I’ve gone through a personal journey. I used to think, “Tyler Cowen’s employed at a nonsense Koch-funded center. That he’s taken seriously by anyone is a remarkable psyop.” I now appreciate his blog. His co-blogger Alex Tabarrok, although often a fool, did good work focusing on some of the shortcomings of the CDC and FDA during the pandemic. Some of the people in their orbit, like Zvi Mowshowitz, are good and rigorous thinkers. Tyler makes good book recommendations. His priorities are different than mine, and so it’s ended up being good to read him and think seriously about what he has to say. I’ve ended up thinking that perhaps he’s not entirely a shill but someone who’s reasonably serious and holds different values than myself.
But sometimes, he is just so wrong, in my opinion. And wrong in ways that are so obvious for a Koch-funded public-facing economist. It makes me wonder if all the book recommendations haven’t simply led me astray and my initial impulses were correct. I’m not there, but it keeps my journey in check.
I felt this way with his recent post, Wealth and income inequality have been falling, which links to his Bloomberg op-ed, Fight Poverty, Not Income Inequality.
In his op-ed, he states:
Wealth and income inequality have recently gone down in the US and other parts of the West, and the decline has been going on for the better part of the last decade. Yet it is not clear, to me at least, whether this is something to celebrate.
He links to a tweet by Matthew Yglesias as his evidence for declining inequality.
I don’t have much of an issue with this tweet or data source. The best study I’ve seen recently was Aeppli and Wilmer’s Rapid wage growth at the bottom has offset rising US inequality. From their study:
Yup, across a number of data sources, inequality has reversed / slowed / stalled from 2012 onward. But here’s where I start to disagree with Cowen. He says:
The recent decrease should come as no surprise. Markets are well below their late 2021 levels, and the wealthy hold a disproportionate share of the stock market. Executive compensation also tends to move with the markets, which affect the wealth of founders such as Mark Zuckerberg, who according to one measure has lost about three-quarters of his net wealth at its peak. And then there are all those former crypto billionaires, and not just Sam Bankman-Fried.
Umm, that’s not necessarily what’s causing the contemporary stalling / decline of inequality. Let’s look again.
We’re seeing 10th, 50th, and 90th percentiles in the left column, and the ratios of these percentiles on the right. The decline of inequality has been due to the rise of low end earnings combined with a stagnation of middle earnings. The top, meanwhile, has continued to launch ahead of the rest. Put another way, top incomes separating from the middle has kept inequality levels from falling even further. I also don’t really buy the image Yglesias shows. That shows changes in the percent growth. But if we were to look at something like cumulative share of total income, we’d see something like this:
Not exactly the great reversal. Top is still separating from the rest, albeit at a perhaps slower pace. Cowen goes on.
I am not here to shed tears for the very wealthy or to argue that the bottom half doesn’t need more help. My question is this: Do we feel good about this state of affairs? I would merely observe that lesser wealth and income inequality have not brought new glories to the world.
I don’t know about this. Let’s look at total wealth distributions up to the pandemic, from the CBO.
Why am I showing this? Well, look at what happened during the Great Recession. The rich lost the largest chunk of wealth during the Great Recession, but (1) that’s because they held so much wealth and (2) it quickly rebounded. To say that the super wealthy like Zuckerberg have lost a lot of wealth in the immediate aftermath of a downturn is a pretty narrow viewpoint that probably won’t hold up, imo.
He argues that inequality critics are too radical.
But critics of inequality make a different and much stronger set of claims, saying that inequality is responsible for health problems, despair, bad governance and social unrest. Those arguments — focusing on inequality rather than the absolute level of poverty — are an essential part of the current critique of capitalism.
Why cite a 2006 book that makes these arguments seem old? Why not take a look at something concrete and recent, like Chetty’s work linking inequality, and inequality growth, to growing disparities of life expectancy?
“Why are all these radicals up in arms about a measly 12 years of extra life,” says someone who sounds pretty unreasonable.
What are the downsides of declining inequality?
Lower income inequality is not without downsides. Charitable giving is likely to fall. Fewer ambitious corporate projects will be undertaken. Major technology companies, which have seen some of the biggest declines in value, are laying off workers, most of whom will probably get lower-paying jobs and experience more anxiety.
Ooh, great! Cowen’s interested in charitable giving! I suspect he’ll be very interested in finding that labor unions are importance sources of charitable giving! Their decline contributed to growing inequality, so their contribution, plus the reduced need for charity to begin with with fewer folks living in precarious situations, should make up for the loss. Right!? Right? Cowen, why aren’t you returning my calls?
Also, if I didn’t know better, I’d argue that he’s cherry-picking issues. Like, couldn’t he also argue that extreme high levels of inequality are associated with stalled and diminished levels of economic growth? Wouldn’t that get Mercatus folks going? Hello? Cowen, are you there?
And it’s not as if people on the lower end of the income scale feel happier or more healthy because the wealthiest are now poorer. For most Americans, life goes on; their main economic concern is that high inflation will eat into potential wage gains.
Seems like a better decision to link to studies of inequality and happiness, for example this one, that shows that relative comparisons matter a lot for happiness. Why link to a Pew study of economic concerns? Weird.
It’s the unbalanced media attention that’s to blame.
For at least two decades, the attention given to rising income and wealth inequality was huge, among both policymakers and academics. Over the last decade, the attention given to falling income and wealth inequality has been tiny. Our views of this issue, shaped by the media, may be seriously out of date.
Or, that we’re starting from an absurdly high stock, at near maximum levels of wealth inequality. Or, that few probably believe we’re in the middle of a great wealth transition anytime soon.
His conclusion:
Maybe inequality wasn’t the problem in the first place. That’s why I’m not cheering at its decline, and why I suspect not everyone else is, either. The real challenge isn’t how to reduce the difference in wealth between the rich and the poor. It’s how to reduce poverty.
I disagree. The era of massive inequality growth has fundamentally changed the nature of growth. Less for the bottom when the top soaks most of it up.
I disagree. Earnings and poverty are necessarily relational. The top separating from the rest can really distort the whole economy. Read a bit of Robert Frank.
Conclusion. Weird. Totally off. And in ways totally predictable from somebody in his institutional position.
It’s a good reminder that underneath the nice book recommendation and classical music discussion and cute over/under-rated questions and mentions of Strauss is a big old pile of Koch money, which does a lot of selection on the arguments. I still like him, but this was a good reminder of why I can’t really take him too seriously.