Posts Tagged ‘wealth’

July 17, 2012

Early in his academic career, [Paul] Schervish was a committed Democratic Socialist. But around 1990, he began interviewing wealthy people and decided that his Marxist instinct to criticize the rich was misguided.

“I realized good and evil are equally distributed across the economic spectrum and not particular to the wealthy or the poor,” he says. “A lot of wealth holders were very sincerely concerned about others and were doing something about it.”

Graeme Wood

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In place of wooden and corrugated metal shacks with trash fires out back, there are stuccoed buildings, nicely painted houses with landscaping, and public garbage collection. Where lots of folks in countries to the north do their shopping in poorly stocked stores run out of people’s houses, Costa Rica has American style grocery stores in every town where you can buy anything your heart desires: artesanal cheese, capers, fresh meat to name a few. Instead of the rolling hills full of cows, horses, and cowboys … in Nicaragua, we rolled by enormous plantations of pineapple, sugarcane, and papaya worked by big, industrial tractors, and headed directly for export. The country smells of prosperity and piña. … From La Fortuna, we made our way through resort land and around Lake Arenal to the little town of Nuevo Arenal … where there are no bars on the windows. It’s quite a striking thing to notice. After months of seeing ironwork in front of ever pane of glass, to be looking out of the hotel through a huge clear window is an interesting luxury. … Rather than wandering unmarked trails in a National Park, you have to pay someone $10 to go look at a waterfall. … The rainy season has arrived, so we are [adjusting to] wet weather. Sometimes we stop for shelter, and sometimes we ride on through. One day, after we thought we’d waited out the rain and headed on down the road, it started pouring, and looked like it would continue all night. As there were no hotels that we could see reachable that afternoon, we asked a logging/trucking company if we could sleep in their shed. The dude started to send us on our way to an hasped he knew, but then changed his mind, realizing we were much happier stopping right then for something dry and dusty than riding some more in the pouring rain in search of a pricey hotel room. He asked us all about our trip, brought us a tarp to lay on the floor, and explained that he used to drive trucks all over the province without knowing where he’d sleep, and he’d spent many a night sleeping in corrals with the animals. 

July 16, 2012

What does it mean to be the wealthiest country in Central America?

July 11, 2012

@UnlearningEcon lamented the deviations-from-Pangloss framing of neoclassical economics. Normal economic theories take perfection (optimality) as a starting point and ask how real-world “market imperfections” differ from the putative abstract-free-market ideal. (That “the free market” is an abstract ideal can be verified by first going to an actual bazaar and then listening to the way pundits use the term “free market” or “private enterprise” as in versus “government”.)

If you’ve spent too much time with your head in a book rather than participating in actual commerce, it can be hard to even conceive of another frame.

 

Here’s an alternative theory, just as wrong and just as simple & parsimonious as the Panglossian-private-enterprise frame:

  • Every rich person has some business that’s making them rich.
  • No rich person will enter a contractual relationship that makes them poorer.
  • The only way for a poor person to obtain wealth is to perform a service for a rich person.
  • So the service must increase the efficiency of the rich person, add new customers, draw more sales from existing customers, or make the same work get done for lower cost.
  • Therefore, the rich always get richer. The poor may or may not get richer.

Of course, the real world deviates from this theoretical ideal in some respects.

  1. Ego projects. Sometimes a rich person wants to indulge in an ego project—like starting their own fashion label, “investing” in a “startup”, or retiring from business to write a blog or perfect the craft of 17th-century viola restoration.
  2. Bad, lying employees. Hiring managers sometimes make mistakes and hire someone who said they would make the operation more efficient, but actually costs more than they’re worth.
  3. Vacations and big houses. A few large purchases do transfer wealth from rich to poor for consumptive purposes. However, it can be shown that when a continuum of houses and vacations trade in continuous time, the real [def.] economic [def.] returns to hillbillies exchanged for house-building go to booze and marijuana with plim → 1.

Hebbian History

July 10, 2012

memeengine replied to your post: Or can the influence of any ancestor ever fade down to zero? (Or, well… to arbitrarily small size?)

An AR[1] process can go arbitrarily ↓0 as time↑∞. But in real life the sins of the fathers set their childrens’ teeth on edge in a stiffer, more heriting, architectural way. (I was alluding to that with the new-parents post scriptum.)

I don’t know of any “grande classes of models” wherein you stay stuck from where the past put you, but for example you could say

  • if ($income >= 10 guineas) { $opportunities = 1000; } else { $opportunities = 3; }.
 

I’m neither an expert on history nor do I find the econometrics super compelling, but ∃ some theories of the past carving out a channel for the future.

  • In central Africa — the form of governance from 1000, 1500, 1800 AD still has an influence on GDP per capita today. Even once you statistically control for other “obvious” determinants of production power. (Here I learned the interesting term “ethnofract”—a measure of ethnic disparity.)
  • In the southeastern US — a county’s history of slave-holding has statistical relevance to. (Nathan Nunn is a co-author.)
  • In socialist Sweden — the class mobility from generation to generation is greater than in free-market United States.
  • According to Arvind Thornton, north-western European social norms of family size, structure, and intra-/inter-relationships set the stage for “industrial revolution” type anti-Malthusian family structures that inform major subcultures all over the OECD today. I.e., a small nuclear family wherefrom kids form their own families in a separate home; high value placed upon individualism; etc. 
  • In British-colonial Jamaica and French-colonial Haiti, an oligarchic political form in the 1700’s passed on poverty to its ‘fterbears. Sugar plantations financed European vacations, fine liberal educations, and leisure for the elites, but sugar is not an investment in the future. Indeed, growth markets might have overthrown the political structure by empowering the hands, so the positive-sum games were forestalled by the landed interests. (Story can be found on Daron Acemoglu’s website.)
  • (A similar argument has been applied to Europe in the “Jared Diamond question”: why did Europeans dominate the globe rather than Asians, when the Asians were ahead earlier on in the race? Perhaps because of the over-powerful Chinese government.)
  • In Louisiana, USA — juridical forms differ from the other 49 States. Since Louisiana’s French colonial history bequeathed it a civil-law rather than a common-law system of justice, not just its laws but the underlying reasoning for how they’re executed, differs orthogonally to other interstate legal variations.
  • Come to think of it: any common-law system, by design, to carve a river that the future will follow.

In all of the statistical examples we’ve got to ask if it’s possible to statistically control for parameter changes. To which the correct answer is: No. Well, maybe. Um, in a local sense any parameter change can be estimated as linear. If the underlying function is ≥once-differentiable. So, err. I’ll have to get back to you on that.

(I’ll look up paper links later…if you as a reader know the papers or related ones you could also do me the favour and post links in the Reply or Disqus Comments. =) )

July 8, 2012

Just in case you forgot that primitive living means eating live cockroaches and bony rats’ tails for extra protein.

The Adi people of Tibet/India (Aranatra Pradesh) play host to the BBC’s Bruce Parry.

May 12, 2012

I can afford to consume each of

  1. chocolate
  2. cheese
  3. tea/coffee
  4. fruit

multiple times per week. I think that qualifies me as Pretty Goddam Lucky.

Things That Would Not Exist If Everyone Were Equal

April 9, 2012

@portereduardo and I were discussing redistributive taxation on twitter the other day.

Mr Porter wrote a piece in the NY Times about hyper-taxing the tippy top margin of American income to reduce the US’ yearly government deficit. Economists Pikkety & Saez (famous for assembling a widely-quoted data set about top incomes) estimate that $400 billion per year could be raised by putting the US’ top marginal rate back to 80%—about ten times as much as I thought could be raised, that’s actually a significant chunk of the yearly (spending − revenue) deficit.

 

Mr Porter used the diminishing-marginal-utility argument for redistribution: poor people value money more than rich people. (It’s been said that exponential increases in money only beget linear improvements in happiness.)

If you believe that rich Americans should give money to poor Americans, surely it follows that Americans in general should give most of their money (at least their earnings above a certain level) to the poorest in the world—people like the Aboubakars. 
The Aboubakar family of Breidjing Camp in Chad.Food expenditure for one week: 685 CFA Francs or $1.23
Nothing speaks to me like this photo series. The families and their food.
This famous photo of the Aboubakars (taken in 2006 I believe) inspired me to eat more legumes and beans over the past few years. I figured—if 6 of them can get by on ~ $1/week, I can definitely lower my expenses by working what’s in those bags into my diet — crowding out the rich, expensive food (meats, pâté, cheese, hummus, butter, pre-made stuff).
Always fighting the hedonic treadmill. Thanks, Aboubakars (and Peter Menzel).
RELATED: Global Rich List, Angus Maddison’s History of the World Economy, Hans Rosling’s 2010 TED talk

According to the World Bank, the world’s yearly output is worth $63 trillion, and there are 6.8 billion people on Earth. That means an income per person of about $9250. Let’s pretend that it were possible to just “take that money and put it over there” — let’s imagine that people worked every day just as they do now, got their paychecks, and when they did so the various world governments had shuffled all of everyone’s monies around so that the weekly amount was $177.88. What would the world look like then?

 

What follows is my own speculation about what the world would be like at $9000 parity. A lot of this logic actually requires not-quite-parity because no-one would be swayed by a salary offer of $150,000 over $100,000 if they’re going to keep exactly $9,000 of it either way. So in order for market forces to allocate labour to the places where it’s currently going and thus keep production stable, you would need to do something more akin to:

  • taxing every dollar earned over $5,000/year at a 90% rate
  • (After all, if you live in a tent and all you eat is oatmeal, vegetables, legumes, and vitamins/salt, $96/week is far beyond what’s necessary to stay alive. And who are you that you should get foie gras and Mario Kart, when others eat rice gruel?)
  • taxing every dollar earned over $50,000 at a 99% rate,
  • taxing every dollar earned over $500,000 at a 99.9% rate,
  • and so on,
  • with everyone guaranteed at least $1,500/year and those making less than $9,000/yr getting their wages supplemented by a negative earned-income tax.
  • Phew.

Thus a law professor making $250,000 would keep $200,000×1% + $50,000×10%+$5,000 = $11,000, a hefty 22% above the average and a supernal 633% above the lowest earning minimum for non-workers. More than enough to represent status symbols that would motivate him/her to keep teaching the law to young people, right?

Plus, if the world output were fungible, we would have $9000 per person, not per working person. So the usual dynamics of unemployment, childhood, and retirement would take place. The income of working people might be more like $18,000 or more and then split back down depending how many dependents they had — respecting the bar that the same number of people need to keep working the same number of hours at the current jobs in order for world production to stay constant.

 

But, it’s easier to talk about if we said everyone just gets $9,000/year even. Here are my speculations about what that world would be like:

Things that would not exist if everybody’s incomes were equal:

  • High Fashion — The world would be a drabber place.
  • Sotheby’s — No Rothko pieces auctioning for millions.
  • Expensive houses — Obviously, this is where most of rich people’s money goes right now. One could certainly do time-shares on an expensive place, though — or pack a lot of people into one expensive house. The prices of houses would have to drop as well due to falling demand.
  • Disney World — The capital costs can only be sustained by a steady flow of traffic spending between $2,000 and $20,000 per week at Disney World. However you could still go to Knoebels and ride the Red Baron once for a buck (4% of your daily nut). You would have to pay $40 entrance fee ($45 now at Holiday World!) which would mean forgoing two days’ worth of income (though still paying for rent and food on those days). I think we <link> would still have amusement parks and rides, since Americans weren’t so rich when Coney Island was built.
  • Dubai — Obviously.
  • A variety of restaurants — unless prices dropped dramatically due to the redistribution, people couldn’t eat out like contemporary New Yorkers do. A sandwich from Jimmy John’s costs $5.50, $8.83 if you get soda and chips. That’s 34% of your daily nut, not counting rent/utilities. And the San Francisco “yuppie food stamp” ($20 bill gets you lunch) would amount to 79% of your daily costs — surely putting you over the limit for the day once necessities are paid.

    I predict (or should I say, counterfactualdict) that some people would still choose to make a living by serving food to others—they would probably serve the same two or three foods to everyone all day (perhaps varying the amount per person but less choice)—the economy of scale coming through not having to cook several times or manage different ingredients. I used to go to a place in Dublin run by Hari Krishnas, I’m thinking it would be something like that — or like the comedores of Latin America—you can have eggs, beans, and tortilla made any of 5 different ways—con café; pero crema, no tenemos.

  • Universities. Currently, US universities mostly get money from two places: tuition, and research grants. Adults believe so strongly in the value of education that they will postpone consumption for 10-20 years and lump all of that savings into payments to professors and administrators over a 4-year period. But there’s no way somebody earning $177.88/week is going to pay $80,000/year to send anyone to NYU. However professors would ostensibly be willing to share their knowledge for the same money everyone else is making—so what would the total result be?
  • Cars. How are you going to afford insurance and a car on $770/month? Perhaps it could be done but I think people would just bike / walk / take the bus. Horses might even make a comeback as transportation for normal people. (But rich countries already have the pavement infrastructure so I think people would bike there.) Then again, people might still use motors to get around but much cheaper vehicles, maybe smaller motors or old old cars (think Cuba). After all we still have the human and factory capital to make automotive vehicles, and we still have a lot of cars about. Although our V8 technology is much better than the 2-stroke technology.
  • Banks. Well, they would change, wouldn’t they? If all of their customers made $9e3 / year, it seems their business would have to be very different.
  • Orthodontia. Too high of capital costs. Smile, everyone’s teeth are fugly now.
  • Insurance. Once you start accumulating a lot of stuff while continuing to make buckets of income, what does it make sense to do? Protect your stuff. If the top incomes were hacked off, there would be much less demand for property insurance—after all, we wouldn’t be driving expensive cars or living in expensive homes anymore.
  • Pharma research. At least the business model would have to change. I don’t know exactly what medicines / procedures / medical devices are purchased exclusively by the wealthy, but if the customer base was wider and shallower, that has to make a difference.
  • Medical care. Again I don’t know what exactly would change, but medical care would be quite different for the same reasons.
  • Whole Foods. If everyone were living on $9000/year, then here are some of the ways food consumption might change. Out-of-season fruit might be a luxury; pre-packaged food (not frozen peas but like sun-dried tomato hummus) … Right now OECD grocers waste produce that doesn’t look perfect; I predict consumers would buy tomatoes with bruises and such.
  • Jetskis. As fun as these things are, they have to go. They’re rich boy toys. I guess you could trade used jetskis since they’ve already been produced—but I can’t imagine the continuance of demand for such a luxury item. Then again —maybe you could 
  • Overtime. I believe the business world would slow down if the opportunities became less lumpy—if consumers were more homogeneous, business might be more of a “steady flow” — like a factory. Also, the opportunity cost of leisure would go down so people would be less inclined to work overtime.
  • Classical music. Symphonies have been the provenance of the wealthy since Mozart’s time; just look at who’s sponsoring your local lyric opera today, chances are an élite financial firm’s name is among the biggest donors. Not only does the demand depend on wealth, but the supply does as well. Tanglewood and Julliard don’t come cheap, so we don’t get Nina Simone anymore.
  • “I’m so broke; let’s go to a cheap bar.” Maybe I’m being a little wishful. 

Things that could still exist if everybody’s incomes were equal:

  • Billion-dollar fighter jets. Don’t forget that after you earn $100,000 and give $91,000 to the government for redistribution to the poorest, the government still gets to take another $3000 for the purposes of running the government! Maybe the size-of-government would be relatively smaller in a world at parity, but wouldn’t the likelihood of war be greater? We needs dem fighter jets to keep de peace.
  • Research grants. Again, the government still gets to take yet more of your earnings after the redistribution. So they could fund cancer research and so on. The cost of labour in the U.S. might go down quite a lot given the post-tax redistribution, meaning the research would be more labour-intensive and less capital-intensive — so maybe more grants for theorists and fewer experimental machines built?
  • Doctors. Cuban doctors already give up most of their earnings because they’re from a communist country. That didn’t stop them from wanting to be doctores. A Cuban doctor saved my life one time.
  • Two-income households. Sure, all the jobs at Subway and Starbucks will have disappeared, but with companies trying to adjust to 3 billion new customers there will be 
  • Plumbing, showers — You can currently get this for fairly cheap.
  • Apartment buildings — Shared housing is the easiest way to make rent go down. I expect extended families would move in together, or there would be a lot more Craigslist ads and living in even more cramped quarters in a big city where mostly yuppies live. Landlords would essentially be f*$ked over by parity, but isn’t it their fault for trying to siphon money out of the wealthiest instead of serving the poorer customers for a business?
  • Colourful clothing. People figured out dyes hundreds and thousands of years ago. It stands to reason that there was enough demand then, when we <link> were so much poorer, for colour, so there would be demand for it now.
  • Computers. Do you know how cheap an old computer is? Very. Forget One Laptop Per Child, you can find enough parts at a charity shop to get yourself running Puppy Linux on $177/week.
  • Trains? I’m not sure how goods would be moved from point to point in a world at parity. Both trains and lorries can be pretty efficient ways of moving goods from point A to point B; in this Uniform Factory Society I’m imagining I’d guess the returns to providing plain goods at lower cost would exceed the returns to imagining more stylish <link substance of style> or imaginative goods. Trains have been around for quite a long time so that’s an argument that they would still be affordable 
  • Sports. Sure, you wouldn’t have athletes making $20 million per contract, but people played sports long before that happened.
  • Beer. People invented beer long ago, when we were much poorer. Thank heavens we don’t have to give that up. 
  • Lumpy pools of wealth. Just because you equalise individual incomes, doesn’t mean that people still can’t choose to combine their savings and earnings together. People could still aggregate their savings in mutual funds and pick an investment manager to decide which of the new factories churning out staples (or the service companies delivering the staples, or the research companies figuring out how to configure the production resources) was going to grow the fastest and generate the most profits. If the capital gains tax were also 90%, people could still increase their wealth by investing in such a mutual fund. From the investment manager’s perspective, the AUM game would no longer be about convincing a few rich-o’s to invest (although I only said I would tax income, not existing wealth…so I’m contradicting myself here) but more like a high street bank’s problem: get tens of millions of people to open a savings account with you.
  • Envy. This is another question I posed on twitter (@leighblue responded). Does the quantity of envy adjust to relative circumstances? If not, then people would be demonstrably happier if incomes were equalised. If envy quantities do adjust, though, then I would feel as much envy about that law professor’s $11,000 after redistribution as I currently do about her $250,000.
  • Careers. What would you do if money didn’t matter? We would find out the answer to this question very quickly. What effect would it have on the macroeconomy, other than fewer corporate litigators?
  • Cabbage. Of course money, but I also mean literal cabbage. I think cabbage, beans, legumes, barley, potatoes, and other cheap-yet-nutritive foods would make a comeback — whether people cooked at home or ate at a comedor. I also predict vegetarianism would rise as the steak-eaters noticed vegetarian families having more of everything else. (Or maybe Americans would return to “meat one day a week”.)

Some more caveats. It’s arguable that economic growth could be faster in a world of parity. After all, there would be another 3 billion customers to serve—and those people would no longer be wasting their time walking firewood from the hilltop down to the stove.

It’s also arguable that economic output would be cut into 1/10th or worse. Perhaps the great economic efficiency we experience in the world today is directly dependent on the prices of labour being able to vary from $1/day to $100,000/day. You can see in a few of my examples above (e.g., the university) that very radical changes would have to take place — perhaps so radical that people wouldn’t continue doing their current jobs. And where would we be without corporate litigation firms that charge $800/hour?

Firms would all be competing to serve a more uniform group of customers, so production that otherwise went into expensive goods (real estate development in Aspen) would just go into continuing to improve the lives of everyone—like engineering a super-cost-efficient factory and distribution system that has a thousand times the scale advantages that the biggest past monopoly ever had.

Anything else you think I’m missing? A gross, lumpy price deflation as the world adjusts to parity? Massive unemployment or entrepreneurship or single-firm dominance as firms that produce staples suddenly have a lot more orders and firms that produce finery are shuttered? Would typical corporate profits go up or down? Operating costs?

The idea of redistribution is not a new one, if you know of some excellent scholarly discussions of the issue please link to them in the comments and excerpt a quote or two.

One last caveat: I’ve always lived in a capitalist country, so I don’t any personal experience with government-equalised incomes. Anybody who grew up or lived and worked in a communist country, I’d love to get your 2p.

March 9, 2012

The dairy man had a Ph. D. in mathematics, and he must have had some training in philosophy. He liked what he was doing and he didn’t want to be somewhere else — one of the very few contented people I met in my whole journey.

John Steinbeck, Travels with Charley

January 29, 2012

Bob Kenny says [great wealth] isn’t always worthy of envy, and is certainly not worth sacrificing one’s life to attain. “If … people … know that getting the $20 million or $200 million won’t necessarily bring them all that they’d hoped for, then maybe they’d concentrate instead on things that would make the world a better place and could help to make them truly happy,” Kenny says. “Don’t work too hard for money, because it isn’t going to get you much if you ignore everything else.”…

[M]oney may ease some worries, but others always remain. “Nobody has the excuse of ‘lack of money’ for not being at peace and living in integrity,” writes one [super-wealthy] survey respondent of his family, with a touch of bitterness. “If they choose to live otherwise, that’s their business.”

If anything, the rich stare into the abyss a bit more starkly than the rest of us. We can always indulge in the thought that a little more money would make our lives happier—and in many cases it’s true. But…. When the rich man takes his last sip of Château d’Yquem 1959, he tips back the wineglass to find at its bottom an unforeseen melancholy. Like Leontes in The Winter’s Tale, he notes in horror, “I have drunk, and seen the spider.

Graeme West, Secret Fears of the Super-Rich

January 22, 2012

According to some rough estimates, world living standards grew less than 50 percent … from A.D. 1 until the Industrial Revolution. By contrast, they grew a whopping 1,000 to 2,000 percent in the 19th and 20th centuries.

Joel Waldfogel