Thursday, May 16, 2019

Two Videos

My Hoover colleague Russ Roberts just finished a nice video on inequality:


Among other takeaways, he stresses that the people who were rich in 1980 are not the same people or even families who are rich now. It is not true that "the rich got richer." He also tracks individuals through time, and poor individuals got richer to.  There is a lot more economic mobility in the US than the standard talking points.

The video is part of Hoover's Policy Ed initiative, and comes with lots of background information. I'll be curious to hear your comments.

A few months ago I went to the Friedberg Economic Institute to give an evolving talk I call "Free to grow" bringing together various themes of this blog and other writing. It's not nearly as polished as Russ's, and I'm still struggling to keep it under 10 hours!


(Click here to see the video.) The Friedberg Institute is a nascent free-market oriented organization in Israel. It mostly sponsors talks and classes for undergraduates, and for alumni of their program. As a result it is forming a club of sorts of talented and interesting young Israelis interested in economic freedom. If you're in Israel, check it out, and if you're invited to talk there, accept!

19 comments:

  1. Israel has come a long way from the Socialist/Communist thinking of the 1950's to the pro-capitalist start-up tech center it is today.

    Fortunately for Israel, Israelis generally recognize the importance of national wealth for the individual.

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    1. They need to step it up though and show the world by example the wonders of open borders. Imagine a totally open borders Israel as a shining example to the world of the benefits of more efficient division of labor, etc. (beyond humanitarian argument). It's a first world country bordering many third world countries with many immigrants that would love to better their lives.

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  2. Comments and several charts I left on his web site.

    Russ, the problem with your analysis is that it does not directly address the problem (not of income inequality, but) of growing income inequallity. Instead of looking at income groups look at income as a whole in society. Even assuming your analysis is correct, that people's incomes move about over time, the gini ratio/coefficient shows income dispersion is getting worse.

    Whether you are looking at Personal Incomes, Family Incomes, Household Income, or incomes adjusted for Government redistributions -- the income gap is widening through each decade since the least gap of the mid-1950s to 1960s.

    https://fred.stlouisfed.org/graph/?g=nHAq

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    1. But is income distribution a "problem" if there is significant mobility between deciles? Equality of opportunity has always been a more important criteria than equality of outcome. As Roberts' video points out - in a way that seems to be unacknowledged - is that there are better ways to measure equality of opportunity than traditional analyses have utilized.

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    2. Where do you see mobility if the income inequality gap is getting worse as we go from decade to decade since the 1960s.

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    3. Hard to measure "the income inequality gap" with a statistic that is necessary, but not sufficient (like a Gini coefficient).

      Here's an interesting data point:
      Rex Sinquefield was raised in an orphanage in St. Louis. In 1960, he's in the bottom wealth decile. He works hard, gets a degree from St Louis University, an MBA from U Chicago and founds Dimensional Funds Advisors. Retires from that and moves back to St Louis where in 2010 he's in the top wealth decile.

      Is mobility like that a good thing or a bad thing? (The equality of opportunity here is a great thing!). However, the more money he made at Dimensional Fund Advisors, the worse he made the Gini coefficient.

      Statistics which follow a panel of individiuals through time are always going to provide better information than the series of snapshots we get with the Gini's.

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    4. The problem is not mobility or income inequality -- the problem is a growing income inequality.

      Theoretically you can have upward mobility of all incomme groups; but, if the upper income groups are moving at a higher rate the dispersion will get greater.

      The charts show that mean (average) incomes are increasing faster than median incomes -- that is a growing income inequality.

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    5. The Census Bureau is not giving you a series of snapshots with the Gini's -- it is a yearly continuous stream. The data is what it is. Neither Russ Roberts or you have explained why. Talking about mobility avoids the issue of the growing gap in income inequality.

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  3. As for "Free to Grow" I might mention that Martin Wolf had two good article in the FT last week and this week.

    https://twitter.com/martinwolf_/status/1125811485115072514
    https://twitter.com/martinwolf_/status/1128329783790718978
    [I think FT has a pay wall.]

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  4. Excellent explanation of the meaning of the inequlity numbers. I would add that not income inequality is a problem, but poverty is.

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  5. If I take (what seems to be) your argument seriously - that a decreasing Gini coefficient is a necessary and sufficient condition for improving welfare in the US - then I'm boxed into concluding that if Bill Gates were to move from Seattle to Singapore (thus decreasing the Gini coefficient in the US) that welfare in the US would improve.

    Measuring and designing programs to improve "equality of opportunity" is always going to be preferred to improving "equality of outcome."

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    1. No, my economic argument would be more along the political and sociological line -- that if the income inequality gap is growing it is challenging domocratic rule in society.

      A topic that has come up many times at Davos in 2019 and years before -- https://www.youtube.com/user/WorldEconomicForum -- and not just from an economic argument.

      Just one such example, outside of the economic displine -- http://saskiasassen.com/PDFs/ASA%20Expul%20Trajectories%20Spring%202016.pdf.

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    2. You seem quite devoted to the "Gini coefficient" - even though the spirit of the posted article is to think about its limitations. Two specific questions for you:
      (i) Would the US democracy be stronger if Bill Gates moved from Seattle to Singapore?
      (ii) Would the US democracy be stronger if Rex Sinquefield had stayed in his orphanage?

      (Both of these would lower the Gini coefficient).

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    3. You don't have to rely on the gini coefficient. I have a chart, like I referenced before, it shows the mean income increasing its gap from mediam incomes (nominal and real, for personal incomes, family incomes, household incomes, even when Govt transfers are considered). If you don't like the gini coefficient because of its limitations, what about comparing mean and median incomes?

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  6. Easy to see you're committed to "equality of outcome" by any measure. Unless your "means and medians" are calculated on a panel of data (connecting back to the original article here), they're likely to be no more insightful than Gini's.

    At this point we're probably talking past each other, but I have two takeaways from "Grumpy's" post:
    (i) Roberts' article gives us a push to use more panel data in evaluating economies. I found this insightful.
    (ii) Even though it raised the Gini coefficient (or increased the gap between mean and median incomes), I'm glad that Rex Sinquefield got out of the St Vincent home for children.

    (Actually, there's a third: the "Free to Grow" link appears to be a link to a picture of a video, rather than a link to an actual video. Would love to see the video!)

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    1. I do not approach this subject from an equality of opportunity or an equality of outcome perspective. I view the growing gap in income inequality as failed economic policies over several decades, mainly coming out of the inflationary period of the 1970s.

      There is a trade off between stablility and growth and our policies have put emphasis on stability, especially since the takeoff of globablization in the 1990s. and by greater utilization of monetary policy over fiscal policy. By sacrificing growth (by marginal differences, not by big absolute amounts; we now settle for 2% to 3% real GDP rather than 3% or more) we have lost some of the vitality of our economic sector... and our political sector.

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    2. John, I was confused by the picture/video, thinking that was the link. Instead, immediately above it is a hyperlink. Click on the hyperlink to get to the video.

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  7. John, the link to your video is not a live one. I'd love to see it!

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  8. During the first 15 billion years there was never continuous growth of anything, either at simple or compound rate. Growthists are suggesting a prolongation of a cycle not a continuous upward path. Or a new form of physics. Can a growthist, being out of touch with reality in that area, claim credibility in other areas? It is similar to the arguments about the cognitive dissonance among the founding fathers. Both global sources and global sinks are suggesting the end of economic growth. It has gone beyond the cliches concerning infinite economists.

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