US Individual Income Equality Static For At Least 15 Years

From Political Calculations blog, "The Real Story Behind 'Rising' U.S. Income Inequality" by Ironman:

there has been absolutely no significant change in the level of inequality among U.S. individual income earners from 1994 through 2010, we thought we'd take a step back and look at the data for U.S. families and for households to examine those trends over time.

The chart below shows what we find for each grouping of Americans according to their Gini Coefficient, where a value of 0 indicates perfect equality (everyone has the same income) and a value of 1 indicates perfect inequality (one person has all the income, while everyone else has none):

Read the complete Political Calculations blog post.

Democrats Retake Presidential Election Market Lead Over Republicans

The Democrats have come back from behind the Republicans to retake the advantage in the 2012 presidential election. Currently, October 28, 2011, 6:15 PM DST NY, the Intrade odds of winning the 2012 presidential election are 50 percent for the Democratic nominee and 47.4 percent for the Republican nominee. 2 to 3 weeks ago, the prices were reversed with the Republicans having 2-3 percent advantage of winning the 2012 presidential election. Now the Democrats have the 2-3 percent advantage.

Epstein On The Benefits Of Income Inequality: PBS Video

Watch Does U.S. Economic Inequality Have a Good Side? on PBS. See more from PBS NewsHour.

Also good discussion of CBO's income inequality report:

Economic Models: Comment To Scientific American

My comment to the Scientific American article, "Why Economic Models Are Always Wrong; Financial-risk models got us in trouble before the 2008 crash, and they're almost sure to get us in trouble again" by David H. Freedman:

1995 Economics Nobel Prize winner Robert Lucas wrote an influential paper in 1976 about the inability to calibrate economic predictive models. The concept, known as the "Lucas Critique," even has a wikipedia page. http://en.wikipedia.org/wiki/Lucas_critique.

The basic problem is that over the historical calibration period, an economic policy is in effect, and so the predictive results are biased by that policy. Any change to existing policy going forward is not calibrated to the historical model.

Economists correct for this by using DSGE models, dynamic stochastic general equilibrium models. These models are much more accurate because they attempt to capture expectations, future behavior, of economic agents. Thomas Sargent won the recent Economics Nobel prize for work in this field, "Rational Expectations."

Rational Expectations implies that individuals will maximize their own welfare and undo the adverse impacts of the negative effects of government policies. So, as the Fed has substantially increased the money supply, which is potentially inflationary, to boost the economy, the consumer, during this recession, has decreased the velocity of money, the money multiplier, to limit inflationary effects of the Fed's policies. Obama and Congress have attempted to stimulate the economy using government debt, so the consumer has been aggressively deleveraging, paying down debt, using credit cards much less, etc., to lower the total debt of individuals and government.

Rational Expectations implies that external, unanticipated events, will affect economic results. Economic models do not give one predictive number, as one would think from the media. The models give a range with probabilities. Too often, we only hear about the most likely number without what its probability or confidence band is, or what the range of possible values is. Even then, the world is uncertain, unexpected and strange things happen and not everything that can affect economic levels is foreseeable.

Estate Tax Decreases Our Standard Of Living Through Over-Consumption And Lower Savings And Investment

Video of Steve Landsburg, professor of economics at the University of Rochester, about research on the estate tax.

The estate tax causes over spending, lowers investment and savings, and decreases gains to our well-being and standard of living.


(HT: Businomics Blog, Bill Connerly, PhD)

Best Productivity Decade Since 1960s

From Digitopoly Blog, "Not All the Economic News is Bad" by Erick Brynjolfsson:

this has actually been the best decade since the 1960s for productivity growth. Last year, labor productivity grew by over 4% and it has averaged over 2.5% in the preceding 10 years.

U.S. Productivity Growth by Decade:

Source: Digitopoly 

Per Capita GDP Below Pre-Recession Levels

From Wall Street Journal, "Vital Signs: Per Capita GDP Still Lagging" by Justin Lahart:

GDP per capita is still 2.9% below its pre-recession peak.

Wall Street Journal

US birth rates and population growth slowed since the recession began. With a historical higher birth rate, faster population growth rate, the GDP per capita would be further below trend than depicted in the chart. As the overall economy improves, birth rates will likely rise and increase the time needed for GDP per capita to return to trend.

The Well-Being Of The Poor And Middle Class Have Considerably Improved Over The Last 30 Years In The US

From "The Material Well-Being of the Poor and Middle Class Since 1980" by Bruce D. Meyer and James X. Sullivan:

Our results show evidence of considerable improvement in material well-being for both the middle class and the poor over the past three decades. Median income and consumption both rose by more than 50 percent in real terms between 1980 and 2009. In addition, the middle 20 percent of the income distribution experienced noticeable improvements in housing characteristics: living units became bigger and much more likely to have air conditioning and other features. The quality of the cars these families own also improved considerably. Similarly, we find strong evidence of improvement in the material well-being of poor families. After incorporating taxes and noncash benefits and adjusting for bias in standard price indices, we show that the tenth percentile of the income distribution grew by 44 percent between 1980 and 2009. Even this measure, however, understates improvements at the bottom. The tenth percentile of the consumption distribution grew by 54 percent during this period. In addition, for those in the bottom income quintile, living units became bigger, and the fraction with any air conditioning doubled. The share of households with amenities such as a dishwasher or clothes dryer also rose noticeably.

Read the complete paper.

Investment Income Responsible For Large Part of US Income Inequality: CBO Study

From "Trends in the Distribution of Household Income Between 1979 and 2007" CBO Study, October 2011:

The other factor leading to an increased concentration of market income was a shift in the composition of that income. Labor income has been more evenly distributed than capital and business income, and both capital income and business income have been more evenly distributed than capital gains. Between 1979 and 2007, the share of income coming from capital gains and business income increased, while the share coming from labor income and capital income decreased.

Those two factors were responsible in varying degrees for the increase in income concentration over different portions of the 1979–2007 period.

In other words, to have income equality in the US, you either have to stop investment, business formations and entrepreneurship, and make people rely on labor income, or you have to take away the gains and monetary incentives of investors and entrepreneurs after they are successful. While not all entrepreneurs are monetarily motivated, many of their backers and investors are and would not put up the cash if there was not a positive return with a large upside.

Income equality breeds a lack of economic growth, risk taking, entrepreneurship and business formation. Is it better to be economically and materially well off, but less so than the very rich, in an income unequal society, or is it better to be less well off, to have less, in an income equal society? I would choose the former every time. Let me have a roof over my head, food to eat and conveniences, liked almost all Americans, such as air-conditioning, cell phone, computer, large screen LCD TV, etc. and who cares if others have more.

Income inequality promotes growth through the incentive that anyone can achieve success and become rich, especially in the US. Income equality removes hope and motivation for a better life and will lead to political instability, as a change of control of government will be the only way to improve one's well-being, such as in Egypt.

Trends in the Distribution of Household Income Between 1979 and 2007: CBO Study

Mammograms Are Overrated

From The New York Times, "Mammogram’s Role as Savior Is Tested" by Tara Parker-Pope:

[Dartmouth researcher Dr. H. Gilbert] Welch says it’s important to remember that of the 138,000 women found to have breast cancer each year as a result of mammography screening, 120,000 to 134,000 are not helped by the test.***“Of all the women who have a screening test who have breast cancer detected, and eventually survive the cancer, the vast majority would have survived anyway,” Dr. Begg [head of the department of epidemiology and biostatistics at Memorial Sloan-Kettering Cancer Center in New York] said. “It only saved the lives of a very small fraction of them.”

Read the complete article.

Independent Scientific Study Finds Global Warming: Funded By 5 Charitable Foundations Including Gates And Koch

From The Christian Science Monitor on MSNBC, "Climate study confirms what skeptics scoffed at: global warming is real: Koch, Gates charities pay for research backing earlier claims that came under fire" by Pete Spotts:

A new climate study shows that since the mid-1950s, global average temperatures over land have risen by 0.9 degrees Celsius (1.6 degrees Fahrenheit), confirming previous studies that have found a climate that has been warming – in fits and starts – since around 1900.***Money for the new study, dubbed the Berkeley Earth Surface Temperature project, came from five foundations, including one established by Microsoft founder Bill Gates and another from the Charles Koch Charitable Foundation, widely seen as a source of money for conservative organizations and initiatives that have fought efforts to curb greenhouse-gas emissions.

The work makes no attempt to attribute the rising temperatures to any particular cause. Nor does it include ocean temperatures, the subject of a future study.

Read the full Christian Science Monitor article.

The independent study group has published it objectives, methods and preliminary papers on a website, berkeleyearth.org, to be transparent about the data, process and conclusions.

Short Video For The Occupy Wall Streeters

YouTube video "My Friend Sarah" by Mark Meranta and Terra Strong, winners of the 2009 Fraser Institute Video Contest:

Making The US Into The Land Of Milk And Honey Again: Dallas Fed Chairman Fisher

From "Buy a Ticket! (With Reference to the Strauss Brothers, Ambassador Mike Moore, Kenneth Arrow, Financial Sharpies, Martin Luther King Jr. and Gov. Dewey)" Remarks before the Dallas Friday Group, Dallas, Texas, October 21, 2011, Richard W. Fisher, president and CEO of the Federal Reserve Bank of Dallas:

Unemployment Is THE Issue

To create employment, we must have economic growth.

The simplest of econometric equations posits that the key components of economic growth are: domestic consumption, plus foreign demand for U.S.-produced exports, plus investment by businesses, plus spending by government.

I think it is pretty clear to everyone who lives on the planet that in order to expand our economy and put our people back to work, we must rely on our ability to curry to domestic and foreign consumption and invest here at home to produce the goods and services to sell into the marketplace here and abroad. You’d have to be from Mars to believe that our financially strapped federal and state governments will be the source of much direct spending stimulus to the economy going forward.***No Small Chore

This is no small chore. The parties involved must stop the hemorrhaging without inducing cardiac arrest; they must solve the long-run debt and deficit problem without, in the short run, pushing the economy back into recession, creating still more unemployment. And they not only must confront their addiction to debt and spending beyond their means, but also reorganize the tax system, redirect the money they spend and rewrite the regulations they create so as to be competitive in a world that wants to beat us at our own game.***We won the Cold War. Ho Chi Minh and Mao Zedong and all the brutal dictators who ruled the Soviet Union are long gone. In the blink of history’s eye, we have gone from mutually assured destruction on the battlefield to mutually reinforcing competition in the marketplace. This is what we spent an entire generation of American blood and treasure to achieve, and it is a far better thing.

The consequence, however, is that we are now being challenged as the place to invest job-creating capital by the Vietnamese, the Chinese, the Indians and countless others who have decided to engage full bore in the commercial interplay of a global economy. Our business operators are obligated by their shareholders and their creditors to earn a return on investment and maximize profit; we live in a globalized, interconnected world, and money is free to go to wherever it earns the best return. The point is that our fiscal and regulatory authorities do not operate in a vacuum. It will not be enough to reach a real deal on the debt ceiling or on reining in deficits. In the post-Cold War, post-Bamboo Curtain world, there are many governments and great swathes of people outside the United States that want to attract investment and improve their lot.

In crafting a solution to the nation’s fiscal crisis, our political leaders must take this new reality into account and develop an entirely new structure of incentives for private businesses and investors to put their money to work creating jobs, here at home rather than abroad.

Only fiscal authorities have the power to affect this outcome.***Economic Forecast―Caveat Emptor

You may need economists’ forecasts for planning purposes, but you should always take them with a grain of salt, even when the time horizon is a short one. I direct you to an article in the Feb. 14 edition of the Wall Street Journal as evidence. The Journal had polled 51 leading economists, and they forecast that gross domestic product would expand 3.6 percent in that very same first quarter, ending in less than a month’s time. Growth came in at 1.9 percent.***I personally don’t care which party is in the White House or controls Congress. All I know is that the “honorable” members of Congress, Republicans and Democrats alike, have conspired over time, however unwittingly, to drive fiscal policy into the ditch. They purchased their elections and reelections with popular programs so poorly funded that they now threaten the economic well-being of our children and our children’s children. Instead of passing the torch on to the successor generation of Americans, the Congress is simply passing them the bill. This is the opposite of honorable, and it must stop.

Back to the Land of Milk and Honey

Now, lest you think I am just another central bank sourpuss, I should tell you that I am actually encouraged that the public―from the Tea Party to the unemployed and disaffected who have taken to the streets―is forcing the politicians to focus on the dire need to get their act together. Indeed, I refuse to yield to pessimism, even as it becomes fashionable to do so. I am the child of immigrants. My parents came to this country because there was no limit to upward mobility; they came to the United States because it was the land of milk and honey. It still is. We just have to re-create a fiscal and regulatory environment that―in conjunction with the Fed conducting prudent monetary policy―will liberate the forces of entrepreneurial risk taking that have always been America’s hallmark. Only then will we get back to generating the jobs and the prosperity for all of our people, not just for financial sharpies. Only then will we restore faith in the prospect of upward mobility for all, not just the few. [Emphasis Added, Footnotes Omitted].

Read Fisher's complete remarks.

Gender Bias Found In Evaluations At Wall Street Law Firm

A study of performance evaluations at a Wall Street law firm found pro male, anti female bias in the numerical ratings given to junior attorneys at the firm. The numerical ratings are used as the basis for promotions and partnerships.

From "The Language of Performance Evaluations: Gender-Based Shifts in Content and Consistency of Judgment" by Monica Biernat, University of Kansas, M. J. Tocci, Fulcrum Advisors, Pittsburgh, PA, and Joan C. Williams, University of California Hastings College of the Law, published in Social Psychological and Personality Science:

Given the masculine context of finance law, we predicted that male attorneys would receive more favorable numerical ratings than female attorneys in this Wall Street firm. This was indeed the case, and based on the requirement of high ratings for partnership, more men than women in this firm were headed toward partnership. Of course, this finding alone tells us little about the presence of gender bias, for it is possible that men were objectively ‘‘better’’ performers than women. But arguing against this possibility is the fact that the pro-male bias was not apparent in narrative comments, which revealed greater reference to positive performance words for women than men, and no sex differences in narrative ratings of technical competence and interpersonal warmth. If men were objectively better, one might expect to see evidence of this in all forms of evaluation.Furthermore, when even the best men and women were compared—those judged equally highly favorably in narrative mentions of partner likelihood and technical competence—men still fared better in terms of the numerical ratings they received....

Read the complete paper.

Infographic Of Credit Card Number Logic

From OnlyInfographic

Source: OnlyInfographic

Locavores Increase Food Contamination: The Strong Case Against Locavores

From Freakonomics, "Lessons of the Listeria Outbreak: Do Locavores Make Us Less Safe?" by Steve Sexton:

That the outbreak [of cantaloupe listeria killing 25] occurred on a small farm selling principally to regional buyers is an obvious point, but also an important one because this kind of food contamination is less likely to occur at the large-scale farming operations that locavores love to hate .... Comparative advantage explains why corn is grown in Iowa, almonds in California, and winter vegetables in Florida. The different regions, with different soils, land qualities, climates, and opportunity costs specialize because they can produce their respective crops better than other regions. Comparative advantage implies significant gains from interregional and international trade. And it isn’t just relevant to costs of production and farm yields. It applies also to food safety.

Some regions are just safer places to grow certain crops than others—a point made recently by long-time food industry observer Jim Prevor at his “Perishable Pundit” website. Colorado, he notes, is a particularly unsafe place to grow cantaloupes, which are particularly susceptible to contamination because bacteria can hide out in the crevices of the melon’s rough skin. Rains splatter mud on the melons in Colorado, requiring them to be washed post harvest, a process that can lead to cross contamination among melons and create the moist conditions in which bacteria thrive.

In contrast, dry summers in California and Arizona create safe conditions for cantaloupe production because the crops are watered by drip irrigation and are much less likely to get dirty. Consequently, California cantaloupes bypass the rinsing phase and are packaged dry, sometimes right in the field. But the local foods movement kicks comparative advantage to the curb, favoring foods grown within a certain distance over foods grown in the best conditions.

Read the entire post at Freakonomics.

Kenneth Rogoff Sees Another Three Years Before Economy Is Normal: Interview On The Great Contraction In McKinsey Quarterly

From McKinsey Quarterly, "Understanding the Second Great Contraction: An interview with Kenneth Rogoff: The economist and coauthor of This Time Is Different explains what history can teach us about the global downturn and why climbing out of it is still rife with risks." by Bill Javetski and Tim Koller:

Kenneth Rogoff: The historical experience gives a very clear view that the aftermath of a financial crisis brings slow and halting growth, sustained high unemployment, and surging public debt—with the overhang of public and private debt being the most important impediment to a normal recovery from recession.***Indeed, we haven’t yet gotten back to the same per capita GDP where we started. Our perspective is that we have never left the recession; we’re still very much in it. I hope in another two or three years things will be feeling more normal. But there are a lot of difficulties to traverse before we get there.

Read more of Rogoff's interview.

Majority Now Blame Obama For Bad Economy

From Huffington Post, "Majority Of Americans Blame Obama For Economy, Gallup Finds"

For the first time, more than 50 percent of Americans blame President Barack Obama for the nation’s economic woes, a Gallup poll released Thursday finds.

Read the complete Huffington Post article.

GAO Finds Fed Needs Governance, Transparency, Conflicts And Diversity Improvements

From Bloomberg, "GAO Says Fed Boards Need to Improve Diversity, Conflicts Policy" by Craig Torres:

A Government Accountability Office report on Federal Reserve governance released today said that the nine-member boards of reserve banks lacked racial and ethnic diversity in 2006 to 2010, and noted that further work is needed to avoid potential conflicts of interest.

GAO Report:
Federal Reserve Bank Governance GAO Report

More Proof You Cannot Pick Winning Investments And Technologies Beforehand

From Ted Talks, "Ian Ritchie: The day I turned down Tim Berners-Lee"

Imagine it's late 1990, and you've just met a nice young man named Tim Berners-Lee, who starts telling you about his proposed system called the World Wide Web. Ian Ritchie was there. And ... he didn't buy it. A short story about information, connectivity and learning from mistakes

.

Transcript:

Well we all know the World Wide Web has absolutely transformed publishing, broadcasting, commerce and social connectivity, but where did it all come from? And I'll quote three people: Vannevar Bush, Doug Engelbart and Tim Berners-Lee. So let's just run through these guys.

This is Vannevar Bush. Vannevar Bush was the U.S. government's chief scientific adviser during the war. And in 1945, he published an article in a magazine called Atlantic Monthly. And the article was called "As We May Think." And what Vannevar Bush was saying was the way we use information is broken. We don't work in terms of libraries and catalog systems and so forth. The brain works by association. With one item in its thought, it snaps instantly to the next item. And the way information is structured is totally incapable of keeping up with this process.

And so he suggested a machine, and he called it the memex. And the memex would link information, one piece of information to a related piece of information and so forth. Now this was in 1945. A computer in those days was something the secret services used to use for code breaking. And nobody knew anything about it. So this was before the computer was invented. And he proposed this machine called the memex. And he had a platform where you linked information to other information, and then you could call it up at will.

So spinning forward, one of the guys who read this article was a guy called Doug Engelbart, and he was a U.S. Air Force officer. And he was reading it in their library in the Far East. And he was so inspired by this article, it kind of directed the rest of his life. And by the mid-60s, he was able to put this into action when he worked at the Stanford Research Lab in California. He built a system. The system was designed to augment human intelligence, it was called. And in a premonition of today's world of cloud computing and softwares of service, his system was called NLS for oN-Line System.

And this is Doug Engelbart. He was giving a presentation at the Fall Joint Computer Conference in 1968. What he showed -- he sat on a stage like this, and he demonstrated this system. He had his head mic like I've got. And he works this system. And you can see, he's working between documents and graphics and so forth. And he's driving it all with this platform here, with a five-finger keyboard and the world's first computer mouse, which he specially designed in order to do this system. So this is where the mouse came from as well.

So this is Doug Engelbart. The trouble with Doug Engelbart's system was that the computers in those days cost several million pounds. So for a personal computer, a few million pounds was like having a personal jet plane; it wasn't really very practical.

But spin on to the 80s when personal computers did arrive, then there was room for this kind of system on personal computers. And my company, OWL built a system called Guide for the Apple Macintosh. And we delivered the world's first hypertext system. And this began to get a head of steam. Apple introduced a thing called HyperCard, and they made a bit of a fuss about it. They had a 12-page supplement in the Wall Street Journal the day it launched. The magazines started to cover it. Byte magazine and Communications at the ACM had special issues covering hypertext. We developed a PC version of this product as well as the Macintosh version. And our PC version became quite mature.

These are some examples of this system in action in the late 80s. You were able to deliver documents, were able to do overnight works. We developed a system such that it had a markup language based on html. We called it hml: hypertext markup language. And the system was capable of doing very, very large documentation systems over computer networks.

So I took this system to a trade show in Versailles near Paris in late November 1990. And I was approached by a nice young man called Tim Berners-Lee who said, "Are you Ian Ritchie?" and I said, "Yeah." And he said, "I need to talk to you." And he told me about his proposed system called the World Wide Web. And I thought, well, that's got a pretentious name, especially since the whole system ran on his computer in his office. But he was completely convinced that his World Wide Web would take over the world one day. And he tried to persuade me to write the browser for it, because his system didn't have any graphics or fonts or layout or anything; it was just plain text. I thought, well, you know, interesting, but a guy from CERN, he's not going to do this. So we didn't do it.

In the next couple of years, the hypertext community didn't recognize him either. In 1992, his paper was rejected for the Hypertext Conference. In 1993, there was a table at the conference in Seattle, and a guy called Marc Andreessen was demonstrating his little browser for the World Wide Web. And I saw it, and I thought, yep, that's it. And the very next year, in 1994, we had the conference here in Edinburgh, and I had no opposition in having Tim Berners-Lee as the keynote speaker.

So that puts me in pretty illustrious company. There was a guy called Dick Rowe who was at Decca Records and turned down The Beatles. There was a guy called Gary Kildall who went flying his plane when IBM came looking for an operating system for the IBM PC, and he wasn't there, so they went back to see Bill Gates. And the 12 publishers who turned down J.K. Rowling's Harry Potter, I guess.

On the other hand, there's Marc Andreessen who wrote the world's first browser for the World Wide Web. And according to Fortune magazine, he's worth 700 million dollars. But is he happy?

(Laughter)

(Applause)