Archive for the Category inequality


Virtually all sources are wrong

Before explaining the title of this post, let me point out that  I will be interviewed on monetary policy by Charlie Deist for 1 hour tomorrow morning (8-9am Sunday, Pacific time, or 11-12am, EST) Here is the link.

Here is Wikipedia:

Virtually all sources agree on John D. Rockefeller being the richest American in history.

The second place is disputed, held by Andrew CarnegieCornelius VanderbiltJohn Jacob Astor IVBill Gates or Henry Ford depending on the source; most sources agree on Carnegie. Further places are a matter of even bigger debate.

This is just silly—John D. Rockefeller was not even in the top 10 of the richest Americans, even adjusting for inflation.  So that led me to wonder if Wikipedia’s claim was true.  Alas, I discovered it was true.  Virtually all sources agree that Rockefeller was the richest American of all time (even though he wasn’t even close.)  The New York Times agrees.  Forbes agrees.  Business Insider agrees.  CNNMoney agrees.  How could this happen?  How could virtually all sources be so wrong?

Let’s start with the facts.  Rockefeller first hit $1 billion in net worth in 1916.  That money was worth about $23 billion in 2018 dollars.  When he died in 1937 he was worth about $1.4 billion, roughly $24 billion in 2018 dollars.  That’s well down the Forbes billionaire list.  You could argue the CPI is flawed, as the cost of mansions has probably rising faster than the overall CPI.  But the CPI understates the improvement in health care, tech, etc.  So Rockefeller was clearly far less wealthy than Jeff Bezos (worth well over $100 billion), or Bill Gates at his peak in 1999 (worth close to $150 billion in 2018 dollars.)

So why are virtually all sources just completely wrong about something so easy to check?  Two reasons:

1.  Laziness

2.  Motivated reasoning

They all seem to have relied on someone’s bright idea to calculate real wealth by taking each individual’s share of the national economy at the time they were alive, then multiplying that figure by the size of the current US economy.  So if Rockefeller’s wealth was 1.5% of GDP when he died, then 1.5% of current GDP is roughly $300 billion.

To which I can only say: Huh?

First of all, why GDP and not the share of national wealth?  More importantly, even if you buy this procedure, Rockefeller clearly was not the richest American ever.  Who was?  I don’t know his name, but there is one American who had a wealth equal to roughly $100 trillion.  Yup, I said trillion, with a “T”.  Who was that lucky ducky?  He was the first man to walk across from Russia to Alaska, roughly 15,000 years ago.  The moment he arrived, he and his family controlled 100% of American wealth, for the simple reason that he was the only American.  And since Americans now own about $100 trillion in wealth, that’s how rich he was—15,000 years ago.  (Or only $20 trillion, if you prefer using GDP.)

I suppose if you want to be picky, then you could argue that America was not yet a country.  OK, we became a country around 1776, or 1783.  Even using the latter figure, our population was less than 1% as large as today.  So this “fraction of national income” technique for comparing wealth over the generations would imply that the average American back in 1783 was more than 100 times wealthier than the average American is today, for the simple reason that there are 100 times more Americans today.  Each American today tends to hold, on average, only about 1/100 as a big a share of national wealth as the average American held in 1783.  When Paul Revere rode past Lexington and Concord, they were packed with families worth at least $10,000,000, more likely $100,000,000.

I hope I don’t need to go on with this nonsense.  I presume that people in the media got lazy and took someone else’s technique, even though that technique was completely crazy, because they liked the conclusion.  They wanted to be able to say, “Yeah, you think Bill Gates is rich, he was nothing compared to Rockefeller.”  In other words, they wanted to sound like our dads.

And I think this explains much of modern progressivism and libertarianism.  People want to believe X, so they latch on to all sorts of dubious data points that support the conclusions that they have already decided they would like to reach.  I also think this helps explain the popularity of blogs like Slate Star Codex, Marginal Revolution, etc.  People go to those blogs knowing that the writers are willing to take an honest look at the data, and not try to fit the data to their preconceived ideas.

Read posts carefully

People tend to misread my posts.  The recent post on poverty is a good example.  Here’s what I believe.

1.  On average, the poor tend to be less talented and hard working that the rich.

2.  There is nothing “wrong” with poor people.  They are just as good as rich people.  Being more talented doesn’t make you a better person than being less talented.  Being hard working doesn’t make you a better person than being less hard working.  The government should not encourage people to become more educated and harder working.  But they should stop discouraging people from working hard.

3.  Culture is not carved into stone.  China and Singapore circa 1976 were both largely “Chinese” cultures, but one was hard working and increasingly affluent and one was less hard working and extremely poor.  That doesn’t mean that Singaporeans were better people than the Mainland Chinese.

4.  I am not “fatalistic” about the poor, about drug addicts, etc.  My blog is full of public policy proposals to ameliorate these problems.  I’m optimistic that these problems will become less severe over time.

5.  But I’m also not a dreamy-eyed utopian.  Even with perfect public policies, there would be all sorts of “gaps” between different ethnic groups, and between men and women.  That’s because culture changes slowly, and human capital takes time to accumulate.  Perhaps American Christians will eventually catch up to American Jews in terms of average income, but it’s not likely to happen in the 21st century.  Sorry Christians, but your going to just have to accept that cultural change occurs slowly.  (That’s one area where I agree with conservatives.)

6.  Some of the gaps between groups may be partly genetic, but that’s never been my working assumption.  All groups have good enough genes to be at least middle class by American standards.  Good enough genes to be a truck driver or mailman or plumber or the vast majority of other jobs.  So we might as well focus on public polices, not genes.  (That’s one area where I agree with liberals.)

In general, my views lie completely outside the standard “victims and villains” debate between liberals and conservatives.  I don’t blame blacks and Hispanics and Native Americans for their lower (average) income, nor do I blame “white privilege.”

Again, there is nothing wrong with having a low income.  If you are reading this blog then you probably make more money than Mother Theresa did.  That doesn’t make you a better person.  Nor are you a better person than the desperately poor Indians she helped.  I prefer lots of the low income people I know to lots of the higher income people I know.

Tom Cruise didn’t choose to be born Tom Cruise, nor did I choose to be born me, nor did the homeless guy down the street choose to be born homeless.  Stop thinking in terms of “deserve” and start thinking like a utilitarian.

PS.  NR has a very good post on Trump by Jonah Goldberg, and a great one by Kevin Williamson.


Poverty does not cause social problems (and the cream rises to the top)

Pity poor New Hampshire:

Manchester is at the heart of New Hampshire‘s opioid epidemic, which has first responders, lawmakers and health care administrators scrambling for solutions before the situation spirals further out of control.

Though other New England states such as Vermont and Maine have seen spikes in opioid-related deaths, the granite state ranks No. 2 in the nation, behind West Virginia, for the number of opioid-related deaths relative to its population. It ranks No. 1, though, for fentanyl-related deaths per capita.

So what makes New Hampshire so special?  Why so many deaths of despair? Perhaps because it has arguably the most successful economy in the entire world, with extremely high income, high education and extremely low rates of poverty:

Pop quiz:

Which U.S. state had the highest median income in 2016? . . .

New Hampshire.

The Granite State’s median household income last year was a whopping $76,260, nearly 30 percent higher than the national median of $59,039, according to the Census. . . .

One of the chief drivers of New Hampshire’s high median income is its poverty rate, which is the lowest in the nation. Only 6.9 percent of the state’s residents live below the poverty line, compared with a national average of 13.7 percent (in Mississippi nearly 21 percent of people live in poverty).

New Hampshire’s workforce is also among the best-educated in the country, according to previously released census data. Better-educated workers tend to make more money.

New Hampshire also has a very low level of inequality.

Of course it’s silly to argue that affluence causes addiction—correlation doesn’t prove causation.  But it’s equally silly to suggest that people in West Virginia become drug addicts because they are poor.  There are a billion poor people (by American standards) in China, and very few are heroin addicts.

Liu Qiangdong is one example of a Chinese poor person who did not become a heroin addict:

Liu Qiangdong is making up for lost time — and with vertiginous speed.

Again, like so many of China’s new titans, Liu’s family was so poor that until he went to university aged 18 he only tasted meat once or twice a year. His family, peasant farmers in arid coal country, 700km south of Beijing, had a few rice fields but they also had to hand over the crop to the government; these were the dire days after the Cultural Revolution. “From June until September we were able to eat corn — cornmeal porridge for breakfast, corn pancakes for lunch and dry cornbread for dinner; cornbread so tough it made your throat bleed,” he tells me. “The other eight months we ate boiled sweet potato for breakfast, sweet potato pancake for lunch and dried sweet potato for dinner.”

Now he is 43 and worth nearly $11bn.

Yes, that’s anecdotal, but consider this:

Virtually every Chinese millionaire or billionaire is self-made because capitalist reforms to the centrally planned communist economy only began in the early 1980s and did not really take off until the 1990s. But the modern super-wealthy often turn out to be descended from an earlier capitalist class. Richard [Liu] is no exception. Before the 1949 revolution his family were wealthy shipowners who transported goods along the Yangtze river and the ancient imperial canal from Beijing in the north to Hangzhou in the south. They lost everything when the communists took over and were forcibly resettled at least twice. One academic survey found more than 80 per cent of Chinese “elites” (those with income at least 12 times higher than the average in their area) are descended from the pre-1949 elite. Richard puts this down to “family culture”.

“My parents and grandparents taught us a lot — not Chinese or maths but a sense of values, of how you should be and how you should treat others,” he says. They also drilled into him the knowledge they had once been very rich but everything had been taken away — a lesson all too relevant even now.

You often hear a debate about what would happen if everyone suddenly lost everything, and the entire population was equally poor.  Liberals claim that people like Bill Gates become rich because they come from upper class families, with all sorts of advantages.  Conservatives claim that even if income were made 100% equal, within a few years the rich would regain their position and the poor would fall back.  Mao’s China provided a near perfect test of this theory, and we now know that the conservatives are right about this issue.  The cream does rise to the top.

Of course this is not true in every single case.  Sometimes highly talented people have bad luck and end up homeless.  Occasionally an idiot will win $100 million in a lottery, or maybe even get elected President.  But on average the more talented, more ambitious and harder working people will tend to succeed.  Being born white in America does give a person some advantages, but that doesn’t really explain very much.  Certainly not income gaps between American whites and Asians, or between Christians and Jews, or between immigrant blacks and American born blacks, or between Korean-Americans and Laotian-Americans, etc., etc.

PS.  RIP Cassini.  This is my all-time favorite NYT article, and it contains almost nothing but pictures and a video. In my view, Saturn (and her moons) is the most beautiful object in the Solar System.  This is also worth examining.

PPS.  RIP Harry Dean Stanton.

Mormons, Danes, and East Asians

I went to a public school in Madison, Wisconsin during the 1960s.  That’s one of America’s most egalitarian cities in one of the most egalitarian decades.  Only in retrospect do I realize what a “weird” place it was. If you had told me in 1969 that a white person’s prospects in life depended on how rich their parents were I would have had no idea what you were talking about.  To me, life seemed very simple.  We almost all went to the Madison Public Schools, and the few who didn’t mostly went to Catholic schools of roughly equal quality.  It seemed like success depended on some combination of being innately smart (or charismatic) and having a strong work ethic.  I did not even know anything about the socio-economic class of my fellow students—what difference would it make if their parents were janitors or doctors?  If college bound, we all tended to go to the UW, where tuition was $300/semester.  And those that could not afford that pittance could get student loans.  And college didn’t affect one’s income very much–a union job was just as good. I had two friends; the one from a low-income area was a better student than the one from a high-income area.  Other than those two, I knew nothing about the family background of students, which seemed completely irrelevant to life’s success.  (My uncle grew up in what we then called a “hillbilly family” in Kentucky, and was a distinguished professor at the University of Wisconsin.)

I’m not saying all this to try to convince you of anything.  Madison in the 1960s was a very unusual place, and I undoubtedly missed a lot that was important even back then.  But I tend to think of this background when reading the recent discussion of Raj Chetty’s work on income mobility.  Tyler Cowen links to Megan McArdle, discussing Chetty’s work on upward mobility:

There’s no getting around it: For a girl raised on the Upper West Side of Manhattan, Salt Lake City is a very weird place.

I went to Utah precisely because it’s weird. More specifically, because economic data suggest that modest Salt Lake City, population 192,672, does something that the rest of us seem to be struggling with: It helps people move upward from poverty. I went to Utah in search of the American Dream.

I’m pretty sure McArdle’s experience in high school was quite different from mine (it can’t have been any worse.)  Partly because New York was more diverse than Madison, and partly because (I assume) she’s more observant than I am, and far more than I was at age 14.  But Utah doesn’t seem weird to me.

Madison is not Mormon, and it does have a lot of heavy drinking, but otherwise both places are part of Nordic America, the North Central part of the US.  This map in Chetty’s paper shows higher levels of upward mobility (among whites) in lighter colors:

Screen Shot 2017-03-28 at 4.52.03 PMActually, Madison’s on the fringe of Nordic America, the epicenter seems closer to South Dakota.  (I had one Scandinavian grandparent.)

At one point McArdle compares the upward mobility of Utah and Denmark:

The wide gulf between Utah and, say, North Carolina implies that we do, in fact, have a real problem on our hands. A child born in the bottom quintile of incomes in Charlotte has only a 4 percent chance of making it into the top quintile. A child in Salt Lake City, on the other hand, has more than a 10.8 percent chance — achingly close to the 11.7 percent found in Denmark and well on the way to the 20 percent chance you would expect in a perfectly just world.

Interestingly she doesn’t pursue that link any further.  Lars Christensen tipped me off to this fact:

Denmark supplied more immigrants to Utah in the nineteenth century than any other country except Great Britain. Most of these Danes–nearly 17,000–were converts to the LDS Church, heeding an urgent millennialistic call to gather to “Zion.”

Given that Denmark has less than 1% of Europe’s population, that’s a pretty interesting coincidence.  And other Scandinavian countries were also well represented:

Periodicals in their native language served combined audiences of Danes and Norwegians, and sometimes Swedes as well. The most successful of these was the Danish-Norwegian newspaper Bikuben (The Beehive), published in Salt Lake City from 1876 through 1935 (under LDS Church ownership in later years).

Whatever’s going on in North Central America, and Utah as well, I’m pretty sure it has something to do with Nordic culture.

The title of this post includes “East Asians”; what do they have to do with Utah?  The same Chetty paper has a table of mobility by metro area:

Screen Shot 2017-03-28 at 6.47.32 PMNotice that 3 of the top 6 cities are places in California with lots of upwardly mobile Asian families.

So let me finally get to the point.  I see a similarity between North Central America (including Utah) and East Asia.  In the not too distant past, both places were largely agricultural.  But in the 21st century global economy the big money is no longer in farmland, it’s in ideas.  Both areas have lots of upwardly mobile people who have successfully made the jump into the 21st century economy.  Like me!  (And my wife.)  Lots of other cultures, in America and elsewhere, seem to struggle with the demand of the 21st century.

In one sense, the success of East Asia is easier to explain, because they started from a far lower level.  When East Asia finally linked up with the global economy, they discovered that their cultures had a set of attributes that were well suited to achieving upward mobility—such as an emphasis on education, hard work, high saving rates, low crime rate, stable families, etc.  Many of these cultural attributes also show up in North Central America.  China is full of billionaires who started life as dirt-poor peasant farmers.  I’d guess that 90% of the world’s billionaires who grew up in abject poverty are Chinese, and roughly zero percent are American.

But why do white Americans from Iowa and Utah have more upward mobility than white Americans from other areas.  One possibility is that it’s easier to jump from the bottom 20% to the top 20% in places where those quintiles are not that far apart.

Lots of smart kids in the upward Midwest grew up in dead end small towns without much opportunity, but then used university education to make a jump to places where they could achieve much more success.

People on the two coasts tend to have a mental image of rural America as being “poor”.  But the upper Midwest contains lots of pretty big and successful family farms.  In the old days when America was more equal, talented people would have been much more content to stay in their region of the country.  If they moved, it more likely was in search of a better climate.  Why move from cold Wisconsin to cold Massachusetts when (during the 1960s) the incomes weren’t much different?  High tech barely existed back then.

PS.  What areas surprise you the most?  For me, it’s the low upward mobility of Michigan and western Oregon, and the fact that Louisiana has more mobility than the rest of the Deep South.

Utility: It’s (increasingly) all in your mind

We are long past the days of “fat cats”, when rich people could afford to eat more food than poor people.  And I’d argue that this is increasingly true almost everywhere you look.  When I was young, a Cadillac Eldorado was a vastly different car from a VW Beetle or Datsun.  Especially if cruising down the highway at 80 mph.  Today Datsun is called Nissan (one of the stupidest name changes in US history).  And while an Infiniti is a bit more luxurious than a Nissan, and the BMW handles somewhat better, I no longer think the experience of driving the Nissan is much different from a typical luxury car.  Even the size is similar.  Here’s the interior of their economy model (Sentra):


I went to Zillow, and randomly pulled off an ad for a 2800 sq foot condo in Chelsea—this one priced at $11 million.  And here’s a random 2600 sq. foot condo in Oklahoma City, priced at $260,000.  The NYC unit is more tastefully designed by NYC standards, but the OKC unit is more luxurious by OKC standards. In the Chelsea unit, you might want to have a $4000 midcentury-modern Poäng chair designed by Alvar Aalto:


In the OKC home you could install the Ikea version of the chair (shown above) for $79, down from a (inflation-adjusted price of) $350 in 1990.  How much utility does one get from the $4000 chair?  How much from the $79 chair?  It’s depends how you think about it–it’s the same chair.

Over at Econlog, I recently did a post about our post-stuff economy.  I grew up in the “stuff economy”, and I don’t think I’ll ever adapt to this new one.  But I suppose the millennials are right, it’s stupid to accumulate lots of stuff, for all the reasons that philosophers have emphasized down through the ages.  The upshot of all this is that the concept of “economic inequality” will become increasingly amorphous.  It won’t disappear by any means, indeed it might get “worse” in some sense.  But it will be harder to measure.  As an analogy, both cancer patients and hypochondriacs feel lots of pain. In both cases, the pain is “all in their heads”. That’s where you feel pain.  And that’s also where you register utility. What’s new is that it’s increasingly difficult to connect utility with physical objects (tumors in my medical analogy). (By the standards of peasant life in the Middle Ages, we are all a bunch of hypochondriacs—every one of us.) This has implications for everything from measuring the “Great Stagnation” to adjusting Social Security for “cost of living” (what does that even mean?) increases.

PS.  OK, maybe it’s not all in your head. I can’t really deny that this guy is better off than I am.  I’m jealous:screen-shot-2016-10-21-at-3-30-07-pm

PPS.  Did Donald leave a window open?  Look at Melania’s dress.

PPPS.  Seriously, this is more my style.

PPPPS.  Off topic.  The rich plan to vote Democratic this time.