Lies, Damned Lies And Supply Side Statistics

Stephen Moore is a founder of the Club for Growth and a Heritage Foundation propagandist where he proselytizes for the supply side gospel of lowering taxes for the rich and eliminating regulations for corporations. The core of this faith is that a society based on doing everything for haves and nothing for have-nots will usher in utopia as wealth trickles down like manna from heaven.

Like all faiths, this one is impervious to evidence to the contrary, though there’s plenty of it. Ever since Reagan began to implement this program over 40 years ago, inequality has grown and the populist anger thus engendered threatens to undermine support for more of the same snake oil. Moore and his ilk are unshaken in their belief and spend much of their time contriving reasons not to believe that the supply side emperor has no clothes on.

Thus, Moore and Richard Vedder who peddles the same Kool-aid for the American Enterprise Institute, recently explained how wrong critics of the true faith are (WSJ June 5, “The Blue State Path to Inequality”). As usual they seek to prove that the fault is not in their supply side stars but in the source of all evil, the serpent in the garden, government.

According to them states with higher taxes, more government programs to help the poor and middle class, and a willingness to regulate those who prey on them are actually more unequal than states that don’t tax, don’t govern and don’t regulate. They use a statistical measure called the Gini coefficient to make their case. Gini purports to measure inequality on a scale of zero to one, so that a society in which everyone was equal in income would score Zero and one in which a single person had everything and everyone else nothing wold score One for perfect inequality.

Moore and Vedder fail to mention that Gini is very controversial since its measure is crude, can produce the same number for many different distributions of income, and fails to take into account the influence of demographic changes — like an aging population or a baby boom.

Instead, they blithely claim Gini proves blue states with higher taxes and more generous welfare programs are woefully more unequal than anti-tax, laissez faire paragons. So, the most unequal places in the US according to their Gini score are DC, New York and Connecticut. Whereas the places with greatest equality of income are Wyoming, Alaska, Alaska, Utah and New Hampshire.

Very persuasive, except there are obvious explanations other than the only ones these guys care about — big guvment with its high taxes. For starters, DC is not the epicenter of big government so much as the place in the US with the highest percent of minority population in the country. It is 51 percent black which may only show that supply side nostrums far from helping the historically disadvantaged have done nothing to improve their lot.

Consider that the next most unequal states (after NY and CT) are also those with high black populations — Mississippi (37%) and Louisiana (32%) though they are anything but famed for high taxes and generous government services. Similarly, the most equal states according to Gini are not necessary the most anti-tax but rather those with the least minority residents — Alaska (4%) Wyoming, Utah and New Hampshire (all with 1.2% black population).

There is also a way to account for the inequality of New York and Connecticut other than government or minority population and that is how many hugely rich people live in those states. It’s Wall Street and hedge-fund billionaires who skew the Gini coefficient of inequality there, not their tax rates.

Similar distortions and half-truths abound. Moore and Vedder sneer that Toyota didn’t just move a plant from California to Texas because of the weather. In their view it was to embrace a better business climate. Certainly the corporation may rejoice at fewer regulations to protect workers and the environment. And highly compensated executives will appreciate a state like Texas with zero income tax (though to compensate it does have the highest property taxes in the nation). But any correlation to inequality as a function of government is not just unproven but false. The Gini number for Texas is .469 and that for California is .471, in other words, indistinguishable.

In fact, Moore and Vedder fail to spill the beans that the Gini number for all the states don’t really differ that much. The least equal state, New York, clocks in at .499 and the most equal, New Hampshire, measures .430. Most cluster in the middle of the bell curve with little regard for whether they are big government or live free and die venues (Kansas .445, Maryland .443, Michigan .451, Oklahoma .454, Virginia .459, Pennsylvania .461, New Jersey .464, North Carolina .464).

The Gini for the United States as a whole is.450 which is about the same as Argentina, Bulgaria, Uganda, the Philippines, and Iran. Not great company. Countries that score higher on the inequality scale tend to have huge have and have-not disparities and other big troubles (Bolivia .530, Botswana .630, Colombia .580, South Africa .580).

At the other end of the spectrum are countries with less inequality, where Moore and Vedder’s theory should place libertarian, low tax regimes. In fact, the opposite is the case. Either everyone is grindingly poor or a social welfare philosophy anathema to the supply siders is in place: (Germany .270, Switzerland .290, Sweden .230, Kazakhstan .290).

All of this suggests not only that the Gini is unreliable but that supply side zealots are even more so. Shameless, in fact, in proving what they believe, facts be damned. Of course, their readers at the Wall Street Journal op-ed page and acolytes of AEI and Heritage don’t attend the services for truth, but to have their faith reinforced. Those with an open mind would be wise to seek explanations for our rising inequality from a less biased source.

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