October 04, 2017
Earlier this week the Washington Post Fact Checker gave three Pinocchios to Bernie Sanders for saying that the world’s six richest people had more wealth than the bottom half. Several people contacted me to complain about the piece. I had originally intended to let it pass because I actually agree with many of the criticisms, but on second thought, this piece applies a level of scrutiny that it never does to claims of other politicians or its own editorial page.
First, I’ll make a few quick points on wealth as a measure on inequality. Wealth can fluctuate enormously and often for reasons that really don’t tell us much about inequality. When the stock market fell by 50 percent between the bubble peak in 2000 and the trough in 2002 did we become a much more equal society?
Asset prices, and therefore wealth, fluctuate inversely with interest rates. In fact, with bond prices the inverse relationship is definitional. If the interest on 10-year treasury bonds doubles from 2.2 percent to 4.4 percent (roughly its pre-recession level), will the implied plunge in bond prices mean we are more equal?
Also, as the piece points out, the world’s poorest people by this measure are not those who are starving and homeless in the developing world, but rather recent graduates of Harvard med school and business school who took out large amounts of debt to pay for their education. I’m afraid I can’t shed many tears for these folks.
Finally, what counts as wealth is hugely arbitrary. In the good old days, many workers had defined benefit pensions that helped support them in retirement. At least in the private sector these have been mostly replaced with 401(k) plans and other defined contribution retirement plans. A defined benefit pension would not show up in most measures of wealth whereas a defined contribution pension would. This means we would count someone with $50,000 in a 401(k) plan as having more wealth than someone who would get $30,000 a year in retirement until they die from their pension. That makes no sense.
Since somewhere around a quarter of the world’s population has zero wealth, if you have $1,000 in your bank account, you are wealthier than the bottom 25 percent of the world’s population. This is not a good measure of inequality.
But that aside, Sanders point was true as the fact check piece acknowledges. If we’re going to start giving three Pinocchios for incomplete analysis, lets take a look at all the news pieces, editorials, and columns that the Washington Post runs whining about the deficit and debt and the costs being imposed on future generations.
Do these pieces ever point out the enormous and likely permanent loss in output due to the excessive austerity of the last decade and the resulting weak recovery? This austerity is easily costing us more than $1 trillion annually in lost output, or more than 5.0 percent of GDP. This is equivalent to a massive tax increase ($10 trillion over our standard 10-year budget horizon). What’s the difference if people earn $1 trillion a year less because of bad economic policy or if they take home $1 trillion less each year because the government takes it out of their paycheck?
The Washington Post and its deficit hawk allies would go nuts over a $1 trillion increase in annual taxes, but they would have us altogether ignore the enormous loss in output as a result of economic policies they supported. By the standard applied to Sanders, this certainly should be a four Pinocchio offense.
How about ignoring the costs imposed on the public by the patent and copyright monopolies that the government awards as an incentive for innovation and creative work? These cost us close to $370 billion a year (just under 2.0 percent of GDP) in the case of prescription drugs alone. (We will spend over $450 billion this year on drugs that would likely cost us less than $80 billion if they were sold in a free market without any protections.) [For the fuller story read chapter 5 of Rigged, it’s free.]
If we sum the cost from all of these monopolies (think of medical equipment, software, video games, fertilizers, pesticides etc.) the total cost would almost certainly be twice this amount. Yet our deficit hawks never say a word about this way in which the government imposes massive costs for the future through these grants of monopolies. How is that not a four Pinocchio offense?
And then there is the Post’s hatred of labor unions expressed most recently in a column by editorial page editor Fred Hiatt celebrating French President Emmanuel Macron’s attack on labor laws protecting French workers. Hiatt writes as though this will be some huge boon for France’s economy even though the research implies that weakening the power of unions will have at best a marginal impact. The more obvious cause of France’s weak growth was the European version of the austerity the Post likes so much in the United States. How come this one didn’t get at least a few Pinocchios?
Anyhow, I would entirely agree with the criticism made of Sanders’ claim about the inequality of wealth in the United States and the world, but given the quality of debate on most economic issues, the awarding of three Pinocchios sure looks like an effort to single out Sanders. If this standard were applied everywhere, most politicians would get four Pinocchios any time they weighed in on an economic issue.
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