Quotulatiousness

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: Books, 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: Books, 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: Books, 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: Education, 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: Books, 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.

April 21, 2014

Clive Crook reviews Piketty’s Capital in the Twenty-First Century

Filed under: Books, Economics, Media — Tags: , — Nicholas @ 07:40

Clive Crook takes a jaundiced look at what some enthusiastic fans are calling the “most important book ever”:

As I worked through the book, I became preoccupied with another gap: the one between the findings Piketty explains cautiously and statements such as, “The consequences for the long-term dynamics of the wealth distribution are potentially terrifying.”

Piketty’s terror at rising inequality is an important data point for the reader. It has perhaps influenced his judgment and his tendentious reading of his own evidence. It could also explain why the book has been greeted with such erotic intensity: It meets the need for a work of deep research and scholarly respectability which affirms that inequality, as Cassidy remarked, is “a defining issue of our era.”

Maybe. But nobody should think it’s the only issue. For Piketty, it is. Aside from its other flaws, Capital in the 21st Century invites readers to believe not just that inequality is important but that nothing else matters.

This book wants you to worry about low growth in the coming decades not because that would mean a slower rise in living standards, but because it might cause the ratio of capital to output to rise, which would worsen inequality. In the frame of this book, the two world wars struck blows for social justice because they interrupted the aggrandizement of capital. We can’t expect to be so lucky again. The capitalist who squanders his fortune is a better friend to labor than the one who lives modestly and reinvests his surplus. In Piketty’s view of the world, where inequality is all that counts, capital accumulation is almost a sin in its own right.

Over the course of history, capital accumulation has yielded growth in living standards that people in earlier centuries could not have imagined, let alone predicted — and it wasn’t just the owners of capital who benefited. Future capital accumulation may or may not increase the capital share of output; it may or may not widen inequality. If it does, that’s a bad thing, and governments should act. But even if it does, it won’t matter as much as whether and how quickly wages and living standards rise.

Update, 23 April: David Harsanyi says the book is amazing — not for its content, but for the way it is being siezed upon by big government fans, inequality monomaniacs, and confiscatory taxation buffs.

As I write this, Thomas Piketty’s book Capital in the Twenty-First Century is #1 on Amazon. It’s been deemed an “important book” by a bunch of smart people. Why not? It validates many of the preconceived notions progressives have about capitalism: Inequality is growing. Mobility is shrinking. Meritocracy is dead. We all live in a sprawling zero-sum fallacy. And so on.

The book, as you probably know, has also sparked nonstop conversation in political and media circles. Though it’s best to let economists debunk Piketty’s methodology and data, it is worth pointing out that liberal pundits and writers have not only enthusiastically and unconditionally embraced a book on economics, or even a run-of-the-mill leftist polemic, but a hard-left manifesto.

Now, I realize we’re all supposed to accept the fact that conservatives are alone in embracing fringe economic ideas. But how does a book that evokes Marx and talks about tweaking the Soviet experiment find so much love from people who consider themselves rational, evidence-driven moderates?

[…]

The thing is, some of us still believe that capitalism fosters meritocratic values. Or I should say, we believe that free markets are the best game in town. Not that long ago, this was a nearly universal position. A lot of people used to believe that even the disruptions of capitalism — the “caprices of technology” as Piketty dismisses them — that rattle “social order” also happen to generate mobility, dynamism and growth. Today this probably qualifies as Ayn Rand-style extremism.

Then again, I haven’t read Ayn Rand since college (or maybe it was high school) but if I still believed she was the most prophetic writer of her generation, I might feel compelled to defend her ideas. But Piketty’s utopian notions and authoritarian inclinations — ones that I’m pretty sure most Americans (and probably most Democrats) would still find off-putting — do not seem to rattle the left-wing press one bit. While Piketty’s economic data might be worth studying and debating, his political ideas are unworthy of discussion.

Despite the extremism of his positions, Piketty has already become a folk hero to inequality alarmists everywhere. So if his popularity tells us anything, it’s that many liberal “thought leaders” have taken a far more radical position on economic policy than we’re giving them credit for.

Update the second, 28 April: Megan McArdle hasn’t read the book yet, but she addresses one of the ideas most positive reviewers have praised in their glowing reviews.

What I want to quarrel with is not the book’s methods or conclusion, but with the general idea that income inequality is the most important thing going on in the world. In terms of how it matters to lived human experience, I doubt it even makes the top 20.

I am not disputing that something unhappy is going on in the global economy. Nor am I disputing that this unhappiness is unequally distributed. But the proportion of this unhappiness due to income inequality is actually relatively small — and moreover, concentrated not among the poor, but among the upper middle class, which competes with the very rich for status goods and elite opportunities.

If we look at the middle three quintiles, very few of their worst problems come from the gap between their income and the incomes of some random Facebook squillionaire. Here, in a nutshell, are their biggest problems:

  1. Finding a job that allows them to work at least 40 hours a week on a relatively consistent schedule and will not abruptly terminate them.
  2. Finding a partner who is also able to work at least 40 hours a week on a relatively consistent schedule and will not be abruptly terminated.
  3. Maintaining a satisfying relationship with that partner over a period of years.
  4. Having children who are able to enjoy more stuff and economic security than they have.
  5. Finding a community of friends, family and activities that will provide enjoyment and support over the decades.

This is where things are breaking down — where things have actually, and fairly indisputably, gotten worse since the 1970s. Crime is better, lifespans are longer, our material conditions have greatly improved — yes, even among the lower middle class. What hasn’t improved is the sense that you can plan for a decent life filled with love and joy and friendship, then send your children on to a life at least as secure and well-provisioned as your own.

How much of that could be fixed by Piketty’s proposal to tax away some huge fraction of national income from rich people? Some, to be sure. But writing checks to the bottom 70 percent would not fix the social breakdown among those without a college diploma — the pattern of marital breakdown showed up early, and strong, among welfare mothers.

April 18, 2014

QotD: Opera

Filed under: Humour, Media, Quotations — Tags: , , , , — Nicholas @ 09:21

Opera, to a person genuinely fond of aural beauty, must inevitably appear tawdry and obnoxious, if only because it presents aural beauty in a frame of purely visual gaudiness, with overtones of the grossest sexual provocation. The most successful opera singers of the female sex, at least in America, are not those whom the majority of auditors admire most as singers but those whom the majority of male spectators desire most as mistresses. Opera is chiefly supported in all countries by the same sort of wealthy sensualists who also support musical comedy. One finds in the directors’ room the traditional stock company of the stage-door alley. Such vermin, of course, pose in the newspapers as devout and almost fanatical partisans of art; they exhibit themselves at every performance; one hears of their grand doings, through their press agents, almost every day. But one has merely to observe the sort of opera they think is good to get the measure of their actual artistic discrimination.

The genuine music-lover may accept the carnal husk of opera to get at the kernel of actual music within, but that is no sign that he approves the carnal husk or enjoys gnawing through it. Most musicians, indeed, prefer to hear operatic music outside the opera house; that is why one so often hears such things as “The Ride of the Valkyrie” in the concert hall. “The Ride of the Valkyrie” has a certain intrinsic value as pure music; played by a competent orchestra it may give civilized pleasure. But as it is commonly performed in an opera house, with a posse of flat beldames throwing themselves about the stage, it can only produce the effect of a dose of ipecacuanha. The sort of person who actually delights in such spectacles is the sort of person who delights in plush furniture. Such half-wits are in a majority in every opera house west of the Rhine. They go to the opera, not to hear music, not even to hear bad music, but merely to see a more or less obscene circus. A few, perhaps, have a further purpose; they desire to assist in that circus, to show themselves in the capacity of fashionables, to enchant the yokelry with their splendor. But the majority must be content with the more lowly aim. What they get for the outrageous prices they pay for seats is a chance to feast their eyes upon glittering members of the superior demi-monde, and to abase their groveling souls before magnificoes on their own side of the footlights. They esteem a performance, not in proportion as true music is on tap, but in proportion as the display of notorious characters on the stage is copious, and the exhibition of wealth in the boxes is lavish.

H.L. Mencken, “The Allied Arts: Opera”, Prejudices: Second Series, 1920.

April 9, 2014

Amity Shlaes on “progressive” tax rates

Filed under: Government, USA — Tags: , , — Nicholas @ 09:36

The US tax system, like those in many Western countries, incorporates the concept of “progressivity” — the higher the income you earn, the higher the tax you pay on the last dollar. Your income is divided into blocks where each block of dollars is taxed at a different (rising) rate. In other words, the lower your personal income the less tax you pay per dollar of income. Amity Shlaes explains why this mechanism makes reforming or cutting taxes such a challenge:

Over the hundred years intervening, studies have shown that generally people do think that the greater the wealth, the more dollars wealthy people should pay in tax, proportionally. But that is not a progressive rate structure. That is a flat tax. A progressive tax increases rates as you earn more, disproportionally.

Nor are many people aware that under a progressive structure the last dollar is taxed at a different rate from the first dollar. The top marginal rate is not necessarily the average rate. In the early 1980s, scholar Karlyn Keene found that many Americans, when interviewed, thought flat taxes fair. Before Keene, Walter Blum and Harry Kalven at the University of Chicago studied attitudes toward progressivity and its functions and came away, despite their liberal predilections, concluding that the case for progressivity is “uneasy.”

[…]

Vanity of two sorts provides answers. Most Americans are unwilling to concede that they may not understand or be comfortable with long formulas and complex economic ideas. So, like the Enron audit committee, they simply nod and go along.

The second vanity involves not intelligence but a kind of Puritan pretension. No American wants to be caught appearing unfair, even if in the most fleeting snapshot. “Progressivity” sounds like “progress.” Nobody wants to be seen opposing progress, even if that progress is regress and unfair to boot.

In any case: That willed American ignorance is the single greatest reason our progressive income-tax rates have moved, at times, into the 90 percent range, up from that original 7 percent.

Worse, the attitude makes progressivity hard to undo. When you cut taxes for all in a progressive rate structure, the rich necessarily get a larger tax break because they pay a greater share of the taxes. But “larger tax breaks for the rich” are impossible to sell. A redistributive corollary: benefits for the poor. This week Paul Ryan is getting scourged because his budget cuts affect the poor more than the rich. That is because the poor get more of the benefits in the first place.

Update, 10 April: Here’s a great example of how much tax rates can increase at higher levels (although this particular example is not an income tax). In New York state, a recent change to estate tax rates can result in a marginal tax of 164%:

On its face, the new law seems like tax relief. Under the previous law, New Yorkers paid estate taxes of 3.06 percent to 16 percent on the value of estates over $1 million. The new law raises that exclusion to $2.062 million this year and gradually increases it to more than $5 million by 2017.

But because the law also phases out certain credits related to federal taxes, people who have estates valued just above the $2 million threshold could get massive estate tax bills. An analysis by U.S. Trust found that a New York resident who dies today with a taxable estate of $2,165,625 could have to pay an estate tax of over $112,050. That represents a tax of over 100 percent on the value of the estate over $2,062,000.

It gets worse in a few years. Matz said that assuming that the exclusion rises to $5,250,000, a New Yorker with a taxable estate of $5,512,500 would have to pay an estate tax of $430,050. That’s a marginal tax rate of 164 percent on the value of the estate above the exclusion.

March 20, 2014

Today in misunderstood income inequality stats…

Filed under: Britain, Economics, Media — Tags: , , — Nicholas @ 08:20

Tim Worstall pokes fun at a recent Oxfam report that claims that Britain’s five richest families own more than the bottom 20% of the population:

I read this and thought, “well, yes, this is obvious and what the hell’s it got to do with increasing inequality?” Of course Gerald Grosvenor (aka Duke of Westminster) has more wealth than the bottom 10 per cent of the country put together. It’s obvious that the top five families will have more than 20 per cent of all Britons. Do they think we all just got off the turnip truck or something?

They’ve also managed to entirely screw up the statistic they devised themselves by missing the point that if you’ve no debts and a £10 note then you’ve got more wealth than the bottom 10 or 20 per cent of the population has in aggregate. The bottom levels of our society have negative wealth.

[…]

Given what we classify as wealth, the poor have no assets at all. Property, financial assets (stocks, bonds etc), private sector pension plans, these are all pretty obviously wealth.

But then the state pension is also wealth: it’s a promise of a future stream of income. That is indeed wealth just as much as a share certificate or private pension is. But we don’t count that state pension as wealth in these sorts of calculations.

The right to live in a council house at a subsidised rent of the rest of your life is wealth, but that’s not counted either. Hell, the fact that we live in a country with a welfare system is a form of wealth — but we still don’t count that.

Doing this has been called (not by me, originally anyway) committing Worstall’s Fallacy. Failing to take account of the things we already do to correct a problem in arguing that more must be done to correct said problem. We already redistribute wealth by taxing the rich to provide pensions, housing, free education (only until 18 these days) and so on to people who could not otherwise afford them. But when bemoaning the amount of inequality that clearly cries out for more redistribution, we fail to note how much we’re already doing.

So Oxfam are improperly accounting for wealth and they’ve also missed the point that, given the existence of possible negative wealth, then of course one person or another in the UK will have more wealth than the entire lowest swathe.

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