Playing with Graphs and Such

So, not long ago I finally got around to trying to re-vitalizing this blog, at least a bit. In so doing, I pondered on what sort of blog entries would make for good show. Long story short, I concluded that I needed content which would be interesting for readers while minimizing narcissism because I do so hate the online Facebook/Twitter/Blogging/etc induced self-centeredness which seems to characterize my generation. And by hate, I do mean hate, despite being myself guilt of it in no small degree.

In trying to write a thoughtful post with which I could add some value, I began doing some research on US income/tax/CPI numbers. The basic idea was to illustrate how the current debate, if you can call it that, in the USA, especially the Tea Party side of it, was so completely divorced from reality. Basically, I wanted to show, in graph format, that the notion that “raising taxes on the rich will destroy the universe” was, on the face of it, total bunk. While there’s certainly a philosophical argument to be made against raising taxes in that way, my point was to show that the world is a much more complicated place than “higher taxes kill jobs”.

So, I set out to prove this point. And promptly got lost in the details. However, I have managed to emerge with the evidence that follows. I will provide as little comment as I can so that you, dear (non-existent) reader can make up your own mind as to what the datum show.

Point 1:

There is no obvious correlation between the “Highest Marginal Tax Rate” (what’s on the books as the highest possible tax rate that anyone can pay) or the “Highest Marginal Tax Rate Paid by the Top 5% of Americans” (what was the rate actually paid by the average household in the top 5% of income) and GDP growth (which I am assuming as a proxy for economic growth and job creation).

Additionally, to aggregate that a bit better, I put together a basic histogram with GDP growth and highest marginal tax rates (in 10% increments along the available data points). The “n” number is the number of years which fall into those categories. Basically, there’s no real relationship discernible (and the 76% to 85% category is skewed by WW2). Basically, the tax rate on the richest Americans has no impact on economy prosperity. What a shock.

I did also run some basic Excel-based regressions (=CORREL()), but I will spare you those details. Needless to say, none of the values I used actually proved in any way significant in explaining anything else (except for those variables that move together (ie. income increase of middle class w/income increases of lower classes, etc). The highest r-squared value I obtained was 0.51 between Middle America incomes (3^rd 5^th of household incomes) and GDP. Everything else was substantially lower. (Though, three of those graphs are below for your viewing pleasure.)

Thus, while it would indeed seem that a rising tide lifts all boats. The causes of economic tides, however, remain elusive. Yes, there are miscommunications.

Point 2:

The highest earners are earning relatively more than the lowest earners versus what they did in the past.

Since I was already on a numbers bender, I thought I’d run some more figures into graphs. The above shows how household incomes have changed in the USA over the last 40-odd years. Notably, the majority of income growth has taken place amongst the highest income earners. This is further illustrated by the numbers in the figure below.

Basically, everyone has done better than CPI, but the Top 5% and top 20% of Americans have done much better than their less-well-off counterparts. Further, the relative incomes of everyone have fallen as a percentage of the incomes of the top 5%. So, the richest have been getting even richer while everyone else has been getting less rich. I should point out, however, that this isn’t necessarily a “bad” thing. Seemingly, everyone is better off relative to 1967, so the system, in that respect, is working. Whether the disproportionate distribution of social gains is just, however, is a matter for another time. Probably to be discussed over beer.

Point 3:

Tides do raise all ships, but kind of randomly and fairly inexplicably.

This fun graph shows that while incomes do move together, they do so somewhat haphazardly. Also, there doesn’t seem to be a discernable pattern. Do the rich get rich and then income trickles down? Or do the poor gain and then stimulate consumption which benefits the upper echelons. Why did incomes of Upper and Middle America crash a year earlier in the 1970s than those of Lower America? Conversely, why did Lower America crash hard in 1999, two years before a similar level of decline was seen in Upper America? And what the hell was going on in the ’90s? Anyone?

Final Words:

The basic reality is that economics, as a human-constructed system with a near infinite number of variables is incredibly complex, fairly random, and probably nearly-indiscernible. Thus as someone who has supposedly studied it a fair bit, watching nightly news programs and listening to politicians’ opinion on things economical is like listening to fingernails across chalkboards. I imagine the experience is similar to what a biologist goes through in church when regaled on the reality of Noah’s ark. Or perhaps a physicist at a new age fair.

In any case, I don’t mean to suggest that looking for patterns in the economic data or searching for causal relationships is somehow inappropriate. Quite the opposite, in fact. What I do want to see is public discourse take into account the complexities of the system rather than run roughshod over them. Complexity is what makes the world a wonderful place to be. We should learn to appreciate that, even in “sciences” as befuddling as public oikonomia and we should certainly build up a solid quantity of scepticism, if not disdain, for simple explanations.

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“If you don’t like what you see
Why don’t you fight it
If you know there’s something wrong
Why don’t you right it”
- Raise a Little Hell (Trooper)