I can't find the argument about the present value of pension payments that Tom Barson is referring to. I'm not going to spend any more time on it, because anyway, the Auten & Splinter paper is about income, not wealth.
Saez and Zucman have converged to a degree to Auten and Splinter on income distribution, but there remains a significant disparity and an argument about the reasons for that disparity. As nearly as I can make out, about half the difference comes from different assumptions about how unreported business income is distributed. Saez and Zucman assume that unreported business income is distributed across income groups in the same way as reported business income. Auten and Splinter assume that poor business owners hide more business income, and that therefore unreported business income accrues disproportionately to lower income groups. I have to say that I find that assumption implausible, but I don't know the reasoning behind it.
I suspect part of this is lower prevailing interest rates inflating nominal wealth, since wealth is, to a first approximation, simply the income or spending power that can be commanded by the wealth, divided by a cap rate. Given a world of secular stagnation (or whatever else you want to call our past twenty years of low rates, where even now with rates ticking up somewhat, they're like half what they were when I was a kid), it seems natural that the paper value of wealth has become much higher. This has some bad outcomes in, e.g., the housing market -- making residential real estate into a vehicle of wealth was a historic, catastrophic mistake -- but it doesn't seem like exactly a "growth in inequality", if the ability of those holding the wealth to command economic activity through spending didn't grow.
A second part of the story may be "winner take all" aspects of the economy. There are markets where those who end up on top can capture, say, 0.01% of the productive value of every other person in their community. Advances in communications and market integration mean the size of community in which a person like that can operate has grown, and so their income multiple relative to mere mortals has grown proportionately. It is, after all, still the Forbes 400, not the Forbes 800 (or whatever the ratio is, since Forbes started making a list) to keep up with population growth. But I also suspect this is a much smaller part of the story than Robert Nozick would have you believe.
A third part is almost certainly the growth of market power -- monopoly, oligopoly, monopsony, and so on. Businesses are extracting more rents from the rest of the economy because they _can_. While I don't agree with _everything_ Dave Dayen and Matt Stoller have to say about this stuff, I think they're very much worth reading.
I'm not sure that using tax data is a good way to assess high end incomes. The tax code has changed over the years, and there are a lot more ways to make income invisible to the IRS than there used to be. James Garner's tactics in The Wheeler Dealers seem almost quaint nowadays. )
You can hide income behind a corporate entity as with family wealth funds or personal services corporations. Every major athlete or performer has one or more of these. I'd love to see Taylor Swift's. You can then put the ownership of that corporation into a retirement account. Romney did this by putting a multi-million dollar corporation behind an IRA wall with a $2K valuation. You can exploit corporate accounting structures to minimize reportable income and have the corporation acquire assets like houses and aircraft for the benefit of corporate officers. Attenuated income would only appear sporadically.
Some years back, NYC was considered bankrupt, but it had close to a billion dollars in cash on hand. Some reporter asked the head city accountant how this could be. He replied, "There is one thing I learned in accounting. There is no truth." Alternatively go read Sheckley's short story "The Accountant".
1) You know and trust Saez and Zucman. You don't know and so don't trust Auten and Splinter. But you're a renowned academic and former Treasury official. Auten and Splinter would be happy or at least willing to talk to you and your trust-based decision could be better informed.
2) The wealth inequality argument goes far beyond the top 1%. It's about what to count. Saez and Zucman, in their book, counted the present value of future private pension payments as wealth, but didn't count the PV of future social security payments. Their finding of growing overall wealth inequality in the US, as was pointed out, would be significantly reduced if the present value of future SSA payments were counted. Saez's response was of the "Well, we can't count every government transfer program" order. Perhaps not, but since their figures were in support of an argument was for wealth redistribution, this seems like a big item to leave out.
I happen to agree with Saez and Zucman's recommendation that we do something about wealth inequality. I think wealth inequality is bad enough, even if it isn't growing at the pace they claim, to justify action. But their response to criticism mentioned above made me wonder if their first concern was, as you put it, to get the numbers right. They can disagree, of course, about what to include in their calculations, but their response made me take more interest in the people who are checking the numbers.
[Apologies for any faulty memory in reconstructing the above controversy.]
Which is why I said: (a) material standard of living; (b) social power to command and direct human effort.
My Bayesian view is that that A/S claim that "increasing government transfers and tax progressivity have resulted in... little change in after-tax top income shares..." to be frighteningly at variance with lived experience, unless you are massively screwing around with the valuation of Medicare and Medicaid services...
Given that economics is not a hard science like physics or chemistry, IMO a lot of economists promote theories or skew statistics in order to comply with the political views of their employers or grantors. Perhaps A/S fits that category.
The figures for Ludwig and Musk are wealth, not income, right? I am not an economist! But why would you call that ratio "the ratio between the top and the median"?
I shouldn't have! I should have written "the ratio between the top wealth and the median income". But there is every reason to think that wealth and income should fluctuate together, no?
Oh, OK, that makes sense. On the other hand, I think Musk's wealth is mostly in shares, and it's really not too stable https://www.financecharts.com/stocks/TSLA/value/pe-ratio. Maybe Auten and Splinter's mistake was when they measured it (Tesla p/e was 1,370 in February 2021; today it's 79.6)
I can't find the argument about the present value of pension payments that Tom Barson is referring to. I'm not going to spend any more time on it, because anyway, the Auten & Splinter paper is about income, not wealth.
Saez and Zucman have converged to a degree to Auten and Splinter on income distribution, but there remains a significant disparity and an argument about the reasons for that disparity. As nearly as I can make out, about half the difference comes from different assumptions about how unreported business income is distributed. Saez and Zucman assume that unreported business income is distributed across income groups in the same way as reported business income. Auten and Splinter assume that poor business owners hide more business income, and that therefore unreported business income accrues disproportionately to lower income groups. I have to say that I find that assumption implausible, but I don't know the reasoning behind it.
I need better numbers for my economist stand up :
"GDP is 10 times what is was 20 years ago, so is your family 10 times richer? DID ANYONE IN THIS ROOM GET A TRICKLE DOWN CHECK?
I suspect part of this is lower prevailing interest rates inflating nominal wealth, since wealth is, to a first approximation, simply the income or spending power that can be commanded by the wealth, divided by a cap rate. Given a world of secular stagnation (or whatever else you want to call our past twenty years of low rates, where even now with rates ticking up somewhat, they're like half what they were when I was a kid), it seems natural that the paper value of wealth has become much higher. This has some bad outcomes in, e.g., the housing market -- making residential real estate into a vehicle of wealth was a historic, catastrophic mistake -- but it doesn't seem like exactly a "growth in inequality", if the ability of those holding the wealth to command economic activity through spending didn't grow.
A second part of the story may be "winner take all" aspects of the economy. There are markets where those who end up on top can capture, say, 0.01% of the productive value of every other person in their community. Advances in communications and market integration mean the size of community in which a person like that can operate has grown, and so their income multiple relative to mere mortals has grown proportionately. It is, after all, still the Forbes 400, not the Forbes 800 (or whatever the ratio is, since Forbes started making a list) to keep up with population growth. But I also suspect this is a much smaller part of the story than Robert Nozick would have you believe.
A third part is almost certainly the growth of market power -- monopoly, oligopoly, monopsony, and so on. Businesses are extracting more rents from the rest of the economy because they _can_. While I don't agree with _everything_ Dave Dayen and Matt Stoller have to say about this stuff, I think they're very much worth reading.
I'm not sure that using tax data is a good way to assess high end incomes. The tax code has changed over the years, and there are a lot more ways to make income invisible to the IRS than there used to be. James Garner's tactics in The Wheeler Dealers seem almost quaint nowadays. )
You can hide income behind a corporate entity as with family wealth funds or personal services corporations. Every major athlete or performer has one or more of these. I'd love to see Taylor Swift's. You can then put the ownership of that corporation into a retirement account. Romney did this by putting a multi-million dollar corporation behind an IRA wall with a $2K valuation. You can exploit corporate accounting structures to minimize reportable income and have the corporation acquire assets like houses and aircraft for the benefit of corporate officers. Attenuated income would only appear sporadically.
Some years back, NYC was considered bankrupt, but it had close to a billion dollars in cash on hand. Some reporter asked the head city accountant how this could be. He replied, "There is one thing I learned in accounting. There is no truth." Alternatively go read Sheckley's short story "The Accountant".
1) You know and trust Saez and Zucman. You don't know and so don't trust Auten and Splinter. But you're a renowned academic and former Treasury official. Auten and Splinter would be happy or at least willing to talk to you and your trust-based decision could be better informed.
2) The wealth inequality argument goes far beyond the top 1%. It's about what to count. Saez and Zucman, in their book, counted the present value of future private pension payments as wealth, but didn't count the PV of future social security payments. Their finding of growing overall wealth inequality in the US, as was pointed out, would be significantly reduced if the present value of future SSA payments were counted. Saez's response was of the "Well, we can't count every government transfer program" order. Perhaps not, but since their figures were in support of an argument was for wealth redistribution, this seems like a big item to leave out.
I happen to agree with Saez and Zucman's recommendation that we do something about wealth inequality. I think wealth inequality is bad enough, even if it isn't growing at the pace they claim, to justify action. But their response to criticism mentioned above made me wonder if their first concern was, as you put it, to get the numbers right. They can disagree, of course, about what to include in their calculations, but their response made me take more interest in the people who are checking the numbers.
[Apologies for any faulty memory in reconstructing the above controversy.]
Which is why I said: (a) material standard of living; (b) social power to command and direct human effort.
My Bayesian view is that that A/S claim that "increasing government transfers and tax progressivity have resulted in... little change in after-tax top income shares..." to be frighteningly at variance with lived experience, unless you are massively screwing around with the valuation of Medicare and Medicaid services...
Given that economics is not a hard science like physics or chemistry, IMO a lot of economists promote theories or skew statistics in order to comply with the political views of their employers or grantors. Perhaps A/S fits that category.
The figures for Ludwig and Musk are wealth, not income, right? I am not an economist! But why would you call that ratio "the ratio between the top and the median"?
I shouldn't have! I should have written "the ratio between the top wealth and the median income". But there is every reason to think that wealth and income should fluctuate together, no?
Oh, OK, that makes sense. On the other hand, I think Musk's wealth is mostly in shares, and it's really not too stable https://www.financecharts.com/stocks/TSLA/value/pe-ratio. Maybe Auten and Splinter's mistake was when they measured it (Tesla p/e was 1,370 in February 2021; today it's 79.6)