Fortune Magazine’s Plutocracy index

I’m not a big fan of business journalism. For the most part, it’s a lazy, sycophantic, uninspired, biased, occasionally self-interested (in a conflict-of-interest sense) and worse yet, boring business. I should know, I was once part of the fold.

In my experience, at least half of financial journalists are in it for the food (gotta love annual report/annual meeting season (s)– cha-ching!); the other half because that’s just where they ended up (I say this only half in jest, which of course implies that something like 25% really are in it for the food).

There are exceptions to this rule. You can profitably read the business press if you take an appropriately jaundiced and critical view — sometimes business folks will say the damnest things if they think no one is listening (for the most part, no one is listening other than other members for the Establishment). Then there’s the occasional business reporter or columnist who stands out for her brilliance, her willingness to work up the courage to ask the tough questions and take a serious look at the facts. Take for example the following column by Matt Miller in Fortune Magazine (of all places), in which he proposes the construction of what he calls the “plutocracy insulation index” or PII.

Miller’s idea is to set PII equal to the following ratio: Percentage of (U.S.) tax cuts (income and otherwise) going to the top 1% of earners divided by the percentage of men and women serving in Iraq who are from the families of that same 1%. Index to 2000. Compare and contrast. Much hilarity ensues.

A Canadian PII index might not produce the same (expected) dramatic results, but it would be instructive nevertheless. We might also want to think about calculating a reverse PII index (call it the Pauper Exploitation Index or PEI) by measuring the percentage of income tax going to, say, the bottom decile of income earners divided by the percentage of men and women serving in Iraq / Afghanistan who are from this same decile (we could also do one just for Newfoundland which, I’m sure, would account for more than half the pan-Canadian index). Index to 2000. Much tragedy ensues.

Miller’s proposed index — and in fact his entire column — is a nice counterpoint to Neil Ryenold’s recent column on what happened to the income of families with children in the United States over the last 15 years (bottom 20% did better than anyone else according to the CBO study cited by Reynolds). The implication for Reynolds, while not explicitly stated as such, is clear: Canada should emulate the U.S. model (tax cuts, welfare reform, etc.).

While the results of the CBO study are indeed encouraging and should prompt some research into how this happened, it is a bit much to go from there to proclaiming (as some have done) that U.S. income inequality broadly speaking is narrowing thanks to that country’s enlightened welfare-reform, tax cut, and military spending policies.

Why? As usual, the devil in the details. How one chooses to cut the data has a strong impact on the conclusions one might want to draws. Consider, for example, that while this most recent CBO study look at the last 15 years, an earlier release of CBO data , this time for the 1979 – 2003 period and for all individuals (not just families with children), found that the bottom 20% did considerably less well in terms of after-tax income increases.

Second, quintiles don’t exactly give a very complete or nuanced view of income inequality It would be useful to augment this analysis by cutting the data into deciles or, as Miller suggests, comparing and contrasting the top 1% with the bottom 1%. Much tragedy will, I’m sure, ensue.

To get a hint of what one might expect from this kind of fulsome analysis, see this detailed analysis of trends in wealth and income distribution in the United States. It depicts a far more complete and not surprisingly, more worrisome story.

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