Income inequality, vanishing middle class, and other scams

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There’s a bunch of meme’s and soundbites going around where politicians love to point out the disappearing middle class (income inequality), and how we need them to fix it. There’s only a few problems with that:
  1. It’s a lie that plays to people’s ignorance and greed
  2. History always looks better from a distance (and if you don’t look too closely)
  3. It’s prestidigitation to distract you while they pick your pockets

Reality

Here's what the real world looks like:

  • In average Real GDP we’ve doubled since 1950’s (which had doubled the prior 50 years): and that’s a very low estimate (it doesn’t factor in many things).
    • Average salary was $3,300 in 1950, which would be about $33,000 today (adjusting for inflation). If you make more than that, you’re above the 1950’s average: proving it isn't flat. (Even welfare mothers collect more than that in total compensation). Some basic food staples (eggs, milk, etc) are used as the baseline (so would be the same): but the relative cost of most non-staples has dropped significantly (increased purchasing power).

Here's some examples (adjusted for labor costs):

  • Encyclopedia Britannica used to cost about 140 hours worth of work (1895), now it’s about 33.8 hours, so 1/4th the cost — but then you can go online on your cell phone and get access to Wikipedia for free (and it’s far easier to search)
  • A dish-set used to be 44 hours of work, now it’s more like 3.6 (1/12th)
  • a bicycle was 260 hours worth of labor, now it’s about 7 (1/36th)
  • a $6M ENIAC computer in 1950 is less powerful than the one controlling your microwave oven
  • This could be a long list of things you have that you can afford much more easily and isn’t even touching on the technology your parents or grandparents didn't have that you do

Now there are a few exceptions:

  • an average car used to be about 1/2 a years income ($1,510 vs $3,300/year salary), and today, it’s about the same ($25K vs $51K average salary) — but the older one got worse milage, had less HP, it didn’t have AC, wasn’t "safe at any speed", didn’t have heated and cooled leather seats, and couldn't pair with your cell phone and required far more maintenance, so you’re getting much more in today’s vehicle for about the same price
  • housing costs have gone from 2x income to about 3x income (more in cities) — but we have 3.5 times as much space per person as we used to
  • Education went from 20% of average yearly income (per year) to about 80% (4x increase)
  • While national debt is 59x larger today (thanks to big government social programs to fix these things), taxes are 50% higher (37% vs 25% avg), and the dollar is worth about 1/10th as much
  • The regulatory and legislative burdens to exist (fees, forms, liability, laws, etc) have gone up tremendously… if we’d stopped legislating and regulating in the 50’s, the economy would have grown at double the rate, and we’d all have twice as much. (That's a real economics study: we halved our GDP growth due to over regulation, and over 50 years, we'd have twice the income, if we hadn't done that).

So not everything is cheaper, but most things are. The few things that are more expensive are almost all the things that politicians “helped us” with: healthcare, education, social programs, taxes/regulations. If we hadn't "fixed them", they would have been much cheaper.

History

Just think about how much better things are. How well did parents in the 50’s really live?

  • Ignoring issues like polio, measles, chickenpox — or the much better treatments for all sorts of diseases and malady’s they would just die of
  • {{Hilgiht|Infant mortality dropped from around 50 (per 1,000 births) to about 6]], At today’s birth rate, that would be killing off all of Boise Idaho per year (if it makes you feel better, we make up most of that difference through abortions)
  • the global life expectancy moved from 41 to 67 years, while the U.S. had a more modest 68 to 77 years. But still, you live an average of 13% longer — and you live retired 4-5x as long (on average), assuming you value that sort of thing
  • Twice as many people died in car accidents (per capita) back then (22/100K vs 11 today)
  • Murder rate is a little lower today than in the 50’s, rape and robbery are almost back down to that level, but reporting has gotten much better, and people more willing to come forward today — so we are probably much lower today than actual rates were
    • NOTE: Crime increased dramatically after Johnson’s "Great Society", and peaked a generation after the creation of welfare queen (late 80’s - early 90’s), we have been coming down ever since
  • 40% of households had no cars, the ones that could afford one (rarely two) drove those suckers into the ground (not replacing them every few years, like today)
  • 33% had no TV and those that had one got 4 channels, with a coat-hanger antenna: no HD, Cable or XBox
  • 33% had no Telephone, running water or a private toilet and bath
  • the average house was 3.5 people living in an 983 sq. ft home (280 sq ft per person) vs. 2.5 people living in 2,349 sq. ft. (939 sq ft per person) or 3.5x more space today (for 1.5x the cost), our poor have more living space (and amenities) than Europe's middle class
  • Median age of marriage was 21, today it is 27 — and the number of marriages has gone way down (income pooling helped)
  • A computer weighed 1 ton and cost $6M, and had far less capabilities than an iPad that weights 1 lbs and cost $600
  • 71% complained that taxes were too damn high, compared to 64% today (that pay a lot more)
  • far more back then feared big business or big labor, today twice as many fear big government as the other two combined

Just remember lifestyle:

  • you used to get a job as a teenager, start work or military service at 18 (very few went to college), you worked until 65 and died at 67 (produced for ≈70% of your life), you saved, lived below your means, and left money to your kids to help them out.
  • Now days you start work work at 22 or 24 (after 2-6 years of college, and bigger debt), you work until 60-65, and you live until 79. That means you worked ≈50% of your life, you buy far more sooner (on credit) and owe the interest (for your impatience and on that borrowing) to others.

Which is more likely to result in more economic wealth? You took more time for yourself, you didn’t delay gratification, and thus made less. Duh!

So those meme’s whining about how much worse things are, only work on people that don’t think.

Yes, more people have dual incomes: but that’s only because we have multiple cars, eat out more, take more vacations (more travel), live in bigger houses, have better healthcare, buy far more stuff (TV’s, Cell Phones, Appliances, Entertainment/Exercise Equipment), borrow more, watch more movies/entertainment, and so on. If you had all the amenities of the middle class in the 1950’s today, you’d be called poor by today’s standards, and rich by the rest of the world's. Remember, our poor live better and have more purchasing power than most of Europe's middle class: they just live smaller and with less.

But I heard the middle class is disappearing and income inequality is growing?

The middle class is disappearing… into the upper class. The politicians and flim-flammers leave that last part out.

What happened is like the experiment where if you give monkeys unequal rewards for the same work, the one getting less, gets frustrated and demands change[1]. Well, progressive politicians learned that their base is like monkeys, and thus they convince the gullible that working at McDonalds is worth the same pay as years of study in financial banking or engineering, etc., in order to pander votes from the monkeys.

Even when you adjust for constant dollars, you find that poverty has fallen, while we raised the standards for what’s “poor”, and the number of people in the upper quintiles has grown. It doesn’t fit the meme, but it fits the facts.

More than that, the richest men today (Gates/Buffet/etc), are worth about 1/5th - 1/10th what the richest men of yesteryear were worth, or less. Rockefeller could have payed off the national debt when he was alive ($19 trillion today), or if he owned all the companies he once did, today he'd be worth trillions of dollars. 10 of the richest 13 Americans, are from 75+ years ago, back when there was REAL income inequality (and higher economic growth and opportunities to go with it).

Now while this Malthusian Chicken-Little stuff has been going on for hundreds of years: everything is going to get worse, if you don’t hand over your rights and incomes to the protection racket. The recent origins of this fraud, came from a “French economist" named Emmanuel Saez, who showed that incomes hadn’t risen (by looking at reported income to IRS), and by ignoring all the ways incomes had risen. We’d just taken most of our income growth in increased benefits like healthcare, time off, and untaxed retirement, and so on. He was quickly rebuked by many real economists in all the ways his charts ignored the real improvements in lifestyles, hidden income and purchasing power. Then a different woman-beating French Economist named Thomas Piketty, decided to camouflage the same discredited data in a 600 page, table filled book, "Capital in the 21st Century”. (A play on Marx’s Das Kapital). Piketty retreaded the claim/study that incomes had only risen 3.2% in the last 30 years, but his numbers (and arguments) were immediately eviscerated by real economists, who know it’s more like 10x that number. (Not to mention his even lamer conclusions based on his flawed assumptions).

Saez-Piketty lies of omission

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What did Saez/Piketty and their followers leave out?

  1. People adapt to tax policies, so many chose benefits that get taken out before income, instead of raises which get reported as income: so bigger pensions, 401K’s, Student Savings, Healthcare benefits, vacation/flex time, and so on — those have value (income), but aren’t accounted for in IRS data
  2. Piketty and Saez never touched on purchase power (they only looked at income inequality differences, not actual increases in lifestyle)
  3. There are the hand-outs to the lower (and middle) classes that were never factored in (like Social Security/Medicare). While other countries count welfare and food and rent subsidies, discounts for the poor on utilities, tax credits and so on, as income, the U.S. does not. This averages to about $35K/poor person (and less for middle earners) -- but that income doesn't show up in IRS data, even-though the benefits have value and have increased
  4. the final scam is these tables look at family income (not individual income). Why does that matter? Because family sizes have gotten smaller, more divorces, later marriages, and so on. This means even if you divide more income, over more households, it can look like your incomes went down, when the only thing that changed is family makeup.

So not only were they massively wrong in how much incomes had grown, and completely missed how much class mobility there is (go through various groups, from rich to poor, during their lives), but they either were completely incompetent as an economist or intentionally didn’t account for all the hidden income gains (or changes) that would eliminate their income inequality delusion. The left loves them for their agenda, the informed resent their political propaganda (disinformation) that is used to mislead the gullible.

Tax Policy Scam

There’s another scam on a scam.

If you see any table that starts measuring relative income in 1970’s or 1980’s, it’s a big red flag.

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Reagan changed the tax code in 1981. Why does that matter?

  • Before this personal income tax was 70%, and corporate income tax was 35%. Does that mean all rich people were stupid and paid 70%? No. Virtually none did. They all had offshore accounts and/or shell corporations (trusts, etc), to hide that income and avoid those taxes. Most of their income went into the Corporations/trusts so they paid the corporate tax rates on that money, and saved 35%.
  • Once we flattened/simplified the tax code (made corporate and personal income about the same, at 35%), there was no need for the shell corps. So people started reporting ALL their incomes as personal income taxes. It looked like the personal incomes of the rich (and upper middle class) shot upwards, but the only thing that changed was tax compliance.
    • You can see this in the two charts to the right. Tax revenues doubled (because employment shot up, as well as incomes and tax compliance). And the amount of taxes paid by either the top 1% or top 10% increased.

Did the rich suddenly get any richer? Very little (because a rising tide raises all boats). But what really happened is the accounting changed. Thus anyone that uses personal income taxes as the basis for their “income inequality” numbers (without adjusting for these changes), is either a complete fool (and knows nothing about tax policy), or is a fraud (they know they’re cooking the numbers by not correcting for these changes, but they’re intentionally deceiving people). Saez and Piketty don’t correct for the tax change. Nor do most of the Newspaper articles that regurgitate the crisis in the middle class. I'll leave it to the reader to decide if the sources are ignorant or deceptive.

Income inequality is a distraction

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Most importantly, income inequality is bullshit. If you care about it, you’re being an idiot. Just think it through:

  • In 1950 the average salary was $3,300 per family and the rich made $33,000
  • Today the average is $51,000, but the rich make $255,000
  • Capitalists will point out everyone’s lives got much better
  • Socialists whine that the income gap increased from ≈$30,000/year to over $200,000 per year and is, "6x worse than it was”

In truth, if you look the ratio, the difference between the rich and poor actually halved (they’ll ignore that). And the ratio doesn’t matter anyways. What should matter to you is not how much more your neighbor has (that’s greed/envy), what should matter is how much better your life is.

While envy and resentment has existed since forever, a lot of this technique for how to rationalize it to the gullible for political gain, originated with Fascism and the invention of the Gini Coefficient:

Gini Coefficient

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The Gini Coefficient (or Gini Index) came about when Corrado Gini (and Italian Sociologist) wrote the book: The Scientific Basic of Fascism. His idea was that you could make systems stronger than the individuals, if you just weeded out the threats to the collective and accepted fascism (democratic socialism combined with crony capitalism).

His book, and the infamous “Gini Coefficient” he created, said that income should be evenly distributed, and if it wasn’t, then government should use that imbalance as an excuse to seize wealth and liberty, and redistribute it (fascism) to make things “more fair”. His coefficient is basically just that: a measure of how economically fascists (socialist) your country is.

Are you better off with 15x as much as before? (3x as much after inflation and purchasing power adjustments)? I should think so. The fact that some of your neighbors have more than you is utterly irrelevant to your wellbeing, unless you’re an envious or gullible putz.

Conclusion

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There’s always someone poorer, and happier — and someone richer and less happy. Which do you want to mimic or learn from?

The statists (whether Fascists/Marxists/Progressives: all different variations of the same flavor), are trying to prey on the flawed charter traits of humans: greed, envy, jealousy, in order to shut down your reasoning brain, and get you so emotionally invested, that you’ll give them money and power, to “Fix things”. But once you give them that power, the fix will be in: for them.

The wise notice that the key to happiness is not the greed and statists versions of “fairness” -- but contentment, liberty and diversity.

People are smart enough to make their own decisions. Some will choose to work harder for more material wealth, others will tradeoff free time and flexibility for less income. Some want to change the world, others want to surf and get stoned. Some want to be athletes, and others artists. Diversity is a great thing — and that will lead to diversity of incomes and outcomes. It's much better than grey unitard one-size-fits-all Mao suit and the conformity of a socialist dystopia, if you ask me.

So if you want to be financially more secure, it’s easy. Learn to live below your means. (There are always people making less, and still saving more, and giving more than you do). If you are lured by the cry of inequality, it would help to remember the number $30K. If you make more than that, you are the 1% (globally). And any excuse you make to steal from the 1% in the U.S. to make things "more fair", then the rest of the world should be able to do to you, since you are the 1% globally. (There’s no reason equality and fairness should stop at the border, right?). Instead of being greedy and envious and looking what you should be able to take from others (and having the cycle repeated back at you), and dividing us all -- you should probably learn how to be more content and happy with what you have. How to help the less successful up, instead of trying to figure out how to hold the more successful down. You’ll live a happier and better life, and so will all those around you.

References

History

Wage Stagnation

Income Inequality

Income Mobility

Income Inequality across states/party

Tax inequality

* http://www.aei.org/publication/new-cbo-study-shows-rich-dont-just-pay-fair-share-pay-almost-everybodys-share/

Poverty

Memes