Tag Archives: Wealth

Status Drives Poverty?

A book on poor single moms, discussing why moms break up with guys:

Conflicts over money do not usually erupt simply because the man cannot find a job or because he doesn’t earn as much as someone with better skills or education.  Money usually becomes an issue because he seems unwilling to keep at a job for any length of time, usually because of issues related to respect.  Some of the jobs he can get don’t pay enough to give him the self-respect he feels he needs, and others require him to get along with unpleasant customers and coworkers, and to maintain a submissive attitude toward the boss. (more; HT Bryan)

I suspect much of what makes some cultures more successful than others is how they help folks to avoid seeing unpleasant interactions as direct challenges to their status.

GD Star Rating
loading...
Tagged as: ,

US Grows Most ’70-’10

What nation increased its total economic consumption most from 1970 to 2010? If you’ve been reading too much about a US “great stagnation” in that period, the answer might surprise you — the US wins by a long shot. The top thirty gains:

United States 583, Japan 183, China 103, United Kingdom 73, Germany 63, France 53, India 47, Brazil 47, Italy 39, Canada 37, Mexico 37, Spain 28, Indonesia 14, Netherlands 11, Greece 9, South Africa 8, Thailand 8, Switzerland 8, Belgium 8, Austria 7, Colombia 7, Sweden 7, Philippines 7, Norway 7, Malaysia 7, Portugal 6, Chile 6, Finland 5, Ireland 5, Denmark 4. (source)

Units are tens of billions of dollars per year. All of Western Europe adds up to 285. Since total world change was ~1460, the US had ~40% of all consumption growth.

GD Star Rating
loading...
Tagged as: ,

Tyler On Robots

Tyler Cowen recently was part of a recorded panel discussion on Will Robots Steal Your Job? I’ve included some quotes below. I think he basically gets things right, at least from the point of view of humans. Oh he says apparently silly things like:

Smart machines will always be complements and not substitutes [for humans], but it will change who they’re complementing.

But from the context you can see he just means that really rich humans, who own a lot of robot-relevant capital, will enjoy having physical human as servants. Tyler also insists change will be gradual, apparently dismissing the whole brain emulation scenario I focus on, in which some change is necessarily rather sudden. Perhaps he thinks that won’t be possible until very late in his scenario.

My main complaint is that Tyler seems to completely ignore the experiences and welfare of the robots themselves (as do the other three panelists). Somewhat like Europeans in 1700 discussing the wisdom of their colonizing the world, but considering only on its effects on Europeans. I doubt this is because Tyler agrees with Bryan Caplan that robots can’t possibly be conscious. What then? Does Tyler simply not care about non-humans?

Those quotes: Continue reading "Tyler On Robots" »

GD Star Rating
loading...
Tagged as: , ,

Money Matters

Which would you prefer: An $80,000 job with reasonable work hours and seven and a half hours of sleep each night, or a $140,000 job with long work hours and just six hours of sleep? A new [Cornell] study … found that most people would pick the higher-paying job with more hours and less sleep.

Such a finding would be wholly unsurprising … if it weren’t for … surveys … telling us for years now that people are valuing more vacation time or more flexible hours over better pay. People leave jobs not just because they aren’t paid enough, study after study tells us, but because they don’t get the attention they should, they don’t like their boss, or they don’t feel they have enough development opportunities. … Researchers found that beyond a household income of $75,000 a year, money apparently “does nothing for happiness, enjoyment, sadness or stress.” …

[But] after years of research that seems to say more and more money is mattering less and less, … it still matters plenty. The Cornell study asked more than 2,600 participants to consider which option would make them happier, and even asked them if they thought their responses might be in error. Just 7 percent said they thought they were making a mistake, and only 23 percent admitted they might regret making such a choice between money and lifestyle. (more; study)

That study finds, however, that even though money matters, expected happiness is still the single best predictor of choices:

The aspects that systematically contribute most to explaining choice, controlling for own [subjective well-being], are sense of purpose, control over life, family happiness, and social status. …  Across our scenarios, populations, and methods, [subjective well-being] is by far the single best predictor of choice. (more)

GD Star Rating
loading...
Tagged as: ,

Fertility Fall Myths

In the latest JEL, Tim Guinnane does a nice job debunking misconceptions about the great fertility fall associated with the industrial revolution. For example, “The decline in French fertility began in the late eighteenth century,” and fertility declines were not uniform across Europe:

Mortality decline doesn’t work as an explanation for fertility declines:

Fertility in the United States declined for decades before any noticeable decline in mortality.

Nor does new contraception tech:

Throughout the nineteenth and early twentieth century, withdrawal and abstinence remained the primary approaches used by married couples. Since these technologies had been available, essentially, throughout human history, it is unlikely that the condom and similar new methods played a strong role in the fertility transition. … Methods available even prior to the fertility transition were sufficient to produce voluntary reductions of the magnitude we observe in the nineteenth and early twentieth centuries.

Nor do child labor laws:

Most [child-labor] measures either did not apply to agricultural work, or did so in a more relaxed way. … German restrictions did not successfully limit the role of children in production at home, which remained important throughout the nineteenth century. And in every case, the restrictions’ impact would depend both on enforcement measures and parents’ desire to evade them. Finally, if child-labor restrictions were introduced when they were mostly irrelevant, …

Nor do new social insurance programs:

Economic ties between parents and children varied dramatically across the societies in question before the fertility transition. … At the other extreme, rural laborers’ children in England would, from at least the early-modern period, leave home for good in their early to mid teens. … social-insurance systems introduced at the end of the nineteenth and early twentieth century were usually replacing earlier schemes. Thus there is no clear “before.” … The broad patterns also do not make it likely that social insurance alone is central to the story. The two forerunners, France and the United States, were laggards in developing social insurance.

Still in the running, he thinks, are increases in urbanization, female employment, and gains to schooling:

Several studies document the existence of fertility control among small groups as early as the seventeenth century. These “forerunners” were usually urban elites or members of minority groups such as Jews. More generally, research based on either sub-national aggregates or micro data often find earlier fertility declines than in national data. The Princeton studies report earlier fertility declines in cities, for example. … Most studies find that urban fertility was lower than rural fertility in the nineteenth century, … Once the fertility transition began, fertility usually fell first in urban areas, with rural areas then catching up. …

Cross-sectional regressions for U.S. states in 1840 show that fertility is negatively correlated with measures of nonfarm labor-market opportunities. Once such proxies are introduced, land prices have no influence on fertility. … Crafts … finds a consistent, negative correlation between women’s [1911] local labor-force opportunities and marital fertility. …

Goldin and … Katz … find that the return to an additional year of [1915 Iowa] high school or college then was, for males, on the order of 11–12 percent. Mitch estimates the present value of acquiring literacy in Victorian Britain for a representative child. The present value of the cost of acquiring literacy would be about £4. At a wage premium of 5 shillings per week for literacy, the present value of the higher wages for a 35-year work life would be over £200.

GD Star Rating
loading...
Tagged as: , ,

More Inequality, Merited

Consider two plausible assumptions:

  1. Within a few centuries, “immortality” goes on sale. That is, if you pay enough, and your body is of a convenient type (e.g., android), then you can buy backups and replacement parts, and keep functioning indefinitely. (At least until correlated failures hit all your backups at once). Most folks, however, may be unable to afford the price.
  2. At this time, there will still be a capitalist world economy with not-overwhelming taxes on the rich. So individuals can still accumulate wealth over a lifetime, as they have done for millennia.

Today, as in the past, wealth levels tend to diverge over individual lifetimes, and then converge over many generations. People born with similar initial wealth often have quite different wealth at life’s end. They also tend to give different amounts to their children. Yet over many generations, distant descendants tend to have similar wealth. (At least if they live in the same nation; see Greg Clark.) Children often lack their parents’ drive or abilities, and prefer to spend their inherited wealth. “Rags to rags in three generations,” the saying goes.

But given the above assumptions, in the future able driven folks can continue to accumulate wealth indefinitely, allowing the usual within-lifetime wealth divergence to last far longer. Maybe eventually these old dogs couldn’t learn new tricks, but we should still expect to see far more wealth divergence in this future. Quick: does this sound like a good or a bad thing?

Now consider: in this future, wealth should depend less on parental luck, and more on personal merit, such as drive and ability. (Other kinds of luck matter too of course, but not obviously more than before.) Isn’t it good if personal wealth depends more on personal merit?

If you still find this scenario horrifying, that suggests your dislike of wealth inequality isn’t based so much on it being undeserved, but is more against the very idea of inequality. Perhaps you are horrified by such huge inequality because it shows raw luck imposing unnecessary harmful risk, which you want to cure via redistribution. But if so, it should be enough to offer folks wealth insurance. If you are horrified by a future where enough able driven folks knowingly reject wealth insurance, allowing some to become fantastically rich, then again your objection seems to be to inequality itself.

Btw, Tyler says:

When will the world have its first trillionaire? In real terms I say never, marginal tax rates will rise to capture the rents, one way or another.

This seems remarkably pessimistic about future world wealth or world-wide tax rates. Today’s richest man has $74B, which is probably ~$50B after correcting for “marginal tax rates.” So proportional growth of the world and the richest by a factor of twenty, roughly what we achieved in the twentieth century, would create a trillionaire.

GD Star Rating
loading...
Tagged as: , , ,

Bashing Billionaires

Steve Jobs stepped down from his post as CEO of Apple yesterday. The internet instantly erupted in adulation. … Mr Jobs’s wealth … was built in no small part upon an intellectual-property regime that I and many others believe to retard progress. … Bill Gates used to get plenty of heat from the class warriors, but some time after … [he] devoted a huge portion of his fortune to his charitable foundation, he ascended to a sort of philanthropic secular sainthood. … But Mr Jobs has eschewed charity. …

[Yes,] charity very often does rather less to improve quality of life than selling people ever better products at ever lower prices. But this line of reasoning hasn’t convinced very many of us that, say, Charles and David Koch’s vast wealth is proof of their successful service to humankind. Mr Jobs’s relative immunity from the scorn of those otherwise keen to stick it to billionaires is due, I think, to the admiring pleasure wordsmiths takes in the elegance of the Apple devices they use for work, play, and status-signaling. …

Steve Jobs is a white wizard in wire rims who offers …. mesmerising portals to a better, beautiful, more enchanted world. … So who gives a fig if he doesn’t shower his billions upon worthy causes. … But what about the guys who get rich digging oil out of the ground so we can charge our iPhones? Stick it to ‘em, the greedy bastards. All of which is to say, our intuitions about economic desert and fair distribution are…complicated. (more)

Consider: what elites did foragers worry most about? Foragers worried most about elite capacity for violence, and an inclination to use it. They also worried lots about unequal access to food and shelter, and to tools useful for all these things. So foragers enforced strong norms against giving orders or doing violence, and norms favoring sharing of food, shelter, medicine, and tools. In these senses foragers were egalitarian.

However, foragers worried far less about unequal capacities for art, music, conversation, charm, social popularity, or sex appeal. After all, in a forager world unequal capacities of these sort just couldn’t go anywhere near as horribly wrong as unequal violence or food. Because of this humans seem evolved to tolerate, and even celebrate, unequal abilities in art, popularity, or sex appeal.

Fast forward to today, and consider which billionaires are liked versus disliked. I’d bet that artistic billionaires like Steve Jobs, J.K. Rowling, and Oprah Winfrey are among the most liked, even after one controls for how well know they are. Same for rich actors and talk show hosts. In contrast, billionaires who are merely associated with an ordinary business are probably the least popular.

Note that while it was pretty functional for foragers to tolerate artistic inequality more, an added tolerance today for artistic billionaires over mere business billionaires has few functional benefits. Your added envy and hostility to mere business billionaires is just an arbitrary dysfunctional vestige of times long since past. Yes it might feel better to bash them, but is that really a good enough reason to do so?

GD Star Rating
loading...
Tagged as: , , ,

The Poor Are Not Fat

In both the popular press and academic research, there is the argument that the growth of fast food and energy-dense food has been an important cause of the overweight epidemic in the U.S. and that this has disproportionately affected poor people. [Some] argue that limited economic resources may shift dietary choices toward a diet that provides maximum calories at the least cost. An implication of this line of research is that the poor cannot afford healthy diets. (more; ungated)

In fact, however, the poor are on average not fatter than the rich:

Contrary to conventional wisdom, … the poor have never had a statistically significant higher prevalence of overweight status at any time in the last 35 years. Despite this empirical evidence, the view that the poor are less healthy in terms of excess accumulation of fat persists.

A new paper manages to find a relation between poverty and fat – both the very fattest and the very thinnest people tend to be poor:

Distribution-sensitive measures of overweight … [show] that the severity of overweight has been higher for the poor than the nonpoor throughout the last 35 years. … The strongest relationship between income and BMI is observed at the tails of the distribution. … For those at the tails of the BMI distribution, increases in income are correlated with healthier BMI values.

OK, but this hardly supports a general story that the poor can’t afford healthy diets. It fits much better with there being a small fraction of “broken” folks who tend both to have low abilities to earn money, and to have an unhealthy weight, both too high and too low.

GD Star Rating
loading...
Tagged as: ,

Who Is Consistent?

Young rich well-educated men make more consistent choices. Family structure, risk tolerance and personality type don’t matter:

We conduct a large-scale field experiment … to test subjects choices for consistency with utility maximization. … High-income and high-education subjects display greater levels of consistency …, men are more consistent than women, and young subjects are more consistent than older subjects. We also find that consistency with utility maximization is strongly related to wealth: a standard deviation increase in the consistency score is associated with 15-19 percent more wealth. This result conditions on socioeconomic variables including current income, education, and family structure, and is little changed when we add controls for past income, risk tolerance and the results of a standard personality test used by psychologists. (more)

GD Star Rating
loading...
Tagged as: , , , ,

Raid The Rich

Me in March on Why Track Trends?:

Tyler’s thesis is that the US has slower growth than decades ago because we’ve used up the low hanging fruits. … My grad school (Caltech) didn’t teach macro … so I’ll stay agnostic for now. But what I can speak to is how little such trend analysis or projection matters, at least for most economic policy.  … The question of which institutions will most increase economic welfare rarely depends much on the exact values of the sorts of parameters social scientists and the media track with such enthusiasm and concern.

Me 1.4 years ago on Enable Raiders!:

A robust, properly functioning market for corporate control is vital to the performance of a free-enterprise economy. …

It is hard to exaggerate how very important this is – we’d be so much richer now if it it had long been easier for raiders to take over public firms. We now put many inexcusable obstacles (listed below) before such raiders, including disclosure, super-majority, poison pill, and merging delay rules.

Today’s Post:

Growing income disparity in the United States … has reached levels not seen since the Great Depression. In 2008, … the [140,000 member] top 0.1 percent of earners make about $1.7 million or more, including capital gains. Of those, 41 percent were executives, managers and supervisors at non-financial companies, … with nearly half of them deriving most of their income from their ownership in privately-held firms. An additional 18 percent were managers at financial firms or financial professionals at any sort of firm. …

In 1975 … the top 0.1 percent of earners garnered about 2.5 percent of the nation’s income, including capital gains. …. By 2008, that share had quadrupled and stood at 10.4 percent. … The share of the income commanded by the top 0.01 percent rose from 0.85 percent to 5.03 percent over that period. For the 15,000 families in that group, average income now stands at $27 million.

The inquiring mind is surely curious to know who exactly are today’s super-rich, and how much richer they are now than before. But good policy is mostly about good institutions, which just shouldn’t depend much on such parameters. If you worry that managers get paid more than they contribute to firm value, a robust solution is to strengthen competition for corporate control, so raiders can takeover and then fire overpaid managers. Trying to independently determine manager contribution is far far harder.

If you worry instead about how much managers respond to taxes by reducing their efforts or moving to other jurisdictions, that also probably doesn’t depend much on just how rich they are or how much that has changed in recent decades. Wanting to tax managers more because you learned that they made more money than you thought seems much more like envy than neutral efficiency analysis.

GD Star Rating
loading...
Tagged as: , , ,