Assorted links

1. A dialogue on negative natural rates of interest.

2. Berlin from space.

3. The Walmart fortune is supporting charter schools.

4. Facts about sloths.

5. Early Stiglitz as a precursor of Piketty, and the Stiglitz dissertation here (pdf).  The associated Econometrica piece is here (pdf).  Here is a JEL paper surveying the literature on growth and inequality (pdf).  Most useful yet, there is Bertola’s survey on distribution and growth (pdf).  You also should go back and read Pasinetti’s old papers from the 1960s.  These are old issues people, and there are no simple answers.  A lot of the current discussion is in fact moving the debate backwards from where it had been decades ago.


Did East and West Berlin use a different type of street lighting? The two areas seem to be different colours, but not in a North Korea / South Korea kind of way

Yeah. East uses gas lights, West uses mercury, I think. It helps drunken German hipsters know not to accidentally stumble into uncool West Berlin.

Ha, there was a discussion about this very post here over a year ago. I remember the comments were interesting.

Derp, prior_approval beat me to it, below.

Friedman and Schwartz's Monetary History was also deeply non-rigorous, even by the standards of the 1960s, and covered no truly new theoretical ground (compare Fisher, or Cassel and Hawtrey, as Glasner emphasized a while ago). The main effect was to capture the imaginations of non-specialists, whose continual nattering then forced the theoretical point into the minds of economists as to what may be considered respectable. For good or for ill, as long Piketty resonates, macroeconomists will have to provide workhorse models that suggest some answer to the question, rather than muttering "it's an interesting theoretical possibility" and then going right back to growth models with no inequality in it, or inequality models with no growth in it, or worst of all, assuming on microeconomic grounds that it's obviously the case that there's a tradeoff between growth and inequality.

No sophisticated model is necessary. Inequality falls when value is destroyed, because the rich are more vulnerable to most kinds of economic catastrophes, be it confiscatory taxation, wars, or nationalisation.

The case study of Argentina shows how inequality was falling while the economy was underperforming:

Now this is your workhorse model: the vulnerability of the wealthy classes. If the economy sputters and stops, the incomes of the well-off fall way faster than the incomes of the sub-median classes.

this does not account for the intuitive rise in the welfare of the working classes during the postwar trente glorieuses across both the Soviet bloc and the Western world

2. Just over one year ago, there was this text posted here - 'You all know the famous photo of the two Koreas? Well, here is a photo of Berlin at night:. The key point is that the West and East still look quite different, mostly because they use different kinds of light bulbs.'

Your Piketty posts increasingly suggest mood affiliation.


#3 I have to agree Tyler is showing his mood affiliation big time. The fact that the Walmart fortune is supporting charter schools or any type of charity cause is not a counterargument to the Piketty side. The 19th Century robber barons also gave charitably.

The 19th Century robber barons also gave charitably.

Yes, they did -- and that absolutely IS a counterargument to Piketty. One of the main ways (though there are many others) that great fortunes fail to transfer to the next generation is that large fractions are given away. To the extent the great fortunes of the 19th century still exist at all as identifiable entities, they are in the hands of foundations, not individuals. Who are the Vanderbilts, Carnegies, and Rockefellers who, after a century of r > g, now have fortunes that greatly exceed those of their illustrious great-great-great grandfathers? There are none. But, of course, the Carnegie Foundation, the Rockefeller Foundation, and Vanderbilt University are still going strong. That is not to say that there aren't still some wealthy descendants (e.g. Anderson Cooper), but their wealth pales in comparison. For great fortunes, dispersal -- not further growth -- is the universal rule.

David Rockefeller and his piddling 2.8 billion dollars would disagree with you -

And yes, it is a piddling 2.8 billion compared to these people - 'Upon the death of Forrest Mars, Sr., he and his two sons were ranked No. 29, 30, and 31 by Forbes magazine's list of richest Americans, and they each had a worth of approximately $4 billion. As of March 2010, the three children of Forrest Mars were tied for 52nd place amongst the world's richest people according to Forbes, with a net worth of US$11 billion each.'

But who cares about facts?

Unless commenters would again wish to trumpet the fact at how the children of Ed Koch have been so successful in increasing their inherited wealth.

The point is not that there are no wealthy heirs. The point is that their wealth (relative to GDP) becomes a very small faction of fortune's founder (and the fraction decreases as the generations pass). Contrary to Piketty, a great fortune, once created, does not continue to grow (because r > g) -- it dissipates over time.

You need to cite data to actually make an argument rather than just an unsubstantiated hypothesis.

Piketty actually does examine the wealth in the hands of charities and foundations, or what are termed "moral persons". Including churches and all other manner of organizations, moral persons account for 6-7% of private wealth in the US, less elsewhere, with no sign of significant growth. Public spirited largesse, despite high profile giving from people like Gates, does seem to outpace accumulation.

Just because you can't think of any mega heirs to the dynasty of old, doesn't prove that concentration doesntw perpetuate. First, the data on who holds large fortune is lacking. We can only estimate based on what fragmentary public records we have, and Piketty has reason to believe this causes us to miss many large, diversified fortunes. Second, even if 19th century fortunes have mostly dissipated, you have no grounds to chalk it up to salutary churn. It's much more likely that gilded age fortunes fell prey to the depression or anti-trust action.

Just because you can’t think of any mega heirs to the dynasty of old, doesn’t prove that concentration doesntw perpetuate. First, the data on who holds large fortune is lacking.

Really? So you think there may be a Rockefeller heir or a Vanderbilt heir out there who is wealthier than JD or Cornelius were in their day...but we just haven't happened to have heard of them!? Do I have that right?

If I had a shit-ton of money and assets I would want as few people to know about it as possible. It's much easier to hide this wealth if you are an heir who has been handed it, rather than the person in the limelight who first built the fortune, usually through a large and visible business interest. The heirs can pump their money through a wide and diversified portfolio that flies under the radar.

Also, I thought one the main points of the book is that we didn't have as much family fortune build up through the last 100 years because of all the disruption, but that things are different now and we are reverting to pre 20th century patterns. So how does that imply we should have Vanderbilts richer than Cornelius today? Seems like you're arguing against something Piketty didn't assert.

I think you are all being a bit unfair even if correct. It is rare to find an economist who can even give you a reasonable, well-researched (extending beyond their own work) account of ONE side an argument. #5 is another treasure trove of good links that give some context. Yes, there's some snark but it's pretty lame. There are some economists who can give you both sides of the argument in a balanced, non-speculative way - but they are generally not the type to be bloggers or even to 'leading' economists. As with many of Piketty's wealthy capitalists - the economists who we view as offering a wealth of ideas are smart risk takers. (I disagree with Jones' op-ed yesterday that patience is secret sauce.) With Piketty's Capital, there is something ironic and fitting about a superstar of academia who writes so concernedly about the superstars of capitalism.

So that is your considered conclusion after reading the links he gave you?

Underlying everything Tyler writes seems to be the assumption that the only thing of real value is raising aggregate living standards and they can only be improved via increased economic growth. Thus, focus on economic growth at all costs. All else is a distraction. That is his "moral framework" as it were. Of course we all have a moral framework including Piketty. Piketty seems to think inequality is bad because it leads to other bad things that are valuable. For example, he seems to believe meritocracy is good and that concentrations of wealth passed down through generations pose a challenge to that ideal. But perhaps he only cares about meritocracy because he really cares about human flourishing and he thinks that is only possible where people are on a level playing field. Who knows?

My reaction to a lot of the criticism of Piketty is just that it is depressing because it essentially says that we should accept vast inequality of wealth because although it makes a joke of meritocracy; although it makes a joke of social mobility; although it means the median person will not see any increase in living standards; it is the best we can hope for. To do anything to reduce it would break a system that, while clearly massively flawed compared to the ideal, is actually better than all others all things considered. I don't say that argument is wrong but it is a conclusion you should reach with a sense of depressed resignation after all other avenues have been exhaustively explored. To be credible it would be best off coming from someone who was once sympathetic to the concerns of the weaker and worse off members of society.

P.S. This all reminds me of Leibniz's argument that the existence of great evil does not prove God is not wholly benevolent, because in fact we live in the best possible world.

Mood Affiliation much? It is an empirical FACT that the only things that matter in life are economic/financial transactions. Caring about anything else just shows your mood affiliation.

Your act is getting thin.

It's just Tyler's act without the gnomic schtick...

You're entitled to your own mood affiliation, but not your own trolling.

You're entitled to entitle and unentitle?

He thinks inequality of wealth among citizens is bad. But increasing the inequality of power between citizen and state due to increased power to redistribute is good.

And leaving aside the fact that wealth circulates quite quickly in a free economy, why is the accumulated wealth of the Waltons more of a problem than the power (and wealth) being accumulated by the Reids?

"But increasing the inequality of power between citizen and state due to increased power to redistribute is good"

I don't fully understand this. Can you unpack it a bit?

On the second part the problem is wealth being accumulated too much by anyone because it confers too much power. What you want is a broader-based distribution of wealth. You seem to be saying that it's okay for two kids in the classroom to have big sticks to bully the others as long as the sticks get rotated from time to time. Well, first, it would be better surely if no-one had sticks and second, in reality the kids keep the sticks and give them to their kids when they grow up.

Who said anything about bullying? How does the fact that someone is rich translate into harm of someone who is not?

The far more common case is that in becoming rich, the Jobs, Pages and Bloombergs have provided something of value.

The only way these people could really harm me is by influencing the political process to prevent competition, yet the Pinkettys argue for strengthening the politicians (and thus the lobbyists) by giving politicians more power over our earnings.

My point was just to show that it is better if power is broadly distributed. The rich currently pay almost no tax, buy elections (e.g. Bloomberg) and influence policy through lobbyists. They also have the money to hire better lawyers if they get in trouble and so on and so forth. So not surprisingly they skew the system in their favour. The fact that some of them give to charity does not diminish this. It's all so a less than robust system that relies for its functioning on the good will of the most powerful.

I haven't looked at Piketty's arguments in detail but the one I saw him speaking about on youtube suggested raising property taxes on the rich and lowering them on less rich. It's not clear to me how that would increase the power of the state.

"I don’t fully understand this. Can you unpack it a bit?"

"On the second part the problem is wealth being accumulated too much by anyone because it confers too much power."

You just unpacked it yourself and didn't realize it. One problem with forestalling any significant private accumulation of wealth is that it further amplifies the strength of the already uniquely powerful state (you know, the only entity not only with enormous quantities of money and the legal ability to raise more by force). Do you think the world would be a better place, with power more equally distributed, if there were no large charitable foundations? There are people on the left who absolutely DO think that -- that large private foundations have no business existing and exerting significant levels of influence outside the control of (and possibly even in competition with) the state. See #3 (the Walton Family Foundation supports charter schools which is in conflict with many local and state governments that are trying to kill them as a favor to their union supporters). Do you think it's a good thing that there are foundations capable of this kind of independence of action?

Two points. First, as I mention above and Piketty says, you can prevent accumulation of wealth by taxing it progressively. So long as you reduce it at the bottom as much as you increase it at the top, the state is essentially not involved.

Second, Piketty's suggestion was a pretty trivial tax - something like 3% on massive wealth. That won't affect the behaviour of billionaires.

To be honest, it sounds like your real problem is with government being involved in things. I don't really care who does what as long as every child gets an equal chance of a good life.

You act like the state isn't the manifestation of the people, who elect our lawmakers. The judiciary has done a pretty good job making sure that moneyed interests can pump as much influence into politics as they want, including through non-profit entities designed to do just that. So what are you afraid of?

There are tons of state and local governments that support charter schools, mostly because they are cheaper than traditional public schools. Obama loves charter schools, which would seem to go against all the favors he owes to his unions supporters. Do you think it's a bad thing unions are capable of independent action to and not beholden to outside moneyed interests?

So a populace that empowers their government to take wealth away by force is a good thing?

You act like the state isn’t the manifestation of the people, who elect our lawmakers.

And you (or at least many on the left) seem to think that so long as a government is democratically elected, there is no reason to be concerned with an ever greater concentration of wealth and power in that government. But this is scary nonsense. Insofar as possible, I want the freedom to decide for myself rather than have collective decisions imposed on me. And the fact that the collective decisions are imposed by a democratically elected leviathan -- over which my individual vote has an infinitesimally small influence -- doesn't make that imposition OK.

Slocum, then you vote for Rand Paul or revolt. You seem to forget that people who get wealthy do so by ingenuity and an industrious work ethic, but also by exploiting the parameters society sets and rent seeking. The people and government play a large role in many people becoming wealthy and always will, so the community and government also have to play a role in taxing that wealth to maintain an environment that promotes business and success.

Government is how we handle collective decisions. I don't blindly support anything government does and I suspect you don't support its wholesale elimination.

Government is how we handle collective decisions.

I think you may have missed the point. Yes, a democratic government is the best way to make decisions that must be made collectively. But where individual choices are possible, collective decisions suck and should be avoided. Collective decision making is inherently politicized decision making, a zero-sum game. If we each make our own choice, we can each get what we want. If the choice is made collectively, at best only the majority get what they want and everybody else gets to suck it up (and that's even overly optimistic, since it's often not majorities but rather powerful, well-connected, influential special interests who get their way and the majority loses out.

So, yes, make collective decisions democratically. But make as few collective decisions as possible.

Fair enough, yours is not an uncommon point of view. But isn't taxing income and inheritance and even wealth something we do, collectively, already? What if we just did it more sensibly, in ways that make it less susceptible to constant meddling and undue influence? Isn't that a real possibility here?

Jonathan, you might enjoy this piece by Jim Manzi arguing that inequality is a bug not a feature of our economy:

That was very interesting and I agree with it almost entirely. Thanks for the pointer. Though I'm not quite sure the title accurately reflects the content of the piece.

So, how do you support the claim that hereditary gifts from a dead father or grandfather to a slothful kid somehow supports meritocracy in the kids generation?

For how long is a slothful kid going to perpetuate an inheritance? He'll piss it away - his own form of redistribution.

If he builds on the inheritance, good for him.

Again, surely the point here is why is inequality of income among millions of disparate individuals - who soon slip out of the top 1% anyway - more harmful than giving the state and it's woeful politicians a ridiculous amount of power to confiscate wealth and distribute according their usual self-serving whims?

Are the Waltons more harmful than the Reids?

"Again, surely the point here is why is inequality of income among millions of disparate individuals – who soon slip out of the top 1% anyway – more harmful than giving the state and it’s woeful politicians a ridiculous amount of power to confiscate wealth and distribute according their usual self-serving whims?"

You are using anecdotes when you should be using data. All estimates point to there being tremendous sticking power at the top. One of Piketty's main points is that the churn we might like to imagine happening can be drastically reduced in a time when capital/income ratio is very high.

I'm happy to see your honesty though. Most people arguing that fortunes will dissipate don't bother to take a systematic look at. I suspect they mostly just share your anti-state preference. I'd like everyone going forward to be clear how one side of this thing is happy to see generations of wasteful heirs engage in speculation and conscpicuous consumption just so long as the state doesn't see a nickel.

Actually, Tyler posted something just this week that showed there is a great deal of churn among the wealthy, and this was in line with another study I'd seem a few years ago.

There does seem to be greater inequality emerging with the top .1%, but again, how does this cause more harm than giving politicians the power to confiscate this wealth and presumably a great deal more?

That the progeny of Sam Walton can purchase a $100 million home has no material impact on me, unless they can influence politicians, the very politicians that Pilketty wants to empower.

There seems to be an assumption that inequality comes at the expense of others rather than from an expanding economy. Is there any evidence that inequality materially harms the less rich outside of their ability to lobby politicians?

This assumption then leads to the conclusion that govt - the same govt that is increasingly incompetent and authoritarian - should have yet more power.

The churn seems tobe overstated. From the article Tyler linked: “Although 12 percent of the population will experience a year in which they find themselves in the top 1 percent of the income distribution, a mere 0.6 percent will do so in 10 consecutive years.” 0.6% staying in the top 1% for 10 years doesn't suggest as much churn as people are interpreting.

I don't understand why the other side doesn't get it...government is not more altruistic than private charity and the wealthy are no more a special interest than are the middle class.

In all these questions, the answer lies in the alternative.

Take the money from the slothful kid and do what with it? Start a war? Buy off some political constituency? Thoroughly f**k up a functioning market with subsidies or some other ill thought out manipulation? Buy SWAT gear for the local county sheriff?

Best thing I've read on this blog.

"he seems to believe meritocracy is good and that concentrations of wealth passed down through generations pose a challenge to that ideal. .... a lot of the criticism of Piketty is just that it is depressing because it essentially says that we should accept vast inequality of wealth because although it makes a joke of meritocracy...."

What's so "good" about meritocracy and what is it? Is merit a measure of ability or accomplishment, two very different things? Who gets to do the measuring? If we were to measure the merit of the current POTUS, for instance, would we do so on the basis of his secret college grades or what he's done in the fields of diplomacy and health care? In the case of one of his predecessors, WJC, now a multi-millionaire, how does he fit into the meritocracy? Is it the ability or accomplishment of his similarly affluent wife that merits her as a potential POTUS herself?

Imagine a 100m race in which everyone has the same clothes and everyone starts from the same place. That's a meritocracy. If some of the runners are in some way handicapped by having weights tied to them, or some are given an advantage by starting further up the field or having better footwear or something, it is less meritocratic. Those favouring meritocracy do so for many reasons. Some think it more fair than alternatives. Some simply think it more efficient. If you have people in important positions of power who did not get there by merit, they are likely to do a worse job.

What does the winner of your hypothetical race gain through his victory? Just because he can run a little faster than the others he's supposed to get what? The most money, the prettiest girl, free haircuts? What does only one race mean anyway?
" If you have people in important positions of power who did not get there by merit, they are likely to do a worse job."
That's why there shouldn't even be positions of power (which don't necessarily correspond with wealth).

"This all reminds me of Leibniz’s argument that the existence of great evil does not prove God is not wholly benevolent, because in fact we live in the best possible world."

I wrote of a parody of this sort of naive economic theodicy, called "The Problem of Evil and its Coasian Solution". It definitely applies here.

#3 And here is something else about the Walton fortune.

Oh let it go...the article is populist rhetoric.

Not much of a rebuttal...

No rebuttal is needed because you never post anything of substance. Your understanding of the law as it relates to the estate tax is laughable, not to mention wrong.

If you seriously think you have found a magic way to avoid the estate tax on large 20 mil+ estates, you need to start a law office immediately because you are about to become the wealthiest lawyer in america.

Did anyone say they were completely avoiding the estate tax? What about preserving the lion's share of the fortune? You're really straw manning this one.

Also, in the last post you admitted that the estate tax does not destroy small business, so definitely go ya there.

I would be interested to read your take on the recent yglesias interview of piketty. For example I hadn't realized that he has suggested using revenue from a tax on net wealth in order to lower property taxes (which would also be considered a capital tax?). In that case there would be no net rise in the tax on capital, simply a change to make current capital taxes more progressive.

"A lot of the current discussion is in fact moving the debate backwards from where it had been decades ago."

This is partially true, but I'm very much afraid that it is not in the way that Tyler means it. The people moving the debate backward are the Garret Jones and David Brooks of the world preaching that an issue (wealth concentration) that has vexed almost every society in history is really just a matter of simple jealousy on the part of intellectuals or whoever they personally disfavor.

Ok, put it differently. As Mr Cowen says, these things are old, ideas and policies have been implemented. I have lived most of my life under a regime that seizes wealth, that oddly enough drives the innovators and wealth creators to other jurisdictions. We have seen wealth seizures and high capital taxes.

In all these situations and real examples, has there been a policy regime that Piketty would like that attracts smart resourceful people, generates wealth to sustain itself, isn't characterized by widespread state sponsored murder, and lasts more than half a decade?

Is Piketty a sloth?

Reading Piketty, and I'm still not done, and the commentary upon the book, has actually been a great learning experience for anyone who wants to learn. Some of the secondary sources have also been very interesting, for example. I might add that Picketty has not shied away from criticism, and has, in fact, been on numerous panels where critics have been able to criticize him to his face. Some of these panels are on Youtube.

When mentioning the Stiglitz result it is important to put it in context. Bourguignon discussed the idea of an unegalitarian equilibrium, and shows that the unegalitarian equilibrium is in fact pareto superior to the egalitarian one when it exists:

Now this isn't a slam dunk for the unegalitarian eqm if we believe that individuals value the distance between incomes, and I think this is one of the concerns Piketty puts more weight on than a lot of other economists.

I don't think anyone denies that growth and inequality has been studied before. But since, Kuznets, most of the discussion had been theoretical, and not much had been done to collect more data on the question.

Piketty's contribution is groundbreaking because of the massive amount of data he has managed to pull together. I appreciate that, in a time when the discipline seems to be obsessed with cutenomics and clever id strategies, he has actually done a lot of hard work on a topic that is actually important.

Comments for this post are closed