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Monday, February 11, 2013

Fun With Statistics

For John, BLUFWhen someone shows you a graph you need to check the axes.  Nothing to see here; just move along.

Over at The Daily Beast Columnist Megan McArdle talks about income statistics and errors in understanding them.  Her column is titled "Department of Awful Statistics:  Income Inequality Edition".  In her column she is responding to a Mr Jon Evans, of Techcrunch. The chart used for the discussion can be found here.

Quoting Ms McArdle:
"When I was growing up in Canada," says Jon Evans of Techcrunch, "I was taught that income distribution should and did look like a bell curve, with the middle class being the bulge in the middle. Oh, how naïve my teachers were. This is how income distribution looks in America today"
Now, Ms McArdle has a number of what seem like typos to me, but the point is that the reason for the bump on the right side is that while most of the columns represent a $5,000 spread of income, the last two represent, first, ten times $5,000 ($200,000 to $249,999) and second an almost infinite times $5,000 (all the rest, out to, as Ms McArdle says, A-Rod's $27 million—is he worth that much?)

So, those right two columns should have been part of a very long tail that went well to the right of your computer, in my case, out to the driveway.

Lies, damn lies and statistics.
Turns out a number of folks said that, including the Duke of Wellington and Mark Twain.

Hat tip to the Instapundit.

Regards  —  Cliff


Neal said...

Cleaver writing by the statistical story. It expressed exactly what the author desired. There is an entire sector of the population who would vociferously maintain that the statistical charge should be nearly level with perhaps only a 1 or 2 degree rise to the right. This representation would of course in their posit be post tax. But then, one would have to superimpose a tax burden overlay to the chart which would reveal a sizable percentage of folks who pay no taxes. Obama says everyone should have skin in the game, and yet, nearly 48 percent of the taxable public pay none or the very minimum, and yet, consume the greatest percentage of benefits arising from a benevolent big brother.

I read the ever present argument that the obscene robber barons are the problem, and perhaps a convincing argument is to be made that annual compensation for many is excessive. Why should A-Rod make so much each year? Of course, the answer lies in the word "demand." Big stars become iconic, and people flock to observe the icons in action, and the sponsoring body makes even more than is paid out in "wages."

There is much that is inequitable about our capitalist system, but it has sustained this United States since the birth of the nation. Conversely, at the other extreme, socialist societies in which "equality" replaces "equity" as the measure of societal success, have repeatedly failed the sustainment test and have required greater and greater dedication of citizen contribution in order to maintain a modicum of financial health.

The statistic shown tells only a sliver of the entire story....something that is the primary purpose of statistical representation I might add. It reveals a picture that the provider wants us to see, but not always one that is truthful in the context of the whole picture.

Craig H said...

What pisses me off the most is that cheating on the stats like this takes what I would consider a perfectly serviceable smoking gun and allows its critics to successfully toss it all off as hogwash, while only that small right hand portion is so.

Our median household (HOUSEHOLD!) income is less than $50,000. (Well, maybe not less than in the latest figures, and this one still says "estimate", but it's pretty damn close to $50,000 either way). Over half of America is solidly missing whatever prosperity is supposed to be happening for the rest of the country, and the disparities between "have" and "have not" are getting wider, not narrower. I heard a lot of yapping about needing to return this country to its "good old days", and I have news for those folks that the "good old days" included significant taxes against marginal income to the right side of this graph, and a bell shape with a healthy mid-section safely above the poverty line, instead of barely keeping ahead of it.

The graph should, indeed, be presented with its long tail intact. And then the skew towards the bunch on the far left would be even more dramatic, and the stats geeks could be properly satisfied, and we could successfully return this discussion to the question of why we are losing our middle class, and whether or not shifting tax burdens directly onto their shoulders, and favoring owners above earners to an extreme degree is the right public policy.

Renee said...

85k means something different for a family of 3 vs. a family of 6.

Otherwise, I count my blessings and share what I can.

Craig H said...

And to Neal: Escaping a Federal Incone Tax burden on top of the burden of trying to raise a family on less than $50,000 a year does not escape the burden of paying significant amounts in payroll taxes, sales taxes, excise taxes, gasoline taxes, etc. etc. etc. Nor does it explain why investment income (comprising the lion's share of the far right portion of the graph) should be taxed at any less than the the rate on the income of anyone who earns theirs by the hour.

This "47%" nonsense has to stop. Take a look at the tax rates and income distributions in 1960, and consider the differences in demographics.

We are in the midst of a collosal economic train wreck and the "47%" are the ones in the front car who are taking the brunt of the impact. You can tax them at 100% of their income and you would hardly put a dent in our deficit. They have no money. It's offensive that people are still focused on making them pay MORE in taxes than they already do, as if an additional Federal Income Tax bill is going to solve their dead-end existences.

Neal said...

Kad, I don't have any disagreement with your last statement. I think it is the absolute obscene extreme of hypocrisy that people like Reid and Pelosi profess their allegiance to the middle class, and yet clamor for even more taxation of the very people they profess to love. It is also obscene that they are very successful millionaires....and you can bet the entire farm that they access and enjoy every loophole possible...all done of course within the bounds of PC and "the law." They and the other gargantuan herd of millionaires in the Congress sit there smugly calling the kettle black. Trust me, as wealthy corruption goes....the politicians who make the rules are the absolute worst offenders.

I have long clamored for a flat tax as it is the only fair means of employing government robbery at gunpoint. Fifteen percent of 50,000 is a whole lot less than 15% of 1 million. No loopholes, no long forms. Simply, This is what you make.....this is what you owe. It would reduce paperwork astronomically.

I would be able to live with Lies, even damn lies....but politics has reached the lowest end of the scale of human perversity. It has only enabled the hungry to feast on the helpless. And don't ANYONE tell me about the power of the ballot box. That is, today, perhaps one of the greatest deceptions foisted on the public. Folks like us cannot win beyond the local scene. We simply don't have the money. THAT is what gets people into office.....your own or that of someone who will own you once you are in.

The problem with America today is that we are beginning to see cracks in our structure, cracks that portend our implosion resulting from our own moral, ethical, and legal corruption.

Frighteningly, we are one financial bust from pure anarchy. If nobody is scared...they are stupid. And we have two political parties to thank for it....both unilaterally claiming the battlefield for themselves and party progression......NOT for the American people. It was NEVER about us.

Jack Mitchell said...

This will make the heads of every bitter clinger explode:
"We feel instinctively that societies with huge income gaps are somehow going wrong. Richard Wilkinson charts the hard data on economic inequality, and shows what gets worse when rich and poor are too far apart: real effects on health, lifespan, even such basic values as trust."

So, cling to your 'neo-feudalism.' Kow tow to your corporate feudal masters. They will gladly 'trickle down on you.'

Please, continue to 'punch down,' labeling us 'takers.'

The ballot box will favors us. And should you resort to guns, to enforce the crooked laws that would deny our right to vote, we will respond accordingly.

Time is on our side.

Craig H said...

Neal, the asterisk to a flat tax (which I also support) should be an income exclusion at the bottom to respect that poverty is, indeed, poverty, and should not be further punished. (Sales taxes and excise taxes and gas taxes and the rest are punishment enough). The incentive to earn should be clear and the benefits to the individual protected.

Jack, Neal raises a reasonable point that tax increases across the board burden the poor even more intensely than the rich. Income disparity is exaggerated and magnified after tax confiscation. If you are against income gaps, it would stand to reason that limited taxation is necessary, unless it's purely down to "soak the rich". (Not saying "soak the rich" isn't necessary, just that let's call our spades a spade here).

The "takers" include Congress and the inexorable Federal bloat with which they have burdened us via the ever-increasing tax levy. I can't respect partisan complaints while that bloat continues unabated, and I certainly can't understand why D's like Patrick feel like now is the time to ratchet up confiscations in order to fund NEW programs, even while we can't yet afford the old ones. Sanity must, at some point, prevail.

The answer is not just increased revenue. We have to control spending.

Jack Mitchell said...

Kad, there are line items that we could bicker on, in Patrick's proposal. I do like the idea of shifting revenue away from sales and towards income, at least for the next 5 years or so.

If income tax is done in a progressive way, meaning the burden is relative to the ability to bear it; such a shift will leave more money in middle class pockets and encourage them not to burn the gas to buy goods in NH.

Flat tax is absurd, unless you put in a bottom floor. Say $50,000? Even so, those making $125,000 annually are not so flush that they should subsidize the lifestyle of the 1 Million Club.

Keep the Progressive Tax and minimize the deductions. This, of course, will never happen. As we have a microeconomy built around April 15th. It stretches well beyond the Beltway lobbyists. On TV, we are seeing ads for tax preparation services, almost to the frequency of campaign ads in Oct.

The game is rigged.

But, I'm going to work with those that scoff the notion that "God loves America more." The "religous righties" folks are looney tunes and treasonous, if The Constitution is to be followed.

C R Krieger said...

The flat tax makes sense when there are any deductions because those of us in the Middle Class (which is a broad area in my book) can't afford the lawyers and accountants to take advantage of the laws, rules, regulations and rulings that make up our tax code.  Some may scoff at the "religious righties", but the tax code is a mutually developed monster.  Since I was born, right after the last mass extinction event, the Democrats have been in control of Congress the most.  They are in this just as much as the Republicans.

So, the idea of the flat tax is to take a sword to the Gordian Knot of our tax system.

And, I agree that Governor Patrick's plan to shift some taxes from sales tax to income tax makes good sense in that it relieves one of the regressive impositions on those who earn less.  However, we do realize, don't we, that Massachusetts has a flat income tax?

One of the gripes of some taxpayers is that all should feel the bite of the Federal Government, however small it might be. That is another advantage of the flat tax.  At some level taxpayers could be allowed to exclude some large percentage of their income, but they would still have to file and pay a little bit.  Sales taxes (and the terrible Value Added Tax concept) hides taxes from the People and those not having to file an income tax form think it is all a free ride.

Finally, we are all in agreement, are we not, that if you confiscated all the money, save $250,000 from those earning more than that, that it would not fill the hole that is our deficit and debt for more than a few days?

As for "treasonous", that is just folks who read the Declaration of Independence, and believe it.  Maybe that is just some educational artifact of a bygone time.

Regards  —  Cliff

Neal said...

Kad, I have no issue with your suggestion that at some level of poverty, we should leave well enough alone. I am certain however that the definition of that point will be almost as contentious as Jack's ongoing rant against religion and guns. I think that there ought to be incentives (other than just plain humanitarianism....which is out of style) for communities to care much more for their own, via soup kitchens, shelters, work programs, etc. It just doesn't seem THAT hard to do....but in reality it is. Nashua has a vibrant and exceptionally beneficial soup kitchen and a fairly decent shelter program. The Interfaith Council provides much of the funding and manpower to operate these programs...but they could be better and more broad. If we keep asking government to take the lead and the will...but we will pay for the unnecessary bureaucracy that almost gets it done. Government is the absolute worst way to manage a program.

Income disparity is just a fact of life. Those who for whatever reason can only compete for and perform minimum wage jobs are by that very fact going to earn much less than a lady with a PhD in Biochemistry. Life is choices and for a gazillion reasons, those in minimum wage jobs with no way out have made bad choices. We can provide that escape clause however, but even then, we will have minimum wage workers. We should no castigate the horrible money makers because they are more industrious. NOW...if we create a ceiling and maintain it, we are wrong as a one legged chicken. That has happened in our history....and continues to happen. It seems to be a frailty endemic in the human race. Even the downtrodden, once liberated, have no problem suppressing those behind them.

The problem with assailing the rich is that they can afford to skip the public indignation. In my travels around the world, I've encountered Expats nearly everywhere, many if not most of which offshored their money and reside outside the US. And since people like to be close to their money, very often the source of their income gets offshored as well. History shows that by going after the rich in order to make the poor more affluent, only one of two things happens, the money leaves or the money buys a repressive regime. At the moment, I would suggest that our political system as it currently is composed is quite repressive of the great unwashed....and want to be even more so. As I say that I think of Madame Pelosi who thinks we are not taxing people enough.

Objectively speaking, a free market economy is self correcting when it comes to income and demand. The problem is that those corrections are not fast nor even necessarily uniform. Generally, in our history, fast "reform" has always come at the hands of government, and in so doing it introduces more complexity than needed and in many ways exacerbates the total problem even more. To "Help" the middle class, we have to beef up the bureaucracy in order to handle the demand and programs that satisfy it.....but the added burden generates a need for greater forced "contribution" which only makes everyone just a bit poorer. It takes a lot less time to become poor than it does to become rich. I would add that if you have a good buffer from being can last longer before the government is able to confiscate what you've earned. At the stupid end of the spectrum (but not the impossible end) we have France who recently declared a 75% income tax on "rich people." Only after the French people screamed did the government realize the fallacy and futility of such a scheme.

Craig H said...

Confirming per Jack's comment that an exclusion at the bottom end is indeed the right (only!) way to fairly assess a flat tax scheme. (The benefit of that exclusion neatly curves out the burden through the lower taxable brackets so it neatly delivers a progressive tax burden in the process as well--double win, and I absolutely hate the Orwellian etymology of "regressive" so I won't use the word).

Regarding Deval's proposal, I'm still not willing to look past the increases in spending even while congratulating him for the effort to shift the focus towards economic activity and away from income. Why do we have to couple the burden-shift with spending increases? Why can't we match spending increases with spending decreases instead? And then shift the burden as is so clearly needed as well?

Nice to know, among all us partisans, we're united in the essential need to unburden the middle and find ways to promote more people into it.