Are Americans Maoists?
I’ve done many posts explaining why public opinion polls of Americans on numerical questions are utterly meaningless. The public is horrible at math, and their answers tell us almost nothing about what they actually believe. One bogus poll that keeps getting touted by liberals claims to show that the American public has views on income distribution that are far to the left of those of Mao, perhaps even to the left of Pol Pot. I don’t really know why liberals want to tout these poll results, as if this sort of policy regime were actually implemented we would all starve to death, just as many tens of millions starved in Cambodia and China under much less extreme attempts to impose equality.
Jordan Weissmann is the latest liberal to be sucked in by this nonsense:
Subjects estimated that the top 20 percent of U.S. households owned about 59 percent of the country’s net worth, whereas in the real world, they owned about 84 percent of it. In their own private utopia, subjects said that the top quintile would claim just 32 percent of the wealth. In fact, the ideal looked strikingly like Sweden.
If every single America had EXACTLY the same wealth at each age (i.e. all 20 year olds had identical wealth, as did all 55 year olds) then wealth inequality would still exceed the figures that Americans supposedly prefer, purely due to life cycle effects.
To give you some idea of just how ridiculous this claim really is, consider the last line of the quotation. The comparison with Sweden made me pull my hair out. Tyler Cowen recently quoted from a study of wealth inequality in Sweden:
What some may not know is that wealth-inequality is relatively high in Sweden. The top one percent own around 35% of wealth in the United States. In Sweden, because of extensive tax evasion, the number is harder to calculate. When including estimates of wealth held outside of Sweden, Roine and Waldenström estimate that the top one percent richest Swedes own 25-40% of total wealth, not far from American inequality levels, and increasing more rapidly.
At the same time, the intergenerational mobility of top wealth is chokingly low. A recent study found that a astonishing 80-90% of inequality of top wealth is transmitted to the next generation in Sweden!
So not only is it not true that the top 20% in Sweden own about 32% of the wealth, it seems the actual figures are closer to the top 1% owning 32% of the wealth, similar to the US. So even if we switched to Swedish levels of wealth inequality, we’d make almost no progress toward the supposed ideal of Americans. Indeed given the large rural/urban differences under Mao, I’m confident that even Maoist policies would not be enough for the average American (if you believe these polls). We’d need to go all in, and like Pol Pot confiscate all eyeglasses (which help nerdy students to get smarter and make more money than jocks), and then push everyone out to the countryside.
Please, no more polls on what Americans “really think” about complex issues that require numerical answers.
Now that Matt Yglesias has left it’s becoming increasing frustrating to read Slate. It is starting to remind me of a publication written by college students. But that’s probably just because I’m becoming a grouchy old reactionary, and recently everyone seems young to me.
Tags:
28. September 2014 at 14:21
“But that’s probably just because I’m becoming a grouchy old reactionary, and recently everyone seems young to me.”
Wait until you hit my age. You kids get off my lawn. And lose the tattoos.
28. September 2014 at 14:45
And this?
http://www.voxeu.org/article/perceptions-inequality-europe-and-us#.VChsySE6pT8.twitter
28. September 2014 at 15:36
Love the post Scott. I feel the same way about Slate – seems like there are no voices of reason left in their break room.
28. September 2014 at 16:02
My favorite poll results were the ones that showed that people wanted to raise top tax rates from 35 percent to something below 30 percent: [http://thehill.com/polls/212643-hill-poll-likely-voters-prefer-lower-tax-rates-for-individuals-business].
28. September 2014 at 16:04
Yeah, the guy who did the Sweden comparison in that study used the income distribution and called it the wealth distribution. He was roundly criticized, but the incident went down the memory hole and now progressive journalists cite it like holy writ.
Perhaps he intended it that way; Scandinavia is a sort of dog whistle for American progressives.
28. September 2014 at 16:21
Same story with the “outrage” last year that the median US congressperson is a millionaire. If you take a sample of Americans age 35-65, split between college and graduate educated, and select a tiny bit for success, that’s pretty much exactly what you would expect.
28. September 2014 at 16:33
here’s what i don’t understand about wealth and savings. say that there was no transfer program like social security and that all savings was individually accounted for (ie my retirement savings was my wealth). reasonably what would the median person in the US (not even the mean) need? my guess would be that they would need as a lower bound 25 years at 45k, which might have a present value of 1 million at retirement. that would be the max – before retirement you’re building, and after retirement you’re spending it down, so let’s say that the average person has 1/3 of that. how much wealth do we need to support this? taking 300 million people in the US:
1/3 * 10^6 * 300*10^6 = 10^14 = 100 trillion dollars.
that’s roughly the whole wealth of the united states. meaning that median wealth should be close to median spending. which surely cannot be the case.
this is why i support transfer programs.
28. September 2014 at 16:58
Lower bound of $45k/year at retirement?! I must me misunderstanding you because that’s loopy.
28. September 2014 at 17:04
David, But you don’t SEEM old.
Thanks Johnny and Ben.
BC, Good example.
Joe, Ask them if they also think Switzerland is better, and then point out that government spending there is well below US levels.
EA, Good point.
Babar, You lost me, but I supported individual accounts for Social Security. Like in Singapore.
28. September 2014 at 18:35
Totally agree with you: the Weissmann article was awful. Getting people to guess numbers (like surveying an intro math class for answers to a problem), and then crazily trying to read meaning into the answers.
And maybe I can see some small value in calling him out. There is a lot of mindless junk out there. Worth fighting back.
But it does feel a bit like shooting a slow fish in a small barrel. If you admire Yglesias, why not address some of what he writes? This week he has an article on “The most important chart about the American economy that you’ll see this year”.
http://www.vox.com/xpress/2014/9/25/6843509/income-distribution-recoveries-pavlina-tcherneva
Perhaps you can spend some energy and ire explaining where Matt has gone wrong, why this chart isn’t important or is completely incorrect or …
28. September 2014 at 21:07
Wealth just generally is pretty skewed, especially if you didn’t run a massive mortgage subsidy program for decades (like the US). The US still has the highest wealth inequality, but Germany and Denmark are pretty close behind despite having higher taxes and less enriching financial sectors for decades.
@maxk
Dean Baker over at Beat The Press has already pointed out that it includes capital gains, skewing it – although the trend is supposedly still there in weaker fashion even after you take capital gains out.
28. September 2014 at 23:13
Of course, if you read AEI foreign policy blogs, you will discover that there are about twenty-three nations we should invade and occupy and that our military budget should be tripled….I would lunacy is rampaging across the ideologicl spectrums….
29. September 2014 at 01:15
Slate’s becoming Salon.
29. September 2014 at 01:28
Scott, I think this gets you the best response to Jordan:
“It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution.”
http://www.nytimes.com/2014/04/20/opinion/sunday/from-rags-to-riches-to-rags.html
This is why my argument about HEGEMONY is so brutal to our naive opponents…
Almost 3/4 of Americans are able to self-ID as members of the top 20%.
Over half self ID as members of top 10%.
And 39% as members top 5%.
——–
In terms of pure political strategy, pure game theory… if you are trying to roust up a majority of LIKELY voters to take from the HAVES:
The 73% who have BEEN THE HAVES, are basically 90% of the vote.
This puts policy progressives in an deeply weird place:
1. Do you give fiery speeches to the 27% telling them they can TAKE BACK WHAT’S THEIRS? Do you encourage them to never settle?
2. Do you tell the bottom 27%, “HEY, less than half of you vote, so there are some serious limitations of on policy options – we MUST get a large minority of HAVES to support whatever the policy change is.”
It’s hard to take a policy wonk seriously who doesn’t do #2.
But the bloggers all earn their name, their youthful chops as #1.
It’s a conundrum.
29. September 2014 at 05:04
Great post, Scott. Reminds me of the difference between US and European inheritance laws you pointed out a while ago.
Earlier this year, I met with a number of European (Italian, Swiss, French) colleagues. To a man, these folks were politically to my left and held a typically condescending attitude toward American conservatives.
I brought up the curious inheritance laws, which often require children to be the recipients of estates, with little discretion.
Nobody thought it was odd, and I got a vibe that even bringing the subject up was uncouth. I couldn’t help but think there is a lot of old money in Europe.
29. September 2014 at 05:05
maxk, I haven’t heard anyone explain to me why we should even care about that chart. What is it supposed to be telling us? If you were interested in income inequality (and why would someone care about that meaningless stat) then why wouldn’t you look at ALL years?
I’ve done many posts commenting on Yglesias posts.
BTW, I gave a post over at Econlog commenting on one of your comments.
Ben, But that must be only a tiny fraction of the countries McCain wants us to invade.
Luis, Good point.
Morgan, Yup, I’ve used that stat in many posts.
29. September 2014 at 05:09
OT
Well, beat up on Paul Krugman if you want, but he gets this right:
“Simon Wren-Lewis thinks some more about macroeconomics gone astray; Robert J. Waldmann weighs in. For those new to this conversation, the question is why starting in the 1970s much of academic macroeconomics was taken over by a school of thought that began by denying any useful role for policies to raise demand in a slump, and eventually coalesced around denial that the demand side of the economy has any role in causing slumps.”–Paul Krugman
The defeatism today, the “new normal” sniveling, the idea that an economy cannot expand at more than a 3 percent rate–or if it can, that would cause inflation ergo we cannot do it–is suffocating economy thought.
Just answer me this: How on earth did Americans, driving inflammable Pintos, wearing bellbottom pants and goofy hairdos, manage to expand economic output by 20 percent from 1976 to 1979?
A modern-day economist will tell you that such an increase in output is not possible.
29. September 2014 at 05:11
Brian, They probably inherited their money. The left wing European claim to be more equal than America is mostly hot air. The gap between average Europeans and the Roma minority is much bigger than the gap between average Americans and African Americans. The poor in Europe are often worse off than the poor in America.
29. September 2014 at 06:12
I never understood that line of reasoning. Suppose we asked parisians: “What do you think is the population density in Paris? What do you think the ideal density should be?” and they answered, respectively, 5,000 and 3,000 people per square mile. When it became clear that the population density is actually 10 times as large as their estimate, would we conclude that the situation was even worse than what we thought or that people are really bad at estimating this kind of thing?
29. September 2014 at 06:41
Completely agree on you primary point. Those types of polls are stupid. That said, societal questions on “fair” or “acceptable” levels of inequality do not lend themselves to numerical solutions.
29. September 2014 at 08:22
All these discussions of inequality are missing the point.
The distribution of wealth and the distribution of income are largely bullshytte.
For the most part the people at the very top, have built a business, and the measure of their wealth is a measure of the value of the business that they have created. Likely these people will never monetize the bulk of the wealth on their personal balance sheets.
If most of the 1% were born into the 1%, I could see that being a problem.
Income mobility (or lack there-of) is relevant.
Poverty is relevant.
But the comings and goings of the super-rich is just entertainment.
29. September 2014 at 09:46
Remember the controversy over what the PPACA intended for subsidies via Exchanges? Turns out the IRS, at one time, thought it meant what it said; only through state created ones. Had already written regulations detailing it, but;
http://www.forbes.com/sites/michaelcannon/2014/09/29/the-halbig-subpoena/
——-quote——
The subpoenaed documents [by the House Oversight Committee]could have a big impact on those cases [Halbig and King]….the Treasury Department and the IRS have refused to make the subpoenaed documents public. But the congressional investigators whom the agencies permitted to review the documents behind closed doors, and to interview the Treasury/IRS staff who wrote the challenged regulation, issued a report detailing troubling aspects of how the IRS developed the regulation.
According to the investigators’ account of those documents and interviews, in March 2011, IRS officials read a news article about how ObamaCare opponents were considering a constitutional challenge based on the fact that the PPACA offers subsidies only in states that establish Exchanges. Up until that point, the IRS’s draft regulations included the statutory requirement that subsidy recipients enroll in coverage through an Exchange “established by the State.” (The employer and individual mandates are tied to the availability of the subsidies.) That statutory requirement disappeared from the draft regulations at the same time IRS officials learned that opponents might challenge that feature of the law in court.
——–endquote——–
29. September 2014 at 11:55
A great way to move the GINI ratio is to import millions of penniless peasants from Central America.
29. September 2014 at 13:23
Are American’s Maoists? I don’t think so, but some of us follow the “shining path” of Market Monetarism. Lol.
29. September 2014 at 13:48
Scott, did you see Don Boudreaux’s funny post about perceptions of inequality? Apparently, even economists can’t be trusted:
http://cafehayek.com/2014/09/very-dry-water-hard-frozen-fire-and-the-ostentatious-invisible-rich.html
29. September 2014 at 13:56
“If every single America had EXACTLY the same wealth at each age (i.e. all 20 year olds had identical wealth, as did all 55 year olds) then wealth inequality would still exceed the figures that Americans supposedly prefer, purely due to life cycle effects.”
But even if it this ‘the life cycle effects did it’ is true the fact is that Americans still want lower inequality due to nonlife cycle effects than we currently have.
As for your talk about there being no such thing as public opinion in economics, that’s not in the constitution-take it up with Hamilton and Madison I guess.
I don’t know why you’re throwing spitballs at Weissman he’s just reporting what the poll said, You’re real argument would be wirh the ones who asked the questions in the poll in the first place. Maybe they could use your instruction on how to get the ‘real answer undiluted by life cycle effects.’
Your point about laypeople seems to be that you know what they want better than they do-on economic matters- as you’re superior at math. We should have economic policy based on not what they say they want but what you divine that they want through your-and other conservative economists-superior math skills.
That’s no doubt a major reason you prefer monetary to fiscal policy-the former is not up for public debate.
I know you always also claim to favor democracy but if this democracy excludes economics what is left to vote on? I mean no policy questions are wholly innocent of economic implications.
The election for independence in Scotland had hue economic implications as well. My point is that how is there to be democracy on public matters but excluding economics?
29. September 2014 at 14:35
Patrick, If true that is very troubling, by far the worst scandal of the Obama administration. (So far I have only seen garden variety scandals.)
Tom, Better than the Yellow Brick Road of Austrianism.
Kevin, It’s unfair to use his own words against him.
Mike, You can’t fool me by changing your name—no one else can be so consistently wrong about everything.
You said:
“But even if it this ‘the life cycle effects did it’ is true the fact is that Americans still want lower inequality due to nonlife cycle effects than we currently have.”
First, I never said it was due to life cycle effects, and second you have no evidence about what American prefer regarding equality.
You said:
“As for your talk about there being no such thing as public opinion in economics, that’s not in the constitution-take it up with Hamilton and Madison I guess.”
That’s exactly my point. It’s elections that matter, and Americans have never once in all of American history voted for a candidate advocating the sort of income redistribution that these polls suggest American favor. How many votes did Pol Pot get in American elections? None, because he never ran. But he wouldn’t get many votes if he did run.
You said:
“I don’t know why you’re throwing spitballs at Weissman he’s just reporting what the poll said,”
Read it again. I criticized him for totally misrepresenting what the polls said.
You said:
“Your point about laypeople seems to be that you know what they want better than they do-on economic matters-as you’re superior at math. ”
Just the opposite, I favor democracy far more than almost any other economist, indeed I favor the Swiss system.
You said:
“That’s no doubt a major reason you prefer monetary to fiscal policy-the former is not up for public debate.”
I’m one of a tiny number of economists who thinks the public should determine the money supply and interest rates, not the Fed.
29. September 2014 at 15:05
Scott,
Repeat question/comment on “Mysteries” so that you will see it.
Are you saying real interest rates are falling relative to RGDP growth rates? Or are you saying the long term trend for both is lower rates?
As for the cap gains rate, I was referring to your statement;
“This is the only recovery I ever recall seeing where the growth rate of real GDP in the US was below the trend growth rate.”
29. September 2014 at 15:37
Scott,
I know this is barely relevant – but please, do not feel sorry for the Rroma.
Yes, they are very poor – but it is by their own choice. It is they who choose to live by their tribal laws (which prohibit intimate contact with non-Rroma – a non-Rroma entering a Rroma house would render it unclean) instead of fitting in.
Oh, and a study conducted on Serbian gypsies found an average IQ of 70.
29. September 2014 at 17:30
Actually you haven’t shown me to be consistently wrong about anything. You’re actually as usual copying Krugman with this ‘consistently wrong about everything’ line but when he uses it it’s reality based. I did get my own name wrong here, that’s true. Good to see you finally got one right.
As no one has ever run on Pol Pot’s policies why are you debating them? I get it: it’s a conservative’s best friend in any intellectual argument-a straw man. Certqinly none of these American liberals you love to scorn are. If you disagree name one of example of a liberal in this country advoccating a Pol Pot or even a ‘Maoist’ policy.
In the poll, it Americans gave those preferences on inequality. You’re claiming to actually realize these goals you’d need the economic policies of Pol Pot. So basically you’re saying that Americans tell pollsters they want the top 20% to own 59% of the wealth they think they want this but don”t realize they’d need Pol Pot to get them there. Why is this? The main reason you give is they don’t understand life cycle effects.
You say I don’t have any evidence regarding equality, but I beg to differ. We have them indicating they want more equality in this poll. Now they may overestimate how much would actually be feasible but it’s clear they think there’s too much inequality now.
Again, Pol Pot is a red herring-I’m not advocating Poi Pot or Mao and neither is Weissman so that’s got nothing to do with it.
I support the moderate liberal policies of someone like Obama or Clinton-if you think I’m the most left wing person in the world you truly don’t get out much-and both of them were elected.
Obama ran on reducing inequality and Romney rose on increasing it-‘Mr. 53%’-and we know how that worked out.
29. September 2014 at 19:02
ssumner:
“I’m one of a tiny number of economists who thinks the public should determine the money supply and interest rates, not the Fed.”
To clarify, it is not from some philanthropic catering to “the public” that is the grounds for your argument on “who should determine” money supply and interest rates. Those two things are merely just afterthoughts. You want the Fed, not the public, to determine aggregate spending.
In terms of “the public” being cut off from monetary decisions, there is no difference between wanting the Fed to determine spending while leaving it to the public to decide money supply and interest rates, and wanting the Fed to determine interest rates and prices while leaving it to the public to determine aggregate spending.
I rarely if ever agree with anything Mike Sax says, but on this particular point, he has a point.
29. September 2014 at 19:39
“Under this act, $40,000,000,000 of liquid money was created to finance the World War. It financed not only the United States but financed to the extent of billions of dollars Great Britain, France, Italy, and their allies. ‘That one act won the war’, said John Skelten Williams, the Comptroller of the Currency.” – Robert L. Owen, co-sponsor of The Federal Reserve Act of 1913.
https://archive.org/details/NationalEconomyAndTheBankingSystemOfTheUnitedStates
30. September 2014 at 00:54
Scott,
You should really read Piketty’s book.
The research shows that class effects are far, far greater than lifecycle effects.
Even the numerically challenged Americans can see that America in 1960 had a better income and wealth distribution than today. (We are on par with pre-revolutionary France and set to exceed them, having already exceeded to inequalities of the Robber Baron era).
So why can’t today’s children and youth enjoy levels of quality that you have enjoyed practically your whole life? Choose a point in the period 1945-1998 which you would be comforabtle with and join the bandwagon. 😉
30. September 2014 at 00:55
I meant to say, levels of equality.
30. September 2014 at 06:22
dtoh, I believe both are probably true, RGDP growth has slowed, and real interest rates may have fallen even more (I’m less sure on that point.)
I don’t recall the context of the cap gains discussion.
Daniel, You said:
“I know this is barely relevant”
Not even barely, I wasn’t talking about the causes of Roma poverty, just the existence of the poverty, which is extreme.
Mike, You said:
“In the poll, it Americans gave those preferences on inequality. You’re claiming to actually realize these goals you’d need the economic policies of Pol Pot. So basically you’re saying that Americans tell pollsters they want the top 20% to own 59% of the wealth they think they want this but don”t realize they’d need Pol Pot to get them there. Why is this? The main reason you give is they don’t understand life cycle effects.”
How hard is it to get simple facts right? Can you read? Americans never told pollsters they want the top 20% to own 59%, they said they wanted the top 20% to own 32%. And I didn’t say the public’s ignorance was due to the fact that they don’t understand life-cycle effects.
All your other comments are equally idiotic, having nothing to do with anything I said.
JL, You said:
“You should really read Piketty’s book.
The research shows that class effects are far, far greater than lifecycle effects.”
I’ve read his entire book cover to cover, and done many posts showing the flaws in his arguments. Piketty does not tell us that 73% of Americans are in the top 20% at some point in their lives. I wonder why not? Piketty’s book tells us nothing about income inequality that we didn’t already know. There is new data on wealth inequality, but since only certain types of wealth are included, it is very misleading. I’d recommend Kotlikoff’s criticism. Piketty should have talked about consumption inequality, but avoided that issue.
JL. You said;
So why can’t today’s children and youth enjoy levels of quality that you have enjoyed practically your whole life?”
Ask any millennial if they want to go back and live like I lived when I was young. I got virtually no financial aid, and worked my way through college and grad school, now PhD students get huge financial aid packages, and often don’t have to work. All the PhD students at my school get 100% free rides. Of course I’m atypical (upper middle class) but you did specifically mention me like I was some sort of lucky ducky. Compared to most people I was, but not compared to a young person following my career path today.
If we go back to the 1960s, do we stop bringing in millions of poor immigrants from Latin America? Is that part of your agenda?
30. September 2014 at 07:40
How does one go about “enjoying” a level of inequality anyway? It’s not like if George Soros had a million dollars less, I could spend that missing wealth on something nice for myself.
30. September 2014 at 07:47
‘Even the numerically challenged Americans can see that America in 1960 had a better income and wealth distribution than today.’
Let’s go with that. How about we repeal all the laws passed since 1960 that impact ‘income inequality’. Start with Medicare, continue with all the increased taxes for Social Security. All the increases in the minimum wage. Pell Grants.
Ending the anti-discrimination laws, such as the Civil Rights Act would help too.
30. September 2014 at 07:58
Nothing I’ve said is as idiotic as you debating Pol Pot’s policies when no one is advocating them.
30. September 2014 at 08:06
So you’re saying the public understands life cycle effects? Where does their alleged ignorance stem from then?
Ok so they think the 20% owns 59% but should own 32%. Yet you think it’s possible they’re just fine with them owning 84%? And you have the nerve to call anyone else idiotic?
If Americans don’t want more equality why do they vote for candidates who run on it? Since 1993 the popular vote has only once gone to the candidate who like you think’s inequality doesn’t matter-that was Bush in 2004. Of course he stole the election in 2000 so even that deserves a little asterik.
30. September 2014 at 08:15
It’s almost a pity that these survey results are so worthless, since they absolutely wreck the “positional externalities” case for redistribution. From the positional-goods standpoint we seem to be in the best of all possible worlds: the rich get the enjoyment of knowing that they have all this wealth that other people don’t have, yet the rest of us don’t suffer any offsetting pain because we don’t realize they have so much of it.
30. September 2014 at 08:55
“Whoa! Oil just totally crashed”
http://www.businessinsider.com/oil-crashes-2014-9
30. September 2014 at 09:01
I am amazed at how Market Monetarist Brad DeLong has sounded lately. See this, for example:
“the Fed tightened in 1990-91, and found that it had overdone it when the S&L bankruptcy shock hit financial markets; the Fed tightened in 1999 and refused to loosen in 2000, and found that it had overdone it as tech investment collapsed; the Fed tightened in 2006-2007, and…”
http://equitablegrowth.org/2014/09/23/really-seems-though-dallas-fed-president-richard-fisher-doesnt-want-real-wages-increase-doesnt-believe-real-wages-can-increase-something-tuesday-focus-september-23-2014
30. September 2014 at 09:02
These recent posts by Brad DeLong also sound Market Monetarist:
http://equitablegrowth.org/2014/09/19/contractionary-federal-reserve-policies-2013-2014-friday-focus-september-19-2014
http://equitablegrowth.org/2014/09/25/monetary-policy-thursday-focus-september-25-2014
30. September 2014 at 11:17
Scott,
Whenever the subject of wealth inequality comes up, you reduce it to lifecycle effects and, indeed, you like to stress that large numbers of people will eventually reach the top 20% or 10% of income levels.
Fair enough, you are right on that.
But the educated egalitarians such as Krugman, Piketty and myself are more concerned about the big gap between the top 1% and especially the top 0.1% and the rest of us.
Not the top 20% or 10%.
And the huge gap between the top 0.1% and the rest of us is not due to lifecycle events, but mostly class effects.
If you read Piketty, you should know this.
And this part of his book is not controversial at all.
Or would you deny that the gap between the 0.1% and the 99.9% has reached historically high levels and that this is mostly due to class effects?
I’m a millenial and most people I associate with want to keep the social progress we’ve made since 1960, while implementing policies to become a more egalitarian and meritocratic scoiety, such as the US was in the period of 1945-1995.
And I don’t know why you keep faulting us for wanting to have that what you yourself had.
It especially puzzles me, because you are one of the finest examples of a principled utilitarian that I know of.
30. September 2014 at 11:29
Also, have you read Yglesias book “The Rent Is Too Damn High”?
I would include him in the educated egalitarian group.
Plus, he’s a millenial (bordering on Gen X).
30. September 2014 at 11:35
Why would it be surprising when a principled utilitarian fails to join you in obsessing about the top 0.1%? One of the implications of diminishing marginal utility is that inequality becomes less and less important as you go up the consumption scale.
30. September 2014 at 13:05
‘I’m a millenial and most people I associate with want to keep the social progress we’ve made since 1960, while implementing policies to become a more egalitarian and meritocratic scoiety, such as the US was in the period of 1945-1995.’
That dastardly Bill Clinton!
30. September 2014 at 13:06
Paul,
Perhaps saddened is the better word. (Forgive me for not engaging your arguments. I am too lazy.)
Most millenials have a political preference to close the gap between the top 0.1% (which consists mostly of rentiers in addition to a minority of respectable entrepreneurs such as Bill Gates, Mark Cuban) and the rest of us.
Basically, we want to pay less economic rent to the tex evading rentier class.
This is part self-interest and part ideals of socio-economic justice and meritocracy.
My hope is that Scott would join the other smart economists like Krugman, Piketty, Yglesias to help us achieve that goal through effective policy.
For one, NGDPLT would help our cause, as inequality naturally decreases under strong economic growth, according to Piketty’s 2nd law: B = s/g.
For another recent example, I greatly value his fair and honest critique of the guaranteed income schemes.
Which is why Scott seems like such a natural ally to me.
Disclaimer: I say this as someone in the top 10% of income for my age group.
30. September 2014 at 16:15
Scott,
You said;
” I believe both are probably true, RGDP growth has slowed, and real interest rates may have fallen even more (I’m less sure on that point.)”
I think there is only a mystery if real rates have fallen more than real RGDP growth rates. Like you, I don’t know, but I eyeballed the some FRED graphs and it’s not apparent to me that there is a significant divergence.
If so your question: “Why have real rates dropped?” is not the right question. The right question is why has RGDP growth dropped?
30. September 2014 at 16:18
[…] bullshit about how wealth inequality is really about life-cycle effects. He has though over and over. He has never thought to age-control wealth data and he also has no idea how they work. For […]
1. October 2014 at 06:13
JL, I’m a utilitarian who favors redistribution. But I don’t think people care about “equality” and they certainly don’t care about the top 1%. They care about their own life. I want to raise the living standards of the public. If redistribution can do that, I support it. My attacks are on stupid arguments, not redistribution.
Look, I also attack the argument from some of my own allies that monetary stimulus in Japan can dramatically raise growth. I don’t think it can. Does that mean I oppose monetary stimulus in Japan? No. For the same reason I think redistribution can only do a modest amount of good, compared to economic growth, but I still favor some redistribution. I don’t like arguments that suggest the average American is worse off than in 1970, which strike me as absurd. Any millennial would be horrified by 1970 living standards.
You used the term “rentier” which is a silly term that implies the undeserving rich. Smart liberals used to understand as recently as 2006 that the optimal rate of tax on capital income was zero. Can you explain to me why they changed their minds? Why is capital income suddenly undeserved? If not, why should I take them seriously today.
I think you have a better argument for Gates not deserving all of his wealth, due to excessively strict intellectual property rules.
dtoh, I said the Great Stagnation was my explanation of low interest rates, so I don’t see what you are disagreeing about.
1. October 2014 at 06:22
“the optimal rate of tax on capital income was zero”
do you have any links to papers that make that argument?
1. October 2014 at 06:48
Scott,
I’m no disagreeing…just trying to understand what you’re saying, which I think is that there is non-cyclical decline in real growth rates. If so, any theories about the cause?
1. October 2014 at 06:49
Scott,
Excuse the bad typing.
1. October 2014 at 09:59
Philippe, You can probably find old Yglesias and DeLong posts making that point. I would think any good public finance textbook would explain the logic of a consumption tax. When you tax capital income you are imposing a higher tax rate on future consumption than current consumption, which is hard to justify.
dtoh, There are multiple causes; slower population growth, aging, less immigration, more disability, slower productivity growth (as we become a service dominated economy), NIMBY regulations making it hard to build anything, more growth in unmeasured free stuff on the internet.
1. October 2014 at 14:46
Scott,
So I agree with that stuff. But let me offer an alternative theory.
Suppose there is no change in caps gains tax rate. Also assume there is no change in expected average pre-tax returns.
Suppose however that changes in the economy/technology have increased the asymmetry of returns on investment. Fewer winners (but bigger winners) and more losers. Or to put it another way, assume that developing software (there are over 1 million apps on the Apple’s App store) is a less certain thing than building new houses or investing in auto plants.
If in fact there is an increased asymmetry of returns, then with no change in the caps gains tax rate, you will still get a drop in the expected after tax return on investment. And not just a little, it could be dramatic depending on the degree of asymmetry.
Again just a theory, but assuming the returns in a modern economy are more asymmetric, it also explains the extreme effectiveness of the Bush tax cuts and increased inequality in wealth (if you believe either of those to be true.)
Think about this. As I said, small changes in asymmetry or tax rates can have dramatic effects on expected after tax returns (which is what drives investment decisions by rationale individuals).
1. October 2014 at 17:23
dtoh, You said:
“it also explains the extreme effectiveness of the Bush tax cuts”
Is that a typo?
1. October 2014 at 19:11
Scott,
Debatable (and I’m not taking a position) but not a typo. From the perspective at the time, the pace of the recovery seemed pretty normal. From a 2014 perspective, it was an extremely rapid recovery.
Your thoughts on the main point of the comment?
1. October 2014 at 20:52
dtoh & Scott,
We normally think of risk free interest rates, with equity and credit reflecting premiums on top of that. I think it might be more useful to think of total returns to productive assets, and to see risk free real rates as taking a discount off of that level, reflecting the marginal appetite for risk.
When I reviewed the Fed’s Financial Accounts data for nonfinancial corporations in my series on Risk & Valuations, I found that real returns on corporate assets had meandered around 8% pretty reliably since the 1960s. As of 2012, there was not a significant deviation from that level. Equity risk premiums are very high right now.
So, real risk free interest rates are very low right now, but corporate debt is very low, and total rates of return on invested capital are pretty normal.
I don’t know exactly what this means with regard to your conversation, but I thought it might be food for thought.
http://idiosyncraticwhisk.blogspot.com/2014/07/risk-valuations-part-11-allocations.html
Could it be that instead of low real rates reflecting an expectation of future low growth, the causation runs from a low propensity for risk to future low real growth?
1. October 2014 at 23:22
Kevin,
I have to think real expected rates reflect real expected growth. If not, there is an opportunity for arbitrage.
So my theory (just a theory) is basically.
1. Returns are more asymmetric.
2. Therefore after tax returns are lower.
3. This had depressed investment.
4. Resulting in lower real growth.
5. Real (expected) rates reflect that lower expected growth.
IMHO, the only real debate is whether or not 1) is true. (I have a gut feel it is). If 1) is true, then 2 through 5 logically follow and are not really debatable.
2. October 2014 at 00:01
Scott,
I know you hate stupid arguments from all sides (which is why I respect you) and I can’t disagree with the content of your blog post or your responses.
But I think you might not get an honest view of what life is like for most millenials, if you mostly fraternize with Ph.D. students and the well-to-do millenials such as myself.
I realize that my living standards are higher than my parents anno 1970, since I am profiting from inequality (but not as much as the top 1% profit).
But looking at my less well off friends, I see them struggling to find well paying work in order to afford the high rents and I know that back in 1970 a single blue collar income could support a middle class lifestyle.
I am also a proponent of reforming IP law and recognized that some, such as Gates, profit from these broken laws.
But nevertheless, Gates somewhat fits the meritocratic ideal.
Whereas most of the top 0.1%, whole dynasties of aristocrats living on inherited wealth parked in trust funds in tax havens, do not.
And as they continue to expand their consumption of national income (ref. Piketty), less remains for the the 99.9% working class (being those who derive most of their income from Labor).
Which ultimately means that living standards for the 99.9% are lower than they could be.
We (educated egalitarian millenials) don’t want 1960s living standards or 1960s racism.
We want the 1960s equality, social mobility and meritocracy.
For me personally, this is a main political cause that I support.
And my question to you, for which I am dying to see an answer, why do you fault us for wanting that?
Do you really see this a character flaw, an undue sense of entitlement on our part?
What would you fight for if you were 29?
2. October 2014 at 00:35
Dtoh,
I’m not sure I follow why asymmetrical outcomes would lead to lower rates. I would expect that to lead to higher required returns, ex ante. Although in a winner take all context, mature firms might have lower required returns.
It would lead to less debt financing and more equity, in terms of quantity, since debt tends to be favored in more stable environments.
Maybe I’ve missed an earlier point and I’m coming into the conversation too late.
2. October 2014 at 02:17
Kevin,
The government doesn’t give you money back when you lose on an investment so with a few winners and a lot of losers, even a low cap gains tax rate can turn positive expected pre-tax returns into negative expected average tax returns.
2. October 2014 at 05:31
JL, You asked:
“And my question to you, for which I am dying to see an answer, why do you fault us for wanting that?”
I don’t want to fault you, I want the same thing. That’s why I favor low wage subsidies and high MTRS on the consumption of the rich. I fault bad arguments.
1. My comment on PhDs was atypical, as I noted in the comment. I know that they and I are way above average. But someone was making not a general comment, but a very personal comment about me. My only point was that I’d personally have been better off being in this generation, not that everyone would have.
2. Taking money from the top 1% won’t significantly help the unemployed millennials, or even the low wage millennials. There’s not enough consumption up there to make much difference.
3. Capital income is in no way “unearned”, even if inherited. Rich people have a right to give after tax dollars to whomever they wish. If a rich person has a right to consume wealth, then ipso facto does their children.
4. Part of the increased inequality comes from greater immigration, and trade with China. Those factors are a net plus for equality at the global level, which is far more important than the local level inequality.
5. I wish millennials would put more effort into far more important issues, like the disastrous War on Drugs, and War on Terror.
6. I don’t think Piketty is claiming the rich consume a lot, as you allege, I think he’s claiming they consume very little. That’s why he’s worried they’ll get even richer. (r>g)
dtoh, That’s possible, but it’s hard to believe it’s the main factor. But who knows?
Kevin, My sense is that the average/marginal distinction is more important than in the 1960s. Microsoft may be raking in money, but they have a hard time identifying new investments that would add to that pot of money. That’s why that while corporate profits are high, investment is not.
2. October 2014 at 06:00
Microsoft can’t find good investments bc they are a pile of crud resting on a valuable spot in our economy. Even our best tech giants are like this, but especially Microsoft…
When they try to leverage the spot they are on effectively to take over other spots, we sue them. So they are stuck.
2. October 2014 at 06:29
Scott,
Thanks very much for your response.
I think where we disagree is point (2) and (3).
Point (3), I actually think we both agree if we would clarify our position.
I don’t think you’d approve of a society where a hereditary king holds all the wealth and the rest of society must pay that person 30%-40% of their income for land, housing and other types of access to capital.
On the other hand, I agree with you on your often mentioned example of the thrifty brother vs. the spendthrift brother.
The saver should not be punished through double taxation.
Point (2) is more interesting.
Taking money from the 1% and giving it to the bottom 90% would most definetly improve their plight.
Peace of mind and financial security are important for psychological well-being.
A person (1960s Jack) earning $1000 living rent-free in a house he owns has a certain security and peace of mind compared to the person (Millenial Jill) earning $2000 who has to pay $1000 rent for the same house.
If you limit yourself to physical well-being and physical consumption, the cases are equivalent.
But most people would be much happier in Jack’s situation.
2. October 2014 at 08:27
Scott,
Good point.
But, if corporate profits are protected by a winner-take-all context that is immune from competitive capital, that should lead to low required returns for today’s equities. But, equity premiums now are fairly high.
It could be that corporations are vulnerable to dislocations, but that those dislocations come from radical upheavals in human capital (new entrepreneurial entrants) that don’t require that much capital, so there is still risk, but that risk can’t be ameliorated with defensive capital investments. (I’m not sure that this is the case, since there are a lot of cases of established firms buying start ups. They are buying entrepreneurial value instead of machines, but from the established firm’s point of view, it’s still a capital outlay.)
But, if these dislocations are causing high risk premiums, then that should be related to high RGDP growth.
Maybe Morgan’s invisible RGDP is the answer and we are living in Keynes’ post-capital world.