22 Oct 2011

Hard Times Do Wonders For Inequality

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Megan McArdle, Business and Economics editor at the Atlantic, was attending her tenth B-school reunion at Chicago and ran into econometrics specialist Steven Kaplan who had updated the Thomas Piketty and Emmanuel Saez data on top incomes through 2009.

The numbers show that income inequality fell sharply as the economy declined.

Isn’t that wonderful? Occupy demonstrators can clearly now pack up their tents and drums and go home.

Income inequality is clearly easy to cure. Simply adopt left-wing policies, ruin the economy, and sit back and watch all the boats sink, with the upper boats descending to levels much closer to their neighbors than before.

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SDD

If some of the OWS crowd would actually used that tuition they want from others to pay for economics courses, they would know that income disparity ALWAYS falls during periods of economic contraction or stagnation and rises during periods of high economic growth.

The reason should be pretty obvious (unless you don’t want it to be). It is the same reason that in years of favorable weather, the crop yield widens between those who farm rich land with pesticides and mechanization and those who farm poor land with hand tools.

Since the 1980s we have been in a long-term secular expansion driven by rapid technology innovation and (relatively) favorable policies toward investment. Those with high intellectual capital and high personal motivation have been able to increase their “crop yields” much faster than those who lack those attributes.

This is not a conspiracy hatched on Wall Street. It is a simple fact of economics. If you want the amenities that economic growth brings, you WILL have greater disparities in income. Those who seek greater equality of income are like villagers praying for years of bad weather so that the farmers will be more nearly equal.

Incidentally, here are the latest numbers from the IRS on the percent of total adjusted gross income that is accounted for by those earning $200,000+ (aka “millionaires and billionaires”).

2009 25.8%

2007 32.8%

The villagers should be rejoicing, shouldn’t they?



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