Another day, another smackdown from a disciple of the curmudgeonly Austrian economist Ludwig von Mises. Here’s the word from Gary North:
In the May 15 issue of Time Magazine, there is an article by Justin Fox. I had never heard of Mr. Fox. His biography on Time’s site says he has a B.A. in international relations. He therefore writes for the business section. He has recently published a book, The Myth of the Rational Market. You get the general idea.
Time was started in 1923 by Henry Luce (Skull & Bones, Council on Foreign Relations). It has long been a popular outlet for the American Establishment. In fact, Time is the news magazine written by the American Establishment in order to shape the thinking of the voters on the Big Picture. …
North goes on to castigate me for practicing “the politics of envy.” I certainly am envious of the Justin Fox who has already gotten his book published (my manuscript is sitting quietly with its editor at the moment). It’s also the case that from the perspective of a true Misesian (or von Misesian, if you prefer), any redistribution of income through taxation amounts to theft. So it’s not just me–we’re a nation of envious thieves. Have been since 1913.
(More after the break.)
The only part of North’s critique that bothered me was this:
He says there has been growing inequality of wealth. He offers no statistics to indicate that inequality has increased from the income distribution of 1940, let alone 1900. Those who identify inequality as a significant economic or moral liability that calls for radical policy changes by government never do offer such statistics. There is a reason for this. The ratio of wealth by income class has barely changed, in the United States or in Western Europe, in a hundred years.
The evidence for a significant increase in American inequality since 1980 is based on tax evidence. But this evidence does not consider money in tax-deferred retirement funds. So, it is questionable.
Here’s what I actually wrote:
According to economists Thomas Piketty and Emanuel Saez, 75% of all income gains from 2002 to ’06 went to the top 1% — households making more than $382,600 a year.
The gap between high and low earners has been growing since the late 1970s, and until recently, economists attributed virtually all of it to technological and demographic changes that increased the premium paid to those with advanced skills and education. … But according to Piketty and Saez, the really dramatic developments have all been at the very, very top — not the top 1% but the top 0.01%, who now control 5.46% of all income, their highest share on record. (The data go back to 1913.)
So first of all, I did cite data going back to 1913. The general trajectory since then is that the income share of the top 0.01% fell during World War I, rose sharply in the 1920s, fell sharply in the 1930s, and then continued to decline until the late 1970s. Then began the rise that, interrupted by the occasional bear market, has brought us to where we are today. Which isn’t all that different from where it stood in 1914 or 1929, but is certainly dramatically higher than where it was in 1940.
As for not considering “money in tax-deferred retirement funds,” that’s a line from the Great Data Cherry Picker himself, Alan Reynolds. His argument is most Americans can stash their savings in 401(k)s and IRAs while those with the highest incomes are stuck with keeping their wealth in taxable form, and because Piketty and Saez rely on income tax data this skews their distribution. This is undeniably true to some small extent. But as Piketty and Saez respond, the income from those 401(k)s and IRAs does all show up as taxable income eventually (I guess this isn’t true for Roth IRAs and 401(k)s, but those are too new–and thus not big enough–to matter much yet). Also, rich people can avail themselves of all sorts of others means of sheltering income that aren’t available to the masses. And when you get below the top 1% or 2%, 401(k)s and IRAs would seem to have the effect of hiding increased inequality because poor people are much less likely to have money stashed in them than upper-middle-income folk are.
So that’s that. Oh, and how did it go with that the-world-will-collapse-in-financial-chaos-in-1999 prediction, Mr. North?