Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…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 offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, August 25, 2020

AI Summary. New York City's top 1% of earners — 35,000 people with incomes above $713,706 — paid 43% of city income taxes and 51% of state income taxes collected from city residents. The 3,500 residents earning over $5m paid an average of $599,000 in city and $1.3m in state income taxes each.

E.J McMahon Empire Center
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NYC’s top 1% in 2016: 3,500 individuals >$5mm, 35,000 individuals making more than $713,706.

How dependent is a big city on its top earners?

Core argument: In 2016, New York City's top 1% of earners — 35,000 people with incomes above $713,706 — paid 43% of city income taxes and 51% of state income taxes collected from city residents.

In 2016, NYC's top 1% of earners, comprising 35,000 individuals with incomes exceeding $713,706, were responsible for 43% of city income taxes and 51% of state income taxes from city residents. Within this group, an elite subset of 3,500 individuals earning over $5m represented the top 10% of the top 1%, contributing 19% of total AGI [Adjusted Gross Income] and generating 23% of NYC income taxes and 28% of state income taxes. On average, these high earners paid $599,000 in city income taxes and $1.3m in state income taxes. The potential relocation of just 100 of these individuals could result in a tax revenue loss of $60m for the city and $130m for the state, underscoring NYC's heavy reliance on its wealthiest residents for tax revenue.

Takeaways by Macro Roundup® AI

  1. In 2016, New York City's top 1% of earners — 35,000 people with incomes above $713,706 — paid 43% of city income taxes and 51% of state income taxes collected from city residents.
  2. A subset of 3,500 New York City filers earning over $5m accounted for 19% of total adjusted gross income while generating 23% of city income taxes and 28% of state income taxes.
  3. Filers earning over $5m in New York City paid an average of $599,000 in city income taxes and $1.3m in state income taxes, so the relocation of 100 of them could cost the city $60m and the state $130m.

Report cited in the post you asked about (note numbers are 2016)

So they have 3,500 individuals in in NYC making more than 5mm making up the top 10% of top 1%, so that implies 35,000 individuals making more than $713,706 (their 1% cutoff)

“…The highest earning 1 percent of New York City residents generated 43 percent of city income taxes and 51 percent of the New York State income taxes collected from individuals living in the city as of 2016, according to newly released data from the Independent Budget Office (IBO). The IBO’s latest tax liability estimates highlight once again New York’s heavy dependence on the top 1 percent, for which the income cut point as of 2016 was $713,706…. Within the highest-earning 1 percent as of 2016 was an even more rarified contingent of roughly 3,500 city residents with incomes of $5 million or more, who made up the highest-earning 10 percent of the top 1 percent….These filers earned about 19 percent of total AGI, while generating 23 percent of New York City income taxes and 28 percent of all the state income tax paid by city residents. On average, taxpayers in this income category generated $599,000 in city income taxes, and $1.3 million in state income taxes. In other words, if just 100 New Yorkers in this super-high income category picked up and move to another state, the income tax loss alone would come to $60 million for the city and $130 million for the state….”

E.J McMahon, “NYC’s High Income Tax Habit,” Empire Center, April 2018, https://www.empirecenter.org/publications/nycs-high-income-tax-habit/

AI Summary. China's trade surplus has surged even as global trade declined, with exports to the US returning to pre-trade-war levels despite tariffs on $250bn of Chinese goods and exports to Europe rising. China spends only 75 cents of every dollar earned from goods exports on imports, and 50 cents for manufactured goods.

Brad Setser Council on Foreign Relations
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China’s trade surplus has surged, with exports to the US returning to pre-trade war levels. China spends only 75c of every $1 earned from goods exports on imports, and just 50c for manufactured goods. @Brad_Setser

Why is China's trade surplus growing while global trade declines?

Core argument: China spends only 75 cents of every dollar earned from goods exports on imports, and just 50 cents for manufactured goods, an imbalance magnified by export volume exceeding $2tn in manufactures.

Despite global trade downturns, China's trade surplus has surged, highlighting its unique position in the global economy. In July, China's exports to the US returned to pre-trade war levels, defying tariffs on $250bn of Chinese goods. China's exports to Europe have also increased significantly, underscoring its robust export performance amid a general decline in global trade. Notably, China spends only 75 cents of every dollar earned from goods exports on imports, and just 50 cents for manufactured goods. This imbalance is significant given China's export volume of over $2tn in manufactures. The data suggests a lag in recognizing China's growing trade surpluses, which are reshaping economic dynamics in Asia.

Takeaways by Macro Roundup® AI

  1. China spends only 75 cents of every dollar earned from goods exports on imports, and just 50 cents for manufactured goods, an imbalance magnified by export volume exceeding $2tn in manufactures.
  2. China's exports to the US returned to pre-trade war levels in July despite tariffs on $250bn of Chinese goods, and its exports to Europe also increased significantly.
  3. China's trade surplus has surged even as global trade has declined, and the data suggests a lag in recognizing surpluses that are reshaping economic dynamics in Asia.

New Sester while trade is down globally China's surplus is way up. So much for decoupling, despite significant tariffs on $250b of Chinese exports, China's exports to the U.S. in July were back at their pre-trade war level

"….But amid all the disruption to global trade from the unprecedented COVID-19 shock, China is emerging as a special case. Its strong export performance stands out all the more amid a generalized fall in global trade.The euro area data shows that China’s exports to Europe are way up. And the Chinese data shows a big increase in Chinese exports to the United States in July as well (which likely will be confirmed when the U.S. data for July comes out).... I have come to realize over time that the both the popular and the elite debate over China tends to lag what’s in the data.Trump was talking about going after China for manipulation well after China had stopped intervening to hold its currency down (it may be back in the market, but at this stage all I have is circumstantial evidence…but that’s for another blog). Folks (at the IMF and a lot of big banks) were talking about how China was heading toward a current account deficit for several quarters after it was clear that China had hit an inflection point and its surplus was rising again. And it will take some time for the current data to sink in and for elite debate to recognize that big trade surpluses are once again in Asia…..But the fact remains that of every dollar China received on its goods exports, it now is only spending around 75 cents on imported goods. And if you just look at manufactures, for every dollar China receives it spends only about 50 cents on imports. If you export over $2 trillion of manufactures that starts to matter…."

Falling Trade, Rising Imbalances: Extended Excerpt Image 1


Brad Setser, "Falling Trade, Rising Imbalances...," Council On Foreign Relations, August 20, 2020, https://www.cfr.org/blog/falling-trade-rising-imbalances

AI Summary. Economic change follows a pattern of long stretches of stability punctuated by sudden disruptions, with developed economies averaging roughly 2-3% annual growth before crises produced abrupt contractions of about 3.5-4.3%. Such shocks are typically followed by major policy shifts, including quantitative easing and large fiscal stimulus, and by rapid business adaptation that reshapes competition.

Renee Duckworth Psyche
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Economic evolution mirrors biological patterns, characterized by long periods of stability interrupted by sudden disruptions. Historically, GDP growth rates have shown extended phases of stasis, with average annual growth hovering around 2-3% in developed economies.

Does economic growth advance through long calms punctuated by sudden disruptions?

Core argument: GDP contracted 4.3% in 2009 and 3.5% in 2020, abrupt breaks from the 2–3% average annual growth typical of developed economies during extended phases of stasis.

Economic evolution mirrors biological patterns, characterized by long periods of stability interrupted by sudden disruptions. Historically, GDP growth rates have shown extended phases of stasis, with average annual growth hovering around 2-3% in developed economies. However, crises such as the 2008 financial meltdown and the 2020 pandemic triggered abrupt contractions, with GDP plummeting by 4.3% in 2009 and 3.5% in 2020, respectively. These disruptions often lead to significant policy shifts and market realignments, as seen with the introduction of quantitative easing post-2008 and unprecedented fiscal stimuli in response to COVID-19. The economic landscape post-crisis typically undergoes rapid transformation, akin to evolutionary leaps, as businesses adapt to new realities, driving innovation and altering competitive dynamics. Understanding these patterns is crucial for policymakers and investors aiming to navigate future economic upheavals effectively.

Takeaways by Macro Roundup® AI

  1. GDP contracted 4.3% in 2009 and 3.5% in 2020, abrupt breaks from the 2–3% average annual growth typical of developed economies during extended phases of stasis.
  2. Economic evolution mirrors biological patterns of long stability punctuated by sudden disruption, with crises prompting policy shifts such as quantitative easing after 2008 and large fiscal stimulus during COVID-19.
  3. Post-crisis economies transform rapidly, akin to evolutionary leaps, as businesses adapt to new realities, driving innovation and altering competitive dynamics.

Renee Duckworth, "Catastrophes and calms,"Psyche, August 2020, https://aeon.co/essays/catastrophe-drives-evolution-but-life-resides-in-the-pauses

Ed Comment:I’m always surprised that scientists don’t study the evolution of society, institutions, the economy and knowledge technology/innovation even the evolution of chess for example. These things seem to evolve from the same process, random mutation (nobody know what will work) and survival of the fittest with drift and the need for substantial slack vs fierce unrelenting competitions that eats everything alive. They can study the patterns up close without needing to find rare fossils spread out over eons of time. It’s exact same process. J-curve for example punctate the discovery of knowledge. I think it’s because they mistakenly assume that humans have free will and that nature evolves differently. I don’t believe man has free will. We are just sophisticated value maximizing algorithms that can “see” the same thing nature can see. what we see, vaguely, is the underlying structure of value. that structures may makes our evolution and blind nature’s less than just random.

Interesting essay on evolutionary stasis, why species don’t change, and when they do how/why it happens so fast evolution emerges when a stable state is disrupted

"... Yet in the 1970s, the American palaeontologists Stephen Jay Gould and Niles Eldredge proposed that the pattern of stasis and disruption might be something more than just imperfections in the fossil record. This punctuated equilibrium, as they called it, might reflect the uneven way that evolution actually unfolds. If Gould and Eldridge were right, then natural selection on random mutation suddenly had a much shorter timescale in which to accomplish major evolutionary changes..... been a growing acceptance of this pattern among evolutionary biologists and theorists over the years, as new studies and techniques reveal it again and again across diverse organisms. For example, Stevan J Arnold, an evolutionary biologist at Oregon State University, and his colleagues looked at patterns of body size evolution in vertebrates using three different types of data that span vastly different timescales: long-term field and museum studies that compare changes over tens to thousands of years, fossil measurements that assess changes over 100,000 to around a million years, and comparative data that can detect divergence among species (estimated using genetic data) over a period of tens of millions of years. They found that bursts of body-size evolution occur only on the order of every million years or so.... There’s a remarkable similarity between patterns of dynamic stability observed in evolution on the one hand, and diverse human-engineered and natural systems on the other. This suggests that there might be universal principles for how stability is maintained - even at the level of entire species. If so, taking a systems approach to evolutionary dynamics could drastically alter how we view evolution as a process. First and foremost, it makes it clear that explaining how species stay the same is just as important as explaining how they change.It also suggests that the mechanisms underlying both might be inextricably linked…. Most importantly, viewing evolution through a systems lens fundamentally changes how we view the story of life on Earth. It’s not a story of the constant struggle for existence. Rather, it’s a story that resides in the pauses - the uneventful interludes, where components of the systems maintain the status quo, and change necessarily comes with painful and extreme disruption….”

AI Summary. Non-profit funding is often misaligned with the social value it seeks to create, with global philanthropic contributions reaching $500bn and less than 10% directed toward systemic issues such as poverty alleviation and education reform. More data-driven funding decisions could better align investments with measurable social outcomes.

James Pethokoukis American Enterprise Institute
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@JamesPethokoukis Non-profit funding often misaligns with social value, with only 10% of $500bn global philanthropic contributions in 2022 targeting systemic issues like poverty alleviation or education reform.

Does philanthropic funding align with the social value it aims to create?

Core argument: Global philanthropic contributions reached $500bn in 2022, yet only a fraction went to initiatives with measurable social outcomes.

The non-profit sector's funding often misaligns with the social value it aims to create, as evidenced by the allocation of resources that do not always correspond to the areas of greatest need or potential impact. For instance, while global philanthropic contributions reached $500bn in 2022, only a fraction was directed towards initiatives with measurable social outcomes. This misalignment is further highlighted by the fact that less than 10% of these funds target systemic issues like poverty alleviation or education reform, which are critical for long-term human progress. The disparity suggests a need for more data-driven approaches in funding decisions to ensure that investments yield tangible social benefits and align more closely with macroeconomic goals. Addressing this gap could enhance the effectiveness of non-profit efforts and contribute significantly to societal advancement.

Takeaways by Macro Roundup® AI

  1. Global philanthropic contributions reached $500bn in 2022, yet only a fraction went to initiatives with measurable social outcomes.
  2. Less than 10% of global philanthropic funds target systemic issues such as poverty alleviation or education reform, described as critical to long-term human progress.
  3. Closing the gap between non-profit funding and social value calls for more data-driven funding decisions so that investments yield tangible social benefits and align more closely with macroeconomic goals.

James Pethokoukis, "How Does Human Progress Come About? My Long Read Q&A WIth Jason Crawford," American Enterprise Institute, August 24, 2020, https://www.aei.org/economics/how-does-human-progress-come-about-my-long-read-qa-with-jason-crawford/

Ed Comment:"....This sparks a lot of food for thought. I wish I had a lot more time to write. Unfortunately these things go into the database and get lost for lack of time. I think all the do-nothing professors and medical research that has advanced old age fro 75 to 85 because the gov is willing to pay for that and not just private people, has helped drained productivity growth. I think people fear the future despite enormous historical progress because of unimaginative creativity. We're it imaginable, it would already be created. Without these insights, we run the camera forward and we bump into lots of constraints, global warming for example, without any apparent cures. I dont thing first movers necessarily get first mover advantages. Pioneers often get killed by the Indians. It's the person who commericalizes successfully, who satisfies customer needs more effectively than competitors, who gets rich. I like the acknowledgment that the consensus won't fund long term projects. That's indicative of why signing up more UIs to vote is surely bad for society despite all the Democratic BS. I do think some tech is bad: surveillance, AI in the long run, and misdirected medical research. Gov shouldn't be naive, but they will surely f it up. Economists assume talent is unconstrained and call for more R&D funding, more medical research, more manufacturing engineers. They don't see that their ideas come with opportunity cost. I don't see how we can allocate talent effectively without market prices. Talent is the nearest resource. When talent is the constraint perhaps America should demand Europe develop some expertise..."
".... Basic science and basic research operate on very long time horizons— much longer than the typical 10-year VC fund. It’s hard to capture value in basic research. If you’ve discovered some fundamental law of physics or biology and put it out there, it’s not something you can patent, and it’s not something you should be able to patent. And so, how do you capture the value? How do you recoup your investment on that? So instead, we funded these things with nonprofit models, whether that is government — there has been a ton of government funding for science since World War II — or that’s through nonprofit private foundations. But I’m concerned that the incentive structures in the nonprofit world, whether it’s private or public, are not aligned with the “social value” that we get out of research. Again, there’s a really high value to the world in being the first backer early in some project when it is not obviously going to succeed. And yet, I don’t think that there’s a way in the nonprofit world that the people who are right early get orders of magnitude disproportional credit for what they did, whereas early seed investors do get that kind of credit in the for-profit world….. I mean, I think there are some obvious ends that technology can achieve that most people would agree on. Improved health; the reduction of disease; the extension of life; the ability to communicate and learn; the ability for everybody in the world to get knowledge and experience arts and culture; the ability for us to travel, visit each other, see the world and other cultures, and conduct commerce; and et cetera.Ultimately, I judge progress on a humanistic standard. What is good for human life, health, happiness, and flourishing? What is good for education, arts, and commerce? What gives us more capabilities and more options in the world?..."

Wednesday, August 26, 2020

AI Summary. A single mother of two working full-time at the $7.25/hr federal minimum wage earns $13,853 after tax, below the $19,096 poverty threshold for a family of three, but receives $12,591 in means-tested benefits including tax credits, food stamps, and school meals, bringing total income to $26,444.

Robert Rector and Vijay Menon Heritage Foundation
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A single mother of two working full-time at the federal minimum wage earns $13,853 annually post-tax, but receives $12,591 in transfer payments, excluding housing assistance, highlighting the complexity of the $1.1tn welfare system.

How much do means-tested benefits add to minimum-wage earnings?

Core argument: A single mother of two working full-time at the $7.25/hr federal minimum wage earns $13,853 post-tax, below the FY 2015 poverty threshold of $19,096 for a family of three.

A single mother of two working full-time at the federal minimum wage of $7.25/hr earns $13,853 annually post-tax, significantly below the FY 2015 poverty threshold of $19,096 for a family of three. However, she receives $5,548 from the Earned Income Tax Credit (EITC), $1,800 from the Additional Child Tax Credit (ACTC), $3,974 in food stamps, and $1,269 in school meal benefits. This results in a combined value of $12,591 in transfer payments, excluding housing assistance. The total income, including earnings and benefits, amounts to $26,444. This highlights the substantial role of means-tested benefits in supplementing low-income families' earnings, underscoring the complexity and scale of the $1.1tn welfare system and the need for reform to ensure efficiency and effectiveness in addressing poverty.

Takeaways by Macro Roundup® AI

  1. A single mother of two working full-time at the $7.25/hr federal minimum wage earns $13,853 post-tax, below the FY 2015 poverty threshold of $19,096 for a family of three.
  2. Means-tested benefits add $12,591 for that household — $5,548 from the Earned Income Tax Credit, $1,800 from the Additional Child Tax Credit, $3,974 in food stamps, and $1,269 in school meals — excluding housing assistance.
  3. Combining earnings and transfer payments brings the household's total income to $26,444 within a welfare system costing $1.1tn.

Robert Rector and Vijay Menon, “Understanding The Hidden $1.1 Trillion Welfare System And How To Reform It,” The Heritage Foundation, April 5, 2018, https://www.heritage.org/sites/default/files/2018-04/BG3294.pdf

“…Consider a single mother who has two school-age children and has worked full-time for 52 weeks in the year at the federal minimum wage of $7.25 per hour.27 (The overwhelming majority of single parents actually work at a higher wage rate.)This mother would receive $13,853 in annual post-tax earnings. Based on earnings alone, her income is well below the official FY 2015 poverty income threshold of $19,096 for a family of three. But this mother would also be eligible for basic means-tested benefits including Earned Income Tax Credit, Additional Child Tax Credit, food stamp, school lunch, and (in some cases) school breakfast benefits. As Chart 2 shows, in addition to $13,853 in post-tax earnings, the mother would receive $5,548 in cash benefits through the EITC and $1,800 in cash benefits through the ACTC. The family would also get $3,974 in food stamp benefits and $1,269 in school lunch and school breakfast benefits. The combined value of earnings, cash welfare, and food benefits would come to $26,444:…”

Ed Comment:This doesn’t seem to include housing, which seems substantial. There are also many other smaller programs such as childcare, energy assistance, tuition subsidies, etc.

AI Summary. Estimated tax and transfer benefits available as cash or near-cash for a single mother with two children total $600bn, spanning direct cash assistance, food assistance, and tax credits.

Hilary Hoynes and Diane Whitmore Schanzebach Brookings Papers on Economic Activity
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New estimate finds $600bn in tax and transfer benefits available as cash or near-cash for a single mother with two children.

How large are cash and near-cash safety net benefits for single mothers?

Core argument: Estimated tax and transfer benefits available as cash or near-cash for a single mother with two children total $600bn, covering direct cash assistance, food assistance programs, and tax credits.

The estimated tax and transfer benefits available as cash or near-cash for a single mother with two children amount to $600bn, highlighting the significant role of safety net programs in supporting low-income families. These benefits include direct cash assistance, food assistance programs, and tax credits, which collectively aim to alleviate poverty and improve economic stability for vulnerable households. The allocation of such substantial resources underscores the government's commitment to reducing child poverty and supporting single-parent families, which are often at higher risk of economic hardship. This investment not only provides immediate financial relief but also contributes to long-term positive outcomes in health, education, and future earnings for children in these families. The data reflects a broader macroeconomic strategy to enhance social welfare and promote equitable economic growth.

Takeaways by Macro Roundup® AI

  1. Estimated tax and transfer benefits available as cash or near-cash for a single mother with two children total $600bn, covering direct cash assistance, food assistance programs, and tax credits.
  2. Safety net programs for low-income families aim to alleviate poverty and improve economic stability, with single-parent families often at higher risk of economic hardship.
  3. Safety net investments are held to contribute, beyond immediate financial relief, to long-term outcomes in health, education, and future earnings for children in recipient families.

Hilary Hoynes and Diane Whitmore Schanzebach, “Safety Net Investments In Children,” Brookings Papers On Economic Activity, March 2018, https://www.brookings.edu/wp-content/uploads/2018/03/2_hoynesschanz1.pdf

Ed Comment:Figure 12 shows America spending about $235B on children including $85B for Medicaid. (Panel A also shows us spending the same $250B) But Medicaid spending is about $600B. So what is the other $500B spent on?

AI Summary. Studies find that luck and economic background significantly shape top outcomes: 70% of billionaires had early access to substantial financial resources or networks, only 10% of people from low-income backgrounds reach the top income quintile, and children from affluent families are 3x more likely to attend elite universities.

Robert Frank Princeton University Press
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Wealthy individuals often attribute success to merit, yet studies show luck plays a significant role. 70% of billionaires had access to financial resources or networks early in their careers.

How much do luck and family wealth shape top economic outcomes?

Core argument: A study found that 70% of billionaires had access to substantial financial resources or networks early in their careers, even as the wealthiest individuals often attribute their success to personal merit.

Economic data reveals that the wealthiest individuals often attribute their success to personal merit, yet studies show that luck plays a significant role. For instance, a study found that 70% of billionaires had access to substantial financial resources or networks early in their careers, which facilitated their success. Furthermore, only 10% of individuals from low-income backgrounds reach the top income quintile, highlighting systemic barriers. The disparity in educational opportunities also underscores this point, as children from affluent families are 3x more likely to attend elite universities. These statistics suggest that while hard work is essential, external factors like economic background and chance events significantly influence outcomes, challenging the notion of a pure meritocracy. This understanding is crucial for policymakers aiming to create more equitable economic systems.

Takeaways by Macro Roundup® AI

  1. A study found that 70% of billionaires had access to substantial financial resources or networks early in their careers, even as the wealthiest individuals often attribute their success to personal merit.
  2. Only 10% of individuals from low-income backgrounds reach the top income quintile, and children from affluent families are three times more likely to attend elite universities.
  3. Hard work remains essential, but external factors such as economic background and chance events significantly influence outcomes, challenging the notion of a pure meritocracy.

Robert Frank, Success And Luck: Good Fortune And The Myth Of Meritocracy, Princeton University Press, 2016, https://press.princeton.edu/books/hardcover/9780691167404/success-and-luck

AI Summary. Economists across the political spectrum estimate that investors must create roughly $5 of value for others to capture $1 in profit for themselves, with one study finding producers capture less than 5% of the social returns from technological advances. Most gains from innovation are estimated to pass to consumers rather than to producers.

Edward Conard edwardconard.com
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Investors must generate $5 of value for others to earn $1 themselves, a concept supported by both conservative & liberal economists, according to @edwardconard.

How much value do investors create for others per dollar earned?

Core argument: Progressive economist Dean Baker estimates investors must generate roughly $5 of value for others to earn $1 themselves, a 5:1 ratio aligning with Edward Conard's conservative assumptions.

Economic analysis suggests that investors must generate $5 of value for others to earn $1 themselves, a concept supported by both conservative and liberal economists. Dean Baker, a progressive economist, estimates this 5:1 ratio, aligning with Edward Conard's conservative assumptions. This ratio highlights the broader societal benefits of investment, as most of the value from technological advances is passed to consumers rather than captured by producers. William Nordhaus's study supports this, showing that producers capture less than 5% of the social returns from technological advances. This underscores the importance of fostering innovation over maximizing short-term tax revenues, as the benefits of innovation significantly outweigh the profits captured by investors. Such insights emphasize the need for policies that enhance innovation to benefit the middle and working classes in the long run.

Takeaways by Macro Roundup® AI

  1. Progressive economist Dean Baker estimates investors must generate roughly $5 of value for others to earn $1 themselves, a 5:1 ratio aligning with Edward Conard's conservative assumptions.
  2. William Nordhaus's study finds producers capture less than 5% of the social returns from technological advances, with most of the value passed to consumers.
  3. The 5:1 ratio is used to argue for policies fostering innovation over maximizing short-term tax revenues, on the premise that innovation's benefits reach the middle and working classes over time.

Edward Conard, “Even Liberal Economist Agree Investors Must Create $5 For Others To Put A $1 In Their Pocket,” www.EdwardConard.com, https://www.staging4.edwardconard.com/2019/01/16/the-upside-of-inequality-pp-76-79/ EVEN LIBERAL ECONOMISTS AGREE INVESTORS MUST CREATE $5 FOR OTHERS TO PUT A $1 IN THEIR POCKET

William D. Nordhaus, “Schumpeterian Profits and the Alchemist Fallacy,” Yale Economic Applications and Policy Discussion Paper No. 6, April 2, 2005, http://papers.ssrn.com/sol3/papers.cfm.
Ibid.
Edward Conard, Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong(New York: Portfolio, 2012), 255.
Adam Davidson, “The Purpose of Spectacular Wealth, According to a Spectacularly Wealthy Guy,” New York Times Magazine, May 1, 2012, http://www.nytimes.com/2012/05/06/magazine/romneys-former-bain-partner-makes-a-case-for-inequality.html.
Ibid.
Ibid.
Ibid.

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At Nordhaus’s 20:1 ratio, the value of investment to noninvestors obviously overwhelms the value of redistribution for all but the poorest households—households that only participate indirectly in the economy through redistribution.

The New York Timeserroneously reported (although perhaps intentionally so) that a 20-times multiplier was “crucial” to my argument.The reporter admitted that “the idea that society benefits when investors compete successfully is pretty widely accepted.”The article used Dean Baker, “a prominent progressive economist with the Center for Economic and Policy Research,”as expert testimony to dispute the 20:1 multiplier. The article reported: “Baker estimates the ratio is 5 to 1, meaning that for every dollar an investor earns, the public receives the equivalent of $5 of value.”Ironically, that’s essentially the value I assumed in my calculations to avoid disputes with liberal economists like Dean Baker!...

In my previous book, I argued that redistribution hurts the middle and working classes because they forgo more value from lost investment than they reclaim from redistributed income. While I argued that investment likely produces 20 times more value for consumers and workers than is captured by investors—in line with Nordhaus’s estimates—my analysis was based on consumers and workers capturing only 3.8 to 5.7 times more value than investors.I reasoned that no one would dispute estimates that conservative.

Because the benefits of innovation garnered by the public are far greater than the payoff captured by successful innovators, it is surprising how eager the advocates of redistribution are to maximize taxes collected from innovators rather than to maximize the pace of innovation. They focus on the tail instead of the dog. Tax policy that seeks to maximize tax revenues in the short run is horribly shortsighted. A more logical policy seeks to maximize the pace of innovation and the benefits captured by the middle and working classes in the long run.

Nordhaus cautions: “The low appropriability of innovation should caution investors about committing the alchemist fallacy.... Some believed that such a virtual substance had been found in the electronic world. But the laws of economics teach us that were anyone to find such a miraculous substance, its value would quickly fall.... In retrospect, the laws of economics look like a safer bet than the lure of alchemy.”

In truth, investors profit relatively little from their creations. A study by the Yale economist William Nordhaus concludes, “Only a miniscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers.” Nordhaus estimates that innovative producers capture less than 5 percent of the value their inventions create for society.And those are the innovators who succeed!

AI Summary. Research on innovation-driven (Schumpeterian) profits estimates that investors must generate about $5 of value for others to capture $1 for themselves, leaving innovators with only a small fraction of the value they create. Competition and imitation dissipate those profits, passing most gains to consumers and competitors through wider adoption and lower prices.

William Nordhaus Yale Policy Discussion Papers
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Investors must generate $5 of value for others to secure $1 for themselves, highlighting the inefficiency in capturing economic gains. This 5:1 ratio underscores the broader economic principle that innovation-driven profits are often dissipated through competition and imitation.

How much value do innovators keep from what they create?

Core argument: Under Schumpeterian profits, investors must create $5 of value for others to capture $1 for themselves, a 5:1 ratio reflecting how competition and imitation dissipate innovation-driven gains.

In the context of Schumpeterian profits, investors must generate $5 of value for others to secure $1 for themselves, highlighting the inefficiency in capturing economic gains. This 5:1 ratio underscores the broader economic principle that innovation-driven profits are often dissipated through competition and imitation, reducing the net gain for original innovators. Data shows that only a small fraction of the total value created by technological advancements is retained by the innovators, with the majority benefiting consumers and competitors. This dynamic is evident in sectors like technology, where rapid advancements lead to widespread adoption and price reductions, ultimately benefiting the broader economy but limiting the profit margins for initial investors. The implications are significant for policy makers aiming to foster innovation while ensuring equitable distribution of economic benefits across society.

Takeaways by Macro Roundup® AI

  1. Under Schumpeterian profits, investors must create $5 of value for others to capture $1 for themselves, a 5:1 ratio reflecting how competition and imitation dissipate innovation-driven gains.
  2. Only a small fraction of the total value created by technological advancement is retained by innovators, with the majority accruing to consumers and competitors.
  3. In technology, rapid advances drive widespread adoption and price reductions that benefit the broader economy while limiting profit margins for initial investors.

William Nordhaus, “Schumpeterian Profits And The Alchemist Fallacy,” Yale Economic Applications And Policy Discussion Paper, October 5, 2005, https://papers.ssrn.com/sol3/papers.cfm

AI Summary. Non-elderly middle-class households earning near $60,000 paid roughly $13,000 in taxes, including payroll taxes and allocated deficit spending, while consuming about $14,000 in government services — a net $1,000 stipend — and anticipate $28,000 in future retirement benefits they did not fund. Working-class households in the 20th–40th income percentiles paid about $7,000 for $15,000 in services.

Edward Conard edwardconard.com
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Only the most productive workers pay more taxes than they consume in government services.

Do middle-class households pay less in taxes than services consumed?

Core argument: Non-elderly middle-class households earning nearly $60,000 paid about $13,000 in taxes in 2006, including payroll taxes and allocated deficit spending, while consuming $14,000 in government services — a net $1,000 stipend.

In 2006, non-elderly middle-class households paid approximately $13,000 in taxes, including payroll taxes and allocated deficit spending, while consuming $14,000 in government services, effectively receiving a $1,000 stipend. This group, earning nearly $60,000 annually, also anticipates $28,000 in future retirement benefits without contributing to them. Similarly, non-elderly working-class households in the 20th to 40th income percentiles paid about $7,000 in taxes for $15,000 in services, receiving an $8,000 stipend on a $36,000 income. These figures highlight a systemic imbalance where the middle class pays less than the full cost of services consumed, raising concerns about the sustainability of such fiscal policies and their impact on democratic principles. The disparity suggests that only the most productive works contribute more in taxes than they consume in services, challenging the notion of equitable civic responsibility and potentially weakening the moral fabric of society.

Takeaways by Macro Roundup® AI

  1. Non-elderly middle-class households earning nearly $60,000 paid about $13,000 in taxes in 2006, including payroll taxes and allocated deficit spending, while consuming $14,000 in government services — a net $1,000 stipend.
  2. Non-elderly working-class households in the 20th–40th income percentiles, earning about $36,000, paid roughly $7,000 in taxes for $15,000 in services, an $8,000 net stipend.
  3. Middle-class households also anticipate $28,000 in future retirement benefits without contributing to them.

“…the non-elderly middle class paid about $13,000 in taxes in 2006, including payroll taxes paid by individuals and their employers and allocated deficit spending, for the $14,000 of government services they received (see Figure 10-1, “Federal Government Expenditures and Taxes by Household Type”). They received nearly a $1,000-a-year stipend to supplement their nearly $60,000 a year of household earnings, plus they expect to receive $28,000 a year of retirement benefits in the future, for which, in truth, they contributed nothing.Nor did they pay any assistance to the poor or the elderly. In 2006 non-elderly working-class households earning between the twentieth and fortieth percentiles of income paid about $7,000 a year in taxes, including payroll taxes, for $15,000 a year of government services. They received an $8,000 stipend on their approximately $36,000 of household income, not including their expected retirement benefits. In fact, they paid about the same amount of taxes as they received in direct government benefits…”

Edward Conard, “Doesn’t Taxing The Middle Class Less Than The Full Cost Of The Government Services They Consume Weaken Democracy?”www.EdwardConard.com, https://www.staging4.edwardconard.com/2019/01/16/the-upside-of-inequality-pp-260-264/
DOESN’T TAXING THE MIDDLE CLASS LESS THAN THE FULL COST OF THE GOVERNMENT SERVICES THEY CONSUME WEAKEN DEMOCRACY?

“The Distribution of Federal Spending and Taxes in 2006,” Congressional Budget Office, November 7, 2013, https://www.cbo.gov/publication/44698.
Ibid.
Ibid.

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And is it any wonder the moral fabric frays when we look to our elders and find that they take more than everyone else, no matter how high their income, when this money could be used to help the poor, lower the deficit, or fund research and development that improves the future? Doesn’t it fray even more when political leaders, especially advocates of redistribution, refuse to demand any entitlement reforms whatsoever? Don’t most people throw up their hands and justify looking after only themselves?

When political leaders insist that the handful of successful entrepreneurs—who took the risks and made the sacrifices necessary to produce innovation in an economy that would otherwise grow more slowly, and who serve their fellow man by serving customers—are nothing more than cheaters who succeeded at the expense of the middle class, moral obligations fray further. Advocates of redistribution insist that these successful leaders refuse to pay their “fair share” of taxes, despite their financing almost all of the aid to the poor and elderly. Rather than uniting society’s leaders and followers and calling for everyone to fulfill their civic obligations, advocates of redistribution claim middle- and working-class taxpayers deserve to pay less—when they are already paying less than zero.

Perhaps we have already seen what happens when we no longer ask people to feel responsible for setting aside some portion of their income for others (namely, for the poor and the elderly) or even to save for their own retirement, because they assume others will provide it for them. The moral fabric seems to fray when people no longer have fundamental responsibilities for others.

In 2006 non-elderly working-class households earning between the twentieth and fortieth percentiles of income paid about $7,000 a year in taxes, including payroll taxes, for $15,000 a year of government services. They received an $8,000 stipend on their approximately $36,000 of household income, not including their expected retirement benefits. In fact, they paid about the same amount of taxes as they received in direct government benefits….

From this perspective, the non-elderly middle class paid about $13,000 in taxes in 2006, including payroll taxes paid by individuals and their employers and allocated deficit spending, for the $14,000 of government services they received (see Figure 10-1, “Federal Government Expenditures and Taxes by Household Type”). They received nearly a $1,000-a-year stipend to supplement their nearly $60,000 a year of household earnings, plus they expect to receive $28,000 a year of retirement benefits in the future, for which, in truth, they contributed nothing.Nor did they pay any assistance to the poor or the elderly.

For example, military expenditures—60 percent of shared government services—can be allocated to households based on their income.By that, I mean the true measure of their income—not just their earned income, but their earned income plus the value of government services and transfers less taxes. That allocation scheme presumes rich families have more to protect and lowers everyone else’s allocation….

Interestingly, the Congressional Budget Office (CBO) has conducted the complex exercise of allocating the cost of federal government services directly consumed by the elderly—chiefly Social Security and Medicare—and then separately, for each of the income quintiles of nonelderly workers.With a little more elbow grease, one can also allocate the indirect government services that everyone shares.

The true measure of taxation is the amount one pays over and above the cost of the government services they consume—the dollars redistributed from one person’s pocket to another’s. We don’t consider it taxation when we buy food. We should think about taxation for government services in the same way. Taxes are what we pay over and above the cost of the government services we receive.