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Interest Rates and Piketty’s Data

from Project Syndicate,  The Invention of Inequality by Antonio Foglia

Piketty observes a rising wealth-to-income ratio from 1970 to 2010 – a period divided by a significant change in the monetary environment. From 1970 to 1980, the Western economies experienced rising inflation, accompanied by interest-rate hikes. During that period, the wealth-to-income ratio increased only modestly, if at all, in these countries.

From 1980 on, nominal interest rates fell dramatically. Not surprisingly, the value of wealth rose much faster than that of income during this period, because the value of the assets that comprise wealth amounts essentially to the net present value of their expected future cash flows, discounted at the current interest rate.

What impact do lower interest rates have on measured inequality? If I own one house and my neighbor owns two, and falling interest rates cause the value of those houses to double, the monetary inequality between us also doubles, affecting a variety of statistical indicators and triggering much well-intended concern. But the reality is that I still own one house and my neighbor still owns two. Even the relative affordability of houses doesn’t change much, because lower interest rates make larger mortgages possible.

For further evidence of this phenomenon, consider Piketty’s own data. In Europe, Piketty singles out Italy as the country where the wealth-to-income ratio rose the most, to about 680% in 2010, compared to 230% in 1970. Germany appears to be a more “virtuous” country, with a wealth-to-income ratio of 400%, up from 210% in 1970. What Piketty fails to highlight is that, over this period, interest rates fell much more in Italy (from 20% to 4%) than in Germany (from 10% to 2%).

The real-world impact of this dynamic on inequality is precisely the opposite of what Piketty would expect. Indeed, not only are Italians, on average, much richer than Germans; Italy’s overall wealth distribution is much more balanced.

Clearly, economic inequality is a highly complex phenomenon, affected by a wide variety of factors – many of which we do not fully understand, much less control. Given this, we should be wary of the kinds of radical policies that some politicians are promoting today. Their impact is unpredictable, and that may end up doing more harm than good.


I have covered several aspects of inequality and the difficulty of measuring it, but this article shows how the dramatic fluctuations in interest rates in the 1980s influenced Piketty’s data, durin gthe time period he noted.

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Extorting the Producers


From Bret Stephens at The WSJ, Bernie’s Wall Street Slander

But the reason Mr. Sanders is drawing his big crowds is neither his fanatical sincerity nor his avuncular charm. It’s that he’s preaching class hatred to people besotted by the politics of envy. Barack Obama, running for president eight years ago, famously suggested to Samuel “Joe the Plumber” Wurzelbacher that “when you spread the wealth around it’s good for everybody.”

Mr. Sanders dispenses with the niceties. “I do not have millionaire or billionaire friends,” he boasts, as if there’s an income ceiling on virtue. That’s telling the 10,100,000 American households with a net worth of at least $1 million (excluding the value of their homes) to buzz off.

It is also telling any intellectually sentient voter that the drift of the modern Democratic Party runs in the same illiberal direction as the Trumpian right, only with a different set of targets. Mr. Sanders thinks Wall Street’s guilt is proved by its capitulation to the demands of a government that could barely prove a single case of banker fraud in court.

Another interpretation is that a government with almost unlimited powers to break, sue, micromanage or otherwise ruin an unpopular institution is not a government banks are eager to fight. The problem with capitalism isn’t that it concentrates excessive economic power in the hands of the few. It’s that it gives political power ever-tastier treats on which to feast. Covering for that weakness is the reason Wall Street plows money into the pockets of pliable Democrats like Chuck Schumer, Cory Booker—and Mrs. Clinton.

That’s something Mr. Sanders will never understand, being the sort of man whose notion of wisdom is to hold fast to the angry convictions of his adolescence. That may be why he connects with so many younger voters. But it’s also why his moral judgments are so sweeping and juvenile. Wall Street remains one of America’s crowning glories. To insinuate that the people who make it work are swindlers is no less a slur than to tag immigrants as criminals and moochers.

My colleague Holman Jenkins once cracked that some plausible ideas vanish in the presence of thought. I would add that some widespread beliefs vanish in the presence of decency. That goes as much for Bernie Sanders’s economic prejudices as it does forDonald Trump’s ethnic ones, a thought that ought to trouble the placid consciences of this column’s more liberal readers.


While many lament the power of money to bribe politicians it is more accurate to lament the power of politicians to extort the producers.

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Girl Power


Hillary Clinton, Gloria Steinem, Madeleine Albright & the sad sound of feminist desperation by Suzanne Venker

On Friday, Gloria Steinem told Bill Maher that young women are only voting for Sanders because that’s where the boys are. It seems women don’t think clearly when they have boys on their mind—says a feminist.

And on Saturday, at a rally in New Hampshire for Mrs. Clinton, Madeleine Albright shouted, “There’s a special place in hell for women who don’t help each other!” To which Hillary cheered in response. Nothing like a little intimidation to rein people in.

I hate to be the bearer of bad news, but Clinton & Co. just dug their own grave. American women, apparently now even left-wing women, are not being the good feminists they’re supposed to be. Instead, they’re thinking for themselves. And they’re tired of being told they owe the ability to breathe to the women who came before them.


Among other takes this illustrates the tyrannical development if leftist movements. Without the competition of ideas there is the tyrant of ideas. Identity politics is threatened by individualsim.

Part of the decay of the progressive movement is their success is liberating women and minorities.  The old guard still wishes to fight the war of their youth, because they are out of original ideas.  The biggest threat to their power is their victory.

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Ageing Fossils of Feminism

Democratic U.S. presidential candidate Hillary Clinton reacts to recognizing someone in the crowd during a campaign stop in Concord, New Hampshire

from Dick Morris at The Hill,  Clinton deploys B Team

Their strategy is laughable. After losing 84 percent of young voters in Iowa — and failing to recover them in New Hampshire — they sent in two aging fossils of feminism to insult and threaten young women.

The 81-year-old feminist Gloria Steinem charged that young women are only backing Sanders because that’s where they can meet boys. And 78-year-old Madeleine Albright threatened to consign to a “special place in hell” women who don’t back female candidates like Clinton.

Those are two great ways to attract young voters.


Rather than face the rejection of their ideas the left will resort to insult. Hillary’s aging white sycophants may stick with her like a loyal dog, but perhaps the rest of the young Democrats have had enough. It remains to see how much of Bernie’s support is just a rejection of Hillary and what an awful candidate she is.

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Progressivism has Nothing to Do with Progess

Democratic U.S. presidential candidate Hillary Clinton reacts to recognizing someone in the crowd during a campaign stop in Concord, New Hampshire

From The Washington Times, Language Labels and Laws, by Richard Rahn

The “progressive” Hillary Clinton wants more government regulation, spending, and taxation, while the “progressive” Bill Clinton told us two decades ago that the “era of big government is over” — and did, in fact, preside over a relatively smaller government in his second term. The progressive politicians say they want government actively involved in creating new jobs — primarily through more government spending. Yet, at the same time, they push for much higher minimum wages that kill job opportunities for the least skilled (which only those in complete denial of reality refuse to admit). The progressives tell us they want to break up the big banks. Yet, because the costs of all of the new financial regulations, which are often the brain children of the progressives, fall much harder on small banks than the big banks, the number of banks in the United States has fallen by 30 percent in the last 15 years. Labels such as liberal, progressive and conservative tell us little about which laws a politician is actually going to promote. Most people to some extent have both some libertarian and some statist views, e.g., students who are in favor of drug legalization but want “free stuff” from government to be paid for by others. Note how many Iowa farmers are in favor of smaller government and free markets, but push for ethanol subsidies.


Political semantics are important. FDR changed the term progressive to liberal and in the course completely changed the meaning.  After Liberal became politically toxic candidate wanted to switch it back.  Progressivism in practice is simply a highly regulated state that has viewed the constitution as an impediment to  state power, presumably to improve society as they see fit, as opposed to the effort to restrain the power of the state in the pursuit of individual liberty and natural rights.

It is very telling that neither Debbie Wasserman Schultz or Hillary could distinguish between a socialist and a progressive.  It is largely a question of mere degrees.

In fact, given the 100 year history of progressivism in America one could make the case that Hillary’s position is the conservative case which we need to progress from.