September 24, 2003

My Favorite Paul Krugman Essay

As everyone knows, I am a huge fan and admirer of Princeton economist Paul Krugman*. Everyone should go and buy Paul Krugman (2003), The Great Unraveling: Losing Our Way in the New Century (New York: Norton: 0393058506). And everyone who can should try to go see him talk on Friday September 26, 12:00-1:30, Andersen Auditorium, Haas School, U.C. Berkeley.

However, The Great Unraveling: Losing Our Way in the New Century doesn't contain my favorite Krugman essay. This is my favorite Krugman essay, from Paul Krugman (1998), The Accidental Theorist (New York: Norton: 0393046389)....


An Unequal Exchange

Paul Krugman

To a naive reader , Edward N. Wolff's Top-Heavy: A study of the increasing inequality of wealth in America might seem unlikely to provoke strong emotional reactions. Wolff , a professor of economics at New York University, provides a rather dry matter of fact summary of trends in wealth distribution, followed by a low-key case for a modest wealth tax. Although Wolff has done a commendable technical job in combining data from a number of sources to produce a fuller picture-in particular his book tells us more about both long term trends and international comparisons that has previously been available-the rough outlines of this story have been familiar and uncontroversial among economists for at least the past five years.

And yet Wolff's book was the target of an astonishing barrage of conservative attacks: multiple op-eds in the Wall Street Journal, hostile book reviews, and so on. Why should such a mild-mannered little volume provoke such rage?

The answer is that this is the subject on much many conservatives are unable to hold a rational discussion. Make a mere statement of fact-say, for example, that the top 20 percent of households in the United States hold 85% of the marketable wealth , and conservatives will insist that you rephrase it as " 20 percent of the households have created 85% of the wealth. " try to assess long-term trends in income distribution using the standard, apolitical device of comparing incomes at the same stage of successive business cycles, such as 1973 and 1989, and you'll be accused of an outrageous attempt to distort Ronald Reagan's record by mixing in the Carter years.

Conservatives are wrong about wealth inequality, but they are not irrational. There is a method and political purpose to their maddened reaction-a determination to deny the facts that is dramatically illustrated by House Majority Leader Richard Armey's new book, the Freedom Revolution. Put simply, conservatives don't want the public to know too much because they fear it would hurt them politically.

To understand the significance of Wolff's book, consider this simple parable : there are two societies. In one everyone makes a living at some occupation-say, fishing-in which the amount people earn over the course of the year is fairly closely determined by their skill and effort. Incomes will not be equal in this society-some people are better at fishing than others, some people are willing to work harder than others, but the range of incomes will not be that wide. And there will be a sense that those who catch a lot of fish have earned their success.

In the other society, the main source of income is gold prospecting. A few find rich mother lodes and become wealthy. Others find smaller deposits, and many find themselves working very hard for very little reward. The result will be a very unequal distribution of income. Some of this will reflect effort and skill: those who are especially alert to signs of gold, or willing to put in longer hours prospecting, will on average do better than those who are not . But there will be many skilled, industrious prospectors who do not get rich and a few who become immensely so .

Surely the great majority of Americans , no matter how conservative, instinctively feel that a nation that resembles the second imaginary society is a worse place than one that resembles the first. It is also no question that our nation today is much less like the benign society of fishermen-and much more like the harsh society of prospectors-than it was a generation ago. The evidence is overwhelming, and it comes from many sources-from government agencies like the Bureau of the Census, from Fortune's annual survey of executive compensation, and so on. And, of course, there is the evidence that confronts every one with open eyes. Tom Wolfe is neither an economist nor a liberal, but he is an acute observer. When he wanted to portray what was happening to American society, he wrote the bonfire of the vanities.

Here's a rough ( and reasonably certain) picture of what has happened: the standard of living of the poorest 10 percent of American families is significantly lower today than it was a generation ago. families in the middle are , at best, slightly better off. Only the wealthiest 20 percent of Americans have achieved income growth anything like the rates nearly everyone experience between the 40's and early 70's. Meanwhile the income of families high in the distribution has risen dramatically with something like a doubling of real incomes of the top 1%.

These widening disparities are often attributed to the increasing importance of education. But while it's true that, on average, workers with a college education have done better than those without, the bulk of the divergence has been among those with similar levels of education. High-school teachers have not done as badly as janitors but they have fallen dramatically behind corporate CEOs, even though they have about the same amount of education.

Also, the growth of inequality cannot be described simply as the rise of some group, such as the college-educated or the top 20%, compared with the rest; the top 5 percent have gotten richer compared with the next 15, the top 1 percent compared with the next four, the top 0.25% compared with the next 0.75, and onwards all the way up to Bill Gates. The important contribution of Wolff's book is that it reinforces the evidence that much of the important action in American inequality has taken place way up the scale, among the extremely well-off.

Wolff focuses on wealth rather than income-on assets rather than cash flow. This has some advantages over annual income as an indicator of a family's economic position, especially among the rich. Someone with a very high-income may be having an unusually good year, while it is not unheard of for wealthy families to have negative income if they make a bad investment; in each case their assets will be a better clue to where they really fit into the rankings. More important, however, wealth is in some ways a better indicator than income data of what is happening to the very successful-simply because it is so narrowly held: in 1989, the top 1 percent of families owned 39% of the wealth but received only ( a still impressive) 16% of the income.

A particularly striking statistic in Wolff's book should put an end to the still widespread tendency to discuss the growth of inequality in America by tracking the fortunes of the top 20 percent, or of college-educated workers. Between 1983 and 1989, while the wealth share of the top 20 percent of families rose substantially, the share of percentiles 80 to 99 actually fell. In other words when we say that America's rich have gotten richer, by the " rich " we did not mean the garden variety yuppies-we mean true plutocrats.

Many conservatives have probably stopped reading by now, or at least stopped being able to respond to this article with anything other than blind anger, but for those who are still with me let me make a crucial point about the statistics: they say nothing about who, if anyone, is to blame. To say that America was a far more unequal society in 1989 than it was in 1973 is a simple statement of fact, not an attack on Ronald Reagan. Think about the parable of the fishermen and prospectors: the greater inequality of the latter society did not come about because it has worse leadership but because it lives in a different environment. And changes in the environment--in world markets or in technology--might change a society of middle-class fishermen into a society with dismaying extremes of wealth and poverty, without necessarily being the result of deliberate policies.

In fact, it's pretty certain that this is what is happening in the United States . Ronald Reagan did not single-handedly cause the incomes of the rich to soar and those of the poor to decline. He did cut taxes at the top and social programs at the bottom, but most of the growth in inequality to place in the marketplace, in the pre-tax incomes of families. ( there is a wide range of opinion as to just what happened with the markets, though clearly technology and the changing international trade scene played key roles. ) furthermore, the upward trend in inequality began in the 70's under Nixon, Ford, and Carter and continues in the nineties under Clinton; similar trends, if not so dramatic, are visible in many other countries.

Yet income distribution is a politicized subject all the same. The reason is obvious: the question of inequality is relevant for policy-making. In the fisherman society, for example, people might feel that only invalids, widows, and orphans deserve public support. In the vastly unequal prospecting world, however, it is easy to imagine a broad public demand that those who have been lucky enough to find gold be required to share a significant fraction of their winnings with those who have not. Indeed it is hard to see how such a redistributionist program would not be popular--if the public understood just what was going on.

It is in the light of this possibility--that a redistributionist policy would have broad support if people understood reality--that we should consider Armey's The Freedom Revolution. It is not, to say the least, a carefully written or argued book ; it consists largely of standard conservative bromides, backed by number of unsupported assertions. But despite the book's sloppiness, it is an important document, because of what it says about the majority leader's intellectual processes. Armey , a former economics professor, could've made the case that there's nothing that can or should be done about growing inequality. But instead he tries to claim, in essence, that nothing has happened -that we really are still a society of middle-class fisherman.

First, Armey denies that the 80's were a period in which the rich got richer and the poor got poorer. " the statisticians, " he writes, " break the population into five income groups, called quintiles . During the eighties they gained in average real income as follows:

  • Lowest quintile--up 12.2%.
  • Second-lowest--up 10.1%
  • Middle--up 10.7%
  • Second-highest--up 11.6%.
  • Highest--up 18.8%"

The source of the data, not cited, is the Bureau of the Census's Current Population Report. This is helpful to know, because if you check Armey's facts you will find he is fibbing a bit. These figures are not income gains for all of the eighties, but only from 1983 to 1989. Immediately preceding that recovery, the economy experienced a savage recession, the worst since the Great Depression, that affected the poor more severely than the rich. The first column of the table below gives the percentage changes for the slump years from 1979 to 1983.

Percentage Income Change by Income Bracket for the Periods 1979-1983 and 1973-1989

Income Bracket 1979-1983 1973-1989
Lowest quintile -14.2% -3.6%
Second lowest -8.1% 3.1%
Middle -6.2% 9.0%
Second highest -2.9% 14.8%
Highest -1.4% 26.0%

Conservatives will say, "The recession was Carter's fault, while the recovery proved the success of Reagan's policies." But put politics aside for a moment and accept this simple fact: At the end fo the 1983 to 1989 recovery, the bottom quintile was still worse off than it was in 1979, while the only really large gains over the decade went to the top quintile. If one takes the long view, as in the second column of the table (which measures from the business cycle peak in 1973), one sees an overwhelming picture of radically growing inequality. And one might correctly suspect that the pattern continued inside the top quintiles, i.e., that the top 5 and the top 1 percent did better still.

When Armey (with his Ph.D. in economics) wrote this passage, he must have had the same table in front of him that I am looking at now. He must therefore have known that he was, strictly speaking, lying when he described his data as being what happened during the "eighties," and could not have failed to notice that, even at the end of his carefully selected period, incomes were far more unequal than they had been in the seventies. In other words, the passage is a deliberate attempt to mislead the reader.

It gets even better. Armey cites a study that shows that there is huge income mobility in America. The message here is simple: Don't worry that some people find gold and some don't--next year you may be the winner. He gives numbers saying that fewer than 15 percent of the "folks" who were in the bottom quintile in 1979 were still there in 1988. He then asserts that it was more likely that someone would move from the bottom quintile to the top than he would stay in place. Again, he doesn't cite the source, but these are familiar numbers. They come from a botched 1992 Bush Administration study, a study that was immediately ridiculed and which its authors would just as soon forget.

This is why: The study tracked a number of people who had paid income taxes in each of the years from 1979 to 1988. Since only about half the working population actually paid taxes over the entire period, this meant that the study was already biased towards tracking the relatively successful. And these earners were then compared to the population at large. So the study showed that in 1979, 28 percent of this studied population was in the bottom 20 percent of the whole population; by 1988 that figure was only 7 percent.

This means, Armey asserts, that someone in the lowest quintile would be more likely to move to the highest than stay in place. Put kindly, it's a silly argument. For subjects of the study who moved from the bottom to the top, the typical age in 1979 was only 22. "This isn't your classic income mobility," Kevin Murphy of the University of Chicago remarked at the time. "This is the guy who works in the college bookstore and has a real job by the time he is in his early thirties."

In reality, moves from the bottom to the top quintile are extremely rare; a typical estimate is that only about 3 percent of families who are in the bottom 20 percent in one year will be in the top 20 percent a decade later. About half will still be in the bottom quintile. And even those 3 percent that move aren't necessarily Horatio Alger stories. The top quintile includes everyone from a $60,000 a year regional manager to Warren Buffett.

Armey is no fool. He cannot be unaware that he is fudging his numbers. Possibly he regards a small fib as justifiable in the service of a higher truth. Or possibly he has managed to achieve a state of doublethink, in which the distinction between what is politically convenient to believe and the objective facts no longer exists. The end result is the same: His book is an effort to obscure the stark realities of growing inequality.

And that is no surprise. After all, the success of free-market conservatives in seizing the mantle of populism in America, despite the growing gap between the broad public and a small minority possessing astonishing wealth, is inherently vulnerable. It took a combination of brilliant political leadership on the right and an awesome mixture of political ineptitude, personal arrogance, and cultural elitism on the part of liberals to give Armey and their allies their current position of power. (I sometimes think that the Renaissance Weekend killed the Clinton Administration.)

But despite the triumph of 1994, there is always the risk that someone will point out that there are now quite a few men in America who each make more money every year than the entire House of Representatives, and that it is these men who will be the most conspicuous beneficiaries of the new majority's politics.

As far as Armey and his allies are concerned, the answer to this risk is simple: The public must not know how well the rich have done compared with the rest. If a new study points out just how much income and wealth have become concentrated, deploy the forces of the conservative media to attack the data with every spurious argument imaginable. There are always plenty of places to publish such attacks and people to write them because the rich are different from you and me: They have (a lot) more money. In particular, they own magazines and newspapers, and readily support think tanks staffed with people whose job, whatever its formal description, is to support the interests of their donors. As H.L. Mencken once pointed out, it is difficult to get a man to understand something when his income depends on his not understanding it.

The uneasy politics of free-market populism are also probably a major reason why the Republican majority in Congress seems determined to mount an assault on economic analysis in general--not only to eliminate the President's Council of Economic Advisors, but to eliminate all National Science Foundation funding for the field, and to slash the budget of the Bureau of Economic Analysis (which provides the basic data on national income).

The irony is that much of this research provides support for Republican free market ideology. But the motivation for cutting the funding is easy enough to understand: If your doctrine depends on a view of the economy that is flatly contradicted by reality, then the fewer facts, the better.

Edward Wolff has written a good book, while Richard Armey has written a terrible one. The real message, however, comes from the contrast between them--between the mildly liberal economics professor who is disturbed by the trends in our society and would like to make a small effort to ameliorate them, and the tough-talking conservative who is determined to deny the reality of these trends and to smash anyone who reports on them.

May the better man win.


*Who does, however, still need to profoundly apologize for various unfair comments made about the very, very capable Laura D'A. Tyson in 1992-1993.

Posted by DeLong at September 24, 2003 04:50 PM | TrackBack

Comments

i'm proud to be a luckie duckie from misluckie,
a place where millionairs can have a ball!

Posted by: john c. halasz on September 24, 2003 05:51 PM

Krugman is addressing what is essentially a non-problem. That is the way most Americans outside of the halls of the academy see it. Once more, the common people are right and the liberal intellectuals are wrong.

For a hundred years intellectuals have been trying to sell the Americans on the idea of class warfare. To its credit, the American people has refused the offer.

If America is such a wretched place for the common people, why are so many of them coming here or trying to come here?

America is the most left wing country in the world. Our culture is very proletarian, OK, sometimes to the point of tackiness. That's part of why the sensitive souls, the cultured liberals who read the New York Times and listen to NPR, tend to look down on this country and its people.

What bothers liberals is not inequality, but the fact that they are not in charge of everything. People are running around loose doing things without their permission.


Posted by: Joe Willingham on September 24, 2003 05:59 PM

"What bothers liberals is not inequality, but the fact that they are not in charge of everything. People are running around loose doing things without their permission."

That's right, Mr. Willingham, when it comes down to it all I want is to rule the world and stop people having fun :-).

Posted by: Tom Slee on September 24, 2003 06:29 PM

You really like to stir things up. Talking about income redistribution, that is a socialist thing. Americal is a Capitalist society going Sociolist. Capitalism made America Great. Capitalism is, the individual taking care of him/herself. Sociolism is, the government taking care of the people because they cannot take care of themselves. Heck, give me my social security and medicare when I retire and leave me alone. (emotional) Besides the government, (all parties) I see two basic problems, Eduaction (poor/no economics course), todays general education, does not teach you what is needed in the working world. (Try class room mixed with On The Job training for a starter). The next is, the brainwashing; TV, advertizement, social pressure, to; buy, buy, buy, borrow, borrow, borrow that exists in todays world. How are you going to go up the economical ladder if you buy and borrow depreciating items? If you want to buy yourself to riches, you buy, the right education, stocks, bonds and property. Not cars, shoes, fads. There is allways going to be someone at the bottom, middle, and top. In a capitalist society, someone can go from the bottom to the top by the right, honourable hard work. In a sociolist or communist society it is far harder to get to the top by honourable hard work. The article does not mention real growth versus inflationary growth. ie. the difference between not borrowing and borrowing money. Compare what an electrician made 30 years ago and his standard of living, with what he makes now and his standard of living. Now, he has a lower standard of living. (unless he bought his house 30 years ago.) The real, total inflation is what brought down the standard of living. Now, if this electricion had tought himself about economics, and he had saved/invested a good percentage of his income, then he would have a higher standard of living now than he had back 30 years ago. Or if he invested in a computer programing course 20 years ago, he might have gotten one of those HIGH paying programing jobs up untill 2000. The problem with socilism is "you can't help someone unless they want to help themselves!" Other things have been said very well by Milton Freedman. You can give people the opportunity but you can't force them to take it. ----A friend of mine diagrees with this, but... My proof is in the pressent day media, the conservatives relie on your ignoance, (and try to keep you ignorent) but the librals will outright lie to you and try to make the lie the fact. But maybe those people didn't lie, they just didn't do their homework. One thing is very clear about both the left and the right, neither side wants to fix ANY problem! Probably because they would work themselves out of a job(money) and position (power).You really like to stir things up. Talking about income redistribution, that is a socialist thing. Americal is a Capitalist society going Sociolist. Capitalism made America Great. Capitalism is, the individual taking care of him/herself. Sociolism is, the government taking care of the people because they cannot take care of themselves. Heck, give me my social security and medicare when I retire and leave me alone. (emotional) Besides the government, (all parties) I see two basic problems, Eduaction (poor/no economics course), todays general education, does not teach you what is needed in the working world. (Try class room mixed with On The Job training for a starter). The next is, the brainwashing; TV, advertizement, social pressure, to; buy, buy, buy, borrow, borrow, borrow that exists in todays world. How are you going to go up the economical ladder if you buy and borrow depreciating items? If you want to buy yourself to riches, you buy, the right education, stocks, bonds and property. Not cars, shoes, fads. There is allways going to be someone at the bottom, middle, and top. In a capitalist society, someone can go from the bottom to the top by the right, honourable hard work. In a sociolist or communist society it is far harder to get to the top by honourable hard work. The article does not mention real growth versus inflationary growth. ie. the difference between not borrowing and borrowing money. Compare what an electrician made 30 years ago and his standard of living, with what he makes now and his standard of living. Now, he has a lower standard of living. (unless he bought his house 30 years ago.) The real, total inflation is what brought down the standard of living. Now, if this electricion had tought himself about economics, and he had saved/invested a good percentage of his income, then he would have a higher standard of living now than he had back 30 years ago. Or if he invested in a computer programing course 20 years ago, he might have gotten one of those HIGH paying programing jobs up untill 2000. The problem with socilism is "you can't help someone unless they want to help themselves!" Other things have been said very well by Milton Freedman. You can give people the opportunity but you can't force them to take it. ----A friend of mine diagrees with this, but... My proof is in the pressent day media, the conservatives relie on your ignoance, (and try to keep you ignorent) but the librals will outright lie to you and try to make the lie the fact. But maybe those people didn't lie, they just didn't do their homework. One thing is very clear about both the left and the right, neither side wants to fix ANY problem! Probably because they would work themselves out of a job(money) and position (power).You really like to stir things up. Talking about income redistribution, that is a socialist thing. Americal is a Capitalist society going Sociolist. Capitalism made America Great. Capitalism is, the individual taking care of him/herself. Sociolism is, the government taking care of the people because they cannot take care of themselves. Heck, give me my social security and medicare when I retire and leave me alone. (emotional) Besides the government, (all parties) I see two basic problems, Eduaction (poor/no economics course), todays general education, does not teach you what is needed in the working world. (Try class room mixed with On The Job training for a starter). The next is, the brainwashing; TV, advertizement, social pressure, to; buy, buy, buy, borrow, borrow, borrow that exists in todays world. How are you going to go up the economical ladder if you buy and borrow depreciating items? If you want to buy yourself to riches, you buy, the right education, stocks, bonds and property. Not cars, shoes, fads. There is allways going to be someone at the bottom, middle, and top. In a capitalist society, someone can go from the bottom to the top by the right, honourable hard work. In a sociolist or communist society it is far harder to get to the top by honourable hard work. The article does not mention real growth versus inflationary growth. ie. the difference between not borrowing and borrowing money. Compare what an electrician made 30 years ago and his standard of living, with what he makes now and his standard of living. Now, he has a lower standard of living. (unless he bought his house 30 years ago.) The real, total inflation is what brought down the standard of living. Now, if this electricion had tought himself about economics, and he had saved/invested a good percentage of his income, then he would have a higher standard of living now than he had back 30 years ago. Or if he invested in a computer programing course 20 years ago, he might have gotten one of those HIGH paying programing jobs up untill 2000. The problem with socilism is "you can't help someone unless they want to help themselves!" Other things have been said very well by Milton Freedman. You can give people the opportunity but you can't force them to take it. ----A friend of mine diagrees with this, but... My proof is in the pressent day media, the conservatives relie on your ignoance, (and try to keep you ignorent) but the librals will outright lie to you and try to make the lie the fact. But maybe those people didn't lie, they just didn't do their homework. One thing is very clear about both the left and the right, neither side wants to fix ANY problem! Probably because they would work themselves out of a job(money) and position (power).

Posted by: Jim Coomes on September 24, 2003 06:43 PM

Wow, what a great essay. That's all. Except to give thanks to Brad for posting it here, of course.

P.S. - I'll be buying Krugman's new book at the Ruminator in St. Paul, and wish I could be there for Krugman's talk on Oct. 11th. I don't think there'll be enough room in the entire store to hold everyone who wants to listen though!

Posted by: David W. on September 24, 2003 06:55 PM

Joe Willingham:
> For a hundred years intellectuals have been trying to sell the Americans on the idea of class warfare. To its credit, the American people has refused the offer.

This is a sweeping claim and far from self-evident. I think it's almost certainly wrong, depending on how you want to define "class warfare." Since you did say, "for a hundred years" I'll assume you're at least willing to concede that the American people engaged in the most direct kind of "class warfare" in the latter half of the 19th century (before 1903, your cutoff point). It'd be awfully difficult to explain populism, or the rise of the large labor unions in any other way.

In this case, I'm defining "class warfare" as (a) an acknowledgement that society is stratified and some people have more privileges than others followed by (b) direct action taken by groups of people to gain the privileges they believe they deserve.

Culturally, I think most Americans do understand that "the rich are not like us." Notice that even at the height of the Reagan presidency, a film like Wall Street was able to resonate--because it's a good story, and people find it believable. America has on the one hand celebrated entrepreneurs such as Henry Ford, but on the other hand has also held a deep suspicion that many of the super-rich are robber barons.

"Class warfare" may be taboo among politicians running for office. But for normal, middle class Americans, it's just common sense.

Posted by: Paul Callahan on September 24, 2003 06:59 PM

I just wrote:
> In this case, I'm defining "class warfare" as (a) an acknowledgement that society is stratified and some people have more privileges than others followed by (b) direct action taken by groups of people to gain the privileges they believe they deserve.

And fell into the trap that everyone does, though I ought to know better. For some reason, "class warfare" is never defined as the direct actions taken by the privileged to preserve their privileges. If you add this, it becomes transparently clear that those most vocally opposed to "class warfare" are usually those most energetically and successfully engaged in it.

Posted by: Paul Callahan on September 24, 2003 07:05 PM

Unbelievable that people would be so ignorant of economics, psychology and history so as to deny the widening spread in the distribution of income within and among countries, and the political resurgence of the plutocracy in the U.S. No one with a brain believes that "free-market economics" will do anything but make it worse, as the last decades have demonstrated. A "non-problem," indeed!

Posted by: Lee A. on September 24, 2003 07:11 PM

If this is class warfare, my class is winning.
--Warren Buffet

Posted by: richard on September 24, 2003 07:13 PM

Well, I could be wrong. Maybe Dennis Kucinich or Ralph Nader will be elected president in '04. Maybe the Greens will take Congress. But somehow I don't think so.

Posted by: Joe Willingham on September 24, 2003 07:14 PM

> Well, I could be wrong. Maybe Dennis Kucinich or Ralph Nader will be elected president in '04. Maybe the Greens will take Congress. But somehow I don't think so.

Your claim was that Americans have been unwilling to engage in class warfare for the past hundred years. Now you've narrowed this to the statement that some particular candidates probably won't get elected next year (and I tend to agree). The fact that you seem to equate these two claims shows muddled thinking, but otherwise, I accept your retraction.

Posted by: Paul Callahan on September 24, 2003 07:20 PM

I accept as fact the growing divergence in wealth in American Society.

While the measurements are made by comparing wealth statistics ... the reasonable earning/wealth of the fishermen compared to the disparities in the prospectors' society ... The societies with the largest disparities seem to overlook the sacrifices and casualties of the quintile who are wounded, are maimed or die so that the wealthiest quintile's wealth production is maintained. In fact it is the lowest quintile that affords the uppermosts' power, wealth and status. I'm greatful that Audie Murphy, Machine Gun Kelly, Sargeant York, Col. Gabby Gabreski et al didn't go on strike during our wars.

Andrew Carnegie had it right -- A University, Museums, public Libraries, Foundations to carry forward great works. Likewise Henry Ford and John D. Rockefeller used much of their wealth for public benefit.

There is ample reason to tax superfluous wealth and earnings while allowing for adequate compensation and rewards -- and to close the widening wealth gap.

Posted by: Don Majors on September 24, 2003 07:45 PM

You're right, Brad. Great essay by Krugman and probably his best I've ever read.

He's definitely right, too, on the inability of those who like excessive inequality to respond with anything other than bromides or worse, verbal vomit. In fact, some of these types of responses are in the frothing comments made earlier in this thread by the usual suspects.

Posted by: mitchell freedman on September 24, 2003 08:04 PM

Brad DeLong writes:
>
> *Who does, however, still need to profoundly apologize
> for various unfair comments made about the very, very
> capable Laura D'A. Tyson in 1992-1993.

Well, I think that is an important footnote. It's also interesting because some people assume that Krugman only blasts people on the right, while the historical record shows he has been pretty even-handed with his scorn.

Posted by: Jonathan King on September 24, 2003 08:47 PM

This time, as in times before, a plutocrat will be standing in his palace as the mob rushes in around him and he will exclaim in shocked outrage "What is the meaning of this!?" The snide arrogance of wealth is always surprised and astonished when it all comes crashing down on their heads. Make catty remarks about leftists and Greens and liberals all you want to, it will avail the target of a poor man's anger little that he conciders his executioner's manner uncouth.

Posted by: catalexis on September 24, 2003 09:16 PM

I find it very interesting that those who are so concerned about widening income distribution never mention consumption distribution.

After all, it is consumption, not income, that is the determinant of economic welfare -- income that is buried in the ground and never consumed does one no good, and people earn income in order to be able to consume. While a person who consumes more than his/her income is better off than the income level would indicate.

Certainly consumption distribution deserves a *mention* in any discussion that purports to be fair and fairly comprehensive regarding income distribution and welfare. At least a *mention*.

And yet it never gets one. Certainly not here.

In my more cynical moments I wonder if this is simply because consumption distribution is far more even than income distribution, and has not widened in favor of the rich as income distribution has -- and that data not supporting one's argument (and urgent agenda) is not to be discussed.

Anyhow, from Virginia Postrel's column in the Times a while back...
~~~

[Income inequality is less over lifetimes than in "snapshot" pictures of moments in time.] People tend to base their spending on what they expect their long-term prospects to be.

Poor graduate students spend more than equally poor waitresses, because they can expect higher incomes later. Conversely, professional athletes have to save some of their big bucks to finance a comfortable life after sports.

To see how well-being is distributed, consumption provides a better long-run picture than income.

In a paper titled "Does Income Inequality Lead to Consumption Inequality?" Professor Fabrizio Perri, of the Stern School of Business at New York University, and Dirk Krueger, an economist at Stanford, look at the distribution of consumption from 1972 to 1998...

"We wanted to see whether this rise in income inequality had in fact given rise to an increase in consumption inequality," Professor Krueger said. "We were fairly surprised that it hadn't."

The economists expected consumption to fluctuate less than income, since people can save in good times and borrow in bad times. But the results were far more marked than they anticipated: Even as the distribution of income changed significantly, the distribution of consumption barely budged.

A common measure of how spread out the income distribution is (the standard deviation of the log of after-tax labor income) increased 20 percent, while the same measure for consumption rose only 2 percent.

To take a single comparison, the poorest 20 percent of Americans made about 6 percent of all income in 1972-73 but only 4 percent in 1997-98. That substantial drop did not show up in their spending, however. It stayed flat, at about 9.2 percent of total consumption.

Or consider the ratio between the top and bottom. In 1972-73, the top 10 percent of earners made about five times as much as the bottom 10 percent. In 1997-98, they made more than nine times as much — a sharp increase that, again, barely shows up in spending. The top 10 percent of households spent about three times as much as the bottom 10 percent in 1972-73, a ratio that inched up to 3.35 in 1997-98.

These results are particularly striking because the income figures include only wages and government benefits. Spending, by contrast, can come from all sources of money, including the stock market returns and other investment income enjoyed mostly by the wealthiest Americans. The high investment returns of the 1990's do not seem to have notably widened the spending gap between rich and poor.

It is hard to see the effects of increasing income inequality in how people actually live...
~~~
The paper is available at http://pages.stern.nyu.edu/~fperri/research.htm

Perhaps the concept might be mentioned by Prof K, or Prof. Wolff, or somebody, anybody, in the future? If only to acknowledge it and argue against it?

After all, I'd think that reassuring news, evidence that things might not be as bad as imagined, would be welcomed!

Posted by: Jim Glass on September 24, 2003 09:34 PM

The United States is the most left-wing country in the world?


This is joke, right?

Posted by: Stephane on September 24, 2003 09:37 PM

Glass failed to notice that what Krugman/DeLong were talking about was the top 1%, not the top 10% or 20%. It seemed to be the main point of the paper, too, or one of them. Especially because wealth means control -- someone who can afford to give away tens of millions of dollars a year can tremendously distort the whole political dialogue. (**Cue for some troll to bitch about George Soros**).

Posted by: Zizka on September 24, 2003 10:40 PM

What are we supposed to do about Krugman’s emerging plutocracy? I suppose Krugman would advocate increasing taxes to transfer wealth to those with low incomes. But would that really diminish the power of the wealthy? I doubt it because I think (in many cases) wealth derives from power, and higher taxes would leave that power unchanged. For example, Grasso got wealthy because his powerful cronies on board of the NYSE gave it him, not because he was lucky or talented. I suspect if his taxes went up they would have given him even more money. People don’t seem to resent the talented or the lucky rich, they resent the undeserving rich.

We can prevent a socially destabilizing plutocracy by reforming certain things like corporate governance, anti-trust laws and special privileges granted by the government. Bill Gates is rich because he has a monopoly and the government lets him get away with it. (Incidentally Krugman opposed breaking up Microsoft into two companies, one doing applications, the other doing operating systems.) Jimmy Carter got rich by trading licenses to grow peanuts. Imagine that, you need a license to grow or import peanuts. In fact the economic system is riddled with special entitlements (courtesy of the government). For example there are laws that limit the number of automobile dealerships. You can get very rich if you somehow get permission to open a new dealership. Why are so many lawyers rich? They get rich because the government (run by lawyers) has created a convenient maze of regulations. Note that the superfund (by statutory construction) operates by lawsuits with the result that most of the superfund money goes to legal fees and not cleaning up waste sites. Krugman rarely talks about such things, perhaps because the big contributors to the Democrats are trial lawyers.

If power were more evenly distributed in society, wealth would follow.

Posted by: A. Zarkov on September 24, 2003 11:15 PM

JG-spending by the poor did not fall because of borrowing, which exploded in the 90s as credit became more easily available (thanks to the de facto lifting of interest rate/loan sharking regulations). Food prices have fallen since the 70s, but housing costs have risen even higher. Inflation-adjusted wages for low-level jobs have fallen substantially. Given that the bottom 20% of American hardly make enough to cover food, housing and medical bills, it would be difficult for their share of spending to fall much at all. If unemployment keeps rising, and loan defaults continue their current sharp increase, you will start to see serious differences 'in the way people live.'

I can understand right-wingers and libertarians not caring about the super-rich getting richer, but their apathy to the immiseration of the poor is not just callous but suicidal. Tax-cuts don't help people who don't make enough to pay income taxes or own stocks. People will accept a society with both dire poverty and glittering wealth, but only if they expect things to improve. When they lose that faith, watch out. Apres Bush, le deluge?

Posted by: Jean on September 24, 2003 11:49 PM

Reply to Stephane:

In my little joke about this being the most leftwing country in the world I am saying that this is the country where working class and middle class people most feel that their country belongs to them. The country music lovin' pickup driving huntin' and fishin' kind of people. The immigrants who are radiant with pride when they become citizens. The African Americans who have achieved success in many fields only a generation after the abolition of Jim Crow.

Half of what you see on TV or at the movies derives from the black and the redneck cultures. Music, sports, comedy, you name it. For better or worse, it's a lowbrow, populist country.

American working people are proud and independent. They don't defer to their betters. As some wiseacre said a long time ago, "in this country one man is as good as the next if not a damn sight better!"

The American people want a government safety net and they want their Social Security and Medicare protected. They are right to want those things. They don't want crooks like Ken Lay ripping them off, and they are right to be indignant when such things happen. But they don't want a planned welfare state on the European model. They are too individualistic and independent minded to stand for that kind of regimentation.

It is in a cultural and even spiritual sense that American is "left-wing". By using the term I am highlighting the irony that the people identify with and adore America, while the educated upper middle classes tend to believe that Europe is superior in every way.

If there is class warfare in this country, it is a cultural war. On one side we have the working class and the lower middle class. On the other side there are the upper middle class academics and professionals. It's a very unusual sort of class war, because the privileged are on the left while the people are conservative.

Posted by: Joe Willingham on September 24, 2003 11:53 PM

Joe Willingham is on the mark as usual.

Posted by: A. Zarkov on September 25, 2003 12:01 AM

Zarkov makes some good points. American progressivism is about preventing monopoly and ensuring competition and about clean and transparent government. See the progressive movement of the early twentieth century. Think of Teddy Roosevelt versus the trusts, or, earlier, the farmers and small business owners versus the railroad monopolies.

Both corporate interests and the special interests on the left use governmental power to extract rents from consumers and taxpayers. Neither party has a monopoly on that game.

The idea that the government should enforce a pre-determined income distribution is alien to American culture and American political tradition. America is the land of opportunity, not of enforced equality of outcome.

Posted by: Joe Willingham on September 25, 2003 12:23 AM

Glass: "The economists expected consumption to fluctuate less than income, since people can save in good times and borrow in bad times. But the results were far more marked than they anticipated: Even as the distribution of income changed significantly, the distribution of consumption barely budged."

So what, pray tell, are the big-income makers doing with their money over an entire lifetime? Burning it? Passing it on to undeserving offspring?

Posted by: Bruce Moomaw on September 25, 2003 12:24 AM

"Certainly consumption distribution deserves a *mention* in any discussion that purports to be fair and fairly comprehensive regarding income distribution and welfare. At least a *mention*.

And yet it never gets one. Certainly not here."

Because the sources of the income used to pay for that consumption - capital vs. labor - aren't comparable. Really, inequality is just a proxy for the labor/capital thing.

As Daniel Davies has gone on about, the risk of losing the ability to earn labor income has an entirely different impact than the risk of losing the capital investment you get your capital income from.

Posted by: Jason McCullough on September 25, 2003 12:29 AM

Willingham: "The idea that the government should enforce a pre-determined income distribution is alien to American culture and American political tradition. America is the land of opportunity, not of enforced equality of outcome."

Ah. So the government should tax the richest American and the poorest American exactly the same total dollar amount in income, since doing otherwise would "enforce a predetermined income distribution"? (After all, even if this requires the poor to pay more in taxes than their total incomes, they can surely make as much money as they choose at any time. Right?) If you reject this piece of lunacy, then the only remaining question (albeit a big one) is how far you SHOULD go in redistributing income -- and the benefits of government in general -- from the wealthy to the less wealthy.

Posted by: Bruce Moomaw on September 25, 2003 12:31 AM

JW: The US actually spends much more than other countries in two areas, prisons and military spending. This spending is so high, in fact, that it eats up much of the savings from lower social spending.

The only other countries that come close are Russia and South Africa. It is rather ironic that an 'individualistic and independent' people incarcerate a larger share of their population and subject a larger percentage to military discipline than any other country on earth.
Not to mention the highest rates of obesity on earth. Do independent-minded people eat more and exercise less? National mythology does not necessarily correspond to reality.

Posted by: Jean on September 25, 2003 12:56 AM

Jean, maybe the elites (not to say snobbish?) think there is a different reality than the working poor think?
When PK's thesis is more about the top 1% or 0.1%, whom I agree are getting (obscene?) overcompensation, it seems too close to destructive envy, and not really about making the lives of the lower 20% better. As PK says in this Truly Fantastic essy (thanks Brad, !!), the research more supports the free market ideology (more libertarian than conservative).

When will big-gov't dems realize that big-gov't programs will, like all regulatory agencies, ALWAYS be captured by the already powerful? Give up big gov't redistribution programs, to the poor and especially to the rich.

Joe W & A. Zarkov are making great points, though the answer to Bruce's q. (what do the rich DO with their cash?) involves an important something. The poor consume income, the rich invest it. Into business. Which creates profits (making them richer), and jobs.
Remember that word, jobs? Jobs are what the working poor need. Jobs are what the rich who want to get richer should be creating in the process of getting what they want (richer - status, not usually consumption).
Jean, one of the main problems with PK and Brad is their implied reliance on gov't and "macro" econ bs (mostly) to create jobs. What really happens is all micro (almost).

BTW, I think the vast majority of loss of the dot.com bubble was by the top 20%, but don't know where to find this stat.

On the deficits, if the gov't ever needs an increase, fast, in revenue, there's that old Gary Hart $0.50/gal gas "emergency" surcharge, and even means-testing Social Security. Why don't dems talk about these solutions now? They're political losers...

Posted by: Tom Grey on September 25, 2003 04:34 AM

Okay, so we are gold prospectors and fate is unfair in its rewards. The solution is to replace a fickle fate with government. I'll pass. Fate may be imperfect, but bureaucracy created the tax code.

Posted by: Dave on September 25, 2003 06:53 AM

There are several things that conservatives have promoted over the years that I've been forced to include in my political/economic world view. One is that deficits matter and a large national debt is a bad thing. Another is that a byzentine system of regulatory law can be self defeating. A third is that its important for us and the world that the U.S. has a strong military.

While I've been learning from conservatives they seem to be forgetting things they used to know. Regulation can actually improve markets, by providing order and increasing competition. That as a society we can decide we can pool resources that insure all elements of society improve their lot. That no man is an island.

Willingham and Zarkov should read Krugman's essay again and consider again the examples of the fishing and prospecting community. Their rhetoric presupposes the fishing community but our reality doesn't match. Therein lies the difficulty of disputing with the right.

Posted by: LowLife on September 25, 2003 07:28 AM

Good piece by PK but there is no humor. My favorite is his Ice Age piece.

Kevin Phillips wrote a whole book on this subject. Many of the posts in response are clueless about how wealthy these people at the top really are and what they do. There is a huge difference between the top 1% and the next 4%.

Many of the legacies don't do anything they don't want to do. Smarter people manage their wealth for them and budget their money. This is not an efficient use of capital.

As for court battles, what about the wealthy elites that have been funding challenges to affirmative action in the courts like the recent U MIchigan case? How efficient is that use of capital? These cases are not caused by poor college student challenging the system. They are funded by super wealthy elites that use their money to buy power and influence.

The California recall is a prime example of a wealthy man (Issa) using his money to buy petition signatures. A million dollars stirs up a hornet's nest that costs the state of CA millions to hold a special election. There is a cost to the subversion of democracy by these elites.

It takes money to make money and wealth will propogate itself and increase over time. If left on its own, weath will concentrate just like in a Monopoly game. One of the checks against the accumulation of wealth and the perpetuation of a plutocracy is the estate tax. Because of estate taxes, many plutocrats prefer to bequeath money for hospitals, libraries, colleges and other charities that promote the public good precisely because they cannot pass on all their wealth to their heirs.

The top 1% has INCOME over $1 million per year. At a 10% return on investment that would require accumulated wealth of over $10 million. These people really are elites that do not live like the rest of us.

As for the "they create jobs" myth, sure Microsoft hires workers. But how many companies have been shut down by their anticompetitive practicies? How much innovation goes unrewarded? There is a cost to the rest of society of maintaining the super rich. The super rich do not want to talk about it. There is a good reason to have an estate tax. It promotes meritocracy and diminishes slightly the influence of the plutocrats.

There is class warfare in the US and it is being waged by some of the elites against the rest of us. The idea that class warfare pits the top 10% against the bottom 90% is absurd. The people in the 95 yo 99% bracket who think the top 1% are on their side are suckers.

Posted by: bakho on September 25, 2003 07:38 AM

A quick comment on the following footnote:

"*Who does, however, still need to profoundly apologize for various unfair comments made about the very, very capable Laura D'A. Tyson in 1992-1993."

I don't know enough about the particular comments made to know whether further apologies are warranted, but Krugman does devote an essay (in his book _Pop Internationalism_) to discussing Tyson's capable economics work in a review he wrote about Tyson's _Who's Bashing Whom?_

I believe it was an essay that the New York Review of Books refused to run at the time.

Ryan Kreider

Posted by: Ryan Kreider on September 25, 2003 07:43 AM

Clarification: Krugman's essage in _Pop Internationalism_ is not "devoted to discussing Tyson's capable economics work" but rather to reviewing her book. In that review, it is fairly clear that Krugman believes Tyson is a very competent economist.

Ryan Kreider

Posted by: Ryan Kreider on September 25, 2003 07:46 AM

Jim Coomes, in exactly what way is a tax transfer socialist? A welfare state is not socialist, right? There is nothing inherently socialist in addressing income inequality. A direct tax transfer is neither socialist nor unconstitutional.

A. Zarkov, wealth is power in the U.S. political system. The impacts of concentrated wealth on media, political knowledge, etc. have the same types of negative impacts on liberty as concentrated political power. The U.S. Constitution specifically divides political power to limit its negative effects on liberty. In this formulation though concentrated economic power will somehow result in lower concentration of wealth?

Jow Willingham, why would redistributing income equal an attempt to "enforce a pre-determined income distribution"? Isn't our current welfare state aimed at modest income redistribution? Why wouldn't our current economic state be the basis or our assumptions? Frankly, I wouldn't mind seeing a much more income tax-based approach than we currently employ.

Jim Glass, you don't really believe we gain "a better understanding" by looking at consumption while ignoring soaring debt, right?


Posted by: Stan on September 25, 2003 07:54 AM

in the moere civilized 19th century it was called "class struggle".

Posted by: john c. halasz on September 25, 2003 08:25 AM

JW:
> In my little joke about this being the most leftwing country in the world I am saying that this is the country where working class and middle class people most feel that their country belongs to them.

Another sweeping claim, again far from self-evident. On what basis can you conclude that, say, working class Swedes have a lesser feeling that Sweden "belongs to them" than working class Americans. I mean, I don't even know how you'd go about measuring this. I tend to think that in more homogeneous countries, there is probably a greater sense of national identity, in which case your claim strikes me as probably wrong. This is not to criticize America. I think that its diversity and dynamism is what makes it strong, even if it is more likely to leave ordinary people frustrated and bewildered than filled with a sense of belonging.

And if that's not what you mean by "belongs to them"--you mean there is more upward mobility, for instance, then you have to explain what you mean and then back it up.

Look, everyone is entitled to an opinion, but you seem to cast your postings as reasoned arguments. They're written clearly enough that they might be mistaken for such, particularly by those inclined to agree. But they are filled with implicit assumptions presented as self-evident facts.

Posted by: Paul Callahan on September 25, 2003 08:31 AM

"Short of genius, a rich man cannot imagine poverty." Charles Peguy

Posted by: David on September 25, 2003 08:32 AM

Joe Willingham is mostly right about the feelings of the working-class (mostly white Southern) Americans he selects. And those feelings are a powerful political force. But if you look at life in the Republican heartland, life for the working class there is pretty wretched. Low pay, few benefits, dangerous jobs, poor educational systems, few public amenities (libraries, parks), a toxic environment in many places, little opportunity, and so on.

Are the working-class patriots I'm speaking of worse off than the Swedish working class, for instance? In most of the respects I named, yes. Do they know it? No. Am I an elitist for disagreeing with their assessment of their lives? Maybe, but the Republican millionaire consultants who pimp their ignorance are obviously more effectively and culpably elitist.

One strain of American rightism is clear (but not publicly so) in its goals: wages low, profits high, lots of military spending. Do working class patriots know that that's what they're signing up for when they vote for Bush?

Posted by: Zizka on September 25, 2003 09:23 AM

Why don't we just divide all the wealth up in this country and give every individual their "fair share"?

What will immediately happen if we allow everyone the freedom to do what they want with their share?
Some will immediately make excellent decisions such as turning $10,000 in hog futures into $100,000. Some will make horrible decisions, betting on Seabiscuit, consuming massive quantities of alcohol, cocaine or hamburgers and go flat broke. Massive inequality will quickly ensue will it not?
So, the only way to practically achieve on-going financial "equality" is to continuously and massively, steal from those who (whether by luck, skill or simple prudence) manage to accumulate wealth.
Exactly how long do you think it will take for people to adjust their behavior to this reality? Who in their right mind would bother to take risk, accept more responsibility or create anything of any value AND SHARE IT, knowing that they will never receive much benefit from any effort or sacrifice they may make?
It is pretty amazing that very intelligent people like Krugman and DeLong simply ignore this fact of human nature when they lament "inequality".
People naturally operate on incentives and to imagine that a healthy, dynamic, society can exist without incorporating that fundamental human orientation into your "system" is simply delusional.

Posted by: jag on September 25, 2003 09:26 AM

Tom Grey, I agree with you that government programs tend to get captured; however, assuming income transfers automotically equal big government programs is spurious. Why can't we have an increase in the Earned Income Tax Credit tied to inflation and an EITC-style transfer to the retired? Shoot, why couldn't increase funding for these programs and replace virtually every other program we currently have running?

Posted by: Stan on September 25, 2003 09:27 AM

"In this case, I'm defining "class warfare" as (a) an acknowledgement that society is stratified and some people have more privileges than others followed by (b) direct action taken by groups of people to gain the privileges they believe they deserve."

Sort of like Willy Sutton, but using a ballot box instead of a gun. :-/


Posted by: Mark Bahner on September 25, 2003 10:00 AM

Aside from a few gems here and there by the likes of bakho and zizka (and others), this thread seems full of the short of crap that strongly inclines me to give up not only posting in Brad's comment threads, but reading them as well. I mean, come on: "Why don't we just divide all the wealth up in this country and give every individual their 'fair share'?" Oh, right, because I'm seeing Krugman, Brad, and bakho all arguing for that. Yeah, uh-huh. (Okay, maybe Halasz might approach such nonsense, but he's yet another reason for staying away from these comment threads.) What with DeLong and Krugman's talk about markets and trade, I'm having some trouble understanding how someone might mistake them for communists. But there's nothing so singularly characteristic of the lazy ideologue (is there another kind?) than the straw man argument.

Hey, conservatives: has it occured to you that in the market economics which you claim to love so much, you might find just a wee bit of the outline of a utilitarian argument against large concentrations of wealth into a relatively few hands? And while you might argue that those who themselves earned that wealth have demonstrated an acumen that exceeds the average efficiency (and thus can reasonably be argued to produce a better return than would the wealth distributed, as other wealth is, among many economic agents acting in a market), that certainly can't be argued in the case of pampered heirs whose environment encourages them not to learn to be effective wealth-generating risk-takers like their forebearers, but, rather, risk-averse hoarders. Ah, but supposedly the wealthy (for whom only the hated "deat tax" applies) are dissauded from their wealth generation if they cannot pass most (or all!) of it on the their heirs. Except, you know, you have the example of Bill and Melinda Gates -- who aren't behaving that unusually -- who have stated their intention (and are quite clearly following through on it) to leave little or no wealth to their heir(s) and instead donate it to charity. Yet, he keeps getting richer every year. How odd.

Posted by: Keith M Ellis on September 25, 2003 10:10 AM

'"*Who does, however, still need to profoundly apologize for various unfair comments made about the very, very capable Laura D'A. Tyson in 1992-1993."'

Interesting he's speaking at Haas (Berkeley's Business School) *after* Tyson left for LBS, no?

Posted by: Tom on September 25, 2003 10:11 AM

Everyone should read Daniel Drezner's reply to Paul Krugman's concerns about income inequality. See also the comments from readers that follow Mr. Drezner's remarks.

http://www.danieldrezner.com/archives/000747.html


Posted by: Joe Willingham on September 25, 2003 10:29 AM

Everyone should check Daniel Drezner's reply to Paul Krugman on the subject of income inequality.

http://www.danieldrezner.com/archives/000747.html

The reader's comments pro and con that follow Mr. Drezner's remarks are worth reading also.

Posted by: Joe Willingham on September 25, 2003 10:46 AM

This web site's comment mechanism disproves the physicists' belief that information cannot fall into a black hole and re-emerge.

Posted by: Joe Willingham on September 25, 2003 11:06 AM

Joe Willingham, Mr. Drezner added so much "light" to this subject. His choice of info, "Saving Capitalism from the Capitalists" (p. 92), Raghuram Rajan and Luigi Zingales:

"One statistic best sums up the changes that have taken place: in 1929, 70 percent of the income of the top .01 percent of income earners in the United States came from holding of capital -- income such as dividends, interest, and rents. The rich were truly the idle rich. In 1998, wages and entrepreneurial income made up 80 percent of the income of the top .01 percent of income earners in the United States, and only 20 percent came from capital. Seen another way, in the 1890s the richest 10 percent of the population worked fewer hours than the poorest 10 percent. Today, the reverse is true. The idle rich have become the working rich!"

A broader source of info: http://elsa.berkeley.edu/~saez/estate6.pdf

Top Wealth Shares in the United States, 1916-2000:
Evidence from Estate Tax Returns; Wojciech Kopczuk, Columbia University and NBER
and Emmanuel Saez, UC Berkeley and NBER1
July 28, 2003

Abstract
This paper presents new homogeneous series on top wealth shares from 1916 to 2000 in the
United States using estate tax return data. Top wealth shares were very high at the beginning
of the period but have been hit sharply by the Great Depression, the New Deal, and World
War II shocks. Those shocks have had permanent effects. Following a decline in the 1970s,
top wealth shares recovered in the early 1980s, but they are still much lower in 2000 than in
the early decades of the century. Most of the changes we document are concentrated among
the very top wealth holders with much smaller movements for groups below the top 0.1%. Consistent with the Survey of Consumer Finances results, top wealth shares estimated from
Estate Tax Returns display no significant increase since 1995. Evidence from the Forbes 400
richest Americans suggests that only the super-rich have experienced significant gains relative
to the average over the last decade. Our results are consistent with the top income shares series
constructed by Piketty and Saez (2003), and suggests that the rentier class of the early century is not yet reconstituted. The most plausible explanations for the facts have been the development of progressive income and estate taxation which has dramatically impaired the ability of large wealth holders to maintain their fortunes, and the democratization of stock ownership which now spreads stock market gains and losses much more widely than in the past.

Posted by: Stan on September 25, 2003 11:16 AM

KE [clearly with sarcasm]
> I mean, come on: "Why don't we just divide all the wealth up in this country and give every individual their 'fair share'?" Oh, right, because I'm seeing Krugman, Brad, and bakho all arguing for that.

Well, strawman arguments tend to be par for the course on this subject. I think most reasonable people (certainly Krugman) understand and take into account that an even starting distribution of wealth will not remain even. Actually, he states that explicitly in his fishing community example.

But this canard is trotted out to great effect because it requires a good bit of patience to answer it. It starts out with a strawman proposal (that someone is seriously proposing to even out assets and is naive enough to think they can be kept even) and then refutes this proposal with an oversimplified model of how wealth winds up becoming uneven again (usually that it is based on merit and therefore it is wrong to interfere with this process). Like many effective debating points, it is wrong on so many levels that paradoxically it leaves the opponent too stunned to know where to begin.

A while back, I remember a conservative friend explaining to me as if it were some great insight that if you start out a game (say Monopoly) from even positions, you will eventually reach a very "unfair" situation, suggesting, I suppose, that inequality is a natural and therefore just situation. Anyway, the implied message was that somehow "liberals" had never considered this before and that if they considered this, they would immediately understand that their assumptions and consequently their conclusions are wrong.

One thing I remember thinking too late to retort is to consider what happens when you play the game a second time. The outcome will probably not be the same, tidily refuting the notion that the outcome is all based on merit.

Of course, it depends a lot on the nature of the game, how much it is balanced between skill and luck, and to what extent the objective is winner take all. With Monopoly, you'd find that different people often win, although over time, an individual performance of a player will be distributed around a fairly well-defined skill level (once everyone has reached a plateau). The imbalance tends to the extreme (winner take all). That's one of the things that makes it a fun game.

Now, what to conclude from this depends largely on value judgments. Real life is highly subject to chance, like many games. It is very naive to think that people mostly get what they deserve. It is also subject to self-perpetuating wealth differences. The more assets I have, the more able I am to hold onto those assets and gain even more, even against a player whose skill may be better. As a liberal, I conclude that some of these self-perpetuating cycles are so damaging to the well-being of people, that government ought to be in business of breaking the cycles when necessary.

One thing that makes real life different from a fair game is that people don't start out evenly. Even if they did, a more important thing that makes it different is that those who never get very good at real life will often suffer tremendously. There are a lot of good reasons (both ideological and pragmatic) for rewarding merit, but I can think of few good reasons that those who suffer the most should be allowed to suffer as much as they do. So as a liberal, I conclude that government also ought to be in the business of eliminating the most grotesque levels of suffering that would result from allowing a natural incentive system to run its course.

Posted by: Paul Callahan on September 25, 2003 11:20 AM

Joe wrote: "This web site's comment mechanism disproves the physicists' belief that information cannot fall into a black hole and re-emerge."

The trouble is, Joe, that you're not providing any real "information." Your first posting was nothing more than unsubstantiated assertions, a couple of which were flatly wrong and the rest of which which were, to put it charitably, unsupported.

Your second post, when someone called you on this, introduced a completely irrelevant point, ignoring the points raised by others.

Your third post, like your first one, was nothing more than unsubstantiated assertions. In this case, I could just about hear the patriotic music in the background as you resorted to emotionalism to make whatever point it was you thought you were making.

And so on.

In short, you have added not one bit of substantiated information to this debate. Now if you actually have any information to share, why don't you share it with us? Until then, forgive us if we're unpersuaded by jingoism, ad hominem, and straw men.

Posted by: PaulB on September 25, 2003 12:03 PM

"In this case, I'm defining "class warfare" as (a) an acknowledgement that society is stratified and some people have more privileges than others followed by (b) direct action taken by groups of people to gain the privileges they believe they deserve."

Sort of like Willy Sutton, but using a ballot box instead of a gun. :-/

Posted by Mark Bahner at September 25, 2003 10:00 AM

Ah yes, the paying taxes equals being robbed if transfers are explicit but hidden transfers are fine argument. The wealthy are being oppressed!


Posted by: Stan on September 25, 2003 12:26 PM

PaulB, I took Joe's comments to be directed at the Moveable Type format which really does appear to send everything into a black hole...

Posted by: Stan on September 25, 2003 12:34 PM

So is "the wealth" you guys are always taking about like a big pie, and if Bill Gates gets a huge piece, this automatically means I get a smaller piece? Does Bill Gates being a billionaire somehow make me poorer, or does my own "share of the wealth" depend more on my own initiative?

Why don't you Berkley and Harvard economists explain that to me, a member of the middle class, first, then I'll see if I'm interested in confiscation and redistribution of the assets of the "rich".

Posted by: Steve Verity on September 25, 2003 12:46 PM

So is "the wealth" you guys are always taking about like a big pie, and if Bill Gates gets a huge piece, this automatically means I get a smaller piece? Does Bill Gates being a billionaire somehow make me poorer, or does my own "share of the wealth" depend more on my own initiative?

Why don't you Berkley and Harvard economists explain that to me, a member of the middle class, first, then I'll see if I'm interested in confiscation and redistribution of the assets of the "rich".

Posted by: Steve Verity on September 25, 2003 12:54 PM

Stan is correct. I was complaining about Moveable Type, not the invincible ignorance of liberals.

Posted by: Joe Willingham on September 25, 2003 12:56 PM

Mark Bahner meet Steve Verity. He's all for hidden versus open redistribution like you. You two can talk about the evils of confiscation together and pretend we aren't distributing wealth to the wealthy. It'll be a hoot!

Posted by: Stan on September 25, 2003 12:57 PM

>Mark Bahner meet Steve Verity. He's all for >
>hidden versus open redistribution like you.

Talk about adding no information to a debate. Brad DeLong and Paul Krugman are full of tables and statistics- In the meantime, lets answer a simple fundamental question- is wealth created, or is there a fixed amount that can only be obtained by taking it from someone else. Surely the answer to this question is relevant to the debate.

Posted by: Steve Verity on September 25, 2003 01:05 PM

Joe, in case you missed it.

"in 1929, 70 percent of the income of the top .01 percent of income earners in the United States came from holding of capital -- income such as dividends, interest, and rents. The rich were truly the idle rich. In 1998, wages and entrepreneurial income made up 80 percent of the income of the top .01 percent of income earners in the United States, and only 20 percent came from capital."

The basic idea is that the wages being paid to the sons and daughters of the ultrawealthy are earned and entrepreneurial when they are paid from themsleves to themselves. There has been a fairly strong reaction to the detachment of executive compensation from reality. To use that detached pay to prove they are earning their keep is circular.

Posted by: Stan on September 25, 2003 01:09 PM

> Why don't you Berkley and Harvard economists explain that to me, a member of the middle class, first, then I'll see if I'm interested in confiscation and redistribution of the assets of the "rich".

I'm trying to remember who was pushing for confiscation and redistribution of assets. Let's see... it wasn't the Tin Man... and it wasn't the Cowardly Lion. Oh, I remember, it was the Strawman (bad Strawman, no fancy academic degree for you!)

Me, I'm just a computer scientist and I'm not from Berkeley or Harvard. But it does seem to me that taxes ought to at least insure that those capable of it pay in proportion to the benefit that they reap from the public infrastructure (part of what an economist would call the external cost). It stands to reason that business owners who profit directly from their corporations are benefiting from a larger share of the infrastructure than their middle class employees. Not sure how to measure this. Seems hard, but I'm not an economist. My hunch is that it is the very rich who turn out to be the free riders in the present system, but I'm probably biased.

Of course, tax rate determination is a political process and the goal is usually not equitable cost assignment. One goal is to insure needed revenue. Another goal is to establish incentives in keeping with society's values. Blow either of these, and you have a bad tax system. Most people (even the very rich) aren't losing sleep at night believing that the government is confiscating and redistributing their wealth.

I recall a number of acquaintances who thought they were going to become rich back in 2000 under what I guess some consider confiscatory tax rates. Yet, the dot-com types I knew all seemed a lot more concerned with how they would occupy themselves in their comfortable early retirement than how the government was out to steal all their well-deserved money.

Posted by: Paul Callahan on September 25, 2003 01:17 PM

"Joe Willingham, why would redistributing income equal an attempt to "enforce a pre-determined income distribution"? Isn't our current welfare state aimed at modest income redistribution? Why wouldn't our current economic state be the basis or our assumptions? Frankly, I wouldn't mind seeing a much more income tax-based approach than we currently employ."

My critics misunderstand my position. I am a conservative, not a libertarian. I am in favor of a moderate welfare state, including Social Security, unemployment insurance, and publicly funded education. What I am arguing is that progessive minded people should not adopt European Social Democracy as their political ideal.

My ideas are not extreme. You can find them in the pages of the British publication, *The Economist*, and in some of the pronoucements of the DLC, representing the right wing of the Democratic Party.

What I am proposing is a shuffling of the deck between libertarian, conservative and liberal ideas. I am particular interested in the "compassionate libertarianism" of blogger Arnold Kling. Kling proposes that yes, we should have income transfer programs, but that they should be designed to be as efficient and market oriented as possible. Instead of letting bloated government school bureaucracies run the educational system use vouchers. Instead of having the government practice medicine issue insurance vouchers for those who don't have enough income to buy their own insurance. Instead of threatening people with punishment if they harm endangered species pay them to protect the rare creatures. Cut out the middle persons and give people the maximum amount of choice.

Posted by: Joe Willingham on September 25, 2003 01:35 PM

Steve, you claim that redistribution equals confiscation and then act like I am not adding anything to the debate? Well, wealth is both created and captured. A good portion of Bill's wealth is captured due to U.S. laws. It isn't one or the other it is both.

Contrary to your confiscation question, we are not contemplating something new. Virtually every government policy and action shifts wealth. There is nothing we can do about it. Granting property rights to public airwaves shifts wealth as does building a road over somebody's house.

Thus, we are already redistributing wealth as has every government that has ever existed. There is no fantasy world where government actions have no economic impact. The question being considered is not whether we should redistribute income but whether we should push some down the income distribution.

Posted by: Stan on September 25, 2003 01:36 PM

>I'm trying to remember who was pushing for confiscation and redistribution of assets.

OK, fair enough- still, frankly, confiscation
and redistribution is implicit in the tone of the arguments made by what I tend to think of as the “liberal Berkley economics crowd”

>Me, I'm just a computer scientist and I'm not from Berkeley or Harvard.

Yeah? Me too.

>But it does seem to me that taxes ought to at least insure that those capable of it pay in proportion to the benefit that they reap from the public infrastructure (part of what an economist would call the external cost).

OK

>It stands to reason that business owners who profit directly from their corporations are benefiting from a larger share of the infrastructure than their middle class employees.

Corporations already pay income tax, so that
should be covered.

>Not sure how to measure this. Seems hard, but I'm not an economist. My hunch is that it is the very rich who turn out to be the free riders in the present system, but I'm probably biased.

Oh really? Do the rich send more kids to school than the middle class? Do they use the roads more?

> One goal is to insure needed revenue.
And this is ALL it should be.

> Another goal is to establish incentives in keeping with society's values.

Oh baloney. Let the government keep out of my life and let me make my own decisions. Remember the government is nothing more than a collection of humans, just as flawed as I am. Trying to create social policy with the tax structure is just why taxes are such an emotional issue.

>I recall a number of acquaintances who thought they were going to become rich back in 2000 under what I guess some consider confiscatory tax rates.

Actually I remember people in the same situation who were stunned when they realized that the federal and state governments were going to take 50% of what was, essentially a once in a life time opportunity. Many people made bad decisions biased on the heavy handed tax rates that caused them to lose it all, and nobody get a tax benefit.

Posted by: Steve Verity on September 25, 2003 01:40 PM

Joe, that is essentially my position. I wish I believed the misinformation effort that Krugman points to on this issue was a figment of his imagination. It is disturbing.

Posted by: Stan on September 25, 2003 01:43 PM

> In my little joke about this being the most leftwing country in the world I am saying that this is the country where working class and middle class people most feel that their country belongs to them. The country music lovin' pickup driving huntin' and fishin' kind of people.

What a pile of shit.

What's funny is that Joe appears to cast equally facile generalisations around those he sees as 'his people, gentle people, turkey-shootin' straw-chewin' people' as his supposed ivory-towered liberal elite.

I assume he'll be buying pickups and Garth Brooks CDs for all the black working-class neighbourhoods in Detroit, then?

Posted by: nick sweeney on September 25, 2003 01:53 PM

[on taxation as incentive]
>Oh baloney. Let the government keep out of my life and let me make my own decisions.

Well, OK. I assume you accept that the government sometimes has to weigh the public good against individual liberty. At least you must acknowledge that these sometimes come into conflict. I'm of the view that cost incentives are a more benign and effective form of governance than the proverbial jack-booted thugs.

If government cannot use taxation as a public policy tool, then what tools do you find acceptable.

> Actually I remember people in the same situation who were stunned when they realized that the federal and state governments were going to take 50% of what was, essentially a once in a life time opportunity. Many people made bad decisions biased on the heavy handed tax rates that caused them to lose it all, and nobody get a tax benefit.

I admit that a lot of people were incredibly naive. The worst gotcha was the alternative minimum tax for those who exercised options and held losing stock. I felt that the risks were always pointed out pretty clearly to me. I think anyone who thinks they're entitled to a financial windfall ought to be willing to learn a little about managing money (including tax law).

I always did a rough calculation where at least half the money disappeared. It never bothered me because I never knew where it came from in the first place. Of course, it eventually all disappeared but that's another matter.

Posted by: Paul Callahan on September 25, 2003 02:00 PM

Reply to zizka:

Working class patriotism is a national, and not just a southern phenomenon. I am *not* saying that everything is hunky-dory. If the workers in some crappy plant in Iowa go on strike for better wages and working conditions then I'm all for them. There are plenty of things wrong with society. What I am saying is that the solution in most cases is not more centralized goverment control.


Posted by: Joe Willingham on September 25, 2003 02:06 PM

Of course, the real truth behind Joe's stereotyping, is that it paints the working classes as alienated from politics: in his dreams, they're happy head off in their pickups with their guns on the rack and a country music station playing (or more likely, Rush Limbaugh) rather than getting pissed off about the fact that they're consistently sold short by their leaders and their good Christian lobbyists. (Vide: Alabama.)

Can't have the masses getting uppity, can we?

Perhaps, just perhaps, some of those 'elitist liberals' started life in the projects, got themselves an education, made a success of themselves, and don't fancy sacrificing their ethics just because they can afford a hot tub. Perhaps they were lucky enough to get out of the loop, and now they see how society is for gold prospectors, not fishermen: that opportunities come along for the few, not the many, and there but for the grace of God go I.

Frankly, Joe has outed himself as the real elitist here.

Posted by: nick sweeney on September 25, 2003 02:18 PM

"Ah yes, the paying taxes equals being robbed if transfers are explicit but hidden transfers are fine argument."

It has nothing to do with "hidden" or "not hidden." It has to do with "forced" or "not forced."

Bill Gates and Sam Walton (to use two examples) never forced me to give them money for no service rendered. If I wanted to avoid ever giving Bill Gates money, I could own an Apple. If I wanted to avoid ever giving Sam Walton money, I could shop somewhere besides Wal-Mart.

That isn't true when I pay taxes.

"The wealthy are being oppressed!"

They're having money extorted from them...and to a greater extent than other people. I consider it to be wrong to take money from rich people, to give to poor people. (And it's even worse when the opposite occurs, as it frequently does with government transfers...e.g., Social Security.)

Posted by: Mark Bahner on September 25, 2003 02:26 PM

The consumption distribution dimension of this issue isn't the only thing liberals don't discuss.

There's also the fact that from the 30s to the 70s the US rigged* its economy to produce a high consumption low savings populace, which almost by definition cannot become wealthy. It is Reneauian politics to claim to be shocked! shocked! when wealth concentrates in the only 'savings' class in the US.

Finally, what do liberals propose to dispossess the wealthy of? Their choices are consumption or savings. No economist I know has ever, ever said that re-distributing the entire 'excess consumption' of the wealthy would make much difference. And as to savings, I am not aware that the US is producing a surfeit of that.
_______________________________________________
*briefly, 'entitlements' and those tax policies which either encourage consumption or discourage savings.

Posted by: art on September 25, 2003 02:27 PM

So, if I get some posters right, the more unequal the distribution of knowledge and culture in a country (not to mention wealth, of course), the more left-wing this country is... Keep up the good work you Bushies, you're on your way to lead America to true Communism...

Posted by: Jean-Philippe Stijns on September 25, 2003 02:30 PM

"Perhaps, just perhaps, some of those 'elitist liberals' started life in the projects, got themselves an education, made a success of themselves, and don't fancy sacrificing their ethics just because they can afford a hot tub."

Nick, I think the working-class kid from a comprehensive & a council estate who who goes to Oxbridge is a bit more common in the UK than a kid from the projects going to Stanford.

Exam results are the primary factor used to ration higher education in the UK; in the US, ability to pay is more of a rationing factor.

(Just my impression, no figures to back it up.)

Posted by: Tom on September 25, 2003 02:31 PM

Reply to Nick Sweeney:

Your misquotation of me seeks to give the impression that I value white working class culture over black. In fact, the opposite is the case. My CD collection is about 80% black (Soul and Jazz) and 20% country.

In fact the cultures of the blacks and the white working class belie their real and supposed traditional enmity and are deeply interwoven. See the writings of Greil Marcus, especially *Invisible Republic*, on this subject. Also Stanley Crouch's essays.

What annoys me is that just when this country has come so far in overcoming racial prejudice the left (black and white) is now to seeking to keep the wounds open for its own political purposes. They reject the idea of a common allegiance and seek to Balkanize the country along ethnic lines.

Posted by: Joe Willingham on September 25, 2003 02:43 PM

My dear friend Brad,
there's something that ought to be said,

This is not a dedication,
but for me a medication,

u're good, very good(weak dollar),
'cos u give me food.(Birth of the Nation,woaow!)


"Television's Bill Moyers inches still closer when he says:"I worry that my own business...helps to make this an anxious age of agitated amnesiacs....We Americans seem to know everything about the last twenty-four hours but very little of the last sixty centuries or the last six years.""

Go,go,go dear Brad!U're good, very good!


Posted by: drake ramore on September 25, 2003 03:02 PM

1. Here's the most interesting sentence in the essay:

And changes in the environment--in world markets or in technology--might change a society of middle-class fishermen into a society with dismaying extremes of wealth and poverty, without necessarily being the result of deliberate policies.

Are there any economic historians out there who know of any empirical studies on point? Also, are there any conditions that might cause a gold-mining society to evolve into a fishing society without government interference?

2. Wolff's book included a "low-key case for a modest wealth tax." The estate tax was in place from '73 - '89, right? The estate tax is a tax on wealth, right? Nevertheless, wealth distribution trended in the wrong direction during this time. What's up with that?

Posted by: Paul M. Amore on September 25, 2003 03:14 PM

"Exam results are the primary factor used to ration higher education in the UK; in the US, ability to pay is more of a rationing factor.

(Just my impression, no figures to back it up.)"

Your impression is incorrect. In the US we have many excellent public colleges and universities, and also extensive private and public funding of college tuition. Ability to pay is not an important constraint on anyone's getting a higher education in the US.

Before the late 1930's or thereabouts the elite universities in the US were the province mainly of the WASP upper classes. With the institution of standardized testing as a major criterion of admission education became meritocratic. The universities became world class centers of learning, and society reaped great benefits.

Posted by: Joe Willingham on September 25, 2003 03:25 PM

Joe: I accept that I took greatest issue with the part of your comment dealing with 'redneck' culture. It doesn't excuse you from dealing in the lowest form of stereotyping: a stereotyping which is itself a form of social control. Perhaps, Joe, you might accord your 'salt of America' some nuance; and perhaps then, you can dispense with the one-dimensional bullshit about liberalism.

The irony, of course, is that Dubya is a son of privilege who acts like a redneck to convey the sense that he's a plain-speakin' 'man of the people'. Whereas Clinton would be classified as a redneck by many, by virtue of his upbringing, but was berated for being both 'insufferable liberal elite' and a down-home Big Mac-eating horndog.

Bush, then, is to white, Southern blue-collar culture what Marie Antoinette was to dairy farming. And Joe is complicit in that simplification. That fabrication.

> Ability to pay is not an important constraint on anyone's getting a higher education in the US.

Wrong. Even with such things as HOPE scholarships reducing the cost of in-state public tuition, the big problem is the growing requirement for postgraduate qualifications for professions. Which means $20k/year tuition and very limited scholarships. Having to rely on loans for a postgrad/professional qualification means that the brightest and best have the equivalent of a mortgage to pay off when they graduate. And this doesn't just apply to law school, med school or MBAs, in case you have the 'well, they get paid well afterwards' argument primed and ready to go.

> With the institution of standardized testing as a major criterion of admission education became meritocratic.

Wrong. Legacy admissions are still common for most private colleges.

> The universities became world class centers of learning, and society reaped great benefits.

'And they all lived happily ever after.'

Now put the storybook away and come back to reality, where liberals don't all wear Armani and drive BMWs, and the working-classes aren't all either Bubba or Keshawn.

Posted by: nick sweeney on September 25, 2003 03:47 PM

"Bush, then, is to white, Southern blue-collar culture what Marie Antoinette was to dairy farming."

Bush is a rich frat boy, but his redneck identification is sincere. He's a hybrid of preppie and redneck. This is a country of hybrids. I just hope he has the taste not to listen to Garth Brooks.

"Whereas Clinton would be classified as a redneck by many, by virtue of his upbringing, but was berated for being both 'insufferable liberal elite' and a down-home Big Mac-eating horndog."

That's correct. What I loved about Clinton was his amazing ability to bridge the opposite cultures of redneck and liberal elite. Not only that, but Toni Morrison called him our first black president! She was referring not only to his love for that sweet soul music and his ability to relate to black people in an unaffected and natural way, but to his penchant for fast food and fast women. So Clinton was a triple hybrid. Now that is a true American. Now don't start flaming me, fellow conservatives. I'm aware of Elvis', I mean Bill's failings. But for all his narcissism and self pity I can't help loving the guy.

Posted by: Joe Willingham on September 25, 2003 04:15 PM

"Wrong. Legacy admissions are still common for most private colleges."

They're common, but their impact is small compared to that of the changes I discussed.

Your other point I don't understand. The fact is that the elite schools are full of people of every ethnicity and social class, and that there are millions of yuppies out there who were not born with a silver spoon in their mouth.

Posted by: Joe Willingham on September 25, 2003 04:29 PM

Joe W.: Right-wing working-class patriotism is especially concentrated in the red states (south, great plains, rockies, Alaska), and is misinformed. You can also find it elsewhere but places like Minnesota, Michigan and Illinois still are electing liberal welfare-state types. Part of my point, not fully explicated in what I wrote, was to attack your identification of patriotism and conservatism (anti-union, anti-government, anti-welfare state, etc.)

"The State" could have helped the workers, but didn't. Incidentally I'm uncertain about Clinton's part in this. (I'm anti-DLC so it doesn't affect my position).

The "somewhere in Iowa" case you hypothecate exists in the real world. The whole meat-packing industry was deunionized with Republican help over the course of a decade or more: Albert Lea, MN, Sioux Falls, S.D., etc. (tolerably close to Iowa). "Family jobs" were degraded to "working poor" jobs, with concomittant deterioration of the local communities.

Posted by: Zizka on September 25, 2003 04:59 PM

Tom Grey wrote, "The poor consume income, the rich invest it. Into business. Which creates profits (making them richer), and jobs."

That's silly. Most investment comes from reinvested profits.

"BTW, I think the vast majority of loss of the dot.com bubble was by the top 20%, but don't know where to find this stat."

Meaningless. Those are paper losses from the peak of the bubble. Someone who bought and held shares in an S&P 500 index fund would have riden the bubble up and then down. Big deal---unless they were foolish enough to buy at the peak.

Posted by: Stephen J Fromm on September 25, 2003 05:29 PM

The classic libertarian policy positions advocated by Joe Willingham above make intellectual sense, but are incredibly costly to implement, which is never taken into consideration. It's a blind spot in their mindset.

(for example - OK, let's do pure vouchers - how the hell are you going to start it up? In the first few years, when there are "losers" who miss out on scarce spots in good schools and must suffer a worse fate than they do currently, do you just say "sorry, we're transitioning to a new system, there are gonna be some victims." Do a dollar for dollar on these policy ideas and they look much less feasible.

Obviously, this is another discussion altogether, but it indicates to me a certain remove from reality, a kind of idealism typical of thoughtful conservative liberts. They think they could create a workable world, but it's all fantasy.

Posted by: DebunkCentral on September 25, 2003 05:31 PM

Response to zizka:

We're getting closer to a compromise. I agree that what was done to the meatpackers stinks. I have great respect for the progressive Minnesota/Michigan/Illinois tradition as well was for the FDR-Truman-JFK tradition.

What I am against is the new left, social democracy, left-liberalism, multiculturalism, postmodernism, radical feminism and other ideologies which I believe to be wrong-headed and harmful to our society and our country. I am calling for liberalism to be liberalism again and stop whoring after strange gods.

I am not interested in setting up a binary liberal-conservative dichotomy and picking sides. I am more interested in combining seeming opposites in the way that blue collar people sometimes do. My shtick is sort of Jesse Ventura without Jesse's paranoia. A mix of libertarianism and progressivism combined with American nationalism in foreign policy.

Posted by: Joe Willingham on September 25, 2003 05:48 PM

Steve Verity wrote, "So is 'the wealth' you guys are always taking about like a big pie, and if Bill Gates gets a huge piece, this automatically means I get a smaller piece? Does Bill Gates being a billionaire somehow make me poorer, or does my own 'share of the wealth' depend more on my own initiative?

"Why don't you Berkley and Harvard economists explain that to me, a member of the middle class, first, then I'll see if I'm interested in confiscation and redistribution of the assets of the 'rich'."

Huh?

Gates is taking your wealth by collecting economic (monopoly) rent from you and everyone else. This rent charge is enforced by the government in the form of so-called intellectual property rights protections.

Furthermore, the government, every year, transfers perhaps 5-30% of GDP to landowners in the form of land rent.

(If you want to learn more about that, from a *libertarian* perspective, see:
http://members.aol.com/_ht_a/tma68/geo-faq.htm )

Overall, government *is* redistributing wealth, but not from the already-wealthy to the poor, but from those who work to the wealthy, via government-supported rent collection.

Stan hit the nail on the head: "Mark Bahner meet Steve Verity. He's all for hidden versus open redistribution like you. You two can talk about the evils of confiscation together and pretend we aren't distributing wealth to the wealthy. It'll be a hoot!"

Posted by: Stephen J Fromm on September 25, 2003 05:50 PM

Steve Verity wrote, "So is 'the wealth' you guys are always taking about like a big pie, and if Bill Gates gets a huge piece, this automatically means I get a smaller piece? Does Bill Gates being a billionaire somehow make me poorer, or does my own 'share of the wealth' depend more on my own initiative?

"Why don't you Berkley and Harvard economists explain that to me, a member of the middle class, first, then I'll see if I'm interested in confiscation and redistribution of the assets of the 'rich'."

Huh?

Gates is taking your wealth by collecting economic (monopoly) rent from you and everyone else. This rent charge is enforced by the government in the form of so-called intellectual property rights protections.

Furthermore, the government, every year, transfers perhaps 5-30% of GDP to landowners in the form of land rent.

(If you want to learn more about that, from a *libertarian* perspective, see:
http://members.aol.com/_ht_a/tma68/geo-faq.htm )

Overall, government *is* redistributing wealth, but not from the already-wealthy to the poor, but from those who work to the wealthy, via government-supported rent collection.

Stan hit the nail on the head: "Mark Bahner meet Steve Verity. He's all for hidden versus open redistribution like you. You two can talk about the evils of confiscation together and pretend we aren't distributing wealth to the wealthy. It'll be a hoot!"

Posted by: Stephen J Fromm on September 25, 2003 05:55 PM

Robert Bork says Gates is guilty and Paul Krugman says he's innocent. Opinion seems to be all over the place on that one.

In any case, the US economy seem to be much more competitive than it was in the 50's and 60's.

Posted by: Joe Willingham on September 25, 2003 06:08 PM

mr. ellis is under no obligation to read this, nor is anyone else.

1) i think the citation at the head of max sawicky's website from benjamin franklin is very much to the point here. property is a collective and social institution and subject to socially generated or instituted rules. there are actually 4 types of property to be distinguished: 1) personal property (e.g. owning one's own toothbrush or an education), 2) private property (e.g. owning one's own house, 3) private property in productive assets which legally entitle one to a share of the surplus product they produce ( e.g. owning a factory or corporate stocks and bonds), and 4) public property owned by a government in trust for its citizens (e.g. public goods such as highways or court houses.) arguments about distribution and redistribution of wealth basically concern type 3 property and its relationships and effects on the other 3 types. the returns to type 3 property are significantly effected by the level ot effective demand, the provision of public goods such as infrastructure and legal regulations, the legitimation of social agreements, and the development of the skills and knowledge of the working population. it is absud to claim that type 3 property produces all wealth. in particular, it is the contribution of the work force to it that renders it productive of wealth and workers are a significant stakeholder in its deployment. it is also absurd to claim that, as is common from a conservative/libertarian perspective, property in an undifferentiated sense is identical to both personal liberty and moral virtue and the personal liberty, like the private property with which it is identified, is an asocial given. it is also largely unwarranted to identify market mediated distributions with merit, for they are subject not only to unforseen contingencies, beyond the scope of both personal choice and effort, yielding large returns to scale to some,
little by way of return or actual losses to others, but it does not take account of the pluralism of personal choices and the different criteria of validity and value applicable to different domains. finally, due to the scale of markets and organizations in industrial societies, a large part of the population will be disadvantaged or excluded from competitive access to property type 3 and to the acquisition of positions within the process of production and distribution that yield access to a larger share of the total surplus product. this renders it likely that wealth disparities will reproduce themselves and increase with time and intergenerationally, with social reproduction itself, if left to themselves. in particular, working people without access to increasingly expensive higher education are more highly vulnerable to dislocations of structural unemployment, which significantly diminish their opportunity structures. (this is happening to computer workers now, but most likely they will be much better able to adapt their skill set to very similar opportunities that will arise in other sectors.) though income distribution statistics need to be adjusted for demographic factors such as age, it is unlikely that income mobility is as common as people tend to think: one poll found that 19% of the people thought that they were in the top 1% of the income distribution chart.

Posted by: john c. halasz on September 25, 2003 07:42 PM

OK, but the Minnesota tradition is essentially Social Democratic up until WWII. Governor Olson was far to the left of Roosevelt. And that's really where the Minnesota political tradition came from. Humphrey et al were a watered down version, but that still put them on the left of the Democratic party.

Posted by: Zizka on September 25, 2003 10:01 PM

2) i do not think that a suitable starting for a discussion of the distribution abd redistribution of wealth is a mythical idea of a level playing field,which of course will become unlevel and may or may not have to be releveled. i would rather propose the ancient idea of a yeoman republic, in which free and equal citizens have combined together to found a compact, which forms a republic to whose authority each and all owes allegience and which secures their mutual recognition. it follows from this norm and the idea of the common good, of the collective aim of the human flourishing of each and all, to which it is dedicated, that a suitable provision of adequate means is required so that each can develop his capacities for a full participation in the collective public life, socially, politically and economically. (from this perspective, the desire for excrescent wealth is not immoral, but rather uncultured, and in that sense, unethical.) hence it is not a matter of enforcing some pristine idea of perfect equality, which is impossible anyway and which disregards the differences of personal choice and effort which impact outcomes. rather the question is what degree of equality or inequality is tolerable and compatible with the common and collective public good, and what contribution the equality or inequality of wealth makes to this telos. part of this question is sheerly functional. is there a shortage of investment capital? then, of course, rates of return on investment will be quite high, but should come down when this is not the case. it simply makes no sense to artificially raise the rates of return through any policy action. is there a deficiency of real aggregate effective demand? then policy action should be taken to correct this. (it seems to have been forgotten by those on the right in the last 30 years, that new deal programs and after, which have increased the size of government as a share of gdp, were undertaken, in part, not just to correct the short fall in demand, but to provide opportunities for capital realization, which maintains the profit rate by preventing an oversupply of capital.) redistribution does not necessarily involve the violation of some pristine natural right, any more that initial distributive outcomes are the product of such a natural right. if one's house has been burglarized, then one has suffered a violation of one's rights; this is called a crime.
but if one's taxes have been raised by by some agreement of common consent- (i will leave out of consideration how such agreements of common consent can be jiggered and gerrymandered by powerful organized interests as well as any question of the degree, quality or intensity of consent required)- ,then this is not robbery, in inverse homage to mr. proudhon, but rather a backhanded realization of one's common rights. mr. callahan raised a very good point in his excellent 11:20 a.m. post, which can be expanded on. redistribution, as a reshuffling of the deck on an initial distribution of outcomes, is actually, up to some point, functional, since it allows for different allocations in the next round of the game, which is likely to have a different distributional outcome with different moves by different players. thus an improvement of net distributable surpluses results, which is for the common good. (think of paul allen and tell me that outcomes are subject to bayesian probability.) this point is rendered stronger when one considers that increases in income on the part of the large majority of the population that does not have priviledged access to capital can result not just in the sustaining of adequate demand, but also in personal investments that actually assist capital in becoming productive or that develop preferences and skills that would sustain the creation of qualitatively new demand. but the claim that markets always and necessarily produce optimal outcomes and , in particular, that any interference in capital formation is so detrimental to their proper functioning that it would produce disasterous outcomes- to the contrary policy actions must assist capital formation-, renders markets the supreme and universal arbiter of the human good, such that the increased consumption of commodities is the only measure and ratio of the quality and goodness of life. that ends other than economic production (techne) may contribute to the commonweal, that praxis is essential to the dignity and flourishing of life- (eudaimonia, usually mistranslated as "happiness", i think under the influence of 18th century sensationalist, sentimentalist and utilitarian moral thought, literally "well-spiritedness")- is simply ruled out of court.

Posted by: john c. halasz on September 25, 2003 10:04 PM

Mark Bahner, 9/25, 2:26 PM: "I consider it to be wrong to take money from rich people, to give to poor people."

Ah. Then by the same token we have no moral duty toward charity, since the poor don't need it. And if they DO need charity money more than more affluent people (like oneself) do, then by the same token they need money more than other well-off people besides oneself do -- which means that we have a moral duty to tax the affluent (whether they like it or not) to transfer some of their income to the less affluent (until that transfer reaches the point that it starts having destructive side effects on economic productivity -- a point which we are nowhere near at the moment).

At any rate, it's enlightening to have it confirmed that Bahner really is a classic Ayn Randian -- that is, somone who really is trying to completely redefine fundamental human morality. Presumably, if someone is drowning and someone else has a life preserver but refuses to throw it for some petty reason, he regards it as morally outrageous to take the preserver away from them and throw it oneself.

If he's going to follow his reasoning to its logical conclusion, though, why not tax the richest person and the poorest person exactly the same dollar amount? After all, even without any income transfers, doing anything else is transferring some of the equally shared benefits of government (military protection, the legal system, etc.) from the rich to the poor. Outrageous!

Posted by: Bruce Moomaw on September 25, 2003 10:18 PM

Tom Grey, 9/25 (4:34 AM): "Joe W & A. Zarkov are making great points, though the answer to Bruce's question (what do the rich DO with their cash?) involves an important something. The poor consume income, the rich invest it. Into business. Which creates profits (making them richer), and jobs.
Remember that word, jobs? Jobs are what the working poor need. Jobs are what the rich who want to get richer should be creating in the income process of getting what they want (richer - status, not usually consumption)."

He's right that I phrased my point (and, indeed, conceived it) very sloppily. Let me restate the valid part of it:

First: Jim Glass' point that the amount people make and the amount they consume varies from moment to moment is totally irrelevant -- what really matters is how much different people make and consume over their lifetimes.

Second: if Glass is right that, while the income disparity between rich and poor is continuing to grow in recent decades, the level of disparity between the amount of money that the rich and poor actually spend on themselves is remaining at a stable level (with that remaining growing excess of income going to the wealthy being either invested or bequeathed to their descendants by them), then it can only be for one reason -- the rich have literally run out of ways to spend more money on themselves. In short, if Krugman and Wolff are wrong and the difference betwen the actual living standards of the rich and poor isn't getting any worse now, it can only be because it's already gotten as bad as it can ever possibly get! Which is still an excellent reason to do something about it.

Posted by: Bruce Moomaw on September 25, 2003 10:34 PM

Reply to Bruce Moomaw:

What does that mean, "the rich" and "the poor". Would you care to define those terms? I get the impression the impression that you think that society's biggest problem is that the lumpenproletariat doesn't have enough money to spend when it goes to the mall. Should curing that sad situation really be our top priority?

Posted by: Joe Willingham on September 25, 2003 11:10 PM

After a bit more thinking, I'm having trouble seeing how the following statements can all simultaneously be true:

1) Income inequality has increased a lot.
2) Consumption inequality has increased nowhere near as much.
3) Income mobility has remained constant.

In other words, if income inequality has gone up a ton but consumption inequality only a lot, where the heck did the "extra" income inequality go?

Posted by: Jason McCullough on September 25, 2003 11:20 PM

That should be "consumption inequality only a bit."

Posted by: Jason McCullough on September 25, 2003 11:21 PM

Ah, I should have read Glass's linked paper closer. The answer is "the decrease in inequality inside an education group cancels out some of the gain in inequality between education groups." The distribution for something like "all college graduates" became flatter, but the distribution for college graduates vs. high school graduates became less equal.

I think this means that "consumption inequality has only gone up 2%" is rather misleading; when people talk about the downsides of inequality, they're talking about the rich/poor gap, not the gap between the 98th and 99% percentiles, or 33rd and 34th percentiles. Effectively, the growth of financial markets caused a one-time drop in inequality inside an educational cohort; previous income flucuations that would have shown up in consumption inequality are now smoothed out through access to credit.

The between-educational group consumption inequality number -what we're worried about when we bring this up - is the important one.

To quote the paper:

"We have also demonstrated that consumption inequality has diverged
from income inequality mainly because within-group income inequality has increased significantly
while within-group consumption inequality has actually slightly decreased."

Posted by: Jason McCullough on September 25, 2003 11:38 PM

Yet another note: am I missing something, or was Greenspan being a tad bit misleading the way he discussed this at the Jackson Hole inequality symposium?

http://www.federalreserve.gov/boarddocs/speeches/1998/19980828.htm

Posted by: Jason McCullough on September 25, 2003 11:42 PM

"Reply to Bruce Moomaw: What does that mean, 'the rich' and 'the poor'. Would you care to define those terms? I get the impression the impression that you think that society's biggest problem is that the lumpenproletariat doesn't have enough money to spend when it goes to the mall. Should curing that sad situation really be our top priority?"

I'm referring, of course, to the two extreme poles of a spectrum. And what I object to is the belief that people should be able to make -- and keep -- lots more money for the same amount of work effort than other people, if that situation can be alleviated without reducing the total productivity of the economy. If this makes me a socialist extremist in the eyes of Willingham and Bahner (not that it makes me one in reality, of course), so be it.

Posted by: Bruce Moomaw on September 25, 2003 11:44 PM

Like Joe Willingham, I’d like to see what people mean by the terms “rich” and “poor.” Is a family with an adjusted gross income of $90,000 “rich?” This might consist of (say) a schoolteacher and a policeman each with a $45,000 income. This might be a lot in Alabama, but it’s not much to live on (with children) in New York or San Francisco. A lot of families with this kind of income don’t feel “rich” at all. Of course they’re not poor, but they aren’t plutocrats either. We also see terms like “pay their fair share” used. What does that mean? Should our schoolteacher-policeman couple pay 20% or 35% of their income in federal taxes? Krugman evidently thinks 20% is not enough. He wants them taxed as they would be taxed in Sweden. Is life in Sweden so wonderful? If it’s wonderful is it high taxes that make it wonderful? Most Americans don’t want their lives socially engineered by ideologue college professors, who make much more than $100,00 when you count their book royalties and consulting fees.

Posted by: A. Zarkov on September 25, 2003 11:51 PM

3) what has been missing from the above posted discussion, which has focused on the income increases of the top 1% or top .1%, has been the other shoe to drop: wage stagnation. (yes, this comment is no surprise to many my many fans!) since 1973 labor productivity has increased by more than 66%, while the real average wage has increased 7%. prima facie, this must mean that most of the putative gain in the "standard of living" has accrued either to salaried professionals or to capital. (it seems pointless to me to compare income distribution statistics from 1900 to those from 2000. much progress has, thankfully, occurred since then. but both corporate organization and government have expanded greatly since 1900, and if in 1900 a large share of income for the super-rich derived greatly from the direct ownership of capital, and a much smaller share is so directed today, then this is partly due to the requirements of demand creation, which would have been stymied by the long hours and low wages of 1900, and partly by the different routes by which large shares of the total surplus product are appropriated. to exagerate, it is like comparing aztec society to mexican society. at any rate, i did not find any discussion in perusing the drezner website of the quantitative proportion of the relative gap between the top 1% and the bottom 20% between 1900 and 2000. my guess is that it would be very flattering to us. but i think the relevant comparison is between what has occurred in the last 30 years and the prior post-war boom: viz has there been a significant social regression since then in terms of measurements and evaluations of social progress?) that labor force participation has increased and that the level of household indebtedness has reached high proportions- ( a real danger)- hardly speaks against this basic point. and in the very era when the needs of capital formation were held to be paramount for current and future productivity,
labor union participation and social expenditures as a proportion of government expenditures sharply declined. and yet government deficits-( a large net dissavings)- ballooned when? if there was a shortage of funds for capital formation, then evidently importing the remainder did just fine, especially insofar as it disciplines the expectations of domestic labor, while increasing the strategic range of multinational corporations in their capacity to off-load fiscal obligations.
in the meantime, welfare expenditures were stygmatized and scapegoated, as the prime source of both social dysfunction and economic stagnation - (with a particular focus on single mothers, with no mutatis mutandis conditions allowed to apply)-, while low wage work was attributed to endemic stupidity and shiftlessness, except for the dignity it would confer on the satisfaction of the taxpayers. (for the record, i am in favor of increases in welfare spending, though not necessarily through government routes, and especially insofar as it includes not just the non-working population, but crucially the working population, as well. to those who are enamored of eitc, i would point out that it subsibizes low wage employers, and that it thereby causes low productivity/low capital intensity methods to be preferred, which has an overall effect on aggregate productivity rates, and that, further, it deteriorates the wage rates of non-subsidized workers. i don't think its current modest level has much such effect and i would advocate its expansion together with a fairly large increase in the minimum wage, which currently stands at its lowest level in real terms since 1955. the minimum wage in the u.k. is 5 pounds.) it apparently never occurs to anyone that welfare benefits can confer upon society future benefits, just as much as capital endowments, since childhood poverty is not conducive to future well-being. does the increasing technological component in the "organic composition of capital" require an increasing burden of capital investment? i have not remotely a clue as to how to answer this question or what the answer might be. but such conversions still must occur at economic rates and
the development of technology is not the paramount social telos. if there is no development in the capacity for human recognition and of the human growth that ensues therefrom, then there is no real human progress.

Posted by: john c. halasz on September 26, 2003 12:38 AM

A reporter interviewing JFK pointed out that Kennedy was considered to be worth 30 to 40 million dollars and asked him how it felt to be rich. JFK replied that he was not rich, the Rockerfellers (not sure if thats the name he used) were worth 300 to 400 million and that was rich.

Posted by: PCD on September 26, 2003 06:46 AM

Stephen Fromm writes, "Gates is taking your wealth by collecting economic (monopoly) rent from you and everyone else. This rent charge is enforced by the government in the form of so-called intellectual property rights protections."

I don't consider "so-called intellectual property" to be substantially different from physical property such as cars and homes. I support the government enforcing limitations on the stealing of cars and homes, and I support the government enforcing limitations on the stealing of intellectual property.

I notice you don't mention that it cuts both ways: Microsoft stole Stac's "Stacker" file-compression software, and was required to pay Stac $300 million in compensation.

"Furthermore, the government, every year, transfers perhaps 5-30% of GDP to landowners in the form of land rent."

You make no attempt to separate the value of UNIMPROVED land from improved land. Unimproved land isn't worth squat. If you actually separated out the rent paid for UNIMPROVED land versus improved land, I doubt you'd even make it to 5% of GDP. And furthermore, I think you know that unimproved land isn't worth much, because I'll bet you don't own any. (Very few people do, because it's a comparitively bad investment... compared to stocks, for example.)

"If you want to learn more about that, from a *libertarian* perspective, see:..."

Regarding that website: I've got no problem with a land value tax...as long as every cent derived from a land value tax is offset by at least 1 cent of DECREASE in other taxes, such as income taxes.

By the way, his answer to FAQ #15 is a crock:

"15. Isn't land less important in today's economy than it was decades ago?"

Answer: "No. To understand why, simply ask yourself the following question. If the importance of land is indeed going down, why does the price of land keep going up?"

The real answer is a resounding, "YES." Land--particularly unimproved land--has comparatively been a very bad investment, over the last few decades.

Stephen Fromm continues, "Overall, government *is* redistributing wealth, but not from the already-wealthy to the poor, but from those who work to the wealthy, via government-supported rent collection."

Stephen, you simply don't know what you're talking about. First of all, the government doesn't "support" rent collection...except to the extent that government doesn't allow people to steal land any more than they can steal cars. So the government isn't PAYING people to own land...it's paying police and courts to enforce the ownership of land. The idea that the costs of paying police and courts to enforce land ownership laws is a significant part of national income (say, greater than 10%) is complete nonsense.

Stephen quotes Stan: "Mark Bahner meet Steve Verity. He's all for hidden versus open redistribution like you."

Once again, it's not "hidden versus open"...it's "forced" versus "unforced." Bill Gates doesn't force me to pay for his software, even if I don't like it. I can buy Apples if I don't like Bill Gates' software.

You can correctly claim that Bill Gates forces me to the rent that's required to protect his intellectual property, but: 1) that is a very small amount (look at the total value of court cases on Microsoft-related intellectual property cases), and also 2) HE also pays rent on protecting MY intellectual property...and everyone else's intellectual property. In other words, HE also pays for those laws, and the laws also prevent HIM from stealing others' intellectual property.

"You two can talk about the evils of confiscation together and pretend we aren't distributing wealth to the wealthy."

We're VOLUNTARILY "distributing" (that word is a crock) wealth to the wealthy. Bill Gates gets my money VOLUNTARILY...because he sells products that appear to give me the best value.

You and Stan don't seem to understand the difference between voluntarily giving money to someone, and being forced to give money to someone. I give money to Bill Gates voluntarily; if I don't like what he's selling, I don't have to buy it. I do NOT give money to the government voluntarily; I am forced to do it, whether I like what they're selling or not.

"It'll be a hoot!"

The "hoot"--although I think it's more a sad irony--is that Stan and Stephen can't tell, or won't acknowledge, the difference between voluntarily and involuntary transactions.


Posted by: Mark Bahner on September 26, 2003 08:55 AM

Bruce Moomaw writes, "And what I object to is the belief that people should be able to make -- and keep -- lots more money for the same amount of work effort than other people,..."

I'm curious, Bruce...what do you call yourself? Do you call yourself a liberal?

The reason I ask is because I don't consider your attitude at all "liberal." Your attitude is that YOU can judge what is or isn't the "same amount of work effort" for various people.

For example, from your statement, I assume it bothers you that Michael Jordan made more money than other NBA players? Or, in fact, does it bother you than Michael Jordan made more money in the NBA than he made in minor league baseball?

But from what part of "liberal" comes the idea that you can judge who is working harder, and who should be making more money?

To me, the essence of liberalism is that one thinks others should be at liberty to do whatever they please--and make whatever money they can--as long as they aren't hurting others.

Posted by: Mark Bahner on September 26, 2003 09:01 AM

"A reporter interviewing JFK pointed out that Kennedy was considered to be worth 30 to 40 million dollars and asked him how it felt to be rich. JFK replied that he was not rich, the Rockerfellers (not sure if thats the name he used) were worth 300 to 400 million and that was rich."

I have something even funnier. It's from Paul Krugman, and recommended as "My Favorite Paul Krugman Essay" by Brad DeLong:

Krugman writes, "Between 1983 and 1989, while the wealth share of the top 20 percent of families rose substantially, the share of percentiles 80 to 99 actually fell. In other words when we say that America's rich have gotten richer, by the 'rich' we did not mean the garden variety yuppies-we mean true plutocrats."

In other words, Paul Krugman is saying that the families that are in the top 20 percent of wealth are "true plutocrats."

Yet, if you ask Paul Krugman (and Brad DeLong) if they are "true plutocrats," I'll bet they'll say "no!" :-)

Mark Bahner (borderline plutocrat...at least by the laughable Paul Krugman definition)

Posted by: Mark Bahner on September 26, 2003 09:19 AM

Mark,

I think you should read what you just quoted again. Krugman stated - in your quote no less - that percentiles 81 through 99 had an income loss. to me, it is clear that Krugman is referring to percentiles 81 through 99 as "garden variety yuppies" and the top one percent as "true plutocrats" who actually got richer.

Posted by: Steven Rogers on September 26, 2003 09:48 AM

"After a bit more thinking, I'm having trouble seeing how the following statements can all simultaneously be true:

"1) Income inequality has increased a lot.
2) Consumption inequality has increased nowhere near as much.
3) Income mobility has remained constant.

"In other words, if income inequality has gone up a ton but consumption inequality only a lot, where the heck did the "extra" income inequality go?"
~~~

To being with, consider the statistical bias involved in using "snapshot" pictures of income inequality instead of measuring lifetime income inequality by cohort.

Remember, the late great Modigliani showed us it is lifetime income that matters for consumption and welfare levels -- and inequality is much less when measured using lifetime income rather than "snapshot" income pictures.

E.g., consider a population of termites -- every one with identical income (after the queen is deposed, republican termites).

Now imagine that the termites, still identical to each other, become more productive as they grow older, say 3% annually, and receive "income" that matches their productivity. Thus, one-year old termites receive 1 unit of termite pay, two-year olds receive 1.03 units, three-year olds receive 1.061 ... 40-year olds receive 3.26, then they kick the termite bucket.

Each termite's lifetime income is *identical*. Ergo they will have the same consumption level.

Yet look at the "income gap" we've created! Rich termites now have more than 3x the income of poor termites in the income distribution!

This false income gap is a statistical artifact of the error of measuring income distribution by taking "snapshots" of moments in time rather than measuring lifetime income by cohort.

Lets continue with our termites. Now imagine that their colony learns to be more productive each year, say at a 3% rate. So now colony-wide "GDP" grows 3%.

Income is distributed to termites as before. So now in year two a two-year-old termite gets 1.031 units of income and three-year-old gets 1.063...; in year three a two-year-old gets 1.032 and a three year old gets 1.065... etc. And the top termite income level is moving up.

Now every termite is still treated *identically* systematically. Each generation will have slightly higher lifetime income than the previous one -- which is good! And within each generation each termite has *identical income* at all times.

Egalitarian heaven. If only humans could attain such a fair and equal society...

But look how the income distribution has *worsened*! The rich top-income-decile termites now are getting richer every year. The top of the income distribution is moving up. The poor lowest-income-decile termites are falling further behind every year!

The rich clearly are exploiting the poor -- the income distribution numbers prove it. The ill is worsening. Time for class warrior termites to appear! Bring out the guillotines!

Or, perhaps some class warrior will bother to mention someday -- just for accuracy's sake -- that there *is* a statistical bias in his numbers that would make even a termite society look like it was indulging ever-growing inequality, and propose some sort of correcting deflator for them. And perhaps after that even refer to lifetime income and consumption distribution numbers.

Then we'd have a balanced and honest presentation really deserving of praise.


Posted by: Jim Glass on September 26, 2003 10:00 AM

Mark Bahner wrote, "I don't consider 'so-called intellectual property' to be substantially different from physical property such as cars and homes."

That's because you're ignorant. If I steal your care, you don't have a car. If I copy your software/software algorithm/music album, you still have your copy.

"I notice you don't mention that it cuts both ways: Microsoft stole Stac's 'Stacker' file-compression software, and was required to pay Stac $300 million in compensation."

It *doesn't* cut both ways. To win these kinds of battles, you have to have enough $$ to hire patent lawyers, etc.

"You make no attempt to separate the value of UNIMPROVED land from improved land. Unimproved land isn't worth squat."

Wrong. That number is land *rent*, on the unimproved land.

If you really think unimproved land isn't worth anything, you're an even bigger idiot than I had thought heretofore.

"First of all, the government doesn't 'support' rent collection...except to the extent that government doesn't allow people to steal land any more than they can steal cars."

Let's see:
* Govmint allows private ownership of land. Check.
* Govmint does very little, if anything, to recapture economic rent due to private holding of (unimproved) land. Check.
* Govmint allows private ownership of so-called intellectual property rights. Check.
* Govmint does nothing to tax away monopoly and other economic rents stemming from holding of intellectual property rights. Check.

"Once again, it's not 'hidden versus open'...it's 'forced' versus 'unforced.' Bill Gates doesn't force me to pay for his software, even if I don't like it. I can buy Apples if I don't like Bill Gates' software."

Uh, wrong. Oftentimes you're forced to get Windows so you can work using Windows products at home for work. And if you want to live somewhere, that takes land, and if you start out with no capital of your own, you're forced to pay some landowner land rent. Of course, in Libertarian-land, we're all free to start our own companies, sleep under bridges, ...

"Bill Gates gets my money VOLUNTARILY...because he sells products that appear to give me the best value."

Wrong. Bill Gates makes money because he has a quasi-monopoly due to networking effects. But I don't suppose you'd actually know anything about that.

Posted by: Stephen J Fromm on September 26, 2003 10:49 AM

Bruce Moomaw writes, "And what I object to is the belief that people should be able to make -- and keep -- lots more money for the same amount of work effort than other people,..."

I'm curious, Bruce...what do you call yourself? Do you call yourself a liberal?

The reason I ask is because I don't consider your attitude at all "liberal." Your attitude is that YOU can judge what is or isn't the "same amount of work effort" for various people.

For example, from your statement, I assume it bothers you that Michael Jordan made more money than other NBA players? Or, in fact, does it bother you than Michael Jordan made more money in the NBA than he made in minor league baseball?

But from what part of "liberal" comes the idea that you can judge who is working harder, and who should be making more money?

To me, the essence of liberalism is that one thinks others should be at liberty to do whatever they please--and make whatever money they can--as long as they aren't hurting others.

Posted by: Mark Bahner on September 26, 2003 10:51 AM

Jim Glass wrote, "To being with, consider the statistical bias involved in using 'snapshot' pictures of income inequality instead of measuring lifetime income inequality by cohort.

"Remember, the late great Modigliani showed us it is lifetime income that matters for consumption and welfare levels -- and inequality is much less when measured using lifetime income rather than 'snapshot' income pictures."

It depends on what the exact claim regarding inequality is.

People making claims that inequality *of incomes* has increased don't (as far as I know) include in their cohort newborns, who have zero income. In your example, you talk about the income scale for *all* termites, starting from one-year olds, up to 40-year olds.

Of course, as Roy points out over at sci.econ, what one really wants to know is the disparity in *wealth*.

Posted by: Stephen J Fromm on September 26, 2003 11:16 AM

Jim, I'm not arguing the numbers are perfect.

I think Postrel, et al., however, are being remarkably misleading (implicitly, they never come quite out and say it) by denying that inequality in increasing through "the consumption inequality numbers are fine." It's a statistical artifact of the financial markets that consumption inequality flatlined over the period.

Jim, if your termite example illustrated a dominant factor in inequality, how come inequality dropped over the 1950-73 era of strong productivity growth?

Posted by: Jason McCullough on September 26, 2003 11:16 AM

Consider THIS simple parable: there are two societies. In one everyone makes a living at some occupation - - say, scavenging aluminum cans from the roadside litter - - in which the amount people earn over the course of the year is fairly closely determined by their skill and effort. Incomes will not be equal in this society - - some people are better at can-picking than others, some people are willing to work harder or longer than others - - but the range of incomes will not be that wide. And there will be a sense that those who re-cycle a lot of cans have earned their handful of coins.

In the other society, the main source of income is developing pharmaceuticals. A few find safe effective drugs for treating common or devastating diseases -- say cancer. Others find less effective treatments, or for more tolerable conditions, say a drug that may help some fraction of bald men re-grow a little hair. Many find themselves working very hard for very little reward. Some have no luck at all and go bankrupt, or have their patents expire before testing is complete -- seeing the manufacturers of generic copies of the drug make profits while the researchers reap no return on their investments at all. The result, in this society, will be a very unequal distribution of income. A little of this distribution will reflect effort and skill: those who are especially alert to biological interactions, or willing to put more capital into their labs, will on average do better than those who are not. But there will be many skilled, industrious chemists and biologists who live paycheck to paycheck while a very few who become immensely wealthy.

Surely the great majority of Americans, no matter how liberal, instinctively feel that a nation that resembles the second imaginary society is a better, more creative place. A place in which the rewards to the few represent great improvements in the lives of the many. A place where the imagined great majority would rather live in than any place that resembles the first. It is also no question that our nation today is much less like the benighted society of scavengers - - and much more like the hi-tech optimistic society of Derek Lowe-like chemists, - - than it was a generation ago.

What is the difference between the two parables?

In both, the disparity between the rich and the poor, and the likelihood of moving between groups, is equally well-illustrated. The purported point of the parable is as well-served by the revised version as the original.

But the iconography of MY parable is different. Fish have an inherent utility - - they're FOOD. And they can't be hoarded by misers ... they STINK. Gold, on the other hand, is almost useless for anything but vain jewelry, but can be piled up in heaps (as in Scrooge McDuck's fabulous money bin!) for top-hatted and spatted money-grubbers to porpoise about in, day after day after day. The second parable awards the egalitarian society the imperishable aluminum, and the wealth-imbalanced society a useful, but perishable commodity we wish for more of -- safe drugs.

But the iconography of MY parable is rhetorically biased toward the result I pre-determined.

Maybe that’s not so different from Krugman’s parable, after all.

Posted by: Pouncer on September 26, 2003 11:17 AM

Also, one-time productivity increases to everyone (like in Jim's example) don't show up in increases in the Gini coefficient. You can see this by playing around with this nifty Gini calculator:

http://www.economics.pomona.edu/cconrad/GiniA.xls

Posted by: Jason McCullough on September 26, 2003 11:21 AM

Jim Glass wrote, "After all, it is consumption, not income, that is the determinant of economic welfare -- income that is buried in the ground and never consumed does one no good, and people earn income in order to be able to consume. While a person who consumes more than his/her income is better off than the income level would indicate."

Silly. I haven't had time to look at the paper you cited, but it's quite clear to me why consumption inequality won't grow as fast as income inequality---one can only consume so much.

"After all, it is consumption, not income, that is the determinant of economic welfare -- income that is buried in the ground and never consumed does one no good, and people earn income in order to be able to consume."

That's at best an ignorant statement, at worst a disingenuous one. Income not consumed doesn't vanish into the ground; it's used to build wealth. More wealth allows one to weather the viscisitudes of life much better. And anyone who has any insight into human psychology whatsoever understands that having a wealth "cushion" is a big contributor to economic welfare, since people are risk averse and will pay to avert risk.

Posted by: Stephen J Fromm on September 26, 2003 11:30 AM

Jim Glass wrote, "After all, it is consumption, not income, that is the determinant of economic welfare -- income that is buried in the ground and never consumed does one no good, and people earn income in order to be able to consume. While a person who consumes more than his/her income is better off than the income level would indicate."

Silly. I haven't had time to look at the paper you cited, but it's quite clear to me why consumption inequality won't grow as fast as income inequality---one can only consume so much.

"After all, it is consumption, not income, that is the determinant of economic welfare -- income that is buried in the ground and never consumed does one no good, and people earn income in order to be able to consume."

That's at best an ignorant statement, at worst a disingenuous one. Income not consumed doesn't vanish into the ground; it's used to build wealth. More wealth allows one to weather the viscisitudes of life much better. And anyone who has any insight into human psychology whatsoever understands that having a wealth "cushion" is a big contributor to economic welfare, since people are risk averse and will pay to avert risk.

Posted by: Stephen J Fromm on September 26, 2003 11:35 AM

Jason McCullough wrote, "Also, one-time productivity increases to everyone (like in Jim's example) don't show up in increases in the Gini coefficient. You can see this by playing around with this nifty Gini calculator:"

Right; I thought that was mathematically self-evident, since the Gini coefficient clearly must be "scale invariant". But before I commented, I wanted to check Jim's numbers myself...but couldn't make them work.

Posted by: Stephen J Fromm on September 26, 2003 11:41 AM


"Ah yes, the paying taxes equals being robbed if transfers are explicit but hidden transfers are fine argument."

It has nothing to do with "hidden" or "not hidden." It has to do with "forced" or "not forced."

Bill Gates and Sam Walton (to use two examples) never forced me to give them money for no service rendered. If I wanted to avoid ever giving Bill Gates money, I could own an Apple. If I wanted to avoid ever giving Sam Walton money, I could shop somewhere besides Wal-Mart.

That isn't true when I pay taxes.

"The wealthy are being oppressed!"

They're having money extorted from them...and to a greater extent than other people. I consider it to be wrong to take money from rich people, to give to poor people. (And it's even worse when the opposite occurs, as it frequently does with government transfers...e.g., Social Security.)

Posted by Mark Bahner at September 25, 2003 02:26 PM

Mark all government transfers are forced. Just because you are too lazy to look for the hidden ones doesn't mean they don't exist. Just because you are ignorant of how it is happening, doesn't mean that our money is not being transferred to sugar growers. Go ahead buy sugar without paying a forced hidden tax.

Just because you either choose to, are unaware, or are too simple to understand doesn't make the hundreds or thousands of hidden transfers disappear. Just because you either choose to, are unaware, or are too simple to understand that explicit transfers called taxes are no different economically than hidden transfers doesn't make them not the same things. They are all taxes!

In your dream world, when wealthy individuals buy large plots of land on both sides of a highway and then use their wealth and influence to have an interchange built on that location, all of the proceeds are simply the result of hard work. Well your dream world is a crock. In that instance there are two types of hidden taxes redistributing wealth. The money transfer of the interchange infrastructure and the value transfer from other land at other interchanges in either direction on the highway. These hidden taxes are no different than a direct tax in their redistributional effects. Sticking your head up your *** doesn't make them go away.

Likewise, our country is a collective group with collective responsibilities. Paying your taxes is one of your collective responsibilities just like obeying the other laws of the land. In our democratic system our Constitution sets out our collective responsibilites. It demands that we govern for the people not a handful. It also very well allows us to tax somebody whether they like it or not. Our Constitution provides individual protections as rights, but those rights don't somehow absolve individuals from their collective responsibilities toward taxes. How anyone feels about it is irrelevent. It is the cost of being allowed to live in our country. If you don't like it, move to Afghanistan. Maybe you can convince the warlords there to abide by your likes and dislikes. You can also benefit from the infrastructure and social system your take on taxes generates.

Posted by: Stan on September 26, 2003 01:02 PM

Correction: Our Constitution provides individual protections [of] rights, but those rights don't somehow absolve individuals from their collective responsibilities toward taxes.

Posted by: Stan on September 26, 2003 02:24 PM

according to hobbes, a human being is free, if he is not literally bound by chains. hence a slave is free, if his master trusts him enough not to put him in shackles. this extreme nominalism-(hobbes was not a radical pioneer of modern scientific materialism, but actually an adherent of late medieval nominalism, in a state of advanced decay)- is at the historical root of libertarian thinking. i find it almost pointless to try to argue with libertarians, though they are an unusually argumentative lot, since they adhere to an unreflected and largely magical concept of human freedom as somehow the sole normative and hence practical ground of society.
human freedom is but one, though a
distinctive, feature of human beings, who live in an inhuman world governed by chains and cycles of causality.
human freedom, i.e. the capacity for volitional agency, derives from language and human interaction and human individuals do not exist in abstraction from human communities. further the capacity to deliberate, choose, and act rationally and freely, (and then deal with the consequences,) is a highly complex and structured
phenomenon, and this structural constraint is, in fact, constitutive of the phenomenon. (think of language itself: in order to signify and communicate in a given language, one must follow the structured rules of the language, on pain of unintelligibility, and these rules are constitutive of the language in the first place, not merely regulative. this point of itself disposes of nominalism.) hence, freedom is something like optimal constraint- too much or to little constraint is injurious to it-; it is not an unconstrained disposability over oneself. further, while in any given situation, there is always a margin of freedom, it is only a margin, more or less, and is fundamentally subject to really embedded conditions. hence the distinction of the purely voluntary vs. the perniciously forced or coerced is a factitious one, grounding a similarly factiticious sense of morality or justice, and among other things, simply fails to take into account the ranges and varieties of coercion embedded in social life. liberals,too, whether of the kantian or millian variety, take as their starting point the human individual and seek to ground morality and social life in freedom. but they focus upon agreement and at least implicitly acknowledge a reference group, their own reference group of the like-minded, while at least dimly acknowledging the larger society. as i tried to argue above, normative discussions of social justice should have as their starting point and "ground" human community and the compact of a self-governing republic. from this standpoint, freedom is not the originary ground of the social compact, but rather an emergent and historically evolved feature.

what characterizes the economic domain of market functionning, is its relative normative disemburdenment, steered by the symbolically reduced medium of money, as opposed to social domains dependent on the burdensome, laborious, and inevitably normatively laden medium of human linguistic communication. this is what accounts for its chief functional virtue, efficiency, and gives rise to the impression that economic arguments are and must be purely "positive" in nature. correspondingly, it gives rise to the ideological illusion that markets are the primary domain of human freedom and human freedom must be conceived as modelled on economic activity. but that all human purposes- (and yes, even in a non-teleological universe, there do exist human purposes)- must be subordinated to the requirements of economic transactions-(keynes himself thought that economics provided for the pre-conditions and not the conditions of civilized life)- that the domain of market mediated economic activity can not be normatively delimited and evaluated, and that the functionning of markets themselves does not require some minimum of embedded normative constraints are not proven, nor provable. that market functionnings can be subject to normative constraints for the sake of the realization of values stemming from other social domains- (and the argument that that still must involve trade-offs does not favor the economists, since the trade-offs may be between incommensurable values)- or that market mechanisms themselves can be deployed to realize non-market goals and values remain open to debate and discussion, in the finest democratic tradition, of course. that other modes of social regulation are subject to normative and functional constraints and tests of their adequacy or possible deficiency remains true, as well. but the universe is neither as large, nor as small as economic libertarians imagine it.

Posted by: john c. halasz on September 26, 2003 02:50 PM

** "... income that is buried in the ground and never consumed does one no good, and people earn income in order to be able to consume." **

"That's at best an ignorant statement, at worst a disingenuous one. Income not consumed doesn't vanish into the ground; it's used to build wealth. More wealth allows one to weather the viscisitudes of life much better."

Sure ... by consuming it.

Letting your wealth compound in your brokerage account isn't going to protect your skin from the viscisitudes of cold weather when it arrives. You'll have to consume some of it on warm clothes or on housing in Florida.

The point of saving is that it enables deferred consumption of income, obviously.

Was it ignorant of me not to realize I'd have to point that out?


Posted by: Jim Glass on September 26, 2003 03:38 PM

Jason and Stephen:

This 'best Krugman essay ever' describes income inequality entirely in terms of income quintiles, deciles and percentiles at given points in time.

I simply pointed out that this method of measuring income distribution exaggerates whatever top-to-bottom difference there actually is in terms of lifetime income -- which is what matters -- to the point where it would make a perfectly egalitarian income distribution that is 100% equal across generations seem not only unequal but increasingly so every year.

And I noted that neither Krugman, nor Wolff, nor anybody else who invokes quintile and decile "snapshot in time" income distribution data ever points out this significant statistical bias.

Krugman never used the word "gini" even once in his essay, unless the "find" function on my browser is broken.

So I'm at a bit of a loss as to the relevance of your "gini" comments in relation to the quality of the data that Krugman actually invoked.

But I'll be happy to "talk gini" another time, some day when it's relevant to the subject rather than a change of subject.

Posted by: Jim Glass on September 26, 2003 04:09 PM

Jason wrote:

"Jim, if your termite example illustrated a dominant factor in inequality..."

I never said it was the "dominant" factor -- I said it is a signficant statistical bias in this method of measuring income inequality.

And one that is never pointed out by those who use it even though, rather ironically, some so often strongly accuse others of using misleading statistics.

Now I'd *like* to think they use this snapshot data so much simply because cohort data on lifetime income is much harder to produce, and there's a lot less of it about.

But that doesn't explain their never even mentioning the problems with their own data -- or even the existence of the concept of cohort lifetime income analysis -- while they so readily pounce of the flaws in the data of others. And sometimes, I hate to admit it, my cynicism just gets the better of me.
~~~

Stephen wrote:

"Of course, as Roy points out over at sci.econ, what one really wants to know is the disparity in *wealth*."

Gee, when I first read that it sounded like Roy was disagreeing with me.

But anyhow, as savings and wealth are only deferred consumption, as noted a couple posts up -- your wealth won't shelter you from the rain unless you use a bit of it to buy an umbrella -- we're back to the importance of the consumption distribution.


Posted by: Jim Glass on September 26, 2003 04:33 PM

"[...]Letting your wealth compound in your brokerage account isn't going to protect your skin from the viscisitudes of cold weather when it arrives. You'll have to consume some of it on warm clothes or on housing in Florida."

The poor cannot afford going to Florida when it is extremely cold where they have to work, wealth is what permits that. And they live less time, so they consumate less.

DSW

Posted by: Antoni Jaume on September 26, 2003 04:45 PM

Ok, fair enough Jim. But note that this article of Krugman's actually uses inequality mostly as an illustrative point; to illustrate that conservatives were throwing up completely indefensible lies when it came to the subject. I doubt if Armey was talking about the stuff you are that he'd have written the essay.

Posted by: Jason McCullough on September 26, 2003 08:36 PM

Should we consider that hiring is a form of consumption?

DSW

Posted by: Antoni Jaume on September 27, 2003 02:21 AM

Jim Glass wrote, "Sure ... by consuming it.

"Letting your wealth compound in your brokerage account isn't going to protect your skin from the viscisitudes of cold weather when it arrives. You'll have to consume some of it on warm clothes or on housing in Florida.

"The point of saving is that it enables deferred consumption of income, obviously.

"Was it ignorant of me not to realize I'd have to point that out?"

Nah, in your case, just disingenuous.

If the cold weather *never* arrives, you don't consume; you just keep building wealth.

Moreover, it's flat-out false that people acquire wealth only in order to consume. They also acquire wealth in order to gain social status and power. Of course, you could also call that consumption, but (like a lot of economics) then claims start becoming tautological.

"And I noted that neither Krugman, nor Wolff, nor anybody else who invokes quintile and decile 'snapshot in time' income distribution data ever points out this significant statistical bias."

False. Some well-known right-wingers came up with a claim about income mobility being much higher than commonly reported and failed to own up to the fact that their study was marred by the very bias you mention; it was pointed out by others, the types you like to decry.

Furthermore, there are ways of controlling for the bias you speak of; you're insinuating that people who look at income distribution never keep track of that bias, yet you present no evidence.

Posted by: Stephen J Fromm on September 27, 2003 06:58 AM

Jim Glass wrote, "Lets continue with our termites. Now imagine that their colony learns to be more productive each year, say at a 3% rate. So now colony-wide 'GDP' grows 3%."

"Income is distributed to termites as before. So now in year two a two-year-old termite gets 1.031 units of income and three-year-old gets 1.063...; in year three a two-year-old gets 1.032 and a three year old gets 1.065... etc. And the top termite income level is moving up.

"Now every termite is still treated *identically* systematically. Each generation will have slightly higher lifetime income than the previous one -- which is good! And within each generation each termite has *identical income* at all times.

"Egalitarian heaven. If only humans could attain such a fair and equal society...

"But look how the income distribution has *worsened*! The rich top-income-decile termites now are getting richer every year. The top of the income distribution is moving up. The poor lowest-income-decile termites are falling further behind every year!"

Huh?

I didn't understand your numbers, but now I've reversed-engineered them...

Minor question: how do you go from 1.03, to 1.031, to 1.032, based on GDP growth of 3% per year?

Major question: your model appears to say that a termite's growth in income will look like
1, 1.03, 1.031^2, 1.032^3, 1.033^4,...
Why? Ignoring the minor question above, if anything it should rather be
1, 1.03, 1.03*1.031, 1.03*1.031*1.032, ...

I'm not going to go farther until I know what assumptions you used in your toy model...

Posted by: Stephen J Fromm on September 27, 2003 07:34 AM

the answer to the conumdrum of mr. glass' termite model seems to be that since each age bracket was assumed to be more productive than the previous, culminating in a factor of 3.26 times the first year age bracket for the top age bracket, (which should be 41 year-old termites not 40, since one-year-olds are set at a level of 1.0), an annual productivity gain of 3% for the termite colony as a whole would be distributed in accordance with the stipulated proportions: hence, the annual increase in productivity for the top age bracket would be 3.26 times the rate of productivity improvement for the bottom bracket, which would lead to an enormous compounding of the rate of productivity growth over time for the top bracket compared to a modest rate for the second bottom bracket,(since the 1st year bracket, by this stipulation, should not improve at all.) of course, the claim that differences in productivity are behind differences in income for age weighted differences in income distributions is dubious to begin with. obviously, increases in income with age have to do with salary and wage increases with seniority and promotion, declining debt burdens and increasing asset accumulations through savings- (i am assuming here that "income" means annual net increase in disposable wealth.) further, to conflate the ownership of productive assets with productivity is also question begging: while it is obvious that productive assets contribute to productivity, exactly who owns them is irrelevant to productivity, though perhaps not to income. mr glass' series of posts attempting to impugn krugman's basic claim the the distribution of wealth has been changing in an upward direction of late seems to miss the openning paragraph of the article, which at any rate was addressed to the lay public and not intended as a definitive technical monograph. krugman begins by citing the work of edward wolff, which is a dry technical monograph that presumably looks at different data sets and measures to draw its overall conclusions,
so that it is doubtful that issues of demographic adjustments, temporal series, income mobility, comsumption distribution and net wealth distribution have been overlook. further krugman explicitly states that though the book adds to the picture, there has been a professional consensus on the matter for the previous 5 years ( and presumably for the 5 years since!)

Posted by: john c. halasz on September 27, 2003 01:27 PM

john c. halasz wrote, "so that it is doubtful that issues of demographic adjustments, temporal series, income mobility, comsumption distribution and net wealth distribution have been overlook."

Yes, that's what I think. I'm asking Jim Glass about his mathematical model because it doesn't make sense.

Tip: people will more likely read your posts if you capitalize the beginnings of sentences and skip a line for a new paragraph; otherwise they're too hard to read.

Posted by: Stephen J Fromm on September 27, 2003 02:17 PM
Post a comment