Jonah Goldberg writes Mr. Piketty’s Big Book of Marxiness in the July issue of Commentary.

Excerpt:

Homburg, the American Enterprise Institute’s Kevin Hassett, and a team at the Sciences Po in Paris, moreover, argue that the recent widening of the wealth-to-income gap in the United States that Piketty reports is largely a function of a housing boom in the past 30 years. This fact complicates the story. The housing boom has benefited rich people, to be sure, but it has also been fueled by a massive expansion of home ownership among not only the wealthy but also the middle and lower classes (though not in proportion to gains by the wealthy). “The largest single component of capital in the United States is owner-occupied housing,” notes the liberal economist Lawrence Summers in his review of the book for Democracy. “Its return comes in the form of the services enjoyed by the owners—what economists call ‘imputed rent’—which are all consumed rather than reinvested since they do not take a financial form.”

Also, housing booms cannot go on forever. If you exclude housing from other forms of wealth or capital (Piketty explicitly uses the terms interchangeably), these economists argue, the return on capital is less robust. “In the U.S.,” the Sciences Po economists write, “the net capital income ratio of housing capital was the same in 1770 as it was in 2010 and there is neither a long run trend nor a recent increase of this ratio.” They add: “This type of situation, where a small share of the population owns most of the housing capital, appears to be far from the current situation of developed countries, where the homeownership rate varies between 40 percent and 70 percent. The diffusion of homeownership is likely to slow or even reverse the rise of inequality regardless of trends in housing prices.”  Ultimately, the Sciences Po economists found that their conclusions about inequality in recent years “are exactly opposite to those found by Thomas Piketty.”

HKO

The exclusion of housing, a major source of wealth for middle income America distorts the data.  It is further distorted by the exclusion of tax exempt capital gains on the sale of housing.

“As with the Connecticut parking spaces, we have through the entitlements (and through the tax preferences given to employer-based medical benefits) done a great deal to encourage the consumption of health-care services while doing nothing to encourage the production of them. In fact, various political efforts at health-care reform going back decades have made it less profitable, less prestigious, and less enjoyable to be a doctor, with the result that our best and brightest no longer even consider medicine to the extent that they once did, preferring jobs in finance. About one in four U.S. doctors today is an immigrant, meaning that without high levels of immigration the number of medical professionals would be nosediving relative to the population. Life as an American doctor looks pretty good to a recent med school graduate in Bombay or Karachi, but not to a Harvard-bound valedictorian at an American high school. But even with immigration, the number of physicians in many specialties has stagnated, and new policies in the PPACA, such as punitive taxes on manufacturers of medical devices, will contribute toward stagnation in other sectors of the health-care industry if they are enacted.

“And while there is some concern nationally about the number of doctors in the general profession, there is acute concern about the number of doctors who are willing to see patients enrolled in Medicare, Medicaid, and other government-run programs. Medicare ends up being a great deal on insurance to pay doctors who will refuse to see you. Medicaid is of course even worse: The quality of the doctors and institutions that will take Medicaid patients is so low that they have worse health outcomes than do those with no insurance or coverage at all. Subsidizing consumption of a good does not necessarily ensure that production will keep up with demand; it merely replaces the most efficient and fair form of rationing (market pricing) with inefficient and politically biased forms of rationing. Even before the passage of the PPACA, about half of all health-care spending in the United States was government money. (For that reason, if for none other, the conservatives’ cries of “socialized medicine” during the PPACA debate were odd.) New Deal policies that tied workers to employer-based insurance programs, and later policies such as the creation of the HMO simply resulted in the rationing duty being handed off to insurance companies, as they no doubt will continue to be under the PPACA, should the program survive.”

Excerpt From: Kevin D. Williamson. “The End Is Near and It’s Going to Be Awesome.” HarperCollins, 2013-05-01. iBooks.

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from Why Piketty’s Wealth Data Are Worthless by Alan Reynolds in The WSJ:

Tax reporting. Tax laws were changed from 1981 to 1997 to require that more capital income of high-income taxpayers be reported on individual returns, while excluding most capital income of middle-income savers and homeowners. This skews any purported increase in the inequality of wealth.
For example, interest income from tax-exempt municipal bonds was unreported before 1987—so the subsequent reporting of income created an illusory increase in top incomes and wealth. Since 1997, by contrast, most capital gains on home sales have disappeared from the tax returns of middle-income couples, thanks to a $500,000 tax exemption. And since the mid-1980s, most capital income and capital gains of middle-income savers began to vanish from tax returns by migrating into IRAs, 401(k)s and other retirement and college savings plans.

Balances in private retirement plans rose to $12.4 trillion in 2012 from $875 billion in 1984. Much of that hidden savings will gradually begin to show up on tax returns as baby boomers draw them down to live on, but they will then be reported as ordinary income, not capital income.

Tax law changes, in summary, have increased capital income reported at the top and shifted business income from corporate to individual tax returns, while sheltering most capital income of middle-income savers and homeowners. Using reported capital income to estimate changing wealth patterns is hopeless.

Switching from corporate to individual tax returns. When individual tax rates dropped from 70% in 1980 to 28% in 1988, this provoked a massive shift: from retaining private business income inside C-corporations to letting earnings pass through to the owners’ individual tax returns via partnerships, LLCs and Subchapter S corporations. From 1980 to 2007, reports the Congressional Budget Office, “the share of receipts generated by pass-through entities more than doubled over the period—from 14 percent to 38 percent.” Moving capital income from one tax form to another did not mean the wealth of the top 1% increased. It simply moved.

Tax rates and capital gains. There were huge, sustained increases in reported capital gains among the top 1% after the capital-gains tax was reduced to 20% from 28% in 1997, and when it was further reduced to 15% in 2003. Although more frequent asset sales showed up as an increase in capital income, realized gains are no more valuable than unrealized gains so realization of gains tells us almost nothing about wealth. Similarly, a portfolio shift from municipal bonds, coins or cash into dividend-paying stocks after the tax on dividends fell to 15% in 2003 might look like more capital income when it was merely swapping an untaxed asset for a taxable one.

HKO

Much of this has been reported in the blog previously.  Piketty’s work is so flawed that it is amazing that such credentialism is tolerated by the profession. I remains disappointed, but not surprised , that the major media has spent no effort to voice any of the criticism the work merits so much.

My Piketty comments in American Thinker, Everything that Counts.

Kevin Williamson writes Welcome to the Paradise of the Real in The National Review Online.  It is a bit long but quite worthy of the time to read it in its entirety.

Excerpts:

None of those problems facing the poor — and they are the key problems — is an economic problem. All of them are political problems. For progressives, the obvious solution to that is less economics and more politics. The possibilities of economic division will always be limited by what there is to divide — so many houses, so many cars, so many apples and oranges, so many SweeTarts. Progressives don’t care what’s in the bag, so long as they get to be in charge of it. It is no accident that they talk about the “distribution” of wealth and income as though those things were literally distributed, like candy out of an Easter basket, by the distribution fairy.

For the conservative, people are an asset — in the coldest economic terms, a potentially productive unit of labor. For the progressive, people are a liability — a mouth to be fed, a problem in need of a solution. Understanding that difference of perspective renders understandable the sometimes wildly different views that conservatives and progressives have about things like employment policy. For the conservative, the value of a job is what the worker produces; for the progressive, the value of a job is what the worker is paid. Politicians on both sides frequently talk about jobs as though they were economic products rather than contributors to economic output, as though they were ends rather than means. The phrase “there aren’t enough jobs” is almost completely meaningless, but it is a common refrain.

Kevin Williamson writes in The National Review, iPencil, Nobody knows how to make a pencil, or a health-care system

Excerpts:

It is remarkable that we speak and think about commerce as thoughcompetitiveness were its most important feature. There is, as noted, a certain Darwinian aspect to economic competition — and of course we humans do compete over scarce resources. But what is remarkable about human action is not its competitiveness but its almost limitless cooperativeness. Competition is one of the ways in which we learn how best to cooperate with one another and thereby deal with the problem of complexity — it is a means to the end of social cooperation. Cooperation exists elsewhere in the animal kingdom, but human beings cooperate on a species-wide, planetary level, which is a relatively new development in our evolution, the consequences of which we have not yet fully appreciated. If you consider the relationship of the organism to its constituent organs, the relationship of the organ to its cells, or the relationship of the single cell to its organelles, it would not be an overstatement to say that the division of labor is the essence of life itself: Birds do it, bees do it, but human beings do it better. The size and complexity of our brains evolved in parallel with the size and complexity of our social groups, which are just as much a product of evolutionary processes as our bodies are.