduate students living in campus housing are counted. During the time I was a medical student, and even during part of my internship and residency training, my family was eligible for food stamps. The census data describing the Stanford area does not include all the amenities provided for students and their families, making the comparison even less accurate. This quintile of low income students will move to a high quintile, if not the highest within a few years of completion of graduate school, A few, like the Google founders, will acquire great wealth rather quickly. None of this is evident in the statistics.

    Statistics on poverty and income equality are fraught with anomalies like those described by Professor Sowell. That does not prevent their use in furthering the ambitions of the “anointed.”

    Posted in Civil Society, Conservatism, Economics & Finance, Education, Human Behavior, Leftism, Personal Finance, Politics, Statistics | 8 Comments »

    USA, Inc from the view of Kleiner Perkins.

    Posted by Michael Kennedy on 14th March 2011 (All posts by )

    Powerline today has an analysis of the USA as if it were a firm applying for funds from Kleiner, Perkins. The presentation has a number of slides, some of which I will reproduce here. The link to the full presentation doesn’t work, unfortunately.

    [Jonathan adds: Click on the large charts to display them at full size.]

    The net worth of the US is on the right side scale. The trend is pretty obvious. The small improvement is probably a sign of some recovery in the past year.

    Spending has followed historical events, such as World War II. The trend, however, is not good. After 1930, spending on entitlements began and has grown out of control.

    Defense spending is blamed by leftists but there has not been a lot of defense spending since Vietnam.

    Taxes have followed a steady trend line until Obama was elected. The sharp rise has not helped as costs far outstrip revenue.

    What, then, is the problem ?

    Entitlements.

    Entitlements plus interest alone will exceed revenue by 2027. That’s 16 years from now.

    The left wants to raise taxes.

    How high must tax brackets go ?

    How do we compare to other countries ?

    Better than some and not so good as others.

    Can the left stop denying reality and start to discuss it?

    No.

    Here is the response I got:

    I am certain that not everyone here is as stupid as I am.

    I try very hard to keep factual information from you. To wit, here is some bad analysis of our fiscal situation.

    Of course, I could be wrong and I’m not this dumb. But probably not.

    [fixed it for you. If you’re not even going to acknowledge our good faith attempts to allow you to comment while simply requiring that you not insinuate everyone’s stupidity then we can only assume you don’t mind the same treatment in return – mod.

    Posted by: Mike K

    They constantly use fake versions of my signature, which of course the moderators could stop. It fits their pattern. Modifying my comments is also standard and they actually think this is clever.

    No, I am not optimistic.

    Posted in Big Government, Business, Conservatism, Economics & Finance, Politics, Public Finance | 18 Comments »

    Sweden – the newest Red State

    Posted by Bruno Behrend on 30th September 2010 (All posts by )

    America, even with Republicans in the House and possibly Senate, runs the risk of becoming the model sclerotic empire, wasting away while other states move toward more freedom. Canada and Sweden, nations we conservatives and libertarians used to scoff at as silly, are starting to beat the US on measures of freedom and competitiveness.
    Sweden is one country to watch. First, it does socialism about as well as any state could. (of course, this is easier when your nation is small, homogeneous, and free of the burdens of world leadership). Next, unlike the US, Sweden is moving in the right direction, toward that conservative (in the true meaning of the word) ideal of a 3rd way, where the welfare state, to the extent it exists, is individualized.

    Sweden’s Quiet Revolution
    Without much fanfare, the Scandinavian country has been moving away from socialism.

    There is something about Sweden that provokes a mix of envy, horror, and bewilderment among American observers. Liberals have traditionally celebrated its cradle-to-grave safety net, while conservatives have disparaged its high taxes and centralized health-care regime. Yet both groups have generally agreed that Swedish-style socialism is a far cry from rough-and-tumble U.S. capitalism.

    In fact, contemporary Sweden is much less socialist than many Americans realize. Since the early 1990s, when it suffered a painful financial crisis, the Scandinavian country has deregulated key industries (such as airlines, telecommunications, and electricity), lowered its overall tax burden, established universal school vouchers, partially privatized its pension system, abolished certain government monopolies, sold a number of state-owned enterprises (including the parent company of Absolut vodka), and trimmed public spending. Several years ago, it eliminated gift and inheritance taxes. The World Economic Forum now ranks Sweden as the second-most competitive economy on earth, behind only Switzerland. According to the 2010 Index of Economic Freedom (compiled by the Wall Street Journal and the Heritage Foundation), Sweden offers greater business freedom, trade freedom, monetary freedom, investment freedom, financial freedom, freedom from corruption, and property-rights protection than does the United States.

    Bolstered by prudent economic stewardship and a relatively conservative financial sector, Sweden entered the global recession on a sound footing. While it endured a nasty spike in unemployment, its export-driven recovery has been so vigorous that the central bank is now concerned about inflation risks. In the second quarter of 2010, Sweden posted a 4.6 percent annual growth rate, prompting the Wall Street Journal to hail it as “the biggest success story in post-recession Europe.” It currently has the lowest deficit-to-GDP ratio in the entire European Union. Before the election, Swedish finance minister Anders Borg announced plans to privatize another $14 billion worth of state assets. “If we get a surplus in place,” Reinfeldt told a Reuters interviewer, “we will deliver on tax cuts for 6.1 million workers and pensioners.” (The total Swedish population is roughly 9.4 million.)

    To be sure, Sweden won’t look like Hong Kong or Singapore anytime soon. It still has a lavish welfare state, and its aggregate tax burden is still quite heavy. The top marginal income-tax rate is 57 percent in Sweden, compared with 35 percent (for now) in America. On the other hand, a 2008 OECD study found that household taxes are substantially more progressive in the U.S. than they are in Sweden, even after we control for America’s higher level of income inequality. Sweden has a much lower average statutory corporate-tax rate than the U.S., and also a much lower effective corporate-tax rate on new capital investments (according to University of Calgary economists Duanjie Chen and Jack Mintz). Its tax structure is made even more regressive by a 25 percent value-added tax on consumption of most goods and services.

    Which brings us to a common misconception about the Swedish system — that it takes from the rich and gives to the poor. Actually, says Lund University economist Andreas Bergh, “the majority of the taxes you pay are given back to you during your life cycle.” Thus, “if you pay more when you work, you will also get more when you retire.” Even upper-class Swedes enjoy bountiful government largesse.

    Another popular myth would have us believe that Sweden’s wealth was somehow created or facilitated by social democracy. In reality, “Sweden’s prosperity is the result of well-functioning capitalist institutions,” says Bergh, author of the new Swedish-language book The Capitalist Welfare State. As Cato Institute scholar Johan Norberg explained in a 2006 National Interest essay, the relative “success” of the country’s social-democratic model “was built on the legacy of an earlier model: the period of economic growth and development preceding the adoption of the socialist system.”

    Posted in Europe, Political Philosophy | 14 Comments »

    VAT Tax Redux, New Proposal, and Barone’s piece in SF Examiner

    Posted by Bruno Behrend on 8th August 2010 (All posts by )

    This lonnnnng post was prompted by an email linking Michael Barone’s latest SF Examiner piece, which asks Republicans “Now what?” after assuming some strong gains in November.  I have a few ideas on the “now what?” question, and I can’t think of a better place to post them than on this excellent blog.

    First, I can’t thank you all enough for the excellent commentary and critiques on my recent “Swapping a VAT for failing income tax is Good Policy” post a week or so ago.  I’ve commented on many of your ideas, and I think you’ve changed my mind on a thing or two, which you will notice below.

    I wanted to follow up that post with another proposal that fixes the primary problem with going to consumption taxes, which is their impact on the working poor and middle class. One benefit of a consumption-based tax regime is that it captures money from every transaction, making every one a part of the solution to our fiscal mess.  It is also far more stable than a highly skewed progressive system that only taxes the rich. (Social Security notwithstanding)

    The most difficult political and policy problem preventing the adoption of a consumption based tax system is that it places a “burden” on the working poor and middle class. (burden being interpreted both in policy and political terms)

    Simply put, in a consumption tax system, the lower end of the earning spectrum pays a much greater share of their income in taxes than the rich.  Many will argue that this is “unfair.”  Leaving that argument aside, it is fair to say that this problem MUST be resolved before any politician is going to risk moving the entire system away from income taxes.

    I propose such a solution in this post, beginning with my answer to Barone’s “Now What?”

    Read the rest of this entry »

    Posted in Civil Society, Conservatism, Economics & Finance, Energy & Power Generation, Health Care | 17 Comments »