30 May 2014

We Are the 99.9999%!

Capital & Interest, Inequality, Shameless Self-Promotion 8 Comments

My latest at Mises Canada has some Krugman funnies and I also showcase this chart, followed by my commentary from the post:

Top Wealth US

This chart shows the percentage of wealth in the United States held by the 0.01%. That’s not a typo. I’m not talking about “the 1%,” and I’m not even talking about “the 0.1%.” No, I’m talking about the “0.01%,” in other words the wealthiest one-ten-thousandth of the population. As the chart shows, as of the year 2000 the fraction of wealth they held had been roughly flat since the mid-1980s, and moreover this flat trend was much lower than it had been through most of the 20th century.

Let me give you some more information about this graph, which probably surprises most readers who may have gotten their information from Krugman or Piketty. This graph isn’t based on unreliable survey data; no, it’s based on estate tax data–the kind that Krugman says he likes (at least when Piketty uses it to bolster his case for surging inequality). Further, let me assure you that this graph doesn’t come from the Heritage Foundation or the Cato Institute. No, it comes from a paper co-authored by Emmanuel Saez, who is a co-author with Piketty on many pioneering papers on inequality.

Does that surprise any of you? Is that the story you’ve been gleaning from those who talk of “inequality deniers”? (Yes, I’ve actually seen that term, so help me, I’ve actually seen that term.)

8 Responses to “We Are the 99.9999%!”

  1. Dean T. Sandin says:

    Wow. Even with all of Krugman’s problems, I don’t expect him to beg the question this dramatically. He takes as a premise that wealth inequality has increased. Why write (or read) a whole book about wealth inequality if it’s one of your basic assumptions?! If you reach a different conclusion you have to be wrong!

  2. John says:

    The article goes through 2000. Is there really serious doubt that wealth inequality in America has continued to rise dramatically since then? I mean, is that issue really up for grabs in a serious way?

    • Carl says:

      I don’t know and I don’t particularly care.

    • Ken P says:

      John, the claims I have seen go back to the 1980s. Is there serious doubt? No, people are very confident… and also likely wrong. The thing to notice is that Bob’s graph is “wealth”, while most others use “income”.

      The most common mistakes I see made around this issue:

      1) Conflating wealth and income.
      2) Assuming the people in various parts of the distribution curve are the same people in 1998 and 2008 (or whatever years you look at). People move up the distribution ladder throughout their career, which brings me to mistake 3.
      3) Assuming that the income made by those in the top is a routine occurrence. Age plays a huge role in income, with late 50s being the peak earning years. There are also one-offs like selling a home, having a business that was very successful for a few years before competitors caught on and jumped into the game.

      • Bob Murphy says:

        Ken P. wrote:

        Is there serious doubt? No, people are very confident… and also likely wrong.

        Heh, great line, Ken.

  3. skylien says:

    Guys you see, this graph “proves” that, thanks to the worker institution Fed, wealth inequality has decreased significantly.

  4. Bitter Clinger says:

    My problem with Piketty is slightly “off topic”, but I still want to know what you think. Milton Freidman wrote in his book, “Free to Choose 1979” that liberty is on the opposite end of a continuum from equality. I disagreed because liberty and equality are different things and wrote him a letter about it in 1980. See: http://4clingers2.blogspot.com/2013/01/freedom-and-equality.html That being said, isn’t anyone who wants to reduce inequality really just about attacking our liberty? If we are below the equilibrium line, which is Friedman’s continuum, shouldn’t we be working on increasing liberty not equality? Do you know any country with more equality than the US that is freer?
    2. On a second note, I would also like to point out that I believe “high incomes” are more related to labor than interest or capital gains. I have been a one percent’r twice in my life, both times through compensation (labor) not capital. If Piketty is correct in his view, I still don’t get the high INCOME TAX rates on labor while interest and dividends are taxed at a much lower rate. Shouldn’t the rates be just opposite? I personally like and advocate for the wealth tax. I mean, who benefits by maintaining the status quo? The rich (wealthy, NOT high-income earners) of course, they should then bear all the burden of supporting it.
    3. My last point is that even if Piketty is correct that return on capital is greater than the return on labor what keeps people from investing in capital? The Millionaire Next Door by Thomas J. Stanley describes ordinary people who do just that. Or is it the Fed that destroys that chance? Just some thoughts.

    • guest says:

      … I believe “high incomes” are more related to labor than interest or capital gains.

      A free market wouldn’t preclude that outcome, but it also wouldn’t guarantee it. It all depends on what consumers want, and which individuals are in a position to supply it to them at the highest price-to-cost ratio:

      The Birth of the Austrian School | Joseph T. Salerno

      One thing to consider with regard to laborers being in the “1%” is whether or not that is because the government is protecting them from cheap labor or automation.

      A similar thing could be said about those companies which sell automation being protected from cheap labor.

      Regarding the wealth tax, it’s not just the rich who benefit from hoarding wealth, but also those from whom the rich buy, and so on. And if you tax wealth, that’s going to disincentivize buying wealth, which will disincentivize production – thereby making everyone poorer.

      Regarding Point #3, that’s an excellent point. It reminds me of Tom Woods’ “Mega Mart” analogy in the following video dealing with the issue of Predatory Pricing (12 minutes in):

      The Politically Incorrect Guide to American History, Lecture 8 | Thomas E. Woods, Jr.
      Myths and Facts About Big Business

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