G11 - Week 21 - Day 3

In-class work

1. Equity in the distribution of income
1. What do you deserve?
1. Why should you be at Stamford instead of a child in Cambodia?
2. Why should your parents make more income than someone else?
3. Why should they get to keep the income?
4. Explain why in the comments.
2. Different Tax Systems' Effects on Income Distribution (part 1)
3. Different Tax Systems' Effects on Income Distribution (part 2)
1. Exercise 7 (p. 360)
2. Exercise 8-11 (p. 362 HL Only)

Ongoing Country Information

1. Figure out unemployment rates
2. Labor participation rates
3. Causes of the above?
4. What are the inflation rates?
5. What's the economic growth been?
6. What's the level of inequality?
1. With the Gini index?
2. With the 20/20 ratio?

---

Currently Reading

Blog - Extreme Inequality Is Not Driven by Merit, but by Rent-Seeking and Luck

Book - The Rise and Fall of American Growth

G11 - Week 21 - Day 2

In-class work

1. Equity in the distribution of income
1. Quantifying Income Inequality part 1 - The Gini Coefficient (Index)
2. Quantifying Income Inequality part 2 - the 20/20 Ratio
1. Exercises 1-3 (p. 350)
3. Different Tax Systems' Effects on Income Distribution (part 1)
4. Different Tax Systems' Effects on Income Distribution (part 2)
1. Exercise 7 (p. 360)
2. Exercise 8-11 (p. 362 HL Only)

Ongoing Country Information

1. Figure out unemployment rates
2. Labor participation rates
3. Causes of the above?
4. What are the inflation rates?
5. What's the economic growth been?
6. What's the level of inequality?
1. With the Gini index?
2. With the 20/20 ratio?

---

Currently Reading

Blog - Yes. Concentrated Wealth and Inequality Crushes Economic Growth

Book - The Rise and Fall of American Growth

G11 - Week 21 - Day 1

In-class work

1. Marginal University Economic Growth
1. The Idea Equation
2. Economic Growth in the Short-run and Long-run
1. Exercises 4-11 (p. 338-340 HL Only)
3. Equity in the distribution of income
1. The Lorenz Curve and Income Distribution
2.  Quantifying Income Inequality part 1 - The Gini Coefficient (Index)
3.  Quantifying Income Inequality part 2 - the 20/20 Ratio
1. Exercises 1-3 (p. 350)
4.  Different Tax Systems' Effects on Income Distribution (part 1)
5. Different Tax Systems' Effects on Income Distribution (part 2)
1. Exercise 7 (p. 360)
2. Exercise 8-11 (p. 362 HL Only)

Ongoing Country Information

1. Figure out unemployment rates
2. Labor participation rates
3. Causes of the above?
4. What are the inflation rates?

---

Currently Reading

Blog - Poverty is a far bigger problem than inequality, by Scott Sumner

Book - The Rise and Fall of American Growth

A Nice Book Review of "Saving Capitalism"

Below is a good read from Paul Krugman, a Nobel Prize winner for economics, on a recent book released by Robert Reich, the former secretary of labor for the US.

Challenging the Oligarchy by Paul Krugman | The New York Review of Books

Anyone hoping for a reversal of the spiral of inequality has to answer two questions. First, what policies do you think would do the trick? Second, how would you get the political power to make those policies happen? I don’t think it’s unfair to Robert Reich to say that Saving Capitalism offers only a sketch of an answer to either question.

The Lorenz Curve and Income Distribution - Jason Welker

Welker has a new video up on the Lorenz Curve from chapter 16 on income distribution. It walks you though a good explanation as always. For those of you who have already studied chapter 16, it's probably worth reviewing this video as another resource to help your understanding.

For those in grade 11, you can simply wait until you get to chapter 16 (or not, if you're in a hurry).

Red Nose Day - Jack Black and Felix

I don't actually know what Red Nose Day is, nor did I look at the website, but the video itself is quite powerful. There are terrible living conditions in much of the world with horrible experiences happening every day.

The boy's wish is to learn.

At a school like ours, we have every opportunity to learn, but I often see students not taking advantage of it. I see it as a moral obligation to learn the most we can in order to make the world a better place and help others like the boy in this video. We are quite fortunate and should take advantage of the privileges we have each day.

Inequality and Social Mobility

It should be obvious to anyone with a brain that higher inequality leads to less social mobility. Apparently a study was needed. The graph below represents the correlation between income inequality and social mobility between generations and has been somewhat sarcastically labeled the "Great Gatsby curve".

High school dropout rates increase with income inequality | VOX, CEPR’s Policy Portal

Compared to other developed countries, the US ranks high on income inequality and low on social mobility. This could be particularly concerning if such a trend is self-perpetuating. In this column, the authors argue that there is a causal relationship between income inequality and high school dropout rates among disadvantaged youth. In particular, moving from a low-inequality to a high-inequality state increases the likelihood that a male student from a low socioeconomic status drops out of high school by 4.1 percentage points. The lack of opportunity for disadvantaged students, therefore, may be self-perpetuating. 

Figure 1. The Great Gatsby curve in the US 

Robert Solow in Conversation with Paul Krugman: "Inequality: What Can Be Done?"

On the Importance of Ethics in Economics

This is perhaps the most concise explanation for why the notion that people get what they deserve in the free market is absurd. The notion that some people are more "deserving" than others simply does not hold up to any reasonable thinking in light of evidence from psychology, genetics, sociology, or neuroscience.

Noahpinion: I get what you get in ten years, in two days

Now suppose Mike goes to Greg Mankiw and asks: "Dr. Mankiw, why is it right and just that it took me 4% of my entire lifespan to buy this car, with all my heroic efforts and harsh self-denial, when it took that Brad CEO guy less than a day? I put in every bit as much effort as he does, day after day. Why does he deserve to get things with so much less effort than I put in?" 

Dr. Mankiw responds: 

I am more persuaded by the thesis advanced by Claudia Goldin and Lawrence Katz (2008) in their book The Race between Education and Technology. Goldin and Katz argue that skillbiased technological change continually increases the demand for skilled labor. By itself, this force tends to increase the earnings gap between skilled and unskilled workers, thereby increasing inequality...The story of rising inequality, therefore, is not primarily about politics and rent-seeking but rather about supply and demand... 

If Goldin and Katz are right that the broad changes in inequality have driven by the interaction between technology and education...then it would seem an unlikely coincidence that the parallel changes at the top have been driven by something entirely different. Rather, it seems that changes in technology have allowed a small number of highly educated and exceptionally talented individuals to command superstar incomes in ways that were not possible a generation ago. 

"OK," Mike says. "But why, then, is Brad CEO so much more productive than I am? Where does his $30 million productivity come from?" 

Dr. Mankiw responds: 

[T]he intergenerational transmission of income has many causes beyond unequal opportunity. In particular, parents and children share genes, a fact that would lead to intergenerational persistence in income even in a world of equal opportunities. IQ, for example, has been widely studied, and it has a large degree of heritability. Smart parents are more likely to have smart children, and their greater intelligence will be reflected, on average, in higher incomes. Of course, IQ is only one dimension of talent, but it is easy to believe that other dimensions, such as self-control, ability to focus, and interpersonal skills, have a degree of genetic heritability as well. 

"So let me get this straight," Mike says. "Brad deserves to be so much richer than me because of ability he was born with? People who are lucky enough to be born with high skills deserve to be able to get a Civic in half a day, while people who were born with fewer skills deserve to have to slave away for years if they want a Civic?"

Wealth inequality and the marginal propensity to consume - Washington Center for Equitable Growth

Here is an interesting link to today's discussion on the MPC for wealthy and less wealthy individuals and its impact on the economy. As noted in class, the poor of a nation tend to have a much higher MPC than the wealthy. Knowing this can lead to much better economic stimulus overall when deciding on policies that allocate government spending.

Wealth inequality and the marginal propensity to consume - Washington Center for Equitable Growth

Carroll and his co-authors find an aggregate MPC, or average MPC for all households, ranging between 0.2 and 0.4. Their estimate is on the high end of other estimates. Their results mean, to return to the question posed above, if I gave you $10, you’d spend between $2 and $4.

Not everyone would spend these extra bucks the same way, of course, because not everyone has the same marginal propensity to consume. The authors find a wide dispersion in the MPC across the wealth distribution. For the most part, less wealthy households have much higher MPCs than wealthier households. But the economists find that the ratio between wealth and income is the key determinant of the MPC. 

There are actually quite a few households in their model that have a fair amount of wealth, but a low wealth-to-income ratio, which in turn results in a high marginal propensity to consume. These households may be the “wealthy hand-to-mouth” that economist Greg Kaplan and Justin Weidner, both of Princeton University, and Giovanni L. Violante, of New York University, have written about. In contrast, a household that has a lot of liquid assets, such as investments in the stock market they could easily withdraw, tend to have a much lower MPC. 

So what’s the actual real world importance of estimating marginal propensities to consume? Knowing which households are the most likely to spend an extra dollar can help make fiscal policy more effective. According to Carroll and his co-authors, any fiscal stimulus targeted toward individuals in the bottom half of the wealth distribution would be 2 to 3 times more effective than just a blanket stimulus.

INEQUALITY FOR ALL - Official Trailer - YouTube

I haven't watch this documentary yet, but it looks interesting and something that I will probably get to this weekend. The full documentary can be found on YouTube last time I looked.

Shipping Trumps Serendipity - Study Hacks - Cal Newport

Shipping Trumps Serendipity - Study Hacks - Cal Newport

Here's a short passage from the above article on the importance of creating value. The author, Cal Newport, is one of the best writers today on expertise and the value of "deep work". His blog Study Hacks is a great resource for learning how to be more productive and study more effectively.

"Here’s the reality for almost every professional pursuit: shipping things that are unambiguously valuable generates significantly more interesting and high-return opportunities than exposing yourself to lots of different people and ideas. 

You probably don’t, in other words, need to invest dozens of hour a week into cultivating your social media community, or thousands of dollars a year attending feel good conferences, to stumble into the Next Big Thing in your career. 

A significantly more effective path is to instead ship things that catch peoples’ attention."