Yes it is. The people are not complaining about income inequality directly. They are complaining about jobs and wages. Increase those two and suddenly income inequality becomes less of an issues because people have enough to live on.
You can't really answer the question "what are Trump's positions", because he contradicts himself all the time.
Trump has had the most inconsistent campaign I could ever imagine. You name a political position, and he's had it. He's been pro-choice, except he also wants to punish women who have had abortions. He's been pro-gay, except now he's not. He wants to stop getting into wars overseas, except he also says he wants to increase military funding and engagements. He's advocated single-payer healthcare, but he wants to repeal Obamacare and replace it with a "free-market insurance system".
The only thing that he's been pretty clear about the whole time is that he wants to "build a wall". (Though you could even argue he's been inconsistent on his immigration position in other ways).
It's a mix. A lot of people voted that way for economic reasons BUT they think those problems are caused by 'foreigners taking our jobs'. A lot of people I saw interviewed were also trying to protect jobs that are unsustainable or wanted protection from competition. People who voted economically were thinking sort-term. A lot of people in their 50's who want to protect their job and don't want to retrain.
>protect jobs that are unsustainable or wanted protection from competition
A) Everybody wants protection from competition. Where do you think profits come from? There's no shame in wanting protection, especially not as the social safety net is hollowed out. If they were not subjected to austerian measures / offshoring in the heartlands the "remain" vote probably would have won.
B) The same economists who are absolutely certain that these people's jobs are unsustainable are the same economists who pushed for offshoring and were completely blindsided by the financial crisis in 2008. The experts thing rang true because economists have no credibility left any more.
In fact, the only economist I know of who actually saw 2008 coming wanted brexit (though not for economic reasons).
Leave won because of a variety of factors, including economics, racism/xenophobia, misinformation, youth apathy, belief that protest vote wouldn't win, so on and so forth. There isn't a single main reason it won, and it barely won anyway (and probably wouldn't have won if all voters showed)
And also that the highest court should be in the UK, often overlooked but main reason for many (sovereignty).
The ones you mentioned were irrelevant to me and a lot of people I know.
I watched in dismay a few years ago at the prospect of Financial Transaction Tax (FTT), it was delayed as a result of this referendum - it would practically a disaster for the City of London and nothing the UK could do to stop it, despite parliament having control of the law.
For me, it was that the ECJ could overrule the UK parliament, the implications were too grandiose for the meagre 9.7% (and decreasing ever since the 1970s) representation to represent. Simple as that.
Well racism and xenophobia are often products of income inequality. Its what happens when you pair poor education with poor living standards. Your judgement becomes based on emotions that can be easily swayed by a political class ready to point the finger at anyone but themselves. Hitler's opportunity wasn't that germany was racist, but rather the brutal socioeconomic conditions of the weimar republic. One thing though makes way for the other.
The sad thing is that brexit wont do a single thing to diminish austerity. On the contrary its the people who voted out who will be affected the most.
I would say it not just inequality. It's inequality combined with a job market that has been in a gridlock in Europe since the financial crisis causing people outside of the experienced urban population to be unemployed or underemployed.
Overly tight money from the ECB and too low inflation is destroying the young and the rural's career prospects (this will go on until the baby boom retires) and is forcing them to fund boomers' retirements even if they were excluded from good careers for so long.
Even though the UK doesn't use the Euro, it is close enough to be impacted by its mismanagement.
The main problem is housing in my opinion. Everything else is affordable enough. It takes a few months to build a house, but decades for someone to pay it off, assuming they even have a job. Doesn't make sense.
From a quick search: "The 2012 Survey of Construction (SOC) from the Census Bureau shows that on average it takes about 7 months from obtaining a building permit to completing a new single-family home."
Yes, but it takes something like 30 people working on it (honestly no idea how many are required)? so 7 months * 30 and we are getting close to 18 man years.
In many places there are rules designed to make housing more expensive, such as requiring houses to be bigger than they need to be. Poor people living near you reduce the value of your house, so there's a strong incentive to make new housing less affordable.
It depends, upon your definition of house and on what kind of technology you have access to to build your house with, whether it takes months or years or days or even more or even less than that. See this news [1] regarding the time issue.
So that's not the main big problem, the main problem is the cost of land. Today that has become a very big problem and the concentration of jobs in certain cities (parts) only has exacerbated the problem.
The rich people have already purchased huge swathes of lands in important cities/areas and this has created/added to the problem of inequality in a very important manner. This problem can be solved by taking away the excess land from the rich after allowing them to keep some minimum amount.
Another factor is population and its vast growth. The population and its growth should also be checked/controlled in a very big way.
Takes a couple days for habitat for humanity folks to build one. They have a lot of people, but very little skill and poor tools. A single person could feasibly build a house in a few months.
I built a house. It took 3 days to frame it up, so it looked like a house, 3 months until all the doors, windows, etc were in and it could be locked up, and I moved into it at the 6 month point. All work done on weekends, and evenings by myself and my wife. A bit of help from some friends. We did all the work except for the pouring of the concrete foundation and the hot tar roof.
It was a good experience, something I had never done before. I learned a lot and it was a set of skills I have used often since then (this was in 1998). The confidence that you get from finishing a large project has been great too.
The real time consumption is all the little things - network cabling, gardening, finishing and trim inside and outside. Just building a structure to live in is quite easy, and does not take that long.
Again, there's a lot of work that you just glossed over. There were man-years of work put into making the doors, bolts, screws, boards, and everything else you just had to assemble into a house.
Try building a house from stuff you find in nature, and it will take a lot longer than a few months.
Since the house builder is proceeding from the same point as commerical house builders this is a fair comparison.
If you're interested in ab initio home building I direct you to Primitive Technology on Youtube. That guy really does build from the beginning. No exposition too.
I want to do this as well for a Tiny House (320 sq ft + 160 sq ft loft). I think the physical building part will take six months (assuming I take part-time work with my day job). I estimate I will save hundreds of thousands in the end when compared to the traditional route.
It is the legal, planning and design, all the research, which is the invisible cost that takes at least as long as the physical building activity.
Even non-Tiny Houses have a cost which is mostly paper. I'd like to see a breakdown of costs excluding labour and materials across the world. I don't think people realize how much of a house price is arbitrary. High house prices aren't necessarily a sign of a wealthy neighbourhood, it could be just the opposite e.g. new regulations made it cost prohibitive for new builds, which makes everybody look good on paper. And now the average person can't buy the average house.
> The real time consumption is all the little things
Yes! The impressive part, the framing/sheathing/cladding is instantaneous in comparison.
You should do it! I don't think it will take 6 months if you are only working part time. The house I built was 1600 sq ft, 3 bedroom and I was working 60 hours a week while I built it. I found working all weekend on the house re-charged me for the job during the week.
A tiny house should not cost hundreds of thousands - wood is just not that pricey at Home Depot. You should start pricing it out and give it a shot. It is a tremendous feeling of accomplishment to live in a house you built yourself.
Then I am creating a space illusion using a special one way mirror.
I can place two one way mirrors with a terrarium (a small indoor garden) between them. This way two different rooms (bathroom and stairs) can see the terrarium reflected but neither space can see the other. .
Normal one way mirrors require one side to be light and the other dark. With this one way mirror I can have light on both sides. http://www.okaluxna.com/products/viewblock/
I also hope to use natural daylighting with a solar collector and fibre optic cable. This will require some experiments so I am going to do those first.
I'll put all this up online for HN when things get interesting. In particular I'm looking for a cheap way transmit daylight (I have fibre cable but the normal kind is very thin).
> I found working all weekend on the house re-charged me for the job during the week.
I hope that happens to me! ;-)
> A tiny house should not cost hundreds of thousands - wood is just not that pricey at Home Depot. You should start pricing it out and give it a shot.
Looks to be 50k - 75k so far. You can build Tiny Houses really cheaply, even for 5k, but I'm optimizing for longevity (like a custom built stainless steel trailer foundation) and have unusual design features so it will be at the higher end.
It does make sense because what you're really paying for is the land the house sits on, at least in or near the major cities. It's a zero sum game because "God's not making any more land" (Tony Soprano). The obvious solution is to start new cities -- or radically expand smaller ones so they reach critical mass. That's why I'm closely following Sidewalk Labs and YC's New Cities.
This is a wry comment, but it's not actually making a claim about the issue the parent and grandparent post are discussing – whether Revolution-era inequality was very low.
IT would be hard to fight absolute poverty if the income of the bottom section never grows. You could theoretically tax higher and put welfare(or basic income?) but in practice that hasn't worked out very well, for both political and economic reasons.
Also, even if you give everyone a basic living with for example, basic income, income inequality is still a problem, because to get a bit more of what you want you have to sell more of what you do. This unavoidable causes tension, because labor , value and price can get distorted.
But not also that, because if you were to see that income inequality is a problem on how the value is captured, not created, this means that people with skills and capacity to create a lot of value are not getting rewarded for it, which is detrimental for all the members of society, except those that get the direct benefit of the value capture.
If you fight inequality you also fight "absolute poverty", and in a way (increased working opportunities, better wages, larger economy) that's better, and more respectful, for the absolute poor than charity.
>Wouldn't it be more important to fight absolute poverty than inequality?
Well that too, but the tension comes directly from the inequality. e.g. Being hungry sucks, but it sucks more if you see fellow citizens live like kings.
According to Robert Putnam, all else held equal, racial diversity causes social tension. If causing social tension is a valid argument against something, this should be an argument against racial diversity.
So we are faced with the following choices: a) you can oppose racial diversity AND inequality because both cause social tension, b) you can oppose neither (for this reason, at least), or c) you can be logically inconsistent and therefore incorrect about something.
Rather than just react to the parent, as I nearly did ("clearly that's a troll") give the statement some thought, in this context I think there's some merit to considering the opinion.
The grandparent stated the rather direct correlation: Causes social unrest? Bad. Fajitas made the (I believe accurate, if incendiary) statement of "Is this really true?"
I find it especially entertaining that HN would react negatively to this angle of query, given that we embrace the potential conflict when it comes to many aspects speech and other liberties as an _asset_ to those capabilities (many statements of the sort: "someone's civil discord is someone else's civil rights movement")
While I can't use this argument to state the opposite, "discord -> good thing", I certainly think there's something to be said that of many of the arguments in this thread, the fact that it causes social unrest is one of the _weaker_ justifications for income rectification in my eyes.
(I feel somewhat "copping out" in that I have qualify myself like this, but to be perfectly clear; I absolutely support inspecting this problem and really believe in the concerns regarding cyclical wealth/power building. As such, a weak argument does more harm than good since someone can easily point out contradictions like the ones in my post)
As a final postscript, let me take this mental exercise to one extreme, in the attempt to provoke further thought: perhaps unrest is the saving grace of very unequal situations, the final avenue to take when all peaceful ones have been exhausted, and in that sense both a "emergency-pressure-release-valve" on society and a barometer that should be watched with attention.
Social tension due to racial diversity is lower if income/wealth is more equally distributed (just look at other countries or economically successful groups, this goes into both directions).
Normally I like you posts but this is really a bad argument and I did not see a valid counterpoint in your different answers. Same as with your recent, flawed and disturbing blog post [1].
Everyone should have his political opinion, but if you look at the data (and that is, what you normally are really good at!) regarding income/wealth inequality (without any bias) I don't think you can honestly say that everything is fine.
Social tension due to racial diversity is lower if income/wealth is more equally distributed (just look at other countries or economically successful groups, this goes into both directions).
This might be true, but so what? This doesn't mean that racial diversity doesn't also increase social tension. If social tension = (racial diversity) x (income inequality) - treat that as a stylized equation indicating my line of thinking - we can reduce either one to reduce social tension.
(I'm unconvinced it's true, in any case. The US is more unequal than either India or Europe, yet seems to have far fewer racial/ethnic problems. Do you have evidence?)
My claim is simply the following. If "x causes social tension, therefore it's bad" is a valid argument, then it's valid for both income inequality and racial diversity. Note that I have no problem with either racial diversity or income inequality - to me both are intrinsically irrelevant, and I'm unconvinced they are extrinsically relevant.
I'm curious to know what the flaw is with my blog post. Did I make an arithmetic error? If so, please let me know - I'd love to fix it.
I'm also confused why you bring up politics or call that post "disturbing." There is a 2-line "P.S." in that blog post which explicitly disavows the idea that I'm pushing any politics. My comments here have advocated no policy position whatsoever.
Income inequality? As I wrote in a comment above, Income inequality is in some sense, a lot worse than wealth inequality. It means that the fruit of growth is divided in a way that the lower half gets a substantially lower cut. This means that wealth disparity can only grow.
Think of startups gradually removing stock options from their employees, until they are absolutely eliminated with no salary compensation. Shareholders and management will get all the big gains from the company growth. One could consider this reasonable if the separation of dividends corresponds to the value provided, but I'd argue that there is a difference in the value you create, and the ability to capture that value.
Does it? The explanation was just to show what gradual increase in income inequality would look like (reducing the income of the lower bottom), which would eventually cause wealth inequality.
This area is not exactly renowned for being a hard, mechanically measurable science, so you will get many different answers as to whether this is a problem at all or not.
The wisest suggestion I've gotten with regard to this is to not fall prey to instantaneous picture. It may even be impossible to have equality in a single slice of time. Rather than looking for single point inequality, look for how the population is moving through the income inequality over time.
Basically, are the same people always in the bottom, middle, and top? If so, that's probably a problem. What's the time any given person spends in the top? Bottom? Middle?
As long as you have continuous movement throughout and no one is stuck, you can at least know that there is some semblance of equality in opportunity even if not outcomes.
"[...]you can at least know that there is some semblance of equality in opportunity even if not outcomes."
Judging from the way people go about discussing these sorts of topics, I would say that outcome is a more widely-used "determinant" of fairness than opportunity. Outcomes are always seen as proxies for opportunity (or lack of it).
1. The most direct reason is economic growth. Rich people save more than the middle class who save more than the poor. When wealth shifts to the rich then there's less money spent.
2. Money becomes power. More power in the hands of fewer people is not good for a democracy.
I only speak for myself. I'm curious what the more idealistic among us will say. Keep in mind that income growth is a proxy. What really matters is wealth inequality. We just talk about the one that's easier to measure.
Not when there's no demand for the results of that investment they don't. They just pile it into existing capital assets instead (ever wondered why SF/NYC property is so expensive?).
And the majority of customers are not other rich people.
It the middle/working class are getting a smaller share of the pie, then the market shrinks compared to what it could be with a more uniform distribution -- and everybody suffers.
You seem to not understand what 'trickle down' disparagingly refers to. The common contention with supply side economics isn't that savings == investment == growth, rather it is in regards to the implications of marginal tax rates on tax revenues.
1. The market value of money available to invest is its price.
2. The price of money is the interest rate.
3. Interest rates have been extremely low for a very long time.
Conclusion: the value of additional money available to invest is extremely low. That same money in the hands of the working poor will be thrown right back into the economy.
Even if your statement were true (that you can pour money into something and magically achieve growth that is beneficial for both parties - I'd really like to see statistics on this or any sort of source really), the stock market is, for the large part, a zero sum game, unless an IPO is made.
Rich people also invest in many other things that do not further sustainable growth and, as we can see from many corporations, many of them actually hoard cash or invest in bonds (which just fuel unsustainable consumption - hardly the growth that seems beneficial long term)
"...the stock market is, for the large part, a zero sum game, unless an IPO is made."
An IPO takes some money out of the market, to the pre-IPO investors in the company, but a much bigger impact is made by dividends.
Here's a thought experiment for you: A company, A[1], IPO's. It's investors take some cash, the rest goes into A. A is a fantastic success and eventually grows to be the largest company in the world, market-capitalization-wise. Then, like all things mortal, it begins to slide into obsolescence, obscurity, and eventually bankruptcy and dissolution. Throughout its lifetime, following the best advice of economists[2], it never pays a dividend.
Anyone investing in A's stock is playing a quintessential zero-sum game: they're betting A will go up before it goes down permanently.
[1] No offense to Agilent.
[2] The goofy "double taxation" argument. The "it's no longer a growth company" argument (causing an immediate collapse in A's stock price). Etc.
> Even if your statement were true (that you can pour money into something and magically achieve growth that is beneficial for both parties - I'd really like to see statistics on this or any sort of source really)
It feels like your calling the idea of economy in general a zero sum game. Can you elaborate?
Wealth inequality is just income inequality over a long run. Because of the high savings rate, the top percentiles accumulate wealth at a quicker pace than the lower percentiles.
Right, it's the difference between speed and acceleration. Replacing your car's speedometer with an accelerometer would lead to less informed decisions!
The "economy" is a measure of the velocity of money. Any one advocating economic growth must then logically advocate some form of redistribution. To keep the money moving.
I'm undecided if economic growth is a worthy goal. But until a better idea comes along, us pinko commie hippies have favored the time proven battle tested progressive income redistribution in the form Keynesian economics.
It's no small irony that the result of anti-tax jihadist policies is less economic growth. Whoops.
The gap should be linked to rising poverty to be ciritical or very important.
However, lower incomes would mean that there are more consumers not able to afford products and services. So either they don't buy, subscribe or rent OR they will take a loan. I don't have to remind us about the consequences of a bursting bubble.
I don't propose socialism, but employees should be able to earn enough money to feed a family. It's strange if a business pays less to its employees and hopes to have a higher revenue even if other businesses following the business's example.
Large layers of society unhappy and frustrated, become easy prey for radical ideas disseminated by populist politicians.
When this reaches a critical mass, it becomes less risky to take up arms and eliminate the oppressors in exchange for the promise of better life.
Ends in revolution and war.
The upper echelons of the revolutionary class become the new upper class, while the lower classes get the same or even worse of a deal dressed up in propaganda.
Adapted from "The Theory and Practice of Oligarchical Collectivism" by Emmanuel Goldstein.
A successful revolution won't be possible if the wealthy acquire too much power (in the form of media, technology and war machinery).
If you have a lot of poor people revolting against a small class of wealthy people (human vs human), then the poor are bound to win - But if wealthy people have an army of machines, weapons and powerful media propaganda channels at their disposal, then the poor masses would be completely powerless.
I can see the following scenarios for the future of humanity:
1. The rich own effectively everything and their media propaganda machine becomes so good that the poor masses are completely oblivious as to what is happening. When machines become good enough to replace humans, the poor class will cease to become a productive asset for the wealthy; the poor will become a liability. At this point the rich will leverage their monopoly over the media to initiate a propaganda program to bring the poor class to a slow, merciful self-extinction.
2. The rich own almost everything but because of the internet and decentralized media sources which have remained outside of their control, their media propaganda machine is not effective enough to give them full control over the masses. When the poor cease to be assets for the wealthy, the wealthy will begin to implement various complex strategies to bring the poor masses to extinction - Because of decentralized media and high standards of education among the poor, the poor will become increasingly aware of what is happening and initiate a revolution. In response, the rich will swiftly deploy an army of killer drones and exterminate the poor.
3. The rich own effectively everything. When machines/robots become good enough to replace humans, the rich will see no point in hoarding the enormous amount of free wealth created by these robots and will share all economic proceeds equally amongst the masses. In this scenario, everyone lives happily ever after... Until robots take over and bring us all to extinction.
Seriously, not needed, just look around. In the context here, "equal" refers to economic accomplishment not legal standing. But of course the left likes to equivocate this term.
Legal standing and economic accomplishment go hand in hand. Always did.
To quote Anacharsis from 25 centuries before: "[your laws] are no different from spiders' webs. They'll restrain anyone weak and insignificant who gets caught in them, but they'll be torn to shreds by people with power and wealth."
Or to quote Anatole France from last century: "In its majestic equality, the law forbids rich and poor alike to sleep under bridges, beg in the streets and steal loaves of bread."
You might not want people to be exactly equal economically, but you don't want huge discrepancies either for those reasons.
But of course the right, and especially in the US, has a naive child-like view of a world of equal opportunity were individual work and merit make all the difference. One might as well believe in magic fairies...
>That's pretty lame, "The rich can buy a verdict." Even if that were true, that would be a bug not a feature.
Since the rich also have undue influence on the design of the laws and the general running of society, that's a feature (for them), not a bug.
Besides, even if it was "a bug, not a feature" of the legal system, unless it could magically or otherwise go away, it would still be had to be taken into account.
>*straw man
You can find pretty much the same statement expressed in all kinds of books, articles, political speeches, and interviews. At best with very small caveats.
A strawman, on the other hand, is supposed to be something that nobody ever says.
First hand observation is sufficient for some conclusions.
Inequality of productivity is obvious.
In order to equalize income, those of greater-than-average productivity would have to have some of their wealth redistributed, ergo less free.
It's not rocket science.
What is obvious to you is not necessarily obvious to anyone else. If I look around and see something different, then what?
I'm not disagreeing with your conclusions. Your previous argument is crap, and that should be obvious.
This:
"In order to equalize income, those of greater-than-average productivity would have to have some of their wealth redistributed, ergo less free."
Is part of an actual argument. "Just look around" is not.
But for what it's worth, I do not agree that freedom intrinsically requires total control of wealth. That it currently does is an artifact of our present culture. I don't even agree that the wealth is "theirs" to begin with.
For one, people weren't actually equal in those regimes. There were sizable privileged bureaucracies and leadership and large swaths of ordinary citizens -- which was exactly what was the issue with them, not equality.
Second, who said any attempt at equality has to be made that way? There were historically (and still are) lots of societies both valuing equality and actually way more equal than modern US but with very different structures and/or beliefs.
From the Amish and hippy communes, and ancient Spartans, to modern nordic countries.
Perhaps there was a glitch in your browser and it didn't download my whole comment? That's the only explanation I could give to missing not only a couple of more examples, but also the historical extent of them (not to mention my other points).
A society where the rich has most of the money can't grow and then in the end everyone gets poorer.
It is a big problem IF the gap becomes too big at the expense of the poorest. I.e. the rich get richer but the poor doesn't get richer relative to the poor.
It is not a big problem if there is some undefined balance between the different income groups as this will keep the economy going.
The problem we have today is mostly that the rich gets much richer, the poor doesn't really get much better and the middle class is dissepearing which erodes the prospect of any society to grow.
But the poor today all have fridges. Everything you describe is a problem of poverty, not inequality.
Inequality is when the poor get 2x richer, but the rich get 3x richer, in real terms (not nominal). Do you have any reason to believe this is a problem?
> Inequality is when the poor get 2x richer, but the rich get 3x richer, in real terms (not nominal). Do you have any reason to believe this is a problem?
But that isn't what's happening. The bottom quartile's incomes have shrunk when adjusted for inflation and they have stagnated since the 80s.
To be a bit of a devil's advocate here: Why is that a problem as well?
Assuming that despite their wages "shrinking", they are still leading decent, normal lives then what about that is bad? Perhaps their labour in the greater context isn't worth all that much to others and that doesn't fit in to our world-view? Or are we simply expecting that their "status" or "wealth" should be increasing along with the economy?
The problem is consolidation. If more and more earn and own less and less, while less and less earn and own more and more,this creates power imbalance, impededes real growth( as in, new value being created due to Innovation. A balanced portfolio motivates less than starting the company/research yourself) and since the investors still want a return, even without growth, somebody will get shafted. There are people dying in London because their fridge was shut of, causing their insulin to go bad. why did get shut off? Because they did not have the money to pay for electricity.
Mind you, this all goes out the window if a good , if austere life is guaranteed somehow, then capitalism and consolidation away.
> Assuming that despite their wages "shrinking", they are still leading decent, normal lives then what about that is bad? Perhaps their labour in the greater context isn't worth all that much to others and that doesn't fit in to our world-view? Or are we simply expecting that their "status" or "wealth" should be increasing along with the economy?
1. Nothing, assuming of course they are living those lives. There is a body of evidence, however, so overwhelming that at the lower incomes the people are not leading healthy lives. That is a matter of debate for someone with a medical degree and you could probably write books about this topic alone. Poor conditions reinforce poor behaviors.
2. Perhaps. Of course everyone will argue that their "greater context" is the right one. The question you're really asking here is "are we okay with letting the least productive members of our society suffer and struggle for survival?" Maybe for some people the answer will be yes. There's no logical argument I can provide for those people that will sway them.
3. That is the mantra of trickle down economics that has been proven consistently false over the last 30 years. Neither wealth nor income have trickled down despite increases in productivity.
Of course one could also subscribe to the idea of "this is not a problem", but that's the intellectual equivalent of sticking your head in the sand or throwing a tantrum.
It also has to do with economic policy. If labour income is taxed at 50% and capital gains at 25%, then investment income will obviously grow faster, because 1) capital gains taxes can be deferred until a stock is liquidated, and 2) they're taxed lower. An investor making $10,000 will keep $7,500 vs an employee, who will keep $5,000. Add to that the massive QE programs over the last few years, where some investors have easily tripled / quadrupled (or more) their capital, and it's easy to see how this is happening.
You are comparing money at two different times, which is invalid.
Assume an income tax rate of X%, cap gains tax rate of Y%, and a rate of return R.
Consider a spender. In year 0 he earns 1 dollar, he pays X% in cap gains and spends the rest. In total he paid X year 0 dollars.
Consider a saver. In year 0 he earns 1 dollar, he pays X% in cap gains and invests the rest. 1 year later he is holding (1-X)(1+R), which he cashes out of. He then pays Y[(1-X)(1+R)-(1-X)] in taxes. In total, he has paid X+Y[(1-X)(1+R)-(1-X)]/(1+R) in year 0 dollars in taxes.
The latter is always greater than the former.
Lets expand your example. Suppose the rate of return is 100%. The spender received $10,000 at time 1 and paid $5,000 in year 1 dollars. 50% tax rate.
In contrast, the saver received $20,000 at time 0 and paid $10,000 in taxes. Then they invested the remainder, and at time 1 received an additional $10,000. He then paid $2,500 on that. In year 1 dollars, he paid $20,000 ($10,000 year 0 dollars == $20,000 year 1 dollars) in income taxes + $2,500 in cap gains. That's a total tax rate of 56.25%.
So you claim the problem is not inequality, then. So why are we talking about inequality instead of this income drop? If you want to argue inequality is a problem by itself, your argument must apply to my hypothetical also.
Also, I'd love to see evidence of an income drop (not to be confused with a wage drop, since wages are only a shrinking fraction of income).
The problem has to do with two things: income stagnation or drop, and growing inequality. According to conservative trickle-down economics, it is good if the rich get richer, because they can only do so in ways that make everyone else richer too. And that idea for a long time lead most people to support laws that make it possible for the rich to get richer.
But what has been happening for at least 30 years is the rich are getting considerably richer, but everyone else's income is either stagnant or dropping. To expect the general public to continue to be happy with this state of affairs is simply unreasonable.
I don't have a problem with the rich. Provided they are capitalists. Effectively allocating capital is an important role. That's part of how the poor get wealthier.
Outside of that (and stability/coherence of political power), what reason is there for rich people to exist though?
Because I can't think of any. And typically non-productive beings that exist due to the efforts of others are known as parasites.
This is a red-herring, when people no longer have the ability to fund their local communities in this country, they also lose their agency. Look at Flint, MI; Due to their tax revenue (or lack thereof) the state government put a crony in charge; who proceeded to poison the water supply and destroy the lives of hundreds of children (brain damage).
The plutocrats of our country do not have the right to drain the wealth of the "under-class" so they can redistribute it to another underclass in another country... which will of course conveniently help their economic interests at the same time.
From this chart, we can clearly see that the middle class of the western world (80th percentile) has been paying all the cost of globalization. What's worse is that this chart is only in terms of income growth. I think if we looked at the percentile breakdown in terms of wealth growth, it would be even worse (remember, if you're wealthy, you can reinvest most of your income and it will compound over time).
I'm confused. Flint lacks tax revenue due to having nothing of value to tax. How did the "plutocrats" drain wealth from Flint if Flint doesn't have any?
Wikipedia suggests Flint has had a budget deficit for many years. That means wealth is flowing into Flint, not out.
No, it just means the wealth flowed out of Flint without being taxed or invested locally.
That's what oligopolies do. In a sane system a single large employer would have to contribute to building a self-sustaining independent ecosystem of businesses in an area, instead of being allowed to extract profit and then leave when there's more profit to be made elsewhere.
Monocultures are an unworkable idea with toxic effects in economics just as much as they are in nature.
You only have to open a history book and find any bloody revolution, then flip back a few pages to see what lead up to it to find the answer to your question.
if a few people have most of the money, they have nearly all of the power because nobody else's share of power or money is greater than theirs, even collectively
honest question, do you have an ulterior motive in asking your question?
I think it's probably hard to cite "proof" for any economic principle, but it's extremely concerning to me because it's a feed-forward type of situation, and inherently unsustainable. Any time you have a feedforward situation, there is no equilibrium condition. You have a bubble, by definition, and the only thing that can happen is for it to pop.
This happens when you reach the limit of a fundamental input to the bubble. When this happens, you have dramatic, rapid changes in the economic structure of society, which have historically always been Bad.
From a software standpoint, it's a bit like writing a non-determinable program with an infinite loop in an unsafe language: it's just a matter of time.
The other thing is that it's a violation of the golden rule: all of the unborn individuals should have a chance at economic success. The wider the split gets, the less and less realistic that opportunity is. It's fine for all of us that won the ovarian lottery, but we can't say with a straight face that we would be successful if we were born in the fields of a third world country (or the alleys of detroit).
Why? In addition to the reasons other people have already said, a key reason excessive income inequality is bad is lack of demand. The economy doesn't exist if money isn't flowing, and you need both supply and demand for the economy to work.
While [many people * low income] and [few people * high income] should both be able to produce demand, it's important to remember there is a brick-wall limit at the poor end of the curve. This is similar to the flaw in the martingale[1] betting system; you have to stop playing when your cash runs out.
When you have to spend every dollar you have trying - and often failing[2] - to pay for basic living requirements, you aren't spending money on the rest of the economy. Expect violence to start when the bottom end of the income curve is pushed low enough that some people starts going hungry.
A proper social safety net helps both of these problems. Keeping people in the economy with realistic wages (and/or a basic income or other welfare programs) keeps money flowing through a large part of the economy. It also discourages people from looting your house. Brexit and Trump are warnings; when people are desperate they tend to attack anything they perceive is they problem. Fixing the income problem needs to happen now, so people not only have enough to live, but also have a sense that they have their fair chance to succeed. If the warning signs are ignored... as Mark Blyth said, "The Hamptons is not a defensible position"[3].
It's also true there are different kinds of demand.
Poor people need a mass market economy. They need the support of huge economic and physical supply chains to create/grow/ship/distribute/sell food and goods.
The economy of the rich tends to rely on boutique artisanal goods and services that are more likely to handcrafted, hand-made, and labour intensive - for a very much smaller volume of labour.
You can't run an economy if the former networks aren't profitable because they supply essential goods and services to most of the population. They also create employment for large numbers of people.
You can run an economy quite happily if no one at all is producing hyper-expensive yachts and one-off handbags.
Worse, you can't run the economy of the rich without the economy of the poor to support it. The rich economy only works when it can skim profitability off the poor. If there is no profitability, everyone goes bankrupt.
I think it's a big problem because the lion's share of income inequality (at the very top) is caused by tax dodging, and has very little to with differing abilities, risk taking abilities, hard work, luck respect for Adam Smith's invisible hand, or even hustle.
There are two primary reasons for this, in my mind. The first is that income inequality trivially produces wealth inequality. We measure income instead because direct measures of wealth inequality can be misleading.
If we define wealth as abstracted resources available, this seems obviously problematic: it reduces the size of the coalition needed to make decisions for society. To pick a crazy example, there are two ways for someone to prohibit serving falafel in their city. They can either get enough voters together to prohibit that (difficult for obvious reasons). Alternatively, they can get enough wealth together to buy or bribe all of the restaurants (or suppliers, or commercial property, etc).
Naturally, we're nowhere close to my crazy example, but there are smaller examples of this effect that we're starting to see. Try going down to the store and buying a Blu-Ray player that doesn't encrypt its HDMI output. You can't, even though the majority of people who care one way or the other would like one.
The other problem is that it's rather detrimental to the narrative that one's income is purely the result of the work one puts in. It's hard to explain rising income inequality if that is true. Are rich people systematically working harder (and poor people systematically working less hard) than they used to? That's implausible on its face, so what's causing the inequality to increase?
There are some plausible explanations for this, which still work within the narrative that income results from work. Occam's Razor would seem to point in other directions, though.
> You can't, even though the majority of people who care one way or the other would like one.
The number of people who care is very small, though, which makes it economically inefficient to manufacture. While a machine could be manufactured with the feature as an add-on, that defeats the purpose of the feature in the first place.
This would make sense if it were less expensive to manufacture a Blu-Ray player with HDCP than without, or if there were a significant number of consumers who explicitly prefer HDCP. Neither of these is true, so not using HDCP makes the device more valuable for the exact same cost (or maybe slightly less).
>Naturally, we're nowhere close to my crazy example, but there are smaller examples of this effect that we're starting to see. Try going down to the store and buying a Blu-Ray player that doesn't encrypt its HDMI output. You can't, even though the majority of people who care one way or the other would like one
This is accomplished not by bribing everyone, but by the ordinary legal system[0]. In general, bribing everyone without legal enforcement has coordination problems that are difficult to solve.
Once you pay off all the falafel suppliers, JP morgan or someone will come up with the bright idea of either
a) creating a new falafel supplier that rejects the bribe and sells at a price premium or
b) creating a new falafel supplier, accepting the bribe, and then closing down.
With enough obfuscation, b) can be repeated until the person giving out bribes runs out of money.
You just can't buy them from Best Buy or Micro Center or what have you, and nobody will make a player that obviates the need for those.
> Once you pay off all the falafel suppliers, JP morgan or someone will come up with the bright idea of either a) creating a new falafel supplier that rejects the bribe and sells at a price premium or b) creating a new falafel supplier, accepting the bribe, and then closing down.
This is part of why my example is crazy, yes. It's not that hard to grow chickpeas, so it's in turn very hard to monopolize falafel.
Absolute poverty is a solved problem. People rarely starve to death in the US. It's an El Niño year; out here in not-SF we're having a bit of a drought, but no one is seriously afraid of a famine. Sure, there are things like health care that could be better, but those are second-order effects and fairly minor on the poverty scale.
The actual problem is power. (That may not be a popular statement[1] in this forum, where single young adults are commonly making 2-3x the median household income and yet are fond of complaining about disenfranchisement.) Money is power, the power to do things and the power to tell others what do do.
Now, I admit that the technology industry seems spectacularly bad about translating it's assets into political power, so it may not be apparent to people reading this, but I don't expect that to last forever. (C.f. Thiel and Gawker.)
On the other hand, a lot of money in a small number of hands is not in the hands of the tech industry. Consider the Kochs, or Citigroup/JP Morgan/Goldman Sachs. That money buys politicians, to an extent, but it also buys agendas, access, and, rather amazingly, consensus. (Why do Americans seem to have a weird habit of voting for ideology instead of their presumably enlightened material interests?)
This power held by a few people means that the actions of a country may not necessarily be in accord with the wishes of its citizens. Take a look at the third graph in the article. The peak of the England-Wales line is roughly 1825-1875, roughly the high point of the British Empire and, strangely, including things like the Irish famine.
But, fortunately, for the likes of you and me, there isn't a problem. Yay. (As long as no one sets up guillotines.)
[1] Dare I say it?: not a politically correct statement.
Are there any facts to substantiate your assertion about power being the problem? It would seem to me that the power of elites is trending down if anything. The rise of Trump, the Brexit vote, and the rise in taxes as a percent of GDP across most rich counties would seem to go against the selfish interests of the monied elite.
Donald Trump's campaign is populist, not whatever-the-political-opposite-of-elite-is. He is tied for #121 on the Forbes 400, after all.[1]
I don't actually know enough about Brexit to tell what the hell is going on there (like a lot of people, apparently). I do know that some people[2a] are very unhappy that David Cameron called a referendum instead of going through parliament.[2b] See also populism. My feeling, however, is that the anti-immigration thingy has more to do with the UK's own inequality situation.
Individual income taxes have been hovering between 6% and 10% of GDP since WWII; overall taxes have been between 15% and 20% of GDP since WWII.[3]
Now, as far as power being the problem, to the extent of my knowledge there are no facts in politics. All I've got is that, historically, concentrating power into the hands of a small minority seems to be a poor idea; and that most of the modern "rich countries" are de facto pseudo-democracies, apparently in an effort to avoid having ultimate authority concentrated in a small minority. YMMV. Some shrinkage may occur. Not for internal use. Do not taunt Happy Fun Ball.
[0] Unless someone's done gone and created a secret world government without copying me on the memo (Again, dammit!), rich countries' governmental structures should probably be treated in isolation. Particularly the US, which has remarkably little in common with "most rich countries".
Regarding [3], you're disregarding state and local taxes. I have a hard time seeing anything but an upward trend in a chart like this [4], given that spending deficits must ultimately be paid.
Rich people have many tax loopholes available to them that everyone else doesn't have, including hiding income overseas. And many of them simply break the law, as the Panama papers revealed. And the tax loopholes are there largely because of lobbying and campaign contributions they paid for.
You know, if the rich were actually suffering under confiscatory taxes, their percentage of total national income and wealth would be in the decline, but actually it has been steadily going up. Were you really not aware of that?
You mean the chart that shows "Current Revenues" fluctuating between 25% and 30% of GDP since 1969, after a low of roughly 20% in 1949?
I keep forgetting state and local taxes. I'm from Texas, which doesn't have a state income tax; I'm living in Alabama, which has an income tax rate of something like 4%. Both localities rely heavily on sales taxes to a typical tune of about 9% (and sales taxes are regressive, I'll remind you) and property taxes.
Chart 1 duplicates your graph's "Current Revenues" and "Current Spending" lines, while Table 1 shows total gov't receipts as a percent of GDP by (roughly) decade since 1930. In 1950, 22%; 1980, 28%; 2000, 31%; 2012, 26%.
So yes, taxes have gone up. But not spectacularly, certainly not as much as deficit spending, and probably not to the excessive detriment of the "moneyed elite".
Also read "Twilight of the Elites" to learn about how inequality leads to greater "vertical social distance" and how the government now largely reflects the interests of those at the top (http://www.newyorker.com/news/john-cassidy/is-america-an-oli...)
Thanks for the links, I wasn't aware that the Wikipedia article was so flashed out on this topic.
However, I'm not sure I see any actual evidence to support the power theory. The economist article paints a link between education, IQ and income, but not political power. Stiglitz breifly asserts it's truth in point six in his article, but doesn't actually provide any documentation. And similarly, despite clicking through to a dozen promising sources in the wiki, I wasn't able to find any evidence of any sort of trend or change in political power associated to income inequality.
"However, I'm not sure I see any actual evidence to support the power theory."
I am a little unclear on what you specifically mean by "the power theory".
Do you mean to question the proposed relationship between greater monetary resources and greater (political and social) power? This is something that seems pretty obvious but there are some interesting graphs presented in:
"When preferences across income groups do diverge, however, I found that the association with policy outcomes persisted for the affluent but disappeared for the middle class and the poor, as the second chart shows...If federal policy more equally reflected the preferences of all Americans, we would see a more progressive tax structure, higher unemployment benefits, stronger regulation of business and industry, a more protectionist trade regime, more prayer in public life, and less access to abortion."[1]
"There is good reason to believe that the wealthiest Americans exert more political influence than their less fortunate fellow citizens do. Historically oriented scholars like
Thomas Ferguson, William Domhoff, Fred Block, and
others have long argued that “major investors” or business
elites dominate the making of public policy and the agendas of both the Republican and the Democratic parties.1
Jeffrey Winters maintains that the top one-tenth of 1 percent of US wealth-holders constitute an “oligarchy” with
decisive power over certain key policy areas related to what
he calls “income defense.”2
Jacob Hacker and Paul Pierson describe how Washington has “made the rich richer.”3
"Even without being able to gauge the actual political
power of wealthy citizens, we can confidently reject the
view that extensive political power by the wealthy would
be of little practical importance anyway because their policy preferences are much the same as everyone else’s. On
many important issues the preferences of the wealthy appear
to differ markedly from those of the general public. Thus,
if policy makers do weigh citizens’ policy preferences differentially based on their income or wealth, the result will
not only significantly violate democratic ideals of political
equality, but will also affect the substantive contours of
American public policy."
Or, do you mean to question the proposed relationship between monetary inequality[2] and (political and social) power specifically? There are several links on the Wikipedia page concerning specifically inequality and social cohesion, crime, and social, cultural, and civic participation; all of these are more or less linked to perceived social and political power. However, more specifically:
The ability to get the best jobs, go to the best schools, live where you want to live, retire while others cannot, and bend the government to your will are all forms of power. The last, in particular, is political power.
U.S. government policies reflect the desires of the wealthy and interest groups more than the average citizen, according to researchers at Princeton University and Northwestern University.
“[W]e believe that if policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened,” write Martin Gilens and Benjamin I. Page in an April 9 article posted on the Princeton website and scheduled for fall publication in the journal Perspectives on Politics.
“Not only do ordinary citizens not have uniquely substantial power over policy decisions; they have little or no independent influence on policy at all,” the researchers write in the article titled, “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens.”
Affluent Americans, however, “have a quite substantial, highly significant, independent impact on policy,” Gilens and Page write. Organized interest groups also “have a large, positive, highly significant impact upon public policy.”
You want to see true power from wealth we have a perfect example here in the UK, Rupert Murdoch.
He infiltrates every level of our life, so much so that when the wife of one of the PM candidates accidentally leaked an email she wrote to his team Murdoch was named specifically.
He isn't even that rich compared to the absolute richest but he owns a huge chunk of the media market here (Newspapers and Sky TV/Sky News) which allows him to set the agenda almost completely.
Between him and Dacre (editor of the Daily Mail - a truly terrible newspaper) they have effective control of the news media and it's agenda in this country and it's terrifying.
His company hacked the voice mail of a dead girl and he walked away from it essentially scott free.
> in this forum, where single young adults are commonly making 2-3x the median household income and yet are fond of complaining about disenfranchisement.
No problems with offering your opinion. Everybody should be free to metaphorically weak noses. Here is my opinion.
This is only a paradox if you think the median household income is a lot of money. It isn't.
With respect to their power and positions, geeks in our society earn a lot less value than they generate, from scientists to programmers.
The truth is that the USA and Europe contain corporate cartels which control programmer wages. We've already seen this at [Eric Smith]/Apple/Microsoft but it's even worse in Europe where the government endorses wage suppression for STEM employees as part of some insane plan they thought was a good idea at the time. That's why Britain and Germany have shit tech and science sectors in comparison to the States still, despite its factional political disputes threatening to drag it down, which still maintains a certain level of meritocracy.
You'll be unlikely to hear much of this from the established media although the SV wage collusion did come out.
A General Strike of computer programmers would cripple the world economy overnight. I'm an extremely capitalist person, not a communist, but this much is clear. The powers that be are painfully aware of the fact in inverse relation to most engineer's obliviousness to the fact. That they're pissed at that guy in the E-Embassy is not a coincidence because among many things, they're perturbed by his attempts to get a geek rebellion underway.
So we get paid better than most, but nowhere close to a real market wage, which would be in the millions easily. Is there any rational reason other than a power play that makes a programmer earn a similar wage to the white collar professions? This is entirely arbitrary!
If a dentist or lawyer could affect millions of teeth or cases at a moment's notice, you better believe they would be looking to be compensated for that reach.
That way of looking at it doesn't really make sense.
We know men make more money than women. The typical programmer is male.
We know technical professions like engineering make more money than say, working in retail. Most workers are not engineers.
Right there your benchmark is going to be at least twice median household income and we haven't even added the fact computing has been the most influential industry since the railroads and steamships got invented.
So yes, I am quite confident 100k is not a high salary for the kind of work being done.
It would be better to compare many programmers to venture capitalists or inventors than other traditional white collar professions. I repeat my point from the above post. It is all about the scaling factor. I expect a programmer's work to attract white collar wages without the Internet existing. But with it, that's a different story. The fact there's more programmers to compete with is meaningless in comparison to the ability to affect the majority of people on the planet.
What matters is not so much the degree of income inequality, but whether the masses on the fat tail of the income distribution feel they are struggling to satisfy basic needs like food, shelter, and education.
Societies in which the majority of people are struggling to satisfy such needs are probably not sustainable, regardless of the "fairness" of their economic and political systems.
Put another way, the system 'must work' for a majority of people in it.
I take it as the direction of income inequality is worse than wealth inequality. If 10U$S of new value are created, and only 1$ of it goes to the bottom 60% the bottom will stay there.
In a way, the direction of where you are going matters more than where you are. Even if everyone had food and shelter, we would feel less anxious but inequality would still get more profound and unavoidably end up in some people owning others.
Consider 10 separate countries, cities, or other units
of equal size, with population 1000. Assume the wealth in
each unit follows a power law distribution, say a ParetoLomax,
all with the exact same parameters. Assume a
tail exponent of 1.1. The average Gini index as obtained
by direct measurement will be ≈ .71 per country. Now
aggregate them into a single country. The composite
Gini — as traditionally and currently measured — will
be ≈ .75, that is 6% higher – for the same sample.
This inconsistency implies not only that the Gini cannot
lend itself to comparisons between units of different size
but that intertemporal assessments are vitiated by the
population changes.
Note that it's not just a frozen fact, but a growing trend.
Those charts go up up up, meaning that things are going to get even worse for more people if all parameters stay the same.
This never ends well. Radical new ideas take hold in the minds of the frustrated lower classes and then everything explodes into revolutions, wars and rivers of blood.
The reason for the violence is the frustration morphed into hatred on one side and feeling of superiority and entitlement morphed into fear on the other side.
Nothing good can come out of clashing hatred against fear.
Some "skilled" politicians channel the feelings of frustration-on-the-verge of hatred towards other nations or social classes, like immigrants, political unions (EU), etc and that's why you have the populists gaining traction all over the world.
Technology was supposed to save us from this - yet it seems to have accelerated it.
The cherry on this cake is the fact that the biosphere and climate are collapsing, while the population is growing, so something's got to give first.
I don't understand why there is so much focus on income inequality. Income inequality doesn't matter. It's not the problem; it's only a symptom of the real problem which is wealth inequality.
If you work REALLY HARD in an area which takes 20 years to master and after doing so you end up earning $200K per year, then you probably deserve it. It is hard getting to such point; you have to constantly plan your career, educate yourself and put yourself through a lot of emotional/psychological trauma for a very long time to get that stage.
On the other hand, if you inherited $6 million worth of company stocks from your parents and you earn $200K in dividends each year from those shares and you don't work at all, then you probably don't deserve that income.
... And somewhere in between these two extremes, there are entrepreneurs; who work really hard and take huge risks to create a successful company (and often fail), but when they do succeed, they tend to get disproportional payouts.
And even if it were true, if jealousy is a barrier to happiness, why shouldn't it be seriously addressed? What is the point of human society if you're just going to casually discard the concerns of the vast majority of people?
Because you should address the jealousy instead. You don't change because of somebody's jealousy. You don't study less because somebody else can't achieve the same results.
Jealousy is a problem with the individual, not a problem with society. They are jealous because of their own shortcomings, not because someone else is successful. They just channel their self loathing into hating the successful. You can't cure that by taking away money from the rich.
Wealth inequality leads to inequality in political representation. Think about the massive amount of influence the elite have on our politics. And in virtually all cases, they use that influence to better their own situation and take away opportunity from others.
The poor having fridges and air conditioning does not matter when the entire system is rigged against them.
1. What is 'income'. Do you mean taxable income that is received through an employer? Because if you do, most of the 1% at the top probably don't receive 'income'. For example John Kerry is worth about 600mil but received $60K in 'income' for the year he was running for president. The rest of the money gets funneled into off shore bank accounts 503B organizations, shell companies, etc. I think the only reason that he had any 'income' at all was because he sold a few paintings that year. Most of the super wealthy don't have any 'income' at all.
2. Globalization effects. I've lived in some of the wealthiest places in the US and many very wealthily people in the US are foreigners that happen to live here or have many their money overseas. So if Jack Ma decided to live in Washington D.C. would he be part of the top 1% of the US graph? Splitting a graph into US vs UK for instance may no longer be realistic in the modern world. Most 1%ers are globalized.
Couple of other ideas I had:
>> Technological change and globalization have widened the gap between skilled workers and less-educated workers.
Take a look at india. Tech workers do alot better than their peers. Is that bad? Isn't that raising the standard of living for indians? Should all indians all go back to poverty so that they can not have any 'income inequality' in their country?
I feel like these pieces are written to justify tax increases by getting people to believe that there is someone out their that can be 'squeezed' for money because 'it's just not fair'. The reality is that most Americans that make above 50K a year are probably in the top 1% of the global population. So maybe in that sense all americans are part of the super rich 1%ers.
The reason why income inequality doesn't matter when compared to wealth inequality is this:
If you're a high-income earner in a big city and you want to buy a house/apartment, you're going to have to take on massive debt and you will end up paying double what a wealthy person would pay for the same house/apartment (due to interests).
In effect, prices on the housing market are not determined by income-earners; they are determined by wealth-owners.
To buy a house (or anything which is in limited supply), income-earners are forced to compete with wealth-owners; and wealth owners can afford to drive market prices way up - This is in part because wealth owners, on average, do not value money as much as income-earners do. Also, as mentioned above, they don't have to factor in interest rates when making purchasing decisions.
As someone with a few very wealthy friends, this is not always true. It does however help to close a deal faster than someone who wants to purchase the same property using a mortgage.
1. Interest rates matter, because if they're low, they'll usually invest their money elsewhere / pay the interest / pocket the difference. They'll often do a deal "cash" (meaning, without debt) and refinance later.
But surely you must agree that wealthy people do drive up property prices more than mere high-income earners. Just look at the case of Mark Zuckerberg's purchases in Palo Alto (as an extreme example):
First he bought a house for $7 million (which was widely regarded as massively overpriced at the time). Then he ended up buying all adjacent properties for $30 million.
In a few short years, he single-handedly contributed to a massive increase in property prices in his entire neighbourhood. This is essentially the story of San Francisco's property market over the past 10 years.
Of course, because high income != wealth. It's only the first step.
It could become significant wealth if they saved + invested it well, but most high earners are excellent at spending it all. Just look at the amount of bigtime basketball / football players who remain with nothing a few years after they stop playing.
This can't be correct. Inequality is the result of a very small number of people holding a large amount of wealth, typically in the form of productive investments (e.g. factories, infrastructure, etc).
But if the number of people is small, the amount of housing they can consume is tiny. For example, NYC has 5,600 ultra high net wealth individuals. Assuming a wealthy person rents 10 flats, these rich people only have the same effect on housing supply as NYU (57,000 students).
The more inequality you have, the less competition you face from wealthy people. If we replaced 5,600 rich people with 1 mega-rich person, would that mega-rich person suddenly rent 67,000 flats, taking an additional 10,000 off the market?
Most of the real estate owned by UHNWI's in New York is not owned by one of the 5,600 living in New York. Rather the owners are from Russia, or China, or the Middle East, etc.
There are about 200k UHNWI in the world taking the most generous definition wikipedia provides. Supposing they are split across Tokyo, Shanghai, Moscow, Beijing, NYC, London, Mumbai and Delhi (to name only the expensive megacities I can name off the top of my head), that's 200k UHNWI out of 195 million.
Fair point although we are conflating households with individuals. Anyway, drawing a line at UNHWI is arbitrary, we are interested in cash buyers driving up prices. So another group to look at would be non-primary residence. The average across the five boroughs is 29%. And in midtown Manhattan it reaches 44%[1]. So we are getting to the big numbers now that you are looking for, big enough to move prices in a substantial way.
And perhaps surprisingly, the data indicated that “the vast majority of pieds-à-terre are middle class,” Mr. Miller said. “They are owned by people who have a studio in the city and a home in the suburbs, or maybe it was their first apartment that they chose to keep and rent it out.”
What does middle class people becoming landlords have to do with the rich?
Insofar as a flat is being rented out (as many of them are, according to the article), it's not even reducing housing supply.
I think you're not accounting for real estate investment vehicles, e.g. REIT's and hedge funds. It's possible to own something without consuming it. Your hypothetical weathly person might choose to buy 67,000 flats and gain monopoly power over their rents.
In much the same way, Walmart/Tesco/etc reduce the food supply. How can a poor person possibly get enough to eat when they must compete with the near infinite spending power of Walmart? There must be mass starvation!
Similarly, if you own real estate and rent it out you aren't reducing the housing supply.
Your hypothetical weathly person might choose to buy 67,000 flats and gain monopoly power over their rents.
You don't get monopoly power over rents by buying 67,000 flats (out of a millions).
People usually don't take out loans to buy groceries. The money/credit supply matters when buying houses. Note, too, that I'm arguing that the price is affected, not the supply. As the GP points out, those who can pay cash for a house are at significant advantage to those who must borrow. As I repeat, houses can be bought as investments as well as 'consumables'. Maybe buying 67,000 houses isn't enough to monopolize the market, but I'll argue that the 1.7T the Fed has injected in to the housing market over the last decade through its purchases of mortgage-backed-securities [1] has had an effect on house prices similar to the 'wealth-owner' the GP describes. On a smaller scale, are you willing to argue that property values in Palo Alto aren't affected by purchases like Mark Zuckerberg's? [2]
Perhaps you shouldn't comment when you haven't read the post then. If you had, you would have learned that Lindert and Williamson's analysis did account for the income of slaves. Five of the eighteen paragraphs of this short article about their work discusses that part of the analysis.
> We know, of course, that incomes are highly unequal today
I pine for the day when journalists who make statements like this in defence of their own articles aren't taken seriously without hard data to support their argument.
Do you earn minimum wage?
Do you earn a million dollars or more per year?
Given that there are people in both categories, I'm not sure more "hard data" is needed. If you actually dispute the claim, there's a Wikipedia page with many links. That's probably a better source than expecting every article on the topic to explain it again.
As the world gets wealthier, the ceiling goes up, the floor doesn't really change. So, duh, the Delta grows larger.
This is not a problem per se. The problem is that people at the bottom cannot get their needs met, in part because we simply do not build affordable housing in anywhere near sufficient quantities. If we would remedy that, some people being crazy rich would not, per se, be an issue.
I'd be more interested in "standard of living inequality", especially given two aspects which may be true:
1. It may be the case that everyone today has a higher standard of living overall, than in years past, due to a combination of technological advancement and an overall "a rising tide lifts all boats" phenomenon.
2. There may be a point of diminishing returns in terms of the relationship between income and standard of living. That is, if you double your income, maybe your standard of living doubles (this is all assuming we have a good, objective metric for this). However, if you quadruple your income, your standard of living may not quadruple in turn. And so on...
I'm not saying that relative income disparities don't matter at all, but I think some notion of absolute standard of living might actually be more important in the grand scheme of things.
191 comments
[ 3.0 ms ] story [ 219 ms ] threadYou can't really answer the question "what are Trump's positions", because he contradicts himself all the time.
Trump has had the most inconsistent campaign I could ever imagine. You name a political position, and he's had it. He's been pro-choice, except he also wants to punish women who have had abortions. He's been pro-gay, except now he's not. He wants to stop getting into wars overseas, except he also says he wants to increase military funding and engagements. He's advocated single-payer healthcare, but he wants to repeal Obamacare and replace it with a "free-market insurance system".
The only thing that he's been pretty clear about the whole time is that he wants to "build a wall". (Though you could even argue he's been inconsistent on his immigration position in other ways).
A) Everybody wants protection from competition. Where do you think profits come from? There's no shame in wanting protection, especially not as the social safety net is hollowed out. If they were not subjected to austerian measures / offshoring in the heartlands the "remain" vote probably would have won.
B) The same economists who are absolutely certain that these people's jobs are unsustainable are the same economists who pushed for offshoring and were completely blindsided by the financial crisis in 2008. The experts thing rang true because economists have no credibility left any more.
In fact, the only economist I know of who actually saw 2008 coming wanted brexit (though not for economic reasons).
The ones you mentioned were irrelevant to me and a lot of people I know.
I watched in dismay a few years ago at the prospect of Financial Transaction Tax (FTT), it was delayed as a result of this referendum - it would practically a disaster for the City of London and nothing the UK could do to stop it, despite parliament having control of the law.
The sad thing is that brexit wont do a single thing to diminish austerity. On the contrary its the people who voted out who will be affected the most.
Overly tight money from the ECB and too low inflation is destroying the young and the rural's career prospects (this will go on until the baby boom retires) and is forcing them to fund boomers' retirements even if they were excluded from good careers for so long.
Even though the UK doesn't use the Euro, it is close enough to be impacted by its mismanagement.
More thoughts here: http://bessiambre.tumblr.com/post/146561613022/the-euro-make...
So that's not the main big problem, the main problem is the cost of land. Today that has become a very big problem and the concentration of jobs in certain cities (parts) only has exacerbated the problem.
The rich people have already purchased huge swathes of lands in important cities/areas and this has created/added to the problem of inequality in a very important manner. This problem can be solved by taking away the excess land from the rich after allowing them to keep some minimum amount. Another factor is population and its vast growth. The population and its growth should also be checked/controlled in a very big way.
[1] http://www.huffingtonpost.com/entry/3d-printed-houses_n_5773...
It was a good experience, something I had never done before. I learned a lot and it was a set of skills I have used often since then (this was in 1998). The confidence that you get from finishing a large project has been great too.
The real time consumption is all the little things - network cabling, gardening, finishing and trim inside and outside. Just building a structure to live in is quite easy, and does not take that long.
Try building a house from stuff you find in nature, and it will take a lot longer than a few months.
Since the house builder is proceeding from the same point as commerical house builders this is a fair comparison.
If you're interested in ab initio home building I direct you to Primitive Technology on Youtube. That guy really does build from the beginning. No exposition too.
It is the legal, planning and design, all the research, which is the invisible cost that takes at least as long as the physical building activity.
Even non-Tiny Houses have a cost which is mostly paper. I'd like to see a breakdown of costs excluding labour and materials across the world. I don't think people realize how much of a house price is arbitrary. High house prices aren't necessarily a sign of a wealthy neighbourhood, it could be just the opposite e.g. new regulations made it cost prohibitive for new builds, which makes everybody look good on paper. And now the average person can't buy the average house.
> The real time consumption is all the little things
Yes! The impressive part, the framing/sheathing/cladding is instantaneous in comparison.
A tiny house should not cost hundreds of thousands - wood is just not that pricey at Home Depot. You should start pricing it out and give it a shot. It is a tremendous feeling of accomplishment to live in a house you built yourself.
It wouldn't take very long but I have some special features in my Tiny House design nobody else has. Here are three examples:
I am using a spiral staircase of 3 sq ft. Marvelous design! http://www.eestairs.com/en/36_1m2_by_eestairs_%28efficient_s...
Then I am creating a space illusion using a special one way mirror.
I can place two one way mirrors with a terrarium (a small indoor garden) between them. This way two different rooms (bathroom and stairs) can see the terrarium reflected but neither space can see the other. .
Normal one way mirrors require one side to be light and the other dark. With this one way mirror I can have light on both sides. http://www.okaluxna.com/products/viewblock/
I also hope to use natural daylighting with a solar collector and fibre optic cable. This will require some experiments so I am going to do those first.
I'll put all this up online for HN when things get interesting. In particular I'm looking for a cheap way transmit daylight (I have fibre cable but the normal kind is very thin).
> I found working all weekend on the house re-charged me for the job during the week.
I hope that happens to me! ;-)
> A tiny house should not cost hundreds of thousands - wood is just not that pricey at Home Depot. You should start pricing it out and give it a shot.
Looks to be 50k - 75k so far. You can build Tiny Houses really cheaply, even for 5k, but I'm optimizing for longevity (like a custom built stainless steel trailer foundation) and have unusual design features so it will be at the higher end.
https://en.wikipedia.org/wiki/Gecekondu
[1] If you don't count the Native Americans who were persecuted and slaughtered for their land.
Plus, isn't it very easy to have low income inequality if you have a whole continent of land free for the taking[1]?
> [1] If you don't count the Native Americans who were persecuted and slaughtered for their land.
Also [2] if you don't count the imported slaves who contributed much of the raw labor.
Really why, not just throwing slogans around. And why it should be treated before things like absolute poverty, etc.
[1] https://en.wikipedia.org/wiki/Ultimatum_game
Also, even if you give everyone a basic living with for example, basic income, income inequality is still a problem, because to get a bit more of what you want you have to sell more of what you do. This unavoidable causes tension, because labor , value and price can get distorted.
But not also that, because if you were to see that income inequality is a problem on how the value is captured, not created, this means that people with skills and capacity to create a lot of value are not getting rewarded for it, which is detrimental for all the members of society, except those that get the direct benefit of the value capture.
Well that too, but the tension comes directly from the inequality. e.g. Being hungry sucks, but it sucks more if you see fellow citizens live like kings.
Or is this just a post-hoc justification that you don't really believe?
Premise 1: X causes social tension is a reason for us to oppose X.
Fact: Racial diversity causes social tension.
Premise 2: The person I'm arguing against doesn't believe racial diversity should be opposed.
Conclusion: Maybe Premise 1 is wrong. But then using premise 1 as an argument against inequality is also wrong.
Although I'd prefer to call it "argumentum ad assume racism"
My argument is a -> b, a -> c, c is false therefore a must be false, and the argument for b is also flawed.
You also seem to be assuming it is not possible that income inequality might be one important cause of racial division.
According to Robert Putnam, all else held equal, racial diversity causes social tension. If causing social tension is a valid argument against something, this should be an argument against racial diversity.
http://archive.boston.com/news/globe/ideas/articles/2007/08/...
http://onlinelibrary.wiley.com/doi/10.1111/j.1467-9477.2007.... (sadly it's paywalled)
So we are faced with the following choices: a) you can oppose racial diversity AND inequality because both cause social tension, b) you can oppose neither (for this reason, at least), or c) you can be logically inconsistent and therefore incorrect about something.
I choose (b). What do you choose?
The grandparent stated the rather direct correlation: Causes social unrest? Bad. Fajitas made the (I believe accurate, if incendiary) statement of "Is this really true?"
I find it especially entertaining that HN would react negatively to this angle of query, given that we embrace the potential conflict when it comes to many aspects speech and other liberties as an _asset_ to those capabilities (many statements of the sort: "someone's civil discord is someone else's civil rights movement")
While I can't use this argument to state the opposite, "discord -> good thing", I certainly think there's something to be said that of many of the arguments in this thread, the fact that it causes social unrest is one of the _weaker_ justifications for income rectification in my eyes.
(I feel somewhat "copping out" in that I have qualify myself like this, but to be perfectly clear; I absolutely support inspecting this problem and really believe in the concerns regarding cyclical wealth/power building. As such, a weak argument does more harm than good since someone can easily point out contradictions like the ones in my post)
As a final postscript, let me take this mental exercise to one extreme, in the attempt to provoke further thought: perhaps unrest is the saving grace of very unequal situations, the final avenue to take when all peaceful ones have been exhausted, and in that sense both a "emergency-pressure-release-valve" on society and a barometer that should be watched with attention.
Normally I like you posts but this is really a bad argument and I did not see a valid counterpoint in your different answers. Same as with your recent, flawed and disturbing blog post [1]. Everyone should have his political opinion, but if you look at the data (and that is, what you normally are really good at!) regarding income/wealth inequality (without any bias) I don't think you can honestly say that everything is fine.
[1] https://www.chrisstucchio.com/blog/2016/are_gays_or_guns_mor...
This might be true, but so what? This doesn't mean that racial diversity doesn't also increase social tension. If social tension = (racial diversity) x (income inequality) - treat that as a stylized equation indicating my line of thinking - we can reduce either one to reduce social tension.
(I'm unconvinced it's true, in any case. The US is more unequal than either India or Europe, yet seems to have far fewer racial/ethnic problems. Do you have evidence?)
My claim is simply the following. If "x causes social tension, therefore it's bad" is a valid argument, then it's valid for both income inequality and racial diversity. Note that I have no problem with either racial diversity or income inequality - to me both are intrinsically irrelevant, and I'm unconvinced they are extrinsically relevant.
I'm curious to know what the flaw is with my blog post. Did I make an arithmetic error? If so, please let me know - I'd love to fix it.
I'm also confused why you bring up politics or call that post "disturbing." There is a 2-line "P.S." in that blog post which explicitly disavows the idea that I'm pushing any politics. My comments here have advocated no policy position whatsoever.
The mechanisms are somewhat nebulous and likely complex and diffuse.
So no single WHY other than stability (I live in the UK and an unpredictable future is really bad for my business as we just found out).
Think of startups gradually removing stock options from their employees, until they are absolutely eliminated with no salary compensation. Shareholders and management will get all the big gains from the company growth. One could consider this reasonable if the separation of dividends corresponds to the value provided, but I'd argue that there is a difference in the value you create, and the ability to capture that value.
The wisest suggestion I've gotten with regard to this is to not fall prey to instantaneous picture. It may even be impossible to have equality in a single slice of time. Rather than looking for single point inequality, look for how the population is moving through the income inequality over time.
Basically, are the same people always in the bottom, middle, and top? If so, that's probably a problem. What's the time any given person spends in the top? Bottom? Middle?
As long as you have continuous movement throughout and no one is stuck, you can at least know that there is some semblance of equality in opportunity even if not outcomes.
Judging from the way people go about discussing these sorts of topics, I would say that outcome is a more widely-used "determinant" of fairness than opportunity. Outcomes are always seen as proxies for opportunity (or lack of it).
2. Money becomes power. More power in the hands of fewer people is not good for a democracy.
I only speak for myself. I'm curious what the more idealistic among us will say. Keep in mind that income growth is a proxy. What really matters is wealth inequality. We just talk about the one that's easier to measure.
And the majority of customers are not other rich people.
It the middle/working class are getting a smaller share of the pie, then the market shrinks compared to what it could be with a more uniform distribution -- and everybody suffers.
1. The market value of money available to invest is its price.
2. The price of money is the interest rate.
3. Interest rates have been extremely low for a very long time.
Conclusion: the value of additional money available to invest is extremely low. That same money in the hands of the working poor will be thrown right back into the economy.
Rich people also invest in many other things that do not further sustainable growth and, as we can see from many corporations, many of them actually hoard cash or invest in bonds (which just fuel unsustainable consumption - hardly the growth that seems beneficial long term)
An IPO takes some money out of the market, to the pre-IPO investors in the company, but a much bigger impact is made by dividends.
Here's a thought experiment for you: A company, A[1], IPO's. It's investors take some cash, the rest goes into A. A is a fantastic success and eventually grows to be the largest company in the world, market-capitalization-wise. Then, like all things mortal, it begins to slide into obsolescence, obscurity, and eventually bankruptcy and dissolution. Throughout its lifetime, following the best advice of economists[2], it never pays a dividend.
Anyone investing in A's stock is playing a quintessential zero-sum game: they're betting A will go up before it goes down permanently.
[1] No offense to Agilent.
[2] The goofy "double taxation" argument. The "it's no longer a growth company" argument (causing an immediate collapse in A's stock price). Etc.
It feels like your calling the idea of economy in general a zero sum game. Can you elaborate?
Bingo.
The "economy" is a measure of the velocity of money. Any one advocating economic growth must then logically advocate some form of redistribution. To keep the money moving.
I'm undecided if economic growth is a worthy goal. But until a better idea comes along, us pinko commie hippies have favored the time proven battle tested progressive income redistribution in the form Keynesian economics.
It's no small irony that the result of anti-tax jihadist policies is less economic growth. Whoops.
When this reaches a critical mass, it becomes less risky to take up arms and eliminate the oppressors in exchange for the promise of better life.
Ends in revolution and war.
The upper echelons of the revolutionary class become the new upper class, while the lower classes get the same or even worse of a deal dressed up in propaganda.
Adapted from "The Theory and Practice of Oligarchical Collectivism" by Emmanuel Goldstein.
They don't have to be populist! Just effective demagogues, whether or not they really have the people's interests at heart.
If you have a lot of poor people revolting against a small class of wealthy people (human vs human), then the poor are bound to win - But if wealthy people have an army of machines, weapons and powerful media propaganda channels at their disposal, then the poor masses would be completely powerless.
I can see the following scenarios for the future of humanity:
1. The rich own effectively everything and their media propaganda machine becomes so good that the poor masses are completely oblivious as to what is happening. When machines become good enough to replace humans, the poor class will cease to become a productive asset for the wealthy; the poor will become a liability. At this point the rich will leverage their monopoly over the media to initiate a propaganda program to bring the poor class to a slow, merciful self-extinction.
2. The rich own almost everything but because of the internet and decentralized media sources which have remained outside of their control, their media propaganda machine is not effective enough to give them full control over the masses. When the poor cease to be assets for the wealthy, the wealthy will begin to implement various complex strategies to bring the poor masses to extinction - Because of decentralized media and high standards of education among the poor, the poor will become increasingly aware of what is happening and initiate a revolution. In response, the rich will swiftly deploy an army of killer drones and exterminate the poor.
3. The rich own effectively everything. When machines/robots become good enough to replace humans, the rich will see no point in hoarding the enormous amount of free wealth created by these robots and will share all economic proceeds equally amongst the masses. In this scenario, everyone lives happily ever after... Until robots take over and bring us all to extinction.
free people aren't equal. equal people aren't free.
Citation needed.
To quote Anacharsis from 25 centuries before: "[your laws] are no different from spiders' webs. They'll restrain anyone weak and insignificant who gets caught in them, but they'll be torn to shreds by people with power and wealth."
Or to quote Anatole France from last century: "In its majestic equality, the law forbids rich and poor alike to sleep under bridges, beg in the streets and steal loaves of bread."
Same goes for economic accomplishments of one's family and the opportunities their offspring get in life: http://thewireless.co.nz/articles/the-pencilsword-on-a-plate
You might not want people to be exactly equal economically, but you don't want huge discrepancies either for those reasons.
But of course the right, and especially in the US, has a naive child-like view of a world of equal opportunity were individual work and merit make all the difference. One might as well believe in magic fairies...
That's pretty lame, "The rich can buy a verdict." Even if that were true, that would be a bug not a feature.
"world of equal opportunity were individual work and merit make all the difference"
straw man
Since the rich also have undue influence on the design of the laws and the general running of society, that's a feature (for them), not a bug.
Besides, even if it was "a bug, not a feature" of the legal system, unless it could magically or otherwise go away, it would still be had to be taken into account.
>*straw man
You can find pretty much the same statement expressed in all kinds of books, articles, political speeches, and interviews. At best with very small caveats.
A strawman, on the other hand, is supposed to be something that nobody ever says.
I'm not disagreeing with your conclusions. Your previous argument is crap, and that should be obvious.
This:
"In order to equalize income, those of greater-than-average productivity would have to have some of their wealth redistributed, ergo less free."
Is part of an actual argument. "Just look around" is not.
But for what it's worth, I do not agree that freedom intrinsically requires total control of wealth. That it currently does is an artifact of our present culture. I don't even agree that the wealth is "theirs" to begin with.
http://www.chron.com/news/nation-world/world/article/An-eeri...
https://www.theguardian.com/world/2010/sep/09/fidel-castro-c...
Second, who said any attempt at equality has to be made that way? There were historically (and still are) lots of societies both valuing equality and actually way more equal than modern US but with very different structures and/or beliefs.
From the Amish and hippy communes, and ancient Spartans, to modern nordic countries.
A billionaire or a thousand millionaires.
A society where the rich has most of the money can't grow and then in the end everyone gets poorer.
It is a big problem IF the gap becomes too big at the expense of the poorest. I.e. the rich get richer but the poor doesn't get richer relative to the poor.
It is not a big problem if there is some undefined balance between the different income groups as this will keep the economy going.
The problem we have today is mostly that the rich gets much richer, the poor doesn't really get much better and the middle class is dissepearing which erodes the prospect of any society to grow.
Inequality is when the poor get 2x richer, but the rich get 3x richer, in real terms (not nominal). Do you have any reason to believe this is a problem?
But that isn't what's happening. The bottom quartile's incomes have shrunk when adjusted for inflation and they have stagnated since the 80s.
That IS a problem.
To be a bit of a devil's advocate here: Why is that a problem as well?
Assuming that despite their wages "shrinking", they are still leading decent, normal lives then what about that is bad? Perhaps their labour in the greater context isn't worth all that much to others and that doesn't fit in to our world-view? Or are we simply expecting that their "status" or "wealth" should be increasing along with the economy?
Mind you, this all goes out the window if a good , if austere life is guaranteed somehow, then capitalism and consolidation away.
1. Nothing, assuming of course they are living those lives. There is a body of evidence, however, so overwhelming that at the lower incomes the people are not leading healthy lives. That is a matter of debate for someone with a medical degree and you could probably write books about this topic alone. Poor conditions reinforce poor behaviors.
2. Perhaps. Of course everyone will argue that their "greater context" is the right one. The question you're really asking here is "are we okay with letting the least productive members of our society suffer and struggle for survival?" Maybe for some people the answer will be yes. There's no logical argument I can provide for those people that will sway them.
3. That is the mantra of trickle down economics that has been proven consistently false over the last 30 years. Neither wealth nor income have trickled down despite increases in productivity. Of course one could also subscribe to the idea of "this is not a problem", but that's the intellectual equivalent of sticking your head in the sand or throwing a tantrum.
Assume an income tax rate of X%, cap gains tax rate of Y%, and a rate of return R.
Consider a spender. In year 0 he earns 1 dollar, he pays X% in cap gains and spends the rest. In total he paid X year 0 dollars.
Consider a saver. In year 0 he earns 1 dollar, he pays X% in cap gains and invests the rest. 1 year later he is holding (1-X)(1+R), which he cashes out of. He then pays Y[(1-X)(1+R)-(1-X)] in taxes. In total, he has paid X+Y[(1-X)(1+R)-(1-X)]/(1+R) in year 0 dollars in taxes.
The latter is always greater than the former.
Lets expand your example. Suppose the rate of return is 100%. The spender received $10,000 at time 1 and paid $5,000 in year 1 dollars. 50% tax rate.
In contrast, the saver received $20,000 at time 0 and paid $10,000 in taxes. Then they invested the remainder, and at time 1 received an additional $10,000. He then paid $2,500 on that. In year 1 dollars, he paid $20,000 ($10,000 year 0 dollars == $20,000 year 1 dollars) in income taxes + $2,500 in cap gains. That's a total tax rate of 56.25%.
Also, I'd love to see evidence of an income drop (not to be confused with a wage drop, since wages are only a shrinking fraction of income).
But what has been happening for at least 30 years is the rich are getting considerably richer, but everyone else's income is either stagnant or dropping. To expect the general public to continue to be happy with this state of affairs is simply unreasonable.
In the west however it's stagnating which it also will other places over time.
Outside of that (and stability/coherence of political power), what reason is there for rich people to exist though?
Because I can't think of any. And typically non-productive beings that exist due to the efforts of others are known as parasites.
The plutocrats of our country do not have the right to drain the wealth of the "under-class" so they can redistribute it to another underclass in another country... which will of course conveniently help their economic interests at the same time.
From this chart, we can clearly see that the middle class of the western world (80th percentile) has been paying all the cost of globalization. What's worse is that this chart is only in terms of income growth. I think if we looked at the percentile breakdown in terms of wealth growth, it would be even worse (remember, if you're wealthy, you can reinvest most of your income and it will compound over time).
Wikipedia suggests Flint has had a budget deficit for many years. That means wealth is flowing into Flint, not out.
https://en.wikipedia.org/wiki/Flint,_Michigan#First_financia...
That's what oligopolies do. In a sane system a single large employer would have to contribute to building a self-sustaining independent ecosystem of businesses in an area, instead of being allowed to extract profit and then leave when there's more profit to be made elsewhere.
Monocultures are an unworkable idea with toxic effects in economics just as much as they are in nature.
It's a lot more like putting a lot of wealth in, but then not putting more in.
1 money = power 2 return to 1
if a few people have most of the money, they have nearly all of the power because nobody else's share of power or money is greater than theirs, even collectively
honest question, do you have an ulterior motive in asking your question?
This happens when you reach the limit of a fundamental input to the bubble. When this happens, you have dramatic, rapid changes in the economic structure of society, which have historically always been Bad.
From a software standpoint, it's a bit like writing a non-determinable program with an infinite loop in an unsafe language: it's just a matter of time.
The other thing is that it's a violation of the golden rule: all of the unborn individuals should have a chance at economic success. The wider the split gets, the less and less realistic that opportunity is. It's fine for all of us that won the ovarian lottery, but we can't say with a straight face that we would be successful if we were born in the fields of a third world country (or the alleys of detroit).
While [many people * low income] and [few people * high income] should both be able to produce demand, it's important to remember there is a brick-wall limit at the poor end of the curve. This is similar to the flaw in the martingale[1] betting system; you have to stop playing when your cash runs out.
When you have to spend every dollar you have trying - and often failing[2] - to pay for basic living requirements, you aren't spending money on the rest of the economy. Expect violence to start when the bottom end of the income curve is pushed low enough that some people starts going hungry.
A proper social safety net helps both of these problems. Keeping people in the economy with realistic wages (and/or a basic income or other welfare programs) keeps money flowing through a large part of the economy. It also discourages people from looting your house. Brexit and Trump are warnings; when people are desperate they tend to attack anything they perceive is they problem. Fixing the income problem needs to happen now, so people not only have enough to live, but also have a sense that they have their fair chance to succeed. If the warning signs are ignored... as Mark Blyth said, "The Hamptons is not a defensible position"[3].
[1] https://en.wikipedia.org/wiki/Martingale_%28betting_system%2...
[2] https://medium.com/@sarahkendzior/the-minimum-wage-worker-st...
[3] https://www.youtube.com/watch?v=Zzl4B3mrKQE
Poor people need a mass market economy. They need the support of huge economic and physical supply chains to create/grow/ship/distribute/sell food and goods.
The economy of the rich tends to rely on boutique artisanal goods and services that are more likely to handcrafted, hand-made, and labour intensive - for a very much smaller volume of labour.
You can't run an economy if the former networks aren't profitable because they supply essential goods and services to most of the population. They also create employment for large numbers of people.
You can run an economy quite happily if no one at all is producing hyper-expensive yachts and one-off handbags.
Worse, you can't run the economy of the rich without the economy of the poor to support it. The rich economy only works when it can skim profitability off the poor. If there is no profitability, everyone goes bankrupt.
If we define wealth as abstracted resources available, this seems obviously problematic: it reduces the size of the coalition needed to make decisions for society. To pick a crazy example, there are two ways for someone to prohibit serving falafel in their city. They can either get enough voters together to prohibit that (difficult for obvious reasons). Alternatively, they can get enough wealth together to buy or bribe all of the restaurants (or suppliers, or commercial property, etc).
Naturally, we're nowhere close to my crazy example, but there are smaller examples of this effect that we're starting to see. Try going down to the store and buying a Blu-Ray player that doesn't encrypt its HDMI output. You can't, even though the majority of people who care one way or the other would like one.
The other problem is that it's rather detrimental to the narrative that one's income is purely the result of the work one puts in. It's hard to explain rising income inequality if that is true. Are rich people systematically working harder (and poor people systematically working less hard) than they used to? That's implausible on its face, so what's causing the inequality to increase?
There are some plausible explanations for this, which still work within the narrative that income results from work. Occam's Razor would seem to point in other directions, though.
The number of people who care is very small, though, which makes it economically inefficient to manufacture. While a machine could be manufactured with the feature as an add-on, that defeats the purpose of the feature in the first place.
This is accomplished not by bribing everyone, but by the ordinary legal system[0]. In general, bribing everyone without legal enforcement has coordination problems that are difficult to solve.
Once you pay off all the falafel suppliers, JP morgan or someone will come up with the bright idea of either a) creating a new falafel supplier that rejects the bribe and sells at a price premium or b) creating a new falafel supplier, accepting the bribe, and then closing down.
With enough obfuscation, b) can be repeated until the person giving out bribes runs out of money.
[0]e.g. http://arstechnica.com/tech-policy/2016/01/warner-bros-sues-...
Those are still for sale: https://www.hdfury.com/
You just can't buy them from Best Buy or Micro Center or what have you, and nobody will make a player that obviates the need for those.
> Once you pay off all the falafel suppliers, JP morgan or someone will come up with the bright idea of either a) creating a new falafel supplier that rejects the bribe and sells at a price premium or b) creating a new falafel supplier, accepting the bribe, and then closing down.
This is part of why my example is crazy, yes. It's not that hard to grow chickpeas, so it's in turn very hard to monopolize falafel.
Absolute poverty is a solved problem. People rarely starve to death in the US. It's an El Niño year; out here in not-SF we're having a bit of a drought, but no one is seriously afraid of a famine. Sure, there are things like health care that could be better, but those are second-order effects and fairly minor on the poverty scale.
The actual problem is power. (That may not be a popular statement[1] in this forum, where single young adults are commonly making 2-3x the median household income and yet are fond of complaining about disenfranchisement.) Money is power, the power to do things and the power to tell others what do do.
Now, I admit that the technology industry seems spectacularly bad about translating it's assets into political power, so it may not be apparent to people reading this, but I don't expect that to last forever. (C.f. Thiel and Gawker.)
On the other hand, a lot of money in a small number of hands is not in the hands of the tech industry. Consider the Kochs, or Citigroup/JP Morgan/Goldman Sachs. That money buys politicians, to an extent, but it also buys agendas, access, and, rather amazingly, consensus. (Why do Americans seem to have a weird habit of voting for ideology instead of their presumably enlightened material interests?)
This power held by a few people means that the actions of a country may not necessarily be in accord with the wishes of its citizens. Take a look at the third graph in the article. The peak of the England-Wales line is roughly 1825-1875, roughly the high point of the British Empire and, strangely, including things like the Irish famine.
But, fortunately, for the likes of you and me, there isn't a problem. Yay. (As long as no one sets up guillotines.)
[1] Dare I say it?: not a politically correct statement.
Donald Trump's campaign is populist, not whatever-the-political-opposite-of-elite-is. He is tied for #121 on the Forbes 400, after all.[1]
I don't actually know enough about Brexit to tell what the hell is going on there (like a lot of people, apparently). I do know that some people[2a] are very unhappy that David Cameron called a referendum instead of going through parliament.[2b] See also populism. My feeling, however, is that the anti-immigration thingy has more to do with the UK's own inequality situation.
Individual income taxes have been hovering between 6% and 10% of GDP since WWII; overall taxes have been between 15% and 20% of GDP since WWII.[3]
Now, as far as power being the problem, to the extent of my knowledge there are no facts in politics. All I've got is that, historically, concentrating power into the hands of a small minority seems to be a poor idea; and that most of the modern "rich countries" are de facto pseudo-democracies, apparently in an effort to avoid having ultimate authority concentrated in a small minority. YMMV. Some shrinkage may occur. Not for internal use. Do not taunt Happy Fun Ball.
[0] Unless someone's done gone and created a secret world government without copying me on the memo (Again, dammit!), rich countries' governmental structures should probably be treated in isolation. Particularly the US, which has remarkably little in common with "most rich countries".
[1] http://www.forbes.com/forbes-400/list/2/#version:static
[2a] https://next.ft.com/content/7877a0a6-3e11-11e6-9f2c-36b487eb...
[2b] http://www.economist.com/blogs/graphicdetail/2016/02/graphic...
[3] http://www.taxpolicycenter.org/statistics/source-revenue-sha...
[4] http://www.justfacts.com/images/taxes/federal_state_local_re...
You know, if the rich were actually suffering under confiscatory taxes, their percentage of total national income and wealth would be in the decline, but actually it has been steadily going up. Were you really not aware of that?
I keep forgetting state and local taxes. I'm from Texas, which doesn't have a state income tax; I'm living in Alabama, which has an income tax rate of something like 4%. Both localities rely heavily on sales taxes to a typical tune of about 9% (and sales taxes are regressive, I'll remind you) and property taxes.
Anyway, check this:
http://taxfoundation.org/article/short-history-government-ta...
Chart 1 duplicates your graph's "Current Revenues" and "Current Spending" lines, while Table 1 shows total gov't receipts as a percent of GDP by (roughly) decade since 1930. In 1950, 22%; 1980, 28%; 2000, 31%; 2012, 26%.
So yes, taxes have gone up. But not spectacularly, certainly not as much as deficit spending, and probably not to the excessive detriment of the "moneyed elite".
https://en.wikipedia.org/wiki/Economic_inequality#Effects
http://rooseveltinstitute.org/stiglitz-why-inequality-matter...
http://www.economist.com/news/briefing/21640316-children-ric...
Also read "Twilight of the Elites" to learn about how inequality leads to greater "vertical social distance" and how the government now largely reflects the interests of those at the top (http://www.newyorker.com/news/john-cassidy/is-america-an-oli...)
However, I'm not sure I see any actual evidence to support the power theory. The economist article paints a link between education, IQ and income, but not political power. Stiglitz breifly asserts it's truth in point six in his article, but doesn't actually provide any documentation. And similarly, despite clicking through to a dozen promising sources in the wiki, I wasn't able to find any evidence of any sort of trend or change in political power associated to income inequality.
I am a little unclear on what you specifically mean by "the power theory".
Do you mean to question the proposed relationship between greater monetary resources and greater (political and social) power? This is something that seems pretty obvious but there are some interesting graphs presented in:
"Economic Inequality and Political Power (Part 1 of 3)", Martin Gilens, 2012. http://themonkeycage.org/2012/08/economic-inequality-and-pol...
"When preferences across income groups do diverge, however, I found that the association with policy outcomes persisted for the affluent but disappeared for the middle class and the poor, as the second chart shows...If federal policy more equally reflected the preferences of all Americans, we would see a more progressive tax structure, higher unemployment benefits, stronger regulation of business and industry, a more protectionist trade regime, more prayer in public life, and less access to abortion."[1]
Another source is:
"Democracy and the Policy Preferences of Wealthy Americans", Benjamin I. Page, Larry M. Bartels, and Jason Seawright, ?. http://faculty.wcas.northwestern.edu/~jnd260/cab/CAB2012%20-...
"There is good reason to believe that the wealthiest Americans exert more political influence than their less fortunate fellow citizens do. Historically oriented scholars like Thomas Ferguson, William Domhoff, Fred Block, and others have long argued that “major investors” or business elites dominate the making of public policy and the agendas of both the Republican and the Democratic parties.1 Jeffrey Winters maintains that the top one-tenth of 1 percent of US wealth-holders constitute an “oligarchy” with decisive power over certain key policy areas related to what he calls “income defense.”2 Jacob Hacker and Paul Pierson describe how Washington has “made the rich richer.”3
"Even without being able to gauge the actual political power of wealthy citizens, we can confidently reject the view that extensive political power by the wealthy would be of little practical importance anyway because their policy preferences are much the same as everyone else’s. On many important issues the preferences of the wealthy appear to differ markedly from those of the general public. Thus, if policy makers do weigh citizens’ policy preferences differentially based on their income or wealth, the result will not only significantly violate democratic ideals of political equality, but will also affect the substantive contours of American public policy."
Which I found from, "Wealth Inequality and Political Inequality" by Bruce Bartlett. http://economix.blogs.nytimes.com/2013/04/30/wealth-inequali...
Or, do you mean to question the proposed relationship between monetary inequality[2] and (political and social) power specifically? There are several links on the Wikipedia page concerning specifically inequality and social cohesion, crime, and social, cultural, and civic participation; all of these are more or less linked to perceived social and political power. However, more specifically:
"Economic Inequality and Democratic Political Engagement", Frederick Solt, 2005. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.602...
"It finds...
From the Princeton study (http://www.huffingtonpost.com/2014/04/15/government-wealthy-...):
U.S. government policies reflect the desires of the wealthy and interest groups more than the average citizen, according to researchers at Princeton University and Northwestern University.
“[W]e believe that if policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened,” write Martin Gilens and Benjamin I. Page in an April 9 article posted on the Princeton website and scheduled for fall publication in the journal Perspectives on Politics.
“Not only do ordinary citizens not have uniquely substantial power over policy decisions; they have little or no independent influence on policy at all,” the researchers write in the article titled, “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens.”
Affluent Americans, however, “have a quite substantial, highly significant, independent impact on policy,” Gilens and Page write. Organized interest groups also “have a large, positive, highly significant impact upon public policy.”
He infiltrates every level of our life, so much so that when the wife of one of the PM candidates accidentally leaked an email she wrote to his team Murdoch was named specifically.
He isn't even that rich compared to the absolute richest but he owns a huge chunk of the media market here (Newspapers and Sky TV/Sky News) which allows him to set the agenda almost completely.
Between him and Dacre (editor of the Daily Mail - a truly terrible newspaper) they have effective control of the news media and it's agenda in this country and it's terrifying.
His company hacked the voice mail of a dead girl and he walked away from it essentially scott free.
No problems with offering your opinion. Everybody should be free to metaphorically weak noses. Here is my opinion.
This is only a paradox if you think the median household income is a lot of money. It isn't.
With respect to their power and positions, geeks in our society earn a lot less value than they generate, from scientists to programmers.
The truth is that the USA and Europe contain corporate cartels which control programmer wages. We've already seen this at [Eric Smith]/Apple/Microsoft but it's even worse in Europe where the government endorses wage suppression for STEM employees as part of some insane plan they thought was a good idea at the time. That's why Britain and Germany have shit tech and science sectors in comparison to the States still, despite its factional political disputes threatening to drag it down, which still maintains a certain level of meritocracy.
You'll be unlikely to hear much of this from the established media although the SV wage collusion did come out.
A General Strike of computer programmers would cripple the world economy overnight. I'm an extremely capitalist person, not a communist, but this much is clear. The powers that be are painfully aware of the fact in inverse relation to most engineer's obliviousness to the fact. That they're pissed at that guy in the E-Embassy is not a coincidence because among many things, they're perturbed by his attempts to get a geek rebellion underway.
So we get paid better than most, but nowhere close to a real market wage, which would be in the millions easily. Is there any rational reason other than a power play that makes a programmer earn a similar wage to the white collar professions? This is entirely arbitrary!
If a dentist or lawyer could affect millions of teeth or cases at a moment's notice, you better believe they would be looking to be compensated for that reach.
50% of the households in the United States would think it is more than they are making. Any further conclusions are up to you.
We know men make more money than women. The typical programmer is male.
We know technical professions like engineering make more money than say, working in retail. Most workers are not engineers.
Right there your benchmark is going to be at least twice median household income and we haven't even added the fact computing has been the most influential industry since the railroads and steamships got invented.
So yes, I am quite confident 100k is not a high salary for the kind of work being done.
It would be better to compare many programmers to venture capitalists or inventors than other traditional white collar professions. I repeat my point from the above post. It is all about the scaling factor. I expect a programmer's work to attract white collar wages without the Internet existing. But with it, that's a different story. The fact there's more programmers to compete with is meaningless in comparison to the ability to affect the majority of people on the planet.
Societies in which the majority of people are struggling to satisfy such needs are probably not sustainable, regardless of the "fairness" of their economic and political systems.
Put another way, the system 'must work' for a majority of people in it.
In a way, the direction of where you are going matters more than where you are. Even if everyone had food and shelter, we would feel less anxious but inequality would still get more profound and unavoidably end up in some people owning others.
http://www.fooledbyrandomness.com/FatTails.html
"How to (not) estimate Gini indices for fat tailed variables":
https://dl.dropboxusercontent.com/u/50282823/GINI-1.pdf
Those charts go up up up, meaning that things are going to get even worse for more people if all parameters stay the same.
This never ends well. Radical new ideas take hold in the minds of the frustrated lower classes and then everything explodes into revolutions, wars and rivers of blood.
The reason for the violence is the frustration morphed into hatred on one side and feeling of superiority and entitlement morphed into fear on the other side.
Nothing good can come out of clashing hatred against fear.
Some "skilled" politicians channel the feelings of frustration-on-the-verge of hatred towards other nations or social classes, like immigrants, political unions (EU), etc and that's why you have the populists gaining traction all over the world.
Technology was supposed to save us from this - yet it seems to have accelerated it.
The cherry on this cake is the fact that the biosphere and climate are collapsing, while the population is growing, so something's got to give first.
Interesting times ahead for sure.
http://www.margaretthatcher.org/speeches/displaydocument.asp...
If you work REALLY HARD in an area which takes 20 years to master and after doing so you end up earning $200K per year, then you probably deserve it. It is hard getting to such point; you have to constantly plan your career, educate yourself and put yourself through a lot of emotional/psychological trauma for a very long time to get that stage.
On the other hand, if you inherited $6 million worth of company stocks from your parents and you earn $200K in dividends each year from those shares and you don't work at all, then you probably don't deserve that income.
... And somewhere in between these two extremes, there are entrepreneurs; who work really hard and take huge risks to create a successful company (and often fail), but when they do succeed, they tend to get disproportional payouts.
More educated, less crime, better living conditions, better nutrition.
The only problem I see is jealousy. Poor people are jealous of what rich people have and want to take it.
And even if it were true, if jealousy is a barrier to happiness, why shouldn't it be seriously addressed? What is the point of human society if you're just going to casually discard the concerns of the vast majority of people?
Jealousy is a problem with the individual, not a problem with society. They are jealous because of their own shortcomings, not because someone else is successful. They just channel their self loathing into hating the successful. You can't cure that by taking away money from the rich.
Wealth inequality leads to inequality in political representation. Think about the massive amount of influence the elite have on our politics. And in virtually all cases, they use that influence to better their own situation and take away opportunity from others.
The poor having fridges and air conditioning does not matter when the entire system is rigged against them.
And don't start that crap about political representation. The elite always has had disproportionate influence over politics and it always will.
1. What is 'income'. Do you mean taxable income that is received through an employer? Because if you do, most of the 1% at the top probably don't receive 'income'. For example John Kerry is worth about 600mil but received $60K in 'income' for the year he was running for president. The rest of the money gets funneled into off shore bank accounts 503B organizations, shell companies, etc. I think the only reason that he had any 'income' at all was because he sold a few paintings that year. Most of the super wealthy don't have any 'income' at all.
2. Globalization effects. I've lived in some of the wealthiest places in the US and many very wealthily people in the US are foreigners that happen to live here or have many their money overseas. So if Jack Ma decided to live in Washington D.C. would he be part of the top 1% of the US graph? Splitting a graph into US vs UK for instance may no longer be realistic in the modern world. Most 1%ers are globalized.
Couple of other ideas I had:
>> Technological change and globalization have widened the gap between skilled workers and less-educated workers.
Take a look at india. Tech workers do alot better than their peers. Is that bad? Isn't that raising the standard of living for indians? Should all indians all go back to poverty so that they can not have any 'income inequality' in their country?
I feel like these pieces are written to justify tax increases by getting people to believe that there is someone out their that can be 'squeezed' for money because 'it's just not fair'. The reality is that most Americans that make above 50K a year are probably in the top 1% of the global population. So maybe in that sense all americans are part of the super rich 1%ers.
http://www.maxroser.com/economic-world-history-in-one-chart/
http://siteresources.worldbank.org/INTPOVRES/Resources/47722...
Article means inequality within certain arbitrary borders.
Please and thanks.
If you're a high-income earner in a big city and you want to buy a house/apartment, you're going to have to take on massive debt and you will end up paying double what a wealthy person would pay for the same house/apartment (due to interests).
In effect, prices on the housing market are not determined by income-earners; they are determined by wealth-owners.
To buy a house (or anything which is in limited supply), income-earners are forced to compete with wealth-owners; and wealth owners can afford to drive market prices way up - This is in part because wealth owners, on average, do not value money as much as income-earners do. Also, as mentioned above, they don't have to factor in interest rates when making purchasing decisions.
1. Interest rates matter, because if they're low, they'll usually invest their money elsewhere / pay the interest / pocket the difference. They'll often do a deal "cash" (meaning, without debt) and refinance later.
2. Using debt to offset taxes matters too.
First he bought a house for $7 million (which was widely regarded as massively overpriced at the time). Then he ended up buying all adjacent properties for $30 million.
In a few short years, he single-handedly contributed to a massive increase in property prices in his entire neighbourhood. This is essentially the story of San Francisco's property market over the past 10 years.
It could become significant wealth if they saved + invested it well, but most high earners are excellent at spending it all. Just look at the amount of bigtime basketball / football players who remain with nothing a few years after they stop playing.
But if the number of people is small, the amount of housing they can consume is tiny. For example, NYC has 5,600 ultra high net wealth individuals. Assuming a wealthy person rents 10 flats, these rich people only have the same effect on housing supply as NYU (57,000 students).
http://marketurbanism.com/2016/06/27/do-the-rich-cause-high-...
The more inequality you have, the less competition you face from wealthy people. If we replaced 5,600 rich people with 1 mega-rich person, would that mega-rich person suddenly rent 67,000 flats, taking an additional 10,000 off the market?
https://en.wikipedia.org/wiki/Megacity
https://en.wikipedia.org/wiki/Ultra_high-net-worth_individua...
Assuming each of them rents 10 flats, they might consume 1% of the total housing supply.
[1]http://mobile.nytimes.com/2015/01/11/realestate/new-york-cit...
And perhaps surprisingly, the data indicated that “the vast majority of pieds-à-terre are middle class,” Mr. Miller said. “They are owned by people who have a studio in the city and a home in the suburbs, or maybe it was their first apartment that they chose to keep and rent it out.”
What does middle class people becoming landlords have to do with the rich?
Insofar as a flat is being rented out (as many of them are, according to the article), it's not even reducing housing supply.
Similarly, if you own real estate and rent it out you aren't reducing the housing supply.
Your hypothetical weathly person might choose to buy 67,000 flats and gain monopoly power over their rents.
You don't get monopoly power over rents by buying 67,000 flats (out of a millions).
[1] https://www.federalreserve.gov/releases/h41/current/h41.htm#...
[3] http://money.cnn.com/2016/05/25/technology/mark-zuckerberg-p...
If you weren't a slave.
Stopped reading right there. hahahahahahahahaha.
But i also think we go back to that :)
I pine for the day when journalists who make statements like this in defence of their own articles aren't taken seriously without hard data to support their argument.
Given that there are people in both categories, I'm not sure more "hard data" is needed. If you actually dispute the claim, there's a Wikipedia page with many links. That's probably a better source than expecting every article on the topic to explain it again.
This is not a problem per se. The problem is that people at the bottom cannot get their needs met, in part because we simply do not build affordable housing in anywhere near sufficient quantities. If we would remedy that, some people being crazy rich would not, per se, be an issue.
1. It may be the case that everyone today has a higher standard of living overall, than in years past, due to a combination of technological advancement and an overall "a rising tide lifts all boats" phenomenon.
2. There may be a point of diminishing returns in terms of the relationship between income and standard of living. That is, if you double your income, maybe your standard of living doubles (this is all assuming we have a good, objective metric for this). However, if you quadruple your income, your standard of living may not quadruple in turn. And so on...
I'm not saying that relative income disparities don't matter at all, but I think some notion of absolute standard of living might actually be more important in the grand scheme of things.