Saturday, July 13, 2013

EPI peddles more inequality nonsense

The left-wing Economic Policy Institute -- the same guys who brought us the Robert Reich video fact-checked earlier this week -- have set up a website devoted to the inequality issue (featuring the Reich video, this time in flash format). Unsurprisingly it presents facts in a deceptive, if not entirely dishonest, manner. Seeking to explain why inequality is a problem, the EPI features the following graphic of two workers toiling away while being overseen by a guy in a top hat smoking a cigar:

In the animation, the workers remove items from the conveyer belt at an ever faster pace as the years go by, but much of their increased productivity accrues not to them, but to Cigar Man. The not so subtle message is that the rich are getting richer not through their own hard work, but by taking the fruits of the working man's labor. 

The EPI seeks to further bolster its case through this chart:

As can be seen, since the end of World War II the wages of the top 1 percent have surged while compensation of workers has stagnated. Well that settles it, no? Not quite -- the chart is an apples-to-oranges comparison. Worker compensation in the chart is measured against not worker productivity, but total productivity. While the EPI literally paints a picture in their animated graphic of the typical worker producing more than ever, they supply no evidence that this is actually the case. 

Furthermore, on an intellectual level the idea that workers would be increasingly productive while experiencing meager increases in compensation makes little sense. After all, if a worker were highly productive and low-paid, no doubt some greedy capitalist would hire that worker away at at least a somewhat higher compensation level to help bolster their own firm's productivity (and hence profit) levels. 

The only way this would not be the case is if one assumes an endless supply of highly productive labor whereby workers have almost no leverage to demand raises or seek alternative employment. While this may be episodically true during bouts of high unemployment, notice that during the go-go late 1990s when the US was basically at full employment that typical worker compensation still only barely budged -- suggestive that these typical workers did not experience a surge in productivity even as overall productivity increased (or else, again, they no doubt would have been hired away at an increased wage). Pointing to China or other less developed countries as examples of endless labor which holds down US worker compensation doesn't really work since they are also much less productive than American workers.

The question that must be asked is why the EPI is presenting such misleading data and -- in the case of Reich video -- simply making things up in its effort to gin up anger over income inequality. The answer can be found in the EPI's prescription of measures which should be taken to help solve this alleged problem:

The list of prescribed actions basically looks like this:
  • Less free trade
  • Higher taxes on the rich
  • More regulation
  • Union-friendly legislation
  • A macroeconomic emphasis on full-employment over low inflation
If this seems familiar, it should, as they are all long-time left-wing/Democratic policy goals. This is the real purpose of the income inequality doom-mongering -- furthering long-held goals and policy aspirations. Inequality just happens to be the latest fashionable argument wielded in order to make these policy goals a reality, and if facts have to be twisted or even invented to achieve them, so be it.

Now, let's take a look at what's really going on. First off, the middle class does appear to be disappearing. Not because they are joining the ranks of the poor, however, but because they are becoming rich:

The Pew study found that some of the shrinkage in the middle class came from people moving into the upper-income tier, which represented 20% of the nation's adults in 2011, up from 14% in 1971. The lower-income group rose to 29% of all adults, up from 25%.
In other words, more people were moving up than down. And look what else Pew has found:
  • Eighty-four percent of Americans have higher family incomes than their parents had at the same age, and across all levels of the income distribution, this generation is doing better than the one that came before it. 
  • Ninety-three percent of Americans whose parents were in the bottom fifth of the income ladder and 88 percent of those whose parents were in the middle quintile exceed their parents’ family income as adults.
When trying to push a big government activist agenda, good news is the enemy, for without a crisis the justification for government interventionism falls apart.

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