A Quick Note on Trust, Representatives, and Law Enforcement

I'm having a hard time understanding why police officers think they can earn the trust of the people when they literally turn their backs on the people's elected representatives. These organizations have so far to go just to get back to a place at which they can begin to earn that trust. And yet they continue to run as fast as they can in the other direction. I guess one possibility is that earning the trust of the people is just not that high a priority for some of them.

Links of the Week - 26 December 2014

A weekly collection of links from the Conscience Warrior Newsfeed


How economics is like 1950s Freudian psychology
Andrew Gelman

23 maps that explain how Democrats went from the party of racism to the party of Obama
Andrew Prokop

The gigantic disaster of the CIA’s torture program
Paul Waldman

It doesn’t matter if torture worked. It’s still wrong.
Amanda Taub

Employers Will Have to Raise Wages. They Just Don’t Know It Yet.
Neil Irwin

The Coase theorem and methodological nationalism
Branko Milanovic

Links of the Week - 19 December 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Chris Rock is right: White Americans are a lot less racist than they used to be.
Christopher Ingraham

Capitalism is officially broken: Even doggy day care workers have non-competes now
Matt O'Brien

The Fabric of Our Lives: The brutal history of cotton debunks many of the most popular myths about capitalism.
Eric Herschthal

How Our Taxi Article Happened to Undercut the Efficient Market Hypothesis
Josh Barro

Sociology vs.the Empire
Noah Smith

Which City Has The Most Unpredictable Weather?
Nate Silver & Reuben Fischer-Baum

What if we priced food in gold?
The FRED Blog

The imaginary world of small state people
Simon Wren-Lewis

Decline in the Labor Force Participation Rate: Mostly Demographics and Long Term Trends
Bill McBride

The Price of Pork Bellies
Jonathan Wight

Links of the Week - 12 December 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Conservative pundits might like Obama more if he really were a caudillo
Matthew Yglesias

Graphing GDP components with our new release view
The FRED Blog

Why do traffic jams sometimes form for no reason?
Joseph Stromberg

The Gospel of Rudy Giuliani
Ta-Nehisi Coates

Endocrine Disruptors and the Brain
Jonathan Wight

Barack Obama, Ferguson, and racial wounds unhealed
Paul Waldman

Why do we think businesspeople will make good politicians?
Paul Waldman

We shouldn't talk about Ferguson without talking about guns
Matthew Yglesias

Barack Obama, Ferguson, and the Evidence of Things Unsaid
Ta-Nehisi Coates

Unemployment by occupation
The FRED Blog

Links of the Week - 5 December 2014

A weekly collection of links from the Conscience Warrior Newsfeed


FRED Release View Tutorial
The FRED Blog

An example of FRED Release View
The FRED Blog

Measuring labor costs
The FRED Blog

If You're White and Feel Discriminated Against, Jose Antonio Vargas Wants to Talk to You
Inae Oh

Wait! The right wants a new CBO director after all.
Lori Montgomery

The Never-Ending Replay of November 22, 1963
Larry Sabato

The Wisdom of Peter Schiff
Paul Krugman

Have Economists Been Captured by Business Interests?
Justin Fox

Skeptical Football: Patriots vs. Cardinals And An Interactive History Of The NFL
Benjamin Morris

Economics Is a Dismal Science for Women
Noah Smith

Links of the Week - 28 November 2014

A weekly collection of links from the Conscience Warrior Newsfeed


The SEC West and Maximum Likelihood
Chase Stuart

Elmendorf for CBO Director
Greg Mankiw

Repeat After Me: The Quantity of Labor Demanded is Not Always Equal to the Quantity Supplied
Roger Farmer

Instant Runoff Voting and Strategic Voting
Matt Bruenig

It Shouldn't Need Saying...
James Wolcott

Congress would rather you drive to work than take public transit
Emily Badger

Federal, state, and local expenditures
The FRED Blog

Whatever Happened to Overtime?
Nick Hanauer

Walmart’s Weatherman
Alison Griswold

Why Scott Walker Might Be Our Next President
Kevin Drum

Links of the Week - 21 November 2014

A weekly collection of links from the Conscience Warrior Newsfeed


This billionaire thinks the Fed is missing the hyperinflation in the Hamptons
Matt O'Brien

Commentary: Politics and Jobs
Bill McBride

Trickle-down Inflation
Jonathan Wight

Employment: Party Like It's 1999!
Bill McBride

The real reason Valerie Jarrett is the most hated person in Washington
Matthew Yglesias

6 questions about Washington, DC, statehood you were too disenfranchised to ask
German Lopez

The gold standard is a perfect currency choice for ISIS
Matthew Yglesias

42 maps that explain World War II
Timothy B. Lee

AOL’s ‘digital prophet’ is everything wrong with Corporate America today
Matt O'Brien

The NAIRU, explained: why economists don't want unemployment to drop too low
Matthew Yglesias

Links of the Week - 14 November 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Why turning our clocks back Sunday makes no sense
Chris Mooney

Decomposing the velocity of money
Sober Look

The Day the Wall Came Down

Fred Kaplan

Once again, the jobs report escaped the margin of error

Danielle Kurtzleben

The labor force participation rate is at a low point

Mitchell Hartman

The Mayor Who Solved Boston

Peter Canellos

Meet Elmus Wicker

David Warsh

On financial stress

The FRED Blog

Apple borrowing billions to pay shareholders is everything wrong with capitalism today

Matt O'Brien

The government has finally stopped sabotaging the economy

Danielle Kurtzleben 

Links of the Week - 7 November 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Americans don't have a constitutional right to vote — it's time for that to change
Matthew Yglesias

What Republicans don’t get about the minimum wage
Paul Waldman

How fast has the unemployment rate declined?
The FRED Blog

The real problem with Joni Ernst’s quote about guns and the government
Paul Waldman

A Few Comments on QE
Bill McBride

Gap between wages and rents continues to grow

Sober Look

Regulation and private laws

Matt Bruenig

The State Does Not Enforce Most Agreements

Matt Bruenig

A $90 Million Condo Flip Shows What’s Wrong With Financial Capitalism

Neil Irwin

Of sticky and flexible prices

The FRED Blog

Links of the Week - 31 October 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Dollar strength and inflation expectations
Sober Look

How the media has helped normalize GOP crazy
Paul Waldman

Greenberg’s Folly

Zachary Karabell

An Excess of Virtue?

Jonathan Wight

One paper by Nobel Prize winner Jean Tirole that every internet user should know

Matthew Yglesias

The Nobel prize goes to Jean Tirole

The Economist

Understand the research that just won Jean Tirole the economics Nobel Prize

Danielle Kurtzleben

Morning Must-Read: Annie Lowrey: Amazon Is Not a Monopoly

via Brad DeLong

Jean Tirole won the 2014 Nobel Prize in Economics for actually showing us how the real world works

Matt O'Brien

Jean Tirole’s Nobel Prize Is Also a Win for Modern Microeconomic Theory

Justin Wolfers

Posner Rethinks Voter I.D. Laws

Jonathan Wight

Three ways of understanding the world

Noah Smith

Paul Ryan has a trick up his sleeve when it comes to taxes. It won’t work.

Matt O'Brien

An American billionaire wants to save the US economy with a betting market in New Zealand

Timothy B Lee

Wading Toward Home

Michael Lewis

When the Guy Making Your Sandwich Has a Noncompete Clause

Neil Irwin

Top economists say Piketty is wrong about wealth inequality. They misunderstood him.

Matt O'Brien

Sins of Omission

Fred Kaplan

You know there’s something wrong with the economy when sandwich-makers have non-compete clauses

Matt O'Brien

To say: “we fought the war on poverty and lost” is to reveal your contempt for facts.

Jared Bernstein

The Civility Whine

Paul Krugman

What’s the “normal” unemployment rate?

The FRED Blog

Big move for vol of vol

Sober Look

This is what the legacy of ‘white privilege’ looks like in Bill O’Reilly’s hometown

Emily Badger

Imperfect Competition, Legitimate at Last

David Warsh

Links of the Week - 24 October 2014

A weekly collection of links from the Conscience Warrior Newsfeed


11 ways race isn’t real
Jenée Desmond-Harris

The New United States of America
Ben Blatt

More asymmetries: Is Keynesian economics left wing?
Simon Wren-Lewis

More prices that deviate from the CPI
The FRED Blog

Fed's Labor Market Conditions Index
Bill McBride

Twitter Is Broken
David Auerbach

Labor supply/demand imbalance in the United States
Sober Look

One paragraph that explains why the American economy isn't working for the middle class
Matthew Yglesias

The real problem with Nate Silver's model is the hazy metaphysics of probability
Matthew Yglesias

Wonderful Property Rights Dispute In San Francisco
Matt Bruenig

Links of the Week - 17 October 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Now as Provocateur, Summers Says Treasury Undermined Fed
Binyamin Appelbaum

Not all prices increase
The FRED Blog

Inflation hawks keep insisting they’re right. Reality disagrees.
Matt O'Brien

How close are the US labor markets to normalization?
Sober Look

The Long Cryptocon
Paul Krugman

‘Hey, didn’t you tell me that the Pirates would win the World Series?’ ‘Yes, but I didn’t say when.’
Andrew Gelman

11 maps that explain Washington, DC
Matthew Yglesias

Inequality really is rising, no matter how you fuss with the data
Matthew Yglesias

Poverty isn't just about not having much; it's about never knowing how much you're going to have
Danielle Kurtzleben

Inflation Hawks’ Views Are Independent of Actual Monetary Outcomes
Josh Barro

Links of the Week - 10 October 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Georgia governor concocts conspiracy theory to explain away the nation's highest unemployment rate
Matthew Yglesias

Return of the Bums on Welfare
Paul Krugman

Making it cheaper and easier to trade stocks is a terrible idea
Matthew Yglesias

Why do people on Wall Street make so much money?
Matt O'Brien

Why the Fed Is So Wimpy
Justin Fox

Don't Pick the Wrong iPhone
Cass Sunstein

The Terrible Two
Paul Krugman

This recession was different
The FRED Blog

A clearer picture of housing equity before the crisis

The FRED Blog

Financial firms don’t need an inside job to get favorable Fed treatment
Kindred Winecoff

Now as Provocateur, Summers Says Treasury Undermined Fed
Binyamin Appelbaum

Links of the Week - 3 October 2014

A weekly collection of links from the Conscience Warrior Newsfeed


US health care in international context: the very picture of an outlier
Jared Bernstein

The Jobless Rate: The Worst Benchmark, Except for All the Others
Binyamin Appelbaum

The economics of reclining your airplane seat aren’t so simple
James Johnson

Scott Brown won his primary. Now he wants to be the first multi-state senator in 135 years
Andrew Prokop

The Biggest Problem in American Politics
Reihan Salam

Not all books are created equal
The FRED Blog

A brief, animated history of urban annexation
Emily Badger

Wild Words, Brain Worms, and Civility
Paul Krugman

Follow or Break the Rule?
Greg Mankiw

The demographics of the activity rate decline
The FRED Blog

If the lagging labor force rate doesn’t still embody considerable slack, then why does it increasingly predict wage growth?
Jared Bernstein

John Boehner’s Theory of the Leisure Class
Paul Krugman

Links of the Week - 26 September 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Yellen, Wages, and Intellectual Honesty
Paul Krugman

Real Americans and Real Economics
Paul Krugman

A New Reason to Question the Official Unemployment Rate

David Leonhardt

Quits and layoffs

The FRED Blog

The Axis is back

Noah Smith

Market Basket’s Employees Were More Important Than Its Shareholders

Justin Fox

3 sentences no one should forget about unions

Ezra Klein

Is America's health care underperformance a myth?

Noah Smith

8 facts that explain what’s wrong with American health care

Sarah Kliff

The class war in American politics is over. The rich won.

Nick Carnes

4th Down: When to Go for It and Why

David Leonhardt

Don’t Know Much Revisionist History

Jamelle Bouie

Commentary: Subprime Thinking

Bill McBride

What The Economist could have read before suggesting that U.S. slavery wasn’t all bad

Chris Blattman

“Force” arguments continue to be the rhetorical backwater of idiots

Matt Bruenig

Links of the Week - 19 September 2014

A weekly collection of links from the Conscience Warrior Newsfeed


The Beveridge Curve hysteresis and the long-term unemployed

Sober Look

The case against time zones: They're impractical & outdated

Matthew Yglesias

Finding old inflation data

The FRED Blog

What libertarians and conservatives get wrong about Ferguson

Paul Waldman

RBC models we can believe in?

Noah Smith

By all means, we should ‘politicize’ Ferguson

Paul Waldman

Deutsche Bank: Ignoring food price pressures could be a mistake

Sober Look

40 maps that explain the Roman Empire

Timothy B. Lee

Inequality Delusions

Paul Krugman

Fall of the House of Vanderbilt

Jonathan Wight

A conservative economist makes a devastating case against his own inflation fear-mongering

Dylan Matthews

M2 velocity and inflation

The FRED Blog

5 charts that prove it's time workers got a raise

Matthew Yglesias

Chart of the Day: Welfare Reform and the Great Recession

Kevin Drum

Mr. Piketty and the classics

Branko Milanovic

Links of the Week - 12 September 2014

A weekly collection of links from the Conscience Warrior Newsfeed


White people are winning the war on whites
Christopher Ingraham

Are libertarians ready to embrace a broader notion of freedom?
Noah Smith

How Republican Craziness Is Undermining the South’s Massive Keynesian Stimulus
Mike the Mad Biologist

Measuring risk
The FRED Blog

The Gold Standard and Price Inflation
David Andolfatto

Libertarian Fantasies
Paul Krugman

Still No Wage Pressures to Speak Of…And Yet, People Speak of Them…
Jared Bernstein

Steps and the City
Paul Krugman

Yes, women's labor force participation matters
Noah Smith

The World Bank summed up the entire global economy in one chart
Matthew Yglesias

CPI component volatility
The FRED Blog

This billionaire has a message about inequality other billionaires aren’t going to like
Ezra Klein

Has the Beveridge Curve Really Shifted?
Jared Bernstein

Why aren’t libertarians talking about Ferguson?
Paul Waldman

Obama’s critics are suddenly sure Hillary Clinton is great
Ezra Klein

Links of the Week - 5 September 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Inflation, Unemployment, Ignorance
Paul Krugman

In Investing, 'When' Matters Just as Much as 'What'
Neil Irwin

We Don’t Need to End “Too Big to Fail”
Eric Posner

Inflation OCD
Paul Krugman

Why the Rich Should Call for Income Redistribution
Mark Thoma

Why 70% of the people killed in Israel-Gaza violence are innocent Palestinian civilians
Max Fisher

James Garfield, Modern Medicine, and Economics
Jonathan Wight

Hawks Be Gone
Paul Krugman

Let's Hope the GAO Report Ends the Too-Big-to-Fail Subsidy Distraction
Mike Konczal

Good News on Financial Reform
Paul Krugman

Food, Energy and the Fed
Jon Hilsenrath

Tight rental market holding back household formation
Sober Look

Broken Windows Policing Kills People
Jamelle Bouie

The case for a maximum wage
Matthew Yglesias

These 7 Charts Show Why the Rent Is Too Damn High
Erika Eichelberger & AJ Vicens

Links of the Week - 29 August 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Chart: Even mediocre CEOs get huge pay packages
Danielle Kurtzleben

Wall Street Skips Economics Class
Noah Smith

National unity sure is helpful
Noah Smith

Why Voters Aren’t Angrier About Economic Inequality

Eduardo Porter

National Review’s Dishonest History

Jamelle Bouie

Achieving Greater Long-Term Wealth Through Index Funds

Charles Rotblut & John C. Bogle

Thoughts on the Fed's New Labor Market Conditions Index

Carola Binder

Addressing misconceptions about the Consumer Price Index

John S. Greenlees & Robert B. McClelland

Why a Soaring Stock Market Is Wasted on the Young

Neil Irwin

In Investing, 'When' Matters Just as Much as 'What'

Neil Irwin

The US Phillips curve
Sober Look

Moore of the same
Paul Krugman

North Carolina’s Misunderstood Cut in Jobless Benefits
Justin Wolfers

On State Unemployment Rates, It’s Analyst Beware
Justin Wolfers

Spurious correlation
The FRED Blog

Links of the Week - 22 August 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Austrianism, wrong? Inconceivable!
Noah Smith

The most important chart nobody is talking about
Matthew Yglesias

The intellectual cesspool of the inflation truthers
Matt O'Brien

Meet Rutherford: The surprisingly durable American habit of naming kids after sitting presidents.
Ben Blatt

Tipping perpetuates racism, classism, and poverty — let's get rid of it!
Brandon Ambrosino

The free market is an impossible utopia
Henry Farrell

Republicans want to control, not end, the Fed
Matt O'Brien

On the Difference Between GNP and GDP
Dan Hirschman

Dear inflation truthers: This is how averages work
Matt O'Brien

Let them eat cosmopolitanism
Ryan Avent

What Is "Subprime"?
Calculated Risk

Why more companies want pensions off their books
Michael A. Fletcher

Is economics jargon distortionary?
Simon Wren-Lewis

Overruled
The Economist

Less than a quarter of Americans get the most important investment question right
Dylan Matthews

Links of the Week - 15 August 2014

A weekly collection of links from the Conscience Warrior Newsfeed


7 papers, 4 government inquiries, 2 news investigations and 1 court ruling proving voter fraud is mostly a myth
Christopher Ingraham

The Monetary Fever Swamps
Paul Krugman

Debt- and deficit-to-GDP dynamics
The FRED Blog

What the Beveridge Curve may tell us about the U.S. labor market
Nick Bunker

Has the Beveridge Curve Shifted?
Murat Tasci & John Lindner

Flows From Unemployment to Employment & Extended Unemployment Insurance
Robert Waldmann

New Tool from Atlanta Fed: GDPNow
Bill McBride

Brookings: One political party is actively working to make government fail (guess which one!)
Christopher Ingraham & Tom Hamburger

In search of search theory

John Quiggin

How conservatives won with Obamacare

Ezra Klein

How long can the GOP last as the cranky oldster party?

Matthew Yglesias

We Didn’t Build That

David Weigel

A three-headed hydra: Measuring inequality

The Economist

7 reasons the gold standard is a terrible idea

Matthew Yglesias

Debt Shall Have No Dominion

Paul Krugman

Links of the Week - 8 August 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Trick or Tweak
Paul Krugman

The economy’s troubling double standard for black men
Jonnelle Marte

Burwell vs. Hobby Lobby and the Decay of Welfare Capitalism
Brad DeLong

A Few More Thoughts on the Ex-Im Bank
Jared Bernstein

Mapping international data
The FRED Blog

The Great Disinvestment
Paul Krugman

The return of ‘47 percent’ and the endless political class war

Paul Waldman

These Ages of Shoddy

Paul Krugman

Donors Give More When They Have a Sense of Belonging

Robert Shiller

Why I'm tired of hearing about 'that' civil rights movement

John Blake

Austrian Economists, 9/11 Truthers and Brain Worms
Noah Smith

The Tragic Success of Freedom Summer
Josh Zeitz

"I Thought I Could Swing It": The Strange Life and Presidency of Silent Cal
Anthony Bergen

Why printing more money could have stopped the Great Recession
Timothy B. Lee

The spontaneous combustion theory of inflation
Greg Ip

Links of the Week - 1 August 2014

A weekly collection of links from the Conscience Warrior Newsfeed


40 maps that explain World War I
Zack Beauchamp, Timothy B. Lee and Matthew Yglesias

The Pitchforks Are Coming… For Us Plutocrats
Nick Hanauer

More than three quarters of conservatives say the poor “have it easy”
Christopher Ingraham

A black man with a college degree is as likely to be working as a white college dropout
Danielle Kurtzleben

63% of Americans believe 'blacks who can't get ahead are mostly responsible for their own condition'
Max Fisher

Why free parking is bad for everyone
Joseph Stromberg

Yes, if You Cut Taxes, You Get Less Tax Revenue
Josh Barro

Demographics: Prime and Near-Prime Population and Labor Force
Bill McBride

Oldies But Goodies

Paul Krugman

Moaning Moguls

James Surowiecki

Links of the Week - 25 July 2014

A weekly collection of links from the Conscience Warrior Newsfeed


America As A Lousy Exporter
Paul Krugman

The spontaneous combustion theory of inflation
Greg Ip

Chris McDaniel Thinks Winning With Black Votes Is Somehow Illegitimate
Jamelle Bouie

Wall Street is talking about inflation, but betting against it
Matthew Yglesias

How big is the federal government?
FRED Blog

Is it secular or is it stagnation?
Greg Ip

The war dividend
Ryan Avent

The Value of a First Down
Chase Stuart

Why Government Pension Funds Became Addicted to Risk
Josh Barro

------------

Understanding the New Classical revolution
Simon Wren-Lewis

The Rise and Fall of the New Classical Model
Mark Thoma

Stagflation and the Fall of Macroeconomics
Paul Krugman

Why did the New Classical Revolution happen?
Noah Smith

Marginal Coffeehouse: Supply and Demand

The following entry is cross-posted from Marginal Coffeehouse, a new economics education blog. This entry, and most of the entries that will appear on Marginal Coffeehouse utilize content from the Wolfram Demonstrations Project. This requires the use of a small, unobtrusive browser plugin.


Supply and Demand

When many people think of 'economics,' the first idea that comes to mind is 'supply and demand.' Consumers of business news are quite used to commentators and analysts, when asked why gas prices have risen, or why wages are low, or why salmon costs more than tuna, explaining that 'It's supply and demand.'

What exactly does that mean? Most people probably have an intuitive sense; 'supply' refers in some way to the amount of something that is for sale, and 'demand' refers in some way to how much people want. This is basically right. But think about it: both of those intuitive definitions are referring only to quantities. So where do prices come in? To answer that question, we've got to think clearly about demanders and suppliers.

Links of the Week - 18 July 2014

A weekly collection of links from the Conscience Warrior Newsfeed


The comovement of investment and GDP
The FRED Blog

A lose-lose proposition
The Economist

Rental home shortage is America's next housing crisis
Sober Look

21 charts that explain how the US is changing
Danielle Kurtzleben

Sympathy for the Trustafarians
Paul Krugman

Links of the Week - 11 July 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Wall Street and A Dirty Little Secret
Bill McBride

The Wonking Dead
Paul Krugman

Why We’re All Crony Capitalists, Like It or Not
Neil Irwin

Recent declines in labor force participation are not driven by discouraged workers
Sober Look

Thoughts on Robert Skidelsky’s Manifesto for the Reform of the Anglo-Saxon Economics Curriculum
Brad DeLong

Links of the Week - 4 July 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Wrongness, OK and Not
Paul Krugman

The GOP’s Grifter Problem
Jamelle Bouie

What really happened to the best plan to help overly-indebted homeowners?
Matthew Yglesias

Voter Fraud Is Rare, but Myth Is Widespread
Brendan Nyhan

The Corporates and the Crazies
Paul Krugman

Links of the Week - 27 June 2014

A weekly collection of links from the Conscience Warrior Newsfeed


How much does right-wing rhetoric contribute to right-wing terrorism?
Paul Waldman

40 maps that explain food in America
Ezra Klein and Susannah Locke

What If the Rise in Income Inequality Had Never Happened?
Josh Zumbrun

Markets Are Less Volatile. Should We Worry?
Neil Irwin

Disciplined Democrats
Paul Krugman

Dual Endogeneity: Capital Share, Institutional Failure, and Piketty

While much of the economics and finance commentariat has been debating Thomas Piketty's epic Captial in the Twenty-First Century in recent months, one point I have not seen raised is whether a concern for inequality is increasing in national income. That is to say, do countries begin to care more about inequality more as they become richer? (I am analogizing this to the construction employed by Brad DeLong regarding government services as a normal good on a country-wide level. See his 2010 IAS 107 lectures.)

So the hypothesis here is that "concern for economic inequality" is a normal good, in the sense that, as nations become wealthier, they demand more of it. This is a loquacious way of saying, in effect, that this is a first-world problem. 

This is not, of course, to minimize the seriousness of the issue. Whether one believes that the marked increase in income and wealth inequality in the developed world over the last thirty or forty years is justified (the "wages are determined by the value of the marginal product" argument), or not justified (the "wages include economic rents and are determined, at least in part, by market power" argument), or if one subscribes to some hybrid of these two views, the plain fact is that economic inequality is rising. In the former view, the earnings of lower-income workers have been stagnant because their skills have not kept pace with technology, and globalization has exposed them to foreign competition. In this view, people with less capital have chosen to save less of their income than people with more capital. In the latter view, institutional changes have stripped lower-income workers of the bargaining power to negotiate wages that keep pace with increases in productivity, and these workers have consequently saved less as their wages tend toward subsistence.

Just as there is a continuum of views as to the reasons for rising economic inequality, there are (at least) two views about what this rise means. First is the "negative feedback" view, popular among those whose economic views tend toward those of the New Classical school. In this view, rising inequality serves as an incentive to technological progress, which is inherently egalitarian. As new technologies emerge, some economic hegemonies are broken, while new ones are made. Thus, (some of) the rich become poorer and (some of) the poor become richer. From this perspective, economic inequality is likely periodic over longer time horizons.

The alternate view about the meaning of a rise in economic inequality is the "positive feedback" view. This is Piketty's prediction. His now-famous "r > g" framework describes a relationship among returns to capital, economic growth, the elasticity of substitution between capital and labor, and the capital share of income in which returns to capital are sufficiently high so as to increase the capital share steadily over time. In this framework, the capital share of income rises asymptotically. This leads to economic inequality as the stock of capital is disproportionately concentrated in the hands of a small fraction of the populations of industrial countries.

Neither view about the justification of rising economic inequality is inherently incompatible with either view about the implication of the rise. That is to say, the view that all incomes are "rightly earned" (determined by the value of one's marginal product) is not intellectually inconsistent with the view that the capital share is tending toward infinity. Nor is it intellectually inconsistent to simultaneously believe that wages are largely determined by market power and that economic inequality is cyclical and self-correcting. 

Whether or not economic inequality is justified, if its rise is not self-correcting, the end result would be disastrously destabilizing. Whether this means the Marx-Engels story about workers casting off their bonds, or it means the Acemoglu-Robinson story about a decreased faith in democratic and market institutions, leading to greater political corruption and a breakdown of property rights and other norms, the story is certain to end in tears. Even if the rise in economic inequality is self-correcting, there is a danger that the correction looks less like the "creative-destruction-through-technological-progress" story, and more closely resembles the "industrial-sabotage-and-torching-the-estates" story. 

Piketty's remedy for this problem is a global wealth tax. This policy is likely practically difficult and politically impossible, but it is important that it be discussed; income taxes were once thought practically difficult and politically impossible, but most of the industrial world has now had them for a hundred years. In the United States, this would actually mean an expanded wealth tax, as most communities already tax developed and undeveloped land, leading to a deeply regressive wealth tax, as the share of total wealth represented by one's home is decreasing in income. 

So this brings us back to "concern for economic inequality" as a normal good. Maybe rich countries care about this issue because people in rich countries have more to lose in a upheaval. That's a pretty unsatisfactory answer; whatever people have got, "most of it" is always a lot to lose. Maybe rich countries care more about this issue because their citizens have grown comfortably unaccustomed to riots and burning factories, while people in less-developed countries expect that there will be those sorts of things, and are chiefly concerned with feeding, clothing, and housing their families. 

Whatever the reason, economic inequality is rising, and has been for a few decades. And whatever the reason, people have begun to notice, and to care. So what is to be done about it? As noted above, the only wealth tax that is within the Overton Window is the regressive property tax model in place in most of the United States. If Piketty's prediction holds, and the capital share of income continues to rise, the frontier of politically acceptable policies will retreat further from any policy that might reverse that trend. This is grim.

Another approach could be a policy portfolio that aims to democratize capital ownership. This could take the form of government-managed individual stock and bond portfolios, sort of a government 401k. One problem with this is that people are going to want to liquidate them prematurely. Can that be disallowed? This plan seems problematic. Another possibility is a US sovereign wealth fund. If the federal government raised revenue in this manner, it would allow tax rate reductions for poorer people, reducing inequality indirectly.

There are some that would argue that the moral way to organize society is to establish some set of rules and then let the market sort it out. Implicit in this view is that there are no externalities, no irrationalities or other behavioral inefficiencies, and no information asymmetries. Also implicit in this view is that the effect of market power imbalances on trade are either immaterial, or a feature of the system. It is a natural result of this view that "limited government" could be viewed as a virtue in and of itself. 

The fact is, free-marketeer rhetoric aside, there is neither a divinely-ordained income and wealth distribution, nor a divinely-ordained optimal mix of command and markets. It's all choices. This is why democratic institutions are so important. The increased concentration of wealth and incomes has begun to erode both democratic institutions, via the sanction of purchased political favors, and the belief in the utility of markets. The dung heap of history is teeming with the rotten carcasses of civilizations that lost faith in democracy and markets. If we are lucky, the path dependency of this condition is weak.

For an excellent mathematical treatment of r > g, including a necessary discussion of the different components of r, see Brad DeLong.

Links of the Week - 20 June 2014

A weekly collection of links from the Conscience Warrior Newsfeed


No Need to Read the Fed’s Beige Book if You Read This Instead
Binyamin Appelbaum

The War on Coal has Already Happened
Paul Krugman

A former Obama advisor: sometimes less health care is better health care
Adrianna McIntyre

How much do Americans drive?
The FRED Blog

Why is Capital So Much Stronger than Labor?
Jared Bernstein

Mankiw, The Recovery, and Intellectual Consistency

Greg Mankiw passes along the following image:

And the following analysis:

At face value, it indicates the labor market is almost back to normal. If so, this fact suggests that the Fed may soon need to back off its policy of near zero interest rates, and that the slow pace of economic growth experienced in recent years reflects slow growth in potential due to adverse structural forces rather than inadequate aggregate demand.

If we can go back in time to the heady days of 2012, when Professor Mankiw was going all-out to elect his client Mitt Romney, we will find this post, in which Professor Mankiw purports to "[monitor] this so-called recovery" with the following image:

This image, accompanied only by the phrase "monitoring this so-called recovery," seems to be intended to imply that the recovery from the Great Recession of 2008, which had occurred during the presidency of Governor Romney's opponent, Barack Obama, was tepid. A casual reader may also infer from Professor Mankiw's sparse presentation that he intends readers to place the blame for this tepidity at the feet of President Obama. This is Natural and Good, as, after all, Professor Mankiw had a professional interest in Governor Romney's defeat of President Obama.

So, returning now to the first image, and the attendant commentary. Professor Mankiw now believes that "the labor market is almost back to normal," and that, accordingly, "the slow pace of economic growth experienced in recent years reflects slow growth in potential due to adverse structural forces rather than inadequate aggregate demand."

Since Professor Mankiw was good enough to provide a FRED graph to make his 2012 case, we can easily extend that analysis up through the present-day. Doing so gives us the following image, which shows that the trend has largely continued:

Now, if Professor Mankiw's blog posts were not typically so, ahem, brief, his readers may have enjoyed the gift of his analysis as to why the first image shows that "the labor market is almost back to normal," while the second and third images show a recovery that, in Professor Mankiw's view, may not truly even deserve that label.

An alternate possibility is, of course, that both posts are self-contained drive-by hit pieces that do not reflect any pretense of inter-temporal intellectual consistency. Only Professor Mankiw can know for sure...

Links of the Week - 13 June 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Here’s some wasteful Big Government spending. Why isn’t Fox News outraged?
Paul Waldman

Hate your cable company? Economics explains why
Matthew Yglesias

No, David Brooks, we don’t need less democracy
Matt O'Brien

Does David Brooks know that Simpson-Bowles failed?
Ezra Klein

You can be a beneficiary of racism even if you’re not a racist
Ezra Klein

Deflating Expectations
Zachary Karabell

Driverless cars will mean the end of mass car ownership
Timothy B. Lee

Do Conservatives Have Any New Ideas?
Noah Smith

That Old-Time Inequality Denial
Paul Krugman

Unjust Deserts
Brad DeLong

Links of the Week - 6 June 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Why the Housing Bubble Tanked the Economy And the Tech Bubble Didn’t
Amir Sufi and Atif Mian

Analyzing Position Values In the 2014 Drafts
Chase Stuart

Inflation targeting vs price-level targeting: A new survey of theory and empirics
Michael Hatcher & Patrick Minford

When School Reform And Democracy Meet
Ta-Nehisi Coates

The Hot Seat: ‘Stress Test,’ by Timothy F. Geithner
Michael Lewis

Market priesthood
Noah Smith

Faith-based Freaks
Paul Krugman

Unemployment: It’s Not Personal
Paul Krugman

Economists used to be the priests of free markets—now they’re just a bunch of engineers
Noah Smith

Tim Geithner and the paradox behind the government’s crisis response
Zachary Goldfarb

Why Tim Geithner is wrong on homeowner debt relief
Atif Mian & Amir Sufi

Why salaries shouldn't be secret
Felix Salmon

Reading "Capital": Chapters 10, 11, and 12
Ryan Avent

I'm not a Democrat. I'm an anti-Republican.
Damon Linker

The Green Lantern Theory of the Presidency, explained
Ezra Klein

Links of the Week - 30 May 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Rich Parents Planned This
Matt Bruenig

Derek Thompson: Reads Annie Lowrey on Why America’s Essentials Are Getting More Expensive While Its Toys Are Getting Cheap
via Brad DeLong

Inequality Has Been Going On Forever ... but That Doesn’t Mean It’s Inevitable
David Leonhardt

The Limits of Lyndon Johnson
Elizabeth Drew

Why Participation Is Down
Evan Soltas

Capital in the Twenty-First Century at The Graduate Center, CUNY [video]
via Mark Thoma

Distance to inflation target
The FRED Blog

Where do profits come from?
Matthew Yglesias

How NFL teams ignore basic economics and draft players irrationally
Joseph Stromberg

Piketty’s Arguments Still Hold Up, After Taxes
Jared Bernstein

Inside the President’s Inner Circle
Sandra Sobieraj Westfall

Sticky prices: how we confuse students, and sometimes ourselves -
imon Wren-Lewis

The diminishing usefulness of the Fed Funds rate
Sober Look

The Stock Market, in Six Charts
Neil Irwin

Slides for: Mr. Piketty and the “Neoclassicists”: A Suggested Interpretation
Brad DeLong