This new NBER paper by John Komlos is of real interest, and it documents the “average is over” idea of the dwindling of middle class fortunes:

We estimate growth rates of real incomes in the U.S. by quintiles using the Congressional Budget Office’s (CBO) post-tax, post-transfer data as basis for the period 1979-2011. We improve upon them by including only the present value of earnings that will accrue in retirement and excluding items included in the CBO income estimates such as “corporate taxes borne by labor” that do not increase either current purchasing power or utility. We estimate a high and a low growth rate using two price indexes, the CPI and the Personal Consumption Expenditure index. The major consistent findings include what in the colloquial is referred to as the “hollowing out” of the middle class. According to these estimates, the income of the middle class 2nd and 3rd quintiles increased at a rate of between 0.1% and 0.7% per annum, i.e., barely distinguishable from zero. Even that meager rate was achieved only through substantial transfer payments. In contrast, the income of the top 1% grew at an astronomical rate of between 3.4% and 3.9% per annum during the 32-year period, reaching an average annual value of $918,000, up from $281,000 in 1979 (in 2011 dollars). Hence, the post-tax, post-transfer income of the 1% relative to the 1st quintile increased from a factor of 21 in 1979 to a factor of 51 in 2011. However, income of no other group increased substantially relative to that of the lowest quintile. Oddly, the income of even those in the 96-99 percentiles increased only from a multiple of 8.1 to a multiple of 11.3. We next estimate growth in welfare assuming diminishing marginal utility of income. A logarithmic utility function yields a growth in welfare for the middle class of roughly 0.01% to 0.07% per annum, which is indistinguishable from zero. With interdependent utility functions only the welfare of the 5th quintile experienced meaningful growth while those of the first four quintiles tend to be either negligible or even negative.

For that end bit, it means in happiness terms the real gains have come at the bottom of the income distribution.  Shout it from the rooftops…

energy

That is from TMFHousel, via @pmarca.

European countries that refuse to share the burden of high immigration will face a financial charge of about €250,000 per refugee, according to Brussels’ plans to overhaul the bloc’s asylum rules.

The punitive financial pay-off clause is one of the most contentious parts of the European Commission’s proposed revision of the so-called Dublin asylum regulation, due to be revealed on Wednesday…

According to four people familiar with the proposal, this contribution was set at €250,000 per asylum seeker in Monday’s commission draft. But those involved in the talks say it may well be adjusted in deliberations over coming days.

“The size of the contribution may change but the idea is to make it appear like a sanction,” said one official who has seen the proposal. Another diplomat said in any event the price of refusing to host a refugee would be “hundreds of thousands of euros”.

Here is the full FT piece.  Elsewhere on the pricing front, there is talk that at some point Uber will move away from surge pricing.

Tuesday assorted links

by on May 3, 2016 at 12:34 pm in Uncategorized | Permalink

Analysts who have concluded that inequality in life expectancy is increasing have generally focused on life expectancy at age 40 to 50. However, we show that among infants, children, and young adults, mortality has been falling more quickly in poorer areas with the result that inequality in mortality has fallen substantially over time. This is an important result given the growing literature showing that good health in childhood predicts better health in adulthood and suggests that today’s children are likely to face considerably less inequality in mortality as they age than current adults.

We also show that there have been stunning declines in mortality rates for African-Americans between 1990 and 2010, especially for black men.

That is from Janet Currie and Hannes Schwandt.

This is often forgotten:

One traditional way of measuring nations’ power relative to each other is to compare their gross domestic product. By this measure, Russia gained economically on all of its competitors as well as on the world as a whole in 1999-2015.

And this:

The GINC measures national power as the geometric mean of the following ratios:

  • TPR = total population of country ratio;
  • UPR = urban population of country ratio;
  • ISR = steel production of country ratio;
  • ECR = primary energy consumption ratio;
  • MER = military expenditure ratio;
  • MPR = military personnel ratio.

The GINC shows Russia’s power rising by 6.53 per cent in 1999-2014, while the power of the US, UK, France, Germany and Italy declined 13.14 per cent, 24.42 per cent, 24.23 per cent, 29.92 per cent and 27.29 per cent respectively in 2014 compared with 1999.

That is from Simon Saradzhyan writing for the FT.

JR, a loyal MR reader, writes to me:

Your loyal readers, such as myself, know of your love for mormons. This made me curious whether you think the tithing requirement in mormonism have have the same incentive effects as a tax.

On one view, people will only bother giving if they are actually pleased about being able to contribute to church so the tithing is a form of consumption, not a tax.

On another view the tithing is a price you pay to maintain social status in your group. You may be able to cheat a little, but not too much on the requirement before the church notices that you are not paying a sum that corresponds to your apparent income. In that case one would expect it to act more like a tax.

Finally one can speculate that even if one has internalized the requirement to pay the tithe, and really, truly believes it, it might still act as a tax. One might feel it like a duty to pay, but feel any guilt over not maximizing ones income in order to pay more.

What is your take? There are many religions with tithing requirements including Islam so it ought to be of general economic interest to figure out its effects.

I would model tithing as similar to paying a tax, except that a) the act of payment itself yields utility, and b) there may be a kink at the level of the suggested tithe.  For instance you know that if you pay ten percent, you are respected within the church community.  Paying eleven percent does not get you proportionately more respect, however.  In such a model, tax incidence theory changes.  It would matter which side of the market a tax is levied upon, to give one concrete example.  You don’t just care about “how much the church gets,” you also care about “how much you give to the church,” and with the kink  you’ll try to stay at ten percent whether the supply side or demand side of a donation is taxed.  Thus if there is a tax on the demand side you will give more, but not if your contribution is taxed on the side of the church.

This kind of tithing motives also weakens the crowding out of donations if the government subsidizes the church, for instance.  You’ll stick at ten percent even if the church coffers are overflowing from the subsidy.  Or tax subsidies to giving may not push many people over ten percent, because ten percent suffices to earn most of the respect on tap.

Having been named as Mr Nakamoto once, unconvincingly, Mr Wright has a steep hill to climb to convince the world that he is indeed bitcoin’s founder. Evaluating his claim involves the application of a multi-step paternity test. First comes the factual evidence: can Mr Wright prove that he is in possession of cryptographic keys that only Mr Nakamoto should have? Second, does he have convincing explanations for the holes in the story which came to light when he was first outed in December? Third, does he possess the technical knowledge which would have enabled him to develop a system as complex and clever as bitcoin? And fourth, to what extent does he fit the image that people have of Mr Nakamoto; in particular, what do those software developers who have collaborated online with the founder of bitcoin think of Mr Wright’s claim?

Here is a very good Economist article, I say p = 0.415.  There is some legitimate evidence and some serious endorsers, but the whole thing still doesn’t smell right to me.  You?

Update from my iPad: uh-oh, http://www.economist.com/news/briefings/21698066-onus-on-craig-wright-provide-better-evidence-satoshi-nakamoto?fsrc=scn/tw/te/bl/ed/craigwrightsclaimsunderfire

Monday assorted links

by on May 2, 2016 at 12:03 pm in Uncategorized | Permalink

Guru, a 2007 movie from India starring Abhishek Bachchan and Aishwarya Rai and directed by Mani Ratnam, is one of the most pro-free market movies ever made and perhaps the best.

Guru follows Gurukant “Guru” Desai from his small village in India to Turkey where in a series of evocative scenes he shows a natural affinity for the rhythms of markets. Determined to work for himself, Guru returns to India and tries to enter the cotton market but he needs a license and the license system is monopolized by a rich clique with close ties to the government. Guru has no entry into this clique, which Guruposterdiffers in class and caste from his village roots, but his cause is taken up by a liberal newspaper editor, Manik Dasgupta, a veteran of the independence movement, who shames the government into opening up the license system. Guru and Manik become close and Guru becomes godfather to Manik’s daughter who has epilepsy.

The movie’s portrayal of entrepreneurship and the problems that Guru must surmount–financial, familial, and political–is unusually smart and sympathetic.

As Guru rises to the top the movie becomes more complex. Guru bribes politicians and skirts rules and regulations. His previous benefactor, the newspaper editor, turns against him. Derek Elley at Variety says Guru “forgets his ethics on the way to the top.” That’s a common but incorrect reading. What is going on is more subtle. Ratnam is telling us that Guru’s virtues are incompatible with a corrupt system and a choice must be made. Consider that on his way to the top, Guru has promised to always honor, love and respect his elder patron and even as they are at odds, he never wavers in this promise. Nor does he waver in his love for Manik’s epileptic daughter, even as she marries the reporter who has led the charges against Guru. Rather than having been corrupted, Guru demonstrates an iron-willed commitment to virtue. Riches and success did not corrupt Guru’s personal virtue nor has his public virtue been corrupted. In contrast to the earlier corruption of the ruling clique we never see Guru preventing others from competing with him. He bribes only in order to build.

The movie is powerful not because it opposes virtue and corruption but because it opposes two ideas of virtue. Is it virtuous to follow the law when the law itself is corrupt? Other artists have explored this question when the lawbreaker opposes social injustice, ala Gandhi and Martin Luther King, but what about when the lawbreaker opposes economic injustice? The question the movie asks is a classic question from Ayn Rand, how can an honest (business)-man live in a corrupt world? The theme becomes clear in the climax, a trial in which Guru, ala Howard Roark, puts society on trial.

The director, Mani Ratnam, has great ambitions. In telling the story of India’s liberation, not from colonialism but from socialism, he aims to elevate a new type of hero for post-socialist India, a business guru. In the trial, Ratnam is also arguing that a house divided against itself, a house half slave and half free, cannot long remain standing. Either India must push forward with a new vision for itself based on business, free and open markets and liberal views (on gender, the disabled, religion and other issues) or it will indeed fall back into internal strife and corruption.

I love the theme of Guru but the movie wouldn’t work without a great performance from Abhishek Bachchan. The beautiful Aishwarya Rai, a Miss World champion, gives a very good performance (she married Bachchan as the movie premiered) as do a host of other actors.

I find it encouraging for India that the movie was a hit and has a 90% rating on RT. You can buy the movie at Amazon or watch it on Youtube.

Addendum: Guru is loosely based on the life of Dhirubhai Ambani who from humble beginnings built Reliance Industries into one of the largest and most profitable firms in the world.

The heroes of Jaron Lanier

by on May 2, 2016 at 3:39 am in History, Law, Web/Tech | Permalink

There are many, but they include:

  • J.M. Keynes,  he was the first person to think about how to really manage an information system.
  • E.M. Forster for The Machine Stops, written in 1907, which foresees our error with a very critical eye.
  • Alan Turing, who stayed a kind person even as he was tortured to death.
  • Mary Shelley who was a keen observer of people and how they can confuse themselves with technology.

And of course my friend Ted Nelson. He invented the digital media link and was perhaps the most formative figure in the development of online culture. He proposed that instead of copying digital media, we should keep one copy of each cultural expression on a digital network and pay the author of that expression an affordable amount whenever it is accessed. In this way, anyone could earn a living from their creative work.

Here is another interesting bit about the internet:

One thing that bugs me is the way context is lost. You start discovering new music or new culture in very particular ways. Algorithms become your guide. If an algorithm calculates that you may like a piece of music, it will recommend it to you. That makes the algorithm the master of context for humanity. It tends to remove culture from its context, and context is everything. The structure of the Net itself has become the context instead of real people or the real world. That’s a really big deal.

Here is the full piece, an interview with Catherine Jewell at WIPO, I would say that Lanier is or should be rising in relative status.  For the pointer I thank Samir Varma.

For music, at least:

The simultaneous advent of streaming music and the vinyl renaissance has led to some very interesting recording industry statistics over the past few months. Last month, the RIAA reported that vinyl revenues outpaced sales from streaming services, despite actual streams vastly outnumbering physical vinyl sold. Now, Nielsen has released data revealing that, for the first time ever, old music (the “catalog,” defined as music more than 18 months old) outsold new releases in 2015.

It’s important to note that Nielsen’s numbers here don’t include streaming numbers, but that in itself is telling of current trends: an easy-to-draw hypothesis from these stats is that new music exists primarily in the streaming realm, rather than in album downloads or physical copies. And as 2016 has progressed and seen such things as Kanye’s The Life of Pablo shenanigans, exclusive streaming rights, like Rihanna and Beyoncé with Tidal and Drake with Apple Music, and the fact that the Beatles dominated Spotify in their first 100 days on the service, streaming music’s hold on the future seems to be growing tighter.

And note this:

Pink Floyd’s Dark Side of the Moon was the third-best-selling vinyl record of 2015.

I suspect you are not surprised to hear that Prince is dominating the Billboard 200 right now.

The pointer is from Ted Gioia.

I will be doing a Conversation with Tyler with him, June 15, late afternoon, Washington D.C., location to be announced.

So what should I ask?  I already know which is his favorite novel…and plan to ask about that…and of course we will cover his new forthcoming book The World According to Star Wars.

Sunday assorted links

by on May 1, 2016 at 12:40 pm in Uncategorized | Permalink

Two papers suggest numeracy improves financial outcomes and can be taught.

Numeracy and Wealth: We examined the relationship between numeracy and wealth using a cross-sectional and a longitudinal study. For a sample of approximately 1000 Dutch adults, we found a statistically significant correlation between numeracy and wealth, even after controlling for differences in education, risk preferences, beliefs about future income, financial knowledge, need for cognition or seeking financial advice. Conditional on socio-demographic characteristics, our estimates suggest that on average a one-point increase in the numeracy score (11-point scale) of the respondent is associated with 5 percent more personal wealth.

High School Curriculum and Financial Outcomes: Financial literacy and cognitive capabilities are convincingly linked to the quality of financial decision-making. Yet, there is little evidence that education intended to improve financial decision-making is successful. Using plausibly exogenous variation in exposure to state-mandated personal finance and mathematics high school courses, affecting millions of students, this paper answers the question “Can high school graduation requirements impact financial outcomes?” The answer is yes, although not via traditional personal finance courses, which we find have no effect on financial outcomes. Instead, we find additional mathematics training leads to greater financial market participation, investment income, and better credit management, including fewer foreclosures.