Inequality and Opportunity

By John Mauldin | Mar 16, 2014

“Nothing is more dangerous than a dogmatic worldview – nothing more constraining, more blinding to innovation, more destructive of openness to novelty.”

– Stephen Jay Gould

My letters the last few weeks on income inequality (here and here) brought more response from readers than any topic I’ve written on in the history of this letter. And there was certainly no unanimity of viewpoints. Some of you strongly agree with me; some of you aggressively disagree and think I’m full of it; and others see the issue in an entirely different light. Many of you offered links to other research, which I have spent a great deal of time reading. Today we will continue our thinking about income inequality, and I will respond to some of your letters, as they make good launching points for further discussion of the topic.

Income inequality is going to be a central theme in political campaigns for the rest of the decade, so what I want to try to do is simply get some facts on the table so that at least we know what the research says and doesn’t say. A lot of emotional content is offered under the guise of economic research in order to support various political positions. The data suggest that the problem is both worse than we might think when viewed through one lens, and not that big a problem – or at least a very different problem – when viewed through another. I suggest that we look as objectively as possible at all of the data and not just cherry-pick the data that supports our views.

But before we jump back in, I am really pleased to announce that I’ve persuaded George Gilder, one of the finest thinkers and philosophers I know, and Stephen Moore, contributing editor to the Wall Street Journal, along with Grant Williams of Things That Make You Go Hmmm… fame to speak at the 11th annual Strategic Investment Conference in San Diego May 13-16. They will join Niall Ferguson, Kyle Bass, Newt Gingrich, Ian Bremmer, David Rosenberg, Dr. Lacy Hunt, Anatole Kaletsky, Patrick Cox, Dylan Grice, David Rosenberg, David Zervos, Rich Yamarone, my Code Red coauthor Jonathan Tepper, Jeff Gundlach, and Paul McCulley. Nothing but headliners, one after the other, for 2½ days. Plus some of the best money managers around, some names I hope to confirm within the next few weeks, and one or two people who are trying to figure out how to change their schedules in order to get there and who will be fabulous surprises for the attendees. By the way, many of the speakers are planning to hang around and listen to the other speakers. This means you will have chances to engage them at the lunches, dinners, and breaks. Most speakers simply fly into a conference and fly out, but my conference is little different.

This is an annual gathering you simply don’t want to miss. I can’t think of any conference anywhere that has a lineup this strong. When I first broached the idea of our conference to Jon Sundt, the founder of cosponsor Altegris, the one rule I had was that I wanted the conference to be one I would want to attend. The usual conference boasts a few headliners, and then the sponsors fill out the lineup. I wanted to do a conference where no speaker could buy his or her way onto the platform. That means we often lose money on the conference (hard as that may be to imagine, at the price, I acknowledge); however, the purpose is not to make money but to learn with – and maybe have some fun with – great people. We do put on a great show, and my partners make sure it is run well. But the best part will be your fellow attendees. A lot of long-term friendships are forged at this conference. You can learn more and sign up at .

At the close of the letter, I also want to tell you about an exclusive interview with Janet Yellen – but first, let’s think about income inequality.

No Serious Economist Would Bother

As noted above, the previous two letters on income inequality evoked more responses than any other topic I’ve written about. Some rather heated debate ensued between readers, which I actually think is a good thing. For the record, I read every comment posted on our website and many that are sent to me directly. I typically don’t answer, simply because I could spend all day answering, although I certainly get tempted when there’s a comment like the one in which a reader asserted that because I predicted a continuation of the Muddle Through Economy in January 2005, I completely missed the recession that came along three years later! I was clearly predicting recession in late 2006 and a collapse in subprime debt. If anything, I was way too early, and subprime was worse than the $400 billion in losses I suggested at the time.

Let me note that every letter I’ve written since January 2000 is online. Some of them have aged quite well, and a few are simply embarrassing, but I think it would be disingenuous to pull them down. The record is what the record is. But the letters all generally focus on a single topic in a single week. If I make a forecast, it is typically for a discrete period of time. Further, in total agreement with John Maynard Keynes, when the facts change, I will change my mind. (My less-than-sainted Dad would often remark, when I challenged him over his frequent changes of mind, “A wise man changes his mind. A fool never does.” There were times in my youth when I really got tired of hearing that, but now I would love to hear it just one more time if I could.)

But to the point of last week’s letter, retired economics professor Dr. John Seater  of North Carolina State University took me to task (yet again). John is courteous and a real scholar and was gracious enough to talk me through some of his thoughts. Basically, he felt the paper that had me so thoroughly aroused was not worth the time and effort. But I’ll let his words speak for themselves and then reply.

I am sorry to be the bearer of bad news, but John’s column is a waste of time. Most of what John has to say is right, but the article that he uses as a launch pad (Cynamon and Fazzari) is simply silly. No serious economist would bother with it. The authors don’t understand economic theory at all, and they certainly propose nothing coherent in their paper. Their citations are almost entirely from fringe outlets that most serious economists never heard of. They also do not understand general equilibrium, which is amazing for macroeconomists because macroeconomics is nothing but dynamic general equilibrium. In any case, because they ignore general equilibrium and its requirements, they say foolish things. A big

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