What a New Report Gets Wrong About Economic Inequality

Last week, American Compass launched its latest project in a series designed to put meat on the bones of “national conservatism.” The new effort seeks to elucidate the “nature and meaning of inequality in America”—to “provide a straightforward overview of what the data actually shows and why it matters.” 

At a time when national conservatism seems obsessed with cultural grievance to the exclusion of economic and social policy, we should all root for more serious policy analysis on the center-right. But as with earlier projects, American Compass’s latest looks like it begins with a set of priors about political economy—center-left priors—and then figures out how to make its argument with whatever evidence can be marshaled. Their inequality work looks similarly aimed at advancing center-left views through flawed analysis, ostensibly to advance national “conservatism.”

A brief review of AC’s past projects lays out the pattern. There was the early claim that the century-long project of modern inflation measurement had overstated improvement in living standards. Echoing Democratic Sen. Elizabeth Warren’s similarly confused Two-Income Trap from 17 years earlier, Oren Cass claimed that our lousy economy and dumb policy had created a situation where families need two workers to afford the same lifestyle that a single breadwinner could provide in the past. As I showed at the time, that was all wrong. Cass had simply misunderstood and assumed away the very measurement and conceptual challenges that economists have become successively better at addressing over time—namely how to account for consumers’ ability to switch up the goods and services they buy as prices change and how to address the replacement of older, lower-quality products with newer better ones.

Not only did American Compass purport to be smarter than microeconomists measuring inflation, in its next big economics project, “Coin-Flip Capitalism,” it discovered that hedge funds, private equity, and venture capital investments are losing bets—a conclusion that up to then had evaded ultra-wealthy investors putting their own money on the line. 

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