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Thursday, September 21, 2006

The Great Attack Squad Distortion

Paul Krugman must be scoring points - the NRO attack squad is out in full force once again trying to overcome the points he's making. Thomas Nugent, in a commentary called "The Great Inequality Distortion" attacks Krugman for suggesting that inequality has increased in recent years. He also questions the integrity of Thomas Piketty and Emmanuel Saez as he tries to chastise Krugman for "Quoting so-called experts on long-term trends in inequality (Is there a potential bias in these studies?)". On the latter point, the bias, there is no reason to question the intellectual honesty behind the research. If he has evidence, put it on the table, otherwise don't throw around frivolous accusations. In addition, their expertise is not in question.

As for the whole attack in the article on Krugman's presentation of inequality statistics, it's simply without basis. For example, he whines:

[W]hat is the basis for his growing inequality assumption? Is he referring to levels of income? Wealth? After-tax income?

Well, if he'd check Krugman's Money Talks page for a section called "On Tracking Inequality" he might be enlightened. It's all there, including links to the original data. A simple email to Krugman would have straightened it out as well, but of course, that would undermine the attack squad effort.

He also tries to criticize Krugman for using 2000 as a base year for making comparisons. Two points on this. First, if you pick another base year the story doesn't change - there has been a rise in inequality in recent years. Second, as explained here, the question Krugman is addressing is about discontent with economic conditions and the distribution of gains during the so-called "Bush boom" and how the distribution is related to education. Thus, 2000 is a natural starting point. More directly, as Brad DeLong notes, the column is in part a response David Brooks who also appears to use the years 2000 and 2005 as the years for comparison ("appears to use" because sources for all of his numbers are not evident). So the questions about the use of 2000 as a base year don't withstand closer examination.

He also questions the use of the median rather than the mean to measure changes in income over time which not a productive avenue to follow as the median is generally accepted as the better measure. But in any case, his overall point is to deny that there is widening inequality, something that is widely acknowledged to have occurred. He actually claims inequality has narrowed:

During the first four years of the George W. Bush presidency, the income share of the top 1 percent fell slightly to 19 percent from 20.8 percent.

Note that, after criticizing Krugman, who actually does give sources for his numbers, there is no way to tell how he arrived at these percentages.

This next argument is particularly odd. After denying that inequality has increased, he says that the rich are now paying more taxes than before, but that's a good thing:

In 2004, Americans in the top 5 percent of income-tax payers paid 57.1 percent of taxes, up from 56.5 percent in 2000.

If you think this one through, wealthier taxpayers are paying more taxes that help … well, you guessed it … the poor.

Yes, they should be jumping up and down in joy that maybe, just maybe, a few pennies will trickle down their way. They've been promised that they will, but so far? Not so good.

Finally, he says, what if Krugman is right, what if in fact there has been widening inequality?:

So what? Maybe they earned it. Maybe they made good investment decisions. Maybe they work 60 to 70 hours a week. And maybe, because of their efforts, they are the ones paying all those additional taxes.

Yeah, they're just better than the common folk, the ones working that many hours and more just to get by.

Update: An email adds:

I'd add that it's true that the top 1 percent share was slightly lower in 2004 than in 2000. Piketty-Saez confirm it. But a look at their charts, at the end of the downloadable spreadsheet, tells the story: that fall in the top 1's share is a little wiggle at the very end of the chart, quickly reversed. That is, the top 1 lost some ground when the bubble burst, but regained most of it between 2002 and 2004. And the odds are that we have already surpassed the previous peak.

    Posted by on Thursday, September 21, 2006 at 12:21 AM in Economics, Income Distribution, Politics | Permalink  TrackBack (1)  Comments (30)


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