IMF-tax the rich

[carepov]

I sense a slight strawman, however, and am not sure why it needs be acknowledged it as a "good point"....presumably for the sake of a civil and polite debate (which is fair enough).

But the fact is that I've never heard anybody claim that the plight of the poor in the US, or in Canada...or hell, in Brazil for that matter--is "as bad" as the plight of the poor in many more troubled economies and societies. I've never heard it implied, in fact, that I can remember.

No, this is not a strawman - earlier I wrote: "Yes probably, but in Canada and most other OECD countries the lot of the poor has improved much faster and has surpased the standard of living of the poor in the US."

Thanks to BC's links I learned that the bolded part of my statement was probably wrong.

Poverty is a serious issue and for that reason we should all have facts straight. The poor in the US are worse off than those in Canada, Sweden and Australia, but better off than those in all other OECD countries.

Here another fact, in Canada the (real) incomes for the middle class and poor have been steadily growing and never been higher than it is today. This does not mean we should ignore the issue but neither should we making false statements like, "the declining/hollowing out of the middle class" or "all the economic benefits are going to the rich"...

[bush_cheney2004]

I think we can agree that the magnitude of income inequality is greater in the U.S., resulting in [more] poorer (and richer) people. I am unclear as to how much the "gini coefficient" reflects income and benefits from all sources (welfare, transfer payments, credits, health care, etc.) .

We probably still disagree over the IMF premise that income redistribution (i.e. taxing the rich) and/or reducing taxes for the poor leads to greater economic growth, as this has not been consistently demonstrated in the U.S. since 1960. Perhaps it applies elsewhere.

[cybercoma]

That is....are we to preface every remark with a "could be worse" qualifier?

Sadly, some posters require this, since they're quite happy comparing our standards with that of countries that don't even have stable governance, clean drinking water, hospitals, or schools. We could always just ignore people that are so dishonest with "debate" that they would do this. After all, no reasonable person would say to another, "at least we're not like Sudan."

[carepov]

We probably still disagree over the IMF premise that income redistribution (i.e. taxing the rich) and/or reducing taxes for the poor leads to greater economic growth, as this has not been consistently demonstrated in the U.S. since 1960. Perhaps it applies elsewhere.

IMF: "the combined direct and indirect effects of redistribution—including the growth effects of the resulting lower inequality—are on average pro-growth."

It is not income redistribution that is directly pro-growth it income equality. US data since the 1960's does support this. As you've posted earlier, inequality has been rising (gini), while growth is falling:

http://www.advisorperspectives.com/dshort/updates/Real-GDP-Per-Capita.php

The relationship between inequality and growth makes sense. Imagine the government reaching into the wallets of citizens and stealing their money. Which scenario would have the most negative impact on the GDP?

a) stealing $1000 form a rich person?

stealing $100 from 10 poor/middle class people?

Edited March 6, 2014 by carepov

[carepov]

I am unclear as to how much the "gini coefficient" reflects income and benefits from all sources (welfare, transfer payments, credits, health care, etc.) .

Figure 7 on page 23 of the IMF report (http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf) sheds light on this distinction:

Gini of Market income: not including all sources

Gini of Net income: including all sources

Edited March 6, 2014 by carepov

[bush_cheney2004]

IMF: "the combined direct and indirect effects of redistribution—including the growth effects of the resulting lower inequality—are on average pro-growth."

It is not income redistribution that is directly pro-growth it income equality. US data since the 1960's does support this. As you've posted earlier, inequality has been rising (gini), while growth is falling:

If the consideration is for "average" only, then the impact is not that significant. As demonstrated earlier, U.S. economic growth was also rising with rising income inequality (gini).

Edited March 6, 2014 by bush_cheney2004

[bush_cheney2004]

The relationship between inequality and growth makes sense. Imagine the government reaching into the wallets of citizens and stealing their money. Which scenario would have the most negative impact on the GDP?

a) stealing $1000 form a rich person?

stealing $100 from 10 poor/middle class people?

Not enough information given other government spending and transfers, which also lead to economic growth.

[bush_cheney2004]

Figure 7 on page 23 of the IMF report (http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf) sheds light on this distinction:

Gini of Market income: not including all sources

Gini of Net income: including all sources

Thanks...as this provides some clarification. I wonder if it includes spending on state/provincial and federal inmates ?

[carepov]

As demonstrated earlier, U.S. economic growth was also rising with rising income inequality (gini).

GDP is increasing due to population growth, real US GDP growth per capita is steadily declining.

[bush_cheney2004]

GDP is increasing due to population growth, real US GDP growth per capita is steadily declining.

Again, I can find increasing GDP growth per capita as well while income inequality increased.

Edited March 6, 2014 by bush_cheney2004

[carepov]

Again, I can find increasing GDP growth per capita as well while income inequality increased.

So what - I can find a whole bunch of smokers that outlive non-smokers.

[bush_cheney2004]

So what - I can find a whole bunch of smokers that outlive non-smokers.

You can't find as many as that GDP per-capita growth chart would indicate. The proposition is not proven just because there is income erosion since 2008 (in the U.S.A. anyway). Maybe it's true for other nations...haven't looked.

Looking at that chart, it is clear to me that continued GDP per capita growth was not sustainable at that rate no matter what the conditions of income inequality. Further, other nations with lower income inequality did not match such growth over the same timeframe.

Edited March 6, 2014 by bush_cheney2004

[carepov]

You can't find as many as that GDP per-capita growth chart would indicate. The proposition is not proven just because there is income erosion since 2008 (in the U.S.A. anyway). Maybe it's true for other nations...haven't looked.

Looking at that chart, it is clear to me that continued GDP per capita growth was not sustainable at that rate no matter what the conditions of income inequality. Further, other nations with lower income inequality did not match such growth over the same timeframe.

There are exceptional time periods but even in the US, on average, the greater the gini the slower the GDP per capita growth.

Proof: The slope of the first graph is the oposite as the slope of the second graph:

This supprts the IMF report that states:

"lower net inequality is robustly correlated with faster and more durable growth"

All else being equal, a more equal economy will grow faster than a less equal economy.

[bush_cheney2004]

...All else being equal, a more equal economy will grow faster than a less equal economy.

No...as this is true with only specific conditions and/or exclusions for undeveloped nations. All else is rarely equal. Meaning that more income equality in and of itself is not the primary factor, and sometimes not a factor at all. The IMF report should be digested in the context of such conditions.

Edited March 6, 2014 by bush_cheney2004

[carepov]

No...as this is true with only specific conditions and/or exclusions for undeveloped nations.

There is a 30 page IMF report that concludes "yes" but you you say "no" for no clear reason.

All else is rarely equal. Meaning that more income equality in and of itself is not the primary factor, and sometimes not a factor at all.

These points are true but beside the point.

[bush_cheney2004]

There is a 30 page IMF report that concludes "yes" but you you say "no" for no clear reason.

These points are true but beside the point.

That's OK by me....the IMF report is great for "on average", and "all else being equal", neither of which applies in most cases.

[carepov]

That's OK by me....the IMF report is great for "on average", and "all else being equal", neither of which applies in most cases.

"on average" means that the rule will apply to most cases, and in the long run will apply to practically all cases.

On average, roulette players will loose money. In the long run, all roulette players will loose money.

[bush_cheney2004]

"on average" means that the rule will apply to most cases, and in the long run will apply to practically all cases.

"On average" masks a lot of variation. While more income equality may be a virtue, demonstrated economic growth doesn't really care:

http://www.forbes.com/sites/peterferrara/2014/01/14/why-economic-growth-is-exponentially-more-important-than-income-inequality/

Edited March 7, 2014 by bush_cheney2004

[carepov]

"On average" masks a lot of variation. While more income equality may be a virtue, demonstrated economic growth doesn't really care:

http://www.forbes.com/sites/peterferrara/2014/01/14/why-economic-growth-is-exponentially-more-important-than-income-inequality/

Oh but growth does care about inequality, your author says:

"...economists have long recognized the conflict between economic equality and maximizing economic growth. Put most simply, penalizing investors, successful entrepreneurs, and job creators with higher taxes, to reward the less productive with government handouts, to make everyone more equal, is a sure fire way to get less productivity, fewer jobs, lower wages, and reduced economic growth."

while my guys say:

"lower net inequality is robustly correlated with faster and more durable growth"

Compare your article with the IMF report and it is clear that your guy is full of...

[kimmy]

Despite your very real concerns Canadians are still better off today than 30-40 years ago. The increase in housing costs is more than offset by decreases in food and clothing:

Average share of household spending on major items 1969

Food - 18.7 per cent

Shelter - 15.2 per cent

Clothing - 8.1 per cent

Transportation - 13.1 per cent

Personal taxes - 13.5 per cent

2009

Food - 10.2 per cent

Shelter - 19.8 per cent

Clothing - four per cent

Transportation - 13.7 per cent

Personal taxes - 20.2 per cent

http://www.cbc.ca/news/canada/food-eats-up-less-of-our-spending-but-costs-us-more-1.1054574

Prices of food, clothing, shelter, and transportation are all reflected in the price-indexes that are used to generate the "inflation-adjusted" income charts (which have been more or less flat for most individuals for many years.) The change in those prices is the very yardstick by which we compare today's incomes to those of the past and find their growth to be "meh" at best.

By contrast, the greatly increased costs of education and home ownership are not included in those price indexes, for reasons I explained in my previous post.

-k

[carepov]

Prices of food, clothing, shelter, and transportation are all reflected in the price-indexes that are used to generate the "inflation-adjusted" income charts (which have been more or less flat for most individuals for many years.) The change in those prices is the very yardstick by which we compare today's incomes to those of the past and find their growth to be "meh" at best.

By contrast, the greatly increased costs of education and home ownership are not included in those price indexes, for reasons I explained in my previous post.

-k

And yet more Canadians than ever own homes and have post-secondary education degrees. Add to the fact that real incomes, disposable incomes and net worth are at all time highs tells me that the average middle-class Canadians have never had it so good. If you disagree, when do you think life was any better?

[bush_cheney2004]

....while my guys say:

"lower net inequality is robustly correlated with faster and more durable growth"

Compare your article with the IMF report and it is clear that your guy is full of...

I don't think it matters which "guy" is right or wrong....the demonstrated course has been robust economic growth with and without income inequality.

If the IMF report was so bullet proof, we could double confiscatory taxes tomorrow and sit back and watch the economy boom to stupendous heights, right ? So what are we waiting for ?

[dre]

Prices of food, clothing, shelter, and transportation are all reflected in the price-indexes that are used to generate the "inflation-adjusted" income charts (which have been more or less flat for most individuals for many years.)

Most inflation calculations use the Core CPI which excludes food and energy since the mid 90's.

In any case inflation is a personal phenomenon, and the problem with using inflation adjusted incomes as a measure of purchasing power is that everyone buys different stuff, and people in different income brackets buy different stuff.

If you spend most of your money on say... a home, college tuition, fuel, fresh meat and produce, and electricity as many families do... Then you are experiencing a hell of a lot more inflation than 2%. Probably in neighborhood of 7 or 8%. If you have a lot of disposable income, and you spend it on non durables, cars, consumer electronics, etc... Then youre inflation is quite low.

This is why the middle and lower middle class dont believe it when they are told they make more money than ever before. They feel stretched and squeezed. Electricty has double in price for me in the last ten years... tuition has almost doubled.... the price of gas and diesel has doubled, and the price of fresh meat and produce has almost doubled too.

If you took the middle class and lower classes.... and looked at the things they REALLY buy, and cant live without... and put those goods and services in a basket and calculated a CPI from that... you would see that these peoples wages are dropping rather dramatically.

Edited March 9, 2014 by dre

[dre]

And yet more Canadians than ever own homes and have post-secondary education degrees.

People are buying those things with debt not wages. Debt levels are at an all time high, and personal savings are near all time lows.

Add to the fact that real incomes, disposable incomes and net worth are at all time highs tells me that the average middle-class Canadians have never had it so good. If you disagree, when do you think life was any better?

For the reasons I stated above you can not use so called "real incomes" to evaluate the purchasing power of any families unless the basket of goods and services used to calculate inflation the matches what they actually buy, and it doesnt.

It relies heavily on 4 aggregates... (1) the Bank of Canada's core CPI, (2) All-items CPI excluding eight of the most volatile components identified by the Bank of Canada, (3) All-items CPI excluding food, (4) All-items CPI excluding food and energy.

Lower income and lower middle class incomes spend a greater percentage of their total income on basic necessities like food and energy.

The more of your income that is spent on things like food or energy, the higher your real rate of personal inflation is. And Im telling you... for your average middle class family it sure as hell isnt 2.2%. I could have bought WAY more fuel with my paycheck 10 years ago than I could today. Way more electricity. People are squeezed, and they have depleted their personal savings, and dramatically increased their debt loads in order to maintain their standard of life.

Edited March 9, 2014 by dre

[bleeding heart]

Good posts, Dre.