Saturday, August 23, 2008

More On Medal Inequality at the 2008 Olympics

The chart above shows income shares from 2006 IRS data (most recent data available), and the most recent medal shares from the 2008 Olympics (as of 9 a.m. today). Notice the amazingly similar outcome between shares of adjusted gross income earned by the top 5, 10 and 25% of Americans, and the shares of the 906 Olympic medals in 2008 earned by the top 5, 10 and 15% of medal-earning countries.

The "income inequality" that seems to disturb so many people is almost exactly replicated in "Olympic medal inequality," and yet seems to cause no objections or concerns about inequality, and generates no calls for "medal taxes" or "medal redistribution," etc.

The diagram below shows that the distribution of 2008 Olympic medals, like the distribution of income, clearly follows a standard Pareto distribution, and not a normal distribution.

In a Pareto distribution, there is an "emphasis on the extreme," in contrast to an "emphasis on the average," in a normal distribution (see chart above).

Is it possible that underlying the widespread objections to income inequality is the assumption that income should be distributed normally, and not according to a Pareto distribution? After all, an income distribution with an "emphasis on the average" sounds a lot better (at least to many leftists and redistributionists) than a distribution with an "emphasis on the extreme." Perhaps if more people could understand that Pareto-distributed outcomes are often the norm in both nature (see
examples here like sizes of sand particle, and sizes of meteorites) and in competitive sports like the Olympics (and see NBA example here), we would have a better understanding that it is natural that income will always be Pareto-distributed. Let's just accept it, and not spend time worrying about income inequality, just like we accept Olympic medal inequality.

And perhaps all of the redistributionist tax policies and progressive income tax schedules are really an attempt to take a naturally occurring Pareto-distributed outcome for income, and artificially impose a normal distribution.

Imagine for a moment how "Olympic medal taxes," and especially a "progressive Olympic medal tax," with subsequent "medal redistribution" at the Final Ceremony to achieve a more "normal distribution of medals" would quickly destroy the competitive spirit of the Olympics and reduce the overall level of athletic performance, especially on the "extreme," world-class athletes at the top like Michael Phelps. If the final ceremony at the Olympics included imposing a medal tax on an "extreme athlete" like Michael Phelps, and redistributing some of his gold medals to countries that earned "too few" medals by some consensus, you can imagine what might happen - he might not show up at the next Olympics, or certainly wouldn't have the same incentive to train as hard.

We might get the same outcome when we attempt to tax the top, or "extreme income earners" - they'll stop working or won't have the same incentive to work as hard.

Bottom Line: The Olympic medal winners are respected and admired, despite the inequality of the Pareto-distributed outcome in those competitions, with an "emphasis on the extreme" athlete. Instead of always vilifying them, perhaps we should pay the same respect to the Pareto-distributed winners of our free enterprise system - the successful, world-class, "extreme" workers at the top of our economic ladder.

7 Comments:

At 8/23/2008 10:29 AM, Blogger Shawn said...

Ironically, if it were truly a free market, I think that the "leave the winners alone" argument would be easier to make. The trump card against that, however, is the assumption that many/most winners got there because of the government process, and therefore enforced equality is justified.

To me, of course, that means we eliminate the corporatism...but that also means doing away with such things as government grants and subsidies to redistributionist-favored causes like alternative energy sources.

So, you almost have to be extreme to have this discussion. A Republican can't do it, a Democrat definitely can't, a libertarian can.

 
At 8/23/2008 11:20 AM, Blogger the buggy professor said...

Mark:

These are uncommonly informative comparisons across several kinds of inequality, all the more stimulating because of your graphic diagrams and clear, to-the-point commentary.

Just a few remarks now to stimulate some discussion:

1. Traditionally, I can tell you from wide experience in studying and teaching in various European countries --- several of them --- that none of them approaches the American people's respect and admiration for our business leaders. They are traditionally celebrated and lauded in our media --- except for Hollywood films since the end of th 1960s --- in ways that no European business class was or is.

Japan, I suspect, is the exception on this score, another country whose people have openly celebrated and admired their big business leaders.

On the other hand, Japan --- like West Europe --- has had strong socialist trends in left-wing politics, and so opinion has probably been more divided there. The evidence? Contrary to al the media hype about the Japanese economy in the 1980s and into the early 1990s, the International Labor Organization's surveys showed that the Japanese labor force was the most discontented in the industrial world. The exception was the lucky males who worked for the giant export-oriented multi-product companies like Toyota and Sony.


......

2) True enough --- despite the lack of a socialist tradition in the US --- there has always been, off and on anyway, a strong populist bent that surges publicly whenever large numbers of average middle-class and working-class Americans feel that the economy or political system --- or both --- has been operating unfairly at their expense.

Such populism --- along with the more middle-class progressive movement embraced by Theodore Roosevelt and others (with lots of academic support) --- flourished in the late 19th and early 20th century as the economy changed fundamental structure: it became a giant financial and big corporate industrial economy, along with a huge mushrooming of urbanization and a host of associated social and economic problems.

For that matter, if you go back to the end of the 18th century and into the next two decades or so, there was also a Jeffersonian like populism that flourished too.

......

3) A similar populism --- this time fed by the Great Depression of the 1930s and the CIO unionizing efforts in mass-production factories and mining and so on --- erupted and multiplied in the 1930s. It was calmed and incorporated into the political system by the Democratic Party in the era of FDR and Truman in the next two-three decades.

It was in this period that a weak form of the European welfare-state was developed: social security, high progressive taxation, unemployment insurance, housing subsidies (tax deductions) and the legal requirements for businesses to allow open access to their work force by union organizers.

And so, along with a relatively limited integration into the global economy and very little immigration compared to before 1914 or after 1965, American prosperity spread rapidly throughout our society, based on a combination of high and increasing income for the average worker, widespread house ownership, and a sense of security . . . the latter always important to average people in industrial capitalist societies, even if Americans traditionally are more flexible and adaptive to change as well as optimistic about such change when compared with Europeans or Japanese.


......

4) All this has changed noticeably since the end of the 1960s. And for a variety of reasons that have, for the most part, parallels in earlier periods of populism in American life:

• A powerful restructuring of the American economy, a shift from an industrial to a post-industrial society, driven by a combination of radical technological innovation and globalizing integration, with new competitor countries taking over most of our standardized smokestack industries. This parallels the shift in the late 19th and early 20th centuries into an urbanized, giant financial and industrial corporate economy . . . with all the populist and progressive discontent that followed. Just as there was muckraking and attacks on big capitalist corporations and the rich in those days, so that’s the case since the start of the 1970s.

• As in the late 19th and very first decade of the 20th century, there has been a massive influx of low-skilled immigrant workers, only with the difference --- a big one! --- that the wages of low-skilled American workers continued to grow strongly, only with stronger than would have been the case without 40 million immigrants into a country roughly a fourth or third of the size of the US population today. Since 1970 or so, by contrast, immigration has been almost as high, but low-skilled wages have fallen, and the average male wage has risen in real terms exactly 2% according to BLS and Census-Bureau studies. That stagnation has fed ever growing grass-roots discontent.

• This new populist discontent has been intensified, rightly or wrongly, by a half-alienated new mass-media class of college graduates and in higher education by tenured radicals. But such discontent isn’t the creation of image-makers. It is real, grounded in the underlying shifts in our economic and social worlds since the late 1960s: the revolutionary transformation of our economy, a huge new influx of low-skilled immigrants and social spillovers, stagnant average wages, and growing globalization that is poorly understood and yet simultaneously has (according to the Samuelson-Stolper theorem, validated in hundreds of studies) aggravated the underlying technology-driven changes in income inequality and a growing sense of insecurity among average Americans.

......

5) If, however, the mass discontent hasn’t galvanized into a new overwhelming political coalition of the FDR-Truman era, which lasted until the late 1960s, it’s because new social and cultural issues have divided average middle class and working-class Americans in ways that didn’t have a similar parallel in the dominant “Protestant-ethos” era of the 19th and early 20th centuries.

• These new divisive issues are well known: big changes in women’s status, abortion rights, a sexual revolution, the impact of the civil rights era, the social spillovers of a large, generally poorly educated Hispanic urban population, new intellectual attacks on American life and patriotism from a semi-alienated intellectual and media class and the reactions to them at the grass-roots level, and of course all the disappointments that followed from the promises of the LBJ Great Society programs.

• Those programs promised, at bottom --- when all the rhetoric was removed --- to quickly make African-Americans and (later on, Hispanic immigrants) into normal middle class Americans: there would be less violent crime, less delinquency, better educational performance, more stable marriage relations, and so on. As government became more intrusive, the disappointments grew and fed the shift of large numbers of average American middle- and working-class whites out of the FDR-Truman coalition and into the new Reagan coalition.

• Reagan himself, a very flexible and intelligent politician, embraced the FDR-Truman “welfare state” --- he said so openly --- while rejecting the Great Society changes. And his optimism and the booming economy of the 1980s --- for seven years anyway --- solidified that coalition, which was further consolidated by Reagan’s successes in foreign policy

The upshot?

Simply this: despite all the growing mass discontent in American life --- including stagnant average wages and a growing sense of personal insecurity (blunted for many in the Reagan era of optimism) --- mass populism and progressivism never reached the earlier levels of the late 19th century or the era of the 1930s to the end of the 1960s. Instead, Republicans have dominated the presidency since 1968 and even gained control of Congress for about a decade between the late-1990s and 2006.

.....

6) Now we’re in a markedly different era.

The Reagan Republican-coalition is splitting apart, badly frayed in various directions. The current president has the lowest level of public support for decades. The Republicans have lost control of Congress. Around 80% of Americans have consistently said for over a year now in opinion surveys that the country has been on the wrong track. And the internal divisions within the Republican party --- libertarians, Christian majority types, neo-Conservatives (favor an FDR-Truman welfare state and more governmental efforts at dealing with insecurities about health-insurance and economic mattes), paleo-Conservative ultra-nationalists (Pat Buchanan’s wing), and moderate white working-class voters who were rallied by Hillary Clinton in the Democratic primaries --- have intensified.


The root causes of the new populism?

1) One is an entirely new stagnation of wages in the prosperous growth era between late 2001 and the end of 2007’s third quarter … the first time in American history that the boom phase of the business cycle has seen such stagnation, a failure quite simply to rise for the average American, and not just low-skilled workers.

2) Another cause is the sense that giant financial combines have manipulated the American economy, bringing in huge riches for the successful manipulators and at the expense of the average person.

3) Yet another source is the growing reaction against globalization, captured now in public opinion polls since the end of 2003, with a majority of Americans now against it. A similar reaction against low-skilled immigration, overwhelmingly Hispanic.

4) A growing sense of insecurity, especially in matters of health insurance and economic life.

5) And above all --- the same root cause of populist-progressive grass-root reactions in American history --- there is a rife and soured sense of unfairness in American life . . . a growing animus, captured in survey polls, directed at financial institutions, corporate business, traditional politicians, and intrusive bureaucrats, regarded as manipulative or callous to the average Joe and Jane’s problems.


And though these problems may be inflated by the media, they are at bottom rooted in very real economic and social trends.

In turn, this results in a souring about the flagrant changes in American income and wealth. American financial and corporate leaders, in the upshot, are no more regarded with celebrity-favor these days any more than the corporate and financial giants of the late 19th and early 20th century were or in the FDR-era of the 1930s.

......

Michael Gordon, Aka the buggy professor

 
At 8/24/2008 12:01 AM, Blogger OBloodyHell said...

> And so, along with a relatively limited integration into the global economy and very little immigration compared to before 1914 or after 1965, American prosperity spread rapidly throughout our society, based on a combination of high and increasing income for the average worker, widespread house ownership, and a sense of security

This isn't entirely honest. During the fifties, we weren't "integrated" into the world economy, we WERE the world economy.

With the widespread devastation of Europe and Japan, there was no external competition for US products. No one else could come close to making things like we could, as cheaply as we could, for almost two decades.

It wasn't until they both recovered that we found (in the 1970s) our systems wanting, as our system for overpaying chimpanzee factory workers to push a button was no longer adequate to produce goods with the scale and cheapness to compete with newly built factories in Japan and the Pacific Rim, and later in Europe.

Adjustments followed. And we're on top again, at least for now. Japan decided to try out Keynesianism despite the USA-70s, and Europe has rambled on with socialist-collectivist crap as an albatross around their necks for nigh-on 35 or more years.

Now China and India are building up, and the world has two new players each trying out their own techniques against The American System.

For now, the USA will win, because, if they do find anything that works, we'll adapt and adopt it for ourselves, then do it better.

 
At 8/24/2008 8:39 AM, Blogger randian said...

Even if wages are stagnating, a proposition I don't grant, it ignores the fact that the goods those wages buy have generally deflated over time.

 
At 8/24/2008 11:07 AM, Blogger the buggy professor said...

"Even if wages are stagnating, a proposition I don't grant, it ignores the fact that the goods those wages buy have generally deflated over time." -- Randian

1) A very good summary of all the changes in the distribution of US income and wealth since WWII, and especially since the end of the 1960s, can be found at this web site:

http://www.demos.org/inequality/numbers.cfm

It's doubly useful for all its graphic displays of the relevant trends in wealth and income, and it draws on official BLS and BEA trends.

2) The BLS tracking of average (mean) wages is for "real wages" --- which takes into account CPI inflationary rates, themselves, of course, tracking the prices of various goods and services in an average household basket of goods (weighted for percentages of expenditures0.

That includes all the impressive reduction in costs of goods sold, say, by Walmarts and Home Depot and Costco.

3) Households with more than one worker --- say, a husband and wife both working --- have, of course, seen an income rise for the household itself. But the average wage, when broken down for each, has risen 2% since 1979 in real inflation-adjusted terms.

4) Many people, especially on a web site like this, are unhappy when such data confronts them.

Their first inclination is to deny the reality or objectivity of the data, a mental reaction known as striving for cognitive consistency: which is to say, seeking to maintain their fundamental belief systems in the face of contrary evidence. It's a well-known phenomenon, studied systematically in hundreds of experimental settings by social psychologists since the 1950s.

.

If, however, the denial doesn't seem sufficient, the evidence will likely be reinterpreted to protect the core beliefs and expectations that underlie the internalized belief-system. Such as claiming, say, that the data trends don't take into account price changes. They do. And for that matter, the BLS uses, among other things, a CPI-R that enables anyone to track the changes in CPI indexes over time long before the changes that were made in the mid- and late-1990s that taken into account the recommendations of the Boskin Commission on inflation.

These changes have intended mainly to make the CPI indexes consider and weigh the improvements in product-quality, substitution effects as prices change, and discount outlet-stores like Walmart.

5) The main problem that libertarian scholars and followers face remains. It's the one that I set out here.

To wit: despite the impressive restructuring of the US economy and its growth performance since 1975 --- driven by radical technological changes and globalizing forces --- the average wage-earner in America hasn't benefitted very much in real wage terms.

You can argue, of course, that the average household has a lot of better quality products, including cars, TVs, and pc's, as well as access to a host of other communication and information technologies like the Internet. I happily agree.

6) I happily agree to something else: the US has outperformed, economically, its major competitors in the industrial world since the mid-1980s. In fact, recent studies show that neither Japan nor the EU countries (possibly with the exception of tiny Sweden, Denmark, and Finland) have managed to upgrade their productivity growth because of the Internet revolution . . . which stands for the big breakthroughs in communications and information technologies.

The problem that libertarians and other Republican partisans face --- not all, not someone like David Brooks (who isn't in denial) --- remains.

And that isn't what the buggy professor or others say, nor what libertarians say here or elsewhere. Rather it's what large numbers of Americans ---80% or so saying for over 12 months now that our wonderful country has been on the wrong track --- now believe. Their reactions are in line with earlier populist sentiments that have marked mass grass-roots backlashes against dominant trends in financial, corporate, and political America.

Those reactions add up to a growing sense of "unfairness" that they are the victims of, compounded by growing insecurities about jobs, health care, energy, and food prices. And the beneficiaries of the huge and impressive economic changes in American life, at any rate as understood by about half or more of American voters . . . including the swing white working classes who, since the Reagan era, have voted mainly for Republicans thanks in large part to cultural and social issues, and not economic issues?

Rightly or wrong, the beneficiaries are seen as slick financial and corporate manipulators, backed by politicians who either don't care about average peoples' problems or who are in the pockets of special interest groups.

.....

I add that I am an independent voter, who likes both Obama and McCain.

In the spring, that meant I was leaning toward McCain. Since then, the more Obama as infuriated his left-wing fans by moving to the center, and the more he has shown himself to be a tough pragmatic politician of the old Chicago bare-knuckled sense, the more I have been warming up to him. And as a specialist in international relations, who supported our armed multilateral intervention in Iraq, I am doubly happy with Obama's selection of Joe Biden as his veep-candidate.

.....

Michael Gordon, AKA, the buggy professor

 
At 8/24/2008 5:38 PM, Blogger the buggy professor said...

Oddly, just looked up something about the Jackson presidency between 1829 and 1837, which reflected a huge populist movement of the day, and guess what?

Google immediately linked to an article in US News and World Report that compares the Obama coalition ---so far, overwhelmingly Democratic, with the white working-class Reaganites probably still fence-straddling or leaning possibly toward McCain (hard to say right now) --- with Andrew Jackson's of the day.

As it notes:

"From the start of his administration, Jackson fought what he considered a profligate and selfish American aristocracy and worked on behalf of western farmers and eastern laborers. He tried to weed out corruption and incompetence from the civil service. He dismissed many government workers and installed loyalists. A backer said Jackson found "nothing wrong in the rule that to the victors belong the spoils of the enemy." He vetoed the recharter of the Bank of the United States, saying it would have made "the rich richer and the potent more powerful." His extensive use of the veto, in fact, set the precedent of making the chief executive central to the legislative process. Until that time, presidents generally exercised their veto power only when a bill seemed unconstitutional. Jackson broadened the criteria for veto to include bills he disagreed with. Most Americans liked what they saw."

Click here for the article: http://www.usnews.com/articles/news/politics/2008/08/20/the-most-consequential-elections-in-history-andrew-jackson-and-the-election-of-1828.html?PageNr=2

......

Remember, whether you like or dislike (or fear) Obama and his coalition, you need to understand the powerful off-and-on populist upsurges in American life when a widespread slice of average Americans feel that they are being "cheated" or "manipulated" by powerful economic, financial, and political elites.

That's what political knowledge requires, and not least for those who hope to defeat Obama and Biden this fall.

....

Michael Gordon, AKA, the buggy professor

 
At 8/25/2008 1:19 PM, Blogger the buggy professor said...

1) For all the media exaggeration about the economy, we all need to remember a key matter: according to a N.Y. Times opinion survey printed today (August 25, 2008), 80% of Americans believe our economy is either very bad or fairly bad.

Note quickly please. No serious scholar of public opionion surveys believes that the media can remotely influence that many Americans to find our economy is in a bad way --- not by a long shot. For that matter, all the scholarly studies I know of in the field of public opinion doubt the media can cause a major trend one way or another --- rather, only reinforce it in limited ways.

And here’s an unusual correlated survey outcome: The 80% who are worried seriously or fairly so about our economy are matched in other opinion surveys, over a good year now, that show 80% of Americans think that our country has been on the wrong track.

....

2) What's going on here?

The major shifts in public opinion to an increasingly sour view about our economy and political leadership have been long in the making . . . not just a sudden acrimonious burst into the open of public opinion in the George W Bush era.

The disquietude in majority opinion about the US's political leadership --- Congress and the presidency --- go back to the mid-late 1960s, and though there have been some ups and down (up mainly for a few years in the Reagan era, then down noticeably in the George Sr Bush era, then up but still short of a majority in favorable opinion during the Clinton period).

....

3) Business leadership --- which means mainly big corporations and financial institutions --- was regarded with more favor until the late 1980s and early 1990s in opinion surveys. Then, as the US economy went through its longest boom in history --- 10 years between 1991 and the end of 2000 --- opinion slightly improved on this score, only to have been repeatedly battered down by real, not media-caused, financial blows . . . one after another, all major and seen as foul:

* The dot.com stock-market balloon and crashing puncture of the late 1990s.

* The government bailing out the biggest hedge-company fiasco in history, run by two Nobel prize-winning economists who were in charge of 25 Ph.D. economists.

* The auditing scandals that immediately followed the dot.boom crash . . .symbolized by the Enron fiasco, but hardly limited to it.

* Then the housing market-surge, followed by its financial collapse . . . regarded as a sign of further financial manipulation by fraudulent cheaters.

* Then the subsequent banking and broker-house credit-problems and the credit-crunch that they entailed. Followed by rescues of major brokerage-firms and banks, with undoubtedly more to come.

* And of course the oil-price rise of head-spinning magnitude over the last two years, but especially in the late winter of 2007 and into the mid-summer of this year.Along with surging food prices as well.

--- Note quickly again. The general public, rightly or wrong, regards the oil-price explosion as a sign of speculation. And note please --- an important point for libertarians. And, a big surprise for many of you probably, not all libertarian economists agree that speculators didn't have a big impact on the surging price of oil in late 2007 and into the late spring of this year . . . yes, not even a free-market enthusiast and follower of Ayn Rand like Alan Greenspan, who (let us say)has access to more reliable information about what goes on in oil market forwards and inventories.

--- See Greenspan's recent interview in the Financial Times: http://www.ft.com/cms/s/0/823fc3a4-673a-11dd-808f-0000779fd18c.html

--- And please, please! no rush by others citing this or that dead Austrian economist to prove that Alan Greenspan is really only a free-market Trojan Horse, out to destroy the value of the US$.

--- Weightier analysis would be much more to the point as a way of refuting Greenspan's views --- doubly so, I add, since the major Persian Gulf oil-exporting countries are led by systematically corrupt gangster-regimes whose leaders lie through their teeth when it suits their interests . . . including production output and sales. Whether the big oil companies might or might not connive willingly in any deception (if it occurs) is another matter, about which we can only, ahem, speculate.

* Not to forget, finally, a key trend here: The six-year business cycle upsurge after September 2001 is the first in modern US history where average wages did not rise at all . . . at a time of major shifts in income and wealth to the top 5% of Americans.

......

4) The outcome of all this?

Here I'm only speculating about these opinion trends, but it appears that there are now afoot three major shifts in public opinion that should be a source of concern for Republicans and especially libertarians:

First, most Americans feel punched-out, worried about economic and political trends that seem out of control, dominated by financial manipulators and globalizing trends, with a political system (Congress and the presidency) entirely unresponsive to their concerns. Among those concerns: this winter, even if oil stays around $110/barrel, the average household in the northern part of our country will be facing about $1500-2000 more in energy costs if it’s a bad winter.

Second, most Americans --- 80% of the total adult population finding us in a bad or very bad economy --- feel that the economic and political systems are dominated by manipulators, cheaters, or callous types, and there is a strongly growing sense that these systems are unfair and run at their expense. You may deplore this view, but it seems solidly grounded in public thought. Whether Obama-Biden can effectively tap it, the way Hillary Clinton was in the latter part of her primary run among the disenchanted blue-collar and lower-middle class Americans is another matter. Many of them have voted, the males at least, for Republicans since Reagan (actually the trend started in the Nixon years, only to reverse in 1976, then to thrust steadily after 1980).

They have done so for socio-cultural reasons mainly, rather than economic ones. It’s not clear yet how these cross-cutting tendencies will play out, but with consumer sentiment now at its lowest point in 40 years --- 1978! --- McCain and his running mate are going to have to deal with this economic souring head-on.

Third As I argued in another thread here at Carpe Diem yesterday, this snow-balling sense that the economy and political system are unfair to average Americans, run by manipulative financial types and callous politicians catering to special interests, is the latest full-dress performance of an old road-show in American life that goes back to the Whiskey Rebellion among small famers in the early 1790s, then more seriously in the Andrew Jackson period (roughly late 1820s to the early 1840s), then more seriously again in the populist rebellion among farmers and small business in the late 19th century (followed by a middle class progressive rebellion against the system, headed eventually by Teddy Roosevelt), and in the 1930s Great Depression. Namely, populist backlashes.

Not socialist, not based on envy --- it doesn’t exist much, such envy, compared to Europe historically and recently; rather, based on a sense of legitimate grievances that the system is rigged . . . run by people who are out to cater to their own well-being, with the cheater and scoundrels and hard-boiled special interests of the rich and powerful in charge.

Click here for the Carpe Diem thread, started by one of Mark’s unusually stimulating posts: https://www.blogger.com/comment.g?blogID=28997633&postID=7128777246777523046

Those who dislike or fear the Obama-Biden team will have to come to terms with this new and powerful populist thrust in American life. It isn’t a creation of the media, and it won’t soon go away whoever wins the presidency and Congress this year.

Just the contrary.

…….

Michael Gordon, AKA, the buggy professor

 

Post a Comment

<< Home