Grasping Reality on TypePad, by Brad DeLong

From World War II Today: Iris Origo: War in Val D’Orcia: An Italian War Diary, 1943-1944:

A German officer comes up, and inspects the Castelluccio. Antonio points out (1) that it has already been reserved to store the goods of the hotel-keeper of Chianciano. (2) That there is insufficient water. (3) That there is no stabling. To which the German — a Prussian of the worst type —- merely replies that he will require the whole of the castle for his three hundred men, stabling for eight hundred horses in the farms, and quarters for his eight officers in our house. As to the refugee children, we must find lodgings for them ‘elsewhere’.…

Over at Equitable Growth--The Equitablog

• Evening Must-Read: Jonathan Chait: Piketty, Oligarchy, and Conservative Evasion
• The Daily Piketty: Some More Reviews of Piketty
• Southern (and Prarie) Whites as a Separate Ethnicity: I Want a Referee Here!: Early Monday Focus for April 28, 2014
• Adam Bonica and Jenny Shen: The Rich Are Dominating Campaigns. Here’s Why That’s About to Get Worse.
• Why Are People Depressed About the Medium-Term Prospects for Equity Investments? Something I Do Not Understand: Friday Focus: April 25 2014

Plus:

• Things to Read at Nighttime on April 25, 2014

And:

Must-Reads:

1. Jonathan Chait: Piketty, Oligarchy, and Conservative Evasion: "Every so often, a right-winger billionaire will go on an epic public rant against class warfare, populism, and the depredations of the Democratic soak-the-rich tax agenda. But such rants are noteworthy not only for their hilarious lack of self-awareness and uncomfortable tendency to invoke Adolph Hitler, but for their sheer discordance with the rest of the Republican message. The GOP obviously does not want its public face to be filthy rich men wallowing in self-pity.... The sudden popularity of Thomas Piketty’s Capital in the Twenty-First Century has again thrust conservatives into the pseudo-populist defensive stance.... David Brooks’s column today... a wilder essay/rant by Washington Free Beacon editor Matthew Continetti. Brooks (not for the first time) suggests that the liberal concern over inequality is driven by liberal elites, who are prestigious and wealthy, but less wealthy than the hedge-fund titans with whom they regularly interact, and against whose riches they bristle with resentment.... Continetti, meanwhile, brings up Piketty only to argue that the true oligarchs in America are the liberals.... What both have in common is a myopic focus on the sociological identity of Democratic elites.... In fact, American politics revolves around a policy dispute that carries massive repercussions for inequality.... Neither Brooks nor Continetti mentions any of these things. For all the demented paranoia of Tom Perkins, Ken Langone, Charles Koch, and the like, at least they are willing to acknowledge the basic class contours of the struggle in which they’re engaged..."

2. Adam Bonica and Jenny Shen: The rich are dominating campaigns. Here’s why that’s about to get worse

Should-Reads:

1. Jonathan Chait: Is the Rising Democratic Majority Doomed?: "The Emerging Democratic Majority [thesis] has been met with a series of objections, most of which have either been confounded or made no sense to begin with.... My belief... is that conservatism as we know it is doomed... the virulent opposition to the welfare state we see here is almost completely unique among major conservative parties.... America’s unique brand of ideological anti-statism is historically inseparable (as I recently argued) from the legacy of slavery. Whatever form America’s polyglot majority ultimately takes, it is hard to see the basis for its attraction to an ideology sociologically rooted in white supremacy.... Speculation... should give way to a recognition of the seismic changes already underway..."

2. Gillian Tett: "Last week, I watched something rather peculiar... earnest American economists met to ponder a 577-page tract on inequality and tax policy by Thomas Piketty.... But instead of simply meeting in sombre, academic isolation, the event was so wildly popular that tickets for it sold out.... I suspect that the real reason for Piketty’s rock-star reception is not the quality of his numbers but the fact that he has forced Americans to confront a growing sense of cognitive dissonance.... The country’s founding fathers created the nation, they proudly believed they had rejected Europe’s tradition of inherited aristocracy and rentier wealth.... Piketty’s book shows that this dream is increasingly a myth.... That does not mean the elite will accept his analysis; on the contrary, rightwing commentators have attacked him.... But, if nothing else, Piketty’s work touches a very raw nerve about the reality of the modern American dream..."

Should Be Aware of:

1. Teresa Nielsen Hayden: Art-and-Politics: "My practical experience is that the artist’s work can’t be divided from the artist’s politics.... Readers will judge the politics. There’s no way to keep that from happening. They may perceive it as (for instance) the difference between a strikingly original, a satisfactory, and a cop-out ending, but they will judge. I can’t see that as wholly bad. Here’s an example: I hate it when a promising skiffy book ends with that stupid mainstream thing about how there can never be new answers to old problems, so for those trying to transcend the old answer set, it comes down to a choice between madness and death. Bleah! I want the ending where the character invents a completely unanticipated third answer in a cave, from a box of scraps. I won’t take it well if someone tells me I have to believe a madness-or-death dichotomy ending is just as good as, or superior to, a wildly-different-third-answer ending, because the madness-or-death ending is characteristic of the author’s worldview. I can at most learn to see and understand that that ending grows out of a particular set of beliefs (which it does).... Enough bad causality makes a dent in my reading pleasure. The only general solution I know is to become a better reader..."

2. David Brooks: The Piketty Phenomenon - NYTimes.com: "Progressives have found their worldview and their agenda. This move opens up a huge opportunity for... the right. First, acknowledge that the concentration of wealth is a concern with a beefed up inheritance tax. Second, emphasize a contrasting agenda that will reward growth, saving and investment.... Support progressive consumption taxes not a tax on capital. Third, emphasize that the historically proven way to reduce inequality is lifting people from the bottom with human capital reform, not pushing down the top. In short, counter angry progressivism with unifying uplift. The reaction to Piketty is an amazing cultural phenomenon. But it says more about class rivalry within the educated classes than it does about how to really expand opportunity. Of course, this perspective could just be my own prejudice. When it comes to cultural analysis, I, like Piketty, am quasi-Marxist..."

And:

• Jeet Heer: On race and libertarianism (with tweets) | Critique of libertarians on race (with tweets)
• German Lopez: Everything you need to know about Obamacare enrollment numbers
• Corey Robin: Nietzsche’s Marginal Children: On Friedrich von Hayek

Consider Henry Blodget, who appears to expect rapid and full mean-reversion to the very long run average ratio of prices to earnings, in spite of secularly low interest rates...

Henry Blodget: Stock Market And Investing Outlook: "Everyone's getting cautiously bullish again...

...except me. I still think stocks are poised to have a decade or more of lousy returns.... Stocks are very expensive. Corporate profit margins are at record highs. The Fed is now tightening.... Unless 'it's different this time' — the four most expensive words in the English language — stocks are priced to return only about 2.5% per year for the next decade, a far cry from the 10%-per-year long-term average.... I own lots of stocks, though, and I'm not selling them.... No other asset classes are attractively priced, either. Unfortunately, it looks as though we're set up to have one of the worst decades in history in terms of the performance of financial assets....

The chart below is from Yale professor Robert Shiller. It shows the cyclically adjusted price-earnings ratio of the S&P 500 for the last 130 years. As you can see, today's P/E ratio of 25X is miles above the long-term average of 15X...

I don't see this: I see that stocks are likely to return:

• 6%/year in real (inflation adjusted) terms,
• plus or minus whatever changes we see in valuation ratios.

That means that if we expect to see P/E10 fall over the next decade from 25X to 19X then we can expect to see returns of 3%/year real--that is, 5%/year nominal. That means that if we expect to see P/E10 fall all the way back to 15X over the next decade, then we can expect to see returns of 1%/year real--that is 3%/year nominal. But that is unlikely to happen. And if P/E10 remains at its current valuation ratios, we have 6%/year real returns--8%/year nominal.

Equities still look very attractive to me...

Jonathan Chait: Piketty, Oligarchy, and Conservative Evasion: "Every so often, a right-winger billionaire will go on an epic public rant against class warfare, populism...

...and the depredations of the Democratic soak-the-rich tax agenda. But such rants are noteworthy not only for their hilarious lack of self-awareness and uncomfortable tendency to invoke Adolph Hitler, but for their sheer discordance with the rest of the Republican message. The GOP obviously does not want its public face to be filthy rich men wallowing in self-pity.... The sudden popularity of Thomas Piketty’s Capital in the Twenty-First Century has again thrust conservatives into the pseudo-populist defensive stance.... David Brooks’s column today... a wilder essay/rant by Washington Free Beacon editor Matthew Continetti. Brooks (not for the first time) suggests that the liberal concern over inequality is driven by liberal elites, who are prestigious and wealthy, but less wealthy than the hedge-fund titans with whom they regularly interact, and against whose riches they bristle with resentment.... Continetti, meanwhile, brings up Piketty only to argue that the true oligarchs in America are the liberals.... What both have in common is a myopic focus on the sociological identity of Democratic elites.... In fact, American politics revolves around a policy dispute that carries massive repercussions for inequality.... Neither Brooks nor Continetti mentions any of these things. For all the demented paranoia of Tom Perkins, Ken Langone, Charles Koch, and the like, at least they are willing to acknowledge the basic class contours of the struggle in which they’re engaged..."

Over at the Washington Center for Equitable Growth: One from the left that I like:

1. Jedediah Purdy: To Have and Have Not: "Piketty recommends a small, progressive global tax on capital to draw down big fortunes and press back against r > g. He admits this idea won’t get much traction at present, but recommends it as a... measure of what would be worth doing and how far we have to go to get there. It’s an excellent idea, but it also shows the limits of Piketty’s argument. He has no theory of how the economy works that can replace the optimistic theories that his numbers devastate. Numbers — powerful ones, to be sure — are what he has.... Without a theory of how the economy produces and allocates value, we can’t know whether r > g will hold into the future. This is essential to whether Piketty can answer his critics, who have argued that we shouldn’t worry much... [because other economic forces will] blunt r > g. Piketty doesn’t really have an answer to these challenges, other than the weight of the historical numbers....

   "We should grope toward a more general theory of capitalism by getting more systematic about two recurrent themes in Piketty’s work: a) power matters and b) the division of income between capital and labor is one of the most important questions.... The period of shared growth in the mid-20th century was not just the aftermath of war and depression. It was also the apex of organized labor’s power in Europe and North America....

   "Piketty shows that capitalism’s attractive moral claims — that it can make everyone better off while respecting their freedom — deserve much less respect under our increasingly 'pure' markets than in the mixed economies that dominated the North Atlantic countries in the mid-20th century. It took a strong and mobilized left to build those societies. It may be that capitalism can remain tolerable only under constant political and moral pressure from the left, when the alternative of democratic socialism is genuinely on the table.... Reading Piketty gives one an acute sense of how much we have lost with the long waning of real political economy, especially the radical kind.... Ideas need movements, as movements need ideas. We’ve been short on both..." READ MOAR

Larry Bartels does not like Nate Cohn's piece in The Upshot on America's (and Obama's: but largely America's) big problem--that southern (and prairie) whites seem to be separating themselves from the rest of us in their political (and other) attitudes to a remarkable degree.

I badly need a referee here to sort out the arguments. Is there one?

Nate Cohn: Southern Whites’ Loyalty to G.O.P. Nearing That of Blacks to Democrats: "Mr. Obama’s so-called new coalition of young and nonwhite voters...

...turned out in record numbers in 2012. The Democratic majority has failed to materialize because the Republicans made large, countervailing and unappreciated gains of their own among white Southerners. From the high plains of West Texas to the Atlantic Coast of Georgia, white voters opposed Mr. Obama’s re-election in overwhelming numbers. In many counties 90 percent of white voters chose Mitt Romney, nearly the reversal of the margin by which black voters supported Mr. Obama.

While white Southerners have been voting Republican for decades, the hugeness of the gap was new. Mr. Obama often lost more than 40 percent of Al Gore’s support among white voters south of the historically significant line of the Missouri Compromise.... It is no exaggeration to suggest that in these states the Democrats have become the party of African Americans and that the Republicans are the party of whites...

MY DAY by Eleanor Roosevelt:

WASHINGTON, Monday—Sunday afternoon proved to be quite busy. At one o'clock, over a hundred capitol page boys came to lunch. After lunch we saw some movies of one of our carriers, and then they stayed on for another movie and a visit through the White House rooms.

Adam Bonica and Jenny Shen: The rich are dominating campaigns. Here’s why that’s about to get worse

Five grifts, of various dimensions:

1. Morning Money on how you need to read Peter Schiff's The Real Crash
2. Ron Paul says: "GOLD!"
3. The oldie-but-goodie from 1999 and Kevin Hassett
4. Julia Ager** from the DSCC
5. All Hope Is Lost! from the DCCC

Read them all? Good. Some remarks:

• Thursday Idiocy: The 1964 Goldwater Campaign
• "Plutocrats vs. Tea Party”: Digby Chronicles the Thursday Idiocy
• Thursday Idiocy: Congressman's Attempt To Attack Obamacare Accidentally Exposes His Staffer's Health Care Success Story
• Thursday Idiocy: Fred Hiatt and the Washington Post Once Again: Intellectual Garbage Collection by Dean Baker
• Happy Charles Krauthammer Day!
• Thursday Idiocy: Yes. Arnold Kling Commits the Intellectual Swindle of Claiming Everyone He Disagrees with Is an Intellectual Swindler. Why Do You Ask?

Over at Equitable Growth--The Equitablog

• Washington Center for Equitable Growth | Afternoon Must-Read: Aetna CEO: Obamacare Pretty Much On Track
• Washington Center for Equitable Growth | The Hourly Piketty: Paul Krugman, "Gattopardo Economics", and Economic Modelling
• Washington Center for Equitable Growth | Hot Economics Growth-Macro Dissertation Topic Available!: North Dakota vs. South Dakota Edition...
• Washington Center for Equitable Growth | The Daily Piketty: Thursday Focus: April 24, 2014
• Washington Center for Equitable Growth | Afternoon Must-Read: Ezra Klein: What Is the Liberal Equivalent of Climate Denial?

Plus:

• Washington Center for Equitable Growth | Things to Read on the Afternoon of April 24, 2014

And:

Must-Reads:

1. Ezra Klein: What’s the liberal equivalent of climate denial?: "Kahan... argu[es]... being right is irrelevant. 'It's not whether one gets the answer right or wrong but how one reasons that counts.' A liberal who works backwards from conclusions but happens to believe in climate change is 'to be congratulated for being lucky that a position they unreasoningly subscribe to happens to be true', but nothing more. Here, Kahan makes a serious mistake. Political reasoning doesn't take place inside our heads. It takes place inside our parties. No one can personally investigate the vast array of issues facing the country. In terms of getting the right answers, the most important decision people make is choosing whom to trust.... Majority parties bear the heavy responsibility of actually getting policy right.... That's less true for minority parties. They have the luxury of being irresponsible.... But even minority parties have reason to calm the tribal impulses of their members. Winning elections requires winning the support of many voters who aren't hardcore conservatives or liberals..."

2. Kevin Drum: Aetna CEO: Obamacare Pretty Much On Track: "CEO Mark Bertolini passed along a couple of interesting factlets: 'Bertolini said about half of the company's premium increases, whatever they turn out to be, will be attributable to "on the fly" regulatory changes made by the Obama administration. He cited as an example the administration's policy of allowing old health plans that were supposed to expire in 2014 to be extended another three years if states and insurers wanted to.... Aetna has added 230,000 paying customers from ACA exchanges, and it projects to end the year with 450,000 paid customers. It said it can't yet draw a "meaningful conclusion" about the population's overall health status.' The first is interesting because it suggests that Aetna's premium increases won't be based on fundamentals... aren't rising because the customers Aetna signed up were older or sicker than they expected.... And the second is interesting because Aetna apparently expects to double its Obamacare customer base by the end of the year."

3.

Should-Reads:

1. Jonathan Chait: Cliven Bundy Shockingly Turns Out to Be Gigantic Racist: "According to J.D. Tuccille of the libertarian magazine Reason, the Cliven Bundy standoff is about something larger and grander than mere grazing rights. It is about freedom-loving individuals fighting back against distant, bureaucratic government. 'They see little reason', he writes, 'to leave their fate in the hands of a stumbling federal government that can't balance its books'. Now Cliven Bundy, the deadbeat rancher embraced by Rand Paul and other freedom lovers, has added some thoughts of his own.... 'I want to tell you one more thing I know about the Negro.... They abort their young children, they put their young men in jail, because they never learned how to pick cotton. And I’ve often wondered, are they better off as slaves, picking cotton and having a family life and doing things, or are they better off under government subsidy? They didn’t get no more freedom. They got less freedom.' So apparently there’s more to Bundy’s cause than the existence of the federal budget deficit.... Just the other day, Tuccille expressed outrage... [because] I suggested that conservatism in its current incarnation has no future in American politics because 'America’s unique brand of ideological anti-statism is historically inseparable… from the legacy of slaver'y, and thus will have little natural appeal to an increasingly diverse electorate. Tuccille shot back... helped stoke some belated outrage on the right at the 'yes, American conservatism is deeply intertwined with racism' part.... I’d argue it’s not exactly a coincidence that Bundy also turns out to be a gigantic racist. Just like Ron Paul’s longtime ghostwriter turned out to be a neoconfederate white supremacist. And like the way Rand Paul’s ghostwriter also turned out to be a neoconfederate white supremacist. Presumably all these revelations have struck Tuccille as a series of shocking coincidences. Why do all these people with strong antipathy toward the federal government turn out to be racists?..."

2. Ed Kilgore: Medicaid Expansion: Deal Too Good To Refuse Getting Better: "In hard-core rejectionist country, especially in the South, all the talk about 'fiscal responsibility' in connection with the Medicaid expansion is pretty much bunk. They oppose expanding Medicaid because they actually want to blow Medicaid up, and/or because they see no reason to do any favors for those people who might tend to benefit most. So evidence that the expansion might actually be neutral for state budgets and very positive for state economies (not to mention public health) won’t cut much ice. Meanness is priceless to an awful lot of southern conservatives these days..."

Should Be Aware of:

1. Tracy Gnadinger: October 2013′s Insurance Cancellation Firestorm In Context: "In October 2013, a political firestorm erupted when Americans with individual health insurance plans received cancellation notices from their insurers. Their plans had failed to meet the new minimum coverage standards of the Affordable Care Act (ACA) taking effect in January 2014.... Benjamin Sommers... found... every year an estimated 6.2 million Americans in nongroup plans moved out of nongroup coverage, and only 42 percent remained consistently enrolled in such coverage after one year.... Eighty percent of those leaving a nongroup plan ended up with different health insurance within twelve months, most commonly through coverage offered by an employer.... Some Americans—particularly those who were older and self-employed—typically retained their policies for three years or more. For them, writes Sommers, 'cancellations of nongrandfathered plans related to the ACA represented an unwanted change in coverage options that might have been quite disruptive.'... In addition to providing insights into the ACA’s cancellation controversy, the author suggests that his analysis can also offer 'a nationally representative estimate of baseline coverage stability' in the nongroup market prior to the ACA..."

2. Felix Salmon: Why I’m joining Fusion: "So here’s the idea: let’s say we can serve up high-quality Fusion-branded content to a new generation of digital natives, and that they love that content. If and when that happens, it’s going to be a lot easier for the cable companies to persude that audience to pay for cable TV if their cable lineup also includes Fusion. The content won’t be the same, of course — but the brand will be. And the cable companies are going to want the Fusion brand on their lineup because that’s the only way they’re going to be able to seem relevant to anybody under the age of 32. The result: Fusion has negotiating leverage with the cable channels, and becomes very valuable. Here’s where things start getting really cool. What this means is that it doesn’t matter where people consume our digital content: it only matters that they consume it. So while everybody else fights with each other to get millions of unique visitors to their websites, we will be happy to go reach the audience wherever they are. Of course, we will have an excellent website of our own — the amazing Hong Qu is hard at work building it as we speak. But in no way will we feel constrained by that website. If our audience is on Instagram, we’ll make 15-second videos for them on Instagram. If they’re on Upworthy or BuzzFeed or Vox or even Snapchat, we’ll try to find a way to reach them there, too. It’s what I call promiscuous media: put everything where it works best..."

3. Brian Buetler: Cliven Bundy, Racist Rancher, Still Has Conservative Defenders: "I had assumed that Cliven Bundy's lapse into slaver nostalgia would augur the end of his martyr status on the right. But I was wrong. National Review writer Kevin Williamson, for one, is sticking to his guns.... If Bundy were a food stamp recipient, and Republicans in Congress cut his SNAP benefit, and he responded by walking into a public high school every afternoon and stealing a subsidized lunch, Williamson wouldn't compare him to a freedom fighter. He'd call him a lazy deadbeat. But it's the same infraction. The question of whether you think the federal government should own so much land in Nevada in the first place has nothing to do with it..."

And:

• Deborah Bocouyannis: Adam Smith is not the antidote to Thomas Piketty
• Brad Plumer: Two degrees: How the world failed on climate change
• Colin Lewis: 5 areas in Robotics that will transform society and their economic impact

Kevin Drum: Aetna CEO: Obamacare Pretty Much On Track: "CEO Mark Bertolini passed along a couple of interesting factlets:

Bertolini said about half of the company's premium increases, whatever they turn out to be, will be attributable to "on the fly" regulatory changes made by the Obama administration. He cited as an example the administration's policy of allowing old health plans that were supposed to expire in 2014 to be extended another three years if states and insurers wanted to.... Aetna has added 230,000 paying customers from ACA exchanges, and it projects to end the year with 450,000 paid customers. It said it can't yet draw a "meaningful conclusion" about the population's overall health status.

The first is interesting because it suggests that Aetna's premium increases won't be based on fundamentals... aren't rising because the customers Aetna signed up were older or sicker than they expected.... And the second is interesting because Aetna apparently expects to double its Obamacare customer base by the end of the year.

*Paul Krugman: On Gattopardo Economics: "Thomas Palley... raises an interesting point...

...disappointed that Piketty’s book relies mainly on conventional, mainstream economics... labor and capital... paid their marginal product... True, when discussing the rise of “supermanagers” Piketty talks about imperfect competition and rents, but that’s not the core of his work.... Palley and others are disappointed.... The thing to bear in mind, however, is that you really don’t need to reject standard economics either to explain high inequality or to consider it a bad thing.... You can be perfectly conventional in your economics--or, my own attitude and what I think is Piketty’s, willing to use conventional models when they’re convenient and seem useful without treating them as irrefutable truth--while still taking inequality very seriously.

I think Thomas Palley has a stronger point than Krugman does. As I wrote, well, last night:

Brad DeLong: The Daily Piketty: Thursday Focus: April 24, 2014: "I had not fully realized just how heavy a lift Piketty has in trying to persuade the American neoclassical growth-economics community within economics departments. Their--our--default view of the world is--very strongly--that it is characterized by a Cobb-Douglas aggregate production function, in which the rate of profit moves inversely with the L ratio and in which as a result the capital income share of total income is constant.

You may say: "But if you have a model in which you assume the capital income share is constant, you then have no chance of ever explaining fluctuations in income distribution. How can you use a model in which fluctuations in income distribution do not happen to criticize anyone trying to explain why they do?" And this is a more than fair cop. But that the habit of thought is not rational doesn’t keep American neoclassical growth-economists in economics departments from doing it: their–our–first reaction to Piketty is: “That can’t be right, because in our model the capital-income share of total income is invariant to shifts in the wealth-income ratio.” And they–we–typically do not take the second step in the argument and say: “wait a minute: in our model nothing causes shifts in income distribution, so we need a different model”.

And, as I have also said before, I think Suresh Naidu gets this point right:

Suresh Naidu: The Slack Wire: Notes from Capital in the 21st Century Panel: "I think there is a 'domesticated' version of the argument...

that economists and people that love economists will take away. Then there is a less domesticated one, one that is more challenging to economics as it is currently done. I'm curious which one Thomas believes more. I worry that the impact of the book will be blunted because it becomes a “Bastard Piketty-ism” and allows macroeconomics to continue in its modelling conventions, which are particularly ill-suited to questions of inequality.

The domesticated version is a story about technology and the world market making capital and labor more and more substitutable over time, and this is why r does not fall very much as wealth accumulates. It is fundamentally a story about market forces, technology and trade making the demand for capital extremely elastic. We continue to understand r as the marginal contribution of capital to the production of the economy. I think this is story that is told to academic economists, and it is plausible, at least on the surface. 

There is another story about this, one that goes back to Keynes. And the idea here is that the rate of return on capital is set much more by institutions, norms and expectations than by supply and demand of the capital market. Keynes writes that "But the most stable, and the least easily shifted, element in our contemporary economy has been hitherto, and may prove to be in future, the minimum rate of interest acceptable to the generality of wealth-owners." Keynes footnotes it with the 19th century saying that “John Bull can stand many things, but he cannot stand 2 percent.”

The book doesn't quite take a stand on whether it is brute market forces and a production function with a high elasticity of substitution or instead relatively rigid organization of firms and financial institutions that lies behind the stability of r.  

I think the production approach is less plausible, partly because housing plays such a large role in the data, partly because average wages would have increased along with K/Y, partly because the required elasticity of substitution is too big for net quantities, and partly because of the differences between book and market capital. The (really great) sections from the book on corporate governance actually suggest something quite different, that there is a gap between cash-flow rights and control rights, and this is why Germany has lower market relative to book values. This political dimension of capital, the difference between the valuation written down in the balance sheet and the real power to dispose of the asset, is something that the institutional view of capital can capture better than the marginal product view. This is, I think, also a fruitful interpretation of what was at stake behind the old capital controversies.

The policy stakes from this are also potentially large, because if it is just a very high substitutability, a variety of labor market reforms are taken off the table, as firms just replace workers with machines if you try to raise the wage.

Second, what is gained by producing long-run data? Why do economic historians do what we do? And why is it important that the series go before 1960? Part of the answer is that we discipline the modelling with useful analogies to a past. History gives us a library of options for understanding the present....

The Gilded Age U.S. North was riven with labor conflict and the South was an apartheid state. U.S. military forces were deployed on U.S. territory more times in the late 19th century than any other period, solely for breaking up strikes and repressing labor conflict. And this points us towards one of the costs of inequality, which is a large amount of social conflict. But note that... you could have a peaceful high inequality society by spending a lot on security guards and gated enclaves (or hired economists to tell people it is all efficient and for the best), but that is still costly, in that social resources are getting unnecessarily spent to repress, persuade, and manage social conflict. We see the same thing in unequal societies like India, South Africa or the gulf countries.

There is a place where the analogy breaks down, however. We live in a world where much more of everyday life occurs on markets.... From health care to schooling to philanthropy to politicians, we have put up everything for sale. Inequality in this world is potentially much more menacing than inequality in a less commodified world, simply because money buys so much more. This nasty complementarity of market society and income inequality maybe means that the social power of rich people is higher today than in the 1920s, and one response to increasing inequality of market income is to take more things off the market and allocate them by other means.

Finally, let me suggest that if we're aiming for politically hopeless ideas, open migration is as least as good as the global wealth tax in the short run, and perhaps complementary...

If you want to do a serious study of the effects of a positive resource-driven macro productivity shock on a small open fixed exchange-rate economy, here's your chance!

Anatomy of the Big Air Battle over Munich - April 24, 1944:

With permission of Bill Marshall, author "Our Might Always – Volume I, A History of the 355th FG, the 355th TFW and the 355th FW" – December 27, 2011. A narrative of the events leading to, and details of, the battle between the Luftwaffe and the 8th AF First Task Force, the 355th Fighter Group and the 357th Fighter Group. With assistance from Dewayne "Ben Bennett"- pilot, 384th BG, Erich Brown, Mike Williams and Dr. Frank Olynyk - Historians, Joe Shea – pilot, 357th FG, Lieutenant Colonel Joerg Dietsch – German Air Force and Historian.

This narrative is about one of the last battles in which the Luftwaffe was successful enough to anticipate a critical target, skillfully place a very large reaction force of German Fighters at key spots in a bomber stream and inflict a loss greater than 10% of an 8thAF attacking force. The First Task Force, comprised of five Combat Wings of the First Bomb Division, would lose 27 of 268 bombers this day to flak and fighters. The corresponding claim by the Luftwaffe fighter force was for more than 50 B-17s and that didn’t include the seven that landed later in Sweden due to battle damage...

Via Patrick Nielsen Hayden: Chip Delany: "Introduction" to Robert A. Heinlein: Glory Road: "What distresses one about the Heinlein argument in general...

when it is presented in narrative form, is that it so frequently takes the form of a gentlemanly assertion: 'Just suppose the situation around X (war, race; what-have-you) were P, Q, and R; now under those conditions, wouldn’t behavior Y be logical and justified?'--where behavior Y just happens to be an extreme version of the most conservative, if not fascistic, program. Our argument is never with the truth value of Heinlein’s syllogism: Yes, if P, Q, and R were the case, then behavior Y would be pragmatically justifiable. Our argument is rather with the premises: Since P, Q, and R are not the situation of the present world, why continually pick fictional situations, bolstered by science-fictional distortions, to justify behavior that is patently inappropriate for the real world?

Over at the Washington Center for Equitable Growth: As Thomas Piketty Day at the University of California at Berkeley comes to an end, we eat Hawaiian poke and sausage-stuffed mushrooms catered from the truly excellent Assemble, and watch the sunset over the Golden Gate from the back patio of the Gourinchas/Fourcade palazzino. We muse on the extent to which Thomas Piketty's patterns of movement for the rate of profit r minus the economy's growth rate g are at bottom patterns of changing land valuation, with the fall of European agriculture as a source of wealth and the rise of urban location as the source of wealth.

What was supposed to be a 20-person economics departmental seminar turned into a 400-person public lecture extravaganza--we really should have made him give two talks at least...

This morning's Daily Piketty brings two especially interesting things: a very nice interview from Matt Yglesias, and PEG pointing out that a Benjamin Disraeli-style conservative would see Piketty as an ally pointing the way to how to successfully implement a market economy that was a genuine opportunity society:

• Matthew Yglesias
• Pascal-Emmanuel Gobry

One thing I had not fully realized before yesterday: READ MOAR

Ezra Klein: What’s the liberal equivalent of climate denial?: "Kahan... argu[es]... being right is irrelevant.

It's not whether one gets the answer right or wrong but how one reasons that counts...

A liberal who works backwards from conclusions but happens to believe in climate change is

to be congratulated for being lucky that a position they unreasoningly subscribe to happens to be true...

but nothing more. Here, Kahan makes a serious mistake. Political reasoning doesn't take place inside our heads. It takes place inside our parties. No one can personally investigate the vast array of issues facing the country. In terms of getting the right answers, the most important decision people make is choosing whom to trust.... Majority parties bear the heavy responsibility of actually getting policy right.... That's less true for minority parties. They have the luxury of being irresponsible.... But even minority parties have reason to calm the tribal impulses of their members. Winning elections requires winning the support of many voters who aren't hardcore conservatives or liberals....

Over at Equitable Growth--The Equitablog

• Washington Center for Equitable Growth | Piketty Day Here at Berkeley: The Honest Broker for the Week of April 26, 2014
• Washington Center for Equitable Growth | Wednesday Focus: Federal Reserve "Forward Guidance": April 23, 2014
• Washington Center for Equitable Growth | Evening Must-Read: Yet Another Good Piketty Review from Suresh Naidu
• Washington Center for Equitable Growth | Evening Must-Read: Mary Daly et al.: Interpreting Deviations from Okun’s Law
• Washington Center for Equitable Growth | Evening Must-Read: Martin Wolf: A more equal society will not hinder growth
• Washington Center for Equitable Growth | Why I Do Not Credit Claims That America's Poor Have in Truth Been Getting Much Richer Over the Past Generation...
• Washington Center for Equitable Growth | Evening Must-Read: Paul Krugman (1992): The Rich, the Right, and the Facts
• Washington Center for Equitable Growth | Lunchtime Must Read: Richard Mayhew: ObamaCare and Medical Loss Ratios
• Washington Center for Equitable Growth | Hoisted from Comments: The Idler on Ryan Avent vs. Clive Crook on Thomas Piketty's "Capital in the Twenty-First Century"

Plus:

• Washington Center for Equitable Growth | Things to Read on the Afternoon of April 23, 2014

And:

Must-Reads:

1. Paul Krugman: Inequality 1992: "I happened to notice Greg Mankiw citing some bogus claims that the one percent is an ever-changing group, not a persistent elite, and I thought 'Wait--didn’t we deal with that one long ago?' And that brought to mind the piece I wrote for the American Prospect 22 years ago, 'The rich, the right, and the facts.' (It doesn’t say this on the Prospect site, but it was indeed published in 1992). See the section on income mobility. The truth is that inequality denial is largely a crusade of cockroaches--the same bad arguments just keep coming back. Oh, and I do think that my old piece looks surprisingly contemporary. In particular, I was focused on the one percent even then..." http://prospect.org/article/rich-right-and-facts-deconstructing-income-distribution-debate

2. Mary Daly et al.: Interpreting Deviations from Okun’s Law: "The traditional relationship between unemployment and output growth known as Okun’s law appeared to break down during the Great Recession. This raised the question of whether this rule of thumb was still meaningful as a forecasting tool. However, recent revisions to GDP data show that its relation with unemployment followed a fairly typical cyclical pattern compared with past deep recessions and slow recoveries. The comparatively common patterns suggest that rumors of the death of Okun’s law during the Great Recession were greatly exaggerated."

3. Richard Mayhew: ObamaCare and Medical Loss Ratios: "The Medical Loss Ratio (MLR) is... the sum of money spent on claims by an insurance company plus the sum of money spent on a few quality improvement and medical management programs divided by the sum of money collected as premiums.  Under Obamacare... small groups and individual policies as a pool have to have an MLR of at least 80%.... This is a consumer protection piece.  Junk insurance and more importantly half-decent benefit packages that are overpriced is no longer practical to sell.... Most of the integrated payer-providers, co-ops and larger non-profits tended to be close to regulated MLR levels in 2012. The big difference has been moving the for-profits pay-out rates much higher. It is changing the business model from looking for reasons post-facto to deny claims towards better medical management and efficiency as there is no longer an ability for a company to spend 30% of revenues on bureaucrats looking to say no.... Mayhew Insurance can move some of the specious No’s to quality improvement and medical management roles, but the plan to have a gold-plated fountain in the lobby has been reconsidered..."

4. Martin Wolf: A more equal society will not hinder growth: "Over the past half century, notes the IMF... inequality has been rising in high-income countries and falling in developing countries... the difference between market and post-intervention inequality in high-income economies is smaller than elsewhere.... Inequality reduces growth. The direct impact of redistribution is negligibly negative. But the indirect effect, via reduced inequality, is beneficial to growth.... Increasing already very high levels of redistribution will harm growth. Yet, below the policy extreme, further redistribution does not harm growth.... Not only does inequality damage growth, but efforts to remedy it are, on the whole, not harmful. These are just statistical relationships derived from data that cover a large number of heterogeneous countries. Nonetheless, the findings suggest that trade-offs between redistribution and growth need not be a big worry..."

5. Suresh Naidu: Notes from Capital in the 21st Century Panel: "There is a 'domesticated' version of [Piketty's] argument... a story about technology and the world market making capital and labor more and more substitutable over time, and this is why r does not fall very much as wealth accumulates.... This is story that is told to academic economists, and it is plausible, at least on the surface. There is another story... that the rate of return on capital is set much more by institutions, norms and expectations than by supply and demand of the capital market.... I think the production approach is less plausible... because housing [with land] plays such a large role... average wages would have increased along with K/Y [if factors are paid marginal products].... The (really great) sections from the book on corporate governance actually suggest something quite different... a gap between cash-flow rights and control rights.... This political dimension of capital, the difference between the valuation written down in the balance sheet and the real power to dispose of the asset, is something that the institutional view of capital can capture better than the marginal product view. This is, I think, also a fruitful interpretation of what was at stake behind the old capital controversies.... If it is just a very high substitutability... labor market reforms are... off the table, as firms just replace workers with machines if you try to raise the wage..."

Over at the Washington Center for Equitable Growth: It's Piketty Day here at Berkeley. So let me note that Robert Solow has another good Piketty review:

Robert Solow: 'Capital in the Twenty-First Century' by Thomas Piketty, Reviewed: "Inequality... has been worsening...

the widening gap between the rich and the rest.... A rational and effective policy for dealing with it... will have to rest on an understanding of the causes... the erosion of the real minimum wage; the decay of labor unions and collective bargaining; globalization and intensified competition from low-wage workers in poor countries; technological changes and shifts in demand that eliminate mid-level jobs.... Each of these candidate causes seems to capture a bit of the truth. But even taken together they do not seem to provide a thoroughly satisfactory picture.... They do not speak to the really dramatic issue: the tendency for the very top incomes—the “1 percent”—to pull away from the rest of society. Second, they seem a little adventitious, accidental; whereas a forty-year trend common to the advanced economies of the United States, Europe, and Japan would be more likely to rest on some deeper forces.... READ MOAR

.pdf | .ppt | .key

Econ 2: Spring 2014: UC Berkeley: Wednesday April 23, 2014 Office Hours Today POSTPONED to 1-3 PM Because of (a) Oral Exams and (b) Piketty Day...

Over at the Washington Center for Equitable Growth:

@Steen_Jakobsen:

Fed - Realise we have been looking for higher rates in 2 yrs time every year since 2008! READ MOAR

It does all hinge on how rapidly our cyclical unemployment is turning into structural unemployment. If it is--if those out the labor force are never coming back and will never downward pressure on the inflation rate--then this time is in different, and we are likely to see the Federal Reserve raising short-term safe interest rates to 2% per year by early in 2017. More likely given everything we have seen, however, is that come 2015 inflation is still showing no significant signs of persistently breaching 2% per year, and so there will be no excuse for raising short-term safe interest rates. Thus this pattern of always expecting higher interest rates in two years will continue.

You would think that at some point the Federal Reserve would start seriously thinking about me for a Volcker or Roosevelt-like regime change. But no...

Talk to the People

New York City Mayor Fiorello H. La Guardia talks about egg, fish, and potato prices, the campaign against tuberculosis, and other topics...

Over at the WCEG: Dirk Hanson: Drowning in Light: "William D. Nordhaus calculated that the average citizen of Babylon would have had to work a total of 41 hours to buy enough lamp oil to equal a 75-watt light bulb burning for one hour.

At the time of the American Revolution, a colonial would have been able to purchase the same amount of light, in the form of candles, for about five hour’s worth of work. And by 1992, the average American, using compact fluorescents, could earn the same amount of light in less than one second....>Jeff Tsao... and his coworkers at Sandia have concluded that “the result of increases in luminous efficacy has been an increase in demand for energy used for lighting that nearly exactly offsets the efficiency gains—essentially a 100% rebound in energy use.”... Tsao calculates that, as a result, light represents a constant fraction of per capita gross domestic product (GDP) over time; the world has been spending 0.72 percent of its GDP for light for 300 years now... READ MOAR

Abigail Nussbaum goes someplace that I think her best possible self would not:

Abigail Nussbaum: Asking the Wrong Questions: The 2014 Hugo Awards: Thoughts on the Nominees: "I am nominated...

...in the Best Fan Writer category! I want to congratulate my fellow nominees, Liz Bourke, Kameron Hurley, Foz Meadows, and Mark Oshiro.... I also want to thank everyone who nominated me and encouraged others to.... It's terribly gratifying to receive this nomination, especially at the end of a nominating period in which so many wonderful, smart people said such lovely things about me and my writing....

Apropos of Ryan Avent Is Very Unhappy with Clive Crook’s Review of Piketty’s “Capital in the Twenty-First Century”, The Idler makes a good catch. I would dearly love to hear anybody's proposed reconciliation.

Clive Crook today:

The Most Important Book Ever Is All Wrong! 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...

Clive Crook back before the election of Barack Obama:

First Principles: September 2006: The Height of Inequality: America’s productivity gains have gone to giant salaries for just a few... Productivity growth has always been seen as perhaps the single most important indicator of rising, broad-based prosperity. But remarkable growth in top-end pay, together with the relative constancy of labor’s overall share of income, has an obvious implication: the highest earners are now capturing most of the gain in national income caused by economy-wide productivity growth....

This is quite disturbing. Historically, rising productivity has been a tide that lifted nearly all boats. For more than twenty years during the long surge of productivity growth that followed the Second World War, median incomes in the United States rose as quickly as the highest incomes. This came to be regarded as normal—and, seen from a global vantage point, it still is. The dispersed benefits of high aggregate productivity are the reason why jobs of almost every kind pay better in rich countries than in poor ones....

Perhaps the CEOs’ appetites can be curbed. Maybe the superstars will find that their audiences cannot widen without limit. And perhaps, if both those things happen, productivity growth will again raise incomes broadly, as it once did, and as it is supposed to. If not, how much longer before the dwarves get restless?...

Richard Mayhew: ObamaCare and Medical Loss Ratios: "The Medical Loss Ratio (MLR) is...

...the sum of money spent on claims by an insurance company plus the sum of money spent on a few quality improvement and medical management programs divided by the sum of money collected as premiums.  Under Obamacare... small groups and individual policies as a pool have to have an MLR of at least 80%.... This is a consumer protection piece.  Junk insurance and more importantly half-decent benefit packages that are overpriced is no longer practical to sell.... Most of the integrated payer-providers, co-ops and larger non-profits tended to be close to regulated MLR levels in 2012. The big difference has been moving the for-profits pay-out rates much higher. It is changing the business model from looking for reasons post-facto to deny claims towards better medical management and efficiency as there is no longer an ability for a company to spend 30% of revenues on bureaucrats looking to say no.... Mayhew Insurance can move some of the specious No’s to quality improvement and medical management roles, but the plan to have a gold-plated fountain in the lobby has been reconsidered...

Suresh Naidu: Notes from Capital in the 21st Century Panel: "There is a 'domesticated' version of [Piketty's] argument...

...a story about technology and the world market making capital and labor more and more substitutable over time, and this is why r does not fall very much as wealth accumulates.... This is story that is told to academic economists, and it is plausible, at least on the surface. 

There is another story... that the rate of return on capital is set much more by institutions, norms and expectations than by supply and demand of the capital market.... I think the production approach is less plausible... because housing [with land] plays such a large role... average wages would have increased along with K/Y [if factors are paid marginal products].... The (really great) sections from the book on corporate governance actually suggest something quite different... a gap between cash-flow rights and control rights.... This political dimension of capital, the difference between the valuation written down in the balance sheet and the real power to dispose of the asset, is something that the institutional view of capital can capture better than the marginal product view. This is, I think, also a fruitful interpretation of what was at stake behind the old capital controversies....

If it is just a very high substitutability... labor market reforms are... off the table, as firms just replace workers with machines if you try to raise the wage....

Richard Mayhew: ObamaCare and Medical Loss Ratios: "The Medical Loss Ratio (MLR) is...

the sum of money spent on claims by an insurance company plus the sum of money spent on a few quality improvement and medical management programs divided by the sum of money collected as premiums.  Under Obamacare... small groups and individual policies as a pool have to have an MLR of at least 80%.... This is a consumer protection piece.  Junk insurance and more importantly half-decent benefit packages that are overpriced is no longer practical to sell.... Most of the integrated payer-providers, co-ops and larger non-profits tended to be close to regulated MLR levels in 2012. The big difference has been moving the for-profits pay-out rates much higher. It is changing the business model from looking for reasons post-facto to deny claims towards better medical management and efficiency as there is no longer an ability for a company to spend 30% of revenues on bureaucrats looking to say no.... Mayhew Insurance can move some of the specious No’s to quality improvement and medical management roles, but the plan to have a gold-plated fountain in the lobby has been reconsidered...

Mary Daly et al.: Interpreting Deviations from Okun’s Law: "The traditional relationship between unemployment and output growth...

...known as Okun’s law appeared to break down during the Great Recession. This raised the question of whether this rule of thumb was still meaningful as a forecasting tool. However, recent revisions to GDP data show that its relation with unemployment followed a fairly typical cyclical pattern compared with past deep recessions and slow recoveries. The comparatively common patterns suggest that rumors of the death of Okun’s law during the Great Recession were greatly exaggerated.

Martin Wolf: A more equal society will not hinder growth: "Over the past half century, notes the IMF...

inequality has been rising in high-income countries and falling in developing countries... the difference between market and post-intervention inequality in high-income economies is smaller than elsewhere.... Inequality reduces growth. The direct impact of redistribution is negligibly negative. But the indirect effect, via reduced inequality, is beneficial to growth.... Increasing already very high levels of redistribution will harm growth. Yet, below the policy extreme, further redistribution does not harm growth.... Not only does inequality damage growth, but efforts to remedy it are, on the whole, not harmful. These are just statistical relationships derived from data that cover a large number of heterogeneous countries. Nonetheless, the findings suggest that trade-offs between redistribution and growth need not be a big worry..."

Joseph Zumbrun: The Richer You Are the Older You’ll Get: Economist Barry Bosworth at the Brookings Institution...

...crunched the numbers and found that the richer you are, the longer you’ll live. And it’s a gap that is widening, particularly among women...

Paul Krugman: Inequality 1992: "I happened to notice Greg Mankiw...

...citing some bogus claims that the one percent is an ever-changing group, not a persistent elite, and I thought 'Wait--didn’t we deal with that one long ago?' And that brought to mind the piece I wrote for the American Prospect 22 years ago, 'The rich, the right, and the facts.' (It doesn’t say this on the Prospect site, but it was indeed published in 1992). See the section on income mobility.

The truth is that inequality denial is largely a crusade of cockroaches--the same bad arguments just keep coming back. Oh, and I do think that my old piece looks surprisingly contemporary. In particular, I was focused on the one percent even then. http://prospect.org/article/rich-right-and-facts-deconstructing-income-distribution-debate

Over at Equitable Growth--The Equitablog

• Washington Equitable Center for Growth | Morning Must-Read: Neil Irwin: How Underpaid German Workers Helped Cause Europe’s Debt Crisis
• Washington Equitable Center for Growth | Understanding Economic Growth: Light: Wednesday Focus: April 22, 2014
• Washington Equitable Center for Growth | Morning Must-Read: Ryan Avent Is Very Unhappy with Clive Crook's Review of Piketty's "Capital in the Twenty-First Century"
• Washington Equitable Center for Growth | Morning Must-Read: Evan Soltas: Wage Discrimination
• Washington Equitable Center for Growth | Morning Must-Read: David G. Blanchflower and Adam S. Posen: Wages and Labor Market Slack: Making the Dual Mandate Operational
• Washington Equitable Center for Growth | Could We Have Had a Severe Recession Without the 2008 Financial Crisis?
• Washington Equitable Center for Growth | Frederic Bastiat as a Modern Liberal; or, Market vs. Government Failure: Monday Focus: April 21, 2014

Plus:

• Washington Equitable Center for Growth | Things to Read on the Morning of April 22, 2014

And:

Must-Reads:

1. David G. Blanchflower and Adam S. Posen: Wages and Labor Market Slack: Making the Dual Mandate Operational: "We undertake the first econometric analysis of the impact of rises in inactivity (1-LFPR) on wages in the US economy. To the degree that the rise in unemployment in the US is structural... wages should increase because of the negative shock to labor supply.... In contrast, if the rise in inactivity is largely cyclical, labor markets will see downward pressure on wages.... We find... inactives exert additional downward pressure on wages over and above the unemployment rate itself.... This pattern holds across recent decades in the US data, and the relationship strengthens in recent years when variation in participation increases. Our analysis is based on observations by state and year.... The implication... is two-fold. First, low participation is indeed an additional measure of labor market slack.... A substantial portion of those American workers who became inactive should... be expected to spring back into the labor market if demand rises to create jobs.... Second, wage inflation should be considered as the primary target of FOMC policy with respect to the employment stabilization side of the Fed’s dual mandate, at least for now..."

2. Even Soltas: Yes, the Pay Gap Persists: "Mark Perry and Andrew Biggs... at the American Enterprise Institute argued... that no pay gap exists between men and women after you control for the different choices they make.... I took issue.... I found a persistent pay gap on the order of 4 to 10%.... And I also wrote that it's probably wrong to take all these [controls] as unaffected by pressure or discrimination. Perry responded... that the pay gap might persist because of gender differences in risk tolerance.... [and] because professional athletes and musicians are paid well and tend to be men. Sadly, his argument makes no sense.... 1. My regression has 'fixed effects' for occupation. This means that it fully accounts for any occupation-level compensating differentials for risk. So everything Perry and Biggs write about men dying in forestry, or what have you--yeah, my analysis accounts for that. That's what a fixed effect is. 2. My analysis is of workers paid hourly wages. Professional athletes and musicians are not hourly workers.... Look, I understand why Perry and Biggs have to respond.... They misrepresented the research consensus on the gender pay gap in a major newspaper, and I called them out on it.... The 23-percent number reflects more than discrimination. But if they are going to try to explain away the pay gap, they're going to need to try a bit harder than this..."

3. Ryan Avent: Inequality: "Capital" and its discontents: "Piketty's magnum opus is certainly not without its weaknesses, but the quality of the criticism it has attracted provides a sense of the strength of the argument he makes. Consider Clive Crook.... He writes: 'There's a persistent tension between the limits of the data he presents and the grandiosity of the conclusions he draws.' The line doubles as a pleasingly apt description of Mr Crook's review. He is unhappy.... Why... doesn't Mr Piketty say that r must be significantly above g to generate the expected divergence, Mr Crook complains.... You don't even have to read hundreds of pages to get the qualification Mr Crook wants; you can start with the page on which r>g is first mentioned.... Crook then goes on to present his evidence: 'The trouble is... capital-to-output ratios in Britain and France in the 18th and 19th centuries... were stable'.... Piketty is not arguing that r>g means that rising inequality is inevitable. Indeed, that is close to the precise opposite of his argument, which is that r>g is a force for divergence... which has at times been countered... and which can and should be similarly countered in future. Presumably, if charts of stable capital-income ratios in the 19th century provided a devastating rebuttal to his story, Mr Piketty would not have included them so prominently in the book. I think he must have imagined that readers would look at the text around them as well..."

From history.com: Americans launch Operation Persecution in the Pacific:

Allied forces land in the Hollandia area of New Guinea. The Japanese occupiers, only 15,000 in number, many of whom were on administrative duty, fight for more than three months against ludicrous odds at great cost: When the battle for the northern coast of New Guinea was finally won by the Allies, 12,811 Japanese were dead, compared with 527 Americans.

Timothy Egan: How to Heal the Heartland: "There are two big stories shaping the Great Plains...

...one of steroidal growth and disruption in the energy boom, the other of the slow death of small-town life.... The oil and natural gas bonanza has made housing in places like Minot, N.D., as competitive as rent-controlled apartments in Manhattan.... But... right down the midsection... lonely bars and empty diners, of crowded cemeteries and Main Streets where a dogs sleep away the afternoon. In Phelps, Frontier, Gosper or Gage counties, all in Nebraska, there are fewer people now than there were 110 years ago.... The impulse is either to write off the dying counties as flyover country and a buffalo commons, or to further turn them into a vast oil- and gas-producing zone. But there are other ways to a livable (and that overused word 'sustainable') tomorrow... water and immigration. The water is the Ogallala Aquifer... it’s disappearing, because of heavy irrigation.... We can’t make water. But we can slow down the rate at which we use it. The solution would involve sacrifice.... The other resource is people. Without immigrants, many of them illegal, huge parts of the prairie would be left with nothing but the old and dying.... Seventy of Iowa’s 99 counties are losing people, but you won’t hear anything about that on cable’s news wasteland. So, which is worse: a heartland in trouble, or a system where the big issues--water, land, and new blood--are not even part of a democracy’s most important contest?

And David Leonhardt's The Upshot is live:

What first caught my eye:

Neil Irwin: How Underpaid German Workers Helped Cause Europe’s Debt Crisis: "People (especially Germans) often view the crisis...

...through this frame: Profligate, free-spending nations along Europe’s southern coast (we’re looking at you, Greece, Italy and Spain) borrowed more money than they could possibly repay; then, when the bill came due, they nearly caused the collapse of the common euro currency before being bailed out by their more responsible Northern European neighbors. That’s... incomplete. The run-up in debt in Spain and Greece and Italy was the flip side of Germany’s success in containing workers’ wages and improving exports. Germany sold more stuff to Southern Europe than it bought. It took the profits and, in effect, lent the money back to those same Southern European countries. In Greece and Italy, it showed up as government borrowing, and in Spain as a housing bubble fueled by bank loans. It all fell apart once the indebtedness of the Southern European countries became too much to bear. Because all these countries use the same currency, the euro, none could relieve the pressure by devaluing their currency as they might have with their own lira, drachma or peseta.... The approach so far has largely been one of forcing steep cuts in wages and benefits on the Southern European countries.... But there’s an easier way (or what should be an easier way). Middle-income German workers could be paid more...

Mark Thoma: Economist's View: Empirical Methods and Progress in Macroeconomics: Empirical Methods and Progress in Macroeconomics

The blow-up over the Reinhart-Rogoff results reminds me of a point I’ve been meaning to make about our ability to use empirical methods to make progress in macroeconomics. This isn't about the computational mistakes that Reinhart and Rogoff made, though those are certainly important, especially in small samples, it's about the quantity and quality of the data we use to draw important conclusions in macroeconomics.

• Not Doing International
• M Apr. 21: Government Budget/Long-Run Economic Growth…: Budget | Growth
• W Apr 23: Long-Run Economic Growth
• M Apr 28: Long-Run Economic Growth/Micro Review
• W Apr 30: Macro Review/ Final Preview
• W Apr 30: Problem Set 6 due
  • Omit E: Inequality (Piketty)
• F May 9: Reading Period paper due
• Final Exam: Friday May 16, 8-11 AM, Hearst Gymnasium

.pdf | .ppt

.pdf | .ppt |

Ryan Avent: Inequality: "Capital" and its discontents: "Piketty's magnum opus is certainly not without its weaknesses...

but the quality of the criticism it has attracted provides a sense of the strength of the argument he makes. Consider Clive Crook.... He writes:

There's a persistent tension between the limits of the data he presents and the grandiosity of the conclusions he draws.

The line doubles as a pleasingly apt description of Mr Crook's review. He is unhappy.... Why... doesn't Mr Piketty say that r must be significantly above g to generate the expected divergence, Mr Crook complains.... You don't even have to read hundreds of pages to get the qualification Mr Crook wants; you can start with the page on which r>g is first mentioned.... Mr Crook then goes on to present his evidence: "The trouble is... capital-to-output ratios in Britain and France in the 18th and 19th centuries... were stable".... Piketty is not arguing that r>g means that rising inequality is inevitable. Indeed, that is close to the precise opposite of his argument, which is that r>g is a force for divergence... which has at times been countered... and which can and should be similarly countered in future. Presumably, if charts of stable capital-income ratios in the 19th century provided a devastating rebuttal to his story, Mr Piketty would not have included them so prominently in the book. I think he must have imagined that readers would look at the text around them as well...

Ryan Avent: Inequality: "Capital" and Its Discontents | The Economist: "Mr Piketty's magnum opus is certainly not without its weaknesses...

...but the quality of the criticism it has attracted provides a sense of the strength of the argument he makes. Consider Clive Crook....

There's a persistent tension between the limits of the data he presents and the grandiosity of the conclusions he draws.

The line doubles as a pleasingly apt description of Mr Crook's review. He is unhappy.... Why... doesn't Mr Piketty say that r must be significantly above g to generate the expected divergence, Mr Crook complains.... You don't even have to read hundreds of pages to get the qualification Mr Crook wants; you can start with the page on which r>g is first mentioned:

If, moreover, the rate of return on capital remains significantly above the growth rate for an extended period of time (which is more likely when the growth rate is low, though not automatic), then the risk of divergence in the distribution of wealth is very high....

If you only read the book's conclusion you could miss these details, but who would do that? Mr Crook then goes on to present his evidence:

The trouble is, he also shows that capital-to-output ratios in Britain and France in the 18th and 19th centuries, when r exceeded g by very wide margins, were stable, not rising inexorably....

Mr Piketty is not arguing that r>g means that rising inequality is inevitable. Indeed, that is close to the precise opposite of his argument, which is that r>g is a force for divergence.... If charts of stable capital-income ratios in the 19th century provided a devastating rebuttal to his story, Mr Piketty would not have included them so prominently.... I think he must have imagined that readers would look at the text around them as well....

Mr Crook rather uncharitably questions the motivations of those more taken with the book. He writes:

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 seems to me that Mr Crook has revealed more about his own priors than those of Mr Piketty's fans. "Terrifying" seems to me to be an accurate description of a society in which the top 10% of individuals own 90% of the wealth. Mr Crook scoffs.... That brings us to the most important of Mr Crook's criticisms: that it is living standards which actually matter.... Even if the book had nothing to say about growth, this would be an odd criticism.... What Mr Crook seems not to understand is that we also care about it because we care about living standards... high levels and concentrations of capital have not been a necessary or sufficient condition for rapid growth... have often sowed the seeds for political backlash... detrimental to long-run growth. His argument is that the living standards of many people around the rich world are now unnecessarily low, because of the nonchalance with which elites have approached distributional issues.... His argument is that economic growth that concentrates benefits on a small group of people will probably not be tolerated as fair, even if living standards among the masses are not completely stagnant.

It is an argument that is powerful and well-supported by the data—and extremely relevant today, whether or not one thinks inequality qualifies as the defining issue of the era. That, it seems to me, is why the book has been received as it has.

Even Soltas: Yes, the Pay Gap Persists: "Mark Perry and Andrew Biggs... at the American Enterprise Institute argued... that no pay gap exists between men and women after you control for the different choices they make.... I took issue.... I found a persistent pay gap on the order of 4 to 10%.... And I also wrote that it's probably wrong to take all these [controls] as unaffected by pressure or discrimination. Perry responded... that the pay gap might persist because of gender differences in risk tolerance.... [and] because professional athletes and musicians are paid well and tend to be men. Sadly, his argument makes no sense....

1. My regression has 'fixed effects' for occupation. This means that it fully accounts for any occupation-level compensating differentials for risk. So everything Perry and Biggs write about men dying in forestry, or what have you--yeah, my analysis accounts for that. That's what a fixed effect is.

2. My analysis is of workers paid hourly wages. Professional athletes and musicians are not hourly workers....

Look, I understand why Perry and Biggs have to respond.... They misrepresented the research consensus on the gender pay gap in a major newspaper, and I called them out on it.... The 23-percent number reflects more than discrimination. But if they are going to try to explain away the pay gap, they're going to need to try a bit harder than this.