Opinion: Vanishing Inequality, the Devil’s Greatest Trick

in Columns

One of my favorite movies is the 1995 whodunit “The Usual Suspects.”  The last line of the film has always stuck with me: “The greatest trick the devil ever pulled was convincing the world he didn’t exist.”  This line originated in a book on Quakerism from 1834 in which John Wikinson wrote, “One of the artifices of Satan is, to induce men to believe that he does not exist.”

Phil Gramm and John Early have apparently decided to ape this trick.  Their recent op-ed in the Wall Street Journal includes “author’s calculations” implying that our country isn’t really very unequal when it comes to income. 

As an economist, with a PhD, I was floored by their claim that an American earning only $1,000 (approximately) can look forward to receiving something like $50,000 in government largess.  I have literally never encountered this claim in 20 years of teaching and publishing in my field.  Alternative facts have reared their ugly head, yet again.

As soon as I read an analysis, which doesn’t pass the laugh test, I immediately investigate the bona fides of the authors.  Gramm holds a PhD in economics from the University of Georgia.  The dirty secret of the PhD is that they are not all created equal.  In some cases we joke that it stands for “Piled higher and Deeper.” 

In a 2008 review of Gramm’s 79 page dissertation (remarkably short) James Galbraith wrote,

It contains no advanced mathematics, no data or analysis of data, no archival or otherwise original research.  It is based solely on published sources available in any well-equipped library at the time … It is belabored and repetitive, with chapters that overlap each other.  It is basically an extended discussion of a single idea. … It is equally clear to me that Phil got his degree to move on and do something else.  Had he stayed in economics, he probably would not have prospered.

Time magazine later named Gramm one of the “25 People to Blame for the Financial Crisis,” so atrocious were the unsound economic policies he imposed on our nation during his Senate career.  

From Early’s LinkedIn page I learned that he does not hold a graduate degree in the field of economics.  Instead he has a Master’s degree in International Political Economy (Quantitative).  Again, qualifications which lead one to conclude that the incredulous “author’s calculations” are not to be believed. 

Perhaps what is most unforgivable in Gramm and Early’s effort, though, is the fact that they fail to cite the work of predecessors using the same technique.  The main thrust of their argument is that one must adjust income for taxes and transfers in order to evaluate whether income is truly unequal. 

In theory a government could create a perfectly equal post-tax income distribution by positively taxing the rich and negatively taxing (paying) the poor in just the right way.  Gramm and Early wrongly imply this is happening far more than commonly understood.

Thomas Piketty earned his PhD in economics from the London School of Economics at an age when most people are struggling to finish undergraduate studies on time.  He then taught as a faculty member at MIT.  In 2017, he and his co-authors published an extensive paper on American inequality in the Quarterly Journal of Economics (one of the best journals in our field) using the post-tax adjustment which Gramm and Early erroneously suggest is novel to 2019. 

In Piketty et. al. the analysis is much more careful and far more thoroughly documented.  It has undergone careful peer review.  97% of submissions to QJE are rejected.  This is a quality and important paper.

Source: Picket, Saez and Zucman (2017)

I offer one graph from their effort.  It shows that post-tax income of the 1% grew at an average annual rate of approximately 2.25% (adjusted for inflation) from 1980-2014.  The post-tax income of someone in the bottom 10% grew by less than .25% (that is less than ¼ of 1 percent). 

If income were a NASCAR race, the richest among us would start the race in pole position and travel at a speed more than 9 times faster than the poorest among us, even after the government put a limiter on the engines of the rich, and gave a “boost” to the engines of the poor.  We are growing farther and farther apart. Our society is increasingly unequal.

Don’t let Gramm, Early, and their friends at the Wall Street Journal succeed at the devil’s gambit.  Severe inequality exists in America and it is getting worse.


This opinion piece has been edited to correct the spelling of Thomas Piketty.