Category: Equitablog

Event – Income and Wealth Inequality in the United States: Evidence, Causes and Solutions | Rice University’s Baker Institute:

The policy debate on the sources, causes and potential solutions to rising income and wealth inequality has intensified in the past few years. Recently, French economist Thomas Piketty’s popular book ‘Capital in the Twenty-First Century’ garnered much attention and ignited further debate about these issues. Piketty argues that wealth will inevitably become more concentrated under capitalism because the returns to wealth are larger than economic growth rates. The solution he proposes is a coordinated global tax on wealth. The Baker Institute’s Tax and Expenditure Policy Program will host two renowned economists to discuss the underlying causes and consequences of inequality, evaluate the empirical evidence of rising inequality, and examine potential solutions for dealing with these problems in the United States.

• WELCOME AND INTRODUCTION: John W. Diamond, Ph.D., Edward A. and Hermena Hancock Kelly Fellow in Public Finance, Baker Institute
• PANELISTS
  • R. Glenn Hubbard, Ph.D.: Dean and Russell L. Carson Professor of Finance and Economics, Columbia Business School
  • J. Bradford DeLong, Ph.D.: Professor of Economics, University of California, Berkeley
• MODERATOR: George R. Zodrow, Ph.D., Allyn R. and Gladys M. Cline Chair of Economics; and Baker Institute Rice Faculty Scholar.

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As prepared for delivery:

The Rise in Income and Wealth Inequality: Evidence, Causes, and Solutions

J. Bradford DeLong :: U.C. Berkeley, NBER, WCEG, INET :: February 3, 2015 :: http://tinyurl.com/dl20150202a

I am very happy to be here, especially as Texas is a state I get to relatively rarely. I have unusually few relatives in it, you see. When the DeLongs got to Wichita they decided to turn north rather than south and wound up in DeKalb County, Illinois. And those who did end up here decamped to North Carolina, leaving me with none until last year when my cousin Annie and her husband moved to Dallas. The last time my wife and I spent any extended time in Texas was on our honeymoon, when we were washed out of our campsite in a swamp near the Louisiana border by a midnight mid-June thunderstorm, so we bypassed Galveston and Houston and then spent a week and a half going Austin-San Antonio-Permian Basin-El Paso.

We are here today because of a problem in the American economy, a problem that emerged back at the end of the 1970s. Since 1980 our rate of productivity growth in the American economy has been little more than half what it was before. Americans used to expect living standards in the country to double every generation. Not since 1980. in fact, standards of living at the median–with half the workers above and half the workers below–pretty much stopped growing around 1980 and are still stuck.

Now you can and probably should paint a more optimistic picture of how the American economy has done since 1980 then the standard rapidly growing wealth at the very top and stagnation everywhere else. Women are much better off economically with the decline in discrimination–if, that is, work burdens both outside and inside the household are fairly shared.

African Americans are better off economically with the decline and discrimination–although the overwhelming proportion of the African-American population has been caught up in the negative parts of broader trends. Our standard indices of what prices really are are biased upwards by about an extra half a percentage point per year which means that our standard indices of real incomes are biased downward by about the same amount. And the value each of us receives from what the buy is greater than its price–if it were not, we would not buy it. For information-type virtual goods the ratio of true user value to market price is bigger, and as more of our economy shifts the information goods this factor pays an extra dividend. Plus how people live is different from what they receive an income because of progressive taxes and the safety net.

Nevertheless:

2/5 of the measured productivity growth we reasonably expected back in the late 1970s that we would have seen by now in the American economy is simply not there.

Effectively all of the growth and measured living standards at the median of the population that we reasonably expected we would have seen by now is simply not there.

And that is a big problem–at least, that is a big problem if you believe in American exceptionalism an American progress.

Why has productivity growth done so much worse than previous generations? That is not a topic for tonight: and if he were to start there, we could never get anywhere else.

Why has the median done so much worse than the average since the late 1970s? Arithmetically, it is not because the bottom has caught up via some leveling process but because the top has leaped ahead. America’s best educated, best positioned, and most fortunate tenth looks no better educated or entrepreneurial relatively speaking now then its predecessor did in 1980. Yet it receives half of all income now while it only received one-third of all income then. That is what is given us a lower 85% little better than stagnant since 1980 in their real incomes, and 85th percentile to 95th percentile upper-middle-class with incomes growing roughly with economy wide productivity, and with an upper-class of households–a fortunate twentieth–with their incomes outstripping everyone else’s. The incomes of the top 1% slots in the distribution are the only ones to have grown faster since 1980 then before–economy why productivity +3% growth and income as per year for the top 1%.

And by the time you get up to the top 0.01%–The richest earning 260 households in Houston, in the rarefied air that only 1300 households now in Houston will ever breathe at any point in their lives–well, the incomes of those 260 start at $7 million a year and average $50 million a year. Back in the late 1970s would have started at, in today’s prices, $900K and averaged $6M. Fur people in that slice, The past generation has been a wonderful era of the American dream coming true.

What has happened has not been a tilting of the income distribution as globalization or the race between education and technology shifts the skill and education premium. What has happened, instead, has been a great hollowing out.

Below the 80%-ile–below roughly $90,000/year in household income–the slots in the distribution have had a hard time holding their own in real terms. Above that we have an upper middle class–from the 80% to the 95%-ile, with household income in the $90-$160,000/year level-—where the slots are more or less holding its own in relative terms and with income levels rising at the rate of growth of productivity.

And above that we have:

• At the 99%-ile, income from 1978-2013 up from $200 to $375,000/year.
• At the 99.9%-ile, up from $500,000 to $1,400,000/year.
• At the 99.99%-ile, up from $900,000 to $7,000,000/year

Why has this happened?

Why the enormous surge in wealth at the top and relative disappointment and stagnation everywhere below the upper-middle-class? 15 years ago when we talked about rising inequality we talked about the decision in the 1970s to stop increasing relative spending on public higher education. We talked about how thereafter technology kept creating more high-skill jobs and removing low-skill jobs and so college graduates and the well-trained found themselves in a sellers’ market and others in a buyers’.

Add onto that globalization, plus something title weird going on at the very top, and we thought we had a handle on it. We did not. The lion’s share of the gains are not being distributed in proportion to education or skill, but simply to those at the top.

There are a bunch of hypotheses. Larry Summers likes to muse on how George Eastman and Steve Jobs were both master technologist entrepreneurs, but one’s inventions supported middle-class prosperity in Rochester for decades, while the other’s created a few Silicon Valley millionaires. Some point to the decline of the union movement: it used to be overpaying your executives handed the UAW a powerful organizing tool, hence George Romney lived in a “normal” house, albeit in Grosse Point.

I tend to focus on the rise of finance–from 3% to 8% of total incomes, a very steeply-peaked sector indeed, and yet does the increase in the share of income it receives reflect anything more than modern high finance is much better at convincing individual middle-class investors and trustees of pension funds to take risks that they shouldn’t?

I tend to focus on the extra 5% of total income we spend on health care that other countries with health-care systems that outperform ours do not–and how much of that money flows to those who have gotten legislatures to bar nurse-practitioners from offering to treat their patients and who have figured out that the way to really make money in health is to collect insurance premiums and then figure out a way not to pay for the treatment of sick people, for sick people are expensive. I tend to focus on how with falling marginal tax rates and much higher pay levels for financiers who top executives regard as their peers, it is much much harder for directors and bosses who are part of the same social networks as bosses and immediate reports to hold the line, especially in the interest of shareholders given our well-known and longstanding flaws in corporate governance.

And then there are the hypotheses that suggest that rising inequality is relatively benign. There is the focus on winner-take-all information-goods industries. Fifty years ago it would have really raised the quality of life of three women to have been able to spend their afternoons hanging out laundry and gossiping with Oprah Winfrey over the back fence. In today’s world she manages to talk to not three people over the fence but to millions via the TV, and to turn her skill into a job, and to make $3 billion. That’s a big plus.

Back at the end of the 1970s it was promised that we would get better corporate governance and more time and energy devoted to invention and production management and less to tax avoidance if we lowered tax rates. We lowered them. But the productivity-growth benefits that were expected–well, I cannot see them in the data, and the only people who can are those with much more faith than St. Thomas ever had. And the argument that entrepreurship can only be spurred by the hope of a few very big prizes–well, Glenn Hubbard’s successor Greg Mankiw in the George W. Bush administration points to Steven Spielberg, Steven Jobs, and J.K. Rowling–all of whom would have been extremely happy to work like the dogs they worked like for 1/100 of the compensation.

Thinking about policies to remedy the situation is very difficult if we do not have a secure diagnosis of the causes of the problem, and we do not have a secure diagnosis of the causes of the problem. But I can say that making our income tax and our safety-net transfer system less progressive is not a rational policy reaction to the market economy’s having become a more unequal place.

And then there is the possibility that it is the old America, the America from 1933-1979, that was the anomaly. America before 1880 is the free-land America of the frontier, but as the frontier closed and the Gilded Age began income and wealth inequality rapidly became like it was today. Perhaps it is not what is going on now that is unusual, but what went on in the shadow of the Great Depression and the New Deal.

That is certainly what Thomas Piketty thinks. He points out that, historically:

1. Wealth is nearly always highly concentrated.
2. The era of wars, revolutions, progressive taxes, depressions, and social democracy that began in the 1910s quickly saw economy-wide wealth-to-annual-income ratios in the North Atlantic fall from about 7 to about 3.
3. And now it simply looks like we are going back to the old pre-World War I Belle-Époque Gilded-Age pattern.

Now this might be a benefit for the rest of us. After all, if the rich are rich because their ability to compound wealth is undisturbed, then they have to invest their wealth in something. And if they invest their wealth in useful buildings and productive machines, well then the rest of us who want to rent those buildings and work in businesses equipped with those machines find that we are in a buyers’ market: our wages go up, interest rates and dividend yields go down, and we have what John Maynard Keynes called the euthanization of the rentier, as the super-rich have immense wealth but because of low rates of profit derive only modest incomes from it.

It’s possible. But, as Thomas Piketty points out, when we look in history for the negative relationship between wealth-to-annual-income ratios and rates of return, we do not find it. Societies in which the rich are richer in relative terms appear to be societies in which the political-economic system is tuned to protect the profits of the rich as well.

So perhaps our grandchildren’s destiny will be to live in a world once again like that of Jane Austen or Honoré de Balzac–one in which marrying well after choosing the right parents are the roads to success as the world measures it…

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The Rise in Income and Wealth Inequality: Evidence, Causes, and Solutions

• J. Bradford DeLong :: U.C. Berkeley, NBER, WCEG, INET :: February 3, 2015
• http://tinyurl.com/dl20150202a

The Problem

• Americans used to expect living standards to double every generation…
• That stopped at the end of the 1970s—productivity growth halved…
• And stagnant real hourly median compensation tells us standards of living at the median stopped growing much, if at all…

Things Wrong with This Graph

• Misses decline in discrimination against women…
• Misses decline in discrimination against African-Americans…
• Denominator in real compensation still mostly a price index rather than a cost-of-living index (bias of 0.5%/year?)…
• Misses consumer surplus…
  • A lot more consumer surplus from “information goods” than from physical commodities…
• Misses progressive taxes
  • Misses safety net

Nevertheless…

• 2/5 of the total productivity growth we reasonably expected back in the late 1970s to see by now is not there…
• Effectively all of the growth in measured living standards at the median we expected to see is not there…

Why Has the Median Done so Much Worse than the Average?

• Arithmetically, top 10% up from 34% to 50%…
  • Reduction in 90% share by 1/4—from 2/3 to 1/2—accounts for the median…
  • Lower 85% little better than stagnant…
  • 85-95% growing with productivity…
  • 95-99% at productivity +0.8%/year…
• Top 1% at productivity + 3.0%/year—better than pre-1980…
• These are incomes of slots, not of people

And Look at the Top 0.01%

• From 1% to 5%…
• From 100 to 500 times average…
• 13,000 households at any point in time…
  • 260 households in Houston…
  • 1300 households now in Houston will make it there at some point in their lives…
  • Average income $50 million/year…
    • Back in the late 1970s their then-counterparts averaged $6 million/year…

What Has Happened?

• A “hollowing out”:
  • Below 80%—below $90K in household income—roughly holding its own in real terms…
  • An upper middle class—80%-95%, household income, $90K-$160K/year—holding its own in relative terms…
  • At the 99%-ile, income from 78-13 up from $200-375K/year…
  • At the 99.9%-ile, up from $500K-1.4M…
  • At the 99.99%-ile, up from $900K-$7M…

Why Has This Happened?

• Used to think:
  • Race between education and technology…
  • Plus “globalization”…
  • With something weird but less important going on at the top and the very top…
• That’s much harder a belief to hold on to now,
  • The lion’s share of the gains aren’t going to the educated, but to the top…

Hypotheses…

• Negative:
  • Something to do with the character of “technology”?
    • Kodak vs. Facebook
  • Decline of “union threat”:
    *It used to be that overpaying your boss gave your unions an excellent organizing tool…
    • George Romney lived in a “normal” house in Grosse Point…
  • Rise of finance: from 3% to 8% of total income…
  • Rise of health-care excess: another 5% of total income…
  • NIMBYism/congestion…
  • “Because they can”—lowered marginal tax rates, could afford to…
• Positive:
  • The rise of winner-take-all information-goods industries:
    • Oprah Winfrey, estimated net worth $3B, as America’s best friend…
  • Beneficial spur for innovation:
    • Greg Mankiw’s faux pas: “Steve Jobs as he develops the iPod, J.K. Rowling as she writes…Harry Potter… or Steven Spielberg as he directs…”
  • It didn’t work: we haven’t gotten faster productivity growth or better corporate control as a benefit of the 1980s reduction in marginal tax rates…
• Worrisome:
  • Great Depression and after as an unusual and anomalous era—it’s not what is going on now that is unusual, it is 1933-1979…

Thomas Piketty’s Take

• Wealth nearly always concentrated…
• Wealth-to-income falls from 7x to 3x annual income…
• Now it is simply going back…
• Will this be a bonanza for the rest of us? Keynes’s euthanasization of the rentier?…
  • No: wealth is very good at protecting itself and its returns…
• Your grandchildren will live, once again, in a world in which marrying well and choosing the right parents are the roads to success as the world measures it…

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2920 words

Must- and Shall-Reads:

• George Dvorsky: “Scientists from Stanford Medical Center have devised a technique for extending the length of human telomeres…”
• Bill McBride: Demographics and GDP: 2% Is the New 4%
• Joschka Fischer: A Greek Burial for German Austerity
• Roger Farmer: The Natural Rate Hypothesis: Past Its Sell-by Date
• Gavyn Davies: How negative can interest rates go?
• Alan Benson, Raimundo Esteva, Frank S. Levy: Dropouts, Taxes and Risk: The Economic Return to College under Realistic Assumptions

 

1. Ezra Klein: Baker’s Dozen Sample of Weblogs: “There’s: * Daring Fireball, * Slate Star Codex, * Ta-Nehisi Coates, * Freddie DeBoer, * Noahpinion, * Marginal Revolution, * Elizabeth Stoker Breunig, * Paul Krugman, Digby’s Hullabaloo, * Jared Bernstein, * Brad DeLong, * The Incidental Economist, * Kevin Drum, to name a few. There are plenty of great voices out there.”

2. Nouriel Robin: On Secular Stagnation: “Who would have thought that six years after… advanced economies would still be swimming in an alphabet soup… of unconventional monetary policies?… Just in the last year and a half, the European Central Bank adopted its own version of FG, then moved to ZIRP, and then embraced CE, before deciding to try NDR…. One result of this global monetary-policy activism has been a rebellion among pseudo-economists and market hacks… ‘Austrian’ economists, radical monetarists, gold bugs, and Bitcoin fanatics… repeatedly warned that such a massive increase in global liquidity would lead to hyperinflation, the US dollar’s collapse, sky-high gold prices, and the eventual demise of fiat currencies at the hands of digital krypto-currency counterparts. None of these dire predictions has been borne out…. Most of the doomsayers have barely any knowledge of basic economics. But that has not stopped their views from informing the public debate…. Unemployed workers… chasing too few available jobs… trade and globalization… labor-saving technological innovations… squeezing workers’ jobs and incomes…. Slack in real-estate markets where booms went bust…. North America’s shale-energy revolution has weakened oil and gas prices…. China’s slowdown has undermined demand for a broad range of commodities… a global glut of manufactured and industrial goods…. Rising income inequality, by redistributing income from those who spend more to those who save more, has exacerbated the demand shortfall. So has the asymmetric adjustment between over-saving creditor[s]… and over-spending debtor[s]…. Perhaps more important has been a profound mismatch with fiscal policy. To be effective, monetary stimulus needs to be accompanied by temporary fiscal stimulus, which is now lacking in all major economies…. With long-term interest rates close to zero in most advanced economies (and in some cases even negative), the case for infrastructure spending is indeed compelling…. All of this adds up to a recipe for continued slow growth, secular stagnation, disinflation, and even deflation…. In the absence of appropriate fiscal policies… unconventional monetary policies will remain a central feature of the macroeconomic landscape.”

3. Ezra Klein: What Andrew Sullivan’s Exit Says: “The incentives of the social web make it a threat to the conversational web. The need to create content that ‘travels’ is at war with the fact that great work often needs to be rooted in a particular place and context… that the reader and the author already share…. We’re getting better at serving a huge audience even as we’re getting worse at serving a loyal one. At Vox, we have some cool ideas that we’re going to roll out in the coming months to try to chip away at this problem, but I don’t think we’re anywhere near a solution…”

4. Mile Kimball: John Stuart Mill on the Rich and the Elite: “I hate bashing of the honest rich. Of course, the dishonest or unworthy rich are a very different matter…. Whatever arguments one may have for taxing the rich, it is not OK to verbally attack the honest rich. If we fail to give honor to those who became rich by helping to provide goods and services that we value, then we will have to let them keep more money in order to provide appropriate incentives. On the other hand, the more we honor and tend to the souls of the rich, the more we can tax them and still have adequate incentives…. Envy raises complex philosophical issues for utilitarian social welfare maximization, related to issues about respect for the boundaries between people…. Interfering with conspicuous consumption out of one’s envy… has the potential to interfere with the efficient provision of incentives… [and] also often leads to attempts to limit conspicuous excellence…”

5. Robert Waldmann: A Question for Those Skeptical about Fiscal Stimulus: “There are many opponents of fiscal stimulus… e.g. Robert Lucas and Eugene Fama. Some argue that nominal aggregate demand affects only the price level… others argue that fiscal stimulus doesn’t affect aggregate demand. My question is: What about Argentina?… Do fiscal policy skeptics… think that a temporary reduction in Argentine public spending would cause reduced aggregate demand?… If someone who considers himself a fiscal stimulus skeptic realizes that he thinks that austerity is a good anti-inflation tool, then he has a puzzle to solve. I also ask those who believe in expansionary austerity if they think that Argentina should cut aggregate demand and inflationary pressure by raising public spending. If the problem is the over-exuberant confidence fairy, then policy should be designed to damage confidence…”

Should Be Aware of:

• Laura Tyson and Lenny Mendonca: Inside the Training Revolution
• Ozymandias: Certain Propositions Concerning Callout Culture
• Lawrence Summers: Academic Freedom and Anti-Semitism
• Steve M.: Mark Halperin Is Incapable of Shame

*

 

1. MathBabe: Leaving Academia for Finance and then Leaving Finance…: “People who are successful for a while think they know everything.  People who are rich think they are always right. People who are both successful and rich are absolutely incredible douchebags. It seems like a law of nature. (i.e. I can only assume that if I ever become rich and successful I will also become a douchebag….) when I think about that last project I was working on, I still get kind of sick to my stomach. It was essentially, and I need to be vague here, a way of collecting dumb money from pension funds. There’s no real way to make that moral, or even morally neutral. There’s no way to see that as scavenging on the marketplace. Nope, that’s just plain chasing after dumb money, and I needed to quit…”

2. Ogged: Unfogged: “I enjoyed Belle ‘The Blender’ Waring’s follow-up on Chait, and it reminded me of a thought I had after his anti-PC piece: this is going to be interesting just as a psychological study of one guy. He might end up backgrounding his redistributive, government-loving self and becoming by degrees indistinguishable from a lefty-attacking righty so that in twenty years one of today’s kindergartners will say to her friend: ‘Dude, did you know that Jonathan Chait used to be a liberal?’ Or he might do the harder thing, and keep plugging away as one liberal writer among others, with the occasional defensive joke about those disagreements. It’s of no consequence, but I’ll be watching anyway.”

3. : Comment on Following Up: “Tim ‘Ripper’ Owens: Actually, reading [TNR] in the 90s when I lived in DC, the vibe was very specific. It was ‘I am a smarmy recent Ivy Leavue grad, likely Jewish, who is completely terrified of being mugged on my way home after work. Also Clinton is surrounded by too many goobers.’ I swear that basically is sufficient to define the magazine’s politics in the early-mid 90s. peep: What’s a goober? Tim ‘Ripper’ Owens: Dumb Arkansas redneck, but in the mind of my ideal-type TNR reporter it basically included anyone who wasn’t exactly like them. Thorn: I hear you, fa, and I’d love to read a more expansive history, but this wasn’t it, I thought. And to dalriata’s second point, the 1991 rap article struck me as almost entirely of a piece with what I was reading in my parents’ National Reviews in ’91. The hard part of all of this is the people who had an emotional attachment to TNR trying to make sense of what they loved and how to justify and/or recreate it, right?…”

Ezra Klein: Baker’s Dozen Sample of Weblogs: “There’s:

• Daring Fireball,
• Slate Star Codex,
• Ta-Nehisi Coates,
• Freddie DeBoer,
• Noahpinion,
• Marginal Revolution,
• Elizabeth Stoker Breunig,
  * Paul Krugman, 
• Digby’s Hullabaloo,
  * Jared Bernstein,
• Brad DeLong,
• The Incidental Economist,
• Kevin Drum,

to name a few. There are plenty of great voices out there.

Nouriel Robin: On Secular Stagnation: “Who would have thought that six years after…

…advanced economies would still be swimming in an alphabet soup… of unconventional monetary policies?… Just in the last year and a half, the European Central Bank adopted its own version of FG, then moved to ZIRP, and then embraced CE, before deciding to try NDR…. One result of this global monetary-policy activism has been a rebellion among pseudo-economists and market hacks… ‘Austrian’ economists, radical monetarists, gold bugs, and Bitcoin fanatics… repeatedly warned that such a massive increase in global liquidity would lead to hyperinflation, the US dollar’s collapse, sky-high gold prices, and the eventual demise of fiat currencies at the hands of digital krypto-currency counterparts. None of these dire predictions has been borne out….

Most of the doomsayers have barely any knowledge of basic economics. But that has not stopped their views from informing the public debate…. Unemployed workers… chasing too few available jobs… trade and globalization… labor-saving technological innovations… squeezing workers’ jobs and incomes…. Slack in real-estate markets where booms went bust…. North America’s shale-energy revolution has weakened oil and gas prices…. China’s slowdown has undermined demand for a broad range of commodities… a global glut of manufactured and industrial goods…. Rising income inequality, by redistributing income from those who spend more to those who save more, has exacerbated the demand shortfall. So has the asymmetric adjustment between over-saving creditor[s]… and over-spending debtor[s]….

Perhaps more important has been a profound mismatch with fiscal policy. To be effective, monetary stimulus needs to be accompanied by temporary fiscal stimulus, which is now lacking in all major economies…. With long-term interest rates close to zero in most advanced economies (and in some cases even negative), the case for infrastructure spending is indeed compelling…. All of this adds up to a recipe for continued slow growth, secular stagnation, disinflation, and even deflation…. In the absence of appropriate fiscal policies… unconventional monetary policies will remain a central feature of the macroeconomic landscape.

Ezra Klein: What Andrew Sullivan’s Exit Says: “The incentives of the social web…

…make it a threat to the conversational web. The need to create content that ‘travels’ is at war with the fact that great work often needs to be rooted in a particular place and context… that the reader and the author already share…. We’re getting better at serving a huge audience even as we’re getting worse at serving a loyal one. At Vox, we have some cool ideas that we’re going to roll out in the coming months to try to chip away at this problem, but I don’t think we’re anywhere near a solution…

While very good, this needs an analysis not just of envy but of spite as well. I have often wanted someone to provide the definitive analysis of how to think about interdependent utility functions–an analysis that Miles, in fact, took a first crack at in his dissertation…

Mile Kimball: John Stuart Mill on the Rich and the Elite: “I hate bashing of the honest rich. Of course, the dishonest or unworthy rich are a very different matter…. Whatever arguments one may have for taxing the rich, it is not OK to verbally attack the honest rich. If we fail to give honor to those who became rich by helping to provide goods and services that we value, then we will have to let them keep more money in order to provide appropriate incentives. On the other hand, the more we honor and tend to the souls of the rich, the more we can tax them and still have adequate incentives…. Envy raises complex philosophical issues for utilitarian social welfare maximization, related to issues about respect for the boundaries between people…. Interfering with conspicuous consumption out of one’s envy… has the potential to interfere with the efficient provision of incentives… [and] also often leads to attempts to limit conspicuous excellence…”

Must- and Shall-Reads:

• Mark Thoma: Links for 01-31-15 <– Mark Thoma’s daily links are especially good today…
• Estelle Sommeiller and Mark Price: The Increasingly Unequal States of America: Income Inequality by State, 1917 to 2012
• David Cay Johnston: Economy Grows Incomes Shrink
• Chad Stone: The Unconvincing Claim That Unemployment Benefits Hurt Jobs

 

1. Paul Krugman: Bad Tayloring: “The world has turned out to be a much more dangerous place than [John] Taylor-rule enthusiasts imagined, so why impose a rule devised, we know now, by economists who completely misjudged the risks?… Taylor himself… claims that the whole financial crisis thing was because the Fed departed slightly from his version of the rule in the pre-crisis 2000s. But, as [Tony] Yates points out, this assigns an importance to monetary policy that is wildly at odds with the kind of modeling used to justify the rule in the first place… as Yates does not point out… the distinct whiff of someone inventing ever-more bizarre stories to avoid admitting having been wrong about something. This is not the kind of argument on which to base rules that permanently constrain policy.”

2. Paul Krugman: I See Very Serious Dead People: “[I am] annoyed… [at] the constant efforts on the part of Very Serious People to turn discussions away from monetary and fiscal policy, recessions and sluggish recoveries, to the supposedly more fundamental issues of structural reform and long-term growth. Rattner dismisses the austerity/stimulus debate as ‘simplistic’; Jeff Sachs calls Keynesian concerns ‘crude’; many… are eager to get away from all this deflation stuff and talk about how what they imagine to be, or wish were, the really important issues like Big Data and a world that’s even flatter. There were people like that during the Great Depression too…. So…. First, we’re now in year eight of a massive setback to economic growth, to living standards…. Technology hasn’t retrogressed; institutions haven’t suddenly gotten far worse. This is about the business cycle, and about business cycle policy. If you want to ignore all that… you’re exactly the kind of person Keynes was mocking…. Second… Keynesian macroeconomics… has worked very well in this long slump. While people were very seriously intoning that it was simplistic and crude to think that those little models could be of any use in a changing world yada yada, macroeconomists were making remarkable, counterintuitive predictions… that came true…. Third, what’s really striking about all the talk about… structural issues… is how fuzzy the thinking is…. The Very Serious seem remarkably casual about thinking things through. Finally, I know that people who airily dismiss the austerity debate and all that and demand that we focus on the long run think they’re taking a brave stand; but you know, they aren’t…. Face it, stimulus and austerity, QE or not, are politically charged issues where taking any kind of stand will get you attacked. And since they are also important issues, pretending that they aren’t is a form of moral cowardice.”

3. Josh Barro: Why Obama’s Proposal for 529s Had No Chance: “The first rule of modern tax policy is raise taxes only on the rich. The second rule is that your family isn’t rich, even if you make a lot of money. President Obama’s State of the Union proposal to end the tax benefits for college savings accounts ran afoul of these rules, which is why he abandoned it, under intense pressure from both political parties, within a week. Tax-free college savings accounts, like the mortgage interest deduction and the state and local tax deduction, principally benefit people who range from affluent to wealthy. In pushing its proposal, the White House pointed to Federal Reserve data showing that 70 percent of balances in the college accounts were held by families making at least $200,000 a year. In theory, tax reform is supposed to be built around cutting back preferences like these…. But in practice, politicians from both parties have made a point of holding the group you might call the ‘merely affluent’ harmless from tax increases. If you make $150,000 to $225,000, you make about two to three times the national median income for a married couple. The list of occupations that can get you into this income bracket–government official, academic, lobbyist, journalist–can sometimes make it hard for people in political circles to remember that 92 percent of American married couples make less than $200,000 a year… $200,000 is not a normal income, even in a prosperous suburban county like Westchester, N.Y., where 77 percent of married couples are somehow managing to get by on less. In Montgomery County outside Washington, the figure is 72 percent. These figures start to seem normal to politicians only because, when they’re not hanging out with ultra-wealthy donors, they tend to spend time with the sort of pretty-wealthy professionals who use 529 accounts. They also start to seem normal to reporters, perhaps because $200,000 is about what a married couple might make if both worked as correspondents for major news organizations. One reads frequently of the plight of living on $200,000 or more a year. Writing for The Fiscal Times in 2010, Karen Hube found that $250,000 ‘does not a rich family make,’ after you consider the cost of buying a home in an affluent suburb with a top school district like Bethesda, Md. (Of course, one option is to not live in Bethesda.) A Wall Street Journal article this September laid out how $400,000 isn’t a lot of money–after you spend it. Mr. Obama could still have tailored his 529 proposal… proposed to apply the same income and contribution limits that apply to Roths. That would limit the benefits to families making under $200,000 a year. Instead, perhaps because of the political firestorm, the White House dropped all plans to touch 529s…”

Should Be Aware of:

• Michael Schiavo: Jeb Bush ‘Put Me Through Hell’
• Judith Tarr: “What frustrated me when I started selling professionally was the push to always write female protag because ‘you’re a girl, you have to.’ Between that and the push to squeeze the stories into set marketing categories, I sometimes got cranky. Then I’d get subversive. That wasn’t always as successful as it might have been, and I made some pretty big mistakes. But it was an awful lot of fun. Still is…”

 

1. Michael Kruse: Jeb ‘Put Me Through Hell’: “In June, the medical examiner released Terri Schiavo’s autopsy which confirmed what the judges had ruled for years based on the testimony from doctors concerning her prognosis. Her limbs had atrophied, and her hands had clenched into claws, and her brain had started to disappear. It weighed barely more than a pound and a third, less than half the size it would have been under normal circumstances. ‘No remaining discernible neurons,’ the autopsy said. She couldn’t see. She couldn’t feel, not even pain. Forty-one years after her birth, 15 years after her collapse, Terri Schiavo was literally a shell of who she had been. Bush read the autopsy—then wrote a letter to the top prosecutor in Pinellas County. He raised questions about Michael Schiavo’s involvement in her collapse and about the quickness of his response calling 911. ‘I urge you,’ the governor wrote to Bernie McCabe, ‘to take a fresh look at this case without any preconceptions as to the outcome.’ McCabe, a Republican, responded less than two weeks later, saying he and his staff ‘have attempted to follow this sound advice’–without any preconceptions: ‘unlike some pundits, some “experts”, some email and Web-based correspondents, and even some institutions of government that have, in my view, reached conclusions regarding the controversy…’ McCabe’s assessment: ‘all available records’ were ‘not indicative of criminal activity…’

2. Charles Pierce: Potential Presidential Candidate Jim Webb Has A Lot To Say About The Democratic Party Appealing More To White People: “Let us stipulate for a moment that Andrew Jackson also was a slaveholder and a genocidal madman, no matter how much the buckskin-shirt crowd loved him. Let us not return to his principles, thank you. And while FDR and Truman were fine presidents, who did some of all that they could have done, they still presided over a Democratic party that was the political and constitutional bulwark of the Jim Crow South. Neither one of them could break that dark alliance until the Civil Rights Movement shook the political order to the point where Lyndon Johnson could blow up the alliance entirely. Webb can’t have this argument until he acknowledges: a) that the ‘principles of the Democratic party’ to which he appeals also had a Whites Only sign on them, b) that the commitment of the Democratic Party to equal rights was a titanic moral victory for the entire nation, and c) that a lot of the voters to whom he suggests reaching out remain sorry that the sign ever came down. In the days to which Webb has suggested returning, the Democratic party did not remotely stand for ‘everybody’ who needed it getting access to the corridors of power. The Democratic party only started standing for that at its 1948 national convention, and didn’t fully stand for it until 1965…”

3. Michael Kruse: Jeb ‘Put Me Through Hell’: “Up in Washington, Congress debated the case of Terri Schiavo, searching for possible methods of federal intervention–with Frist and Speaker of the House Dennis Hastert, both of whom now say they don’t want to talk about it, vowing to work together through the weekend of Palm Sunday if necessary. A memo that came from Martinez’s office called it ‘a great political issue’ for Republicans. Frist, a surgeon from Tennessee, said on the Senate floor that Schiavo didn’t seem to him to be in a vegetative state, based on his viewing of the Schindlers’ video snippets. Senator Rick Santorum from Pennsylvania called the removal of the feeding tube ‘a sentence that would not be placed on the worst criminal.’ Majority Leader Tom DeLay led the way in the House. Santorum and Frist did in the Senate. Few members of Congress spoke against it. South Florida Congresswoman Debbie Wasserman Schultz was one. ‘There is no room for the federal government in this most personal of private angst-ridden family members,’ she said. Republican John Warner from Virginia was the only senator to speak against it…”

4. Walter Bagehot: The English Constitution: “The present Conservative Government contains more than one member who regards his party as intellectually benighted; who either never speaks their peculiar dialect, or who speaks it condescendingly, and with an ‘aside’; who respects their accumulated prejudices as the ‘potential energies’ on which he subsists, but who despises them while he lives by them…”

5. 1. MaxSpeak: Blogs are so over: “That’s what I’m hearing, after the pending demise of Andrew Sullivan’s venture. Well f— that. F— your monetization. F— your SEO keywords. F— your snackable content. F— your clickbait. Clear your mind of trivialities and inanities. Don’t waste time arguing with idiots. Tune out the noise. Seek a higher level of consciousness. Get laid. I plan to leave my nine-to-five gig at the end of this year. And. This. Place. Will. Rock. I’m on Facebook and Twitter all the time, but I predict the endless drive to ‘monetize’ them will make them shittier and shittier. There will always be an audience for discussions deeper and more substantive than are possible on FB or Twitterville. I don’t need thousands of people to have a rewarding conversation, and I don’t need to get rich. Maintain, people. We have work to do.. About MaxSpeak: Older than dirt. Rutgers, Class of ’71. Ph.D. in economics, University of Maryland. Suburban soccer dad spouting like a rec room bolshevik.”

Paul Krugman reads Tony Yates pointing out that John Taylor is, politely, incoherent in his advocacy that his version of the Taylor Rule be legislated in stone to command the Federal Reserve. Either monetary policy is much more powerful than the arguments for Taylor’s version of his rule presumes–in which case it is a very bad idea–or the world is much more risky than the arguments for Taylor’s version of his rule presumes–in which case it is a very bad idea. There is simply no coherent way to get from the macroeconomic history of the 2000s to the conclusion that John Taylor’s version of his rule is a good idea:

Paul Krugman: Bad Tayloring: “The world has turned out to be a much more dangerous place…

…than [John] Taylor-rule enthusiasts imagined, so why impose a rule devised, we know now, by economists who completely misjudged the risks?… Taylor himself… claims that the whole financial crisis thing was because the Fed departed slightly from his version of the rule in the pre-crisis 2000s. But, as [Tony] Yates points out, this assigns an importance to monetary policy that is wildly at odds with the kind of modeling used to justify the rule in the first place… as Yates does not point out… the distinct whiff of someone inventing ever-more bizarre stories to avoid admitting having been wrong about something. This is not the kind of argument on which to base rules that permanently constrain policy.