Bye, Bye, American Pie

Michelle Obama has caught some flak over a recent statement she made in North Carolina: “The truth is, in order to get things like universal health care and a revamped education system, then someone is going to have to give up a piece of their pie so that someone else can have more.” This statement reflects a major difference in how two Americas — call them left and right — view the economy — call it pie.

As American as apple pie.

The left views the pie as fixed. If the rich are getting richer and the poor are getting poorer, the government should take some pie from the rich and give it to the poor.

The right views the pie as variable. If left to their own devices, private entrepreneurs will build wealth, making the pie bigger. If institutions are properly designed, eventually many people will get a share of that wealth. The left derisively calls this the “trickle-down theory.”

Politicians on the left sometimes talk about expanding the pie. But they don’t mean it in the same way as those on the right. Instead, they mean expanding the government’s share of the pie by taking more pie away from taxpayers. That won’t make the total pie bigger, and it could make it smaller by reducing people’s incentives to work and build wealth.

Ms. Obama’s comments are not even predicated on the idea that the rich are getting richer and the poor are getting poorer. Instead, she simply is observing that education and health care are expensive, and proposes to resolve the problems by redistributing the pie. Such redistribution will not make education and health care any less expensive, it will just reduce the costs for some at others’ expense.

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We’ve applied this policy to public transit for several decades: taking money from auto users and giving it to transit agencies to carry transit riders. Even today, some people argue that we should do more of this so that people don’t have to spend too much of their income on driving. In fact, Americans spend an average of about 20 cents a passenger mile driving, which is about the same as what transit agencies charge, so people who use transit aren’t necessarily saving themselves any money.

A bigger flaw in this reasoning is that it ignores the subsidies to transit, which vastly outweigh subsidies to driving. Transit agencies spent about 85 cents per passenger mile in 2006, of which more than 60 cents were subsidies. By contrast, subsidies to auto users average less than half a penny per passenger mile.

But the biggest flaw in the redistributionist reasoning is the assumption that government can be efficient at redistribution — that is, that redistribution will magically bring total costs down (which is usually how it is presented), or at the very least not increase them (which is every redistributionists’ basic assumption). In fact, the reverse is true: government redistribution tends to drive up costs, mainly because powerful special interest groups siphon off a lot of redistributed wealth to themselves. The result is that the pie is redistributed from the poor to the rich instead of the other way around.

Transit is a perfect example. Rather than being subsidies to low-income riders, publicly owned transit turned out to be subsidies to, first, transit unions and later rail engineering and construction companies. The resulting rail transit systems tend to serve wealthier people than the bus systems they replace. So transit grows progressively more expensive while it does little more (and, in many respects, less) each year.

I am not an expert on education or health care, but I suspect the same things are going on in those areas. We’ve poured more and more money into education, but the results — in terms of high-school graduation rates or test scores — are not improving. Instead, most of the money seems to be siphoned off by administrative overhead (partly to comply with bureaucratic red tape) and teacher’s unions. Similarly, a large part of this country’s health-care system is already socialized, via Medicare and Medicaid, which drives up costs in many ways.

John Edwards talks even more expansively about “economic equality.” What is that supposed to mean? That everyone should live in the same size house, drive the same car, and recreate on the same jet skis? Equality of opportunity is a sound goal; equality of outcome is self-defeating because it just makes everyone poor.

In short, if in our eagerness to redistribute the pie we forget about how it is made in the first place, we risk losing the pie altogether. That doesn’t mean we shouldn’t try to end poverty or help the poor. But it we have to do it in ways that don’t make other people poor or give special interests opportunities to get rich off the system.

If we want to make education and health care work for low-income people, we have to find out why those costs have gotten expensive and treat the problem. Simply taking money from some and giving it to others will not help and will probably make things worse by making the pie smaller. Too much of that and there will be no more pie for anyone.

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About The Antiplanner

The Antiplanner is a forester and economist with more than fifty years of experience critiquing government land-use and transportation plans.

27 Responses to Bye, Bye, American Pie

  1. TexanOkie says:

    Aside from the transit vs. auto subsidies argument (look at it chronologically), very well put.

  2. prk166 says:

    “In fact, Americans spend an average of about 20 cents a passenger mile driving, which is about the same as what transit agencies charge, so people who use transit aren’t necessarily saving themselves any money.”

    That sounds about right. At my previous gig when I took the train it was $8 for a round trip (a bit less as long as I bought a book of tickets ahead of time). At .20 / mile driving would cost me $7 for the round trip. $8.50 if I used the toll road both ways to avoid a messy interchange. The other cost that people tend not to talk about is time. Even when driving to the station, catching the train just right, and catching the shuttle bus just right the best I could hope for to get from locking my door at home to being in my cube was 45-50 minutes one-way. In the best of conditions with the car, it was 30 minutes (that is, the train was 50% longer). So not only may it be just as cheap if not less for me to drive but I saving time, too.

  3. prk166 says:

    Have you read Cowboy Capitalism? They have some interesting claims based off of studies in there including one showing how much less the wealthy actually pay in taxes in Germany, Italy and France than in the US. That is, moving even closer to socialism doesn’t necessarily mean the rich will be paying more even if the politicians claim they will.

  4. Francis King says:

    “The left derisively calls this the “trickle-down theory.””

    No, it’s called trickle-down theory, for as long as I’ve been around, and the derisiveness is not over the name, but over the fact that it doesn’t work.

    “Instead, they mean expanding the government’s share of the pie by taking more pie away from taxpayers. That won’t make the total pie bigger, and it could make it smaller by reducing people’s incentives to work and build wealth.”

    “But the biggest flaw in the redistributionist reasoning is the assumption that government can be efficient at redistribution — that is, that redistribution will magically bring total costs down (which is usually how it is presented), or at the very least not increase them (which is every redistributionists’ basic assumption).”

    Unfortunately, the debate is always over the level of taxation, which is unhelpful. It would be better to ask, for each topic, is the government best placed to spend the money, or is the taxpayer best placed to spend the money?

    Governments are best placed to provide military defense. If everyone had a $2m tank in their garage, it would cost more, and deliver less defense. Not to mention the fact that there would be nowhere to park their car.

    Speaking of cars – Taxpayers are best placed to choose a new car. It is simpler for a taxpayer to go into a dealership than for the government to try to organise something.

    Healthcare?
    Welfare?
    Education?

    Etc.

  5. the highwayman says:

    This can be stressed even as a basic human rights issue. If the A.P wants too, we could compare local streets to basic health care. Though an interstate highway could be compared to cosmetic surgery(it’s a non essential).

    Though also when it comes to spending the US military is recieving around $620 billion this year.

    Now if you want to throw in debt the USA owes China alone around $1.4 trillion.

    Who would have thought that Communism could be so profitable?

    Then again the the Anti-Planner’s a closet socialist, when it comes to automobiles.

  6. aynrandgirl says:

    No, it’s called trickle-down theory, for as long as I’ve been around, and the derisiveness is not over the name, but over the fact that it doesn’t work.

    If it doesn’t work, that would imply that only the upper classes are getting wealthier. That is an unsupportable proposition.

  7. aynrandgirl says:

    Who would have thought that Communism could be so profitable?

    Communism isn’t profitable, unless you’re defining “stealing from others by keeping them in a state akin to slavery” as profitable.

    Then again the the Anti-Planner’s a closet socialist, when it comes to automobiles.

    Do tell. I don’t see evidence of that.

  8. Ettinger says:

    I will answer this one with a personal anecdote which I had written for another occasion.

    A few years ago, I was working on a medical device in Silicon Valley. Anther device that I had developed a few years earlier was used for treating certain types of cancer. The device was on its way to be used on approximately 1% of all cancer patients in the US. Each device sold for about $60,000 and treated approximately 4000 patients over its expected 10 year lifetime (at which point it was reasonable to assume that it would become obsolete). So, we were basically selling the device for $15 per patient treated.

    Roughly speaking the effect of the device was that it increased the cure rate of the cancers that it treated by about 2%, so, in essence, one extra life was saved for every 50 patients treated, and thus one extra life was saved for every $750 that we charged.

    That seemed to me like a good deal for the public. With approximately 2 million new cancer patients per year, 1% potentially treated with our device x 2% additional cure rate makes an additional 400 lives saved per year.

    However, the public had other plans. Once I got married, the public decided that as a dual income couple we were making too much money. We were now greedy rich people who “had to pay their fair share”. So, the public decided to tax our second income at 50% (Federal Tax + CA tax + Lost deductions etc.).

    The result? I quit my job, as I had already explained in my previous comment (see comment #18 on AP post for April 4, 2008).

    At the time I quit, I was working on a second device which I expected would have had a similar impact as the one I mentioned above. A competitor company was working on a somewhat similar device, but they were 2 years behind in R&D. When I quit, my company hired two other engineers to regroup from my resignation but the product (having been my idea continued by others) was delayed for a year and a half, compared to if I had stayed at my job. So, end result of my quitting? If you do the simple arithmetic: 600 lives lost for the public.

    So I ask the public: Was it worth it? For what? For about 80k in additional tax revenue per year (which now the public ended up loosing anyway, since I quit) plus the 600 lives?

    Of course, I did not quit to spike the public or do harm to myself. I quit because I reverted to doing the next most attractive thing to me at the time, which was completely different from corporate life. I reverted to what one may loosely describe as a hippy lifestyle. I stayed home raising our child, discontinued daycare, built a play house for the child, started growing my own vegetables and the like.

    Apparently, a portion of the public is so bothered about income inequalities that their primary goal is to eliminate them by bringing down the rich, even if that has an overall negative impact on their lives too.

    The public assumes that if you tax the rich they will sure loose some enthusiasm and grudge about it, but they assume that the rich will continue to work nonetheless. But they do not as my case illustrates. Even those who do not quit do modify their behavior so that, after perhaps some initial few years of increased tax revenue, things on average become much worse off for almost everybody.

    Common wisdom does indeed often take into consideration that people do modify their behavior as a result of tax policy (i.e. the Laffer curve is not a straight line). This accounts for the $80,000 of lost tax revenue, the tax I would have paid had I continued my job. But the 80K are the minor loss. This financial loss is dwarfed by the loss of an additional 600 lives that would not have been saved, had I not been turned off work by the 50% tax rate. Does the public really account for that?

    P.S. I have now moved to a lower tax, lower regulation area and have resumed my cancer R&D but only as a part time job. Life is too short and precious to be dedicated to working benefiting a public that wants to thank you by taxing you at 50%.

  9. Dan says:

    If it doesn’t work, that would imply that only the upper classes are getting wealthier. That is an unsupportable proposition.

    Snork. Good one.

    The issue is that most benefits trickle down just at the top and those on the bottom get a few crumbs. Wealth distribution not going very far down the mountain, if you will. A trickle of wealth at the bottom, whereas a torrent at the top of the hill, if you will.

    DS

  10. craig says:

    Income Confusion rich are getting richer NOT

    By Thomas Sowell Wednesday, November 21, 2007

    Anyone who follows the media has probably heard many times that the rich are getting richer, the poor are getting poorer, and incomes of the population in general are stagnating. Moreover, those who say such things can produce many statistics, including data from the Census Bureau, which seem to indicate that.

    On the other hand, income tax data recently released by the Internal Revenue Service seem to show the exact opposite: People in the bottom fifth of income-tax filers in 1996 had their incomes increase by 91 percent by 2005.

    The top one percent — “the rich” who are supposed to be monopolizing the money, according to the left — saw their incomes decline by a whopping 26 percent.

    http://tinyurl.com/2q3xfn

  11. johngalt says:

    The often-used phrase “distribution of income” suggests the metaphor of a pie. I believe that a more accurate metaphor would be an escalator. The pie metaphor treats income as static, thereby ignoring one of the most important facts about the standard of living, which is its rise over time.

    For example, consider what I call the “Wobegon” phenomenon. The majority of all families in any given year will be in the top 40 percent of the income distribution fifteen years later! For example, in Myths of Rich and Poor, W. Michael Cox and Richard Alm produce the following information based on a panel of families surveyed in 1975 and again in 1991.

    Where they Began in 1975
    Percent who made it to the top 40 percent in 1991
    Lowest Fifth
    59%
    Second Fifth
    52%
    Middle Fifth
    49%
    Fourth Fifth
    70%
    Highest Fifth
    86%

    Overall, over 60 percent of families surveyed in 1975 made it to the top 40 percent in 1991. If the “distribution of income” were a pie, this would be mathematically impossible. The top income category by definition cannot include the majority of people. To put it another way, in 1991 it appears that much of the lower-income category has vanished!

    To solve the apparent mystery, think of an escalator. In 1975, many of the families surveyed were young families or new immigrants, and they were near the bottom of the escalator. After fifteen years on the escalator, many of them reached the top half of the escalator. When you came back and surveyed the same families in 1991, most of them were near the top of the escalator. That is, they were in the top income categories relative to all families in 1991.

    In 1991, the families at the bottom of the escalator were families that had formed or immigrated after 1975, so that they could not be included in a study that followed families from 1975 to 1991. If you were to look at all families as of 1991, you could spread them evenly across five income categories, but it would be a different group of families than those surveyed in 1975 and 1991.

    The Escalator Rides an Escalator

    However, the escalation of income does not stop with the fact that new families tend to increase their relative position on the escalator over time. Even holding constant a family’s relative income category, its standard of living tends to be rising over time. The escalator itself ratchets up as technological innovation increases productivity, raising income in every category. One could say that the escalator itself is riding on an escalator!

    Recently, the Washington Post wrote an article on the theme of middle-class vulnerability. The story says,

    All kinds of jobs that pay in the middle range — Clark’s $17 an hour, or about $35,000 a year, was smack in the center — are vanishing, including computer-code crunchers, produce managers, call-center operators, travel agents and office clerks.

    In fact, the data that accompany the story, which were obscured in a visually incomprehensible chart, show that the direction of movement in incomes is more up than down. The Post reports the following data, which I believe come from the Census Bureau, in which incomes are adjusted for inflation and expressed in 2003 dollars.

    Income Distribution
    Percent of Households
    Range
    1967
    2003
    $75K and up
    8.2
    26.1
    $50K – $75K
    16.7
    18.0
    $35K – $50K
    22.3
    15.0
    $15K – $35K
    31.1
    25.0
    under $15K
    21.7
    15.9

    The proportion of families earning $35,000 to $50,000 has fallen from 22.3 percent to 15.0 percent, which is consistent with the tone of the story. However, the proportion of families earning less than that has fallen, also. The most dramatic development is the increase in households earning more than $75,000, which went from 8.2 percent of households in 1967 to 26.1 percent of households in 2003. A large portion of the population has been “squeezed up” into the highest income category.

    Return of the Fear Factor

    The nature of economic life is changing. Lifetime jobs are disappearing. In fact, lifetime careers may be disappearing. See Progress and Displacement (chapter 10 of Learning Economics).

    The net effect of Progress and Displacement on most households is positive. However, some households do not adapt as well. There certainly are people whose incomes move down over time, contrary to the motion of the escalator.

    From the standpoint of public policy, however, it is wrong to view the entire system as broken. Statistically, the overwhelming majority of households are riding the income escalator in the right direction. When journalists and politicians argue the contrary, this is a classic example of what I recently called The Fear Factor, in which threats are overstated in order to motivate people to turn over more power to government.

    I am in favor of government efforts to help the small minority of people for whom the escalator does not work. What infuriates me is the characterization of the great mass of affluent America as a victim of “middle-class squeeze” or some similar phony ailment.

    I distrust journalists, politicians, and economists who use the phrase “distribution of income” and speak in terms of pie metaphors. The “pie” metaphor produces many counterproductive ideas. For example, it might lead you to think that raising the minimum wage is a good idea, even if it leads to the creation of fewer jobs for low-skilled workers. In fact, this is not a good trade-off, because young people need jobs in order to get on the escalator.

    If you want to address the real challenges of poverty in this country, use the metaphor of an escalator. Target government intervention at people who are unable to get onto the escalator, due to impediments that may be medical, behavioral, or social. But don’t try to “fix” the escalator by carving it up like a pie.

    By Arnold Kling :

  12. johngalt says:

    “of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200-year course of the industrial revolution to date, virtually none of it can be attributed to the direct redistribution of resources from rich to poor. The potential for improving the lives of poor people by finding different ways of distributing current production is nothing compared to the apparently limitless potential of increasing production.”
    — Robert E. Lucas, Jr.

  13. Francis King says:

    “No, it’s called trickle-down theory, for as long as I’ve been around, and the derisiveness is not over the name, but over the fact that it doesn’t work.

    If it doesn’t work, that would imply that only the upper classes are getting wealthier. That is an unsupportable proposition.”

    It’s important to understand what the ‘trickle-down theory’ says, and what it doesn’t say. It doesn’t say that everyone is or is not going to get wealthier. What it says is that if we give more money to the wealthier people in society, but some magic (and as yet unexplained) process everyone gets to be wealthier. Supposing that I took some of your salary and gave it to a multi-millionaire. Would you be content with me saying, “Well, the wealth will trickle down to you”? If not, why not? That explains the problem with this theory.

    The opposite seems to apply. Granted, founders of businesses take a risk (often with their own homes) and deserve their income – but many businessmen seem to float from one public company to another, helping themselves to what they want, aided and abetted by pension-fund managers who are themselves on large salaries. Ordinary employees take home a regular salary, which is dependent on what skills they can bring to the marketplace – I fall into this category, and I’m doing okay. The poorest people often have little to offer an employer, and with the overt globalisation today or money, products and labour, increasingly they can’t even rely upon their location to earn a salary. So, no trickle-down going on there.

  14. aynrandgirl says:

    What it says is that if we give more money to the wealthier people in society, but some magic (and as yet unexplained) process everyone gets to be wealthier. Supposing that I took some of your salary and gave it to a multi-millionaire. Would you be content with me saying, “Well, the wealth will trickle down to you”?

    Of course not. However, you haven’t explained the mechanism by which multi-millionaires steal from the salaries of others. Neither I nor anybody else is “giving money to the wealthier people”, except in the trivial sense the government isn’t taking all their money from them. To the extent government is “giving”, through BS like farm subsidies, it shouldn’t.

  15. aynrandgirl says:

    The poorest people often have little to offer an employer, and with the overt globalisation today or money, products and labour, increasingly they can’t even rely upon their location to earn a salary. So, no trickle-down going on there.

    So when the wealthy buy expensive cars with expensive options, and buy expensive toys like iPods and large LCD panels, and the producers thereof are thus able to invest the profits therefrom and make such options and such toys available to the mass market some time later, they aren’t benefiting the poor? A poor person in the US lives a lifestyle that in many ways would be the envy of 19th Century kings. It seems to me that if there were no first adopters willing to buy this stuff when it’s expensive, the late adopters won’t be able to buy it at any price. That sure looks like trickle-down to me, though since it’s not mediated by the government many liberals don’t count it.

    A poor person with nothing to offer is deservedly poor, but it’s not like any significant number of people have no shelter and no food. Plenty of employers offer skill training, and community college is darn cheap, so if a poor person stays poor their failure to educate themselves (and thus deliver no value meriting increases in pay) is their own fault. The permanently poor are a minority of the poor, most move up after a few years.

  16. Dan says:

    Oh, I know the recent promulgation by conservative think-tanks about wonderful income mobility has had traction lately, but it hand-waves away from the fact that income gaps are widening.

    But the fact remains: many low-income in Murrica stay low-income. And the high-income groups have a rate of making money that is way higher than the middle class who is told to dream about getting rich.

    It’s not that hard. It’s called income distribution, and folks study it and most understand that findings like these:

    Nationally, the study showed that the incomes of the richest 20 percent rose an average of 36 percent in the last two decades, while those of the poorest 20 percent rose 11 percent.

    don’t have anything to do with handwaving about mobility. Especially one’s ability to move up, which depends upon many factors. The United States is, simply, not very mobile wrt income in longer terms. In shorter terms, the US is in the middle** .

    DS

    * Take the government’s Current Population Survey, which covers about 50,000 households and is best known for producing the monthly unemployment rate. Like the tax return data, the C.P.S. also shows rising inequality. From 1980 to 2005, the earnings of the 90th percentile full-time male worker increased 49 percent more than the earnings of the 10th percentile worker. Among full-time female workers, there has been a similar divergence between high and low earners.

    http://www.nytimes.com/2008/04/20/business/20view.html?ex=1366344000&en=12e5bb64302e74cd&ei=5124&partner=permalink&exprod=permalink

    **CONCLUSION

    The findings from cross-country research challenge the traditional view of the United States as a land with more mobility and opportunity than other countries.

    While cross-country comparisons of relative mobility rely on data and methodologies that are far from perfect, a growing number of economic studies have found that the United States stands out as having less, not more, intergenerational mobility than do Canada and several European countries. American children are more likely than other children to end up in the same place on the income distribution as their parents. Moreover, there is emerging evidence that mobility is particularly low for Americans born into families at the bottom of the earnings or income distribution. [ibid., pg 7]

  17. aynrandgirl says:

    Oh, I know the recent promulgation by conservative think-tanks about wonderful income mobility has had traction lately, but it hand-waves away from the fact that income gaps are widening.

    Since income gaps imply nothing about mobility, what’s your point? More to the point, income gaps tell you nothing about standard of living, unless your goal is to foment envy. The inflation-adjusted incomes of the poor are rising. You said so yourself. And do I really have to explain why quintiles are a fraudulent way of talking about class distinctions?

  18. johngalt says:

    Dan is missing the point. These people he classifies as “lower class” or “middle class” are individuals and they migrate between “classes”. If a million people immigrate here with little or no skills and increase the number of low skill (low pay) people here then that would skew the statistics. Demographics might also skew the stats, baby boomers are in the high earning years and echo boomers are in the low ones, between are the middle which has fewer people. It doesn’t mean that Joe Middle or Sally Low are not doing better or that they are “locked” into low standards of living.

    Dan, are you in the same “class” as you were 20 years ago? What about those you know? In the past 20 years I have gone from eligible for food stamps (never accepted) to top 1-2% and all of the people I knew in school are doing better now than they were then. I’ll bet the same is true for you even though your pay is “given” to you by the government.

  19. sustainibertarian says:

    The pie argument is just a justification for the conservatives, economists, libertarians, etc, to shirk off any responsibility to other people.

    For example – No need for socialized medicine, because it will supposedly make us worse off in the long run. Well up here in Canada I get all the socialized medicine I want and I worry greatly about what my life would be like in the USA, since I depend on being able to get HMO/insurance-fascist free medicine or else I’m f***.

    Some things should be about need not greed. All the expanding pies in the world be d*mned!

  20. Dan says:

    Dan is missing the point. These people he classifies as “lower class” or “middle class” are individuals and they migrate between “classes”.

    No I’m not.

    I included a couple of links that show migration isn’t as widespread as some ideologies are told to believe. Sure there’s migration, but wealth is accumulated in the upper quintile just like in the gilded age.

    It’s not trickling that far down is the point. To be honest, I didn’t know anyone still believed in that trickle-down cr*p. Shows what I know.

    And I earn my GD money. 14 hours today and my public came out in droves, and Council was forced to listen for at least 5 minutes on how hard I work and how much I get done and we need to do things more like Dan. I was private sector and I owned my own business, and my clients are glad to pay their fees and taxes for the work I do.

    DS

  21. Ettinger says:

    Sustainibertarian,

    I do not deny that there is a portion of the population that needs help. But I think that this represents about 3% of the population, not 60%.

    Here is a back of the envelope calculation that I find interesting:
    The total amount of charitable contributions in the US is about $300 billion (of which about $200 billion donated by individuals).
    3% of the US population is 9 million.
    Dividing $300 billion by 9 million we get $30,000 in charitable contributions for every person that truly needs help.

  22. Ettinger says:

    Trickle down:

    In my personal anecdote (post #8), I wrote of one life saved for every $750. While not free, don’t you think that is a pretty good benefit to the public, trickle down or however it may be called?

    Of course, as my anecdote shows, good AND bad both seem to trickle down. As I described, trying to “get to the rich” resulted in the trickle down misery of 600 additional deaths.

    PS. The rich characterization is relative. As a dual income couple you do not need to make that much money to get into the 50% marginal tax rate in a state like California or New York City. Most people who have jobs that contribute significantly to America’s wealth and standard of living are well in that category.

  23. Ettinger says:

    …and since I read in the comments so much griping about how much the middle class is struggling, I have to ask:

    Is life on a family income of say $40K a year bad enough to prompt gripe and envy towards the rich? During the years that I was not working, our family expenses had dropped to about $40K per year (they are only a little higher now because of travel) and that was in Silicon Valley (translate to $30K in, say, Texas). I found our life quite pleasant at the time. It never made me feel envious of the Buffetts and the Gates.

  24. Kevyn Miller says:

    Ettnger, You seem to have a very European attitude towards life. Perhaps if more Americans realised that money doesn’t buy happiness they wouldn’t be so fixated on becoming multi-millionaires or bringing multi-millionaires down to size. Actually, money buys comfort. If you’re comfortably off why bust a gut trying to become richer. Much better to relax and enjoy what you’ve got. As you seemed to find, you’re too busy enjoying what you’ve got to worry about not have what a few other people have got.

  25. Kevyn Miller says:

    Craig, There are two simple reasons why the IRS stats show those dramatic percentage differences for the bottom, middle and top quintiles.

    First, if the incomes in each quintile had been say $20,000, $40,000, $60,000, $80,000 and $100,000 then an equitable distribution of an increase in the pie of say $20,000 would result in a 100% increase for the bottom quintile but only a 20% increase for the top quintile. Yet eveybody has received the same increase in spending power.

    Second, climbing the corporate ladder. It is a simple fact that this happens fastest through the ranks of junior management and slowest through the ranks of senior management. In fact promotion at the very top is heavily dependent on retirements and deaths. The IRS has probably excluded the dead from their 2005 stats but they won’t have excluded retirees. This move from employment to retirement will have it’s greatest impact amongst the highest incomes.

    When discussing the gap between rich and poor it is important to remember that each quintile contains one-fifth of the working population. Thus income mobility is largely irrelevant to this discussion because it takes time to climb the corporate ldder or build up a successful business. Every poor person who climbs to a higher quintile is replaced by a new poor person.

    It’s always a good idea to look at the disaggregated stats. A growing gap between rich and poor could be caused by an increase in the number of casual or part-time workers. Or it could simply be that the higher you get on the corporate ladder the easier it is to give yourself a payrise. This would show up as difference between salary and wage earners of the same age.

  26. NorthernInsight says:

    What about the American pie. If you looked under the crust you would find that much of the filling is now missing. Over the last twenty years people have been sneaking out the filling in order to keep their yearly pies nice and full. There is going to be no expanding pie, not even a pie that is the same size. Some time in the future it is going to be necessary for Americans to live on a smaller pie. It will be interesting to see the change in the viewpoints of the “I’m all right, Jack” types that currently populate this website.

  27. the highwayman says:

    On April 22nd, 2008, aynrandgirl said:

    Then again the the Anti-Planner’s a closet socialist, when it comes to automobiles.

    Do tell. I don’t see evidence of that.

    First put down the Ayn Rand books and use your own mind for a change. Rand is almost as bad as Marx.

    Ok, here’s an idea look out your window and at the street that is in front of your residence. Now are we judging this street on a profit or loss basis? NO.

    Now are most rail lines judged on a profit or loss basis? YES

    Just think for a moment about how much privately funded rail infrastructure has been ripped up the past 100 years, since it receives no similar public protection?

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