{"id":9818,"date":"2014-05-19T02:27:33","date_gmt":"2014-05-19T06:27:33","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=9818"},"modified":"2014-05-19T02:27:33","modified_gmt":"2014-05-19T06:27:33","slug":"the-inequality-puzzle-lawrence-h-summers","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2014\/05\/19\/the-inequality-puzzle-lawrence-h-summers\/","title":{"rendered":"The Inequality Puzzle | Lawrence H. Summers"},"content":{"rendered":"<p>Larry Summers exposes the flaw in Thomas Piketty\u2019s <em>Capital in the Twenty-First Century<\/em>. Piketty argues that inequality is rising because the rate of return on capital is higher than the economy&#8217;s growth rate.  <\/p>\n<blockquote>\n<p>Does not the rising share of profits in national income in most industrial countries over the last several decades prove out Piketty\u2019s argument? Only if one assumes that the only factors at work are the ones he emphasizes. Rather than attributing the rising share of profits to the inexorable process of wealth accumulation, most economists would attribute both it and rising inequality to the working out of various forces associated with globalization and technological change. For example, mechanization of what was previously manual work quite obviously will raise the share of income that comes in the form of profits. So does the greater ability to draw on low-cost foreign labor.<\/p>\n<\/blockquote>\n<p>Correlation does not imply causation. The fact that two events occur together does not prove that one has caused the other. <\/p>\n<p>Summers also addresses whether returns on capital are largely reinvested:<\/p>\n<blockquote><p>A brief look at the Forbes 400 list also provides only limited support for Piketty\u2019s ideas that fortunes are patiently accumulated through reinvestment. When Forbes compared its list of the wealthiest Americans in 1982 and 2012, it found that less than one tenth of the 1982 list was still on the list in 2012, despite the fact that a significant majority of members of the 1982 list would have qualified for the 2012 list if they had accumulated wealth at a real rate of even 4 percent a year. They did not, given pressures to spend, donate, or misinvest their wealth. In a similar vein, the data also indicate, contra Piketty, that the share of the Forbes 400 who inherited their wealth is in sharp decline. <\/p><\/blockquote>\n<p>That income inequality is rising is undisputed, but the causes are not as simple as Piketty assumes. His proposal of a progressive tax on wealth is unlikely to see the light of day: the history of inheritance taxes is an indication of their ineffectiveness. But a shift away from income taxes towards land taxes and other flat rate, indirect taxes would provide a significant boost to the economy as illustrated by the following chart from the <a href=\"http:\/\/taxreview.treasury.gov.au\/content\/FinalReport.aspx?doc=html\/publications\/papers\/Final_Report_Part_1\/chapter_1.htm\" title=\"Henry Review\">Henry Review<\/a>.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" width=\"525\" height=\"287\" title=\"Marginal welfare loss from a small increase in selected Australian taxes\" alt=\"Marginal welfare loss from a small increase in selected Australian taxes\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/henry-tax-welfare-losses.png?resize=525%2C287&#038;ssl=1\" \/><\/p>\n<p>Marginal welfare loss is the loss in consumer welfare per dollar of revenue raised for a small increase in each tax (the extent of compensation required to restore consumer satisfaction reflects the distorting effect of the tax on the economy). A decrease in the level of tax, on the other hand, would be likely to produce a similar-sized benefit. So a trade off between taxes at the top of the scale and those at the bottom would be expected to deliver a substantial net benefit.<\/p>\n<p>Read more at <a href='http:\/\/www.democracyjournal.org\/32\/the-inequality-puzzle.php?page=all'>Lawrence H. Summers for Democracy Journal: The Inequality Puzzle<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Larry Summers exposes the flaw in Thomas Piketty\u2019s Capital in the Twenty-First Century. Piketty argues that inequality is rising because the rate of return on capital is higher than the economy&#8217;s growth rate. Does not the rising share of profits in national income in most industrial countries over the last several decades prove out Piketty\u2019s &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/thepatientinvestor.com\/index.php\/2014\/05\/19\/the-inequality-puzzle-lawrence-h-summers\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;The Inequality Puzzle | Lawrence H. Summers&#8221;<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[40,5,34],"tags":[1798,1804,1814,2065,3652],"class_list":["post-9818","post","type-post","status-publish","format-standard","hentry","category-australia-nz-countries-regions","category-economy","category-us-canada-countries-regions","tag-income-inequality","tag-income-taxes","tag-indirect-taxes","tag-land-tax","tag-wealth-taxes"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>The Inequality Puzzle | Lawrence H. 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Summers","author":"ColinTwiggs","date":"May 19, 2014","format":false,"excerpt":"Larry Summers exposes the flaw in Thomas Piketty\u2019s Capital in the Twenty-First Century. Piketty argues that inequality is rising because the rate of return on capital is higher than the economy's growth rate. Does not the rising share of profits in national income in most industrial countries over the last\u2026","rel":"","context":"In &quot;Market Insights&quot;","block_context":{"text":"Market Insights","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/market-insights\/"},"img":{"alt_text":"Marginal welfare loss from a small increase in selected Australian taxes","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/henry-tax-welfare-losses.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/henry-tax-welfare-losses.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/henry-tax-welfare-losses.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":10937,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/09\/21\/pikettys-missing-rentiers-by-jeffrey-frankel-project-syndicate\/","url_meta":{"origin":9818,"position":1},"title":"Piketty\u2019s Missing Rentiers by Jeffrey Frankel | Project Syndicate","author":"ColinTwiggs","date":"September 21, 2014","format":false,"excerpt":"From Jeffrey Frankel: It is true that capital\u2019s share of income interest, dividends, and capital gains rose gradually in major rich countries during the period 1975-2007, while labor\u2019s share wages and salaries fell, a trend that would support Piketty\u2019s hypothesis if it continued..... But interest rates have been at all-time\u2026","rel":"","context":"In &quot;UK &amp; Europe&quot;","block_context":{"text":"UK &amp; Europe","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/uk-europe-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":9916,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/05\/27\/3-reasons-to-be-suspicious-of-the-inequality-debate\/","url_meta":{"origin":9818,"position":2},"title":"3 Reasons to be suspicious of the inequality debate","author":"ColinTwiggs","date":"May 27, 2014","format":false,"excerpt":"My concerns with the inequality debate are twofold: The poor are seldom rescued from poverty by redistribution. Raising taxes on the rich to bolster welfare payments increases dependence of the latter on government. While this may be a sound political strategy to garner votes, dependence on handouts robs people of\u2026","rel":"","context":"In &quot;Taxes &amp; Inequality&quot;","block_context":{"text":"Taxes &amp; Inequality","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/taxes-inequality\/"},"img":{"alt_text":"Marginal welfare loss from a small increase in selected Australian taxes","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/henry-tax-welfare-losses.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/henry-tax-welfare-losses.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/henry-tax-welfare-losses.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":9879,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/05\/24\/piketty-problems-top-1-shares-of-income-and-wealth-are-nothing-like-1917-28-cato-liberty\/","url_meta":{"origin":9818,"position":3},"title":"Piketty Problems: Top 1% Shares of Income and Wealth Are Nothing Like 1917- 28 | Cato @ Liberty","author":"ColinTwiggs","date":"May 24, 2014","format":false,"excerpt":"From Alan Reynolds: First of all, the Piketty and Saez estimates do not show top 1 percent income shares nearly as high as those of 1916 or 1928 once we use the same measure of total income for both prewar and postwar data.Second, contrary to Summers, there is no data\u2026","rel":"","context":"In &quot;Economy&quot;","block_context":{"text":"Economy","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":10939,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/09\/21\/amir-sufi-who-is-the-economy-working-for-the-impact-of-rising-inequality-on-the-american-economy\/","url_meta":{"origin":9818,"position":4},"title":"Amir Sufi: Who is the Economy Working For? The Impact of Rising Inequality on the American Economy","author":"ColinTwiggs","date":"September 21, 2014","format":false,"excerpt":"Amir Sufi, professor of Finance at the University of Chicago, testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Economic Policy. His statement titled \u201cWho is the Economy Working For? The Impact of Rising Inequality on the American Economy\u201d makes interesting reading. \"Only 76% of\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Credit and Disposable Income","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-09-22-credit-income.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-09-22-credit-income.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-09-22-credit-income.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":10064,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/06\/22\/the-inequality-debate-thomas-piketty-and-ryan-bourne-iea\/","url_meta":{"origin":9818,"position":5},"title":"The inequality debate | Thomas Piketty and Ryan Bourne IEA","author":"ColinTwiggs","date":"June 22, 2014","format":false,"excerpt":"The inequality debate: Thomas Piketty and Ryan Bourne, of the Institute of Economic Affairs. http:\/\/vimeo.com\/98715433 One mistake Piketty makes: he uses a marginal tax rate of 80% in the US in the 1920s and 1930s on incomes over $1 million to justify higher taxes on incomes over $1 million today.\u2026","rel":"","context":"In &quot;Taxes &amp; Inequality&quot;","block_context":{"text":"Taxes &amp; Inequality","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/taxes-inequality\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/9818","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=9818"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/9818\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=9818"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=9818"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=9818"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}