Barney Frank's Mistaken View

I saw an interview of Barney Frank the other day on Larry Kudlow's CNBC program. Kudlow was discussing the House's intended bill to levy punitive taxes on owners/partners of private equity firms, "just because."

True to confiscatory form, Frank jocularly intoned that if someone made several hundred million dollars one year, he didn't personally see it as affecting to require that person to pay, say, thirty or thirty-five million of it to the Feds. Talk about incenting economic activity.

However, the House member from Massachusetts went on to articulate- if that's the right word for Frank's speech- his view of what measure best reflects the health of the US economy.

Are you surprised to hear that he focuses on the 'average wage'. Yes, the old-style, clock-punching average weekly/hourly wage measure.

However, economist Brian Wesbury has discredited this measure repeatedly, most recently in an article in the Wall Street Journal.

Wesbury's sensible contention is that many small businessmen have converted to subchapter S corporations or LLCs, so that their reported incomes roll up on a 1040 form, and escape characterization as wage income. Thus, these higher incomes don't flow into Frank's "average wage" numbers.

Further, as more companies pay incentive compensation, the 'average wage' is unlikely to reflect this, since it's a one-time income payment. Wesbury had other reasons for preferring the household incomes survey to the payroll data for assessing US worker incomes health. But, essentially, he argued, convincingly, that today's economy has moved away from the old 'wage' economy, such that much income escapes payroll surveys, but is captured in tax and household incomes survey data.

No wonder Congressman Frank is so out to lunch on good economic sense. He uses the wrong measure, from a bygone era, and pronounces our healthy economy to be sick, not to mention its incomes too skewed for social stability.