3. A 2004 MR post on g > r and the dangers of crude extrapolation, “What happens if we extrapolate current trends to 2050? What will debt to gdp ratios look like around the world?…Among the current Eurozone countries, Germany would fare the worst with a ratio of 307 percent.” Ireland appeared to be in good shape.
6. Has the capital-output ratio been rising over time? (in French)
My Foreign Affairs review is here. (Open up “New private window” in Firefox, if need be.) I won’t attempt to cover all of the review, but rather will rephrase a few of my points for MR readers, in slightly different terminology:
1. If the rate of return remains higher than the growth rate of the economy, wages are likely to rise and quite a bit. You can find a wonky version of that idea here from Matt Rognlie. But it suffices to apply common sense, namely that capital accumulation bids up wages. Piketty suggests we are headed back to something resembling the 19th century. Well, that was a pretty good time for the average working person in Western Europe, especially once we get past the first part of that century, which had lots of war and a still-incomplete industrial revolution.
Since we today have had some wage stagnation, perhaps it does not feel that kind of favorable outcome is what we will get and many commentators are trading off this mood. But also realize the (risk-adjusted) return on capital hasn’t been that high lately and it has been falling for decades. This combination of variables — low returns and stagnant wages — does not refute Piketty but it doesn’t exactly fit into his mold either.
2. The crude seven-word version of Piketty’s argument is “rates of return on capital won’t diminish.” Is that really such a powerful forecast? I say over the next fifty or one hundred years we don’t have a very good sense of which factors will show diminishing returns and which will not. It is hard enough to make predictions of trend over a twenty-year time horizon. NB: At many points in the Piketty book he seeks to have it both ways: loads of caveats, but then he falls back into the basic model, and he and his defenders cite the caveats when it is convenient.
3. Piketty’s reasons why rates of return on capital won’t diminish are fairly specific and restricted to only a small share of capital. He cites advanced financial management techniques of the very wealthy and also investing abroad in emerging economies. Neither of these covers most capital, and thus capital returns as a whole may not be so robust. Nor is it obvious that either technique will prove especially successful over the next few decades or longer. Again, is there any particular reason to think either of these factors will outrace the basic logic of diminishing returns, or for that matter EMH, relative to other factor returns that is? They might, to be sure. They also might underperform. In any case this is pure speculation and Piketty’s entire argument depends upon it.
4. The actual increases in income inequality we observe are mostly about labor income, not capital income. They don’t fit easily into Piketty’s story and arguably they don’t fit into the story at all.
5. Piketty converts the entrepreneur into the rentier. To the extent capital reaps high returns, it is by assuming risk (over the broad sweep of history real rates on T-Bills are hardly impressive). Yet the concept of risk hardly plays a role in the major arguments of this book. Once you introduce risk, the long-run fate of capital returns again becomes far from certain. In fact the entire book ought to be about risk but instead we get the rentier.
Overall, the main argument is based on two (false) claims. First, that capital returns will be high and non-diminishing, relative to other factors, and sufficiently certain to support the r > g story as a dominant account of economic history looking forward. Second, that this can happen without significant increases in real wages.
Addendum: Still, it is a very important book and you should read and study it! But I’m not convinced by the main arguments, and the positive reviews I have read worsen rather than alleviate my anxieties. I’ll cover the policy and politics of this book in a separate post. Do read my review itself, which has much more than what is in this blog post.
2. Those new service sector jobs (R. Kelly impersonator sought)
3. Sherpa pay is 2k-6k per season, compared to a median income of $540. Their lives are insured for up to 23k.
4. Join Slate Plus.
Here is his bottom line and it is correct:
Over the course of history, capital accumulation has yielded growth in living standards that people in earlier centuries could not have imagined, let alone predicted — and it wasn’t just the owners of capital who benefited. Future capital accumulation may or may not increase the capital share of output; it may or may not widen inequality. If it does, that’s a bad thing, and governments should act. But even if it does, it won’t matter as much as whether and how quickly wages and living standards rise.
That is, or ought to be, the defining issue of our era, and it’s one on which “Capital in the 21st Century” has almost nothing to say.
The full review is here.
3. As a kid I enjoyed Dodgeball. I still remember me and Jimmy Wainwright being the last two guys on the floor. (Sadly, Jimmy caught my rather unconvincing fifth grade toss.) This article calls it “America’s most demonized sport,” but they don’t seem to have heard of the game we used to call “Kill the guy with the ball.”
4. CDs vs. vinyl, I say CDs have higher average quality but vinyl has higher peaks for the very best classical music.
4. Liberalism unrelinquished, a project headed by Daniel Klein to reclaim the use of this word. They are looking for signers.
Nicholas Carr, The Glass Cage: Automation and Us.
Robert E. Mutch, Buying the Vote: A History of Campaign Finance Reform.
British retirees may soon receive a novel kind of financial advice, courtesy of the state: They could be told when they are likely to die.
“People are living a lot longer, so we have to make sure they have up-to-date information,” the pensions minister, Steve Webb, said Thursday in an interview with the BBC.
“There’s no point being all British and coy about it,” he said. Gender, age and “perhaps asking one or two basic questions, like whether you’ve smoked or not,” Mr. Webb said, should be enough to determine how long, on average, someone is likely to live. Having an idea of life expectancy would help retirees with private pensions manage their finances more efficiently, he said.
There is more here.
4. Fragmentary data on the duration of sex, as measured in ten countries. Which economic variables predict the differences? And against passwords.
5. “How burrowing owls lead to vomiting anarchists.” (on the SF housing crisis)
That is the new and excellent book by Dan Jurafsky, due out this September, and I found it interesting throughout. Here is just one bit:
In fact, the more Yelp reviewers mention dessert, the more they like the restaurant. Reviewers who don’t mention a dessert give the restaurants an average review score of 3.6 (out of 5). But reviewers who mention a dessert in their review give a higher average review score, 3.9 out of 5. And when people do talk about dessert, the more times they mention dessert in the review, the higher the rating they give to the restaurant.
This positivity of reviews, filled with metaphors of sex and dessert, turns out to be astonishingly strong.
And how exactly do Americans conceive of dessert?
Americans usually describe desserts as soft or dripping wet…US commercials emphasize tender, gooey, rich, creamy food, and associate softness and dripping sweetness with sensual hedonism and pleasure.
This association between soft, sticky things and pleasure isn’t a necessary connection. For example, Strauss found that Korean food commercials emphasize hard, textually stimulating food, using words like wulthung pwulthung hata (solid and bumpy), coalis hata (stinging, stimulating), thok ssota (stinging), and elelhata (spicy to the extent one’s nerves are numbed).
How can you resist a book with sentences such as these?
The pasta and the almond pastry traditions merged in Sicily, resulting in foods with characteristics of both.
Here is a previous MR post on Jurafsky, including a link to his blog, and concerning “Claims about potato chips.”
The citation is here:
Matthew Gentzkow has made fundamental contributions to our understanding of the economic forces driving the creation of media products, the changing nature and role of media in the digital environment, and the effect of media on education and civic engagement.
Matt is at the Booth School of Business at the University of Chicago and there is much more at that link. Here is Matt at scholar.google.com. Matt’s well-known paper on ideological segregation, with Jesse Shapiro, is here (pdf). Our class on the economics of the media at MRUniversity.com considers Matt’s work, for instance see this video on ideological segregation.
An excellent choice, of course, and hearty congratulations are in order.
6. Soft robots.
7. Worst video ad ever? Or a really good ad? (Singapore, Philippines value)
For rent and utilities to be considered affordable, they are supposed to take up no more than 30 percent of a household’s income. But that goal is increasingly unattainable for middle-income families as a tightening market pushes up rents ever faster, outrunning modest rises in pay.
The strain is not limited to the usual high-cost cities like New York and San Francisco. An analysis for The New York Times by Zillow, the real estate website, found 90 cities where the median rent — not including utilities — was more than 30 percent of the median gross income.
In Chicago, rent as a percentage of income has risen to 31 percent, from a historical average of 21 percent. In New Orleans, it has more than doubled, to 35 percent from 14 percent. Zillow calculated the historical average using data from 1985 to 2000.
Nationally, half of all renters are now spending more than 30 percent of their income on housing, according to a comprehensive Harvard study, up from 38 percent of renters in 2000.