Tuesday, January 28, 2014

Krugman self-refutes

Paul Krugman in yesterday's column:
Extreme inequality, it turns out, creates a class of people who are alarmingly detached from reality — and simultaneously gives these people great power.
While Krugman uses this language as a lead-in to some criticism of people who have compared President Obama to Nazi Germany, he could have been describing himself. In the column's opening paragraph he says the following:
[Rising inequality] also has big social and human costs. There is, for example, strong evidence that high inequality leads to worse health and higher mortality.
Now, anyone who has not drunk deeply from the inequality kool-aid would probably cast a skeptical eye towards such an assertion. Does it even make the slightest bit of sense that, for example, Bill Gates sees his wealth double -- thus increasing inequality -- and suddenly someone else's health worsens and they head to an earlier grave? Is that at all plausible? How does that work exactly?

Those who have been keeping a close eye on the inequality debate might also be mindful that perhaps the leading proponent of the argument that inequality imperils health, the Richard Wilkinson and Kate Pickett-authored The Spirit Level, has been thoroughly discredited, with The Economist noting that the book's conclusions have "been largely debunked."

Beyond his failure to apply common sense or keep up with the state of the inequality debate, more damning is that Krugman obviously failed to either read or comprehend the very piece he links to as evidence for his claim. Here is an excerpt from the Angus Deaton-authored article (who recently spoke at the Cato Institute on inequality), in which I have bolded some of the most relevant parts:
Inequality, Race, and Health 
Why might income inequality be a health hazard, and what accounts for the fact that people die earlier in American states and cities where income inequality is higher? If income is protective of health, and the relationship is concave, then redistribution from rich to poor will improve aggregate health, although this effect appears to be too small to explain the geographical patterns in the United States. If health depends on others' incomes, for example if health is linked to relative deprivation, then income will be protective of health for individuals, and income inequality will be hazardous to health in the aggregate. But if the [National Longitudinal Mortality Study] is used to look at the probability of death as a function of income for white males and females on a state by state basis, there is no evidence of any link between the estimated coefficients and state-level measures of income inequality. 
Darren Lubotsky and I have investigated the relationship between income inequality, race, and mortality at both the state and metropolitan statistical area level. In both the state and the city data, mortality is positively and significantly correlated with almost any measure of income inequality. Because whites have higher incomes and lower mortality rates than blacks, places where the population has a large fraction of blacks are also places where both mortality and income inequality are relatively high. However, the relationship is robust to controlling for average income (or poverty rates) and also holds, albeit less strongly, for black and white mortality separately. Nevertheless, it turns out that race is indeed the crucial omitted variable. In states, cities, and counties with a higher fraction of African-Americans, white incomes are higher and black incomes are lower, so that income inequality (through its interracial component) is higher in places with a high fraction black. It is also true that both white and black mortality rates are higher in places with a higher fraction black and that, once we control for the fraction black, income inequality has no effect on mortality rates, a result that has been replicated by Victor Fuchs, Mark McClellan, and Jonathan Skinner using the Medicare records data. This result is consistent with the lack of any relationship between income inequality and mortality across Canadian or Australian provinces, where race does not have the same salience. Our finding is robust; it holds for a wide range of inequality measures; it holds for men and women separately; it holds when we control for average education; and it holds once we abandon age-adjusted mortality and look at mortality at specific ages. None of this tells us why the correlation exists, and what it is about cities with substantial black populations that causes both whites and blacks to die sooner. 
In a review of the literature on inequality and health, I note that Wilkinson's original evidence, which was (and in many quarters is still) widely accepted showed a negative cross-country relationship between life expectancy and income inequality, not only in levels but also, and more impressively, in changes. But subsequent work has shown that these findings were the result of the use of unreliable and outdated information on income inequality, and that they do not appear if recent, high quality data are used. There are now also a large number of individual level studies exploring the health consequences of ambient income inequality and none of these provide any convincing evidence that inequality is a health hazard. Indeed, the only robust correlations appear to be those among U.S. cities and states (discussed above) which, as we have seen, vanish once we control for racial composition. I suggest that inequality may indeed be important for health, but that income inequality is less important than other dimensions, such as political or gender inequality. 
Social versus Medical Determinants of Health 
Most of the work on inequality, income, and health looks at cross-sectional or geographic data, with the time-series relatively unexplored. Paxson and I look at income, income inequality, and mortality over time in the United States and the United Kingdom. The postwar period usefully can be broken in two. In the quarter century up to the early 1970s, there was steady productivity growth, with mean and median income growing in parallel, and very little change in income inequality. After 1970, in the United States, productivity growth was much slower; although there was a good deal of income growth at the top of the income distribution, real median family income stagnated or fell. Slow income growth was accompanied by rapid growth in income inequality. The United Kingdom shared the rise in income inequality, which was even more marked than in the United States, but did not experience the same slowdown in the growth of real incomes. If income and income inequality are important determinants of mortality decline, and even allowing for some background trend decline in mortality, then the United States and the United Kingdom should have similar patterns of mortality decline up to the early 1970s, followed by slower decline after 1970, particularly in the United States which had an unfavorable trend in both growth and inequality. But the data show precisely the reverse. Mortality decline accelerated in both countries after 1970, and there is no obvious difference in the patterns in the two countries. Indeed, the most obvious distinction between Britain and the United States is that changes in trends start a few years earlier in the United States. These findings suggest that, as argued by Cutler and Meara, changes in mortality over the last half century in the two countries have been driven, not by changes in income and income inequality, but by changes in risk factors or in medical technology, with the changes being adopted more rapidly in the United States.
In other words, while Krugman claims there is "strong evidence that high inequality leads to worse health and higher mortality," the very piece he links to shows precisely the opposite. Once race is controlled for, income inequality has zero impact on mortality in the US and  -- even worse for Krugman -- growing income inequality in the UK and US after 1970 actually corresponds with accelerating mortality decline.

We can rest assured that if Krugman had more solid evidence of a negative relationship between income inequality and health inequality that he would have cited it. That he mustered supporting evidence which contradicted his assertion suggests incredible sloppiness and/or straw-grasping. The prophets of income inequality doom are growing increasingly desperate.

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