Creative Destruction

April 2, 2006

Evidentiary Number Fetish

Filed under: Uncategorized — Brutus @ 7:11 am

I was called to present evidence for my contentions in the post on American vs. European Social Models. Although no one used the word “numbers,” that is what they provided as counter-evidence, so I expect that is what is required. I have a real problem with citing numerical data as it quickly becomes a nearly infinite regress to interpretation, methodology, who might be funding the research, and what agenda the person(s) conducting the research may have, etc. It is also quite common that numerical evidence is incomplete, skewed towards political policies or agendas, or inadvertently misleading. Moreover, there is a lot of evidence that simply does not lend itself to presentation in numerical form.

So the numbers I present below are provided rather grudgingly, lest I be accused of dreaming up my arguments out of thin air. I am probably no better than others with respect to giving evidence to support my contentions; I obviously went in search of things that support my agenda and discarded or ignored other evidence. That’s my point about our fetish for numbers: they may not prove very much in the end.

Three of my contentions in my earlier post and comment drew particular disagreement: tax rates, social mobility, and housing. I’ll address each in turn.

Tax Rates

I said, “the rich and powerful, who stand to gain from tax rates lower than those in Europe and lower than U.S. tax rates from the 1960s, say, have succeeded in flattening the U.S. tax structure.” Bazzer said, “When Reagan left office, the top marginal rate was 28%. It’s now 35%, even after Bush’s radical ‘tax cuts for the rich.'”

To begin, the marginal rate refers to the Federal income tax rate paid to the IRS, which even now is probably the most progressive of the many taxes levied. Paragraph 2 of this link provides that the top rate in 1980 was 70% but has dropped since then (end date unclear) to 36%. Those numbers flatly contradict Bazzer’s numbers. Further, this chart demonstrates that the top 1% received the lion’s share of the benefit. I consider that an obscenity.

A better measure of the tax burden is what’s frequently referred to as the “effective tax rate.” It includes both progressive and regressive taxes. That number has remained remarkably stable across the board for some time. The second graph in Fig. 1 of this site shows where the numbers stand for each quintile in 5-year intervals since 1979. The data comes from the Congressional Budget Office. This chart shows the same thing. The convergence (flattening) occurred in the early to mid-1980s. It has since widened again. So I’m wrong that flattening has continued unabated.

What troubles me more is the first graph of Fig. 1, which demonstrates a precipitous rise in income for the top quintile. This chart shows the same thing. Although I did not cite the widening rich-poor gap, that is probably what I had in mind when I said “flattening.” It reflects how tax and commercial structures in the U.S., far from favoring the middle or bottom, heavily favor the top. There is nothing progressive about that. It is a commonplace observation that it takes money to make money; that is shown in by the dramatic results in the numbers provided.

Social Mobility

I claimed that social mobility is a myth perpetrated on the poor. The study found at this link has among its principal findings that “[i]nternational comparisons indicate that intergenerational mobility in Britain is of the same order of magnitude as in the US, but that these countries are substantially less mobile than Canada and the Nordic countries.” Further, this article from the Wall Street Journal pointedly compares the U.S. and Europe in the subtitle and callout beside the first paragraph. Its conclusion matches my contention.

Housing

In my comment, I cited the rise of the McJob and said of the middle and lower classes that “[h]ome ownership is a far-off dream.” Bob Hayes provided that “69% of Americans … own their own home, or live in a home owned by their family. (Source: Census Bureau)” That is intended, I believe, as an indication that folks are managing pretty well.

Reasonable housing costs are conventionally considered within one’s budget when they account for one-fourth to one-third of gross income. The chart at the very bottom of this page at the Census Bureau indicates that the median mortgage in 2004 was $1,212 and median rent was $694. Out of those with a mortgage, fully 32% of owners pay 30% or more of income for housing. (It is unclear whether that accounts for more than the mortgage.) For renters, it is 48%. I take those numbers to indicate that there are a lot of folks overextended in paying for housing. This article articulates many of the same points as above, including that the “poor entered the 1970s spending 30 percent of their income for housing; by 1995, they paid 58 percent.” That is a serious burden. ABC News also has an article on the subject supporting the same points.

Considering that nearly half of renters are overextended and that the out-of-pocket cost for a mortgage is almost double, I would say that home ownership being a far-off dream for many is pretty accurate. That difficulty is visited upon a far greater number, I daresay (supported by the numbers above), than the 20% Bob Hayes dreamt up.

Bob Hayes also wrote that “[t]wo-incomes to get to the same standard of living we had in 1965? … The trendlines all head in the good direction for 80% of Americans.” This link with data drawn from the U.S. Bureau of Labor Statistics provides the same contention as mine: “Why were women joining the workforce in greater numbers? Because their husbands’ earnings have been generally declining since 1973, and families have had to form two-paycheck households to maintain their parents’ standard of living.” Bob’s contention that we expect more now (electronics and multiple subscriptions to service providers, for example) is probably true, but then it only makes sense to compare ourselves to contemporaneous standards. Try getting milk delivered to your doorstep the way our parents did.

Conclusion

So did I prove anything? No, probably not. But there is clearly plenty of evidence out there in support of my perspective. The counter-arguments went pretty far afield, bringing in voting characteristics, unemployment rates, and of course a call for evidence. There was little or no discussion of the heart of the issue, which is the relative inhumanity of the U.S. in its refusal to care for its own in comparison to most European countries’ insistence upon it. Whether Europe can sustain that orientation remains to be seen. Its way of life is no more or less imperiled than our own for a variety of complex reasons, many of which go far beyond the scope of this post.

10 Comments »

  1. Good post. I shall post crushing rejoinders on the morrow – and I shall even address your central thesis, instead of just quibbledicking your statistics.

    Comment by bobhayes — April 2, 2006 @ 7:36 am | Reply

  2. > Paragraph 2 of this link provides that the top rate in 1980 was 70% but has dropped since then (end date unclear) to 36%. Those numbers flatly contradict Bazzer’s numbers.

    No they don’t. Reagan didn’t take office until 1981, and when he left, the top marginal income tax rate was 28%, as I said. Since then, the top rate has inched steadily northward. Although it dropped back a few points under the current administration, it’s still substantially higher than when Reagan left office, which contradicts *your* assertion that tax rate flattening has “continued unabated” ever since.

    Comment by bazzer — April 2, 2006 @ 3:56 pm | Reply

  3. OK, Bazzer, let’s not get too bogged down with the numbers. True, when Reagan left office, the top marginal rate may have been 28% rather than the 70% it was when he entered office. (I didn’t read your original comment closely enough.) I already admitted I was thinking about something else when I used the phrase “continued unabated.” Do you want some sort of double retraction, retroactive to before I erred?

    Comment by Brutus — April 2, 2006 @ 4:07 pm | Reply

  4. > Do you want some sort of double retraction…

    No, but if you claim “Those numbers flatly contradict Bazzer’s numbers…” you have to expect me to respond, especially when your claim is in error.

    Comment by bazzer — April 2, 2006 @ 7:10 pm | Reply

  5. Whoa, I responded to your next one and totally missed this one.

    Nice, well-supported post, Brutus! I’m not going to respond off the cuff here–I’ll look this over and try to give you as well thought-out a response as this post deserves🙂

    Comment by Adam Gurri — April 2, 2006 @ 9:55 pm | Reply

  6. I’ll hit my specific responses first, then address your actual thesis at the bottom.

    On tax rates, you guys seem to have already threshed things out, and frankly, my eyes glazed over. However, this statement cuts through the fog:

    What troubles me more is the first graph of Fig. 1, which demonstrates a precipitous rise in income for the top quintile. This chart shows the same thing. Although I did not cite the widening rich-poor gap, that is probably what I had in mind when I said “flattening.” It reflects how tax and commercial structures in the U.S., far from favoring the middle or bottom, heavily favor the top.

    That interpretation appears to rest on an assumption that tax codes and commercial laws determine who gets wealthy, and in what amounts. This could not be further from the truth. The reason for first-quintile increases in wealth is fairly obvious; the bulk of the first-quintile population is an entrepreneurial population, and the last forty years or so have been a damned good time to be an entrepreneur. The Internet and communications technologies have made the entrepreneurial life twenty times as viable as it was before those innovations. It would be shocking indeed to find that increased ease of wealth creation not reflected in the income statistics.

    On social mobility, the reasons for differences in social mobility are complex, although one appears to be ignored by your source (admittedly I only skimmed it) – the existence of large semi-permanent underclass urban black populations in the US and the UK which do not exist in other nations. I suspect that when culturally-similar groups are compared, the US and the UK outperform the Scandinavian countries or Canada. All that aside, however, this doesn’t support your thesis that “social mobility is a myth perpetrated on the poor”. Social mobility continues to exist, even if other countries have higher degrees of it. You have presented nothing that shows social stickiness; only material that supports the idea that other places are even better.

    On housing, what you appear to be listing is evidence of people choosing to spend higher amounts of money to get a higher standard of housing. I don’t see a problem with that, nor do I see how it supports your thesis in any way. The same is true for your observation about standards of living. Saying that we have to “compare ourselves to contemporaneous standards” is a red herring – in that case, why are you bringing up how things were in the past?

    The truth is that our absolute standard of living delivered per hour of work performed is on a continually-increasing path, and that absolute standard is the appropriate metric for progress over time. That some people are choosing to do even more work in order to achieve an even higher standard of living is sociologically very interesting – but not indicative of poverty. “Try getting milk delivered to your doorstep the way our parents did” – dude, get out of Chicago. I can’t get milk-delivery companies to stop bothering me, Royal Crest Dairies in particular. Good milk, too.

    Now, your actual thesis: “the relative inhumanity of the U.S. in its refusal to care for its own in comparison to most European countries’ insistence upon it”

    This reflects the standard left-wing philosophical error, which always boils down to people making different choices than you would make, and how this is HORRIBLE AND WRONG. We could just as easily, and with similar validity, talk about “the relative inhumanity of Europe in its refusal to prepare its citizenry for independent life”.

    We believe (the royal “We”) that freedom is more important than security. That doesn’t make us inhumane, it makes us independence-minded. We aren’t inhumane any more than Europe is inhumane – we’re making different choices about values and priorities. What is revelatory is the fact that our federalist system makes it very easy for people to geographically sort themselves so that those who want a different system can get it. And in fact, we see this; compare the social-welfare networks of California with those of Texas.

    In addition, as a society we have such prosperity and wealth that any group of private citizens can emulate any innovation of the social geniuses of Europe that they choose. If you want to pay 70% of your income to some centrum that then disseminates social fuzziness, find a million like-minded friends and do it. Rather than condemning us for the choices we’re making concerning our resources, take your resources and use them in the way which you feel to be superior.

    These options, however, is always found wanting by the committed redistributionist. I sincerely hope that you aren’t sliding into that camp.

    Comment by Robert — April 2, 2006 @ 10:29 pm | Reply

  7. Aargh! For “is always found wanting”, read “are always found wanting”. Curse you, WordPress!

    Comment by bobhayes — April 2, 2006 @ 10:33 pm | Reply

  8. Really? You’ve got companies beating down your door to deliver milk? Who knew?

    Comment by Brutus — April 3, 2006 @ 12:26 am | Reply

  9. Who knew?

    Not you.😛

    Actually, forget what I said about Chicago. Here’s one of your local operations. $5.50/gallon is a bit pricey but they’re fairly nut-crunchy. Peapod will get it for you at $3.79, which is about $0.50 more than I’d pay for it here in a store. (On the other hand, you’re a lot closer to the cows.)

    Comment by Robert — April 3, 2006 @ 1:03 am | Reply

  10. […] Ok, time for my promised response to Brutus' critique of the American social model. […]

    Pingback by Creative Destruction » The American Dream Revisited — April 8, 2006 @ 11:31 pm | Reply


RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Create a free website or blog at WordPress.com.

%d bloggers like this: