Why cook the books? So the stormy petrel’s rhetoric can paint a depressing picture about how unfair the economy during the Reagan and post-Reagan years has been for lower- and middle- income Americans.
In short, the data liberals cite as the source of their indictment--the Piketty-Saez data--happen to ignore the changes in tax law and fail account for noncash compensation and Social Security benefits.
If the Piketty-Saez narrative is to be believed, in 1979:
- inflation was 13.3%;
- interest rates were 15.5%; and,
- the poverty rate was rising.
However, as bad as life was in the USA economically speaking under President Jimmy Carter, Piketty-Saez would have everyone believe that life was actually much better? How so? The misery was distributed more equally than in any year since.
Enter President Ronald Reagan. His economic policies ushered in 25 years of lower interest rates, lower inflation, and high economic growth. But, the Piketty and Saez narrative suggests that it was also a period where:
- the rich got richer;
- the poor got poorer; and,
- only a relatively small number of Americans benefited from the Reagan/Clinton economic boom.
Using these data, that’s the narrative being touted by the stormy petrels in the mainstream media.
The trouble is that the narrative is entirely misleading because Piketty-Saez:
- examined only pretax cash market income not account taxes;
- did not include noncash compensation such as employer-provided health insurance and pension contributions;
- did not account for Social Security payments, Medicare and Medicaid benefits, as well as 100+ other means-tested government programs;
- included realized capital gains were included but not the first $500k from the sale of a home—which is tax-exempt—wasn’t; and,
- included IRAs and 401(k) but only when the money is taken out in retirement.
If that’s not enough to distort how income is measured, Piketty-Saez also used individual tax returns. These ignore, for any given household, the presence of multiple earners.
Thankfully, this false narrative has been exposed in an article published in the Southern Economic Journal which uses census data to account for all public and private in-kind benefits, taxes, Social Security payments, and household size.
Guess what? A dramatically different narrative. From 1979 to 2007:
- the bottom 25% of Americans experienced a 31% increase in income not the 33% decline Piketty-Saez found by using the market-income measure alone;
- the income of the second quintile (“the working class”) rose 32% not 0.7%; and,
- the income of the middle quintile (“the middle class”) increased 37% not 2.2%.
Gramm and Solon provide additional examples of what Piketty-Saez did to paint a depressing picture depicting how unfair the Reagan and post-Reagan economy has been for lower- and middle- income Americans.
The bottom line? What Piketty-Saez have done to propagandize concerning the so-called “income inequality” is what all of those faux scientists have done to propagandize concerning “climate change.” When the data don’t support the narrative, they simply exclude it from the calculus and, as Gramm and Solon note, “significantly distort the debate.” Their objective is to gin up the rhetoric to convey there’s a crisis and, in the case of income inequality, engaging in the politics of class envy so that emotions will trump reason.
It’s a familiar liberal tactic. To wit: James Bovard’s attitude concerning the Obamacare deception of “stupid” Americans.
Let the discussion begin…
To read the Gramm-Solon op-ed in the Wall Street Journal, click on the following link:
To read the Washington Times article detailing James Bovard’s attitude, click on the following link: