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Monday, December 10, 2018


As you may have read, the southland was hit by a snowstorm yesterday, and at 2 p.m. or so, while Susie and I were working on the jigsaw puzzle in the lobby, the power went out [a falling tree limb hit a power line.]  Each of the buildings in my retirement home is supposed to have an emergency generator, but the switch-over mechanism in the generator for Building 5 was faulty, so we were pretty soon without any power at all, even for the elevator.  I went door to door in my building, checking on everyone to make sure they were o.k. [as I have mentioned, the office of Precinct Representative for Building 5 is the only thing I have ever been elected to, and I take my duties seriously.]  Then Susie and I ate in the main dining room while the generator was being fixed and afterward, guided only by the flashlight built into my IPhone, we fed the cat and went to bed, even though it was only 6 p.m.  The apartment was quickly getting colder [no heat] and there did not seem to be anything else to do.  At 7:05, just as we were drifting off to sleep, the power came back, lights went on, and I got up to reset all the clocks.

The power is still on, but we got a good deal of snow and freezing rain which continues as I write, so today I am snowbound.  Early this morning, as I surfed the web, checking the NY TIMES and the Washington Post, I came across an Op Ed by the economist Robert Samuelson, with an arresting tagline:  We’ve become addicted to the income stagnation story. It’s probably not true.”  Seeing as how I am one of those addicted, I thought I had better read the column.  In it, I found a link to a new article by Thomas Piketty and others ostensibly providing evidence for Samuelson’s claim. Well, readers of this blog are aware that I was very impressed with Thomas Piketty’s book, CAPITAL in the Twenty-First Century, even going so far four and a half years ago as to write a four-part 9,000 word review, so I followed the link, and have spent the past two hours reading a fascinating and very lengthy essay published in the QUARTERLY JOURNAL OF ECONOMICS for May, 2018, entitled DISTRIBUTIONAL NATIONAL ACCOUNTS: METHODS AND ESTIMATES FOR THE UNITED STATES, by Thomas Piketty, Emmanuel Saez, and Gabriel Zucman.  I don’t know what Samuelson has been smoking, as we used to say back in the day, but the essay by Piketty, Saez, and Zucman presents a detailed and, I think, politically very important story of American income stagnation in the past thirty-five years.  My aim in this brief blog post is to tell you a bit of what I learned from the essay.  If this is a subject that interests you, I strongly urge you to read the entire thing.  You can find it here.

The focus of Piketty’s 2014 book was the growth, or rather the re-emergence, world-wide of extreme inequality of income and wealth, with most of the attention on the top 1%, or 0.1%, or 0.01%, or even 0.001%.  The new essay deals with trends in income across the board in America, not just among the rich.  The authors divide the American population into three groups:  the Bottom 50%, the “Middle Class,” identified as the 50th to the 90th percentiles, and the rich – the top 10%. 

Now, it is, if you think about it, extremely peculiar to call those in the 50th-90th percentiles “the middle class.”  Surely it would make more sense to call those, say, in the 30th-70th percentiles “Middle.”  But the authors have a method in their methodological madness, and it is, I think, deeply and deliberately political.

If I may summarize 50 pages of statistics, diagrams, and methodological cautions in a phrase, Piketty et al. show that in the last thirty-five years in America, the bottom half has stagnated, the 40% above them have done well enough to make them feel that the system is working for them, and the rich have made out like gangbusters.

The authors are able to break the statistics down so that they can track income pre- and post-tax, income by age, and even income by gender.  The post-tax income includes government transfers and redistributions, principally, but not solely, in the form of Social Security payments and Medicare and Medicaid.  They are able to show that whatever post-tax improvement there is over the years in the income of the Bottom 50% can be traced almost entirely to Social Security and Medicare.

What does all of this mean for politics?  [You realize that I am rushing past vast quantities of fascinating and important detail.  You really must read the essay yourselves.]  Well, think of it in human terms, as I think Piketty and company intend us to do.  For more than thirty years, fully half of American adults have seen no material improvement in their life chances and experiences.  They are better off when they get old – indeed, in real terms, they are sometimes better off old than when they were young – and that means, among other things, that when they are in middle life, they are not burdened with caring for their indigent parents.  But they have no reason to think that their children will be better off than they are.  What is more, they can see all around them that the “Middle Class” is in fact doing better and better, which is manifestly and infuriatingly unfair.

Piketty has some statistics about the higher educational credentials of those in one or another of the three groups, and not at all surprisingly, those in that 50th to 90th group are far more likely to possess those credentials than those in the Bottom 50%.

There really are Three Americas.  The authors do not present any statistics on intergenerational mobility, but it is almost certainly the case that upward mobility depends heavily on education, which in turn depends on the income level of the parents. 

The adult American population probably numbers around 200 million [the authors count those 20 and older as adult, rather than those 18 and older], so we are talking about one hundred million men and women whose life chances have been essentially flat since Reagan was elected.

The political implications of this simple fact are enormous.


Jim Westrich said...

Thanks for the link to the Piketty/Saez/Zucman paper. Sadly I think Samuelson just looked at Table II and saw the number was positive for below 50th percentile and also noted the median person has gained (no one seems to want to define stagnation although the charts in the paper make the point visually--I mean the median person has grown less than a percent in 34 years). I appreciate you and Piketty/Saez/Zucman wanted to make more important points.

Jim Westrich said...

Should have been "Less than a percent a year in 34 years" above.

LeanMcHungry said...

I found the Piketty/Saez/Zucman paper an interesting read when you linked to it in your blog post of August 31 2018.
Roughly speaking Piketty's analysis shows the bottom 50% of US wage earners took a 20% pay cut over the last 40 years.
What caused this?
In a recent news paper piece Tyler Cowan proposed that mobility of capital was the cause of US wage stagnation over the last 40 years.
Is there an ethical socialist argument to be made, which values the Utilitarian triumph of the 500m Chinese workers who have emerged from poverty over the last 30 years, over the 97m US workers who have taken a pay cut?

RobinMcDugald said...

With respect to Lean’s “ethical socialist” query respecting the emergence from poverty of 500m Chinese workers in relation to the 97m US workers who have taken a pay cut, is this really the right question to pose in the context of (as RPW says) a period wherein “the rich have made out like bandits”, in China, I would add, as well as in the USA?

China’s billionaires and almost billionaires:

They’re the second largest subset of this lot:

If only the workers of the world could and would unite.

LFC said...

If the Chinese leadership had decided to opt for a more egalitarian growth strategy, they prob would have lifted just as many, if not more, out of poverty while also keeping the distribution of income/wealth somewhat less unequal than it is now. But this reminds me that I've yet to read the 5-part NYT series on the Chinese economy that RPW linked to recently. (Given the other things on my reading list, it remains to be seen whether I'll get to it.)

LFC said...

Btw, on a minor side point, Robert Samuelson is the son of a noted economist, but I think he himself is a journalist who writes about economic issues, not an economist. (Admittedly such distinctions can occasionally get blurry.)

David Palmeter said...

Robert Samuelson is not related to Paul Samuelson the MIT economist, although Paul S. has a son named Robert.

Jim Westrich said...

Paul's son Robert J. worked for Michael Porter's ill-fated business strategy/finance consultancy (I know, "the fortune teller who could not see it was going to rain") but I have no idea if he is still in its current incarnation. Tagg Romney worked there as well and I remember they got a lot of press for working with Libya/Khadaffi (although that was more their London branch I presume).

LFC said...

@ D Palmeter

Thanks -- I stand corrected on that.