Monday, April 30, 2012

Is a Vote for Obama a Vote for Inequality?

Lies, damn lies, and statistics

Two truths provide endless entertainment.  First, we all should know politicians are masters of using statistics to distort the truth.  It’s fun to watch, but it’s sad that so many voters don’t see through it.  The fun is trying to determine which politicians are good liars and which are so stupid that they believe their own lies.  As voters, we have to decide whose lies are most destructive.  Personally, who is more destructive seems more important than who’s the bigger liar. 
Second, journalists can be equally entertaining when they have to deal with numbers.  It’s easier to forgive journalist.  By definition, their expertise is words not numbers.  When a politician dismisses the trillion dollar deficits of the current administration as nothing different from the hundred billion dollar deficits of the last administration, one can forgive journalists for not noting the dollars to dimes difference on order of magnitude.  So, regardless of whether one thinks the differences are justified, it is foolish to look to the media to help one assess the difference.    

However, as with politicians, one has to wonder whether it is ignorance or intent that distorts journalistic endeavors.  It does become annoying when one suspects a supposed reporter is editorializing. It’s a major failing of our journalism schools that they don’t teach the difference between the editorial pages and the news pages.
“All well-and-good” you say, but what does that have to do with whether a vote for Obama is a vote for income inequality.  Simple.  Let’s turn to “lies, damn lies, and statistics” as it is reported by journalists and used by politicians.  A recent example is an article entitled “Wage Divide Grows Wider” in the April 18, 2012 print WALL STREET JOURNAL or “Workers' Pay Divide Persists” online.
The article starts out saying “The gap between America's highest- and lowest-paid workers is widening.” It cites: “Labor Department figures released Tuesday show that between the end of the recession in mid-2009 and the first quarter of 2012, earnings of Americans at the top—meaning those who earned more than 90% of all workers—rose 7%, before adjusting for inflation. During the same period, wages of those at the bottom—meaning those who earned less than 90% of all workers—rose 2.5%.”  
“Mid-2009” on!  That is Obama’s show any way you look at it.  There wasn’t an opposition at the Federal level worth mentioning until the legislatures elected in 2010 were seated the following year.  Even then it was only one house of Congress.   So, based only on the data, Obama is promoting income inequality. 
Alas, the truth is that most class warfare rhetoric about income inequality is just noise made to appeal to a constituency.   Nothing illustrates that better than the fact that Obama has made the gap between top and bottom a theme of his re-election campaign. To quote his State of the Union: "We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot."  Talk about hypocrisy.  Create inequality with a massive “stimulus,” then rail about it as if you would do something about it.  That’s the “lies.”
The article goes on to note: “That pay difference predates the global financial crisis: Between 2003 and 2007, wages grew 12.9% for high earners, compared with 8.4% for the lowest-paid 10% of workers.”  Those who keep score on a political basis might find it interesting that during the Bush recovery the bottom 10% did a better job of keeping up than during the Obama recovery.  The difference wasn’t small either. Under Bush the growth rate for the bottom 10% was about two thirds of that for the top 10%.  Under Obama it was one third.  The interesting thing is that since high incomes tend to grow faster during expansions, Obama’s failure to stimulate economic growth should have produced a convergence of income growth rates relative to the better economic performance under Bush.  That’s the “damn lies.”
But, it is just the beginning of “lies, damn lies, and statistics.” Why does the article ignore 2007 until mid-2009? The answer is because the writer isn't reporting meaningful data. Starting out with an agenda and finding data to support your conclusion is not quality reporting. Upper incomes are more volatile as in high beta wealth. By ignoring periods of recession the article turns the tendency of upper incomes to fluctuate most over the economic cycle into what looks like a trend.  That’s the “statistics.”
There are at least two unfortunate consequences of this game of “lies, damn lies, and statistics.” First, the game can be played while ignoring the volatility of incomes.  One suspects it is intentional. Politicians find it convenient to promote the notion of a plutocracy in order to support their class warfare substitute for serious thought.  Sort of a “keep ‘em stupid and in their place” approach.  
Reporters can avoid reporting information that would challenge peoples’ preconceptions.  Reporting news is much easier if the news isn’t unfamiliar.  Besides, avoiding things that are unfamiliar is easier for the mentally lazy. 
That it leads to stupid decisions is just an unfortunate side effect.   What if income gains for the poor and middle income groups can only occur when the upper income tail of the distribution goes up more?  (For the math geeks, what if the median, kurtosis and skew are all dependent of the same variables?  After all they are all a part of the same distribution).  It doesn’t decide any issues, but it’s worth knowing.
Second, we avoid addressing or even discussing the important issue of mobility and opportunity.  Scott Winship of the Brookings Institution is quoted in the same article as finding that “there aren't signs of weaker social mobility between the poor and the middle class over the past 60 years.” 
There is data relevant to mobility.  The best data is longitudinal data that tracks incomes of a large sample of people over time.  Follow up surveys and personal historical reconstructions have also been used to address the issue. My impression is we know mobility hasn’t changed a lot, but we are measuring with a yardstick.  That’s fine unless inches have major social implications.  What if inequality can only be reduced by eliminating mobility?  What if minor changes in mobility have major implications for the stability of a society?

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