Monday, October 6, 2014

Chicken and Egg Inequality

The FT's Martin Wolf weighs in on "Why inequality is such a drag on economies"

This is the question that was bugging me last week. Why is inequality a problem in and of itself, rather representing a symptom of problems that should be fixed for their own sake?

Since last week's review of these ideas was rather scathing, I hoped Wolf would offer some new, and better tested ideas.

Alas, and interestingly, no.

Just why is inequality "a drag?" Why is it that "big divides in wealth and power have hollowed out republics before and could do so again?" - Notice the clear cause and effect here.

Most of the column summarizes facts on inequality, which are not important to the title and the thesis. Here is the "why" part:
A report written by the chief US economist of Standard & Poor’s, and another from Morgan Stanley, agree that inequality is not only rising but having damaging effects on the US economy. 
...These reports bring out two economic consequences of rising inequality: weak demand and lagging progress in raising educational levels.
...The economy will not become buoyant again without a redistribution of income towards spenders or the emergence of another source of demand. 
...The “secular stagnation” in demand, to which Lawrence Summers, the former US Treasury secretary, has referred, is related to shifts in the distribution of income. 
Aha, inequality is a drag because a "report" says so. And the "report" says we have to confiscate the wealth of the rich and give it to the government because the rich, and our economies overall, don't spend enough. (Except, as reviewed last week, when the rich are spending too much.)

I reviewed the S&P report before. The grand total sum of documentation it offered for this proposition was a quote from Robert Reich, opining that the marginal propensity to consume of the poor was greater than that of the rich.  Wolf cites Larry Summers, but if you actually read him, Larry is admirably clear that he has neither model, measurement (of strongly negative "natural rate" of interest), or test; it's an idea resurrected from a 75 year old speech that he thinks might be worth investigation.

The interesting point here is how by issuing a "report," the S&P can turn pure speculation into theory that is apparently completely worked out, empirically tested, and ready for implementation in one of the greatest wealth transfers of all time. And similarly just by quoting Larry's speculations. In other contexts there is a lot of debate about one side or the other "ignoring science." This is not science.

The education angle is new, and I'm looking for new mechanisms. Let's read and see if we find something there.
American education has also deteriorated. It is the only high-income country whose 25-34 year olds are no better educated than its 55-64 year olds. ... It is also because children from poor backgrounds are handicapped in completing college. 
[ statistics on poor not going to college] ... Yet, without a college degree, the chances of upward mobility are now quite limited. As a result, children of prosperous families are likely to stay well-off and children of poor families likely to remain poor. 
This is not just a problem for those whose talents are not fulfilled. The failure to raise educational standards is also likely to impair the economy’s longer-term success. ...Yet a better educated population would also raise everybody to a higher level of prosperity.
The facts are fine, and just what I was writing about last week. You bet "children from poor backgrounds are handicapped in completing college." They go to terrible schools, hijacked by inner city teacher's unions. They come from broken homes, where nobody reads to them at night. They don't see anyone around them who is working at legal jobs. And so on.  This is just the case that Kevin Murphy and others have made about the increasing skill premium.

But that's all inequality as a symptom of other things gone wrong, and those things desperately needing fixing no matter how much the top 1% earn. This article is supposed to be about how inequality is the cause of bad education. That "fixing inequality" will by itself improve "lagging progress in raising educational levels." Leave the schools, the jails, all the social ills in place..if we just tax away the wealth of the rich, and reduce "inequality," the poor will suddenly go to Harvard? 

I expected a lot more clarity on cause and effect.

Now, of course, Wolf's column will be re-cited and re-tweeted, that "Wolf Shows Inequality is  a Drag on The Economy." I regretted a bit last week saying that inequality theories were being made up passed around like internet cat videos. I think now I was being unfair to internet cat videos. 

62 comments:

  1. " They go to terrible schools, hijacked by inner city teacher's unions. They come from broken homes, where nobody reads to them at night. They don't see anyone around them who is working at legal jobs. And so on. This is just the case that Kevin Murphy and others have made about the increasing skill premium."

    How do you propose to solve this problem?
    Do you agree that this problem exists in countries like Sweden or Canada to a lesser degree than in the US BECAUSE they are spending more money on alleviating the problem and the money comes from taxing top X% heavily ?
    You seem to wanna argue about semantics and not the substance,

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    1. Lots of ways to solve this problem. Taxing away the wealth of hedge fund managers is not a way to solve this problem. Read the post, this is about cause and effect.

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    2. There could be a lot of reasons why Canada and Sweden perform better on education. Sweden has a very low immigration percentage, with 92% of their population being white, give or take. This concentration of people who are natives and culturally similar could be a boost. What is notable, is that is the population of immigrants has increased, education scores in PISA etc have seen a distinct decline in regions where the new immigrants have been congregating. Canada…I know a little less about but I can point out that they have been decreasing the taxation on the wealthy (and well everyone) over the last two decades and have only seen gains economically and in terms of educational performance. Kinda runs against your ‘theory’.

      K

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    3. John, I did read the post. I agree that inequality is the result of the above not the cause. It is the symptom. But liberals propose specific solutions to treat the cause, while conservatives like you say things like "lots of ways to solve this problem". Lots of ways? Let's hear proposals that do not require spending extra money. And if they do, let's hear specifics about where the money is to come from. Otherwise, we'll just have to keep voting for liberals

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    4. It seems to me that the main cause of inequality (ignoring the current political-economic system we have in place now) is due to two factors:

      1. Labor's share of GDP has been steadily declining since the late 70's but has taken an especially sharp decline in the past decade.

      2. The top 10% owns most of the nation's capital

      I think it's pretty clear we need to redistribute the wealth, but as you have said, taxing the super rich more wouldn't do much.

      Do you think a better solution would to increase wages across the board, or more specifically, increase the minimum wage to a livable wage?
      The way I look at it, increasing labor's share of GDP would benefit everyone.

      Some may argue that increasing wages would increase prices, but I think the statistics clearly show that's just not the case.

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    5. I think the best argument for the theory that inequality hurts productivity growth is the comparative statics of looking at well-known prosperous countries like Iceland, Japan, Sweden, Norway and Switzerland, which seem to have little extreme poverty.

      One reason it's so effective is that some relevant explanations are taboo.

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    6. @David: The evidence of minimum wage on the ability to increase standard of living, on aggregate, is not conclusive.

      @Eric: You can't just look at other countries and point to their inequality levels. This is plagued by endogeneity bias that John is lamenting about in his blog post.

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    7. @Vincent: Almost every study has shown that increases minimum wage would increase income of millions by billions of dollars. It would even take people out of poverty. Of course we can't conclusively say that it will increase the standard of living, but the data highly suggests it will.

      Congressional Budget Office's report on an increased federal minimum wage:
      http://www.cbo.gov/publication/44995

      Historical Data on unemployment after minimum wage increases during times of high employment:
      http://www.americanprogressaction.org/issues/labor/news/2013/12/03/80222/raising-the-minimum-wage-would-help-not-hurt-our-economy/

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    8. @David

      Increasing the price of labor won't necessarily increase its share of the GDP. If the amount of labor demanded decreases to compensate, all that will happen will be that the number of laborers employed will decrease and labor's share of the GDP will remain the same.

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    9. Regarding Anon's comment at 10:26

      http://3.bp.blogspot.com/_-EMpadQx4hM/TRKVzaSdWnI/AAAAAAAAAYs/26q8mk1dT3M/s1600/PISA.jpg

      Canada does slightly better, but Sweden is terrible, below the OECD average. You need to correct for demographics. Most countries don't do well because they have good education systems, but rather they have less students who notoriously do worse. I.e. ESL students in the US, which make up a larger proportion.

      http://1.bp.blogspot.com/_-EMpadQx4hM/TRKZ5kB-49I/AAAAAAAAAY8/c_2n4vdbkPk/s1600/immigrant.jpg

      As you can see, Australia is the only country on the planet where immigrants perform better than natives. Benefits of being an island nation with selective immigration.

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    10. @anonymous If you look at the CBO's report on minimum wage you'll see that the gains from those who do keep their jobs will outweigh the losses do to a decrease in the demand for labor.

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    11. "But that's all inequality as a symptom of other things gone wrong, and those things esperately needing fixing no matter how much the top 1% earn"

      I have not heard a single even remotely specific proposal on how to fix those things from John who happens to be one of this nation's leading conservative. economists

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    12. Then you have not been listening. This is a ridiculous comment. I don't have to republish the entire CATO website in every blog post.

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    13. John, you just published a series of posts about inequality in which you ridiculed the idea that inequality is an issue. Referring to a Cato website is erecting a strawman in this discussion. I am reading your blog, not Cato website.

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    14. John,

      Speaking of the CATO institute, have you seen this article on Pigouvian taxation and banking:

      http://www.cato.org/blog/bank-tax-wrong-fix-too-big-fail

      Seems to go against your suggestion that banking can be fixed with a tax on short term debt.

      "I don’t see TBTF as a switch, but rather a dial between 100 percent chance of a rescue and zero. By turning the banks into a revenue stream for the federal government, we would likely move that dial closer to 100 percent–and that is in the wrong direction."

      Would you not also be moving that dial closer to 100% with a tax on short term debt? Why do you support such a policy, when the CATO institute has come out against it?

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    15. I can think of two obvious arguments why Ceteris Paribus a more equal economy would be a better economy then a less equal one:
      1) the market for human income is incomplete: If talent is less then perfectly correlated with endowment then given imperfect consumer finance markets people will under-invest in education in the steady state.
      While the US has put a huge amount of effort trying to perfect it's market for collage level financing (probably overshooting in the process) it's distribution of K-12 and pre-K education is highly correlated with endowment.
      https://ideas.repec.org/a/bla/restud/v60y1993i1p35-52.html

      2) If one is to assume any sort of marginally decreasing utility from consumption then inequality will decrease your social utility for most common social utility functions.

      P.S just to stem the "immigrant society" mambo-jumbo: according to the office of homeland security about 12% of the current US population were born outside of the US. The relative number for Sweden about 20%, the number for Canada is closer to 25%. The US is not particularly more multicultural then other western states.

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    16. "According to Eurostat, in 2010, there were 1.33 million foreign-born residents in Sweden, corresponding to 14.3% of the total population. Of these, 859,000 (9.2%) were born outside the EU and 477,000 (5.1%) were born in another EU Member State."

      Off of Wiki, so a huge portion is from the EU, with their highest immigrant group being Finns, who mostly speak Swedish already. But that's not solely the point, the demographics are still different. Regardless of why, minorities perform worse (except for some key minority groups who usually make up a small percentage, such as Middle Eastern families who perform better on most stats, but make up a small proportion) and the US has a much larger amount. Maybe it's racism, maybe cultural values, who knows. The fact is that it exists. I gave a link earlier showing that you're wrong, when you eliminate non-EU immigrants, and minorities, the ranking is completely different. Nice try though. Assuming Finnish immigrants who already speak Swedish are the same as Mexican immigrants who can't. Clever.

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    17. A couple of points, Middle Easter immigrants do better here, than in Europe. An ocean is a pretty good way to be highly selective with your immigrants, take Australia:
      http://1.bp.blogspot.com/_-EMpadQx4hM/TRKZ5kB-49I/AAAAAAAAAY8/c_2n4vdbkPk/s1600/immigrant.jpg

      I think I'm running the risk of being farther off topic, so I'll bring it back to the point. When you exclude immigrants and minorites, so essentially the majority that can understand the language and are the best example for how well the school systems are doing, you end up with Sweden, Norway, and Denmark being at or below the OECD average, essentially countries that are fairly equal. (only exception on the "Nordic model" would be Finland, which just does really well. Yet it's not at all obvious that it's because of equality, but rather it's a tiny rural country that small states in the US might perform just as well as, such as my small rural state of Iowa). So why doesn't this translate into huge gains? As you said, re-arranging income would equal much more efficiently spending money on human capital for kids who have ability but not money.

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  2. I think I understand your point of view, but if you are genuinely interested in understanding inequality's effect on society, you may want to take a short walk outside the realm of economics into evolutionary biology and social psychology. They have different paradigms and I am not sure how much of their insights are transferrable into economic thinking.

    Anyway, a quick search on "inequality psychology" turned up the following paper which seems interesting and maybe relevant. Good luck!

    http://www.ucl.ac.uk/~ucbtdag/bioethics/writings/ineqpoli.html

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    1. Reza: Very interesting paper. I would also suggest the social psychologist Jon Haidt (http://people.stern.nyu.edu/jhaidt/). I believe it was Hayek who noted that socialism feels natural to most of us because that is how we live on a daily basis within our own households, from each according to ability, etc. The problem is while that intra-family system may work well it does not scale up very well because of free riding, moral hazard, etc.

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  3. The bank robber Willie Sutton may have been a Liberal/Progressive social theorist. Supposedly, he answered the question "Why do you rob banks?" with the pragmatic view "Because, that's where the money is". His real answer is much better:
    === ===
    [edited] Why did I rob banks? Because I enjoyed it. I loved it. I was more alive when I was inside a bank, robbing it, than at any other time in my life. I enjoyed everything about it so much that one or two weeks later I'd be out looking for the next job [bank to rob].

    But to me the money was the chips, that's all. Go where the money is and go there often.
    === ===

    Every Liberal/Progressive plan starts with "We will help the people" and ends with "Take more money from the rich bastards". They say this is only a pragmatic approach to funding needed programs. I think Sutton's second answer is more the case.

    EasyOpinions.blogspot.com

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  4. "Taxing away the wealth of hedge fund managers" is a strawman. Canada tax burden is about 32% of GDP, ours is something like 27-28%. We could raise it to 32% and spend the extra on expanding earned income tax credit and childcare services. This has nothing to do with taxing anything away

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    1. All of these examples adducing other OECD countries ignore the fact that not the result of having very progressive tax codes (including all forms of taxation), but by levying high taxes on everyone. So, taxing hedge fund managers as a political rallying cry continues to be disingenous and Prof Cochrane should continue to call that bluff.

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    2. I don't think increasing the tax burden from 27% to 32% will make any real difference. The problem isn't how much money we have, but rather how we spend it. In 2013 we spent nearly 4 times as much on our military as Canada did. So if you want to look a Canada as an example, instead of emulating their numbers, we should be trying to emulate their policies.

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    3. Raise the tax rate from 27% to 32% and you wont collect more. Maybe the first or second year, but not thereafter. You will have more lobbying, exemptions, special deals, tax engineering, income splitting, income deferral, early retirements, etc. etc. etc.
      Watch a few Art Laffer videos on the net, he is an expert explaining how it works.

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  5. Let us step away from the very few billionaire fund managers, and look at the owner of, let us say, $10 million dollars business, with one hundred employees, where some of us might work.

    Let us say that one year this company got extra contracts, and made one million dollars more in profit than in previous years.

    The owner can keep the whole profit for himself, and use it to move from his two-million dollars house to a new three-million dollars house.

    The owner can keep half, and add an addition to his house, buy a summer house or a condo. The second half of that million he can give to his five deputies, and all of them use that $100k for upgrading their houses or moving to the more expensive ones.

    Lastly, the owner can keep only $100k for himself, give $50k to ten of his leading managers, and give $20 to 20 of his best workers. Out of these 20 workers, ten will use their bonus as a down payment for their first house. Let us say that others will use their bonuses to upgrade their houses or move to better ones.

    In all of the above instances the same amount of money was spent in the real estate market. Do all of them have the same effect on economy?

    Will it be different if that $1 million will be reinvested? If the owner uses the whole $1 million for opening a new business, will be the effect on economy be the same if let us say, he just spends $100k and thirty of his employers invest their money in starting or expanding thirty family businesses?

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    1. So the owner makes 10M and keeps $100K, thats about a 99% marginal tax rate. Why on earth would anyone bother to make additional income to keep 1 cent on the dollar?
      Keep in mind, if the owner already makes $10M his marginal tax rate (if you count everything) is already around 50%

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    2. The business has $10 million in sales. How much the owner makes, is not known, besides that he owns a $2 million dollars house. The issue in front of us is a situation that the business made additional profit of $1 million above what everybody there is usually making. The question is if it would be a different effect on economy if the owner takes it all, and if he shares it with his employees in different proportions.

      I am afraid that you did not understand the question.

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    3. Ok, I didn't express myself correctly
      My point is that earning income and keeping it are not independent. The businessman wont bother to make additional income if he wont be able to keep at least a big percentage of it. You can escalate this logic to all levels, the more you keep the more you will make, the same goes for a taxi driver and for a wealthy business owner.
      Take it to the extreme: why aren't there any businessmen in Cuba? Im sure there are lots of Cubans with great ideas, but they know that any income they make will be taken away.

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    4. We cannot discuss all the issues at the same time. Let us focus on economic consequences of different patterns of profits redistribution. Henry Ford got momentum when he realized that he can make more money only when people building his cars could afford to buy them. If all business owners will keep all their profits for themselves, there will be no reason for reinvesting, as whatever they might offer for sale, most of their workers would not afford to buy anyway.

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  6. Prof Cochrane,

    This is off topic, but there is a recently published article by Cecchetti and Schoenholtz which has a go at the full reserve banking idea, including Cochrane’s “ban runnable liabilities” idea. See:

    http://www.moneyandbanking.com/commentary/2014/10/6/making-finance-safe

    I’m having a go at the C&S article on my blog.

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    1. Ralph,

      From the article:

      "Admati and Hellwig argue that observed MM violations arise almost exclusively from government-induced subsidies for bank debt – for example, through the differential tax treatment of debt and equity, and through the subsidy for those banks viewed as too big to fail.”

      They might also mention that compensation for the ownership of a bank falls toward the equity side. If bank officers are compensated in both debt / equity of the bank, then the incentives to minimize the outstanding shares of a company fall.

      One other thing I am not clear on is what metric is used to value a bank's liabilities (debt and equity).

      If the market value of outstanding debt and equity is used, what prevents the market from undoing any attempt by the bank to change it's debt / equity mix?

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  7. Why isn't it enough that the optimal distribution of wealth under a utilitarian SWF is strict equality, given identically diminishing marginal utility of wealth? In reality, it is unlikely that utility functions for wealth are identical, but this is still a useful approximation. Consequently, there is a tradeoff between efficiency and equality, and we should be willing to sacrifice at least some efficiency for greater equality. How much so is debatable, I concede, but this is why I care about inequality in itself, and why economics textbooks seem to care about it. Why isn't this enough? Why do we have to appeal to political consequences, or educational consequences, or class-relation consequences?

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  8. Hi John,

    In debating the causal effect of income inequality on other socioeconomic issues -- sure, we need to be careful to account for reverse causality or other endogeneity problems. However, that's not to say that income inequality can have some causal effect on socioeconomic issues.

    For example, take the effect of income inequality on educational attainment. Certainly, there is a reverse link here: inequitable educational attainment will lead to income inequality. However, the causal link goes both ways. Consider this thought experiment, suppose we exogenously induced income inequality (i.e. we have a world on an isolated island where we magically made some people very wealthy, and some people very poor). You can imagine in this scenario that the wealthy will have access to good schools, and will pursue higher levels of education whereas the poor will not be able to afford education and will be unable to pursue the same levels of education.

    The point of this example above was not to resemble anything realistic but to point out that there are mechanisms through which income inequality could have a "causal" impact on educational attainment -- although obviously, it is very hard to properly identify an exogenous shock to income inequality empirically.

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  9. Eric Falkenstein has written extensively in his books at how envy appears to drive a number of economic distoritions and create damage.Perhaps more than Eric, I think this obsession with inequality and envy is merely a manifestation of the faulty dominant ethical values in our culture, not an innate characteristic. If self-sacrifice and altruism is the moral good, as most religions and secular philosophies say, then a rise in selfish wealth has to be bad. Krugman, like most economists, will adjust his economic models to fit his ethics. Most economists simply assume some sort of utilitarian ethical base, but this is NOT the dominant ethics in most societies.

    Marx wrote on the subject of envy:
    A house may be large or small; as long as the neighboring houses are likewise small, it satisfies all social requirement for a residence. But let there arise next to the little house a palace, and the little house shrinks to a hut. The little house now makes it clear that its inmate has no social position at all to maintain, or but a very insignificant one; and however high it may shoot up in the course of civilization, if the neighboring palace rises in equal or even in greater measure, the occupant of the relatively little house will always find himself more uncomfortable, more dissatisfied, more cramped within his four walls.
    KARL MARX, Wage Labour and Capital

    The philosopher Ayn Rand encapsulated this envy-driven mindset as follows:
    "They do not want to own your fortune, they want you to lose it; they do not want to succeed, they want you to fail; they do not want to live, they want you to die; they desire nothing, they hate existence, and they keep running, each trying not to learn that the object of his hatred is himself . . . . They are the essence of evil, they, those anti-living objects who seek, by devouring the world, to fill the selfless zero of their soul. It is not your wealth that they’re after. Theirs is a conspiracy against the mind, which means: against life and man."
    Ayn Rand, "Atlas Shrugged"

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  10. Piketty argued in Capital that one reason the wealthy stay at the top is that they pick up the low-hanging investment opportunities. I think it's interesting that the website Crowdfundr, a venture-capital site akin to kickstarter where you get equity in lieu of trinkets, is open only to 'Accredited Investors' due to SEC rules.

    It's amazing that a wonderful piece of technology emerges that can painlessly and transparently connect investors to investment opportunities that in principle could allow *anyone* a chance for very high risk but very high reward, and the SEC shuts it down. It's really no wonder the wealthy stay wealthy with rules like that.

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  11. This may have been better answer to previous posts, but one of the reasons everybody is now talking about inequality may be political programs/expectations. Centerpiece of Regan's economics was the idea that massively reducing tax burden on the rich would mean prosperity for everyone ("Trickle-back economics"). Looking back at the last 30+ years, super-rich have greatly increased their wealth, rich have increased their wealth, middle class and, especially, poor have barely increased their wealth (relative to their starting position). Some people are starting to ask: if low taxes were supposed to benefit both him and me, why has his wealth doubled, and I've stayed the same?
    Also, part of this is reaction on the transfer of jobs overseas. Those decisions were made by the rich and super rich, and impacted working class.

    Why inequality is bad:
    US economy should be the most "capitalistic" and "free" among developed economies, with best rewards for success and weakest safety net. Yet, economic mobility between generations is the worst among developed economies. that indicates strong structural barriers against changing economic status from previous generation. If the idea is to reward the best, such structural barriers must go away. How is debatable, but successful examples from the past and from other countries include free education and medical insurance financed through higher taxes, especially inheritance taxes, and elimination of tax exemptions.

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    1. Anonymous,

      "higher taxes, especially inheritance taxes"

      See John's article here:
      http://johnhcochrane.blogspot.com/2014/09/why-and-how-we-care-about-inequality.html#comment-form

      "The solutions, the secrets of prosperity, are simple and old-fashioned: property rights, rule of law, honest government, economic and political freedom."

      How do you reconcile property rights with higher inheritance taxes? Should property rights of the individual extend to next of kin? How many iterations of inherited wealth must an economy go through before it's back to fiefs and serfs?

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  12. Inequality is a symptom of problems rather than a cause of problems in many cases. The economic problem of inequality could exist as a symptom of barriers preventing some groups of people from participating in economic production. It could be race or caste discrimination, it could be labor laws that prevent people from entering the workforce, it could be welfare programs serving as a low grade "hammock", it could be weak property rights and high regulation. It could be state-run education systems with no performance criteria, crippling young minds. It could be central banks that run policies that support the wealth of the wealthy that own risky assets, while punishing the poor who own small savings accounts. It could be persistently weak cultural "human capital" within subcultures, adopting bad habits when it comes to productivity. It could be minority religious sects who reject wealth and life on earth as a human enterprise.

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  13. Prof. Cochran, with all due respect, I think you're going on and on and on about very little. The core problem with inequality is one of justice. Not economics. I don't think there is any disagreement about that. Others believe there are second order effects from severe inequality (deteriorating educational attainment, low social cohesion, etc.) - and to be fair they probable have a point - but that's not the real issue. The real issue is, we have experienced substantial growth in wealth and income in this country since the 70's, but very little of that has gone to the vast majority of citizens. I would ask you a different question - why do you feel that the American people should agree to the social constructs that have delivered us this situation?

    There can be vast disagreement on which social constructs should be reformed (taxes, contract law, corporate law, regulation, social programs, etc.), but is there disagreement on the basic point that growth in prosperity should be broadly shared?

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    1. Andy Wall: "we have experienced substantial growth in wealth and income in this country since the 70's, but very little of that has gone to the vast majority of citizens"

      What is your source, such as a link and specific reference?

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    2. If I get wealthy by entering into private transactions with other parties which make both of us better off, under what system of justice do you deserve any portion of that?

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    3. Anonymous, I think Andy Wall's point is that your myriad of private transactions since the 70s are not making "both of us better off": they are making a tiny percentage much better off while most everyone else is stagnating or worse. Is that your idea of just?

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    4. Andrew Garland, best to start here -
      http://en.wikipedia.org/wiki/Income_inequality_in_the_United_States
      There are hundreds of references there.

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    5. Anonymous, I really don't know where to start...

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    6. Great. Which specific reference, and the section that you are relying on. One solid one will do. Otherwise, are you making stuff up?

      Extract a quote from the information that you say you are relying on. People can then judge the information and the source, and whether you are exaggerating.

      You have made some bold statements about absolute income, not just income inequality. I am not your researcher. It isn't my job to back up your statements. II think other readers will appreciate this also.

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    7. All my private transactions have made me better off. Else I would not have entered into them voluntarily. So, no, I don't think anyone has the right to any of the income Walmart (say) has earned by making me better off.

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  14. To answer the question asked by Anonymous far above ("but liberals propose specific solutions to treat the cause, while conservatives like you say things like "lots of ways to solve this problem". Lots of ways? Let's hear proposals that do not require spending extra money...'):

    1) Require (through protest, petitions and voting in better people) that the government stop taking money from normal people (via taxes or devaluing the currency) and giving it to the already-weathy. For instance, the weapons manufacturers (and military-industrial-complex in general).

    2) Require that the government repeal laws that force normal people to pay better-off people more than they should. Such as laws allowing employees who live off the taxpayers to both unionize AND select who will be on the other side of the negotiating table as well. (E mployees who live off the taxpayers shouldn't have unions. If they insist on having them then they -- like many felons -- should give up the right to vote, because that affects who is on the other side of the negotiating table. And it is why public employees get paid so much more [in salary and benefits] than normal workers -- at the expense of those workers.

    3) Eliminate all defined benefits from public (taxpayer-funded) employees. Both health-care and pension. Giving such virtually unlimited funds (some live for decades after retirement) and deluxe medical care (to not only the employee but his spouse and kids!) for free is one of the biggest sources of wealth transfer from normal people to the well-off. Making government employees have the same options and private ones (401K, purchase medical insurance from insurance company and pay premium) would go a long way towards solving inequality amonst those who live off the taxpayers and those who have real jobs.

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    1. Neal,
      " public employees get paid so much more [in salary and benefits] than normal workers -- at the expense of those workers"

      LOL. Government Jobs are welfare jobs, except where they ain't. And where they ain't (my Field!), they get paid far less than private folks.

      Delete
    2. what is a welfare job? Why not take a handout and call a spade a spade? Why should we give you free money AND respectability by calling it a job?

      Delete
  15. Citigroup put out a study a few years back referring to the "Plutonomy"---the idea being that a large wealthy class can pull its horns with subsequent effects on the overall economy---reduced investment and spending. I think the answer to this is quantitative easing and cuts in FICA taxes.

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  16. By the way, why are low urban school scores attributed to teachers unions, but U.S. failures in Vietnam, Afghanistan and Iraq are never attributed to federal soldiers.

    ReplyDelete
    Replies
    1. Ben,

      If you engage in a war that you have no intention of ever winning (winning being loosely defined as permanent occupation and / or complete destruction), then how has the U. S. failed.

      Ask Paul Krugman about waging an imaginary war against an alien invader to justify increased government expenditures.

      Delete
  17. Fail to see how a massively subsidized public education will improve our economy and fix inequality. EE background here (RF/ss physics the two specialties people don't like) and could barely figure out electrical wiring of my house. Advanced math doesn't help when working on cars, houses, etc. WRT to health care our system has generated huge externalities that has added a significant amount to the world's GDP. So again, not entirely obvious that state intervention would improve mobility in these two arenas.

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    Replies
    1. Nobody is talking about advanced math. We are talking about fixing basic illiteracy so that students from South Side Chicago could have a chance at getting a job in modern manufacturing, or as a Unix system administrator or something. It may not work, so does that mean we shouldn't try ?

      Delete
    2. Fanele-abongwe ZamaOctober 14, 2014 at 6:26 AM

      The only way to finding solutions that will work in the long run is through trial and error.

      Delete
    3. I have been reading scores of these comments and I don't see any effort to distinguish between kinds of inequality. Do hedge fund managers who make $25 million dollars a year get grouped together with say a physician who makes $200,000 a year in these discussions about inequality? I for one can't discuss whether the hedge fund manager's efforts would be affected by higher taxes but I can discuss (anecdotically and theoretically - the latter because I have some personal sense of the situation) what effect higher taxes would have on the physician, engineer or plumbing contractor. And be the way, we are not talking about a particular physician or engineer or plumbing contractor. We are talking about all of them including the 62 year old who decides to retire 2 years earlier because the tax bite pushes the decision over the decision line to retire. Subtract his (or her) production from the GDP top line and you have that production lost forever. Keep that physician working for those two years and you have $40,000 plus contributed to the commonweal plus his (or her) production

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  18. It's the New Voodoo Economics - the claim that there is no conflict between efficiency and equality, that hard choices need not be made, that the route to higher growth is state-enforced equality. Not surprisingly, politicians love this stuff: it's you can have your cake and eat it, too, economics wrapped up in a bow.

    - Douglas Levene

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  19. Improving human capital via educational system improvements would be a great way to improve opportunities for all income levels. My first suggestion down that path is to remove government from the administration of education, given government's theoretical and observed inferiority in delivering advanced client-focused services in the economy. Taking education out of the hands of entrenched government bureaucracies should help poor people the most, as they have the least means to escape their local education state monopolies.

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  20. It is quite evident that inequality has had a negative impact on the economy. it is imperative that this epidemic is attended to. Education is of course a primary method of stabilizing the inequality experienced economically however, education alone will not be able to neutralize inequality. Policies need to be introduced by government as a way of fixing the matter at hand.

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  21. Substance.

    Adjusted for PPP the US has for a long time been a world leader in per student expenditures.

    We are generally in the top 3. Well above the OECD average.

    http://www.keepeek.com/Digital-Asset-Management/oecd/education/education-at-a-glance-2014/annual-expenditure-per-student-by-educational-institutions-for-all-services-2011_eag-2014-table111-en#page1

    From this chart we trail only Switzerland, Luxembourg, and Norway. 2 or maybe all 3 of those countries are very small and rich. We spend more than Sweden and Canada.

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  22. Inequality is primarily a MORAL issue not an economic issue:

    http://www.youtube.com/watch?v=VJaWNFWcUs4

    ReplyDelete

Comments are welcome. Keep it short, polite, and on topic.

Thanks to a few abusers I am now moderating comments. I welcome thoughtful disagreement. I will block comments with insulting or abusive language. I'm also blocking totally inane comments. Try to make some sense. I am much more likely to allow critical comments if you have the honesty and courage to use your real name.