A correspondent tells me that if I need a good laugh I should look at the clown show that is National Review for Stephen Moore. I do so, and find Moore trying to explain some numbers produced by the Congressional Budget Office:
Stephen Moore and Phil Kerpen on the Bush Tax Cuts & the CBO on NRO Financial: ...the CBO report did conclude was that the total tax share by the richest 1 percent declined modestly from 2001 to 2004. But that wasn’t because of the tax cut. It was because of the recession. When the economy contracts and incomes fall as they did in 2001 and 2002, tax payments by the wealthy fall the fastest. This is because of the progressive rate structure of the income tax...
But if either Stephen Moore or Phil Kerpen had read even to the end of the first paragraph of the CBO report they are "explaining," they would have recognized that the recession had nothing to do with it: there is no recession anywhere in the CBO's numbers. The CBO took the tax laws that are currently planned to be in force for each year from 2002 through 2014, and analyzed what those tax laws would collect if applied to the taxpayer income levels of 2001. (Max Sawicky points out to me that they do adjust 2001 income levels for subsequent years: they do adjust them for expected income growth of a constant 4.5% per year and for expected inflation of a constant 2.2% per year in order to take account of bracket creep.)
This analysis of effective federal tax rates from 2002 through 2014 uses data on incomes in 2001, the most recent year for which information is available...
The CBO does not say that the total tax share of the richest 1 percent declined from 2001 to 2004. How could it say that? We won't even have all the tax returns for 2004 in for another 14 months. What the CBO does say is that if we take the distribution of incomes reported by taxpayers from 2001, then the 2004 tax laws applied to those 2001 incomes would generate a lower top 1% share than the 2001 tax laws did. The recession doesn't enter into it at all.
To make the joke even more delicious, they go on to write, two paragraphs later, that "Those who actually read the CBO study will discover that it confirms exactly this point." Since Moore and Kerpen haven't even read to the end of paragraph one of the CBO study, how do they know what those who read it will learn? What those who actually read the CBO study will learn is that Moore would have a hard time outscoring a chicken on a reading comprehension test.
More seriously, I see that Brink Lindsey has taken over as Vice President for Research at the Cato Institute, which says that Moore is:
Cato: president of the Club for Growth and a contributing editor of National Review. He previously was the Cato Institute's director of fiscal policy studies, and he continues to serve as a Cato senior fellow. Moore is the co-author of It's Getting Better All the Time: 100 Greatest Trends of the Past 100 Years and the author of Government: America's #1 Growth Industry.
If Lindsey wants Cato as an institution to have any sort of positive reputation for research, he needs to sever all ties between Moore and Cato. (I made the mistake of buying Moore's It's Getting Better All the Time once.) Everyone trying to do serious research for Cato finds their credibility dragged down into the gutter by this guy.
But wait! There's more! Just below Stephen Moore on the National Review website is an article by Donald Luskin!
National Review Online | Donald Luskin: ...the idea that the middle class is being “squeezed.”... That’s a lie.... David Cay Johnston.... trash-talk[s] the Bush economy.... story reports a drop in average income of 5.7 percent in 2001 and 2002, compared to 2000.... [But] the [graph] shows that the entire income-decline in 2001 and 2002 is due exclusively to losses by taxpayers making over $100,000 a year, with the vast majority of the decline coming from taxpayers making over $1 million. Taxpayers earning less than $100,000 — the overwhelming majority of American households — actually saw their incomes rise during the two-year period.
You'd think from the graph and from Luskin's description that the, say, third bar on the graph tells you what happened between 2000 and 2002 to those whose incomes were between $50 and $75K in 2000. It doesn't. What it does is it shows the percentage change between the average income of those making between $50 and $75K in 2000 and the average income of those making between $50 and $75K in 2002.
This matters a lot.
To see why, let's start with a simple finger exercise: what's the average income of people making between $50,000 and $75,000 per year? It's surely going to be something pretty close to halfway between the two. Now suppose the economy undergoes an enormous boom: suppose everybody's income doubles. Now what's the average income of people making betwen $50,000 and $75,000 per year? Well... It's still surely going to be something pretty close to halfway between the two. The people are completely different people--they are the people who were making $25 to $37.5K before. But the average income of those making between $50 and $75K doesn't move much: it was the average of a bunch of numbers between 50 and 75, and it is still the average of a bunch of (different numbers (for different people) between $50 and $75K.* It certainly isn't going to double.
Now suppose the economy undergoes an enormous bust: everybody's income halves. Now what's the average income of people making between $50,000 and $75,000 per year? Well... It's still surely going to be something pretty close to halfway between.
Donald Luskin claims that the fact that those making $50-$75K in 2002 made 0.1% more than those making $50-$75K in 2000 tells us something about what's happening to the "middle class". It doesn't. This is the most laughable attempt at economic reasoning I've seen since... since... since Donald Luskin tried and failed to calculate the real exchange rate.
There is, of course, a more serious side here as well: Someday the editors of National Review might actually wish to publish something about economic policy, and have it taken seriously as a piece of argument rather than used for fishwrap as a piece of propaganda. They should be thinking really hard about whether further burning their own reputation by publishing Moore and Luskin is something they want to do.
*Why the average for the lowest category falls is left as an exercise for the reader. (Hint: there's no even lower category for people to drop into as their incomes decline.) Why the averages for the higher categories--$500K or more--fall is also a good exercise for the reader. (Hint: the averages depend not just on the upper and lower bounds of the categories, but also on the relative numbers clustered near the top as opposed to near the bottom of the categories.)
Posted by DeLong at August 21, 2004 09:16 AM
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