Peter Coy, the premier economics correspondent of The New York Times, just covered a major study on inequality and fiscal progressivity that I co-authored with Alan Auerbach, an economist at UC Berkeley, and Darryl Koehler, our senior software engineer at
Hi Thomas (if this is actually you), Pls read our paper. It's posted at kotlikoff.net. It's not about changes over time in inequality. It's about properly measuring inequality as it currently exists. By doing this analysis through time, we'll be able to accurately track how inequality in remaining lifetime spending within cohort is changing. Also, we aren't negating the enormous extant inequality in the U.S. We're just saying it needs to be measured according to the guidelines of economic theory. That theory takes utility (welfare) as its focus and utility is determined by spending -- all spending, current and future, including spending, via bequests, on others. My best, Larry
Hello Prof Kotlikoff... No, i am not Thomas... Just a big fan of his.
I understand the value of looking at utility as a lens for understanding inequality. The dollars in my checking account in my non producing later years are certainly different than the dollars in my more productive younger days.
But wouldn't wages + transfers for working age people give a much better lens to focus on if identifying realistic solutions is your ultimate goal? In the end isn't the real problem behind growing inequality low wages?
From Darryl Koehler to David Card to Emanuel Saez to Gabriel Zucman to Christine and David Romer you have to admit Cal has got a world class economics faculty... In the world of "publish or perish" would you say Cal's Economics faculty puts their Economics program in the top 5 nationally?
I will be interested to learn how we live in an era where a handful of billionaires can now fly themselves into space while wages for poor and middle class families have been flat or declining for 40yrs now and it turns out we have LESS income inequality than Piketty documented. Who is funding this research the "save the neo liberal economics" movement? Larry Summers must be involved some how..
The main funders of the research underlying The Fiscal Analyzer, which is used in the study, are the Federal Reserve Bank of Atlanta and the Sloan Foundation. Larry Summers had no involvement in this study. Nor have we had any discussion with him about the study.
Prof Kotlikoff, Did the Atlanta Fed make the request for the research or did you reach out to them?
Certainly this type of research is what i would hope all Fed branches are supportive of. Pikety as well as his collaborators Saez and Zucman at The Univ of California are rightfully critical of Monetary authorities for providing relatively slim data sets to enable more research in income and corporate profits and money flows through banks. Do you have any insight into why the Monetary authorities have not put out better data to the universities, particularly around 2008 crash as well as stimulus policy outcomes (to corporations and families) during covid?
This study was not directly supported by the Fed. We're working on other issues with the Fed. But the support on the other work helped us improve the TFA tool to finalize the paper. No insight re Fed data policy.
Did you happen to read Christopher Leonards "Lords of Easy Money"? It might be an interesting topic for you to discuss the impact of zero interest loans on banks lending practices and it's impact on growing inequality coupled with its impact on industry concentration.
Great book. Learned a lot. I do want to return to the Regional banking approach that we had prior to the 1980's. Regional Banks that hold their debt and don't resell it, have strong incentive to insure that those assets hold their value. I do think that stronger regional banks would not have turned a blind eye to the way the middle of the countries economies and communities were hollowed out in the name of free trade and automation.
You showed amazing depth in describing the labyrinth of interconnected, and conflicting, revenue streams at the big banks and the outline of how you would reassemble Citi Banks, for instance, breaking it into "mutual funds" in essence, was very compelling.
Also appreciated the depth you showed in knowing all of the bad players that drove the car off of the cliff, from Robert Rubin to Dick Fuld and even Stan O'Neal (my least favorite of the villains) on and on... It's been a while since the crash was in the headlines and i think i had forgotten how many bad players there were.
Started my career at Merrill Lynch and loved the quotes from Wynn Smith "O'Neal was a mean person" "Shame on the Merrill Board". He was always an inspiration and honest voice for truth when i was there.
While you touch on lax regulation I did not see much depth on the extreme regulatory capture that surrounds the big banks, yes you called out lax regulators and incompetent rating agencies but the problem was and still is much deeper than that. I was hoping you would get deeper into the cost of regulatory capture.
With LPB wrapping up all of the smaller agencies into one mega agency (FFA) the chances of regulatory capture seem to increase materially in my view. LPB is absolutely an improvement of what we have to day that is for sure.
But given that strong public support is going to be required to overcome the capture of law makers to even begin to address the level of regulatory capture needed to change our banking system I think the public is far more likely to vote for law makers (on the left of right) that simply stand for going back to Glass Steagall. Like M4A it sounds like a winning issue for politicians.
I don't claim to be an expert on the reality of going back to Glass Steagall but I do know that from the highly respected conservative economist Luigi Zengalis (I love his podcast) over to the liberal Policy expert Robert Reich intellectual leaders are able to find common ground on this policy... So i guess i was not persuaded that Glass Steagall could not be effectively brought back to life.
Bought the book will have to read it soon. Sounds like it is going to challenge some of the thinking in Leonards book as the hero of his story is Kansas City Fed CEO Tom Hoenig who has suggested that we can and should return to the regional banking system prior to the 80's...
It's great that you're investigating the high effective marginal tax rates imposed on low- and moderate income workers. Casey Mulligan has also worked in this area.
Particularly brutal penalties apply to low- and moderate-income workers who get married: they can lose their healthcare, get kicked out of their apartments, go from the most to least favorable income tax filing status, and more. This is particularly perverse - as you have written, marriage and family stability are keys to economic advancement.
Please don't overlook local and regional policies which further magnify these effects. I live in Palo Alto California - a downtown on-street parking permit costs $900/year - but $93.75/year if you make less than $50,000.
I'll read their paper. We don't use income to measure lifetime spending inequality. And we benchmark wealth to the national aggregate. If the rich systematically understated their wealth relative to the poor, we'd have an understatement of remaining lifetime spending inequality, but not likely a major one. best, Larry
Thanks. I get it. I work in this area all the time, and I am afraid your paper will be cited by some in the tone "Oh, see, inequality isn't as big a deal as people make it out to be." So I was especially pleased to see that you not only note, but italicize, "federal and state government fiscal policy is locking the poor into poverty." It is impossible to say just what amount of inequality is "just right" in a static sense, but for sure, we should be concerned about policies that actively thwart efforts to escape poverty.
Hi Thomas (if this is actually you), Pls read our paper. It's posted at kotlikoff.net. It's not about changes over time in inequality. It's about properly measuring inequality as it currently exists. By doing this analysis through time, we'll be able to accurately track how inequality in remaining lifetime spending within cohort is changing. Also, we aren't negating the enormous extant inequality in the U.S. We're just saying it needs to be measured according to the guidelines of economic theory. That theory takes utility (welfare) as its focus and utility is determined by spending -- all spending, current and future, including spending, via bequests, on others. My best, Larry
Hello Prof Kotlikoff... No, i am not Thomas... Just a big fan of his.
I understand the value of looking at utility as a lens for understanding inequality. The dollars in my checking account in my non producing later years are certainly different than the dollars in my more productive younger days.
But wouldn't wages + transfers for working age people give a much better lens to focus on if identifying realistic solutions is your ultimate goal? In the end isn't the real problem behind growing inequality low wages?
Wage inequality is the big problem. Pls read You're Hired at kotlikoff.net\books to see what we can do to reduce it. best,
larry
From Darryl Koehler to David Card to Emanuel Saez to Gabriel Zucman to Christine and David Romer you have to admit Cal has got a world class economics faculty... In the world of "publish or perish" would you say Cal's Economics faculty puts their Economics program in the top 5 nationally?
I will be interested to learn how we live in an era where a handful of billionaires can now fly themselves into space while wages for poor and middle class families have been flat or declining for 40yrs now and it turns out we have LESS income inequality than Piketty documented. Who is funding this research the "save the neo liberal economics" movement? Larry Summers must be involved some how..
The main funders of the research underlying The Fiscal Analyzer, which is used in the study, are the Federal Reserve Bank of Atlanta and the Sloan Foundation. Larry Summers had no involvement in this study. Nor have we had any discussion with him about the study.
Prof Kotlikoff, Did the Atlanta Fed make the request for the research or did you reach out to them?
Certainly this type of research is what i would hope all Fed branches are supportive of. Pikety as well as his collaborators Saez and Zucman at The Univ of California are rightfully critical of Monetary authorities for providing relatively slim data sets to enable more research in income and corporate profits and money flows through banks. Do you have any insight into why the Monetary authorities have not put out better data to the universities, particularly around 2008 crash as well as stimulus policy outcomes (to corporations and families) during covid?
This study was not directly supported by the Fed. We're working on other issues with the Fed. But the support on the other work helped us improve the TFA tool to finalize the paper. No insight re Fed data policy.
Prof Kotlikoff
Did you happen to read Christopher Leonards "Lords of Easy Money"? It might be an interesting topic for you to discuss the impact of zero interest loans on banks lending practices and it's impact on growing inequality coupled with its impact on industry concentration.
Extremely busy now, but may have some time down the road. Read Jimmy Stewart Is Dead if you're interested in my banking views. best, Larry
Prof Kotlikoff
Just finished Jimmy Stewart.
Great book. Learned a lot. I do want to return to the Regional banking approach that we had prior to the 1980's. Regional Banks that hold their debt and don't resell it, have strong incentive to insure that those assets hold their value. I do think that stronger regional banks would not have turned a blind eye to the way the middle of the countries economies and communities were hollowed out in the name of free trade and automation.
You showed amazing depth in describing the labyrinth of interconnected, and conflicting, revenue streams at the big banks and the outline of how you would reassemble Citi Banks, for instance, breaking it into "mutual funds" in essence, was very compelling.
Also appreciated the depth you showed in knowing all of the bad players that drove the car off of the cliff, from Robert Rubin to Dick Fuld and even Stan O'Neal (my least favorite of the villains) on and on... It's been a while since the crash was in the headlines and i think i had forgotten how many bad players there were.
Started my career at Merrill Lynch and loved the quotes from Wynn Smith "O'Neal was a mean person" "Shame on the Merrill Board". He was always an inspiration and honest voice for truth when i was there.
While you touch on lax regulation I did not see much depth on the extreme regulatory capture that surrounds the big banks, yes you called out lax regulators and incompetent rating agencies but the problem was and still is much deeper than that. I was hoping you would get deeper into the cost of regulatory capture.
With LPB wrapping up all of the smaller agencies into one mega agency (FFA) the chances of regulatory capture seem to increase materially in my view. LPB is absolutely an improvement of what we have to day that is for sure.
But given that strong public support is going to be required to overcome the capture of law makers to even begin to address the level of regulatory capture needed to change our banking system I think the public is far more likely to vote for law makers (on the left of right) that simply stand for going back to Glass Steagall. Like M4A it sounds like a winning issue for politicians.
I don't claim to be an expert on the reality of going back to Glass Steagall but I do know that from the highly respected conservative economist Luigi Zengalis (I love his podcast) over to the liberal Policy expert Robert Reich intellectual leaders are able to find common ground on this policy... So i guess i was not persuaded that Glass Steagall could not be effectively brought back to life.
Again, great book. I really did learn a lot..
Bought the book will have to read it soon. Sounds like it is going to challenge some of the thinking in Leonards book as the hero of his story is Kansas City Fed CEO Tom Hoenig who has suggested that we can and should return to the regional banking system prior to the 80's...
Will do
It's great that you're investigating the high effective marginal tax rates imposed on low- and moderate income workers. Casey Mulligan has also worked in this area.
Particularly brutal penalties apply to low- and moderate-income workers who get married: they can lose their healthcare, get kicked out of their apartments, go from the most to least favorable income tax filing status, and more. This is particularly perverse - as you have written, marriage and family stability are keys to economic advancement.
Please don't overlook local and regional policies which further magnify these effects. I live in Palo Alto California - a downtown on-street parking permit costs $900/year - but $93.75/year if you make less than $50,000.
Thanks for your great contributions!
Thanks for writing, Jonathan. This Palo Alto provision is awful. I'll keep local works disincentives in mind.
best, Larry
I have downloaded the JPE paper but not read it carefully yet. One question -- a paper by Chandy and Seidel from Brookings ( https://www.brookings.edu/opinions/how-much-do-we-really-know-about-inequality-within-countries-around-the-world/ )emphasizes that unerreporting of incomes by the rich makes a huge difference to conventional cross-sectional Gini indexes. Do your estimates correct for that problem?
I'll read their paper. We don't use income to measure lifetime spending inequality. And we benchmark wealth to the national aggregate. If the rich systematically understated their wealth relative to the poor, we'd have an understatement of remaining lifetime spending inequality, but not likely a major one. best, Larry
Thanks. I get it. I work in this area all the time, and I am afraid your paper will be cited by some in the tone "Oh, see, inequality isn't as big a deal as people make it out to be." So I was especially pleased to see that you not only note, but italicize, "federal and state government fiscal policy is locking the poor into poverty." It is impossible to say just what amount of inequality is "just right" in a static sense, but for sure, we should be concerned about policies that actively thwart efforts to escape poverty.
2 points
unable to read nyt article unless you are a paid subscriber to the times
tried to sign up for yearly paid subscription have no idea whether I succeeded and if I did why am I unable to view the content.