I'm so sick of people who think that wealth is a zero sum game. It, unequivocally, is not. The fact that Bill Gates has $50 Billion, does not mean that poor people are some how worse off because of it. In fact, it is quite the contrary, poor people, rich people, all people are better off because Bill Gates and Microsoft brought computing to the masses, yielding untold magnitudes of increased productivity and more affordable goods of every stripe. Can anyone look me in the face and say, the world would be worse off if there were 10000 Bill Gates in the world? It is time to destroy this myth.
He is not denying economic realities, he is not denying the right for people to be rich, or to become rich, or to aspire to become rich.
He's just saying that a small amount of people helped themselves to a (too) large piece of the pie, and he tries to understand how we got there and whether or not this is a bad thing.
He might have not said that it's a zero sum game, but you effectively did - "He's just saying that a small amount of people helped themselves to a (too) large piece of the pie"....pie being the keyword here
who cares what percentage of the pie someone has, it matters how big the pie is. Suggesting or alluding to redistribution of wealth will inevitably shrink the overall size of the pie.
So if a small group of people have all the pie, but that pie is enormous, that's great? Even if you are not in that group and will never have a chance to come near the group, except perhaps, if you're lucky, as a pie server or perhaps one who cleans up after the pie party?
I think it actually significantly matters at the extremes; having a large proportion of a country's wealth gives you significant relative power in that country's society, and so very clumpy wealth distributions produce more unstable, top-heavy societies and economies. I don't have much problem with moderate or even fairly large levels of inequality, but stuff like a small number of people controlling 20-30% of a country's resources tends to make the whole thing teeter a bit.
I disagree with your last statement, and in general think the opposite is true; extremely large concentrations of wealth, of the kind seen in aristocratic or oligarchical societies, tend to shrink the size of the pie. A main question would be where the transition point is; I think the U.S. is probably still on the reasonably-good side of the line, though less comfortably so than it was in the 1950s-80s. There's very little (no?) evidence that modest levels of wealth distribution harm economic growth, either. A Soviet command economy, yes, but a social safety net in a market economy doesn't equal communism, and there's some modest evidence that it can actually improve entrepreneurship (because people end up less scared of leaving cushy corporate jobs).
One quick aside: all taxes redistribute wealth, and the consequences of doing so are well-known and positive. There's simply nothing wrong with the "redistribution of wealth" as you seem to suggest.
Now, onto the larger point. We care because unequal societies have a whole host of social ills: higher crime, lower social mobility, poorer health outcomes. There is, in fact, a wide and deep body of scientific literature about this. You are, of course, free to disagree with the science on income inequality, but that places the burden on you to say, "the science is wrong!", or to say, "high crime and poor health doesn't matter!"
Downvoted for what? For pointing out that all taxes redistribute wealth, and with this redistributed wealth we buy roads, food safety, police and fire, public education, a largely functioning justice system, and in fact the safety and security of a generally-free market...in another word...civilization?
Or downvoted for pointing out that the observable evidence suggests that we, as a society, would be better off in a number of measurable ways (e.g. reduced crime rates, greater social mobility, better overall health), in a society with greater money equality?
It may be a challenging idea if all one's ever heard is, "don't take my slice, just grow the pie," but there is, unfortunately, no evidence--historical or contemporary--that "just grow the pie" actually works in the real world.
Whether rich people use roads, public education, or food safety is beside the point. (And, frankly speaking, I'd venture to guess that rich people do use roads more, because poor people are more likely to ride the bus or walk.)
They pay more because, if we taxed everyone at the same rate, we wouldn't have anywhere near enough money we needed to maintain even the somewhat shoddy state of civilization in the country.
You may not like the idea that the government has to pay for all of the things it does, and that's a fair response, but it doesn't really address the bigger picture: what kind of quality of life do we want in this country?
Just to play into the "low taxes for all" thought experiment, say we slash taxes across the board and have to cut a ton of stuff from our budget. Well, I can think of what I'd cut, and I'm sure you can do the same, and I'd bet there's some overlap, and some contention. But how would these cuts make life harder for your average American (who, mind you, is poor and sick and works their ass off week after week for very little wages)? If we don't care about them--if we throw them to the wolves of fate--is this the kind of country we want to live in, one we will take pride in? How would history view us, at the dawn of the 21st century?
And, to be wise students of history, and reflect on how we got here, rather than assume our forebears were idiots who didn't know what they were doing, why do we have the regulations on business that we do? Why do we have food safety? Why do we have regulations on overtime pay? (And whose bright idea was it to exempt IT workers from that?) Why do we have regulations on medicine, or laws that dictate how and where we drive our cars?
I'm not trying to ask a bunch of leading questions. I don't have the answers here. I just think it's useful to think more broadly than "a flat tax is a fair tax is a just tax is the right thing to do", both historically and ethically.
Do rich people use more roads, public education, food safety?
Roads certainly, for commercial transportation. Public education and food safety, probably not. The military, definitely, to protect and procure economic assets abroad. And elements of law enforcement (I doubt that you or I could dial up the FBI to raid someone cheating us, but the MPAA and Luis Vitton can).
Actually, that's a rather severe simplification of "what taxes are," but for the sake of discussion, let's roll with it. (or roll it out..and shape it in a pan, and fill it with apples, and bake it..yum!)
Do I personally want free pie, which my neighbor baked? No, I don't think so, and I think that very few people engaged in our ongoing policy debates want that--just like I'd guess that very few people engaged in policy debates are actually advocating a zero-tax policy.
But.. that's not really what taxation is (taking your neighbor's pie for free, outside the confines of the larger social contract, for no purpose but your own greed and with no recompense). What I would propose for the pie-taking exercise, and what has generally been considered ethical, and within the confines of social contracts that do uphold human rights and dignity, takes on, I'd say, a different character:
I have a pie. My neighbor has a pie. There's about five or six more houses all around us, all with a pie. We need a road in front of our houses, so we can go visit the internet cafe, but none of us has the road-making expertise. So let's all take a slice of our pies and give them to the guy with the paving machine.
We also need to make sure the roads stay in good shape, so we've got to give him another slice of pie every year.
We also (and this, I think, is where it gets uncomfortable for some people) need a way to make sure we all always give up a slice of our pie, so we all give another small slice to the guy who's going to go around and make sure we all give some pie.
We saw what happened that one year when it was entirely voluntary, how everyone figured the others would chip in, and no one did, and the road fell into disrepair.
So we not only need to pay for things collectively that none of us could realistically pay for on our own (one big part of the social contract), we also need to account for human nature and hire an enforcer (another big part of the social contract, and the one that makes people uncomfortable) to keep everyone accountable to that same social contract.
Do I want your pie? No. Do I want us all to chip in and pay with our pies for necessary services? Yes.
Very few people, I think, would argue with the need to pay for necessary services collectively. What constitutes a necessary service changes over time, though, and that's why we have an ongoing political dialogue. If these problems were so simple to solve that the answers could fit on bumper stickers, we'd have solved them long ago. But they're not, and that's why we'll never stop having these discussions, and rolling these ideas around in our heads.
My problem is that interpersonal conflicts are strongly effected by wealth. Someone who can afford lots of lawyers have a much greater chance of winning than someone who can barely afford one. Often people settle just to avoid crippling legal costs. Also people with greater wealth can use that money to promote their ideas and persuade other to their positions. They can afford their children much better opportunities. Not to mention that greater wealth disparities encourage keeping-up-with-the-Joneses arms races and other social ills.
I honestly suspect that shrinking the pie but making it more evenly distributed would be best for all for the increased social harmony and stability.
You don't need to suspect it. You can read the social science literature and have some confidence that hard-working researchers have confirmed your suspicion.
Here's a good place to start: Income Inequality and
Social Dysfunction by Wilkerson and Pickett.
I assume someone downvoted me for the typo (sorry! the name is supposed to be Wilkinson), and not because they find it uncomfortable when science supports ideas that run counter to their own.
What is this 'pie'? The analogy seems to imply that there's some pre-existing pool of wealth from which people draw shares of varying size, and I'm fairly sure that nothing like this exists in reality.
Wealth doesn't originate in some pre-defined aggregation; it's generated by particular people in particular contexts. This concept of different people having different 'shares' of wealth relies on starting with some universal aggregation, and this always seems to be measured by calculating everyone's separate individual income and adding each of these values to into a single sum. But this implicitly acknowledges that wealth doesn't originate in an aggregation, so what's the justification for construing any aggregation at all?
Bull. The moment you involve the economic pie, you say it is zero sum. We may call this the pie falicy.
Think of it not as one pie, but as trillions of pies. You get one by buying one or trading others for their pies. Under this model, what right do you have to your neighbors pie.
Who made it your neighbor's pie? Income inequality is driven by public policy (tax rates, mostly). High income tax brackets used to be higher, now they're lower. And they've produced easily detectable changes in income inequality. That's not a fundamental issue of property rights, it's just the way democracy works. That some people favor the policy and results that held from 1950-1970 doesn't make them communists. You agree, right?
Your last sentence is just a Randian fantasy strawman. No one is talking about going into your bank account and taking money out. But certainly people are talking about tax policy, which changes every few years anyway.
Are you interested in having a mature discussion about tax policy?
"No one is talking about going into your bank account and taking money out"
My place of employment deposit my salary directly into my bank account, sans taxes. Are you saying that there is a material difference between taking the money before they end up in my bank account (i.e I never see them) or after (e.g. I have to write a check to the government each month)?
We're a consumer economy. If the bottom 90% are having trouble paying their bills and don't buy as much stuff, the top 10% are going to feel the slowdown eventually. Think of it as your rational self-interest.
As a matter of fact, you know that graph in the linked article, how it shoes that inequality was way lower from 1941-1979? Guess which period of the 20th century had the highest GDP growth.
BTW, Bill Gates was in favor of a higher income tax in WA last time it came up, and as we all know is in the process of giving all his money away.
I'm not convinced that the top 10% sell things to the bottom 90%. We may have a situation where the different wealth brackets operate their own economies that really don't have much to do with each other. (I do agree with your main point that wealth creation isn't a zero sum game, which should be obvious to anyone by now).
Different wealth brackets operating in their own economies, what? The guy who picks your oranges drives a lexus?
Yeah, you're working for rich people, but somewhere along the line those people are making money by selling to people who work from a living. Personally, my software buys advertising on exchanges to sell to agencies who are acting for large companies who have subsidiaries who sell things to people who work for a living. It's just a question of how many degrees.
But the guy who actively campaigned for the WA state income tax was his dad. I'm not surprised they agree on it though; it would be awkward to publicly disagree with your own family about this kind of thing, especially if you're a billionaire.
For every Bill Gates there are many people who got rich by extracting a larger piece of the pie vs making the pie larger. Consider 401k's where designed not to maximize retirement income for middle class Americans they where setup so the companies that administer them could extract the largest possible slice of someone other persons pie. Over the lifetime of many plans they extract 20%-50% of all gains though direct and indirect fees. The SSA could administer the same program for literally 1/5th what people are being charged.
Many housing developers get rich not from building houses, but buying land and then rezoning it to be worth more and then building houses. Effectively they leverage an areas existing infrastructure to increase the value of that land without paying for it. And often the way the do this is though direct and indirect bribery of local politicians.
From this perspective the idea of zoning is simply a way for the well connected to make money. If instead you charged people for their share of the construction costs of existing roads, schools, bridges etc when they added a new single family home you could automatically pay for any needed upgrades rather than having existing homeowners subsides their infrastructure either by having already paid for it or sharing in the cost of building new infrastructure to support new immigrants.
Edit: Of course when you start to dig into things Bill Gates also leveraged his connections to make most of his money. The reason he could sell an operating system he did not have to IBM vs them dealing with the guy that created it has everything to do with his connections and nothing to do with him actually building anything.
PS: Often people get rich by doing both. They make a the pie slightly larger yet end up with a larger piece than the size of their increase. I would argue that the best way to separate the wheat from the chaff in this case is a direct tax on wealth say 1.5% per year on anything over 2 million instead of traditional capital gains. While it does little to those who are directly making money it drains the type of passive old boy networks that most damaging to economic growth.
>The SSA could administer the same program for literally 1/5th what people are being charged.
Most people aren't begging the SSA to manage their money on the cheap, so there must be some kind of benefit with those more expensive options.
However, if you really think the SSA could do better with your money, I know someone who works there and could ask them where you can over send them more of your money.
> However, if you really think the SSA could do better with your money, I know someone who works there and could ask them where you can over send them more of your money.
AFAIK this isn't actually possible. I looked into it at some point, and the amount you contribute is completely fixed as a percentage of your (earned) income. There are years where I didn't make a lot of income, or earned income only in non-payroll-taxed categories like grad-student fellowship, and wanted to top up my SS contribution for the year, but there's no mechanism for voluntary extra contributions.
(A few European countries do actually allow that; when I took a job in Denmark I had some options about what level of contribution per year I wanted to make into the state pension system.)
If some rich people make their money "unfairly" then fix that problem independently, you don't need sky high taxes on all rich people to fix that problem. I make a very good living, but I don't cheat anyone out of anything, and I'm sick of having the specter of high re-distributive taxes hanging over my head.
Would a 1.5% wealth tax / year be worse for you if it replaced both short and long term capital gains? I don't mean to penalize you, but rather combat the type of entrenched mult generational wealth that's really damaging while also removing the need for special 401k/Roth IRA style retirement accounts. It would also increase liquidity by allowing people to buy and sell without concern for the tax implications.
Here is some examples of Merryl lynch lobbying for such things: http://www.opensecrets.org/lobby/clientbills.php?id=D0000001... 401(k) started in 1986 so it takes some digging to find who actually lobby'd for it, but you can look at recent examples on who is trying to kill SS to see who benefits from such things.
>> The SSA could administer the same program [ie a 401k investment plan] for literally 1/5th what people are being charged.
This is an odd thing to say, since SS is not in the business of investment. SS doesn't invest. It's a defined-contribution plan that takes the money in and loans it to the federal government. At some time later, they and Congress decide how much they'll pay you back. How can we know how much it would cost them to run investments?
>> Over the lifetime of many plans they extract 20%-50% of all gains
This isn't much of a statistic. If those expensive ones are charging lots of money for sky-high returns, then everyone is winning, right? But commonly, yes, they do take a big chunk of gains. But if you reframe your statistics to better show how hard it is to make money, it's really not so evil. If my investment manager is able to beat the Dow consistently, and takes a goodly chunk of the difference, then we're all better off.
Moreover, market theory holds that high profits are prima facia evidence that one is providing value to one's customers. Do you have reason to believe that this isn't the case here?
>> Bill gates connection to IBM
Yes, but so what? The only thing I can think to read from this is that the only people who add value are engineers; those who are able to see a need, identify a means of fulfilling the need, and bringing the two together, are irrelevant. But I think that this very story shows what a big difference such a role can make.
>> As for developer bribing local politicization's
I won't bother arguing, since again, I think you're making a point opposite of what you're trying for. Saying that government is corruptible and can be subverted to line the pockets of the unscrupulous is not a very good argument for having government step in to resolve putative differences in income inequality. Doing so would simply invite more abuses of power.
We know how much it costs them to collect money and do correspondence (aka mail stuff). While the SS administration is legally prohibited from running investments you can look at other government agency's that do so and it's significantly lower overhead than even cheap index funds. As to the actual costs of buying and selling stocks you can do that with moderately complex software buying 1000x as much stock is not a hard problem. http://en.wikipedia.org/wiki/Algorithmic_trading
putative differences in income inequality Taxing wealth and not the income that wealth generates is not inherently punitive. What it does is eat's away at fortunes that stick with ultra safe investments in favor of the risk takers. Because I don't think income / wealth inequality is inherently bad, what's dangerous is type of back room deals /networks that favor 'old' money.
In the end I don't think there is much you can do to prevent insider deals, but you can put a damper on what it means for your great, great, grand father to have built a modest fortune that was managed reasonably well after that.
PS: I have plenty of rich relatives, heck my grandmother went to Harvard and one of my closet friends growing up came from 'old' money with multi million dollar trust funds so I may be a little to close to be objective on this one. But, on net I don't have a lot of good things to say about what happens when your parents inherit wealth and you can look forward to more of the same.
I work in land development and as much as I despise much politically based zoning, zoning is decidedly NOT the source of a developer's profit. Zoning issues may increase the final price of a home, but that difference is not going to the developer, but to me as a civil engineer, and to the planners and to the banks who the developers are borrowing money from and paying interest every month the project sits in planning mode.
Are you denying that wealth has a gravitational effect towards wealth (i.e. it concentrates it) and that effect, when taken too far, has a negative effect on the society in which it occurs? There are plenty of examples from history (distant and recent) and plenty of studies to support the point.
A broader based of wealth occurs when a society is balanced not solely because of the supreme talents of an individual. You could have all the talent in the world but if the infrastructure is falling apart, the educational system is struggling, and there aren't people who earn enough to purchase your goods, what good will it do you?
> Are you denying that wealth has a gravitational effect towards wealth
Money begets more money, certainly.
> when taken too far, has a negative effect on the society in which it occurs?
This isn't possible. A person can either spend money or store money.
When they spend money, they are telling others to perform work. That money then gets transferred to other people.
When they store money, that money gets placed in a bank or in an investment. In a bank, that money is immediately loaned out to someone else, creating a business or some venture, creating jobs and wealth for other people. In an investment, again, jobs are created and wealth for others is formed.
Now, can all of this run in a closed loop among the privileged? Only in a society with heavy government intervention where the market is warped. In a healthy free economy, talented people are quickly recognized and quickly brought into the loop. In an unhealthy controlled economy, you must know the right people to be allowed into the loop and the people allowed into the loop are rarely talented.
> A broader based of wealth occurs when a society is balanced not solely because of the supreme talents of an individual.
From each according to his ability, to each according to his need? History has already condemned your way of thinking.
In a healthy free economy, talented people are quickly recognized and quickly brought into the loop. In an unhealthy controlled economy, you must know the right people to be allowed into the loop and the people allowed into the loop are rarely talented.
The human tendency toward cronyism is universal. One could just as persuasively argue that FTC regulations and 'market-warping' affirmative action have made the economy healthier and freer for all.
> The human tendency toward cronyism is universal.
It is. However, it seems to be at the greatest magnitude in large structures. Whether those large structures are governments or corporations is irrelevant. Keeping things small is the best recipe for equity, not grand schemes of redistribution.
I'd agree with this, but very few others on either side of the political spectrum acknowledge it. In the absence of reform to check unbridled corporate growth, we're left with the choice of 'grand schemes' or nothing, and history suggests inaction would be worse.
<I>This isn't possible. A person can either spend money or store money.</I>
This isn't quite accurate. You note later how markets work, but you're not seeing how much that's in tension with wealth concentration. At its furthest end, you simply have a private person in charge of a command economy. Look at countries considered "kleptocratic": most aren't klepto- anything, they literally possess most of the wealth and thereby direct development towards their families in a sort of feudal way. Most could probably forgo formal taxation altogether and my impression of compliance is that they essentially do.
That's true for things with a static supply, like famous pieces of art or Manhattan real estate.
But all that new wealth out there bidding against you also represents new wealth out there available for purchase, driving costs down.
Under a stable currency, increasing wealth and productivity leads to steadily falling prices for most goods. This means that other people getting richer can actually benefit you even if you don't. But this process is swamped by monetary inflation.
Lots of people look only at nominal price levels and conclude that inflation hasn't been bad. But when you consider the major productivity gains of the past decades, we should have been seeing falling prices. The real inflation is the difference between these, and it's big, and it makes it harder and harder for the poor to stay above water.
I'm so sick of people who think that wealth is a zero sum game. It, unequivocally, is not.
It doesn't have to be a zero sum game for income disparity to be a problem. GDP typically grows at less than 5% a year, yet average income for the top 1% has grown at 10% annually over the last 20 years (http://economix.blogs.nytimes.com/2011/09/02/what-does-econo...).
But, to viggity's point, what does the rate of increase of the average income of the top 1% of earners have to do with people who aren't in the top 1% of earners? If you agree that it isn't a zero-sum game, how does one party being better off imply that some other party is worse off?
Because if we can have a world where that growth is more equitably distributed, you can avoid wage stagnation among the median worker? The marginal utility of a dollar is much greater for those making $50,000 a year than the person making $50,000,000 a year.
It's not a sickness itself, but it's a symptom of the sickness. And pointing out that inequality has radically increased in the past decades is just pointing out we have a fever of 105F going on, here.
Dumping someone in the snow won't fix it, but you also don't just ignore it and say that administering medicine would be violating a free market.
There is a maximum amount of US dollars in the world at any one time we measure it. We shall call this A. The wealthy 1% own .1A . That leaves, by simple averages that 99% can only have .9A .
US Dollars are being made at X per hour. This 'wealth generation' devalues the preexisting currency forcing money to follow this formula
A => A+X
The value that A was before is now what A+X has to be. Anybody who owned A before wealth 'generation' now owns less.
Yes, I would call our system zero-sum for increasingly small amounts of capital. It is only when you can bypass the marginilization of X is it not zero sum.
[H]ow does one party being better off imply that some other party is worse off?
If you were a partner in a business growing at 5% a year, and your income grew only 1% while your partner's grew 10%, would you let him get away with pointing out that you're better off than last year?
Some methods of wealth creation are positive sum games, like a free market trade between two parties that enriches both. Some are negative sum, like "rent seeking" behaviors.
The problem is that the positive sum creators (e.g. Warren Buffet) aren't as many as the negative sum players (e.g. George Soros).
Any resource in which more cannot be elastically created by the application of more money is a zero-sum game, or close to it. Land is one obvious example.
edit: Political power might be considered another - at least up until the point when you cause people to riot.
Land can be created, especially if you define land as physical space suitable for human habitation and productivity: technological improvements that render formerly uninhabitable terrain useful can be construed as 'creating' land. Seasteading and space colonization will eventually begin 'creating' land in this fashion.
Technological improvements that allow progressively smaller amounts of physical space to maintain a constant amount of productivity also have a similar effect.
Even in the most literal sense, physical terrain can be created; the Dutch are pretty good at turning sea into land, and in the very distant future, we may be able even to construct entire planets out of dust and debris.
Maybe the supply of matter and energy with which to do these things is a zero-sum game, but not likely one we'll have to worry about any time soon.
Very interesting point - although the point stands in general. The game is, if not zero sum, then close to. The amount of land we can own does not rise in a remotely commensurate fashion with a society's wealth, because methods of creating land (particularly in crowded countries like my own) are extraordinarily expensive.
That last two paragraphs really sum it up: We have no idea why this happens, all we know is that it's really really important because everyone (except for a few crazy libertarians) says it's a big deal. Even people who used to like Ayn Rand think it's a big deal, so you know it's legit.
"People" say it's a big deal, in most cases, because they (or their friends or family) are objectively poorer than they were six years ago. If you've lost your job and are dependent on family, it certainly would be helpful if that family was maybe making more money.
If you're struggling or know people who are, it doesn't exactly seem fair to realize that during the "boom" years (when your income didn't change much) the very wealthy have gotten the equivalent of huge raises.
First, its always important to talk about exactly you're measuring. I couldn't find anything in the piece to say whether the numbers being given were individual income or household income. I'm pretty sure these were household income, but then we run into the the problem that richer household tend to be larger, so the individual income disparity isn't as bad as what was in this graph.
Also, I'd tend to prefer to talk about consumption inequality instead of income inequality. The fact that the 1% nowadays pay a lot of that income out in taxes, and the elite in 1915 didn't is something we ought to care about. I think we should all be able to agree that a society with 100% income tax which redistributes all income equally would in fact be pretty equal, but that won't show up on that graph at all. For more nuance you can distinguish between total compensation, taxable compensation, normal income, consumption, and wealth.
A second point would be that they somehow don't mention the big discontinuity from when the 1986 Tax Reform Act passed. That strongly incentivised rich people to report things as income which they had previously claimed were business expenses. That does mean that the numbers after 1986 are more comparable to the numbers from before people started feeling the need to claim that things were business expenses, but it does mean that the numbers from 1988 aren't really comparable to the numbers from 1982. And its hard to compare across countries since AFAIK most of Europe is closer to the pre-1986 US system than the post-1986 US system.
And speaking of Europe, its important to remember than income inequality has been rising at more or less the same rate everywhere in the industrialized world (baring the US's 1986 jump). See pretty graphs here: http://www.scottwinship.com/1/post/2011/03/what-would-it-mea...
So the picture is pretty complex. I think we ought to tax rich people and redistribute the wealth to some extent, but if you just look at these graphs then you'll never see that working.
I wasn't aware that the numbers that people throw around concerning inequality were _before_ gov't payments (they basically ignore current redistribution methods).
The other issue is that the European country that has had the greatest _decrease_ in income inequality in the last few years is Greece. Is that a model we should be emulating?
That actually works against the argument of US parity, since our tax system is less progressive than most industrialized nations. If you adjust for taxes, US income inequality would look worse, not better, compared to the rest of the industrialized world.
Actually, the US system is more progressive. It gets a much higher fraction of its revenue from higher income folk than do other countries.
Is there a reference for this? Germany and France have higher top rates, the UK slightly lower. But all three have higher capital gains taxes, which as noted above comprise most of the income for the wealthiest individuals. It seems odd that conservatives would fight so hard against things like universal health care and higher capital gains taxes if in fact they actually lead to less wealth redistribution on the whole. If that were true, the Republican campaign slogan would be 'make America more like Europe'.
> Germany and France have higher top rates, the UK slightly lower.
So? Never confuse top marginal rates with revenue. For example, other rates matter, as does the definition of income. (About 47% American households don't pay federal income tax and a huge fraction actually receive tax "benefits".)
> It seems odd that conservatives would fight so hard against things like universal health care and higher capital gains taxes if in fact they actually lead to less wealth redistribution on the whole.
Huh? Your conclusion doesn't follow from your premises.
However, it's interesting (to me) that you didn't try to make the complementary argument for Democrats.
No need for snark, it's an interesting point. So the US with lower tax rates and fewer government benefits actually imposes more on the wealthy than other so-called 'socialist' countries. If that's the case, it suggests to me that the wealthy should be trying to copy the European model, not fighting it, since according to your argument they would be paying less under such a system, not more as they typically argue. It's interesting to me that you don't see the plain implication of your own argument.
> If that's the case, it suggests to me that the wealthy should be trying to copy the European model, not fighting it, since according to your argument they would be paying less under such a system
No, it doesn't imply that.
And, the relevant question is not "how little taxes do I pay" but "how much money do I keep", which has two components.
Sure it does. Your first comment flatly stated that the wealthy in the US pay more of the overall tax burden than in other countries. Then to support your argument you cited a source that says it's actually the most progressive of the OECD countries.
I happen to think the source is wrong, but if it's not and you're right, the unmistakable conclusion is that European policies result in less progressive taxation. So if the conservative objective is a 'fair' tax rate in which everyone pays in direct proportion to what they earn, then Europe is (according to your argument) closer to this ideal than the US is. It follows then that their policies, according to you, are more favorable to the wealthy than the US and that we would be better off pursuing those policies. How can you on one hand argue that Europe is fairer and on the other hand argue that we shouldn't follow their example?
A followup: the disconnect is in your source's estimate of the share of income of the top 10%. He puts it at about 33%, while most of the sources I found put it at over 45% (http://www.economist.com/blogs/freeexchange/2012/03/income-i..., http://www.nytimes.com/interactive/2011/10/30/nyregion/where...). According to the source you cite, that would put the US well below the other OECD nations in terms of progressiveness, a result which is much more consistent with conservative arguments against European policies.
Both those articles are about income inequality and tells us nothing about how progressive the tax system is.
Both articles cite the 47% figure, as I stated above. Your source uses a figure of 33%, which is why it (and you) conclude that the US tax system is more progressive.
And did you read the article you just cited? I don't think it means what you think it means. FTA:
"Among the industrial democracies where income inequality is increasing, it's much worse in the United States than it is almost anywhere else. Among 34 nations recently surveyed by the OECD, the United States got beat only by Turkey, Mexico, and Chile."
and
"If you omit government redistribution from the calculations in the previous paragraph then four countries that previously were more equal in incomes than the U.S.—Portugal, Italy, Israel, and Germany—become less equal than the U.S."
The article pretty clearly contradicts your own argument.
If I'm well-off, why do I care how much someone else has?
Indeed, let them eat cake. A time-tested strategy.
> Indeed, let them eat cake. A time-tested strategy.
"Let them eat cake" was a response to folks who didn't have bread. That's not the case here.
> The article pretty clearly contradicts your own argument.
Actually, it doesn't. Try reading what you quoted again.
The author is claiming that tax policy can do certain things. However, the "no tax policy" state contradicts what you've insisted is true.
> Both articles cite the 47% figure, as I stated above. Your source uses a figure of 33%, which is why it (and you) conclude that the US tax system is more progressive.
Your arithmetic is failing too.
And, you still haven't explained why their numbers are more accurate.
You cited the article to support the argument that US income inequality is less than countries like Germany, Israel and Portugal. The article explicitly says the opposite. It doesn't get much clearer than that. But if you really need to be hit over the head with it (again, from your own reference):
"Although income inequality is a global phenomenon, it isn't happening in all industrialized democracies; and in the places where it is happening it isn't, for the most part, as extreme as it is in the United States; and it isn't accelerating elsewhere as quickly, for the most part, as it is in the United States."
I don't know whose numbers are more accurate. But you still haven't explained why, if Europe really does have a fairer tax structure (as you maintain they do), we shouldn't emulate them.
The article explicitly states that pre-tax inequality is greater in Germany than the US. I don't know why you insist otherwise.
And, I've never said that Europe has a fairer tax policy.
However, I'm happy to say that the US should NOT emulate the EU's abysmal per-capita GDP. I'll come to the consequences of that at the end.
You're the one who thinks that progressiveness is a virtue yet prefer a less progressive tax policy.
Let's review.
The original table (in
http://www.taxfoundation.org/blog/show/27134.html) had international comparisons for the mid 2000s. It showed that the top 10% in the US got 33.5% of the income and paid 45.1% of the income taxes. The ratio, 1.35, was the highest of the (selected) OCED countries. (Yes, including the majority of the EU countries.)
You found articles showing that the top 10% had a greater fraction of income in other years and assumed that that somehow contradicted the above table or at least the conclusion. (You implied that the original table's income numbers were wrong, but since they're for different years....)
However, progressivity is a relationship between two numbers and you didn't bother to look for the second number, the tax revenue share.
http://www.taxfoundation.org/news/show/250.html table 1 has the US numbers for 2009, when the top 10% had a higher fraction of income than in the mid-2000s. That fraction, 43.2%, is roughly the same as your articles. However Table 1 also has the fraction of income taxes. It's 70.5%. I'll do the math for you - the ratio is 1.63, or
significantly more progressive than the mid-2000s.
Oops.
Of course, this ignores consumption taxes, which are a big deal in the EU. However, consumption taxes much less progressive than income taxes so including them makes the EU even less progressive....
You then launched into inequality. I pointed out that the US isn't the most unequal pre-tax and you pointed out post-tax was different.
Well duh.
However, that doesn't support your argument that US tax policy needs to change to address inequality. It actually weakens it.
In anticipation of "but the US needs more revenue", I'll point out that the US has roughly the same tax revenue per person as major EU countries. It has more than Canada, just a little less than the UK, and way more than Japan. (See http://gregmankiw.blogspot.com/2010/03/taxes-per-person.html .)
Yes, tax revenue is a smaller fraction of GDP in the US. Are you certain that you increase the fraction without decreasing the GDP? As someone put it, if I'm paying German-style taxes, why wouldn't I work German-style hours. The result is German GDP, which is significantly
lower, and not much more tax revenue.
Do you really want to argue that the US would spend tax revenue better if it had a lower GDP?
Ah, but you don't believe that taxes affect the economy. But I'll bet that you believe that gas taxes affect gas consumption....
Back to Europe's abysmal (per capita) GDP - do you blame the tax policy or the spending choices? (Surely you're not going to argue that Germans are inherently less capable.)
Ok, now we've gotten to the point where we at least agree on the relevant numbers. And now I see what you're saying regarding inequality: that prior to redistribution, inequality is more or less universal. To use your phrase, well, duh. Remember that the point of my original comment was that Europe's more progressive tax structure addresses the problem of income inequality, where the less progressive tax structure of the US does not. You responded by saying the US tax structure is more progressive. Then you cited an article which explicitly argues my point, that other nations more effectively address income inequality with progressive taxation than does the US.
And, I've never said that Europe has a fairer tax policy.
You said (and repeated again here) that the US has a more progressive tax system, that the wealthy pay a greater share of taxes here than almost anywhere else in the world. I took that to be a criticism, that you believe progressive taxation is unfair. If so, then a country like Germany (which according to you puts less of a tax burden on the wealthy) is fairer overall than the US. I understand that you're trying to avoid saying they're fairer, but that's the inescapable conclusion of your argument that US taxes are more progressive.
[Y]ou didn't bother to look for the second number, the tax revenue share.
I didn't bother to look for it because it was already there in your source and I assumed it was a pretty solid number, since it's based on tax records. Judging the share of income seems a much more likely source of error since it requires more estimation.
Now you've got me wondering how accurate that tax number is, too. Your source put the share of taxes at 45.1% in the mid-2000s. Yet the same source puts the 2009 number at 70%. Do you really believe that the share almost doubled in four years? It's a lot more likely that you're misinterpreting the numbers, or the source is simply wrong. This chart from the conservative Heritage Foundation is more consistent: http://www.heritage.org/budgetchartbook/top10-percent-income... .
I found a reference for German taxes that puts their top 10%'s share at 60% in 2005 (http://www.google.com/url?sa=t&rct=j&q=germany+top+1...). The same source indicates that the top 10% in Germany earned 33% of the gross income, 29% net.
So taking 60%/33% you get a ratio of 1.82, significantly higher than your US value of 1.63. Oops indeed.
> I now I see what you're saying regarding inequality: that prior to redistribution, inequality is more or less universal.
Actually, no. I was saying what I actually said, that US pre-tax inequality wasn't exceptional.
And, you still seem to have problems with the fact that the EU addresses inequality through spending, not taxation.
I note that you ducked the discussion of revenue and spending per GDP, not to mention GDP per person.
So, I'll ask again. Is the EU's abysmal GDP per person due to tax or spending policy? (Or are Americans just inherently more productive?) I ask because you seem to be a fan of EU policy. Is the abysmal GDP a bug or a feature?
> I understand that you're trying to avoid saying they're fairer, but that's the inescapable conclusion of your argument that US taxes are more progressive.
No, it isn't "inescapable". You're leaving a lot of steps out of your "proof", many of which are arguable. One could reasonably arrive at precisely the opposite conclusion.
I note that you also ducked the envy issue and "why should I care about what someone else has", so I'll ask a variation.
Is a society where everyone is starving more fair than a society where almost no one is starving and 1% have Ferraris? The former is equal, the latter isn't.
The observant reader might notice a connection between the two questions posed. (I expect you to duck.)
>> You didn't bother to look for the second number, the tax revenue share.
> I didn't bother to look for it because it was already there in your source
Not for the years that you were arguing about it wasn't.
> Your source put the share of taxes at 45.1% in the mid-2000s. Yet the same source puts the 2009 number at 70%. Do you really believe that the share almost doubled in four years?
> I now I see what you're saying regarding inequality: that prior to redistribution, inequality is more or less universal.
Actually, no. I was saying what I actually said, that US pre-tax inequality wasn't exceptional.
Sorry I mis-paraphrased you.
I note that you ducked the discussion of revenue and spending per GDP, not to mention GDP per person.
I ignored them because they aren't relevant to the questions we're discussing, which are: 1) Is the US tax structure more progressive than other industrialized nations? 2) If so, then why do conservatives criticize the tax policy in places like Western Europe if they are in fact less progressive? These are questions about taxes. Not spending, not per-capita GDP. We're talking taxes. You can have a progressive tax structure and spend all the money on free limos for the rich, the tax rates are still progressive. The term has a specific meaning, which is that the tax rate increases as income increases.
You answered question #1 in the affirmative, but you've never directly answered question #2. Your response seems to be that conservatives think the higher European taxes are ok, but they don't approve of what the money is spent on. (If I'm mis-paraphrasing again, feel free to correct me with a more explicit answer.)
In conclusion, after looking over the sources and arguments you've offered, I'm satisfied that the US tax system is actually not more progressive than most industrialized nations, and that conservatives criticize European tax systems precisely because they are more progressive, in the belief that disproportionately taxing the rich disincentivizes productivity (which is the traditional conservative explanation for the lower per capita GDP).
> I ignored them because they aren't relevant to the questions we're discussing
They're certainly relevant to your assumption that progressive is better and that the EU's ways are better.
They're also extremely relevant to inequality, an issue that you keep bringing up.
> If so, then why do conservatives criticize the tax policy in places like Western Europe if they are in fact less progressive?
Do you really think that progressivity is the only issue in tax policy?
> In conclusion, after looking over the sources and arguments you've offered
I'd like to say the same, but your sole source hung my adobe so I have no idea as to the provenance of the data. (I can find sources for yogic flying so ....) I'm satisfied that the OCED reports Euro taxes reasonably well.
And, I note that you didn't even claim to address consumption taxes, which are both much large source of EU income and far less progressive than income tax. Even if we go with "the US income tax is about as progressive", that swings the balance quite a bit.
Yes, different rates of taxation and government benefits absolutely mean that Sweden, say, comes off a lot better vs. the US than this graph would suggest. To my mind that's a good reason to look at consumption inequality rather than income inequality.
Just a note on terminology, though. Whether a tax code is progressive usually refers to the shape of the income/taxes graph, rather than its absolute level. If you just look at that then (including VAT and social security etc) US federal taxes are a bit more progressive than in Sweden, though I believe that if you add the (usually regressive) state taxes Sweden comes out ahead with respect to most US states. But Sweden's overall rates are higher than in the US, and it spends more of its money on helping people instead of the military, so Swedish taxes do do more to reduce inequality than taxes in the US.
I'm not saying that you're wrong, but my understanding is that higher education levels are positively correlated with income and overall wealth and negatively correlated with number of children. This is where I tend to have a disconnect with your statement that "richer households tend to be larger"; this does not match my personal experience or the folks I know.
That's true regarding children, but the difference isn't very large. On the other hand, people who are older tend to make more money and have more children, and people who are more educated tend to make more money and are more likely to marry.
[I]ncome inequality has been rising at more or less the same rate everywhere in the industrialized world...
The link you cite excludes income from capital gains, which for the wealthiest Americans comprises most of their income and which is taxed at a much lower rate, as Mitt Romney's recent tax disclosure exemplifies.
True, I don't have any good cross-national comparison that includes capital gains, if anybody has that I'd be grateful if they could post it. My guess would be that the effect would be pretty much the same from nation to nation, but of course I can't be sure of that without data.
1. These plots are derived from Thomas Pickety and Emmanuel Saez's famous work, http://elsa.berkeley.edu/~saez/pikettyqje.pdf. Their research has spurred similar analyses around the world, much of which is in the World Top Income Database, http://184.168.89.58/sketch/. It is based on income tax filings, which correspond to the tax unit for each country. In the US, that would be by household.
You prefer talking about consumption inequality, I prefer talking about wealth inequality, but the best data that we have is for income inequality hence the choice in this plot. The defect with measuring income inequality is that it does not directly correspond to each individual's ability to bear the tax burden, which leads to issues of tax fairness. The issue with consumption inequality is that the fraction of income consumed tends to decline with increasing income, so this metric is even less tied to an individual's ability to bear the tax burden.
2. I think you are greatly overstating the importance of the 1986 Tax Reform Act. During the period covered by this plot, the income tax essentially went from
- a low revenue elite tax
- to wartime tax grabs of greater than 70% of income,
- to a permanent tax on the middle class with top marginal rates above 85%,
- to a tax allowing a plethora of deductions,
- to one with our current Reaganesque rates.
There have been huge changes over the years, which are mostly captured in these plots.
3. Income inequality has been rising in many countries, although this is closely related to reductions in top marginal tax rates in each country. It is also related to tax avoidance and treaty shopping by multinationals in a global economy.
In addition to income tax rates, other things that affect income inequality include longevity, birth rates, and the effectiveness of estate taxes since wealth is usually divided amongst children. Also important are capital gains taxes and tax sheltering.
Right now, many modern countries are in a bizarre position where the incidence of income taxes, i.e. tax on net change in wealth per year) is higher on the middle class than on the very wealthy who have greater opportunities to take deductions, reclassify, and move income.
"It is easy to find a man in almost any line of employment who is twice as efficient as another employee, but it is very rare to find one who is ten times as efficient."
That's not really true for many of the newer industries that have arisen since then. Programming being the classic example.
Factories made workers orders of magnitude more productive. To get the benefit you needed access to a factory, which is why workers in the wealthy West ended up so much richer than the rest. Our education system still works on the assumption that getting you into a factory is a good idea.
But today factories are accessible to far more of the world, so their unique advantage has faded. They're still critical for our absolute level of wealth, but the relative wealth of a factory worker is falling and isn't going to stop.
Now it's skill with computing can make a worker orders of magnitude more productive. The effect is obvious if you spend any time replacing manual processes with software. A team of three programmers can easily work for a year and produce a system that replaces the work of thousands of people forever.
Which is why we need a completely different education system that helps people achieve this new level of productivity.
Do we really need that many people who understand computing? Won't it just cause a glut of programmers? Industrialists worried about the same thing 110 years ago. They turned out to be wrong. People don't just suddenly say "Well, I'm 100x richer than my grandparents. I guess I have enough stuff now." Instead the extra wealth lets entirely new industries be born, and creates entirely new "needs" and wants.
A world where basic education included reading, writing, and recursion would be a very productive, very wealthy world. I expect it will happen, because the economic incentives are huge. But it will take a long time to shift cultural inertia.
I personally don't mind some subset of our population being extremely rich. They've made sacrifices that I don't care to make or have had luck or skill that I do not have. The ability to become remarkably wealthy is a great liberty, just as the ability to refuse it or share it. I think that any individual should be allowed to accumulate that sort of wealth if they are able to, perhaps to do great things with it that we can not or would not do ourselves.
86 comments
[ 3.1 ms ] story [ 160 ms ] threadHe is not denying economic realities, he is not denying the right for people to be rich, or to become rich, or to aspire to become rich.
He's just saying that a small amount of people helped themselves to a (too) large piece of the pie, and he tries to understand how we got there and whether or not this is a bad thing.
I disagree with your last statement, and in general think the opposite is true; extremely large concentrations of wealth, of the kind seen in aristocratic or oligarchical societies, tend to shrink the size of the pie. A main question would be where the transition point is; I think the U.S. is probably still on the reasonably-good side of the line, though less comfortably so than it was in the 1950s-80s. There's very little (no?) evidence that modest levels of wealth distribution harm economic growth, either. A Soviet command economy, yes, but a social safety net in a market economy doesn't equal communism, and there's some modest evidence that it can actually improve entrepreneurship (because people end up less scared of leaving cushy corporate jobs).
Now, onto the larger point. We care because unequal societies have a whole host of social ills: higher crime, lower social mobility, poorer health outcomes. There is, in fact, a wide and deep body of scientific literature about this. You are, of course, free to disagree with the science on income inequality, but that places the burden on you to say, "the science is wrong!", or to say, "high crime and poor health doesn't matter!"
Good luck with that.
Or downvoted for pointing out that the observable evidence suggests that we, as a society, would be better off in a number of measurable ways (e.g. reduced crime rates, greater social mobility, better overall health), in a society with greater money equality?
It may be a challenging idea if all one's ever heard is, "don't take my slice, just grow the pie," but there is, unfortunately, no evidence--historical or contemporary--that "just grow the pie" actually works in the real world.
What is your point in making rich people pay more for these services other than they worked hard for their money and you want to take a free ride?
They pay more because, if we taxed everyone at the same rate, we wouldn't have anywhere near enough money we needed to maintain even the somewhat shoddy state of civilization in the country.
You may not like the idea that the government has to pay for all of the things it does, and that's a fair response, but it doesn't really address the bigger picture: what kind of quality of life do we want in this country?
Just to play into the "low taxes for all" thought experiment, say we slash taxes across the board and have to cut a ton of stuff from our budget. Well, I can think of what I'd cut, and I'm sure you can do the same, and I'd bet there's some overlap, and some contention. But how would these cuts make life harder for your average American (who, mind you, is poor and sick and works their ass off week after week for very little wages)? If we don't care about them--if we throw them to the wolves of fate--is this the kind of country we want to live in, one we will take pride in? How would history view us, at the dawn of the 21st century?
And, to be wise students of history, and reflect on how we got here, rather than assume our forebears were idiots who didn't know what they were doing, why do we have the regulations on business that we do? Why do we have food safety? Why do we have regulations on overtime pay? (And whose bright idea was it to exempt IT workers from that?) Why do we have regulations on medicine, or laws that dictate how and where we drive our cars?
I'm not trying to ask a bunch of leading questions. I don't have the answers here. I just think it's useful to think more broadly than "a flat tax is a fair tax is a just tax is the right thing to do", both historically and ethically.
enjoy,
Roads certainly, for commercial transportation. Public education and food safety, probably not. The military, definitely, to protect and procure economic assets abroad. And elements of law enforcement (I doubt that you or I could dial up the FBI to raid someone cheating us, but the MPAA and Luis Vitton can).
So you want free pie? which your neighbor baked?
Do I personally want free pie, which my neighbor baked? No, I don't think so, and I think that very few people engaged in our ongoing policy debates want that--just like I'd guess that very few people engaged in policy debates are actually advocating a zero-tax policy.
But.. that's not really what taxation is (taking your neighbor's pie for free, outside the confines of the larger social contract, for no purpose but your own greed and with no recompense). What I would propose for the pie-taking exercise, and what has generally been considered ethical, and within the confines of social contracts that do uphold human rights and dignity, takes on, I'd say, a different character:
I have a pie. My neighbor has a pie. There's about five or six more houses all around us, all with a pie. We need a road in front of our houses, so we can go visit the internet cafe, but none of us has the road-making expertise. So let's all take a slice of our pies and give them to the guy with the paving machine.
We also need to make sure the roads stay in good shape, so we've got to give him another slice of pie every year.
We also (and this, I think, is where it gets uncomfortable for some people) need a way to make sure we all always give up a slice of our pie, so we all give another small slice to the guy who's going to go around and make sure we all give some pie.
We saw what happened that one year when it was entirely voluntary, how everyone figured the others would chip in, and no one did, and the road fell into disrepair.
So we not only need to pay for things collectively that none of us could realistically pay for on our own (one big part of the social contract), we also need to account for human nature and hire an enforcer (another big part of the social contract, and the one that makes people uncomfortable) to keep everyone accountable to that same social contract.
Do I want your pie? No. Do I want us all to chip in and pay with our pies for necessary services? Yes.
Very few people, I think, would argue with the need to pay for necessary services collectively. What constitutes a necessary service changes over time, though, and that's why we have an ongoing political dialogue. If these problems were so simple to solve that the answers could fit on bumper stickers, we'd have solved them long ago. But they're not, and that's why we'll never stop having these discussions, and rolling these ideas around in our heads.
best,
I honestly suspect that shrinking the pie but making it more evenly distributed would be best for all for the increased social harmony and stability.
Here's a good place to start: Income Inequality and Social Dysfunction by Wilkerson and Pickett.
Here's another good resource, this time from Stanford - http://www.stanford.edu/group/scspi/
enjoy!
Wealth doesn't originate in some pre-defined aggregation; it's generated by particular people in particular contexts. This concept of different people having different 'shares' of wealth relies on starting with some universal aggregation, and this always seems to be measured by calculating everyone's separate individual income and adding each of these values to into a single sum. But this implicitly acknowledges that wealth doesn't originate in an aggregation, so what's the justification for construing any aggregation at all?
Think of it not as one pie, but as trillions of pies. You get one by buying one or trading others for their pies. Under this model, what right do you have to your neighbors pie.
Your last sentence is just a Randian fantasy strawman. No one is talking about going into your bank account and taking money out. But certainly people are talking about tax policy, which changes every few years anyway.
Are you interested in having a mature discussion about tax policy?
My place of employment deposit my salary directly into my bank account, sans taxes. Are you saying that there is a material difference between taking the money before they end up in my bank account (i.e I never see them) or after (e.g. I have to write a check to the government each month)?
We're a consumer economy. If the bottom 90% are having trouble paying their bills and don't buy as much stuff, the top 10% are going to feel the slowdown eventually. Think of it as your rational self-interest.
As a matter of fact, you know that graph in the linked article, how it shoes that inequality was way lower from 1941-1979? Guess which period of the 20th century had the highest GDP growth.
BTW, Bill Gates was in favor of a higher income tax in WA last time it came up, and as we all know is in the process of giving all his money away.
Yeah, you're working for rich people, but somewhere along the line those people are making money by selling to people who work from a living. Personally, my software buys advertising on exchanges to sell to agencies who are acting for large companies who have subsidiaries who sell things to people who work for a living. It's just a question of how many degrees.
He's strongly and unambiguously in favor of the estate tax: http://www.trustsestateslaw.com/2009/05/warren-buffett-and-b...
Many housing developers get rich not from building houses, but buying land and then rezoning it to be worth more and then building houses. Effectively they leverage an areas existing infrastructure to increase the value of that land without paying for it. And often the way the do this is though direct and indirect bribery of local politicians.
From this perspective the idea of zoning is simply a way for the well connected to make money. If instead you charged people for their share of the construction costs of existing roads, schools, bridges etc when they added a new single family home you could automatically pay for any needed upgrades rather than having existing homeowners subsides their infrastructure either by having already paid for it or sharing in the cost of building new infrastructure to support new immigrants.
Edit: Of course when you start to dig into things Bill Gates also leveraged his connections to make most of his money. The reason he could sell an operating system he did not have to IBM vs them dealing with the guy that created it has everything to do with his connections and nothing to do with him actually building anything.
PS: Often people get rich by doing both. They make a the pie slightly larger yet end up with a larger piece than the size of their increase. I would argue that the best way to separate the wheat from the chaff in this case is a direct tax on wealth say 1.5% per year on anything over 2 million instead of traditional capital gains. While it does little to those who are directly making money it drains the type of passive old boy networks that most damaging to economic growth.
Most people aren't begging the SSA to manage their money on the cheap, so there must be some kind of benefit with those more expensive options.
However, if you really think the SSA could do better with your money, I know someone who works there and could ask them where you can over send them more of your money.
AFAIK this isn't actually possible. I looked into it at some point, and the amount you contribute is completely fixed as a percentage of your (earned) income. There are years where I didn't make a lot of income, or earned income only in non-payroll-taxed categories like grad-student fellowship, and wanted to top up my SS contribution for the year, but there's no mechanism for voluntary extra contributions.
(A few European countries do actually allow that; when I took a job in Denmark I had some options about what level of contribution per year I wanted to make into the state pension system.)
On 401k fees: (GAO) http://www.gao.gov/htext/d10153t.html (more readable blog post) http://moremoney.blogs.money.cnn.com/2010/01/19/finally-your... Note: 401k's should last well into retirement so over 60 years fees can really eat into that savings.
Bill gates connection to IBM: http://en.wikipedia.org/wiki/Mary_Maxwell_Gates / http://prospectingprofessor.blogs.com/prospecting_professor/... / Original DOS author Tim Paterson http://inventors.about.com/od/computersoftware/a/Putting-Mic...
As for developer bribing local politicization's, umm just read the news... http://weblogs.baltimoresun.com/news/local/politics/2011/05/... etc etc.
This is an odd thing to say, since SS is not in the business of investment. SS doesn't invest. It's a defined-contribution plan that takes the money in and loans it to the federal government. At some time later, they and Congress decide how much they'll pay you back. How can we know how much it would cost them to run investments?
>> Over the lifetime of many plans they extract 20%-50% of all gains
This isn't much of a statistic. If those expensive ones are charging lots of money for sky-high returns, then everyone is winning, right? But commonly, yes, they do take a big chunk of gains. But if you reframe your statistics to better show how hard it is to make money, it's really not so evil. If my investment manager is able to beat the Dow consistently, and takes a goodly chunk of the difference, then we're all better off.
Moreover, market theory holds that high profits are prima facia evidence that one is providing value to one's customers. Do you have reason to believe that this isn't the case here?
>> Bill gates connection to IBM
Yes, but so what? The only thing I can think to read from this is that the only people who add value are engineers; those who are able to see a need, identify a means of fulfilling the need, and bringing the two together, are irrelevant. But I think that this very story shows what a big difference such a role can make.
>> As for developer bribing local politicization's
I won't bother arguing, since again, I think you're making a point opposite of what you're trying for. Saying that government is corruptible and can be subverted to line the pockets of the unscrupulous is not a very good argument for having government step in to resolve putative differences in income inequality. Doing so would simply invite more abuses of power.
We know how much it costs them to collect money and do correspondence (aka mail stuff). While the SS administration is legally prohibited from running investments you can look at other government agency's that do so and it's significantly lower overhead than even cheap index funds. As to the actual costs of buying and selling stocks you can do that with moderately complex software buying 1000x as much stock is not a hard problem. http://en.wikipedia.org/wiki/Algorithmic_trading
If those expensive ones: There is a lot of research that shows high fee mutual funds simply have a lower returns. but for a quick summary: http://bonds.about.com/od/bondfunds/a/Why-Invest-In-The-Lowe... Buffet in support of index funds: http://articles.marketwatch.com/2007-05-07/finance/30714109_...
putative differences in income inequality Taxing wealth and not the income that wealth generates is not inherently punitive. What it does is eat's away at fortunes that stick with ultra safe investments in favor of the risk takers. Because I don't think income / wealth inequality is inherently bad, what's dangerous is type of back room deals /networks that favor 'old' money.
In the end I don't think there is much you can do to prevent insider deals, but you can put a damper on what it means for your great, great, grand father to have built a modest fortune that was managed reasonably well after that.
PS: I have plenty of rich relatives, heck my grandmother went to Harvard and one of my closet friends growing up came from 'old' money with multi million dollar trust funds so I may be a little to close to be objective on this one. But, on net I don't have a lot of good things to say about what happens when your parents inherit wealth and you can look forward to more of the same.
A broader based of wealth occurs when a society is balanced not solely because of the supreme talents of an individual. You could have all the talent in the world but if the infrastructure is falling apart, the educational system is struggling, and there aren't people who earn enough to purchase your goods, what good will it do you?
Money begets more money, certainly.
> when taken too far, has a negative effect on the society in which it occurs?
This isn't possible. A person can either spend money or store money.
When they spend money, they are telling others to perform work. That money then gets transferred to other people.
When they store money, that money gets placed in a bank or in an investment. In a bank, that money is immediately loaned out to someone else, creating a business or some venture, creating jobs and wealth for other people. In an investment, again, jobs are created and wealth for others is formed.
Now, can all of this run in a closed loop among the privileged? Only in a society with heavy government intervention where the market is warped. In a healthy free economy, talented people are quickly recognized and quickly brought into the loop. In an unhealthy controlled economy, you must know the right people to be allowed into the loop and the people allowed into the loop are rarely talented.
> A broader based of wealth occurs when a society is balanced not solely because of the supreme talents of an individual.
From each according to his ability, to each according to his need? History has already condemned your way of thinking.
The human tendency toward cronyism is universal. One could just as persuasively argue that FTC regulations and 'market-warping' affirmative action have made the economy healthier and freer for all.
It is. However, it seems to be at the greatest magnitude in large structures. Whether those large structures are governments or corporations is irrelevant. Keeping things small is the best recipe for equity, not grand schemes of redistribution.
This isn't quite accurate. You note later how markets work, but you're not seeing how much that's in tension with wealth concentration. At its furthest end, you simply have a private person in charge of a command economy. Look at countries considered "kleptocratic": most aren't klepto- anything, they literally possess most of the wealth and thereby direct development towards their families in a sort of feudal way. Most could probably forgo formal taxation altogether and my impression of compliance is that they essentially do.
But all that new wealth out there bidding against you also represents new wealth out there available for purchase, driving costs down.
Under a stable currency, increasing wealth and productivity leads to steadily falling prices for most goods. This means that other people getting richer can actually benefit you even if you don't. But this process is swamped by monetary inflation.
Lots of people look only at nominal price levels and conclude that inflation hasn't been bad. But when you consider the major productivity gains of the past decades, we should have been seeing falling prices. The real inflation is the difference between these, and it's big, and it makes it harder and harder for the poor to stay above water.
It doesn't have to be a zero sum game for income disparity to be a problem. GDP typically grows at less than 5% a year, yet average income for the top 1% has grown at 10% annually over the last 20 years (http://economix.blogs.nytimes.com/2011/09/02/what-does-econo...).
It's not a sickness itself, but it's a symptom of the sickness. And pointing out that inequality has radically increased in the past decades is just pointing out we have a fever of 105F going on, here.
Dumping someone in the snow won't fix it, but you also don't just ignore it and say that administering medicine would be violating a free market.
There is a maximum amount of US dollars in the world at any one time we measure it. We shall call this A. The wealthy 1% own .1A . That leaves, by simple averages that 99% can only have .9A .
US Dollars are being made at X per hour. This 'wealth generation' devalues the preexisting currency forcing money to follow this formula
The value that A was before is now what A+X has to be. Anybody who owned A before wealth 'generation' now owns less.Yes, I would call our system zero-sum for increasingly small amounts of capital. It is only when you can bypass the marginilization of X is it not zero sum.
If you were a partner in a business growing at 5% a year, and your income grew only 1% while your partner's grew 10%, would you let him get away with pointing out that you're better off than last year?
The problem is that the positive sum creators (e.g. Warren Buffet) aren't as many as the negative sum players (e.g. George Soros).
edit: Political power might be considered another - at least up until the point when you cause people to riot.
Land can be created, especially if you define land as physical space suitable for human habitation and productivity: technological improvements that render formerly uninhabitable terrain useful can be construed as 'creating' land. Seasteading and space colonization will eventually begin 'creating' land in this fashion.
Technological improvements that allow progressively smaller amounts of physical space to maintain a constant amount of productivity also have a similar effect.
Even in the most literal sense, physical terrain can be created; the Dutch are pretty good at turning sea into land, and in the very distant future, we may be able even to construct entire planets out of dust and debris.
Maybe the supply of matter and energy with which to do these things is a zero-sum game, but not likely one we'll have to worry about any time soon.
If you're struggling or know people who are, it doesn't exactly seem fair to realize that during the "boom" years (when your income didn't change much) the very wealthy have gotten the equivalent of huge raises.
I don't know which part of that surprises you.
First, its always important to talk about exactly you're measuring. I couldn't find anything in the piece to say whether the numbers being given were individual income or household income. I'm pretty sure these were household income, but then we run into the the problem that richer household tend to be larger, so the individual income disparity isn't as bad as what was in this graph.
Also, I'd tend to prefer to talk about consumption inequality instead of income inequality. The fact that the 1% nowadays pay a lot of that income out in taxes, and the elite in 1915 didn't is something we ought to care about. I think we should all be able to agree that a society with 100% income tax which redistributes all income equally would in fact be pretty equal, but that won't show up on that graph at all. For more nuance you can distinguish between total compensation, taxable compensation, normal income, consumption, and wealth.
A second point would be that they somehow don't mention the big discontinuity from when the 1986 Tax Reform Act passed. That strongly incentivised rich people to report things as income which they had previously claimed were business expenses. That does mean that the numbers after 1986 are more comparable to the numbers from before people started feeling the need to claim that things were business expenses, but it does mean that the numbers from 1988 aren't really comparable to the numbers from 1982. And its hard to compare across countries since AFAIK most of Europe is closer to the pre-1986 US system than the post-1986 US system.
And speaking of Europe, its important to remember than income inequality has been rising at more or less the same rate everywhere in the industrialized world (baring the US's 1986 jump). See pretty graphs here: http://www.scottwinship.com/1/post/2011/03/what-would-it-mea...
So the picture is pretty complex. I think we ought to tax rich people and redistribute the wealth to some extent, but if you just look at these graphs then you'll never see that working.
I wasn't aware that the numbers that people throw around concerning inequality were _before_ gov't payments (they basically ignore current redistribution methods).
If you want to listen to a great podcast on income inequality: http://www.econtalk.org/archives/2011/11/kaplan_on_the_i.htm...
The other issue is that the European country that has had the greatest _decrease_ in income inequality in the last few years is Greece. Is that a model we should be emulating?
Actually, the US system is more progressive. It gets a much higher fraction of its revenue from higher income folk than do other countries.
In terms of revenue per person, the US is right in the middle, between Germany and Canada (Canada is lower).
Is there a reference for this? Germany and France have higher top rates, the UK slightly lower. But all three have higher capital gains taxes, which as noted above comprise most of the income for the wealthiest individuals. It seems odd that conservatives would fight so hard against things like universal health care and higher capital gains taxes if in fact they actually lead to less wealth redistribution on the whole. If that were true, the Republican campaign slogan would be 'make America more like Europe'.
There are scads of sources - did you even bother to look? One is http://www.taxfoundation.org/blog/show/27134.html .
> Germany and France have higher top rates, the UK slightly lower.
So? Never confuse top marginal rates with revenue. For example, other rates matter, as does the definition of income. (About 47% American households don't pay federal income tax and a huge fraction actually receive tax "benefits".)
> It seems odd that conservatives would fight so hard against things like universal health care and higher capital gains taxes if in fact they actually lead to less wealth redistribution on the whole.
Huh? Your conclusion doesn't follow from your premises.
However, it's interesting (to me) that you didn't try to make the complementary argument for Democrats.
No, it doesn't imply that.
And, the relevant question is not "how little taxes do I pay" but "how much money do I keep", which has two components.
Sure it does. Your first comment flatly stated that the wealthy in the US pay more of the overall tax burden than in other countries. Then to support your argument you cited a source that says it's actually the most progressive of the OECD countries.
I happen to think the source is wrong, but if it's not and you're right, the unmistakable conclusion is that European policies result in less progressive taxation. So if the conservative objective is a 'fair' tax rate in which everyone pays in direct proportion to what they earn, then Europe is (according to your argument) closer to this ideal than the US is. It follows then that their policies, according to you, are more favorable to the wealthy than the US and that we would be better off pursuing those policies. How can you on one hand argue that Europe is fairer and on the other hand argue that we shouldn't follow their example?
You're also wrong about income inequality - Germany's is higher than the US, as is Portugal, Italy, Israel and Turkey, Mexico, and Chile. See http://www.tnr.com/blog/timothy-noah/101648/can-domestic-pol...
However, the whole inequality argument is fairly silly.
If I'm well-off, why do I care how much someone else has?
Envy is the only sin that has no payoff for the sinner.
Both articles cite the 47% figure, as I stated above. Your source uses a figure of 33%, which is why it (and you) conclude that the US tax system is more progressive.
And did you read the article you just cited? I don't think it means what you think it means. FTA:
"Among the industrial democracies where income inequality is increasing, it's much worse in the United States than it is almost anywhere else. Among 34 nations recently surveyed by the OECD, the United States got beat only by Turkey, Mexico, and Chile."
and
"If you omit government redistribution from the calculations in the previous paragraph then four countries that previously were more equal in incomes than the U.S.—Portugal, Italy, Israel, and Germany—become less equal than the U.S."
The article pretty clearly contradicts your own argument.
If I'm well-off, why do I care how much someone else has?
Indeed, let them eat cake. A time-tested strategy.
"Let them eat cake" was a response to folks who didn't have bread. That's not the case here.
> The article pretty clearly contradicts your own argument.
Actually, it doesn't. Try reading what you quoted again.
The author is claiming that tax policy can do certain things. However, the "no tax policy" state contradicts what you've insisted is true.
> Both articles cite the 47% figure, as I stated above. Your source uses a figure of 33%, which is why it (and you) conclude that the US tax system is more progressive.
Your arithmetic is failing too.
And, you still haven't explained why their numbers are more accurate.
"Although income inequality is a global phenomenon, it isn't happening in all industrialized democracies; and in the places where it is happening it isn't, for the most part, as extreme as it is in the United States; and it isn't accelerating elsewhere as quickly, for the most part, as it is in the United States."
I don't know whose numbers are more accurate. But you still haven't explained why, if Europe really does have a fairer tax structure (as you maintain they do), we shouldn't emulate them.
And, I've never said that Europe has a fairer tax policy.
However, I'm happy to say that the US should NOT emulate the EU's abysmal per-capita GDP. I'll come to the consequences of that at the end.
You're the one who thinks that progressiveness is a virtue yet prefer a less progressive tax policy.
Let's review.
The original table (in http://www.taxfoundation.org/blog/show/27134.html) had international comparisons for the mid 2000s. It showed that the top 10% in the US got 33.5% of the income and paid 45.1% of the income taxes. The ratio, 1.35, was the highest of the (selected) OCED countries. (Yes, including the majority of the EU countries.)
You found articles showing that the top 10% had a greater fraction of income in other years and assumed that that somehow contradicted the above table or at least the conclusion. (You implied that the original table's income numbers were wrong, but since they're for different years....)
However, progressivity is a relationship between two numbers and you didn't bother to look for the second number, the tax revenue share.
http://www.taxfoundation.org/news/show/250.html table 1 has the US numbers for 2009, when the top 10% had a higher fraction of income than in the mid-2000s. That fraction, 43.2%, is roughly the same as your articles. However Table 1 also has the fraction of income taxes. It's 70.5%. I'll do the math for you - the ratio is 1.63, or significantly more progressive than the mid-2000s.
Oops.
Of course, this ignores consumption taxes, which are a big deal in the EU. However, consumption taxes much less progressive than income taxes so including them makes the EU even less progressive....
You then launched into inequality. I pointed out that the US isn't the most unequal pre-tax and you pointed out post-tax was different.
Well duh.
However, that doesn't support your argument that US tax policy needs to change to address inequality. It actually weakens it.
There are TWO factors - taxes and spending. The US doesn't spend (as much) to reduce inequality. Making the tax system even more progressive won't change that. (See http://lanekenworthy.net/2009/04/17/reducing-inequality-how-... .)
In anticipation of "but the US needs more revenue", I'll point out that the US has roughly the same tax revenue per person as major EU countries. It has more than Canada, just a little less than the UK, and way more than Japan. (See http://gregmankiw.blogspot.com/2010/03/taxes-per-person.html .)
Yes, tax revenue is a smaller fraction of GDP in the US. Are you certain that you increase the fraction without decreasing the GDP? As someone put it, if I'm paying German-style taxes, why wouldn't I work German-style hours. The result is German GDP, which is significantly lower, and not much more tax revenue.
Do you really want to argue that the US would spend tax revenue better if it had a lower GDP?
Ah, but you don't believe that taxes affect the economy. But I'll bet that you believe that gas taxes affect gas consumption....
Back to Europe's abysmal (per capita) GDP - do you blame the tax policy or the spending choices? (Surely you're not going to argue that Germans are inherently less capable.)
And, I've never said that Europe has a fairer tax policy.
You said (and repeated again here) that the US has a more progressive tax system, that the wealthy pay a greater share of taxes here than almost anywhere else in the world. I took that to be a criticism, that you believe progressive taxation is unfair. If so, then a country like Germany (which according to you puts less of a tax burden on the wealthy) is fairer overall than the US. I understand that you're trying to avoid saying they're fairer, but that's the inescapable conclusion of your argument that US taxes are more progressive.
[Y]ou didn't bother to look for the second number, the tax revenue share.
I didn't bother to look for it because it was already there in your source and I assumed it was a pretty solid number, since it's based on tax records. Judging the share of income seems a much more likely source of error since it requires more estimation.
Now you've got me wondering how accurate that tax number is, too. Your source put the share of taxes at 45.1% in the mid-2000s. Yet the same source puts the 2009 number at 70%. Do you really believe that the share almost doubled in four years? It's a lot more likely that you're misinterpreting the numbers, or the source is simply wrong. This chart from the conservative Heritage Foundation is more consistent: http://www.heritage.org/budgetchartbook/top10-percent-income... .
I found a reference for German taxes that puts their top 10%'s share at 60% in 2005 (http://www.google.com/url?sa=t&rct=j&q=germany+top+1...). The same source indicates that the top 10% in Germany earned 33% of the gross income, 29% net.
So taking 60%/33% you get a ratio of 1.82, significantly higher than your US value of 1.63. Oops indeed.
Actually, no. I was saying what I actually said, that US pre-tax inequality wasn't exceptional.
And, you still seem to have problems with the fact that the EU addresses inequality through spending, not taxation.
I note that you ducked the discussion of revenue and spending per GDP, not to mention GDP per person.
So, I'll ask again. Is the EU's abysmal GDP per person due to tax or spending policy? (Or are Americans just inherently more productive?) I ask because you seem to be a fan of EU policy. Is the abysmal GDP a bug or a feature?
> I understand that you're trying to avoid saying they're fairer, but that's the inescapable conclusion of your argument that US taxes are more progressive.
No, it isn't "inescapable". You're leaving a lot of steps out of your "proof", many of which are arguable. One could reasonably arrive at precisely the opposite conclusion.
I note that you also ducked the envy issue and "why should I care about what someone else has", so I'll ask a variation.
Is a society where everyone is starving more fair than a society where almost no one is starving and 1% have Ferraris? The former is equal, the latter isn't.
The observant reader might notice a connection between the two questions posed. (I expect you to duck.)
>> You didn't bother to look for the second number, the tax revenue share.
> I didn't bother to look for it because it was already there in your source
Not for the years that you were arguing about it wasn't.
> Your source put the share of taxes at 45.1% in the mid-2000s. Yet the same source puts the 2009 number at 70%. Do you really believe that the share almost doubled in four years?
2009 was an interesting year.
Sorry I mis-paraphrased you.
I note that you ducked the discussion of revenue and spending per GDP, not to mention GDP per person.
I ignored them because they aren't relevant to the questions we're discussing, which are: 1) Is the US tax structure more progressive than other industrialized nations? 2) If so, then why do conservatives criticize the tax policy in places like Western Europe if they are in fact less progressive? These are questions about taxes. Not spending, not per-capita GDP. We're talking taxes. You can have a progressive tax structure and spend all the money on free limos for the rich, the tax rates are still progressive. The term has a specific meaning, which is that the tax rate increases as income increases.
You answered question #1 in the affirmative, but you've never directly answered question #2. Your response seems to be that conservatives think the higher European taxes are ok, but they don't approve of what the money is spent on. (If I'm mis-paraphrasing again, feel free to correct me with a more explicit answer.)
In conclusion, after looking over the sources and arguments you've offered, I'm satisfied that the US tax system is actually not more progressive than most industrialized nations, and that conservatives criticize European tax systems precisely because they are more progressive, in the belief that disproportionately taxing the rich disincentivizes productivity (which is the traditional conservative explanation for the lower per capita GDP).
They're certainly relevant to your assumption that progressive is better and that the EU's ways are better.
They're also extremely relevant to inequality, an issue that you keep bringing up.
> If so, then why do conservatives criticize the tax policy in places like Western Europe if they are in fact less progressive?
Do you really think that progressivity is the only issue in tax policy?
> In conclusion, after looking over the sources and arguments you've offered
I'd like to say the same, but your sole source hung my adobe so I have no idea as to the provenance of the data. (I can find sources for yogic flying so ....) I'm satisfied that the OCED reports Euro taxes reasonably well.
And, I note that you didn't even claim to address consumption taxes, which are both much large source of EU income and far less progressive than income tax. Even if we go with "the US income tax is about as progressive", that swings the balance quite a bit.
Just a note on terminology, though. Whether a tax code is progressive usually refers to the shape of the income/taxes graph, rather than its absolute level. If you just look at that then (including VAT and social security etc) US federal taxes are a bit more progressive than in Sweden, though I believe that if you add the (usually regressive) state taxes Sweden comes out ahead with respect to most US states. But Sweden's overall rates are higher than in the US, and it spends more of its money on helping people instead of the military, so Swedish taxes do do more to reduce inequality than taxes in the US.
Person A income: $20K Person B income: $100K
Person A after-tax income: $25K (via transfer programs) Person B after-tax income: $65K
Obviously comparing the first two is not intellectually honest.
The link you cite excludes income from capital gains, which for the wealthiest Americans comprises most of their income and which is taxed at a much lower rate, as Mitt Romney's recent tax disclosure exemplifies.
You prefer talking about consumption inequality, I prefer talking about wealth inequality, but the best data that we have is for income inequality hence the choice in this plot. The defect with measuring income inequality is that it does not directly correspond to each individual's ability to bear the tax burden, which leads to issues of tax fairness. The issue with consumption inequality is that the fraction of income consumed tends to decline with increasing income, so this metric is even less tied to an individual's ability to bear the tax burden.
2. I think you are greatly overstating the importance of the 1986 Tax Reform Act. During the period covered by this plot, the income tax essentially went from - a low revenue elite tax - to wartime tax grabs of greater than 70% of income, - to a permanent tax on the middle class with top marginal rates above 85%, - to a tax allowing a plethora of deductions, - to one with our current Reaganesque rates. There have been huge changes over the years, which are mostly captured in these plots.
3. Income inequality has been rising in many countries, although this is closely related to reductions in top marginal tax rates in each country. It is also related to tax avoidance and treaty shopping by multinationals in a global economy.
In addition to income tax rates, other things that affect income inequality include longevity, birth rates, and the effectiveness of estate taxes since wealth is usually divided amongst children. Also important are capital gains taxes and tax sheltering.
Right now, many modern countries are in a bizarre position where the incidence of income taxes, i.e. tax on net change in wealth per year) is higher on the middle class than on the very wealthy who have greater opportunities to take deductions, reclassify, and move income.
That's not really true for many of the newer industries that have arisen since then. Programming being the classic example.
Factories made workers orders of magnitude more productive. To get the benefit you needed access to a factory, which is why workers in the wealthy West ended up so much richer than the rest. Our education system still works on the assumption that getting you into a factory is a good idea.
But today factories are accessible to far more of the world, so their unique advantage has faded. They're still critical for our absolute level of wealth, but the relative wealth of a factory worker is falling and isn't going to stop.
Now it's skill with computing can make a worker orders of magnitude more productive. The effect is obvious if you spend any time replacing manual processes with software. A team of three programmers can easily work for a year and produce a system that replaces the work of thousands of people forever.
Which is why we need a completely different education system that helps people achieve this new level of productivity.
Do we really need that many people who understand computing? Won't it just cause a glut of programmers? Industrialists worried about the same thing 110 years ago. They turned out to be wrong. People don't just suddenly say "Well, I'm 100x richer than my grandparents. I guess I have enough stuff now." Instead the extra wealth lets entirely new industries be born, and creates entirely new "needs" and wants.
A world where basic education included reading, writing, and recursion would be a very productive, very wealthy world. I expect it will happen, because the economic incentives are huge. But it will take a long time to shift cultural inertia.
aka "I'm just temporarily poor, I could be a millionaire in a few years"
It can happen, like the amazing story of Spanx, but no-one ever sees the exception as an actual exception to the rule.