The Knowledge-Confidence Mismatch Effect

Some of our more important sociological conditions, the things which coercive statists most like to argue about, are also often the most prone to ignorance, poor framing, definitional goal-post moving, and absence of useful data or information. It is not that the issue isn't important. It is that we know so little and yet declare so confidently. It is a knowledge-confidence mismatch issue.

CO2 driven AGW is the obvious example but once you start looking for the Knowledge-Confidence Mismatch Effect, you see it almost everywhere.

Another one that waxes and wanes in the buzzing circles of academia and socialist circles is the issue of income inequality, wealth inequality, and inequality more broadly.

John H. Cochrane has a very good discussion of the mismatch between confident declarations about the source, nature, and resolution of wealth inequality and the actual rudimentary empirical ledger and the plethora of definitional issues attendant to the issue. From Wealth and Taxes Part I by John H. Cochrane.

Last November I had the pleasure of discussing "Top Wealth in the United States: New Estimates and Implications for Taxing the Rich" a very nice paper by Matthew Smith, Owen Zidar and Eric Zwick at the NBER asset pricing meetings, presented by Eric. The paper prompts a series of blog posts on wealth distribution and wealth taxes. I'll try to stick to points that haven't been made a hundred times already.

The paper mostly examines Saez and Zucman's 2016 QJE paper on wealth inequality. As many others have found, the Saez Zucman numbers are, ... let's say somewhat overstated.

Their bottom line is to cut Saez and Zucman in half. As I read the paper I think this is conservative -- and when we ask the obvious questions that the whole enterprise begs to be asked (which Smith et al don't do, but I will) a chasm of emptiness opens up, and the questions end up emptier than their answers.

[snip]

I don't mean to sound critical of Smith et al. They're doing the best they can given the Zucman and Saez rules of the game. But a little peek into this sausage factory should leave you wondering, just why are these the rules of the game? Why do we care (should we care) so much about the distribution of something that is essentially impossible to measure or define? If you are making money was a partner in an LLC you help to run, why should anyone care about a fictitious accounting "value" of that partnership? You can't sell it!

A meaty post with lots of sensible content. Read the whole thing.