More on Income Inequality from Mauldin

The third post in the series.

Mauldin starts with a clear explanation from Charles Gave of how Fed policy is really stealing from savers, and how this is causing lower growth in the long run.

Then he explains how income and income change is linked to a lot of factors that have been changing along with the measured inequality.  Specifically, household size, workers per household, and age (baby boomers).

He cited research showing that income inequality may not be rising as much as people think anyway, because of the way it is measured.  Apparently all those scary stories are using raw income, not adjusted for taxes or transfer payments.  I can see the argument against including transfer payments, because if the person was not poor, or unemployed, or retired, they would not be receiving those payments.  On the other hand, the point made by the researcher is, that’s real money that the person does have available to spend.  From Diana Furchtgott-Roth:

A superior measure of well-being that avoids these pitfalls is real spending per person by income quintile. Spending power shows how individuals are doing over time relative to those in other income groups. These data can be calculated from published consumer expenditure data from the government’s Consumer Expenditure Survey. An examination of these data from 1987 through 2012 shows that inequality has not changed.

Finally, he gets back to my go-to bad guy, crony capitalism, which explains this chart which has been making the rounds online (this one is from The Atlantic):


Who even are these people—the 1 percent of the 1 percent?

As Tim Noah explained, they’re mostly executives and bankers. A 2010 study of the top 0.1 percent found that 61 percent of this group is either a banker or an executive/manager another big corporation. The rest are mostly lawyers (7 percent), doctors (6 percent), and real estate people (4 percent).

Mauldin quotes the Heritage Foundation on this topic:

And speaking of insiders and cronyism, that is a serious part of the problem of income inequality. This report from the Heritage Foundation offers some real meat:

While many on the Left – particularly the Occupy Wall Street movement – confuse the two, free-market economics could not be more different from crony capitalism. Whereas the free-market system treats all players equally, from the largest conglomerate to the smallest mom-and-pop shop, crony capitalism rigs the rules of the game in favor of the entrenched big players.

Whereas the free-market system celebrates and encourages competition, crony capitalism is about shielding the powerful and well-connected from competition. Subsidies, which have no place in a free-market system, form a basic staple of crony capitalism, as do waivers and bailouts.

In the long run, Americans pay a heavy price for this marriage of business and government. Crony capitalism forces taxpayers to subsidize well-connected players and restricts opportunities for the rest of us. As Paul Ryan has explained:

Pitting one group against another only distracts us from the true sources of inequity in this country—corporate welfare that enriches the powerful and empty promises that betray the powerless…. That’s the real class warfare that threatens us: a class of bureaucrats and connected crony capitalists trying to rise above the rest of us, call the shots, rig the rules, and preserve their place atop society. And their gains will come at the expense of working Americans, entrepreneurs, and that small businesswoman who has the gall to take on the corporate chieftain.

He closes with a reminder of the importance of education, what a mess it is, and his thoughts on it.

Another classic from John Mauldin.

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