conventional wisdom versus the data october 29, 2011 copies of this presentation can be found at
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1
Conventional Wisdom versus The Data
October 29, 2011
copies of this presentation can be found atwww.antonydavies.org
The Game
Select what price to charge.
Lower price sell more units.
Higher price sell fewer units.
The Game
Goal: Make the most profit possible.
Profit = Revenue – Cost
Price per unit x Units sold $1 x Units sold
Price per Unit Units Sold$1 100$2 95$3 90$4 85$5 80$6 75$7 70$8 65$9 60
$10 55$11 50$12 45$13 40$14 35$15 30
Example
Suppose you charge $3 per unit.
How many units will you sell?90
What is your revenue?($3) (90) = $270
What is your cost?($1) (90) = $90
What is your profit?$270 – $90 = $180
Price per Unit Units Sold$1 100$2 95$3 90$4 85$5 80$6 75$7 70$8 65$9 60
$10 55$11 50$12 45$13 40$14 35$15 30
Example
Suppose you charge $15 per unit.
How many units will you sell?30
What is your revenue?($15) (30) = $450
What is your cost?($1) (30) = $30
What is your profit?$450 – $30 = $420
Example
Suppose you charge$3 per unit. Profit = $180
Suppose you charge$15 per unit. Profit = $420
Of these, $15 is the better price to charge.
Round 1
Choose the price you will charge for your product.
Every unit you sell costs you $1 to produce.
Profit = Price x Units Sold – $1 x Units Sold
Price per Unit Units Sold$1 100$2 95$3 90$4 85$5 80$6 75$7 70$8 65$9 60
$10 55$11 50$12 45$13 40$14 35$15 30
Price per Unit Units Sold Revenue Cost Profit$1 100 $100 $100 $0$2 95 $190 $95 $95$3 90 $270 $90 $180$4 85 $340 $85 $255$5 80 $400 $80 $320$6 75 $450 $75 $375$7 70 $490 $70 $420$8 65 $520 $65 $455$9 60 $540 $60 $480
$10 55 $550 $55 $495$11 50 $550 $50 $500$12 45 $540 $45 $495$13 40 $520 $40 $480$14 35 $490 $35 $455$15 30 $450 $30 $420
Round 1
Round 2: Tax the Consumers
In this round, consumers will pay an additional $4 per unit tax.
You choose a price.
The consumers pay that price per unit to you plus they pay another $4 per unit to the government.
Price per Unit Units Sold$1 100$2 95$3 90$4 85$5 80$6 75$7 70$8 65$9 60
$10 55$11 50$12 45$13 40$14 35$15 30
Round 2
In this round, consumers will pay an additional $4 per unit tax.
If you charge $3, how many units will consumers buy?70
What is your profit?$210 – $70 = $140
You charge $3.
Consumers pay $3 + $4 = $7.
Consumers buy 70 units.
What is your revenue?($3) (70) = $210
What is your cost?($1) (70) = $70
Round 2
Choose the price you will charge for your product.
The consumer pays your price plus another $4 to the government.
Every unit you sell costs you $1 to produce.
Profit = Price x Units Sold – $1 x Units Sold
Price per Unit Units Sold$1 100$2 95$3 90$4 85$5 80$6 75$7 70$8 65$9 60
$10 55$11 50$12 45$13 40$14 35$15 30
Price per Unit Units Sold Revenue Cost Profit$1 80 $80 $80 $0$2 75 $150 $75 $75$3 70 $210 $70 $140$4 65 $260 $65 $195$5 60 $300 $60 $240$6 55 $330 $55 $275$7 50 $350 $50 $300$8 45 $360 $45 $315$9 40 $360 $40 $320
$10 35 $350 $35 $315$11 30 $330 $30 $300
Round 2: Tax the Consumers
Round 3: Tax the Firms
In this round, firms will pay a $4 per unit tax for every unit they sell.
The price consumers pay is the price you charge.
Price per Unit Units Sold$1 100$2 95$3 90$4 85$5 80$6 75$7 70$8 65$9 60
$10 55$11 50$12 45$13 40$14 35$15 30
Round 3
In this round, firms will pay a $4 per unit tax.Your cost per unit is now $1 (for the unit) plus another $4 (for the tax).
If you charge $3, how many units will consumers buy?90
What is your profit?$270 – $450 = –$180
What is your revenue?($3) (90) = $270
What is your cost?($1 + $4) (90) = $450
Round 3
Choose the price you will charge for your product.
Every unit you sell costs you $1 to produce.
In addition, you pay the government $4 for each unit you produce.
Profit = Price x Units Sold – $5 x Units Sold
Price per Unit Units Sold$1 100$2 95$3 90$4 85$5 80$6 75$7 70$8 65$9 60
$10 55$11 50$12 45$13 40$14 35$15 30
Price per Unit Units Sold Revenue Cost Profit$1 100 $100 $500 ($400)$2 95 $190 $475 ($285)$3 90 $270 $450 ($180)$4 85 $340 $425 ($85)$5 80 $400 $400 $0$6 75 $450 $375 $75$7 70 $490 $350 $140$8 65 $520 $325 $195$9 60 $540 $300 $240
$10 55 $550 $275 $275$11 50 $550 $250 $300$12 45 $540 $225 $315$13 40 $520 $200 $320$14 35 $490 $175 $315$15 30 $450 $150 $300
Round 3: Tax the Firms
No Tax Tax Consumers $4 Tax Firms $4Retail Price $11 $9 $13
Price Consumer Pays $11 $13 $13Price Firm Receives $11 $9 $9
Units Sold 50 40 40Tax Revenue $0 $160 $160
Results
In round 3, the government taxed the firms $4.
Won’t firms just pass the tax on to consumers?
No Tax Tax Consumers $4 Tax Firms $4Retail Price $11 $9 $13
Price Consumer Pays $11 $13 $13Price Firm Receives $11 $9 $9
Units Sold 50 40 40Tax Revenue $0 $160 $160
Results
End result: Firms pay $2 of the tax, and consumers pay $2 of the tax.
Retail price up by $2
Consumers pay $2 more
Firms receive $2 less
Results
In round 2, the government taxed the consumers $4.
Won’t consumers be forced to pay the full $4 tax?
No Tax Tax Consumers $4 Tax Firms $4Retail Price $11 $9 $13
Price Consumer Pays $11 $13 $13Price Firm Receives $11 $9 $9
Units Sold 50 40 40Tax Revenue $0 $160 $160
No Tax Tax Consumers $4 Tax Firms $4Retail Price $11 $9 $13
Price Consumer Pays $11 $13 $13Price Firm Receives $11 $9 $9
Units Sold 50 40 40Tax Revenue $0 $160 $160
Results
End result: Firms pay $2 of the tax, and consumers pay $2 of the tax.
Retail price down by $2
Consumers pay $2 more
Firms receive $2 less
No Tax Tax Consumers $4 Tax Firms $4Retail Price $11 $9 $13
Price Consumer Pays $11 $13 $13Price Firm Receives $11 $9 $9
Units Sold 50 40 40Tax Revenue $0 $160 $160
Results
Lesson #1: The government has no control over who ultimately pays a tax.
(even when the firm is a monopoly)
No Tax Tax Consumers $4 Tax Firms $4Retail Price $11 $9 $13
Price Consumer Pays $11 $13 $13Price Firm Receives $11 $9 $9
Units Sold 50 40 40Tax Revenue $0 $160 $160
Results
When there was no tax, consumers bought 50 units.
A $4 per unit tax should generate $4 x 50 = $200 in tax revenue.
No Tax Tax Consumers $4 Tax Firms $4Retail Price $11 $9 $13
Price Consumer Pays $11 $13 $13Price Firm Receives $11 $9 $9
Units Sold 50 40 40Tax Revenue $0 $160 $160
Results
Instead of raising $200 in tax revenue, the government only raises $160.
Results
Lesson #2: The government determines the tax rate, not the tax revenue.
(regardless of whom it taxes)
No Tax Tax Consumers $4 Tax Firms $4Retail Price $11 $9 $13
Price Consumer Pays $11 $13 $13Price Firm Receives $11 $9 $9
Units Sold 50 40 40Tax Revenue $0 $160 $160
Lesson #1: The government has no control over who ultimately pays a tax.
Lesson #2: The government determines the tax rate, not the tax revenue.
26
Conventional Wisdom #1
The government is financially sound.
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Data sources: US Department of the Treasury, CIA World Factbook
Millions, Billions, Trillions
(blah, blah, blah)
$100
$10,000
A stack of $100 bills, ½ inch high.
$1 million
100 packets of $10,000.
$100 million
$100 million fits on a standard pallet.
$1 billion
$1 trillion
About twice the amount of money the U.S. government spends on interest on the national debt in one year.
$14 trillion
The value of all goods and services produced in the United States in one year.Also, the U.S. national debt (as of 2010).
Total Federal debt and obligations (as of 2010).
$65 trillion
46
Conventional Wisdom #2
The government has a debt problem.
47
Data source: Bureau of Economic Analysis
The Federal government collects about $2.3 trillion in taxes per year
(all tax revenues combined).
The average U.S. household earns about $50,000 per year.
48
$2.3 trillion $50,000
49
Federal tax revenues = $2.3 trillionFederal spending = $3.8 trillion
Federal debt = $14.6 trillion
Income = $50,000Spending = $84,000
Debt = $330,000
Debt
Deficit
Deficit DeficitDeficit
50
51
Conventional Wisdom #2
The government has a debt problem.deficit
What causes deficit?
52
Perhaps we have a revenue problem.
Debt
Deficit
Deficit DeficitDeficit
Revenue Spending
Revenue Spending
Revenue Spending
SpendingRevenue
?
?
?
?
53
54
revenue
Conventional Wisdom #2
The government has a debt problem.deficit
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
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1956
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1960
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1968
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2002
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2008
2010
Billi
ons
Federal Revenue
Federal revenue has risen 6.9% per year (on average).
Data source: US Department of the Treasury
55
Not fair. Prices have been rising over time.
56
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
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1956
1958
1960
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1998
2000
2002
2004
2006
2008
2010
Billi
ons
Federal Revenue Federal Revenue (adjusted for inflation)
Federal revenue has risen 3.3% faster than inflation per year (on average).
Data source: US Department of the Treasury
57
Not fair. The population has been growing over time.
58
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
1954
1956
1958
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1996
1998
2000
2002
2004
2006
2008
2010
Billi
ons
Federal Revenue Federal Revenue (adjusted for inflation) Federal Revenue (adjusted for inflation, per capita)
Federal revenue per person has risen 2.2% faster than inflation per year (on average).
Data source: US Department of the Treasury
59
Tax revenue may be rising,but it isn’t rising fast enough.
To raise more tax revenue, we need to raise tax rates!
60
61
Conventional Wisdom #3
Raising tax rates increases tax revenue.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
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1956
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1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Federal Revenue as a % of GDP
21%13%
Data sources: Internal Revenue Service, Bureau of the Census
62
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Federal Revenue as a % of GDP
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Federal Revenue as a % of GDP
21%13%
Data sources: Internal Revenue Service, Bureau of the Census
63
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Federal Revenue as a % of GDP
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Federal Revenue as a % of GDP
13%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Federal Revenue as a % of GDP
21%13%
Data sources: Internal Revenue Service, Bureau of the Census
64
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Federal Revenue as a % of GDP
18%
Data sources: Internal Revenue Service, Bureau of the Census
65
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Top Federal Marginal Income Tax Rate
Data sources: Internal Revenue Service, Bureau of the Census
66
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Top Federal Marginal Income Tax Rate
Data sources: Internal Revenue Service, Bureau of the Census
17%
67
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Top Federal Marginal Income Tax Rate
17%
18%
Data sources: Internal Revenue Service, Bureau of the Census
68
69
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Average Marginal Income Tax Rate
16%
Data sources: Internal Revenue Service, Bureau of the Census, Barro and Redlick (2009)
70
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Average Marginal Income Tax Rate
18%
16%
Data sources: Internal Revenue Service, Bureau of the Census, Barro and Redlick (2009)
71
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Capital Gains Tax Rate
Data sources: Internal Revenue Service, Bureau of the Census
72
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Capital Gains Tax Rate
17%
Data sources: Internal Revenue Service, Bureau of the Census
73
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Capital Gains Tax Rate
17%
18%
Data sources: Internal Revenue Service, Bureau of the Census
74
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
Average Effective Corporate Tax Rate
Data sources: Internal Revenue Service, Bureau of the Census
75
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
Average Effective Corporate Tax Rate
17%
Data sources: Internal Revenue Service, Bureau of the Census
76
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
Average Effective Corporate Tax Rate
17%
18%
Data sources: Internal Revenue Service, Bureau of the Census
77
If revenue is a fixed 18% of GDP, then the debt problem must really be a spending problem.
Debt
Deficit
Deficit DeficitDeficit
Revenue Spending
Revenue Spending
Revenue Spending
Revenue Spending
78
79
revenue
Conventional Wisdom #2
The government has a debt problem.deficit
spending
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Annu
al C
ost p
er P
erso
n
Average Price Level
Data sources: Bureau of Labor Statistics, Bureau of Economic Analysis
The average price level has risen 700% since 1954.
80
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Annu
al C
ost p
er P
erso
n
Average Price Level Cost of Federal Government
Data sources: Bureau of Labor Statistics, Bureau of Economic Analysis
The average price level has risen 700% since 1954.
The per-person cost of the Federal government has risen 3,000% since 1954.
81
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Annu
al C
ost p
er P
erso
n
Average Price Level Health Care Cost of Federal Government
Data sources: Bureau of Labor Statistics, Bureau of the Census
By comparison, the cost of health care has only risen 2,000% since 1954.
The per-person cost of the Federal government has risen 3,000% since 1954.
The average price level has risen 700% since 1954.
82
Fine!
Government spending is rising, but it’s because of wars, NASA, subsidies to oil companies, [fill in your
favorite evil]…
83
84
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
Federal Spending Federal Revenue
Billi
ons
Data source: The President’s Budget for Fiscal Year 2011, Office of Management and Budget
2011 Federal Budget
Entitlements
Net Interest
Other Mandatory
Defense
Everything Else
Mandatory Spending
Discretnary Spending
Social Security, Medicare, Medicaid
Food stamps, unemployment, child nutrition and tax credits, supplemental security for disabled, student loans
Departments of Agriculture, Commerce, Education, Energy, HHS, HUD, Interior, Justice, Labor, State, Transportation, Treasury, Veteran Affairs, plus independent agencies, plus Legislative branch, plus Judicial branch, etc.
85
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
Federal Spending Federal Revenue
Billi
ons
Data source: The President’s Budget for Fiscal Year 2011, Office of Management and Budget
2011 Federal Budget
Entitlements
Net Interest
Other Mandatory
Defense
Everything Else
Eliminating all discretionary spending would still leave a $230 billion deficit.
GDP grows!
Reconsider revenue
We only get 18% of GDP in revenue, so let’s stimulate GDP!
Spend more!
=
86
18% x
Conventional Wisdom #4
Government spending stimulates the economy.
87
TARP = $356 b.
Stimulus = $578 b.
Federal Reserve = $1,500 b.
Financial Initiatives = $366 b.
Housing Initiatives = $130 b.
Data source: money.cnn.com/news/storysupplement/economy/bailouttracker/
Total (net) stimulus = $3 trillion
88
Unemployment Rate: 6%7%8%9%10%
89
Total (net) stimulus = $3 trillion
Historically, how has the economy reacted to stimulus spending?
90
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
-6% -4% -2% 0% 2% 4% 6%
RGDP
per
Cap
ita G
row
th
Change in Federal Outlays as % of GDP
Stimulus Spending and Economic Growth
If stimulus spending worked, we should see a relationship like this.
91
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
-6% -4% -2% 0% 2% 4% 6%
RGDP
per
Cap
ita G
row
th
Change in Federal Outlays as % of GDP
Data source: Bureau of Economic Analysis, National Income and Product Accounts
Increased government spending does not appear to increase economic activity.
Stimulus Spending and Economic Growth (1954.1 to 2011.1)
92
Maybe stimulus spending doesn’t have an immediate effect. What is the effect over time?
93
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
-6% -4% -2% 0% 2% 4% 6%
RGDP
per
Cap
ita G
row
th 1
Yea
r Lat
er
Change in Federal Outlays as % of GDP
Data source: Bureau of Economic Analysis, National Income and Product Accounts
Increased government spending does not appear to increase economic activity one year in the future.
Stimulus Spending and Economic Growth (1954.1 to 2011.1)
94
Maybe stimulus spending’s effects are cumulative. What is the cumulative effect?
95
-2%
-1%
-1%
0%
1%
1%
2%
2%
3%
-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0%
RGDP
per
Cap
ita G
row
th (4
QM
A)
Change in Federal Outlays as % of GDP (4Q Moving Average)
Data source: Bureau of Economic Analysis, National Income and Product Accounts
Increased government spending appears to have a negative cumulative effect over 4 quarters.
Stimulus Spending and Economic Growth (1954.1 to 2011.1)
96
97
We have to do something! The rich are getting richer and the poor are getting poorer!
98
Conventional Wisdom #5
The rich get richer while the poor get poorer.
0%
5%
10%
15%
20%
25%
30%
Under $15,000 $15,000 - $25,000 $25,000 - $35,000 $35,000 - $50,000 $50,000 - $75,000 $75,000 - $100,000 Over $100,000
1970 1980 1990 2000 2009
Data source: Statistical Abstract of the United States, U.S. Bureau of the Census, 1995-2012.
99
Incomes are in 2009 dollars.
U.S. Households According to Income
0%
5%
10%
15%
20%
25%
30%
Under $15,000 $15,000 - $25,000 $25,000 - $35,000 $35,000 - $50,000 $50,000 - $75,000 $75,000 - $100,000 Over $100,000
1970 1980 1990 2000 2009
Data source: Statistical Abstract of the United States, U.S. Bureau of the Census, 1995-2012.
100
Incomes are in 2009 dollars.
U.S. Households According to Income
0%
5%
10%
15%
20%
25%
30%
Under $15,000 $15,000 - $25,000 $25,000 - $35,000 $35,000 - $50,000 $50,000 - $75,000 $75,000 - $100,000 Over $100,000
1970 1980 1990 2000 2009
Data source: Statistical Abstract of the United States, U.S. Bureau of the Census, 1995-2012.
101
Incomes are in 2009 dollars.
U.S. Households According to Income
0%
5%
10%
15%
20%
25%
30%
Under $15,000 $15,000 - $25,000 $25,000 - $35,000 $35,000 - $50,000 $50,000 - $75,000 $75,000 - $100,000 Over $100,000
1970 1980 1990 2000 2009
Data source: Statistical Abstract of the United States, U.S. Bureau of the Census, 1995-2012.
102
Incomes are in 2009 dollars.
U.S. Households According to Income
0%
5%
10%
15%
20%
25%
30%
Under $15,000 $15,000 - $25,000 $25,000 - $35,000 $35,000 - $50,000 $50,000 - $75,000 $75,000 - $100,000 Over $100,000
1970 1980 1990 2000 2009
Data source: Statistical Abstract of the United States, U.S. Bureau of the Census, 1995-2012.
103
Incomes are in 2009 dollars.
U.S. Households According to Income
104
wtf?
Data source: Statistical Abstract of the United States, U.S. Bureau of the Census, 2010, Table 678.
3.8%
46.6%
3.4%
49.7%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Lowest Quintile Highest Quintile
Frac
tion
of T
otal
Inco
me
Rece
ived
by
Each
Fift
h
2000 2007
The rich get richer and the poor get poorer.
105
Richest QuintilePoorest Quintile
7.1
65.7
6.9
66.8
0
10
20
30
40
50
60
70
Lowest Quintile Highest Quintile
Aver
age
Age
2000 2010
Data source: Statistical Abstract of the United States, U.S. Bureau of the Census, 2010, Tables 8, 9.
The old get older and the young get younger.
106
Oldest QuintileYoungest Quintile
Source: Pew Economic Mobility Project
107
108
Conventional Wisdom #6
Trade exploits and impoverishes the poor for the benefit of the rich.
109
R2 = 0.56
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000
Per-capita Income (US$)
Per-c
apita
Tra
de (U
S$)
Greater per-capita trade is associated with greater per-capita income.
Data source: International Monetary Fund
110
R2 = 0.80
$1
$10
$100
$1,000
$10,000
$100,000
0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00
Gender Related Development Index (0 = low gender adjusted HDI, 1 = high gender adjusted HDI)
Per-
capi
ta T
rade
(US$
, log
arith
mic
sca
le)
GDI measures quality of life (longevity, education, literacy, income) for women relative to men.
Greater per-capita trade is associated with greater gender equality.
Data sources: International Monetary Fund and United Nations Development Programme
111
R2 = 0.54
$1
$10
$100
$1,000
$10,000
$100,000
0 10 20 30 40 50
Children 10 to 14 in the Labor Force (as % of age group)
Per-c
apita
Tra
de (U
S$, l
ogar
ithm
ic s
cale
)
Greater per-capita trade is associated with reduced child labor.
Data sources: International Monetary Fund and World Bank
112
$1
$10
$100
$1,000
$10,000
0 10 20 30 40 50 60
Children 10 to 14 in the Labor Force (as % of age group)
Per-c
apita
Tra
de (U
S$, l
ogar
ithm
ic s
cale
)
Even among middle-lower and lower income countries, greater per-capita trade is associated with reduced child labor.
Data sources: International Monetary Fund and World Bank
113
Conventional Wisdom #7
Trade costs American jobs.
114
January 1975 to June 2006
0%
2%
4%
6%
8%
10%
12%
12% 14% 16% 18% 20% 22% 24% 26% 28% 30%
Trade (imports plus exports) as % of GDP
Unem
ploy
men
t Rat
e
Greater per-capita trade is associated with reduced unemployment.
Data sources: Bureau of Labor Statistics and Bureau of Economic Analysis
115
January 1975 to June 2006
$12.00
$12.50
$13.00
$13.50
$14.00
$14.50
$15.00
12% 14% 16% 18% 20% 22% 24% 26% 28% 30%
Trade (imports plus exports) as % of GDP
Aver
age
Rea
l Hou
rly E
arni
ngs
(200
0$) Greater per-capita trade is associated with increased real
wages.
Data sources: Bureau of Labor Statistics and Bureau of Economic Analysis
116
Conventional Wisdom #8
The minimum wage helps minimum wage workers.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
0.3 0.32 0.34 0.36 0.38 0.4 0.42 0.44 0.46
Unem
ploy
men
t Rat
e
Minimum Wage as Fraction of Average Hourly Wage
College Education (1978-2008)
Data sources: Statistical Abstract of the United States and Bureau of Labor Statistics
117
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0.3 0.32 0.34 0.36 0.38 0.4 0.42 0.44 0.46
Unem
ploy
men
t Rat
e
Minimum Wage as Fraction of Average Hourly Wage
HS Education (1978-2008)
Data sources: Statistical Abstract of the United States and Bureau of Labor Statistics
118
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
0.3 0.32 0.34 0.36 0.38 0.4 0.42 0.44 0.46
Unem
ploy
men
t Rat
e
Minimum Wage as Fraction of Average Hourly Wage
Less than HS Education (1978-2008)
Data sources: Statistical Abstract of the United States and Bureau of Labor Statistics
119
120
Data Pwns Conventional Wisdom
The government has no control over who ultimately pays a tax.
The government sets the tax rate, not the tax revenue.
Raising tax rates does not increase the government’s share of the economic pie.
The government has a spending problem.
Stimulus spending doesn’t stimulate.
121
Data Pwns Conventional Wisdom
The poor are getting richer.
Trade empowers and enriches people (even poor people).
Trade creates more jobs than it destroys.
Minimum wage increases unemployment among the less educated.
122
Conventional Wisdom versus The Data
October 29, 2011
copies of this presentation can be found atwww.antonydavies.org
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