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Comment by IvyMike | Hacker News Reader

How do you respond to Krugman's next sentence?

> 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?

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It is highly plausible. If capital income is increasingly coming from sales of homes, it will become lumpier (in time) and inequality will go up.

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.

Not really. If you assume a relatively even distribution of the rate at which people sell homes. For example, let's take those 100 people and assume that on average they sell their home every ten years. In any given year, 10 of those people will sell their homes, realising their capital gains. Now, because you have 100 people, the average increase will be divided by 10 (100/10). Which is exactly what you would get if you amortise those capital gains over the ten years. Large numbers of people smooths out lumpiness of individual income.

If you have 10/100 people selling their homes in a given year, then 10% of people earn 100% of the capital income. This is true in spite of a completely equal distribution of wealth. The fact that the 10% number is stable over time doesn't change this.

Capital income and wealth are simply not the same thing.

No, it won't.

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.

Accrual accounting is nearly impossible except for highly liquid assets (publicly traded equities, tbills). The CBO data Krugman cites almost certainly comes from tax returns which are not based on accrual.

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