"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister

"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."

- Daenerys Targaryen

"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"

- Tyrion Lannister

"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."

- Jorah Mormont

"These bad people are what I'm good at. Out talking them. Out thinking them."

- Tyrion Lannister

"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."

- Michael Barone

"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker

Saturday, April 26, 2014

taxing captial and labor

K is not capital, L is not labor by Steve Randy Waldman

He posted the link in the comment section in response to this: 

In the comments Waldman wrote:
It is not surprising to me that some theories suggest the optimal rate on capital is zero, but that’s not what you expressed in this post (and those theories are wrong). You said “captal income is taxed more heavily than wage income”. That is false. It is an assertion of fact that cannot be redeemed without abusing common language. 
Your second claim is more interesting. You argue on the basis of present value that taxation renders the present value of future consumption endowed by saving less than consumption that could be enjoyed today. But taxation has very little to do with that. To compare the present value of current consumption and of future consumption, we need a rate of return and a discount factor. If the rate of return is higher than our discount factor, we will find that the PV of future consumption is higher than that of present consumption. If our rate of return is lower than the discount factor, we will find the opposite. Capital effect the rate of return actually available for future consumption, so if we choose a discount factor a priori, we might find that under some circumstances your assertion is true: taxes cause future consumption to be less valuable than present consumption. But under some circumstances, the rates of return even after capital taxes is higher than the discount rate, and your argument is false, or the average rate of return is is lower than the discount rate even before taxes, so taxes aren’t the issue and your argument is false. 
To distinguish these circumstances we need to determine the discount rate we intend to use to compute present value. At a certain level, that is arbitrary. I might claim to require $120 next year to be as satisfied as I would be with $100 in consumption today, so my discount rate is 20% and saving is not worthwhile with or without taxes. Or, I might be flush today and worried about a very uncertain future, and so be satisfied if I can have $80 a year from now for deferred $100 in consumption, in which case my discount rate is -20%, and taxes I might pay against a 5% opportunity don’t much discourage me. 
Rather than rely upon subjective time preferences, the usual approach to this issue is to assume that people discount future income at the best rate they can achieve at the level of risk they are willing to bear. Even if I’d be minimally content with $80 next year, I won’t except less than $105 if I can easily earn $105 by putting my money in the bank. So we use current market rates of return as our discount rate. 
But, and crucially, this logic requires that we use after tax market rates of return as our discount rate. If bank interest rates are 5% but interest is taxable at 5%, then the opportunity I will be satisfied with is 4%, and that is the rate by which future income would conventionally be discounted. Of course, that 4% may be much more or much less than the discount rate of my time preference, but market rates, after tax market rates, determine the rate by which I will actually judge alternative consumption paths. I’ll eat today if that 4% is too little, I’ll save if it’s too much. In either case I’ll value $104 in the future at no more than $100 today, because I’d only need $100 today to turn that into $104. 
So, tautologically, you are mistaken. Under the scenario you describe, the PV of $86.58 14 years from now is precisely $50 today.

M83 - Midnight City

(a young Piketty. M83 is a French band.)

net neutrality

Does Chairman Wheeler's new proposal mean the end of network neutrality? by Timothy B. Lee

Friday, April 25, 2014


Class warfare justified? by Robert J. Samuelson

How capitalism enriches the few rather than the many by Harold Meyerson


If r > g then we'll get societies like in Elysium and Continuum. 


Jedediah Purdy on Capital in the Twenty-First Century


Disgorge the cash

Disgorge the Cash by J.W. Mason

Krugman on 2008

 Frustrations of the Heterodox
It is true that economists failed to predict the 2008 crisis (and so did almost everyone). But this wasn’t because economics lacked the tools to understand such things — we’ve long had a pretty good understanding of the logic of banking crises. What happened instead was a failure of real-world observation — failure to notice the rising importance of shadow banking. Economists looked at conventional banks, saw that they were protected by deposit insurance, and failed to realize that more than half the de facto banking system didn’t look like that anymore. This was a case of myopia — but it wasn’t a deep conceptual failure. And as soon as people did recognize the importance of shadow banking, the whole thing instantly fell into place: we were looking at a classic financial crisis. 
What about the lousy policy response — austerity and all that? The key point here was that policymakers weren’t basing their decisions on conventional economics. On the contrary, they decided to blow off textbook macroeconomics and embrace exotic doctrines like expansionary austerity and a mysterious growth cliff at 90 percent debt relative to GDP. The disastrous policy responses that have perpetuated the slump are the result of mainstream economics having too little influence, not too much.

Baker on Piketty

Capital in the 21 Century: Still Mired in the 19th (See correction) by Dean Baker
While the book presents this story with the sort of the determinism that many have seen in Marx's theory of the falling rate of profit, there are serious grounds for challenging Piketty's vision of the future. First, there are many aspects to the dynamics that have led to the redistribution to profit and high earners in the last three decades that are likely to change in the not too distant future. 
The top of my list is the loss of China as a source of extremely low cost labor. According to the International Labor Organization, real wages in China tripled in the decade from 2002-2012. While these data are not very accurate, there is little doubt that wages in China are rising rapidly. While Chinese wages still have a long way to go before they are on a par with wages in the United States or Europe, its huge cost advantage is rapidly disappearing. Manufacturers can look for other low-wage havens, but there are no other Chinas out there. The loss of extreme low wage havens is likely to enhance the bargaining power of large segments of the workforce. 
However, perhaps a more fundamental objection to Pikettys' grim future is the fact that a very large share, perhaps a majority, of corporate profit hinges on rules and regulations that could in principle be altered. My favorite example is drug patents. This industry accounts for more than $340 billion a year in sales (@ 2 percent of GDP and 15 percent of all corporate profits). The source of its profits is government granted patent monopolies. 
Suppose the government weakened patent rights or allowed low-cost generics from India to enter the country, profits and presumably the value of corporate stock in the sector would crumble. Is there a fundamental law of capital that prevents this from happening? The same could be said about the patents that provide the basis for enormously profitable tech companies like Apple. Are we pre-destined never to take steps to weaken these laws which lead to enormous corruption and economic waste? 
Another big profit sector is cable and telecommunications where we seem to have unlearned the lesson from intro-econ that monopolies are supposed to be regulated to prevent them from gouging consumers. Obviously the monopolists won't like to see their profits eroded, but allowing near monopolies to operate without regulation does seem like an aspect of capitalism that can be altered in the future as it was in the past. 
The financial sector has gone from accounting for less than 10 percent of corporate profits in the 1960s to over 20 percent in recent years. Is there a law of capitalism preventing us from instituting financial transaction taxes like the UK has had on stock trades for more than three centuries or breaking up too big to fail banks?


The accidental controversialist: deeper reflections on Thomas Piketty’s “Capital” by Thomas Palley
A better response is for critics to stick with the rate of profit versus growth argument while dumping the neoclassical marginal productivity aspect of Piketty’s theoretical argument. Mainstream economists will assert the conventional story about the profit rate being technologically determined. However, as Piketty occasionally hints, in reality the profit rate is politically and socially determined by factors influencing the distribution of economic and political power. Growth is also influenced by policy and institutional choices. That is the place to push the argument, which is what critics of mainstream economics have been doing (unsuccessfully) for decades. The deep contribution of Piketty’s book is it creates a fresh opportunity in this direction.

From Yglesias interview:

It's not only in US. It's economists everywhere. I think what they're doing wrong is that in order to distinguish themselves from other disciplines, in order to look like we all are scientists, they use too much complicated math just for the sake of it. 
Math is fine. Math is very cool. But very often, they tend to push for more sophisticated math just to push off other people. It's an easy way to have the appearance of scientificity. For a real mathematician or physicist, the math will not be terribly impressive but it's enough to impress those economics departments that are less good at math and those social scientists who are less good at math. 
I think math is useful, if you have a good ratio of facts to theory. But most of the time the economists do the opposite. There are incredibly sophisticated mathematical models with a very tiny empirical component. 
For the most part it's like [Pierre] Bourdieu, "La Distinction," with art taste. It's a way to distinguish your self from the commoners and to look more sophisticated.


Why the Housing Market Is Still Stalling the Economy by Neil Irwin
None of that, however, can happen instantly through some policy change, like a tweak in federal housing rules to make it easier to get a loan, or further measures from the Federal Reserve to lower mortgage rates. More than anything, it takes time. 
Mr. Kelderhouse says that 2017 “is the year everybody throws out as when we’re back to normal. He adds, “That still seems believable to me.”
How and Why Is Housing Holding Back the Recovery by Dean Baker
The other point is that looking at the historic average share of residential construction in GDP may be somewhat misleading. If we go back to the 1980s, the share of medical care in GDP has risen by more than 6.0 percentage points. This increase must come from other categories of consumption. If we say non-health care consumption is roughly 60 percent of GDP, then a 6 percentage point rise in the share of health care in GDP would imply a reduction of 10 percent in non-health care consumption, if the consumption share of GDP stayed constant. 
In fact consumption has risen as a share of GDP, but if we assume the consumption share will not rise indefinitely, it means that a rising share of consumption going to health care means a smaller share going to everything else. The implication is that we might expect housing to comprise a smaller share of GDP going forward than in the past. In that story we should still expect housing to recover further, but perhaps not to its average share for 1970s, 1980s, and 1990s.
Maybe QE Was Helping A Little More than You Thought by Jared Bernstein
Still, one cannot help but notice the recent slowdown in the housing recovery and one further cannot help but wonder about the extent to which Fed actions to pull back on their LSAPs are implicated in said slowdown, though there are of course other moving parts here. 
First, there’s no doubt that the housing recovery has significantly slowed. According to a Credit Suisse index, homebuyer traffic is down more than a third from last year, and yesterday’s new home sales were off big-time, with sales down 13% from a year ago, the first yr/yr decline since 2011q2. Pending home sales have also been negative in recently months and recently hit their lowest level since late 2011.

Piketty and Krugman

Frustrations of the Heterodox by Krugman

On Gattopardo Economics by Krugman

Piketty and Pareto by Krugman

The Piketty Panic by Krugman

The Piketty Phenomenon by David Brooks

The Hourly Piketty: Paul Krugman, “Gattopardo Economics”, and Economic Modelling by DeLong

DeLong quotes:
Notes from Capital in the 21st Century Panel by Suresh Naidu

Wikipedia entry for Cambridge capital controversy

Thursday, April 24, 2014

Fed Fail

Maybe QE Was Helping A Little More than You Thought by Jared Bernstein


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...

Piketty on inflation

Inflation has proved to be very useful to reduce the large stocks of public debts that we had in the 20th century. Now the progressive wealth tax, in a way, is the same thing as inflation, but this is sort of a civilized form of inflation. 
It’s like inflation, but you can make sure that people with limited wealth would not be hurt, and people with billions would pay more. With inflation you have chaos, in that you don't actually know who's going to pay for it. 
Very often, not only do you destroy the public debt, but you also destroy the savings accounts of lower and middle class people. I think this is why Europe today, for instance, has a very hard time with inflation. 
That's why I think tax on private wealth or property tax on private wealth is a better way to go than inflation. Now, if we don't have the tax, inflation is better than austerity. If you only have budget surpluses to reduce a public debt of 100 percent GDP with zero inflation, which is what we have in the Euro zone right now, it can take decades and decades.

The Americans

AV Club reviews The Americans: "Martial Eagle"


Picketty with Joseph Stiglitz, Paul Krugman, and Steven Durlauf participated in a panel moderated by Branko Milanovic."

rising Democratic majority

Is the Rising Democratic Majority Doomed? by Jonathan Chait

The Daily Show with Jon Stewart April 23, 2014

Great rant at about the 8:00 minute mark.

Washington Post Discovers Worksharing by Dean Baker



Thomas Piketty doesn’t hate capitalism: He just wants to fix it by Yglesias

The accidental controversialist: deeper reflections on Thomas Piketty’s “Capital” by Thomas Palley

The Capital Creators, Piketty and Growth Theory by Joshua Gans (Digitopoly)

Capital Punishment: Why a Global Tax on Wealth Won't End Inequality by Tyler Cowen

Monday, April 21, 2014

Krugman and DeLong

Sweden Turns Japanese by Krugman


"Capital" and its discontents by Ryan Avent

Dude, Where’s Your Piketty Review??!! by Jared Bernstein

Game of Thrones

AV Club reviews Game Of Thrones (experts): “Breaker Of Chains”

AV Club reviews Game Of Thrones (newbies): “Breaker Of Chains”

Podrick Payne and Tyrion bid farwell.

Brienne put his age at ten, but she was terrible at judging how old a child was. She always thought they were younger than they were, perhaps because she had always been big for her age. Feakish big, Septa Roselle used to say, and mannish. "This road is too dangerous for a boy alone."
"Not for a squire. I'm his squire. The Hand's squire."
"Lord Tywin?" Brienne sheathed her blade.
"No. Not that Hand. The one before. His son. I fought with him in the battle. I shouted 'Halfman! Halfman!'"
The Imp's squire. Brienne had not even known he had one. Tyrion Lannister was no knight. He might have been expected to have a serving boy or two attend him, she supposed, a page and a cupbearer, someone to help dress him. But a squire? "Why are you stalking me?" she said. "What do you want?"
 "To find her." The boy got to his feet. "His lady." You're looking for her. Brella told me. She's his wife. Not Brella, Lady Sansa. So I thought, if you found her..." His face twisted in sudden anguish. "I'm his squire," he repeated, as the rain ran down his face, "but he left me."
-- George R.R. Martin, A Feast for Crows 

Sunday, April 20, 2014


The Number of People Helped by Obamacare is Far Larger Than the NYT Says by Dean Baker
In an article on the likely political implications of the Affordable Care Act (ACA) in the November election, the NYT wrongly implied that the beneficiaries are a relatively small segment of the population. It told readers: 
"Democrats could ultimately see some political benefit from the law. But in this midterm election, they are confronting a vexing reality: Many of those helped by the health care law — notably young people and minorities — are the least likely to cast votes that could preserve it, even though millions have gained health insurance and millions more will benefit from some of its popular provisions." 
Actually, virtually the entire pre-Medicare age population stands to benefit from the ACA. Millions of insured people lose their insurance every year, typically because they lose their job. These people will now be able to get insurance through the exchanges, in most cases at prices far below what they would have paid in the individual market previously. In this way, the ACA is effectively giving the insured population security in their insurance that they did not previously have.This is especially important in cases where the reason people lost their job was due to bad health. 
This is a huge benefit that is being extended to tens of millions of people who will be voting in November. Due to poor coverage of the impact of the law, it is likely that most of these people do not recognize the extent to which the ACA provides them with security in their insurance coverage.

Orphan Black

AV Club reviews Orphan Black: "Nature Under Constraint and Vexed"