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How Can Us Politics Survive No Shared Understanding of the Economy?

October 15, 2019 in Economics

By Ryan Bourne

Ryan Bourne

We’ve all heard the sayings. Whether it’s former journalist CP Scott’s: “Comment is free, but facts are sacred”, or the late US Senator Daniel Patrick Moynihan’s “You are entitled to your opinion, but you are not entitled to your own facts”, it’s comforting to believe that certain realities are beyond reasonable dispute.

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Yet even basic “facts” about the economy in the US are today wrangled over. Republicans and Democrats there don’t just disagree about the wisdom of certain policy ideas or whether observed trends in certain metrics are worrisome. Each side has their very own data and account of the world, creating irreconcilable narratives about the state of the nation.

Left-wing Democratic Presidential candidates, such as Bernie Sanders and Elizabeth Warren, reach for academic work to claim there’s been income stagnation for four decades, spiralling inequality, a tax system becoming ever less progressive, and endemic poverty.

Republicans reject all these claims, themselves armed with studies from credible university professors and government sources. In a country riven by tribalism, and beset by segmented news consumption, economists fail even to provide politicians with a simple shared understanding of the state of the American economy.

Exhibit A comes from a conference in New York this past Monday. On the first panel, progressive economist Joseph Stiglitz (a Nobel Prize winner) claimed that earnings for ordinary American workers had not risen for 40 years. Just an hour later, former Director of the Congressional Budget Office, conservative Doug Holtz-Eakin, said this was totally wrong. Both could call on academic support.

Economists Emmanuel Saez and Gabriel Zucman have concluded that the bottom 50pc of Americans have seen no gains in real pre-tax income for four decades. Yet another study by Gerald Auten of the US Treasury and David Splinter of the Joint Committee on Taxation instead suggests the average real income of the bottom half of Americans has risen by nearly one-third since 1979, or two-thirds accounting for all taxes and benefits.

Such huge differences turn on assumptions about how to assess income, account for unreported income, or measure inflation – all methodological choices that no politicians will bother analysing.

Those same tensions underpin different political narratives on inequality. French economist Thomas Piketty famously concluded that the pre-tax income share of the top 1pc of Americans nearly doubled between 1979 and 2015, increasing …read more

Source: OP-EDS

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