Wrong, Wrong, Wrong


Earlier this week I said that I was confused why intelligent intellectuals are being drawn in by that highly misleading viral video, based on highly misleading data from Ariely and Norton in which they infer conclusions that cannot be inferred from their data. Furthermore, the data presented omits housing wealth, omits the annuity value of social security, is not net wealth, and includes children. Even beyond the study participants almost surely conflate the concepts of wealth and income, but they get no help from the authors of the study itself, who do the same thing (and here).

Bottom line is, the study is completely unreliable, and should be laughed out of any room, and should certainly not be used as evidence in policy debates.

This is what I wrote about the situation:

While there are certainly other conceptual problems with the video [besides conflating wealth and income] (i.e. “middle class” is not a range of income), my confusion is stemming from the popularity of the video among people that I know that should know better. It’s really taking even intellectuals by storm. Can anyone un-confuse me?

Today, Ezra Klein epitomizes my concern! If a media outlet like Wonkblog is getting these things hopelessly wrong, what hope does your average Joe have?!

The most comical part of the whole train wreck comes in this paragraph:

Take social mobility. A family might be doing fine on the income scale but still living hand-to-mouth, with little left over to pay for the child’s SAT prep or college tuition. A family with wealth, on the other hand, can always liquidate some assets to invest in their child’s future, and they can do so without worrying that they won’t be able to pay next month’s mortgage.

Now, do you remember back during the tax debates, when some idiot would come out of the woodwork claiming that they make $450,000 a year, but still aren’t rich because of their cost of living? Do you remember the leftist liberal reaction to those people? Ezra’s hypothetical above is the exact argument those poor rich people were making, only instead of using their cost of living as a foil, Ezra is using fuzzy aspects of life that appeal to lefties. Just like back in the tax policy debates, Ezra’s hypothetical family is experiencing frictions in cash flow. That wealthy people can liquidate assets to cover their extra expenses is irrelevant.

But that is simply a digression. The big issue is that Ezra seems more than happy leaning on faulty data to make a partisan point, when he should know better. You can’t use Ariely and Norton’s data to claim that most people favor redistribution of wealth, and even if you could, it still doesn’t justify such redistribution. A problem with his position — which is stumping for a wealth tax, which he does at the end of the article — is that a wealth tax is paid out of income. You aren’t really taxing wealth at all, you are double (or even triple!) taxing income. And what moral principle justifies taxing thrift anyway? There is nary a worse idea in the entire pop economics literature than the wealth tax. What those who advocate for a wealth tax really want to capture is a share of the consumption of the wealthy on things like yachts, houses, jewelry, cars, travel, etc. A wealth tax is not the way you do that.

h/t Garett Jones

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3 thoughts on “Wrong, Wrong, Wrong

  1. Okay, I am a llbertarian, and I like consumption taxes (think Scott Sumner).

    But…what if in free enterprise, free markets, there is a natural tendency for income and wealth to concentrate?

    And then such concentrations inevitably lead to political power, and self-reinforcing taxes and regs to maintain stats quo? (Yes, libertarians will say, “Yeah, that’s why we keep government small.” Except in practice, it might not work out that way. Government will be as large and powerful where and when the ruling class wants it.)

    Let us say the “natural” result is highly concentrated income and wealth. For the sake of our ideology, should we then say. “Well, that’s what we gotta do?”

    This reminds me of monetarists who say we must suffer, permanently if necessary, to keep inflation at zero, as that is the best inflation rate, and the only moral inflation rate. Why? Because it is. That is the goal, not prosperity.

    Back in the real world, it could be we have to trim back the “natural” flow of income and wealth, to keep our political system roughly democratic.

    I will concede right now it looks like a full-on cats and dogs fight between lower and upper classes for control of government, with lots of bad fallout.

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