“We all know that wealth inequality has gone up”

by on May 25, 2014 at 3:58 pm in Books, Data Source, Economics, History | Permalink

That is a response to the Piketty criticisms from Paul Krugman, and also mentioned by Matt Yglesias.  Phiip Pilkington also has a useful treatment.  This point however doesn’t do the trick as a defense.  Keep in mind that the “new and improved numbers,” as produced by Chris Giles, are showing doubts about the course of measured wealth inequality in the UK.  Maybe wealth inequality hasn’t gone up.

Now maybe that does “have to be wrong.”  But if the “new and improved” numbers are wrong, it is hard to then argue Piketty’s wealth inequality numbers can be trusted.  In which case we are back to knowing that income inequality has gone up, but not knowing so much concrete about wealth inequality.  (That is one reason why my own Average is Over focuses on income, and on labor income in particular, because that is where the main action has been.)  The data section of Piketty’s book, which has gathered so much praise, then is not so useful, though by no fault of Piketty’s.  We might think it likely that wealth inequality has gone up, but if we are going to do these selective overrides of the best available data, we cannot trust the data so much period or otherwise cite it with authority.  We also could not map wealth inequality into particular measures of the r vs. g gap at various periods of time.

If there is one big lesson of the FT/Piketty dust-up, it is that we don’t have reliable numbers on wealth inequality.

Now do we in fact “know” that wealth inequality has gone up?  See this piece by Allison Schrager.  Intuitions about wealth vs. income inequality are trickier than you might think.   And on what we actually do and do not know, here is a very good comment on Mian and Sufi’s blog (for U.S. data):

I very much appreciate that you did this, and it’s an interesting and important fact that you document here, but this does not directly respond to most of the discussion. As the extreme ratios seen here (on the order of ~20) indicate, the middle 20% has very little wealth compared to the top 20%, and this has always been true. I don’t think many conservative critics are trying to argue one way or another on this front.

The current discussion is more about the concentration of wealth at the very top, particularly the 1%. And there the SCF shows little to no evidence to support increased wealth inequality – only a minimal rise in the share of wealth held by the top 1%. This is what Kopczuk and Schrager’s article is referencing, and this is the most relevant question for the debate about Piketty’s (and Saez and Zucman’s) findings of higher wealth inequality at the top.

You really need to look at *that* issue, and if you think this is impossible because “the SCF is not a huge sample” (though it does oversample at the top), you need to say so, rather than passing off an interesting but essentially distinct point as being a decisive response to critics – which, frankly, is what you’re doing in this post.

I could not have said it better myself.

Willitts May 25, 2014 at 4:15 pm

Bill Gates earned several million dollars today.

I didn’t notice.

Greg G May 25, 2014 at 4:53 pm

Quite a trick to comment on something without noticing the thing you are commenting on.

TMC May 25, 2014 at 10:14 pm

GG, and yet you pulled it off.

Greg G May 26, 2014 at 7:49 am

Well played TMC.

I suppose that I should have just said that, regardless of positions on redistribution, I am always skeptical when people claim that they don’t notice inequality. My skepticism about that increases even more when they mention the very thing they are supposedly not noticing.

Just about everyone notices and has an opinion about inequality and redistribution no matter how much those opinions vary.

TMC May 26, 2014 at 9:33 am

Agreed that inequality exists, but not sure it it has gotten worse.
I see no harm in quantifying the changes before proposing policy.

Willitts May 26, 2014 at 1:19 pm

Intentional irony is lost on some people.

The point is that while many people are protesting inequality, they really don’t observe it. It’s just a mood they adopt.

Inequality is not as simple as “there is a guy in a limo and there is a homeless guy.” Two anecdotes don’t make data and it says nothing about whether some institutional or economic factors created this disparity. Nor does it observe how much limo guy paid in taxes or how much support homeless guy could receive from those revenues. Nor does it provide any useful insights into prescriptive policy.

Piketty provides data, and that data has been questioned. But even having data is inconsequential. The wealthy didn’t steal their wealth, and the poor have not formed violent bands of brigands to steal from the rich.

Bill Gates earned millions of dollars today. I KNOW this because I know he is an owner of productive resources. But I did not see him earn it, did not see him collect it, do not know how he spent or saved it, and I DON’T CARE to know any of those things. That information has exactly zero impact on my life unless he used it for rent seeking.

I will listen to your arguments, but unless you are my boss, my wife, or my child, I don’t care to hear about your moods.

Doug May 25, 2014 at 4:26 pm

Wealth is just an imaginary number, what really matters are living standards. In terms of living standards there has never been so much equality in history. The very wealthy drive Ferraris and the poor drive ten year old Toyotas, but they’re essentially almost the same thing. If anything the Toyota’s probably more reliable and comfortable. This a big difference compared to the so-called “golden age of equality” circa 1950 when the rich had cars but the poor largely didn’t. Warren Buffet has the same iPhone that a graduate student has.

Ask yourself what are the serious living standard differences between a billionaire and a middle class American. Some more largely unused rooms in their home, a slightly more comfortable experience when traveling and the “privilege” of living in heavily crowded, polluted metro centers like Manhattan or Miami Beach. Everything else is pretty much just status goods.

Michael May 25, 2014 at 4:51 pm

The poor have less access to education and health care. Life-saving drugs are more important to me than having an iPhone or a car.

ummm May 25, 2014 at 5:10 pm

the poor get those life savings drugs, too. And other times, it makes no difference.

Doug May 25, 2014 at 7:07 pm

Medicine has very little overall net impact on health. Yes there are anecdotal cases of people receiving top tier medical interventions that add decades to their lives, but these are highly exceptional. Health economists have studied the issue for decades and have concluded that $10,000 of medical spending adds less than 25 days of life expectancy (link at end). In contrast regular quitting smoking adds seven years, living rurally adds six years and physical activity adds ten years or more of life expectancy. These are all factors that are equally (if not more, because of greater leisure time) available to the lower classes than the rich.

The reason the poor live so much shorter isn’t because of a lack of access to anything, it’s because they consistently make poor lifestyle choices. (Poor judgement being a frequent reason that they’re unsuccessful). Groups that are economically poor, but don’t exhibit the typical lifestyle of the lower classes, like Ultra-Orthodox Jews, have equal or better life expectancies than even middle class people.

http://www.cato-unbound.org/2007/09/10/robin-hanson/cut-medicine-half

RZ0 May 25, 2014 at 9:11 pm

“Medicine has very little overall net impact on health.”
HaHa, please update me next time you have a fever of 102.

Johnny Blotto May 25, 2014 at 11:34 pm

Take two aspirin and call me in the morning. Expensive medicine isn’t likely to add much to your lifespan.

Steve-O May 26, 2014 at 4:20 pm

Is this something adults would even know? I don’t know anyone who owned a thermometer until they had kids. Once they have kids, I’m still not sure the adults use the thermometer. Now that I don’t have an infant, I’m not sure if I could locate a thermometer in my house.

Willitts May 26, 2014 at 1:23 pm

No, they don’t.

Education is free and emergency medical care is provided to everyone who needs it. Nonemergency care is available. You are mistaking quality and convenience for access.

If you feel that someone isn’t getting a life saving drug, I suggest you get off MR and go empty your wallet into their needy hands.

joan May 25, 2014 at 6:43 pm

Wealth is not imaginary for people living from pay check to pay check. Fearing that if you lose your job or get sick and can not work you will lose your home and may not even be able to buy food makes a big dent in your standard of living even if it never happens.

Doug May 25, 2014 at 6:54 pm

The vast majority of people living paycheck to paycheck are doing so because they voluntarily choose to lever themselves to extend their disposable income. For example almost all of these same people have much higher real earnings than their grandparents, but much lower savings rate. A moderate reduction in spending in almost all cases would provide adequate savings cushion.

The central issue isn’t their lack of income or inequality but their spending habits and the availability of consumer credit. There are many wealthy people who also are highly levered with little savings. Even when most lower class people receive an exogenous boost to income they do little to increase their savings. Case in point lottery winners and NBA stars.

fwiw May 25, 2014 at 8:42 pm

Do you have any statistics to back this up or is this libertarian gospel?

Guest May 25, 2014 at 9:47 pm

What a load of bullshit. The majority of peopke living check to check aren’t frittering their money away or ignoring Suzie Ormund. They work for low wages and have a dozen bills (rent, gas, food, utilities, taxes, insurance, etc.).

chuck martel May 25, 2014 at 10:19 pm

(tattoo fees, beer, lottery tickets, cigarettes, cable tv, cell phone, mag wheels, flat screen tv, fancy trainers, more tattoos)

Johnny Blotto May 25, 2014 at 11:39 pm

You strike me as someone with little experience with lower-income Americans. I’ve had low-wage jobs, and virtually everyone I worked with wasted money on countless things I would never spend my money on.

Yancey Ward May 26, 2014 at 4:39 pm

Johnny Blotto,

It sure isn’t the wealthy I see lined up at the gas mart to buy lottery tickets and cigarettes. Perhaps that is because the wealthy buy them online, but I doubt it.

Willitts May 26, 2014 at 1:24 pm

In the rest of the animal kingdom, they call that “survival.”

Floccina May 30, 2014 at 2:12 pm

Fearing that if you lose your job or get sick and can not work you will lose your home and may not even be able to buy food makes a big dent in your standard of living even if it never happens.

If they did fear financial insecurity the great majority could have some level of financial security.

http://earlyretirementextreme.com/

The median spending on rent will always rent the median living rent.

Jan May 25, 2014 at 10:33 pm

Real median wages have barely budged in decades. There isn’t much to save for people on the low end of earners. If, as you say, there isn’t much real difference in living standards between rich and poor, that is only because low-wage workers are able to spend some of the little they have to pay for a cell phone plan, install a window a/c unit, etc. Are you saying they should just jettison these things and save more? If so, then your argument that there isn’t any real difference between living standards of the rich and poor breaks down.

And, regarding your other comment, who cares what their grandparents did? They lived through the Great Depression. Do you think that is the kind of useful experience people need to teach them a lesson in how to save?

Willitts May 26, 2014 at 1:24 pm

So what?

Why should median income always rise?

mm May 26, 2014 at 2:14 pm

real wages are up a great deal if you discount the great recession and also the wage stagnation is bull if you overlook significant improvements in the quality of goods (cars today are a LOT better than those in the 70s)-large increases in fringe benefits- the existance of goods nobody had before (home pc, cell phones- heck with “obama phones” the homeless have more technology in one hand than rich had in their houses 40-50 years ago). The abuse of wage data is legend- looking at household average income when the “household” is now much smaller than 40 years ago is a standard tactic-Look at per capita income not household: see the 2nd graph at:
http://www.swifteconomics.com/2009/08/18/lies-damned-lies-and-statistics-income-stagnation/#!wp-prettyPhotog3488/2/
Failure to look at the effect of gov’t subsidies is another. The big problem is the vast increase in taxes over the last 50 years that is eating up take home pay.

Lonely Libertarian May 25, 2014 at 4:29 pm

and I didn’t – don’t care. I am blessed to have been able to earn a nice living – raise three great kids – pay my bills and have a little bit saved for that inevitable rainy day…

I really don’t see how I would be better off if somehow, someway Bill Gates – or any of the 1% are made worse off.

mulp May 26, 2014 at 2:55 am

But the argument made by conservatives is that you would be better off if you were paid a lower wage because work is merely a burden on the economy, adding undesirable costs. Thus the drive to eliminate unions, pensions, benefits, minimum wages, subsidies for education, eliminating Social Security and Medicare, and the rest of the safety net.

It isn’t increased wages that has driven the rising inequality, but the reduction in wages. Even for CEOs. But CEOs have gone from high wages to lower real wages but bonuses in stocks that require zero revenue to pay – it is free to pay the CEO $25 million in the sense that no cash is involved. Granted stock is bought by the corporations, but that isn’t to pay anyone, though it provides a ready pool of stock to spread around, but to “create wealth” by making stock scarcer so the price goes up.

TMC May 26, 2014 at 9:38 am

Failed the Turing test.

Willitts May 26, 2014 at 1:26 pm

I’ve never heard a conservative argue that.

ummm May 25, 2014 at 4:34 pm

Yea it looks like Pickets is more like Slim Pickens. Looks like he fabricated the data, rendering his thesis is bunk, as many suspected all along. Being from France, the repercussions will be minimal at worst since he;s already been elevated to demi-god status in the EU.

Pierre May 25, 2014 at 4:49 pm

Once again, Piketty is much more famous in the US than in the EU.
His book went quite unnoticed before the whole American punditry became crazy over it.

ummm May 25, 2014 at 5:04 pm

Even if it’s bunk, Europeans are more willing to suspend disbelief due to confirmation bias. He’ll fare better than Michael Bellesiles

prognostication May 25, 2014 at 9:12 pm

Do you have, uh, even a shred of evidence to support the claim that he fabricated the data? I don’t think anyone who knows anything about the facts in this case really thinks that. There are clearly errors and some minor (maybe moderate) sloppiness, but if he fabricated the data, would he have made it freely available for anyone to use?

Willitts May 26, 2014 at 1:28 pm

It is up to Picketty to prove his data is accurate and complete.

Whenever I see someone attempting to shift the burden of proof, that’s usually a good indication they are on the wrong side of truth.

Enrique May 25, 2014 at 4:50 pm

Geeesh. You guys can’t even agree on the direction of wealth inequality. Makes me wonder why some people still consider economics a science …

Doug May 25, 2014 at 7:47 pm

That’s a pretty shallow criticism. Astrophysics can’t even agree on the global curvature of space-time, but are you going to contend that it’s not a science?

The mark of science is that its practitioners can revise their beliefs as new evidence comes in. Any field without any disagreements is certainly too dogmatic to be considered science.

Max Factor May 25, 2014 at 9:49 pm

-1

Why listen to economists if they can’t agree on the basics? Meanwhile, economists are embedded everywhere these days.

Enrique (prior prob.) May 26, 2014 at 2:04 pm

Doug, you are totally right to point out the shallowness of my criticism (but in my defense: this is a blog comment, after all, written up on an iPad mini, so what did you expect?). More importantly, I think you are right about the true nature of science being the willingness to revise one’s beliefs … But given that, I stand by my original critique of economics because I don’t see any economists updating their biased priors … worse yet, I don’t even see them admitting that their priors are biased

Michael May 25, 2014 at 4:52 pm

“In which case we are back to knowing that income inequality has gone up, but not knowing so much concrete about wealth inequality.”

Wouldn’t more income inequality, over time, result in more wealth inequality?

Matt May 25, 2014 at 5:25 pm

I think your question is basically just a summary of the argument.

joan May 25, 2014 at 7:04 pm

Only if the people with high incomes save a larger faction of their income than average. Picketty´s critics seem to be saying that the rich either spend their income or make unwise investments so cutting their taxes and increasing their after tax return on investment does not increase their wealth. They may be right and explain why their was so little trickle down.

Steve Roth May 25, 2014 at 4:55 pm

Bayesian prior: wealth inequality in the U.S. (or, choose your country) has been unchanged since 1980. (Call this “50/50″.)

New information: read every study of wealth inequality from the last ten or fifteen years.

Does Tyler Cowen move his priors from 50/50? How far? This post seems to suggest: no, and zero. That right?

Tyler Cowen May 25, 2014 at 5:02 pm

Try reading the excerpted paragraph at the very end of the post.

Steve Roth May 26, 2014 at 2:09 pm

Of course I did read that (more than once). But I don’t think it answers my question.

Does all the research on wealth inequality and concentration that you’ve read over the last decade or two (including that based on the somewhat sample-challenged SCF data) shift your priors from 50/50?

anon May 25, 2014 at 5:09 pm

An alternate title for this post could have been the opener to Mian and Sufi’s post: “It seems crazy to have such a heated debate on facts that are so easily measurable.” Hmm.

Wealth is very hard to measure and the Survey of Consumer Finances (SCF) goes through an incredible amount of effort to get the estimates that it does. Here’s a short description of the “oversample at the top” referenced in the (awesome) comment above: http://www.federalreserve.gov/econresdata/scf/files/index_kennickell.html This is not easy measurement and even with all the SCF’s effort in reaching the wealthiest households (who have the means to be rather unreachable) the survey response rate among the wealthiest is only 10 percent. This is not to discount the SCF. It is still one of the best sources of information on wealth distributions in the US. Estate filings and IRS tax records can also be used to infer information about wealth (as the Kopczuk and Schrager piece describe) though no data source is perfect. We should be focusing on the agreement in trends across data sources (where it exists) and understand the reason for the discrepancies.

I suspect if either the Krugman or the Mian and Sufi quotes were true then there would have been no Piketty book.

Nathan W May 25, 2014 at 5:17 pm

Especially among highly affluent people, I think it is rarely so relevant what one’s income is THIS YEAR, as it is relevant generally what general lifestyle they can afford given current wealth and future earnings expectations.

Wealth really matters for inequality.

For example, I could have a really big year next year. But if I don’t repeat that 30 times in a row I can’t retire in luxury. Wealthy people can enjoy their fancy cars, large houses, etc., while they network their way into further opportunity at posh events many people could hardly afford to even dress for.

Don’t try to tell me that representation of the story is not relevant.

I’m sure it’s a lot easier to get reasonably good data on income than on wealth, but that does not mean that wealth is irrelevant for inequality considerations.

I think people will often be more sensitive to inequality in wealth (which thanks to the lifetime income hypothesis we can easily observe at a glance in many cases) than inequality in income; however, it is equality of opportunity to earn income, not the equality of opportunity to be born sitting on gold bars, which is supposed to be the basis of the plausiblity of achieving the American dream.

Wealth inequality negatively impacts equality of opportunity. This doesn’t mean that we should all be communists, but neither should we pretend that the poor and the rich are equally able to achieve their potential by virtue of their personal integrity, effort, etc.

Merijn Knibbe May 25, 2014 at 5:21 pm

The ONS has produced three ‘waves’ of wealth estimates, 2006-2008, 2008-2010 and 2010-2012. In the last one (published May 15, 2014, i.e. not used by Piketty) they used a different interest rate to calculate the discounted value of defined benefit pensions. They also (good job!) recalculated pension wealth for the two earlier ‘waves’ – which led to estimates of pension wealth more than 50% lower than the previous ones (remember that the British system is not a savings system but an insurance system). As most pension wealth is owned by rich households the decline of *estimated* pension wealth must have been located in the richer 10% groups, the recalculation must, i.e., have led to a lower estimate of wealth inequality. As far as I can gauge, Giles does not correct for this but compares the 2010-2012 value with the uncorrected values of the two earlier ‘waves’ – or mistakenly accuses Piketty that he does not use the corrected values (which were published May 15). Well, this seems to underscore the point Cowen tries to make… ‘we do not know how rich we are’. But we can do better. The ONS discounts unknown future benefit flows. But benefits may turn out to be less ‘defined’ than people expect, see the situation in the Netherlands where it turns out that benefits are not defined at all but, somewhat arbitrarily and indirectly but nevertheless, imposed by the Dutch central bank. It might be better to just look at the balance sheets of the pension funds. This is a snapshot, too, which might change everyday but it’s superior to just supposing ergodic future monetary flows. And the interest rate used to discount this supposed stream is arbitrary, too, of course, as the >50% decline of the ONS shows. Anyway – the poorest households in the UK often have negative wealth… http://rwer.wordpress.com/2014/05/25/why-are-the-ons-estimates-of-wealth-inequality-so-low/

dearieme May 25, 2014 at 5:28 pm

It’s bad manners in Britain to discuss money so when an exception occurs I’m all ears. Recently a friend almost knocked me off my seat by remarking that he’s got the equivalent of £1.5 million GBP in his pension fund. Since that will pay him 5% p.a. inflation-linked, I was impressed. What would an inflation-linked 120,000 USD per annum lifetime annuity cost in the US for a 67 year old male, with a 50% widow’s annuity attached? (You may assume that the widow is ten years younger.)

A second exception occurred about ten years ago when a chum told me that a colleague of his with a modest janitorial job had let slip that his family had wealth enough that his mother was regularly passing him cash to avoid Inheritance Tax.

A third exception occurred decades ago when Mrs Thatcher had the local councils sell off council housing to the tenants. A clerk at the town council told my wife that he was astonished at how many of these poor, subsidised council tenants turned up to buy their houses with, literally, bags of cash. It’s not only the stinking rich who hide their wealth apparently. On a Piketty-like note, the great sell-off of council housing in Britain, and other Thatcherite policies, really should have shown up in the wealth-distribution figures. If they didn’t I’d doubt the figures.

Willitts May 26, 2014 at 1:33 pm

Watch Seven Samurai.

B Cole May 25, 2014 at 5:46 pm

Back in 2005-6, Citigroup issued reports on the “plutonomy” suggesting concentrations of wealth and income in some nations, investor beware.
When a derivative Roy Lichtenstein painting sells for $57 million…and hardly an eyebrow raised…maybe we have seen an explosion of wealth at the top…

TH May 25, 2014 at 6:16 pm

Amazing the effort this site puts in to tear down Picketty and the whole inequality discussion. It’s almost as if you are scared to have it. And now the argument that “nobody knows” if wealth inequality has changed… Reminds me of the “nobody really knows if global warming is happening” line…
Just because the data isn’t perfect … There is plenty of research on this and there is plenty of evidence .. You just have to be willing to see it.

TMC May 25, 2014 at 10:29 pm

Many people don’t know about climate change because of the significant amount of data fraud that has been exposed. Now that Picketty’s numbers are questioned, some may reasonably ‘not know’ know. Your example of climate change makes it more likely that people will question numbers and conclusions put forward to them – rightfully so.

Emil May 26, 2014 at 1:33 am

So now discussing a topic is a sign of being afraid to discuss it?

Brian Donohue May 27, 2014 at 10:23 am

Grouping the Piketty inequality know-it-alls, withe the climate doom know-it-alls is closer to the mark than you think.

Sandwich boards for everyone!

Bill May 25, 2014 at 6:54 pm

Oh, I get the trick…wealth inequality, not income inequality. First, I think the evidence on wealth is otherwise, but nevertheless…I get the trick.

Here is a CBO report showing the change in the change in INCOME for the top 1% over time:

http://cbo.gov/publication/42729

Refute those numbers. And, wonder why wealth, as computed by SCF, is different.

anon May 25, 2014 at 7:35 pm

Here’s an excerpt from a thorough paper by Kennickell http://www.federalreserve.gov/pubs/feds/2009/200913/200913pap.pdf on the wealth and income distributions in the SCF from 1989 to 2010:

“In order to have a sensible discussion of the distribution of wealth and income, the nature of those concepts must first be clear. Much discussion treats the working definitions of wealth and income as if they were self-evident. As discussed in this paper, it is very difficult to define such measures that have a reasonable hope of being measurable in a survey, that are mutually compatible, and that come sufficiently close to a comprehensive theoretical ideal …

The construct of wealth used in the paper gives a mixed picture of changes in summary measures of its distribution over the 1989–2007 surveys. The strongest signal among these is a 3.9 percentage point decline in the share of total wealth held by the group between the 50th and 90th percentiles of the wealth distribution, with the top 5 percent of the distribution approximately absorbing the shift. Graphical inspection of changes over the period makes the shifts clearer and gives insight into why the summary measures are as inconclusive as they are. Across the 1989–2007 period, wealth grew strongly and roughly comparably for the broad center of the wealth distribution; at the same time, wealth rose much more rapidly for the top of the distribution. Between the most recent surveys, those conducted in 2004 and 2007, wealth only rose for a narrower center of the distribution and for the top of the distribution.”

I would recommend the rest of the summary on page 26, tables 1 and 4 to get the picture. Note in Table 4 how much more unequal the distribution of wealth has been than income, over the whole period. Details matter, particularly if you want to understand the mechanisms. It may seem academic to be arguing whether a change in wealth distributions is driven by the top 5%, top 1%, or the top 0.1% but those differences may be important.

anon May 25, 2014 at 8:55 pm

oops, that paper only went through 2007. If you want to see a less technical summary that goes through 2010, see: http://www.fas.org/sgp/crs/misc/RL33433.pdf I think Table 2 (share of net worth by percentile) in that paper is a more sensible representation of the distribution than Mian and Sufi’s charts (the ratio of means within quintiles, huh?)

Bill May 25, 2014 at 8:56 pm

Thanks for the evidence supporting the increase in wealth at the top 1%.

anon May 25, 2014 at 9:07 pm

Actually the trends in the SCF are at odds with the Saez and Zucman work that Piketty and Krugman have cited (and the commenter alludes to): http://gabriel-zucman.eu/files/SaezZucman2014Slides.pdf They find: “Large increase in top 0.1% wealth share since 1980s; Even larger proportional increase for top 0.01%; No increase below the top 0.1%” The SCF shows the share of wealth in the 90-99th percentile increasing almost as much as in the top 1%.

Bill May 25, 2014 at 9:31 pm

What is the support for the claim: “The trends in the SCF are at odds….”claim. You are looking at the top .1% when income from that group is increasing. The slides you link to is the Saez material supporting the increase in the top 1% and pointing out where there are data deficiencies which would make the numbers even higher relative to other income groups.

anon May 25, 2014 at 9:41 pm

Their data has deficiencies too. (All data do.) Why do they not find rising inequality below the top 0.1%? That is a bit puzzling, right? The SCF should probably not be cut as finely .1% or .01% but there are increases in 90-99% in the SCF and not in the Saez/Zucman data … that’s what I mean at odds. Both data sources show the top 1% rising. Though if you go to the slide toward the end of their file that is titled “Estate tax returns fail to capture rising top wealth shares” you will see that Saez has work with estate returns that does not show an increase at the top 1%. Lots to figure out here.

Bill May 25, 2014 at 9:50 pm

anon,

Are we reading the same thing, and does the term not a “large increase” mean the same to you as me.

The CBO report summarizing wealth changes shows that from 1989 to 2010 the top 1% increased their percentage of wealth from 30.1% to 34.5%, and the report noted that the 2010 numbers represented declining stock and housing prices. Moreover, the CBO report stated that wealth is even more concentrated than income.

Bill May 25, 2014 at 10:01 pm

anon, The CRS document you cited to shows (the doc beginning fas.org) shows that the wealth of the top 1% increased from 30.1% of total wealth in 1989 to 34.5% in 2010. I think that is significant, particularly as CRS stated that the wealth numbers reflected a depressed stock and housing market. Moreover, the same CRS document states that wealth is even MORE concentrated than income.

anon May 26, 2014 at 10:46 am

yes, Bill. I said all that too … but I also noted that the SCF has rising wealth shares in the 90-99% of the wealth distribution (in addition to the top 1%). Saez-Zucman only find rising share at the top 0.1% (note the decimal). The top 0.1% differ from the 90-99% in more than just their level of net worth, these distinctions may be important for understanding (and responding to) the trends in wealth inequality.

Bill May 26, 2014 at 4:43 pm

anon, As you have also read Saez, you understand that the imputation of income and the magnitude of difference even within the top 10% lead to their conclusion. They make some very reasonable assumptions both about earnings on wealth and on composition (i.e., non-tax reportable income like municipals, stock dividends and cap gains.)

anon May 26, 2014 at 5:25 pm

yup, they are reasonable but that does not make them “right” … I really like this bit of advice from Stevenson & Wolfers: “4. Don’t fall into the trap of thinking about an empirical finding as “right” or “wrong.” At best, data provide an imperfect guide. Evidence should always shift your thinking on an issue; the question is how far.” All of their points are quite good: http://www.bloombergview.com/articles/2013-05-01/six-ways-to-separate-lies-from-statistics

Byomtov May 25, 2014 at 7:10 pm

The current discussion is more about the concentration of wealth at the very top, particularly the 1%.

I thought a fair amount of the discussion had to do with the top .1%, like the Walmart heirs, who did so much to earn their fortunes.

Jan May 25, 2014 at 7:43 pm

It is, as well as the .01%. But apparently wealth inequality is not an issue because x,y,z.

http://www.theatlantic.com/business/archive/2014/03/how-you-i-and-everyone-got-the-top-1-percent-all-wrong/359862/

Ray Lopez May 26, 2014 at 2:54 am

The data show a real rise in inequality in the Top 0.1%, as Byomtov says, and not so much the 1%. But I think Piketty’s argument is more subtle: he is saying (without reading the book, just summaries of the book, though I do have an pirate e-copy of the book) that wealth inequality *will go back* to historic highs soon, unless we tax the 1%.

Willitts May 26, 2014 at 1:39 pm

What difference does it make whether they earned it? What does “earn” even mean?

If by “earn” you mean acquire it by the sweat of their brow, then no. But that view is at odds with the very notion of property rights. If we tax Bill Gates or if he gives money to the poor, did the poor “earn” it? No.

Ah, so we see that what you really mean by “earn” is “deserve” or “need.”

“To each according to his needs, from each according to his abilities.”

And now we all see the seed of hatred that germinates into 100 million murders.

Jan May 25, 2014 at 7:40 pm

The blog post from which the excerpted comment comes shows really big gains in wealth inequality between the top 20% and middle 20%.

As the extreme ratios seen here (on the order of ~20) indicate, the middle 20% has very little wealth compared to the top 20%, and this has always been true. No, go back and look at the post (http://houseofdebt.org/2014/05/24/piketty-and-u-s-wealth-inequality.html) and you will see that this has not always been true. The difference is now massive compared to what it was in 1992.

happyjuggler0 May 25, 2014 at 9:12 pm

I think that most people would say that “x has very little wealth compared to y” is a reasonable description of having 15 times less wealth compared to the other group.

Jan May 26, 2014 at 8:22 am

And when that ratio almost doubles? It’s not different?

happyjuggler0 May 26, 2014 at 12:18 pm

Multiplying the ratio of y/x by 1.67 (i.e. almost doubling) does nothing to change the line that “x has very little wealth compared to y”.

The key point to understand is that in aggregate the middle quintile has little net worth outside of human capital at the stage of life they are currently in (i.e. the vast bulk of people don’t reach their peak net worth until they are old).

Obsessing with relative wealth inequality makes it easy to miss that very important point.

Jan May 26, 2014 at 1:19 pm

I can grok that these people in the middle have very little wealth at all, but the ones two quintiles above them have that much more. Is there good data on how old the middle quintile is (e.g. early, mid-career) compared to the highest, and whether that has changed over time? I haven’t seen it, but would be interesting.

Dismalist May 25, 2014 at 8:34 pm

I appreciate all the comments dealing with measurement very, very much. As for the rest, if they didn’t steal it, who cares? :-)

yenwoda May 25, 2014 at 9:12 pm

Krugman’s “We all know that wealth inequality has gone up” doesn’t sound so different from this guy:

“Does growing wealth and income inequality in the United States presage the downfall of the American republic… [or] greater wealth for virtually every American?”

http://www.the-american-interest.com/articles/2011/01/01/the-inequality-that-matters/

Chip May 25, 2014 at 11:47 pm

Concentration of wealth is a problem if:

1) it was taken from someone else

2) it never gets put to use

I think we aren’t talking about theft here so 1 is moot. And for 2, is there any evidence that money redistributed by govt provides a greater good than money disbursed by the wealthy either through charity (Gates, Bloomberg), starting new companies (Musk) or even just pissing it up the wall by buying stuff.

How much of govt redistribution ends up funding bureaucracy and subsidizing social pathologies?

BradK May 26, 2014 at 12:41 am

“How much of govt redistribution ends up funding bureaucracy and subsidizing social pathologies?”

How much of govt redistribution (actual or percieved) ends up electing/re-electing the party implementing the redisribution schemes? Why work for something when you can vote for someone who will take it from someone else and give it to you?

TMC May 26, 2014 at 8:57 am

CrimeThought, both of you.

mulp May 26, 2014 at 3:05 am

“If there is one big lesson of the FT/Piketty dust-up, it is that we don’t have reliable numbers on wealth inequality.”

And I keep wondering why that is. As a scientist and engineer, when we have questions, we collect data. The life of scientists and engineers is 90% data collection.

How old is the universe. Laborious data collection for centuries. What are we made of? Laborious data collection, How much metal is required to carry a load under stress and strain? Laborious data collection. Ok, we built it based on theory and data, but will it really work? More testing and data collection.

Economists strike me as the laziest of all disciplines. And I suspect that ignorance also serves well the desire to argue they know the best policy or how the economy works, even when illogical.

andrew' May 26, 2014 at 6:46 am

Not only will I pass your ideological Turing test, I bet I can “name that economist” (from a list of of ones I am familiar with in one sentence (better than average anyway).

andrew' May 26, 2014 at 8:35 am

How much of this and the reparations thing is about banks? Do I need to tell you what we think about banks (petro dollars, sino-treasurys, peak empire, etc.)?

Tom May 26, 2014 at 9:54 am

I’m of the camp that these revelations don’t dent Piketty’s findings. Piketty has been more transparent than any major economics book I can think of. The FTs seems to have taken a page from the WSJ and added a headline which oversells what they found. Relative to all the data in the book, this is tiny. Maybe he should have been more like Hayek, McCloskey, Schumpeter, and Rand and not used any data, just written a narrative and expected readers to take him at his word.

Bill May 26, 2014 at 9:57 am

Yeah, that’s what I think too. You know how serious the FT was when it gave him less than a day to respond, and when the charts don’t show much difference.

But, the low informed will just remember the headline.

Good enough for Fox.

Jay May 26, 2014 at 10:41 am

Kudos to Piketty. He has been more transparent than John Cook and the University of Queensland who threatened to sue a person who obtained data regarding one of Cook’s published studies.

FUBAR007 May 26, 2014 at 10:23 am

…and the economics and policy communities continue to beat a dead horse.

The issue isn’t inequality. The issue is the decline of opportunity and social mobility. The issue is the ever-increasingly transactional nature of employment. The issue is the ongoing replacement of hard work and character by caste, connections, and luck as the key determinants of success. The issue is the unraveling of family, civil society, and national solidarity. The issue is an educational system that somehow gets more and more expensive yet less and less effective every year. The issue is that the interests of American capital have completely diverged from those of American labor. The issue is a culture that incentivizes and lionizes consumption and clever ruthlessness at the expense of integrity, community, and responsibility. The issue is the accumulating collateral damage caused by globalization and automation that no one wants to own up to much less do something about. The issue is a system of political and economic institutions that’s both irrevocably corrupt down to its roots and staggeringly incompetent.

Inequality is a useless distraction. But, then again, maybe that’s the point…

Bill May 26, 2014 at 11:21 am

It can be both.

happyjuggler0 May 26, 2014 at 12:26 pm

The issue is_____.
The issue is_____.
The issue is_____.
The issue is_____.
The issue is_____.

You keep using this word “The”. I don’t think it means what you think it means….

P.S. Hint: “the” is singular, while you enumerate far more issues than one issue than is proper for the use of “the”.

FUBAR007 May 27, 2014 at 9:58 am

Is that it? A grammatical nitpick? That’s the most trenchant criticism you’ve got?

WTF, man.

Come on! Put your back into it!

Asparagus May 26, 2014 at 11:14 pm

This has all the veracity of women earning 70% of what men earn. The numbers may be true but the interpretations of the data are nothing short of foolish. Having said that I confess I have no data to back to me up but I have to believe the growing inequality in wealth is totally dominated by a few high flyers. These in turn are dominated by internet freaks such as Zuchatash where the internet allows one to expand expotentially in a manner that was hitherto impossible. Take all the internet billionaires out of the picture and then recalculate. Sure CEOs are earning 10X the ratio to average worker they used to but how many people is this and how much does it really affect things. Lets say a CEO of a company of 30 k is making 100 X the blue collar worker which happens to equate to a salary of $5 MM. Slashing that to 10X means a whooping raise of 150 per employee. The rich get richer and the poor get more poor. That’s why Kennedys have money years after the bootlegger despite their being a lot of them. But that’s investment income. Now if you want to tax this away that a conversation on inheritance tax which income inequality (realize this is wealth not income) discussions seldom go to.

Tom May 27, 2014 at 5:14 am

Jay in the other comments said it well:
More financial illiterates that believe accrued Social Security, Medicare and pension benefits due are not assets.

Until “wealth” notes and data include future gov’t entitlement benefits in their wealth measures, such wealth measures ain’t worth spit.

Income is more measurable, and consumption should be even more so — where are the graphs about the quintiles and consumption?

Comments on this entry are closed.

Previous post:

Next post: