PEOPLE AND TERMS RELEVANT TO THE APRIL PUBLIC FORUM TOPIC
Atkinson Measure: This statistical method for measuring income inequality was designed by Anthony B. Atkinson, professor of economics at Cambridge University. This measure is not as widely used as the Gini Coefficient or the Thiel Index, but it has one advantage over those systems; it allows statisticians to evaluate whether changes at the top or bottom of the income scale have contributed most to the observed inequality of incomes.
Consumption: Economists who question the significance of standard income inequality measures say that we should be considering differences in consumption, meaning the differences in what people actually purchase. Consumption studies find that even low income Americans are typically able to buy not only what they need, but also many non-essential items. Most official measures of income in the United States do not include food stamps, housing assistance, or even cash welfare payments. Yet these forms of assistance allow low-income Americans to maintain a standard of living beyond what would be indicated by official measures of their incomes.
Gini Coefficient: This is the standard international measure of income inequality; it was developed in 1912 by Italian statistician, Corrado Gini. All Gini coefficients range from zero (meaning perfect equality) to one (meaning maximum inequality). According to recent statistics compiled by the United Nations Development Programme, the United States is 73rd from the top of the list of countries with the greatest income equality (tied with Ghana and Turkmenistan). Topping the list is Denmark, closely followed by other northern European countries.
Great Compression: This is a term used by Princeton University economist, Paul Krugman, and others to refer to a period in American history where income inequality was less than it had historically been. The term refers to the period of the New Deal and the Second World War. Krugman’s thesis is that the norm in America has been a high level of income inequality. He believes that inequality in America has now returned to the levels once experienced during the time of the “robber barons” – meaning the time in the early Twentieth Century when people like Rockefeller and Dupont accumulated massive wealth.
Great Recession: Economists are now using this term to refer to the period at the end of 2008 and beginning of 2009 when the United States experienced a near stock market collapse as a result of the failures of major financial institutions such as Bear Stearns, AIG, and Lehman Brothers.
Poverty Line: The official “poverty line” in the United States was developed in the 1950s by Mollie Orshansky, a statistician for the Social Security Administration. The poverty line is adjusted for family size and inflation, but surprisingly, makes no adjustment for geographic differences in the cost of living. Orshansky noticed that low-income families tended to spend about one-third of their family income on food. Accordingly, she calculated the average cost of an “economy food plan,” assuming that meals are made from scratch at home. Then she simply multiplied the cost of the “economy food plan” by three to calculate the poverty line. Amazingly, this simplistic measure of poverty remains in use today. Critics from the political left say that the poverty line undercounts persons in poverty because the cost of food in the twenty-first century accounts for only 1/6 of the cost of living; this means that the cost of an “economy food plan” should be multiplied by 6, rather than by 3. Critics from the political right say that the poverty line over-counts persons in poverty because it makes fails to consider numerous sources of income; the poverty line calculations do not count food stamps, housing assistance, or even cash welfare payments as income.
Theil index: This measure of economic inequality was created by Dutch econometrician Henri Theil; it is part of a family of inequality measures called the Generalized Entropy Measures. Though less widely used than the Gini Coefficient, the Theil Index is considered by some statisticians to be more useful because it examines differences between subgroups (both geographic and racial) within countries, rather than merely to compare one country to another.
Atkinson Measure: This statistical method for measuring income inequality was designed by Anthony B. Atkinson, professor of economics at Cambridge University. This measure is not as widely used as the Gini Coefficient or the Thiel Index, but it has one advantage over those systems; it allows statisticians to evaluate whether changes at the top or bottom of the income scale have contributed most to the observed inequality of incomes.
Consumption: Economists who question the significance of standard income inequality measures say that we should be considering differences in consumption, meaning the differences in what people actually purchase. Consumption studies find that even low income Americans are typically able to buy not only what they need, but also many non-essential items. Most official measures of income in the United States do not include food stamps, housing assistance, or even cash welfare payments. Yet these forms of assistance allow low-income Americans to maintain a standard of living beyond what would be indicated by official measures of their incomes.
Gini Coefficient: This is the standard international measure of income inequality; it was developed in 1912 by Italian statistician, Corrado Gini. All Gini coefficients range from zero (meaning perfect equality) to one (meaning maximum inequality). According to recent statistics compiled by the United Nations Development Programme, the United States is 73rd from the top of the list of countries with the greatest income equality (tied with Ghana and Turkmenistan). Topping the list is Denmark, closely followed by other northern European countries.
Great Compression: This is a term used by Princeton University economist, Paul Krugman, and others to refer to a period in American history where income inequality was less than it had historically been. The term refers to the period of the New Deal and the Second World War. Krugman’s thesis is that the norm in America has been a high level of income inequality. He believes that inequality in America has now returned to the levels once experienced during the time of the “robber barons” – meaning the time in the early Twentieth Century when people like Rockefeller and Dupont accumulated massive wealth.
Great Recession: Economists are now using this term to refer to the period at the end of 2008 and beginning of 2009 when the United States experienced a near stock market collapse as a result of the failures of major financial institutions such as Bear Stearns, AIG, and Lehman Brothers.
Poverty Line: The official “poverty line” in the United States was developed in the 1950s by Mollie Orshansky, a statistician for the Social Security Administration. The poverty line is adjusted for family size and inflation, but surprisingly, makes no adjustment for geographic differences in the cost of living. Orshansky noticed that low-income families tended to spend about one-third of their family income on food. Accordingly, she calculated the average cost of an “economy food plan,” assuming that meals are made from scratch at home. Then she simply multiplied the cost of the “economy food plan” by three to calculate the poverty line. Amazingly, this simplistic measure of poverty remains in use today. Critics from the political left say that the poverty line undercounts persons in poverty because the cost of food in the twenty-first century accounts for only 1/6 of the cost of living; this means that the cost of an “economy food plan” should be multiplied by 6, rather than by 3. Critics from the political right say that the poverty line over-counts persons in poverty because it makes fails to consider numerous sources of income; the poverty line calculations do not count food stamps, housing assistance, or even cash welfare payments as income.
Theil index: This measure of economic inequality was created by Dutch econometrician Henri Theil; it is part of a family of inequality measures called the Generalized Entropy Measures. Though less widely used than the Gini Coefficient, the Theil Index is considered by some statisticians to be more useful because it examines differences between subgroups (both geographic and racial) within countries, rather than merely to compare one country to another.
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KEY WEB SITES RELEVANT TO THE APRIL PUBLIC FORUM TOPIC
American Enterprise Institute: The Upside of Income Inequality.
www.american.com/archive/2007/may- june-magazine-contents/the-upside-of-income-inequality. This article argues that income inequality is actually a good thing because it indicates freedom of opportunity: “We conclude that the forces raising earnings inequality in the United States are beneficial to the extent that they reflect higher returns to investments in education and other human capital.”
Becker, Gary & Posner, Richard. Does Redistributing Income from Rich to Poor Increase or
Reduce Economic Growth or Welfare? Dec. 29, 2013.
http://www.becker-posner-blog.com/2013/12/does- redistributing-income-from-rich-to-poor-increase-or-reduce-economic-growth-or-welfare-posner.html. The authors argue that welfare benefits may worsen income inequality because they weaken the incentive to obtain meaningful employment: “At the bottom of the income distribution, there is a real reason for concern about the effects of redistribution on the work ethic: the incremental income from working may be negligible if the increment carries the recipient of benefits over the benefits threshold: he may lose in benefits all of or even more than his income increment from working.”
Curtis, Jack. The Income Inequality Scam. Oct. 12, 2015.
http://www.americanthinker.com/articles/2015/ 10/the_income_inequality_scam_.html. This article by a staff writer for The American Thinker, observes that the welfare state is an unsustainable solution for income inequality: “For those who, blinded by neat gadgets, talking cars, and smart homes feel rich by ignoring the mountainous debt that accompanies the toys, another question: with Medicare and Social Security facing a $66 trillion long term deficit and 17.5% of Gross Domestic Product taken in Federal taxes, (never mind states, counties and cities) how will Americans finance their aging years? ‘Income Inequality’ cures are sold with an implication: those with less, will be somehow, given more. If that were real, why would so many welfare state governments face non-repayable debts and unsustainable deficits? ‘Income Inequality’ is only an old scam reprised.”
Manhattan Institute: The Wealth Inequality Mirage.
http://www.manhattan- institute.org/html/miarticle.htm?id=6570. This article argues that the differences in spending between the wealthiest and poorest Americans are no greater than they were twenty years ago: “The average annual spending for a household in the lowest quintile was $21,611, or $12,712 per person. In contrast, the average spending for a household in the top quintile was $94,244, or $30,401 per person. On a per person basis, the new Labor Department numbers show that in 2009 households in the top fifth of the income distribution spent 2.4 times the amount spent by the bottom quintile. That, Professor Reich might note, was about the same as 20 years ago.”
Meyer, Al. Staff), Welfare State Increases Income Inequality, Sept. 26, 2015. http://freebeacon.com/issues/ report-welfare-state-increases-income-inequality/. This surprising report offers empirical evidence that increasing welfare benefits actually will widen income inequality: “Welfare state spending increases income inequality, according to a report from the European Central Bank. The report examined the role of income, inheritance, and the welfare state and how it relates to household net wealth across European countries. The report found that in countries where there was a more developed welfare state, there was a higher inequality of wealth. ‘An increase in welfare state spending goes along with an increase—rather than a decrease—of observed wealth inequality,’ the report states. The European Central Bank says this happens because social services act as substitutes and households are therefore less incentivized to accumulate wealth.”
Moore, Stephen & Vedder, Richard. The Surprising States that Have Greater Income Inequality. June 8, 2014. http://dailysignal.com/2014/06/08/blue-state-path-inequality/. The authors offer surprising evidence that income inequality is actually higher in the states that offer higher welfare beenfits: “For those in Washington obsessed with reducing income inequality, the standard prescription involves raising taxes on the well-to-do, increasing the minimum wage, and generally expanding government benefits—the policies characterizing liberal, blue-state governance. If only America took a more “progressive” approach, the thinking goes, leaving behind conservative, red-state priorities like keeping taxes low and encouraging business, fairness would sprout across the land. Among the problems with that view, one is particularly surprising: The income gap between rich and poor tends to be wider in blue states than in red states. Our state-by-state analysis finds that the more liberal states whose policies are supposed to promote fairness have a bigger gap between higher and lower incomes than do states that have more conservative, pro-growth policies.”
American Enterprise Institute: The Upside of Income Inequality.
www.american.com/archive/2007/may- june-magazine-contents/the-upside-of-income-inequality. This article argues that income inequality is actually a good thing because it indicates freedom of opportunity: “We conclude that the forces raising earnings inequality in the United States are beneficial to the extent that they reflect higher returns to investments in education and other human capital.”
Becker, Gary & Posner, Richard. Does Redistributing Income from Rich to Poor Increase or
Reduce Economic Growth or Welfare? Dec. 29, 2013.
http://www.becker-posner-blog.com/2013/12/does- redistributing-income-from-rich-to-poor-increase-or-reduce-economic-growth-or-welfare-posner.html. The authors argue that welfare benefits may worsen income inequality because they weaken the incentive to obtain meaningful employment: “At the bottom of the income distribution, there is a real reason for concern about the effects of redistribution on the work ethic: the incremental income from working may be negligible if the increment carries the recipient of benefits over the benefits threshold: he may lose in benefits all of or even more than his income increment from working.”
Curtis, Jack. The Income Inequality Scam. Oct. 12, 2015.
http://www.americanthinker.com/articles/2015/ 10/the_income_inequality_scam_.html. This article by a staff writer for The American Thinker, observes that the welfare state is an unsustainable solution for income inequality: “For those who, blinded by neat gadgets, talking cars, and smart homes feel rich by ignoring the mountainous debt that accompanies the toys, another question: with Medicare and Social Security facing a $66 trillion long term deficit and 17.5% of Gross Domestic Product taken in Federal taxes, (never mind states, counties and cities) how will Americans finance their aging years? ‘Income Inequality’ cures are sold with an implication: those with less, will be somehow, given more. If that were real, why would so many welfare state governments face non-repayable debts and unsustainable deficits? ‘Income Inequality’ is only an old scam reprised.”
Manhattan Institute: The Wealth Inequality Mirage.
http://www.manhattan- institute.org/html/miarticle.htm?id=6570. This article argues that the differences in spending between the wealthiest and poorest Americans are no greater than they were twenty years ago: “The average annual spending for a household in the lowest quintile was $21,611, or $12,712 per person. In contrast, the average spending for a household in the top quintile was $94,244, or $30,401 per person. On a per person basis, the new Labor Department numbers show that in 2009 households in the top fifth of the income distribution spent 2.4 times the amount spent by the bottom quintile. That, Professor Reich might note, was about the same as 20 years ago.”
Meyer, Al. Staff), Welfare State Increases Income Inequality, Sept. 26, 2015. http://freebeacon.com/issues/ report-welfare-state-increases-income-inequality/. This surprising report offers empirical evidence that increasing welfare benefits actually will widen income inequality: “Welfare state spending increases income inequality, according to a report from the European Central Bank. The report examined the role of income, inheritance, and the welfare state and how it relates to household net wealth across European countries. The report found that in countries where there was a more developed welfare state, there was a higher inequality of wealth. ‘An increase in welfare state spending goes along with an increase—rather than a decrease—of observed wealth inequality,’ the report states. The European Central Bank says this happens because social services act as substitutes and households are therefore less incentivized to accumulate wealth.”
Moore, Stephen & Vedder, Richard. The Surprising States that Have Greater Income Inequality. June 8, 2014. http://dailysignal.com/2014/06/08/blue-state-path-inequality/. The authors offer surprising evidence that income inequality is actually higher in the states that offer higher welfare beenfits: “For those in Washington obsessed with reducing income inequality, the standard prescription involves raising taxes on the well-to-do, increasing the minimum wage, and generally expanding government benefits—the policies characterizing liberal, blue-state governance. If only America took a more “progressive” approach, the thinking goes, leaving behind conservative, red-state priorities like keeping taxes low and encouraging business, fairness would sprout across the land. Among the problems with that view, one is particularly surprising: The income gap between rich and poor tends to be wider in blue states than in red states. Our state-by-state analysis finds that the more liberal states whose policies are supposed to promote fairness have a bigger gap between higher and lower incomes than do states that have more conservative, pro-growth policies.”
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