Bernie Sanders And The Fixed Pie Fallacy

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Bernie Sanders And The Fixed Pie Fallacy

Bernie Sanders And The Fixed Pie Fallacy by Chelsea German, Foundation For Economic Education

“The rich are getting richer and the poor are getting poorer.” Senator Bernie Sanders first said those words in 1974 and has been repeating them ever since.

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Senator Sanders is not alone in his belief. Three out of four Americans agree with the statement, “Today it’s really true that the rich just get richer while the poor get poorer.”

Senator Sanders is half right: the rich are getting richer. However, his assertion that the poor are becoming poorer is incorrect. The poor are becoming richer as well.

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Economist Gary Burtless of the Brookings Institute showed that between 1979 and 2010, the real (inflation-adjusted) after-tax income of the top 1% of U.S. income-earners grew by an impressive 202%.

He also showed that the real after-tax income of the bottom fifth of income-earners grew by 49%. All groups made real income gains. While the rich are making gains at a faster pace, both the rich and the poor are in fact becoming richer.

In addition to these measurable real income gains, decreases in prices have given the poor increased purchasing power, helping to raise living standards for the worst off in society. As a result of falling prices such as for groceries and material goods, along with gains in real income, Americans have more income left after basic expenses.

Technology has also become cheaper, improving our lives in unexpected ways. For example, consider the spread of cell phones. There was a time when only the wealthiest Americans could afford one. Today, over 98% of Americans have a cellular subscription, and the rise of smart phones has made these devices more useful than ever.

Unfortunately, progress has been uneven. In those areas of the economy where competition is hobbled, such as education, housing, and healthcare, prices continue to increase.

Bernie Sanders

Still, the percentage of the population classified as living in relative poverty has decreased over time. Why then do three quarters of Americans, including Senator Sanders, believe that the poor are “getting poorer?”

A simple logical error underlies Sanders’ belief. If we assume that wealth is a fixed pie, then the more slices the rich get, the fewer are left over for the poor. In other words, people can only better themselves at the expense of others. In the world of the fixed pie, if we observe the rich becoming richer, then it must be because other people are becoming poorer.

Fortunately, in the real world, the pie is not fixed. US GDP is growing, and it’s growing faster than the population.

Bernie Sanders

Poverty remains a pressing issue, but Senator Sanders is incorrect when he says that the poor are becoming poorer. In the words of HumanProgress.org advisory board member Professor Deirdre McCloskey,

The rich got richer, true. But millions more have gas heating, cars, smallpox vaccinations, indoor plumbing, cheap travel, rights for women, lower child mortality, adequate nutrition, taller bodies, doubled life expectancy, schooling for their kids, newspapers, a vote, a shot at university, and respect.

This post first appeared at HumanProgress.org.

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4 COMMENTS

  1. I’m not an economist, but if the minimum wage in 1974 was $2.10 and a big mac cost $.65, you could get three big macs for an hours work, and have some change left. Today the minimum wage is $7.25 and a big mac costs $3.99, meaning you can get one big mac for one hour of work. If this holds true for the economy as a whole, how are we better off now than then?

  2. I HAVE DONE SOME VERY SIMPLE ANALYSIS OF CENSUS BUREAU AND IRS TAX DATA AND HAVE FOUND SEVERAL STATISTICS THAT ARE JUST FLAT OUT MIND BOGGLING… AND EXACTLY THE KIND OF DATA THAT REPUBLICANS DO NOT WANT US ORDINARY AMERICANS TO KNOW! SUPPOSE THAT THERE ARE TWO IDENTICAL WORLDS… ONE IN WHICH THE DISTRIBUTIONS OF INCOME SHARES HAD REMAINED AT EXACTLY THE SAME AS THEY WERE IN 1968… AND OUR REAL NON HYPOTHETICAL WORLD. ONE SET OF DATA… FROM THE CENSUS BUREAU… CAN BE CRUNCHED TO SHOW THAT THE BOTTOM 80% OF ALL THE HOUSEHOLDS IN THE USA HAVE LOST MORE THAN 16 TRILLION CUMULATIVELY SINCE 1968…. HERE IN THE REAL WORLD… VERSUS THAT HYPOTHETICAL WORLD WHEE INCOME HSARS HAVE REMAINED CONSTANT!!! ALL THAT INCOME WENT SOMEWHERE… TO THE TOP 5% OF THE POPULATION, MOSTLY… AND MORE THAN HALF OF IT JUST TO THE TOP 1%!!! A SIMILAR ANALYSIS OF OTHER DATA… CANT REMEMBER FOR SURE WHERE I GOT THAT DATA… BUT FROM THE MASTERFUL PIKETTY AND SAEZ AND MCKENNICLE WORKS, PROBABLY… BUT THAT SHOWS THAT THE BOTTOM 90% HAVE LOST OVER 26 TRILLION SINCE 1968… HALF OF IT JUST SINCE GEORGE BUSH JUNIOR TOOK OFFICE…. AND ALL OF THOSE LOSSES WENT TO THE TOP 5%… AND A MAJORITY JUST TO THE TOP 1%!!! NOW… CONSIDER THIS BOMBSHELL… FROM IRS DATA… 2013 FEDERAL INCOME TAX DATA TO BE SPECIFIC….. IF WE ASSUME THAT STANDARD DEDUCTIONS AND PERSONAL EXEMPTIONS ARE A ROUGH PROXY FOR PEOPLES BASIC COSTS OF LIVING… THEN THAT WOULD MEAN THAT THEIR TAXABLE INCOME IS ACTUALLY A GOOD PROXY FOR THE TRUE DISPOSABLE INCOME… THAT IS… MONEY THEY CAN SPEND ON WHATEVER THEY WANT, AFTER THEY HAVE PAID FOR ALL NECESSITIES. NEVER MIND THAT THE STANDARD DEDUCTIONS AND PERSONAL EXEMPTIONS ARE PROBABLY AT LEAST 15 TO 25 TOO LOW…. JUST USING THE DATA AS IT IS SHOWS THAT…… IN THE AGGREGATE… THE BOTTOM 55.6% OF ALL TAX FILERS… HAD ALMOST EXACTLY 1% OF TOTAL TAXABLE…. THUS TOTAL TRUE DISCRETIONARY INCOME… OF ALL THE HOUSEHOLD TAXABLE… TRULY DISCRETIONARY… INCOME IN THE USA! AND THAT DOES NOT FACTOR IN THE ROUGHLY 10% OF ALL HOUSHOLDS THAT EARNED TOO LITTLE TO EVEN FILE A TAX RETURN!!! COUNTING THEM WOULD MEAN THAT THE BOTTOM 5 OUT OF EVERY 8 HOUSEHOLDS IN AMERICA EARN A MERE 1 OR 2% OF ALL THE TRULY DISCRETIONARY… TAXABLE… INCOME IN AMERICA!!! A LARGE MAJORITY OF AMERICANS QUITE LITERALLY WORK FOR NOTHING BEYOND MERE SURVIVAL… IN OTHER WORDS!!! THESE KINDS OF STATISTICS CLEARLY SHOW THAT REPUBLICAN ECONOMIC AND RELATED POLICIES ARE DESTROYING THE AMERICAN MIDDLE CLASS… AND AMERICA ITSELF….AND UNLESS WE CHANGE THOSE POLICIES… DRAMATICALLY… , AMERICA IS DOOMED!!!

  3. YET ANOTHER SANCTIMONIOUS REPUBLICAN, SPINNING A BALD FACED LIE BY TELLING THE TRUTH… OR A SMALL PART OF IT!!! SOME OF THE DATA CITED ABOVE IS STANDARD ISSUE DATA, AVAILABLE AT A NUMBER OF OFFICAL SITES. THE POVERTY DATA… FOR EXAMPLE… WHICH ACTUALLY SHOWS THAT POVERTY RATES TODAY ARE ROUGHLY THE SAME AS THEY WERE 40 YEARS AGO, WHEN REPUBLICANS SCUTTLED LBJ’S WAR ON POVERTY, AND TURNED WELFARE PROGRAMS FOR THE POOR INTO WELFARE PROGRMS FOR THE RICH. WELFARE FOR THE RICH??? YEAH…. BY FAR THE BIGGEST SUPPORT PROGRAM FOR POOR PEOPLE IS MEDICARE AND MEDICAID AND OTHER HEALTH CARE PROGRAMS. IF YOU ARE POOR AND GET SICK, OR HURT…. HOW MUCH MONEY DOES THE GOVERNMENT GIVE YOU???? NOT A DIME…. NOT ONE THIN DIME!!! ALL OF THAT MONEY GOS TO SOME RICH DOCTOR OR TO SOME CORPORATE MEDICAL FACILITY… AND THEN GOES FROM THERE TO STOCK AND BOND HOLDERS, MOSTLY!!!. THEN THERE IS THE BALONEY ABOUT LOWER INCOME PEOPLE ACTUALLY DOING BETTER THAN THEY USED TO BE DOING! YEAH… BUT ONLY BECAUSE THE GOVERNMENT IS HEAVILY SUBSIDIZING PEOPLE WHOSE WAGES ARE SO LOW, OR WHOSE JOBS ARE TOO INSECURE… TO KEEP MANY TENS OF MILLIONS OF WORKERS FROM STARVING ON THE STREETS… OR DYING ON THE STREETS DUE TO MEDICAL PROBLEMS! AND NEVER MIND THE IMPACT OF UPPER INCOME PEOPLE SPENDING SO MUCH MONEY THAT IT PUSHES UP PRICES FOR STUFF ALL THE REST OF US NEED… RENTS AND HOUSING COSTS AND UTILITY COSTS AND FOOD COSTS AND MEDICAL CARE AND INSURANCE COSTS… AND HIGHER EDUCATION… AMONG OTHER SUCH NECESSITIES OF MODERN LIFE!!! IF THE RICH HAD BEEN TAXED LIKE THEY WERE 40 AND MORE YEARS AGO, THE FEDERAL DEBT WOULD BE LESS THAN HALF OF WHAT IT IS TODAY…. AND THE INCOME AND WEALTH GAP BETWEEN THE RICH AND THE REST OF US WOULD BE MUCH MUCH SMALLER THAN IT HAS BECOME!!! REPUBLICAN POLICIES HAVE CREATED THESE AND MANY OTHER PROBLEMS…. BUT REPUBLICANS ARE JUST TOO ARROGANT AND SELFISH AND SELF CENTERED TO EVEN ADMIT THAT THEY HAVE DESTROYED THE ECONOMIC AND SOCIAL AND POLITICAL SYSTEMS THAT MADE THE UNITED STATES THE RICHEST AND MOST POWERFUL NATION IN THE WORLD…. WAY BACK WHEN DEMOCRATS CONTROLLED THINGS!!!

  4. “Unfortunately, progress has been uneven. In those areas of the economy where competition is hobbled, such as education, housing, and healthcare, prices continue to increase.” <>

    You can’t just brush those **huge** factors under the rug as if they don’t matter in a discussion about how the poor are getting poorer and the middle class is disappearing. Since Burtless doesn’t want to use CPS data, lets look at wage statistics from the SSA: Between 2000 and 2007, median personal earnings stayed basically flat, peaking in 2007 at $28,914 (+$568 over 1999 median). From there, they dipped and were still below the 1999 levels in 2013. Mean personal earnings, on the other hand, grew at a decent clip in the 2000s. Even with the recession, mean personal earnings in 2013 showed a gain of $2,165 over the 1999 mean. The fact that median earnings have remained stagnant and mean earnings have increased supports the idea that income gains have been absorbed mainly at the top.

    Since 1985 the share of wealth owned by the bottom 90% has plummeted from 36% to 23%. In that same time, the share of wealth owned by the top 1/10th of 1% (.1%) more than doubled. In 2012, the wealthiest 10 percent of the country took home half of the country’s total income, the largest share ever recorded. Transfer of wealth from the middle class and poor to the very wealthy *is* happening.

    And for the record, not everyone has cars, or adequate nutrition, or schooling for their kids, or a shot at university, or even lower child mortality…. and most certainly not respect when so many continue to demonize the poor as lazy and ignore or justify the systemic problems that have of led to these huge divides.

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