It's interesting that one of the articles in the header says "Why Spin Is Good For Democracy". Seems Krugman takes that hook, line, and stinker.
I personally would reframe the luck argument into one based on scarcity of resources. It's not about whether inequality is "necessary". It's about whether it can even be avoided.
Personally I think the '3 stylised models' that the author paints as being the possible sources of high inequality are somewhat wide of the mark.
The majority of 1%ers are there because their parents were 1%ers, and western society is broadly set up to allow those with large amounts of capital to protect it and use it to gain advantage & accumulate more capital. It's not necessarily a bad thing, except where those with capital can use it to bias the system in their favour.
An example is access to education. In the US, the lowest ability quartile of high earners now has a better chance of graduating collage than the highest ability quartile of low earners. From memory it was something like 31% to 29% respectively. The real shame there is the 71% of high-ability low-wealth kids who can't graduate college but really should. That value is being squandered.
However... inequality itself is a trailing indicator of other indicators relating to social cohesion, so it's possible that addressing inequality alone won't have a lasting effect. Robert Putnam is an interesting source on this stuff if anyone is interested.
Generational passing-down of wealth (largely a result of rents that can extracted from resources kept within one's family) is completely elided in the article.
It's not contradictory for a majority of wealthy people to be wealthy because of their parents, and for 70% of wealth to be lost by the 2nd generation, even if both sets of stats were accurate and comparable.
What is contradictory is your assertion that the 1st generation wealth, and the remaining 30% at the 2nd generation, translates to "almost none".
I see this figure around a lot, does anyone have a pointer to the actual study? I got as far as a book called "Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values", no detail on the actual study.
> And power is surely a big factor, too. Reading someone like Mr. Graham, you might imagine that America’s wealthy are mainly entrepreneurs. In fact, the top 0.1 percent consists mainly of business executives, and while some of these executives may have made their fortunes by being associated with risky start-ups, most probably got where they are by climbing well-established corporate ladders. And the rise in incomes at the top largely reflects the soaring pay of top executives, not the rewards to innovation.
Most probably got there by climbing well established corporate ladders? Is there a source for this? It seems "Executives, managers and supervisors (non-finance)" is rather broad and does not address whether these are corporate structures that can "set their own compensation".
Who decides the classification? Is it the IRS, the taxpayer, or some third party?
Mark Cuban would probably categorize himself as "Entrepreneur not otherwise classified." Someone else may very well put him in that "Executives, managers and supervisors (non-finance)" category.
" most probably got where they are by climbing well-established corporate ladders. And the rise in incomes at the top largely reflects the soaring pay of top executives, not the rewards to innovation."
Then why the heck are you here?
If you want piles of money, shouldn't you be climbing the uncreative, guaranteed ladder to wealth?
If being the 0.1% were really that easy, it wouldn't be the 0.1% anymore.
They're not wrong though. The greatest growth did come when there was the least inequality, and the gilded age wasn't exactly a time of phenomenal economic growth...
I wonder if that's actually true. It was far, far easier to hide income back then. This is before currency transaction reporting and "currency smuggling" laws. You could get on a flight to Zurich with a duffel bag full of cash and it wasn't something anyone had to report to the government.
Yes. Prior to 1986 it seemed like everyone you knew had a money-losing chinchilla farm or something they could write off. If you tried to do that today the IRS would laugh at you.
the gilded age wasn't exactly a time of phenomenal economic growth...
Wasn't it?
n the quarter century following the war, America’s economy grew at the fastest rate ever in the history of the country. In the half century between 1870 and 1920, the number of Americans employed in manufacturing jumped almost 450%, climbing from 2.5 million to 11.2 million. This created a vacuum that encouraged immigration and, during the same period, 27.5 million immigrants came to the United States. In order to support the country’s burgeoning population, farmers increased the number of acres under cultivation by an astonishing 234%
> n the quarter century following the war, America’s economy grew at the fastest rate ever in the history of the country.
This is exactly my point. Fastest ever growth. 1945-1970.
> In the half century between 1870 and 1920, the number of Americans employed in manufacturing jumped almost 450%, climbing from 2.5 million to 11.2 million. This created a vacuum that encouraged immigration and, during the same period, 27.5 million immigrants came to the United States. In order to support the country’s burgeoning population, farmers increased the number of acres under cultivation by an astonishing 234%
This is simply population growth. Economic growth, as a metric that actually matters to quality of life, is defined as Real GDP per person.
If you look at the main chart in this paper, you will see the growth was, relatively speaking, rather flat throughout the gilded age, which was also characterized by wild swings in the economy. Growth becomes higher and more constant after WWII (largely due to the rather left-wing policies at play that started with the New Deal, and later the restrictions imposed during the war, and high tax rates immediately after the war).
>This is exactly my point. Fastest ever growth. 1945-1970.
They are talking about the Civil War.
>This is simply population growth. Economic growth, as a metric that actually matters to quality of life, is defined as Real GDP per person.
First, it's not just "simply" population growth. Try ferrying 27 million immigrants to current Southern Europe and see how the GDP fares.
But more importantly, I just don't get the idea that GDP per capita inside the country is the only metric that matters to quality of life. Dozens of millions of people were able to increase their income by coming to the US, that doesn't count?
What you're essentially saying is that if a country has ten people earning $100 each, and then ten more people who were earning $2 in other countries now join the first ten (whose income is unaltered) but earn only $5, the quality of life has been reduced.
To me this is simply nonsense unless one doesn't care about the quality of life of immigrants.
My bad. I forget about these things since I'm not American.
> First, it's not just "simply" population growth. Try ferrying 27 million immigrants to current Southern Europe and see how the GDP fares.
A certain economic development model says growth is a function of technology, labour, and capital utilization. Assuming there's excess capital available, more population growth will always lead to economic growth. Whether or not you actually believe the model doesn't matter, economic growth has generally followed population growth, according to data.
> What you're essentially saying is that if a country has ten people earning $100 each, and then ten more people who were earning $2 in other countries now join the first ten (whose income is unaltered) but earn only $5, the quality of life has been reduced.
That's essentially what slavery was...
> To me this is simply nonsense unless one doesn't care about the quality of life of immigrants.
This is a different discussion altogether. We can see today, in places like Saudi Arabia, migrant workers come and are unable to attain anywhere close to a living standard the Saudis enjoy, is that the model we want?
Also, the US can't take in 6+ billion immigrants. Nice thought, but not possible.
And finally, I'm well aware of the plight of immigrants and those in 3rd world countries - my wife is an immigrant from a 3rd world country. However, when you factor in the cost of living, it's not always an upgrade (in my wife's case, she's done well so it is, but many of her family are in worse condition in Canada than back home)...
Here's a fun chart for you. US real GDP per capital from 1790 to the present:
I understand that GDP per capita didn't grew much during that time. I just don't think it disproves the idea that the economy grew; that's the GDP, and it did grew a lot.
I also don't agree that GDP per capita is the metric that matters to quality of life. Like I showed, GDP per capita can drop despite an overall growth in the quality of life of every person. And it can also grow a lot despite quality of life generally dropping, if a few become fabulously wealthy while most people become a bit poorer.
Dividing the GDP by the number of people is simply not that useful in determining how wealthy the median person actually is.
This is a different discussion altogether. We can see today, in places like Saudi Arabia, migrant workers come and are unable to attain anywhere close to a living standard the Saudis enjoy, is that the model we want?
The discussion regarding the model we want is the different one. It can still be a model with economic growth and even improvements in quality of life. That doesn't mean better models don't exist, nor did I claim so.
That's essentially what slavery was...
Right. Except this was after the Civil War, and these were actual immigrants, not slaves.
A certain economic development model says growth is a function of technology, labour, and capital utilization. Assuming there's excess capital available, more population growth will always lead to economic growth. Whether or not you actually believe the model doesn't matter, economic growth has generally followed population growth, according to data. (...) Also, the US can't take in 6+ billion immigrants. Nice thought, but not possible.
Why not, if the economy will just automatically grow, as you write?
I like Krugman, and agree with him on this; though it's quite an example of Betteridge's Law. Obviously vast inequality isn't necessary, there are plenty of historical examples of merely ordinary inequality (and even a few of almost-equality). To me the question his piece begs is "how do you legislate redistribution when your lawmakers are beholden to the vast amounts of money the super-rich happen to have?"
26 comments
[ 3.2 ms ] story [ 68.5 ms ] threadI personally would reframe the luck argument into one based on scarcity of resources. It's not about whether inequality is "necessary". It's about whether it can even be avoided.
The majority of 1%ers are there because their parents were 1%ers, and western society is broadly set up to allow those with large amounts of capital to protect it and use it to gain advantage & accumulate more capital. It's not necessarily a bad thing, except where those with capital can use it to bias the system in their favour.
An example is access to education. In the US, the lowest ability quartile of high earners now has a better chance of graduating collage than the highest ability quartile of low earners. From memory it was something like 31% to 29% respectively. The real shame there is the 71% of high-ability low-wealth kids who can't graduate college but really should. That value is being squandered.
However... inequality itself is a trailing indicator of other indicators relating to social cohesion, so it's possible that addressing inequality alone won't have a lasting effect. Robert Putnam is an interesting source on this stuff if anyone is interested.
Generational passing-down of wealth (largely a result of rents that can extracted from resources kept within one's family) is completely elided in the article.
[0] http://time.com/money/3925308/rich-families-lose-wealth/
What is contradictory is your assertion that the 1st generation wealth, and the remaining 30% at the 2nd generation, translates to "almost none".
Most probably got there by climbing well established corporate ladders? Is there a source for this? It seems "Executives, managers and supervisors (non-finance)" is rather broad and does not address whether these are corporate structures that can "set their own compensation".
Mark Cuban would probably categorize himself as "Entrepreneur not otherwise classified." Someone else may very well put him in that "Executives, managers and supervisors (non-finance)" category.
Then why the heck are you here?
If you want piles of money, shouldn't you be climbing the uncreative, guaranteed ladder to wealth?
If being the 0.1% were really that easy, it wouldn't be the 0.1% anymore.
They're not wrong though. The greatest growth did come when there was the least inequality, and the gilded age wasn't exactly a time of phenomenal economic growth...
http://www.businessinsider.com/history-of-tax-rates-2012-5
http://s158.photobucket.com/user/OnlyObvious/media/Tax_Rates...
Wasn't it?
n the quarter century following the war, America’s economy grew at the fastest rate ever in the history of the country. In the half century between 1870 and 1920, the number of Americans employed in manufacturing jumped almost 450%, climbing from 2.5 million to 11.2 million. This created a vacuum that encouraged immigration and, during the same period, 27.5 million immigrants came to the United States. In order to support the country’s burgeoning population, farmers increased the number of acres under cultivation by an astonishing 234%
http://www.saylor.org/site/wp-content/uploads/2011/05/HIST31...
This is exactly my point. Fastest ever growth. 1945-1970.
> In the half century between 1870 and 1920, the number of Americans employed in manufacturing jumped almost 450%, climbing from 2.5 million to 11.2 million. This created a vacuum that encouraged immigration and, during the same period, 27.5 million immigrants came to the United States. In order to support the country’s burgeoning population, farmers increased the number of acres under cultivation by an astonishing 234%
This is simply population growth. Economic growth, as a metric that actually matters to quality of life, is defined as Real GDP per person.
http://arxiv.org/pdf/1205.5671.pdf
If you look at the main chart in this paper, you will see the growth was, relatively speaking, rather flat throughout the gilded age, which was also characterized by wild swings in the economy. Growth becomes higher and more constant after WWII (largely due to the rather left-wing policies at play that started with the New Deal, and later the restrictions imposed during the war, and high tax rates immediately after the war).
They are talking about the Civil War.
>This is simply population growth. Economic growth, as a metric that actually matters to quality of life, is defined as Real GDP per person.
First, it's not just "simply" population growth. Try ferrying 27 million immigrants to current Southern Europe and see how the GDP fares.
But more importantly, I just don't get the idea that GDP per capita inside the country is the only metric that matters to quality of life. Dozens of millions of people were able to increase their income by coming to the US, that doesn't count?
What you're essentially saying is that if a country has ten people earning $100 each, and then ten more people who were earning $2 in other countries now join the first ten (whose income is unaltered) but earn only $5, the quality of life has been reduced.
To me this is simply nonsense unless one doesn't care about the quality of life of immigrants.
https://www.quandl.com/data/MWORTH/0_5-United-States-Real-GD...
Here's nominal GDP: https://www.quandl.com/data/MWORTH/0_0-United-States-Nominal...
> They are talking about the Civil War.
My bad. I forget about these things since I'm not American.
> First, it's not just "simply" population growth. Try ferrying 27 million immigrants to current Southern Europe and see how the GDP fares.
A certain economic development model says growth is a function of technology, labour, and capital utilization. Assuming there's excess capital available, more population growth will always lead to economic growth. Whether or not you actually believe the model doesn't matter, economic growth has generally followed population growth, according to data.
> What you're essentially saying is that if a country has ten people earning $100 each, and then ten more people who were earning $2 in other countries now join the first ten (whose income is unaltered) but earn only $5, the quality of life has been reduced.
That's essentially what slavery was...
> To me this is simply nonsense unless one doesn't care about the quality of life of immigrants.
This is a different discussion altogether. We can see today, in places like Saudi Arabia, migrant workers come and are unable to attain anywhere close to a living standard the Saudis enjoy, is that the model we want?
Also, the US can't take in 6+ billion immigrants. Nice thought, but not possible.
And finally, I'm well aware of the plight of immigrants and those in 3rd world countries - my wife is an immigrant from a 3rd world country. However, when you factor in the cost of living, it's not always an upgrade (in my wife's case, she's done well so it is, but many of her family are in worse condition in Canada than back home)...
I understand that GDP per capita didn't grew much during that time. I just don't think it disproves the idea that the economy grew; that's the GDP, and it did grew a lot.
I also don't agree that GDP per capita is the metric that matters to quality of life. Like I showed, GDP per capita can drop despite an overall growth in the quality of life of every person. And it can also grow a lot despite quality of life generally dropping, if a few become fabulously wealthy while most people become a bit poorer.
Dividing the GDP by the number of people is simply not that useful in determining how wealthy the median person actually is.
On the other hand, here's a report on wage growth during that time: http://www.nber.org/chapters/c2500.pdf
This is a different discussion altogether. We can see today, in places like Saudi Arabia, migrant workers come and are unable to attain anywhere close to a living standard the Saudis enjoy, is that the model we want?
The discussion regarding the model we want is the different one. It can still be a model with economic growth and even improvements in quality of life. That doesn't mean better models don't exist, nor did I claim so.
That's essentially what slavery was...
Right. Except this was after the Civil War, and these were actual immigrants, not slaves.
A certain economic development model says growth is a function of technology, labour, and capital utilization. Assuming there's excess capital available, more population growth will always lead to economic growth. Whether or not you actually believe the model doesn't matter, economic growth has generally followed population growth, according to data. (...) Also, the US can't take in 6+ billion immigrants. Nice thought, but not possible.
Why not, if the economy will just automatically grow, as you write?