Edward Conard

Top Ten New York Times Bestselling Author

  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, November 13, 2019

AI Summary. An analysis of 781,437 college-bound Black and White SAT takers found family income is associated with substantial, non-linear differences in SAT scores, with the association nearly 2x as large for Black students as for White students. White students from families earning about $20K scored comparably to Black students from families earning about $100K.

Ezekiel Dixon-Roman University of Pennsylvania
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A study of 781,437 college-bound Black & White students found significant disparities in SAT performance linked to race & family income. A White student from a $20K family scored comparably to a Black student from a $100K family.

How does family income relate to SAT scores across racial groups?

Core argument: An analysis of 781,437 college-bound Black and White students who took the SAT in 2003 found the effect of family income on scores is substantial, non-linear, and nearly twice as large for Black students as for White students.

An analysis of 781,437 college-bound Black and White high school students who took the SAT in 2003 reveals significant disparities in SAT performance linked to race and family income. The study found that the impact of family income on SAT scores is substantial, non-linear, and nearly twice as large for Black students compared to their White counterparts. For instance, a White student from a family earning ~$20K scored comparably to a Black student from a family earning ~$100K. These findings underscore the complex interplay between socioeconomic factors and educational outcomes, highlighting the need for targeted policy interventions to address these inequities.

Takeaways by Macro Roundup® AI

  1. An analysis of 781,437 college-bound Black and White students who took the SAT in 2003 found the effect of family income on scores is substantial, non-linear, and nearly twice as large for Black students as for White students.
  2. White students from families earning about $20,000 scored comparably on the 2003 SAT to Black students from families earning about $100,000, according to the analysis.
  3. The analysis points to the interplay between socioeconomic factors and educational outcomes and argues for targeted policy interventions to address the disparities.

Ezekiel Dixon-Roman, Howard Everson and John McArdle, “Race, Poverty and SAT Scores: Modeling the Influences of Family Income on Black and White High School Students’ SAT Performance,” University of Pennsylvania, January 2013, https://www.researchgate.net/publication/280232788_Race_Poverty_and_SAT_Scores_Modeling_the_Influences_of_Family_Income_on_Black_and_White_High_School_Students'_SAT_Performance

http://theunsilencedscience.blogspot.com/2013/10/black-suits-gowns-skin-sat-scores-by.html

That paper was published in the Columbia University teacher's college press by professors from UPenn, CUNY and USC. They looked at 781,437 college-bound, black and white HS students who took the SAT in 2003. They found that "the effects of family income on SAT scores, though relatively modest in contrasts to high school achievement, are substantial, non-linear, and nearly twice as large for Black students." The students answered a lengthy questionnaire about their HS courses, class rank, parental education, family income and race/ethnicity.

from page 15 in the pdf, a white test taker whose family makes ~$20K scores as well as a black test taker from a family of ~$100K.

Carrie Note:That guy's source on the 1995 data was from here:http://www.lagriffedulion.f2s.com/testing.htmHowever, this original link you sent from "The Unsilenced Science" cites this paper (attached), Ezekiel Dixon-Roman, Howard Everson, & John McArdle (2013). Race, Poverty and SAT Scores: Modeling the Influences of Family Income on Black and White High School Students’ SAT Performance Teachers College Record, 115 (4), 1-33

AI Summary. A proposed millionaires surtax would add 10% to individual income above $1m ($2m for married couples), raising an estimated $635bn over a decade and lifting the top income tax rate to 47%, plus a 3.8% surtax on investment income. The top 1%'s share of income taxes paid rose from 26% in 1986 to 37% in 2016.

Editorial Board Wall Street Journal
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The proposed Millionaires Surtax Act would impose a 10% tax on individual income above $1m, or $2m for married couples, raising $635bn over a decade. @WSJ.

How much would a millionaires surtax raise top tax rates?

Core argument: The proposed Millionaires Surtax Act would add a 10% tax on individual income above $1m ($2m for married couples), raising an estimated $635bn over a decade and lifting the top income tax rate to 47%.

The proposed Millionaires Surtax Act aims to impose an additional 10% tax on individual income above $1m, or $2m for married couples, potentially raising $635bn over a decade. This would elevate the top tax rate on income to 47%, plus the 3.8% ObamaCare surtax on investment income, marking the highest rates since before the 1986 tax reforms. Historically, the top 1% of filers paid an effective rate of 16.9% in the 1950s, despite a nominal rate of 92%, but by 2016, their effective rate rose to 26.9% with a top rate of 39.6%. The share of income taxes paid by the top 1% increased from 26% in 1986 to 37% in 2016. Democrats propose further increases across various tax categories, including corporate, capital gains, and payroll taxes, alongside new taxes such as a wealth tax and financial-transactions tax, raising questions about the extent of the top 1%'s "fair share."

Takeaways by Macro Roundup® AI

  1. The proposed Millionaires Surtax Act would add a 10% tax on individual income above $1m ($2m for married couples), raising an estimated $635bn over a decade and lifting the top income tax rate to 47%.
  2. With the 3.8% ObamaCare surtax on investment income, the resulting rates would be the highest since before the 1986 tax reforms.
  3. The top 1% of filers paid an effective rate of 16.9% in the 1950s despite a 92% nominal rate, versus 26.9% in 2016 with a 39.6% top rate, while their share of income taxes rose from 26% in 1986 to 37% in 2016.

Editorial Board, "The Tax Increases to Come," November 12, 2019, Wall Street Journal, https://www.wsj.com/articles/the-tax-increases-to-come-11573603018

The Tax Increases to Come

The Democratic candidates for President are promising a smorgasbord of new taxes, but why wait until 2021? Last week Maryland Senator Chris Van Hollen and Virginia Congressman Don Beyer unveiled the Millionaires Surtax Act, a plan to soak the top 0.2%.

The bill would put an extra 10% tax on individual income above $1 million, or $2 million for married couples. This surtax would apply regardless of the income’s source—whether from long-term capital gains, currently taxed at a top rate of 20%, or wages, taxed at rates up to 37%. The legislation’s backers say it would raise $635 billion over a decade, citing an estimate by the left-leaning Tax Policy Center.

What to Look For as the House Begins Public Impeachment Hearings

Messrs. Van Hollen and Beyer would effectively lift the top tax rate on income to 47%, plus there’s the 3.8% ObamaCare surtax on investment income. Tax rates haven’t been that high in decades. Before Ronald Reagan’s big tax reform in 1986, the top rate was 50%. Since then it hasn’t broken 40%.

The loopholes were also bigger and more numerous then. Reagan’s 1986 law, for example, phased out the deduction for interest on credit cards and car loans. President Trump’s 2017 tax reform narrowed the interest deduction for homeowners, so only the first $750,000 of a mortgage is now eligible.

That 2017 law limited the amount of state and local taxes that can be deducted on a federal return. It used to be unlimited, but now the cap is $10,000. There are plenty of other examples, but the basic point is that the tax base has broadened. This is desirable economically as long as the trade-off is lower rates. If Democrats now try to raise income-tax rates back to their pre-Reagan heights, special interests will soon be busy carving out new loopholes, especially for the affluent.

In the 1950s, the top income-tax rate hit 92%, which applied to earnings above roughly $2 million, adjusted for inflation. Still, the wealthiest 1% of filers paid an effective income-tax rate of only 16.9%, according to an analysis by the Tax Foundation. By 2016 the top rate was 39.6%, but the richest percentile had an effective rate of 26.9%. Meanwhile, the overall share of income taxes paid by the top 1% has increased, from 26% in 1986 to 37% in 2016.

Mr. Beyer says the Millionaires Surtax Act would “restore fairness to the tax code.” Ohio Senator Sherrod Brown, another sponsor, adds that the new surtax would ensure “the wealthy are paying their fair share.” Rest assured, Mr. Van Hollen says, this bill isn’t “in conflict” with other desired tax increases.

Democrats these days are also proposing to raise the regular income-tax rate, the corporate-tax rate, the capital-gains-tax rate, the dividend-tax rate, the death-tax and payroll-tax rates, while creating a new wealth tax, a new financial-transactions tax, a new carbon tax and a new pharmaceutical tax, even as they would repeal 100% business expensing and the 20% income exclusion for so-called pass-through firms. We’ve probably missed a few others.

As usual, the question Democrats won’t answer: Should the top 1% pay half of all income taxes? Two-thirds? Three-fourths? Where does their “fair share” end? If Democrats sweep the 2020 election, we are sure to find out.

AI Summary. Socialism's promise of income equality is misleading because it produces a political elite whose control of wealth rests on political success rather than on creating goods and services. Under capitalism, by contrast, wealth more often stems from creativity, entrepreneurship, or hard work.

Stanley Spatz Wall Street Journal
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A socialist society inevitably results in a powerful elite whose wealth is based on political success, lacking intrinsic, productive social value. @StanleySpatz

Does socialism's promise of income equality mask a politically powerful elite?

Core argument: Socialism's promise of income equality is misleading, the author argues, because it produces a powerful elite whose control of wealth rests on political success rather than any intrinsic, productive social value.

In a socialist society, the promise of income equality is misleading as it inevitably results in a powerful elite whose control of wealth is based solely on political success, lacking intrinsic, productive social value. Unlike a capitalist system where wealth often stems from creativity, entrepreneurship, or hard work, socialist elites control wealth without contributing to its creation. This highlights a fundamental flaw in the socialist model, where the elite's power is not derived from merit or efficiency in providing goods and services but from political maneuvering. Consequently, the notion of equality is undermined as wealth distribution is not linked to productivity or societal contribution, but rather to political influence, creating an elite class that does not add value to the economy.

Takeaways by Macro Roundup® AI

  1. Socialism's promise of income equality is misleading, the author argues, because it produces a powerful elite whose control of wealth rests on political success rather than any intrinsic, productive social value.
  2. Under capitalism, wealth often stems from creativity, entrepreneurship, or hard work, while socialist elites control wealth without contributing to its creation, according to the author.
  3. Equality is undermined, in the author's account, when wealth distribution is tied to political influence rather than productivity or societal contribution, creating an elite class that adds no value to the economy.

“…A socialist society also will have its powerful elite, but this elite will comprise those whose control of the nation’s wealth derives solely from their political success, totally devoid of any intrinsic, productive social value. That is, they will control the wealth to which they have not contributed…..”

Stanley Spatz, "Income Quintiles Don’t Tell the Whole Story,"Wall Street Journal, November 12, 2019, https://www.wsj.com/articles/income-quintiles-dont-tell-the-whole-story-11573580927

Regarding Phil Gramm and John F. Early’s “The Truth About Income Inequality” (op-ed, Nov. 4): The socialist promise of income equality is understandably appealing but is a canard. Every society, regardless of its utopian goals, will have inequality: It will have the powerful and it will have the weak. In our capitalist system, the wealthy have more power than the poor. Occasionally this wealth is due to illegal enterprise or simple good fortune, but mostly it is due to creativity, an entrepreneurial spirit or hard work, and usually to a combination of all three. Social power, therefore, is essentially a meritocracy: If there is “inequality,” it is generally the result of efficiently providing the public with needed goods and services. Hence, the “privileged” are those who actually produce the wealth.

A socialist society also will have its powerful elite, but this elite will comprise those whose control of the nation’s wealth derives solely from their political success, totally devoid of any intrinsic, productive social value. That is, they will control the wealth to which they have not contributed.

Stanley Spatz, M.D.

AI Summary. Rising market concentration does not inherently reduce competition or productivity growth: the share of U.S. industry sales held by the top 4 firms rose from 38% to 43% while productivity growth held stable. More concentrated industries often show greater innovation and efficiency, as larger firms exploit economies of scale and invest more in research and development.

Peter J. Klenow, Huiyu Li, and Theodore Naff Federal Reserve Bank of San Francisco
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Rising market concentration does not inherently lead to reduced competition or hinder productivity growth. Data shows that from 1997 to 2012, the share of sales by the top 4 firms in U.S. industries increased from 38% to 43%, yet productivity growth remained stable.

Does rising market concentration reduce competition and productivity growth?

Core argument: The share of U.S. industry sales held by the top 4 firms rose from 38% in 1997 to 43% in 2012, while productivity growth remained stable.

Rising market concentration does not inherently lead to reduced competition or hinder productivity growth. Data shows that from 1997 to 2012, the share of sales by the top 4 firms in U.S. industries increased from 38% to 43%, yet productivity growth remained stable. Moreover, industries with higher concentration often exhibit greater innovation and efficiency, as larger firms can leverage economies of scale and invest more in R&D [Research and Development]. Conversely, increased competition does not always drive growth; for instance, the entry of new firms can dilute market share and reduce incentives for existing firms to innovate. Therefore, while concentration metrics are rising, they do not necessarily correlate with declining competition or productivity, highlighting the complexity of these economic dynamics.

Takeaways by Macro Roundup® AI

  1. The share of U.S. industry sales held by the top 4 firms rose from 38% in 1997 to 43% in 2012, while productivity growth remained stable.
  2. Industries with higher concentration often show greater innovation and efficiency, as larger firms can exploit economies of scale and invest more in research and development.
  3. Increased competition does not always drive growth, since the entry of new firms can dilute market share and reduce incumbents' incentives to innovate.

Peter J. Klenow, Huiyu Li, and Theodore Naff, "Is Rising Concentration Hampering Productivity Growth?," Federal Reserve Bank of San Francisco, November 4, 2019, https://www.frbsf.org/economic-research/publications/economic-letter/2019/november/is-rising-concentration-hampering-productivity-growth/

Is Rising Concentration Hampering Productivity Growth?: Extended Excerpt Image 1


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Is Rising Concentration Hampering Productivity Growth?: Extended Excerpt Image 2

http://www.klenow.com/ABBKL_Falling_Growth_Rising_Rents.pdf

Ed Comment:“The bottom line is that the relationship between concentration, competition, and productivity growth is subtle: rising concentration does not necessarily imply declining competition, and more competition does not necessarily stimulate growth.” my view is that this over emphises the roll of national entry into local markets….”

FRBSF note from Aghion's (that Theory of Falling Growth and Rising Rents paper) co-author Klenow looks at the life cycle of concentration/competition, most productive firms expand to new markets, improving productivity but eventually markups get competed away which drags down innovation

"....first, IT expansion increased competition, and second, increased competition eventually deterred innovation....The reason for the changing relationship between innovation and competition is that they are both driven by changes in the cost of adding new products, which have two opposing effects on the incentives for firms to innovate. On one hand, lower cost directly reduces the cost of adding a new product and encourages firms to innovate. On the other hand, as firms expand, they become more likely to compete against each other through lower prices, which reduces their profit margins. Lower profits discourage innovation. The net impact on innovation depends on which effect dominates. When the initial level of competition is low and there are many untapped markets, the effect supporting innovation dominates. When the initial level of competition is high and there are few untapped markets, however, there is less support for innovation...."

AI Summary. The Federal Reserve Bank of New York found that wages for leisure and hospitality workers in New York counties bordering Pennsylvania, where the minimum wage remains at the $7.25 federal level, rose significantly without hindering employment growth. One economist cautions these results may not carry over to low-wage regions where workers have limited adjustment options.

Jeanna Smialek New York Times
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New York’s minimum wage hike to $11.10 & rising to $12.50 by 2020 may not apply to low-wage regions like the South, where workers are unevenly distributed & have limited adjustment avenues, warns economist David Neumark.

Do higher minimum wages raise pay without reducing employment?

Core argument: New York's minimum wage has risen to $11.10 and is set to reach $12.50 by 2020, while neighboring Pennsylvania remains at the $7.25 federal floor, creating a natural experiment across the state border.

The gradual increase in New York's minimum wage, reaching $11.10 and set to rise to $12.50 by 2020, contrasts sharply with Pennsylvania's stagnant $7.25 federal minimum, creating a natural experiment. The Federal Reserve Bank of New York found that wages for leisure and hospitality workers in New York's border counties rose significantly without hindering employment growth. However, economist David Neumark cautions that such results may not apply to low-wage regions like the South, where low-wage workers are unevenly distributed across industries and have limited adjustment avenues. While New York's wage hikes led to substantial pay increases, especially for low earners, the transition was not without challenges, highlighting potential risks for regions with different economic structures.

Takeaways by Macro Roundup® AI

  1. New York's minimum wage has risen to $11.10 and is set to reach $12.50 by 2020, while neighboring Pennsylvania remains at the $7.25 federal floor, creating a natural experiment across the state border.
  2. The Federal Reserve Bank of New York found that wages for leisure and hospitality workers in New York's border counties rose significantly without hindering employment growth.
  3. Economist David Neumark cautions that New York's results may not carry over to low-wage regions such as the South, where low-wage workers are unevenly distributed across industries and have limited avenues for adjustment.

NYT reports the the FRBNY NY/PA minimum wage study we looked at. good Neumark quotes, "...."David Neumark, an economist at the University of California, Irvine, warns that results in New York and other high-wage states would not necessarily map to other regions.“You start talking about Southern, low-wage states, where low-wage workers aren’t evenly distributed across industries” and “you have fewer and fewer avenues of adjustment,”he said...."

"....New York’s southern border, where Meeder’s sits, is one useful case. The state has been gradually lifting its minimum wage since late 2013, so that it now stands at $11.10 and is set to hit $12.50 by 2020. Fast-food workers earn even more, currently at least $12.75. Pennsylvania, immediately to the south, has stuck by the $7.25 federal minimum. That discrepancy has created a sort of natural experiment. Researchers at the Federal Reserve Bank of New York recently found that wages had increased sharply for leisure and hospitality workers in New York’s border counties while employment growth continued unabated. Their analysis immediately sparked debate. Right-leaning research groups took issue with which counties were analyzed — one was close to New York City, and two saw big businesses open, spurring job growth. They also questioned which worker categories were examined. An analysis of the data by The New York Times, paired with on-the-ground reporting, generally supports the Fed’s findings. Wages shot up in New York State’s southern counties, especially for low-earning workers, compared with 2012 — just before wage floor increases were announced. While the adjustment to higher labor costs has not been painless, the pay increases did not consistently come alongside weaker hiring relative to Pennsylvania’s trend...."

As Push for Higher Minimum Wages Grows, New York Offers a Test Case: Extended Excerpt Image 1


Jeanna Smialek, " As Push for Higher Minimum Wages Grows, New York Offers a Test Case,"New York Times, November 13, 2019, https://www.nytimes.com/2019/11/13/business/economy/minimum-wage-new-york-pennsylvania.html

AI Summary. Europe directs 53% of its research and development spending to the automotive sector and accounts for just 19% of global private R&D and 8% of R&D in software and computer services, trailing China and the US. Its share of global "superstar" firms has halved, and it invests 1.7 percentage points of GDP less than the US in intangible assets.

Eckart Windhagen McKinsey Global Institute
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Europe allocates 53% of its R&D to the automotive sector, yet its global share of superstar firms has halved since 1999. Europe’s private R&D investment is only 19% of the global total, trailing behind China & the US.

Is Europe's concentration of R&D in autos holding back its innovation?

Core argument: Europe allocates 53% of its R&D to the automotive sector while its global R&D share in software and computer services is 8%, and its global share of superstar firms has halved since 1999.

Europe allocates 53% of its R&D to the automotive sector, yet its global share of superstar firms has halved since 1999, highlighting a critical need for diversification. Despite having the largest public R&D spend, Europe's private R&D investment is only 19% of the global total, trailing behind China and the US. The continent invests 1.7 percentage points of GDP less than the US in key intangible assets, and its R&D share in software and computer services is a mere 8% globally. The concentration of R&D in a few sectors and firms underscores Europe's struggle to scale and innovate, particularly in digital technologies. As the global economy favors scale, European firms face rising stakes, with only 16% of large global companies in the top decile for economic profit being European, a sharp decline from previous decades. This trend is exacerbated by slower technology diffusion and a declining share of new entrants among the largest R&D investors.

Takeaways by Macro Roundup® AI

  1. Europe allocates 53% of its R&D to the automotive sector while its global R&D share in software and computer services is 8%, and its global share of superstar firms has halved since 1999.
  2. Europe accounts for 19% of global private R&D investment, trailing China and the US, despite having the largest public R&D spend, and invests 1.7 percentage points of GDP less than the US in key intangible assets.
  3. Only 16% of large global companies in the top decile for economic profit are European, a decline from previous decades, alongside slower technology diffusion and a falling share of new entrants among the largest R&D investors.

Jacques Bughin, Eckart Windhagen, Sven Smit, Jan Mischke, Pal Erik Sjatil and Bernhard Gürich, "Innovation in Europe: Changing the game to regain a competitive edge," McKinsey Global Institute, October 2019, https://www.mckinsey.com/featured-insights/innovation-and-growth/reviving-innovation-in-europe

"...While Europe has the largest public R&D spend, itsprivate investment in research and development amounts to just 19 percent of the global total, behind China at 24 percent and the United States at 28 percent. The continent invests 1.7 percentage points of GDP less than the United States in key intangible assets like software, databases, and intellectual property. Its R&D share in software and computer services is only about 8 percent of the global total. Europe especially lags in investment in frontier technologies; 90 percent of investment in synthetic biology has been made in the United States, for example, while the European continent generates only half as many patents per capita as the United States in digital, quantum computing, and big data.....In talent, too, Europe has long been a research powerhouse. Its research community is larger, but also more diffused, than that in the United States or in China. The tech workforce employed by startups is growing; it expanded by about 4 percent in 2018. The number of European software developers, a key resource for many innovative technologies, has grown at a rate of 4 to 5 percent in the past two years, culminating in a total of 5.7 million professionals today, well ahead of the United States, with 4.4 million professional software developers....The stakes for those falling behind are rising as the global economy enters a “superstar” era in which scale can become a differentiating factor and winners reap disproportionate gains. This affects innovation: superstar firms show more than double the R&D intensity of median firms, and about two-thirds of global R&D investment is concentrated in just 250 companies. Yet European firms are finding it difficult to achieve this scale. The European share of large global companies in the top decile for economic profit dropped by about half between 1995 and 2016 to only 16 percent, while it remained constant for the United States and Canada and rose sharply for Asian firms. Europe notably lacks global digital platforms..... European companies are less mature in their state of diffusion of digital technologies and in their use of these technologies for innovation, namely new services, processes, or business models. Research confirms that diffusion of technologies to firms that are technological laggards typically happens only after these technologies are adapted to country-specific circumstances by the most productive firms within each country..... Europe has started falling back in its share of superstars. Over the past 20 years, Europe’s share of superstars globally dropped by about 50 percent, while it remained constant for the United States and Canada and increased significantly for the Asia-Pacific region (Exhibit 6).42 R&D also is becoming increasingly concentrated, and Europe is losing share, particularly in digital sectors. Only 250 companies generate close to two-thirds of global business R&D investment. In this group, while European automotive players dominate, European companies’ R&D spending by software and computer services firms was only about 8 percent of the global total, well below 11 percent for Chinese companies and far behind the 77 percent for US-based companies in 2018 (Exhibit 7).Furthermore, the trend is negative. Over the past five years, the global share of European companies’ total R&D spending has declined by more than two percentage points, while the share of US companies climbed by more than two percentage points and the share of Chinese companies by six percentage points.45 The share of European companies among those newly joining the ranks of the 2,500 largest R&D investors decreased to about 12 percent, only about half the share of Chinese firms and one-third the share of US companies....."

Philippon's name doesn't show up. Guess they didn't read his book and revise their findings.

Paper finds that their R&D is concentrated in automotive sector. for example Europe makes up 53% of total R&D spend in automotive sector (in terms of R&D spend of the top 250 firms globally). also finds slower diffusion in Europe versus the US, share of superstar firms declining, share of global superstars has dropped by 50% since 1999.

new McKinsey on innovation in Europe (heavily reliant on their Superstars research that we cited in OUP chapter) good factoids for use against Philippon.

Ed Comment:This is why philippon’s interpretation is ass backward. When success bubbles up from a pool of failure you can’t look just at the survivors as he does. Those companies have unique properties that raise their profits and market value relative to their apparent replacement cost. Looking at investment relative to those properties fails to recognize their success cannot be duplicated simply by investing. Creating the next Apple, probably requires first creating 10 failed Apples (to find one more that works). If Apple’s real replacement cost is 10x apple’s apparent replacement cost. Then Apple’s Q might be lower than its real replacement cost. It’s like looking at the movie business by only looking at the surviving hits and not the pool in total without all its failures. The movie business would be great if every investment was a hit.

Ed Notes:“…European companies still account for one-quarter of total industrial R&D in the world, over the past ten years US companies have continued to increase their share, reinforcing their leadership position…Europe’s ability to innovate is somewhat misallocated…Europe tends to have both a lower number of large firms and good R&D intensity compared to the United States…biased toward more traditional and challenged sub-segments than toward growing ones, for example focusing on hardware rather than software, traditional ICT versus digital ICT, and traditional pharmaceuticals rather than biotechnology…falling behind in others, notably in the amount of frontier tech investment, in digital technologiesuch as AI, in ICT including quantum computing, and in genomics and synthetic biology…Europe is also not gaining a proportionate share of major industrial companies in growing sectors linked to digital value chains, even as global Chinese and American platform companies are becoming increasingly dominant in a digital-first world….In talent, too, Europe has long been a research powerhouse. Its research community is larger, but also more diffused, than that in the United States or in China. The tech workforce employed by startups is growing; it expanded by about 4 percent in 2018. The number of European software developers, a key resource for many innovative technologies, has grown at a rate of 4 to 5 percent in the past two years, culminating in a total of 5.7 million professionals today, well ahead of the United States, with 4.4 million professional software developers…21….More broadly, much of Europe has lagged behind the United States and others in measures of general innovation due to a lack of investment and economic competencies. Europe invests significantly less than the United States in intangibles like software and databases, intellectual property, and economic competencies like organizational capital and training, which represent major factors for innovation capacity (Exhibit 4). Beyond the gap in R&D and intellectual property investment, a material gap has also opened up in economic competencies. These have been shown to be an increasingly relevant complement to digital investment and innovation.24 Europe also has significantly lower management practice scores…24…than the United States… Consequently, Europe’s gap in digitization remains at about one-third the level in the United States and has not changed much in recent Years.26 European companies are less mature in their state of diffusion of digital technologies and in their use of these technologies for innovation, namely new services, processes, or business models. Research confirms that diffusion of technologies to firms that are technological laggards typically happens only after these technologies are adapted to country-specific circumstances by the most productive firms within each country… Superstars,” which we define as the top 10 percent of companies with more than $1 billion in annual revenue, as measured by economic profit, are gaining importance. Our research finds that today’s superstar firms earn 1.6 times more economic profit on average than superstar firms 20 years ago.35 We find that while most firms capture near-zero economic profit,35superstar firms, which are seven times larger by revenue than median firms, have returns on investments that are twice as high. In addition to capturing a greater share of income, they exhibit relatively higher levels of digitization, greater input of skilled labor and a higher innovation intensity, more intangible assets, and deeper integration into global flows of trade, finance, and services than their peers. In fact, their investment in R&D as a share of revenue is more than double the median firm’s. And financially strong firms have a higher probability of generating innovations from their R&D investment.37 Yet Europe has started falling back in its share of superstars. Over the past 20 years, Europe’s share of superstars globally dropped by about 50 percent, while it remained constant for the United States and Canada and increased significantly for the Asia-Pacific region (Exhibit 6).42 R&D also is becoming increasingly concentrated, and Europe is losing share, particularly in digital sectors.43 Only 250 companies generate close to two-thirds of global business R&D 43 investment. In this group, while European automotive players dominate, European companies’R&D spending by software and computer services firms was only about 8 percent of the global total, well below 11 percent for Chinese companies and far behind the 77 percent for US-based companies in 2018 (Exhibit 7). 44 Furthermore, the trend is negative. Over the past five years, the global share of European companies’ total R&D spending has declined by more than two percentage points, while the share of US companies climbed by more than two percentage points and the share of Chinese companies by six percentage points.45 The share of European companies among those newly.45 joining the ranks of the 2,500 largest R&D investors decreased to about 12 percent, only about half the share of Chinese firms and one-third the share of US companies.46…”

191

15

206

47%

14%

40%

410

105

515

US

88

56

144

21%

53%

28%

410

105

515

Euro

All Other

Auto

Total R&D

seen in the United States or even Tel Aviv.

“unicorns”—privately held startups valued at more than $1 billion—at only about half the rate

it has transformed digital promises into success with

Thursday, November 14, 2019

AI Summary. France's wealth tax, which levied top rates of 1.5%–1.8% on fortunes above €13m ($14.3m), raised only a few billion euros at its peak—about 1% of total tax revenue—while at least 10,000 wealthy individuals left the country, primarily for Belgium. One French economist estimated the tax cost the government nearly twice the revenue it generated.

Noah Smith Bloomberg
Date Posted:
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French Wealth Tax likely cost French State 2x revenue in terms of lost income tax.

Does a wealth tax raise less revenue than it costs?

Core argument: France's wealth tax, levied at a top rate of 1.5%–1.8% on fortunes above €13m ($14.3m), raised only a few billion euros at its peak, about 1% of total tax revenue.

France's wealth tax, implemented from 1982-1986 and 1988-2017, imposed a top rate of 1.5%-1.8% on fortunes over €13m ($14.3m), raising only a few billion euros at its peak, or about 1% of total tax revenue. However, it led to the exodus of at least 10,000 wealthy individuals, primarily to Belgium, resulting in a significant loss of income and other taxes. French economist Eric Pichet estimated that the wealth tax cost the government nearly twice the revenue it generated. This outcome highlights the potential pitfalls of high wealth taxes, as the loss of affluent taxpayers can outweigh the benefits, suggesting that broader tax strategies might be more effective in addressing inequality without causing capital flight.

Takeaways by Macro Roundup® AI

  1. France's wealth tax, levied at a top rate of 1.5%–1.8% on fortunes above €13m ($14.3m), raised only a few billion euros at its peak, about 1% of total tax revenue.
  2. At least 10,000 wealthy individuals left France, primarily for Belgium, during the wealth tax's operation from 1982–1986 and 1988–2017, costing the government income and other tax receipts.
  3. French economist Eric Pichet estimated that France's wealth tax cost the government nearly twice the revenue it generated.

"...France had a wealth tax from 1982 to 1986 and again from 1988 to 2017. The top rate was between 1.5% and 1.8%, with the total tax rate on fortunes larger than 13 million euros ($14.3 million) hovering at about 1.4%. This is much less than the 6% top rate proposed by Warren (not to mention the 8% proposed by her fellow candidate, Senator Bernie Sanders), but it's close to the 2% rate Warren would impose on fortunes larger than $50 million....The revenue it raised was rather paltry; only a few billion euros at its peak, or about 1% of France’s total revenue from all taxes. At least 10,000 wealthy people left the country to avoid paying the tax; most moved to neighboring Belgium, which has a large French-speaking population. When these individuals left, France lost not only their wealth tax revenue but their income taxes and other taxes as well. French economist Eric Pichet estimates that this ended up costing the French government almost twice as much revenue as the total yielded by the wealth tax...."

Noah Smith, "France Tried Soaking the Rich. It Didn’t Go Well.,"Bloomberg, November 14, 2019, https://www.bloomberg.com/opinion/articles/2019-11-14/france-s-wealth-tax-should-be-a-warning-for-warren-and-sanders

France Tried Soaking the Rich. It Didn’t Go Well.

In recent years, several prominent economists have brought attention to the problem of growing inequality. These scholars include Thomas Piketty, author of the best-selling book “Capital in the Twenty-First Century,” and Emmanuel Saez and Gabriel Zucman, who in a new book chronicle the rise in American wealth inequality. All three embrace the same solution: much higher taxes. Piketty has declared that billionaires should be taxed out of existence, and he called for a global wealth tax, while Saez and Zucman helped Democratic presidential candidate Elizabeth Warren design her proposal for a U.S. wealth tax. Piketty and Saez have also suggested taxing top incomes at a rate of more than 80%.

Other economists have struggled to evaluate dramatic proposals like this. Studies on the effects of taxation when rates are moderate might not be a good guide to what happens when rates are very high. Economic theories tend to make a host of simplifying assumptions that might break down under a very high-tax regime. Historical experience is of some help, because the U.S. had very high top income taxes in the 1950s, but economic conditions could be very different now.

One way to predict the possible effects of the taxes is to look at a country that tried something similar: France, where Piketty, Saez and Zucman all hail from.

During the past few decades, as income inequality rose in most rich countries, it stayed relatively constant in France. The biggest reason is government redistribution in the form of taxes and social-welfare spending. France leads its rich-country peers, including the legendarily egalitarian Scandinavian countries, on both measures:

France Tried Soaking the Rich. It Didnt Go Well: Extended Excerpt Image 1


France, therefore, shows that inequality, at least to some degree, is a choice. Taxes and spending really can make a big difference.

But there’s probably a limit to how much even France can do in this regard. The country has experimented with both wealth taxes and very high top income taxes, with disappointing results.

France had a wealth tax from 1982 to 1986 and again from 1988 to 2017. The top rate was between 1.5% and 1.8%, with the total tax rate on fortunes larger than 13 million euros ($14.3 million) hovering at about 1.4%. This is much less than the 6% top rate proposed by Warren (not to mention the 8% proposed by her fellow candidate, Senator Bernie Sanders), but it's close to the 2% rate Warren would impose on fortunes larger than $50 million.

The wealth tax might have generated social solidarity, but as a practical matter it was a disappointment. The revenue it raised was rather paltry; only a few billion euros at its peak, or about 1% of France’s total revenue from all taxes. At least 10,000 wealthy people left the country to avoid paying the tax; most moved to neighboring Belgium, which has a large French-speaking population. When these individuals left, France lost not only their wealth tax revenue but their income taxes and other taxes as well. French economist Eric Pichet estimates that this ended up costing the French government almost twice as much revenue as the total yielded by the wealth tax. When President Emmanuel Macron ended the wealth tax in 2017, it was viewed mostly as a symbolic move.

Another French experiment was the so-called supertax, a 75% levy on incomes of more than 1 million euros. Introduced by socialist President François Hollande in 2012, the supertax added to the exodus of wealthy individuals, most notably actor Gerard Depardieu and Bernard Arnault, chairman of LVMH Moet Hennessy Louis Vuitton. Star soccer players threatened to go on strike, and there was fear that France would become a wasteland for entrepreneurs. Meanwhile, the supertax raised much less money than even the wealth tax had -- only 160 million euros in 2014. The unpopular tax was repealed two years after its adoption.

France’s experiments with taxing the wealthy at very high rates didn’t raise much money and didn’t prove politically sustainable. The flight of wealthy individuals from the country probably helped reduce inequality on paper, but it's not clear that their departure left France better off.

It’s possible that similar tax experiments in the U.S. might be more successful than in France. The U.S. economy is much larger than France’s; although a French business owner who moves to Belgium can still do business and move about freely within the European Union, an American mogul who moves to Canada might find access to one of the world’s largest markets restricted. That might allow the U.S. to raise more money from high taxes than France ever could.

But it’s also worth noting that France’s wealth tax and supertax ultimately weren’t that important. Despite repealing the supertax, France managed to increase government revenue and to reduce inequality. The end of the wealth tax will probably be a similar story. France simply didn’t need these flamboyant taxes on the rich to have very high levels of taxation and social spending. That means the U.S. probably doesn’t need them either. Tax increases across the board -- on top incomes, capital gains, estates, pass-through businesses, corporations, and so on -- might not excite populist firebrands, but they’re probably a more effective strategy for fighting inequality.

AI Summary. The Penn Wharton Budget Model preliminarily projects that a wealth tax would lower average annual economic growth over a decade from 1.5% to just over 1.3% if the revenue were used to reduce federal debt. The analysis excludes potential growth benefits from spending programs funded by the tax, such as universal child care and added education funding.

Jim Tankersley New York Times
Date Posted:
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A preliminary analysis by the Penn Wharton Budget Model suggests Warren’s Wealth Tax could reduce annual economic growth from 1.5% to 1.3% over a decade, a slowdown 3x that of Trump’s tax cuts.

Would a wealth tax slow annual economic growth over a decade?

Core argument: The Penn Wharton Budget Model's preliminary analysis projects Warren's wealth tax would lower average annual economic growth from 1.5% to just over 1.3% over a decade if the revenue were used to reduce federal debt.

The Penn Wharton Budget Model's preliminary analysis suggests that Warren's Wealth Tax could reduce annual economic growth from an average of 1.5% to just over 1.3% over a decade if the tax revenue is used to reduce federal debt. This projected slowdown is three times the effect of Trump's tax cuts, which were estimated to increase growth by 0.06 percentage points annually. The analysis does not account for potential growth benefits from government spending programs funded by the tax, such as universal child care and increased education funding. While the tax aims to generate significant federal revenue, its impact on GDP could be substantial, highlighting a trade-off between revenue generation and economic growth.

Takeaways by Macro Roundup® AI

  1. The Penn Wharton Budget Model's preliminary analysis projects Warren's wealth tax would lower average annual economic growth from 1.5% to just over 1.3% over a decade if the revenue were used to reduce federal debt.
  2. The projected slowdown from Warren's wealth tax is three times the size of the estimated effect of Trump's tax cuts, which were estimated to raise growth by 0.06 percentage points annually.
  3. The Penn Wharton analysis does not account for potential growth benefits from government spending programs funded by the tax, such as universal child care and increased education funding.

FYI Penn ran Warren's Wealth Tax though the Penn Wharton Model".... The preliminary projection from the Penn Wharton Budget Model, which will be unveiled on Thursday in Philadelphia, is the first attempt by an independent budget group to forecast the economic effects of the tax that has become a centerpiece of Ms. Warren’s campaign for the Democratic presidential nomination. The assessment found that if the tax raised as much new federal revenue as Ms. Warren intends, and if the proceeds went toward reducing the federal debt, annual economic growth would slow from an average of 1.5 percent to an average of just over 1.3 percent over a decade. To put the finding in context: Penn Wharton estimated in 2017 that President Trump’s tax cut would increase economic growth by roughly 0.06 percentage points per year over a decade, an effect that was much smaller than White House officials predicted. Its estimate of Ms. Warren’s policy implies the wealth tax would have an effect that is three times as large as the Trump tax cuts — but in the opposite direction. Economists who favor Ms. Warren’s plan say the analysis does not accurately account for the benefits to economic growth from the new government spending programs she would fund with the tax revenue, including universal child care, increased education funding and student loan forgiveness...."
Jim Tankersley, "Warren Wealth Tax Could Slow Economy, Early Analysis Finds,"New York Times, November 14, 2019, https://www.nytimes.com/2019/11/14/business/warren-wealth-tax-economy.html