Monday, 20 January 2014

Fractals, the One Per Cent, and "Le Loup de Wall St"

The Original Wolf of Wall St, circa 1939

The Updated Version

I read this morning a recent column by New York Times economics columnist (and Princeton Nobel laureate) Paul Krugman.  In it, Professor Krugman is discussing the numerical and social implications of the current desire in the US to define the "One Per Cent" as class enemies.

One per cent may seem at first blush to be a small number, but it confronts what I call "the denominator problem."  That is to say, a fraction of a huge number is not small absolutely.

A couple of years ago, a somewhat ragamuffin melange of  protestors had a few minutes of fame (infamy?) squatting in a small pocket park in lower Manhattan, rallying round a battle cry agains the perceived unfairness of the grasping rich.  President Obama, Paul Krugman, and others picked up the cry, and it still can be heard today, still loud if somewhat faint.

Setting aside the moral judgment that Professor Krugman and others inject about what various people "deserve," the argument had and continues to have serious practical problems.  Some of these may be becoming apparent to the more thoughtful.

Proessor Krugman - who has at least an apparent grasp of real mathematics, not like the president  - recognises the challenge of defining a group that is so large as the "one per cent."  Obviously, one per one hundred is a relatively small fraction, but the denominator problem immediately presents - one per cent of 300 million is the city of Los Angeles.

"The one per cent" is a useful short-hand for the intellectually lazy, who require slogans rather than ideas or workable solutions.

I wonder, though, if Krugman's epiphany has less to do with a mathematical "a-ha" moment, and more to do with his recognition that this definition puts him in the class enemy list, a place where he and other country club communists are loathe to be?

(As an aside, among Professor Krugman's manifold grievances is the continuing climb in the costs of a university education - self-awareness is apparently not among his long suits, as he seems either oblivious or wilfully ignorant that he has been an employee of Princeton for much of that time, and its tuitions have not been exactly flat over the past 25 years.  But of course, the money lavished on professors who every year teach less and less is completely deserved, not like the gross acquisitiveness of a guy working in the grubby realm of commerce.)

Now, it's true that "most of the gains" have gone to "the top one per cent."  And within that top one per cent, to the top one per cent.  Et cetera.

Krugman is bumping into the problem of a distribution that may be quite fractal in nature - that is to say, a small piece of it reproduces the same properties as the large one - hence one per cent of the total looks remarkably like one per cent of that sample, and so on.

The paradoxical challenge that folks like President Obama and others face is that, in order to prop up tax-spend policies, the net must be large enough.  It's not really possible to pay for all the 'free' stuff the Democrats desire by taxing only the group that Krguman would go after, unless you are going to confiscate virtually everything they earn AND  a good chunk of their accumulated wealth as well.  A trillion is a massive amount.  If you target the  really big earners (say, to be generous, one per cent of the one percent), you're suddenly down to 30,000.  Some quick maths will show how much you will have to take to cover a trillion dollar deficit.

Every year.

Just to cover the FEDERAL deficits.

Good luck with that.

So, the denominator has to be larger as a matter of course.  Thus, the net to catch enough class enemies must be enlarged, or the scheme will not work.

One other thing - I've seen it written that the distriution of liberal supporters (take those who vote Democrat as a proxy) is U-shaped - most of the really poor, and most of the really rich.  If you start singling out too small a group and naming them... Well, I don't think that calling some of his best supporters class enemies will make the president - or Paul Krugman - very welcome for summer parties in the Hamptons.

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