Inequality

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JasonL
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Inequality

Post by JasonL » 30 Apr 2014, 14:16

Might as well give this topic a home seeing as how it will be the major economic argument for the rest of our lives-ish.

As of this time:

- I am pretty well convinced that over a 10-20 year horizon the returns to certain types of skill sets will continue to dramatically outpace the returns to other skill sets, and the truly unskilled are going to struggle in terms of an ability to change their condition.

- That said, I think the consumption side of this story is underreported. While incomes will sag, improvements in consumption at a given price will also improve such that it is not at all clear to me that standard of living per se will slide. Many more great new things for some, but some new things for everyone and downward pressure on unit costs of many forms of consumption

- I think Picketty's argument is basically crap. The argument from history is not good. There is no evidence that returns to capital are destined to exceed rate of growth of the economy. If there were such evidence, you'd think encouraging private accounts in equities would be seen as a solution but somehow that's not on the table because if markets are too risky for poor people. That is a bad faith argument.

- The Next Big Thing could completely change this story in an instant. This isn't wishful thinking, it is literally the most dominant feature of this question at any point in history since industrialization. It is not valid and is frankly irresponsible to project an economy 50 years from now based on current technological trend an income trajectories.

- Have you noticed the 1% has now become the .01%? There is a lot of goalpost moving here. There is considerable dynamism within the income distribution. This is a huge blow to certain liberal narratives: http://www.nytimes.com/2014/04/20/opini ... .html?_r=0

"It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution."

- I do not oppose an increase to redistribution under the assumption that we may be looking at a grim 20 years for some people. My preference would be to deploy a progressive consumption tax and fund an expanded EITC type program that supports incomes of working people in a smoothly attenuating fashion.

- I also support increased transfer payments to people who actually can't work. If you have a no crap mental illness or physical disability that prevents gainful employment, you're lifestyle should be a static Not Terrible. If you are able to work but choose not to do the types of work available your life should be Kinda Terrible to Be Honest. If you are working your life should be North of Kinda Terrible with supports to get you to Not Terrible in an attenuated fashion.

Just a set of thoughts on a big issue.

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nicole
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Re: Inequality

Post by nicole » 30 Apr 2014, 14:31

JasonL wrote: - I think Picketty's argument is basically crap. The argument from history is not good. There is no evidence that returns to capital are destined to exceed rate of growth of the economy. If there were such evidence, you'd think encouraging private accounts in equities would be seen as a solution but somehow that's not on the table because if markets are too risky for poor people. That is a bad faith argument.
Anyone here actually read Piketty yet? I don't want to but I'm probably going to suck it up soon and get 'er done. Anyway, the most interesting thing I read about it, FAR more interesting than the stuff about how he gets his facts wrong and whether the business of r > g is true or not, was in Daniel Schuchman's WSJ review (PS--WSJ does really good long book reviews, and I'm not just saying that because I'm mentioned in one):
Mr. Piketty believes that only the productivity of low-wage workers can be measured objectively. He posits that when a job is replicable, like an "assembly line worker or fast-food server," it is relatively easy to measure the value contributed by each worker. These workers are therefore entitled to what they earn. He finds the productivity of high-income earners harder to measure and believes their wages are in the end "largely arbitrary." They reflect an "ideological construct" more than merit.

...the author believes that no CEO could ever justify his or her pay based on performance. He doesn't say whether any occupation—athletes? physicians? economics professors who sell zero-marginal-cost e-books for $21.99 a copy?—is entitled to higher earnings because he does not wish to "indulge in constructing a moral hierarchy of wealth."
So, first, that struck me, because if accurate it doesn't seem like this is exactly what you'd call Marxist, is it? I mean this is apparently not based on a labor theory of value. (Although it could be, and Schuchman could be giving a bad explanation...but he specifically refers to the ability to measure productivity. But maybe Piketty's point is that you can't measure productivity EVER but these certain jobs you can kinda approximate it via the labor theory of value?)

Anyway, what really caught my eye was later:
Not that enhancing growth is much on Mr. Piketty's mind, either as an economic matter or as a means to greater distributive justice. He assumes that the economy is static and zero-sum; if the income of one population group increases, another one must necessarily have been impoverished. He views equality of outcome as the ultimate end and solely for its own sake. Alternative objectives—such as maximizing the overall wealth of society or increasing economic liberty or seeking the greatest possible equality of opportunity or even, as in the philosophy of John Rawls, ensuring that the welfare of the least well-off is maximized—are scarcely mentioned.
What on earth could be so groundbreaking about a book that just assumes the premise a bunch of progressives are already assuming? Or are they just creaming themselves over the interest rates vs. economic growth stuff because now they think they have empirical data? Even if they do, the premise is still just hanging out there, flapping in the wind.
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nicole
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Re: Inequality

Post by nicole » 30 Apr 2014, 14:48

JasonL wrote:- Have you noticed the 1% has now become the .01%? There is a lot of goalpost moving here. There is considerable dynamism within the income distribution. This is a huge blow to certain liberal narratives: http://www.nytimes.com/2014/04/20/opini ... .html?_r=0

"It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution."
And meanwhile, Piketty wants to move the goalposts the other way and get the petits rentiers, which was another surprise for me. I'm out of the loop completely on a mainstream progressive reaction to that idea, if there has been any.
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JasonL
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Re: Inequality

Post by JasonL » 30 Apr 2014, 14:53

I never read any major piece in full. I read contrasting commentary and listen to the podcasts.

He's blessing liberal tropes by putting official looking clothes on them. The left is saying "look it's not just feelings!" Problem is the argument isn't very convincing.

The first quoted section is exactly the sort of thing I dislike about his argument. He actually does seem to argue for no reason at all that labor productivity is real but at some point in an org chart, magic happens and it's all magic and BS after that.

I don't know that the latter paragraph is actually fair to Piketty. Fair would be, I think, that he doesn't care about growth at this point as much as he is bothered by the trajectory on wealth accumulation.

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Re: Inequality

Post by Warren » 30 Apr 2014, 15:09

If your objective is economic equality, you will succeed in impoverishing the maximum number of people while still being saddled with a relatively affluent oligarchy.
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Re: Inequality

Post by fyodor » 30 Apr 2014, 15:21

JasonL wrote:Might as well give this topic a home seeing as how it will be the major economic argument for the rest of our lives-ish.
I for one expect to live a whole lot longer than it'll take for this to be replaced by the next alarmist lefty fad.
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Re: Inequality

Post by Mo » 30 Apr 2014, 15:23

JasonL wrote:- I think Picketty's argument is basically crap. The argument from history is not good. There is no evidence that returns to capital are destined to exceed rate of growth of the economy. If there were such evidence, you'd think encouraging private accounts in equities would be seen as a solution but somehow that's not on the table because if markets are too risky for poor people. That is a bad faith argument.
Can we also take private accounts off the table because if you're going to throw ~10% of US income a year in private accounts you will plunge returns down to Fed Funds level?
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Re: Inequality

Post by fyodor » 30 Apr 2014, 15:25

JasonL wrote:- I also support increased transfer payments to people who actually can't work. If you have a no crap mental illness or physical disability that prevents gainful employment, you're lifestyle should be a static Not Terrible. If you are able to work but choose not to do the types of work available your life should be Kinda Terrible to Be Honest. If you are working your life should be North of Kinda Terrible with supports to get you to Not Terrible in an attenuated fashion.
Hasn't this already been tried? Isn't it pretty much impossible to determine who fits where except in the most extreme circs, especially for something like a government bureaucracy?

I'm down with EIC, though.
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JasonL
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Re: Inequality

Post by JasonL » 30 Apr 2014, 15:27

Mo wrote:
JasonL wrote:- I think Picketty's argument is basically crap. The argument from history is not good. There is no evidence that returns to capital are destined to exceed rate of growth of the economy. If there were such evidence, you'd think encouraging private accounts in equities would be seen as a solution but somehow that's not on the table because if markets are too risky for poor people. That is a bad faith argument.
Can we also take private accounts off the table because if you're going to throw ~10% of US income a year in private accounts you will plunge returns down to Fed Funds level?
I'm not sure it quite goes like that in a global market, but the point is really that Piketty (can't stop putting a "c" in his name) speaks with amazing certainty about long term returns to capital but also explicitly is uncomfortable with long term returns to capital when it doesn't suit his story. Another way of saying this is in his analysis he assumes zero risk to capital when it suits him.

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Re: Inequality

Post by Kolohe » 30 Apr 2014, 15:29

Either Jason or Mo or anyone else - how much finance capital (for lack of a better term at my fingertips) is still in publicly traded equities and debt instruments and how much has been shifted over to private equity (due to things like, but not limited to, Dodd-Frank)? Any idea of the general ratio? Because that ratio makes a difference I think as to whether or not individual private accounts will 'work'.
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Re: Inequality

Post by nicole » 30 Apr 2014, 15:31

JasonL wrote:
Mo wrote:
JasonL wrote:- I think Picketty's argument is basically crap. The argument from history is not good. There is no evidence that returns to capital are destined to exceed rate of growth of the economy. If there were such evidence, you'd think encouraging private accounts in equities would be seen as a solution but somehow that's not on the table because if markets are too risky for poor people. That is a bad faith argument.
Can we also take private accounts off the table because if you're going to throw ~10% of US income a year in private accounts you will plunge returns down to Fed Funds level?
I'm not sure it quite goes like that in a global market, but the point is really that Piketty (can't stop putting a "c" in his name) speaks with amazing certainty about long term returns to capital but also explicitly is uncomfortable with long term returns to capital when it doesn't suit his story. Another way of saying this is in his analysis he assumes zero risk to capital when it suits him.
I've been reading that he more just assumes zero risk to capital, period, but that might be wrong.
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Re: Inequality

Post by JasonL » 30 Apr 2014, 15:33

Kolohe wrote:Either Jason or Mo or anyone else - how much finance capital (for lack of a better term at my fingertips) is still in publicly traded equities and debt instruments and how much has been shifted over to private equity (due to things like, but not limited to, Dodd-Frank)? Any idea of the general ratio? Because that ratio makes a difference I think as to whether or not individual private accounts will 'work'.
I don't know the answer to this. I do know the overall claim is very complex to evaluate one way or another.

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Re: Inequality

Post by Mo » 30 Apr 2014, 15:40

Kolohe wrote:Either Jason or Mo or anyone else - how much finance capital (for lack of a better term at my fingertips) is still in publicly traded equities and debt instruments and how much has been shifted over to private equity (due to things like, but not limited to, Dodd-Frank)? Any idea of the general ratio? Because that ratio makes a difference I think as to whether or not individual private accounts will 'work'.
Total global market cap of equities is ~$63T, $18T in the US. Total debt outstanding is $82T. PE is only about $2T. VC is about $60B a year, so total AUM is probably in the neighborhood of ~$1T.
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Re: Inequality

Post by JasonL » 30 Apr 2014, 15:46

I don't actually support replacing social security with private accounts by the way. The argument is more like if you are sufficiently confident of returns that you want to take the dramatic steps dude suggests, you should be confident enough in those returns to put your money where your mouth is.

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Re: Inequality

Post by Warren » 30 Apr 2014, 16:06

JasonL wrote:I don't actually support replacing social security with private accounts by the way.
What do you suggest replacing SS with?
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Re: Inequality

Post by JasonL » 30 Apr 2014, 16:31

The retirement benefit needs an older full retirement age and more greatly penalized early retirement to make it long run sustainable, but those tweaks will probably do the job and are going to happen at some point.

There was a time when the projections of outflow vs income looked really dire and also the personal savings rate was so low that large numbers of people looked like they were going to be living on social security only. These things in combination painted a dire picture leading me to support some other form of mandatory savings such as private accounts. The savings rate is much better (in part because of Bush era pension reforms permitting automatic enrollment and target date default funds in 401k type things) and the markets have substantially recovered from the worst case predictions about the status of the financial status of the program long term. Now what we are facing is a cohort that lost defined benefit pensions and never picked up the slack into personal savings and those guys are going to have some pain. If we can get past them, my cohort has a good record of participation in personal savings programs (relatively speaking - the rate isn't high enough but there is something there for many more people). So you just really need a tweak to get you past the demographic hump in terms of financial stability of the program.

In terms of "what is this thing", I view personal savings as a primary driver of quality of life in retirement and social security funded paygo as an old age anti poverty supplement. If I think about one source of funds being personal saving and another source of funds being a wealth transfer from young to old, there is conceptually an advantage to having diversification in the source of funds.

If the story changes again such that it starts looking like social security is to be The Retirement Plan, then at that point it will need to be reformed in many ways. You can't fund a majority of retirement with this kind of system in a falling population demographic situation.

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Re: Inequality

Post by D.A. Ridgely » 30 Apr 2014, 16:47

So, bottom line, how can I make this work so that I get even more money from the public coffers?

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Re: Inequality

Post by Kolohe » 30 Apr 2014, 16:50

JasonL wrote:Now what we are facing is a cohort that lost defined benefit pensions and never picked up the slack into personal savings and those guys are going to have some pain. If we can get past them, my cohort has a good record of participation in personal savings programs (relatively speaking - the rate isn't high enough but there is something there for many more people)
Unless the boomer sell-off over the next 15-20 years causes asset prices to depress, and the lack buying power among the millennials (and China) makes them unable to take up the slack, catching the demographic trough of gen x off guard.
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Re: Inequality

Post by lunchstealer » 30 Apr 2014, 16:53

D.A. Ridgely wrote:So, bottom line, how can I make this work so that I get even more money from the public coffers?
Become a Senator?
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Re: Inequality

Post by JasonL » 30 Apr 2014, 17:11

Kolohe wrote:
JasonL wrote:Now what we are facing is a cohort that lost defined benefit pensions and never picked up the slack into personal savings and those guys are going to have some pain. If we can get past them, my cohort has a good record of participation in personal savings programs (relatively speaking - the rate isn't high enough but there is something there for many more people)
Unless the boomer sell-off over the next 15-20 years causes asset prices to depress, and the lack buying power among the millennials (and China) makes them unable to take up the slack, catching the demographic trough of gen x off guard.
Sure. There is a story where something needs to be done. At that point I advocate some form of mandatory savings held in real trust. Among the most important things to accomplish there is to allow people to actually see the balances fluctuate. It informs contribution rates and adjusts expectations if the real situation is going to be "you have less money than you were thinking". There are no real guarantees here, and the tendency of both db pensions and government transfers is to mask fundamental adjustments until it's too late.

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Re: Inequality

Post by tr0g » 30 Apr 2014, 17:21

JasonL wrote:
Kolohe wrote:
JasonL wrote:Now what we are facing is a cohort that lost defined benefit pensions and never picked up the slack into personal savings and those guys are going to have some pain. If we can get past them, my cohort has a good record of participation in personal savings programs (relatively speaking - the rate isn't high enough but there is something there for many more people)
Unless the boomer sell-off over the next 15-20 years causes asset prices to depress, and the lack buying power among the millennials (and China) makes them unable to take up the slack, catching the demographic trough of gen x off guard.
Sure. There is a story where something needs to be done. At that point I advocate some form of mandatory savings held in real trust. Among the most important things to accomplish there is to allow people to actually see the balances fluctuate. It informs contribution rates and adjusts expectations if the real situation is going to be "you have less money than you were thinking". There are no real guarantees here, and the tendency of both db pensions and government transfers is to mask fundamental adjustments until it's too late.

I would like the fundamental lie of SS discarded: There is no trust fund for you alone, it's all general revenue, and you're paying for a welfare program for old people. Also, means testing.
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Re: Inequality

Post by Jadagul » 30 Apr 2014, 17:40

JasonL wrote:The retirement benefit needs an older full retirement age and more greatly penalized early retirement to make it long run sustainable, but those tweaks will probably do the job and are going to happen at some point.
That's really harsh on manual laborers and the lower half of the economic spectrum.

Image
JasonL wrote: If the story changes again such that it starts looking like social security is to be The Retirement Plan, then at that point it will need to be reformed in many ways. You can't fund a majority of retirement with this kind of system in a falling population demographic situation.
You can't really fund retirement at all in a falling population demographic situation. It doesn't matter whether you're using redistribution or stock markets or what, the total consumption this year basically can't be bigger than total production this year.

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Re: Inequality

Post by Jennifer » 30 Apr 2014, 19:10

I haven't read Piketty's book and I'm unlikely to do so, but the approving articles I've seen about it mainly focus on the idea "Capitalism, when left completely unfettered, will lead not merely to economic inequality, but extreme economic inequality bad enough to threaten social viability; ergo there needs to be something [whether a social safety net, minimum wage laws, minimum income proposals, or something else] to prevent that from happening." Watered down that much, I agree with it completely, but that leads to discussions we've had here before already.
It doesn't matter whether you're using redistribution or stock markets or what, the total consumption this year basically can't be bigger than total production this year.
"Production" is still going up overall, with all the many technological advances enabling one worker/employee/producer today to be much more productive than ever before; the complaint is that workers aren't seeing their personal pay rise along with their personal productivity.
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Re: Inequality

Post by JasonL » 30 Apr 2014, 20:10

Jadagul wrote:
JasonL wrote:The retirement benefit needs an older full retirement age and more greatly penalized early retirement to make it long run sustainable, but those tweaks will probably do the job and are going to happen at some point.
That's really harsh on manual laborers and the lower half of the economic spectrum.

Image
JasonL wrote: If the story changes again such that it starts looking like social security is to be The Retirement Plan, then at that point it will need to be reformed in many ways. You can't fund a majority of retirement with this kind of system in a falling population demographic situation.
You can't really fund retirement at all in a falling population demographic situation. It doesn't matter whether you're using redistribution or stock markets or what, the total consumption this year basically can't be bigger than total production this year.
You can't have economic growth in a falling population model?

ETA: Quiz - what was life expectancy at the time the current social security retirement age was first implemented?

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Re: Inequality

Post by Ayn_Randian » 30 Apr 2014, 23:10

Not to immediately rise in defense of my new employer, but the original retirement age was 65. Now it's 67. Also this:
http://www.ssa.gov/history/lifeexpect.html
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