Wealth Distribution

In a series of articles, the May 27 issue of Bloomberg Businessweek does a deep dive into US wealth distribution. Bloomberg includes data and analyses by economist Gabriel Zucman, the world's foremost expert on finding where wealthy people hide their assets. Some of his data is published in The Quarterly Journal of Economics. According to Bloomberg, Zucman's paper "distilled a century of data to answer one of modern capitalism’s murkiest mysteries: How rich are the rich in the world’s wealthiest nation?" A few points summarize the situation.

Tax evasion: Tax evasion is the illegal non-payment of taxes owed. Tax avoidance is use of legal means to reduce taxes, e.g., by finding or creating loopholes. Zucman's paper comments: "Lastly, we attempt to account for tax evasion. US financial institutions automatically report to the IRS the dividends, interest, and capital gains earned by their clients, making tax evasion through US banks virtually impossible. But absent similar reporting from foreign institutions, taxpayers can evade taxes by holding wealth through foreign banks. Zucman (2013 and 2014) estimates that about 4% of US household net financial wealth (i.e., about 2% of total US wealth) was held in offshore tax havens in 2013. There is evidence that the bulk of the income generated by offshore assets up to 2013 was not reported to the IRS. Furthermore, the share of wealth held offshore has considerably increased since the 1970s. . . . . To obtain reliable top wealth shares, accurately measuring the distribution of equities and fixed income claims—which constitute the bulk of large fortunes—is key."

According to Zucman, wealthy Americans held about $7.6 trillion in offshore accounts. The amount of tax cheating that generates each year is unclear. Wealthy people who cheat on their taxes operate in as much secrecy as possible to hide their crime.

Wealth distribution: Until the late 1930 s the top 1% held about 35-40% of US wealth. That dropped to about 25-50% until the late 1970's. After that the proportion of wealth increased to about 40%.

Data for 2014 indicates that the bottom 30% of Americans have a net negative worth. They own more than their assets are worth.

US wealth inequality is close to that generated by the Russian kleptocracy.

Politics: Bloomberg writes: "Their data became the heart of Vermont Senator Bernie Sanders’s stump speech, recited to the outrage of his supporters during the 2016 Democratic presidential primary. . . . . Before Massachusetts Senator Elizabeth Warren started her 2020 presidential campaign by proposing a wealth tax, she consulted the pair, who estimated that her tax would bring in $2.8 trillion over the next decade. She conferred with them again before floating a corporate tax on profits above $100 million, which they calculated would raise more than $1 trillion over 10 years. Sanders came looking for their advice on his estate tax plan, which would establish rates as high as 77% on billionaires. And when New York Representative Alexandria Ocasio-Cortez proposed on 60 Minutes to hike the top marginal tax rate to as much as 70% on income above $10 million, Zucman and Saez were fast out with a New York Times op-ed in support."

The key question: Not surprisingly, there is a bitterly contested assumption. Bloomberg writes:

The tools Zucman has identified to date challenge a series of assumptions, fiercely held by many economists and policymakers, about how the world works: That unfettered globalization is a win-win proposition. That low taxes stimulate growth. That billionaires, and the superprofitable companies they found, are proof capitalism works. For Zucman, the evidence suggests otherwise. And without taking action, he argues, we risk an economic and political backlash far more destabilizing than the financial crisis that sparked his work.

Bloomberg comments that Zucman and his co-worker Emmanuel Saez have written a "cookbook of sorts for any 2020 candidate looking to soak the rich. The Triumph of Injustice, to be published by W.W. Norton & Co. early next year, focuses on how wealth disparity can be fought with tax policy." Zucman argues that the actual effect of lower taxes on the rich, isn’t to stimulate the economy but to further enrich the rich and further incentivize greed.

Obviously, anti-tax ideologues including most pro-Trump populists, libertarians, republicans and nearly all wealthy people will vehemently disagree and argue that increasing taxes on them will kill their incentive to work and cause economic growth to stall and maybe create a serious global recession or depression. Is the anti-tax argument persuasive?

It appears that at times when income taxes were well over 50% in the 1900s, Americans still innovated, worked hard and did not hesitate to become wealthy. Do increased tax rates necessarily kill incentive to innovate and work hard in all motivated people? This is a point that deserves its own discussion. It goes to the heart of this dispute, which appears to be one of a few central issues in modern American politics. It is an issue that requires looking at unbiased data on what various tax rates actually do to innovation and work ethic. Maybe Zucman's book will go into that critically important issue.

Final thoughts - policy proposals: Bloomberg writes:

In recent months, Zucman has devoted a great deal of energy to the question of how multinational corporations avoid taxes. He’s produced papers and policy briefs showing that U.S. multinationals shift almost half of their overseas profits to five havens—Ireland, the Netherlands, Singapore, Switzerland, and the Greater Caribbean, which includes Bermuda. “That is a huge problem for the sustainability of globalization,” he says. Countries and territories are engaged in a race to the bottom, Zucman argues, offering ever-lower corporate rates in the fear that companies will shift their profits elsewhere. He proposes to “annihilate” such competition by apportioning profits based on where sales were made.

These ideas might be nonstarters today, but Zucman professes to take the long view. Remember, he points out, that the U.S. Supreme Court ruled the income tax unconstitutional in 1895; it took a constitutional amendment to legalize it in 1913. “There’s a lot of policy innovation ahead of us,” he says.

When Zucman and Saez’s site, wealthtaxsimulator.org, went live in March, it sparked some of that hoped-for innovation. One proposal, posted on Twitter by Adam Bonica, a political science professor at Stanford, was for a 100% tax on wealth beyond $500 million. He based it on what he called “Beyoncé’s rule,” which he explains as, “Think of the most talented and hardest-working person you know, and think about how much money they have and how much money they deserve.” Queen Bey, he tweeted, has an estimated net worth in the neighborhood of half a billion dollars. “Let’s have Howard Schultz explain to us why he should be worth more than Beyoncé.”

With any luck, talk about increasing taxes to help reduce wealth inequality will help open the Overton window and make this line of thinking more publicly acceptable. At the very least, data, not naked, self-serving anti-tax arguments should be relied on to inform the situation and help guide policy.

B&B orig: 6/23/19

Anthropogenic Global Warming: What the Oil Companies Think

“Well actually the Genesis 8:22 that I use in there is that ‘as long as the earth remains there will be seed time and harvest, cold and heat, winter and summer, day and night,’ my point is, God’s still up there. The arrogance of people to think that we, human beings, would be able to change what He is doing in the climate is to me outrageous.” Senator (R-OK) Jim Inhofe commenting on anthropogenic climate change

Undark, a self-professed truth and science-oriented site, writes about a lawsuit that Oakland filed against BP, Shell, ExxonMobil, Chevron, and ConocoPhillips. Oakland was suing oil companies to recover the costs of building sea walls and other infrastructure to protect residents from global warming. San Francisco joined the lawsuit in in 2017.

In 2108, federal district judge William Alsup ordered a tutorial on climate change. The cities presented experts who walked the judge through recent data and the historical record: “The cities called on a number of expert witnesses, including Myles Allen, a professor of geosystem science at the University of Oxford. By walking the judge through the century-long history of climate science, punctuated with rapidly ascending line graphs, the witnesses brought global warming to the court’s attention in a way that left no doubt about how credible a threat it was.”

Two things were extremely interesting and telling. The first is the defense the oil companies mounted to protect themselves from liability: “Chevron’s evidence during the tutorial was presented through a lawyer, who acknowledged the role of human activity in climate change but denied the company could have known the future implications of its actions and said a court wasn’t the right place to deal with the issue. Statements submitted by the other defendants were largely in line with Chevron’s presentation.”

In other words, oil companies are no longer denying that anthropogenic (human-caused) global warming is real. Instead, they argue no legal responsibility because no one could have foreseen things like sea level rise. The foreseeability concept in law is often a powerful defense, so the oil company argument has a chance of winning on appeal or at the Supreme Court. This case will probably wind up at the Supreme Court.

The second thing was how the oil companies reacted to briefs filed by the oil industry-funded Heartland Institute. Heartland is a well-known climate science denier think tank. Undark writes:

Filed alongside the case were two amicus briefs — documents produced by someone who is not a direct party in a case, but has an interest in the subject at hand — questioning aspects of climate science. They were written by well-known climate skeptics and promoted by the Heartland Institute, a libertarian organization with links to the fossil fuel industry. Alsup challenged the briefs’ validity and asked who had funded the research behind them, which turned out to include fossil fuel firms such as Peabody and ExxonMobil.

In the end, [defense expert] Allen said, the defense chose not to call on those climate skeptics when presenting its formal evidence in court, a sign of how much progress has been made in climate science and public understanding over the past decade. “Maybe 10 years ago they would have been called, but I think it’s recognized now that it’s become so discredited that it’s not worth putting them up,” said Allen.

“I think the real reason you don’t see the basic science challenged much in these cases is that courts are places of inquiry where the standards of reliability are reason and evidence rather than tweets, falsehoods, and the kind of manipulative discourse that you hear in the political sphere,” said Douglas Kysar, the deputy dean of Yale Law School.

Apparently the oil companies do not believe their own propaganda sources enough to present their own climate science denials in court to defend themselves.

The cities lose despite winning: Despite the credibility of the evidence, the judge dismissed the case. He ruled “that while the evidence of climate change is real and persuasive, the courts are not the proper place to decide issues of such global magnitude, deferring the matter to the legislative and executive branches.”

This appears to indicate that federal courts see anthropogenic global warming as something too big for them to deal with. At present, the legislative and executive branches are in no mood to deal with climate change. This is so at least because (1) republicans do not believe climate change is real or something humans can do anything about, and /or (2) they are corrupted by (a) corporate campaign contributions that oppose taking any action, and/or (b) blinding anti-government, anti-climate science ideology that prevents them from seeing the massive reality in front of their climate science-blind eyes.

Once again and for whatever reasons, the ravages of unregulated capitalism are left to run free and wild, damage to society and the environment be damned.

B&B orig: 6/23/19

Reality Monitoring Is Fallible

Reality-monitoring area of the brain

Research on an area of the brain that monitors the difference between external reality and sensations and feelings that arise internally suggests that physical differences may correlate with different sizes of the controlling area. The reality-monitoring area in people who do not experience auditory hallucinations appears to be larger than in people who do. An article comments:

Many mentally well people hear voices (or “auditory verbal hallucinations”) – in fact, around 6-7 per cent of adults in the general population report having had such experiences at some point in their lives.

The researchers scanned all their participants’ brains, specifically looking at the length of a brain structure involved in “reality monitoring” or telling the difference between internally and externally generated experiences.

Garrison and her colleagues wanted to test the idea that a problem with reality monitoring contributes to the voice-hearing experience in patients with schizophrenia, but not in healthy people who hear voices. To test this account, they used the scans to measure the length of a brain structure called the paracingulate sulcus (PCS) – this is the most frontal area of the medial prefrontal cortex and previous research has suggested that it is involved in reality monitoring. For instance, people for whom the PCS is completely absent (up to a quarter of the general population by some estimates) tend to struggle with reality monitoring tasks.

As they predicted, the researchers found that their patient volunteers had a shorter PCS than the healthy non-voice-hearing controls, and a shorter PCS than the voice-hearing healthy controls.[1] In contrast, there was no (statistically significant) difference in the length of the PCS between the voice-hearing healthy controls and the controls who did not have hallucinations.

Garrison’s team believe this result is consistent with there being two routes to auditory hallucinations (see image, below). For healthy people who hear voices, the researchers believe the origin is in hyper-activation of sensory parts of the brain involved in processing auditory information. For patients with schizophrenia, by contrast, they believe there is a sensory component combined with a problem with reality monitoring.

What isn't know is how differences in brain morphology affects people differently in everyday life without regard to hallucination. This line of research is in early early stages. The researchers write in the original paper: “Although our framework is admittedly simple, it might provide a useful basis to assist the understanding of hallucinations across clinical and nonclinical groups, and areas for future focus have been discussed above. The source monitoring framework suggests that decisions are made as to the source of a percept through comparison of its contextual, semantic, perceptual, or cognitive features with characteristic traces relating to internal or external sources.” It is thus not clear how important differences in reality monitoring is for clinically healthy people in various aspects of life.

Footnote:
1. “Also, it’s worth noting that, among the healthy voice-hearers in this study, the length of the PCS was intermediary between the patients and non-voice-hearing controls. It’s possible, the researchers admitted, that the reason the difference in PCS length between the two healthy groups was found to be statistically non-significant may have been due to a lack of statistical power. They said that replication of this study with larger samples could clarify this issue, adding that ‘…further research is [also] needed to to assess the extent to which the present results generalise to other nonclinical populations with hallucinations who may have different etiology and phenomenology of hallucinatory experience.’ ”

B&B orig: 6/24/19

Increasing Intolerance Among Americans

A Public Religion Research Institute poll shows increasing intolerance among Americans toward minority groups. PRRI writes:

Three in ten (30%) Americans say they think it should be permissible for a small business owner in their state to refuse to provide services to gay or lesbian people if doing so violates their religious beliefs, while two-thirds (67%) say they should not be allowed to do so.

Support for religiously based service refusals have increased across virtually every demographic group since 2014, when only 16% of Americans said small businesses should be allowed to refuse service to gay or lesbian customers because of religious beliefs, and 80% said they should not.

Opinions on this issue, however, differ by gender, age, and race. More than one-third (34%) of men, compared to 26% of women, say businesses should be allowed to refuse services to gay or lesbian people. This is an increase from 2014, when only 19% of men and 14% of women agreed that businesses should be permitted to refuse to serve gays and lesbians on the basis of their religious beliefs.

Seniors ages 65 and older (39%) are more likely than young Americans ages 18-29 (26%) to favor religiously based service refusals targeting gays and lesbians. Every age group has increased support since 2014, when only 17% of seniors and only 12% of young Americans supported allowing businesses to refuse to serve gay or lesbian people on religious grounds. One-third (33%) of white Americans, compared to nearly one-fourth (24%) of nonwhite Americans, agreed. White Americans have nearly doubled their support since 2014 (16%).

While there are no differences on this issue by educational attainment, similar increases in support for refusing service to gays and lesbians on religious grounds occurred across the board during the last two years, from those with a high school diploma or less (17% to 28%), some college (15% to 29%), and college graduates (17% to 32%).

Republicans are divided on whether small businesses should be allowed to refuse gay or lesbian people (47% favor, 48% oppose). This number has more than doubled from 2014, when only 21% of Republicans said these types of religiously based service refusals should be allowed.

If this data is basically accurate, this reflects another aspect of an increasing social sickness that afflicts America. How people see this will vary.

One question is whether the burden on religion is more than trivial. Exactly how much of an imposition on a person's religious belief is it to serve a disapproved of minority? Many or most religious people will probably assert the burden is major and intolerable. What does Christianity teach about this, if anything? Does Christian God condone this?

Another question is whether secular businesses can refuse service to religious people because it violates their moral opposition to the poisonous influence of religion on society, including intolerance of minority groups.

The glue that used to hold America together continues to weaken. If it gives way, the outcome could be very bad for America. America's enemies are no doubt very happy to see developments like this. They will use this to enhance our divisions to nudge America further into social discord. The hope is to eventually bring the US to its knees.

B&B orig: 6/26/19

Liberalism vs. Republicanism

Sugary cereal, free speech & wealth inequality: This came to my attention from a discussion that PD posted on his channel Books & Ideas. In the 12-minute video, political theorist Michael Sandel discusses the moral framework that Liberalism and Civic Republicanism operate within. Civic Republicanism dates at least back to Aristotle.

In his discussion, PD describes what Liberalism and Civic Republicanism are:

While Liberalism emphasizes the freedom of each individual and group to pursue those ends it deems satisfactory as long as they don't violate the harm principle, Civic Republicanism holds that citizenship requires certain virtues or skills in thinking and talking about politics, such that we are not apolitical agents but active participants interested in ongoing discussion of what constitutes the public good. Thus when the Supreme Court, for example, declares that forced sterilization is or is not in the public interest, (or the right to choose whether or not to abort), the Civic Republican idea is that there will likely be a relatively coherent societal understanding of the issue, and often enough of something like an agreement on what is right, wrong, good or bad in such cases. This follows on the assumption that a knowledgeable and active citizenry is more likely to come to meaningful agreements.

B&B orig: 6/26/19

A Descent into the Alt-Right and a Miracle Recovery

A voracious souless darkness sucks minds in

An anonymous essay written by a mother and her 13-year old son, pseudonym Sam, describes how one person, Sam, was sucked into the propaganda cesspit called the alt-right. Sam was able to recover his sanity after a brief, pure chance encounter with an anti-alt-right protester at an alt-right rally.

Washingtonian magazine published the essay on May 5 and followed it up a week later with some comments from the mother about the essay and public reaction to it.

Not surprisingly, some of the alt-right denies the essay is real. They consider it fabricated propaganda. That's now the standard tactic for most alt-right nationalists and racists, pro-Trump populists (probably about 98%) and most republicans (probably about 90%) when faced with facts, information and/or reasoning they dislike and cannot handle.

The descent into the propaganda cesspit: According to the essay, the son was a decent, normal kid until one day at school (8th grade) the kid was falsely accused of sexually harassing a girl: “One morning during first period, a male friend of Sam’s mentioned a meme whose suggestive name was an inside joke between the two of them. Sam laughed. A girl at the table overheard their private conversation, misconstrued it as a sexual reference, and reported it as sexual harassment. Sam’s guidance counselor pulled him out of his next class and accused him of “breaking the law.” Before long, he was in the office of a male administrator who informed him that the exchange was “illegal,” hinted that the police were coming, and delivered him into the custody of the school’s resource officer. At the administrator’s instruction, that man ushered Sam into an empty room, handed him a blank sheet of paper, and instructed him to write a “statement of guilt.”

No one called me as this unfolded, even though Sam cried for about six hours straight as staff members parked him in vacant offices to keep him away from other students. When he stepped off the bus that afternoon and I asked why his eyes were so swollen, he informed me that he would probably be suspended, but possibly also expelled and arrested.

If Kafka were a middle-schooler today, this is the nightmare novel he would have written.”

That and other traumas the school inflicted, e.g., “the administrator piled more accusations on top of the harassment charge—even implying, with undisguised hostility, that Sam and his friend were gay”, triggered Sam's descent. He found the alt-right at Reddit, 4chan and YouTube. The darkness mindlessly but happily sucked the traumatized boy in. Sam commented: “I liked them because they were adults and they thought I was an adult. I was one of them. I was participating in a conversation. They took me seriously. No one ever took me seriously—not you [Sam's mother], not my teachers, no one….They treated me like a rational human being, and they never laughed at me.”

Propaganda power: The essay comments: “I began to see how white supremacists have been benefiting from what the writer Carole Cadwalladr has called the ‘circular knowledge economy’—how search algorithms feed an internet so ravenous for content that facts are optional. But worse, I discovered how expertly extremists have leveraged the web to prey on young people who are depressed. Search for the term ‘depression’ on YouTube, and the professional-looking white supremacists lecturing on self-empowerment might have you nodding in agreement, too.”

A chance encounter and recovery: As Sam and his mom were leaving the alt-right's ‘Mother of All Rallies’ on the mall in Washington DC, they were walking past a counterprotestor:

Toward the end of our walk down the Mall, I spotted a middle-aged man wearing a T-shirt that proclaimed NO TRUMP. NO KKK. NO FASCIST USA. He stood alone on the grass, holding a small poster that featured a picture of a smiling Heather Heyer, the demonstrator murdered in Charlottesville. He’d magic-markered the words A TRUE AMERICAN PATRIOT and c-ville under her photo, above a hand-drawn heart. I asked if I could take his picture, but it was hard to choke out the words because I started crying.

I called Sam over and told him, in front of the man, that standing up for your beliefs among such a large, unfriendly crowd is the definition of courage. Sam seemed to understand. I could tell by the way he shook hands with the man—slowly and deliberately, as if they were each transferring something to the other.

As we walked to the Metro, I thanked Sam for convincing me to go to the rally so I could be reminded what real bravery looks like. “I never would have believed someone could have the guts to stand alone like that, here of all places,” I told him. “I’m so glad I saw it for myself.”

“That’s what you always tell me to do,” Sam said.

In the months that followed, Sam very gradually began to act like the kid he had been before he was falsely accused of sexual harassment. He texted more with classmates than with online strangers, and every few weekends I drove him to sleepovers with other kids. I noticed that when his new group of friends said goodbye to each other, even the boys hugged.

Thankfully, Sam moved on. By the fall of tenth grade, he seemed at peace for the first time since he’d stepped off the bus almost two years earlier, face puffy from crying, to inform me he’d broken the law.

That’s why my fears came roaring back when Sam and I heard on the radio one day that another Mother of All Rallies was taking place on the Mall that very weekend—and Sam asked if we could go. Together.

My breath caught. He must have seen my face change.

“As counterprotesters?” he asked, eyes gleaming.

A mind crawls out of the darkness

B&B orig: 7/1/19