This admission has much wider application than Anarcho-communism
27 Mar 2015 Leave a comment
in applied price theory, Marxist economics Tags: expressive politics, expressive voting, Leftover Left, rational ignorance, rational irrationality
Sorry @WJRosenbergCTU the class war has been based on a measurement error! The real class enemy is the RMA and restricted land supply – updated again
21 Mar 2015 Leave a comment
in applied welfare economics, comparative institutional analysis, Marxist economics, politics - Australia, politics - New Zealand, politics - USA, poverty and inequality, urban economics Tags: Class war, Generation Rent, housing affordability, housing prices, land use regulation, RMA, Thomas Picketty, top 1%, wage stagnation
The other day, I replied to a rant by Bill Rosenberg about the decline in labour share of national income and its implications for income inequality and the great wage stagnation. The labour share of national income has dropped by at least 5% in most countries including New Zealand.
New data from the USA has found that the entire declining the value of the share of labour of national income is due to home ownership:
…the net capital share has increased since 1948, but when disaggregated this increase comes entirely from the housing sector: the contribution to net capital income from all other sectors has been zero or slightly negative, as the fall and rise have offset each other.
The capital share is rising because of the increased value of housing in countries with widespread home ownership. The concentration of capital ownership and wealth in the top 1% was a misplaced concern based on measurement error.
https://twitter.com/EconBizFin/status/581047721836060672
Piketty assumed the returns to capital were increasing across the entire economy. Rognlie found the trend to be almost entirely isolated to the housing sector. His 23 page long conference paper at the Brookings Institution started as a comment on a blog post on Marginal Revolution.
When Rognlie adjusted for the rapid depreciation inherent to investments in capital such as computer software, most of the rest of the increase in the capital share in recent decades in the USA and six other countries has came in housing.
A single sector such as housing is not the force that is shaping past and future of inequality as Piketty and others such as Bill Rosenberg in New Zealand have assumed. They attributed a growing share of income going to capital across the board as Tyler Cowan explains.
In the simplest version of the Piketty model, wealth grows more quickly than does the economy as a whole and thus the picture changes. The relative losers are no longer low earners but rather anyone who is not a capitalist. Any disparity is due not to their shortcomings in labour markets but rather to their lack of a high initial endowment.
The main driver of inequality is the tendency of returns on capital to exceed the rate of economic growth and company shares, businesses and other capital are owned by a narrow section of the community, and in particular by the top 1% of income earners. Trends in housing prices and the comings and goings of intangible capital is not part of that story.
Investment and depreciation of software and other intellectual property is not well handed, or even well measured in current national accounting systems as Edward Prescott has shown in a long research programme dating back 10 years. Intangible capital produced and owned by businesses is known to be big part of all investment in the economy but nearly all of it is recorded as an expense and therefore most is not part of GDP as currently measured.
Source: Edward C. Prescott and Ellen R. McGrattan (2014)
Prescott estimated the value of intangible capital to be equal to about 60% of that of tangible capital in the US economy. Incorrect treatment of investment in intangible capital seriously underestimates investment, output, fluctuations in labour productivity and movements in the capital shares. The graph above shows that the recently introduced intellectual property classification in the US national accounts is both large and volatile relative to equipment and structures investments over the last 40 years. The graph below shows that including intangible capital completely changes the predictions of real business cycle models about trend US labour productivity in the 1990s.
Labor Productivity, for the Model, With and Without Intangible Investment (Real, Detrended) 1990-2003
Source: McGrattan and Prescott, 2005, “Expensed and Sweat Equity,” Research Department Working Paper 636, Federal Reserve Bank of Minneapolis.
This depreciation adjustment for software investment is important because you can’t eat depreciation, as a shrewd observer noted. The rapid depreciation of software is depreciation – it cannot be redistributed from the top 1% to the downtrodden workers as some sort of income. Others have also earlier argued that Piketty’s claims rest on the recent increase in the price of housing.
The main reason for increases in the price of housing in New Zealand and elsewhere is restrictions on the supply of land by local councils. They are the real class enemy.
The metropolitan urban limit in Auckland increases land prices by 9 fold just inside that limit. As Tim Taylor said today:
The rise in capital income as a result of a long-term rise in land and housing prices across the high-income countries is a phenomenon that isn’t easily crammed into the usual disputes over whether capital owners are exploiting wage-earners.
The role of the housing sector and restrictions on land supply driving up housing prices in recent decades in shaping the future of inequality is perhaps underplayed given the many discussions of Generation Rent.
Housing affordability is a real crisis in New Zealand and many other countries with the younger generation no longer able to buy a house. They are condemned to decades of renting a house. They may never be able to afford a house on one income and perhaps two ordinary comes.
The future of inequality is between those who can and cannot afford a dream and a right for their parents and grandparents, which was to buy a house and pay the mortgage off within a couple of decades.
Young people used to buy a house shortly after leaving university and paid it off by their middle age when I was in my 20s and 30s. Back then, which was not all that long ago, ordinary workers could aspire to take out a mortgage and buy a house in the suburbs.
Unless there is a major deregulation of the supply of land in the big cities, home ownership for most in the community will really be a dream, rather than a dream of aspiration achieved by most by their 30s, if not often earlier through working and saving. The grandchildren of the baby boomers will become and perhaps already are Generation Rent.
Come see the violence inherent in the system!
28 Feb 2015 Leave a comment
in constitutional political economy, Marxist economics, movies, Public Choice Tags: Monty Python
Millennials Don’t Know What “Socialism” Means
11 Feb 2015 Leave a comment
in comparative institutional analysis, constitutional political economy, economics of media and culture, Marxist economics, politics - USA Tags: economics of socialism, rational ignorance, rational irrationality
The ruling class versus YouTube
06 Feb 2015 2 Comments
in Marxist economics, Public Choice Tags: conspiracy theories, conspiracy theorists, ruling class, YouTube
The Treason Of The Clerisy: Capitalism And The Intellectuals After 1848
02 Feb 2015 Leave a comment
in development economics, economic history, growth disasters, growth miracles, Marxist economics Tags: capitalism and freedom, Deirdre McCloskey, The Great Enrichment, The Great Fact
Deirdre McCloskey is of the view that the “the clerisy” has been, with notable exceptions, hostile to capitalism and downright contemptuous of the morals and attitudes of the middle class that has flourished under capitalism:
The Germans called it the Clerisei or later the Bildungsbürgertum, the cultivated and reading as against the commercial and bettering bourgeoisie. In the eighteenth century the members of the clerisy such as Voltaire and Tom Paine had courageously advocated our liberties.
But in the 1830s and 1840s a much enlarged clerisy, mostly the sons of bourgeois fathers, commenced sneering at the liberties the fathers exercised so vigorously in the market and the factory.
On the right the clerisy under the influence of Romance looked back with nostalgia to an imagined medieval time without markets, in which stasis and hierarchy ruled…
On the left, meanwhile, the clerisy, likewise influenced by Romance, and then by historical materialism, developed the illiberal idea that ideas do not matter.
What matters to progress, they declared, is the unstoppable tide of history, aided (they declared further, contradicting themselves) by protests or strikes or even violent revolutions directed at the thieving bourgeoisie, movements to be led of course by the clerisy.
Later, in European socialism and American progressivism, the left proposed to defeat bourgeois monopoly of markets by gathering under regulation or central planning or ownership of the means of production all the monopolies into one big monopoly of violence called the state.
Yet the commercial bourgeoisie so despised by the clerisy left and right made the Great Enrichment and the modern world.
The Enrichment gigantically improved our lives, showing that both social Darwinism and economic Marxism were mistaken. The genetically inferior races and classes and ethnicities proved not to be so. The exploited proletariat was not immiserised but enriched.
and
Forcing in an illiberal way the French style of equality of outcome, cutting down the tall poppies, treating people as sad children to be engineered by the experts of the clerisy, we have found, has often had a high cost in damaging liberty and slowing betterment. Not always, but often.
On the other hand, introducing the Scottish style of equality of liberty and dignity, as in Hong Kong and Norway and France itself, has regularly led to an astounding betterment and to a real equality of outcome—with even the poor acquiring automobiles and plumbing denied in earlier times even to the rich, and acquiring political rights and social dignity denied in earlier times to everyone except the rich
Utopia, you are standing in it! 
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