Categories:
Growth: Consequences
Income Distribution
At this link is a 22-minute talk that economist Alan Reynolds gave at Harvard in 1987. The other participants were John Kenneth Galbraith, Barry Bluestone, Lester Thurow, and Frank Levy.
There is so much content in this one short talk that it impossible to summarize without losing a lot of content. It’s also funny and you can see that many people in his audience seemed to enjoy it too.
The topic is “The Disappearing Middle Class.”
Notice at about the 5:30 point, Lester Thurow seems to enjoy one of Alan’s zingers.
Great pithy line at the 19:43 point to 19:55
READER COMMENTS
John Alcorn
Jun 23 2019 at 5:48pm
David, Thanks for posting the talk, so deft and wry.
There is a third law of prudent self-defense: Never ever argue with Alan Reynolds.
PS: We’re lucky that Russ Roberts tirelessly carries the torch now, about these issues.
David Henderson
Jun 24 2019 at 11:36am
You’re welcome, John.
You wrote:
PS: We’re lucky that Russ Roberts tirelessly carries the torch now, about these issues.
I agree. Russ has really homed in on the issues of mobility and changing composition of households in the various categories.
You may like this talk I gave at Baylor University in the fall of 2017. It’s titled “Economic Inequality: Popular Misconceptions and Important Facts.”
John Alcorn
Jun 24 2019 at 3:10pm
David,
Thanks for the pointer. Another first-rate talk! The datum about Castro’s wealth speaks volumes.
Benjamin Cole
Jun 23 2019 at 8:45pm
Alan Reynolds makes a lot of good points.
On the other hand, 1987 was before the explosion of housing costs along the West Coast and in the Boston, New York areas. Hard as it is to believe, 1987 was 32 years ago. You are engaging in time travel when you see the excellent Reynolds presentation.
Small houses in Monterey CA sell for more than a million dollars now.
This problem of a property class extracting all or even greater than income gains through economic rents is not limited to the United States; it is generic to all regions where there is some economic expansion yet tight property zoning.
The work of Kevin Erdmann, at the Mercatus Center connected to George Mason University, addresses this issue.
Look at a Hong Kong, Sydney, Canada, New Zealand, London and you see the same pattern. This persistent pattern makes a speech like that of Alan Reynolds a retreat into nostalgia.
The solution, of course, is a total abolition of property zoning. However, such a solution does not appear to be in the cards.
Thaomas
Jun 24 2019 at 5:57am
Abolition of property zoning is like open borders, the right direction to go but too far. What kind of use the property next to another property is put to is real issue. The trick is that we do not have good mechanisms for buying off opposition to development, ways of sharing the gains that accrue to the whole city with the people who will be negatively affected.
Benjamin Cole
Jun 24 2019 at 10:13am
See my comment at Grumpy Economist.
But why do you presume the financial concerns of extant property owners trump those of extant renters or future property buyers?
Unzoning property may in fact lower some property values but that is probably a positive and would result in higher living standards.
Thaomas
Jun 25 2019 at 6:16am
My point is that zoning deals with an externality so it has some theoretical justification. But even viewed as a pure political problem (vested interests vs common good) it would help if we had better mechanisms to share some of the gains from higher density land use with the existing property owners.
nobody.really
Jun 26 2019 at 3:39am
The concept of real property entails an ill-defined bundle of attributes. To take one example, historically the economies of Western states in the US depended on cattle ranching–and any landowner that didn’t want cows roaming onto his property had the burden of erecting his own fences to keep the cows out. But in each state, as farmers began to outnumber ranchers, the laws changed to impose the duty on the ranchers to fence their cattle in. So, does the “true” definition of property entail a fence-in provision or a fence-out provision? There is no such thing as a “true” definition; it’s a social choice.
The common law of nuisance (“right to peaceable enjoyment of property”) reflects the ambiguous nature of property rights: To what extent does your property interest restrict the discretion of your neighbors, and vice versa? Court decisions are all over the map.
Where courts give a broad reading to nuisance laws, zoning may be less necessary. Where courts have ruled more narrowly regarding nuisance, people have sought to supplement these rulings by adopting zoning restrictions.
It makes as much sense to call for a blanket repeal of zoning laws as to call for a blanket repeal of any other kind of property attribute. Some attributes/zoning laws may do more harm than good–and others not. It’s a case-by-case thing.
MG
Jun 24 2019 at 7:16am
What a gem. I enjoyed every bit of it.
However, it frustrates me to notice how little has changed in the framing (read, aggrandizement) of this issue. It frustrates me that the same — and in my opinion always correct and often powerful — rebukes offered by Mr. Reynolds have had to be continually injected in this continuous “debate”. And it frustrates me that it appears to have done little to change minds or political strategy.
As an aside: Back in 1987 Mr. Reynolds clearly thought that the fact that the top 1% share of income taxes paid had risen to the low 20’s % (from the high teens) after tax reform supported the view that tax reform had not turned out to be a “give away” for the rich. That figure is now 37.3%.
Thaomas
Jun 25 2019 at 6:21am
The change in the percent of all taxes paid by any particular income group is not a good way of deciding is an intervening tax change favored or disfavored that group, especially if the tax change was not revenue neutral.
Mark Z
Jun 25 2019 at 9:21am
That’s true in absolute terms, but how the percentage changes does tell you something about which groups benefited relatively. For example, if a tax reform reduces absolute revenue from the rich (however defined) but increases the percentage of tax revenue raised from them, it would be misleading to call that a tax cut for the rich, since it would mean the tax cut was actually disproportionately enjoyed by the non-rich.
nobody.really
Jun 26 2019 at 10:39am
Huh? To make such a claim, I’d think you’d need to articulate some theory about the relative consequences of deficits by social class. Do you have such a theory?
Let’s start with a simple theory: Deficits have NO consequences, and all taxes are pure waste. Under such a theory, then the only consequence of tax cuts for social classes is how much they effect each class on an absolute basis. If the rich get the largest absolute tax cut, then the tax cut primarily favors the rich. “Disproportionately” doesn’t enter into it, because in the absence of consequences, there’s nothing to “proportion.” No class has any stake in what some other class pays or doesn’t pay.
Sure, perhaps the rich might end up paying a larger share of all taxes paid–where “all taxes paid” is an arbitrary number unrelated to any other phenomenon. Why would anyone regard that dynamic as benefiting the non-rich?
The only reason to care about proportionality is if we imagine that deficits DO matter to us collectively, and might effect different classes differently.
JK Brown
Jun 25 2019 at 3:20pm
This talk seems to be at the front end of the trend of the last 30+ years with the advancement of modernity as outlined in last Friday’s (6/20/2019) Free Thoughts podcast with Stephen Davies. In that interview, Davies does point out that the average income people in rich countries, i.e., middle class, have endured stagnant incomes, but not necessarily stagnant standards of living.
The protests we see now, may be the start of a correction. But then that is a disruption to the globalization linearity desired by many, i.e., jobs moving off shore starting to return richer countries as margins fall.
Nick R
Jun 26 2019 at 7:08am
Thanks David, indeed a witty, entertaining talk, and also devastating to his co-panelists (or so I suspect without having heard them). As noted by others here, it is indeed astonishing that with updated statistics virtually the same talk could be delivered today with equal validity.
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