Wealth/Income Inequality

[rkbabang]

https://www.businessinsider.com/ted-talk-monopoly-makes-people-mean-2014-8

 

This is a hilarious yet sobering psychology study.  Even when it should be blatantly obvious that someone's success was due to luck, they mis-attribute it to skill. 

 

Sure.  And even when someone's success is obviously mostly skill, like say Bezos, people like Bernie will still pretend that it was all luck.  Sure there is some luck involved, Bezos was lucky to be born in the US where he could use his intelligence and skill set to create Amazon and turn it into what it has become.  He probably wouldn't have been able to do that if he were born in Siberia or Europe.  It would have been much harder for him to build Amazon in Paris in the mid-90s instead of Seattle.  So some people are incredibly lucky to either have been born in, or to have found their way to, a place where they can use their skills to build incredible amounts of wealth for themselves and society.  It's a shame that more such places don't exist and that so many want to kill the ones that do.

 

[dwy000]

At extreme levels it becomes a problem because you do end up like the North Korea situation where so few have so much that people feel disinfranchised.

 

The problem I have with the arguments of AOC and the like is that it is not a zero sum game.  Just because Bezos or Gates add $1bn to their wealth doesn't mean that everyone else has become poorer.  I really don't care how much other people have as long as it doesn't impede my ability to use hard work, luck, intelligence or whatever else to add to my pile.

[JRM]

https://www.businessinsider.com/ted-talk-monopoly-makes-people-mean-2014-8

 

This is a hilarious yet sobering psychology study.  Even when it should be blatantly obvious that someone's success was due to luck, they mis-attribute it to skill. 

 

Sure.  And even when someone's success is obviously mostly skill, like say Bezos, people like Bernie will still pretend that it was all luck.  Sure there is some luck involved, Bezos was lucky to be born in the US where he could use his intelligence and skill set to create Amazon and turn it into what it has become.  He probably wouldn't have been able to do that if he were born in Siberia or Europe.  It would have been much harder for him to build Amazon in Paris in the mid-90s instead of Seattle.  So some people are incredibly lucky to either have been born in, or to have found their way to, a place where they can use their skills to build incredible amounts of wealth for themselves and society.  It's a shame that more such places don't exist and that so many want to kill the ones that do.

 

Again, equal opportunity is not the same thing as equal outcome.  Bernie is promoting equal outcome. 

[rkbabang]

At extreme levels it becomes a problem because you do end up like the North Korea situation where so few have so much that people feel disinfranchised.

 

The problem I have with the arguments of AOC and the like is that it is not a zero sum game.  Just because Bezos or Gates add $1bn to their wealth doesn't mean that everyone else has become poorer.  I really don't care how much other people have as long as it doesn't impede my ability to use hard work, luck, intelligence or whatever else to add to my pile.

 

People feel disenfranchised when the way to wealth is politics/nepotism/force/violence rather than a free market with reasonably close to equal opportunity.

 

[RichardGibbons]

Everyone knows this...but a key message when the transition to communism is made is "the rich are evil, we need equality"

 

Yep, this is right. That's why you don't want inequality to become excessive.  If you're working hard and can't feed your kids and your child died because you can't afford healthcare, then there's a lot of incentive to say, "the rich are evil, we need equality."  Like, clearly your life sucks, so why wouldn't you attempt to destroy the system in the hope that what's rebuilt is better for you?

 

That's why the extremes of communism and capitalism are both problematic. You need to have inequalities so that people can strive for more, but not such great inequalities in an unforgiving system that it becomes clear that striving for more won't actually accomplish anything.

 

The way to stop that "the rich are evil, we need equality" message from materializing is by ensuring the system supports income mobility.

[Castanza]

Everyone knows this...but a key message when the transition to communism is made is "the rich are evil, we need equality"

 

Yep, this is right. That's why you don't want inequality to become excessive.  If you're working hard and can't feed your kids and your child died because you can't afford healthcare, then there's a lot of incentive to say, "the rich are evil, we need equality."  Like, clearly your life sucks, so why wouldn't you attempt to destroy the system in the hope that what's rebuilt is better for you?

 

That's why the extremes of communism and capitalism are both problematic. You need to have inequalities so that people can strive for more, but not such great inequalities in an unforgiving system that it becomes clear that striving for more won't actually accomplish anything.

 

The way to stop that "the rich are evil, we need equality" message from materializing is by ensuring the system supports income mobility.

 

And income mobility is better achieved through more regulations, more license, more barriers to entry, higher taxes, and more red tape?

 

Government is a value trap. Doubling down on failed policy is equivalent to catching a falling knife. Policy is never reversed. When was the last time government said, you know what this policy really hasn’t worked for the last 20 years. Maybe we should remove it. Instead it’s always, well it hasn’t worked so let’s just tweak it.

[RichardGibbons]

Yep, this is right. That's why you don't want inequality to become excessive.  If you're working hard and can't feed your kids and your child died because you can't afford healthcare, then there's a lot of incentive to say, "the rich are evil, we need equality."  Like, clearly your life sucks, so why wouldn't you attempt to destroy the system in the hope that what's rebuilt is better for you?

 

That's why the extremes of communism and capitalism are both problematic. You need to have inequalities so that people can strive for more, but not such great inequalities in an unforgiving system that it becomes clear that striving for more won't actually accomplish anything.

 

The way to stop that "the rich are evil, we need equality" message from materializing is by ensuring the system supports income mobility.

 

And income mobility is better achieved through more regulations, more license, more barriers to entry, higher taxes, and more red tape?

 

This is a very odd response to what I said. I was talking about income mobility, and you suddenly seem to believe that everything the government does is therefore about income mobility. (It isn't, you know. When the government prevents people from discarding cyanide into your drinking water, they're not doing so to increase income mobility.)

 

That said, some government policies can help income mobility and some government policies can hurt it.  Generally, America's pretty terrible at income mobility compared to almost all other western countries.  I think it's a major contributor to the completely messed up political situation America is in right now.  (If you like, read that to mean, "the rise of AOC" rather than "the rise of Trump".  It's the opposite sides of the same "no income mobility" coin.)

[Spekulatius]

Ross812’s charts are interesting, but I think some of the narrowing gap is just the result of equity valuations tanking (in the 1920’s and in the 1970’s) not because the people at the bottom were doing better. That’s not exactly the kind of mean reversion we want.

 

I think some government interventions like trying to make the education system better and create more equity there might help. The higher minimum wages have helped somewhat (those get decided at the state level) despite what some persist say - the higher unemployment due to higher labor cost just hadn’t happened.

 

I don’t see more regulation helping in general though. I do green overall that social mobility is the bigger (and probably only real ) problem, not wealth inequality. Of course both are somewhat connected to each other, but it seems to me that social upwards mobility has been waning over the years in the US, but also in Europe.

[LC]

Yep, this is right. That's why you don't want inequality to become excessive.  If you're working hard and can't feed your kids and your child died because you can't afford healthcare, then there's a lot of incentive to say, "the rich are evil, we need equality."  Like, clearly your life sucks, so why wouldn't you attempt to destroy the system in the hope that what's rebuilt is better for you?

 

That's why the extremes of communism and capitalism are both problematic. You need to have inequalities so that people can strive for more, but not such great inequalities in an unforgiving system that it becomes clear that striving for more won't actually accomplish anything.

 

The way to stop that "the rich are evil, we need equality" message from materializing is by ensuring the system supports income mobility.

 

And income mobility is better achieved through more regulations, more license, more barriers to entry, higher taxes, and more red tape?

 

This is a very odd response to what I said. I was talking about income mobility, and you suddenly seem to believe that everything the government does is therefore about income mobility. (It isn't, you know. When the government prevents people from discarding cyanide into your drinking water, they're not doing so to increase income mobility.)

 

That said, some government policies can help income mobility and some government policies can hurt it.  Generally, America's pretty terrible at income mobility compared to almost all other western countries.  I think it's a major contributor to the completely messed up political situation America is in right now.  (If you like, read that to mean, "the rise of AOC" rather than "the rise of Trump".  It's the opposite sides of the same "no income mobility" coin.)

 

The correct response is “I have nothing to add”, because your initial post hit the nail on the head.

[LongHaul]

rnI don't think wealth/income inequality is a bad thing as it incentivizes people to work harder. The problem is this inequality is becoming more pronounced. I would not say there is more incentive to work hard than in 1950, 1970, or 1990 than there is today, but the stratification between the top 1% and bottom 50% has grown tremendously since these dates.

 

http://i2.cdn.turner.com/money/dam/assets/161221173430-inequality-piketty-1-780x439.png

 

 

The economic boom of the past 40 years and 250% expansion in the economy has overly benefited the incomes of the to 20% which is further stratified toward the top within that quintile. We can state the poor have cars, iPhones, and flat screen TVs all day. Luxury items have gotten more affordable, but this doesn't change the fact 250% gdp growth has been captured by the top 20%, with only a fraction of those dollars have going the bottom 80%. The bottom 80% are include working professionals. Many engineering fields and accountants are making the same real income today as they did in 1980.

 

 

The speed of stratification has accelerated over the past 40-50 years. Movements like occupy wall street and the rise of mainstream far left political candidates indicates a course correction is imminent.

 

A lot of interesting posts - to bad the media doesn't report on the benefits.  I agree that a lot of talented and ambitious people come to the US.  Great opportunities and lower taxes. I think on a relative basis it should ideally remain a better deal to attract the entrepreneurs/skilled labor.  I know a bunch that have moved here from around the world.

 

Ross812 - a few comments:

Interesting that from the mid 1940's to the early 80's the Top 1% share of total U.S. Income was lower than today.  My theory is that the Big 3 auto companies, steel companies and others overpaid their union labor and then with an oligopoly pushed up prices.  Labor did really well, consumers footed the bill but it made many of the big companies badly uncompetitive (2/3 autos went BK, steel BK, etc).  The point being it was unsustainable labor payment.    I have no idea how big of an effect this had (if any).

 

Real average household income is worthless to me because 1.  It does not take account household size  2.  I don't believe it takes into account medical benefits, etc that are really compensation.  Per capita GDP is a better measure.  Pet peeve on this issue as liberals often quote this data to say

how bad things are but the data is bad.

 

I would be curious to see income breakouts looked back much further but perhaps there isn't great data.  Gilded age was likely more extreme.

 

 

 

 

[rb]

I would say that household income and gdp per capita are equally flawed (for lack of a better word) variables. They're both affected/distorted by demographics. Household income by the makeup of the household and GDP per capita by the makeup of the population.

[clutch]

Wealth inequality: South Korea

Wealth equality: North Korea

 

Choose carefully.

 

Those that think communist countries have wealth equality have never been (or studied) a communist country. People there are about as equal than the animals in Orwell’s Animal farm.

 

Everyone knows this...but a key message when the transition to communism is made is "the rich are evil, we need equality"

 

Exactly. I was pointing out what type society you will turn into if you accept inequality vs. pursue equality.

 

There is no place else in the world where the effect of capitalism vs. communism has been better demonstrated. Both North and South Korea have the same race, culture, religious background, climate, etc... After the Japanese occupation, the North actually had better infrastructure and factories as well as natural resources. Much of the South was also wiped out after the Korean war. Yet look where they stand now.

 

It's actually remarkable how the original leaders of South Korea chose the capitalism/pacific route where the tradition has always been to go along with China. Most of them were dictators by today's standard but their goal was to fight communism... which again proves the point that the political system is the most important factor for the betterment of the country.

 

 

[Castanza]

Yep, this is right. That's why you don't want inequality to become excessive.  If you're working hard and can't feed your kids and your child died because you can't afford healthcare, then there's a lot of incentive to say, "the rich are evil, we need equality."  Like, clearly your life sucks, so why wouldn't you attempt to destroy the system in the hope that what's rebuilt is better for you?

 

That's why the extremes of communism and capitalism are both problematic. You need to have inequalities so that people can strive for more, but not such great inequalities in an unforgiving system that it becomes clear that striving for more won't actually accomplish anything.

 

The way to stop that "the rich are evil, we need equality" message from materializing is by ensuring the system supports income mobility.

 

And income mobility is better achieved through more regulations, more license, more barriers to entry, higher taxes, and more red tape?

 

This is a very odd response to what I said. I was talking about income mobility, and you suddenly seem to believe that everything the government does is therefore about income mobility. (It isn't, you know. When the government prevents people from discarding cyanide into your drinking water, they're not doing so to increase income mobility.)

 

That said, some government policies can help income mobility and some government policies can hurt it.  Generally, America's pretty terrible at income mobility compared to almost all other western countries.  I think it's a major contributor to the completely messed up political situation America is in right now.  (If you like, read that to mean, "the rise of AOC" rather than "the rise of Trump".  It's the opposite sides of the same "no income mobility" coin.)

 

I agreed with your post. I was just highlighting some issues that can and do attribute to wealth inequality. But the government often seems to think that these implementations fix things. AMA is a good example of what I’m talking about. There is a premium and high barrier to entry to being a doctor in the US. Same with engineers etc. There is second and third order effects down stream from this type of structure.

[RichardGibbons]

I agreed with your post. I was just highlighting some issues that can and do attribute to wealth inequality. But the government often seems to think that these implementations fix things. AMA is a good example of what I’m talking about. There is a premium and high barrier to entry to being a doctor in the US. Same with engineers etc. There is second and third order effects down stream from this type of structure.

 

Fair point.