Men Adrift (2)

Last month, the Economist published an interesting article called Men Adrift. This is having a devasting affect on family life.

There is no sugar-coating this: many blue-collar men no longer have the sort of earning or prospect that will make women want to marry them A recent Pew Poll found that 78% of never-married American women say it is “very important” that a potential spouse should have a steady job. (Only 46% of never-married men said the same.)

For poor people, especially, it makes sense. Two pairs of hands can juggle work and kids more easily. Spouses can support each other through sickness or might school. But this works only if both believe that the commitment is long term. It is pointless to make plans with someone you fear will sponge of you for a while and then vanish.

Means tested benefits make it easier of get by without a spouse, and sometimes penalise marriage. In America, a single mother with two children who earns $15,000 a year would typically receive $5,200 in food stamps, which would fall to zero if she were to marry a father who earned the same, and this just one of 80 or so means-tested benefits.

In most rich countries, the supply of eligible blue-collar men does not match demand… When men with jobs are in short supply, as they are in poor neighbourhoods through the rich world, any presentable male can get sex, but few women will trust him to stick around or behave decently. Two sociologists asked a sample of inner-city women of all races why they broke up with their most recent partner. Four in ten blamed his chronic, flagrant infidelity: half complained that he was violent. Such experiences make working class women distrust men in general. They still have babies with men, but they seldom marry them.

Picking Piketty Apart (11) Push-back

Piketty's analysis has been challenged by various economists.

1. Rate of Return
Some economists have questioned his suggestion that the rate of return on capital is consistently above 4 percent.

Lawrence Summers argues that the largest single component of capital in the United States is owner-occupied housing. The return comes in shelter services which are consumed.

Robert P Murphy says that Piketty confuses the rate of return with the rental price of capital. He bases his critique on Eugen Böhm von Bawerk who wrote Capital and Interest (1881).

2 Savings
There have been debates about whether savings rates are as high as Piketty claims.

Debraj Ray argues that r>g has nothing to do with whether equality goes up or down. The key force driving rising inequality is “the savings propensities of the rich.

The owners of capital income also happen to be richer than average, and richer people can afford to (and do) save more than poorer people. But that has to do with the savings propensities of the rich, and not the form in which they save their income. A poor subsistence farmer with a small plot of land (surely capital too) would consume all the income from that capital asset. It may well be that the return on that land asset exceeds the overall rate of growth, but that farmer’s capital income would not be growing at all.

This is probably correct, and all that is needed to explain the inequality of wealth.

I expect there will be continuing debate about the economic explanation provided by Thomas Piketty.

I do not think we can be too certain about what will happen in the future. As g declines, the rate of return on capital (r) could decline. If the fall n growth is serious, savings rates could decline too. If either of these happened, Piketty’s prediction would fail.

In some ways, the debate about r>g is irrelevant. A variety of economic, social and legal factors affect the share of national income going to the owners of wealth. Attempting to explain this with two equations is overly ambition.

However, there is no doubt that wealth is currently very unequally distributed. Understanding why this has happened will require a great deal more economic, social and legal analysis.

Arguing about r>g will be a distraction from the real work that needs to be done.

G8 Wishful Thinking

President Obama urged the G8 leaders meeting in Chicago to implement policies that will achieve grow and financial stability. This is a noble sentiment, but there is one small problem.

• Economists struggle to identify policies that would produce grow in the current environment.
• Economists do not agree on what policies will produce financial stability.

No economist can point to policies that are certain to produce both growth and financial stability.