Thursday, December 08, 2016

New research by Raj Chetty et al on the "fading American dream"

Raj Chetty et al have just posted important new research (also summarized here) concerning what they call the "fading American dream."  Here is what I wrote about this research,  but was asked to keep offline until its public dissemination date, when I saw it discussed informally a few months back:

The research examines historical data pertaining to the following issue.  Suppose we defined the "American Dream" as positing that in each generation the kids should do better than their parents.  One might imagine the parents wanting this, and also the kids measuring how well they are doing in life by this metric, since it would capture the difference between where they started out and where they've arrived.

Chetty and his coauthors take a look at this, using a wealth of "big data," for U.S. cohorts over the twentieth century and through the present.  They look at absolute, not relative, material wellbeing.  And they define that in terms of income at age thirty.  So the last cohort they look at compares people born in 1980 to their parents, based on how the former were doing in 2010.

An interesting thing about this set-up - because it focuses purely on absolute, not relative, attainment, it could come out at 100% in a society that featured no mobility whatsoever, if we think of mobility as meaning that some multi-generational households rise while others fall.  More on that in a moment.

They find that there has been a great reduction, in recent decades, in achievement of the American Dream as thus defined.  Given how people may tend to benchmark themselves versus their parents, it surely helps to explain the sour mood (to put it mildly) in U.S. politics these days.

Chetty et al also examine the question: What sorts of changes in economic performance would cause the "American Dream" measure of upward movement in absolute terms to start looking better? Suppose we had a policy tradeoff between (a) greater absolute growth and (b) less upwardly-skewed wealth distribution? Using reasonable parameters, would focusing more on growth, or more on distribution, have a more favorable effect with regard to this measure?

If ever the set-up to a research question seemed almost pre-selected to weigh in favor of maximizing growth, rather than taking distribution into account, it is this one.  After all, with zero growth one couldn't possibly have net upward movement from mere relative shifts.  And, with high overall growth, one would think it possible to get very high levels of universal gain even if the rank order were as rigidly fixed as in a feudal society.

But they come up with a surprising answer.  If you start with the level and pattern of GDP growth over the last three or four decades, and have a choice between either (a) ratcheting up the growth a bit, but with the same distributional pattern, and (b) evening out the distribution of gains, it turns out that (b) has significantly more favorable effects than (a) on the percentage of kids who end up out-stripping their parents.  This results from the fact, that in recent decades, nearly all of the real growth has been concentrated at the very top, with everyone else stagnating.

Who's stupid, and for that matter what's stupid (it's surprisingly hard to say)

David Frum on Twitter: “Basically the Trump administration is a giant prank on Trump voters.” For example, because Trump’s appointment for Secretary of Labor is “the most outspoken advocate of Bush-style immigration policy in [the] US business community,” and “[t]he Labor Department enforces immigration law in the workplace – the key way that immigration laws are enforced.” So the appointment puts a heavy thumb on the scales against targeting employment of illegal immigrants, despite Trump's directly opposite assurances to his voters throughout the campaign.

Meanwhile, Thomas Edsall in the NYT: Even though Trump can’t, won't, and won’t even try to, do anything about his voters’ economic complaints, they’re feeling elated about him to the degree that it may have measurable positive effects on their mental and physical health and wellbeing.  All that matters to them, at least so far, is the sense of emotional validation that comes from believing that he expressed their concerns and thereby won the election.

There is no reason why both can't be right, at least so long as the Trump voters don't figure out what is actually happening.  Ignorance is bliss. Or perhaps it's even simpler than that.  I'm genuinely glad, to this day, that the New York Mets won the 1969 and 1986 world championships.  This was independent of any sense that the Mets players were fighting for me, rather than for themselves - I just enjoyed having a rooting interest validated.

But if being conned and scammed - so far as actual policy outcomes are concerned - can leave one genuinely happier than one was before, so long as one manages to keep one's eyes tightly shut, the notion of rational self-interest in voting may need to be re-thought.

Album of the year?

Perhaps I haven't listened comprehensively enough to say, but I do check Pitchfork and Popmatters regularly, and, based on what I've taken the time at least to sample, I'd go with Mitski's Puberty 2.

Wednesday, December 07, 2016

Follow-up to Getting It?

A few years ago, I was thinking of writing a sequel to my novel, Getting It.  It would take place close to 30 years later (2010 or so, whereas Getting It is set in 1983), the only holdover character would be anti-hero Bill Doberman, and it most definitely would not follow the standard sequel formula of trying to do the same thing all over again.

After spending a short time on it one summer, I decided that I didn't have either the time or quite enough of an itch to do it. On the other hand, I think I did have a decent preliminary plan, albeit still only at a very general level.

While re-starting it seems as remote as ever (if not more so), here is the first part of the opening scene that I wrote in summer 2012:

Into the spartan, New-Agey corner law office of the aging but perennially hard-charging Bill Doberman, flunkies were wheeling a large video screen.  Doberman was awaiting a Skype call, regarding what he hoped would be a lucrative case from a prime new client.  Big billings would mean plenty of fresh meat for Doberman, although just carcass pickings for the rest of the partnership.  Tough luck for them, of course – but you negotiate your own bed, and then you must lie in it.

The call would be from Tom Thevis at Orkin, Miro, & Guelph, the big accounting firm, and would involve a confidential arbitration proceeding for consumer fraud.  Thevis wanted Doberman to take it over, apparently in midstream, perhaps because Doberman had recently won two similar cases for a different accounting firm while still in Washington.

The backstory was well-known.  OMG, like so many other accounting and law firms, had jumped off the deep end during the Enron era, including by selling tax shelters to well-heeled customers who ended up getting hammered by the IRS and were now quite unhappy about it.  Several OMG folk had gone to jail for tax fraud, and the firm reportedly had come close to being shut down like Arthur Andersen.  But now Phase 2, the customer lawsuits, was under way, and Thevis no doubt wanted to play hardball, as you always should when your hand is weak.

Doberman liked the atmosphere at accounting firms, which was one reason why he had never joined one.  Too many sharks spoil the broth.  Accounting firms were so much more entrepreneurial than law firms that Doberman felt a natural affinity with them.  But the problem was, as Arthur Andersen’s fate helped to show, you might have to worry too much about what was going on down the hall.  Law firms were stodgy, but if you were good at free agency you could nonetheless do quite well.  So here was Doberman, the consummate free agent, and now a newly minted New Yorker starting his second month at Bell, Ranger, and Bell, his fourth law firm – one step ahead of his currently unfolding plans to divorce his third wife.

He was just about to turn his mind back to the game plan for the Skype call when his secretary buzzed him on the intercom.  “There’s a young woman here to see you without an appointment.  She won’t tell me her name, but she says you’ll definitely want to see her.”


“Yes, she says now.”

“Janet, tell her I’m busy – I’m getting a call.  And besides, she really shouldn’t be coming to see me here.”

There was a moment’s pause, and Doberman thought that perhaps he’d better make sure who it was.

“This person, does she look about 25?  Long blond hair that’s pretty straight?”



“Yes, that’s her.”

“Tell her I’m busy, and I really can’t see her in the office.  She shouldn’t come here.  Wait a second, don’t say that.  If she wants a place to wait, tell her about the Starbucks in the lobby.  Say I might be able to come down.  But if I can’t, I’ll call her on her cellphone when I’m done.”

“Will do, but she doesn’t look happy.”

Doberman hung up.

Someone knocked on his door.  Before he could answer, Karen Soloveitchik pushed it open and showed her face, looking severe as always.  She hesitated for just a second before entering.  In her wake was a very junior associate who looked, well, awkward, and his hair was tangled.  Okay, Karen was allowed to barge in, but why bring a kid?

“Karen, I’m about to get a Skype call, but stay.  Don’t say anything; I’ll fill you in afterwards.  And who are you?”

He couldn’t have actually said Tim Mumbles, could he?  Although he did mumble.

“Come again?’

“Tim Mungle.”

“Great. Remember, total silence, and stay on the sofa, over to the side.”'

Just then a tone from Doberman’s computer screen announced that a Skype call was incoming.  With a click, he transferred it to the big video screen.  A large-jowled face appeared.

Tuesday, December 06, 2016

High-end inequality colloquium, week 7

Yesterday we concluded our 7-week high-end inequality colloquium by discussing a very interesting work by Daniel Markovits, entitled "Meritocracy and Its Discontents."  The specific text we discussed, which relates to a book project, is not meant for circulation or even citation at this stage. So I will only comment briefly here on the issues that we discussed yesterday.

First, however, a quick word about the high-end inequality colloquium.  This 7-week sprint, with Robert Frank, our students, and others who became regular attendees and participants, was a great experience for me, although I don't when (or if) it will recur.  One of the things I've always enjoyed about the NYU Tax Policy Colloquium is that every week can be completely different from all the others.  It's a smorgasbord that shows how rich and varied the topics of potential interest are.  The high-end inequality colloquium, by contrast, had the advantages of focus and deepening.  We looked at common themes from a number of different but complementary angles, creating intellectual synergies and perhaps even progress for many of the participants (certainly including me).

The 7-week reading list was more focused on recent important things than on current work in progress, which might make it harder to repeat fruitfully.  Plus, in terms of my own teaching schedule, I think the Tax Policy Colloquium works better as an ongoing focus, and between that plus sabbatical and other teaching possibilities over the next few years, it seems unlikely that I, at least, would be participating in another version of this before fall 2019 (if ever).  Others at NYU or elsewhere might conceivably want to step in, which would be great, but that's outside my purview.

Returning to yesterday's session, it was the rare case where going for three hours, rather than the two that were all we had, would have been well worth it.  But because of the project's current state, I will only mention one aspect here.

There’s been a longstanding debate on whether the rise of high-end inequality over the last 3 decades, in the U.S. in particular, should mainly be viewed as inevitable or as chosen.

The inevitabilists emphasize such factors as globalization, declining communication costs that create gigantic winner-take-all markets, and skill-biased technology (taken as inherent to the current technological frontiers, even though technology in other eras was not skill-biased).

The choicists emphasize such deliberate policy moves (associated with Reagan and neoliberalism) as lowering of tax rates, deregulation, the destruction of unions, the strengthening of IP regimes, etcetera.

Suppose (as Daron Acemoglu’s work, may suggest) that skill-biased technology is itself a product of elite hyper-training that creates an exploitable resource – just as, in the late nineteenth century, the emergence of vast pools of unskilled labor drove technology in an anti-skill direction).  This might greatly undermine the ethical appeal of meritocracy, if one bases its claims (Greg Mankiw-style) on the assertion that today’s plutocrats are being justly rewarded for working hard and for being the “best” in a particular sense.

I myself don’t find Mankiw's normative stance at all compelling.  Thus, I would respond to it by asking, among other things, (a) are his beloved plutocrats producing social value commensurate with the private value they are extracting?, and (b) if and when they are, do we risk net social harm by undermining their incentives? My answers to these questions are (a) often no, and (b) yes at some point, but currently we're well short of that point.

So the question of why technology has been skill-biased recently, although important and interesting, lacks for me the predominant normative weight that Markovits is willing to contemplate its having.  Still, his book will be an important one.  I anticipate its both getting and deserving a lot of attention.

Another title change

Latest version of the title for my literature book is "Great (and Other) Books and the Rise of Toxic Meritocracy."

The parenthetical in the title reflects that some of the books I'll be discussing are definitely not great - although no less interesting for that.  E.g., Horatio Alger (Ragged Dick and/or Mark the Match Boy), Ayn Rand (either Atlas Shrugged or The Fountainhead).

Also, to be strictly accurate, not all of the works I'm discussing will be "books," or at least novels.  I'm planning to close with The Wolf of Wall Street - truly a prophetic preview of the 2016 election - and may also discuss, not only Death of a Salesman, but also It's a Wonderful Life.

At the risk of making the book too much the hostage of current events, I think the 2016 presidential election, if nothing else, gave me exactly the dramatic arc that I needed.  All clouds have a silver lining, I guess.

Monday, December 05, 2016

NYU Law School website link on high-end inequality

NYU Law School now has a link on ongoing work by members of the faculty, including me, on evaluating the issues around high-end inequality.  The link includes video of an interview I did, and there's also a link to the current draft of the opening chapter on my book in progress on literature and high-end inequality.

The book's tentative title used to be "Enviers, Rentiers, Arrivistes, and the Point-One Percent: What Literature Can Tell Us About High-End Inequality."  With an eye to being less wholly uncommercial, the link reveals that I had changed the working title to "The March to Toxic Meritocracy: Literature and the Changing Nature of High-End Inequality."  I have since tentatively changed it again to "Great Books and the Rise of Toxic Meritocracy."

Saturday, December 03, 2016


At the risk of belaboring the obvious, suppose that Trump had won the popular vote by 2.5 million, but that Clinton had won the Electoral College via narrow wins in several battleground states.  This alone would have produced a huge, coordinated national movement, from Republican elites plus mass rallies, demanding that the Electoral College accept the popular verdict.  (Such a campaign was actually planned by Rove in 2000, in the event that Bush won the popular vote but lost the electoral vote.)

Then suppose the Clinton campaign had opposed recounts in the close states.  At this point, the rhetorical (and possibly actual) violence would have been astounding.

This asymmetry is a puzzling but regular feature of U.S. politics.  It's not just about Trump.  Imagine the parties in office being reversed when (a) 9/11 happened (especially if the president had brushed off intelligence briefings about the threat), (b) the 2008 financial crisis arose, (c) the economy recovered 2012-2016 (Romney claimed that a smaller recovery would prove his policies were correct), or (d) Benghazi happened (note that not just 9/11 but the 1983 Beirut barracks bombing were far bigger deals, each with highly plausible theories of executive fecklessness in the run-up).

Tuesday, November 29, 2016

High-end inequality colloquium at NYU, week 6: Morse & Bertrand, Trickle-Down Consumption

This past Monday, Adair Morse of Berkeley presented her paper (coauthored with Marianne Bertrand of U Chicago), Trickle-Down Consumption.

The paper is a nice, compressed job of empirical research, published recently but of particular interest to us given its relationship to my co-convenor Robert Frank's interest in expenditure cascades, whereby rises in market consumption at the top triggers attempts to keep up via increased consumption just below, then again just below that, and then continuing until it has radiated far down the distributional chain.

The two main explanations for the Frank story are (1) positional externalities, whereby my having a bigger house requires you to get a bigger one, too, just to restore our relative positions to what they were before, and (2) context, whereby my bigger house simply triggers you (without necessarily having competitive motives) to need a larger house in order to feel that yours is big enough.  These two views are closely related and can be hard to tell apart, although (2) is framed in such a way as to sidestep criticisms to the effect that one should not give social weight to "envy" (a criticism that I consider wide of the mark in any event).

In the Bertrand-Frank study, state-level data suggests that, when the consumption of the top 20% in the income distribution in a state increases, those in the bottom 80% start consuming more even if their current and expected future income are flat.  Hence, their savings rates fall and they experience increased rates of bankruptcy and financial distress.

With respect to types of consumption, the effect is not greater for what seem to be positional or status goods than for other types of consumer outlays.  This might tend to rebut viewing the issue as status competition via positional goods, although how it affects the context view is less clear.

Based on meticulously testing various alternative explanations, the authors suggest that the methodology might involve a rise in well-off consumers in a neighborhood triggering an increase in appealing high-end goods and services that the others then start consuming without due regard for their budget constraints.  (But they manage to rule out mere price level changes for the same goods.)

To me, this seems to invite (as a plausible explanation) what I call the chocolate chip cookie or temptation problem.  When there are more nice things around, I tend to buy them, just as I might gobble chocolate chip cookies left on the seminar table. [I actually don't do that these days, but never mind that.]  So I'm inclined to view it as an internalities problem, in which consumers who are tempted by what might actually be nice things (from which they do indeed derive utility) get themselves into worse spots overall.

It's not as obvious why a preference for positional goods or the influence of context on consumer choice would necessarily involve irrationality.  But Bob Frank, in terms that he once nicely explained in an NYT column, invoked the work of James Duesenberry, a Harvard economist whose model for how people make consumption choices dominated the economics field & textbooks, because it nicely explained actual observed behavior, until Milton Friedman's permanent income hypothesis wholly supplanted it.  To paraphrase the old joke, Duesenberry's account worked in practice but not in theory, whereas Friedman's worked in theory but not in practice, so the economics profession unanimously voted for Friedman.

Friedman views people as rationally and farsightedly allocating consumption opportunities across their lifespans in order to equalize its marginal utility in all periods, as judged when one decides, and hence one's total lifetime utility.  (If bequests are added to the picture, a common move is to model the multigenerational household as if it were a single infinite-lived individual.)  But he can't readily or convincingly explain, e.g., why rich people generally save higher percentages of their incomes than poor people.  A smoothing rationale alone, for example, might tend to apply equally to each.

Friedman also had trouble explaining the fact that, as societies grow richer, their savings rates generally don't increase.  But, to quote Frank's NYT column:

"Mr. Duesenberry's explanation of the discrepancy is that poverty is relative. The poor save at lower rates, he argued, because the higher spending of others kindles aspirations they find difficult to meet. This difficulty persists no matter how much national income grows, and hence the failure of national savings rates to rise over time.

"To explain the short-run rigidity of consumption, Mr. Duesenberry argued that families look not only to the living standards of others, but also to their own past experience. The high standard enjoyed by a formerly prosperous family thus constitutes a frame of reference that makes cutbacks difficult, which helps explain why consumption levels change little during recessions.

"Despite Mr. Duesenberry's apparent success, many economists felt uncomfortable with his relative-income hypothesis, which to them seemed more like sociology or psychology than economics. The profession was therefore immediately receptive to alternative theories that sidestepped those disciplines."

Whence the shift by universal acclaim to Friedman's model, even though it was psychologically less realistic and also a worse fit with the key data points noted above.

This phenomenon has much in common with what I say about public economics and optimal income tax theory in my recent U Miami Law Review article on the "mapmaker's dilemma."  I too call there for more sociology, and less exclusive reliance on rational choice-based economic models.

In any event, once one adds the Duesenberry view to the positional and context models, they can join the temptation / chocolate chip cookies model in positing that a rise in high-end consumption may trigger planning failures that we might describe as involving internalities from people in lower income tiers.  This might be viewed either as further ground for deeming high-end inequality injurious to those below, or else simply as providing support for the use of policy instruments that focus on increasing private saving where it appears to be suboptimal, and/or on addressing the misuse of consumer credit.

Saturday, November 26, 2016

Music for car trips

Being now newly technologically equipped to play Spotify via my phone through a car stereo, my musical options on long trips are now broader, or at least more flexible and less in need of advance planning, than they used to be.

Thanksgiving-related and other driving the last few days offered an occasion to play through Fiona Apple's 3 classic albums (I'm not counting her first one, Tidal, as at that point she hadn't really found her voice yet).  Then there was time for one more, by Mark Mulcahy, the former frontman of Miracle Legion who recently reemerged after an 8-year hiatus that apparently was triggered by a family tragedy.

The Mulcahy album is really good - witty, clever, literate, tuneful, sharp, catchy, etcetera.  But playing it right after a Fiona Apple-fest doesn't show it off to best advantage, because it's a bit like taking a scenic trolley right after a rollercoaster ride that was loaded with free falls and loop-the-loops.  Against that background, even very good songs can sound too contained by their conventions and form, whereas Fiona Apple's songs, even though she's a classicist who does all the standard things (verse, chorus, build to the climax, etc.) sound like they are trying to fight free of any such constraints.