>The more interesting data would measure how fluid are the populations of income deciles between generations or even within a single lifespan.
Even that wouldn't be too interesting to me. What if the society we live in just distributes a lot of income on the basis of luck? We would appear to be a highly fluid society but from the perspective of any individual there would still be little you could do to advance. Some really interesting data would be to take a child's income across life and regress it by some of the luckiest things you can have, parental income level / parent hours spent reading to child before 8 years old / attendance of pre-k / quality of child's high school. Then we could see not just fluidity but independent effortful movement in the economy.
Interesting: nominally more of the bottom quintile both stay in that quintile, and make it to the top quintile, than stay in the top, and drop to the bottom.
bottom -> bottom: 41%
top -> top: 40%
bottom -> top: 9%
top -> bottom: 8%
I guess that's kind of evidence for mobility? From the shapes of the other bands, coming from money still massively biases for ending up with it, and not coming from it against.
Brooks did an interesting study on this, check Page 5 [0]. The answer is that there is a lot of mobility, but your parent’s income status definitely seems to be correlated with their child’s income status.
That isn’t to say it is causative, maybe people who grew up in high cost of living areas just stay in them, where incomes are higher to accommodate.
I see this as one of the most fundamental problems the next generation will need to face. How do we build better models to give access to wealth creation outside a small number of highly leveraged technology companies to a wider group of society? Recent trends in the gig economy, AI, and medicine make me worry more we are slipping toward a super asymmetrical world like Gattica or Altered Carbon -- which is not the world we should want to live in. We should want to preserve a strong path to the American middle class for everyone.
Despite the hype, I'm bullish on cryptocurrency tokens on potentially being a model of a more equitable design for firm returns. If done correctly, the returns of firms could go to the early participants in the network, instead of the VCs and early accredited investors that have special access. The ICO world today isn't there yet (a lot of pre-sale discount tokens to those privileged VCs; lots of ICOs aimed at the larger public are scams, and it's hard to tell the difference between them) but I think we have the tools to create more equitable models, if we only have the will.
isn't that what the 1999 dot-com bubble was? firms could go public almost right out of the gate and then Joe Average investors could buy and sell equity of these immature firms?
It would be nice if there was a VC that could operate like the stock market was supposed to. You invest in the VC and you get a share out. But that share can be really really small. 100$ or less. And you get an ROI. I've thought about that before but I have no clue how or what shape that would take with my limited knowledge of the legality behind VC funding.
VC has access to these stocks before they are available on the stock market. These are also stocks that aren't traded in micro transactions so they can't be gamed by Machine Learning.
Is this assuming that the venture capital industry outperforms the general stock market? I don't think it consistently does. I don't have massive or recent data, but here's a report from a few years ago:
Despite the headline, if you compare the venture capital indexes with the S&P 500, there's no clear winner. Except at the 50-year time horizon, where the early-stage index went to the moon. Good luck investing in that.
HFT has a lot of impacts and may be good or bad overall, or socially useless, or whatever. but it undeniably does result in a better deal for a normal person trying to make small investments -- they've replaced the old market makers but charge much less for the job.
It's not just about returns but also diversification. An open VC would allow people to invest in early-stage companies, not just mid/late-stage companies like the stock market. You'd never want to have too much of it because of the enhanced risk but a small allocation for diversity wouldn't be bad.
The reason you can't do that is to protect the system from abuse. Kickstarter already has a bunch of scammers, but it's not as bad because people are spending disposable income on it and not using it as an investment. As soon as you let the average Joe speculate on start-ups, thousands of companies will pop up trying to figure out the best way to scam people.
I think super asymmetric societies are less just. I'm not sure I'm a Utilitarian in all things, but I think we should try to make as many people as happy and content as possible, not the 1% or 0.1% of society. I'm OK with there being unhappy or less privileged people, but a just world should be closer to a normal distribution (and your outcome should be based on the content of your character, not your birthright).
Maybe something closer to the Star Trek vision of the future (vs. the other two sci fi visions I mentioned).
I really don't see how crytocurrency is going to solve this problem at all.
It does not prevent the problem of a few people having way more wealth/power than others; at best, it just chooses a different set of people to be the wealthy ones.
While it's not a silver bullet and has a long way to go, advances in alternate models of money distribution such as cryptocurrency do seem to be moving us towards a more decentralized monetary system
Right, but the question is what reason do we have to believe that a decentralized monetary system will be more equitable? Being decentralized is no protection against inequality.
Yes; I've always been baffled by the idea that an unmanaged currency will be better. Either tragedy-of-the-commons, or some gorilla(s) exploiting it, seems the very likely outcome.
Right? Anyone who gains power or wealth can utilize that power to accumalate more and/or prevent others from also gaining power and wealth. It doesn't matter if it is centralized or decentralized.
However, by being decentralized it prevents any mechanism of checking the power gained. Yes, centralization can be used as a means of maintaining power, but it can also be used as a way of checking power. Decentralization has no way of checking power.
I agree with you the current versions I've seen feel this way. But I like to think of it as programmable money: it can be whatever we want it to be.
Imagine an ICO that gives more reward when users provide a proof-of-income, and more tokens go to those worse off (sort of like a graduated income tax, but for ICOs). Not saying it's a good idea, just that it's programable so we can make it do whatever we think is best, it's up to us to determine what's best. The right model would require some iteration and experimentation.
There are hard challenges I don't have an answer for -- eg, the less well off probably overlap with those less likely to be engaged with weird internet experiments -- but they feel surmountable, if we want to solve it.
> How do we build better models to give access to wealth creation outside a small number of highly leveraged technology companies to a wider group of society?
We have one - the stock market. $100 invested in Amazon the day it started trading would be worth something like $20,000 today.
Investing in the market has become very democratized. Online brokers offer inexpensive access to everyone, and you can start investing for $100 or less.
So gambling is your solution? It's easy to identify Amazon after the fact just like it's easy to identify the winner of a horse race. Go back to the dawn of Amazon and invest $100 in some of the other startups that look just as likely to be big and now your $100 is $0
Everything in life is gambling and probability. Take a job? You might get fired tomorrow. Start a business? It might fail. Invest in a company? It might turn out to be worth a billion, or $0. Borrow money from a bank? They might try to screw you over at some point, or not. The economy might tank tomorrow. The market might tank tomorrow. An astroid might hit the world in six months.
Seems like a strawman argument. Sure, metaphorically "everything" might be gambling, but the point is to play games with better odds for everybody except the casino.
Gambling has a mathematical downward bias. Investing has a mathematical upward bias. (That's my definition of the difference.)
I find it rather unfair to argue that wealthy people make money off of investments, but that non-wealthy people shouldn't invest because positive returns are not guaranteed. Well, they aren't guaranteed for wealthy people, either, but they invest anyway.
This isn't necessarily a solution. Investing lets one multiply the disposable wealth they already have - but wealthy people have more, and can invest a larger percentage of their assets. I would've be surprised if the share of capital gains income is even more unequal than all income.
Has investing in the stock market become democratized? Sure you could invest in Amazon at a low market cap back in the 90's, but what about Uber, Stripe, Dropbox, or any recent breakout 'unicorn'?
The privatization that has happened in financing high-growth startups is not great news for Joe Q Public
How does that help people who don't even have that $100 to spare? They'd benefit far more from meaningful access to an economy's growth, wouldn't they? The people who can afford to do that in a way that truly pays off already have plenty of money.
The stock market is open to more people, but it still biases disproportionately for those that have more money.
I don't see where I said it did. You didn't answer my question.
EDIT: Forty-some percent of Americans don't have the cash on hand or free credit to handle an unexpected $400 expense. [0] That statistic is almost 3 years old. I doubt it's gone down in that time.
Anyhow, it does not distinguish between "has no discretionary income" from "spent every dime they have". The latter is a common problem even among higher income folks.
People seem to be able to find the funds to buy iphones/booze/drugs/airjordans even down to the lowest levels.
This is a very upper-middle class view of the economy because it very much represents the difference between most people and upper middle class - those in the upper middle class tend to be employees of successful tech or medical companies, and that makes sense since most people here fall into that category.
However looking at the data there is another section of the economy where the 1% and .1% reside, i.e those who own mid to large size companies or are high up exectives. In that section you'll see owners of companies like Walmart, Target, really any successful company. Doesn't have to be tech or medicine. The point being those sectors of the economy have been hit the worst by de-unionization because they aren't necessarily booming (even if they earn a profit) so without a union employees have very little bargaining power.
If you want to really reduce inequality you have to compress those sectors of the economy by leveling the field between employees and business owners.
I really looked for some sort of background on that number and wasn't able to find it. I'm a bit suspicious since it's being put out by an estate planning and investment company. What even constitutes 'losing the wealth'?
Probably highly dependent on the definition of Rich Families. I would guess that that number is far lower the more money we are talking about. No way that an inherited fortune of $10B is squandered at the same frequency as an inherited fortune of $10M.
There's no way even $10m fortunes are squandered at near that rate. Money has decreasing marginal utility so even though the amount diminishes, the utility granted by it decreases much slower.
Spending inherited money is not the same as squandering it, and of course this does not occur in every case. More to the point, however, the objection to the estate tax does not depend on how the inheritance is used. The owners of the estate desired to give it to their inheritors, not the government. As the owners, and thus the ones who either earned the property or received it as a gift from others, the final disposition of their property is properly their decision to make.
This sounds good but it seems to me that this will hurt poor people disproportionately. The rich and powerful already exploit the system in ways the rest of us can’t. Why wouldn’t they still be able to do so under this scheme?
I don't believe this is completely true, while a lot of inherited wealth is tied up in real estate, most of it will either end up being reinvested or spent which is good for the economy as a whole. The real killer in this case is the estate tax, money thrown into the black hole of the government is never wisely invested.
Money that isn't available for the rest of society.
Society doesn't need money. Money is just a tool, and doesn't solve any problems on its own (aside from the inefficiency of barter—but even then you need something to barter first). What society needs—what people need—is consumer goods and services. People who own a great deal of money tend to spend proportionally less of it on consumer goods and services for themselves, and more on capital goods. These capital goods enable more efficient production and thus increase the availability of consumer goods for everyone else. Redistributing wealth is a great way to force consumption of capital, resolving a short-term cash-flow issue by destroying the means of production. You get a gratifying boost to your bank account, but after a brief period there is little on the store shelves on which to spend it.
As for inheritance specifically, I agree that it is fair, in general, to say that the recipient of the inheritance has done little to earn that money. So what? Would you really say that you do not have the right to give someone an unearned gift—that this is not a legitimate way for you to choose to spend the resources you have either earned for yourself or been given by others? Or is it only gifts to one's own children which you feel should be out of bounds?
Why would it be any different? Qualitatively speaking, such that you have the right to do the former but not the latter? If it's your property, why shouldn't you be able to give it to whoever you choose?
Of course, as others have already pointed out, inheriting wealth does not guarantee a life free of all financial difficulties. That depends on how the recipient uses the gift.
Personally, when I'm feeling a bit revolutionary, I find myself favoring Thomas Paine's solution in Agrarian Justice to help fund something like a UBI.
To me inherited wealth is just as perverse as nepotism, monarchies, blood rights etc.
For example, should the president's son, because he's the son of the president, have a special citizenship that allows him a $1m income for the rest of his life? And a Presidential health care card that affords him the base care. And a free pass to any ivy league university, just by virtue of him being the son of the president?
We say no, because we believe in a meritocracy. Through hard work and merit, i.e., your contributions to the rest of society and your hard work, you're afforded access to good schools, good jobs and an income that affords you good care.
But if you inherit $10m, you can skip all that. At a normal 5% ROI, you can live the rest of your life on a $500k salary. You can get access to the best tutors, best schools, best care, and perpetuate your success to the next generation. (the idea of social reproduction).
Money buys you tons of opportunities, access and leisure. By inheriting money, you thereby inherit opportunity, access and leisure. We don't accept that if opportunities (e.g. jobs) or access (e.g. special care) is handed down through a corrupt political system, but we do accept it when it happens indirectly when money is handed down, and this money in turn buys opportunities and access.
Of course there's a balancing act. We want fairness in opportunity and access, but we also want to provide for our kids and leave them better of them your parents left you. We want to set-up our kids with a minimum safety net, and sometimes we want to leave our kids a family business we hand down generation after generation. Somewhere in between there's a level of distributive justice that makes sense, where a minimum amount of inheritance is exempted, after which the remainder is taxed heavily.
I have no objection to inherited wealth to families, except that those family members all too often end up with skewed values which they are all too happy to impose on the rest of us via the excessive power granted by that same accumulated wealth.
I'll ask the question another way: why does the child of Sam Walton deserve to live a fabulously rich life orders of magnitude wealthier than someone who spends their life plumbing toilets, and much worse, why are they allowed to use their wealth to hurt other people?
What does "deserving" have anything to do with it? That's entirely subjective. If Sam gave his wealth to a plumber, the plumber wouldn't have been any more "deserving". If he gave it to a hospital, the hospital wouldn't be any more "deserving". No one "deserves" wealth.
Because they have now a disproportionate amount of power, compared to the average citizen, to influence the lives of all of us, to hurt other people, to purchase power and influence to enrich themselves further to the detriment of others. That is not a fair arrangement.
All of the strongest proponents of "pull yourself up by your bootstraps" start hemming and hawing when you talk about eliminating inheritances and truly creating a level playing field. Bootstraps for you, inheritance for me.
Particularly interesting is the "savings glut" argument. Rich are spending smaller part of their income. As a result, income equality leads to situation where income flows into investments or property values and demand starts to decrease after a while, leading to smaller return for the investments.
> Indeed, the empirical literature on the causal effect of inequality on economic growth is largely inconclusive.
It's tempting to think that income inequality drives demand down and causes less economic growth. I would actually agree, yet the scientific evidence might be missing.
IMO, we should put limits in inequality, not because of what we think it might do to the economy, but because it's the decent thing to do! Because we're nice human beings :)
Writing another comment I realized I used the term "decent", because these values sits very deep in me that it was just feeling. Reflecting on that I suspect the thing I really want is to:
It is an old argument, and I think a correct one. Money at the top is mostly spent on capital investment. Capital investment makes commodities which are sold to consumers/workers. Who is going to buy all these things if people are tapped out? You can kick the can down the road for a bit with debt, but if the income split stays the same, that just ultimately makes the problem worse when you reach maximum indebtedness.
In terms of smaller returns, you can see this with cell phone manufacturing. So much capital is on the sidelines that when it sees a chance to turn a profit, capital floods in, a massive infrastructure for building cell phones springs up, and returns shrink. The only exception is Apple, for a variety of reasons including that the initial iPhone was a product of high quality and convenience compared to its competitors at the time.
Yup, our economy systematically allows the very rich to accumulate the vast majority of value produced by the system. Once accumulated, far too much of it ends up poorly allocated into bubble assets because at the financial market level, there's no effective system conduit to put it into useful places that generate better system performance (like people's salaries, esp at the low end).
Direct taxation is fought, laissez-faire salary negotiation has failed for the lower end - people in the low-end labor market don't have enough leverage vs employers. I suspect we're going to need new financial constructs to help the wealthy have a place to invest their wealth constructively, or suffer larger and larger recessions.
I've always wondered if a tax incentive for a salary expense writeoff at some leveraged ratio would be useful. e.g. you get to write off 125% of the expenses of paying a salary instead of 100%. A better ratio for better paying jobs at some range around the middle class (if you target lower incomes then you just end up incentivizing low salary jobs). It's not ideal, but could maybe appeal to both sides of the aisle. Of course with the recent tax cuts, this would be added deficit - but maybe in the context of reraising taxes to get back to balanced budgets it might be interesting.
I am often left wondering why people seem so concerned about income inequality, and when asking those who are concerned sadly the response tends to be indignant. With that said I was quite interested that your linked article might explain why inequality should be a concern from an economic standpoint. Unfortunately, the "savings glut" argument is quite week.
To summarize, a "savings glut", they claim, is what happens when wealthy people do not spend their money, causing an increase in bank deposits, causing a drop in interest rates, causing the central bank to have less leverage in managing the economy. While in a sans-central bank economy interest rates may work that way, the world's economies are managed by central banks who, more or less, determine what the interest rates will be. That is to say, current record-low interest rates have very little to do with savings from the wealthy, and are mostly tied to the tens of trillions of dollars injected into the economy in recent years by the central banks.
Oh now I get it, what an excellent metric devoid of bias, not meant to deceptively grab attention, can we put Kenya on the graph too to show how much less income inequality and poverty their children are subjected to relative to the US?
It's below the fold on a page devoted to a wonkish discussion of an issue. It isn't grabbing any attention.
Maybe you think they should have just left the US out of the article or something?
To me you are asking for a bizarre form of spoon feeding, where an in depth article has to carefully guard against misinterpretation by a disinterested audience.
I don't think the US belongs next to Mexico on a chart titled Child Poverty. Considering the 3rd highest upvoted comment on this thread is describing how cryptocurrency is going to save the American middle class, I don't have much faith in audiences and I believe the onus is on the author to present the material properly.
I know it's tougher to measure, but I'd rather see some in-depth measurement on how much better of a lifestyle the same wealth provides over time. And with that, how much that lifestyle is improving at different income levels.
The promise of a capitalist society isn't that it will bring income equality--it's better products and services at better prices. Someone having more zeroes in their bank account than me is irrelevant if my lifestyle is improving faster than theirs.
But inequality is a problem in and of itself. The fact that some people have obscene amounts of money means some other people have less wealth that they could have. Obviously I'm oversimplifying and perfect equality isn't achievable (or even desirable).
I see your point, but is spreading wealth out the goal?
Oftentimes, that obscene concentration of wealth is the result of something that has enhanced everyone's lives in a way we'd struggle to measure quantitatively.
An example would be the wealth concentration created from mobile phones, which enable much more effective communication and, possibly more importantly, the ability to call for help (police, ambulance, etc.) from anywhere at any time.
Replying to andrepd's comment to your comment:
The incredible amount of Work, Capital Outlay, Engineering, etc.etc.etc. that is required to create mobile phones is a huge barrier to any group of people doing so. Therefore, they are incentivized to generate a profit on each phone they eventually produce/sell. If the phones are popular enough, then they may make quite a lot of money. Like jesus dude, nobody forces anyone to buy a phone - everybody is doing it of their own volition and that's why mobile phone developers get rich.
Wealth is not subject to zero-sum reallocation like that, at least not in the long term. If you prohibit the activities that create wealth in the name of reducing inequality, you don’t get to reallocate it others, it just never gets created.
This satisfies the emotional need to know that no one is doing better than you, but doesn’t make you materially better off.
'Inequality' when it exacerbates poverty, when it's egregiously in favour of the few who control the most wealth, when it is overwhelmingly unfair (which I think for the most part it is not in western society) is a major problem where it exists as I've described.
Equality lately needs to be better-defined in conversations because it's being redefined perniciously by ideologues who wish to see it mean Equality of Outcome, rather than Equality of the Application of Law/Equality of Opportunity/"Formal" Equality.
I wonder if Capitalism's greatest benefit is the pursuit of individual goals, without undue control by the state when the Judiciary, Executive, and Legislative elements are in balance and support Capitalistic economics.
I don't see inequality as a problem and don't want to have total equality. What I see as a problem is that inequality keeps rising and more and more of the benefits of the economy go to a small number of people. That's a very unhealthy trend in my view.
I believe that today's standard of living in the US is substantially higher across all income/wealth deciles than it was in 1950.
I also think that the engine of capitalism is a substantial reason for those gains, even as it has created a wider spread of income inequality than in past eras.
Do you believe that the 25th percentile of income today has a higher standard of living than the 50th percentile person in "the golden age" of 1950? I do.
Today's 25th percentile person is likely to have air conditioning, refrigeration, internet, a cell phone, a microwave oven, an HDTV, and a reliable car that needs very little routine maintenance and has air bags and antilock brakes. It's almost unthinkable that they wouldn't have hot and cold indoor running water and bathrooms even in rural areas.
Today's 50th percentile is beating 1950s 75th percentile adding easy, affordable, safe, and reliable air transportation and living in a far larger house than their 1950s half-again higher counterpart.
Today's 75th percentile is beating the 95th percentile in 1950...
All of them have better health care options, and a longer life expectancy.
In general many things are better, but there's no rationale, for example, for US life expectancy lagging other modern nations (as well as dropping for the last couple of years).
In general the US expectancy is leaving the cluster of traditional first world nations and approaching the next cluster of more recent additions to the modern world.
So to say the US standard of living is rising - I would say that unless we correct some fundamental issues that rise cannot just be blindly counted upon.
> there's no rationale, for example, for US life expectancy lagging other modern nations
I wouldn't be surprised if more than half the lag is obesity (or diet and [lack of] exercise, depending on the level of "why?" you want to look at). Walk around a shopping area in an European city. Then walk around a shopping mall or Walmart in the US. The difference is not subtle. (I'm also part of the problem as I'm on the American side of scale, so to speak.)
Perhaps a declining standard of living is a contributor; inequality leads to lack of personal time, leads to less exercise, more choices of fast foods, leads higher stress including less mobility from jobs tied to healthcare benefits, etc.
To wit: "The gap in life expectancy between the richest 1% and poorest 1% of individuals was 14.6 years (95% CI, 14.4 to 14.8 years) for men and 10.1 years (95% CI, 9.9 to 10.3 years) for women"
1. Too much inequality reduces economic growth. See my other comment in this discussion for a sources.
2. Large amounts of money and power are interchangeable. Large inequality leads to political instability. Even if people have enough bread and circuses, they may not want to be just observers and see to what direction the wealthy move the society. Relative poverty is also a form of poverty.
I think this is a point that many miss since we tend to think materialistically about wealth. But wealth is power and power inequality is a problem, no matter if your basic needs are met.
Trying to reduce inequality to a matter of exceeding a threshold of basic need is very disingenuous.
Outcomes in the legal system is one obvious example of how corrosive inequality can be to society.
There was a recent thread[1] on twitter by Noah Smith on this topic, related to a study[2] that suggests that a) relative life satisfaction tends to correlate with their relative ranked income and that b) upward comparisons matter more than downward comparisons.
From those premises, Noah Smith appears to be arguing that high inequality has a negative impact on overall happiness.
Too much of anything is bad, though. That's kind of my concern. Opponents would be making the same arguments if income inequality were half of what it is. Or a quarter. People will always be able to find a justification for why someone else shouldn't have what they do.
The key question is how much is "too much," and more importantly, if the proposed fixes for that are worse than the "problem."
> Large amounts of money and power are interchangeable. Large inequality leads to political instability. Even if people have enough bread and circuses, they may not want to be just observers and see to what direction the wealthy move the society.
I don't think the situation is as clear-cut as this, at least in the US. No matter how wealthy you are, you still have only one vote, and both sides have no shortage or rich benefactors.
> Relative poverty is also a form of poverty.
I don't think it is, though. If someone has 1000x my assets but cannot use them to make his lifestyle notably better than mine, that in no way makes me "relatively impoverished." His additional zeroes in his bank account can only make me feel bad if I choose to feel bad about them (and many do).
> The key question is how much is "too much," and more importantly, if the proposed fixes for that are worse than the "problem."
Sure. Let's make a change to normalize wealth and measure the outcome. We'll tweak as necessary.
> I don't think the situation is as clear-cut as this, at least in the US. No matter how wealthy you are, you still have only one vote, and both sides have no shortage or rich benefactors.
There's plenty in the political arena that can be bought, such as votes, minds, and territory. That's the entire point of political advertising.
> I don't think it is, though. If someone has 1000x my assets but cannot use them to make his lifestyle notably better than mine, that in no way makes me "relatively impoverished." His additional zeroes in his bank account can only make me feel bad if I choose to feel bad about them (and many do).
Those 1000x assets can be used for loan collateral. Assets aren't really assets if they don't do anything. You are relatively impoverished.
> [...] both sides have no shortage or rich benefactors.
I think the idea of "both sides" having rich benefactors grossly oversimplifies political alignment in the US. Perhaps you mean that there are both rich Democrats and rich Republicans. True! Unfortunately, this is a problem in itself if the most of the rich benefactors of both major parties have outsize influence over the direction of their party - which candidates it backs and funds, what policies it favors, etc. It can lead to bipartisan consensus among most of the politicians in each party that is not in alignment with what is desired by the non-rich majority.
That's absolutely true, and it's also self-reinforcing in that rich people pitted against each other with two parties helps ensure the lack of a third party.
I do think it's a far cry from money and power being interchangeable, though, as parent claimed.
> I don't think it is, though. If someone has 1000x my assets but cannot use them to make his lifestyle notably better than mine, that in no way makes me "relatively impoverished." His additional zeroes in his bank account can only make me feel bad if I choose to feel bad about them (and many do).
Adam Smith disagreed[1]:
> By necessaries I understand, not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without. A linen shirt, for example, is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably, though they had no linen. But in the present times, through the greater part of Europe, a creditable day-laborer would be ashamed to appear in publick without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty, which, it is presumed, no body can well fall into without extreme bad conduct. Custom, in the same manner, has rendered leather shoes a necessary of life in England.
> The poorest creditable person of either sex would be ashamed to appear in publick without them. In Scotland, custom has rendered them a necessary of life to the lowest order of men; but not to the same order of women, who may, without any discredit, walk about bare-footed. In France, they are necessaries neither necessaries neither to men nor to women; the lowest rank of both sexes appear there publickly, without any discredit, sometimes in wooden shoes, and sometimes bare-footed. Under necessaries, I comprehend, not only those things which nature, but those things which the established rules of decency have rendered necessary to the lowest rank of people. All other things I shall call luxuries; without meaning by this appellation, to throw the smallest degree of reproach upon the temperate use of them. Beer and ale, for example, in Great Britain, and wine, even in the wine countries, I call luxuries. A man of any rank may, without any reproach, abstain totally from tasting such liquors. Nature does not render them necessary for the support of life; and custom no where renders it indecent to live without them.
> Someone having more zeroes in their bank account than me is irrelevant
There are two problems with this simplistic (but yes, mostly good) view.
One is that those extra zeroes may have come from exploiting you, and reducing your potential wealth. This is way too common, so that many people assume it by default. It is getting less common, in a slow process lasting for centuries, but is still way too common to ignore. Those extra zeroes also lead to more opportunities to exploit you, in a vicious cycle.
The other one is that some goods are limited, and you will be in direct competition with those people on many markets. Ever wondered why Silicon Valley is trying to solve entertainment for rich people instead of basic survival for the homeless living there?
That said, yes, I would agree that people being rich is mostly irrelevant for not-rich people. But there is some dependency on the details, and at some levels it completely stops being irrelevant.
I just don't see how someone who is richer than me (even by a ridiculously huge margin) is more capable of exploiting me... I don't think I've ever been "exploited" in my life and if I was, I'd expect due court process if it was criminal or civil in nature, or I'd no longer do business with or work for that person.
HOW are rich people exploiting less-rich people? (me)
Just one example is public beach access. All over the us, many wealthy people buy up large beachfront mansion properties (but not the public beach nearby). But somehow there ends up being lawsuits because construction (and sometimes private guards) will close off what was previously publically accessible beach areas. It's a symbolic version of what is happening for the wealthy in many other areas - in particular the political process where dollars speak in decisions stronger than voters.
History has many examples, but outside of the illegal (see SV salary collusion case), there are many head games that are played. A common tactic is to make the employee feel insecure. For example, say that you're looking at efficiency improvements and considering going overseas to tamp down any chances people expect a raise. Get employees to feel guilty for not working harder, etc, etc...
A business's profit is the excess value created by workers. Low-skill workers don't get the true value of their labor because they have no negotiating leverage in many cases (especially with the downturn in union strength in the US). It's not a symmetric negotiation, as it's easy for the big and powerful company to find other employees, because in many cases the workers' only alternative to being underpaid is being unemployed and homeless. Business owners exploit the basic human need for food and shelter to underpay low-skill workers.
No one who is employed is paid "the true value of their labor". Every exchange, whether it's dollars for a good or dollars for labor, happens because of the subjective value the exchange provides to the exchangers.
>Business owners exploit the basic human need for food and shelter to underpay low-skill workers.
You could equally (and wrongly) say that workers exploit businesses basic need for labor. It's economic nonsense.
No, I'm equating one statement of economic nonsense with another statement of economic nonsense. It was a reductio ad absurdum. Unless there are severe external market constraints pushing down the demand of labor, an employer would never be able to "exploit the basic human need for food and shelter".
If you are a holder of a Consumer Staples ETF (which holds Campbell Soup stock) in a retirement fund, is Wilbur Ross taking out of your pocket and putting it in his by using his personal connections with Trump and position as Commerce Secretary?
Is it truly for American competitiveness or is it going to benefit ArcelorMittal and Wilbur Ross's connection with them?
I would argue that they're not necessarily exploiting "non-rich" as much as they're exploiting the poor.
The people in power do everything they can to keep wages down. Minimum wage doesn't keep up with inflation. Pensions went away in favor of the 401(k). Unions are losing their power. A manufacturing job used to buy you a house, car, and help you raise your 2.5 children. Now, it barely gets you an apartment and a bus pass.
But the real exploitation is how the rich have convinced the poor that it's not their fault. "It's those damn, dirty Mexicans stealing jobs!" Or telling them "Hey, we'll give you a pay raise if you give us some tax relief!" or that if they want the house, they need to get a real job or something like that. Manufacturing jobs are non-skilled and don't deserve anything over minimum wage!
Of course, it's all lies, but some people eat that shit up like candy. That's the exploitation. They're fucking the poor and successfully directing the blame somewhere else.
So infect those poor people with memes that encourage having tons of kids so that there's a lot more poor people to compete for less and less jobs (as automation moves the means of production to family owned land / equity holdings)?
But the low-skill, minimum wage jobs? No. Those wages are effectively set by the government. Every time an employer hires someone at minimum wage, they're really saying "I would pay you less if I legally could." And that's where the rich are making sure minimum wage stays low.
You’re correct that minimum wage breaks supply and demand but not in the way you think. When an employer pays someone minimum wage what is being said is “someone would do this job for less but the government won’t let me hire them”.
I'm going to disagree with the second part of your comment, because it implies that the employee being hired wouldn't be willing to do it for less themselves.
In any case, without a minimum wage, low-skill wages become a race to the bottom as people become more and more desperate for work. Someone might be willing to work for $1/hour because they're fine living in a cardboard box behind their workplace and eating scraps from the garbage.
But that only allows income inequality to worsen. The rich get even richer as they sit back and laugh as the employees essentially auction themselves to lower and lower wages. Upward mobility dies as the ability to seek extra education and training disappears because you gotta work 100 hours/week just to survive.
So yeah, I suppose minimum wage breaks supply and demand for wages, but I'd argue that's a damn good thing.
> it implies that the employee being hired wouldn't be willing to do it for less themselves.
I agree the person who would work for less might even be the person taking the minimum wage job.
I disagree that this decreases class mobility though. Lowered labor costs mean lower barrier of entry to starting your own business. There’s a floor to how much it costs to start a labor dependent business and it’s based on minimum wage. That means you need substantial capital to get started. Also, lower wages means lower prices which disproportionately benefits poor people.
Few things hurt the poor, in particular unskilled minorities, like minimum wage. Those people are effectively outlawed from the labor market because their marginal productivity doesn't make the cut. This is why there is often exceptions in minimum wage laws when it comes to hiring youth and the disabled. This is also why you've seen labor unions lobbying for a $15/hr minimum wage, with exemptions for those in the union.
> Few things hurt the poor, in particular unskilled minorities, like minimum wage. Those people are effectively outlawed from the labor market because their marginal productivity doesn't make the cut.
Hogwash. Are you sincerely arguing that an hour of work doesn't produce $9-15 (or whatever the minimum wage is, plus other overhead) of revenue for the company they work for?
I'm not sure what's so hard to believe about that. It's not even a controversial statement. Are you suggesting that if labor were cheaper the market would not consume more of it?
If there's a demand for X amount of product, and it will take Y people to provide the labor to supply that product, then businesses will hire Y people. They're not going to hire more than Y just because they can.
The only time the market will consume more labor because its cheaper is if the amount of labor they already had was already insufficient, in which case if they really needed more people, they would have already hired them.
That's just wrong and demonstrates a fundamental lack of understanding of basic economics.
If labor were much cheaper, I personally might be willing to hire a maid, a gardener, a masseuse, a cook, etc. Similarly a retail business might hire more cashiers, or have more staff on the floor to answer customers questions and help them find things. A gas station might provide a full service experience for their customers. You could do this analysis for virtually any type of business and given cheaper labor they would hire more people.
Why is this so? Because the demand for labor, like goods, is infinite.
The relevant hurdle for an hour of labor is not the marginal revenue but rather the contribution margin (marginal revenue minus [non-labor] variable costs) of that hour.
> Manufacturing jobs are non-skilled and don't deserve anything over minimum wage!
Why is that a lie? If literally anyone can do the job and the potential supply for that job includes nearly everyone in the labor market, why would we expect that role to pay more than the bare minimum? At the end of the day people get paid as much as it would cost to replace them.
That a manufacturing job used to provide a middle class lifestyle was an anomaly based on the US being in an extraordinary position post two World Wars that devastated the rest of the globe and enriched this country. Globalization has normalized labor rates to what they’re really worth. The twentieth century consumerist lifestyle is definitely not sustainable when given to every living human on earth.
> A manufacturing job used to buy you a house, car, and help you raise your 2.5 children.
There was maybe a very brief historical moment when that was true, but I don't think it was ever the case; industrial capitalism has always been strongly grounded in the economic insecurity of the working class.
By getting market monopolies (or oligopolies) and making you pay more for your things. (This one is quite straight forward, I don't think it needs examples.)
By getting monopsonies (or oligopsonies) and making you receive less from the things you sell. (Like in combining labor prices, and non-poaching agreements.)
By taking public property or outright coercing you into a less desirable outcome. (Like taking the tax you pay, or buying laws.)
Way too many (too many to ignore) rich people got rich by doing one of the above. And even some that did get rich honestly end-up doing that once they have the power.
> One is that those extra zeroes may have come from exploiting you, and reducing your potential wealth. This is way too common, so that many people assume it by default. It is getting less common, in a slow process lasting for centuries, but is still way too common to ignore. Those extra zeroes also lead to more opportunities to exploit you, in a vicious cycle.
I understand this, but high level claims like this are unfalsifiable. They can be made at any level of income inequality, and cannot be disproven.
That's not to say it's wrong, but readers should be wary when reading something like this. It's possible it's correct at face value. It's also possible it's wildly overstated. And it's also possible that trying to fix it through government policy will be worse than dealing with it as is.
> The other one is that some goods are limited, and you will be in direct competition with those people on many markets.
So will everyone else, though. That's the nature of markets. Yes, wealthy people will have easier access to limited resources, but that is always the case even at lower levels of inequality, and (in this case) does not necessarily result in overall worse societal outcomes (particularly relative to alternatives).
That's not to say your claims aren't valid--they absolutely are. I just urge caution to readers to acknowledge that these were true back in 1860, 1920, 1980, and today. I see these more as reasons why capitalism is less than ideal, but in no way indicative that it is not good.
Along those lines, while I don't necessarily agree with everything he says, John Haidt has some interesting thoughts on how to improve capitalism to better benefit society.
TLDR: Capitalism has been on the whole good at getting people out of poverty, but keep Capitalism honest via self-regulation as much as possible (such as via Environment, Social and Governance metrics) because it can be exploitive.
Measuring absolute outcomes ("lifestyle") instead of relative ones like inequality may seem more objective. But you'll find that the ultimate outcome, life satisfaction, is tied more to the latter than the former.
Case in point: Your lifestyle almost certainly has a higher value than any of the British monarchs except Queen Elisabeth II.
If you look at Maslow's Pyramid of Needs, it has "self-actualization" at the very top. Achieving that level requires more than just a comfortable life. You need a degree of power over your own life that many even in the middle class don't have. One small example that may resonate in this community may be the freedom to try your hand at a startup, and how such plans can be stymied just by the problem of giving up employer-sponsored health insurance.
Tall poppy syndrome may well be a real and common element of human psychology; that doesn’t mean we should design policy around it. Preventing others from having things because you can’t have them is (outside a political context) rightfully considered petty and childish.
Single payer health insurance would be based on a philosophy of lifting up the deprived. The tally poppy syndrome approach is to ban employer-sponsored health insurance with no replacement.
Considering that single-payer health care is among the most well-known proposals, and banning employer-sponsored health insurance isn't really even part of debate: perhaps "Tall poppy syndrome" is just a made-up smear to tar anyone who thinks it's blasphemous that the world's second-richest country has 20% of children living in poverty?
Single payer is a solution to the problem of people lacking healthcare. The “inequality” people are telling me it’s wrong and disingenuous to care about absolute poverty (like the lack of healthcare) and that I should be focused on the real problem of some having healthcare where others don’t.
I don’t think it’s blasphemous that 20% of people are in the bottom 20% of a distribution. When you define poverty in relative terms, the fact that x% of people are in poverty is a tautology. I do think it’s blasphemous that anyone lacks health care.
How much do inequal societies suffer from disconnecting rent, healthcare & housing costs although. Other things get cheaper, yet things that used to be affordable become incredibly expensive because of political reasons.
For example, if I want the very best smart phone, no matter how much money I have, I really can't do much better than an $1200 iPhone X, even if I spent a 1000x that much money.
If I want a safe, reliable car, I can't do much better than a Toyota Camry/Honda Accord for ~$25,000.
If I want to go somewhere by airplane, commercial airline travel is actually safer than private jets. Business class and even first class with lie-flat seats and even suites is definitely in the upper middle class range.
Most middle class people in a developed country have access hot water, clean drinking water, a wide variety of food,flavors, and spices that would have made even the wealthiest person of 50 years ago green with envy. In addition, there is more life saving/life prolonging medical technology.
Exactly. And compare this to 1980. Or 1960. Or 1920. Or 1860.
The trend is clear. Despite wealth inequality, the quality of life enjoyed by the average American has become dramatically better even including relative to the wealthy.
Focusing on dollar amounts as the only relevant measure disregards how much progress has actually been made to focus on counterproductive tribalism.
Plenty. Inequality of power, inequality of influence, inequality of opportunities, inequality of access to education, housing, healthcare. All of that is wrong, and can be corrected.
The topic was inequality of wealth and/or income. What is intrinsically wrong with that?
People make different choices and end up with different outcomes. This is perfectly natural; making choices and dealing with their consequences is a fundamental part of being human. The only way you'd be able to guarantee either equal income or equal wealth would be to take away people's ability to make meaningful choices with regard to their own lives.
The playing field is not equal, therefore you cannot speak of outcomes as being a function of choices. If people start a foot race, some 10m from the finish, some on the other end of the stadium, first you have to make everyone start with the same opportunities, then you can talk about merit.
The playing field is not equal, therefore you cannot speak of outcomes as being a function of choices.
When did I ever say that outcomes were a function only of one's own choices? Outcomes are determined by both choices and other factors. Some of those other factors are pure chance; most (including inheritance) are the result of other people's choices. Forcing equality of opportunity has all the same problems as forcing equality of wealth or income—you can't do it without eliminating choice.
Since you brought it up, merit is a function of what you do with the opportunities at your disposal. One who achieves a little with limited opportunities shows just as much merit as one who achieves much with more significant opportunities.
Instead of an individual foot race, perhaps it would be more instructive to look at life as a relay. Each participant does what they can before passing the baton to the next member of their team (the next generation). In the beginning every team started from the same position (bare subsistence). It would be wrong to judge the fairness of the race based on individual starting positions; you have to consider the cumulative efforts of the entire team. (Always keeping in mind, of course, that life is not a sport, so the value of such analogies is necessarily limited.)
All reasonable people are for equality of opportunity but no one can legislate for equality of outcome and that is something that tends to promote a return to the items on your list.
> but no one can legislate for equality of outcome...
Actually, we can. We can ensure that even if your gamble goes very very wrong, then there is a base living standard that will be provided for you.
We're not talking about eliminating inequality, merely limiting the bounds. So people who make a bad gamble don't end up living in squabbles.
This enables both slackers and risk takers. I would argue we need to find the balance where society works, keeps making progress, and people don't go homeless, etc..
While observing this run-up in income inequality and the unwillingness of the rich to do anything about it, I’ve concluded that we haven’t really learned anything and are going to have a French Revolution or Russian Revolution style “shoot them in the streets” event.
If anything, I think the rich in Silicon Valley are the most willing to do something about it. Basic Income is a very popular idea amongst left-leaning wealthy people these days
There's a methodological problem with some of this data: the top 10% of income earners is a statistical category. The share of income going to the top 10% doesn't tell you much about actual inequality as experienced by real people unless you know how static the individuals making up the top 10% are.
Imagine that everyone gets a year in the top 10%, but that the top 10% has 90% of the wealth. That's not that problematic because the benefits of being in the top 10% are evenly distributed throughout society, despite this being a highly unequal society if you use share of income going to the top 10% as your inequality metric.
Basically, looking at the top 10% isn't helpful for understanding income inequality because the top 10% is an unchanging statistical category. You need to look at the people who are in the top 10% (at any point in time) and look at how their wealth changes over time.
Edit: Last time I mentioned this people thought I was arguing that inequality isn't a problem. I'm not saying that. I am saying that you need to look at how individuals wealth changes over time to see how much of a problem inequality is.
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[ 2.2 ms ] story [ 157 ms ] threadThe more interesting data would measure how fluid are the populations of income deciles between generations or even within a single lifespan.
Even that wouldn't be too interesting to me. What if the society we live in just distributes a lot of income on the basis of luck? We would appear to be a highly fluid society but from the perspective of any individual there would still be little you could do to advance. Some really interesting data would be to take a child's income across life and regress it by some of the luckiest things you can have, parental income level / parent hours spent reading to child before 8 years old / attendance of pre-k / quality of child's high school. Then we could see not just fluidity but independent effortful movement in the economy.
[1] https://itdoesnotaddup.files.wordpress.com/2015/06/capture5....
That isn’t to say it is causative, maybe people who grew up in high cost of living areas just stay in them, where incomes are higher to accommodate.
[0] https://www.brookings.edu/wp-content/uploads/2016/07/02_econ...
Despite the hype, I'm bullish on cryptocurrency tokens on potentially being a model of a more equitable design for firm returns. If done correctly, the returns of firms could go to the early participants in the network, instead of the VCs and early accredited investors that have special access. The ICO world today isn't there yet (a lot of pre-sale discount tokens to those privileged VCs; lots of ICOs aimed at the larger public are scams, and it's hard to tell the difference between them) but I think we have the tools to create more equitable models, if we only have the will.
https://nvca.org/pressreleases/venture-capital-outperformed-...
Despite the headline, if you compare the venture capital indexes with the S&P 500, there's no clear winner. Except at the 50-year time horizon, where the early-stage index went to the moon. Good luck investing in that.
EDIT: Totally agree on ICO's, but I also think new kinds of private funding are interesting.
Maybe something closer to the Star Trek vision of the future (vs. the other two sci fi visions I mentioned).
That completely contradicts my subjective experience with people: 90% of them are insufferable.
> and your outcome should be based on the content of your character, not your birthright
And this goes again any parent's wish to use all his resources to help his child succeed and outcompete others.
It does not prevent the problem of a few people having way more wealth/power than others; at best, it just chooses a different set of people to be the wealthy ones.
However, by being decentralized it prevents any mechanism of checking the power gained. Yes, centralization can be used as a means of maintaining power, but it can also be used as a way of checking power. Decentralization has no way of checking power.
For the same reason that democracy is more equitable than a dictatorship or a monarchy
Imagine an ICO that gives more reward when users provide a proof-of-income, and more tokens go to those worse off (sort of like a graduated income tax, but for ICOs). Not saying it's a good idea, just that it's programable so we can make it do whatever we think is best, it's up to us to determine what's best. The right model would require some iteration and experimentation.
There are hard challenges I don't have an answer for -- eg, the less well off probably overlap with those less likely to be engaged with weird internet experiments -- but they feel surmountable, if we want to solve it.
We have one - the stock market. $100 invested in Amazon the day it started trading would be worth something like $20,000 today.
Investing in the market has become very democratized. Online brokers offer inexpensive access to everyone, and you can start investing for $100 or less.
Gambling has a mathematical downward bias. Investing has a mathematical upward bias. (That's my definition of the difference.)
I find it rather unfair to argue that wealthy people make money off of investments, but that non-wealthy people shouldn't invest because positive returns are not guaranteed. Well, they aren't guaranteed for wealthy people, either, but they invest anyway.
You'll need some data to back that up!
> share of capital gains income
Low income people have an advantage because they don't pay capital gains taxes.
The privatization that has happened in financing high-growth startups is not great news for Joe Q Public
Amazon has doubled in just the last two years. So did Netflix, Apple, etc., all long past their IPOs.
This was all available to John Q Public. Yet all I hear are complaints.
The stock market is open to more people, but it still biases disproportionately for those that have more money.
This country does not consist of 1% super rich and 99% who do not have even $100.
EDIT: Forty-some percent of Americans don't have the cash on hand or free credit to handle an unexpected $400 expense. [0] That statistic is almost 3 years old. I doubt it's gone down in that time.
[0] http://www.politifact.com/punditfact/statements/2015/jun/09/...
Anyhow, it does not distinguish between "has no discretionary income" from "spent every dime they have". The latter is a common problem even among higher income folks.
People seem to be able to find the funds to buy iphones/booze/drugs/airjordans even down to the lowest levels.
However looking at the data there is another section of the economy where the 1% and .1% reside, i.e those who own mid to large size companies or are high up exectives. In that section you'll see owners of companies like Walmart, Target, really any successful company. Doesn't have to be tech or medicine. The point being those sectors of the economy have been hit the worst by de-unionization because they aren't necessarily booming (even if they earn a profit) so without a union employees have very little bargaining power.
If you want to really reduce inequality you have to compress those sectors of the economy by leveling the field between employees and business owners.
Family Wealth Lasts For Ten To Fifteen Generations https://newrepublic.com/article/116462/family-wealth-lasts-t...
Society doesn't need money. Money is just a tool, and doesn't solve any problems on its own (aside from the inefficiency of barter—but even then you need something to barter first). What society needs—what people need—is consumer goods and services. People who own a great deal of money tend to spend proportionally less of it on consumer goods and services for themselves, and more on capital goods. These capital goods enable more efficient production and thus increase the availability of consumer goods for everyone else. Redistributing wealth is a great way to force consumption of capital, resolving a short-term cash-flow issue by destroying the means of production. You get a gratifying boost to your bank account, but after a brief period there is little on the store shelves on which to spend it.
As for inheritance specifically, I agree that it is fair, in general, to say that the recipient of the inheritance has done little to earn that money. So what? Would you really say that you do not have the right to give someone an unearned gift—that this is not a legitimate way for you to choose to spend the resources you have either earned for yourself or been given by others? Or is it only gifts to one's own children which you feel should be out of bounds?
I can give my family a gift to ease their life.
But it's different from giving them a gift that removes all fincancial problems for their whole life.
Of course, as others have already pointed out, inheriting wealth does not guarantee a life free of all financial difficulties. That depends on how the recipient uses the gift.
Personally, when I'm feeling a bit revolutionary, I find myself favoring Thomas Paine's solution in Agrarian Justice to help fund something like a UBI.
For example, should the president's son, because he's the son of the president, have a special citizenship that allows him a $1m income for the rest of his life? And a Presidential health care card that affords him the base care. And a free pass to any ivy league university, just by virtue of him being the son of the president?
We say no, because we believe in a meritocracy. Through hard work and merit, i.e., your contributions to the rest of society and your hard work, you're afforded access to good schools, good jobs and an income that affords you good care.
But if you inherit $10m, you can skip all that. At a normal 5% ROI, you can live the rest of your life on a $500k salary. You can get access to the best tutors, best schools, best care, and perpetuate your success to the next generation. (the idea of social reproduction).
Money buys you tons of opportunities, access and leisure. By inheriting money, you thereby inherit opportunity, access and leisure. We don't accept that if opportunities (e.g. jobs) or access (e.g. special care) is handed down through a corrupt political system, but we do accept it when it happens indirectly when money is handed down, and this money in turn buys opportunities and access.
Of course there's a balancing act. We want fairness in opportunity and access, but we also want to provide for our kids and leave them better of them your parents left you. We want to set-up our kids with a minimum safety net, and sometimes we want to leave our kids a family business we hand down generation after generation. Somewhere in between there's a level of distributive justice that makes sense, where a minimum amount of inheritance is exempted, after which the remainder is taxed heavily.
Particularly interesting is the "savings glut" argument. Rich are spending smaller part of their income. As a result, income equality leads to situation where income flows into investments or property values and demand starts to decrease after a while, leading to smaller return for the investments.
(included some other countries to compare, Saudi Arabia is also an interesting one but it messes up the graph.)
> Indeed, the empirical literature on the causal effect of inequality on economic growth is largely inconclusive.
It's tempting to think that income inequality drives demand down and causes less economic growth. I would actually agree, yet the scientific evidence might be missing.
IMO, we should put limits in inequality, not because of what we think it might do to the economy, but because it's the decent thing to do! Because we're nice human beings :)
Agreed! In the end it's a question of values.
In terms of smaller returns, you can see this with cell phone manufacturing. So much capital is on the sidelines that when it sees a chance to turn a profit, capital floods in, a massive infrastructure for building cell phones springs up, and returns shrink. The only exception is Apple, for a variety of reasons including that the initial iPhone was a product of high quality and convenience compared to its competitors at the time.
Direct taxation is fought, laissez-faire salary negotiation has failed for the lower end - people in the low-end labor market don't have enough leverage vs employers. I suspect we're going to need new financial constructs to help the wealthy have a place to invest their wealth constructively, or suffer larger and larger recessions.
I've always wondered if a tax incentive for a salary expense writeoff at some leveraged ratio would be useful. e.g. you get to write off 125% of the expenses of paying a salary instead of 100%. A better ratio for better paying jobs at some range around the middle class (if you target lower incomes then you just end up incentivizing low salary jobs). It's not ideal, but could maybe appeal to both sides of the aisle. Of course with the recent tax cuts, this would be added deficit - but maybe in the context of reraising taxes to get back to balanced budgets it might be interesting.
To summarize, a "savings glut", they claim, is what happens when wealthy people do not spend their money, causing an increase in bank deposits, causing a drop in interest rates, causing the central bank to have less leverage in managing the economy. While in a sans-central bank economy interest rates may work that way, the world's economies are managed by central banks who, more or less, determine what the interest rates will be. That is to say, current record-low interest rates have very little to do with savings from the wealthy, and are mostly tied to the tens of trillions of dollars injected into the economy in recent years by the central banks.
https://www.sec.gov/news/pressrelease/2015-160.html
If the article were about poverty it might be problematic to show relative poverty, but it's about comparing income inequality across nations.
Maybe you think they should have just left the US out of the article or something?
To me you are asking for a bizarre form of spoon feeding, where an in depth article has to carefully guard against misinterpretation by a disinterested audience.
The promise of a capitalist society isn't that it will bring income equality--it's better products and services at better prices. Someone having more zeroes in their bank account than me is irrelevant if my lifestyle is improving faster than theirs.
Again, though, I know it's tougher to measure.
People view 'inequality' as a problem, but I'd say to be more accurate, poverty is the problem while equality seems like an easy solution.
Oftentimes, that obscene concentration of wealth is the result of something that has enhanced everyone's lives in a way we'd struggle to measure quantitatively.
An example would be the wealth concentration created from mobile phones, which enable much more effective communication and, possibly more importantly, the ability to call for help (police, ambulance, etc.) from anywhere at any time.
This satisfies the emotional need to know that no one is doing better than you, but doesn’t make you materially better off.
I also think that the engine of capitalism is a substantial reason for those gains, even as it has created a wider spread of income inequality than in past eras.
Do you believe that the 25th percentile of income today has a higher standard of living than the 50th percentile person in "the golden age" of 1950? I do.
Today's 25th percentile person is likely to have air conditioning, refrigeration, internet, a cell phone, a microwave oven, an HDTV, and a reliable car that needs very little routine maintenance and has air bags and antilock brakes. It's almost unthinkable that they wouldn't have hot and cold indoor running water and bathrooms even in rural areas.
Today's 50th percentile is beating 1950s 75th percentile adding easy, affordable, safe, and reliable air transportation and living in a far larger house than their 1950s half-again higher counterpart.
Today's 75th percentile is beating the 95th percentile in 1950...
All of them have better health care options, and a longer life expectancy.
https://www.cnn.com/2017/12/21/health/us-life-expectancy-stu...
In general the US expectancy is leaving the cluster of traditional first world nations and approaching the next cluster of more recent additions to the modern world.
https://www.oecd.org/unitedstates/Health-at-a-Glance-2013-Pr...
So to say the US standard of living is rising - I would say that unless we correct some fundamental issues that rise cannot just be blindly counted upon.
I wouldn't be surprised if more than half the lag is obesity (or diet and [lack of] exercise, depending on the level of "why?" you want to look at). Walk around a shopping area in an European city. Then walk around a shopping mall or Walmart in the US. The difference is not subtle. (I'm also part of the problem as I'm on the American side of scale, so to speak.)
https://jamanetwork.com/journals/jama/fullarticle/2513561
1. Too much inequality reduces economic growth. See my other comment in this discussion for a sources.
2. Large amounts of money and power are interchangeable. Large inequality leads to political instability. Even if people have enough bread and circuses, they may not want to be just observers and see to what direction the wealthy move the society. Relative poverty is also a form of poverty.
I think this is a point that many miss since we tend to think materialistically about wealth. But wealth is power and power inequality is a problem, no matter if your basic needs are met.
Trying to reduce inequality to a matter of exceeding a threshold of basic need is very disingenuous.
Outcomes in the legal system is one obvious example of how corrosive inequality can be to society.
There was a recent thread[1] on twitter by Noah Smith on this topic, related to a study[2] that suggests that a) relative life satisfaction tends to correlate with their relative ranked income and that b) upward comparisons matter more than downward comparisons.
From those premises, Noah Smith appears to be arguing that high inequality has a negative impact on overall happiness.
[1] https://twitter.com/Noahpinion/status/969676076912750592
[2] http://journals.sagepub.com/doi/abs/10.1177/0956797610362671
Too much of anything is bad, though. That's kind of my concern. Opponents would be making the same arguments if income inequality were half of what it is. Or a quarter. People will always be able to find a justification for why someone else shouldn't have what they do.
The key question is how much is "too much," and more importantly, if the proposed fixes for that are worse than the "problem."
> Large amounts of money and power are interchangeable. Large inequality leads to political instability. Even if people have enough bread and circuses, they may not want to be just observers and see to what direction the wealthy move the society.
I don't think the situation is as clear-cut as this, at least in the US. No matter how wealthy you are, you still have only one vote, and both sides have no shortage or rich benefactors.
> Relative poverty is also a form of poverty.
I don't think it is, though. If someone has 1000x my assets but cannot use them to make his lifestyle notably better than mine, that in no way makes me "relatively impoverished." His additional zeroes in his bank account can only make me feel bad if I choose to feel bad about them (and many do).
Sure. Let's make a change to normalize wealth and measure the outcome. We'll tweak as necessary.
> I don't think the situation is as clear-cut as this, at least in the US. No matter how wealthy you are, you still have only one vote, and both sides have no shortage or rich benefactors.
There's plenty in the political arena that can be bought, such as votes, minds, and territory. That's the entire point of political advertising.
> I don't think it is, though. If someone has 1000x my assets but cannot use them to make his lifestyle notably better than mine, that in no way makes me "relatively impoverished." His additional zeroes in his bank account can only make me feel bad if I choose to feel bad about them (and many do).
Those 1000x assets can be used for loan collateral. Assets aren't really assets if they don't do anything. You are relatively impoverished.
Historical attempts at this have not worked well.
> There's plenty in the political arena that can be bought, such as votes, minds, and territory. That's the entire point of political advertising.
There is plenty that cannot be bought regardless of money. That's why political advertising isn't all it takes to win elections.
> Those 1000x assets can be used for loan collateral. Assets aren't really assets if they don't do anything. You are relatively impoverished.
I'll take being "relatively impoverished" (according to you) in the US than a top earner in Venezuela any day.
I think the idea of "both sides" having rich benefactors grossly oversimplifies political alignment in the US. Perhaps you mean that there are both rich Democrats and rich Republicans. True! Unfortunately, this is a problem in itself if the most of the rich benefactors of both major parties have outsize influence over the direction of their party - which candidates it backs and funds, what policies it favors, etc. It can lead to bipartisan consensus among most of the politicians in each party that is not in alignment with what is desired by the non-rich majority.
I do think it's a far cry from money and power being interchangeable, though, as parent claimed.
Adam Smith disagreed[1]:
> By necessaries I understand, not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without. A linen shirt, for example, is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably, though they had no linen. But in the present times, through the greater part of Europe, a creditable day-laborer would be ashamed to appear in publick without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty, which, it is presumed, no body can well fall into without extreme bad conduct. Custom, in the same manner, has rendered leather shoes a necessary of life in England.
> The poorest creditable person of either sex would be ashamed to appear in publick without them. In Scotland, custom has rendered them a necessary of life to the lowest order of men; but not to the same order of women, who may, without any discredit, walk about bare-footed. In France, they are necessaries neither necessaries neither to men nor to women; the lowest rank of both sexes appear there publickly, without any discredit, sometimes in wooden shoes, and sometimes bare-footed. Under necessaries, I comprehend, not only those things which nature, but those things which the established rules of decency have rendered necessary to the lowest rank of people. All other things I shall call luxuries; without meaning by this appellation, to throw the smallest degree of reproach upon the temperate use of them. Beer and ale, for example, in Great Britain, and wine, even in the wine countries, I call luxuries. A man of any rank may, without any reproach, abstain totally from tasting such liquors. Nature does not render them necessary for the support of life; and custom no where renders it indecent to live without them.
[1] The Wealth of Nations
There are two problems with this simplistic (but yes, mostly good) view.
One is that those extra zeroes may have come from exploiting you, and reducing your potential wealth. This is way too common, so that many people assume it by default. It is getting less common, in a slow process lasting for centuries, but is still way too common to ignore. Those extra zeroes also lead to more opportunities to exploit you, in a vicious cycle.
The other one is that some goods are limited, and you will be in direct competition with those people on many markets. Ever wondered why Silicon Valley is trying to solve entertainment for rich people instead of basic survival for the homeless living there?
That said, yes, I would agree that people being rich is mostly irrelevant for not-rich people. But there is some dependency on the details, and at some levels it completely stops being irrelevant.
HOW are rich people exploiting less-rich people? (me)
>Business owners exploit the basic human need for food and shelter to underpay low-skill workers.
You could equally (and wrongly) say that workers exploit businesses basic need for labor. It's economic nonsense.
https://en.wikipedia.org/wiki/Wilbur_Ross#Investments https://www.forbes.com/sites/michelatindera/2017/01/18/how-w...
https://www.cnbc.com/2018/03/02/wilbur-ross-tariffs-are-nbd-...
If you are a holder of a Consumer Staples ETF (which holds Campbell Soup stock) in a retirement fund, is Wilbur Ross taking out of your pocket and putting it in his by using his personal connections with Trump and position as Commerce Secretary?
Is it truly for American competitiveness or is it going to benefit ArcelorMittal and Wilbur Ross's connection with them?
The people in power do everything they can to keep wages down. Minimum wage doesn't keep up with inflation. Pensions went away in favor of the 401(k). Unions are losing their power. A manufacturing job used to buy you a house, car, and help you raise your 2.5 children. Now, it barely gets you an apartment and a bus pass.
But the real exploitation is how the rich have convinced the poor that it's not their fault. "It's those damn, dirty Mexicans stealing jobs!" Or telling them "Hey, we'll give you a pay raise if you give us some tax relief!" or that if they want the house, they need to get a real job or something like that. Manufacturing jobs are non-skilled and don't deserve anything over minimum wage!
Of course, it's all lies, but some people eat that shit up like candy. That's the exploitation. They're fucking the poor and successfully directing the blame somewhere else.
Wages are set by the market through supply and demand
But the low-skill, minimum wage jobs? No. Those wages are effectively set by the government. Every time an employer hires someone at minimum wage, they're really saying "I would pay you less if I legally could." And that's where the rich are making sure minimum wage stays low.
In any case, without a minimum wage, low-skill wages become a race to the bottom as people become more and more desperate for work. Someone might be willing to work for $1/hour because they're fine living in a cardboard box behind their workplace and eating scraps from the garbage.
But that only allows income inequality to worsen. The rich get even richer as they sit back and laugh as the employees essentially auction themselves to lower and lower wages. Upward mobility dies as the ability to seek extra education and training disappears because you gotta work 100 hours/week just to survive.
So yeah, I suppose minimum wage breaks supply and demand for wages, but I'd argue that's a damn good thing.
I agree the person who would work for less might even be the person taking the minimum wage job.
I disagree that this decreases class mobility though. Lowered labor costs mean lower barrier of entry to starting your own business. There’s a floor to how much it costs to start a labor dependent business and it’s based on minimum wage. That means you need substantial capital to get started. Also, lower wages means lower prices which disproportionately benefits poor people.
Hogwash. Are you sincerely arguing that an hour of work doesn't produce $9-15 (or whatever the minimum wage is, plus other overhead) of revenue for the company they work for?
The only time the market will consume more labor because its cheaper is if the amount of labor they already had was already insufficient, in which case if they really needed more people, they would have already hired them.
If labor were much cheaper, I personally might be willing to hire a maid, a gardener, a masseuse, a cook, etc. Similarly a retail business might hire more cashiers, or have more staff on the floor to answer customers questions and help them find things. A gas station might provide a full service experience for their customers. You could do this analysis for virtually any type of business and given cheaper labor they would hire more people.
Why is this so? Because the demand for labor, like goods, is infinite.
Why is that a lie? If literally anyone can do the job and the potential supply for that job includes nearly everyone in the labor market, why would we expect that role to pay more than the bare minimum? At the end of the day people get paid as much as it would cost to replace them.
> A manufacturing job used to buy you a house, car, and help you raise your 2.5 children. Now, it barely gets you an apartment and a bus pass.
The message was more about the lower buying power of a manufacturing job and minimum wage of today versus a few decades ago.
There was maybe a very brief historical moment when that was true, but I don't think it was ever the case; industrial capitalism has always been strongly grounded in the economic insecurity of the working class.
By getting monopsonies (or oligopsonies) and making you receive less from the things you sell. (Like in combining labor prices, and non-poaching agreements.)
By taking public property or outright coercing you into a less desirable outcome. (Like taking the tax you pay, or buying laws.)
Way too many (too many to ignore) rich people got rich by doing one of the above. And even some that did get rich honestly end-up doing that once they have the power.
I understand this, but high level claims like this are unfalsifiable. They can be made at any level of income inequality, and cannot be disproven.
That's not to say it's wrong, but readers should be wary when reading something like this. It's possible it's correct at face value. It's also possible it's wildly overstated. And it's also possible that trying to fix it through government policy will be worse than dealing with it as is.
> The other one is that some goods are limited, and you will be in direct competition with those people on many markets.
So will everyone else, though. That's the nature of markets. Yes, wealthy people will have easier access to limited resources, but that is always the case even at lower levels of inequality, and (in this case) does not necessarily result in overall worse societal outcomes (particularly relative to alternatives).
That's not to say your claims aren't valid--they absolutely are. I just urge caution to readers to acknowledge that these were true back in 1860, 1920, 1980, and today. I see these more as reasons why capitalism is less than ideal, but in no way indicative that it is not good.
Jonathan Haidt, NYU Stern School of Business: Three Stories About Capitalism. At the 2014 WORLD.MINDS Annual Symposium https://www.youtube.com/watch?v=iOu_8yoqZoQ
If you want to skip some of the intro: https://www.youtube.com/watch?v=iOu_8yoqZoQ?t=735
TLDR: Capitalism has been on the whole good at getting people out of poverty, but keep Capitalism honest via self-regulation as much as possible (such as via Environment, Social and Governance metrics) because it can be exploitive.
Case in point: Your lifestyle almost certainly has a higher value than any of the British monarchs except Queen Elisabeth II.
If you look at Maslow's Pyramid of Needs, it has "self-actualization" at the very top. Achieving that level requires more than just a comfortable life. You need a degree of power over your own life that many even in the middle class don't have. One small example that may resonate in this community may be the freedom to try your hand at a startup, and how such plans can be stymied just by the problem of giving up employer-sponsored health insurance.
Single payer health insurance would be based on a philosophy of lifting up the deprived. The tally poppy syndrome approach is to ban employer-sponsored health insurance with no replacement.
I don’t think it’s blasphemous that 20% of people are in the bottom 20% of a distribution. When you define poverty in relative terms, the fact that x% of people are in poverty is a tautology. I do think it’s blasphemous that anyone lacks health care.
For example, if I want the very best smart phone, no matter how much money I have, I really can't do much better than an $1200 iPhone X, even if I spent a 1000x that much money.
If I want a safe, reliable car, I can't do much better than a Toyota Camry/Honda Accord for ~$25,000.
If I want to go somewhere by airplane, commercial airline travel is actually safer than private jets. Business class and even first class with lie-flat seats and even suites is definitely in the upper middle class range.
Most middle class people in a developed country have access hot water, clean drinking water, a wide variety of food,flavors, and spices that would have made even the wealthiest person of 50 years ago green with envy. In addition, there is more life saving/life prolonging medical technology.
The trend is clear. Despite wealth inequality, the quality of life enjoyed by the average American has become dramatically better even including relative to the wealthy.
Focusing on dollar amounts as the only relevant measure disregards how much progress has actually been made to focus on counterproductive tribalism.
> This means that inequality is most likely not inevitable.
Gives me hope for the future. Inequality can indeed be reigned in with policy.
People make different choices and end up with different outcomes. This is perfectly natural; making choices and dealing with their consequences is a fundamental part of being human. The only way you'd be able to guarantee either equal income or equal wealth would be to take away people's ability to make meaningful choices with regard to their own lives.
When did I ever say that outcomes were a function only of one's own choices? Outcomes are determined by both choices and other factors. Some of those other factors are pure chance; most (including inheritance) are the result of other people's choices. Forcing equality of opportunity has all the same problems as forcing equality of wealth or income—you can't do it without eliminating choice.
Since you brought it up, merit is a function of what you do with the opportunities at your disposal. One who achieves a little with limited opportunities shows just as much merit as one who achieves much with more significant opportunities.
Instead of an individual foot race, perhaps it would be more instructive to look at life as a relay. Each participant does what they can before passing the baton to the next member of their team (the next generation). In the beginning every team started from the same position (bare subsistence). It would be wrong to judge the fairness of the race based on individual starting positions; you have to consider the cumulative efforts of the entire team. (Always keeping in mind, of course, that life is not a sport, so the value of such analogies is necessarily limited.)
Actually, we can. We can ensure that even if your gamble goes very very wrong, then there is a base living standard that will be provided for you.
We're not talking about eliminating inequality, merely limiting the bounds. So people who make a bad gamble don't end up living in squabbles.
This enables both slackers and risk takers. I would argue we need to find the balance where society works, keeps making progress, and people don't go homeless, etc..
Sure, some inequality might be needed to incentivize progress, and I'm not arguing for perfect equality either.
What purpose does grotesque inequality serve?
Imagine that everyone gets a year in the top 10%, but that the top 10% has 90% of the wealth. That's not that problematic because the benefits of being in the top 10% are evenly distributed throughout society, despite this being a highly unequal society if you use share of income going to the top 10% as your inequality metric.
Basically, looking at the top 10% isn't helpful for understanding income inequality because the top 10% is an unchanging statistical category. You need to look at the people who are in the top 10% (at any point in time) and look at how their wealth changes over time.
Edit: Last time I mentioned this people thought I was arguing that inequality isn't a problem. I'm not saying that. I am saying that you need to look at how individuals wealth changes over time to see how much of a problem inequality is.
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