Harry Stein on the Cultural Left

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Joseph Stein’s comic circle and the transformation of American popular culture

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Even as these smart, deftly realized shows did their considerable bit in changing the American conversation about the kind of people we were and ought to be, they exercised enormous influence over later creators of mass entertainment. It’s hardly happenstance that in a country evenly split between left and right, in entertainment programming the left/liberal worldview today reigns virtually unchallenged. As Andrew Klavan observes, it is now “almost an unwritten law of Hollywood that any glancing reference to real-life politics in a film or television show must be slanted left.” Just as viewers can safely assume that the straightlaced businessman on contemporary crime shows will turn out to be a bad guy, it’s an excellent bet that, far from knowing best, today’s sitcom dad will be a hapless lunkhead, while his fictional kids will be gung-ho environmentalists.

Source: Harry Stein, "My Father, Fiddler, and the Left, City Journal, Summer 2014

Nye on Inequality

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But ultimately, income is not a question of how many zeroes are in your bank account, but how much you can buy in goods and services. People have tried to circumvent this by measuring not just income but consumption.

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Our fixation on income inequality (which I am certain will not disappear under any feasible policies) will obscure the fact that trying to tax away or regulate those inequalities will give more play to inequalities that are even less tractable, like social or political connections.

Source: John Nye, "Real Inequality: Why Things Are Better Than They Seem and Will Almost Surely Get Worse," Mercatus Center, |July 17, 2014

R_Hass on the Potential for a New Thirty-Years War in the Middle East

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It is a region wracked by religious struggle between competing traditions of the faith. But the conflict is also between militants and moderates, fueled by neighboring rulers seeking to defend their interests and increase their influence. Conflicts take place within and between states; civil wars and proxy wars become impossible to distinguish. Governments often forfeit control to smaller groups – militias and the like – operating within and across borders. The loss of life is devastating, and millions are rendered homeless.

That could be a description of today’s Middle East. In fact, it describes Europe in the first half of the seventeenth century.

In the Middle East in 2011, change came after a humiliated Tunisian fruit vendor set himself alight in protest; in a matter of weeks, the region was aflame. In seventeenth-century Europe, a local religious uprising by Bohemian Protestants against the Catholic Habsburg Emperor Ferdinand II triggered that era’s conflagration.

Protestants and Catholics alike turned for support to their co-religionists within the territories that would one day become Germany. Many of the era’s major powers, including Spain, France, Sweden, and Austria, were drawn in. The result was the Thirty Years’ War, the most violent and destructive episode in European history until the two world wars of the twentieth century.

There are obvious differences between the events of 1618-1648 in Europe and those of 2011-2014 in the Middle East. But the similarities are many – and sobering. Three and a half years after the dawn of the “Arab Spring,” there is a real possibility that we are witnessing the early phase of a prolonged, costly, and deadly struggle; as bad as things are, they could well become worse.

The region is ripe for unrest. Most of its people are politically impotent and poor in terms of both wealth and prospects. Islam never experienced something akin to the Reformation in Europe; the lines between the sacred and the secular are unclear and contested.

Source: Richard N. Haass, "The New Thirty Years’ War," Project Syndicate, July 21, 2014

Shelton and McKenzie on measured Inequality

Here is the link:  http://www.ncpa.org/pub/st358

From Kathryn M. Shelton and Richard B. McKenzie, Why the "Rich" Can Get Richer Faster than the "Poor" NCPA Economic Study #358, July 10, 2014

President Barack Obama has tagged the growing inequality of income over the past three or four decades as "the defining challenge of our time," an often-repeated claim recently echoed by economist Thomas Piketty in Capital in the Twenty-First Century. Numerous social and economic factors explain why the income and wealth gaps have grown, from the rise in family breakdown to the incentives embedded in government welfare programs.

However, there are reasons for the gaps that have gone largely, if not completely, unrecognized. These explanations make the relative growth in the income (and wealth) of the rich practically inevitable - at least as officially measured.

According to official measures, the average and total income of people at the top of the income distribution is growing relative to the incomes of lower income groups. From 1979 to 2007, the inflation-adjusted income of the top 1 percent of households grew 275 percent, while the bottom fifth's income grew only 18 percent. However, if the incomes of household members are combined, if household income is adjusted to reflect reductions in tax rates and increases in government transfers and if household income is further adjusted to account for the declining number of people in the average household over nearly three decades, the 3.2 percent increase in median taxpayer earnings over the period rises to nearly 37 percent.

Much of the income inequality debate in the United States has focused on "fifths," "tenths" or "the top 1 percent" of households. Such divisions give the appearance of inequality, but there are far more people and workers in the top income brackets than in the lower ones. Indeed, there are 82 percent more people in the top fifth of households than in the bottom fifth. In 2006, 81 percent of households in the top quintile had two or more workers; but only 13 percent of households in the bottom fifth had two or more workers. In nearly 40 percent of these households, no one was working.

Further, people in different income divisions do not remain at those income levels throughout their lives. The Federal Reserve Bank of San Francisco found that absolute mobility - that is, the extent to which children earn more than their parents - is high:

Of all U.S. adults, 67 percent had higher incomes than their parents; and among those born into the lowest income bracket, 83 percent exceeded their parents' income.

About 40 percent of people in the lowest fifth of income earners in 1986 moved to a higher income bracket by 1996, and roughly half the people in the lowest income quintile in 1996 had moved to a higher income bracket by 2005.

Indeed, one study found that a majority of Americans reach the upper income brackets at some point during their lives. Over a 44-year period, 12 percent of 25- to 60-year-olds moved into the top 1 percent for at least one year; 39 percent reached the top 5 percent; over half reached the top 10 percent; and nearly three-fourths were in the top fifth of the income distribution.

Moreover, Americans are moving to the top of the income ladder without inheritances. Thus, an investigation into the 2013 Forbes list of the 400 wealthiest Americans found:

More than two-thirds (68 percent) of the billionaires were "self-made," which means they built their fortunes without the help of inheritance.

Furthermore, according to the Internal Revenue Service, between 1992 and 2009, only 2 percent of the people on the Forbes 400 list were on it for 10 or more consecutive years.

The success of people at the bottom of the income distribution can increase inequality, because their newfound success does not improve the average incomes of the lower income brackets they left behind; rather, their economic gains are treated as gains to the higher income and wealth brackets they reach.

An analysis of portfolio investment over time reveals an unheralded reason the "rich" have become richer absolutely and relative to the "poor." The top 1 percent of households hold over a third of the country's total wealth, while the bottom two quintiles hold a fraction of that wealth. As such, the rich are able to develop and maintain highly diversified portfolios of investments, including stocks, bonds, derivatives, insurance, precious metals, degrees, multiple homes and other real estate holdings. The ability of the rich to safely diversity their portfolios allows them to take on riskier investments without incurring the hazards associated with the far less diverse portfolios of lower income individuals.

Moreover, pundits often fail to appreciate the direct and indirect ties between the Federal Reserve's monetary policy and the distribution of wealth and income.

When the Great Recession emerged with force in 2007, the Federal Reserve pushed down interest rates drastically with the expectation of stimulating the economy. The drop in interest rates negatively affected many low-income people who relied on their small amount of interest income earned from bank savings accounts. At the same time, the Fed padded the pockets of firms deemed "too big to fail," giving the privileged firms a form of government-backed insurance for their future profit streams and adding upward pressure on stock prices. As a consequence, the wealth of rich people has escalated over the last several years.

Finally, family breakdown is a large contributor to poverty. Households in the top income brackets are far more likely to be married, stay married and have children after marriage, while households in the bottom income brackets are far more likely to be single-parent households. Wealth taxes, such as those proposed by Piketty, can retard the future accumulation of wealth, with negative consequences for people down the income ladder who depend on capital accumulation for growth in the number of income-producing jobs.    

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Cochrane on Restoring American Prosperity

John H. Cochrane, "Limit Government and Restore the Rule of Law," in Ideas for Renewing America's Prosperity, The Wall Street Journal, July 7, 2014

America doesn't need big new economic ideas to get going again. We need to address the hundreds of little common-sense economic problems that everyone agrees need to be fixed. Achieving that goal requires the revival of an old political idea: limited government and the rule of law.

Our tax code is a mess. The budget is a mess. Immigration is a mess. Energy policy is a mess. Much law is a mess. The schools are awful. Boondoggles abound. We still pay farmers not to grow crops. Social programs make work unproductive for many.  ObamaCare and Dodd-Frank are monstrous messes. These are self-inflicted wounds, not external problems.

Why are we so stuck? To blame "gridlock," "partisanship" or "obstructionism" for political immobility is as pointless as blaming "greed" for economic problems.

Washington is stuck because that serves its interests. Long laws and vague regulations amount to arbitrary power. The administration uses this power to buy off allies and to silence opponents. Big businesses, public-employee unions and the well-connected get subsidies and protection, in return for political support. And silence: No insurance company will speak out against ObamaCare or the Department of Health and Human Services. No bank will speak out against Dodd-Frank or the Securities and Exchange Commission. Agencies from the Environmental Protection Agency to the Internal Revenue Service wait in the wings to punish the unwary.

This is crony capitalism, far worse than bureaucratic socialism in many ways, and far more effective for generating money and political power. But it suffocates innovation and competition, the wellsprings of growth.

Not just our robust economy, but 250 years of hard-won liberty are at stake. Yes, courts, media and a few brave politicians can fight it. But in the end, only an outraged electorate will bring change—and growth.

Mr. Cochrane is a professor at the University of Chicago Booth School of Business and a Hoover Institution senior fellow.

Kling on the Innovation Process

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Schuck has an impressive grasp of neoclassical economics, but I think he gives it too much weight. Neoclassical economics is obsessed with the concept of equilibrium, and in turn it pays little attention to innovation. I believe that one of the biggest lessons of economics is the value of trial-and-error learning through entrepreneurial activity.

Incidentally, that is one of the important ideas that is, for all practical purposes, outside mainstream economics. The process of innovation has three steps: introducing experiments, learning from experiments, and evolving as a result of those experiments. The government is particularly inferior to the market when it comes to both experimentation and evolution. The government does not have the ability — or the will — to attempt as many experiments as private actors do. In the marketplace, when one organization won’t explore alternatives, another one often will.

Source:  Arnold Kling, "Schuck," askblong, July 9. 2014

Schermer on the Myth of Income Inequality

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The pie metaphor is deceptive because a pie is of a fixed size such that if your slice is larger, then someone else’s is smaller. But economies grow, and the pie gets larger such that you and I can both get a larger slice compared with the slices we got from last year’s pie, even if your slice increase is relatively larger than mine. A report released by the Federal Reserve in early 2014, for example, noted that the overall wealth of Americans hit the highest level ever, with the net worth of U.S. households rising 14 percent in 2013, which is an increase of almost $10 trillion to an almost unimaginable $80.7 trillion, the most ever recorded by the Fed. Of course, on a planet with finite resources such an expansion cannot continue indefinitely, but historically capital and wealth production shifts as industries change from, say, farming and agriculture to coal and steel to information and services.

What about income mobility, which President Obama also identified as a problem? Writing in the National Tax Journal, economists Gerald Auten and Geoffrey Gee analyzed individual income tax returns between 1987–1996 and 1996– 2005 and found that for individuals age 25 and up, “over half of taxpayers moved to a different income quintile and that roughly half of taxpayers who began in the bottom income quintile moved up to a higher income group by the end of each period” and that “those with the very highest incomes in the base year were more likely [than those in other quintiles] to drop to a lower income group.” In fact, they found that “60 percent of those in the top 1 percent in the beginning year of each period had dropped to a lower centile by the 10th year. Fewer than one fourth of the individuals in the top 1/100th percent in 1996 remained in that group in 2005.” In a follow-up study that included income data through 2010, the economists found that “approximately half of taxpayers in the first and fifth quintile remained in the same quintile 20 years later. About one-fourth of those in the bottom moved up one quintile, while 4.6 percent moved to the top quintile.”

Source: Michael Schermer, "The Myth of Income Inequality," Scientific American, July 2014