Yet the rich devote a smaller percentage of their earnings to
buying things than the rest of us… They already have most of what they want.
Instead of buying, and thus stimulating the American economy, the rich are more
likely to invest their earnings wherever around the world they can get the
highest return.

That’s Robert Reich, here is much more.  How shall I put it?  Savings are good for the economy!  Savings are invested!  (and this is about the long run)  Arguably Americans don’t save enough!  America is a net importer of capital, not a net exporter!

Etc.

Addendum: This, from Barack Obama, belongs to the same department.

Here’s a nice picture from The Mess that Greenspan Made.

Numerous bloggers, often from the left, are jumping on the recent Cox and Alm NYT Op-Ed on consumption inequality.  Via Greg Mankiw, here is one excerpt:

…if we compare the incomes of the top and bottom fifths, we see a ratio of 15 to 1. If we turn to consumption, the gap declines to around 4 to 1…. If we look at consumption per person, the difference between the richest and poorest households falls to just 2.1 to 1.

Here is Mark Thoma and here is Paul Krugman, both of whom offer good criticisms on the particular numbers.  Nonetheless it would be a mistake to go back to focusing on income inequality, or for that matter rising income inequality.  Keep in mind a few points:

1. Global income inequality is way down over the last thirty years.

2. Inequality of welfare, even within the United States, is way down over long time horizons, such as the last century. 

3. We do not know how inequality of welfare in America is faring over say the last thirty years.  This is a point of overriding importance.  Just in case you missed it, let me repeat: when it comes to the kind of intra-nation inequality that we should really care about (if we are going to worry about intra-nation inequality at all), we "do not know."  As in "know" and "not" put together.  "Not" is the word of negation, by the way.  And the last I looked, not = not, as it usually does on most Wednesdays.  Would you like to hear more on what is implied by the conjunction of "not" and "know"?

4. We do know that welfare inequality doesn’t track income inequality in any simple way, especially when new goods are being introduced, there is mass production, there is diminishing marginal utility, and non-marketed benefits and costs are important in human life.

5. Here is the latest and most serious attempt to weigh the problems with consumption data; overall it reinforces the importance of looking at consumption.  And it is not denied that consumption inequality is much less than income inequality and also consumption inequality rising less rapidly over time.

Here are some previous MR posts on consumption inequality.  Here is Andy Warhol on consumption inequality.

In general, when you see cherry-picking — or lemon-picking — of these numbers, you should be very suspicious.

David Leonhardt weighs in.  The other day John Nye and I were discussing that de facto limits on the size of effective bets are the biggest problem hindering effective price discovery.  When you can become a millionaire on InTrade, that’s when its prices will become much better forecasters.  Nonetheless I agree with the piece’s conclusion:

If you have any better ideas of where to look, let me know.

But some inefficiencies need to be taken with a grain of salt:

Mr. Ravitch has made a nice profit betting against Ron Paul,
the libertarian who late last year was, amazingly, given almost a 10
percent chance of becoming the Republican nominee. “If you asked anyone
in politics whether there was ever, at any point, a 10 percent chance
of Ron Paul being the nominee,” Mr. Ravitch said, without finishing the
sentence. “That sort of makes my case for me.”

When it comes to the long shots, remember that InTrade takes deposits in non-interest-bearing cash rather than T-Bills.  In the meantime observers need to adjust their expectations accordingly and not interpret all the prices are pure percentages.  I recall Paul trading at about 7 or 8 percent.  Let’s say you shorted Paul last December.  You’re locking up your cash for quite a while at zero percent interest and when Paul fails you’re not going to net as much as you thought.  In other words, there is a partial short sale constraint on this market and its prices need to be understood accordingly.

Of course there is a reason why InTrade insists on earning the float and that directs our attention back to the zero-sum property of the bets.  That’s another reason why prediction markets probably won’t ever forecast as well as the stock market: their users have to be charged or taxed at a higher rate.  The expected rate of return in InTrade is negative; the expected rate of return in the stock market is seven percent minus commissions.  Where would you rather put your smarts to work?

Which do you think takes a bigger toll on the environment, owning a dog, or owning an SUV? My bet would be on the dog. I’m thinking of all of the resources that go into dog food.

That is from Arnold Kling.  And if you believe in a zero or very low discount rate, don’t forget to count all those puppies too.

From The National Post, the main sources are Tim Harford and yours truly.  Excerpt:

The answer, says Mr. Cowen, lies in the Alchian-Allen Theorem. Developed in 1964 by economists Armen Alchian and William R. Allen, the theorem states that adding a per unit charge to the price of two substitute goods increases the relative consumption of the higher price good.

In layman’s terms, "you don’t take a long trip unless you are going to make it worth your while," he says. Very few people in a long-distance relationship are going to fly across the country just to hang out in sweatpants with their sweetheart.

The result is overblown expectations ("are we having fun now?") and excess pressure on the relationship.  Here is a previous MR post on this topic. 

If you get speeding tickets, watch out: The chances are good that
you will also engage in possibly dangerous investing behavior, too.
That is the implication of a new study that found that individuals who
receive more speeding tickets tend to churn their portfolios…They found that, other things being equal, an investor’s portfolio
turnover rate rose 11 percent after each additional speeding ticket he
received.

Here is the paper.  Here is a longer description of the piece.  The researchers do control for many variables, including age; the most likely conclusion is that there is a general propensity for thrill-seeking behind both speeding and trading behavior.  Do note this is a study of the Finns.

Addendum: Via Deron Bauman, here is a good article that sadness triggers consumer spending.