Deirdre McCloskey: inequality is an ugly word – it frightens

HT: deirdremccloskey via cafehayek

The people designing your cities don’t care what you want. They’re planning for hipsters. – The Washington Post

HT: Michael Warby via The people designing your cities don’t care what you want. They’re planning for hipsters. – The Washington Post .

The naked self-interest of green-belting – Thomas Sowell

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Milton Friedman on poverty alleviation

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Which is more important: poverty or inequality?

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Richard Epstein on how to respond to good fortune and bad luck

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The fire of truth: multiculturalism

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Fire of truth: subsidies and rent seeking

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Stephen Williamson on Marginal Taxation

Karl Smith's avatarModeled Behavior

He says a lot. I’ll try to address piece by piece.

Next, some people have shown interest in this paper by Diamond and Saez. A key result that seemed to get these people excited is the calculation of a top optimal marginal tax rate (including all taxes) of 73%, relative to the current rate of 42.5%. There are two key assumptions that Diamond and Saez make to come up with the 73% optimal rate. First, we should not care about the welfare (at the margin) of the rich people. This argument is based solely on the notion that marginal utility of income is low for the top income-earners. Second, Diamond and Saez use a “behavioral elasticity” of tax revenue with respect to the tax rate of 0.25. To see how this matters, if you use their formula and an elasticity of one, you get an optimal top tax rate…

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The politics of ethnicity-based research in New Zealand

When Simon Chapple in 2000 wrote “Māori Socio-Economic Disparity”, which showed that disadvantage in New Zealand is more closely tied to age, marital status, education, skills, and geographic location than it is to ethnicity, broadly conceived, such as Māori ethnicity:

  • He was summoned before the Māori Affairs Committee of parliament to defend his paper! His chief executive at the Ministry of Social Policy went along with him to defend what he wrote while employed as a senior analyst at the Department of Labour. Staff at his new ministry launched a petition to have Simon fired.
  • The head of the Māori Affairs Ministry accused Simon of breaching the public service code of conduct.

Chapple also found that there are important differences in socio economic development by Māori self-identity. Those who identified only as Māori did worse than those that are identified as Māori and another ethnicity. Identifying only as Māori also correlated with living in rural New Zealand.

In terms of employment discrimination, employers would not know whether a Māori job applicant identified as only as Māori or also with another ethnicity, so discrimination is not a good explanation of Māori disadvantage because of this counterfactual. A major driver of Māori disadvantage, which is identifying on the Census form solely as Maori, is simply unknown to discriminating employers as a basis for discrimination in hiring and promotion.

There were editorials in the Dominion Post, which I cannot find online,  and in the New Zealand Herald. The latter said:

The Government is being prodded to recognise that Maori deprivation has more to do with socio-economic factors than ethnicity.

This was the conclusion of a report by the Labour Department’s senior research analyst, Simon Chapple. Helen Clark might well have had that finding partly in mind when she referred to a lot of water having gone under the bridge since the Government first formulated legislation.

Mr Chapple said, in essence, that place of residence, age, education and skills had more to do with poverty than race. In areas such as South Auckland, Northland and the central North Island, there were poor Maori, but there were also poor Pākehā and poor Pasifika.

The Minister attacked him and the paper as well for contradicting the Minister’s claim during the election campaign that everything got worse for Maori in the 1990s.

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Real equivalised median household income rose 47% from 1994 to 2010; for Māori, this rise was 68%; for Pasifika, 77% (Perry July 2014)

See Karen Baehler’s Ethnicity-based research and politics: snapshots from the United States and New Zealand for more information and a comparison with the similar response to Daniel Patrick Moynihan’s The Negro Family: A Case for National Action in 1965.

About a quarter of Negro families are headed by women. The divorce rate is about 2 1/2 times what it is [compared with whites],” Moynihan said. “The number of fatherless children keeps growing. And all these things keep getting worse, not better, over recent years.”

Moynihan, now retired from the United States Senate, was a senior official in LBJ’s Labor Department in 1965. He wrote his report on a typewriter over a few weeks and had the publications office in the basement of the Labor Department print 100 of them, marked “For Official Use Only.”

  • He warned about the breakdown of the African-American family where deprivation and disorganisation had formed their own vicious circle.
  • Many civil rights leaders had labelled Moynihan’s report a subtle form of racism because of its unflattering portrayal of the black family (Wilson 1987).
  • These accusations of racism helped make the breakdown of the family a taboo subject in social policy in the USA

see The Moynihan Report Revisited: Lessons and Reflections after Four Decades for a review by the best and the brightest in American economics and sociology on Daniel Patrick Moynihan’s prophetic warnings. Holzer says, for  example:

Moynihan was extremely insightful and even prescient in arguing that the employment situation of young black men was a “crisis . . . that would only grow worse.”

He understood that these trends involve both limits on labour market opportunities that these young men face as well as skill deficits of and behavioural responses by the young men themselves.

More children are growing-up without a working father living in the home and glean the awareness that work is a central expectation of adult life (Wilson 1987, 1996).

Single-parent households increased from 13 per cent of all Māori households in 1981 to 24.4 per cent in the 2006 Census. In the 2006 Census, 70 per cent of Māori single parent households were on a low income compared to 15 per cent of other Māori one family households (Kiro, Randow and Sporle 2010).

Most of the skill gaps that are present at the age of 18 – skill gaps which substantially explain gaps in adult earnings and employment in all groups – are also present at the age of five (Cunha and Heckman 2007). There is much evidence to show that disadvantaged children have lower levels of soft skills (non-cognitive skills): motivation, persistence, self-discipline, the ability to work with others, the ability to defer gratification and plan ahead, etc. (Heckman 2008). Most of the skills that are acquired at school build on these soft skills that are moulded and reinforced within whānau.

When I started working on labour economics in 2007 I found that the labour economics of Māori was very narrowly written and stayed well clear of the minefield that Simon braved about how ethnicity does not matter that much to Māori social disadvantage.

The Far Left view of the welfare state

HT: Dan Mitchell

Forget income inequality, lets go after zoning restrictions…

 

via Managerial Econ: Forget income inequality, lets go after zoning restrictions….

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Thatcher’s brilliant critique of socialism and how it is happy for the poor to be poor

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Household Incomes in NZ: trends in indicators of inequality and hardship 1982-2013

Real household income trends, 1982 to 2013 ($2013) before housing costs (BHC) and after housing costs (AHC)

real household income 1982-2013

Gini coefficient 1980 – 2015

gini coefficient 1980 2015

The tax and transfer system significantly reduces the inequality

The tax and transfer system significantly reduces the inequality

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the increases were 55% for Pakeha, 57% for Pasifika, and 64% for Māori since 1994.

Female voting demographics and the growth of government

The gender gap in voting dates back 2 generations or more and may now be in double digits.

A large share of all social spending is for the care of dependents – everything from children to non-working mothers and old age pensioners. Women support this spending because they benefit more from the social insurance it offers. Women both earn less and are more likely to be out of the workforce caring for children. Women also change their voting patterns more often than men as they marry and divorce or as they become single mothers.

John  Lott pondered on why the government started growing precisely when it did. The federal government, aside from periods of wartime, consumed 2 to 3%  of GDP up until World War I. In the 1920s, non-military federal spending began steadily climbing. FDR’s New Deal continued an earlier trend.

Lott explains the growth of government with women’s suffrage. For decades, polls have shown that women as a group vote differently than men. Without the women’s vote, Republicans would have swept every U.S. presidential race but one between 1968 and 2004.

A major gender gap issue is smaller government and lower taxes, which is a much higher priority for men. Women were more opposed to the 1996 federal welfare reforms, which mandated time limits for receiving welfare and imposed work requirements on welfare recipients.

Women are also supporters of Medicare, Social Security and educational expenditures more than men. Studies show that women are generally more risk-averse than men so they support government programs to ensure against certain risks in life.

  • Women’s average incomes are also slightly lower and less likely to vary so single women prefer more progressive income taxes.
  • Once women marry, they bear a greater share of taxes through their husbands’ relatively higher incomes so their support for high taxes declines.

Marriage also provides an economic explanation for why men and women prefer different policies.

Single women who believe they may marry as well as married women who most fear divorce, look for protection against possible divorce: a more progressive tax system and other government transfers of wealth from rich to poor.

Lott considers that A good way to analyse the direct effect of women’s suffrage on the growth of government is to study how each of the 48 state governments expanded after women obtained the right to vote.

  • Women’s suffrage was first granted in western states seeking women migrants: Wyoming (1869), Utah (1870), Colorado (1893) and Idaho (1896).
  • Women could vote in 29 states before women’s suffrage was achieved nationwide in 1920 with the adoption of the 19th Amendment to the Constitution.

The impact of granting of women’s suffrage was startling: state governments started expanding the first year after women voted and continued growing until real per capita spending more than doubled. The increase in government spending and revenue started immediately after women started voting.

There were 19 states that had not passed women’s suffrage before the approval of the 19th Amendment, nine approved the amendment, while the other 12 had suffrage imposed on them.

If some unknown third factor caused a desire for larger government and women’s suffrage, government should have only grown in states that voluntarily adopted suffrage. After approving women’s suffrage, government grew at a similar pace in both groups of states.

As more women voted and eventually voted in similar numbers as men, the size of state and federal governments expanded as women became an increasingly important part of the electorate. It took up to 30 years for women’s voting participation rate to equal that of men.

Lott also found that women’s political views on average vary more than those of men:

  • Young single women are about 50 per cent more likely to vote Democratic.
  • For married women, this gap is only one-third as large.
  • Married women with children become more conservative still.
  • Women with children who are divorced are suddenly about 75 per cent more likely to vote for Democrats than single men.

Not surprisingly, political parties pitch their platforms to women because they are more likely to change their vote over identifiable issues that are within the scope for government to change or influence

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