Getting A Handle On Precisely How Screwed We Are

Wealth, as Mr. Hobbes says, is power
   — Adam Smith

I love this kind of stuff. I've got time on my hands, so I was perusing the latest wealth/income inequality data. There's been a flurry of activity on this front, especially after the publication of Thomas Piketty's Capital In The Twenty-first Century.

Long story short, denizens of Flatland, especially economists, love to measure shit. Based on recent work by Emmanuel Saez and Gabriel Zucman, both of UC-Berkeley, those happy House of Debt guys Atif Mian (Princeton) and Amir Sufi (University of Chicago) wrote a post called Measuring Wealth Inequality. Before I ridicule them, let's be clear what we're talking about. Consider this graph from Saez and Zucman.

We've always been fucked!

Although this graph indicates in no uncertain terms that the vast majority of Americans have always been fucked, it turns out that since 1980, Americans are even more fucked than they were before The Gipper got elected president. That's the main point made by Mian and Sufi.

We're even more fucked, especially since about 1980 (from Saez and Zucman)

Check out the lucky few

And here's my personal favorite, from The Richest Rich are in a Class by Themselves.

Wow! There's no end to fucked-upped-ness

Anyway, here's the happy House of Debt guys discussing all this.

Wealth is as important as income for thinking about overall well-being.

Wow! I didn't know that. That's deep.

For example, wealth may be more important than income in predicting who can send their kids to an expensive college. And wealth also represents control. Corporations are controlled by shareholders. So a higher concentration of wealth naturally implies that fewer individuals control the decisions made by firms in the economy. Similarly, non-profit organizations (including universities) and political parties pay special attention to their wealthy donors...

How has wealth inequality changed over the years?

Simple measurement is often a bit boring, but it is also absolutely crucial for thinking about the overall economy. Saez and Zucman have taken an initial step toward measuring wealth inequality in the United States, and it shows a rising amount of inequality driven by the very top of the wealth distribution.

Here are some more details for those interested. The basic methodology used by Saez and Zucman exploits the fact that we can measure quite well from the IRS the flow of income to individuals generated by assets. The income flows would be dividends, interest payments, or rental income from real estate owned and rented out. We actually used a similar technique in previous research to get the net worth of a zip code.

The key difficulty then becomes capitalizing these income flows to get a value of the underlying assets generating the income. Capitalization requires accurate measure of the flows of income generated by assets, and assumptions on the rate of return we should expect the assets to generate. This is the crucial part of the Saez and Zucman study, and one likely to get the most scrutiny. A clever test the authors did was to examine how their capitalization technique works for wealthy foundations, for which they have both the income and wealth. In other words, they can test their methodology on a sample of IRS returns where they actually know wealth. It does pretty well.

The first thing to notice about this text is what it does not contain.

It does not say something like "Hey!, this is fucked up!"

In short, it does not contain what we might call a moral judgement, or alternatively, a value judgement.

Instead, these economists discuss the methodology which generated these appalling graphs. We get shit like "simple measurement is often a bit boring but it is absolutely critical for thinking about the overall economy."

I don't think there's anything boring about this data and those graphs. I think they are very, very interesting. Know what I mean?

And here's the problem. If Sufi and Mian do make a moral judgement, they will have taken that first crucial step on the slippery slope to Hell. And that would have to be a negative judgement, right? I mean, what else would they say? That it's just fine and dandy that the richest 1% own over 40% of America's wealth? That the top 10% own nearly 75% of America's wealth? I don't think so.

So they need to filter (not fully acknowledge) this stuff. They do so by talking about boring measurements and methodology. See my recent post Life Without Filters.

But if they do indeed make this negative judgement, they might start thinking about how this fucked-up situation came about. If they go really deep into things—this would take years—they might end up concluding that all large, complex human societies have been (and are) characterized by substantial wealth and income inequality, and the U.S. in the 21st century is merely an egregious case.

If these economists take the Clue Train all the way to the end of the line, they will end up understanding that everything they thought they had understood previously was a crock of shit.

The next thing you know these guys would come off sounding like Karl Marx, Stokely Carmichael, Chris Hedges or—God Forbid—Dave Cohen. They would lose their jobs, they would become marginal members of society, their loving wives would divorce them, their children would despise them, and so on and so on. Believe me, it would be a mess.

So it's better not to think too much about "the overall [U.S.] economy" in the context of those appalling graphs. Avoidance is always an excellent strategy for success if you've got something to lose. It's far, far better to stick to the methodology which reveals the fucked-upped-ness, and not dwell too much on what the data say about the situation in America in 2014, let alone the Human Condition.

And that's precisely what those happy House of Debt guys did. Never underestimate the instinct for self-preservation.

Well, for those of us living in the Real World without filters, at least we have a good handle on precisely how screwed we are. So we've got that going for us

 

Comments

[Oliver]

This is exactly what keeps me riveted to my spectator's seat. I am SO thrilled by the escalating vampiric theft of wealth by the slavering sliver at the 'top', gee, it makes life worth living right to the end, don't it? Just to witness the moronically primitive excess, that's worth every agonizing moment of my mother's labor as I was thrust into this bejeweled humanescence, and the undying pain thereafter.

Bring it on, ye who fuck us in the ass. We love it.