This is just too rich! H/T to The Week Magazine for this post.
The photo comes from Bernie Sanders’ official Senate website. The site’s designers either have an awesome sense of humor or cannot grasp the most basic irony.
Sanders is paying his interns a starving wage, and they’re responsible for their own housing! In Washington, D.C. of all places, somewhere that $12 gets you nothing but a couple smelly rides on the Subway!
Just to the left of his starving wage information for interns, go figure, is Bernie campaigning for a $15 minimum wage. What a hypocrite.
And, there’s this, from his Facebook page:
Just another example that it’s easy to be compassionate when others are paying the cost.
[From “Basic Economics,” Thomas Sowell, Fifth Edition, pages 205-206]
“Whatever the relationship between one income bracket and another, that is not necessarily the relationship between people, because people are moving from one bracket to another as time goes on. Therefore the fate of brackets and the fate of people can be very different– and, in many cases, completely opposite.”
The graph below shows that real per capita incomes have been increasing over time, meaning Americans living today enjoy higher living standards than in the past (in fact, last year’s per capita income of $37,420 was an all-time high).
From 1970 through 2014, real per capita income has more than doubled, increasing by 125 percent.
These figures indicate a growing economy and rising prosperity for each American. How, then, can politicians like Bernie Sanders get away with arguments that only “the rich” have seen gains while everybody else, especially the middle class, is under attack?
They do so by comparing groups of income over time. For example, this image from the CBO shows us the fate of different percentiles and quintiles in terms of income earned since 1980.
I’ll have a more in-depth post later explaining why some of the interpretations of income inequality are misleading and exaggerated, but a couple reasons why comparing actual individuals instead of groups provides more accurate descriptions of reality are:
1) The amount of people who work in each group is different
2) Since individuals move between groups over time, comparisons of “the top 20 percent” in 1980 versus the top 20 percent today don’t even include all of the same people
As I said, there will be more on this topic later.
So when I woke up this morning and checked out Facebook, I was pleasantly surprised to see that Frederic Bastiat was getting some abnormal attention from all of the free-market pages that I “Like.” It turns out that, today (June 29, 2015), he would have turned 214 years old!
Bastiat happens to be my favorite political thinker. His classics include The Law, That Which is Seen and That Which is Unseen, and many more. You can cheaply pick up a copy of his collected writings from the Mises Institute HERE.
In my most recent post, I explained why the CPI hasn’t jumped to record highs yet, despite many economists’ predictions that the Fed’s policy of low interest rates and quantitative easing would severely devalue the dollar. I presented data which, according to my understanding, contradicts Ben Stein’s remark that “economic laws have been turned upside down.”
Basically, although the Fed has dramatically expanded the monetary base since 2008, most of the new money has been stored as reserves at the Fed.
I thought a “Supersize Me” analogy was fitting in this situation.
Suppose a relative of yours wants to get on the “Supersize” diet. You might warn him that his decision will result in a fatal heart attack at some point in the future.
Nevertheless, he proceeds to purchase extra-large meals from McDonald’s every single day. You are stunned to learn that, three months down the road, he has kept up his daily purchases of McDonald’s meals and seems to be in relatively good health. You conclude that all of the laws of nutrition have been turned upside down, and people can, in fact, eat all of the junk food they desire.
However, what you didn’t see is that he has been eating just a few meals from McDonald’s per week, leaving a majority of the food he purchased in other people’s refrigerators. Thus, your relative hasn’t disproved the laws of nutrition, because he hasn’t physically been eating the food.
In the same way, the Fed hasn’t overturned the laws of economics, because most of the money hasn’t physically been placed in the hands of the consumers…
During a recent interview with Neil Cavuto, Ben Stein claimed that “All of the laws of economics have been turned upside down… It turns out that government can print money– all they want– and it doesn’t create inflation.”
In fact, from September 2008 until the present, the Fed has increased the monetary base by a whopping 351 percent, yet during the same time period consumer prices have jumped by a total of only 9.8 percent.
If the Fed has printed all of this money, shouldn’t the CPI be rising? Dramatically? Or is Ben Stein correct to conclude that economic laws have been suddenly turned upside down?
To the level of my understanding, the answer is pretty clear: Stein is incorrect. Nothing since 2008 shows that “government can print money– all they want– and it doesn’t create inflation.”
The reason is because most of the money the Fed printed hasn’t even circulated into the economy yet. Remember that since 2008 the monetary base has increased by 351 percent. But if you look at the graph below, during the same time period you will note that currency in circulation has increased by 64 percent, a significant jump in itself but a long cry from 351 percent!
The rest of the newly printed money supply has laid dormant in the Fed’s vaults. In fact, since September 2008, reserve balances with Federal Reserve Banks have increased from just over 1 percent of the monetary base to making up more than 67 percent of it today! The quantity of these reserves has increased by 29,327 percent!
The Fed has been on a printing spree, but as long as the money remains locked up as reserves at the Fed it remains unavailable for consumers to spend, and that’s why the CPI hasn’t jumped like many economists predicted.
Bottom line: Most of the money the Fed has printed since 2008 has been stored as reserves instead of circulated to consumers. If all of that money was suddenly taken from the vaults and made available to consumers, Stein would look like a complete fool because the CPI would soar.