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[Guest Worlds Within the Margin]

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[matjone]

I spent some time teaching in a pretty poor neighborhood.  I think the lower class has been in a downward spiral for a long time.  Poor people can't afford to send their kids to good schools, those kids grow up and can't compete for good jobs or send their kids to good schools, and so on.  I have the feeling we're going to see some major unrest over this before it gets better.

[Vish_ram]

I really see some sinister forces at play

 

1) Take the case of lobbying by NRA to freeze minimum wage for fast food workers. The minimum wage for tipped workers, $2.13 an hour, hasn’t changed in 22 years. The low wage earners will start become a burden to society. Their children won't get good education, healthcare etc. This becomes a self-fulfilling prophesy

 

2) The systematic collapse of defined benefit plan across the board has shifted the financial/healthcare burden from companies to individuals. The corp reaped the benefits and top 1% own corp disproportionately. Middle class got hollowed out.

 

3) The corporations/PE etc lobbied successfully to reduce corp tax rates with all loopholes built-in. this benefits the top 1-10% at expense of middle class

 

I can go on and on. I think this is the beginning and things will get much worse. I'll be surprised if we didn't get a social revolution in next 20 years.

 

[moustachio]

Bad government policy is increasing income inequality. In America single mother homes are basically subsidized by the government. If you subsidize something, you will get more of it. So we get more single mother homes, and guess what? Married couples tend to end up quite a bit wealthier for a number of reasons.  Incentivize good choices and subsidize less bad choices and you will "magically" get less income inequality. This takes time of course, as this is generational stuff.

 

A large part of structural unemployment is due to many costs of employment being tacked onto employers...once again, due to government policy. Health care provided by employers? This was originally just a form of tax evasion, a way to give pre-tax benefits to employees to maximize their compensation. Now it is almost viewed as an entitlement for workers, and we have Obama care to make everything even worse. All benefits from employers giving medical care should be eliminated. Now, whether we would end up transitioning to a single payer system(which would be corrupted in America by special interests, and be one of the worst in the world) or a free market system, it doesn't matter much from an employer's perspective. Either way it lowers the direct cost of employing someone. There are a lot of other costs that are embedded in employing each worker that government policy could lower or eliminate(unemployment compensation, for one). Lowering the price of employing people should increase the percentage of people employed.

 

Another component of so called structural unemployment is lack of skills/training. I hear manufacturing mentioned often. Really though, who wants to spend thousands on schooling and lose two years of pay to get a job that pays only slightly more than many jobs that require no extra schooling? Employers can only pay so much and maintain profitability, and would-be students realize that a lot of these training programs and schools simply don't have a high pay-off and you still have to work hard in sometimes bad conditions. Everyone would have been better off if a would be high school graduate who otherwise might not go onto secondary schooling had the option of spending the last two years of high school in a trade school or other two year program. Heck it might even cost taxpayers less, and the student would have more marketable job skills and employers more potential employees. A potential win for everyone.

 

Just a few of my thoughts on this. I think the inept morons in congress won't make any improvements and income equality will get worse. That will lead to populists and leftists with much worse and destructive ideas than the above. The wealthy should take preemptive steps to try to prevent bad income equality even if they don't care about the lot of the poor/middle class. If they don't, people will scapegoat them and take their money. Self preservation in this case means helping out the people below you. 

[ERICOPOLY]

A. Gary Shilling thinks we'll get full employment once the deleveraging is over. 

 

Less than 5 years from now.

 

[hyten1]

people need not forget the massive increase in labor supply for the last decade or more from china/india etc.

 

 

[meiroy]

 

High inequality damages the general economy.

 

People at the very top side of the inequality save far more and consume less than people at lower income (as percentage of income). This means higher saving rate and lower consumption rate when the inequality is at its extremes, which in turns leads to slower economic growth, if at all.

 

 

There can be full employment and the inequality would keep getting worse.  It's more about policies.

 

 

[jay21]

I think that income inequality is mostly a vanity issue (i.e people believe the "wrongness" is the fact that someone has more than them as opposed to a deficiency in their standard of living).  The more relevant metric is the growth in the standard of living for all citizens.  Clearly, people have much better lives now and it seems that what is considered "normal" now would have been considered luxurious 15 years ago.  Examples: multiple cell/smart phones, cars, premium cable etc. 

 

What standard of living do you think the minimum wage should allow?  Does the fact that some people have much more money change that answer? 

 

I spent some time teaching in a pretty poor neighborhood.  I think the lower class has been in a downward spiral for a long time.  Poor people can't afford to send their kids to good schools, those kids grow up and can't compete for good jobs or send their kids to good schools, and so on.  I have the feeling we're going to see some major unrest over this before it gets better.

 

While I agree that the public school system is terrible, I believe that it is very possible to have upwards mobility from some of the below average schools.  If parents stress the importance of education, a child still has many opportunities to learn.  The access to the internet alone can give access to many different topics.  Look at the free encyclopedias, Khan academy, and other resources that a person could easily access.  A driven student can get an (above) average education from the internet alone. To your point, maybe some of the worst schools do not have access to theses resources, but I believe the vast majority of schools do.

 

2) The systematic collapse of defined benefit plan across the board has shifted the financial/healthcare burden from companies to individuals. The corp reaped the benefits and top 1% own corp disproportionately. Middle class got hollowed out.

 

The defined benefit plan is a horrible plan.  The liability is very uncertain and involves many actuarial assumptions.  Look at what happened to GM.  Also, along these same lines, I thought this article by Dave Merkel was great:  http://alephblog.com/2013/10/31/the-municipal-pension-payment-curve/

 

Ultimately, these plans can lead to extreme financial stress.  I believe that people should be responsible for their retirement and not companies, municipalities, governments, etc.

[Carvel46]

Billionaire wise hobbit Warren Buffet once told school reformer Michelle Rhee that the easiest way to fix schools was to "make private schools illegal and assign every child to a public school by random lottery." In England, the notion of banning private education—while highly unlikely—has long been a part of the political debate entertained by major-party candidates.

 

http://gawker.com/5943005/theres-a-simple-solution-to-the-public-schools-crisis

 

 

 

[siddharth18]

This video's pretty illuminating:

 

[BarbellStrat]

As a new poster, I will start off unconventionally by pointing out a potential flaw of mine.  A particular concern I have (to borrow from Larry Ellison) is that possibly, I used to think but now I just read “The Economist”. 

 

That said, this week’s issue of “The Economist” had two great articles on inequality in the US, primarily through the lens of returns to capital vs. labor (which modern economists still oddly abbreviate as K and L, in a nod to Marx). 

 

The problem I had with the CNN article is, like most things in the popular media, (a) it is overly reliant on anecdotes and (b) it seems to miss much bigger picture (meta?) concepts.  The thing about the old days in the US in the 1950s, is they are the old days for a reason.  Massive technological change has taken place in recent decades, and massive changes to global trade have occurred as well.  The CNN article seemed to basically miss technological change, the substitution by firms of capital for labor, or ex-US employees for US employees based on responses to relative differences in costs. 

 

That said, I thought a picture toward the end of the CNN article showing the average $ handout to food stamp recipients vs farm subsidy recipients was excellent, and much needed. 

 

In my view, there aren’t easy answers here but all too often people across the political spectrum substitute a complex reality with ideology and/or stories.  Psychology being what it is, I don’t really expect this to change though it’s a major problem. 

 

Here are the links to “The Economist” articles in the event that there are others interested. 

 

http://www.economist.com/news/leaders/21588860-labours-share-national-income-has-fallen-right-remedy-help-workers-not-punish

 

http://www.economist.com/news/finance-and-economics/21588900-all-around-world-labour-losing-out-capital-labour-pains

 

 

 

[DTEJD1997]

There are many problems with income in the USA. 

 

In HUGE swaths of America, education is simply set up as a wealth transfer scheme from taxpayers to the educators.  I would argue that almost all of the online "for profit" schools are like this.  A huge percentage of the regular brick & mortar "for profit" schools are like this too.

 

Then you have to look at the "non-profit" schools.  A lot of students are graduating with degrees that will not allow them to get a job that pays a sufficient wage to pay back their student loans.  While the outcome for their students is better than the "for profits" it is not too far behind...

 

There is now well over $1 Trillion in outstanding student loan debt.

 

Some universities now charge so much, I have to question whether it even makes economic sense to go to the school.  Even if the student graduates AND gets a decent job, there is no return on the education when you factor in the time spent getting it and the money paid, and interest on the loans.  There are now many schools where the yearly cost is $50,000 or more per year.  So you have a student who spends $200k to get an undergraduate degree.  If they borrowed that money and have to pay 6% or 7% interest, how will they repay it?  They could have interest payments of well over $1,000 a month!  That interest is not tax deductible.  In addition to having to pay the interest, how is a student going to pay off the principal of the loan?

 

Then you have to factor in the work they undertake to get the degree!

 

There was a report that it now more likely for people WITHOUT a college degree to own a house, than those that do have a degree!

 

This is most certainly going to lead to massive income inequality.  You can't have 23 year olds $100K+ in debt for education.

 

Then look at the cost of graduate schools, especially law school.  There are reports that 1/2 of the graduates from law schools will NEVER practice as attorneys.  There simply are no jobs for them.  Meanwhile, they are saddled with TREMENDOUS student loans.

 

This is but ONE example of how society is producing massive income inequality in the USA.

[turar]

The more relevant metric is the growth in the standard of living for all citizens.  Clearly, people have much better lives now and it seems that what is considered "normal" now would have been considered luxurious 15 years ago.  Examples: multiple cell/smart phones, cars, premium cable etc. 

 

I think phones/cars/cable are too superficial to be the right markers of the standard of living. It makes more sense to go back to basic Maslow pyramid: food, housing, health, childcare, education, free time with family, etc. Are these better or worse than 15 years ago?

[writser]

Is that true? It would seriously not surprise me if a decent number of people on the poor side of the equation would rather have a cellphone than some of the above .. Whether that is good or not is another question.

[APG12]

That is a good point, Jay.

 

In 2005, the typical household defined as poor by the government had a car and air conditioning. For entertainment, the household had two color televisions, cable or satellite TV, a DVD player, and a VCR. If there were children, especially boys, in the home, the family had a game system, such as an Xbox or a PlayStation.[4] In the kitchen, the household had a refrigerator, an oven and stove, and a microwave. Other household conveniences included a clothes washer, clothes dryer, ceiling fans, a cordless phone, and a coffee maker.

http://www.heritage.org/research/reports/2011/07/what-is-poverty

 

In my opinion the source of a lot of inequality is the Federal Reserve. The money they print clearly raises the income of those in the financial sector much much much more than it does the poor.

[Packer16]

The discussion is nice to talk about the problem but what can we do about it?  I think one way is to provide scholarships to students for those who are trapped in the poor education system.  This provides a path to some of those who have the potential and something we as individuals can do.  Although I think Buffets idea is nice in theory, in practice you run into roadblocks.

 

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[APG12]

The discussion is nice to talk about the problem but what can we do about it?  I think one way is to provide scholarships to students for those who are trapped in the poor education system.  This provides a path to some of those who have the potential and something we as individuals can do.  Although I think Buffets idea is nice in theory, in practice you run into roadblocks.

 

Yeah, scholarships do seem to be one good way. It's charity but it's not a hand out as it requires something of the recipient.

 

Buffett's idea seems completely insane to me. Education as a product is not any different than any other product. Making private schools illegal and drawing on a lottery is no different than making shoe manufacturers illegal and drawing a lottery for government shoes. What kind of shoes would you get? What kind of selection would there be? It kind of reminds me of Obamacare in that people think that insurance can be offered to 40 million more people and aggregate costs go down. As if there is something about insurance that makes it an exception to fundamental facts about reality (products have value and therefore have costs).

 

I really respect Buffett's investment acumen but when it comes to politics he is dishonest. Remember that claim he often makes that his secretary pays more in taxes than he does? Of course, he ignores the facts that all of the companies he owns pay tax, and then he pays tax on top of that. Buffett is a genius and he certainly understands double taxation so why would he make a claim that he knows is false? The only answer I can come up with is that he's dishonest in the realm of politics. As such, I take everything he says in this area with a grain of salt. His willingness to mislead on the topic of taxation colors my opinion of everything he says about politics.

[Ham Hockers]

Education as a product is not any different than any other product. Making private schools illegal and drawing on a lottery is no different than making shoe manufacturers illegal and drawing a lottery for government shoes.

 

Education may be a product but not all products are the same, right? You wouldn't solve problems in one industry exactly the same way as in another.

 

Also, do we really want to think about education as a product at all? It's fine to have massive "inequality" in consumer products like shoes. It doesn't seem like that's an acceptable outcome for educating our citizens.

[ERICOPOLY]

We already have public schools for all, but we're concerned that many of our gifted children are underserved.  So can we identify the gifted children pre-K and send them to special schools?  I know we have tests that can identify gifted children.  What is holding this up?

[Ham Hockers]

We already have public schools for all, but we're concerned that many of our gifted children are underserved.  So can we identify the gifted children pre-K and send them to special schools?  I know we have tests that can identify gifted children.  What is holding this up?

 

I'm not an expert (yet ... my kid is still in diapers) but that's more or less how it works here in NYC. And it's totally insane. But that might just be due to the sheer number of people living here.

[rmitz]

We already have public schools for all, but we're concerned that many of our gifted children are underserved.  So can we identify the gifted children pre-K and send them to special schools?  I know we have tests that can identify gifted children.  What is holding this up?

 

I'm not an expert (yet ... my kid is still in diapers) but that's more or less how it works here in NYC. And it's totally insane. But that might just be due to the sheer number of people living here.

 

Intelligence tests for kids pre-k are extremely non-predictive of eventual "giftedness".  I don't have the article handy but there have been some studies on this recently.  Locking kids into this pattern bbased on a static test very early is almost worse than doing nothing.

[ERICOPOLY]

That's too bad.  My kids who are gifted were correctly identified by our pediatrician  :)

 

Here is a video of the public elementary school where my kids go:

 

 

Complete with narration by one of the parents (Billy Baldwin).

 

[APG12]

Education may be a product but not all products are the same, right? You wouldn't solve problems in one industry exactly the same way as in another.

 

Also, do we really want to think about education as a product at all? It's fine to have massive "inequality" in consumer products like shoes. It doesn't seem like that's an acceptable outcome for educating our citizens.

 

Sure, I definitely see your point. However, there are certain principles that apply universally to every business. For example, it's not necessary to study the impact of a tariff on a specific industry to know that it's going to have all sorts of negative consequences. This is inherent to the nature of a tariff. If congress were contemplating a tariff on auto imports, there would surely be a group of people that would demand a study into the effects. The auto market is very different from the solar panel market which is very different from the cell phone market. To a pragmatist, there would be no way of knowing the effects on a specific industry. This is why it's so important to understand and apply principles in life. Principles are man's way of dealing with complexity.

 

So, 'you wouldn't solve problems in one industry exactly the same way as in another' is the wrong way to think about this. Apply the principles. We know that government intervention and regulations stifle people's ability to act based upon their conclusions, people's ability to innovate, and people's ability to enjoy the product of their labor. The effects in the education industry would be no different than the effects in the shoe industry. In fact, one would predict for the education industry exactly what we see.

[RichardGibbons]

We know that government intervention and regulations stifle people's ability to act based upon their conclusions, people's ability to innovate, and people's ability to enjoy the product of their labor. The effects in the education industry would be no different than the effects in the shoe industry. In fact, one would predict for the education industry exactly what we see.

 

I think that there's some value in looking at the evidence in Finland.  Buffett's basically right.  Effectively eliminating private schools and making teaching a respected, well-paid profession seemed to work pretty well there.

 

http://www.theatlantic.com/national/archive/2011/12/what-americans-keep-ignoring-about-finlands-school-success/250564/

[Packer16]

In theory he is correct but this is not Finland and in theory there is no difference between theory and practice but in practice there is.  You are also dealing with real peoples lives here.  I think there is a big difference between seperating gifted kids in a relatively wealth district and providing kids a chance in a failing school district.  The later is what I am referring to in providing the kids a chance.  Here in Rochester, our city schools are terrible.  The kids in high school do not even do homework and the teachers are dealing with so many distractions from bad home lives they barely have a chance at success.

 

As to ERICOPOLY's point about gifted kids, I am not too sure separating them into gifted classes is the best for them.  I have talked with parents here where that has happens and it can cause a culture of entitlement because the kids are smart.  This in part is what is causing the income inequality due to the fact that these folks will typically marry into there own group and have 2 high earners in the family.  How do you handle the late bloomers?  I was one of those.  I had a learning disability (dyslexia) and feel behind when I started out but caught up later. 

 

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