Is Piketty All Wrong?
krugman.blogs.nytimes.com
krugman.blogs.nytimes.com
>>The exact level of European inequality in the last fifty years is impossible to determine, as it depends on the sources one uses. However, whichever level one picks, the lines in red in the graph show that – unlike what Prof. Piketty claims – wealth concentration among the richest people has been pretty stable for 50 years in both Europe and the US.
>>There is no obvious upward trend. The conclusions of Capital in the 21st century do not appear to be backed by the book’s own sources.
Of course the upper class wants you to believe that wealth inequality has not been increasing. Of course they want you to believe that things are fine and dandy. They want you to believe these things because they don't want their wealth taken away, either via taxes or via revolutions. And Giles is simply their mouthpiece.
Like Krugman, I'm looking forward to Piketty's defense. But I doubt the errors are anywhere enough to overturn his conclusions.
That said, those who don't want to talk about inequality are prematurely jettisoning Piketty's conclusions.
A very simple way to measure inequality is the ratio of the wealth of the top quintile to the middle quintile. It's easy to see how this ratio escalated over the last 25 years.
http://houseofdebt.org/2014/05/24/piketty-and-u-s-wealth-ine...
Spreadsheet errors notwithstanding, the inequality story is not going away.
And what's the solution? Everybody says "tax the rich." The problem is that income taxes doesn't cause their wealth to decrease, they at best cause it to increase less rapidly. In practice they do nothing (or worse than nothing) because the biggest companies don't pay them anyway, and it creates a large competitive disadvantage for companies not large enough to engage in international tax avoidance, which makes the problem even worse.
Meanwhile any money you manage to raise you can't spend until you first fight against a bunch of "domestic companies creating American jobs" who want to use it to fund Deep Water Horizon 2.0 or studies denying climate change or supply attack helicopters to the North Dakota state police, because aforementioned billionaires still have a thousand times more money than you with which to lobby Congress.
The only way to fix any of it is to shut down K Street. Obviously that's a chicken and egg problem, because K Street is in a good position to protect itself, but if that's not your end game then you might as well stay home.
Get rid of K Street and something worse will take its place.
Get rid of Congresses ability to regulate every detail of the economy and K Street will have a lot less to lobby for.
I sometimes wonder if the problem isn't one of having too much accountability. If terms were twice as long then politicians could spend half as much time campaigning and wouldn't have to take as much money from private interests to stay in office. If federal senators went back to being appointed by the state legislatures there would be less voting but there would also be less unwarranted federal interference in state affairs. And so on.
And the military? Well, sure there are issues there. We can all agree on that.
Now, the military and environmental regulation are inextricably linked to the economy, no doubt about that. And their impact on the economy can be large, no doubt about that either. But there is so much which the government gets involved with - and where there is SO much money to be made via lobbying and influence peddling - which the government really doesn't need to be involved in.
I guess I'm saying that if the EPA and military corruption were the only issues we had to deal with, we'd be in a much better space than we are now.
There are certainly things currently done by the feds that could be reasonably handed over to the states. Social security comes to mind as a big one. But social spending is hardly the area where moving that out of Washington would make the largest dent in K Street.
Copyright is certainly a popular issue here on HN, and I'm sure K Street makes a lot of money on it, but again it's like the EPA - something which the government has to by definition regulate in some way.
In fact, moving Social Security and Obamacare subsidies to the states would probably put a larger dent in K Street than all of the other issues you've mentioned combined (military, EPA, copyright, antitrust). You're talking about trillions in handouts, issues which impact every single citizen, massive bureaucracies fighting for power.
You may want to insert an "unwitting" in front of "mouthpiece" (assuming that's what you meant); otherwise, you're making a pretty serious claim, and need to back it up.
I find it extremely helpful in these sorts of situations to judge the system, not the particular actors within it, or the mixture of rationality, conspiracy, stupidity, or dumb luck which is employed to create it.
It seems he is making a far bigger leap in discounting Picketty's thesis, with the information we have at hand, than Picketty was in creating it. So it doesn't matter whether Giles is unwitting or not (except perhaps from his own point of view) he is acting as a mouthpiece.
Not that Piketty really has a theory - all he has is a big data dump. If you disagree, can you concisely state what his theory actually is?
The grammer-nazi type questions only matter insofar as they undermine the materiality of the analysis. What's important about picketty--notwithstanding the hype--is he's looking at balance-sheets not P&Ls. That is to say, he's barking up a different tree (than income obsessed economists). Probably the right tree--nobody would "analyse" the performance of a company without a blance sheet--for the task at hand.
But most macro-econ guys cannot link up the GDP equivalent to a balance sheet (they lack the data), and thus totally ignore everything a blance sheet would tell us about ROIC (eg: linkages of C & I). That is a huge "material mistake". And one that is not done or undone by general quality of the communication (eg: a typo in the maths, or a debate over "accounting adjustments")--provided those are not so massive as to be materially misleading.
If one wants the reader to be concerned about power inequality, then he should focus his efforts upon this dynamic. Whether or not wealth inequality is rising, falling, or remaining the same is essentially irrelevant to this issue.
And, in fact, it's quite obvious that the wealthy do not wield much power: Are we really to believe that the wealthy in some parts of the US prefer a 45% corporate tax rate, a 50%+ income tax rate, the inability to leave the country with their assets intact, a 50% death tax, and FATCA?
It is to laugh.
Well, there is that paper from Gilens and Page that argues otherwise (http://www.princeton.edu/~mgilens/Gilens%20homepage%20materi...):
Multivariate analysis indicates that economic elites and organized
groups representing business interests have substantial independent
impacts on U.S. government policy, while average citizens and
mass-based interest groups have little or no independent influence.I provided concrete examples of issues which impact all wealthy people in the US. If they could get behind any one policy with some degree of unanimity, surely it'd be the insanely progressive and aggressive nature of US taxation.
But no, there's a study on some other issue which shows that they're so well organized as to have a huge impact on US policy. Right.
It's obvious that, for a variety of reasons, at least some wealthy clearly prefer a corporate tax with a high headline rate but filled with complexity, deductions and loopholes rather than something lower, simpler and broader.
And, of course, the 50% income tax rate you cite isn't a tax on income from wealth - it's a tax on the income from labor. Perhaps you need to have a chat with Warren Buffett about his secretary.
As for the estate tax, in recent history the rate has been generally decreasing and the exemptions increasing (and most of the "increases" have been reductions of larger scheduled increases). There are also plenty of estates that don't want a full repeal - they gain more from the step-up basis than they lose to taxation above the exemption.
Finally, I think you radically overestimate the interest the truly wealthy have in leaving the US. US citizenship is still quite valuable and as long as they hold US assets (likely because of the breadth and depth of US investment options) they'll be dealing with some form of US taxes anyway.
But they are just that, myths.
1) Passive income (wealth income) is taxed as regular income. There is actually an extra 3.8% federal tax on passive income. You were probably thinking of capital gains in your reference, but cap gains aren't income. It's investment.
2) The low effective rates frequently cited for corporate income are well known to be false. For a primer: http://tax.org/TAXCOM/TAXBLOG.NSF/PERMALINK/MSUN-99DKXS?OPEN...
3) If the wealthy could live in Switzerland for a few months every year and pay 20% on their international investments, like every other wealthy person in the world, I think that they would quite like that option!
Is it? I assumed you have to buy the book, which is the oldest incarnation of a content paywall.
Note that, as mentioned in the comments there, it's not clear whether FT gave Piketty Giles's specific points to respond to. The response was written before the column was published.
Previous discussion on HN: https://news.ycombinator.com/item?id=7793609
For the "Wealth Inequality in Britain 1810-2010" data, FT 'argues that Piketty’s graphs simply “do not match” his underlying data on the UK, and that official estimates show no significant increase in the country’s concentration of wealth since the 1970s.'
(From: http://www.slate.com/blogs/moneybox/2014/05/23/financial_tim...)
FT's Giles then used the following data to rebuke Piketty's "overestimation" of the top 1% & 10% wealth share, as noted in Giles' Excel sheet (not in the text):
"Data comes from Inland Revenue tables. They are accurately transcribed. http://webarchive.nationalarchives.gov.uk/20120403124426/htt...
Excel: http://interactive.ftdata.co.uk/files/docs/FTPikettyspreadsh...
The only problem I have is that the "13-5-table-2005.pdf" is a table before HMRC made major change to the methodology and its historical tables:
http://webarchive.nationalarchives.gov.uk/20120403124426/htt...
HMRC concluded with "... we would no longer be able to produce the marketable wealth series used in tables 13.3 and 13.4", which the table 13.5 relied on. And those historical tables (prior 2001) never exist again in the following years. By the way, HMRC Personal Wealth data only covers partial estates: "For 2001 to 2003 this covers 35% of estates and for 2005 to 2007, 34% and for 2008-10, 31%."
Giles: unlike what Prof. Piketty claims – wealth concentration among the richest people has been pretty stable for 50 years in both Europe and the US.
Krugman: Take, for example, the landmark CBO study on the distribution of income;"
Krugman then shows some graphs about capital income (which is not the same thing as wealth) which don't clearly demonstrate any change among the richest people. This is fairly typical Krugman, but I hope HN readers are smart enough not to be duped by this.
> It’s just not plausible that this increase in the concentration of income from capital doesn’t reflect a more or less comparable increase in the concentration of capital itself.
Also, given that he has this sentence, I don't think Krugman is trying to deceptively confuse capital income and wealth.
Also, the report that Krugman links to ( http://www.cbo.gov/publication/42729 ) seems to show a significant change (yes, in income not wealth) among the top 1%, which does seem to be a change "among the richest people". How am I misinterpreting this report?
I.e. if 100 people own identical houses but only 1 person sells in a given year, wealth is perfectly equal but capital income inequality is huge.
Unless the economists have seriously screwed up, then capital gains will be done on an accrual basis - 100 people will all be gaining income from their homes.
Capital income and wealth are simply not the same thing.