Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…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 fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, March 10, 2020

AI Summary. Average hourly earnings for college-educated U.S. workers grew 7.8% annually from 2010-2016, outpacing 6.5% for non-college workers, while earnings at the bottom of the wage distribution grew faster than at the top. Earnings of Hispanic and Black workers are converging with those of white workers, with Asian workers' earnings growing fastest.

Fatih Karahan Federal Reserve Bank of New York
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@NewYorkFed: Wage growth patterns reveal mixed inequality trends: College premium rises (+7.8% vs +6.5% non-college), while low-wage/minority workers show catch-up gains 2010-16. Asian earnings lead growth.

Are earnings growing faster for lower-wage and minority workers?

Core argument: From 2010–2016, average hourly earnings of college-educated U.S. workers grew 7.8% annually versus 6.5% for non-college workers, indicating increasing returns to higher education.

From 2010-2016, the AHE [Average Hourly Earnings] of college workers grew by 7.8% annually, outpacing the 6.5% growth for non-college workers, indicating increasing returns to higher education. Despite this, earnings at the bottom of the wage distribution have been growing faster than those at the top, suggesting some catch-up among low-wage workers. However, this trend does not negate rising income inequality, as measured by earnings variance. Additionally, recent data shows that Hispanic and Black workers' earnings are converging with those of white workers, supported by record-low unemployment rates for African Americans. This convergence is a positive sign for economic inclusivity, although Asian workers' earnings are growing at the fastest rate.

Takeaways by Macro Roundup® AI

  1. From 2010–2016, average hourly earnings of college-educated U.S. workers grew 7.8% annually versus 6.5% for non-college workers, indicating increasing returns to higher education.
  2. Earnings at the bottom of the U.S. wage distribution have grown faster than those at the top, suggesting catch-up among low-wage workers, though income inequality measured by earnings variance continues to rise.
  3. Hispanic and Black workers' earnings are converging with those of white workers, alongside record-low unemployment rates for African Americans, while Asian workers' earnings grow at the fastest rate.

FRBNY, two points, first btw 2010-2016 AHE of college workers grew by 7.8% annually versus 6.5% for non-college workers however, “…. average hourly earnings at the bottom of the wage distribution have been consistently growing faster than those at the top of the distribution. This pattern is partly driven by the fact that it is more common for low-wage workers to receive large wage increases in percentage terms than for high-wage workers, even though such increases are not that large in absolute terms. As a consequence, it is worth noting that these results are still consistent with increasing income inequality as measured by the variance of earnings….”

René Chalom, Fatih Karahan, Brendan Moore, and Giorgio Topa, "Is the Tide Lifting All Boats? A Closer Look at the Earnings Growth Experiences of U.S. Workers," Federal Reserve Bank of New York, March 4, 2020, https://libertystreeteconomics.newyorkfed.org/2020/03/is-the-tide-lifting-all-boats-a-closer-look-at-the-earnings-growth-experiences-of-us-workers.html

“…While there is some evidence that workers at the bottom of the earnings distribution may be catching up with those at the top of the distribution, we also find some indications that the returns to higher education may be increasing, with hourly earnings growth of college graduates outpacing that of high school graduates. Finally, we also find some evidence that—at least in recent years—hourly earnings of minority workers may be starting to catch up with those of white workers. This, together with the fact that the unemployment rate for African American workers has reached record lows, is an encouraging sign for the broadening of the current economic expansion….”

Second earnings of Hispanic and blacks are converging with those of whites (though Asians are growing fastest)

Wednesday, March 11, 2020

AI Summary. Standard wealth and income measures overstate inequality in lifetime spending, because human wealth is distributed more equally than net wealth and fiscal policy is progressive. The authors estimate the top 1% hold 13.7% of human wealth versus 34.1% of net wealth, and face a 34.5% lifetime net tax rate against -46.6% for the poorest fifth.

Laurence Kotlikoff Wall Street Journal
Date Posted:
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Current measures of wealth/income inequality overstate lifetime spending inequality due to more equal distribution of human wealth & progressive fiscal policies. @LaurenceKotlikoff @WSJ.

Do standard wealth measures overstate inequality in lifetime spending?

Core argument: The top 1% hold 13.7% of human wealth, a third of their 34.1% net wealth share, while the bottom 20% hold 4.9% of human wealth, eight times their net wealth share.

Current measures of wealth/income inequality overstate lifetime spending inequality due to more equal distribution of human wealth and progressive fiscal policies. The top 1% hold 13.7% of human wealth, a third of their net wealth share, while the bottom 20% possess 4.9% of human wealth, eight times their net wealth share. The average lifetime net tax rate for the top 1% of 40-year-olds is 34.5%, compared to -46.6% for the lowest quintile. Without fiscal policies, the richest 1% would account for 17.9% of remaining lifetime spending (RLS), below their 34.1% net wealth share. The poorest 20%, with 0.6% net wealth, have a 4% pre-fiscal resource share. Thus, human wealth distribution and fiscal policy equally enhance the RLS share of the poorest quintile, highlighting that wealth measures overstate consumption inequality.

Takeaways by Macro Roundup® AI

  1. The top 1% hold 13.7% of human wealth, a third of their 34.1% net wealth share, while the bottom 20% hold 4.9% of human wealth, eight times their net wealth share.
  2. The average lifetime net tax rate for the top 1% of 40-year-olds is 34.5%, compared with -46.6% for the lowest quintile.
  3. Absent fiscal policies, the richest 1% would account for 17.9% of remaining lifetime spending, below their 34.1% net wealth share, while the poorest 20%, holding 0.6% of net wealth, would have a 4% pre-fiscal resource share.

Laurence Kotlikoff, "Tax Myths of Warrenomics,"Wall Street Journal, October 17, 2019, https://www.wsj.com/articles/tax-myths-of-warrenomics-11571351806

To quote from paper, “…is that human wealth is more equally distributed than is net wealth. The top 1 percent of this cohort account for 13.7 percent of the cohort’s human wealth, which is roughly a third of its net wealth share. The bottom 20 percent have 4.9 percent of total-cohort human wealth - roughly eight times its net wealth share. The other reason for lower spending than wealth inequality is the fiscal system. The average remaining lifetime net tax rate of the top 1 percent of 40 year olds is 34.5 percent. It’s -46.6 percent among those in the lowest quintile. Which factor - greater equality in the distribution of human wealth or our progressive fiscal system - makes the distribution of remaining lifetime spending so much more equal than that of net wealth? The answer depends. With no fiscal system, the richest 1 percent of 40-49 year olds would account for 17.9 percent of RLS (their resource share), which is far below their 34.1 percent of net wealth and close to their 14.5 percent of RLS. For the poorest 20 percent, with just 0.6 percent of total cohort net wealth, their share of cohort pre-fiscal resources is 4.0 percent. 11 Hence, the more equal distribution of human wealth and fiscal policy play a roughly equal role in raising the RLS share of the poorest quintile...”

Steve’s note in response: So my read of the reports language is “its” here refers to the cohorts lifetime spending going forward. The way I read it was they are talking about sort of a propensity to consume relative to wealth, the older rich will “underconsume” relative to their wealth and pass wealth along to their kids, whereas the poor will “overconsume” relative to their wealth because of transfer payments. So wealth measures overstate consumption inequality.

Note Paper and initial writeup are attached.

Ed Comment:Please send me this. (you sent me the paper)…. PS. I don’t understand this line, in particular, the word “its”. Surely, the top 1% will spend a lot more than 2x the bottom 20% (ie 14.5/7.3) “Among 40-year-olds, the richest 1% own 34.1% of their cohort’s net wealth, but account for only 14.5% of its remaining lifetime spending. The poorest 20% own only 0.6% of the cohort’s wealth, but are expected to do 7.3% of its spending.”

, Kotlikoff and Auerbach push back at Saez/Zucman:"...Economists Emmanuel Saez and Gabriel Zucman……wrong, and three huge mistakes underlie their analysis. The biggest mistake is to focus on gross, not net, taxes. They ignore transfer payments, like Social Security, which are disproportionately paid to the poor...Messrs. Saez and Zucman’ssecond mistake is measuring progressivity on a one-year rather than a remaining-lifetime basis. That ignores the fiscal system’s double taxation: Income earned, taxed and saved this year will be subject to future taxation on interest, dividends and capital gains. This omission disproportionately understates taxes for the rich, who save at a higher rate. The current-year focus also understates benefits paid to the poor, since future benefits are a bigger share of their resources. Theirthird mistake is failing to adjust for age.The old have paid most of their lifetime taxes, which makes them now look like tax cheats, particularly those who saved out of previously highly taxed labor income. With changing demographics, this problem will deeply confuse tax progressivity comparisons over time... the net tax rate facing middle age Americans rises rapidly with their resources—from negative 46.4% for the bottom 20% to positive 34.5% for the top 1%...."