Yglesias on inequality

Matt Yglesias has a good post on one flaw in inequality data:

Here’s some cool census data on trends in the foreign-born population of the United States. Two things pop out””one is that we’re not at the sustained peak levels we had between the Civil War and World War I. The second is that the 1950s and 1960s that American liberals often cite as halcyon days for the economy were near the immigration nadir.

Your mileage may vary on that latter fact, but my interpretation of it is that it gives reason for less hoary nostalgia about those days. For one thing it’s just a sign that the postwar United States was not a “land of opportunity” in the way it is now and was earlier for people born in foreign countries. The American mythos of upward mobility has always had a lot to do with the immigrant experience. The first generation gains some new opportunities by moving to a richer and freer country but is naturally held back by a lack of language skills and relevant local connections. The second and third generations are less held back by those factors and are able to obtain a much higher level of prosperity than they would have if their parents and grandparents had stayed in Poland or Mexico.

But the other thing is to remember that the presence of foreign-born people skews a lot of statistics. The foreign-born population in the United States is poorer than the native-born population. If all those people evaporated tomorrow, the average income of the remaining people would fall but per capita income would rise due to compositional effects. We would also have “more equality” since a disproportionate share of the poorest people would have vanished, and the incomes of capital owners would fall more than the incomes of wage earners. But again, very few actual people would be made better off this way.

I’ve criticized income inequality data on similar grounds, although I think the major flaws lie elsewhere (lifecycle effects, mixing wages and capital gains, etc.)

Here’s a brain teaser:  Would the American people circa 2050 be better off if today we adopted a tight immigration policy, or a liberal immigration policy?

The answer may well be “yes.”  The explanation is over at my newest post at Econlog.



28 Responses to “Yglesias on inequality”

  1. Gravatar of Morgan Warstler Morgan Warstler
    12. May 2014 at 17:20

    Scott, see if you can get my comments no longer held at Econlog


    Contra the racist Steve Sailer, Americans are not shareholders, they are natural resources.

    1. GI/CYB will ensure full employment, requires no more money printing, no more Federal spending, and allow us to do Open Door immigration with the mythical self-deportation.

    Sadly, Bryan Caplan refuses to acknowledge I have solved the thorny political immigration issue.

    2. DC should be leaning HEAVILY on the Mexican Senate to get their Constitution changed to allow foreign beachfront ownership. If the frigging FBI and CIA and do sh*t like F&F we can certainly spend $1B paying off Mexican pols, so Americans can colonize the beaches of Mexico.

    Note to “utilitarian” Economists: STOP worrying about getting foreigners into America, and START worrying about letting Americans turn the best parts of the earth into America with commerce and vacation homes.

  2. Gravatar of tesc tesc
    12. May 2014 at 19:53

    As a representative of the Mexican culture. I agree.

    The problem is that the left wingers over there are nationalist and anti-American. They are super loud and annoying. They would never let Americans colonize the beaches. Which us a pretty good idea.

    They blame Americans for everything that goes wrong in Mexico.

    They are the flip side if the tea party militarism.

  3. Gravatar of dtoh dtoh
    12. May 2014 at 20:26

    Do people realize that if there was redistribution of wealth, those receiving the wealth would be be no better off in terms of consumption. Their lifestyles would not change at all.

    (Unless of course you’re not only redistributing wealth but also seeking to reduce investment and increase consumption.)

  4. Gravatar of tgf tgf
    12. May 2014 at 22:36

    Edward Conard makes the similar argument (6:33-14:18) https://www.youtube.com/watch?v=3FqrUNqXYos

  5. Gravatar of Lorenzo from Oz Lorenzo from Oz
    12. May 2014 at 23:16

    Let us not mention women entering the workforce, because that has no effect on the relative income to labour and capital, now does it?

    And if, like most of us, one thinks that women getting direct access to income is a good thing, then clearly there are things that are (very sensibly) rated as more important than simple income distribution.

  6. Gravatar of david david
    13. May 2014 at 02:51

    Warstler, Econlog has actual dedicated moderators for their comments. Just email them. I don’t predict success, but that’s the people to ask.

  7. Gravatar of TravisV TravisV
    13. May 2014 at 03:00

    “Germany’s Bundesbank Might Support More Easing”


  8. Gravatar of TravisV TravisV
    13. May 2014 at 05:33

    I repeat: “Germany’s Bundesbank Might Support More Easing” Wow!!!

    Also, Yglesias just wrote another good post:

    “Tim Geithner’s book hints at the Fed’s biggest mistake during the crisis”


  9. Gravatar of Morgan Warstler Morgan Warstler
    13. May 2014 at 05:36

    david, I failed.

  10. Gravatar of LK Beland LK Beland
    13. May 2014 at 05:47


    Krugman, on his blog, explained that deflation now would not have the same effect as deflation during the late 19th century:
    “Just to take the most obvious point: the late 19th century was marked by rapid population growth in the “zones of recent settlement” (basically places where Europeans were moving in, displacing or wiping out the locals). In the United States, population grew 2 percent a year from 1880-1910, sustaining high investment demand. And the zones of recent settlement also offered an outlet for very large capital outflows from Europe. In other words, the global situation was conducive to a high natural real rate of interest, making mild deflation much more sustainable than in today’s world.”

    To me, this seems like a quite elaborate way to state that NGDP growth was high in the late 19th century and low in the early 21st (thus money should be looser in the early 21st century).

  11. Gravatar of MG MG
    13. May 2014 at 07:17

    Next, Yglesias will discover the effect of assortative mating, another one of the reasons driving the gap, and another one that is hard to position along the good versus evil, victims versus oppressors axis.

  12. Gravatar of ssumner ssumner
    13. May 2014 at 07:46

    Morgan, I don’t interfere with their decisions. They run a different kind of blog, with a more polite comment section.

    I agree with most of the other comments.

  13. Gravatar of Doug M Doug M
    13. May 2014 at 08:22

    Is the rise in inequality due to risk taking or rent seeking?

    If it is largely due to risk taking, then this inequality story is the biggest piece of BS to come along in years! When I say risk taking, I am really talking about entrepreneurship, developing new technologies, and the dynamic activities that create wealth and drive growth. Certainly, the rewards of this activity do not flow equally, but really everyone has the opportunity to set out and take a risk and try to create something great. Equality of opportunity if not equality of outcome.

    I have not seen any data that try to break apart these two factors. But, any policy change to lessen inequality that does not address this distinction will make everyone poorer.

  14. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    13. May 2014 at 08:43

    A drubbing for Piketty;


    In Piketty’s world, it would be a bad thing if someone were to develop a drug that cured Alzheimer’s. This is because that person would certainly become a multi-billionaire, and that would increase inequality.

    The only thing worse than the scenario described above would be if, because his/her newfound riches hadn’t been confiscated by Piketty’s income and wealth taxes (as they certainly should be), he/she used the capital to develop a cure for cancer. Even more inequality!

    Under Piketty’s tax system, it would have been impossible for Elon Musk to leverage his success with PayPal to fund Tesla Motors.

    In Piketty’s model, it would be a disaster if 15 million unemployed Americans went out tomorrow and got jobs paying $8.00/hour. This because is creating new jobs that pay less than the average wage of the “Bottom 50%” will increase labor income inequality.

    In contrast, it would be good if all of America’s minimum wage workers quit their jobs and went on welfare, because then labor income inequality would be reduced.

    On page 309 of Capital, Piketty notes approvingly that the minimum wage in France has been higher than that of the U.S. since 1985. However, Piketty doesn’t mention that, since 1985, French unemployment has averaged about 9%, vs. about 6% for the U.S.

    Seizing all of the venture capital firms in America and giving the funds to Amtrak would be good, because it would not only reduce wealth inequality, but also allow the federal government to build much needed (in the opinion of progressive intellectuals, at least) high-speed rail infrastructure.

    To Piketty, a rising ratio of wealth to national income is bad, and a falling ratio is good. Accordingly, Piketty’s bad periods have names like “la Belle Epoch” (the beautiful era), the “Roaring Twenties,” and “the Soaring Sixties.” In contrast, his good times have names like “World War I,” “World War II,” and “the Great Depression.”

  15. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. May 2014 at 09:01

    Off Topic.

    David Beckworth and Marcus Nunes both have posts on Sufi and Mian:



    I respond in comments.

  16. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. May 2014 at 09:09

    Off Topic.

    Krugman has a nice post where he brings up Irving Fisher’s theory of debt-deflation:


    “…It’s true that balance-sheet considerations were underemphasized in macroeconomics until recently. But it’s not too hard to put them into a more or less New Keynesian model “” see, in particular (ahem) Eggertsson and Krugman (pdf). And what this analysis tells you is that expansionary monetary policy is more, not less, helpful than a model without balance-sheet effects would suggest, because high income and prices reduce the burden of debt.

    And conversely, deflation is much worse in a debt-laden world than without, again because of its effect on the real burden. You don’t have to take my word for it “” read Irving Fisher from 1933!…”

    It almost sound as though Krygman read my comments at Sufi and Mian’s blog this weekend.

    Actually not, he was reading Evans-Pritchard, who said the following last week:


    “…The paper said the “crucial” variable determining whether deflation turns ugly is the level of debt in the economy. The reason is obvious, and described long ago in Irving Fisher’s 1933 tract “Debt-Deflation Theory of Great Depressions”. The real burden of debt keeps rising, usually ending in waves of bankruptcy that overwhelm the financial system. Creditors are wiped out in turn, harvesting the bitter fruit of their own preferred policies. That is why deflation was so lethal in the 1930s.

    We are now in a “1930s plus” world. The ratio of combined public and private debt is even higher. The risks are therefore greater. The US, UK and Japan have all taken radical action to stop this metastasizing. The European Central Bank has not done so, even though five or six countries are already in deflation, and most of them also have the highest debt ratios in their history…”

    “…Spain is the test case of the rebound story. It is the new poster-child of EMU austerity, the vindicator of internal devaluations. It grew 0.4pc in the first quarter, the strongest in six years, even though exports fell by 0.6pc. This was achieved in part by estimating the “GDP deflator” at -0.4pc. If that is the real level deflation already lodged in the Spanish economy, they are in big trouble.

    Nominal GDP shrank each quarter last year: €256,918bn (Q1), €255,435bn (Q2), €255,336bn (Q3), €255,299bn (Q4). Yet this base has to carry a total debt load of roughly 340pc of GDP.

    The European Commission’s Spring report – described by Oxford professor Kevin O’Rourke as “self-satirising” for its paean to recovery – said Spain’s public debt will keep rising from 93.9pc to 100.2pc of GDP this year, and 103.8pc next year.

    It is much the same in Italy, where nominal GDP also contracted last year. Public debt will rise from 132.6pc to 135.2pc this year despite a large primary surplus, just as Britain saw its debt ratio rise in the 1920s despite its primary surplus. This is the denominator effect. It is a trap…”

  17. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. May 2014 at 09:27

    Off Topic.

    Cecchetti & Schoenholtz (disappointingly) say the following:


    “…More to the point, would conventional QE or negative deposit rates help the euro-area economy materially? Absent a sizable euro depreciation, we doubt it. The euro area’s fragmented financial system suggests that QE will be less effective than elsewhere, while the potential for lowering the deposit rate is tiny. Targeting asset purchases in peripheral Europe would be more effective, but also more controversial (and will diminish incentives for structural reform)…”

    This is a frequent meme tossed around in European circles. (I’m perplexed why so many otherwise smart and well meaning Europeans buy into it.) But ultimately it’s no more coherent than the BIS’s bizarrre claim that deflation is good for a balance sheet recession.

    In fact the best rebuttal to the claim that the likely asymmetric effects of expansionary monetary policy in the Euro Area means it wouldn’t help is by Krugman himself:


    He shows that a boom in the core would help rebalance the Euro Area’s unit labor costs (ULC), so it’s a feature, not a bug. (Recall that the whole point of “structural reforms” is to rebalance Euro Area ULC.) This was also the only time I’ve ever seen Krugman use the AD-AS Model.

    It’s really disappointing to see smart economists like Cecchetti & Schoenholtz repeating questionable claims without thinking through why they’re obviously false.

  18. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. May 2014 at 09:34

    Off Topic.

    Krugman is on a roll. He has a folllowup post to the one above where he mentions the Euo Area’s raising of interest rates in April and July of 2011:


    “…The claim that policymakers have an easy-money bias is one of those things usually said with an air of worldy wisdom; of course people don’t want to take away the punchbowl when everyone is having fun. But the reality doesn’t look at all like that. After all, if policy were consistently doing too much to fight slumps and not enough to curb booms, what you would expect is a steady ratcheting up of inflation “” which isn’t at all what has happened over the past 35 years. This supposed piece of wisdom is actually a cliche from the 1970s, which hasn’t been remotely true for a generation.

    And look at the ECB in particular. Twice since the crisis hit it has raised rates at the merest hint of above-target inflation, despite good reason to believe that these were just blips driven by commodity prices. But as inflation slides ever further below target, what we get is equivocation and persistent failure to act. If there’s an asymmetry here, it’s in the opposite direction: hasty action against dubious inflation threats, inaction against deflationary threats…”

  19. Gravatar of TravisV TravisV
    13. May 2014 at 10:20

    Mark Sadowski,

    You da man, thanks for the links!

    Another guy who’s been on a roll lately: David Beckworth:



  20. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. May 2014 at 10:41

    I mentioned David Beckworth in my first comment (I commented there). But I didn’t notice the second post until you posted the link.

  21. Gravatar of TallDave TallDave
    13. May 2014 at 11:01

    “Income inequality” is the surreal supposition that society would be better off if Walmart’s greeters each controlled the same economic resources as Walmart’s founders.

    Nice to see some sanity emerging at ECB.

  22. Gravatar of TravisV TravisV
    13. May 2014 at 17:13

    Mark Sadowski,

    You commented on Frances Coppola on Martin Wolf a few days ago:


    Frances wrote a reply to you (and me) in the comments section of her blog:


  23. Gravatar of TravisV TravisV
    13. May 2014 at 17:44

    Krugman wrote the following last week:

    “Were the freshwater guys always just pretending to do something like science, when it was always politics? Is there simply too much money and too much vested interest behind their point of view?”


    Hilarious! Hey, Krugman, look in the mirror, buddy!

  24. Gravatar of TravisV TravisV
    13. May 2014 at 18:10

    Vaidas Urba wrote a good post today on the progress the ECB has made with its (convoluted) forward guidance:

    “Interestingly, the ECB is trying to get away with not using QE to bolster the forward guidance. Instead of a blunt message delivered by the rising line in the quantity of reserves chart, we are getting subtle signals about the ECB reaction function every month. “Firmly reiterate the forward guidance” has replaced “confirmed its forward guidance”. A bit later “a presence of slack” has joined in. Now we are getting “euro exchange rate increasingly relevant in our assessment of price stability” and “real rates are set to fall over the projection horizon”. Unfortunately, marginal market players are still looking at that old-fashioned quantity of reserves chart.

    For the sake of science, I hope the ECB will succeed in avoiding QE, as in this case we would get a clean test of Woodfordian theory. For the sake of the European economy, I hope the ECB will start QE soon. Let’s use the QE language everybody understands, or the ECB reaction function might get lost in translation.”


  25. Gravatar of Steve Steve
    13. May 2014 at 18:55

    MG wrote: “Next, Yglesias will discover the effect of assortative mating, another one of the reasons driving the gap”

    Yes, the government should ban assortative mating. Men should be required to value women for their child-bearing hips, and not for their minds. Progressivism has come full circle!


  26. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. May 2014 at 19:10

    My response to Frances is here:


  27. Gravatar of ssumner ssumner
    14. May 2014 at 05:26

    Doug and Patrick, Good points about inequality.

    Mark and Travis, Thanks for the links.

  28. Gravatar of Daniel Daniel
    14. May 2014 at 16:52


    Most men with choice go for child-bearing hips, no matter how progressives feel about that.

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