A Tale of Two Countries

Are these top 0.1% the same people from year to year? Top 10 super-wealthy American wealth gainers from last year (I’m omitting people who lost vast amounts of money like Warren Buffet and the Walton family members–they clearly aren’t driving the equality issue by losing money):

In order

Bill Gates, Paul Allen, Michael Dell, Sheldon Adelson, Steve Ballmer, Sergey Brin, Larry Page, Abigail Johnson, Anna and Barbara Cox.

Of these the top seven are self made billionaires. Bill Gates was from the upper class (though not even close to the elite upper class Krugman was talking about). Paul Allen I can’t tell but appears to be from middle class from what I can see. Michael Dell middle class family. Sheldon Adelson I can’t find any biographical information so to give you all the benefit of the doubt I’ll pretend that proves he was from the upper class. Steve Ballmer middle class (arguably lower middle class). Sergey Brin and Larry Page, middle class or upper middle class whatever you call sons of college professors (outside chance at the very bottom of the upper class I suppose but I doubt it for an immigrant math professor).

So out of the tip-top seven we don’t have anyone from the elite class Krugman is talking about. Add in Abigail Johnson and the Cox sisters and we get 3 out of 10 from the elite class Krugman is talking about. So 3 out of 10 help his thesis directly, 1 maybe and 6 definitely not. Most of the top inherited wealth Americans I saw on the Forbes list saw their wealth decline so they obviously aren’t fueling the statistic.

Now maybe Krugman really wants to say that except for computer wealth, the US hasn’t grown much in the past couple of years. That might even be true. But that doesn’t mean that there is some nefarious super-elite hogging all the money. Well some might call Gates nefarious, but that is a vastly different story.

“The top 0.1% of Americans does not equal the list of ten individuals that you have chosen. It equals somewhere in the region of 100,000 families.”

The ten individuals I have chosen represent a huge percentage of the wealth gain we are talking about. If you want to take them out of the equation the inequality statistics don’t look so exciting. Choose one way or the other–not both.

And you know that these 10 individuals make up the majority of the wealth gain of the top 0.1%, how?

Also, I would like to note that my method of focusing on the tip top of the ‘elite’ is precisely the method Krugman endorses in his article. So in addition to “do the math” I also suggest “read the article”.

Sebastian and Matt seem to be talking about morality, or mobility, or something other than inequality. This is not a debate over whether the US economy is “fair.” The New York Marathon is “fair,” but there is one winner and 29,999 losers. That is not the model of a healthy economy. The point is that our economy is directing more and more of its productivity into the hands of a smaller and smaller group of individuals, while the vast majority sees no benefit at all from the increasing wealth of the nation.

Nothing in Krugman’s argument makes reference to family background: we are talking about income inequality here, not income mobility. If the poor are unconscionably poor (relative to the wealth of the society), what does it matter that there is some turnover of individuals from year to year?

“This is not a debate over whether the US economy is “fair.” The New York Marathon is “fair,” but there is one winner and 29,999 losers.”

If the US economy was 99.99997% losers per you analogy, I would be more worried. It isn’t. I think it would be very difficult to put people who are losing ground over any medium term look at above 20% and depending upon how you measure things it may be as low as 10%. (Unless they have retired. I fully expect retired people to have negative wealth indicators over time. That makes sense when you aren’t working. So far as I’m aware, there isn’t a generally accepted right to die with more wealth than you had when you stopped working). Of those who are “losing” under certain indicators, you find that the loss is very slight and quite possibly offset by gains in other areas.

Sebastian, there is no way a mortal being can EARN $100 million, let alone $100 billion. It’s simply impossible.

There are exactly two possibilites (or a combination of them) for this to happen:
1. the economic system allowed you exploit a very large number of workers
2. the economic system allowed you overcharge a very large number of customers

Abb1,do you know why baseball stars earn a lot of money? I doubt it, so I will explain. They provide a small benefit (a couple of cents worth of enjoyment per player per game at most) to a VAST number of people. Multiply the number of cents by the number of games and the number of people benefited and you get a very nice salary. If I could provide just one dollar worth of value to every person in the United States, I could EARN more than $220,000,000. Your rich people must be stealing from someone idea is economically ignorant.

(Which is not to say that some rich people might not people stealing from someone. I’m sure some are.)

Possible inequalities worth discussing:

income
wealth
growth in income
growth in wealth
economic mobility
job mobility
political power
access to high quality health care
access to high quality education
Risk of disaster

Now, what Krugman is arguing is that there is tremendous inequality in growth in income (GI). GI inequality is demonstrated by the fact that the top five percent of wage earners captured all the new income generated in each year.

Given that GI inequality exists, the relevant question is whether it matters. Is SH correct that any attempt by the govt to change labor laws / otherwise reduce GI inequality will lead to a reduction in the overall growth of society? That is an empirical question that needs a lot more analysis before we can simply assume that we are living in the best of all possible worlds. (hat tip Moliere.)

Other relevant questions worth answering are whether the other inequalities listed above exist, what are the consequences of their existence and whether those consequences can be remediated without causing more problems than you’re solving.

Matt asked

“And you know that these 10 individuals make up the majority of the wealth gain of the top 0.1%, how?

Seb answered:

“Do the math.”

And the math was?

“If you can provide just one dollar worth of value to every person in the United States, then a right-functioning capitalist system should take care of creating so much competition for you that you’ll have to struggle to stay in business only dreaming about all those millions. That’s assuming the economic system works as it should, which, of course, it doesn’t.”

So in your opinion Henry Ford shouldn’t have died really rich? How about Andrew Grove, Gordon Moore, Thomas Watson?

I don’t know, it seems to me the baseball things is a result of cronyism and lack of competition as well.

By the way, commenterlein, suppose Henry Ford had had to pay for all the road construction that created demand for Ford cars- how rich would he have died then?

Steve,

How does a free-agent player have “monopoly power”?

Hint – he doesn’t. Plenty of people willing to play at current salaries, and the teams are entirely free to pick anyone they like. What the unions does is enforce minimum wages, but that’s a different issue.

Look at soccer if you want evidence from an entirely different and international contracting system with equally large salaries for the top players.

That was deemed necessary since all the teams were losing money originally.

Eh, could you elaborate on this? Like was this really necessary at all?

So in your opinion Henry Ford shouldn’t have died really rich?

Well, how rich was he when he died, anywhere close to Paul Allen? I doubt it.

“don’t know much about soccer, but my impression is that you won’t see journeyman soccer players earning the kind of money that journeyman baseball free agents have been getting- only the big stars who really do have a significant impact on revenues.’

That’s why I keep saying that the baseball union has had a large impact on the salaries at the bottom of the distribution, as opposed to at the top.

A union isn’t monopoly power? My Econ 101 textbook lied to me yet again!

Walt,

The point was that the union has little to no influence on the salaries negotiated by the top free agents, which is where our discussion started.

Am very interested in sports analogies to all kinds of socal issues (affirmative action, income/wealth inequality, etc.). My questions are about the implications for academia, as news of this filters through the media.

I don’t have them in front of me, but several Census Bureau and Labor Bureau reports from the early 2000s indicate college graduates today should “expect” (on average) about a million-dollar-lifetime-earnings boost over high school graduates. I’ve seen Malcolm Gladwell (in “Getting In“) discuss how this “BA bonus” is actually quite unevenly distributed (he gets into disagreements over whether individuals or institutions account more for the inequalities). Have any of the smart people debating whether inequality amounts to inequity or iniquity here seen any other discussions of this angle on Brian’s post?

What happens to the traditional view of college as a key to upward mobility if most of the benefits of a BA are going to those graduating from the Harvards and the Amhersts of the US (assuming they are for the sake of argument)? What happens to debates over privatizing public higher ed? Do colleges still play a role in helping their graduates earn more? All? Some?

Look, “earning” is entirely a social and not a natural concept. All production and creation is social, who we choose to give the credit and resulting wealth to is a collective decision. Any inventor, artist, or athlete you care to name, no matter how original or creative, is resting their achievements on a long history of work and creation by others before them, many of whom are anonymous and not wealthy. The shoulder of giants and so forth. Abb1s point was a rhetorical one — no one person’s share of the social creation is really large enough to justify them to get over $100 million as a reward. Sebastian’s response to it entirely missed the point. What does it mean for Michael Jordan to create $1 worth of value for every basketball fan? Well, Jordan’s skills wouldn’t have been entertaining to people unless the game of basketball had been invented and popularized, unless everyone had TV sets installed in their homes…on and on it goes. To say that MJ himself created $1 worth of value for X million people already assumes all the necessary social structures.

It’s perfectly possible to disagree with abb1 by simply saying “nyah nyah, I think MJ is such a terrific, fun player that he deserves over $100 million worth of toys”. It’s a judgement call. Abb1 is just saying that our society’s judgements on who deserves what have gotten way out of whack.

Steve,

Just a quick reaction to your last post:

Nobody denies that laws and other institutions shape negotiations and outcomes. My entire academic work evolves around these issues.

What I am arguing is that even coercion- and collusion-free negotiations based on secure property rights will often lead to very uneven outcomes, in that the creators of the largest benefits will reap vast amounts of money. Top-of-the-line sports stars are simply a pretty good example of that. It follows that one cannot deduce that coercion or collusion must have been a factor simply based on uneven outcomes, which is what you and other commenters seem to be doing.

And now you really have the last word.

The real issues here is 1) how unequal human contributions to social wealth really are, and 2) how much of that inequality is created by being given access to particular roles in the social hierarchy that other people could have performed almost as well, vs. genuinely irreplaceable skills.

Both of these points are complex, the first because people tend to isolate out a small piece of total social creations (Michael Jordan’s play separated out from the social work of inventing, popularizing, communicating the sport). The second is even more often ignored. If Michael Jordan had died young, everyone else would have moved up one slot and someone else would have taken the role of “best player” in the NBA. How much would b-ball fans have lost (a good amount).

I agree with commenterlein that regardless of how we measure it contributions to society are quite unequal. But how unequal? No one is arguing that in a just society there wouldn’t be rich people.

Our posts crossed, but I really have nothing to add. For the record I do not make any claim that the existence of monopoly power cen be inferred merely from looking at the distribution. On the contrary, I gave concrete examples of how monopoly power operates in particular circumstances. I would like to see carefully argued examples of great wealth where neither monopoly power nor public investment were major factors in its acqusisition. Perhaps some could be found, but they don’t include any of the examples discussed thus far here. (We haven’t even gotten into the relation of sports team revenues to public investment in stadia and government regulation of telecommunications…)

Steve,

I am breaking my word for the second time.

I think we have narrowed our disagreement down in a very usefyl manner. You say:

“you are still not getting that there isn’t a neutral meaning to the phrase “reasonably free negotiations””

That’s exactly what I disagree with. I define “reasonably free negotiations” as a situation without coercion and collusion and with clearly defined and enforceable property rights. Even in such a situation, Michael Jordan or David Beckham would make tens of millions.

Commenterlein (in comment 28) is ignorant of microeconomics. Baseball players sell a differentiated product. One top player does not sell the same commodity as any other top player. By the theory of monopolistic or imperfect competition, which ignores the fact that markets are institutions, they cannot operate in a perfectly competitive market. Top players have monopoly power. (Mayhaps Chamberlein concedes this point of mainstream microeconomics in comment 41?)

And, yes, markets are institutions defined by rules, some of which are set by government. Different rules result in different outcomes. So any attempt to justify income distribution as the outcome of “free” markets is just balderdash.
As others have said.

By the way, this fellow is arguably the best in the world at what he does:

http://www.dreamscape.com/rvien/PhotoAlbums/SU2004/MPowell.jpg

But because of culture, which arguably cannot be neatly separated from economics, Mikey doesn’t get paid all that much.
“Hunger is hunber, but the hunger gratified by cooked meat eaten with a knife and fork is a different hunger from that which bolts down raw meat with the aid of hand, nail, and tooth…”
http://www.marxists.org/archive/marx/works/1857/grundrisse/ch01.htm

Property rights are obviously a complex issue.

For our purposes here, I mean essentially “the ability to sell one’s products or services to whomever one likes, and the ability to exclude others from the benefits of one’s products or services”. And no, they are not a fact of physical nature, they are an institutional precondition for a well-functioning market.

Ok, I really should be doing some real work now. Thanks for the discussion, I enjoyed it and I think I learned something.

I mean, is Britney Spears really the greatest singer who has monopoly power because of her incredible talent and skill?

“A union isn’t monopoly power? My Econ 101 textbook lied to me yet again!”

Posted by Walt

Lock-out, and hire replacements. Union over with; even if some of the owners cheat on their collusion, this should convert things back to individual negotiations. Individuals negotiating with company owners, that is, which some might find a tad bit unbalanced.

Steve Labonne, your excursion into monopoly power is a red herring. Baseball players have a “monopoly power” over their labor only in as much as any worker has a “monopoly power” over his own labor. It is true that Laborer X has a complete monopoly over his own labor, but that is an astonighingly unuseful way of thinking about it.

If a baseball player gives 1 million people 50 cents worth of entertainment 100 times per year he has earned 50 million dollars under any normal definition of ‘earn’. This goes directly to Abb1’s silly comment about no one being able to earn $100 million. It isn’t about government coercion, it is about giving 1 million people a little bit of fun. It isn’t about monopoly rents. It is about doing something which touches 1 million people. You may personally not think that giving a million people a little bit of fun is worth much. Fortunately for you, you don’t have to pay if you don’t want to. You may not personally think that using computers is worth money, but apparently you do use computers.

“Does Michael Douglas has monopoly power because he is an extremely talented actor or because he is the son of Kirk Douglas?”

Micael Douglas doesn’t have monopoly power at all. You may have noticed that other actors get hired all the time. Do you think that “Monopoly Power” means “Things I don’t like”?

Sebastian, I’m sure you’ll have no trouble convincing the “top” players to leave the union and thereby torpedo it in an effor to get more money for themselves and shaft the more ordianry players, since according to you their ability to capture their current slice of the revenue pie has nothing to do with the union’s countervaliling power against owner collusion. And of course, in a state of nature that did not include antitrust laws, the bargaining power of those players vis a vis the owners also wouldn’t suffer at all. Right. I don’t think the red herrings reside on my plate…

And you haven’t even begun addressing your other favorite example, computer jillionaires like Gates. Where exactly would they be without the monopoly rents which they can extract as a result of being granted “intellectual property” rights by the government?

“Micael Douglas doesn’t have monopoly power at all.

If he doesn’t – how does he manage to be paid millions for acting. Why don’t they hire a better actor for a fraction of what they’re paying to Michael?”

Because some fairly large subset of people will go see a movie with Michael Douglas for whatever (mysterious to me) reason. That isn’t monopoly power. That is market draw. If you think draw and monopoly are the same thing you should justify that assumption better so everyone else can understand why you use them interchangeably.

Sebastian, if 220 million people are each given a dollar of value for a dollar each and the 220 million dollars are given to one person, the mass has lost and gained nothing while the one person is presumably much better off. On the other hand if the one person gave a dollar of value to 220 million people and received nothing for it, 220 million people would be better off by a dollar and one person would be no better or worse off than before. Most models of welfare say that the world is a better place after the second model. I would be happy with the mass paying 50 cents each for a dollar of value. I don’t see that anyone has a right to all surplus created by their activity but it is in any case a logical impossibility. What is desirable is that there be fair bargaining.

In addition Bill G’s dad might well have been one of the top 5 per cent and the family wealth played a crucial role in the founding of Microsoft. The wealth Bill G earned last year was not earned from modest beginnings and may have had little to do with his activities over the year. The Bush tax cuts must have beena windfall to the tune of maybe tens of billions of dollars to Bill G personally and, because spending has not fallen, will have to be made up by other, poorer, taxpayers. You cannot argue that he needed this tax cut as an incentive to create and innovate since he did that under a harsher tax regime. That is Bill G’s wealth gain last year was not “earned” but the result of fortunate investment the previous year (Choose Paul Allen instead if you want a clearer example).

Abb,

So the oh-so-gullible Hollywood studios are paying Michael Douglas so much because his daddy told them to do so? Or because they are afraid of his daddy? What the heck are you talking about?

And brand names are sold in markets just like no-name products. An entertainer becomes a brand-name because consumers liked his or her products, and hence expect future products to be enjoyable as well.

You make no sense.

You say “market draw” I say “cronyism”. The guy manages to sell whatever he is selling at an extremely inflated price only because his father was a good actor. Cronyism is the opposite to anything “market”.

Anyhow, every successful entertainer quickly becomes a brand-name – and then his/her further success has no more relation to anything market than that of the guy who paints official Fidel Castro portraits.

Draw in this context means that you appeal to enough people to get them to spend money to see your movies. The fact that you don’t see the appeal of Michael Douglas doesn’t mean that the appeal is non-existant. Just because I think he is a lousy actor doesn’t mean that everyone in the world goes to see movies for the same reasons that I do. For whatever reason, people like to see him in movies. Even if that reason is “I like to see movies with people from the Douglas family” if that gets people to the movies that is enough. The fact that you don’t get entertainment from seeing people in the Douglas family, or the fact that you don’t see the artistic merit of Michael Douglas doesn’t mean that it doesn’t exist. In matters of taste, people have their own taste. If they will pay for it, those who fulfill that taste get compensated. You may think it is unfair that people get paid for things you find non-entertaining. Fortunately for everyone who finds those things entertaining, you don’t get to make that decision.

it is quite possible for individuals to earn hundreds of millions of dollars

Of course it’s possible – in the sense that it does happen. But it’s a clear indication of falure of the economic system.

Economic system that was supposed be sustained by small entrepreneurs competing for diminishingly small share of the market and responding to constant pressure for higher wages by introducing technological innovations.

bq. Henry, you can get the numbers from Forbes—as I mentioned. I also note that I am doing exactly what Krugman does in picking an arbitrary number of people to prove his point. The article, if you have read it which I seriously doubt, is premised on the idea that focusing on the normal sociological strata of top 20% or top 10% doesn’t give you the ‘real’ picture. He arbitrarily picks the numbers which he thinks prove his point. I am picking the top 10 performers—who by far produce more of the wealth than any other large segment of the top 0.1%—just as he is focusing on the top percentage of the top performers of the top 10%. Why is it wrong to focus on the top earners? They earn far more than anyone else in their tier. That is true whether or not you compare the top 25% of the whole, the top 25% of the top top 25%, the top 10% of the top 25%, the top 1% of the whole, the top 10% of the top 10%, the top 1% of the top 10%, or the top 0.01% of the top 10%. The plural of anedote isn’t data, but data mining isn’t the same as analysis either. And that is your real complaint—I didn’t pick anecdotes to suit my thesis, I mined the data in exactly the same way Krugman did. With exactly the same substantive result. The pathetic thing is that you criticize me without even noticing it in Krugman. There might be a term for that too—confirmation bias. I’m sure you’ve heard of it.

ummm no. Entirely apart from the fact that Krugman (a) provides information on several partitions of the data and (b) provides some information which cuts against his thesis as well as information which supports it, he actually provides real data. You don’t. Let me explain it to you in simple terms, fitting to the meanest comprehension (which class doesn’t include you in my estimation, but you seem to be, how can I put it, deliberately obtuse today). Accepted standards of statistical inference suggest that you need a reasonable number of observations before you can reasonably infer any pattern in the underlying data. If you have too few observations, any underlying pattern is liable to be overwhelmed by noise in the data. Krugman is making claims based on partitions of a data set with high n – multiple thousands of observations even in the smallest partition. You are making a causal claim on the basis of ten rather ropily researched observations. Krugman is making an argument based on data. You’re making one that is effectively based on anecdotes – the “evidence” that you provide is hopelessly inadequate for the justificatory task that you’re employing it for. It’s a quite fundamental difference – and that you can’t see the difference between what Krugman is doing and what you are doing suggests that you really shouldn’t be trying to get into this argument in the first place.

“What are the top 5 or 10 countries with the “best” inequality stats?

Are they countries that people are trying to immigrate to in droves?”

Posted by Jaybird ·

What are the countries to which people are trying to immigrate to – both in raw numbers, and per capita in the destination country?

WARNING – ANECDOTES:

1) I remember hearing recently that, while the USA was #1 in raw numbers, Russia was #2, which doesn’t fit into our conception of a bright shining destination. This was supposedly because (a) there’s a large number of ethnic Russians emigrating from formerly Soviet countries, and (b) there’s a lot of non-Russians emigrating from formerly Soviet countries, looking for work, because Russia is better than those countries. More misery very close to less misery = lots of emigration.

2) In various discussions here and on A Fistful of Euro’s, various european posters have said that a number of countries in Europe have surprisingly large percentages of immigrants in their populations. ‘Surprisingly large’ to me, a USA citizen, who’s conditioned to think of emigration from Europe, not to Europe. Again, much of this is caused be a prosperity/misery gradient and proximity; the absolute levels of prosperity and misery matter less.

“it is quite possible for individuals to earn hundreds of millions of dollars

Of course it’s possible – in the sense that it does happen. But it’s a clear indication of falure of the economic system.”

Only in the sense that you insist on defining it as a failure. Since an economic system can clearly “work” in every conventional sense, while still happening to produce some really rich people.

In other words, you’re merely expressing a normative preference for the absence of really rich people, not telling us anything objective about economic systems.

“Sebastian, once you admit that it’s mathematically possible, your estimate of its real world probability is worthless until you show your data.”

Not even, it is mathematically possible for all oxygen molecules in a room to bunch up in one side long enough for you to suffocate. But if you find someone dead in a room you don’t get to assume that.

But if you want to play that game, check out this mathematical possibility. Brin is the only person who increased income in the entire United States. He moves from the top 10% to the 5th most compensated person. The 5th most compensated person is in the top 0.1%. Krugman’s methodology will show that the top 0.1% gaining all the income. It will also show that only one person entered the top 0.1%. Since he doesn’t track individuals this will be used to show that the top 0.1% are hogging all the created income AND that the top 0.1% has vanishingly little mobility. This Krugman can use to infer that people already in the top 0.1% are locking in the ability to gain income even though in actuality the only person who gained income didn’t even come from the top 0.1%. If you don’t track individuals, that is the kind of junk statistic you can get. Mathematically possible with the data Krugman shows. I’m sure Mr. Labonne will be writing Krugman momentarily.

“But he has had staggering capital gains.”

This brings up yet another problem. If you are using IRS data as your source, capital gains count as income–but not until you sell. This means that you can mistake income reported on a particular year’s tax form with income earned that year. With stock option earners this could cause a lot of confusion.

Whoops, let me try that again:

confirmation bias

And on a different point – it may be true that people are moving into and out of the to 0.1%. I think it’s fairly reasonable to assume that most of them aren’t moving in or out of the bottom, say, 40%.

It’s mathematically impossible for very many of the population to spend a year of their life in the top 0.1% of income earners, even if nobody spends more than a single year there, which is clearly not the case from Sebastien’s own treasured Forbes list.

I have to say that I feel like we’re debating exactly which tree, among the acres of trees we’re looking at, denotes the start of the forest.

Shorter Sebastian: anecdotes are _better_ than data.

Longer Sebastian …

bq. The problem here is that Krugman is not using a high N with respect to the population he is trying to generalize to.

Nope – the important thing is _not_ the ratio between the sample and the population; it’s the size of the sample. This is elementary statistics. Have you taken a statistics course, even at undergraduate level? This is the kind of thing that instructors are supposed to drum into their students until their ears bleed.

bq. He is attempting to generalize to the entire economic functioning of the United States (220,000,000) from the top 0.1% (220,000).

Nope, he’s not, at least not for meanings of generalize that have anything to do with the issue at hand. He’s partitioning data to make a perfectly mundane point about increasing inequalities in the US. Now it is conceivable that different partitions of the data might reveal a different relationship than the one that Krugman is suggesting is there. Conceivable – but completely implausible. The empirical claim that he is making is entirely non-controversial in the relevant literature. _Nobody_ disagrees that inequality is increasing in the US and that the top percentiles of the population have seen enormously disproportionate gains. The disagreements are over what causes this, and whether it is a good or bad thing. I refer you to the most recent issue of PS at the American Political Science Association’s website (most of it is public as far as I recall) for further discussion.

The argument that you are making, insofar as I can discern it – it is quite muddy – is that maybe income inequalities don’t matter because of mobility between income segments. Again, this argument has been quite definitively exploded by the data – long term income mobility is decreasing substantially even as short term volatility and risk for lower income segments is increasing rapidly(cf, in particular, “the work”:http://pantheon.yale.edu/~jhacker/PSID_Data_NYT.htm of Jacob Hacker).

bq. Now if I were a highly compensated economist like Mr. Krugman and had at my fingertips all the data he has access to, I could try to do it the proper way instead of the way he did it. But I don’t.

Well hey, it’s your lucky day! Check out the US Census’s site on income statistics for “all the data”:http://www.census.gov/hhes/www/income/dinctabs.html you could possibly ask for. I look forward to seeing your forthcoming analyses.

Data talks. Bullshit walks. I’m not claiming to be a first rate statistician – Daniel, John Q. and Kieran do the heavy lifting on that in this blog. But I certainly have enough statistical training to be able tell when someone is out of their depth. And it’s clear from some of the basic errors that you’ve made here, that you’re just not qualified to try to correct Krugman on his choice of stats.

jaybird: yes.

As far as I can tell what Sebastian is arguing is that 1) the trends described by Krugman are driven by a few outliers, and 2)the folks in the top .01% today aren’t the same ones as those ten years ago. I don’t know about the empirical validity of these claims (actually hold on a sec,…) but I don’t think you can just casually dismiss these points or accuse him of ignorance of statistics. Large N ain’t got much to do with it.

…so income inequality is rising and mobility MIGHT be falling (harder to measure, far as I know the jury’s still out on this one) but this is true for the distribution as a whole, but not necassarily at any given point in the distribution. It’s perfectly possible that both Krugman and Sebastian are correct.

Off topic, but there is something a bit different in this post.

I had yet to see a CT blogger call a commenter stupid, so it was a bit of a surprise to see Henry calling/implying Sebastion was stupid/obtuse.

Good one Henry, without your comments I never would have realized Sebastion was stupid (I was sitting here thinking him rather clever). Maybe the next time you say something stupid, a jolly chap can attempt to humiliate you in a public forum.

Radek,

Yes, Krugman’s talking about income inequality. By taking net worth, I’m looking at where that inequality’s gotten us — and what avenues might be available to rectifying it.

If we had, say, the marginal tax rates that were in effect ca. 1936-1980s, even a huge increase in change in incomes wouldn’t have much an effect on net worth — or your ability to continuously leverage that change.

That said–it’s posts (and comment threads) like these that point up the limitations of blogs, per se: these are exceptionally complicated topics–and it’s the rare comment exchange that sheds much light on them.

What you’d like to see are comparative statistics of tax rates vs. income vs. net worth vs. gdp by, say, decile from 1900-2000, accompanied by both philosophical frameworks for evaluating justice of these (e.g., Rawls, Nozick, Epstein, Sen et.al.) as well as an analysis of both the structural changes in corporate and technological development and an analysis of the legislative battles/frameworks by which these changes took place.

Then you could start to have an intelligent discussion. In the meantime, it took until, what, my comment at No. 94 for someone to offer a substantive refutation of Sebastian’s claims?

As to Jet’s remark: yes, Henry has a bit of a tendency to go ballistic (even if, as in this case, Sebastian’s gist was half-baked). What gives, Henry?

It’s amazing what an income inequality thread will produce for volume; g*n c*n*r*l and a*o*r*i*n are yawners, by comparison. A parallel thread is exploding at Brad DeLong’s blog.

In both cases it’s one person doing an inordinate amount of posting. For privacy’s sake, let’s call ‘him’ S. Holsclaw, or perhaps Sebastian H.

I think that Krugman was correct, in a column a while back, when he said that discussions of income inequality provoked powerful reactions among right-wingers.

Random thoughts after reading all this:

Sebastian is right when he points out some of the limitations of using IRS data. Income reported in a year isn’t necessarily income “earned” in that year in any normal sense, at least when we’re discussing capital gains (and that is largely what we’re discussing).

Sebastian is wrong to not recognize that the winners and losers in Forbes aren’t necessarily included in the IRS data. Bill Gates may have had a very good year, but he likely recognized as income only a fraction of his increased net worth.

Does anyone doubt that, were the data available and reliable, we’d see the same trends at each smaller subset at the top? That we’d see increasing earnings at the .05% and .01% and so on? (And that we’d see that despite the fact that these statistics may in some sense understate the trends, because gains aren’t recognized as income until a taxable event occurs.)

I don’t think that Krugman and Sebastian would disagree about that–but, please, tell me if I’ve got it wrong. (This also puts to one side any disagreement about mobility and its meaning in this context; even if there were considerable mobility, it would still be noteworthy that there is increasing inequality in the income data. One doesn’t have to think there’s a problem to be solved to see something interesting and new.)

No, the disagreement is about what narrative we’re supposed to construct around this–what’s the story. I’m not sure what Krugman says here, as he’s behind a paywall. Is it Robert Frank-ian, winner-take-all? Is it plutocratic policy-making? Sebastian says that, don’t listen to anyone who says this is a problem, just look who’s in this group at the top. Bill Gates, the Google guys, and so on. Who begrudges Gates his billions (other than abb1)? (I say this as someone who’s spent his own money making Steve Jobs a billionaire.) He says, plausibly but not definitively, that the shifts in the data are largely the result of people like Gates. (That can’t be all there is to it, because in the IRS data we see the threshhold for entering the top .1% increasing, which wouldn’t be expected if the top handful were doing all the work.) We should, he suggests, be happy to have these geniuses around, no matter the share of income they’re taking.

what i find amazing (after reviewing the first third of this thread) is that conversations about sex, war, genocide and manipulative (downright evil) foreign policy don’t generate anywhere near as much brittle, angry, falsetto shrieking as conversations about…money.

what’s with americans and wannabee-americans? is money the new sex in your country?

abb1 – I don’t think “failure” in ordinary English means “market failure” in the sense of “failure to produce a [Pareto, Kaldor-Hicks]-efficient outcome.” Using the ordinary term “failure” that way (rather than as a piece of technical jargon) is rather like calling democracy a failure whenever it fails to produce Utopia.

But you are correct – markets don’t produce [Pareto, Kaldor-Hicks]-efficient outcomes. We’re never going to get rid of imperfect information, transaction costs, differentiated products, a finite number of firms, etc. etc. etc.

Do you mean something more interesting?

I mean, clearly, abnormally high reward is an indication of inefficiency, because it means that the product could’ve been sold at a much lower price.

To a certain extent that is true – if one CEO can slash costs for a bonus of $1M, there’s probably someone else similarly competent prepared to work equally hard for a bonus of $0.8M.

The question of why that doesn’t happen probably has several answers, one of which is that CEOs are effectively specialised celebrities, with their own ‘brand value’ amongst investors that is not replaceable on a commodity basis.

About abb1’s point and the creation of value etc. According to Nordhaus, the actual numbers for returns to entrepreneurs are that of the $1 of value created some 97 cents go to the society at large and 3 cents to the entrepreneur. So the system is indeed working. It‘s enough to keep people innovating (which we want) and the benefits seem very widely spread.

A very different point though. Assume that Krugman’s correct, that the very top are getting all the gains. Assume also, as mentioned above, that this is almost exclusively returns to capital, not wages or salaries.

We also note that the US has an extraordinarily low savings rate, near zero or actually negative (can’t remember what the latest position is).

In such a situation wouldn’t we actually rather like returns to capital to rise? So that there is greater incentive to save? And thus raise that savings rate which all agree is a problem?

Yes, I know, many round here would say that the rising income inequality isn’t worth it. But might it be?

“what’s with americans and wannabee-americans? is money the new sex in your country?”

Posted by dale

That, and power, and self-image/self-esteem. If one suggests that America is not, for all practical purposes, a meritocrcay, where income and wealth are correlated with moral virtue, then one is an Evul Commie. Oh, and that wealth and income inequality doesn’t matter because we’re all moving up and down so much – if you’re making minimum wage today, you’ll be rolling in it next year.

As inequality increases, and social mobility declines, these beliefs will need to be defended every more fanatically. It’s both ideology and patriotism, to some.

“So, you aren’t denying that unusually high awards manifest imperfection, then? So, how high should it go to manifest a failure?”

No, actually I am denying it, hence the sneer quotes around “failure”. Unusually high awards in this case are instances of economic model failure, not market failure.

How high? How about to the point where people start moving FROM this country, instead of to it?

what’s with americans and wannabee-americans? is money the new sex in your country?

Ain’t nothing “new” about it, Dale. Money has always been our sex, and the mega-rich are our porn stars. And as Barry points out, to even suggest that they don’t deserve our starry-eyed adulation, or that they don’t deserve to collect an ever-larger slice of the pie, is considered apostasy.

I mean, seriously: is there any other country in the world where Donald Trump could turn himself into a TV star?

How high? How about to the point where people start moving FROM this country, instead of to it?

Well, apparently people don’t rush to this country so much anymore:
Where would you go to lead a good life?

Unusually high awards in this case are instances of economic model failure, not market failure.

I dunno. “Market” is a place where people meet buy and sell stuff; it’s viewed as efficient and self-adjusting mechanism – that’s the economic model. I understand that prices and incomes fluctuate, but if a small group of people manage to extract higher and higher and yet higher, ever higher incomes compare to the rest of the participants, that tells me that this market economy is out of whack, it’s inefficient, it doesn’t self-adjust. If this is not failure, what would constitute a failure?

What would constitute failure is if they weren’t providing something people wanted to buy in order to extract those higher and higher incomes.

If you’re digging ditches, or manufacturing interchangable widgets, one person pretty much can’t be much more productive than another. If you’re innovating, it’s possible for one person to be billions of times more productive than another. So the simple fact that incomes differ by some huge factor tells you nothing about whether things are “out of wack”.

You’re applying to the modern economy a model which simply isn’t applicable to an economy driven by intellectual innnovation. People don’t get fabulously weathy by making marginal changes in how they manufacture buggy whips, they do it by replacing horses with IC engines. And that’s the sort of thing your model just doesn’t apply to.

jet – read what I said again, a little more carefully this time. Hint: “deliberately” is an important word. If I thought that Sebastian were genuinely stupid I would probably have been a lot more tolerant than I was. He strikes me as an intelligent person who settles rather too frequently for my taste for being clever instead; going in for debating tactics rather than genuine argument and give-and-take.

joel – the reason why I was harsh towards Sebastian is twofold. First, he made a quite serious allegation that Krugman was “picking an arbitrary number of people to prove his point.” When you make an allegation of this sort, you should have the basic wherewithal to back it up, in terms of some moderate degree of understanding of how you pick numbers, which statistical choices are appropriate and which inappropriate, and (ideally) some grounding in the previous research on this topic. Sebastian doesn’t seem to have had the basic exposure to statistics which is necessary to engage in these debates; or if he does have the exposure, it surely doesn’t seem to have taken. His criticisms of Krugman involve some quite fundamental errors. Finally, I’m attached to the comments sections at Crooked Timber – they’re not always to my taste, but seem to involve a higher level of debate than most other comments sections in the blogosphere. This section didn’t have that – for the most part it has been a non-debate provoked by a commenter who isn’t making serious claims. This is a waste of everyone’s time – and the best way that I can see to prevent it happening in future is to make it clear exactly how unserious the claims were in the first place. There is room for real argument between left and right over these figures – but that isn’t what we’ve been seeing

If you’re innovating, it’s possible for one person to be billions of times more productive than another. So the simple fact that incomes differ by some huge factor tells you nothing about whether things are “out of wack”.

I don’t understand, you make it sound like innovation is some kind of miracle – but it’s not, it’s nothing like that. Everyone knows what they need to do to innovate, usually it’s a simple matter of cost/benefit analysis. And if you don’t know how to innovate, you hire business consultants and they tell you. And they’ll tell every one of your competitors too. It’s just that simple and there is no way you can be 10 times more productive than others, let alone billions of times, because as soon as it looks like the innovation works for you, the others will immediately copy it.

The miracle happens when you manage to keep systematically destroying your competitors, the way Microsofts and Walmarts do.

Well, give me an example.

First,

About my earlier post, the point about the income distribution shifting because of immigration was just stupid, I’ve no idea what I was talking about. I temporarily forgot any maths I’d ever known.

Now, about innovation: there are two sorts, I believe. One is improving things that already exist – say, making an existing software program more efficient in its use of resources, or coming up with a more beautiful proof of a known mathematical result. This is what consultants do relatively well.

But coming up with completely new things – a new sort of drug, a new result no-one’s seen before, a new interpretation of a text, a new device (the telegraph? the printing press?) – is not the result of the same process. I agree with abb1’s point that these innovations build upon cumulative knowledge, but they also incorporate some originality which I don’t think is in any way inevitable. I would not have come up with godel’s proof, and it was not the result of having a couple of “logic consultants” on demand.

This is not the same as saying that their reward should come as income – or as inordinately high income. But we could ask the question of what sort of rewards – if any – would make these innovations more likely. And whether these rewards would be efficient – ie, if we think a patent is necessary, what the terms of that patent should be. After all, we want them to innovate, only insofar as their innovation will be available to the rest of us.

Well, the engineers/scientists who are employed by labs receive wages even if they do not come up with anything for a long period of time. If their income only came whenever they made a new discovery, maybe it would be much higher as a percentage of the revenue.

In other words, all these innovating activities are risky, and to judge their results by only looking at those who win, is a bit misleading. If scientists/engineers paid for their own equipment, and for the time it takes them to actually come up with something new and useful, your question would be more to the point.

There are people who would come up with new things if all you offered them in reward was a minimum wage and widespread recognition. There are some who would never come up with anything, in exchange for the whole of Bill Gates’ wealth. I think it is still an open question just how many people lie in between.

I think the most successful business model is this: grow big, kill the competitors, then get rich. Google is the most recent example. Where’s the competition, where are all the other search engines? Gone. If you aren’t indexed by the google – you don’t exist. From now on 95% of their effort will go into making sure no competitor can emerge: buyouts, price dumping, frivolous lawsuits, pressuring advertisers – whatever it takes.

Financial gain is no more the natural reward for innovation than it is for entrepreneurship, hard work, thrift, honesty or goodness of character. You can innovate until the cows come home and still die penniless.

Big businesses don’t innovate to any extreme extent; it’s more efficient to let the smaller fry engage in the Darwinian free-for-all of innovation and buy out the successful winners.

What is often seen as “innovation” is more often the result of good sales and marketing; the point of business is, after all, to get the customer to part with his cash, not to play Leonardo da Vinci.

Although I think Sebastian’s anecdotes are rather off topic, there is a sociological truth that could, perhaps, be picked out of them. Anybody who has read the tedious hagiographical literature about CEOs will notice that a common career path is from the middle class — Gates is an exception. And that middle class was the middle class of the post war years, when taxes on high incomes were also high, and post New Deal and Great society legislation sought to instill a much more even playing field in the U.S. economy. The success of that attempt is written in the career lines of these CEOS — who, of course, have turned around and supported destroying those very features — high taxes on high incomes, the evening of the playing field through active social welfare legislation — that brought them to their plateaux. Locking in their positions and their power is what they are about — and their attempt to do this is an old story in the relationship between classes. Krugman’s statistics are about their success in leveraging their wealth competitively. It also speaks to a crying need to reinstitute pre-Reagan tax increases on the rich. 70 percent was a good rate for the highest tax, for instance. This would have a discouraging effect on the attempt to leverage wealth to prevent social mobility, as the amount of wealth one could brandish becomes more and more expensive to hold onto.

So I, for one, accept Sebastian’s statistical anecdotes and feel they lead us in only one direction — to a much more aggressively socialist government. It is the only way that we can nourish the Bill Gateses of tomorrow.

“The statistical evidence does show that aggregate economic mobility in the US is decreasing.”

Which says precisely nothing about Krugman’s claim regarding the elite ‘group’ capturing the gains. Did you read anything I wrote on #133? Krugman claims that the elite group is capturing the gains in the economy. He gets to this by noting that the elite share of the economy has gone up and that the elite group has fairly little turn over. I suggest that it is very possible (and in fact quite likely) that the growth of “the elite group” is in fact located in new or recent entries to “the elite group”. This suggests that a large percentage of the growth which Krugman styles capture is in fact routine economic growth among very successful people who do not come from the elite group.

“It’s a complex debate, with a lot of empirical evidence on the table, which you seem to prefer to ignore in favour of Horatio Alger type anecdotes combined with statistically ignorant claims.”

Krugman’s statistics do not confirm his story the way you seem to think because his statistics ignore the possibility of entrepreneurs coming into the elite group with large income gains–a rather startling omission when attempting to analyze the US economy.

If you disagree, please quit whining about my ability to interpret basic statistics and SHOW WHERE IN HIS MODEL THE PROBLEM IS COVERED.

Statistical hypothetical:

Population 10,000 people
Top 1% of population 100 people
Only a single person (Call him E) makes it into the top 1%.
Consistency of the top 1% is 99% (or alternatively the turnover is 1%)

If E is not in the top 1% before he makes all his money, and then shows a dramatic increase in wealth (which is how he gets there), even if no one else in the class increases their wealth above the 10% rate of the society as a whole, it will appear to Krugman’s statistical method that the class is capturing a vastly outsized portion of the wealth even though E was not a member of the class at the beginning of the analysis. E’s portion of the total doesn’t even have to be that big a percentage of the whole for that to happen. (In reality, the entrepreneurs at the top of the top 1% represent a fairly large portion of the whole–about 1% of the total wealth held by individuals.) The reality of the hypothetical is that the excess gains are wholly made by entrepreneurs as opposed to the already elite rich leveraging into capturing the country’s gains. But it would appear to Krugman’s statistics exactly as if the elite rich were capturing all the gains because his methodolgy doesn’t allow us to track individuals. Brin, Page and Omidyar are 3 people out of 220,000 in the class yet they represent a vastly outsized portion of the wealth of the class in question. They are the people I’m talking about, they are the people Krugman misses.

Well, I’m not going to go find the data, but one way of looking at Sebastian’s point (which is not entirely irrelevant to the social justice issue (even though there’s no way the math works in his favor)), would be to find aggregate IPO data for, say, the last twenty years. Then find out what percentage of this IPO wealth was accrued to specific entrepreneurs (and–a small percentage, much less than half, of such wealth is). Then track that as a percentage of the growth of top income earners.

It wouldn’t possibly make much of a dent in the aggregate, but it might make for something more interesting than a “Horatio Alger” story.

Out of about 55,000 in the class. Per person they got a vast majority of the change. This comment is simply dishonest, because “per person” is not what you were talking about all this time and not something that would materially alter Krugman’s point at all- since it remains true that the other 54,990 in that top 1% captured by far the majority (80%) of the increase that went to the entire top decile. But go ahead, keep digging.

Correction- I meant the non-top-10 got 80% of the increase accruing to the enire top 1%, and thus 56% (80% of 70%) of the increase that accrued to the top 10%. The “top ten” therefore got 14% of the top decile’s gains. Not impressive support for Sebastian despite the spin.

Sebastian:

“Krugman claims that the elite group is capturing the gains in the economy. He gets to this by noting that the elite share of the economy has gone up and that the elite group has fairly little turn over.”

With the (very big) caveat that I have only read excerpts, I must note that:

1. You have not, and indeed, can not, refute the first claim, namely that the elite group is capturing the gains in the economy, since that is an almost tautological observation.

2. The statement that “the elite group has fairly little turnover” is not supported by any of Krugman’s statements in the excerpts, interpreting “the elite” according to your standards (top 10, top 0.25%, whatever).

You can have a country where income is distributed based on a lottery principle. The “wealth” in such a country will be distributed among a very small number of jackpot winners who – by definition – compromise the “elite”. Turnover within that elite may be high (although the elite will be able to purchase more lottery tickets) since there is always the chance a random outsider wins the sweepstakes. If the jackpot increases over time then income inequality will increase over time (the winners get a steadily growing jackpot) and income mobility will decrease (outsiders may still be able to win the big one, but past winners will increasingly be able to buy more tickets)

This is not necessarily the case with the US today, but it’s a third storyline that fits the assertions that income inequality is increasing and mobility decreasing, just as much as the “aristocratic” interpretation does, and rather better than the “meritocratic” interpretation you favour.

Of course, should Krugman have asserted in unexcerpted text that the top 10 wealthiest Americans constitute a static unchanging group, and built his argument thereupon, then I owe you an apology and acknowledge your point.

Wow, still digging. I won’t bother repeating what Henry already said. Sheesh.

If you can’t differentiate between entrepreneurs and aristocratic inheritors of money in your analysis, you can’t suggest that the aristocratic inheritors are taking an unfair share of the growth gains. You don’t know. Krugman doesn’t know. His data points are 1)growth in dollars of a certain “class” and 2) total number of people moving in and out of the class (which is to be fair a low number). Because he doesn’t have a method of figuring out which people are entrepreneurs and which people are aristocratic inheritors or other people who are just locked in the elite upper class without contributing to the economy he can’t tell you if the growth is accruing to those who got to the elite class by being entrepreneurs or if it is from the more aristocratic class.

For policy-making purposes he wants to act as if the important part of the gains are from an aristocratic manipulation to unfairly capture wealth that they didn’t earn. That is not established by the statistics he has offered.

Henry’s complaints to the contrary, it is perfectly valid scientific criticism to note that the hypothesis is not established by the facts offered–yet he seems to know this by attacking me on that ground.

My cursory look at the individuals I could track over time (the richest of the elite) was merely to illustrate HOW the model Krugman uses doesn’t validate his hypothesis. It was not offered as positive proof that the (or an) alternate explanation was positively correct. I don’t have access to the individualized information of the 220,000 people in that class. I don’t have time to go over their individualized information if I did. I am not offering the people I outline as proof of a counter-hypothesis. I offer them as illustrations of the type of important data which is not captured by the data Krugman cites. It is important because it directly challenges his hypothesis and yet is not factored in to his explanation.

“Because he doesn’t have a method of figuring out which people are entrepreneurs and which people are aristocratic inheritors or other people who are just locked in the elite upper class without contributing to the economy he can’t tell you if the growth is accruing to those who got to the elite class by being entrepreneurs or if it is from the more aristocratic class.”

Sebastian, that’s not actually cogent to the point Krugman makes. It’s essentially irrelevant.

The question is why so much of the gains in the US economy accrue to such a pitifully small, relatively static group. Not whether they deserved it or not.

“For policy-making purposes he wants to act as if the important part of the gains are from an aristocratic manipulation to unfairly capture wealth that they didn’t earn.”

No, this is not Krugman’s schtick. It may be a conventional US Liberal schtick, but it’s not Krugman’s. He’s anti-Bush, but he isn’t very Liberal, in the conventional US sense.

Krugman illustrates the concept of fairness in The Accidental Theorist by postulating two communities. One is a community of fishermen. In it, a person’s wealth is roughly proportional to the amount of work one does; there are differences due to differences in skill, or luck, or effort, but generally success is largely a matter of personal merit. This society will also be reasonably egalitarian, wealth-wise (a man can, after all, only catch so much fish), and its members will not view Chance as a particularly important factor in their lives.

The other community is a community of gold prospectors. In it, a person’s wealth is largely determined by chance. Personal merit can make a difference: some prospectors work harder and smarter than others, but in general finding the mother lode is a question of luck. This society will be very inegalitarian, wealth levels will differ greatly, and community members will regard Chance with great awe.

For Krugman, there are more important questions to be asked than “Does the fisherman ‘deserve’ his wealth more than the prospector?”.

bq. Henry’s complaints to the contrary, it is perfectly valid scientific criticism to note that the hypothesis is not established by the facts offered—yet he seems to know this by attacking me on that ground.

No it isn’t. It’s perfectly valid scientific criticism to show that the hypothesis isn’t _supported_ by the facts offered. But that’s something which you haven’t done, and which you would have to do rather more than present a half assed set of arguments and anecdotes to do. You don’t have to be a strong Popperian falsificationist to know that scientific hypotheses are _never_ ‘established.’ Something which works immeasurably to the advantage of intelligent design nuts, global warming denialists and blog-commenters with pronounced hackish tendencies. So it appears that we can add basic ignorance of the epistemology of science to ignorance of statistics and of the commonly accepted definitions of simple English words such as ‘majority.’

And this of course takes you at your word when you say that you weren’t really serious when you argued that Larry Page etc were evidence that Krugman was wrong. I think there’s plenty of evidence in the comments above to suggest that this recent claim is a feeble exercise in _ex post_ ass-covering.

And as for

bq. I assume you want to talk about inequality for a reason. If that reason ever involves influencing the US public, you might want to use a model which understands the difference between inherited wealth (which we may or may not want to reward) and entrepreneurial-generated wealth (which I’m pretty darn sure we want to reward). Apparently you don’t think that is a big deal. Ok. If you don’t think distinguishing between the kind of wealth we want to reward and the kind we don’t effects the discussion that is your judgment call. Krugman’s article doesn’t make that distinction. I pointed that out. You don’t think the distinction is worthy. I get it.

this is again a pretty self-serving effort to change the argument. What I’ve been pointing out is that the factual evidence that you have used to support your claim is at best flimsy and irrelevant, and that you don’t understand the basic issues of inference which allow for the evaluation of evidence. The reason that we haven’t gotten to debates about the tradeoffs between entrepreneurship and equality (something that Harry and Chris write about) isn’t because of some conspiracy of silence among CTites. It’s because you’ve insisted on making some quite hackish claims in order to support your bogus criticisms of Krugman, and 150 odd comments later, you’re insisting on continuing to defend these claims against all comers, even though they have been quite obviously discredited. It’s a rather sorry spectacle, and getting a little boring.

“The reason that we haven’t gotten to debates about the tradeoffs between entrepreneurship and equality (something that Harry and Chris write about) isn’t because of some conspiracy of silence among CTites.”

Where did I say anything about a conspiracy of silence among CTites? I said that Krugman’s data doesn’t support his hypothesis. His data and hypothesis are not well matched. That is a perfectly valid criticism of data when allegedly applied to a hypothesis. I specifically illustrate the way in which it is not matched. I also provide show why it is a major hole.

If you don’t think it is a major hole you could say why. You don’t, you just engage in argument by authority and attack my understanding. Hell you won’t even say that you think it isn’t a major hole. You just say I haven’t proven a counter-hypothesis–something which I have freely admitted from nearly the beginning. I’m not trying to prove a counter-hypothesis. I don’t have access to the data that would shed light on it. I have freely admitted that for more than a day here.

Krugman’s data is not particularly probative of the hypothesis he makes from it. It is that simple. You merely assert that it is.

I have shown areas that concern me about it. With all the time you spend insulting me you could easily have shown me how entrepreneurship is covered by his data–if it were, which it isn’t. Hell for all I know the entrepreneurship income data is available somewhere else. If that you could have linked it and said “read this”. Hell to make you feel better you could have said “read this you idiot”.

I have been very explicit about my questions see especially #133. I raise specific questions which should narrow the disagreement or at least let us specify the area of disagreement. Your response is pretty much “Sebastian you are an idiot”. Ok great. But quit your whining about a lack of discussion just because you seem completely uninterested in actually discussing.

Brian, wow, I guess you touched a nerve (or 159).

The answer is yes, Tony Atkinson and I find a very similar pattern to the one that Piketty & Saez found for the US – the greatest benefits are going to the top of the top. The 1% share rose more than the 10% share, the 0.1% share rose more than the 1% share, etc.

In a separate paper, we also find the same for New Zealand.

Maria at #128.
Economics Focus in The Economist this week was on exactly this subject, the two types of innovation. Marginal improvements in existing products, better done by large organisations. Completely new ways of doing things, better (or only?) done by lone whackos.
Based on research by one of John Q’s favourite economists, Willam Baumol.
It’s behind the paywall but worth digging out.

“But only the guy who manages to exploit this idea in a monopolistic sort of way will become a billionaire.”

More or less by definition. Your complaint is with the copyright clause,

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;

Apparently you don’t LIKE the idea of promoting Progress of Science and useful Arts, in as much as you want Authors and Inventors to get only the same reward as the people who copy their creations without having played any part in originating them…

And the point of patents is that a monopoly for a limited time does indeed encourage innovation.

Elliot (and Henry)

Coming in late, sort of in defense of SH–answering your “So what?” in #161. (I was recommended some literature that was fairly explicit on this point when I wrote major paper on inequality transmission, but that was years ago.)

Here’s the problem: “most of the income gains are accruing to a group that is small and largely static.” Most people–certainly most non-statisticians–are going to assume that the gains are going to the group in some sort of evenly distributed fashion. But what can be happening is that only the non-static portion of the group is experiencing any gains–only the entrants (entreprenuers) are gaining, and the static portion of the group has static income.

That’s one of the known, large problems with studies of income inequality–that they are not always clearly translatable from groups to individuals. (Classic example–suppose everyone gets $1 million at age 60, and has steadily rising, but fairly low, income and wealth to that point; all the high earners will be relatively wealthy, but wealth will not predict likelihood of someday being a high earner at all.)

abb1.

What about James Dyson? Lone whacko, new type of vaccum cleaner, perhaps not a billionaire but certainly half one in sterling. Beat off a patent challenge from (Hoover? Electrolux?) as well.

“Walmart is a business that’s not only responsible for destroying millions of small retail businesses,”

And how in the world could you be massively successful as a retailer, WITHOUT “destroying small retail businesses”? Got news for you, abb1; Destroying a business by out-competing it is PART of a functioning market, not a malfunction.

As for your anecdotes, keep piling them up. I have no objection to proving that particular people got wealthy by illegitimate means, what I object to is the assumption that if somebody is wealthy, they MUST have used illegitimate means to get that way.

Sure, there should be limits to how large a company can become. Anti-monopoly laws and so on. We have them too. MicroS got hit by the European Union, for example. WalMart not yet as they have, what is it, 12% of the market, about the same as Tesco in the UK?
You seem to be arguing that the definition of monopoly which triggers such action should be lower than it is. Fine, go ahead and argue so, but a little unfair to argue that we have no such limits at all at present.

abb1 now has gone too far, as he’s begun an outrageous antitrust attack on Mr. Steve Jobs’ Apple.

Then again, Mr. Jobs is a billionaire several times over. I suppose he has it coming.