Putin and crisis – lie again

Another lie from Putin is that Russia was very successful during the last crisis and has recovered to the healthy pace of growth.  And we know the name of the hero who led us though these dark years. Unfortunately for Russia, it had hardest problems between the BRICS countries. Figure 1 shows that Russia was the only country in BRICS who had a dramatic fall in real GDP per capita – the best variable describing real economic growth independent on the change in population.

The years of Putin as the Prime Minister are characterized by a deep fall in economic growth and there is nothing to be proud of.  As shown in our previous post, the pace of economic growth between 2001 and 2008 was just an extension of the push given in 1998 and not by Putin.

 

Figure 1. The evolution of real GDP per capita in BRICS.

Why Putin lies about his input to economic growth in Russia?

One of the biggest lies from Putin is that he has pulled out the Russian economy from ruins and given it a big push.  It is not true because the evolution of real GDP per capita in Russia follows the same path since 1998, i.e. the push to the economy had been given by President Yeltsin.  Figure 1 presents the measured real GDP per capita in Russia since the start of transition in 1991. We have also plotted our prediction as based on a physical model of transition from socialism to capitalism.  

The years of Putin’s presidency are characterized by inertial economic growth, which is not different from the previous years. There is no chance that Putin could make any difference. On average, the rate of real economic growth in Russia was of 4.0% per year since 1998.  According to our model, the rate should be around 5% per year for the level of GDP per capita in 1998-2007. This means that the Russian economy has been lagging behind its potential output.

Figure 1. Observed and predicted evolution of real GDP per capita in Russia.

Why income inequality is very difficult to analyze?

There are several major agencies reporting various measures of personal income. The Census Bureau, CB, measures personal incomes in household surveys (CPS ASEC) at an annual rate. This measure is called Money Income, MI, and includes various types of personal income. The CB provides these estimates to the Bureau of Labor Statistics in form of distributions over age/race/sex. 

The Bureau of Economic Analysis also carries out annual estimates of gross personal income, GPI, as based on administrative records but does not provide any dependence on age/race/sex. In that sense the BEA reports only the cumulative number and does not allow inferring any evolution of personal income distribution in time. The most important similarities and differences of the CB and BEA measures are discussed in depth in this CB document.   

The IRS also measures and reports personal incomes filed for tax purposes. Since 1996, the IRS has been publishing detailed tables of personal incomes distribution is various income bins. This is similar to the CB reports but includes capital gains as income source.  

Unfortunately, multiple purposes and multiple agencies reporting personal incomes make it difficult to follow up actual evolution of income distribution and income inequality in the US. There is no unique way to merge all data in one consistent table and to estimate the distribution of income over age/race/sex and to calculate any quantitative measure of inequality like Gini coefficient or Thile index.  We illustrate the difficulties with two plots. Figure 1 shows the portion of personal income reported by three agencies in nominal GDP. The BEA reports around 85% of GDP as personal incomes but does not include capital gains. The CB and IRS both report only 55% to 62% of GDP as personal incomes with a very large difference in sources of income.

Figure 2 shows the portion of population with income as defined by the CB and IRS. There is a dramatic difference of 30% between these agencies. In other word, the IRS does not count as personal income what approximately 30% of the total population define as money income. This might be not a big difference in total income when all personal incomes are summarized over this 30 per cent of population.

One may conclude that the way these three major agencies consider and resolve the problem of personal income and income inequality is counterproductive and confusing for any quantitative analysis.  This also means that the speculations about income inequality are mostly qualitative and thus emotional.

Figure 1. Portion of personal income in GDP.

Figure 2. Portion of people with personal income in total population.  

The heroes of inflation

As reported yesterday, the consumer price indices of many goods and services in the USA have been falling or at least not growing since 1991. But the overall price inflation as described by the headline CPI (we use not seasonally adjusted indices) has been growing. What are the heroes of inflation? Two Figures below illustrate the situation

Tobacco and tobacco products are the absolute leader – 847 points in December 2011. This is not a surprise – this price is controlled by the government. The index of hospital and related services is at 641! It is interesting that the BLS includes communication and education in one top-level category. As shown yesterday, communication is a leader of deflation and some of education services have been chasing medical services is the inflation race. The index of tuition, other school fees, and child care has been rocketing.

Among transportation indices, some go down and some grow. The index of motor vehicle insurance has been growing and not is at ~400, with the index of new and used motor vehicles showing no growth since 1991. The index of fruits and vegetables also grows too fast relative to other components of the food index. Motor fuel apparently grows with oil price and the index of primary residence rent leads the housing index.

Information technology - the leader of deflation

Yesterday I missed the absolute hero of deflation in the US – the consumer price index of information technology, hardware and software (see Figure 1). It has been falling since 1991 and now levels at 9 points relative to 226 points of the headline CPI. This is a fascinating behavior of the most important modern goods and services. Computers and information is the core of real economic growth.

Figure 1. The evolution of the headline CPI and the index of information technology, hardware and software.

What deflates?

Price inflation is always a theme discussed by public, media and experts. Life is getting more expensive and thus is a concern for everybody. This is a common place that all prices always grow with the only exception of short and exotic periods of price deflation. Do you actually know how many consumer price indices have been decreasing from, say, 1991?  Quite a few! Some of them are shown below.

High income distribution from the IRS

Three more figures to confirm that income inequality has not been changing since 1996.  Following our previous post we have calculated population density functions, PDF, for the years between 1996 and 2009.  Figure 1 depicts the overall PDF, i.e. portions of the overall income vs. portions of population with given incomes. Figures 2 and 3 illustrate the high income range and the Pareto distribution.  

In Figure 2, all years except 2000, 2001, and 2002 show almost identical distributions. The years 2000, 2001, and 2002 show larger discrepancy contradicting the other years. The reason of the divergence is not clear. When these abnormal years are excluded together with the highest income bin between $5,000,000 and $10,000,000, where measurements might be biased, one obtains an ideal power law distribution.  Between $5,000,000 and $10,000,000, the measurements show a significant fall relative to the power law line what implies a smaller number of people with very high incomes.

Figure 1. Population density functions (normalized to the total number of tax payers) for the period between 1996 and 2009.

Figure 2. High income distribution of the PDFs in Figure 1.   Upper panel: all years except 2000, 2001, and 2002 – distributions are almost identical. Lower panel: the years 2000, 2001, and 2002 show larger discrepancy contradicting the other years.

Figure 3.  High income distribution of the PDFs in Figure 1.