Nice summary



Nice summary


Supplements to wages and salaries have grown dramatically, but labour compensation inequality has not

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.

Winston Churchill on Piketty


The last word on Piketty: Deirdre McCloskey, John McTernan, Chris Giles Panel

Deirdre McCloskey on Piketty’s definition of wealth in the Age of Human Capital


Deirdre McCloskey has a 55-page review essay on 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? –

Fig. 5


via What if We’re Looking at Inequality the Wrong Way? –

Piketty on inequality: views of the IGM economic experts


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

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.


Piketty and Pension Fund Socialism


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.

Richard Epstein lecture on Piketty 19 June 2014


Piketty: A Wealth of Misconceptions by Don Boudreaux

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.

via Piketty: A Wealth of Misconceptions – Barron’s.

Deirdre McCloskey on why poverty matters more than inequality (BBC Radio interview)

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:

postmodern free-market quantitative rhetorical Episcopalian feminist Aristotelian woman who was once a man.

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

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

Housing space per capita

via Heritage Foundation

Previous Older Entries

Barrie Saunders

Thoughts on public policy and the media

Liberty Scott

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Vincent Geloso

Econ Prof at George Mason University, Economic Historian, Québécois

Point of Order

Politics and the economy

James Bowden's Blog

A blog (primarily) on Canadian and Commonwealth political history and institutions

Why Evolution Is True

Why Evolution is True is a blog written by Jerry Coyne, centered on evolution and biology but also dealing with diverse topics like politics, culture, and cats.

Great Books Guy

Reading The Classics

Science Matters

Reading between the lines, and underneath the hype.

Peter Winsley

Economics, and such stuff as dreams are made on

A Venerable Puzzle

"The British constitution has always been puzzling, and always will be." --Queen Elizabeth II

Real Time with Bill Maher Blog

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

No Minister

Laughing at Our Elites

The Antiplanner

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Bet On It

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Movie Nation

Roger Moore's film criticism, against the grain since 1984.


Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Bowalley Road

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

History of Sorts


Tudor Chronicles

News, reviews and talk all about the Tudors

Offsetting Behaviour

Celebrating humanity's flourishing through the spread of capitalism and the rule of law


Res ipsa loquitur - The thing itself speaks

Conversable Economist

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

The Victorian Commons

Researching the House of Commons, 1832-1868

Coyote Blog

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

The History of Parliament

Blogging on parliament, politics and people, from the History of Parliament

Books & Boots

Reflections on books and art

Legal History Miscellany

Posts on the History of Law, Crime, and Justice

Sex, Drugs and Economics

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Doc's Books

A window into Doc Freiberger's library

Media Myth Alert

Calling out media myths

European Royal History

The History of the Emperors, Kings & Queens of Europe

Tallbloke's Talkshop

Cutting edge science you can dice with


Small Steps Toward A Much Better World


“We do not believe any group of men adequate enough or wise enough to operate without scrutiny or without criticism. We know that the only way to avoid error is to detect it, that the only way to detect it is to be free to inquire. We know that in secrecy error undetected will flourish and subvert”. - J Robert Oppenheimer.


The truth about the great wind power fraud - we're not here to debate the wind industry, we're here to destroy it.

Trust, yet verify

Searching for the missing pieces of climate change communication

Lindsay Mitchell

Celebrating humanity's flourishing through the spread of capitalism and the rule of law


Celebrating humanity's flourishing through the spread of capitalism and the rule of law

croaking cassandra

Economics, public policy, monetary policy, financial regulation, with a New Zealand perspective

The Grumpy Economist

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

International Liberty

Restraining Government in America and Around the World

%d bloggers like this: