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*Opinions expressed here may or may not reflect the views of the Fernley Republican Women. Blog posts should not be considered an endorsement from the FRW.

Income Disparities in America: A Broader View

3/30/2021

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​In recent policy debates, current income trends and disparities among Americans have been a major concern.  Courtesy of economist John Mauldin and River Financial, a comprehensive set of data and charts is now available to shed new light on the subject.
The most notable point raised by people about income disparities is that, adjusted for inflation, incomes of high earners have increased rapidly over the last half-century while those of middle- and lower-income folks have increased slowly or even stagnated.  Or, the rich get richer and the poor get poorer.
There are two problems with this account.  First, it conveniently focuses on the last half-century and ignores the trend before 1971.  Indeed, the income share of the top one percent of earners relative to that of the bottom 90 percent rose greatly from 1971 to the Great Recession to a level it maintains today.  That is, the total incomes of the top one percent as a group today is nearly 75 percent of the total income of the bottom 90 percent group.
Fifty years ago, however, the top one percent made just over 40 percent of what the bottom 90 percent did.  Moreover, the high point before 1971 for the highest one percent was reached at the end of the Roaring 20s – at the same relative level as today.  The very rich were very damaged by the Great Depression of the 1930s and World War II (WWII).  After the war, their incomes rose somewhat slower than income for “The Rest of Us” until the 1970s.
So, the analyses covering only the last 50 years are not reflective of longer American history.  Thus, they’re not very convincing for claims that policy or the economic system is broke.  That’s not to say the current trend doesn’t indicate problems or legitimate concerns, just that it’s an incomplete and unrepresentative snapshot.
The second problem with this trend account is even more notable.  Namely, the income measures include only income and not the effect of taxes and government transfers (e.g., food stamps and tax credits).
When the incomes series are modified to incorporate these effects of government, the overall distribution of total incomes (i.e, including taxes and transfers) are roughly the same as in 1971, or perhaps slightly more equal.  Beginning in the 1980s, the inequality in the total incomes rose, as it did in the following two decades.  After the Great Recession, however, incomes became more equal.
In sum, the basic claim about the rich and poor is false.
When we don’t adjust for taxes and transfers, the following data and trends remain.
First, wages rose in line with the gross domestic product (GDP) per person after WWII to the early 1970s – a condition we think of as being normal.  However, from 1972 to 2017, productivity gains far outran workers’ compensation.  The phenomenon causing this trend was that capital equipment and new innovations and inventions (technology) began to claim more of firms’ earnings.  And returns to capital and from inventions and innovations accrue to the wealthy and high-income folks.
Also, incomes of Black people relative to White people after WWII rose rapidly until the early 1970s.  From then until now, that gap has been closed at a much slower rate.
From the end of WWII, median incomes of women in the workforce grew slightly slower than the economy until the Great Recession.  Income of men, however, rose with economic growth until the early 1970s.  After that, they flat-lined up to the present day.
Overall, people’s income gains after WWII were shared widely among income classes.  But since the early 1970s, the income gains have accrued much more to higher income classes than to middle and lower classes.
Further, costs of some goods and services, especially housing, have risen much faster than others and the overall measures of inflation.
Monetary inflation and deflation kept prices generally comparable from America’s founding until World War I, the income tax and the Federal Reserve.  Since then, and especially after 1971, inflation has driven price levels ridiculously high.
Finally, U.S. government debt held at reasonable levels, with upward excursions after wars, until the end of the 20th Century.  It has been sky-rocketing since then, especially in recent years.
Ron Knecht has served Nevadans as state controller, a higher education regent, economist, college teacher and legislator.  Contact him at RonKnecht@aol.com.  
Ron Knecht

775-882-2935
775-220-6128
 
www.RonKnecht.net
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Can Someone Earn $1-million in a Year Honestly?

3/23/2021

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​With the Fighting Illini launching March Madness Friday with a blow-out, I was all set to watch Saturday and Sunday as they led the Big 10 dominance through the tournament.  You can take the boy out of the Midwest but you can’t take the Midwest out of the boy.
Of course, they blew the first game Saturday, leading a memorable Big 10 collapse leaving just two of its mighty nine qualifiers standing at the end of Sunday.  It wasn’t much compensation that my other conference, the Pac-12, won its first five games – especially because my grad school alma mater Stanford didn’t even make the party.
What’s a young man to do?
The good news is Sunday afternoon the History Channel featured four parts in six hours of their great 2012 docudrama, “The Men Who Built America.”  These episodes cover the late 19th and early 20th centuries and the entrepreneurs, inventors, investors and power-brokers whose truly exciting stories demonstrate the essence of America and capitalism.
Cornelius Vanderbilt in railroads. Andrew Carnegie in iron and steel. Thomas Edison and George Westinghouse in direct-current electricity. John D. Rockefeller in oil and natural gas. Nikola Tesla and J.P. Morgan in alternating-current electricity. Henry Ford and the auto.
Many remember them as robber barons and ruthless predatory monopolists.  But they were also men of great courage and vision who were the ultimate benefactors of America and the modern world they wrought.
Without them or their equivalents, we and the whole modern world would be much poorer today.  They and their successors made today’s poor live better than monarchs of old and helped open to today’s well-off folks previously unimaginable vistas of knowledge, experience and human flourishing.
Really, Ron?  …  Really.
Of course, their ruthlessness and winner-take-all motif damaged more than benefitted some folks at the time, and thus engendered bitter enemies, opponents and some legitimate criticism.  But it also raised much resentment-based illegitimate criticism and political opposition.  Most notable, quotable and threatening of their political opponents was Democrat William Jennings Bryan.
The southern-Illinois-born prairie populist orator, a leading progressive of his day, a/k/a The Great Commoner, ran for president in 1896, 1900 and 1908, coming closest in 1896.  At the 1896 nominating convention, he made his most famous speech, speaking in favor of free silver and declaring of the eastern moneyed interests, “They shall not nail us to a cross of gold!!!”
But he was also famous for the assertion he made while on the first whistle-stop presidential  campaign tour that, “No man can honestly make $1-million dollars in a year.”  A claim the documentary highlights.   And the most significant point in understanding the men who built America and modern capitalism.
Bryan’s claim completely misunderstands the nature of markets.  He argues essentially there is a labor or similar externally-imposed standard of value that should prevail in commerce; and using that standard, no one could work enough hours in a year to earn anywhere near $1-million.
But an externally imposed earnings standard is not how the world works, nor should it.  To promote maximum aggregate human well-being and fairness in a society, labor and everything else should transact at some mix of the values placed on it by its buyers and sellers.  And that’s what market systems do: find the market price between those two values that maximizes economic output in the society and thus aggregate human wellbeing and fairness.
When an exchange of goods or services takes place, the price is below the buyer’s willingness to pay and above the seller’s willingness to accept.  Otherwise, one side or the other will not make the deal.
The bargaining that takes place in markets determines from the supply and demand for the item being valued what its social value is, and that’s the sale price.  It provides a consumer surplus, the difference between the consumer’s willingness to pay and the price; and a producer surplus, the difference between the seller’s willingness to accept and the price.
A person digging a ditch with a pick may work very hard and produce very little value.  An inventor, entrepreneur, investor, etc. may, on the other hand, produce huge value for others and thereby honestly earn that $1-million a year.
Ron Knecht has served Nevadans as state controller, a higher education regent, economist, college teacher and legislator.  Contact him at RonKnecht@aol.com.  
Ron Knecht

775-882-2935
775-220-6128
 
www.RonKnecht.net
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Presidents’ Day and Our New Chief Executive

3/2/2021

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​Presidents’ Day fell on February 15 this year, and the birthday of our first and greatest chief executive, George Washington, was February 26.  The birthdays of two other great presidents also occurred that month: Abe Lincoln, February 14; and Ronald Reagan, February 6.
So, it seems to me timely to discuss how the preparations of our 46th president, Joe Biden, compares with theirs.  (Personal apology: I started this column two weeks ago but, recovering from knee replacement, I couldn’t finish it until now.)
George Washington was born in 1732 to a Virginia family that made its fortune in land speculation on the frontier.  Washington was the oldest of six children of his parents, and his father had three children by a previous marriage.  His older half-brother Lawrence inherited the estate that eventually became Washington’s Mount Vernon when Lawrence left it to George.
Washington did not receive the formal education of Lawrence at the Appleby Grammar School in England, but he did learn mathematics, trigonometry and land surveying.  He was a talented draftsman and map-maker.  He wrote with “considerable force” and “precision,” albeit “lacking in wit and humor.”  In pursuit of admiration, status and power, Wikipedia reports, he tended to attribute his shortcomings and failures to someone else’s ineffectuality.
Lincoln was born in 1809 to a poor Kentucky family that moved to Indiana and then to Illinois, where people revered him so much they later adopted “Land of Lincoln” as the state motto.  Never having gotten a formal education, the self-taught Lincoln “read the law” and became a well-known lawyer and orator.
Reagan was born in February 1911 in Illinois, to a low-income family.  He graduated from Eureka College.  He worked as a swimming life-guard and radio broadcaster before heading for Hollywood to be an actor, union leader, 33rd governor of California and president. 
Lesson here for President Biden: It’s good to be born on the frontier, but the frontier has always shifted west.  At least it did so until Jay Gatsby, who falsely claimed to be from San Francisco, learned the frontier had shifted back east and moved himself to New York.  So, you being born in Pennsylvania and moving to Delaware is not a problem.
Broadening the notion of frontier to include the emerging commerce of the era, the other three presidents hit the nail on the head: Washington as a surveyor and map-maker when America was being opened.  Ditto, Lincoln’s professions from rail-splitter to lawyer as he matured. And Reagan from actor to politician, two growth industries of the 20th Century.
So, Biden’s lack of elite academic education is not a problem.  He developed a saleable craft, as they all had.
He also learned the essential skills of writing and speaking well.  But while Washington was self-taught in this regard, Lincoln borrowed much from the Bible and law books, and Reagan had legitimate scripts, some he wrote for radio himself; Biden found his voice a less honorable way.  Some of his best written and spoken pieces have definitively been found to be plagiarized.
Washington, of course, had a legendary early military career from soldier to very successful planter and businessman to local politician and leader.  As General of the army of the Continental Congress, he learned military diplomacy with the many generals under him and international diplomacy with our French allies.   Biden, having become a U.S. Senator at age 30 with no experience except lawyering, had none of these advantages.
Lincoln had only a year in the military during the Black Hawk War of 1832.  Then he ran unsuccessfully for the state legislature before winning two years later.  Those were the first of many political campaigns, of which he lost more than he won.  However, that experience, his great success as a farmer and his long years as a revered lawyer gave him a great edge over Biden.
Even Reagan’s work and experience before being elected California governor exceeded Biden’s pre-senatorial preparation. But Biden’s half-century as a senator and scandal fraught eight years as vice president have certainly prepared him for the Presidency.
There are many roads to the presidency.  For the sake of our country, we hope President Biden’s path serves him and us well.
Knecht, MS, JD & PE(CA), has served Nevadans as state controller, a higher education regent, economist, college teacher and legislator.  Contact him at RonKnecht@aol.com.
Ron Knecht

775-882-2935
775-220-6128
 
www.RonKnecht.net
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