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WSJ: Income Equality, Not Inequality, Is the Problem

Phill Gramm and John Early do a nice job laying out the misnomer that income inequality is the problem. This concept of inequality really became a selling point during the Obama administration when the Democrats consistently implored that “millionaires and billionaires” should “pay their fair share.” But the simple fact remains that income inequality isn’t the actual problem with the economy. The problem lies in the fact that, due to the massive amount of government transfer payments, the bottom 60% of income earners have seen their income equalized to the point of nearly attaining the same amount of income of Americans who receive none. The result of this phenomenon is that the labor participation rate among the bottom quintile has fallen sharply to 36% (through 2017, the latest year for statistics), which is what is truly disastrous for the economy. (What’s more, this article doesn’t even begin to touch the ever-worsening labor participation/economic situation due to COVID policies and extra government transfers.) The article from the Wall Street Journal is reprinted below. It is a strong read about the concepts of income inequality and equality.


Contrary to conventional wisdom, the most dramatic and consequential change in the distribution of income in America in the past half-century isn’t rising income inequality but the extraordinary growth in income equality among the bottom 60% of household earners.

Real government transfer payments to the bottom 20% of household earners surged by 269% between 1967 and 2017, while middle-income households saw their real earnings after taxes rise by only 154% during the same period. That has largely equalized the income of the bottom 60% of Americans. This government-created equality has caused the labor-force participation rate to collapse among working-age people in low-income households and unleashed a populist realignment that is unraveling the coalition that has dominated American politics since the 1930s.

On these pages, we have debunked the myth that income inequality is extreme and growing on a secular basis by showing that the Census Bureau measure of income fails to include two-thirds of all federal, state and local transfer payments as income to the recipients and fails to treat taxes paid as income lost to the taxpayer. The Census Bureau measure overstates current income inequality between the highest and lowest 20% of earners by more than 300% and claims that income inequality has risen by 21% since 1967, when in fact it has fallen by 3%.

Our most significant finding from correcting the census income calculations wasn’t the overstated inequality between top and bottom earners. It was the extraordinary equality of income among the bottom 60% of American households, regardless of employment status. In 2017, among working-age households, the bottom 20% earned only $6,941 on average, and only 36% were employed. But after transfer payments and taxes, those households had an average income of $48,806. The average working-age household in the second quintile earned $31,811 and 85% of them were employed. But after transfers and taxes, they had income of $50,492, a mere 3.5% more than the bottom quintile. The middle quintile earned $66,453 and 92% were employed. But after taxes and transfers, they kept only $61,350—just 26% more than the bottom quintile.

Even these figures don’t tell the whole story. In the bottom quintile, there are on average only 1.92 people living in a household. The second and middle quintiles have 2.41 and 2.62 people respectively. After adjusting income for the number of people living in the household, the bottom-quintile household received $33,653 per capita. The second and middle quintile households had on average $29,497 and $32,574 per capita, respectively. The blockbuster finding is that on a per capita basis the average bottom quintile household received 14% more income than the average second-quintile household and 3.3% more than the average middle-income household.

It should be noted that while per capita comparisons are widely used, they tend to overstate the effects of household size. Two people living together can achieve the same material well-being for less than they could living separately. The Organization for Economic Cooperation and Development has developed a measure widely used internationally to adjust for household size, and the Census Bureau has a similar adjustment it uses in its supplemental poverty measure. Since the results produced by the OECD and the Census Bureau adjustments are so similar, we simply use the average of the two below.

The nearby chart compares the after-tax, after-transfer incomes of the bottom three quintiles of American households with no adjustment for household size, on a per capita basis, and using the average of the OECD and census adjustments for household size. We found that the average bottom-quintile household has $2,401 (or 6.6%) more income than the second quintile and only $3,306 (or 7.8%) less than the middle-income quintile.

The average second-quintile household earned almost five times as much as the average household in the bottom quintile, because it had 2.4 times as many working-age members working and on average each worker worked 80% more hours. The average middle-quintile household earned almost 10 times as much and had 2.6 times the percentage of its working-age people working, each working twice as many hours. Yet the bottom 60% of American households received essentially the same income after accounting for taxes, transfer payments and household size.

Given the surge in transfer payments since the war on poverty, it isn’t surprising that the percentage of working-age people in the bottom quintile who actually worked plummeted from 68% in 1967 to 36% in 2017. With transfer payments giving recipients about as much for not working as they could earn working, only a mandatory work requirement as a condition for receiving means-tested benefits will bring them back into the labor market. While official statistics don’t count two-thirds of those transfer payments and don’t show the income equality they produce, Americans who work hard to make ends meet are aware of it. Despite Democratic politicians’ efforts to provoke resentment against the rich, when was the last time you heard working people complain that some people in America are rich? The hostility of working people is increasingly focused on a system where those who don’t break a sweat are about as well off as they are.

This justifiable resentment is the economic source of today’s American populism. It is ravaging the increasingly unstable Democratic political alliance between welfare recipients and blue-collar workers. It was already building in the 1980s, with what were then called Reagan Democrats, and it was fully manifested in the Trump blue-collar political base. It is now driving political realignment among Hispanic voters, who are disproportionately middle-income earners.

By eroding self-reliance, worker pride and labor-force participation, government-generated income equality undermines the very foundations of American prosperity. A democratic society won’t knowingly tolerate it.

WSJ: Fauci and Walensky Double Down on Failed Covid Response

When the CDC admitted failure this week for its COVID response, one might have felt a bit vindicated regarding the lockdowns and disruptions — but only for a moment. Because it turns out that the CDC actually means is that they didn’t go far enough in their response measures and that next time it should be even more restrictive. This flies in the face of copious amounts of data that show the deleterious effects COVID response had on basically every facet of society — economic, mental, physical, educational, etc. John Tierney does a decent job taking to task this unreasonable CDC outlook. The WSJ article is printed in its entirety below.


The Centers for Disease Control and Prevention belatedly admitted failure this week. “For 75 years, CDC and public health have been preparing for Covid-19, and in our big moment, our performance did not reliably meet expectations,” Director Rochelle Walensky said. She vowed to establish an “action-oriented culture.”

Lockdowns and mask mandates were the most radical experiment in the history of public health, but Dr. Walensky isn’t alone in thinking they failed because they didn’t go far enough. Anthony Fauci, chief medical adviser to the president, recently said there should have been “much, much more stringent restrictions” early in the pandemic. The World Health Organization is revising its official guidance to call for stricter lockdown measures in the next pandemic, and it is even seeking a new treaty that would compel nations to adopt them. The World Economic Forum hails the Covid lockdowns as the model for a “Great Reset” empowering technocrats to dictate policies world-wide.

Yet these oppressive measures were taken against the longstanding advice of public-health experts, who warned that they would lead to catastrophe and were proved right. For all the talk from officials like Dr. Fauci about following “the science,” these leaders ignored decades of research—as well as fresh data from the pandemic—when they set strict Covid regulations. The burden of proof was on them to justify their dangerous experiment, yet they failed to conduct rigorous analyses, preferring to tout badly flawed studies while refusing to confront obvious evidence of the policies’ failure.

U.S. states with more-restrictive policies fared no better, on average, than states with less-restrictive policies. There’s still no convincing evidence that masks provided any significant benefits. When case rates throughout the pandemic are plotted on a graph, the trajectory in states with mask mandates is virtually identical to the trajectory in states without mandates. (The states without mandates actually had slightly fewer Covid deaths per capita.) International comparisons yield similar results. A Johns Hopkins University meta-analysis of studies around the world concluded that lockdown and mask restrictions have had “little to no effect on COVID-19 mortality.”

Florida and Sweden were accused of deadly folly for keeping schools and businesses open without masks, but their policies have been vindicated. In Florida the cumulative age-adjusted rate of Covid mortality is below the national average, and the rate of excess mortality is lower than in California, which endured one of the nation’s strictest lockdowns and worst spikes in unemployment. Sweden’s cumulative rate of excess mortality is one of the lowest in the world, and there’s one particularly dismal difference between it and the rest of Europe as well as America: the number of younger adults who died not from Covid but from the effects of lockdowns.

Even in 2020, Sweden’s worst year of the pandemic, the mortality rate remained normal among Swedes under 70. Meanwhile, the death rate surged among younger adults in the U.S., and a majority of them died from causes other than Covid. In Sweden, there have been no excess deaths from non-Covid causes during the pandemic, but in the U.S. there have been more than 170,000 of these excess deaths.

No one knows exactly how many of those deaths were caused by lockdowns, but the social disruptions, isolation, inactivity and economic havoc clearly exacted a toll. Medical treatments and screenings were delayed, and there were sharp increases in the rates of depression, anxiety, obesity, diabetes, fatal strokes and heart disease, and fatal abuse of alcohol and drugs.

These were the sorts of calamities foreseen long before 2020 by eminent epidemiologists such as Donald Henderson, who directed the successful international effort to eradicate smallpox. In 2006 he and colleagues at the University of Pittsburgh considered an array of proposed measures to deal with a virus as deadly as the 1918 Spanish flu.

Should schools be closed? Should everyone wear face masks in public places? Should those exposed to an infection be required to quarantine at home? Should public-health officials rely on computer models of viral spread to impose strict limitations on people’s movements? In each case, the answer was no, because there was no evidence these measures would make a significant difference.

“Experience has shown,” Henderson’s team concluded, “that communities faced with epidemics or other adverse events respond best and with the least anxiety when the normal social functioning of the community is least disrupted.” The researchers specifically advised leaders not to be guided by computer models, because no model could reliably predict the effects of the measures or take into account the “devastating” collateral damage. If leaders overreacted and panicked the public, “a manageable epidemic could move toward catastrophe.”

This advice was subsequently heeded in the pre-Covid pandemic plans prepared by the CDC and other public-health agencies. The WHO’s review of the scientific literature concluded that there was “no evidence” that universal masking “is effective in reducing transmission.” The CDC’s pre-2020 planning scenarios didn’t recommend universal masking or extended school and business closures even during a pandemic as severe as the 1918 Spanish flu. Neither did the U.K.’s 2011 plan, which urged “those who are well to carry on with their normal daily lives” and flatly declared, “It will not be possible to halt the spread of a new pandemic influenza virus, and it would be a waste of public health resources and capacity to attempt to do so.”

But those plans were abruptly discarded in March 2020, when computer modelers in England announced that a lockdown like China’s was the only way to avert doomsday. As Henderson had warned, the computer model’s projections—such as 30 Covid patients for every available bed in intensive-care units—proved to be absurdly wrong. Just as the British planners had predicted, it was impossible to halt the virus. A few isolated places managed to keep out the virus with border closures and draconian lockdowns, but the virus spread quickly once they opened up. China’s hopeless fantasy of “Zero Covid” became a humanitarian nightmare.

It was bad enough that Dr. Fauci, the CDC and the WHO ignored the best scientific advice at the start of this pandemic. It’s sociopathic for them to promote a worse catastrophe for future outbreaks. If a drug company behaved this way, ignoring evidence while marketing an ineffective treatment with fatal side effects, its executives would be facing lawsuits, bankruptcy and probably criminal charges. Dr. Fauci and his fellow public officials can’t easily be sued, but they need to be put out of business long before the next pandemic.

Mr. Tierney is a contributing editor to City Journal and a co-author of “The Power of Bad: How the Negativity Effect Rules Us and How We Can Rule It.”

Biden’s Most Recent Scam

The Inflation Reduction Act of 2022 is a scam, and the very name insults the American populace. Our President, Joe Biden, was quoted saying, “Yesterday, I spoke with both Senator Schumer and Manchin and offered my support for a historic agreement to fight inflation and lower costs for American families. It’s called the Inflation Reduction Act of 2022.” Inflation is quickly approaching 10% the last time we’ve seen it this high was over 40 years ago, in the 1980s. The bitter irony is that the Biden administration knows what causes inflation, yet virtually nothing in the new law will make matters better. 

The claim is that the bill is “fighting inflation” because it reduces the deficit by $300 billion over ten years, which is 1% of GDP. But the deficit reduction doesn’t start until the fourth year, so for the next three years it makes inflation worse! 

And let’s look at the numbers. How could a $300 billion reduction in the deficit over ten years be a massive step forward in fighting inflation when the law passed last year increased the deficit by an estimated $1.7 trillion in one year? Utter nonsense.

The Inflation Reduction Act of 2022 is a spending bill, first and foremost, and a repackaging of the American Rescue Plan of 2021. Unfortunately, despite their best efforts, they could not disguise the stench; trash is funny like that. The main push in the bill is to encourage investment in renewable energies and allow Medicare to negotiate Rx drug prices. God forbid we cut the deficit by meaningful reductions in spending. 

Regardless of your feelings on energy consumption, it is undisputed that green energy is more expensive than traditional forms, evidenced by the fact that we pump billions every year into the industry via subsidies to keep it afloat. We know that the inflation we are experiencing is due to a surplus of money in the economy and demand exceeding supply. Yet, this administration’s solution is to put further pressure on supply via taxes and thereby disincentivizing production. Furthermore, increasing corporate tax rates will put additional pressure on supply; none of Biden’s plans make any sense. 

The Democrats claim that the bill will reduce the deficit by roughly $300 billion spread over ten years is meaningless. With government spending approaching $7 trillion in 2021 (with a $3 trillion deficit), and the two consecutive quarters of negative GDP growth (recession) we’re experiencing, the light at the end of the tunnel just got a lot further away.

The Climate Crime

Let’s concede the claim that man-made climate change is real and poses significant harm to humanity as a whole. That statement is then used as a rallying cry to inflict irrevocable damage on today’s generation, both the rich and the poor. So often in American society, we see a problem, and the immediate reaction of our politicians is to invoke a top-down approach to “fix it,” which often does more harm than good. Frederich Hayek said it best, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

 The Biden Administration and the Democratic party have started a never-ending push to wage war on Climate Change and reduce our carbon footprint. Well, how’s it going you may ask? Per one model, eliminating all U.S. emissions would reduce global temperature by less than 0.2 degrees Celsius by 2100. Our current administration would offer you up, today’s citizens, in hopes of saving some future person that has yet to exist in their futile war. They throw us in the fire, yet the Earth grows hotter still; their reprehensible actions are all for naught.

The EPA says, “the largest source of greenhouse gas emissions from human activities in the United States is burning fossil fuels for electricity, heat, and transportation.” The Biden Administration then takes that statement and runs with it. Even with theoretical efficiency in their crusade, the costs of their policies would be staggering. The economy would, in aggregate, lose $7.7 trillion of gross domestic product (GDP) through 2040, which is $87,000 per family of four. What then should we do, you may ask? Well, the best shot we have going forward is a market-based approach. The government should reduce red tape surrounding proven superior energy sources, like fusion energy, reduce unrealistic mandates, and allow people to innovate as they do best. In short, this administration needs to cease and desist their self-proclaimed climate war; the cost paid in American lives is too steep. 

China and Business Regulations

It appears that many people now believe that a place like China, which dictates the economy from the top down, provides better economic results than the free market in the United States, and that the Chinese are somehow doing better than us. This is absolutely not true. The top-down decisions arising a non-free market economy show China making egregious mistakes.  But the reason why China — given the detriment of a non-free market economy — appears that they are doing better to some people is really quite basic. It’s not smart centralized planning or lower wages and costs in China but rather, the actual ability of a business to conduct day-to-day activities unburdened by the government at all levels. China does not hamper their every move or require horrific environmental or other useless regulatory burdens.

We are part of a global economy now, but foreign countries such as China have always been more user-friendly than our own. We overburden our businesses with convoluted tax codes, unnecessary paperwork, and regulatory holdups. The host of local, state, and federal regulations becomes a cost of every product we make and every service we sell. 

I have a close relative who is an owner and executive of a substantial manufacturing operation in China precisely because of its business-friendly environment. I’ve heard from him many times that he went into business, not to comply with government diktats, but to make things. Here, we face climate regulations, environmental restrictions, unnecessary specialty licenses, partisan individuals not allowing projects, and so much more that the Chinese do not have to deal with.  Simply put, expensive and complex regulations have rendered the United States less globally competitive. Without major changes, we are destined to decline while China rises.

They Had One Job

The Committee to Unleash Prosperity recently reminded folks that the prospect of inflation was raised and rejected by a plethora of Nobel prize winning economists as early as last September. As Congress was debating Biden’s $5 Trillion Build Back Better plan, 17 economists signed an open letter urging passage of this atrocious spending bill (coming on top of an extra $3 trillion in spending, mind you). 

The letter opened and closed with these two absurd statements: “The American economy appears set for a robust recovery in part due to active government interventions over the past year and a half” and “[the agenda] will ease longer-term inflationary pressures.” At the time of their writing, inflation was at (only) 6% and now we are past 8%. How much more egregious would things be had Congress actually passed this spending behemoth? And even more critically, how is it that 17 prize-winning economists managed to get their economic forecast so wrong?

Readers would be wise to steer clear of the following economists: 

  • George A. Akerlof, Professor, Georgetown University
  • Sir Angus Deaton, Professor, Princeton University
  • Peter Diamond, Professor, Massachusetts Institute of Technology
  • Robert Engle, Professor Emeritus and Co-Director of the Volatility and Risk Institute, New York University
  • Oliver Hart, Professor, Harvard University
  • Daniel Kahneman, Professor, Princeton University
  • Eric S. Maskin, Professor, Harvard University
  • Daniel McFadden, Professor, University of California, Berkley
  • Paul Milgrom, Professor, Stanford University
  • Roger Myerson, Professor, University of Chicago
  • Edmund S. Phelps, Professor and Director of the Center on Capitalism and Society, Columbia University
  • Paul Romer, Professor, New York University
  • William Sharpe, Professor Emeritus, Stanford University
  • Robert Shiller, Professor, Yale University
  • Christopher Sims, Professor, Princeton University
  • Robert Solow, Professor Emeritus, Massachusetts Institute of Technology
  • Joseph Stiglitz, Professor, Columbia University

It must also be noted that Paul Krugman, another Nobel winner, did not sign the letter but did actively discuss it in his NYTimes column.

These economists had exactly one job: to tell the truth about spending and inflationary policies, namely that increased government spending as a means of intervention will typically result in higher inflation. But they didn’t do that. They would rather tell Congress what it wants to hear, instead of what it needs to hear, and they ought to be ashamed.

Like Xi, Like Biden

As Biden’s presidency continues, it’s become increasingly apparent that he is wholly . unconcerned about the economic wellbeing of our citizens. But what’s less apparent to most people is that he’s taking his cues straight from China’s president, Xi Jinping.

Over the last year, Xi has been targeting wealthy Chinese billionaires, such as Alibaba, for being too successful or not being as aligned with his Communist platform. Using tactics such as increasing regulation or restricting their abilities to do certain things, the value of many successful Chinese companies declined rapidly. Xi claimed that the billionaire businessmen were getting out of control and too powerful, and it was worth it to him to tank their companies to show that communism and being a good citizen was more important than their good fortune or the economic well-being of all individuals.

Biden is doing the same thing. What Xi did unilaterally, Biden needs to get passed in Congress. He is going after the billionaires even if it screws the little guy too. This is why he has consistently pushed to raise corporate rates, implement a global minimum tax, double GILTI taxes, and raise individual rates (which impacts millions of small businesses, by the way). Now this “Billionaire Minimum Income Tax” proposal is just another scheme to punish wealthy Americans to fund absurd government programs. Nevermind that it is purposefully misnamed — it affects more than just billionaires and taxes more than just income — in an effort to sell the idea to legislators and the general public. 

Xi took down the economically successful men and women in his country to bolster communism and Joe Biden is following his playbook. He’s happy to punish the wealthy in order to make them more responsible citizens. Biden has repeatedly stated that his goal is a more equitable economy by ensuring corporations and high-income earners pay their fair share (though they are already paying far more than their fair share). Xi would certainly approve.

IRS Audits Don’t Target the Poor

Mike Hiltzik’ s article, “Proof the IRS targets the poor for tax audits while leaving millionaires alone” is either economically ignorant or intentionally misleading. He asserts that the IRS disproportionately audits lower income households for some biased reason, but that is simply not the case. Hiltzik takes his data from a non-profit called TRAC which reviews IRS reports that are generated as part of an ongoing FOIA request.

Hiltzik ignores the fact that the IRS audits taxpayers based upon sophisticated analyses that tell them where the taxpayer errors are. It is simply the case that low income taxpayers claiming the complex earned income and other credits have a huge error rate – leaving the IRS no alternative but to go after them. He even complains that 82% of those audited claimed the Earned Income Tax Credit (EITC) – ignoring that error rates on these tax returns are around 50%, and  improper refunds involving EITC claims is more than $17 billion each year.  Hiltzik goes so far to state that “pursuing low-income taxpayers won’t do anything to close the tax gap,” nearly suggesting that low-income earners shouldn’t be audited at all – though anyone can see that the combination of erroneous credit claims, and the also quite common situation of people claiming low income because of work in the underground economy are significant contributors to the tax gap.

Even though higher-income tax returns would seem to have more money to go after, they are most often either 1) relatively straightforward, with full statutory tax rates being paid, or 2) complex requiring services of qualified tax professionals who are quite competent to see that the letter of the law is being followed. It’s egregious that Hiltzik claims, with no evidence whatsoever, “the rich keep more of the money they owe to the federal government.” He misconstrues this audit data as part of his screed against millionaires and billionaires by offering the tired old trope about them not paying their fair share; in reality, roughly 57% of U.S. households paid no federal income taxes for 2021. How is that actually fair?

Why Your Electric Bill is Actually Soaring

Katherine Blunt’s WSJ article, “Why Your Electric Bill is Soaring — And Likely To Go Higher” absolutely ignores (or just possibly misses) that soaring gas prices are caused as much by Biden production restriction policies nationally. They are further exacerbated by policies like the New York State pipeline and fracking prohibitions just as much as they are by recent Ukraine issues. She should know that gas prices (unlike oil) are a local, not global market. Furthermore, most of New York increases are from a vast push into incredibly more expensive wind and solar mandates. Her own editorial board writes about this all the time, and she would do well to read it.

Calculating the True Cost of Raising Revenue

It’s kind of disgusting that when Congress talks about raising tax revenue, all the CBO thinks about and includes in their analyses is gross revenue. They don’t think about the costs of what the IRS, agencies, businesses, and taxpayers need to do to implement the policies that were created in order to raise that revenue. Those costs should always be factored in the computation and subsequently deducted to arrive at net revenue raised..

What’s happening now is that the compliance costs are not being considered. Congress says, for instance, that something will raise “$50 billion dollars” but then ignores that the complications, regulation issuance costs, compliance and other implementation expenses that will arise may cost $30 billion. So only $20 billion is actually raised. These hidden but true costs have to be included and come out of the CBO revenue forecast if we are to craft realistic, equitable, and  efficient tax policy