December 14, 2006
Progressives and Numbers on Income Inequality and on Global Warming
Two separate studies caught my eye this morning. They are related. First is a reaction to the Stern Review on the Economics of Climate Change, released October 30, that demanded we should immediately invest 1 percent of the world's GDP on reducing global warming. Second is a reaction to the Piketty/Saez report in income inequality in the United States. Piketty/Saez report, echoed by Senator Webb, claims that the top 1% now take in 16% of nation income. The press trumpeted both reports and most of my colleagues in the university, knowledgeable types, take them as fact. Careful analysis shows both estimates to be bogus. Partha Dasgupta of Cambridge shows that the Stern report uses an absurd "social discount rate" analysis that, if carried to its logical extreme, would demand that we should invest 97% of all income currently earned in raising the standard of living of future generations. Reynolds of Cato shows that the income inequality data, using income tax returns, is an inaccurate measure of true income (some types of income are left out from both the top and bottom categories; some transfer payments are left out) and an even more inaccurate measure of wealth. He notes, given a more careful look at the data, that there is "no clear trend toward increased income inequality since 1988." At issue, is why we want to believe the bad data. Bad studies are assumed to be fact; answers are assumed to be self-interested. The answer is, of course, that those who trumpet the bad studies are self-interested -- pushing social agenda that the studies support. Environmentalists welcomed the Stern report; progressives (and Democrats) welcomed the Piketty/Saez report.
December 14, 2006 | Permalink
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