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Krugman is all wrong: Giles: unlike what Prof. Piketty claims – wealth concentration among the richest people has been pretty stable for 50 years in both Europ

Krugman is all wrong: Giles: unlike what Prof. Piketty claims – wealth concentration among the richest people has been pretty stable for 50 years in both Europe and the US. Krugman: Take, for example, the landmark CBO study on the distribution of income;" Krugman then shows some graphs about capital income (which is not the same thing as wealth) which don't clearly demonstrate any change among the richest people. This is fairly typical Krugman, but I hope HN readers are smart enough not to be duped by this.

deleted 12y ago
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IvyMike 12y ago
How do you respond to Krugman's next sentence? > It’s just not plausible that this increase in the concentration of income from capital doesn’t reflect a more or less comparable increase in the concentration of capital itself. Also, given that he has this sentence, I don't think Krugman is trying to deceptively confuse capital income and wealth. Also, the report that Krugman links to ( http://www.cbo.gov/publication/42729 http://www.cbo.gov/publication/42729 ) seems to show a significant change (yes, in income not wealth) among the top 1%, which does seem to be a change "among the richest people". How am I misinterpreting this report?
- yummyfajitas 12y ago
  It is highly plausible. If capital income is increasingly coming from sales of homes, it will become lumpier (in time) and inequality will go up. I.e. if 100 people own identical houses but only 1 person sells in a given year, wealth is perfectly equal but capital income inequality is huge.
  - peter-row 12y ago
    No, it won't. Unless the economists have seriously screwed up, then capital gains will be done on an accrual basis - 100 people will all be gaining income from their homes.
    - yummyfajitas 12y ago
      Accrual accounting is nearly impossible except for highly liquid assets (publicly traded equities, tbills). The CBO data Krugman cites almost certainly comes from tax returns which are not based on accrual.
  - demallien 12y ago
    Not really. If you assume a relatively even distribution of the rate at which people sell homes. For example, let's take those 100 people and assume that on average they sell their home every ten years. In any given year, 10 of those people will sell their homes, realising their capital gains. Now, because you have 100 people, the average increase will be divided by 10 (100/10). Which is exactly what you would get if you amortise those capital gains over the ten years. Large numbers of people smooths out lumpiness of individual income.
    - yummyfajitas 12y ago
      If you have 10/100 people selling their homes in a given year, then 10% of people earn 100% of the capital income. This is true in spite of a completely equal distribution of wealth. The fact that the 10% number is stable over time doesn't change this. Capital income and wealth are simply not the same thing.
egh 12y ago
where do you think capital income comes from? if capital income is increasingly concentrated, do you think those people who are getting more of it are just really good investors?

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IvyMike 12y ago

How do you respond to Krugman's next sentence? > It’s just not plausible that this increase in the concentration of income from capital doesn’t reflect a more or less comparable increase in the concentration of capital itself. Also, given that he has this sentence, I don't think Krugman is trying to deceptively confuse capital income and wealth. Also, the report that Krugman links to ( http://www.cbo.gov/publication/42729 http://www.cbo.gov/publication/42729 ) seems to show a significant change (yes, in income not wealth) among the top 1%, which does seem to be a change "among the richest people". How am I misinterpreting this report?

yummyfajitas 12y ago
It is highly plausible. If capital income is increasingly coming from sales of homes, it will become lumpier (in time) and inequality will go up. I.e. if 100 people own identical houses but only 1 person sells in a given year, wealth is perfectly equal but capital income inequality is huge.
- peter-row 12y ago
  No, it won't. Unless the economists have seriously screwed up, then capital gains will be done on an accrual basis - 100 people will all be gaining income from their homes.
  - yummyfajitas 12y ago
    Accrual accounting is nearly impossible except for highly liquid assets (publicly traded equities, tbills). The CBO data Krugman cites almost certainly comes from tax returns which are not based on accrual.
- demallien 12y ago
  Not really. If you assume a relatively even distribution of the rate at which people sell homes. For example, let's take those 100 people and assume that on average they sell their home every ten years. In any given year, 10 of those people will sell their homes, realising their capital gains. Now, because you have 100 people, the average increase will be divided by 10 (100/10). Which is exactly what you would get if you amortise those capital gains over the ten years. Large numbers of people smooths out lumpiness of individual income.
  - yummyfajitas 12y ago
    If you have 10/100 people selling their homes in a given year, then 10% of people earn 100% of the capital income. This is true in spite of a completely equal distribution of wealth. The fact that the 10% number is stable over time doesn't change this. Capital income and wealth are simply not the same thing.

egh 12y ago

where do you think capital income comes from? if capital income is increasingly concentrated, do you think those people who are getting more of it are just really good investors?