Quotulatiousness

November 20, 2014

“The Piketty Gang ride in, a hollerin’ an’ a whoopin’ and take all the money from Scrooge McDuck”

Filed under: Economics, Media — Tags: , , — Nicholas @ 12:30

At Forbes, Tim Worstall explains why — despite the headlines — Piketty didn’t actually change economics:

That optimal taxation theory really rests on two things that we’re pretty sure are true. The first being that Laffer Curve thing. No, this doesn’t mean that all tax cuts pay for themselves. Rather, that it’s possible for tax rates to be so high that they actually reduce the amount of tax revenue being collected. A nice example of this is the latest rise in New York’s cigarette tax: less money in total is now being raised even though the tax rate has risen. Given that our primary purpose in taxing is to get the money we need to run the government that we must have (as ever, my opinion being that we might want to have less government, and thus lower taxes, than we currently do but that’s another matter) having a tax over the revenue maximising rate just isn’t sensible.

The second pillar is that we know that different taxes destroy different amounts of economic activity for the same revenue collected. As above, we want to gain revenue but obviously we also want it at the least cost. That means getting as much of it as we can from the low deadweight costs taxes and as little of it as we can manage from the high cost ones. We also know how the spectrum looks. At the lowest deadweight costs we have repeated taxes on real property (say, a land value tax), then taxes upon consumption (VAT or sales taxes) then on incomes and highest of all, upon corporates and capital. There’s one off the spectrum, transactions taxes like the financial transactions tax, but that’s so silly that no one serious is suggesting it.

So, standard and general theory insists that we shouldn’t be taxing corporates and capital at all if we can manage it and also that we don’t want to have very high taxes rates on anything.

So, if for political (or even emotional) reasons you think that we really should be gouging the rich then you’re going to have to go find yourself some new economic theories. And that, I think, is really what is going on here with Piketty and the gang (slightly catchy that, isn’t it? The Piketty Gang ride in, a hollerin’ an’ a whoopin’ and take all the money from Scrooge McDuck?). They want to find a reason to tax wealth, something conventionally contraindicated, and they want to have very high income tax rates, something also contraindicated by conventional theory. So, rather than try to overturn that conventional theory they’re bypassing it. Ignoring it even and just bringing up the idea of inequality instead to see if that will convince people.

November 13, 2014

“Class matters far less than it used to in the 19th century. Citizenship matters far more.”

Filed under: Britain, Economics, History — Tags: , — Nicholas @ 00:02

Tim Harford — white, male Oxford grad and child of Oxbridge-educated parents — checks his privilege:

All these accidents of birth are important. But there’s a more important one: citizenship. Gillian, Simon and I are all British citizens. Financially speaking, this is a greater privilege than all the others combined.

Imagine lining up everyone in the world from the poorest to the richest, each standing beside a pile of money that represents his or her annual income. The world is a very unequal place: those in the top 1 per cent have vastly more than those in the bottom 1 per cent – you need about $35,000 after taxes to make that cut-off and be one of the 70 million richest people in the world. If that seems low, it’s $140,000 after taxes for a family of four – and it is also about 100 times more than the world’s poorest people have.

What determines who is at the richer end of that curve is, mostly, living in a rich country. Branko Milanovic, a visiting presidential professor at City University New York and author of The Haves and the Have-Nots, calculates that about 80 per cent of global inequality is the result of inequality between rich nations and poor nations. Only 20 per cent is the result of inequality between rich and poor within nations. […]

That might seem obvious but it’s often ignored in the conversations we have about inequality. And things used to be very different. In 1820, the UK had about three times the per capita income of countries such as China and India, and perhaps four times that of the poorest countries. The gap between rich countries and the rest has since grown. Today the US has about five times the per capita income of China, 10 times that of India and 50 times that of the poorest countries. (These gaps could be made to look even bigger by not adjusting for lower prices in China and India.) Being a citizen of the US, the EU or Japan is an extraordinary economic privilege, one of a dramatically different scale than in the 19th century.

September 14, 2014

QotD: Chinese millionaires

Filed under: China, Humour, Quotations — Tags: , , , — Nicholas @ 00:01

Up to a point, as we recognized, the problem of the coolie-millionaire offers no real difficulty. The Chinese coolie lives in a palm-thatched hovel on a bowl of rice. When he has risen to a higher occupation — hawking peanuts, for example, from a barrow — he still lives on rice and still lives in a hovel. When he has risen farther — to the selling, say, of possibly stolen bicycle parts, he keeps to his hovel and his rice. The result is that he has money to invest. Of ten coolies in this situation, nine will lose their money by unwise speculation. The tenth will be clever or lucky. He will live, nevertheless, in his hovel. He will eat, as before, his rice. As a success technique this is well worthy of study.

In the American log cabin story the point is soon reached at which the future millionaire must wear a tie. He explains that he cannot otherwise inspire confidence. He must also acquire a better address, purely (he says) to gain prestige. In point of fact, the tie is to please his wife and the address to satisfy his daughter. The Chinese have their womenfolk under better control. So the prosperous coolie sticks to his hovel and his rice. This is a known fact and admits of two explanations. In the first place his home (whatever its other disadvantages) has undeniably brought him luck. In the second place, a better house would unquestionably attract the notice of the tax collector. So he wisely stays where he is. He will often keep the original hovel — at any rate as an office — for the rest of his life. He quits it so reluctantly that his decision to move marks a major crisis in his career.

When he moves it is primarily to evade the exactions of secret societies, blackmailers, and gangs. To conceal his growing wealth from the tax collector is a relatively easy matter; but to conceal it from his business associates is practically impossible. Once the word goes round that he is prospering, accurate guesses will be made as to the sum for which he can be “touched.” All this is admittedly well known, but previous investigators have jumped too readily to the conclusion that there is only one sum involved. In point of fact there are three: the sum the victim would pay if kidnapped and held to ransom; the sum he would pay to keep a defamatory article out of a Chinese newspaper; the sum he would subscribe to charity rather than lose face.

Our task was to ascertain the figure the first sum will have reached (on an average) at the moment when migration takes place from the original hovel to a well-fenced house guarded by an Alsatian hound. It is this move that has been termed “Breaking the Hound Barrier.” Social scientists believe that it will tend to occur as soon as the ransom to be exacted comes to exceed the overhead costs of the “snatch.”

C. Northcote Parkinson, “Palm Thatch To Packard Or A Formula For Success”, Parkinson’s Law (and other studies in administration), 1957.

July 9, 2014

Justin Raimondo reviews new biography of the Koch family

Filed under: Business, History, Media, USA — Tags: , , — Nicholas @ 07:46

The archvillains of capitalism, Charles and David Koch, are the subjects of a recent book by Mother Jones writer Daniel Schulman. Justin Raimondo reviews Sons of Wichita: How the Koch Brothers Became America’s Most Powerful and Private Dynasty.

According to Senate Majority Leader Harry Reid, the Koch brothers are responsible for global warming and much else that’s wrong with the world. This is part of a strategy to demonize Charles and David Koch — the principals behind the country’s largest privately-held company — and make them the issue come Election Day. There’s a big problem with this strategy, however: a recent poll shows that most of Reid’s own constituents haven’t the slightest idea who the Brothers Koch are.

Daniel Schulman’s much anticipated book, the first biography of the Koch family, may help voters bridge the knowledge gap — but Democrats are going to be disappointed if they think it will help their smear campaign. Indeed, it is likely to do the opposite. It’s hard to write a biography of someone you hate, and Schulman, a writer for Mother Jones, clearly came to admire his subjects.

The story starts with Fred Koch, a son of Dutch immigrants who settled in the “poor but plucky” town of Quanah, east of the Texas panhandle. Ambitious, single-minded, and tough as nails, Fred made his fortune helping Joe Stalin extract oil from the Russian steppes — learning in the process that the rosy picture of a “workers’ paradise” drawn by the likes of Walter Durante was the exact opposite of the truth.

Driven to seek overseas markets by an onslaught of patent-infringement lawsuits from a Rockefeller-connected oil consortium, Fred Koch arrived in Russia in 1930 and “found it a land of hunger, misery, and terror,” as he would later recall. When he left that autumn, his Soviet minder — who had spent the whole time capitalist-baiting him — bid adieu with this warning: “I’ll see you in the United States sooner than you think.” What Fred had seen in Stalin’s Russia set him on a course that landed him in the ranks of the John Birch Society.

Robert Welch, the society’s founder, recruited him early on: Fred was at the 1958 meeting where Welch first laid out his plan to fight the Communist menace and roll back the New Deal. The John Birch Society was a hybrid of Old Right libertarian economics and the McCarthyite paranoia of the 1950s, and Fred — by this time a tycoon — relentlessly lectured his four sons on the evils of collectivism and the value of hard work. He had no intention of raising a brood of “country-club bums” who would coast along on the family fortune. The 1950s were almost over before he bought the kids a television, and even then they had little time to watch it.

June 25, 2014

Mexico’s champion crony capitalist

Filed under: Americas, Economics, Government — Tags: , , , — Nicholas @ 08:31

I don’t read the various financial magazines’ regular fanboi coverage of multi-billionaires, so I wasn’t all that aware of the fabulous wealth of Mexico’s Carlos Slim. Slim is one of the richest men in the world, but he doesn’t owe his success to technical innovation or outstanding business skills … he owns the Mexican telephone market thanks to a sweetheart “privatization” deal he got from his good friend in the Presidential palace back in 1990. In other words, his fortune largely derives from his ability to skim off vast profits from a captive customer base. Steve Sailer rounds up some interesting snippets about Slim, including a bit from French economist and current media darling Thomas Piketty:

Andres Oppenheimer wrote for PBS:

    Mexico in the early nineties was similar to American capitalism in the late 1870s. Azcarraga, Slim, and Hernandez were not much different from railroad and steel magnate Andrew Carnegie or oil trader John D. Rockefeller. Like the American “Robber Barons” of their time, the Mexico Twelve were making a fortune from their close partnership with the government. And to their immense relief, Mexico was not contemplating anything like the 1890 Sherman Anti-Trust Act, which had broken up U.S. monopolies through forced sell-offs.

In return, Salinas demanded at a private dinner party on February 23, 1993 that Slim and Mexico’s other 29 oligarchs donate $25 million each to the ruling party’s campaign war chest, a total of $750 million. Oppenheimer notes:

    Telecommunications magnate Slim … supported the motion, adding only that he wished the funds had been collected privately, rather than at a dinner, because publicity over the banquet could “turn into a political scandal.”

Now, you might think that there is something unseemly about a regular contender for the title of World’s Richest Man making his fortune off the relatively small Mexican economy. We’re constantly told that Mexicans have to be allowed to flock to America to escape starvation in their own land. Yet one well-connected monopolist is permitted to pile up an enormous trove by charging exorbitant fees for the lifeblood of any economy, communications.

A 2006 article in the New York Times pointed out:

    The Organization for Economic Cooperation and Development, an association of wealthy countries based in Paris, reports that Mexicans pay some of the highest phone rates in the world, with calls costing 50 percent more than the group’s average. Forbes reported that the average monthly phone bill for a small business in Mexico is $132, compared with $60 in the United States.

Slim epitomizes the toll taken on the Mexican economy by monopolists:

    As a result, said Mr. Ortiz of the Bank of Mexico, economic growth is one percentage point less than it could be with real competition. There are not enough jobs to keep workers from migrating to the United States …

Piketty, however, is offended by how Slim

    … is often described in the Western press as one who owes his great wealth to monopoly rents obtained through (implicitly corrupt) government favors…

(Slim, himself, has been proactive about improving his press coverage: in 2008 he financially bailed out the New York Times and is now the newspaper of record’s second-biggest owner. Not surprisingly, Slim, who profits lavishly off long distance calls between illegal immigrants in America and their loved ones in Mexico, doesn’t get mentioned much in the Times’ vociferous denunciations of immigration skeptics.)

Piketty, in his inimitable prose style, explains that criticizing Slim is a mistake, if not downright racist:

    Rather than indulge in constructing a moral hierarchy of wealth, which in practice often amounts to an exercise in Western ethnocentrism, I think it is more useful to try to understand the general laws that govern the dynamics of wealth—leaving individuals aside and thinking instead about modes of regulation, and in particular taxation, that apply equally to everyone, regardless of nationality.

In other words, rather than the citizens of Mexico using the rule of law to break up Slim’s monopoly, as Americans did with Rockefeller’s, the important thing is for readers of Capital to take global control.

What could possibly go wrong in Piketty’s planetary empire?

QotD: The difference between money and wealth

Filed under: Economics, History, Quotations, USA — Tags: , , — Nicholas @ 00:01

… it is a mistake to use “money” and “wealth” as synonyms. Money is not wealth (though it is often a signifier of wealth). Wealth is a concept far greater, deeper, and more complex than mere money can encompass. Money is a tool; wealth is a state of being, an environment, a continuum in which we conduct our lives. When the left speaks of inequality in purely monetary terms, they are engaging in a puerile and futile kind of reductionism.

Consider a man with a wife and three teenage daughters, who lives in a house with only one bathroom. This man wouldn’t need a million dollars to feel wealthier; he’d just need a second bathroom. A chance to have a hot shower in the morning and have a clean space on the sink for his shaving gear. Wealth to this man is not the money it would take to build the extra bathroom; wealth is the time and comfort the new bathroom brings. Wealth is comfort he gains, his improved state of mind, the increased peace in his household, his improved quality of life. The marginal utility of the additional bathroom is great indeed (the utility of additional bathrooms would be less). The wealth of that additional bathroom is much greater, proportionally, than if this man and his family lived in a huge mansion with fifteen bathrooms. (In fact, the huge house might decrease his happiness due to the expense of upkeep and maintenance. Who knows?)

You don’t make a poor person wealthy by giving them money; history is full of lottery winners who ended up just as poor as when they started, and many’s the dissipated scion of a rich family who frittered away the family fortune. Wealthy people tend to have a lot of money because money is correlated with wealth (but does not cause it). Income, investments, assets — all can generate money for a wealthy person.

But wealth is more than just stuff. A loving spouse and healthy, happy children are treasures. Running a successful business can mean more than just the profits it generates; there is deep satisfaction in conducting a successful enterprise. A deep love of art or music can enhance and enrich a life. The company of good friends is truly priceless, and something that wise people learn to value more as time goes by.

Money gives access to some of those things, but all the money in the world can’t buy an appreciation of those things.

But to speak of wealth even in this broadened sense is misleading, for in America even “poor” people are wealthy beyond the dreams of people in many places in the world. And compared to people in most ages of the earth prior to the 20th century, there are no poor Americans. It’s amazing to consider how much better life for an average person is now compared to past times. We have food in amazing abundance and variety. Every house has a big-screen television, central heating and air-conditioning, and a refrigerator and range. Everybody has at least one car. Everybody has a cellular phone, and most people have a computer. Few of us work more than eight hours a day to afford all these things, leaving plenty of free time to relax. Medical technology has extended our lifespans, and made our tour upon the earth far more pleasant than in former times. We live healthier, more active, more stimulating lives than at any point in our history — wealthier lives.

Monty, “Wealth as an end and wealth as means to an end”, Ace of Spades HQ, 2014-06-24.

June 15, 2014

QotD: Shut up – it’s your right and (for some) your privilege

Filed under: Law, Liberty, Quotations, USA — Tags: , , , , — Nicholas @ 08:54

“Privilege” is a term that’s overused and misused in modern political discourse. Too often it’s used like a crass “shut up, I win” button in an argument. But “privilege” is sometimes an apt descriptive term of a human phenomenon: a person’s evaluation of a situation (like interaction with law enforcement) is colored by his or her own experiences, and those experiences are usually circumscribed by that person’s cultural identity and wealth. Any criminal defense attorney who has served affluent clients is familiar with this: such clients often conclude that they are a victim of a conspiracy, or of a “rogue cop” or “loose cannon prosecutor,” because their life experiences lead them to assume that the system can’t possibly treat all people the way they are being treated. By contrast, clients who have lived in poverty (or clients who are African-American or Latino) tend to recognize outrageous conduct in their case as the system working the way the system typically works — business as usual. In my post about the prosecution and death of Aaron Swartz, I argued that Swartz’ community showed such privilege in its reaction to his prosecution, seeing some sort of singular conspiracy where others saw the banal grinding of the system’s unfeeling wheels.

My advice to shut up is colored, in part, by privilege. I was reminded of this yesterday when Los Angeles County Sheriff’s Deputies searched Justin Bieber’s house. I praised Bieber for shutting up and declining to talk to the cops, and joked that criminal defense attorneys could shame clients into better practices by asking why they aren’t smarter than Justin Bieber.

But Justin Bieber and I — and many of my clients — share a crucial quality: we’re affluent and fortunate. This privilege makes us better able to endure the potential downside risks of shutting up. If we get arrested on a petty or bogus charge by a pissed-off cop, we can make bail. We won’t spend weeks or months in custody on that bogus charge because we can’t scrape together a few thousand dollars. Maybe we’ll spend the weekend in jail, because cops love to arrest you Friday afternoon, but we’ll get out in a few days at most, and in the meantime we won’t lose our jobs. Because we have families and support systems, if we do get thrown in jail on a bogus job by an angry cop, the Department of Child and Family Services won’t take away our children, plunging us into another broken system we have neither the money nor the knowledge to navigate. If the cops tow or impound our car, we can afford to pay the few hundred to few thousand dollars to get it out, and we won’t lose our jobs for lack of transportation. Even if we do lose our jobs because of a bogus and retaliatory arrest, we have savings, and families with savings, and we won’t swiftly lose our homes. If the police choose to retaliate against our silence with petty tickets and infractions and fines rather than arrest, we can fight them or absorb them.

That’s a privilege. Poor people don’t have it. Poor people live on the razor’s edge, and a bogus retaliatory arrest can destroy them. Retaliatory and capricious enforcement of petty crimes and infractions can destroy them financially. Police wield disproportionate power over them, and the criminal justice system and its agendas (like the War on Drugs) disproportionately impacts them. Police are more likely to use force against poor people and for the most part can do so without any significant risk of discipline.

When you and I weigh the downside risks of shutting up against the downside risks of talking, our downside risks are milder, and can be endured. People without our resources face a must starker choice: talk, and incriminate themselves, or shut up, and face an array of consequences they may not be equipped to survive.

Ken White, “The Privilege To Shut Up”, Popehat, 2014-01-15

May 30, 2014

New book exposes the Koch brothers

Filed under: Liberty, Media, USA — Tags: , , , — Nicholas @ 08:27

Nick Gillespie in the Daily Beast, recommending that everyone read the new exposé by Mother Jones senior editor Daniel Schulman. But not for the reasons you’d expect:

Clark-Koch LP 1980 election buttonAs a libertarian, I’m always slow to tell people what they should do. But if you care about politics and the ultimately far more powerful cultural direction of these United States, the new book by Daniel Schulman, Sons of Wichita: How the Koch Brothers Became America’s Most Powerful and Private Dynasty is mandatory reading.

Written by a senior editor for the lefty magazine Mother Jones, the book is hugely revelatory, though not in a way that will please or flatter the conspiracy theories of Democrats, liberals, and progressives who vilify the Kansas-raised billionaires Charles and David Koch for fun and profit. Sons of Wichita chronicles the post-World War II transformation of a mid-size oil-and-ranching family business into the second-largest privately held company in the United States. From a straight business angle, it’s riveting and illuminating not just about how Koch Industries — makers of “energy, food, building and agricultural materials…and…products [that] intersect every day with the lives of every American” — evolved over the past 60 years but also how the larger U.S. economy changed and globalized.

But what’s far more interesting — and important to contemporary America — is the way in which Schulman documents the absolute seriousness with which Charles and David have always taken specifically libertarian ideas and their signal role in helping to create a “freedom movement” to counter what they have long seen as a more effective mix of educational, activist, and intellectual groups on the broadly defined left. By treating the Koch brothers’ activities in critical but fair terms, Sons of Wichita points to what I like to think of as Libertarianism 3.0, a political and cultural development that, if successful, will not only frustrate the left but fundamentally alter the right by creating fusion between forces of social tolerance and fiscal responsibility.

May 28, 2014

The “servant problem” of post-Victorian England

Filed under: Britain, History, Media — Tags: , , , , , — Nicholas @ 07:36

Before the widespread availability of electricity, no middle class household in England could get by without at least one servant. Even as modern labour-saving appliances (along with proper plumbing) started to take their place in the home, servants were still deemed an essential part of being middle- or upper-class. It may account for some of the fascination with TV shows like Downton Abbey or the earlier Upstairs, Downstairs to modern audiences — they give at least a bit of a glimpse into a very different domestic world. At Bookforum, Daphne Merkin reviews a books that look at the “servant problem”:

Servants is chockablock with incredulous-making details about the exploitative conditions in which household help lived and worked (these included cramped, chilly, and spartan sleeping quarters, endless hours, and the overriding assumption of inferiority), as well as anecdotes of supreme helplessness on the part of the coddled rich, such as the following: “Lord Curzon, whose intellect was regarded as one of the glories of the Empire, was so baffled by the challenge of opening a window in the bedroom of the country house in which he was staying (no servants being available so late at night), that he simply picked up a log from the grate and smashed the glass.” Even after World War II, when homes had begun to be wired for electricity despite the gentry’s insistence on the vulgarity of such improvements and the ideal of the 1950s self-contained (and servantless) housewife was hoving into view, so otherwise gifted a chap as Winston Churchill was unable, according to his valet John Gibson, to dress himself without assistance: “He was social gentry … He sat there like a dummy and you dressed him.” As easy as it is to snicker at such colossal ineptitude on the part of the cultural elite, it is also intriguing to consider how this kind of infantilizing treatment might have facilitated their performance in demanding grown-up roles — like someone playing with rubber ducks in the bath before going out to lead men in a military campaign.

Servants takes the reader from the days of Welbeck Abbey, the home of the eccentric and reclusive Duke of Portland, where upper servants had their own underservants to wait on them, to the gradual erosion of the older forms of domestic service and on up through the new world of do-it-yourself home comforts as devised by technology and a greater show of equality between employer and servant. This world, ushered in with the 1950s, shunned the “badge of servitude” that was conveyed by uniforms, surreal daily routines (whether it meant Ladyships who couldn’t sleep with creases on a pillowcase or Ladyships who insisted on cutting their boiled eggs with a letter opener), and a feudal attitude that took no more cognizance of domestics than it did of the furniture. “It was in the best houses considered quite unnecessary (in fact poor form),” Lethbridge notes, “for servants to knock before entering a room. This was partly because they lived in such everyday familiarity with the family that there was nothing to hide from them and partly because … their presence made no difference whatsoever to whatever was being said or going on.”

[…]

There’s much to think about in both these books — not least the particularly British style of treating domestics, both less casually sadistic and less casually amorous than, say, white Americans’ attitude toward black slaves. Indeed, I suspect that one of the reasons American audiences delight in the travails and triumphs of the gaggle of domestics on Downton Abbey is out of a sense of superiority that the “servant problem” in such acute, institutionalized form isn’t ours. Much as we may envy them all that pampering, we also like to look down our noses at it as going against the democratic and independent Yankee ethos. To this point it’s worth noting that Betty Friedan in The Feminine Mystique referred precisely to “the servant problem” as one of the besetting woes of the upper-middle-class housewives she was looking to liberate, and that our habit of befriending those who clean our kitchens and bathrooms and look after our children can’t disguise the fact that we value their hourly labor less than we value a twenty-minute haircut and that we live largely in ignorance of their thoughts and feelings.

May 24, 2014

Piketty’s Charge

Filed under: Economics, Media, Politics — Tags: , , , — Nicholas @ 11:43

The book that everyone has been so enthusiastic about (well, everyone who supports vastly increased taxes and a much larger government anyway) may rely for much of its power on faulty data:

FT economics editor Chris Giles says he has found serious errors in data used by Thomas Piketty in his best seller Capitalism in the 21st Century, about growing inequality in the Western world.

“Some issues concern sourcing and definitional problems,” Giles writes. “Some numbers appear simply to be constructed out of thin air.”

Correcting for the errors revealed fundamentally different conclusions about rising inequality, Giles said.

“Two of Capital in the 21st Century’s central findings – that wealth inequality has begun to rise over the past 30 years and that the US obviously has a more unequal distribution of wealth than Europe – no longer seem to hold,” he writes.

He continues:

    For example, once the FT cleaned up and simplified the data, the European numbers do not show any tendency towards rising wealth inequality after 1970. An independent specialist in measuring inequality shared the FT’s concerns.

Update, 25 May: The concern is not just “fat fingered” data transcription errors, but deliberate falsification of data.

But while the two Harvard professors’ errors seemed to have been unintended, Giles levels a more serious critique: that Piketty actively manipulated his data.

His most damning claim: Piketty altered U.K. data to show that wealth distribution there is worse off than it appears to be.

Piketty says the share of income going to the top 10% never fell lower than 60%, and since the end of the 1970s has returned to 70%, a level not seen in 70 years.

But the data Piketty himself cites shows the top 10% share of wealth is no greater than 50%, and may be as low as 42%.

Giles writes: “This appears to be the result of swapping between data sources, not following the source notes, misinterpreting the more recent data and exaggerating increases in wealth inequality.”

[…]

In a follow-up video on FT.com, Giles shows another example: Piketty appears to have added random numbers to certain formula to bend the data toward his hypothesis. “A 2 is added because the number wasn’t high enough — it didn’t seem to fit what he wanted to show in his charts, so he just added 2 to it,” Giles says. “There was quite a lot of this sort of thing in his spreadsheets.”

Update, 27 May. Nate Silver warns that we should be skeptical of both Piketty and his critics:

Science is messy, and the social sciences are messier than the hard sciences. Research findings based on relatively new and novel data sets (like Piketty’s) are subject to one set of problems — the data itself will have been less well scrutinized and is more likely to contain errors, small and large. Research on well-worn datasets are subject to another. Such data is probably in better shape, but if researchers are coming to some new and novel conclusions from it, that may reflect some flaw in their interpretation or analysis.

The closest thing to a solution is to remain appropriately skeptical, perhaps especially when the research finding is agreeable to you. A lot of apparently damning critiques prove to be less so when you assume from the start that data analysis and empirical research, like other forms of intellectual endeavor, are not free from human error. Nonetheless, once the dust settles, it seems likely that both Piketty and Giles will have moved us toward an improved understanding of wealth inequality and its implications.

May 16, 2014

Improving “privilege awareness” at Harvard

Filed under: Randomness, USA — Tags: , , , — Nicholas @ 08:02

Conor Friedersdorf talks about a new privilege awareness exercise for new grad students at Harvard’s John F. Kennedy School of Government:

Such exercises are not without insight or merit (though I find it hard to believe that first-year graduate students at Harvard haven’t encountered this sort of thing before). It surprises me not at all that Harvard insiders would craft the exercise to highlight where they ostensibly stand relative to their fellow Harvard classmates.

As a Harvard outsider who will one day live under a governing elite populated by today’s KSG first-years, I’d only ask for one addition to the “step forward, step back” exercise. Prior to the day it is conducted, KSG should take out some ads in local media: $50 dollars available for the first 500 non-Harvard students to show up at the campus football field at an appointed time. Let them gather, black, white and brown; men and women; straight and gay. The hoi poloi and the KSG freshmen should all mass together behind one end zone. Then the stadium announcer should say, “If you’re not a Harvard student, stay where you are. And if you are a Harvard student, take 95 steps forward, until you’re at the 5 yard line by the far end zone.”

Once all the KSG freshmen are lined up straight at that 5 yard line, everyone can do the “step-forward, step-back” exercise as before. I submit that my augmented approach will afford a more accurate understanding of privilege as it operates at Harvard.

May 14, 2014

The rich boozehound’s guide to globetrotting

Filed under: Britain, Business, Randomness — Tags: , , , — Nicholas @ 11:07

Got lots of money burning a hole in your bank account? Want to show off just how filthy stinking rich you are? Like spending your however-earned-or-inherited loot on fancy booze? Then there’s a million-dollar booze vacation you’ll probably like:

UK-based travel company Holidaysplease is offering a luxury world drinking tour in which you can learn and demonstrate the art of conspicuous consumption.

Starting and ending in London — although pickups are possible elsewhere — the ultimate hedonistic, money-no-object vacation takes in the world’s best hotels, swankiest restaurants and most exclusive bars in 10 upmarket destinations.

En route, drinkers take in the universe’s most ludicrously expensive niche beverages.

In Monaco, members of the bottomless budget brigade will mingle with other surreally high net individuals at the high end Hotel Hermitage Monte-Carlo and party at Flavio Briatore’s Billionaire Sunset Lounge in the hotel Fairmont Monte Carlo, quaffing selections from the $565,000 “in-house Armand de Brignac Dynastie” champagne collection.

It all comes complete with fawning waiters and diamond-filled ice buckets.

“We spend the first three nights in London in the five-star Corinthia Hotel and hang out in the Playboy Club, Park Lane, Mayfair,” says Byron Warmington of Holidaysplease.

Hef once said: “Life needs to be lived with a sense of style.”

As a taste of things to come, surrounded by grinning Bunnies, guests will sample the glam high life and swallow what’s reported to be the second most expensive drink in the history of mixology.

The Legacy cocktail includes 1788 Clos de Griffier Vieux Cognac, which comes in at $21,000 for a 40 ml shot.

It also includes ancient Kummel liqueur, vintage orange Curacao and four dashes of circa 1900 Angostura bitters.

May 13, 2014

The global 1% includes almost all North Americans

Filed under: Economics, USA — Tags: , — Nicholas @ 07:14

Peter Jaworski explains that as with so many other issues, where you sit on the issue of economic inequality determines what you see:

When people talk about the “1%”, I think they think that they are talking about a specific group of individuals, who have been and remain in that category over time.

When they say “We are the 99%” I think they think that that’s a static category, designating a group of people who persist as members over their lifetime.

Would people be so upset if it turned out that the individuals who made up the 1% were different people over time? That those who are in the 1% spend most of their lives in the 99%, and will go back to being 99%ers after a few years of being 1%ers?

I’m not sure. I am sure that if those categories represented a permanent group of specific individuals, we would be justified in lamenting the state of the economy.

But at any rate, if you’re someone who worries a great deal about the 1 and 99 %ers, would you be as worried if the following were true?:

Suppose just over one-in-ten (or 12%) would be in the 1% for at least a year of their lives.
Suppose further, to expand our view a bit, that just over one-in-three (or 39%) would hit top 5%, just over one-in-two (or 56%) would hit top 10%, and two-in-three (or 73%) would hit top 20%, each for at least a year of their lives.

And now suppose that less than one-in-150 (or a mere 0.6%) remained in the top 1% for 10 consecutive years.

If all of that were true — if the income distribution were that fluid — would you still be so upset?

All of that isn’t a hypothetical: “it’s a description of the income distribution over time in the U.S.” (and Canadians are probably similarly distributed).

For people in India, I bet they think the heated discussion about top 1%ers and 99%ers in Canada and the U.S. is a great big joke. The very same kind of joke that we would laugh about if the Tremblays in the Westmount area of Montreal were to bitterly complain about the Jones’ living in the Bridal Path area of Toronto. Sure, the Tremblays with their average $8 million net worth have half what the Jones’ and their $16 million net worth have, but it would take a comic to suggest we should lament and despair about the Tremblays’ attempts to keep up with the Jones’.

But it’s not a joke. Or, maybe, the people who occupied Bay Street and Wall Street didn’t get it.

Us Canadian 99%ers are not just rich, which we are. By global standards, we’re filthy, stinking rich. It takes roughly an annual net income of $41,600 to be in the global 1%.

If that’s you, then take a deep breath, find a mirror, and repeat these words, “I am the 1%.”

May 7, 2014

Peak inequality in England – about 200 years ago

Filed under: Britain, Economics, History — Tags: , , , , — Nicholas @ 10:18

An interesting article that starts and ends talking about Thomas Piketty’s new book, but in the middle goes a long way to explain what happened to English aristocracy over the last few hundred years:

Extravagances like the stately homes of England made economic sense before the 19th century because the relative wages of servants and construction workers mostly fell from 1500 to 1800 as the supply of English workers slowly recovered in size from the Black Death of the 1340s.

But, outside of economic theory, the rich have often tended to get poorer, especially when they spend more than they make. It’s a common theme in English literature (Evelyn Waugh’s A Handful of Dust) and television (Downton Abbey). For instance, by the time of Winston Churchill’s birth in 1874, the English ultra-rich weren’t getting richer.

[…]

The long agricultural depression of 1873-1896 meant the great houses of England began falling apart. Wings had to be shut as servants found higher paying jobs in factories. Repairs could not be paid for.

The usual solutions were to first auction off the art collection, then marry American heiresses, as in Downton Abbey, where Countess Cora, played by Elizabeth McGovern, is from the Chicago Levinsons. Winston’s mother Jenny was from the Jeromes of Wall Street.

[…]

Servants had steadily become more expensive in England. One reason was the increase in jobs elsewhere in a modernizing economy. On Downton Abbey, to illustrate, a maid applies for a job in town as a secretary, which is a much better post.

A forgotten reason, though, was that the massive emigration from the British Isles reduced the supply of workers and thus raised their wages. While Tony Blair’s Labor Government liked to claim that Britain had always been a nation of immigrants, it was in truth a nation of emigrants. Today, there are perhaps two or even three times as many people descended from the British Isles living in the United States, Canada, Australia, New Zealand, South Africa, and Argentina as there are in Britain and Ireland. Without all that outflow, wages in Britain would be lower and land prices astronomical.

H/T to Kathy Shaidle for the link.

April 30, 2014

Inheritance taxes actually perpetuate the 1%

Filed under: Britain, Economics, USA — Tags: , , , — Nicholas @ 08:18

Here’s Tim Worstall’s counter-intuitive post at the Adam Smith Institute blog from last week:

… Note “family foundation” there. Because of that inheritance tax rich people do tend to (and they have to be very rich for it to work) stick all of the money into a foundation. This wealth can then be maintained by professional money managers down the generations. Tax free, of course, as it’s inside a foundation. The stipulation is that said foundation must give away 5% of its assets each year. But such “giving away” obviously includes employing family members to run it. At pretty much any salary desired.

This obviously wouldn’t happen if the money could just be left directly to children without tax being due. And the effect of it going into such a foundation where the professional money managers can maintain it, rather than the heirs blow it, is that we’ve lost one of the major forces that disperses wealth through the society. The feckless heir.

So, we end up with the imposition of the tax leading to the continued concentration of old wealth, as the avoidance of the tax reduces the ability of the inheritors to waste it.

As an example, who thinks that any of the Kennedys would still be rich if they’d been able to get their hands on old Joe’s money directly?

I rest my case.

As one of the comments on that post points out, it’s not just the inheritance tax: it’s the interaction between the tax and the rules governing family foundations that create this unexpected-to-most-of-the-99% situation. I’m sure the 1% who can benefit from this are fully aware of it. This could be fixed either way, but the very people who benefit are the ones who would be pivotal in whether the changes could be made. So, it’s technically possible but not at all likely.

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