Saez And Zucman’s Failure On Wealth Inequality


For aficionados of how the world is going to pot, the plutocrats are just sucking it all up, a correction to the Saez and Zucman estimates on wealth inequality:

It ain’t happening like they say it is.

There is though this interesting additional question:

The answer is, they don’t.

Our definition of wealth includes all pension wealth—
whether held in individual retirement accounts, or through pension funds and life insurance companies—with the exception of
Social Security and unfunded defined benefit pensions.4 Although
Social Security matters for saving decisions, the same is true for
all promises of future government transfers. Including Social
Security in wealth would thus call for including the present
value of future Medicare benefits, future government education
spending for one’s children, etc., net of future taxes. It is not clear
where to stop, and such computations are inherently fragile because of the lack of observable market prices for these types of
assets. Unfunded defined benefit pensions are promises of future
payments that are not backed by actual wealth. The vast majority
(94% in 2013) of unfunded pension entitlements are for government employees (federal and local), thus are conceptually similar
to promises of future government transfers, and just like those
are better excluded from wealth.

They exclude absolutely everything government already does to reduce wealth inequality. This is not a reasonable basis upon which to demand that something be done about wealth inequality. We must, at the very least, consider what is already being done before we call for more.

Another way to put this being that we institute the welfare state because we think it makes people richer to have a welfare state. Ignoring the welfare state when measuring wealth is thus more than just a tad misleading, isn’t it?