This guy cites fox news as calling him the smartest guy in the room. If fox news calls tom woods the smartest guy in the room you can be sure that Tom is as smart, truthful and unbiased as fox news.
I'm seeing a lot of signals on that site that throw up red flags and honestly the content is confirming those assumptions. I find this talk radio guy and his guest Phil Magness of George Mason to be the ideologically blinkered ones as I follow their arguments and cross-reference them with what was written in Capital.
Because, "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!".
Economists' careers as receivers of grants, policy advisors, members of prestigious think tanks and organizations, and pundits, depends on being good at promoting whatever aligns with the elite's interests.
The scientific parts of economics are merely applied math (including game theory), and quite basic at that.
The rest are establishment ideology plus/minus some personal improvising to the left or right, and obscurantism, - just like "social science", "political science", "psychology", "architecture" (the conceptual part that gave us the 20th century visual atrocities) and so on.
For real science one needs to stick to physics, chemistry, engineering, and other "hard" stuff.
Heck, even Computer Science itself (whose actual scientific part is basically math as well), is taught, and practiced like fashion, based on commercial trends du jour...
"But perhaps the greatest rebuke of Piketty to be found among academic economics is not contained in any of these overt or veiled attacks on his scholarship and interpretation, but rather in the deafening silence that greets it, as well as inequality in general, in broad swathes of the field—even to this day. You can search through the websites of several leading economics departments or the official lists of working papers curated by federal agencies and not come across a single publication that has any obvious or even secondary bearing on the themes raised by Capital in the Twenty-First Century, even in order to oppose them. It is as though the central facts, controversies, and policy proposals that have consumed our public debate about the economy for three years are of little-to-no importance to the people who are paid and tenured to conduct a lifetime’s research into how the economy works."
This is still not evidence of conspiracy (but has the structure of classic conspiracy theories). It just means the mainstream looked at it and disagreed.
Nobody is owed attention from any discipline of study. Absence of attention is not conclusive evidence of anything.
Nobody is owed anything, but since publications are the currency of research and the measure by which academics are evaluated, publishing a critique of something as widely and publicly discussed as Piketty's books should be very tempting for academic economists (assuming that economics is a normal academic discipline).
So in front of that background, the silence is suspicious, and the most plausible explanation is that the majority of participants would like to disagree but find themselves unable to put forward such a critique.
>Disagreeing isn't ignoring. It isn't a conspiracy. It's just disagreement.
I've read a lot of those "disagreements". Most of them are thinly veil-led attacks and facile dismissals, the kind that pass for criticism in mass media today.
Exactly. Capital was years in the making and contained an unprecedented amount of historical empirical data to support its central thesis, and it gets ignored. Meanwhile, Reinhart-Rogoff, a fraudulent paper full of elementary statistical and programming errors that should’ve gotten its authors fired, was loudly paraded around as gospel by politicians on both sides of the Atlantic. Guess which one served elite interests the best.
It's outright stupid to pin the blame on what you perceive to be a problem on a single academic paper, even if it was authored by outstanding academics such as Reinhart or Rogoff. It's even stupider to argue that scientists should be fired for publishing a paper that goes against your political values.
It is not an argument from authority. It's a statement of fact that both authors have published a very long body of work including very high-value contributions to science, and they are not suddenly incompetent idiots just because they've published a paper that a random guy on the interned perceives as being politically inconvenient.
And the OP quite literally argued the scientists who authored the paper should be forced out of their job just because they published an academic paper that he found to be politically inconvenient, which is sheer lunacy.
They are not idiots, just highly motivated political operators using papers full of mistakes to make a point. That's the part that should have gotten them fired but since you agree with their goals then you don't take issue with that.
> They are not idiots, just highly motivated political operators using papers full of mistakes to make a point.
That's a repeat of the old tired strawman that tries to avoid discussing the facts and the data by depicting any academic who authors an inconvenient paper as being a political agent involved in some widespread anti-socialist conspiracy.
Meanwhile, let's not forget that the people attacking the Roggof&Reinhart paper are somehow criticizing the fact that highly indebted states experience lower growth rates, as if either increasing sovereign debt or siphoning cash from the budget to service debt has no impact on the nation's finances.
Oh my, where do I start. Alright, let's go in order.
re:Strawman - So you're trying to tell me that the Chicago School of Economics doesn't have a right leaning bent and inspires itself in the work of the Austrian economics. Yeah, you could say that but it's bullshit.
re: high indebtness. people criticizing RR are doing it because the paper is bad. Plus, as Paul Krugman correctly notes, high level of debt could be a result of economic slowdown and not the cause (best example is Japan).
(Setting aside the argument from authority, which you continue,)
Here is the actual argument:
> full of elementary statistical and programming errors that should’ve gotten its authors fired
Here is your characterization:
> the OP quite literally argued the scientists who authored the paper should be forced out of their job just because they published an academic paper that he found to be politically inconvenient
I further suspect that economists, as a field, will continue to claim that their models, metrics, theories, and policy advice are good, while complaining about the inexplicable rise of populism, right up until somebody sets up a guillotine in front of Goldman-Sachs. (Populism is easy to explain: the peasants are revolting.)
Populism is a major problem, and one which is based on unscrupulous politicians taking advantage of the ignorance and prejudice while promissing unrealisting and outright impossible solutions to problems that they missrepresent and even invent.
And that has absolutely zero to do with science in general and economic models in particular.
Time and again we see populist politicians fanning up the masses with anti-capitalist rhetoric that is absolute bullshit from the start, and they routinely attack economic problems by disregarding basic facts of nature with assertions involving silly conspiracy theories always attributing blame to their political opponents and scapegoats. Every time this happens it does not mean that science failed or that there is a massive conspiracy theory keeping the socialist man down. It just means that disregarding science has serious consequences that no totalitarian regime can quelsh no matter how many gillotines they set up in feont of Goldman-Sachs.
>Populism is a major problem, and one which is based on unscrupulous politicians taking advantage of the ignorance and prejudice while promissing unrealisting and outright impossible solutions to problems that they missrepresent and even invent.
Isn't that also what the elites (say, the 10%-ers) have historically also said for realistic and entirely possible solutions (like beheading the King and building a democratic state, or stopping segregation, or extending the vote to women, or adding labor protections, or welfare, and so on), that they felt were beneath them, because they were demanded by the populace and went against their interests as a class?
Every modern right has been established by struggles, parties, mass revolts, and so on, deemed "populist", "vulgar", "irresponsible", and "destructive" at the time by those opposing them.
Pretty big difference between deemed populist by the king and deemed populist by the middle class, by secular opposition to that populism, and so on.
That said, you are right, the struggle is real. But it's likely not the 10%, but probably less or a lot more, depending on how you view people who benefit from the status quo. For example anyone who buys a new car, plans a trip, ponders over a job offer, submits an offer on a tender has options to try to rock the boat. Greener, more fair, more just options are usually there - but of course those usually also require some kind of trade off. Do we want something that's good on the long term, or something that's good on the short term?
And based on how many options people have and how little they value the long term, the global perspective we could classify them into different kinds of beneficiaries of the status quo. And it's enough for a small cabal of cooperating power brokers to benefit themselves to and unimaginably huge degree. As in significant portion of the world's "income" goes to people who had the option to enrich themselves and took it.
Sure, this can be complicated further by looking at those who enriched themselves then proceeded to spend those riches on goals that ultimately help others - but these deviations are usually small, and again, ultimately, can be factored in.
However, sometimes beheading kings is contraproductive as you get a civil war. Similarly just adding more voters does not magically lead to a fairer outcome. The classic example is adding more and more cannibals will eventually lead to a bit of a pickle.
It relates to economic models insofar as said models are used to justify the persistence of certain inequalities in society. The existence of these inequalities can then be exploited by populists in their rhetoric.
> It relates to economic models insofar as said models are used to justify the persistence of certain inequalities in society.
Not quite. Models only explain relationships between parameters.
Moreover, inequality is a meaningless concept that is the posterchild of how the goalpost is kept moving by populist politicians. It's meaningless in its definition, as it is kept very maleable to fit the argument, and it's meaningless in the conclusion, as there is no problem in having someome earning more than his neighbor.
Thing is populists tactics wouldn't get as much traction if the prejudice was not as bad, or worsening in the first place.
Populism starts as a natural consequence of misery and lack of education, then becomes a cause that keeps reinforcing itself until the guillotine moment.
Solving the populism issue means tackling the root issues it feeds from first.
> Thing is populists tactics wouldn't get as much traction if the prejudice was not as bad, or worsening in the first place.
The problem is that prejudice is also invented and disseminated by these unscrupulous politicians with their populist rhetoric. We see that in any extreme cormer of the political spectrum, whether its anti-capitalist socialists or racial supremacists. History is packed with examples where totalitarian regimes outright negate science to push their absurd populist rhetoric.
Which of the anti-capitalist socialist, racial supremacists, or totalitarians are responsible for the recent drops in life expectancy in the US, out of curiosity?
This is all true. I would also add to this as a cause the trend of media outlets publishing a larger proportion of populist and outrage -driven content than they used to, which I suspect is a reaction to the new attention-driven business models that news outlets rely on these days.
The ignorant part is blaming Mexicans, Chinese or cyclists when reality is much more complicated than that. Building a wall won't improve healthcare, and insulting diplomatic partners won't return manufacturing jobs.
A reality being "more complicated" doesn't mean it doesn't have simple constituent parts (kinda like FFT).
Our reality is still created by a contribution of several factors, some of which have greater weight, it's not some intangible mass of confusion with no alternative but "business as usual" as the "non-populists" present it.
It might not have been Chinese themselves, for example, but it was the outsourcing and migration of industries that left many people without a job (and no real prospect for "re-education" and a new career, at most a crappy lower deal).
We’ve actually had a taste of a world without Goldman Sachs and its ilk performing their functions: the credit freeze right after the crash. Was that better?
That's like: "We had a taste of a world after segregation, the LA riots. Was that better?".
The "credit freeze right after the crash" still happened within the crash that Goldman Sachs and its ilk caused, and still happened in a world where Goldman Sachs and its ilk set the rules.
The LA riots are what happens when we continue to have excessive and racist policing past the end of public acceptance of it. No excessive and racist use of force, no LA riots.
The financial crisis is what happens when we don't have access to credit. Whether the financial industry self-destructs as in 2008 or is destructed by the guillotines outside, you're going to have a hard time getting credit without it. No credit, we'd just be in the 2009 world at steady state.
Not sure if your point holds if you read more of the article, which implies that plenty of economists are critical of wage and wealth disparities just for different reasons. My personal read is that Piketty doesn't bother to come up with a "microfounded" rational for his theory and since this is the bread and butter of macro, his r > g theory hasn't been taken seriously. I will say that the basic empirical work of measuring the increase in inequality over the last fifty years seems to be taken very seriously. At least in my limited view of the discipline.
This comment manages to mix some elitist contempt of the arts with a whiff of conspiracy theory, while not saying anything of substance about Piketty’s work. Well done!
Thanks. You've managed to be personally insulting without adding anything of substance, to my comment, Piketty's work, or to the general question of why economists would shun it.
I've particularly enjoyed the "elitist contempt of the arts" part (whatever that means, since "contempt of the arts" is usually base, not elitist, not to mention the fact that I don't mention "the arts" at all), and the thought-stopper accusation of "conspiracy" (who dare think that scholars would ever align themselves to convenient output to benefit their careers and pockets, in this best of all possible worlds! As Gore Vidal once put it "Americans have been trained by media to go into Pavlovian giggles at the mention of 'conspiracy' because for an American to believe in a conspiracy he must also believe in flying saucers or, craziest of all, that more than one person was involved in the JFK murder"). Well done.
I think you'd agree with me that the problems with post WWII "social science", "political science", "psychology", "architecture" are precisely that they're trying to ape the physical sciences and not just be art.
And this is utterly true of Economics more than anything. And actually while a lot of arts have been pulling themselves back from that rat hole economics just keeps digging deeper.
As Ha Joon Chang points out in his book Economics: The User's Guide, economics is about political arguments yet pretends as if it's a science. Hence most economists don't like the politics of Pinkety's economics. Which is what the op was alluding to though he did not mention explicitly... because they depend on money from people who don't like forwarding that political agenda. Secondly, it seems that the math that he used to make some of those arguments is not up to par so that makes it easy to dismiss his political arguments, and that's the issue when you go up against the status quo you better have inscrutable math because they are going to find any reason to dismiss you.
Just because something isn't science, doesn't mean that it is art. Social "sciences", psychology and the like are neither. It is true however that they get more and more ridiculous when they try to dress their ideologies in a scientifically-sounding language to get a piece of the cake which is credibility that the hard sciences cooked for themselves, at the same time having remarkably little to do with any science at all.
Who are you to decide what is science and what isn't? What is your model of what a science is anyway? As long as you can't answer that, the only thing unscientific is your comment.
I understand science the way Popper wrote about it. Yes, my comment is unscientific. I've never claimed otherwise. Just because something is unscientific, doesn't mean it doesn't have value. E.g. I study mathematics and I do not consider mathematics a science (I know many other mathematicians who share this attitude) and yet I consider the study of mathematics to be one the best ways to spend my time.
It sounds like you’ve discovered the problems with the softer sciences. You should look into whatever you consider a “real” science and see if it doesn’t have many of the same problems. That would require a bit more effort and intellect, problems in psychology and economics are pretty obvious, but you might be amazed by what you find.
I agree that there are fundamental problems in the hard sciences as well. E.g. the hype around string theory in physics. However, in this case I am told by the physicists, whom I know personally, that no physicist considers it "real physics" - they consider it mathematics (and many mathematicians consider it poor mathematics). The issue here seems largely to be the distorted image that the press presents of the views of the scientific community.
There are other examples, but the problems are nowhere near as big as in the fields my comment was suspicious of. And of course there surely are a lot of problems I don't have the slightest idea about. Still, the mindset of the scientists I know is so much different from the mindset of sociologists and others who seem much more driven by fashion. Back to physicists, I don't claim they are exempt from the influence of fashion. I claim that the impact of this influence is on a whole different level; there are lines that are not crossed, everything is up for falsification by experiment, and if it isn't falsifiable, then to hell with it etc. All of this makes me trust them a lot more.
The problem with economics is the money riding on it. If one day the consensus becomes "raising the minimum wage by $5 only impacts profit; it doesn't impact employment" then a lot of very rich people stand to lose a lot of money as it becomes more politically palatable.
Economics is the most highly paid soft science for a reason.
Climate science has the same issue but fortunately they have managed to resist the corrupting influence of money.
Their hard science fetish isn't really the issue. Money is.
Yeah 1960-80's post modern literary criticism is just embarrassing and no cares. Modern architecture is merely ugly. But economics enabled real harm to people and communities.
> The problem with economics is the money riding on it. If one day the consensus becomes "raising the minimum wage by $5 only impacts profit; it doesn't impact employment" then a lot of very rich people stand to lose a lot of money as it becomes more politically palatable.
Reality is a bit more nuanced than you depict it [1][2].
> Climate science has the same issue but fortunately they have managed to resist the corrupting influence of money.
So scientists are more or less corrupt, depending on how much you think they agree with you?
There is a good good comment by Martin Gardner about fallacious science. Which is when the evidence and scientific feedback are weak[1] then scientific theories strongly mimic the cultural biases of the people involves.
That's modern economic orthodoxy in a nutshell.
It's not just economics that's an issue a friend used to date a lady that was getting (25 years ago) a double major in anthropology and artificial intelligence. She said from an anthropological perspective AI research was nothing but white academic introspection.
[1] Example of strong feedback, two 737-MAX's crashing within a few months.
"(T)he problems with post WWII "social science", "political science", "psychology", "architecture" are precisely that they're trying to ape the physical sciences and not just be art."
I'm not well versed in areas other than architecture, but I'm really puzzled where you'd go with this thesis with respect to that discipline. Would you care to elaborate further? I'm genuinely curious.
It is easy to point out the flaws in others. It is harder to recognize that we are hypocrites who have the very same flaws we accuse others as having. Perhaps the world would be a better place if we all stopped to first check to see if there beams in our eyes that would need casting before targeting the motes in others' eyes.
If you poke at economists you get the exact same arrogant rage that you get when you poke at fundamentalist religions.
Go ahead poke at Milton Friedman and watch them get really hot under the collar.
Compare with poking at Einstein (never accepted quantum mechanics) or Linus Pauling (alternative medicine nutter), Shockley (racist). Poke all you want the physics community doesn't care.
The physics and math communities get plenty agitated at ludicrous pop-sci and Hollywood depictions, cranks who think they are oppressed geniuses with important answers, etc. Approach just about anyone with arrogance and contempt for the methods and body of knowledge they spend their life on, and they won’t be happy about it.
Difference between annoyed/amused/slight despondency and narcissistic rage.
It's kinda of like this, a mechanical engineer doesn't feel threatened by some guy selling a magnetic doohickey you put in series with your cars fuel line to increase MPG. He just thinks it's stupid. He's not mad though.
It is exceptionally difficult to prove economic theories because experiments cannot be repeated. The variables are always changing, and there is far from complete control over them.
Microeconomists and behavioural economists do indeed conduct repeatable experiments. This is more difficult for macroeconomists, of course, but the same is true for many sciences, such as theoretical physics, climate science or much of biology.
The original criticism is that Piketty is a strongly normative economist whose views bounce off most of the field. Your criticism is that economics is too normative and should be less so and focused on math instead.
It is hard to square your criticism in a way that leads to people paying more attention to Piketty.
Economics as used in policy seems to be mostly about using outrageously nonsensical arguments to justify tax cuts and increase corporate power by cutting regulations that enforce corporate responsibility.
The results are predictably grim for everyone who isn't a 0.1%er - sometimes fatally so.
There's a side-field of purely academic economics which includes heterodox ideas like MMT, but they - currently - have almost zero chance of having an influence on government policy.
I'm always bemused that psychics are regularly attacked by sceptics for being dangerous and fraudulent scammers who act in bad faith.
On the evidence, policy economists are vastly more dangerous.
A bad faith psychic might bankrupt a handful of people. Bad faith economists can bankrupt entire countries and/or force entire generations into debt - but sceptics seem to swallow what they have to sell with no rational oversight, and sometimes with support and approval.
You can take a look at track records of predictions and policy interventions to compare those fields. Vaccine did in fact significantly reduce or even eradicate some diseases. The track record of predictions out of economics is a lot spottier.
Telling scientists to stick to physics and chemistry for "real science" seems like telling rock climbers to stick to ladders for "real climbing."
It's possible to produce useful predictions with small errors when you define very simple systems, which is what the foundational scientific topics have done. Of course it took centuries of hard work to do even that.
Physicists and chemists and biologists and economists all study the same thing. It's just that most chemists use heuristics to avoid dealing with the full physical complexity, and most biologists use heuristics to avoid dealing with the full chemical complexity.
Unfortunately, the jump in complexity from biology to the behavior of a population of humans is still too complex; we don't have great heuristics for that yet.
It seems kind of short-sighted to me to say that the people who are trying to build those aren't doing "real science." I don't understand the theory there... that they haven't figured it all out yet, so it's not worth doing?
> It seems kind of short-sighted to me to say that the people who are trying to build those aren't doing "real science." I don't understand the theory there... that they haven't figured it all out yet, so it's not worth doing?
It's not about heuristics. It's about experimental validation. Both physicists and chemists take great pain in actually rigorously confronting their theories to reality. Biologists try. Most economists don't.
It doesn't mean there is no value in economic models and theories. It does however mean it's not a science.
I've experienced a similar response from people I talk with. It's such a simple premise and idea that seems oversimplified and lacks nuance. The main issue is that it is so against the way the system currently world, there's no foreseeable solution.
> The main issue is that it is so against the way the system currently world, there's no foreseeable solution.
But you could argue against climate change with much the same logic (and, indeed, a lot of people seem to do). "The conclusions would demand changes to our status quo in a degree of magnitude that hasn't ever been there before, therefore, they must be wrong".
"Most striking, however, is that when you hold educational attainment and other observable worker characteristics constant, pay is starkly different depending on the firm where you work, even within narrowly-defined education categories, industries and occupations. This is prima-facie evidence that the human capital model in a competitive labor market is an increasingly poor way to explain earnings inequality. Wages for similar workers do not, in fact, equilibrate across firms."
An analogy I like here is one of a basketball school. Imagine you take x students, all of a relatively reasonable capability, and put them into a school. And you give them all an identical education in basketball. Nobody in the world would ever then expect these students to be of roughly equal ability after they graduate the school 4 years later. There would be vast differences between their abilities at that point. Even if you control for obvious genetic factors such as height and perhaps athleticism, there'd still be absolutely tremendous differences. There have been thousands of professional basketball players -- all in the 0.0001% of society, yet even given that ultra-selectivity Michael Jordan stands head and shoulders above nearly all of them yet. And the same is true in most of everything. If you want to go a purely mental game, we have a series of chess players -- Paul Morphy, Jose Raul Capablanca, Bobby Fischer, Gary Kasparov, and now Magnus Carlsen that in turn stand leaps and bounds ahead of a player pool (of their respective times) that is/was once again already made up only of the most capable 0.0001%.
If it's somehow not clear, the point of this is that just because A and B go to the same school and end up with roughly the same grades - that says absolutely nothing whatsoever about the ability of A or B. I would argue that not only is the stated observation not "prima-facie evidence that the human capital model in a competitive labor market is an increasingly poor way to explain earnings inequality" but rather the exact opposite! If companies were recruiting exclusively based upon observable characteristics it would mean these less measurable differences that separate the good (or even the rather less than good) from the great would not be being factored in. That would be rather strong evidence that effective competition was not correlating to positive results. But we have the exact opposite!
Yes, that paragraph is very, very bad, because it's not people of equal education that would have equal wages, but equal productivity---which will vary depending on what firm you're at! Not just because of sorting and poaching of talent, but some firms' production and capital structure will be such that the marginal worker will be more productive.
That makes no sense, equivalent workers should get paid equivalent wages regardless of their firms’ productivities. Apple doesn’t pay more for aluminum than a soda can maker.
It doesn't but it would continue buying for longer if the price went significantly and permanently up. But the point of this whole thread is that labor isn't just another commodity like aluminum. It's a special, weird thing and the market in it is just different and probably less "efficient" than the markets for metals and grain. The question isn't "how can we best model this using our existing theory?" It's "what is the best way to model this?", so if the existing theory isn't very helpful, we should look for new ones that are better.
On someone’s advice, I just skimmed the first 2/3 of his book on his data collection. Even his critics mostly acknowledge that his professional lifetime work on data collection is high quality. I carefully read the latter part of the book on his conclusions and I generally agree with him, partially because it passes my ‘common sense filter’ and partly because I am skeptical of mainstream economists. A little off topic, but reading the mises.org material in 2006 convinced me to temporarily get out of the stock market so my skepticism of mainstream economics at least paid off that one time.
> This dearth of reaction to such a critical work is not healthy. It is as if the rapturous reception by the public increased the resentment among Piketty’s academic economist colleagues. As an appeal to the public to resolve, or at least have a say in, what the experts consider their own domain, Piketty appears to have questioned the very value of having a credentialed economics elite empowered to make policy in the name of the public interest but not answerable to public opinion. The economics elite, it seems, answered by stonewalling Capital in the Twenty-First Century, so it would not have the impact on economics research agendas that it merits.
This disdain for those that have found popularity is fairly common in many fields. There seems to be a simultaneous feeling of 1) but what about this super complicated way of viewing it, this popular piece misses all these details, and 2) maybe a bit of jealousy.
I'm not an economist, in case it's not clear, and haven't had the time to read the book, but the critiques were short enough to read in an hour and convinced me that Piketty is right, because the critiques were so shallow and seemed like such motivated reasoning.
Are we still talking about this? Within months of the book’s release, readers had found many examples where his data selections had been incomplete. To the extent that the main points were invalidated or made far less convincing. When you include the full data in his analysis, the main conclusions are drawn into question. There are many very thorough blog posts by economists you can easily Google.
It’d be like if Origin of Species came out, but evolution was actually wrong, and Darwin had only seemed right at first because he left out the species that didn’t fit his model.
I don’t think Piketty did this on purpose, by the way. He just didn’t push hard enough on the data that he didn’t want to find fault with.
This is not accurate. Piketty has continued to refine the data and add more as it comes available. The main point was that capital flows are interesting and that is beyond contest at this point. The book Capital has some tentative analysis at the end but doesn't make any strong conclusions and avoids taking the focus away from measuring flows of capital.
Because it is possible to use this data about capital to come to conclusions that are politically unpopular among some subgroups people have piled on this false critical narrative emphasizing supposed errors and gaps in the data and keeping the focus on some brief remarks at the end of a very large work that has a range of applications.
I don't think critics of Piketty did this on purpose. They just pushed unreasonably hard on the data they wanted to find fault with.
“Matthew Rognlie—then a doctoral student, now an assistant professor at Northwestern—took up that line in even greater detail in an article that eventually appeared in the Brookings Papers on Economic Activity, to which he added that the rising capital-to-income ratio in Piketty’s data is disproportionately the result of the price appreciation of certain scarce stores of wealth, primarily housing and the land it sits on, not the quantity accumulation of productive capital that is the subject of the neoclassical theory of economic growth.”
I find that a compelling explanation because it fits with a bunch of the deep problems in the way urban development changed in the 20th century, which in turn have created the frustrating housing situation today.
It’s difficult to summarize this, but in short, modern zoning, the suburban development pattern, and auto dependency, create an economic vicious cycle which tends to polarize economic outcomes, where Places trend toward either the Bay Area or Detroit. (Some reading linked below)
This is most true in the US, but also to varying degrees in many other parts of the world.
In other words, if Rognlie’s quote is true, then it would mean Picketty’s observations are better explained by the bad housing and infrastructure policies of the last 80 years than by “r > g”, and if that’s true then it completely changes what we should do about it.
Some expansion on the development pattern problems:
I have some problems with that same quote. The "disproportionate price appreciation of housing and the land it sits on" seems to me to be primarily a factor only in some (maybe most) large cities; outside those cities, price appreciation, perhaps excessive price appreciation, has occurred, but it's nothing like that in those few cities. My feeling is that, sure, the effect of real estate prices are large in real terms, but compared to the rest of the economy, they are limited in effect by their limited distribution. (I haven't looked at Rognlie's research; I could be wrong.)
Further, my feeling is that real estate appreciation is an effect, not a cause. Consider the 2008 event ("circumstance?" "shenanigan?"): it was purely driven by the financial industry. It had, really, nothing to do with real estate at its core; it was caused by bad financial behavior, and the failure of the real estate market was simply how it was translated out of the finance world into the rest of the economy.
Likewise, my impression of the situation you describe is a result of the growth and success of the financial industry and the pursuit of a very limited class of real estate assets by that resulting block of money.
Tl;dr: High rents in San Francisco? Caused by the venture capital industry---a purely financial operation---and its insistence on having all of its investments physically co-located with where it wants to live.
Patrick Gonnagle went to Stanford and really likes living in the Bay area. He also invented the idea of facebook for dogs and made a crap-ton of money in the dotcom era. Nowadays, he spends most of his time trying to out-do his peers in the nuevo-crap-ton-o'-money crowd with his extensive collection of Pia Zadora's underpants.
The rest of the time, however, P-Gon (as he likes to be called) finds smart, idealistic, entertaining, and attractive young people, mostly from Stanford, and gives them large sums of money in exchange for a significant share of any future large sums of money their idealistic and entertaining activities will bring in.
The idealistic and smart people like to get advice, recognition, and affirmation from P-Gon, and he likes to keep an eye on his investments (not to mention the advantage of showing off his cadre of minions to his peer group). So, they all have to live, work, eat, etc. in close proximity. P-Gon lives at the top of the Transamerica pyramid (literally; he built his 12,000 sq ft bedroom on the very pointy top of it). Fortunately, the I&S folks are being showered in cash (well, not literally; P-Gon has a swimming pool full of giant tapioca balls and $1000 bills that he makes them do laps in (hence "funding round")), so they have plenty of money to pay for suitable hovels.
Lather, rinse, repeat for a couple of generations and you discover that rents are stupid ridiculous in the area of the giant fountain o' money. Which theoretically could be somewhat remedied, maybe, except that P-Gon doesn't want horrible brutalist high-rise apartment complexes blocking his view of the Tenderloin.
But then you have to ask yourself why this surge in demand for real estate in urban areas hasn't been met by a corresponding surge in supply? Why aren't developers building new apartment complexes as fast as they can to cash in?
The answer is primary that regulation by local governments prevents them from doing that thereby keeping real estate prices high.
In the United States, anyway, local governments' regulation is largely driven by noisy or wealthy local residents. In most places, regulation is a minor hurdle for a decent real estate investor, all of whom regard single-family and small multi-family dwellings as a slobber-inducing opportunity when demand is high. (The high rents you can get from a quadplex are pretty small compared to the rents from a 10-story apartment building.)
So, the question is really, "if it isn't real-estate developers trying to keep rents high, who has the money and therefore power to convince the government to adopt regulations preventing apartments?"
> In most places, regulation is a minor hurdle for a decent real estate investor, all of whom regard single-family and small multi-family dwellings as a slobber-inducing opportunity when demand is high.
But you're conflating the two types of places: most places aren't "high" demand, and those that do have super inflated costs also have processes by which developers are regularly stopped. California in particular has this problem.
In fact reading your post really made it clear to me the dichotomy between places that welcome new people and have governments that try to serve the people (by letting developers build), and places that try to enrich current residents by blocking out newcomers and thereby forcing demand to be far higher than supply.
Space is limited, demand is not. Physical reality trumps economic wish-thinking every time. Most of the time, the lack of space is the root problem, not some governmental boogeyman.
Saying that we have a lack of space in San Francisco (or any American city) is like closing your eyes and saying the sun doesn't exist anymore. It's a deliberate nonsensical denial of reality. In order to say such absurd nonsense, you have to pretend that denser cities do not exist.
If you ignore "those cities not a part of a larger city's metropolitan area," it's (6,000/km^2) between New York City (10,000/km^2) and Boston (5,000/km^2). It's approximately the same density as Queens.
> The "disproportionate price appreciation of housing and the land it sits on" seems to me to be primarily a factor only in some (maybe most) large cities; outside those cities, price appreciation, perhaps excessive price appreciation, has occurred, but it's nothing like that in those few cities.
But those cities are where "the 1%" live or own property, so they're the beneficiaries of the price inflation, which is precisely the issue. A rich person bought a house in SF for $500K and now it's worth $5M, a middle income person bought a house in Detroit for $200K and now it's worth $200K, a lower income person rented an apartment in SF and saw the increase as an increase in rent rather than an increase in home value.
> Further, my feeling is that real estate appreciation is an effect, not a cause. Consider the 2008 event ("circumstance?" "shenanigan?"): it was purely driven by the financial industry. It had, really, nothing to do with real estate at its core; it was caused by bad financial behavior, and the failure of the real estate market was simply how it was translated out of the finance world into the rest of the economy.
It's more like a mechanism rather than a cause or effect. You make money cheap so people borrow and bid up housing costs. This enriches the existing owners who bought before prices increased, which increases wealth inequality because they were already the ones with the most money.
The problem now is that you can't roll back the clock because transactions have already happened. Richard bought a house for $80K and sold it to Michael for $800K, because Michael needed a place to live and the bank was willing to loan him the money. If you now raise interest rates, the housing prices start to come back down, but Richard already has his $720K profit and the loss accrues to Michael who still has the $800K mortgage, and may now have to start paying higher interest on it in addition to the loss in home value.
As a result the possible solutions start to look weird. Like causing general inflation on purpose to devalue everyone's mortgage debt and allow the price of everything else (including wages) to rise to meet the cost of housing without reducing nominal housing costs which would put too many people underwater on their mortgages, and employing policies like relaxing zoning restrictions to ensure that nominal housing prices don't rise with everything else.
The hyper-inflation fix is the only "solution" I've heard in serious discussions on this mess. It's sort of insane, but when you dig into it, it maybe the least bad choice as far as bringing a healthy equilibrium back to the economy without economically devastating huge chunks of the population.
Pretty sure hyperinflation is never a good solution. You can also just let people lose money on their investment. That has the benefit of not wrecking the currency.
Making money cheap for mortgages is the mechanism the financial industry used---they used derivative technology in a largely-failed attempt to reduce the risks[1] of a class of extremely risky loans, loans would would never have been made without the derivatives. I'd argue that this benefited the financial industry much more than even "existing owners."
Buying real estate cheap and selling it for great profit, as a rule, only works once. If you use the proceeds to buy back into the same market, you're buying expensive property; you only actually see the profit if you move to East Bumford and buy cheap property that isn't appreciating. Further $750k or even several million isn't enough to get into the 1%. But skimming a few percent in fees off of millions of transactions is nigh unlimited money.
I agree that real estate appreciation is an effect rather than a cause. What I'm suggesting is: if Rognlie is correct, the root cause of real estate appreciation may also be the root cause of rising inequality.
I'll try to explain, giving a US-centric narrative because that's the one I know best, but similar parallel things have happened around the world.
- - - - -
Mass urbanization started in the 1800s and accelerated in the 20th century as the world transitioned from a rural/agricultural economy to an urban/industrial economy.
In the US you can see how this worked as placed like New York boomed, but also smaller cities like Buffalo, Cleveland, and many others.
This alarmed a lot of people, notably FDR. They didn't like that people were leaving smaller towns and rural areas and flocking to cities, and he wanted to try and keep the population more spread out. But they were just doing what was economically rational, getting better jobs in the city. And this is still going today -- see China, or the article on HN the other day about entire abandoned Spanish hamlets for sale).
A lot of the push back against urbanization happened via regulatory policy and infrastructure investment. A great case of this is the Rural Electrification Act in the US.
It's cost-effective to serve electricity to a city cheaply from a central plant, thus cities over a certain size (critical mass) started getting power plants and cheap electricity, whereas places below that threshold did not. There was actually a lot of innovation going on in this area, with "off grid" generation and low-power appliances etc. to serve the large, distributed rural population, but it was lagging behind the "convenience" of city power. So the US embarked on a government led program to mandate electrical service be provided to rural areas. The history of all that is complicated and I won't try to narrate it all here, but you ended up with a ton of messy side effects -- see all the land served by PG&E and the California wildfires today.
The same thing happened with roads and bridges and basically every other kind of infrastructure. Without these programs people were trending to concentrating in the larger towns around the countryside (above critical mass) and depopulating rural areas, and the programs slowed that down a lot by providing heavily subsidized infrastructure to make their life more comfortable.
At the same time a different movement was going on in cities, motivated for many reasons, to start limiting development. First it was to separate out polluting industrial factories from residential development -- arguably a very good call -- and then it spread to limit development generally and prescribe lower and lower limits to density. This was greatly aided by that same push to bring city utilities to rural areas -- the interstate highway act, for example, meant that suddenly there were vast areas a bit outside the cities that had great road access to the city center and high voltage lines etc. already going out to the farmers. Suburbanization here we come.
Well, fast forward a few generations and the economic reality of much of that infrastructure is hitting home. Why don't we build big infrastructure projects like we used to? In part it's because a huge amount of maintenance money goes to keep the rural roads and power lines operating at huge losses, to places that would probably either have been abandoned or have adapted to an alternative "off-grid" set of technologies if not for the massive infrastructure subsidy they receive.
But it's more pernicious than that, because the "spread everyone out" policies resulted in a pattern of development where most of the _urban_ areas are also below the critical population density where infrastructure has a positive return on investment. Ie. most suburban development is also an infrastructure money-loser.
These policies are becoming increasingly difficult to sustain, resulting in deferred maintenance ...
I see your point about a push-back against urbanization (I live in the Tennessee valley), although there are a lot of confounding factors. Concentrations of population do make most infrastructure more cost-effective, particularly in for-profit terms. On the other hand, there are a lot of reasons other than anti-urbanization for rural electrification, roads, and bridges.
For one thing, there was (and is, in, say, China now (can I get some more commas in here?)) massive inequality between the wealthy, electrified urban areas and poor, low education, rural areas. This is a problem for a democracy like the US, where an urban majority (which only happened in 1910-20) cannot run rough-shod over a rural minority. That political problem is enhanced by a media who is certain to show the famine out in the sticks, in comparison to the comfort of your favorite city.
Further, all of the resources are in rural areas. You'd have a hard time digging coal out of Appalachia if every moves to Jersey City. And you still have to deal with agriculture: your bread is coming from the Dakotas and your corn flakes from Kansas. Unless, of course, there's no infrastructure to transport it from there to here. And this was before the "green revolution" made food really, really cheap.
There are also other factors. The US was largely founded on the idea of a homeowner, living on a homestead that he owns, with property rights and all that. And then there's the belief (which I kinda agree with) that people who own property are more involved in their communities than people who don't, and thus that home ownership is a good thing in itself. ("The city council is doing something stupid! Do we go down and yell at people, or do we pack up the apartment and move?")
I agree with your first three paragraphs to some extent. However the tricky part is that not all rural areas are equally productive, and they don't all require the same amount of investment. Some of the rural investment in the US is highly productive and results in great return via agriculture and/or resource extraction as you point out.
But consider as just one example how much the population working in agriculture has decreased over time - much of that was going to happen whether roads and bridges and power lines were subsidized to go out there or not. When this is private investment, it's fine. If it fails, some company goes bankrupt, life goes on. Unwinding money-losing public infrastructure is much, much harder.
The last paragraph, that renters aren't politically invested, I think depends a LOT on the ability of people to become owners in the first place. Ownership is more the effect of someone who has a certain amount of wealth and stability in their life (thus the resources and desire to own), rather than something that CAUSES wealth and stability in your life.
So as for the idea that "the country was founded on the idea of the homeowner," I understand, but I think we have to be careful not to think that it somehow makes an owner morally superior to a renter. That just leads to discrimination against people who probably would love to own but don't have the resources, and thus don't need the deck further stacked against them.
No, high rents in SF aren’t the fault of Venture Capital, except to the extent that VC has helped the economy boom in SF. That’s one factor, but the core problem is that we can’t build enough inventory to match demand to live in the city, largely due to artificial restrictions.
>That’s one factor, but the core problem is that we can’t build enough inventory to match demand to live in the city, largely due to artificial restrictions.
Even if you don't consider zoning laws, could we build enough supply to satisfy demand? People want to live in the city, but many are unwilling to live in (small) apartments. Many even want houses, but obviously the density of that type of housing is too low to satisfy demand. The city would sprawl. The outskirts would be far from where people want to live.
The "city" is already sprawling, and the outskirts are already far from where people want to live. A lot of my coworkers commute in from places like Fremont, an hour away from the city in good conditions and who knows how long if BART or the Bay Bridge gets backed up.
Meanwhile, I understand your point that "many people are unwilling to live in small apartments" but those people are by default not part of the demand in San Francisco itself - they're part of the demand in Gilroy and Freemont, perhaps, but not San Francisco.
But "not being willing to live in small apartments" is not the same thing as not being willing to live in medium/large townhomes / row houses, which can accommodate vastly more people than live in most of the suburban expanse of the Bay Area. Just to make a dumbly over-simplified point, you could theoretically convert every ranch house in the bay area to two victorian townhomes and that would add room for more than a million new people, which I'm sure would make some dent in demand.
Likewise, most of San Francisco's land area is occupied by 1 and 2 story buildings (Sunset, Richmond, Excelsior, etc.). Just going to an average of 3 stories would add a hundred thousand or more new homes.
Regardless, while you may be right that demand is MUCH greater than supply and we'd need to add a million homes to make a dent, that's not a valid reason to do nothing.
If we're not going to build more housing here, why not limit employment growth here and create some pretty major programs to move jobs OUT of the city and take some of the housing pressure with it. There's nothing stopping us building a big new city at moderate density between San Francisco and Sacramento, for example, and if the whole corridor was linked by reliable, fast transit service then it doesn't need to be a traffic nightmare either.
TLDR; defeatism doesn't help, the economics here aren't THAT complicated we just don't seem to have the political will to do anything about it.
What you need to keep in mind is that those people willing to live in small apartments or row houses are competing with other housing - including the millionaires that like having a backyard and all of that.
Most of the housing problems in western countries, from my point of view, seem to be that people want to live in places where they can't afford to live at.
I agree that housing is ridiculously regulated in many of these places, but I'm not sure that that's the only problem you have to deal with.
Most people in the middle of the city won’t get their dream home, there can only be so many penthouses. But at least they’d be able to afford to live there, and not be shut out of the economic opportunities that cities provide.
And as another commenter mentioned, the current density of SF is incredibly low. One and two story buildings cover much of the area. Even if it just looked like Paris (wall to wall 5 story buildings), SF could house many times the number of people it currently does.
Zoning rules and NIMBYism are the main reasons for the housing crisis.
Sure, but that's what you think. We can't really tell that people would be fine en masse living in Soviet style apartment blocks for example. I look at average apartment sizes in the US and they're pretty big when compared to Eastern Europe.
Building permits and zoning laws definitely cause a lot of problems, but the trend of housing being unaffordable for young people in cities seems to be happening everywhere. I think there are other problems at play as well, and one of them is simply housing density vs job density. Jobs are often more densely packed than housing and this will drive up prices.
I agree that not everyone will want to live in small apartments. And not everyone has to, they can decide what tradeoffs are right for them. If they want a big house with a yard and they're fine commuting 1.5 hours to work across perpetually jammed bridges, that's still an option.
I live in the SF Bay Area, and I've spent a decent amount of time studying this problem. These debates are raging in the city council meetings, with homeowner groups fighting against city councils who were elected on a platform of trying to get more apartments built.
I agree that job vs. housing density disparity is the cause of many of the problems. The way you fix the disparity is that you boost the housing density - you upzone near transit (SB 50 in the CA state legislature is trying to do this across the state), you increase property tax rates to discourage people from waiting for the land to appreciate without doing anything useful with it (ideally by gradually phasing out prop 13), and you streamline the redevelopment process by making it such that if you comply with a clear set of rules, you can start building with the knowledge that homeowners associations won't bog you down in endless lawsuits. And in my dreams, you change the zoning to mixed use commercial/residential so that you can colocate offices, restaurants, stores, and residential, making everything way more walkable and easing the burden on road infrastructure.
Yeah, Parisian apartments are even cheaper than this implies, since SF apartments tend to be larger than the average Parisian apartment. So the rent that most people pay is generally a good bit less than half.
I picked up his book and in 45 seconds figured out he was wrong...by looking at the index.
He has an entire collection of stats and measurements, but, no where in the index is the gold standard mentioned.
Changing from a silver and/or gold based monetary standard to a fully-fiat model as almost every government did at some point in the first half of the 20th century, should have resulted in various adjustments; adjustments that he should have mentioned and discussed.
(Heck, even changing from the Deutsch Mark to the Euro resulted in price changes for Germans.)
If he did discuss it but they made a lousy index, then, please give me page numbers in his book and I promise to re-examine...
"In the book, Piketty relies on a paper by Loukas Karabarbounis and Brent Neiman that estimated a high marginal elasticity of substitution given two sets of facts: capital has gained national income at the expense of labor, and the price of capital inputs to production has been falling. The authors interpret the latter as the cause of the former, and again within the confines of neoclassical production theory, the only way to reconcile those two facts is with a high degree of factor substitutability: when capital becomes cheap, firms switch to using it, displacing workers. The labor displacement exceeds the increase in wages to workers who remain employed, thus reducing the total labor share of national income. That paper does not mention Piketty, but in a follow-up the next year, the same authors foreground the similar model proposed by Piketty."
Back in the '80s and '90s, a topic that I kept seeing was, "where is the productivity?" With companies spending huge money on technology and computerization, there should have been visible gains in productivity numbers, right? But, there weren't. What's up with that?
My thoughts, as a non-economist, when I saw that were of things like just-in-time inventory controls, which were new and entirely dependent on new technology. They needed massive structural changes, which may be why they didn't show up immediately, but still...they were there and the metrics and models of economists weren't capturing their effects until they had completely taken over.
Likewise, the elasticity of labor and capitol sounds very much like the effects of automation on industrial jobs.
"The aforementioned paper by Furman and Orszag argues that what Piketty (and Gabriel Zucman, in their joint work) identify as a high and invariant rate of return on capital in aggregate in fact reflects uncompetitively high rate of return on capital for a few specific, superstar firms in the economy, and the key task is not to manipulate aggregate macro equations, as Piketty (and neoclassical economists more generally) do, but rather to explain why these superstar firms do so much better than everyone else. The short version, according to Furman and Orszag, is rents—payments that some agents, superstar firms in this case, are able to extract from the rest of the economy either because they have successfully blocked any competitive pressure or because they have bought special treatment through the political system, or some combination of the two, in addition to other mechanisms."
Or perhaps we're talking about things like the FAANG set. the extracted payments are personal information---which is not captured in any economic theory I've ever seen---and the moat blocking competitive pressure is the combined result of network effects (bigger databases win) and extensive financial capitalization. (How do you fight a competitor to whom not only is additional capital effectively free but also has huge stocks of monetary capital just lying around in stacks on the floor?)
> the extracted payments are personal information---which is not captured in any economic theory I've ever seen---and the moat blocking competitive pressure is the combined result of network effects (bigger databases win) and extensive financial capitalization.
You might take a look at Carl Shapiro and Hal Varian's 1999 boom Information Rules:
It is perhaps surprising that Varian in particular (Google's Chief Economist) hasn't had more to say about data as a raw material in the years since those books came out.
BTW, your "extracted payments are personal information" formulation may be part of your problem in finding relevant economic theories. At least in part, what is being extracted is actually a capitulation to being locked-in to a system that continuously extracts information. So looking into the economic theories of technology vendor lock-in, as well as the perverse economics of information security may provide some insight.
There hasn't been a large-scale war since WWII. Obviously there have been numerous conflicts since but these haven't occurred in the developed world and have largely been contained geographically.
Obviously those conflicts are bad for those stuck where they occur and it's good there hasn't been such a conflict, particularly now we're in the nuclear age. But war and revolution served a peculiar economic purpose too: they were the ultimate form of wealth redistribution.
It's why the Patricians of Rome don't own the world today.
The public is also increasingly apathetic. The French Revolution redistributed the wealth of the French aristocracy. But we now live in an era where people don't care enough to vote or they limit their "activism" to liking an image deriding the latest Trump scandal on Facebook.
Some like Bill Gates and Mark Zuckerberg have committed to not handling $100B+ to their descendants but it doesn't take many to essentially establish a permanent ruling class in all but name.
Unfortunately we live in an era where the ultra-wealthy are increasingly unwilling to pay for the infrastructure and political stability that made and continues to make their wealth possible.
It's easy to see a dystopian future that results from nothing more than local optima of the ultra-wealthy minimizing their own tax liability because there's apparently a difference between having $70B and $75B.
I'm not sure you can (or should) appeal to economists humanity to make them care about income inequality. It's perhaps better to argue that income inequality has limits. At some point, no one can afford anything and the whole system grinds to a halt or war and/or revolution "solves" that inequality and it's in the long term interests of pretty much everyone to avoid that.
> This dearth of reaction to such a critical work...
It's a five year old book, of course no one is talking about it specifically anymore. (And when it came out, everyone was talking about it.)
And "nobody is talking about inequality" is ridiculous. I've been to three major conferences in the last six months and there were multiple whole sessions on inequality. And not just income inequality. Educational, environmental even. It's not the only thing economists talk about, but far from "no one" is looking at it.
Also wanted to add- Piketty has and continues to focus on data collection. We should be thankful people are out there doing tough work like this so we can all make more informed decisions- even if we come to different conclusions.
I think one of the reasons lots of people liked Piketty is that he produced a huge book that most people didn't read but confirmed their bias, so he became some kind of hero.
Yes the establishment economists have vested interests. But, Vested interests are what allowed Silicon Valley to flourish. The east coast financial center largely ignored the pc space until Bill Gates, Steve Jobs, Bill Joy and numerous others built the pc hardware and networking stack to allow everyone to have a'voice' and to hear all those voices. Although Piketty's arguments hold water, he has not shown a synthesis that will allow us to unwind smoothly from the concentration of wealth.
I once had a heated discussion with an economist about this very topic. Financial wealth grows now largely through speculation. Although stocks and options were once based in fundamentals, their prices now fluctuate wildly based on their own supply and demand which is often decoupled from reality.
I suggested having two currencies, one money derived from human labor and another derived from the work that financial instruments generate.
One could establish an exchange rate between one and the other based on wealth disparity. Or another way to deal with these currencies would be to restrict income and capital gains from financial money to only be spent on non-financial products (goods, services, upgrade factories, upgrade roads, etc.) As this economist was working in the financial sector in NY, he thought the idea was ludicrous.
He felt that money from the financial sector was equally valued as money from human labor. Or even more valued ! He wanted to control his money and not have to invest in the messy world of humanity directly.
142 comments
[ 3.2 ms ] story [ 181 ms ] threadHere’s one:
https://tomwoods.com/ep-318-piketty-taken-down-for-good/
"Three Words That Say "I'm Clueless"
""Deregulation caused it!"
"We've all heard that account of the financial crisis.
"It's dead wrong. Preposterously wrong.
"It's all the Left has.
"Don't let them get away with it.
"Solution: enter your email address below for your free copy of The Deregulation Bogeyman and to start receiving the legendary Tom Woods Letter."
Economists' careers as receivers of grants, policy advisors, members of prestigious think tanks and organizations, and pundits, depends on being good at promoting whatever aligns with the elite's interests.
The scientific parts of economics are merely applied math (including game theory), and quite basic at that.
The rest are establishment ideology plus/minus some personal improvising to the left or right, and obscurantism, - just like "social science", "political science", "psychology", "architecture" (the conceptual part that gave us the 20th century visual atrocities) and so on.
For real science one needs to stick to physics, chemistry, engineering, and other "hard" stuff.
Heck, even Computer Science itself (whose actual scientific part is basically math as well), is taught, and practiced like fashion, based on commercial trends du jour...
Alternative hypothesis: they disagree.
Disagreeing isn't ignoring. It isn't a conspiracy. It's just disagreement.
https://en.wikipedia.org/wiki/Na%C3%AFve_realism_(psychology...
Nobody is owed attention from any discipline of study. Absence of attention is not conclusive evidence of anything.
So in front of that background, the silence is suspicious, and the most plausible explanation is that the majority of participants would like to disagree but find themselves unable to put forward such a critique.
I've read a lot of those "disagreements". Most of them are thinly veil-led attacks and facile dismissals, the kind that pass for criticism in mass media today.
https://en.wikipedia.org/wiki/Argument_from_authority
> argue that scientists should be fired for publishing a paper that goes against your political values
https://en.wikipedia.org/wiki/Straw_man
And the OP quite literally argued the scientists who authored the paper should be forced out of their job just because they published an academic paper that he found to be politically inconvenient, which is sheer lunacy.
That's a repeat of the old tired strawman that tries to avoid discussing the facts and the data by depicting any academic who authors an inconvenient paper as being a political agent involved in some widespread anti-socialist conspiracy.
Meanwhile, let's not forget that the people attacking the Roggof&Reinhart paper are somehow criticizing the fact that highly indebted states experience lower growth rates, as if either increasing sovereign debt or siphoning cash from the budget to service debt has no impact on the nation's finances.
re:Strawman - So you're trying to tell me that the Chicago School of Economics doesn't have a right leaning bent and inspires itself in the work of the Austrian economics. Yeah, you could say that but it's bullshit.
re: high indebtness. people criticizing RR are doing it because the paper is bad. Plus, as Paul Krugman correctly notes, high level of debt could be a result of economic slowdown and not the cause (best example is Japan).
see more: https://www.nytimes.com/2013/04/19/opinion/krugman-the-excel...
Sorry that reality doesn't agree with your views.
Here is the actual argument:
> full of elementary statistical and programming errors that should’ve gotten its authors fired
Here is your characterization:
> the OP quite literally argued the scientists who authored the paper should be forced out of their job just because they published an academic paper that he found to be politically inconvenient
I further suspect that economists, as a field, will continue to claim that their models, metrics, theories, and policy advice are good, while complaining about the inexplicable rise of populism, right up until somebody sets up a guillotine in front of Goldman-Sachs. (Populism is easy to explain: the peasants are revolting.)
And that has absolutely zero to do with science in general and economic models in particular.
Time and again we see populist politicians fanning up the masses with anti-capitalist rhetoric that is absolute bullshit from the start, and they routinely attack economic problems by disregarding basic facts of nature with assertions involving silly conspiracy theories always attributing blame to their political opponents and scapegoats. Every time this happens it does not mean that science failed or that there is a massive conspiracy theory keeping the socialist man down. It just means that disregarding science has serious consequences that no totalitarian regime can quelsh no matter how many gillotines they set up in feont of Goldman-Sachs.
Isn't that also what the elites (say, the 10%-ers) have historically also said for realistic and entirely possible solutions (like beheading the King and building a democratic state, or stopping segregation, or extending the vote to women, or adding labor protections, or welfare, and so on), that they felt were beneath them, because they were demanded by the populace and went against their interests as a class?
Every modern right has been established by struggles, parties, mass revolts, and so on, deemed "populist", "vulgar", "irresponsible", and "destructive" at the time by those opposing them.
Every single one of them.
https://en.wikipedia.org/wiki/There_is_no_alternative
The politburo in the Soviet Union probably employed a similar style of propaganda.
That said, you are right, the struggle is real. But it's likely not the 10%, but probably less or a lot more, depending on how you view people who benefit from the status quo. For example anyone who buys a new car, plans a trip, ponders over a job offer, submits an offer on a tender has options to try to rock the boat. Greener, more fair, more just options are usually there - but of course those usually also require some kind of trade off. Do we want something that's good on the long term, or something that's good on the short term?
And based on how many options people have and how little they value the long term, the global perspective we could classify them into different kinds of beneficiaries of the status quo. And it's enough for a small cabal of cooperating power brokers to benefit themselves to and unimaginably huge degree. As in significant portion of the world's "income" goes to people who had the option to enrich themselves and took it.
Sure, this can be complicated further by looking at those who enriched themselves then proceeded to spend those riches on goals that ultimately help others - but these deviations are usually small, and again, ultimately, can be factored in.
However, sometimes beheading kings is contraproductive as you get a civil war. Similarly just adding more voters does not magically lead to a fairer outcome. The classic example is adding more and more cannibals will eventually lead to a bit of a pickle.
Beheading the king has never lead to a democratic state.
The end of segregation as well as suffrage were achieved by slow evolutionary process.
Revolutions and radical means had never achieved anything but chaos, mass slaughter and poverty.
Not quite. Models only explain relationships between parameters.
Moreover, inequality is a meaningless concept that is the posterchild of how the goalpost is kept moving by populist politicians. It's meaningless in its definition, as it is kept very maleable to fit the argument, and it's meaningless in the conclusion, as there is no problem in having someome earning more than his neighbor.
Solving the populism issue means tackling the root issues it feeds from first.
The problem is that prejudice is also invented and disseminated by these unscrupulous politicians with their populist rhetoric. We see that in any extreme cormer of the political spectrum, whether its anti-capitalist socialists or racial supremacists. History is packed with examples where totalitarian regimes outright negate science to push their absurd populist rhetoric.
https://www.smithsonianmag.com/smart-news/us-life-expectancy...
Our reality is still created by a contribution of several factors, some of which have greater weight, it's not some intangible mass of confusion with no alternative but "business as usual" as the "non-populists" present it.
It might not have been Chinese themselves, for example, but it was the outsourcing and migration of industries that left many people without a job (and no real prospect for "re-education" and a new career, at most a crappy lower deal).
On the other hand, there's a difference between the ilk performing their functions and the tail wagging the dog.
(I specifically picked on GS because this weird sense I have that US economic policy has been outsourced to Goldman-Sachs for several decades.)
The "credit freeze right after the crash" still happened within the crash that Goldman Sachs and its ilk caused, and still happened in a world where Goldman Sachs and its ilk set the rules.
The financial crisis is what happens when we don't have access to credit. Whether the financial industry self-destructs as in 2008 or is destructed by the guillotines outside, you're going to have a hard time getting credit without it. No credit, we'd just be in the 2009 world at steady state.
I've particularly enjoyed the "elitist contempt of the arts" part (whatever that means, since "contempt of the arts" is usually base, not elitist, not to mention the fact that I don't mention "the arts" at all), and the thought-stopper accusation of "conspiracy" (who dare think that scholars would ever align themselves to convenient output to benefit their careers and pockets, in this best of all possible worlds! As Gore Vidal once put it "Americans have been trained by media to go into Pavlovian giggles at the mention of 'conspiracy' because for an American to believe in a conspiracy he must also believe in flying saucers or, craziest of all, that more than one person was involved in the JFK murder"). Well done.
And this is utterly true of Economics more than anything. And actually while a lot of arts have been pulling themselves back from that rat hole economics just keeps digging deeper.
There are other examples, but the problems are nowhere near as big as in the fields my comment was suspicious of. And of course there surely are a lot of problems I don't have the slightest idea about. Still, the mindset of the scientists I know is so much different from the mindset of sociologists and others who seem much more driven by fashion. Back to physicists, I don't claim they are exempt from the influence of fashion. I claim that the impact of this influence is on a whole different level; there are lines that are not crossed, everything is up for falsification by experiment, and if it isn't falsifiable, then to hell with it etc. All of this makes me trust them a lot more.
Economics is the most highly paid soft science for a reason.
Climate science has the same issue but fortunately they have managed to resist the corrupting influence of money.
Their hard science fetish isn't really the issue. Money is.
Reality is a bit more nuanced than you depict it [1][2].
> Climate science has the same issue but fortunately they have managed to resist the corrupting influence of money.
So scientists are more or less corrupt, depending on how much you think they agree with you?
[1]http://www.igmchicago.org/surveys/minimum-wage
[2]http://www.igmchicago.org/surveys/15-minimum-wage
That's modern economic orthodoxy in a nutshell.
It's not just economics that's an issue a friend used to date a lady that was getting (25 years ago) a double major in anthropology and artificial intelligence. She said from an anthropological perspective AI research was nothing but white academic introspection.
[1] Example of strong feedback, two 737-MAX's crashing within a few months.
I'm not well versed in areas other than architecture, but I'm really puzzled where you'd go with this thesis with respect to that discipline. Would you care to elaborate further? I'm genuinely curious.
Go ahead poke at Milton Friedman and watch them get really hot under the collar.
Compare with poking at Einstein (never accepted quantum mechanics) or Linus Pauling (alternative medicine nutter), Shockley (racist). Poke all you want the physics community doesn't care.
It's kinda of like this, a mechanical engineer doesn't feel threatened by some guy selling a magnetic doohickey you put in series with your cars fuel line to increase MPG. He just thinks it's stupid. He's not mad though.
Economists get angry.
Who is them? Do you think economics hasn't made any progress sice the 1970s and everyone is a paleomonetarist?
It is hard to square your criticism in a way that leads to people paying more attention to Piketty.
The results are predictably grim for everyone who isn't a 0.1%er - sometimes fatally so.
There's a side-field of purely academic economics which includes heterodox ideas like MMT, but they - currently - have almost zero chance of having an influence on government policy.
I'm always bemused that psychics are regularly attacked by sceptics for being dangerous and fraudulent scammers who act in bad faith.
On the evidence, policy economists are vastly more dangerous.
A bad faith psychic might bankrupt a handful of people. Bad faith economists can bankrupt entire countries and/or force entire generations into debt - but sceptics seem to swallow what they have to sell with no rational oversight, and sometimes with support and approval.
> Vaccine did in fact significantly reduce or even eradicate some diseases. The track record of predictions out of economics is a lot spottier.
The same applies to the track record of seismologists. Moreover, forecasting is a very, very small field of economics.
It's possible to produce useful predictions with small errors when you define very simple systems, which is what the foundational scientific topics have done. Of course it took centuries of hard work to do even that.
Physicists and chemists and biologists and economists all study the same thing. It's just that most chemists use heuristics to avoid dealing with the full physical complexity, and most biologists use heuristics to avoid dealing with the full chemical complexity.
Unfortunately, the jump in complexity from biology to the behavior of a population of humans is still too complex; we don't have great heuristics for that yet.
It seems kind of short-sighted to me to say that the people who are trying to build those aren't doing "real science." I don't understand the theory there... that they haven't figured it all out yet, so it's not worth doing?
It's not about heuristics. It's about experimental validation. Both physicists and chemists take great pain in actually rigorously confronting their theories to reality. Biologists try. Most economists don't.
It doesn't mean there is no value in economic models and theories. It does however mean it's not a science.
I guess string theorists haven't gotten the memo yet?
But you could argue against climate change with much the same logic (and, indeed, a lot of people seem to do). "The conclusions would demand changes to our status quo in a degree of magnitude that hasn't ever been there before, therefore, they must be wrong".
https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...
"Most striking, however, is that when you hold educational attainment and other observable worker characteristics constant, pay is starkly different depending on the firm where you work, even within narrowly-defined education categories, industries and occupations. This is prima-facie evidence that the human capital model in a competitive labor market is an increasingly poor way to explain earnings inequality. Wages for similar workers do not, in fact, equilibrate across firms."
An analogy I like here is one of a basketball school. Imagine you take x students, all of a relatively reasonable capability, and put them into a school. And you give them all an identical education in basketball. Nobody in the world would ever then expect these students to be of roughly equal ability after they graduate the school 4 years later. There would be vast differences between their abilities at that point. Even if you control for obvious genetic factors such as height and perhaps athleticism, there'd still be absolutely tremendous differences. There have been thousands of professional basketball players -- all in the 0.0001% of society, yet even given that ultra-selectivity Michael Jordan stands head and shoulders above nearly all of them yet. And the same is true in most of everything. If you want to go a purely mental game, we have a series of chess players -- Paul Morphy, Jose Raul Capablanca, Bobby Fischer, Gary Kasparov, and now Magnus Carlsen that in turn stand leaps and bounds ahead of a player pool (of their respective times) that is/was once again already made up only of the most capable 0.0001%.
If it's somehow not clear, the point of this is that just because A and B go to the same school and end up with roughly the same grades - that says absolutely nothing whatsoever about the ability of A or B. I would argue that not only is the stated observation not "prima-facie evidence that the human capital model in a competitive labor market is an increasingly poor way to explain earnings inequality" but rather the exact opposite! If companies were recruiting exclusively based upon observable characteristics it would mean these less measurable differences that separate the good (or even the rather less than good) from the great would not be being factored in. That would be rather strong evidence that effective competition was not correlating to positive results. But we have the exact opposite!
This disdain for those that have found popularity is fairly common in many fields. There seems to be a simultaneous feeling of 1) but what about this super complicated way of viewing it, this popular piece misses all these details, and 2) maybe a bit of jealousy.
I'm not an economist, in case it's not clear, and haven't had the time to read the book, but the critiques were short enough to read in an hour and convinced me that Piketty is right, because the critiques were so shallow and seemed like such motivated reasoning.
It’d be like if Origin of Species came out, but evolution was actually wrong, and Darwin had only seemed right at first because he left out the species that didn’t fit his model.
I don’t think Piketty did this on purpose, by the way. He just didn’t push hard enough on the data that he didn’t want to find fault with.
Because it is possible to use this data about capital to come to conclusions that are politically unpopular among some subgroups people have piled on this false critical narrative emphasizing supposed errors and gaps in the data and keeping the focus on some brief remarks at the end of a very large work that has a range of applications.
I don't think critics of Piketty did this on purpose. They just pushed unreasonably hard on the data they wanted to find fault with.
“Matthew Rognlie—then a doctoral student, now an assistant professor at Northwestern—took up that line in even greater detail in an article that eventually appeared in the Brookings Papers on Economic Activity, to which he added that the rising capital-to-income ratio in Piketty’s data is disproportionately the result of the price appreciation of certain scarce stores of wealth, primarily housing and the land it sits on, not the quantity accumulation of productive capital that is the subject of the neoclassical theory of economic growth.”
I find that a compelling explanation because it fits with a bunch of the deep problems in the way urban development changed in the 20th century, which in turn have created the frustrating housing situation today.
It’s difficult to summarize this, but in short, modern zoning, the suburban development pattern, and auto dependency, create an economic vicious cycle which tends to polarize economic outcomes, where Places trend toward either the Bay Area or Detroit. (Some reading linked below)
This is most true in the US, but also to varying degrees in many other parts of the world.
In other words, if Rognlie’s quote is true, then it would mean Picketty’s observations are better explained by the bad housing and infrastructure policies of the last 80 years than by “r > g”, and if that’s true then it completely changes what we should do about it.
Some expansion on the development pattern problems:
https://www.strongtowns.org/journal/2016/10/23/portland-hous...
https://www.strongtowns.org/journal/2018/9/17/austins-codene...
https://www.strongtowns.org/the-growth-ponzi-scheme
Further, my feeling is that real estate appreciation is an effect, not a cause. Consider the 2008 event ("circumstance?" "shenanigan?"): it was purely driven by the financial industry. It had, really, nothing to do with real estate at its core; it was caused by bad financial behavior, and the failure of the real estate market was simply how it was translated out of the finance world into the rest of the economy.
Likewise, my impression of the situation you describe is a result of the growth and success of the financial industry and the pursuit of a very limited class of real estate assets by that resulting block of money.
Tl;dr: High rents in San Francisco? Caused by the venture capital industry---a purely financial operation---and its insistence on having all of its investments physically co-located with where it wants to live.
Patrick Gonnagle went to Stanford and really likes living in the Bay area. He also invented the idea of facebook for dogs and made a crap-ton of money in the dotcom era. Nowadays, he spends most of his time trying to out-do his peers in the nuevo-crap-ton-o'-money crowd with his extensive collection of Pia Zadora's underpants.
The rest of the time, however, P-Gon (as he likes to be called) finds smart, idealistic, entertaining, and attractive young people, mostly from Stanford, and gives them large sums of money in exchange for a significant share of any future large sums of money their idealistic and entertaining activities will bring in.
The idealistic and smart people like to get advice, recognition, and affirmation from P-Gon, and he likes to keep an eye on his investments (not to mention the advantage of showing off his cadre of minions to his peer group). So, they all have to live, work, eat, etc. in close proximity. P-Gon lives at the top of the Transamerica pyramid (literally; he built his 12,000 sq ft bedroom on the very pointy top of it). Fortunately, the I&S folks are being showered in cash (well, not literally; P-Gon has a swimming pool full of giant tapioca balls and $1000 bills that he makes them do laps in (hence "funding round")), so they have plenty of money to pay for suitable hovels.
Lather, rinse, repeat for a couple of generations and you discover that rents are stupid ridiculous in the area of the giant fountain o' money. Which theoretically could be somewhat remedied, maybe, except that P-Gon doesn't want horrible brutalist high-rise apartment complexes blocking his view of the Tenderloin.
The answer is primary that regulation by local governments prevents them from doing that thereby keeping real estate prices high.
So, the question is really, "if it isn't real-estate developers trying to keep rents high, who has the money and therefore power to convince the government to adopt regulations preventing apartments?"
But you're conflating the two types of places: most places aren't "high" demand, and those that do have super inflated costs also have processes by which developers are regularly stopped. California in particular has this problem.
In fact reading your post really made it clear to me the dichotomy between places that welcome new people and have governments that try to serve the people (by letting developers build), and places that try to enrich current residents by blocking out newcomers and thereby forcing demand to be far higher than supply.
If you ignore "those cities not a part of a larger city's metropolitan area," it's (6,000/km^2) between New York City (10,000/km^2) and Boston (5,000/km^2). It's approximately the same density as Queens.
https://en.wikipedia.org/wiki/List_of_European_Union_cities_...
It's much less than Paris (21,000/km^2), Athens, Barcelona, and a bunch of other European cities. More than Dublin (5,000/km^2), if that helps.
https://en.wikipedia.org/wiki/List_of_cities_by_population_d...
Got nothing on Manilla, Mumbai (holy shit, Mumbai!), or Kolkatta.
But what the hell's up with Guttenberg, NJ?
But those cities are where "the 1%" live or own property, so they're the beneficiaries of the price inflation, which is precisely the issue. A rich person bought a house in SF for $500K and now it's worth $5M, a middle income person bought a house in Detroit for $200K and now it's worth $200K, a lower income person rented an apartment in SF and saw the increase as an increase in rent rather than an increase in home value.
> Further, my feeling is that real estate appreciation is an effect, not a cause. Consider the 2008 event ("circumstance?" "shenanigan?"): it was purely driven by the financial industry. It had, really, nothing to do with real estate at its core; it was caused by bad financial behavior, and the failure of the real estate market was simply how it was translated out of the finance world into the rest of the economy.
It's more like a mechanism rather than a cause or effect. You make money cheap so people borrow and bid up housing costs. This enriches the existing owners who bought before prices increased, which increases wealth inequality because they were already the ones with the most money.
The problem now is that you can't roll back the clock because transactions have already happened. Richard bought a house for $80K and sold it to Michael for $800K, because Michael needed a place to live and the bank was willing to loan him the money. If you now raise interest rates, the housing prices start to come back down, but Richard already has his $720K profit and the loss accrues to Michael who still has the $800K mortgage, and may now have to start paying higher interest on it in addition to the loss in home value.
As a result the possible solutions start to look weird. Like causing general inflation on purpose to devalue everyone's mortgage debt and allow the price of everything else (including wages) to rise to meet the cost of housing without reducing nominal housing costs which would put too many people underwater on their mortgages, and employing policies like relaxing zoning restrictions to ensure that nominal housing prices don't rise with everything else.
Buying real estate cheap and selling it for great profit, as a rule, only works once. If you use the proceeds to buy back into the same market, you're buying expensive property; you only actually see the profit if you move to East Bumford and buy cheap property that isn't appreciating. Further $750k or even several million isn't enough to get into the 1%. But skimming a few percent in fees off of millions of transactions is nigh unlimited money.
I'll try to explain, giving a US-centric narrative because that's the one I know best, but similar parallel things have happened around the world.
- - - - -
Mass urbanization started in the 1800s and accelerated in the 20th century as the world transitioned from a rural/agricultural economy to an urban/industrial economy.
In the US you can see how this worked as placed like New York boomed, but also smaller cities like Buffalo, Cleveland, and many others.
This alarmed a lot of people, notably FDR. They didn't like that people were leaving smaller towns and rural areas and flocking to cities, and he wanted to try and keep the population more spread out. But they were just doing what was economically rational, getting better jobs in the city. And this is still going today -- see China, or the article on HN the other day about entire abandoned Spanish hamlets for sale).
A lot of the push back against urbanization happened via regulatory policy and infrastructure investment. A great case of this is the Rural Electrification Act in the US.
It's cost-effective to serve electricity to a city cheaply from a central plant, thus cities over a certain size (critical mass) started getting power plants and cheap electricity, whereas places below that threshold did not. There was actually a lot of innovation going on in this area, with "off grid" generation and low-power appliances etc. to serve the large, distributed rural population, but it was lagging behind the "convenience" of city power. So the US embarked on a government led program to mandate electrical service be provided to rural areas. The history of all that is complicated and I won't try to narrate it all here, but you ended up with a ton of messy side effects -- see all the land served by PG&E and the California wildfires today.
The same thing happened with roads and bridges and basically every other kind of infrastructure. Without these programs people were trending to concentrating in the larger towns around the countryside (above critical mass) and depopulating rural areas, and the programs slowed that down a lot by providing heavily subsidized infrastructure to make their life more comfortable.
At the same time a different movement was going on in cities, motivated for many reasons, to start limiting development. First it was to separate out polluting industrial factories from residential development -- arguably a very good call -- and then it spread to limit development generally and prescribe lower and lower limits to density. This was greatly aided by that same push to bring city utilities to rural areas -- the interstate highway act, for example, meant that suddenly there were vast areas a bit outside the cities that had great road access to the city center and high voltage lines etc. already going out to the farmers. Suburbanization here we come.
Well, fast forward a few generations and the economic reality of much of that infrastructure is hitting home. Why don't we build big infrastructure projects like we used to? In part it's because a huge amount of maintenance money goes to keep the rural roads and power lines operating at huge losses, to places that would probably either have been abandoned or have adapted to an alternative "off-grid" set of technologies if not for the massive infrastructure subsidy they receive.
But it's more pernicious than that, because the "spread everyone out" policies resulted in a pattern of development where most of the _urban_ areas are also below the critical population density where infrastructure has a positive return on investment. Ie. most suburban development is also an infrastructure money-loser.
These policies are becoming increasingly difficult to sustain, resulting in deferred maintenance ...
For one thing, there was (and is, in, say, China now (can I get some more commas in here?)) massive inequality between the wealthy, electrified urban areas and poor, low education, rural areas. This is a problem for a democracy like the US, where an urban majority (which only happened in 1910-20) cannot run rough-shod over a rural minority. That political problem is enhanced by a media who is certain to show the famine out in the sticks, in comparison to the comfort of your favorite city.
Further, all of the resources are in rural areas. You'd have a hard time digging coal out of Appalachia if every moves to Jersey City. And you still have to deal with agriculture: your bread is coming from the Dakotas and your corn flakes from Kansas. Unless, of course, there's no infrastructure to transport it from there to here. And this was before the "green revolution" made food really, really cheap.
There are also other factors. The US was largely founded on the idea of a homeowner, living on a homestead that he owns, with property rights and all that. And then there's the belief (which I kinda agree with) that people who own property are more involved in their communities than people who don't, and thus that home ownership is a good thing in itself. ("The city council is doing something stupid! Do we go down and yell at people, or do we pack up the apartment and move?")
But consider as just one example how much the population working in agriculture has decreased over time - much of that was going to happen whether roads and bridges and power lines were subsidized to go out there or not. When this is private investment, it's fine. If it fails, some company goes bankrupt, life goes on. Unwinding money-losing public infrastructure is much, much harder.
The last paragraph, that renters aren't politically invested, I think depends a LOT on the ability of people to become owners in the first place. Ownership is more the effect of someone who has a certain amount of wealth and stability in their life (thus the resources and desire to own), rather than something that CAUSES wealth and stability in your life.
So as for the idea that "the country was founded on the idea of the homeowner," I understand, but I think we have to be careful not to think that it somehow makes an owner morally superior to a renter. That just leads to discrimination against people who probably would love to own but don't have the resources, and thus don't need the deck further stacked against them.
Even if you don't consider zoning laws, could we build enough supply to satisfy demand? People want to live in the city, but many are unwilling to live in (small) apartments. Many even want houses, but obviously the density of that type of housing is too low to satisfy demand. The city would sprawl. The outskirts would be far from where people want to live.
Meanwhile, I understand your point that "many people are unwilling to live in small apartments" but those people are by default not part of the demand in San Francisco itself - they're part of the demand in Gilroy and Freemont, perhaps, but not San Francisco.
But "not being willing to live in small apartments" is not the same thing as not being willing to live in medium/large townhomes / row houses, which can accommodate vastly more people than live in most of the suburban expanse of the Bay Area. Just to make a dumbly over-simplified point, you could theoretically convert every ranch house in the bay area to two victorian townhomes and that would add room for more than a million new people, which I'm sure would make some dent in demand.
Likewise, most of San Francisco's land area is occupied by 1 and 2 story buildings (Sunset, Richmond, Excelsior, etc.). Just going to an average of 3 stories would add a hundred thousand or more new homes.
Regardless, while you may be right that demand is MUCH greater than supply and we'd need to add a million homes to make a dent, that's not a valid reason to do nothing.
If we're not going to build more housing here, why not limit employment growth here and create some pretty major programs to move jobs OUT of the city and take some of the housing pressure with it. There's nothing stopping us building a big new city at moderate density between San Francisco and Sacramento, for example, and if the whole corridor was linked by reliable, fast transit service then it doesn't need to be a traffic nightmare either.
TLDR; defeatism doesn't help, the economics here aren't THAT complicated we just don't seem to have the political will to do anything about it.
Most of the housing problems in western countries, from my point of view, seem to be that people want to live in places where they can't afford to live at.
I agree that housing is ridiculously regulated in many of these places, but I'm not sure that that's the only problem you have to deal with.
And as another commenter mentioned, the current density of SF is incredibly low. One and two story buildings cover much of the area. Even if it just looked like Paris (wall to wall 5 story buildings), SF could house many times the number of people it currently does.
Zoning rules and NIMBYism are the main reasons for the housing crisis.
Building permits and zoning laws definitely cause a lot of problems, but the trend of housing being unaffordable for young people in cities seems to be happening everywhere. I think there are other problems at play as well, and one of them is simply housing density vs job density. Jobs are often more densely packed than housing and this will drive up prices.
I live in the SF Bay Area, and I've spent a decent amount of time studying this problem. These debates are raging in the city council meetings, with homeowner groups fighting against city councils who were elected on a platform of trying to get more apartments built.
I agree that job vs. housing density disparity is the cause of many of the problems. The way you fix the disparity is that you boost the housing density - you upzone near transit (SB 50 in the CA state legislature is trying to do this across the state), you increase property tax rates to discourage people from waiting for the land to appreciate without doing anything useful with it (ideally by gradually phasing out prop 13), and you streamline the redevelopment process by making it such that if you comply with a clear set of rules, you can start building with the knowledge that homeowners associations won't bog you down in endless lawsuits. And in my dreams, you change the zoning to mixed use commercial/residential so that you can colocate offices, restaurants, stores, and residential, making everything way more walkable and easing the burden on road infrastructure.
Paris: 27€/m^2 ($30/m^2)
SF: $4.95/ft^2 ($53/m^2)
He has an entire collection of stats and measurements, but, no where in the index is the gold standard mentioned.
Changing from a silver and/or gold based monetary standard to a fully-fiat model as almost every government did at some point in the first half of the 20th century, should have resulted in various adjustments; adjustments that he should have mentioned and discussed.
(Heck, even changing from the Deutsch Mark to the Euro resulted in price changes for Germans.)
If he did discuss it but they made a lousy index, then, please give me page numbers in his book and I promise to re-examine...
Back in the '80s and '90s, a topic that I kept seeing was, "where is the productivity?" With companies spending huge money on technology and computerization, there should have been visible gains in productivity numbers, right? But, there weren't. What's up with that?
My thoughts, as a non-economist, when I saw that were of things like just-in-time inventory controls, which were new and entirely dependent on new technology. They needed massive structural changes, which may be why they didn't show up immediately, but still...they were there and the metrics and models of economists weren't capturing their effects until they had completely taken over.
Likewise, the elasticity of labor and capitol sounds very much like the effects of automation on industrial jobs.
"The aforementioned paper by Furman and Orszag argues that what Piketty (and Gabriel Zucman, in their joint work) identify as a high and invariant rate of return on capital in aggregate in fact reflects uncompetitively high rate of return on capital for a few specific, superstar firms in the economy, and the key task is not to manipulate aggregate macro equations, as Piketty (and neoclassical economists more generally) do, but rather to explain why these superstar firms do so much better than everyone else. The short version, according to Furman and Orszag, is rents—payments that some agents, superstar firms in this case, are able to extract from the rest of the economy either because they have successfully blocked any competitive pressure or because they have bought special treatment through the political system, or some combination of the two, in addition to other mechanisms."
Or perhaps we're talking about things like the FAANG set. the extracted payments are personal information---which is not captured in any economic theory I've ever seen---and the moat blocking competitive pressure is the combined result of network effects (bigger databases win) and extensive financial capitalization. (How do you fight a competitor to whom not only is additional capital effectively free but also has huge stocks of monetary capital just lying around in stacks on the floor?)
You might take a look at Carl Shapiro and Hal Varian's 1999 boom Information Rules:
https://books.google.com/books?id=z0hQ12PrERMC&printsec=fron...
As well as their (along with Joseph Farrell) 2004 book The Economics of Information:
https://books.google.com/books?id=-dcLAQAAQBAJ&printsec=fron...
It is perhaps surprising that Varian in particular (Google's Chief Economist) hasn't had more to say about data as a raw material in the years since those books came out.
BTW, your "extracted payments are personal information" formulation may be part of your problem in finding relevant economic theories. At least in part, what is being extracted is actually a capitulation to being locked-in to a system that continuously extracts information. So looking into the economic theories of technology vendor lock-in, as well as the perverse economics of information security may provide some insight.
There hasn't been a large-scale war since WWII. Obviously there have been numerous conflicts since but these haven't occurred in the developed world and have largely been contained geographically.
Obviously those conflicts are bad for those stuck where they occur and it's good there hasn't been such a conflict, particularly now we're in the nuclear age. But war and revolution served a peculiar economic purpose too: they were the ultimate form of wealth redistribution.
It's why the Patricians of Rome don't own the world today.
The public is also increasingly apathetic. The French Revolution redistributed the wealth of the French aristocracy. But we now live in an era where people don't care enough to vote or they limit their "activism" to liking an image deriding the latest Trump scandal on Facebook.
Some like Bill Gates and Mark Zuckerberg have committed to not handling $100B+ to their descendants but it doesn't take many to essentially establish a permanent ruling class in all but name.
Unfortunately we live in an era where the ultra-wealthy are increasingly unwilling to pay for the infrastructure and political stability that made and continues to make their wealth possible.
It's easy to see a dystopian future that results from nothing more than local optima of the ultra-wealthy minimizing their own tax liability because there's apparently a difference between having $70B and $75B.
I'm not sure you can (or should) appeal to economists humanity to make them care about income inequality. It's perhaps better to argue that income inequality has limits. At some point, no one can afford anything and the whole system grinds to a halt or war and/or revolution "solves" that inequality and it's in the long term interests of pretty much everyone to avoid that.
It's a five year old book, of course no one is talking about it specifically anymore. (And when it came out, everyone was talking about it.)
And "nobody is talking about inequality" is ridiculous. I've been to three major conferences in the last six months and there were multiple whole sessions on inequality. And not just income inequality. Educational, environmental even. It's not the only thing economists talk about, but far from "no one" is looking at it.
http://www.paecon.net/PAEReview/issue69/Varoufakis69.pdf
Taleb did a pretty good job of taking apart Piketty's work. Its worth reading: https://medium.com/incerto/inequality-and-skin-in-the-game-d...
I once had a heated discussion with an economist about this very topic. Financial wealth grows now largely through speculation. Although stocks and options were once based in fundamentals, their prices now fluctuate wildly based on their own supply and demand which is often decoupled from reality.
I suggested having two currencies, one money derived from human labor and another derived from the work that financial instruments generate.
One could establish an exchange rate between one and the other based on wealth disparity. Or another way to deal with these currencies would be to restrict income and capital gains from financial money to only be spent on non-financial products (goods, services, upgrade factories, upgrade roads, etc.) As this economist was working in the financial sector in NY, he thought the idea was ludicrous.
He felt that money from the financial sector was equally valued as money from human labor. Or even more valued ! He wanted to control his money and not have to invest in the messy world of humanity directly.