Thomas Piketty and Emmanuel Saez Respond to Alan Reynolds

Here's the response of Thomas Piketty and Emmanuel Saez to Alan Reynold's op-ed in the WSJ that has been under discussion here. As they note, Reynold's critiques "do not invalidate our findings and contain serious misunderstandings on our academic work":

Response by Thomas Piketty and Emmanuel Saez to: The Top 1% . . . of What? by ALAN REYNOLDS: In his December 14 article, “The Top 1% … of What?”, Alan Reynolds casts doubts on the interpretation of our results showing that the share of income going to the top 1% families has doubled from 8% in 1980 to 16% in 2004. In this response, we want to outline why his critiques do not invalidate our findings and contain serious misunderstandings on our academic work.

First and most important, Alan Reynolds points out that, in contrast to our results, the official Census Bureau figures show only a modest increase in the top 5% income share. The reason for the discrepancy is that the Census Bureau estimates are based on survey data which are not suitable to study high incomes because of small sample size and top coding of very high incomes. In contrast, tax return data provide a very accurate picture of reported incomes at the top. Our key contribution was precisely to use those tax data to construct better inequality estimates. We found that only families within the top 1% experienced very large gains relative to the average since 1980 and that upper middle class families (the next 4% below the top 1%) experienced only modest gains (similar to the modest increases found in the Census Bureau figures for the top 5%). This shows that the Census Bureau figures, based on data which cannot measure top 1% incomes, misses the extraordinary gains going to the top 1%, which is perhaps the most striking change in the US income distribution in recent decades.

Second, Alan Reynolds asserts that our estimates are upward biased because our total income measure is smaller than personal income from National Income and Products Accounts. Our measure of income is cash market income defined as gross income reported on tax returns less government transfers such as Social Security or Unemployment Insurance. Personal income is a broader measure of income which also includes non-cash market income such as fringe benefits from employers, imputed rent for homeowners, under-reported income (due to tax evasion) but also government transfers such as Medicare, Social Security. Conceptually, it makes more sense to focus either on market income (before deducting taxes and including transfers) or on disposable income (market income net of taxes and including transfers). We chose to estimate inequality based on (cash) market income but it would certainly be interesting to estimate inequality based on disposable income as well to assess the effects of government taxes and transfers on inequality. The official concept of personal income is not appropriate for either computation because it mixes market income with transfers but does not subtract taxes. Alan Reynolds points out that transfers have increased since 1980 but taxes on high incomes have decreased substantially. Actually, we have estimated that the average Federal tax burden on top 1% families has decreased from 44.4% in 1980 to 30.4% in 2004. The decrease in taxes at the top outweighs the increase in transfers at the bottom. Therefore, the top 1% disposable income share has most likely more than doubled since 1980.

Third, Alan Reynolds points out that reported incomes may not reflect true incomes because of tax evasion or tax avoidance. This is a legitimate concern and we, along with a number of colleagues, have actually spent substantial time investigating this issue. Alan Reynolds has picked some of the facts in order to provide a very skewed view. Most of the scenarios described by Alan Reynolds, such as a shift from corporate income to individual income or from qualified stock-options to non-qualified stock options, would imply that high incomes used to receive capital gains instead of ordinary income. For example, a closely held C-corporation which does not distribute its profits increases in value and those accumulated profits would appear as realized capital gains on the owner individual tax return when the business is sold. Yet, our top 1% income share series including realized capital gains has also doubled from 10.0% in 1980 to 19.8% in 2004.

In contrast to what Alan Reynolds suggests, there is a debate among economists on whether reported incomes respond to tax rates. The emerging consensus is that there can be substantial responses in the short-run due to retiming of income such as realizing capital gains before a tax rate increase, but that the long-term response is small. For example, as shown by Austan Goolsbee at the University of Chicago, the Clinton 1993 top rate increase from 31% to 39.6% did induce executives to exercise their stock-options in 1992 instead of 1993 but executive pay resumed its dramatic surge after 1994. Indeed, our series focusing exclusively on W2 wage and salary income (therefore excluding both business income and capital income), show that the top 1% wage income share has increased from 6.4% in 1980 to 11.6% in 2004, no doubt a very large increase as well. There is a very large literature on executive compensation and one point of agreement is that executive pay has surged relative to average pay over the last two decades, whether one counts stock-options when exercised or when granted, or even if one excludes stock-options entirely.

Even the small point on 401(k)s is conceptually mistaken: pension income is reported on tax returns when withdrawn during retirement and hence returns on pension funds are implicitly included in our income measure. Furthermore, before 401(k)s where introduced in the 1980s, workers had traditional Defined Benefits pensions which also generated capital income which were not reported on tax returns before retirement.

In sum, our work has shown the top 1% income share has increased dramatically in recent decades and has reached levels which had not been seen since before World War II and even since before the Great Depression when including capital gains. The reduction in taxes at the top since 2001 has mechanically exacerbated the discrepancy in disposable income between the rich and the rest of us. Thus, it is obvious that the progressive income tax should be the central element of the debate when thinking about what to do about the increase in inequality. Even conservatives like Alan Reynolds would agree and that is why they prefer to dismiss the facts about growing income inequality rather than face the debate on income tax progressivity at a time of growing economic disparity.

Thomas Piketty is Professor of Economics at the Paris School of Economics Emmanuel Saez is Professor of Economics at the University of California at Berkeley December 20, 2006.

Here is Alan Reynold's "stunned silence" from a comment to another post. This isn't much of  rebuttal, but he acknowledges that with a promise of more to come:

...Please take a look at the reply that Emmanuel Saez posted on his site. I will respond to it in due course. Piketty and Saez do not seem to address the data break after 1986, but they do suggest that personal income is too broad a measure. Simply adding transfer payments alone would cut the top 1 percent's share by 3 percentage points, but they say that requires also subtracting taxes. The CBO and Census both do that, and that is some of the data I referred to but did not show.

The short op ed could not and did not explain why I suggested there is no clear evidence of a signficant and sustained increase in any reasonably broad measure of inequality since 1988 (or in some cases since 1985-86).

The top 1%, after all, leaves distribution within the other 99% a total mystery, even if one really believes that gains at the top are somehow subtracted from someone else (if Smith gets a raise, must Jones get a pay cut?). I'm talking about Gini coefficients for disposable income and consumption, 90/10 ratios for salaries of full-time employees, comparative growth of SCF real median income by decile and quintile -- that sort of thing. If this seems baffling, I know of a textbook I can recommend. However, a small sampler of such evidence will be online at cato.org next week, and comments are always welcome.

Piketty and Saez assert that because of sampling error and top-coding Census is missing gigantic amounts of income in the top 1% -- that is, above $265,000. But no plausible guess at the difficulties of internal censorship (which Burkhauser taught us all) begins to account for the gap between Census and Piketty-Saez estimates for the top 5%. Even if we left out all income above $5 million in Piketty and Saez -- the top one-hudreth of one percent -- that would only narrow the gap by less than one percentage point.

There is a lot of explaining left to do, so stay tuned.

Yes Alan, there is. Lots. Starting with your promise that:

If anyone can demonstrate I misquoted such scholars, or am mistaken about any facts in last month's Wall Street Journal piece, I will gladly correct the record just as readily as I have now corrected the record about my 1992 piece.

We'll be waiting for the correction.

Update: See Brad DeLong's follow-up here and here.

Comments

[evagrius]

If the measure used involved W2's, then Social Security must already be included in the picture.

Don't the top 1% also receive Social Security transfers as well as Medicare? I didn't know that there was a "means test" limiting such transfers to people below a certain income limit.

[evagrius]

I wish to further point out that it's quite interesting that such a debate should occur around Christmas, the celebration of the birth of someone who, while not denouncing wealth in itself, certainly had some pointed remarks regarding the distribution of wealth.

[donna]

So, I guess in ivory towers they don't have janitors working?

[Bruce Webb]

"Don't the top 1% also receive Social Security transfers as well as Medicare? "

Not necessarily. If your entire income derives from returns on capital then it is never exposed to FICA. And even if at some point in your youth you do work for wages but don't put in enough quarters (40) you wouldn't qualify for retirement benefits. Conceivably you could get out of college at 21, get installed as a VP at Dad's firm for a salary of $97,000 a year, and then inherit the firm at 30 and quit taking a salary, and end up paying a whole bunch of money in and getting nothing out of Social Security. Meaning it sucks to be superrich and not have to work for a living.

The real strength of Social Security is that it derives nothing from capital and pays nothing to capital. Which is one reason why the holders of capital hate it - FICA represents a huge flow of cash through the economic system and they can't touch a dime of it. Its like Tantalus, the stream is so close they can touch it, yet they so far don't get a sip.

[pgl]

When one has to have Donald Luskin defend one, one has rally sunk to the bottom.

[evagrius]

Oh, that's right! You have to "work" 40 quarters to get that Soc.

But I would think think that most of these chaps have "worked" 40 quarters at least, don't you think?

[calmo]

So is this a retreat, Alan:

I'm talking about Gini coefficients for disposable income and consumption, 90/10 ratios for salaries of full-time employees,[not management?] comparative growth of SCF real median income by decile and quintile -- that sort of thing.

from the scholarly debate that acknowledges the problem is within the top 1%?

Well, I'm not proud and would like to scatter the argument as far and wide as possible. How about those auto sales figures --is Porsche having trouble or Ford? Does Porsche offer the same sort of incentives as Ford? Within Ford, does the Pinto (ok, Fiesta?, Flubo, the little economy model, Frugal?) get the same scale of incentives as The Jaguar (ok another wild guess: The STallion, The Exasperation, The Lincoln Incontinental)?
Tired of seeing those private jets leaving while you are waiting for some connecting flight?
Be thankful it's not the Greyhound Bus...
There are many sightings of this growing disparity of income/wealth --more shooting stars, even visible to scholars.
So Alan, I don't know what you are about now: less shooting stars? less Lamborginis? smaller CEO compensations for medium/large corporations?

Last poverty-stricken thing: you figure the reports from this top 1% (or whatever) are going to err on the upside or with those tax lawyers and accountants whose work is not gratuitous?

[evagrius]

I don't know. If Mr. Reynolds really wants to "see" the facts speak for themselves, so to speak, let him, if he dares, go for a walk around Washington D.C. Probably a few blocks from his place of employment, he could "see" for his little self what's going on.
But, judging from his photo, ( showing a rather constipated persona, ( I'm being crude- but then he was cruder than I previously, as he well knows)), I don't think he could survive the walk.

[Lafayette]

EVG: "such a debate should occur around Christmas, the celebration of the birth of someone who, while not denouncing wealth in itself, certainly had some pointed remarks regarding the distribution of wealth."

Yes, and the one I like most is, "It is more difficult for a rich man to enter heaven than for a camel to pass through the eye of the needle".

The "eye of the needle" is a phrase for the very small passages into walled cities (at the time), and camels had to be made to traverse them on their knees. Which means they were left herded outside the city.

[Movie Guy]

Emmanuel Saez and Thomas Piketty - "First and most important, Alan Reynolds points out that, in contrast to our results, the official Census Bureau figures show only a modest increase in the top 5% income share. The reason for the discrepancy is that the Census Bureau estimates are based on survey data which are not suitable to study high incomes because of small sample size and top coding of very high incomes."

Emmanuel and Thomas do not reference the following key publications. The first document, an excellent top-coding overview, was originally identified on this blog by Sanpete on 1 January 2007. This is the paper that Krugman acknowledged in reversing his Census Bureau questionnaire top-coding position. The second and third documents explain the Census Bureau SIPP, which I mentioned in a previous comment post.

As detailed below from the SIPP User's Guide, the matter of Census Bureau processing limits in output data and publications from SIPP and CPS extend far beyond the top-coding of the top 1% or 5% of income earners. Note the top-coding caps for output data and you see what I mean. One doesn't have to be in the top 1% of income earners to hit the Census Bureau top-coding output product caps. This is a point that Emmanuel and Thomas did not mention in Emmanuel's academic home page response to Alan Reynolds' Wall Street Journal op-ed.

Special Studies in Federal Tax Statistics
2003
Statistics of Income Division
Internal Revenue Service
http://www.irs.gov/pub/irs-soi/03preprt.pdf

Survey of Income and Program Participation (SIPP)
Census Bureau
http://www.bls.census.gov/sipp/

SIPP Users' Guide
http://www.sipp.census.gov/sipp/usrguide/sipp2001.pdf

SIPP TOPCODING SPECIFICATIONS

Appendix B:

* Note: ($xxx) - bottom-code

Monthly Top-code at:

$2,500 - Amount of monthly interest on joint municipal-corporate bonds

$3,200 - Amount of monthly interest on self-owned municipal-corporate bonds

$450 - Amount of monthly interest on joint certificates of deposit

$825 - Amount of monthly interest on solely owned certificates of deposit

$55 - Amount of monthly interest from joint checking account

$110 - Amount of monthly interest on solely owned checking account

$550 - Amount of monthly interest on joint U.S.government securities

$1,725 - Amount of monthly interest on self-owned U.S. government securities

$1,375 ($1,000) - Amount of net rent from property owned jointly with spouse

$6,000 ($1,000) - Amount of net income from rental property with others

$2,725 - Amount of gross rent from property owned jointly with spouse

$275 - Amount of monthly interest on joint money market account

$550 - Amount of monthly interest on self-owned money market deposit account

$1,775 - Amount of interest on mortgage owned with spouse

$1,650 - Amount of interest on own mortgage

$700 - Amount of dividend credited to joint margin account/reinvestment in mutual funds

$1,100 - Amount of check for jointly own mutual funds

$1,825 - Amount of dividend credited to sole margin account/reinvestment in mutual funds

$1,375 - Amount of check for solely owned mutual funds

$2,450 ($1,250) - Amount of net income from own rental property

$4,350 - Amount of gross rent from own property

$3,300 - Amount of income from royalties

$4,750 ($1,250) - Amount of other income from financial investments

$825 - Amount of dividend credited to margin account/reinvestment in stocks owned jointly

$775 - Amount of dividend check for jointly owned stocks

$1,375 - Amount of monthly dividend credited margin account/reinvestment in stock

$1,150 - Amount of dividend check for solely owned stocks

$150 - Amount of monthly interest on joint savings account

$175 - Amount of monthly interest on self-only savings account

NA - Amount received by agency on your behalf

$1,200 - Amount of child support payments

$3,275 - Amount of alimony payments

$2,500 - Amount of pension from a company or union

$3,925 - Amount from federal civil service or other federal civilian employee pension

$3,825 - Amount of U.S. military retirement pay

$3,270 - Amount of state government pension

$3,600 - Amount of local government pension

$2,200 - Amount of income from a paid-up life insurance policy or annuity

$5,000 - Amount from estates or trusts

$2,600 - Amount of payments for retirement, disability, or as a survivor benefit

$110,000 - Amount of payments for pension/retirement lump sums

$13,625 - Amount of draw from an IRA/Keough/401k or Thrift Plan

$75 - Amount of income assistance from a charitable group

$10,900 - Amount of money from relatives or friends

$325 - Amount of lump-sum payments

$1,960 - Amount of income from roomers or boarders

$3,500 - Amount of incidental or casual earnings

$21,800 - Amount of miscellaneous cash income

See Spec No. 1 - Business: Income received this month

See Spec No. 1 - Earnings from job received in MONTH1

See Spec No. 1 - LabFor: Amount of income from this work (moonlighting) this month

See Spec No. 2 - Person: Birth year

See Spec No. 3 - Person: Age as of last birthday

See Spec No. 4 - Age Social Security Disability receipt began

See Spec No. 5 - Job: Date started this job

See Spec No. 5 - Job: Date ended this job

See Spec No. 5 - Business: Date started operating this business

See Spec No. 5 - Business: Date ended operating this business

$30 - Job: Regular hourly pay rate

$17,450 ($2,500) - Business: Net profit or loss

$999,000 - Amount rolled over into a retirement account during the reference period

$650 - Household: Amount of monthly rent

[evagrius]

Movie Guy;

So...I take it that there's a type of censorship going on?

Is this related to the maps the U.S. Census has showing the top income areas? The limit I've seen is $200K a year income.

[Movie Guy]

evagrius,

Aside from privacy exposure issues, I do not understand the top-coding caps. Weighting is another matter, but there is problem with Census Bureau output (not input questionnaire) data.

Eliminating local and regional identity concerns, the matter of top-coding caps should be eliminated in my opinion. Weighting resolves some of the other considerations.

I suppose that the Census Bureau leadership thinks that average income Americans can't figure out what some of the more exclusive gated communities represent. For the average person, the gates and manned guard shacks are a clue.

[Arne (not anne)]

'The "eye of the needle" is a phrase for the very small passages into walled cities (at the time)'
I find it ironic that a discredited interpretation is used in a discussion of interpreting economic data.

[js paine]

while u guys hare off after the reynolds wrap
prescott writes up lunacy
about welfare gains if we move to a pure savings system
ie
wipe out the tax and transfer
dead weight loss department http://minneapolisfed.org/research/WP/WP648.pdf

the tower trolls
got the big bucks to buy the fire power

sometimes u gotta pick your spots

[anne]

JS,

Agreed.

[XXX]

Very glad to see this item. Per evagrius, Social Security is not means tested, but there is a sliding scale on how SS income is taxed (or more accurately, how much is included in taxable income).
I guarantee you won't see a correction on this one, even if a correction is due. This isn't just Reynold's ego (which appears to be considerable, given the fulminating tone of his piece) but also WSJ policy. (Weirdly, there was a post on Eric Alterman's blog a few days ago on this that seems to have been pulled. Hhm).
Also, Piketty and Saez politely brush off the Reynolds suggestion that the cash ecomony and tax avoidance favor lower income types. While I agree completely based on my limited personal sample, I wish they had been more specific. But then again, with all the ground they had to cover, I suppose they couldn't deal with all of Reynolds' failings.

[anne]

http://www.nytimes.com/2007/01/08/washington/08tax.html?hp&ex=1168318800&en=e7a57e46a86b6af7&ei=5094&partner=homepage

January 8, 2007

Bush Tax Cuts Offer Most for Very Rich, Study Finds
By EDMUND L. ANDREWS

WASHINGTON — Families earning more than $1 million a year saw their federal tax rates drop more sharply than any group in the country as a result of President Bush’s tax cuts, according to a new Congressional study.

The study, by the nonpartisan Congressional Budget Office, also shows that tax rates for middle-income earners edged up in 2004, the most recent year for which data was available, while rates for people at the very top continued to decline.

Based on an exhaustive analysis of tax records and census data, the study reinforced the sense that while Mr. Bush’s tax cuts reduced rates for people at every income level, they offered the biggest benefits by far to people at the very top — especially the top 1 percent of income earners.

Though tax cuts for the rich were bigger than those for other groups, the wealthiest families paid a bigger share of total taxes. That is because their incomes have climbed far more rapidly, and the gap between rich and poor has widened in the last several years....

[Imagine my surprise....]

[evagrius]

js paine;

The Prescott piece is a fine piece of writing with the majestic royal "we" creating a verbose reality having no connection to any world I know of followed by a slew of delicate equations.

He won a Nobel prize?

[Isabel]

"...Christmas, the celebration of the birth of someone who, while not denouncing wealth in itself..."

Mmmm... Are you sure, Evagrius? ;-)

[evagrius]

Isabel;

He had some very rich friends. He ate at quite a few grand banquets. He had quite a few conversations with rich personages. Joseph of Arimathea , quite a rich man, provided the burial tomb.
But wealth accumulation was not an interest.
Wealth distribution was, however.

[Isabel]

You've got a point there (about the banquets, although the tomb says more about what Joseph of Arimathea thought of Jesus than what Jesus thought of Joseph of Arimathea). On the other hand, he, that liked to talk in riddles, was extremely explicit in condemning wealth as a burden (to leave behind if one wanted to follow him). It was not just a question of distribution. At least in the version that arrived to me and that I read long time ago...

[evagrius]

Wealth is a burden to insight but it's also an opportunity.
The question was important in the early church. That's why Clement of Alexandria wrote on the question.
( There's also the sermons of Chrysostom, fairly pointed and satiric).
It's really only recently that wealth has been seen as an indication of good moral character and hard work.

[Isabel]

And as you know, roman catholics never went that way. Anyway, my smiley refered to the fact that the Gospels themselves are in fact extremely radical on the matter (and they had to be softened very quickly for christianism to have any chance to survive (hence the wrintings of the early church).

[anne]

Isabel, this is interesting, what early writings softening the radicalism of the Gospels do you have in mind? I must think about this.

[Isabel]

Oh, I'm really not able to give you any references. My bad, I'm talking from the top of my head. But note that Evagrius, with all his knowledge on the subject, quoted the early fathers and not the gospels to support his sentence "Wealth is a burden to insight but it's also an opportunity." Because I don't think he can refer that "opportunity" thing to Jesus' teachings at all. Even about distribution, I'm not so sure: Jesus thought nothing of Mary Magdalen spending on a perfume to honour him an amount of money that would greatly help the poor. From what I remember, he says very clearly, over and over: money and earthly possessions are just a hindrance.

Of course, that causes a problem to any human organization, isn't it? So very quickly the church communities found themselves in the connundrum of needing money to function, for their good works, etc (therefore not wanting to alienate rich adherents), without betraying Jesus' teachings. The struggle between transcendence and imannence that the catholic church is still fighting...

[anne]

Yes; I will spend time thinking this through, for suddenly the contradictions strike me as interesting in a way I never before considered. How, after all, were they so readily resolved cognitively?

[Lafayette]

"It was not just a question of distribution."

He said nothing precisely about distribution or wealth accumulation. An apostle did: ""It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God." (Matthew 19:24)

He dis say much about the relationship between individuals.

When pressed to say something about whether the Jews should pay taxes to the state, he replied, "Render unto Caesar that which is Caesar's and unto God, that which is God's". Good common sense, that.

There are many interpretations of what this means. One is that there must exist a separation between church and state. The former is the domain of religious belief the latter is secular administration.

Which is no great revelation. The world has both in abundance and history shows that the two do not mix well. A brief trip to Iraq will convince anyone.

Which is why, upon having seen the experience in Europe in the eighteenth century, America's founding fathers thought they must be kept separate.

It is nonetheless amazing that there is no where in the constitution stated the separation of church and state. Just that no law will impede the establishment of a religion.

[Isabel]

I am certainly not an expert in ecclesiology, but maybe Evagrius can answer your question, Anne. All I know is that, for many centuries there was definitely a very radical pull when it comes to wealth and property. Many of the people that decided to "follow" Christ gave up all earthly possessions and lived on whatever was given to them out of charity (like sadhus, I imagine) or in exchange for manual labour. Then, came the compromises: usury stop being considered a sin; monks and nuns made personal vows of poverty but their orders accumulated great wealth (a far cry from a "lily of the field" sort of life, because they know very well where their next meal comes from, and precisely at what time it comes), etc.

Roman catholics still have an uneasy relationship with wealth, that I think they solve by saying: "Thank God for your wealth, it's OK to be rich as long as you do good and, especially, that you are not "attached" to your wealth (whatever that means, says I)".

[anne]

Isabel, the idea of a softening of the radicalism of the Gospels in relatively early Christian writings may or may not be so, but I am going to play with the idea as though it were so and will ask a couple of my old teachers what they make of the idea even for play. I need to shape a story for this however. Hmmm....

[Isabel]

""Render unto Caesar that which is Caesar's and unto God, that which is God's". Good common sense, that.

There are many interpretations of what this means. One is that there must exist a separation between church and state. The former is the domain of religious belief the latter is secular administration.

Which is no great revelation."

Not quite. As a matter of fact, it was a very new notion. Here is a very interesting link on the subject, in French only, unfortunately:

http://lalibre.be/article.phtml?id=11&subid=118&art_id=319929

[Isabel]

I would like to hear what your teachers have to say, Anne. To me this seems almost self-evident, but one should never trust that kind of evidence...

[anne]

Yes; I understand, and it may be that I am simply thinking in an anachronistic manner, which is why I want to tell myself a story. There is by the way no evidence in literature before Shakespeare that self-consciousness as opposed to awareness is significant. The theme of the oracle at Delphi was know thyself, but the knowing was in no way as Freud would evenutally have it.

Lafayette and Evagrius have given me ideas on the theme as well. I am only playing though to come to a focus.

[anne]

Here is the ultimate story of accomodation, but the problem is not time jumping and the early church could not have been the church and time Dostoevsky imagines....

http://www.beezone.com/Dostoevsky/the_grand_inquisitor.htm

1879 - 1880

The Brothers Karamazov
By Fyodor Dostoevsky
Translated by Constance Garnett

The Grand Inquisitor

"EVEN this must have a preface -- that is, a literary preface," laughed Ivan, "and I am a poor hand at making one. You see, my action takes place in the sixteenth century, and at that time, as you probably learnt at school, it was customary in poetry to bring down heavenly powers on earth....

[Lafayette]

Isabel: "As a matter of fact, it was a very new notion."

Christ's religious innovation was to preach brotherly love. How many pre-Christian religions did so? (The Greeks? The Romans? The Egyptians? The Vikings? The Buddhists? The Hindus? The Mayans?)

There IS a message.

The domain of religion is faith. There is no proof of a God or everlasting life or reincarnation. One must believe in them out of pure faith.

The need of a state was bred from an animal need to band together out of self-protection. This too was a belief, but against a real, tangible menace.

Political systems are manifestations of the art of people governing the community/nation within which they share a common destiny.

When institutions take on religious aspects and institute a beliefs-orientated management, the eventuality is almost always an excess. Secular power and the absoluteness of religious beliefs make for an explosive cocktail.

[evagrius]

If one looks at the New Testament, the four gospels in particular, one will notice that there is an ambiguity about wealth , its accumulation and use. The parables use wealth as a metaphor and illustration quite often. There is at least one instance of the distribution or redistribution of wealth, the story of Zaccheus, the little tax collector, ( and it was a rather pointed dig at the behavior of these tax collectors).
The ambiguity continues in the Acts of the apostles, ( the famous illustration of "communism" being used often for inspiration by various groups) and the letters of Paul often mention rich patrons, often women, who used their wealth discretely for charitable purposes.
The rise of monasticism is often understood as a reaction to the material accumulation the church began to enjoy after Constantine. As is usual, monasticism itself became wealthy and there is a continuous struggle between "possessors" and "non-possessors" within religious orders, (a famous one being that of the Spiritualist Franciscans vs. the others).
The conflict over wealth remains a constant in both roman catholic and orthodox traditions. It's only in some segments ofthe later protestant tradition that the conflict seems to be resolved in favor of wealth accumulation as a sign of character and hard work.
Which brings us back to the origin of this thread.
It seems to me that defenders or apologists of income inequality are really defending this view; that is, that the rich are morally superior and truly deserve their wealth. That is why they are so strenuous in defending the inequality- they're defending the moral, even metaphysical, order of the world.

[Isabel]

I don't quite agree with your first paragraph, but I do agree with the last one...

[anne]

Well, then read the Grand Inquisitor, which is a marvel. Richard Niebuhr told me that twice he and his wife had taken turns reading The Brothers Karamazov to each other over several months time. Now, that's what reading is about and could they ever read. [Does this mean no Confession for January?]

[anne]

Writing of inspiration:

http://www.nytimes.com/aponline/us/AP-California-Health-Care.html

Calif. Governor Calls for Universal Health Coverage

Gov. Arnold Schwarzenegger today proposed to extend health coverage to nearly all of California’s 6.5 million uninsured people.

[Love that Terminator....]

[maria]

First comment: The amount of attention paid to Reynolds is ridiculously out of sync with what he deserves. And that is next to none. Here is a case where intellectual credentials should have signalled that the guy is an incompetent. The reason credentials exist is so one needn't waste so much time on people like Reynolds.

Second: while poverty is one of the monastic virtues it was not the raison d'etre of monasticism. That was the opus Dei. And the opus Dei is endless prayer of praise to the Lord. Monks secluded themselves from the world so they could devote themselves to prayer, liturgical prayer.

[evagrius]

maria; Monks are secluded for both liturgical and contemplative prayer. Without contemplative prayer, there is no real monasticism.
Poverty, chosen poverty, is a far different thing than imposed poverty. Since it's chosen it can lead to contemplative freedom.
Imposed poverty, as imposed through inequality, ( which has far more insidious implications than not being able to buy material goods ), leads to a degradation and corruption of spirit.

Reynolds isn't really worth the attention except that he does seem to be getting the press as witness the WSJ etc; They must be getting desperate as the truth becomes more obvious.

[maria]

The real reason for monasteries is LITURGICAL prayer, and that is why the monks form a community. Contemplative prayer is possible anywhere. But only a monastery can organize liturgical prayer. I am a professional medievalist and know whereof I speak.

[maria]

If you don't want to take it from me, then do so from Dom David Knowles who was both monk and professor, later, at Cambridge University.

http://www.osb.org/gen/knowles/dkb02.html

[evagrius]

maria-

Then you should know the tradition- liturgical prayer is a form of contemplative prayer.

Besides, there was a variety of types of monasticism, from the "chatty" Benedictines to the silent Trappists and the hermit Camaldolese.

And that's only the Roman Catholic ones.

You should know also that the Desert Fathers/ Mothers were a combination of cenobites and anchorites, coming together only on Sundays.

If you're thinking of psalmody, the chanting of the collection of psalms in the old testament, that practice began in the desert. The monks used to chant the psalms alone in their cell.

Psalmody forms the basis of the monastic hours and the liturgical week.

In Orthodox practice, the Liturgy is only done on Sundays. The monks assemble for psalmody and the reading of sacred texts on other days.

I like David Knowles. He's an excellent writer.

[Movie Guy]

maria - "I am a professional medievalist and know whereof I speak."

Yes, that appears to help explain your considerable verbal support of Islamic fundamentalists, extreme radicals, terrorists and other anti-Western supporters in the Middle East and elsewhere.

Who started the last crusades, maria? And why?

[maria]

The point being that litugical prayer is constant prayer without interruption. This can only be done in a community and not by an individual. If you read Knowles' words he does not refer to contemplative prayer, but to liturgical prayer. Is this something you dispute?
Knowles is not just a "writer" but was a world reknown medievalist.
MG. What a silly comment. So all medievalists support Islamic fundamentalists? And extreme radicals? You lower yourself to the level of Reynolds.

[evagrius]

Movie Guy;

A complicated question, that of the Crusades. I don't think anyone has a firm analysis of that at all.

Besides, the Crusades were a disaster, especially for the Byzantine Empire. They, ( especially the Fourth which sacked Constantinople), essentially bankrupted the Byzantines and their ability to resist the Moslems, especially after the rise of the Ottomans.

[evagrius]

maria;

Perhaps you should read about Hesychasm then.

David Knowles does not explore that subject, as far as I know.

Hesychasm is not liturgical prayer but it is constant prayer.

Read Gregory Palamas for starters or the Philokalia.

[maria]

The Crusades were probably the first organized colonial effort of Western Europe. The "crusaders" went originally as armed pilgrims to Palestine to conquer the Arabs there and set up European colonies. Beginning in the late 11th century this effort went on, with advances and retreats, until the late 13th century when the Arabs managed to drive out the last of the Christian invaders. Israel is marvelous similar in many ways. Only in its case, it is Zionists who went as armed settlers to Palestine to conquer the area from the Arabs and set up a Zionist state. This might well be regarded as an instance of neo-colonialism by the West. This they did. The struggle between it and the Arabs is still going on. My guess is the the Arabs will again ultimately drive out the Zionist colonists. Others may disagree. No one can know until it happens or doesn't happen. It took the Arabs two centuries to drive out the Christians. The Palestinians have had only about sixty years so far with regard to the Zionists.

[Movie Guy]

maria - "So all medievalists support Islamic fundamentalists? And extreme radicals?"

maria, it was a joke. But rest assured that your many posts on such matters speak for themselves. Loudly, I might add.

As for your remarks on the origin of the Crusades, such are appreciated. It is interesting that you fail to mention any excusions whatsoever by those living in what is known as the Middle East into what is known as Western Europe or Europe as a whole.

[yan]

"You should know also that the Desert Fathers/ Mothers were a combination of cenobites and anchorites, coming together only on Sundays."

The precursors to monasticism are the ascetic traditions that first emerge among the Christians of the eastern Roman Empire. The earliest of the Egyptian anchorites were primarily hermetic and did not live in communities. Other charismatic "holy men" emerged in Asia Minor and the Roman controlled parts of the Middle East. Ascetism was one route to maintaining their religious authority, the other option was being a highly effective exorcist, which also seemed to be much more important in the Western Empire during the 3rd and 4th centuries.

My personal favorite was Symeon the Stylite, who was born in Syria and founded an ascetic tradition there that involved spending your life on top of a pillar. Symeon spent 37 years on his pillar and was extremely influential among his Christian contemporaries. Of course many of the stories about his life may simply be hagiographical exaggeration.

[evagrius]

Yes. Simeon Stylites was a rather cantankerous old coot insulting the rich with great aplomb.

[maria]

Another striking similarity between the medieval Crusaders and the modern Zionists is the justification given for invading Palestine to establish their respective colonies. The Crusaders said they were recovering the area for Christianity because it was the land where "Christ had trod" before the Muslim conquest. Analogously the Zionists claim that they have a right to establish their colony in Palestine and displace the Arab inhabitants because the area used to be the site of a Jewish client state in the Roman Empire.

[Isabel]

Of course, this thread is about inequality and if Reynolds is right or wrong about it (by the way, Reynolds might not have credentials, but the WSJ still does, so it makes sense to discuss what he says there). And I certainly don't intend to wade into the minefield that lies between a professional medievalist, a trained theologian and a movie guy (incidentally, this is one of the main reasons I love this blog, another one being Mark Thoma's ecletic proposals of course!). But I still have doubts about the redistribution thing. It was Zacchaeus that said: "I'll give half of my money to the poor", Jesus did not tell him to do so. I'm still convinced that in every instance, Jesus' message (as recorded in the texts we are told to trust) was just "Travel light".

Which, of course, now obliges me to go look up in a New Testament (with a Nihil Obstat, of course, so that I don't get confused) for an instance to prove me wrong.

[Lafayette]

Evagrius: “It's really only recently that wealth has been seen as an indication of good moral character and hard work. »

Not so.

The early philosopher’s (including Adam Smith) saw the riddle as early as the 18th century (the so-called “Enlightenment”) when the possession of riches (accumulated to a select land-owning aristocracy) was first suspected to be morally indecent. But, saying so too loudly could cost you your head.

This prompted their studies of “economics” and made it a philosophical treatment. They contributed some very fundamental notions that have survived the test of time, such as division of labor and comparative advantage.

Economics became a science two centuries later as its scientists discovered statistical analysis and attributed to their analyses an explanation of economic behaviour.

“There are lies, damn lies … and statistics.” But, all such analyses have depended upon a central verity: That mankind is a rational being. That they behave in ways that are considered thought and therefore rational.

There is great suspicion, at least in some minds, that such may not be the case. To have believed that humans are rational is the consequence of a much desired need to distinguish us from other animals that populate this planet. But, how much has mankind separated itself from the herd instinct and its animalistic impulses. For instance, survival of the fittest.

I wonder …

[Lafayette]

evagrius: "It seems to me that defenders or apologists of income inequality are really defending this view; that is, that the rich are morally superior and truly deserve their wealth."

I beg to differ. I doubt very much that they pose upon themselves this moral dilemma.

You are assuming that they "earned" their wealth and therefore feel divinely selected to have merited it. I suspect that, for the most part, they inherited their wealth, so that particular moral question simply is not posed.

They simply take for granted that what is theirs is theirs. What they do not understand is that accumulated wealth inevitably comes from a combined effort of all the members of a society (or economic system). There are rewards to labor and rewards to capital. Today, those rewards are not equitably distributed.

Our question is "What is the fair distribution between the fruits of these two inputs, labor and capital"?"

At the very least, simply owning an equity share in a company should not be the sole consideration. Surely, without labour no fruits will be engendered, such as shareable dividends.

So, I ask the simple question: "Why does labor content itself with only a money compensation for its input to the process? Why does it not seek an equity return on its contribution? At least the latter will guarantee that future returns on capital are shared also by the wider base that is generating them. This seems, to me, to be just and decent.

In physics, for every action there is a reaction. Let go an apple, and it will drop. Why have we suspended the notion of "action-reaction" from observable economic phenomena, such as industry and commerce?

A company may produce profits as outputs based upon the inputs of those who contribute their labor (as well as capital inputs). Why should the rewards of labor go only to a select class of directors, when, in fact, a great many more have also contributed to the fact that profits are created?

This is morally indecent. All participants deserve to be compensated for their efforts, first in terms of salary and secondly in terms of resulting dividends. (If, in fact, they result.)

And, I am not arguing that a fair share means an equal share. Not everyone contributes the same value of effort. But, neither does a company director contribute labor the value of which is 100,000 times that of the average worker. Whilst the owner of equity contributes absolutely nothing (unless they work in the company).

I think this makes a good grounding for the idea that there should be two "equity classes", one for those who work in a company and another for those who purchase equity on the market. The former should have more value than the latter. The former should be rewarded because they are principle input factors, the latter rewarded because they are property owners and holders of risk. The intrinsic value of the contribution, in each case, is substantially different.

Methinks.

[maria]

I would not exaggerate the WSJs "credentials". Some of the in depth reporting is of good quality or better, but the editorial page is little more than a Neocon sounding board. An intellectual disaster. It depends what you look at.

[Isabel]

"I would not exaggerate the WSJs "credentials". Some of the in depth reporting is of good quality or better, but the editorial page is little more than a Neocon sounding board."

So I've heard. Still people read it, because I keep reading complaints about it.

[evagrius]

Lafayette

"The early philosopher’s (including Adam Smith) saw the riddle as early as the 18th century (the so-called “Enlightenment”) when the possession of riches (accumulated to a select land-owning aristocracy) was first suspected to be morally indecent. But, saying so too loudly could cost you your head."

I think 18th century philosophers are quite "late" or "recent" in the history of humanity. That's why I stated that it was only "recently" that possessing wealth was an indication of moral superiority,
( previously it was considered a matter of luck, the whims of the gods, karma or God's favor- all independent of moral worth ).

On my remarks regarding the "moral superiority" of the wealthy, I should have clarified that such a notion is held mainly in the U.S. where the "American Dream" still holds sway and where many still hold to the view that financial success and income mobility is possible through "hard work and good character".

You're right. The wealthy themselves don't suscribe to such views but their defenders do.

Your suggestion regarding equity sharing is laudable.

I think it suggests the next development in economic theory and practice.

[Lafayette]

evagrius: "That's why I stated that it was only "recently" that possessing wealth was an indication of moral superiority,"

Wealth and political domination go politically hand in hand.

When a King claimed allegiance to Rome (meaning Catholic Rome), he was looking to be blessed by divine right.

The idea that divine right was the foundation of his kingdom was guaranteed if his coronation was then done by a prince of the church. Divine right was a sort of sainthood by which, obviously, the king could do no wrong since he was chosen by God to rule.

This was necessary for two reasons, I think:
- The first being that a fairly ignorant serfdom was submissive to the church and its teachings (which is why the church did not allow them to read and perhaps develop their own notions of religious authority) and,
- The second being that by "partnering" the church the King was able to employ it to keep his subjects submissive, particularly, if the church got a piece of the action, meaning estate holdings (which was very much the discretion of the monarch). He was also assured that his offspring, heir to the throne, would be guaranteed his heritage - thereby furthering his lineage and dynasty.

This was a wicked combination, the church AND the state (the state being the King, or as Louis 15th said, "L'état, c'est moi"), both in league with one another.

It is no surprise that both Jefferson and Franklin came back from Paris with a deep distrust for aristocracy. It was their mission to obtain support for the American Revolution, but Jefferson seethed with dislike the relationship of the monarchy and the Catholic Church. Both men spent a good many years in Paris at the service of their country.

After the French Revolution, the Catholic Church never really recovered. To this day, the French are Catholics in name only. A very minor percentage goes to church - and Protestants are more resolute in their faith. (I hear, but have no way of knowing.)

Fast forward to today: When leaders wrap themselves in the trappings of Godliness, they do it for political not religious reasons. Whether in Baghdad or Washington, it helps control the "faithful".

[evagrius]

Lafayette;

There's a bit of a difference between the "divine right" of kings, ( a myth held universally, really, for millenia though never articulated that way), and the "moral superiority" of a rather banal, middle-class ( or bourgeois), person who has " hit the glory hole".
The aristocracy was "superior" by birth, but never held to be "morally superior", just superior, ( and that view of aristocrats is fairly universal from Europe to Japan).
As for the link of Church and State- it wasn't only France that had that relationship- it was pretty much standard from Europe to Japan.
While you're correct in pointing out that few French people participate in the "cult", you underestimate the influence of Roman Catholicism in France.
Your observations on worker equity, for instance, reflect a Roman Catholic view of the worth of labor. :)

[Lafayette]

EVG: "The aristocracy was "superior" by birth, but never held to be "morally superior", just superior,"

The aristocracy was lazy but not stupid enough to deny the Church's protection, which kept the serfs in line.

They were a promiscuous lot behind doors but went to mass in order to impress the peasants and bourgeoisie, having paid for the best pews up front. (Mass was and still is a bit of religious showbiz.)

Today's aristocracy (the French call them the New Rich) and the Americans used to call the yuppies have not much of a moral compass when in comes to earning money.

"Your observations on worker equity, for instance, reflect a Roman Catholic view of the worth of labor. "

Perhaps, but I've seen those same views argued by godless French socialists, so your comment would not thrill them in the least.

But, I will admit that I obtained my sentiments from living in France and not in the states, the son of Catholic immigrants.

The value of labor is on everyone's mind and no one takes it for granted that they owe any owner more than a 35-hour work week. No one stays overtime in France and parking lots are empty on weekends.

You can hardly say that of the US. Why?

Because in the US, people have intermingled to a great extent their lives with their jobs. The French separate quite distinctly the two. There lives revolve around their family and friends and is to be enjoyed commonly to the hilt. Their job is another world apart.

Money is less important thought not to be neglected. French hourly productivity is 1% higher than American productivity, but its number of hours worked annually is about 20% less ... which is why the country is in deep sneakers as regards unemployment.

The French clearly opted for leisure time when the 35-hour work week was introduced a decade ago. They work to live and do not live to work. The French I know who have lived/worked in the US tell me so: It's great for the Yanks but not for me, thank you very much.

I respect their cultural diversity (from ours) but think they are dead wrong to incarcerate 10% of their working population in durable unemployment. This I do not sense as socially fair. Yes, unemployment payments last three times as long as stateside, but that is not what people want. They simply want to work for a decent salary. Work IS important to them - it is simply not all-consuming as perhaps in America.

[evagrius]

Lafayette;

I too am an immigrant from France and my basic education, ( years 1-3) were in France to which I am eternally grateful, ( they taught me the need to study hard, be responsible etc; - of course that was many moons ago).
The French socialists you speak of may look askance at the notion that their socialist values are really those of Catholic peasants, but they shouldn't.
Of course the aristocrats used the Church and vice-versa, but the Cure D'Ars wasn't an aristocrat nor were the worker priests of the 30's nor were many others, including socialists, ( Simone Weil for instance).
French culture is different from the U.S. because of the mix of Latin sensibility about life and Catholicism. It's not that much different from any other Mediterranean society and those societies are all very different from the Northern European especially Anglo societies.

[Lafayette]

EVG: "It's not that much different from any other Mediterranean society and those societies are all very different from the Northern European especially Anglo societies."

They are cosmetically different.

But, if you want to understand underlying difference I suggest you hook into the work done by Gert Hofstede, a Dutch sociologist from the University of Maastricht.

Hofstede employed IBM (as means of polling) to study cultural diversity in the office. I guess he assumed that decisions you one makes in a corporate environment reflect those made at home. He was taken to task for that assumption, but I don't sense that it fundamentally negates his work.

You will see (by googling "Hofstede"), that his results are very interesting indeed, particularly as regards their groupings. For instance, against such attributes as "Respect for hierarchy" or "Willingness to assume risk", the two most opposite poles are the Anglophone countries and the Far East cultures. The Europeans congregate more or less in the middle between them.

The only particularly surprising result is that there is one continental European country that classifies itself with the Anglophone countries - quite distinctly from the rest of its European brethren. Holland ...

[Alan Reynolds]

Re.: The Jan 7 comment from Lafayette listing top-coding for SIPP. This is not the CPS survey under discussion. It is as irrelevant as the theological chatter that followed.

However, Lafayette's first reference, the chapter from Ed Welniak, is on point and critical. http://www.irs.gov/pub/irs-soi/03preprt.pdf

In fact, the Welniak paper is a big reason why I insist that Census Gini coefficents or income shares before 1993 cannot be compared with data after 1993. And it shows the key difference between "top coding" of public use data and internal processing limits ($9,999,999 since 1993).

For Mark: Piketty and Saez did not claim I misquoted them or that my calculation was wrong, so no correction is needed. Actually, their figures show the top 1% received 9.7% of pretax personal income in 2004, so my Dec 14 estimate was too generous. On the CBO's estimate of top 1% income see my piece with David Henderson in February 6 Wall Street Journal.

[anne]

http://www.nytimes.com/2005/10/05/business/05tax.html?ex=1286164800&en=912f752ebdc64a9a&ei=5090&partner=rssuserland&emc=rss

Good grief, I never have the slightest idea of what Alan Reynolds is mumphing about. I am too bored to look much, but the IRS had the top 1% of taxpayers receiving 17.5% of income in 2003. The percentage went up in 2004, and I will find it when I stop being bored.

Get it? That is the top 1% of taxpayers received 17.5% of income in 2003 according to the IRS.

Yeah, yeah, I know, I know, mumph on, mumph on.

[anne]

http://www.cbpp.org/7-10-06inc.htm#_ftn4

Yeah, yeah, flippity, floppity, in 2004, yeah, that is 2004, no matter the mumphing of professional mumphers, the share in income of the top 1% of tax payers was, are you ready, up from 17.5% in 2003 to 19.5%.

By the way 2004 was a fine year for those with the highest incomes for all sorts of reasons. Please mumph on but I repeat for them what needs repeating:

the share in income of the top 1% of tax payers was up from 17.5% in 2003 to 19.5%.

[anne]

Guess what? Care to bet that 2005 and 2006 were awfully good years for the wealthier and wealthiest, because I am a heck of a better, a better better really. Top incomes are tops, returns to investments are as fine internationally as ever we might wish, and concentration gives investment advantages, while the advantages of tax re-structuring from 2001 on are still being gained.

[anne]

Remember, these last 5 years have been the finest internationally comparable economic growth years since 1945; and investment markets have echoed this growth. What we need to attend to is assuring workers will be proportionally rewarded through such a time. There is the concern, and there is the reason we need to know what is happening clearly and not attend to purposeful befuddling. Say what?

I have been and am bullish, but deception can be quite a damaging problem. Mumph on.

[christophe duplay]

Perhaps your readers will appreciate how the Piketty & Saenz is instrumentalized in France: quote from the French paper Le Monde of September 11 2007 in a large article by Jerôme Guillet in the debates section:( my translation: "Median income are stagnant while the the 0.1% richest population income has skyrocketed from 2% to 7% of the total income in less than 20 years in the USA, according to a ground breaking study of Piketty & Saenz. This additional 5% captured by the richest is equivalent to the relative impoverishment of the French (whose per capita GDP passed from 78% to 72% of the American's over the period, on average), which means that the growth has been identical in both countries for 99.9% of the population..."
A quick comparison of the GDP in absolute numbers, even accounting for the so contested rise of inequality shows how flawed this reasoning is. The author is a Polytechnicien (top elite school in France) and a banker...My poor France!
I wish M Piketty & M Saenz would respond to Le Monde to denounce such a manipulation.

[anne]

Christophe Duplay

Thank you so much for this comment; do add if the debate is continued and as ieas come.