The Latest Liberal Nonsense About Economic Inequality

Former Obama auto czar Steven Rattner uses weak data in attempt to advance tax-and-spend policies favored by the left.

"Inequality, Unbelievably, Gets Worse," is the headline over a column by Steven Rattner, the former Obama administration auto tsar who is identified by The New York Times as "a Wall Street executive and a contributing opinion writer."

The only part of the headline you can believe is the word "unbelievably," which is an admirable'"funny, even'"example of truth-in-headline writing by the Times. One might be tempted to dismiss the column, but it's illuminating as an example of the muddy thinking that mars much writing on the topic of inequality, and that has the potential to drive public policy in harmful directions.

Rattner's complaint is that our government doesn't tax and spend enough to even out the inequality of income. He writes, "Here's what's rarely reported: Before the impact of tax and spending policies is taken into account, income inequality in the United States is no worse than in most developed countries and is even a bit below levels in Britain and, by some measures, Germany. However, once the effect of government programs is included in the calculations, the United States emerges on top of the inequality heap."

Rattner backs up that claim with a chart headlined "Doing Less to Redistribute Income": "The U.S. ranks favorably in the Gini coefficient, a measure of inequality, until taxes and transfers are factored in. Then, among these countries, it is the worst."

Because it measures income rather than wealth, the Gini coefficient is a flawed measure, as even anti-equality crusader Thomas Piketty concedes. For example, someone who retired early and lives in a mortgage-free house may show up as low income, but have plenty of wealth.

Even using the flawed measure, though, Rattner's claim that the United States is "on top of the inequality heap" when post-transfer, post-tax income is counted turns out to be false. A Gini coefficient of one means that one person has all the income and everyone else has none. A Gini coefficient of zero would mean everyone has exactly the same amount of income. In 2012, the most recent year for which the Organization for Economic Cooperation and Development has statistics, the post-tax, post-transfer Gini coefficient for the United States was 0.389. For Mexico, it was 0.482. For Chile, in 2011, the number was 0.503. For Turkey in 2011, it was 0.412. Those numbers do not place the U.S. at the "top of the inequality heap," as Rattner incorrectly claims.

Rattner goes on, "That's because our taxes, while progressive, are low by international standards and our social welfare programs '" ranging from unemployment benefits to disability insurance to retirement payments'"are consequently less generous."

That's quite a logical leap. A country might have high taxes but choose to spend money on corporate subsidies or the military rather than on social welfare programs. Or a country might spend money on social welfare programs'"like health benefits and pensions for relatively well-off seniors'"that exacerbate inequality rather than ameliorating it. Or a country might have low taxes but spend extravagantly anyway, using money borrowed at low interest rates from other countries (like Russia or China) that have even more inequality.

Rattner claims: "Conservatives may bemoan the size of our government; in reality, according to the Organization for Economic Cooperation and Development, total tax revenues in the United States this year will be smaller on a relative basis than those of any other member country." I'm not sure how Rattner or the OECD can know now what our tax revenues or those of other countries this year "will be"'"the year isn't even over yet.

In the chart that goes along with his article, Rattner alters the "will be" claim to one, headlined "Bottom of the heap," that claims "U.S. tax revenues, as a percent of G.D.P. are the lowest of O.E.C.D. countries." Again, he conveniently disregards Chile and Mexico, which, if you actually go look at the OECD data, have lower tax revenues than the U.S. does. I emailed Rattner to ask him about this discrepancy and he didn't immediately reply.

The final giveaway that Rattner's data are, as the headline put it, "unbelievable," comes in a chart listing the number of "public holidays." America, once again, is at the bottom of the barrel, with zero. Has Rattner not heard of Thanksgiving, Christmas, Labor Day, Memorial Day, or the Fourth of July? Or is his point to try to make sure that even more stores, businesses, and restaurants are closed on those days than already are, or that even more workers are paid for not working on those days than already are? Rattner's driver must park in a garage, because those New Yorkers who park on the street and have to move their cars for street-cleaning can count fully 40 public holidays, including Diwali, the Asian Lunar New Year, and Idul-Fitr.

The weakness of Rattner's data is a clue to what he and many of the other anti-inequality campaigners are up to: using the issue as a cudgel to advance the same old tax-and-spend policies that the left was in favor of long before inequality was rediscovered as a trendy cause.