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#6: Well, most of the results are sensible. Women who are victims of domestic violence are more likely to cheat on their husbands, ok. Women whose husbands deny them a favored sexual position, more likely to cheat, ok. Younger women cheat more, ok. Women who are more sexually satisfied, less likely to cheat, ok.

But "women whose husbands have longer erect penises, more likely to cheat." Huh.

Suspect re the first set of associations, that perhaps husbands sense when they've been cuckolded and are more likely in those circumstances to deal violently with the Mrs.

I'm thinking I better have a talk with the little woman, ahem...

Width, not length. (probably just noise, however)

From the study:
From these results, every one inch longer penis increased the likelihood of women being involved in extra-marital partnership by almost one-and-half times. Similarly, our qualitative data also support this finding. Women associated large penises with pain and discomfort during sex which precludes the enjoyment and sexual satisfaction that women are supposed to feel. On this issue one woman said:
‘‘…some penis may be large yet my vagina is small, when he tries to
insert it inside, it hurts so much that I will have to look for another man
who has a smaller one [penis] and can do it in a way I can enjoy’’

According to the women, the right penis is the size of:
‘‘The 15 cm ruler can make a better size. The ruler that fits a set, do
you think it is a bad size? [All] It’s good’’.

Also, we need to remember that PLoS One essentially publish everything they get.

My guess is that the causality runs the other way. Women when selecting between potential spouses may face a tradeoff between emotional compatibility and sexual attraction. The ones who lean towards the latter probably have less stable marriages, they're also probably the ones focusing on a larger penis.

Why would NRO not favor the use the proceeds of the wealth tax to subsidize the savings of low income people. 401K plan stamps in addition to food stamps.

What are the chances that progressives would actually do that with the funds? This would certainly be my objection to such a plan- it would be nothing but a bait-and-switch.

Right, the priests distributed some of the sacrificial offerings, but sold the best cuts for their own enrichment.

Because they know that the poor are for the most part poor because of bad choices - not low income or lack of a 401K

See 50 year of War on Poverty - wasted TRILLIONS to lift up the unliftable....

Insanity is doing the same thing over and over again and expecting different results....

#7 I remember interviewing the head "lead" safety person with my state in the late 90s for an article about (then) new lead disclosure laws. He explained that lead-paint was originally a higher cost/ higher value product praised for its ability to maintain strong, clean colors with occasional cleaning. He also insisted there was nothing wrong with lead-paint as long as you kept it clean; kept an eye on the kids. Basically, its not lead by itself that's the problem, but lead plus "social" factors, such as keeping an orderly house. That serves to confound the type of relationship these people want to establish solely on the basis of presence of lead.

Even if you accept all of the claims about lead, it only explains about 20% of crime. The other 80% is independent of lead. It also fails to address the demographics. Even so, we have known for more than 2,000 years that lead exposure is bad for humans. I recall reading about the ancients condemning people to the lead mines just for that reason. From what I'm told, the general dimwittedness of Baltimore residents is due to the liberal use of lead, but I have never seen any evidence of it, other than the general dimwittedness.

the general dimwittedness of Baltimore residents is due to the liberal use of lead

Why are you always blaming liberals?


"Pb only explains about 20% of crime.."


Re #6. This leads to all sorts of conundrums, specifically that this measure of the value of *output* will be much larger than any conceivable measure of *income*. I can see some importance in measuring it, as it provides a more complete accounting of *transactions*, and thus potentially a more complete understanding of the monetary side of the economy. (For example, calculations of the velocity of money as NGDP/M are self-evidently wrong, and use of NValueOfTransactions/M will provide a much more accurate picture.) But as a measure of the value of output, I think it's nuts. The value of the cupcakes, in a sense, becomes the value of the cupcakes plus the value of the flour plus the value of the wheat plus the value of the sugar plus the value of the sugar beets plus the value of the muffin cups (that h0ld the cupcakes) plus... How does this help us understand how much stuff the economy is producing if we blatantly double-count most of it? Skousen's argument that "...Consumer spending is largely the effect, not the cause, of prosperity.." is doubtless correct, but the *cause* of the production of the flour and the sugar and the mixers is the *demand for cupcakes.* (Yes, I sound like a Keynesian. So sue me.)

And I say all this with the realization that I'll try to figure out whether, and how, to incorporate it when I teach macro.


Monthly Income: 18USD
Monthly Expenditure: 77USD


#7: Why is it called "gross output" if it is a measure of market transactions, rather than output? Seems designed to confuse.

If I understand right, if upstream and downstream firms merge, then "gross output" goes down even if every detail of production and consumption remains exactly the same.

I meant #5, obviously, not #7.

Tyler, you are seriously overrating risk as a weak point in Piketty's argument. Kling is a near useless commentator. He's the guy that predicted Sandy would lead to NYC's total demise. He ovverrates his own understanding of risk. Moreover, the kind of risk that kills concentration and capital/income tends to be civilization shaking, war or total depression. To say that inequality and concentration won't be a problem because we all run the risk of being made drastically poorer by some disaster is a joke. The upper crust seemed to handle the risk realized in 07-08 just fine. Volatility of capital income is a red herring.

Short term volatility does not translate into long term risk is the stock market see . and so does not reduce the average return

Piketty is right. Risk is part of the reason that higher concentrations of wealth achieve greater returns. The very wealthy can afford to ride out bouts of short-term volatility and thus benefit from the increased long-term returns associated with riskier positions. it's the small time investors who usually get shaken out of the market during short-term bouts of volatility, because they can't afford the losses, or they have to draw down their capital to cover lost income elsewhere.

Risk is crucial to thinking about wealth distribution. The riskfree rate of return is low--- say, 2%, lower than the growth rate of the economy. Piketty's 5% rate is, I suppose, an average over all risk levels.

Thus, cautious rentiers will not end up getting most of national income even if they save 100% of what they earn.

On the other hand, if you're willing to take more risk-- which richer people (though maybe not rentier rich people) generally are--- you get a higher expected return. What is the implication of that?

I think the implication is that wealth concentration will in most years increase, perhaps to quite drastic levels, but over a very long period of time, perhaps 100 years, it will stay unchanged. Think of Gambler's Ruin. If someone makes risky bets that are all fair gambles, in the long run he loses everything with 100% probability. I think that even is true if his risky bets are more than fair, adn have a positive expected return. The reason is that eventually you get 1000 unlucky bets in a row and run out of money, and that is what in stochastic processes they call "an absorbing state". In the wealth context, the risktaking saver gets richer and richer till one or a sequence of Very Bad Events wipes him out--- a Great Depression or a Russian Revolution.

Bottom line: you can't analyze wealth concentration over the long run without paying serious attention to risk.

If the study of risk's relation to income and wealth distribution is to let us know that economic disasters will eventually make us all equally poor, then, again, I say red herring.

#1..."Since robots could mate only when looking at each other head-on..." I'm pretty sure that's going to be a deal breaker even for some robots.

Can someone who has read Piketty explain how he deals with children (i.e. inheritance)?

If the US starts publishing (nominal?) gross output numbers, then will Scott Sumner become an advocate of NGOLT? If not, why not?

Re #7

There is no serious dispute that lead exposure, mostly in young children, leads to reduced cognitive ability. There is likewise no genuine dispute that making children more stupid by exposing them to toxic substances is a bad thing. And, there is furthermore, no serious dispute that lower IQ increases the likelihood that someone will participate in serious blue collar crime. It is also largely undisputed that the crime that lower IQ increases the likelihood of is largely a bad thing - kids made stupid by lead aren't the one's who go on to become insider trader's or prostitutes or drug kingpins where the issue of the harm caused by the crime is less clear.

Ergo, significant lead exposure is a bad thing and we should reduce it (and we indeed did as a society take multiple steps from gasoline and paint reformulation to real estate sale disclosure requirements to air pollution regulations for industrial facilities, to reformulation of all sorts of other common products) to address this problem.

The fact that it is difficult to measure the magnitude of the indisputably negative effects of lead exposure in children on crime given that crime rates have many, many plausible factors that drive them isn't terribly important given this prelude. Yes, poor kids (whose price limited housing options makes them most likely to be exposed to lead) are the most likely to end up in crime anyway given all of the other facts; exposing them to lead no doubt makes this worse, even though it is hard to say precisely what magnitude the effect will be, particularly because Nature does not guarantee that lead exposure and crime have the nice linear relationship that the statistics that are easiest to sort data with are best at discerning.

Whether the impact on crime is 2% or 20% the fact that the other impacts on those exposed to it are also universally bad makes efforts to address it a no brainer. Nobody is arguing, for example, that lead paint reduces radiation exposure to home occupants sufficiently to compensate for the harm caused by young children eating chipped lead paint.

ohwilleke April 25, 2014 at 6:22 pm

kids made stupid by lead aren’t the one’s who go on to become insider trader’s or prostitutes or drug kingpins where the issue of the harm caused by the crime is less clear.

I disagree. It is precisely the sort of children who are raised in these environments that are a risk for prostitution and drug gangs. You don't need much brains for either, but a propensity to violence may help. Most criminals are not super-geniuses. They are borderline retards. They get away with it because in most cases the police don't really have a lot to go on to find criminals and, as long as they stick to their own community, the police don't get a lot of help.

Yes, poor kids (whose price limited housing options makes them most likely to be exposed to lead) are the most likely to end up in crime anyway given all of the other facts

Actually it is not their price-limited housing options. As with so many discussions this is largely a proxy for race where no one is willing to talk about race. But those houses where children are likely to ingest lead paint are often New York Brownstones - worth millions. If only the neighborhoods they are in were not wracked with crime. That is, the parents and older siblings of those young ones make the housing cheap. Once the New York police jail a significant percentage of young Black New Yorkers, Hipsters are perfectly happy to move back to those houses because they have an inherent value, absent crime. The crime is the pre-existing factor. If Blacks had not chosen to live in the inner city, and hence driven White people out, they would have lived in cheap housing in the suburbs and so not had a lead problem. In fact the housing would have been even cheaper.

Whether the impact on crime is 2% or 20% the fact that the other impacts on those exposed to it are also universally bad makes efforts to address it a no brainer.

Indeed. Although the risk is that this is a displacement activity. That the causation is something else and that people are addressing this issue because they do not like the political implications of the alternatives.

Re #5

It is always nice to have more data points in economic analysis but "gross output" doesn't address most of biggest conceptual flaws with GDP. As the commentary in the story illustrates, gross output itself isn't a very meaningful number and involves questionable accounting concepts standing alone so the bottom line number in the analysis isn't really that meaningful. What is possibly meaningful is the way that the process of calculating gross output allows us to capture the relative importance of "intermediate good" production activity relative to "final good" production activity in the economy. Put another way, the flaw in the GDP measurement that it seeks to address is the tendency of GDP to underestimate the importance of intermediate good production in the overall economy which could lead to misguided economic development policies.

The trouble is that not many people put underestimating the relative importance of intermediate good production in a way that produces bad economic development policies at anywhere near the top of the list of problems with how we currently measure the macro-economy. Our universe is economic statistics is absolutely broken. There are aspects of our economy that aren't measured well, aren't measured at all, or are important but hard to obtain quickly and reliably unless your a professional specialist economist. But, what isn't being fixed isn't what's broken. It's like repainting a broken railing with chipping paint on a staircase in a old house.

What are the more serious problems with GDP?

1. GDP doesn't capture the economic value of non-market economic activity, even though lots of valuable economic activity is carried out on an intra-family or volunteer basis, particularly in areas like child care and elder care and students in the educational system that consume very significant shares of the total potential labor supply and dramatically impact the market components of those industries. GDP says nothing about what value is being generated for our economy and society by the two-thirds of the population who aren't involved in the market labor force.

2. GDP is indifferent to the value of the economic activity it measures. This flaw of GDP is basically a more sophisticated variation on the flaws associated with Marx's labor theory of value. Put a 1000 doctors to work treating an Ebola outbreak for a year and you've increased GDP by hundreds of millions of dollars or more. Have on custom's agent quarantine some bush meat and prevent the Ebola outbreak and that has no impact on GDP. Producing more oil to generate power increases GDP; using less energy to eliminate the need for more oil doesn't. Putting someone in prison adds to GDP based on the money spent on the prison; a cost free way to reduce crime so we don't need to put people in prison doesn't. On average, economic activity leads to beneficial and useful goods and services which is why GDP as a proxy for standard of living works reasonably well. But, plenty of economic activity makes quality of life worse or adds no value. Fortunately, the incentives faces by firms and individuals is far less amoral and value neutral than the rules for calculating GDP, and in the absence of Soviet style central planning our GDP statistic's flaws aren't going to inflict mayhem on our economy. There are absolutely better ways to measure at an aggregate level how total economic activity translates into average standard of living for people in an economy. But, alas, there are many ways to do so and none of them commands a consensus because all have to make some sort of seemingly non-neutral choices about what is and is not beneficial economic activity, all of which are similar, but none of which are the same. The Department of Commerce would serve us much better by cutting that Gordian knot and picking a better way of measuring economic activity that actually creates positive value, rather than allowing the best to be the enemy of the good.

3. Some of the really important components that go into GDP involve imputed economic production (e.g. the imputed value of owner occupied housing) which are based on data that isn't all that solid, rather than actual arms length transactions. Maybe if we started quoting monthly and annual GDP numbers with a margin of error the way laboratory scientists do, somebody we realize that it would be worth our while to put more clever people to work on the less than glamorous chore of improving the way we measure it.

Granted that your argument is correct about what GDP *does not* do, it's as well to recall that most of those things are things it was *never intended* to do. It is a measure of the money value of output, mostly that output produced for and sold in markets (and, yes, the imputation of the value of o-o housing is an issue, perhaps the second biggest issue, following the question of how to value government output). It's not a measure of economic well-being. And developing a measure of economic well-being seems to me to be impossibly hard. (Incidentally, I'd love to see your suggestions for a "cost-free way to reduce crime.") The problem comes when people try to make GDP mean something it isn't.

End the drug war. Costs nothing, and would produce an immediate, massive decline in crime (and not just because many activities would definitionally cease to be crimes).

We end the drug war. Do you seriously believe that drug use would not increase? And that increased drug use would have consequences--and costs? Even advocates of legalization of marijuana (e.g., Mark Kleiman) recognize that legalization does have costs. The benefits of legalization would probably make it worthwhile, but there would be costs.

Every time the crime rate goes up or down, we all cast about for causes. The usual suspects, the economy, policing, and number of prisoners, do not work out. The changes are usually national, while policing and prison policies differ over the country. Crime rates were low in the Depression, are low now, in our deep recession and were high during the prosperous 80's.

The historian David Hackett Fischer, in his book "The Great Wave" (one review here ) using over 700 years of British records shows that the homicide rate and inflation are closely correlated. High inflation, high crime, low inflation low crime. It certainly holds for the examples above. Fisher himself concedes that correlation is not causation, but it rules out the usual explanations.

#3. I haven't read Piketty's book, but I have read enough reviews now to form some thoughts on reviewers' understanding of Piketty's ideas. Even if that understanding is imperfect, since reviewers outnumber Piketty, perhaps reviewers' collective ideas are more relevant than Piketty's ideas anyways.

On the issue of whether r>g, and understanding that there is some confusion about which r and g is relevant, it seems to me that for at least one common conception of r and g, that r *must* be greater than g. And, if r must be greater than g, then the fact that r *is* greater than g must not, in and of itself, say anything about inequality. Consider a perfectly equal world in which everyone owns an equal share of Global Production Inc (GPI), which produces all of the world's output. Everyone has contributed their human and non-human capital to GPI. Not only is the value of their capital equal, everyone also has identical consumption and savings preferences. Thus, GPI produces output Y_n per share in period n, saves/retains/reinvests fraction s, distributes dividend D_n = Y_n * (1-s) per share, which everyone consumes completely at end of period n, i.e., no individual savings other than GPI's retained earnings s. Output Y_n grows at rate g (and thus so does D_n since s is constant). Then, the value per share V_0, i.e., each person's wealth, at time 0 is the present value of future dividends (consumption), given by the geometric series

V_0 = sum_{n=1}^{infty} D_0 * [ (1+g)/(1+r) ]^n

which converges *if and only if* r>g to V_0 = D_1 / (r-g). Thus, *r must be greater than g if people have finite wealth*. The rate of return r = (D_1 / V_0) + g, i.e., the sum of the dividend yield and growth rate, which I believe is the standard dividend discount model result. If r is much greater than g, it means that the fraction of wealth consumed each year is large. It says nothing about inequality or growth of inequality. In this setup, everyone's consumption and wealth grow at rate g independent of r-g. So, is Piketty using a definition of r and/or g that is different from these?

[Side note: The savings rate s is unimportant here because I calculate wealth using D_n, the unsaved output, which is proportional to output Y_n, and I assume g is exogenous. I included it because Solow's review [] includes s and makes a claim that the capital-income ratio V_0/Y_0 = s/g, which follows from an assertion that wealth increases only from savings, V_1 = V_0 + s * Y_0. If V_0/Y_0 = s/g, then the growth rate g = s*Y_0 / V_0. However, shouldn't innovation allow g>0 even if there is no savings (s=0)? If we consume everything we produce, can't we still produce more by getting "smarter"? Do any of Piketty's claims assume that innovation doesn't occur? I have no reason to believe so, but I thought it was a curiousity that Solow's review assumes that g only arises from positive savings s.]

Now, if we allow for differences in consumption and savings preferences, then some people can accelerate their consumption, while others can delay it, by trading consumption streams with each other, e.g., by borrowing and lending. For example, someone with no bequest motive might decide to trade his exponentially growing perpetuity for a finite-life annuity. That annuity need not include payments that grow at the same rate, nor grow at all. Someone choosing such a consumption stream would receive larger initial consumption and smaller or zero future consumption, i.e., his "income share", or that of his heirs, would appear to fall over time. This annuity may also look suspiciously like a salary/wage stream instead of an equity holding. So much so, that one might just define as a "worker" anyone whose consumption stream looks like a finite-life annuity and define as a "rentier" anyone whose consumption stream looks like a growing perpetuity. Note that these definitions have nothing at all to do with whether one's wealth derives from human or non-human capital. Human capital can be exchanged for growing perpetuities and non-human capital can be exchanged for finite-life annuities. Not surprisingly, though, if one did define "worker" and "rentier" this way, then rentiers' "income share" would grow over time and workers' share would fall. That's a result of the definitions, not inequality. Importantly, however, all exchanges of consumption streams are by definition *zero net present value* (and in this risk-free setup would occur at exchange rate r). In fact, because any wealth distribution can in principle be converted into an equivalent distribution of constant-growth perpetuities for which "income share" is constant (but not necessarily equal of course), any variations of "income shares" across time could be said to result purely from welfare-enhancing trading of consumption timing (and risk, when one considers risk).

To be clear, I am not claiming that everyone has equal wealth. Obviously, that's not the case. People have unequal ownership shares in GPI, reflecting unequal human and non-human capital. Variation of "Income shares" across time, however, would not appear to tell us what's happening with inequality, nor does the fact that r>g.

To be concrete, suppose GPI decides to pay the two residents of a 2-person country, Mr. L and Mr. S, a wage instead of granting them equity shares. L is a ZMP worker but contributes $10k worth of land, so GPI is willing to pay him as an employee even though he is not a productive worker. S contributes no non-human capital but is innovative with a strong work ethic, and GPI estimates his human capital is also worth $10k. GPI offers two compensation plans:

(1) A (stagnant) wage and pension which pays $517 every year for 70 years.
(2) $300 in year 1, followed by an annual raise of 2% forever (including to one's heirs after one dies).

GPI is indifferent between these two because r=5% and g=2% so that both are worth $10k and GPI can construct either income stream by borrowing and lending at rate r. L chooses (1), S chooses (2), and each consumes their entire wage each year. Some might think L is [L]abor because he receives a fixed wage and pension, but he actually contributes no human capital. (His "wages" also look like 70-yr fixed mortgage payments, as a [L]andowner might receive.) Mr. S is actually a [S]aver, but some might call him a "[S]upermanager" because his compensation resembles equity (or [S]tock). Even though his entire contribution is human capital, some might insist that he is an "adjunct to capital", a "rentier" in disguise. These labels, however, arise purely from differences in consumption preferences.

In this two-person country, "inequality" researchers would observe the following after 70 years:

(1) The Top 1 earned only 63% of income in year 1, but by year 70, when Mr. S is earning $1200, the income share of the Top 1 increased to 70%. Inequality seems to be increasing.

(2) Some inequality deniers point out that membership in the Top 1 has actually changed over time (from Mr. L to Mr. S), so researchers look at longitudinal data. There, the story looks even more alarming. Rentier (S) income has increased by 4x, while labor (L) income has been completely stagnant. Total national income has grown from $817 in year 1 to $1717 in year 70, but literally all $900 in gains has gone to the rentier, the current Top 1.

(3) Inequality deniers are still unconvinced, so researchers look at wealth inequality. By year 70, Mr. L has only 1 more year of pension income remaining, so his wealth is only 517/(1+r) = $492. Meanwhile, the wealth "controlled" by rentier Mr. S is $40,000. Wealth controlled by the Top 1 has grown from 50% to 99 percent!! This is even after taking human capital (future earnings) into account, which would usually favor "Labor".

Whether one looks at income distribution, wealth distribution, or changing "income shares", clearly inequality seems to be getting worse during this period where r>g and shows no signs of changing. However, it only seems that way. By construction, this society is maximally egalitarian. Mr. L and Mr. S differed only in their consumption preferences. A pound of rocks may seem like it must be heavier than a pound of feathers, but a pound is a pound. Changing income shares may seem to indicate growing inequality, but present value at time 0 is present value at time 0.

Tyler: where is Mr Yung's?

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