Income Inequality and Information Filters

Paul Krugman muses on calling a spade a spade:

A Few Notes on Income Inequality - Krugman - NYT Web Journal: growing international trade plays some role in growing inequality, but it is, literally, a fraction of a fraction of the story. That's cold comfort for the factory worker whose plant has just been closed because it couldn't compete with imports from China, or the software engineer whose job has just been outsourced to India-- and unless we can do something to provide more economic security, protectionist forces will become unstoppable. But I still believe that we can increase economic security and reduce inequality without shutting down international trade.

One of the truly strange features about discussions of inequality is the way people shy away from talking about the extent to which the gains from rising inequality have gone to a tiny, wealthy elite.

Here's a mild example. A few days ago Steve Pearlstein of the Washington Post -- a good guy, and sensible -- wrote about income inequality. As I did in my column just a few days earlier, "Feeling No Pain," he emphasized the "retrospective income" distribution data released by the I.R.S. (Paper at http://www.irs.gov/pub/irs-soi/04asastr.pdf. Tables at http://www.irs.gov/pub/irs-soi/04asastr.xls.)

As he pointed out, those data show that the share of income received by the top 10 percent of taxpayers rose from 33 percent in 1979 to 44 percent in 2003. And for his pains, he was smeared by someone at the Cato Institute who needs help -- technical help. Hint to Alan Reynolds: check which table you're looking at before claiming that Congressional Budget Office data refute a statement you don't like.

But Pearlstein stops there, leaving the impression that everyone in the top 10 percent was a big winner. In fact, there was hardly any rise in the share of income going to people between the 90th and 95th percentiles: almost all the gain went to the top 5 percent. And most of the gain went to a very small elite. The income share of the top 1 percent went from 9.6 to 17.5 percent, accounting for more than 70 percent of the top decile's gain. The income share of the top 0.25 percent went from 4.9 to 10.5, accounting for a bit more than half the total gain.

Why stop with data that convey the false impression that the winners from inequality are a fairly large group? Does talking about the reality that a very small elite has gotten the lion's share of the gains sound too, um, shrill?

Comments

[save_the_rustbelt]

Spin this differently:

Krugman knew the expansion of trade would increase income inequality, and he did write about it a long time ago, but only in the past few months has he been willing to question his own thoughts on trade.

The Delphi bankruptcy seems to have been an epiphany for Krugman, but then he is about 5 1/2 million manufacturing jobs too late to the party.

Globalization is eating a large chunk out of the American middle class, and only now are the economists timidly accepting a little of the blame.

So do the benefits go to 10% or 1%? For certain they don't go to at least 90%.

[Sebastian Holsclaw]

Why stop there? The vast majority of the money gained was in the top 10 people in the US. Bill Gates, Paul Allen, Michael Dell, Sheldon Adelson, Steve Ballmer, Sergey Brin, Larry Page, Abigail Johnson, Anne Cox and Barbara Cox.

[No it wasn't. The 5.5% extra of national income that went to the top 0.25% amounts to $550 billion a year. The national income-concept income of the top ten is less than $30 billion. Not the "vast majority": 1/20.]

[Slocum]

"...unless we can do something to provide more economic security, protectionist forces will become unstoppable. "

But nobody says, "unless we can provide more economic security, the forces of neo-luddism will become unstoppable."

Why not? After all, how many secretary jobs have disappeared because of email and voicemail? How many music retail music jobs have disappeared because of Amazon, iTunes, etc? How many librarian jobs may be ultimately elimated by the Google book-scanning project? Gas station attendant jobs by self-serve and pay-at-the-pump? Supermarket jobs by u-scan checkouts?

And, of course, the owners of the businesses responsible for these changes (Jeff Bezos, Larry Page, etc) have grown fabulously wealthy almost overnight (surely contributing non-trivially to the gains of the top 1%).

At least when a given lump of work is packed up into a container and shipped overseas, a poor person in a developing country benefits. But when iTunes replaces Jack Black at 'Championship Vinyl' that same lump of work just disappears into the ether(net).

Why should we focus our efforts on protectionism when loom-breaking would clearly be more fun and better exercise?

[arles]

strb said: "he did write about it a long time ago"

Do you have a quote for this? (I'm asking for my interest and not at all challenging)

strb said: "but only in the past few months has he been willing to question his own thoughts on trade."

He's not really questioning too vigorously, Krugman said: "growing international trade plays some role in growing inequality, but it is, literally, a fraction of a fraction of the story."

But then he goes on to his point which is that "the gain went to a very small elite...
The income share of the top 0.25 percent went from 4.9 to 10.5", and chastises the original author for "leaving the impression that everyone in the top 10 percent was a big winner".

I don't for a minute think that he thinks wealth accruing to the top 10% is ok, when that leaves 90% out in the cold. But doesn't it seem like he draws an arbitrary line to say that NOW we should be worried, now that..."1 percent went from 9.6 to 17.5 percent".

Do "fractions of fractions" matter, or don't they?

I too, "believe that we can increase economic security and reduce inequality without shutting down international trade."
However "beliefs" aren't action, and things have been obviously headed in this direction for a long time so unless economic leaders can come out with much stronger statements for change -- what exactly will motivate change?

I'm tempted to quote Krugman who once said: "It's still fair, however, to ask...the obvious question: What took you so long?"

[save_the_rustbelt]

Do you have a quote for this? (I'm asking for my interest and not at all challenging)

Excellent question.

In other blogs I have seen mentioned his 1989 book and some writing for the American Prospect, I think maybe in Mark Thoma's blog.

[Ari]

Sebastian

And it matters that Bill Gates dropped out of where, was it Harvard, could it be Harvard, and what the heck does that have to do with mobility? Duh.

[Sebastian Holsclaw]

By the way, what does Krugman mean by saying that income share "went to" the top X percent in a given time period....

[That in year Y, the top X percent of taxpaying units in that period reported X percent of the income.]

Same goes for Bill Gates, Paul Allen, Michael Dell, Sheldon Adelson and Steve Ballmer if you go back 25 years.

None of these seven super-elite cases are examples which really make sense in Krugman's story.

[Gates, Allen, and Ballmer are: IBM's CEO John Akers was on the board of directors of the United Way with Mary Gates, and I've been told he asked his people doing the PC if they could find a role in it for Mary's son.]

[Barry]

Ari, on top of that, didn't Bill Gates get his foot in the door at IBM, because his mother was on the board of the same charity as a high-level IBM executive?

Sebastian, talking about Bill Gates as 'a college drop-out' is just plain crap.

[Ari]

Sebastian

Wealth and income are highly highly concentrated in America, relative to other developed countries and even absolutely. Try playing the radical-conservative fool somewhere else.

[Emma Anne]

Arles:

-----I don't for a minute think that he thinks wealth accruing to the top 10% is ok, when that leaves 90% out in the cold. But doesn't it seem like he draws an arbitrary line to say that NOW we should be worried, now that..."1 percent went from 9.6 to 17.5 percent".
-----

I can't read the whole article, but one thing I suspect Krugman is probably thinking about is the political aspect. A lot of people who vote, and make campaign donations, and write letters to the editor, and know people, are in that top 10%. If they think that they are doing better (or will be any minute) the groundswell of discontent is kept to a lower rumble.

[anne]

http://www.nytimes.com/2006/01/29/national/29rich.html?ex=1296190800&en=784822e4b0735ee5&ei=5090&partner=rssuserland&emc=rss

January 29, 2006

Corporate Wealth Share Rises for Top-Income Americans
By DAVID CAY JOHNSTON

New government data indicate that the concentration of corporate wealth among the highest-income Americans grew significantly in 2003, as a trend that began in 1991 accelerated in the first year that President Bush and Congress cut taxes on capital.

In 2003 the top 1 percent of households owned 57.5 percent of corporate wealth, up from 53.4 percent the year before, according to a Congressional Budget Office analysis of the latest income tax data. The top group's share of corporate wealth has grown by half since 1991, when it was 38.7 percent.

In 2003, incomes in the top 1 percent of households ranged from $237,000 to several billion dollars.

For every group below the top 1 percent, shares of corporate wealth have declined since 1991. These declines ranged from 12.7 percent for those on the 96th to 99th rungs on the income ladder to 57 percent for the poorest fifth of Americans, who made less than $16,300 and together owned 0.6 percent of corporate wealth in 2003, down from 1.4 percent in 1991.

The analysis did not measure wealth directly. It looked at taxes on capital gains, dividends, interest and rents. Income from securities owned by retirement plans and endowments was excluded, as were gains from noncorporate assets such as personal residences.

This technique for measuring wealth has long been used in standard economic studies, though critics have challenged that tradition.

Among them is Stephen J. Entin, president of the Institute for Research on the Economics of Taxation in Washington, which favors eliminating most taxes on capital and teaches that an unintended consequence of the corporate income tax is depressed wage rates. Mr. Entin said the report's approach was so flawed that the data were useless.

He said reduced tax rates on long-term capital gains may have prompted wealthy investors to sell profitable investments. That would show up in tax data as increased wealth that year, even though the increase may have built up over decades.

Long-term capital gains were taxed at 28 percent until 1997, and at 20 percent until 2003, when rates were cut to 15 percent. The top rate on dividends was cut to 15 percent from 35 percent that year....

[anne]

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

October 5, 2005

At the Very Top, a Surge in Income in '03
By DAVID CAY JOHNSTON

After falling for two years, the share of income going to the richest slice of Americans - the top tenth of 1 percent - grew significantly in 2003 while the share going to 99 percent of Americans fell, tax data released yesterday showed.

At the same time, the effective income tax rates paid by the top tenth of 1 percent fell sharply, declining at more than 10 times the rate reduction for middle-class taxpayers, the new report, by the Internal Revenue Service, showed.

Overall incomes rose by 2.7 percent in 2003, compared with the previous year, the I.R.S. said. A quarter of this increase went to the top tenth of 1 percent, the 129,000 taxpayers with reported incomes of $1.3 million or more, an analysis of the data showed.

Prof. Edward N. Wolff, a New York University economist who studies wealth, contended that the data could be tied to stock market gains in 2003 and a sharp rise in the pay of chief executives while most workers' pay was barely keeping up with inflation.

The top 10th of 1 percent paid almost 23.6 percent of their reported income in income taxes in 2003, down from just under 27 percent in 2002. That is a decline of 3.4 percentage points. For taxpayers in the bottom 80 percent, the effective tax rates fall by three-tenths of a percentage point or less.

Only for those Americans in the top 1 percent, the nearly 1.3 million taxpayers who made at least $327,000, did incomes increase significantly more in 2003 than the rate of inflation. And this increase was concentrated within the top tenth of 1 percent. The income of that group grew by 9.5 percent in 2003 over the previous year while the rest of the top 1 percent had a gain of 3.7 percent.

For the bottom 99 percent of taxpayers, income rose by slightly less than 2 percent, which was below the inflation rate of 2.3 percent....

[Barry]

Sebastian, stop bullsh*tting. Read what I said, and what you said.

[monkyboy]

Maybe the poor 99% are getting "dark matter" in their paychecks that unenlightened economists aren't counting...

[liberal]

Sebastian Holsclaw wrote, "I'm sorry are you arguing that Bill Gates came from the top 0.1% of wealthy families?"

No. But his father was, indeed, a prominent Seattle attorney.

Furthermore, most of Gates' wealth comes from economic rents which he collected with the help of the government (cf "intellectual property rights" protections).

[liberal]

Sebastian Holsclaw wrote, "If we are talking about Bill Gates, Paul Allen, Michael Dell, Steve Ballmer, Sergey Brin and Larry Page I'm not going to begrudge them their wealth. They have added huge amounts of value to the US economy."

Gates, Allen, and Ballmer added huge amounts of wealth to the economy? LOL!

[liberal]

Sebastian Holsclaw wrote, "Michael Dell was the son of a middle class othodontist."

Orthodontists certainly work for a living, unlike the truly wealthy.

Most of them would not be classified as middle class, however. (Don't know about Dell's dad.)

[tedm]

"As he pointed out, those data show that the share of income received by the top 10 percent of taxpayers rose from 33 percent in 1979 to 44 percent in 2003."

Why should anyone believe that this is driven by international trade? Are people here suggesting that the uber-wealthy could not have disproportionate influence in determining which industries get protection and how? Ever hear of Jack Abramoff? All the neo-protectionists here claiming to be anti-privilege need a good dose of Jacksonian history readings.

Remember - a bipartisan movement reformed the tax code during the period of study. As a result, the wealthy had a much greater incentive to reveal income in 2003 than they did in 1979. Without any change in the real distribution of income, the MEASURED distribution of income would be less equal in 2003 than in 1979.

I am NOT saying this is all driven by the tax code. There are too many factors for such a monocausal explanation (hint). What I am saying is, attributing US income inequality to international trade is unfounded.

[Ari]

Othodontists, as my sister, who easily earn above $300,000, quite a bit above if they choose, can afford all their children may need from homes in fine school districts to private schooling and so on.

[Movie Guy]

monkyboy -- "Maybe the poor 99% are getting "dark matter" in their paychecks that unenlightened economists aren't counting..."

Priceless!

[liberal]

Ari wrote, "Othodontists, as my sister..."

Funny coincidink. Mine is, too.

[anne]

http://www.nytimes.com/2005/06/05/national/class/HYPER-FINAL.html?ex=1275624000&en=f1af44c9cec8c79e&ei=5090&partner=rssuserland&emc=rss

June 5, 2005

Richest Are Leaving Even the Rich Far Behind
By DAVID CAY JOHNSTON

When F. Scott Fitzgerald pronounced that the very rich "are different from you and me," Ernest Hemingway's famously dismissive response was: "Yes, they have more money." Today he might well add: much, much, much more money.

The people at the top of America's money pyramid have so prospered in recent years that they have pulled far ahead of the rest of the population, an analysis of tax records and other government data by The New York Times shows. They have even left behind people making hundreds of thousands of dollars a year.

Call them the hyper-rich.

They are not just a few Croesus-like rarities. Draw a line under the top 0.1 percent of income earners - the top one-thousandth. Above that line are about 145,000 taxpayers, each with at least $1.6 million in income and often much more.

The average income for the top 0.1 percent was $3 million in 2002, the latest year for which averages are available. That number is two and a half times the $1.2 million, adjusted for inflation, that group reported in 1980. No other income group rose nearly as fast.

The share of the nation's income earned by those in this uppermost category has more than doubled since 1980, to 7.4 percent in 2002. The share of income earned by the rest of the top 10 percent rose far less, and the share earned by the bottom 90 percent fell.

Next, examine the net worth of American households. The group with homes, investments and other assets worth more than $10 million comprised 338,400 households in 2001, the last year for which data are available. The number has grown more than 400 percent since 1980, after adjusting for inflation, while the total number of households has grown only 27 percent.

The Bush administration tax cuts stand to widen the gap between the hyper-rich and the rest of America. The merely rich, making hundreds of thousands of dollars a year, will shoulder a disproportionate share of the tax burden.

President Bush said during the third election debate last October that most of the tax cuts went to low- and middle-income Americans. In fact, most - 53 percent - will go to people with incomes in the top 10 percent over the first 15 years of the cuts, which began in 2001 and would have to be reauthorized in 2010. And more than 15 percent will go just to the top 0.1 percent, those 145,000 taxpayers.

The Times set out to create a financial portrait of the very richest Americans, how their incomes have changed over the decades and how the tax cuts will affect them. It is no secret that the gap between the rich and the poor has grown, but the extent to which the richest are leaving everyone else behind is not widely known....

[Ari]

Agreed, we can think well of orthodontists, Liberal.

[liberal]

Sebastian Holsclaw wrote, "The vast majority of the money gained was in the top 10 people in the US. Bill Gates, Paul Allen, Michael Dell, Sheldon Adelson, Steve Ballmer, Sergey Brin, Larry Page, Abigail Johnson, Anne Cox and Barbara Cox."

Do you have a citation or relevant computation for that?

[liberal]

tedm wrote, "What I am saying is, attributing US income inequality to international trade is unfounded."

But there's the thing about factor price equalization exerting downward pressure on US wages.

Note that rents collected by Bill Gates are secure. In fact, most so-called "free" trade agreements the US pushes aim to extent his rent-collecting opportunities to other shores.

[liberal]

Sebastian Holsclaw wrote, "But to pretend that he hasn't added anything to the economy is willful blindness."

No it's not.

You're forgetting how much he's _subtracted_ from the economy: MS products aren't free.

Not to mention the economic distortions inherent in rent.

"Is it something that could have been added just as quickly by someone else if he didn't exist? Maybe so. We will never know. But I strongly suspect what he did looks easier in retrospective."

Except there's no evidence whatsoever for your position.

Funny how, when the issue is redistribution of wealth _upwards_ by government-enforced rents, the issue of whether this is good or bad for the economy as a whole is fraught with uncertainty.

[liberal]

I should add that much of the biggest gains in infotech are, IMHO, due to improvements in _hardware_. And how profitable is hardware? How much rent is collected there? How well does the hardware market conform to the textbook model of "competition"? How well does MS's market?

I think the answers are telling.

[tedm]

Liberal

The term, rent-seeking, comes from an analysis of protectionism. Passing a law banning the importation of (insert privileged producer) will create a rent for that producer at the expense of the broader spectrum of consumers. Which producers will be able to get such a law enacted? The privileged few with disproportionate political influence. You are advocating putting lobbyists in charge of access to American consumers. I don't think that will lead to a more fair and egalitarian society.

[Ari]

Sebastian

The point, as the articles referenced by Anne show, is that wealth and income are increasingly and highly concentrated, and to continue to Paul Krugman that class mobility certainly occurs but is limited.

[tedm]

correction: meant to say protectionism bans products that compete with privileged producers

[Movie Guy]

ADVANCED GLOBAL TRADE IMPACTS ON U.S. EMPLOYMENT AND EMPLOYEE COMPENSATION

Paul Krugman is only addressing a limited consideration of the growing wage and income problem in the United States.

Paul's income inequality piece does NOT address the full role that advanced global trade plays in shaping the U.S. wage and total compensation picture.

Advanced global trade is having a much larger effect on the U.S. economy and American workers beyond those workers directly displaced from jobs outsourced or relocated offshore. Such considerations also extend beyond the remaining direct employment by competing companies and corporations.

The advanced global trade impact zone extends to the shrinking support services base of employment and associated wage levels for those company operations that lose support contracts for corporations and companies that either reduce or eliminate domestic plant and facility operations in the United States. Meanwhile, the remaining American-based employees are facing new pressures directly related to advanced global trade.

Internal corporate pressures to remain cost competitive in the global economy have resulted in multiple initiatives to suppress wage increases and benefit package increases.

The evidence of such initiatives is widespread and growing among corporations and companies with operations in the United States. If all else fails, some corporations file for federal bankruptcy to divest themselves of pension plan obligations.

Similarly, other corporations and companies are capping their health care share responsibilities by using a given year (2006, as an example) as the last corporate supported cost increase supplement for existing worker health plans. Some corporations and companies are simply reducing their health care plan coverage in terms of corporate/company share funding of such plans.

While not all corporations and companies are fully integrated into the global economy, there is evidence that many of the remaining corporations and companies are using the 'global corporate lean model' as a blueprint for also reining in such employee compensation costs.

Corporations engaged in advanced global trade are pressuring domestic suppliers to rein in costs and trim profit margins to avoid additional offshore sourcing. Some corporations are directly advising their suppliers to move component and parts production offshore.

Advanced global trade is having a much larger effect on U.S. employee wage levels and total compensation than some are acknowledging or suggesting. Real wages are declining, and now...real total compensation is also in the early stages of a declining trend. Many of the changes can be attributed directly and indirectly to advanced global trade.

It's my judgment that the more important issues are the economic effects of real wage and real compensation declines that are impacting a growing proportion of American employees in a wide spectrum of industries.

The decreasing purchasing power less credit extension for many income groups is not sustainable as measured against existing standards of living. The economic implications of declining real wages and real total compensation for American workers are significant.

Advanced global trade is most certainly having a major impact on a growing number of American industries and related employment wages and total compensation.

If economists and analysts intend to have any credibility on the subject of advanced global trade and the impacts on U.S. employment, real wages, and real total compensation, then they need to piece together the entire puzzle. Few appear to be up to the task.

[Ari]

Sebastian, I do not understand the last comment. I am only arguing with Paul Krugman that we must look to grow more equitably if we are to remain a healthy social-economy. Policy-wise, we seem to have forgotten this, and forgotten especially in the last 5 years.

[wood turtle]

"..unless we can do something to provide more economic security, protectionist forces will become unstoppable."

Take a look at the unemployment system we have. It was set up mainly for workers to return to their jobs after a slowdown. Now, people who lose their jobs might never get them back and will have to retrain.

The system now does not give any benefits for retraining, and if you go to school, you will lose your benefits. Once in awhile, if it is a large plant closing, those people are eligible for worker retraining in what they call a displaced worker program. But six months of retraining with benefits may not be enough.

The whole unemplyment system needs to be overhauled to meet the challenges of major job losses due to globalization and automation. Perhaps a special tax on the wealthier citizens to fund a much extended unemployment system would be one place to start.

[Dale]

I'm not disappointed. I mean- I would always like solutions- but the import of this Krugman column, like so many of DC Johnston's articles, is that it is not the doctors, orthodontists, etc. of our world that are benefiting from increased inequality. Those folks may be doing just fine. But it is the super rich, the top of the top of the wealthy that are, both, rigging the system and benefiting from the rigged system.

[Ari]

Dale:

"[I]t is not the doctors, orthodontists, etc. of our world that are benefiting from increased inequality. Those folks may be doing just fine. But it is the super rich, the top of the top of the wealthy that are, both, rigging the system and benefiting from the rigged system.

[Frank]

I don't get why people are blaming econ profs. Maybe Krugman forgot to include the standard remedy in his column, or maybe Brad forgot to include it in his clip, but if you come here regularly you should already know what it is.

Free trade makes the nation as a whole richer, even though free trade produces both winners and losers, the winners gain more than the losers lose. That means that you can tax the winners enought to fully compensate the losers for their loss, and still leave the winners better off than if free trade weren't allowed.

Sebastian- You still havent produced any evidence that "The vast majority of the money gained was in the top 10 people in the US." or that this statement has any truth in it either "Your humble opinion is wrong." (In reference to: "I should add that much of the biggest gains in infotech are, IMHO, due to improvements in _hardware_."

I know you are wrong about both of these statements Seb, but I will enjoy watching you flounder in an attempt to change the subject since you cant hope to find a scintilla of proof.

You really don't know enough to be commenting here Seb. Go Away.

[Slocum]

"Paul Krugman's column said one thing:"

"The super rich are getting richer."

"As if we didn't know that."

But there's a big difference between, A) those people who are already super-rich are increasing their wealth faster than everybody else, and B) those entrepreneurs (not initially super wealthy) who strike it rich are striking it much richer than they used to.

Krugman's 'New Gilded Age' rhetoric suggests A, but B seems to describe the situation more accurately. If Krugman thinks that type-B inequality is a problem anyway, he should make that argument explicitly, rather than imply we're dealing with a new batch of Robber Baron dynasties growing fat on undeserved advantages.

[Ari]

"In fact, international trade economist Peter Morici states that the U.S. economy is losing roughly 1% GDP due our current trade policies."

Now there's arrogance, to say the least. Actually I thought the number was 1.075%, but my model must be off. Duh.

[Ari]

Apparently Brad thought Krugman did know a thing or two that we need to know. "Next."

[Dale]

"That means that you can tax the winners enought to fully compensate the losers for their loss, and still leave the winners better off than if free trade weren't allowed."

But of course we are not doing that. We are doing the opposite of that. Good liberal WTO trade types have always known that these trade regimes (I keep looking for ways to avoid "free" trade) would cause increasing inequality. But they never demanded that we remedy that at the same time as we approve the trade deals.

That was dishonest - or bad politics. Now we have the worst of both worlds.

[Frank]

Movie Guy- I respect your views, but when I read this thread earlier it seemed clear that many people didn't understand even the most basic facts about trade. I'm disapointed that Krugman got sloppy, but its got to be anoying to have to keep explaining ideas which take about one hour in class to teach, and which in any case should be explained in 7th grade social studies.

(I was struck by the fact that even with a very inefficient tax of 1 million on just the top .1 percent would leave them with a healthy raise vs 80s rich folk and raise enough money to cut every man woman and child in the country a check for a grand every year. Obviously a progressive tax designed to take most of the surplus the top 10% have gotten since 1973 would raise much more.)

Slocum- You don't think Robber Baron describes Bill Gates to a T? I'd bet many here besides me think he has a lot in common with Carnegie or Rockefeller or really any of those guys.

[Barry]

Frank: "Free trade makes the nation as a whole richer, even though free trade produces both winners and losers, the winners gain more than the losers lose. That means that you can tax the winners enought to fully compensate the losers for their loss, and still leave the winners better off than if free trade weren't allowed."

The above statement is true; however "That means that you can tax the winners enought to fully compensate the losers for their loss" is false. The political system in the US has shown little ability or willingness in the past several years to tax the winners; in fact it's cutting taxes on the winners, then using the resulting deficits to cut programs for everybody else.

So the option of 'free trade, then tax the winners to compensate the losers' is not on the table. Which blows the standard argument out of the water; IIRC, even Krugman admitted that a few years ago.

[save_the_rustbelt]

"the winners gain more than the losers lose."

In some terms I'm not certain that is always true.

When you lose your job, file bankrupcty and go through foreclosure that is 100% of everything.

So maybe Bill Gates has a 200% increase in wealth.

I think the losers are really losing the most.

[Slocum]

"Slocum- You don't think Robber Baron describes Bill Gates to a T?"

No.

"I'd bet many here besides me think he has a lot in common with Carnegie or Rockefeller or really any of those guys."

Yes, I think you're right about that (about the prevailing opinion of commentators here, that is).

Would you also apply the 'Robber Baron' label to the whole list of tech billionaires -- Jobs? Brin and Page? Dell? Bezos?

Or never mind them, let's try a harder case--how about Jeff Skoll? He's the billionaire co-founder of eBay who's now using part of his fortune to produce leftish Hollywood movies like "Syriana", "North Country", and "Good Night and Good Luck":

http://abcnews.go.com/WNT/PersonOfWeek/story?id=1367665

Jeff Skoll -- billionaire 'Robber Baron' of the New Gilded Age? Yes or no?

[Frank]

Slocum- Lots of the Robber Barons gave plenty to charity, heck thats one of the things Gates and Carnegie have in common.

Seb- You need to learn to keep track of who is talking to you. I wasn't the one who said this: "I should add that much of the biggest gains in infotech are, IMHO, due to improvements in _hardware_."

I'm not liberal but your rudeness to him/her is what first ticked me off.
You have now repeatedly ignored requests for evidence of your claim that the richest 10 people in the country have gotten most of the gain in income, so its safe to call you a liar.

As far as your efforts at goalpost moving here is what liberal said.
I should add that much of the biggest gains in infotech are, IMHO, due to improvements in _hardware_. And how profitable is hardware? How much rent is collected there? How well does the hardware market conform to the textbook model of "competition"? How well does MS's market?

I think the answers are telling.

Since the period we are talking about here 1979-2003 has seen a technological revolution in hardware has moved personal computers from a nearly unthinkable luxury to an essential commodity for most people in the country I think s/he has the better part of that argument.

[Barry]

Sebastian, you need a day job, posting on blogs all day isn't good for you :)

"Frank, you aren't making sense. Which is more important, accessing Google, or doubling your processor speed from 2 years ago? "

How many computers does Google use to do this? According to http://www.msnbc.msn.com/id/4933550/, the 'consensus' was 100,0000. And this would be cheap blade computers, in large racks, with extremely fast network connections and switching. With servers like that wholesaling for a few hundred, and racks/networks similarly cheap, Google is doable. Knock things back 10 years, and Google might not be possible, except as a NSA project (where billions of $ don't have to be accounted for).

[Slocum]

"Slocum- Lots of the Robber Barons gave plenty to charity, heck thats one of the things Gates and Carnegie have in common."

Yes, Frank, Gilded Age Robber Barons gave to charity (Carnegie Libraries, etc). But I didn't mention Bill Gates's charitable work.

And you evaded the issue. Are all the other tech billionaires besides the Bill Gates also Robber Barons? Yes or no? In particular, is Jeff Skoll a Robber Baron? Yes or no?

Is there a 'great crime' behind all of these great fortunes? Are the fortunes themselves (and the effect they have on the wealth of the top 1%) a problem in and of themselves even if the fortunes were made ethically and the businesses contributed the welfare of humankind?

[anne]

http://www.nytimes.com/2005/12/19/national/19give.html?ex=1292648400&en=83c752fafe5c479d&ei=5090&partner=rssuserland&emc=rss

December 19, 2005

Study Shows the Superrich Are Not the Most Generous
By DAVID CAY JOHNSTON

Working-age Americans who make $50,000 to $100,000 a year are two to six times more generous in the share of their investment assets that they give to charity than those Americans who make more than $10 million, a pioneering study of federal tax data shows.

The least generous of all working-age Americans in 2003, the latest year for which Internal Revenue Service data is available, were among the young and prosperous - the 285 taxpayers age 35 and under who made more than $10 million - and the 18,600 taxpayers making $500,000 to $1 million. The top group had on average $101 million of investment assets while the other group had on average $2.4 million of investment assets.

On average these two groups made charitable gifts equal to 0.4 percent of their assets, while people the same age who made $50,000 to $100,000 gave gifts equal to more than 2.5 percent of their investment assets, six times that of their far wealthier peers.

Investment assets measures the value of stocks, bonds and other investments assets held in the tax system. Excluded from this are retirement accounts, which are generally held outside the tax system, personal property like furniture and art and equity in homes....

[anne]

"Working-age Americans who make $50,000 to $100,000 a year are two to six times more generous in the share of their investment assets that they give to charity than those Americans who make more than $10 million, a pioneering study of federal tax data shows."

Speaking of proportional generousity :)

[anne]

Personally though I enjoy the really really rich and do look forward to the dating :)

[anne]

As for taxes, the nice thing about being really really rich is you can also pay proportionally less taxes than the merely wealthy, especially with the Alternative Minimum Tax effecting those with $150,000 to about $400,000 in income. So, lower taxes and less generous and oh my :) I am there.

[Steve LaBonne]

If Gooogle's stock price crashed tomorrow on some devastating piece of negative news, much of Brin and page's paper "wealth" would evaporate overnight. How does this affect Sebastian's attempt to argue from wealth rankings to shares of actual income gains?

[Barry]

Oh, and even worse. Knocking things back a couple of hardware cycles would both increase the cost a lot, *and* cut the power/speed by a factor of several. So the 100K computers would need to be several 100K, multiplied by a factor of 2-3x the cost.

Running 500K computers which are $1,000 each would mean that $500 million gets you just the boxes. Then you can shop for the hardware to network 500K computers.

Pretty soon you'd be looking at a cool billion dollars.

Extrapolating backwards, there's a *huge* exponential cost curve for a given set of tasks. If it's 3/2 the price * 1/2 the power, then it's 3X the cost for a given power - every two years. Six years would mean 27X the cost of today; eight years would be 81X of the cost of today.

[Barry]

Sorry, I was contuing my prior post, not realizing that the comments were still piling in.

[Frank]

Slocum- I dunno. Here's one for you; Were all the railroad tycoons of the 1900s Robber Barons in the sense you use the word?

Sebastian- If sincere you are confusing wealth and income. Check back when you have a clue.

[radek]

Peter Morici, if you actually look at the papers on his website, seems like a generally pro-free-trade kind of guy. Let's be a little bit more explicit, he seems like a pro-trade-agreement type of guy. He does emphasize that WTO agreements and the like help US economy because they make foreign countries lower their barriers, rather than just saying that US should lower their barriers too, but I think that's cuz 1) he's writing for business types, i.e.non-economists, and 2)he's spent time in DC where it must get really annoying to have to explain comparative advantage over and over and over again to people who don't want to understand.
Aside from that he seems to worry about the trade deficit for Macro reasons, and who isn't? But that's a problem with too little saving, not a problem with too low barriers on imports.

So Movie Guy I dunno where you get your ideas from.

[modus potus]

Sebastian,

Isn't it funny how Google (and Yahoo before them) built their technical empires while intently avoiding Bill Gate's technology? Yeah, they have to serve up bits to drive the browsers that run on Bill's desktop monopoly, but if IBM had managed to throttle Bill's empire in its cradle those bits would instead be flowing to Apple computers and whatever else emerged from that era. A Finnish college student showed just how little the intrinsic worth of Bill's product is.

Gate's success is founded on his company's predatory and exclusionary practices, not the superiority of their products. The actual technical improvement has occurred at as glacial a pace as IBM would have taken, the difference being that IBM likely wouldn't have worked as hard at eliminating competitors by any means and so allowed themselves to be overrun by superior technology -- their loss being our gain.

[Slocum]

"Slocum- I dunno. Here's one for you; Were all the railroad tycoons of the 1900s Robber Barons in the sense you use the word?"

I don't about all of them, but in general, yes. There was a great deal of monopolistic behavior, unethical collusion and back-room dealing. A quick Google turned up:

"For example Rockefeller's switch from being the largest to the only oil refiner came in secret agreements with the Erie, Pennsylvania, and New York Central railroad 'pools' whereby he and refiners invited to join the Standard Oil Trust (they received half the real value of their assets) had freight rates reduced by up to 50% whereas competing refiners had their rates increased by 100% with half of this being paid straight back to Standard Oil (drawback) by the railroads. Within three months his remaining 25 competitors surrendered to him and he fixed all U.S. oil sales at a new high price."

http://www1.dragonet.es/users/markbcki/joseph.htm

Now, *those* were Robber Barons worthy of the name.

[anne]

Good grief; have we never hear of diversifying? The nice thing about a fine portfolio is how easily diversified it is and the diversity, wonder on wonder, protects us against bashes and crashes and bear by any name at all. Worry not about those who are really really rich :)

[anne]

Also, about portfolios, when your have lots and lots of assets, you can draw income as you wish and rely on capital gains to accumulate untaken and untaxed so unrecorded as income though there to serve as income when there is the wish. A large enough stable portfolio can allow for enough income to meet wishes and accumulation of capital gains, which is what indexing should be about :)

[anne]

So, if we have it right, the really rich are really rich and able to stay that way, pay moderate taxes, even relatively less than the merely wealthy, and as a whole are less charitable, though awfully nice people in any event :) Fear not, they are fine and hopefully we can insure the rest being fine as well.

[Frank]

Slocum- Thanks. Well perhaps we are a diminished generation and even our pirates lack character. (Oops meant 1800s for 1900s in the above post. Oh well.)

Anne- What worrying are you refering to exactly? While the incomes of the top 10% have gone up the past 30 years the income of the bottom 60+% have fallen for those same 30 years. I'm inclined not to support free trade anymore because I'm part of the majority not because I think free trade is bad. Personally I hope the rich have to worry about us.

[anne]

If I knew what the argument was, I would join in :)

[anne]

Frank, I was providing some of David Cay Johnston's terrific articles and playing a little because I like to play ner spring :) and soon soon I will go look for my Divinity School screech owls.

[Steve LaBonne]

Yes, YOUR methodology is indeed very flawed. Krugman is using actual data that actually show what he says they show, regardless of whetther you like the spin he puts on them.

[Barry]

Save_the_rustbelt:

"Spin this differently:

Krugman knew the expansion of trade would increase income inequality, and he did write about it a long time ago, but only in the past few months has he been willing to question his own thoughts on trade."

There's a strong internal consistency for Krugman's statements, if you assume that he actuall y did think that taxing the winners to aid the losers was possible. Since it's clearly not possible now, anything based on that assumption had to be rethought.

[Barry]

Sebastian:
"When increases in processing speed were the big issue, Motorola and Intel made bundles of money (for a rough proxy see the decade long market date on Intel stock under "INTC")."

I looked at the Yahoo finance page, found Intel, and a plot of its stock price (http://finance.yahoo.com/q/bc?s=INTC&t=my)
Using that as a proxy for pofits, it's making money like it was around 1997. Considering the dot-com boom and bust, it looks like it's still going strong.
[comment - I don't know if this plot adjusts for splits]

[scottynx]

On the subject of Microsofts dominance, I squarely blame Apple. They should have switched over to Intel/x86 processers a , long time ago (they are finally just doing it). The longer ago they would have done it, the more powerful they would have been (before windows 3.1 or 3.0 came out would have been wise).

[Ninjaplease]

"

Oh, and even worse. Knocking things back a couple of hardware cycles would both increase the cost a lot, *and* cut the power/speed by a factor of several. So the 100K computers would need to be several 100K, multiplied by a factor of 2-3x the cost.

Running 500K computers which are $1,000 each would mean that $500 million gets you just the boxes. Then you can shop for the hardware to network 500K computers.

Pretty soon you'd be looking at a cool billion dollars.

Extrapolating backwards, there's a *huge* exponential cost curve for a given set of tasks. If it's 3/2 the price * 1/2 the power, then it's 3X the cost for a given power - every two years. Six years would mean 27X the cost of today; eight years would be 81X of the cost of today.
"

How about you leave the engineering to the engineers. A network of that size, with its storage & processing requirements and speed requirements is simply:

Not doable 15 years ago.

Simply put: 15 years ago was 1991, Intel was on the scene with the i486 DX processor, now with integrated math co-processor, on-die.

You could throw 81x the money at the project but would NEVER reach the goal. At some point, technology has serial limits that an immediate investment of money cannot overcome since some tech issues must be solved linearly.

What would be the big deal if congress put up tariffs against India and China whose proceeds would be used to fund displaced worker retraining?

Why do we have to starve to death before "the problem will correct itself?"

[tom f]

Slocum:

"Is there a 'great crime' behind all of these great fortunes?"

Did the Robber Barrons generally do anything illegal, or were restrictions on collusion created after the fact?

"Are the fortunes themselves (and the effect they have on the wealth of the top 1%) a problem in and of themselves even if the fortunes were made ethically and the businesses contributed the welfare of humankind?"

Is it ethical for a society to grant a CEO 200 times that of an employee. Wouldn't a substantially lesser amount be enough to allow for profit and encourage matching demand w/ supply?

And what if social welfare is imperfectly attended to by markets? What if markets undemocratically skew supply away from those w/out means and only attend to those social needs wh/ are atomized, commodifiable, and simultaneously secure the interests of the supplier?

What if markets themselves further exacerbate such economic bias w/ an unethical allotment of spoils to executives? What contribution to society can be exclusively traced to existing tech billionaires? The riches endured by Gates et. al. are exclusive.

I argue that the arbitrary -that is to say unethical- nature of our society's system of wealth allocation.

[Barry]

Ninjaplease: "You could throw 81x the money at the project but would NEVER reach the goal. At some point, technology has serial limits that an immediate investment of money cannot overcome since some tech issues must be solved linearly."

That was pretty much my argument. A monster search engine requires monster power; if that power costs $monster^2 then it is far less likely to be economically doable.

[wkwillis]

Think of it this way.
The rich people's money is mortgaged to pay off the national debt, the government pensions, and social security.
Then don't worry about it.

[Movie Guy]

Ari, Frank, and radek:

Here's what Peter Morici has said: (just a few examples)

http://www.finfacts.com/irelandbusinessnews/publish/article_10003882.shtml

"Slashing the trade deficit in half would add more than one percentage point to U.S. economic growth each year."

---

http://www.finfacts.com/irelandbusinessnews/publish/article_10003882.shtml

"Cutting the trade deficit in half would go a long way toward restoring the purchasing power of workers hard hit by wages lagging inflation in recent years."

"Longer-term, persistent U.S. trade deficits are a substantial drag on U.S. growth. U.S. import-competing and export industries spend at least 50 percent more on R&D and encourage more investments in skills and education than other sectors of the economy. By shifting employment away from these trade-competing industries, the trade deficit is reducing U.S. investments in knowledge-based industries and skills and handicapping U.S. growth."

"Slashing the trade deficit in half would add more than one percentage point to U.S. economic growth each year."

----

http://www.finfacts.com/irelandbusinessnews/publish/article_10005199.shtml

"Cutting the trade deficit in half would boost U.S. GDP growth by 25 percent a year."

"These effects of lost growth are cumulative. Thanks to the record trade deficits under President Bush, the U.S. economy is about $1 trillion smaller. This comes to nearly $7000 per worker."

----

http://www.finfacts.com/irelandbusinessnews/publish/article_10003604.shtml

"U.S. import-competing and export industries spend at least 50 percent more on R&D and encourage more investments in skills and education than other sectors of the economy. By shifting employment away from these trade-competing industries, the trade deficit is reducing U.S. investments in knowledge-based industries and skills and handicapping U.S. growth."

"Slashing the trade deficit in half would add more than one percentage point to U.S. productivity growth and potential GDP growth each year."

---

http://www.finfacts.com/irelandbusinessnews/publish/article_10003809.shtml

"As I read the news from the Doha Round of World Trade Organization negotiations, I am starting to doubt an equitable deal is possible."

"As a former U.S. trade official, I know full well Americans have many sins to repent. We have steep protection for citrus, sugar and well afford very substantial cuts in protection for temperate zone crops too. However, negotiating a reasonable agreement with the EU is nearly impossible when France prohibits Brussels from making a deal that sticks and the Europeans are unwilling to apply reasonable standards of science to the rules for trade in food products."

"Without agriculture, developing countries are not likely to make meaningful concessions on issues important to both the United States and EU in manufacturing and services. Or worse, everyone but the EU will pay to play, while the EU gets a pass."

"Without real European resolve there is no deal, and it is doubtful the Europeans can muster it."

"Maybe it is just time to quit the game."

---

http://www.finfacts.com/irelandbusinessnews/publish/article_10004268.shtml

"The United States is much more dependent on personal and corporate income taxes to finance government than other countries, whereas the EU and other industrialized countries levy substantial value added taxes. U.S. trading partners may rebate their value added taxes on exports and impose these levies on imports. An arbitrary interpretation of WTO rules prohibits the United States from making similar border tax adjustment on its exports and imports."

"The average standard value added tax in the EU is 19 percent, and when rebated on exports and applied to imports—these adjustments provide a 19 percent subsidy on EU products sold in U.S. markets and a 19 percent tax on U.S. products sold in EU markets."

"Special and differential treatment under WTO rules permits developing countries to maintain high tariffs and a plethora of other trade barriers under the guise of promoting economic growth. These block U.S. exports of technology intensive goods and services."

"Slashing the trade deficit in half would add more than one percentage point to U.S. economic growth each year."

----

http://www.finfacts.com/irelandbusinessnews/publish/article_10004497.shtml

"High and rising trade deficits tax economic growth. Specifically, each dollar spent on imports that is not matched by a dollar of exports reduces domestic demand and employment. Worker productivity is at least 50 percent higher in industries that export and compete with imports, and reducing the trade deficit and moving workers into these industries would increase GDP."

"Were the trade deficit cut in half, GDP would increase by nearly $300 billion, or about $2000 for every working American. Workers wages would not be lagging inflation, and ordinary working Americans would more easily find jobs paying good wages and offering decent benefits."

"Longer-term, persistent U.S. trade deficits are a substantial drag on growth. U.S. import-competing and export industries spend three-times the national average on industrial R&D, and encourage more investments in skills and education than other sectors of the economy. By shifting employment away from trade-competing industries, the trade deficit reduces U.S. investments in new methods and products, and skilled labor."

"Cutting the trade deficit in half would boost U.S. GDP growth by 25 percent a year."

[Slocum]

tom f:"Did the Robber Barrons generally do anything illegal, or were restrictions on collusion created after the fact?"

I believe that their actions were generally legal at the time--though deeply unethical (and that is not a modern perspective only--they were perceived that way then, too). Which why laws were passed against abuse of monopoly power, price-fixing, insider-trading, etc. And these laws are why modern great fortunes have not resulted from such great crimes (One prominent exception I would point to would be the Enron energy-trader market-manipulation responsible for the California energy crisis).

"Is it ethical for a society to grant a CEO 200 times that of an employee. Wouldn't a substantially lesser amount be enough to allow for profit and encourage matching demand w/ supply?"

Of course it's ethical (in principle) -- just as it's ethical for superstar entertainers and athletes to make a 100 or even 1000 times the wage of the average worker. But, in practice, exhorbinant CEO salaries for mediocre performance seem to result from a combination of management being able to insulate itself from shareholder control and from mutual back-scratching where CEOs sit on each other's boards and vote each other sweetheart deals.

Those things are problems rather than the pay itself. Certainly it is possible for a CEO to be worth every penny of an enormous paycheck (what would a hypothetical CEO who truly turned around GM--say, brought its marketshare back up 5 or 10 points while, at the same time, making it as profitable as Toyota--be worth?)

"And what if social welfare is imperfectly attended to by markets?"

Well, it IS imperfectly attended to by markets, which is why we appropriately have a variety safety net programs. Hell, it's why we have government at all.

"What if markets themselves further exacerbate such economic bias w/ an unethical allotment of spoils to executives?"

Do we have to be talking about "unethical spoils"? That's the point. We don't have saftey net programs because the gains of the well-off are unethical. One can be in favor, say, of increases in the EITC (as I am) and also believe that the Google fortune was made ethically and that the business contributed greatly to the general welfare. To demagogue against against modern-day robber barons is, itself, unethical I'd suggest and, worse, it has been proven to be poor political strategy, I think. The tech billionaires are broadly admired (yes, even Bill Gates) as entrepreneurs who made their fortunes honestly and whose businesses are highly valuable to society. There's no need to dispute that. We don't have social programs because there are rich guilty bastards out there who need to be punished, we have social programs because there are people in need.

"What contribution to society can be exclusively traced to existing tech billionaires?"

Done any Google seaches today?

[Barry]

Movie Guy, I particularly like the part about Evul France menacing poor Brussels about special interests. Being in the United States, we never see that here.

[Movie Guy]

Barry,

Yeah, that was pretty good.

Morici doesn't pull many punches. I liked this remark: "Maybe it is just time to quit the game."

I wouldn't lose much sleep if we threatened the WTO with that one. The VAT issue he mentioned messes up any concept of fair trade.

He's the only economist I have seen who takes the issue of lost GDP growth due to current U.S. trade policies and currency valuations. 1% GDP is a big deal. Or 25% GDP growth. He has stated it both ways.

[liberal]

tedm wrote, "The term, rent-seeking, comes from an analysis of protectionism. Passing a law banning the importation of (insert privileged producer) will create a rent for that producer at the expense of the broader spectrum of consumers. Which producers will be able to get such a law enacted? The privileged few with disproportionate political influence. You are advocating putting lobbyists in charge of access to American consumers. I don't think that will lead to a more fair and egalitarian society."

And that's different from the status quo, how?

Many current, so-called "free trade agreements" aim to extent Bill Gates copyrights to other countries. Every penny earned by such extensions is in excess of the cost of the production of the software and is rent.

[liberal]

Slocum wrote, "Are the fortunes themselves (and the effect they have on the wealth of the top 1%) a problem in and of themselves even if the fortunes were made ethically and the businesses contributed the welfare of humankind?"

But the premise is false.

Bill Gates made most of his fortune collecting economic rent, which IMHO is ill-gotten gains.

[liberal]

Frank wrote, "Sebastian- If sincere you are confusing wealth and income. Check back when you have a clue."

Confusing wealth and income is a bad thing. (I'm not focussing on Sebastian here.)

The correct definition of "the rich" should depend on wealth, not income.

[liberal]

Sebastian wrote {I'm quoting from Barry's post---SH's post disappeared...why?}, "When increases in processing speed were the big issue, Motorola and Intel made bundles of money (for a rough proxy see the decade long market date on Intel stock under "INTC")."

There's _still_ far more competition in the hardware industry than in Microsoft's market.

Compare the similarity of AMD and Intel chips. I'm not an except on CPU's, but it strikes me they're pretty similar.

Nothing of the sort exists for much of MS's product line. The competing stuff is just completely incompatible.

[liberal]

A plea---Brad, if Sebastian's posts disappeared because you deleted them..._please_ consider not doing that? As an interlocutor, it's very frustrating for me.

[tom f]

Slocum:

"Of course it's ethical [for a CEO to make 200 times that of the ave. employee] (in principle) -- just as it's ethical for superstar entertainers and athletes to make a 100 or even 1000 times the wage of the average worker"

Why is this ethical? What principle?

Slocum:

"the business contributed greatly to the general welfare."

But my point is that many actors and institutions outside of private enterprise also contribute greatly to the general welfare; and yet we as a society do not pick out executives or figureheads for these institutions and give them hundreds of millions of dollars to spend on castles and stuff. If person A and person B both contribute to the general welfare, and person A is rewarded many times more than person B, such an arrangement is unethical: equal rewards for equal contributions are a moral imperative by my code.

Slocum:

"what would a hypothetical CEO who truly turned around GM--say, brought its marketshare back up 5 or 10 points while, at the same time, making it as profitable as Toyota--be worth?"

The assumption is that (a) we could adequately trace such a rebound to a single individual and (b) that, even if (a) were proven, we could prove that such an individual's abilities were unique and exclusive to that individual. Perhaps there are 50 executives and 300 MBA students who would have enacted the same policy regime at GM. Due to the structure of management -not the unique and exclusive abilities of one guy- only one of these 350 gets the billions. That's arbitrary, not ethical.

"Done any Google seaches today?"

Google exists because there are pc's -the culmination of much private and public R&D and investment; the internet exists as the culmination of much private and public R&D. All these advances to the general welfare are due to a web of interdependent causation. Heck, usually the billionaire who gets the spoils didn't even create the actual product. Rather, through a combination of wits and good fortune, the billionaire merely bags exclusive proprietary rights -see liberal.

[Sebastian Holsclaw]

Well it appears that all but one of my posts have disappeared so I guess I'm done.

[liberal]

The bad: looks like Brad deleted Sebastian Holsclaw's posts. While I think it's wrong on principle, it's also annoying, since I wanted to stomp on him myself and not rely on a censor to do it.

The good: Brad added a comment in brackets pointing out how clueless SH really is:

-----------------------------------------
Why stop there? The vast majority of the money gained was in the top 10 people in the US. Bill Gates, Paul Allen, Michael Dell, Sheldon Adelson, Steve Ballmer, Sergey Brin, Larry Page, Abigail Johnson, Anne Cox and Barbara Cox.

[No it wasn't. The 5.5% extra of national income that went to the top 0.25% amounts to $550 billion a year. The national income-concept income of the top ten is less than $30 billion. Not the "vast majority": 1/20.]

Posted by: Sebastian Holsclaw | March 14, 2006 at 08:28 AM

[liberal]

tom f wrote, "If person A and person B both contribute to the general welfare, and person A is rewarded many times more than person B, such an arrangement is unethical: equal rewards for equal contributions are a moral imperative by my code."

I think it's important to note that there's no evidence that CEO's are really worth the compensation they receive. And while "the market" is giving them the compensation, it's a market prone to failure because of various information problems.

"The assumption is that (a) we could adequately trace such a rebound to a single individual..."

Right. Not at all clear the compensation equals marginal contribution.

"...and (b) that, even if (a) were proven, we could prove that such an individual's abilities were unique and exclusive to that individual."

Put in economics terms, it sounds like you're saying they're collecting rent. Which I think is true.

"Google exists because there are pc's -the culmination of much private and public R&D and investment; the internet exists as the culmination of much private and public R&D. All these advances to the general welfare are due to a web of interdependent causation."

I think economists would say that there's a surplus being captured by someone who didn't produce it---not sure that's the right term though.

[Barry]

Sebastian, not being critical here, but you've been posting with incredible volume both here and at Crooked Timber. If you can keep track of which posts you made where, you've got a memory to be proud of, and one far better than me on my best day. It's probably the case that you just lost track.

[liberal]

Barry wrote, "If you can keep track of which posts you made where, you've got a memory to be proud of, and one far better than me on my best day."

Then how come it was obvious to _me_?

"It's probably the case that you just lost track."

No. Note that on March 14, 2006 at 03:14 PM you quoted one of his posts which no longer exists.

[liberal]

Above I posted, in part:

" 'Is it something that could have been added just as quickly by someone else if he didn't exist? Maybe so. We will never know. But I strongly suspect what he did looks easier in retrospective.'

"Except there's no evidence whatsoever for your position.

"Funny how, when the issue is redistribution of wealth _upwards_ by government-enforced rents, the issue of whether this is good or bad for the economy as a whole is fraught with uncertainty."

Came across a similar thing on USENET today: "Funny how the defenders of privilege think competition is so great when working people are the ones whose rewards are driven down by competition, but as soon as anyone suggests that the privileged should compete too, it's Oh No! Don't even think it! It will reduce wealth creation if we don't pay the privileged extortion money for not stopping others from creating wealth!"

http://groups.google.com/group/sci.space.policy/msg/cf96a73c7c2c3f93?dmode=source

[tom f]

liberal:

"Put in economics terms, it sounds like you're saying they're [CEO's] collecting rent. Which I think is true"

Yes, but I want to emphasize the unique nature of such rent. The artificial nature of property rights -landed, intellectual, or otherwise- is one such genus of rent.

The artificial nature of organizations that create narrow heirarchies, grant elites the authority to run the ship while simultaneously disempowering others, and then heap praise (and enormous wealth) or scorn (and slightly less enormous wealth) on the elites' policies clearly does not measure the unique abilities of whomever is bestowed elite status. Such institutional frameworks are cultural, codified by a private contract or charter and not by law. This is significantly different from "rent" as enabled by state policy.

To clarify: the term artificial is not meant to be perjorative, merely to distinguish behavior that is more or less arbitrary and divorced from biological, behavioral, or economic necessity.

[Barry]

liberal: "No. Note that on March 14, 2006 at 03:14 PM you quoted one of his posts which no longer exists"

O.K.

[liberal]

tom f wrote, "Such institutional frameworks are cultural, codified by a private contract or charter and not by law. This is significantly different from 'rent' as enabled by state policy."

Right. Though I think it may still satisfy _some_ definitions of rent.

The whole topic of executive compensation is laughable. I just luvvvvved it when the Time Warner execs destroyed ($billions, IIRC) of shareholder value by buying AOl at wildy inflated prices. (Of course, one could argue that that was a "zero-loss" transaction---was good for the AOL shareholders.)

The funniest take on that was an _Onion_ article, or at least picture, of Ted Turner appearing from the future, in mid-air, right above one of the T-W idiots who was at a podium announcing the deal...trying to stop it.

[Movie Guy]

liberal,

Sebastian Holsclaw isn't the one who has missing posts on this thread.

Two of my posts vanished. One on Paul - a short note. Not a big deal. And one on Peter Morici's position on advanced global trade. I was talking to Frank. Poof.

The ongoing conversations with others are still there, but not those two posts. No email from Brad to me. Don't know why they were pulled.

I thought those games had stopped. Apparently not.

[radek]

Movie Guy

Your quotes from Morici pretty much seem to support my description of him.
The trade deficit may put a drag on growth (though personally I seriously doubt it's that high, if at all) but protectionism is a really stupid ineffective way of trying to shrink it.

[tom f]

BTW, I followed this thread and quickly realized people were responding to Sebastian posts that I myself hadn't read; ergo they had been deleted.

That sucks.

I'm thankful that people come to this blog to argue from various ideological perspectives. I don't quite see what threatens Brad about SH or, a while back, me.

Smackdowns especially are an opportunity to gain some admiration and cred w/ the readership while vigorous arguments are edifying and likely attractive to the DeLong readership.

[Movie Guy]

radek,

I believe that Morici has a point. The offshoring involves much more than displacement of the direct hire jobs and related payroll. And we know that.

It goes back to my post much further up the thread. It's one heck of an economic hit when we lose not only the plant production, but the suppliers and services support. Every time we do this, it's a bit like closing up small towns. We have closed thousands of them since 1997. Some were large plants.

We're now watching the R&D flow overseas as well. That's another serious blow. One that many said would never occur. That's bad news.

I don't know all of the dollar numbers that roll up whenever we lose a specific plant, but we lose the general visibility of the hit once it is overseas. Sure, if you're persistent, you could dig through each corporation's prospectus or annual report and try to assemble the offshore financials on the relocated plant or foreign outsourced production, but that is quite a drill.

The same issue applies to new build plant investment in the U.S. vs. U.S. FDI in China for the same operation. Whenever we read about gross FDI in China by U.S. firms (none named in U.S. govt reports, of course - part of the survey system of reports), the first question that I raise is what is the yardstick comparison for FDI dollars in China vs. equivalent production investment in the U.S.? FDI should take a corporation much further down the road in China than equivalent dollar expenditures here.

Offshoring is a big hit on GDP contribution that some may assume that we recapture on the retail end back in the USA. But, of course, that doesn't achieve balance. So, sure, we lose the production of goods or services abroad and whatever that dollar value may be. Granted, we still collect corporate taxes, but that's not really the issue.

Well, that's a lengthy way of saying that Morici may be underestimating the GDP number. Or not. I don't know.

[Frank]

Seb- Sorry your comments got deleted. I hope you caught the bit where Brad pointed out you were off by a factor of 20. I was too lazy to look up the numbers I would have guessed 400 billion vs 80 or so for a factor of 5.

Movie Guy- I read your post on the 25% loss of GDP growth due to the trade deficit. I don't doubt you about that.

People keep mentioning CEO pay being 200 times the median but that number is several years out of date. I won't swear to it now being over 600 times now but I know it passed 400 times a while back.

Personally I think we should just outsource all those CEO jobs to Koreans at say a 50% mark-up on their usual rates. We could use the savings to cut every American a check for a couple grand a year. Plus we'd get management that was both more competent and more honest.

[Ninjaplease]

I'm confused.

why is it so black and white with Free Trade and Protectionism with economists?

Why can't we hold tariffs to prevent the creation of so many "losers?" Use the tariffs against China to force them to un-peg the Yuan against the dollar--which itself is an unfair trade advantage against the US.

Using tariffs against technology imports from India would help to offset the jobloss until our standard of living drop matches their standard of living rise.

In its current state, how can an honest economist claim that Free Trade is good for all, when due to standard of living differences, hence production of goods costs, India and China have such a massive trade advantage against us when there are no tarrifs to help level the playing field?

I don't understand, why isn't this obvious to everyone?

NAFTA has not created a booming Mexican economy that would reduce / stop the influx of illegal aliens seeking better economic conditions in the US. You could argue that the peso exploded in the mid 90s, and it offsets their growth numbers, but even that was 10 years ago.

When does it all equal out?

When the real estate market implodes since no one will be buying once the banks stop issuing ever larger mortgages, will we all simply be working at WalMart, selling Indian and Chinese made trinkets and food to each other, at bargain basement prices, but since we work at WalMart, we have bargain basement wages and no medical insurance, and since we have greatly reducing buying power, the prices of all goods will drop due to their respective drop in demand.

Lower wages will mean lower taxes, will mean less social safety net programs will mean work at WalMart or starve to death.

Can someone point out the benefit to all part of this obvious scam?

[Movie Guy]

Frank -- "Personally I think we should just outsource all those CEO jobs to Koreans at say a 50% mark-up on their usual rates. We could use the savings to cut every American a check for a couple grand a year. Plus we'd get management that was both more competent and more honest."

Agree.

The leader of Hyundai is a great one to study. Not only did he unexpectedly take over Hyundai (other family relatives were expected to step up), but he put his son in charge of Kia.

Kia has been turned around quickly, so they have an excellent leadership and management style plys technical expertise.

Kia has announced that they are building their first U.S. plant in West Point, Georgia, just across the border from Alabama on I-85 between Montgomery and Atlanta. Of course, Hyundai has their new $1 billion plant in Montgomery, employing 2,500 people. The Kia plant will employ 2,500 as well.

"A Kia official driving from Hartsfield-Jackson International Airport {Atlanta) to the Montgomery Hyundai plant discovered the West Point site, town officials said."

The interstate run from Montgomery to West Point is about an hour if you step it up. This stretch of interstate will become known as the Korean corrider.

These leaders know what they are doing. Toyota should be worried. Hyundai-Kia is stepping it up. Their vehicle price points are good, as are the warranties. I believe their vehicle models will wound some of the Toyota model sales. A lot of vehicle for the money. Some of them are loaded.

I'm not well versed on Korean electronics, but I see their products all the time. When the Koreans make a move into product markets, they mean business.

I say give them a contract to run FEMA after FEMA is pulled out from under DHS. We certainly wouldn't have Katrina ice rerouted and stored in Maine and Pennsylvania, and thousands of housetrailers sitting in a pasture in Arkansas. FEMA is really screwed up. To the max. And DHS...oh, forget it.

[Movie Guy]

Ninjaplease,

You might want to track Brad Setser's blog on the subject of China.

We've had some good exchanges on what needs to be done over there.

Your points are well taken. But the econos aren't going to abandon their view of supposed free trade just yet. They're still praying at the altar for a miralce. It's not coming, though.

They vastly misjudged the effects of advanced global trade. Central to the problem is Economic Hydrology Theory (my creation). And they really didn't plan on that.

[liberal]

Movie Guy wrote, "Sebastian Holsclaw isn't the one who has missing posts on this thread."

Right, he's not "the one." Nor are you "the one". Rather, the correct statement appears to be "at least two, MG and SH."