Category Archives: Income Inequality

Dead broke and struggling

To recap:  The Clintons did face some financial hardships when they left the Whitehouse.  There was a 7 figure legal bill funded by a 7 figure legal defense fund, which probably left a balance due, albeit one with flexible payment terms allowed by lawyers who understood the unique nature of having the Clintons for clients.  Also, the necessity to buy a multi-million $ house in NY so that the open senate seat there could be credibly carpet bagged.  That’s probably a stretch to do on Mrs. Clinton’s $8 million dollar book advance in 2000 and Mr. Clinton’s $400k a year salary at the time.  They struggled.  They probably had to delay payment on concierge invoices at times in 2001.  Like an average middle class family.

Not really, of course.  A middle class household ‘struggling to make ends meet’:

  • Puts off grocery shopping until payday
  • Has a process for managing its overdrafts
  • Juggles the mortgage payment, letting it go until the end of grace because something else came up
  • Lets accrued medical bills / deductibles slip into collections
  • Is behind on utilities, because utilities don’t engage in punitive credit reporting

That’s what ‘struggling to make ends meet’ means.  Even granting that the Clinton’s may not have been very liquid in 2001, I doubt they suffered any of that.

So is Hillary lying?  Yes, but it’s not completely mendacious, ya know, such as ‘if you like your plan / doctor  you can keep it”.  Here Mrs. Clinton is guilty of merely conversational fabulism of the ‘bullshitting / out of touch’ variety.

It’s something though, and these little dings can add up.  It’s an unforced error that could have been avoided.

Sawyer basically asked her (I paraphrase in order to provide context), “why does Bill rack up tens of millions on the corporate chicken dinner circuit, it seems unseemly …”

A great answer does not require construction of some hollow analogy to the middle class.  There’s one good answer, and it’s simple.  The response is “you know, it’s a job that pays well for him, and we’re blessed.  But the big thing is, we never felt like we were ready to stop working for people.  He felt he still had a lot of things to say, and there’s a lot of initiatives we want to support.  Him speaking is a way to get those ideas out and then fund some of those initiatives we’re part of.”

Easy.  If they haven’t understood they would get asked that, then yes, they are out of touch.  But I would figure they have a decent PR / speech person on staff who would be attuned to both Sawyer’s question and the weakness of the middle class analogy.  If not, I am available.

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Hedge fund tax

I didn’t know this, and it poses a good question.

http://www.slate.com/articles/business/moneybox/2014/06/taxation_of_carried_interest_the_loophole_for_hedge_fund_managers_could.html

I just figured it was all statutory.

In terms of taxing things that are malevolent and ‘subsidizing’ things that are beneficial, raising taxes on these guys never bothered me.  The arbitrage game doesn’t produce anything.  Ohyeah, ‘liquidity’ I guess is the text book answer.  Still.

So do it, Mr. President.

More Piketty

http://www.nytimes.com/2014/04/20/opinion/sunday/douthat-marx-rises-again.html?ref=rossdouthat&_r=0

We’re to take it as settled that income on capital grows faster than income on labor.

I can accept that.  I’m trying to figure out structurally why that is, and then why it should bother anyone.

Thing is, you can leverage capital and assets to goose your returns.  You can’t leverage your labor to goose your returns.

With capital, you can reinvest your returns immediately to beget more returns.  You can compound them.  With labor, you work your 8 hour day.  You can not compound that.

Then, capital is probably somewhat more inexpensive to maintain than labor.

So it’s the natural order, perhaps for benign reasons Piketty would affirm.  But apparently this is also in need of solving, maybe with a taxation regime that slows the ability of capital to grow.

Liberals hunting down their apostates

There has been a lot of this going on.  Jonathon Chait is suffering from it acutely, though we have not discussed his case so much yet.  I’d like to sometime soon.

No sooner than the Slate CEO pay article appears, Danny Vinik on TNR denounces it:

http://www.newrepublic.com/article/117441/liberals-want-raise-taxes-rich-help-poor

The ostensible harms of income inequality are expressed better by Vinik here; there’s some thought income inequality correlates to lower economic growth.

You know, maybe there is a correlation, broadly.  Thing is, SFW.  Correlations are not causality, and CEO pay would have nothing to do with it for reasons of mechanics that we (which is to say, “I”) explained here.  IE, CEO stock option grants are magic transactions where corporate boards create monetary value out of thin air, for which there are several immediate beneficiaries and no losers.

There’s no plausible explanation that can be offered by anyone to explain how this transaction retards broader economic growth that would be otherwise benefitting the middle class. None.

None. None. None.

Indeed, there’s an obvious argument to be made that if you overtax these transactions, companies will stop doing them.  At that point, it’s not that the wealth goes to the worker.  It’s that it doesn’t get created at all.  Further, there’s no piece for the government to get as taxes, those taxes going to social programs that do benefit the lower and middle classes.

There’s a certain level of purposeful obtuseness that has to be maintained for a guy to overlook the mechanics and not get this.

Income inequality: I’ll have some finite pie. Or not.

High CEO pay isn’t harmful.

http://www.slate.com/articles/business/the_edgy_optimist/2014/04/top_ceo_pay_income_inequality_isn_t_as_harmful_as_we_think.html

The article discusses generally how impossible it’s been to actually prove that executive pay exacerbates income inequality.  And Biden economist Jared Bernstein and other insiders are in the position of having to subtley acknowledge that, there being no good studies with relationships that correlate.

How could there be?  I mean, as a matter of statistics maybe yes, high CEO pay increases the gini.  But the implicit assertion of the income inequality monger is that CEO’s are taking money that could as a matter of corporate discretion be directed to worker salaries or to lower product prices.

Well that’s not true because that’s not how it works in almost all cases.  You look at Ellison, his pay isn’t taken from a corporate pot that could be used somewhere else if it wasn’t going to him.  In reality he gets a million or two or five or whatever in W2 cash pay.  The rest is a stock grant, and that stock is deemed into existence by the board of directors at bonus time.

There’s 3 big winners in a transaction like this.  Ellison, who gets paid.  The company, who gets to invent money (stock) into existence to make that payment.  And the government, who simultaneously gets to take 20 – 40% of the transaction as an income tax.

The public at large is not an obvious winner here, but nor are they a loser.  Change the tax rules to disincentive that sort of pay, and maybe it ceases to happen.  But that money doesn’t then get redirected to the worker or get reflected as lower on the shelf prices.

More Clark on ancestral determinism for income

http://opinionator.blogs.nytimes.com/2014/02/21/your-fate-thank-your-ancestors/?_php=true&_type=blogs&_r=0

Clark essentially argues that income inequality will withstand most or all economic systems over time.  Specifically, he argues that families with money will maintain it and that families without don’t advance much over many generations.  Thus we’d be better off focusing on the social safety net and minimum benefits rather than “fairness”.  His conclusions are heavily drawn from analysis done on Sweden and the US, among other places.

I agree with his policy conclusion.  But I have to think he comes to a conclusion about absence of social mobility by controlling for im- and emigration, and I’m not sure how I feel about that.  IE, emigration is social mobility.  In Clark’s view, my own lineage would be problematic in the data, and probably be filtered out.

I’m half Scandinavian, that half being equal Norwegian and Swede.  These families left Scandinavia between 1850 – 1900 and came to the US Midwest.  They were commoners, low status families without “high” surnames.  Typically they had farm names, ie “Nygaard” or they used the paternal / maternal Scandinavian naming convention.  IE, Erik is Peter’s son, so he is Erik Peterson.

In Scandinavia then, tenant farming was getting to be a very unproductive business / livelihood model.    The land wasn’t great and population was rising, so rents were high.  There was also some codified suffrage discrimination, ie commoners didn’t have the vote.  So when James J Hill of St Paul beckoned for Scandinavians to work his railroad or build farms along it, most of those commoners left.

My wild ass guess is that the prosperousness of these families that departed, now that time has advanced, is enormously above those who stayed.  The ones who stayed are the ones who Clark ostensibly measures in his survey, and they mark the bottom signal essentially.  If so, not sure I buy this as a methodology.

Now with the land and business income in the US, the immigrants were doing better, but still all those gains were not immediate.  Fair to say the social climb of the immigrant family goes on generations.

Most of those Scandinavian families did not stay farmers, by the way, much as they might have tried.  The common experience of the Midwest, Scandinavian farm family is the same as that of the Okie, whose archetypical narrative is maybe better known.   Most / many Scandinavian families lost their farms in the 20’s to banking problems.  The rest lost them in the Depression.  So they moved to the cities, The Twin Cities, and Des Moine, Milwaukee, Chicago, where they took up trade work, and the boys went to the war, and girls to the factories, and when that was over their kids went to college and got professional jobs.

Maybe now, 2014, we get to a point here where there is a plateau of some sort.  Notwithstanding, I got to think the income of the contemporary Scandinavian-American is quite a bit better than their Great Grandparent, etc, etc.    You control for inflation and I know those gains don’t look like a lot, but the increases in material well being are huge.

My family history as metaphor is not going to work as well for Black Americans, for obvious reasons.  But it’s about as instructive for everyone else who left Europe because it sucked for their family, IE, 19th century Irish, Eastern European Jews, others.  Emigration breaks the immobility chain.

Precariat: Different from lumpen

On one hand I think we keep coming up with words for things we already had words for.  But I don’t have much quibbles with his observation.

http://www.nytimes.com/2014/02/11/opinion/brooks-the-american-precariat.html?action=click&contentCollection=Health&module=MostEmailed&version=Full&region=Marginalia&src=me&pgtype=article