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Supplements to wages and salaries have grown dramatically, but labour compensation inequality has not
12 Jun 2015 Leave a comment
in applied price theory, applied welfare economics, politics - Australia, politics - New Zealand, politics - USA Tags: Leftover Left, Piketty, top 1%
Gross Domestic Income (GDI) is a complete measure of all income earned in the United States. About half is wages, salaries, and benefits. A quarter goes to business-level taxes and the replacement of worn out machinery. Another quarter of gross domestic income is returned to owners of capital, including business owners and private homeowners.
The shares of income returned to workers and owners of capital remain constant over time once benefits, taxes, and depreciation are accounted for – two-thirds of net income goes to labour and one-third goes to capital.
Rather than focus on shares of GDP, a recent preoccupation of the Left over Left, we should focus on shares of labour compensation, that is, wages, salaries and fringe benefits. Both Piketty and his critics agree on that.
via A Walkthrough of Gross Domestic Income | Tax Foundation.
The last word on Piketty: Deirdre McCloskey, John McTernan, Chris Giles Panel
29 Nov 2014 Leave a comment
in applied price theory, applied welfare economics, poverty and inequality Tags: Deidre McCloskey, Piketty
Deirdre McCloskey on Piketty’s definition of wealth in the Age of Human Capital
23 Nov 2014 Leave a comment
Deirdre McCloskey has a 55-page review essay on Piketty
21 Nov 2014 Leave a comment
in applied price theory, applied welfare economics, entrepreneurship, history of economic thought, human capital, labour economics, liberalism, poverty and inequality Tags: Deirdre McCloskey, Piketty
You will find it here (pdf), forthcoming in the Erasmus Journal of Philosophy and Economics.
via Deirdre McCloskey has a 55-page review essay on Piketty.
What if We’re Looking at Inequality the Wrong Way? – NYTimes.com
16 Nov 2014 Leave a comment
in applied welfare economics, entrepreneurship, human capital, labour economics, labour supply, liberalism, Marxist economics, occupational choice, politics - USA, poverty and inequality, public economics, Rawls and Nozick, technological progress Tags: Piketty, poverty and inequality
Piketty on inequality: views of the IGM economic experts
16 Oct 2014 Leave a comment
in applied price theory, applied welfare economics, comparative institutional analysis, constitutional political economy, discrimination, economic growth, entrepreneurship, gender, human capital, income redistribution, industrial organisation, labour economics, Marxist economics, Rawls and Nozick Tags: Daron Acemoglu, James Robinson, Piketty, poverty and inequality, The Great Enrichment
Question: The most powerful force pushing towards greater wealth inequality in the US since the 1970s is the gap between the after-tax return on capital and the economic growth rate?
Daron Acemoglu and James Robinson have a simple explanation for why Piketty is wrong:
But like Marx, Piketty goes wrong for a very simple reason. The quest for general laws of capitalism or any economic system is misguided because it is a-institutional.
It ignores that it is the institutions and the political equilibrium of a society that determine how technology evolves, how markets function, and how the gains from various different economic arrangements are distributed.
Despite his erudition, ambition, and creativity, Marx was ultimately led astray because of his disregard of institutions and politics. The same is true of Piketty.
The Key to victory: Run against Piketty-nomics, Scott Sumner | EconLog | Library of Economics and Liberty
23 Sep 2014 Leave a comment
in income redistribution, politics - New Zealand, Public Choice, rentseeking Tags: 2014 New Zealand election, Piketty
This is good news:
New Zealand’s NZX 50 Index increased 1.1 percent, driven higher by power-company stocks, after John Key won a third term as prime minister. Key, a former head of foreign exchange at Merrill Lynch & Co., led his National party to a 48 percent victory in New Zealand’s weekend election, securing the first single-party majority in the South Pacific nation’s parliament since at least 1996. The main opposition Labour Party, which wanted to introduce a tax on capital gains and raise the minimum wage, suffered its worst defeat since 1922.
Perhaps Labour got their ideas from Paul Krugman.
When right-of-center parties are elected, they generally disappoint. Although right-of-center economists favor free markets, most conservative politicians do not. Abe (Japan) and Modi (India) are two recent examples of conservatives who promised reforms and failed to come through (thus far). Fortunately New Zealand is different.
Via http://econlog.econlib.org/archives/2014/09/the_key_to_vict.html
Piketty and Pension Fund Socialism
01 Jul 2014 1 Comment
in financial economics, human capital, income redistribution, rentseeking Tags: pension fund socialism, Peter Drucker, Piketty
Any attack on capitalism these days is a direct attack of the retirement savings of ordinary workers. We live in the age of what Peter Drucker called pension fund socialism in 1976. As Drucker added in 1991:
The rise of pension funds as dominant owners and lenders represents one of the most startling power shifts in economic history.
The first modern pension fund was established in 1950 by General Motors.
Four decades later, pension funds control total assets of $2.5 trillion, divided about equally between common stocks and fixed-income securities. Demographics guarantee that these assets will grow aggressively for at least another ten years.
The majority of equity capital is owned by pension funds and other collective investment vehicles corralling the savings of ordinary people. Much of the rest of physical capital is owned by workers through home ownership.
In the age of human capital, 70-90% of all capital in the economy is human capital. The notion of unskilled workers labouring away with the capital supplied by the bosses is 19th century throwback.
The rentier rich has been long replaced by the working rich. They make their fortunes in their own life times – sometimes as business entrepreneurs, sometimes through rent-seeking.
It is also the age of specific human capital, with a proliferation of technologies and products. The rising specialisation of firms and their production inputs has forced firms to try harder to find those inputs that suit their needs best. Management has the task of finding the right inputs. The role and reward to managers has therefore risen.
When the rise in returns on investments in human capital is beneficial and desirable, and policies designed to deal with inequality must take account of its cause. Growth in education levels has been a significant source of rising wages, productivity, and living standards over the past century.
The initial impact of higher returns to human capital is wider inequality in earnings, but that impact becomes more muted and may be reversed over time as young people invest more in their human capital.
The rentier class has been replaced by the working rich. The evidence on the top 1% is most consistent with theories of superstars, skill biased technological change, greater scale and their interaction of these factors.
Individuals who are really good at making money can now apply their skills to larger amounts of capital and reach far larger audiences and markets for their products and services. That favours CEOs, athletes, celebrities, corporate lawyers, successful entrepreneurs and other working rich Who have a skill or talent that can be supplied at little cost on a much larger scale. Some have a special dark place in their hearts for people who earned their money through honest hard work.
Piketty: A Wealth of Misconceptions by Don Boudreaux
01 Jun 2014 2 Comments
in applied price theory, applied welfare economics, economic growth, entrepreneurship, human capital, labour economics, labour supply Tags: inequality and poverty, Piketty, seen and unseen, The Great Enrichment, The Great Fact
Piketty’s method of doing economics involves frequent grand proclamations about "social justice" and economic "evolutions," but he offers no analyses of the dynamics of individual decision-making, often referred to as "microeconomics," that should be central to the issues he raises…
Revealingly, Piketty writes of income and wealth as being claimed or "distributed," never as being earned or produced. The resulting statistics are too aggregated—too big-picture—to reveal what is happening to individuals on the ground…
He imagines that such aggregates interact in robotic fashion through a logic of their own, unmoved by individual human initiative, creativity, or choice…
If we follow the advice of Adam Smith and examine people’s ability to consume, we discover that nearly everyone in market economies is growing richer…
THE U.S. IS THE bête noir of Piketty and other progressives obsessed with monetary inequality.
But middle-class Americans take for granted their air-conditioned homes, cars, and workplaces—along with their smartphones, safe air travel, and pills for ailments ranging from hypertension to erectile dysfunction…
At the end of World War II, when monetary income and wealth inequalities were narrower than they’ve been at any time in the past century, these goods and services were either available to no one or affordable only by the very rich.
So regardless of how many more dollars today’s plutocrats have accumulated and stashed into their portfolios, the elite’s accumulation of riches has not prevented the living standards of ordinary people from rising spectacularly…
Piketty’s disregard for basic economic reasoning blinds him to the all-important market forces at work on the ground—market forces that, if left unencumbered by government, produce growing prosperity for all. Yet, he would happily encumber these forces with confiscatory taxes.
Deirdre McCloskey on why poverty matters more than inequality (BBC Radio interview)
30 May 2014 2 Comments
in applied price theory, applied welfare economics, development economics, growth miracles Tags: Deirdre McCloskey, Piketty, The Great Enrichment, The Great Escape, The Great Fact
In place of capitalism, she talks of a system of ‘market-tested innovation and supply’:
You have to ask what the source of the inequality is.
If the source is stealing from poor people, I’m against it.
But if the source is, you got there first with an innovation that everyone wants to buy, so you get paid some crazy sum, you ought to be paid so much, don’t you think?
There is noting to be gained by focusing on inequality.
McCloskey’s characteristically extravagant self-description:
She asks that compared to all the envy driven policies, what has helped the poor more than increasing the size of pie?
McCloskey argued that:
- Equality is not an ethically sensible purpose.
- Changes in inequality was made an issue by the intellectuals, not by the working class.
- Absolute poverty is what matters and can be solved.
- Inequality is a fool’s errand.
- Who are you going to trust to fix a problem is the key?
- You must look at the actual ability of government to do various things.
- predicting the future of human affairs is a deeply foolish project.
Super-Economy “pre-reviewed ” Piketty in 2010
14 May 2014 Leave a comment
in applied welfare economics, entrepreneurship, labour economics, liberalism, politics - USA, technological progress Tags: Piketty, poverty versus inequality
The French are poorer that the 3rd poorest American state: Arkansas. The EU-15 as a whole would qualify to be the 49th poorest American state.
The rich in Europe are poor by American standards. The poor in the USA are middle class by European standards. The European middle class has smaller houses, few cars and few consumers durables that the average poor in the USA.
via Super-Economy: Dynamic America, Poor Europe and Tino Sanandaji
Utopia, you are standing in it! 
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