Results for “piketty”
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How is income inequality correlated with wealth inequality?

From the OECD, Kaja Bonesmo Frederiksen writes on “More income inequality and less growth” and presents this table:

incomewealthinequality

If you were to fit that with a curve, the overall slope would be negative, suggesting a negative empirical correlation between income inequality and wealth inequality.  Now do not leap to a conclusion here, as there are points to be made:

1. This scatter plot is not based on a model with adjustments for confounding factors.

2. These may not be the right or best data on wealth inequality.

3. There are not many data points on this graph in the first place.

4. Lots of other stuff.

The point is that everyone is talking about wealth inequality lately, yet it is not always recognized that the relationship between wealth and income inequality is complex, as illustrated for instance by the case of Sweden.  (There is nothing in this post by the way which should be construed as criticism of Piketty, I’m just trying to lay out some basic expository principles.)

Wealth inequality and income inequality may diverge for at least three reasons.  First, savings rates may differ across societies.  Second, locally available rates of return may differ.  Third, the ups and downs of mobility may mean high income inequality in a given year but overall lower levels of wealth inequality.

By the way, here is a good sentence from the abstract:

Wealth dispersion [inequality] is especially high in the United States and Sweden

The support document is here, I have reproduced Figure 3a.  Hat tip goes to Luis Pedro Coelho.

Assorted links

1. Scott Sumner on how to think about France.

2. Three revolutions from Miles Kimball.

3. Why the Germans are still in charge.  And Italy’s real problem, in one picture.

4. What is the longest disambiguation page on Wikipedia?

5. My 2011 column on driverless cars.

6. Asian small-clawed otters celebrate enrichment at the Smithsonian.

7. McArdle on Piketty.  And check out the cover (!).

8. Profile of Justin Wolfers.

Assorted links

1. The evolution of chess openings.  Chess openings have become more diverse over time.

2. Modular robots that double as furniture.

3. Piketty responds (again) to the FT.  And AFineTheorem on Piketty.  And knowhow, dark matter, and Piketty’s capital, from Ricardo Hausmann.  And me on Piketty on the radio, transcript.

4. Where to look for your lost mother.

5. Safety vest for chickens (there is no great stagnation).  And temporary tattoos hold cooking recipes for ready scrutiny.

6. Amazon responds on Hachette.

7. A Down Syndrome man searches for employment.

8. The World Bank shake-up doesn’t seem to be going well.

Assorted links

1. Clever birds figure out automatic door.

2. Japanese book on how to use profanity correctly in English.  And other methods of Japanese quality improvement.

3. Entropy and inequality (speculative, possibly downright dubious).

4. Why the European left is collapsing (speculative and overblown, but also makes some good points).

5. Why restitution should be small (a 2002 essay by me).

6. “Let’s, Like, Demolish Laundry.

7. More Galbraith on PikettyNate Silver on Piketty and data.

8. And very very sadly the Mackintosh library in Glasgow has been destroyed by fire.

“We all know that wealth inequality has gone up”

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.

The inequality that matters

Brenda Cronin reports:

Recent hand-wringing about income inequality has focused on the gap between the top 1% and everyone else. A new paper argues that the more telling inequities exist among the 99%, primarily driven by education.

“The single-minded focus on the top 1% can be counterproductive given that the changes to the other 99% have been more economically significant,” says David Autor, a Massachusetts Institute of Technology economist and author of the study.

His paper, “Skills, Education and the Rise of Earnings Inequality Among the ‘Other 99 Percent’,” comes as something of riposte to French economist Thomas Piketty, whose bestselling “Capital in the 21st Century” has ignited sales and conversation around the world with its historical look at the fortunes of the top 1%.

Mr. Autor estimates that since the early 1980s, the earnings gap between workers with a high school degree and those with a college education has become four times greater than the shift in income during the same period to the very top from the 99%.

Between 1979 and 2012, the gap in median annual earnings between households of high-school educated workers and households with college-educated ones expanded from $30,298 to $58,249, or by roughly $28,000, Mr. Autor says. During the same period, he argues, 99% of households would have gained about $7,000 each, had they realized the amount of income that shifted during that time to the top 1%.

There is more here, including good graphs.

The other new French book on inequality

It is The Society of Equals, by Pierre Rosanvallon, and it is a transatlantic look at how the notion of inequality has changed over the last three centuries.  It strikes me as the sort of book Crooked Timber would have a symposium on.  Here is one good bit:

Thus there is a global rejection of society as it presently exists together with acceptance of the mechanisms that produce that society.  De facto inequalities are rejected, but the mechanisms that generate inequality in general are implicitly recognized.  I propose to call this situation, in which people deplore in general what they consent to in particular, the Bossuet paradox.  This paradox is the source of our contemporary schizophrenia.  It is not simply the result of a guilty error but has an epistemological dimension.  When we condemn global situations, we look at objective social facts, but we tend to relate particular situations to individual behaviors and choices.  The paradox is also related to the fact that moral and social judgments are based on the most visible and extreme situation (such as the gap between rich and poor), into which individuals project themselves abstract, whereas their personal behavior is concretely determined by narrower forms of justification.

Roger Berkowitz has a very good review here, excerpt:

As does Piketty, Rosanvallon employs philosophy and history to characterize the return of inequality in the late 20th and now 21st centuries. And Rosanvallon, again like Piketty, worries about the return of inequality. But Rosanvallon, unlike Piketty, argues that we need to understand how inequality and equality now are different than they used to be. As a result, Rosanvallon is much more sanguine about economic inequality and optimistic about the possibilities for meaningful equality in the future.

And:

…inequality absent misery may not be the real problem of political justice. The reason so much inequality is greeted with resentment but acceptance, is that our current imagination of justice concerns visibility and singularity more than it does equality of income.

Recommended.

From the comments

Here is Brett on Piketty:

I’m surprised to see so few critiques of Piketty on the grounds that higher wealth and income inequality won’t necessarily lead to oligarchical politics and the capture of the economy by rentiers. I’m a bit skeptical myself of his interpretation of 19th century politics – at the same time we had the Belle Epoque, there was increasing working class political power in the UK (particularly with reforms in the 1830s and 1860s), the lead-up to the near-complete loss of political power in the House of Lords in 1911, the rise of income taxes in both the UK and France, greater social mobility, broader modernization and consumer culture, and so forth. You see some pushback from Larry Bartels and the like pointing to research showing policymaking following the preferences of the rich and organized, but they don’t provide much information about whether this has changed with increasing income and wealth inequality – the rich and organized interest groups may have just always had a disproportionate interest on policymaking, even during the Postwar Period.

Morgan Kelly, in his review (via John O’Brien), serves up a related point:

If Piketty’s story about slow growth leading inevitably to rising inequality and the power of the rich is true, then we expect that inequality would have risen sharply during the 19th century when growth in industrialised economies was less than 1 per cent per year. In fact the longstanding research of Peter Lindert and Jeffrey Williamson on English inequality (which Piketty, incredibly, fails to cite) finds inequality was fairly constant, albeit high, until about 1870, and then appears to have fallen somewhat until 1913.

Wednesday assorted links

1. The new empirical economics of management.

2. Is entering adulthood in a recession linked to lower narcissism later in life? (speculative)

3. Talk of inequality is not a political winner for Democrats.

4. Felix Salmon’s inaugural money podcast for Slate, iTunes subscription here.

5. The robot car of tomorrow will be programmed to hit you.

6. 1987 NYT editorial calls for a minimum wage of zero.

7. Mervyn King on Piketty.