Mark Sadowski vs. Stone on Underconsumption

     While perhaps Mark will hold it against me for writing about 'an old thread'-though it was just back in December, and Sumner is obsessed with what Krugman and Mike Konczal wrote last April, this debate he had with Stone is new to me. 

      It seems that our friend and reader Tom Brown is kind of a big fan of Sadowski's-which is understandable, Mark is a smart guy, undeniably.Tom kind of pointed me to this recent back and forth Mark and Stone had over at Interfluidity over the underconsumption theory.  Tom actually had referred me to Patrick Sullivan's snarky comment directed at yours truly-which amounted to the idea that the economy is in deep structural trouble and it's all the fault of Obamacare. I have little interest in responding to Sullivan's snark-as he always descends into facile name calling pretty quickly. 

    I do find the Mark-Stone faceoff of interest. First off, I can't figure out what Stone's ful name is-is he witholding it or did I just miss it? Mark found his back and forth to be a waste of time. 

   "I enjoyed the praise that Winterspeak and JKH gave me. Personally I found the conversation with stone to extraordinarily frustrating as it was clear to me his mind was completely closed."

   " after my ordeal with stone, I’m sick to death of trying to convince people that the underconsumption hypothesis is nonsense. Evidently it is a zombie myth that simply refuses to go away."

    http://www.themoneyillusion.com/?p=25827&cpage=1#comment-312608

     I looked at the admittedly very long thread between them and don't really see how Stone was arguing in bad faith-just saying I don't see it is all. It seems that this last stream of comments by Stone seemed to displease Sadowski:

     "Mark A Sadowski @113, I totally agree with the description that a big factor behind middle class people becoming indebted was the falling inflation during the 1980-2008 period, causing mortgage debt to not be inflated away anything like as much as might have been expected from a 1979 vantage point.

The reason why I don’t think any of this undermines the “underconsumption hypothesis” is because I don’t think that the underconsumption hypothesis is in anyway based on differences in NIPA income saving rates between people with high income and people with low income. Instead the underconsumption hypothesis is based on lower consumption relative to WEALTH by the wealthy as compared to the poor.

As I said, if your framework of macroeconomics isn’t up to the job of grasping that then IMO you need to go back to the drawing board and fix your framework. Remember we are talking about a phenomenon that has been written about continuously for thousands of years before NIPA accounting conventions were chosen. If dispersal of profits by share repurchases or mergers and aquisitions or firms buying stock of other firms (as done by Berkshire Hathaway) are all missed by NIPA income, then all that means is that the convenience of using NIPA data is a convenience that can’t be afforded if we want to understand reality.

As an analogy, imagine you were an astronomer and you generally worked using data that was posted on the internet by the Hubble space telescope or whatever. Some critical aspect of cosmology was only perceptible at part of the light spectrum not collected by that telescope. To do a decent job, you would have to just forgo the convenience of relying on your usual data set and instead look wider. It would be goofy to say that anything that wasn’t part of the Hubble data stream was irrelevant to astronomy. Astronomy is about the universe and not about that data stream. Likewise macroeconomics is about the economy and not about the NIPA datastream."

     "Mark A Sadowski, let’s consider that previous example with person A and person B (@57 above). Let’s imagine that neither person take much note of what is going on behind their personal finances. All they do check total available funds each month."

     "Person A sees her total available funds increase (roughly and erratically) by say $92M when she checks them each month and so is relaxed about her bills of $83k each month."

     "Person B sees total funds increase by $1.7k when she checks them each month and so is relaxed about her bills of $1.5k each month."

     "A and B are sisters and stop by for a chat. Person B accuses person A of being feckless and not saving. Person A is astounded and says that her outgoings amount to less than 0.01% of the amount her account increases by each month. Person B says that B’s account has been increasing in a way that is not classed as income by NIPA. Person A says “who gives a flying expletive”. How would you explain the relevance of the distinction?"

      http://www.interfluidity.com/v2/4831.html#comments

      If I correctly understand what Stone is getting at, he's saying that we should look at savings out of wealth rather than just savings out of income.  Mark insists that for the UC theory to prove itself it has to show that out of new production the rich are cutting back on their savings-their savings out of capital gains are irrelevant. 

      I have to admit that I don't understand Mark here at all-which may be less his fault than my own. 

      "To be clear I don’t think anybody is debating the fact that MPC decreases as income increases.

I claim that that MPC decreases with income while the savings rate does not increase with income. The concave consumption function that Carrol and Kimball derive results in an MPC to consume out of wealth or transitory income that declines with the level of wealth, and that model appears to be consistent with my claims:

     "The negation of a statement does not mean its opposite. Not selling does not mean buying."

      Maybe if Mark could explain what he means here it would be helpful-if he's willing to revisit the debate again. To me it seems intuitively clear that the more money someone makes the more as a percentage of income they will save. I mean for a large part of those in the lower or middle income levels, nothing is saved. 

      I do have to remark on one point. Mark compares the UC theory with Lambert but why should it be expected that every liberal will agree with everything every other liberal says. I find I agree with very little Lambert ever says.

       On UC Mark is arguing for a different treatment than Sumner argues for-in other contexts it's true. Sumner is always claiming that income inequality doesn't matter as there's no such thing as income. 

       http://diaryofarepublicanhater.blogspot.com/2014/01/my-reply-to-scott-sumners-reply-to-ryan.html?showComment=1389536081475#c5056051383285031746

       Does Mark think that's true except when we're analyzing UC? Stone seems to want to look at savings out of wealth-what's stopping us from doing this, especialy as Sumner is always claiming it's the more important gauge anyway?

      HT to Tom Brown, naturally, who made this post happen.