Intellectual Garbage Collection: The Unreliability of Alan Reynolds

A correspondent asks why she should presume that Alan Reynolds is wrong when he claims that statistics showing rising inequality are cynically and fraudulently manipulated--that, as Reynolds writes in the extremely bad and low-quality intellectual neighborhood that is the Wall Street Journal editorial page:

Senator-elect Jim Webb recently complained on this page of an "ever-widening divide" in America, claiming "the top 1% now takes in an astounding 16% of national income, up from 8% in 1980." Those same figures have been repeatedly echoed in all major newspapers, including this one. Yet the statement is clearly false.... The top 1% of tax returns accounted for 10.6% of personal income in 2004. But that number too is problematic. The architects of these estimates, Thomas Piketty of École Normale Supérieure in Paris and Emmanuel Saez of the University of California at Berkeley...

The incessantly repeated claim that income inequality has widened dramatically over the past 20 years is founded entirely on [Piketty and Saez's] seriously flawed and greatly misunderstood estimates of the top 1%'s alleged share of something-or-other. The politically correct yet factually incorrect claim... fill[s] a psychological rather than logical need. Some economists [i.e., Thomas Piketty and Emmanuel Saez] seem ready and willing to supply whatever is demanded. And there is an endless political demand for those able to fabricate problems...

The first reason is that Alan Reynolds is playing intellectual three-card monte. He opens his op-ed by attacking Senator-elect Webb's belief that income inequality has risen steeply since 1980, but in the body of the op-ed--as he writes to economist Mark Thoma's Economist's View--"[I said that] there is no clear evidence of a sustained and significant increase in inequality since 1988.... I very carefully did not say there was no such evidence about 1981-87..." That is sufficient reason right there.

However, there are more reasons. We have experience with Alan Reynolds. The last time I noticed Alan Reynolds on inequality was last March, when he wrote:

The Top 10 Percent, Again: [T]he eternal ambition of Robin Hood economics is to steal money from those who earned it and "redistribute" it to those with more political clout. When in pursuit of such a worthy cause, it appears quite respectable to torture innocent statistics. Those deploying statistics in this campaign take special care to select their favorites. Washington Post columnist Steven Pearlstein.... "in 1979, the top 10 percent of households earned 33 percent of all pretax income. By 2003, their share had climbed to 44 percent. The shares of everyone else declined." Where did [Pearlstein's] numbers come from? They certainly didn't come from the Census Bureau.... Pearlstein's statistics obviously didn't come from the CBO... [which] estimates that in 1979 the top 10 percent of households earned 39.3 percent of all pretax income. By 2003, their share had dropped to 38.3 percent (or 33.7 percent after taxes).... It is easy to see why the CBO is not Pearlstein's favorite source of income statistics...

At the time Reynolds's claim that CBO showed no rise in household income inequality since 1979 surprised me, because I had read a report by the careful Isaac Shapiro and Joel Friedman of CBPP on the CBO study which said something very different:

New CBO Data Indicate Growth in Long-Term Income Inequality Continues, 1/29/06: CBO issues the most comprehensive data available on changes in incomes and taxes for different income groups.... The new CBO report highlights the degree to which income gains have become increasingly concentrated at the top of the income scale over the past two and a half decades.... The top one percent of the population received 12.2 percent of national after-tax income in 2003, up from its already-large 7.5 percent share in 1979...

Sure enough, Reynolds is wrong. CBO estimated that for all households the income of the top tenth in 2003 was 37.2%, compared to 30.5% in 1979. Reynolds's 39.3% and 38.3% came not from "Table 1: All Households", but instead from Table 3, "Elderly Households".

As Paul Krugman wrote at the time, defending Pearlstein:

: [F]or [Pearlstein's] pains, he was smeared by someone at the Cato Institute who needs help -- technical help. Hint to Alan Reynolds: check which table you're looking at before claiming that Congressional Budget Office data refute a statement you don't like...

Emmanuel Saez's office is seven doors north of mine on the west corridor of Evans Hall. He is an extremely thoughtful, intelligent, careful, and fair-minded economist, trying his very best to tell it straight. He deserves much better than to be smeared by people who are not careful--who get their tables mixed up--and are not fair-minded--i.e., "I very carefully did not say there was no such evidence about 1981-87."