Historical Income Tables - Families -- Mean Income Received by Each Fifth and Top 5 Percent of Families, All Races: 1966 to 2005

America's class system in numbers.

Historical Income Tables - Families

This is your country on Medicare and Social Security.

The ratio of federal debt held by the public to GDP would climb from 37 percent currently to roughly 100 percent in 2030 and would continue to grow exponentially after that. The only time in U.S. history that the debt-to-GDP ratio has been in the neighborhood of 100 percent was during World War II. People at that time understood the situation to be temporary and expected deficits and the debt-to-GDP ratio to fall rapidly after the war, as in fact they did. In contrast, under the scenario I have been discussing, the debt-to-GDP ratio would rise far into the future at an accelerating rate. Ultimately, this expansion of debt would spark a fiscal crisis, which could be addressed only by very sharp spending cuts or tax increases, or both.

There is some very sound advice in here. The following statement seems so logical and obvious that one wonders why the Fed Chief has to say it.

Members of the Congress who put special emphasis on keeping tax rates low must accept that low tax rates can be sustained only if outlays, including those on entitlements, are kept low as well. Likewise, members who favor a more expansive role of the government, including relatively more-generous benefits payments, must recognize the burden imposed by the additional taxes needed to pay for the higher spending, a burden that includes not only the resources transferred from the private sector but also any adverse economic incentives associated with higher tax rates.

Unfortunately, there are a whole lot of people who are living in total denial about this.

Fed chief Bernanke's prepared testimony before Senate - Jan. 18, 2007

Some really nice infoporn over at The Big Picture right now. The linked chart compares the assets of various nations organized into geopolitical buckets. (The embedded image comes from wikipedia's GDP page, as the chart I'm referencing here is protected against embedding.)

Notice that Asia, for all its mindshare, is still relatively tiny, and the U.S., despite her plethora of self-inflicted woes, remains globally dominant.

In other words, America can screw up an aweful lot for a long time before international competitors are really a threat to her economic position. (Although a commenter in the thread observes that U.S. asset prices may be unfairly high due to foreign currencies being pegged to the dollar.) Also worth a look is this chart which vaugely compares the GDP of various nations with various U.S. States. I'm sure you're heard before that California has roughly the GDP of France (and half the population) but I didn't know that Texas has a comparable GDP to Canada. And Georgia, oh Georgia, if only your ski slopes were as nice as your GDP...

Its worth comparing top lists for GDP between 1995 and 2005. There have been some significant changes. For example, Canada appears to be falling behind in international terms, although I don't know if that is due to failings on her part, or simply that far more populous countries are starting to get their acts together. Brazil is rocketing up, but they have 6 times the population of Canada. Canada's population is comparable to California, but it is spread out over a far wider area, which probably makes it less efficient. (I also think that weather plays a role. Snow plows cost money.)

As various countries begin to figure out how to operate effective economies and stable politics you'd think that these charts would normalize toward a reflection of population differences, with some effects due to geographic constraints such as those I mentioned for Canada. Of course, I'm describing a vision for world peace. I think we're a long way off, but it appears progress is being made.

A longer term investment in ETFs targetting countries that have moved significantly between 1995 and 2005 might be a very sound idea if coupled with a reasonable understanding of and monitoring of the political and economic stability of the countries in question. Of course, I'm not an economist, so take that with a grain of salt.

The Big Picture | How big IS the US anyway?

Milton Friedman, the Nobel-prize winning economist who helped shape and define free-market economic theory, died Thursday at the age of 94 in San Francisco.

We owe much to Friedman. Time sucks.

Nobel economist Milton Friedman dead at 94 - Nov. 16, 2006

noteworthy wrote:
Dig it. A free book that will keep you from becoming obsolete.

I'm not sure I agree. While I do think the patent system needs some serious examination there is really little new here. The main thrust of this proposal seems to be that if we want to improve America's scientific competitiveness we need to increase the supply of technical workers, which will reduce their cost. I don't agree, and I think they have mis-defined the problem.

Technological competitiveness is not about how much technology you are doing but what kind. You don't want to lead the world in having development sweatshops where people grind out code for hours at low wages. Having that sort of work move offshore is not what is breaking our technological competitiveness. What is important is that the work is directed from here and that the US owns the intellectual property.

You want to lead the world in creating new innovations. The problem isn't that the economics of turning innovations into products aren't working out and so people aren't doing the innovation or they aren't doing it here. The problem is on the demand side and not the supply side.

Doing great science and engineering is hard, and it requires people that are not just well educated, but really smart. Lowering the barriers to entry into science and engineering and flooding the market with additional workers (with the ultimate intent of lowering salaries) is going to make engineering even less attractive as a field then it already is. The result will be that you'll have more technical people, but they won't be as good. The smart ones will be even more likely to opt for a career in law, medicine, or management. You'll end up being really good at making software cheap and not very good at all at figuring out what software ought to be made. They should be focusing instead on how to incent the best and brightest to pursue graduate science and engineering educations by increasing the opportunities that exist for those people once they graduate.

They also need to recognise that technical innovation is fundamentally disruptive and threatens established institutions. Creating tax credits for large company R&D will result in a lot more things being called "research" on paper but not a lot more new products and services. You need to create an environment where people are incented to pursue startups that create new technologies. Our political and cultural response to the dotcom bust has not been to figure out how to do it better and with more rational exuberance, but rather to oppose the very idea of high tech startups. The stock option expense rule has done more damage to our technological competitiveness then Indian outsourcing firms ever will. There is definately something broken in the startup space, and there are policy measures that can be taken to fix those problems. This set of proposals doesn't even touch on the subject.

Ultimately, going down this road is simply going to further drive our downward spiral in this regard.

RE: Rising Above The Gathering Storm

Anybody who pumps a barrel out of a reservoir today to sell at $60 could make three times as much money if they just left it in the ground another two years before pumping it out. The same is true for anybody with above-ground storage facilities-- they're throwing away money, and lots of it, for every barrel they sell at $60 that they could have instead stored for two years and sold for $200. If oil producers did respond to these very strong incentives by holding back oil from today's market, the effect would be to drive today's price up.

An really smart analysis of oil futures, with some interesting links to more data. Sure oil prices are going to skyrocket? Well, you can make a hell of a lot of money on that right now if you're right.

Econbrowser: How to talk to an economist about peak oil

Thomas Friedman spends an hour talking to MIT about his new book. Watch streaming video of the May 16 event.

I haven't watched this yet but I'm memeing anyway. I'll probably watch it tonight. Friedman's recent Wired Article was excellent.

The World is Flat: An Hour With Thomas Friedman | MIT World

] More than a third of the mortgages written in the
] Washington area this year are a risky new kind of loan
] that lets borrowers pay back only the interest, delaying
] for years repayment of any loan principal. Economists
] warn that the new loans are essentially a gamble that
] home prices will continue to rise at a brisk pace,
] allowing the borrower to either sell the home at a profit
] or refinance before the principal payments come due.

] The loans are attractive because their initial monthly
] payments are tantalizingly low -- about $1,367 a month
] for a $320,000 mortgage, compared with about $1,842 a
] month for a traditional 30-year, fixed-rate loan. If home
] prices fall, though, borrowers could lose big.

All those expensive ass houses everywhere that seem to have cropped up like weeds in the last few years despite the serious lack of an economic boom. Yeah. Those people are fucking doomed. There is a reason you don't own one. You're not an idiot.

Many Buyers Opt for Risky Mortgages

] The proposal to change the benefits calculation --
] adjusting only for inflation, not productivity growth --
] will dramatically cut the income-replacement rate for
] future retirees. The size of the cut will depend on when
] workers retire. The heaviest cuts would fall on the
] youngest workers. Those already retired or near
] retirement would be protected.
]
] Let's call it what it is: a tax hike
] The administration has not called this a tax increase,
] but that is exactly what it is: a massive tax hike
] reserved for the young and the young only. It is a tax
] increase because they will pay the same payroll tax but
] will receive less in benefits.
]
] The difference is who gets the money and benefits now. Older
] voters get the money, benefits and reassurances now. Our
] children and grandchildren get the shaft.
]
] Tell me, Mr. President, what's moral and good about that?

Now this makes sense, but I'd like to see this analysis get some peer review.

MSN Money - Social Security cuts: a tax hike for the young

] Opponents say such a system would not be in the best
] interests of the poor and the middle class who would pay
] the same tax rate as the wealthy even though they have
] less disposable income.

I saw this meme floating around last week but I ignored it because I felt it was unlikely to materialize. The President saying "thats interesting" doesn't, in my mind, make it any more realistic that this will happen, but everybody is talking about it, so its worth some commentary.

People, in general, seem to be responding to it very thoughtlessly. "Yeah, get rid of the IRS!" is about as mindless a response as those on the other side who are always screaming bloody murder over "low" corporate taxes without having a basic understanding of how accounting works.

What really bothers me about this proposal is that it seems to be defended with gross generalizations rather then hard data.

Sure, elmininating the income tax code will save some money, but how much exactly? There is a lot more to corporate accounting then income taxes. Its not like the accounting industry goes away. Most of those guys are collecting data for the benefit of investors, not the IRS. Nor is it like the government won't need a revenue organization. We know exactly how much it costs other countries to manage national sales taxes versus their income taxes. Why don't the proponents have this data?

Another assertion is that rich people will pay more taxes because they spend more money. Thats asinine! Any wealthy person who spends a proportionate amount of his income versus someone in the middle class is a fool who will not be wealthy for long!! Where is the data about the change in middle income tax burden? Most western countries have federal sales taxes. The information is available. The fact that advocates of this plan haven't collected it makes me very suspicious.

What this will do is make it really easy to save money for retirement. You no longer need tools like IRAs and 401ks. You can save as much as you want and spend it however you want. There is real freedom in that. Freedom for a Social Security system that is absolutely doomed. Of course, there are middle steps that can be taken toward that, such as raising the bar on Roth IRAs.

The other thing that it will do is make it basically impossible to raise taxes outside of a war context. Today small tax increases can be made in particular areas where political opposition to a tax increase is related to support for the item being funded. Under this system there will be only one tax, and so you've got to get everyone's permission in order to fund any new program. If a new program isn't unanimously loved its not going to run. Period.

Look at Tennessee. They are a sales tax state. Most states with a sales tax have a supplimental source of income, like tourism. Tennessee doesn't. Tennessee has huge revenue problems. They can't raise taxes. They can't afford proper schools. They'd can't afford their medicare program. They've nearly declared bankrupcy recently. They closed all the public parks in the state two years ago.

Thats how we're talking about running the federal government. Sure, its a great way to control government spending, but the results are less then pretty.

Bush says national sales tax worth considering - Aug. 11, 2004