How do we actually address rampant income inequality?

[Ruken]

@even_sven

2. That said, poverty isn’t really the problem when it comes to inequality in America.

Right, they vary independent of each other. Poverty is a real problem on its own to be addressed on its own. Although there may be overlap in methods. That said, the steps one can take to increase income and wealth are a lot harder if you’re not safe, commuting 3 hours, etc.

@even_sven

The real issue with extreme inequality is that it slows social mobility. And social mobility is a beautiful mechanism for making sure that the smart poor people get a chance to apply their talents and that the dumb rich people don’t end up in charge of stuff.

Without social mobility, you waste the potential of huge chunks of your population, which isn’t good socially or economically. And you end up with power being allocated based on who your parents were-- which isn’t always going to lead to the best outcome.

The most economically successful country is going to be the one where each individual is best able to reach their full potential, and extreme inequality is a force against that.

If Gregory Clark is to be believed, there’s not much to be done about mobility. Most mobility studies only look at 2-3 generations. There’s a lot of noise at that level. So you get bogus intergenerational correlation coefficients of like 2.5 for places like Sweden, which would erase all parental influence quickly. But most descendants of Sweden’s old nobility and other elites are still elite, and most descendants of the poor still haven’t broken through. And the coefficients he pulls are 0.7-0.8, the same as here. It’s hard to make things better than that through policy. Although you can make things worse (e.g. Jim Crow). We may still be making things worse.

[DSeid]

Let’s be very clear about what the problem is-

Wealth is power and after basic needs are met it is lack of power that is poverty.

Income, intergenerational transfers, and appreciation of capital assets once obtained, are the primary means of accumulating wealth and thus power.

Currently wealth and thus power is being dramatically concentrated within the 0.01%, and to a lesser degree the 0.1%. The rest of the 1% is at least not losing wealth but pretty much the rest of the spectrum is.

With that concentration of power in the hands of the very few more and more are relatively powerless in comparison, thus iPads and Galaxy Notes notwithstanding, are serfs. A few knights perhaps, but knights who are at the command of the very few Lords and Ladies. A slave who lived in the big house, got to wear nice clothes and eat well, was still a slave at the end of day.

The 0.01%? Predominantly from the world of finance.

Addressing the income gap is an important part of addressing the real problem but it is not the real problem itself. The real problem is the power gap that results from the dramatically increasing wealth gap of the 0.01% and maybe the 0.1% and the rest of us who serve as their serfs (some well fed, some not) in an increasingly feudalistic society.

And the Lords and Ladies? Not evil. Just a fair reflection of human nature. Some quite brilliant and some quite decent people. Some realize themselves that massive intergenerational transfer of that sort of power is bad for society and are instead using their power to accomplish societal goods instead. Doing that is frankly above and beyond what a cynic’s view of human nature expects. That some use their power to work towards concentrating more, for themselves and for their children, and towards competing with others in that class for more power … more expected … so long as the system fairly allows for it. Which they, with their massively increasing power, will work to increasingly allow it to do.

Larger estate taxes on those most extremely large estates is not primarily something that will raise lots of revenue, but it does decrease the intergenerational power transfer. It encourages giving it away to good works instead. And their next generation still has the capacities passed on to them by the values, habits of mind, education, work ethics, innate creativities and intelligences, and a still quite large seed fund, to make their own megafortune.

Investing so that all can have the education that can optimize their contributions to society (and thus achieve an ability to have some power within it) is good for society by addressing the power gap.

A return to a more progressive taxation system (over time it has become significantly less progressive) also works towards reducing that gap.

A modest transaction fee is not in fact going to raise huge funds, but it is a Pigovian tax, as rapid milling of stocks, currently often done by computerized programs with extremely short hold times, is of harm to economic stability.

But again, income inequality is not the major issue; power inequality and the resultant feudalization our society is. Increasingly one out of 10,000 are the Lords and Ladies. That differential is unsustainable.

[Pearl_Clutching_Provocateur]

@DSeid

The 0.01%? Predominantly from the world of finance.

Under Obama, I can’t think of a single Wall Street person who has prosecuted for the 2008 meltdown. (Madoff doesn’t count since that was a Ponzi scheme.) Can anyone on this forum justify this other than blame the Republicans?

When the subject of the Federal Reserve came up, my brain would shut off and I would think it was the obsession of tin foil hat Ron Paul types. But as I see people becoming obscenely wealthy by shuffling paper, I think there’s something wrong with the system. I always thought you became wealthy by providing an actual service or goods. What’s wrong with making widgets. And if your widgets are great and people love them, you became wealthy that way. Hell, even Bernie Sanders doesn’t want to audit the Federal Reserve in a meaningful way.

[puddleglum]

@DSeid

Let’s be very clear about what the problem is-

Wealth is power and after basic needs are met it is lack of power that is poverty.

Income, intergenerational transfers, and appreciation of capital assets once obtained, are the primary means of accumulating wealth and thus power.

Currently wealth and thus power is being dramatically concentrated within the 0.01%, and to a lesser degree the 0.1%. The rest of the 1% is at least not losing wealth but pretty much the rest of the spectrum is.

With that concentration of power in the hands of the very few more and more are relatively powerless in comparison, thus iPads and Galaxy Notes notwithstanding, are serfs. A few knights perhaps, but knights who are at the command of the very few Lords and Ladies. A slave who lived in the big house, got to wear nice clothes and eat well, was still a slave at the end of day.

The 0.01%? Predominantly from the world of finance.

Addressing the income gap is an important part of addressing the real problem but it is not the real problem itself. The real problem is the power gap that results from the dramatically increasing wealth gap of the 0.01% and maybe the 0.1% and the rest of us who serve as their serfs (some well fed, some not) in an increasingly feudalistic society.

And the Lords and Ladies? Not evil. Just a fair reflection of human nature. Some quite brilliant and some quite decent people. Some realize themselves that massive intergenerational transfer of that sort of power is bad for society and are instead using their power to accomplish societal goods instead. Doing that is frankly above and beyond what a cynic’s view of human nature expects. That some use their power to work towards concentrating more, for themselves and for their children, and towards competing with others in that class for more power … more expected … so long as the system fairly allows for it. Which they, with their massively increasing power, will work to increasingly allow it to do.

Larger estate taxes on those most extremely large estates is not primarily something that will raise lots of revenue, but it does decrease the intergenerational power transfer. It encourages giving it away to good works instead. And their next generation still has the capacities passed on to them by the values, habits of mind, education, work ethics, innate creativities and intelligences, and a still quite large seed fund, to make their own megafortune.

Investing so that all can have the education that can optimize their contributions to society (and thus achieve an ability to have some power within it) is good for society by addressing the power gap.

A return to a more progressive taxation system (over time it has become significantly less progressive) also works towards reducing that gap.

A modest transaction fee is not in fact going to raise huge funds, but it is a Pigovian tax, as rapid milling of stocks, currently often done by computerized programs with extremely short hold times, is of harm to economic stability.

But again, income inequality is not the major issue; power inequality and the resultant feudalization our society is. Increasingly one out of 10,000 are the Lords and Ladies. That differential is unsustainable.

What is your evidence that wealth is political power? 7 of the top 10 contributors to political campaigns are labor unions, yet they never stop squealing about the raw deal they are getting. There are only 3 billionaires amoung the 20 top contributors and they are not in sync as Sheldon Adelson gives only to Republicans while Steyer and Soros only give to Democrats. Silicon Valley billionaires spent millions trying to pass an immigration bill in 2013 and got nowhere. Immigration is an issue that the billionaires care about deeply yet the Republicans are competing to see who can promise a bigger wall, and even though Bernie Sanders is currently pretending to be pro-illegal immigration he voted against a 2007 immigration bill because it would cost americans jobs.
As for returning to a progressive tax system, the US already has one of the progressivetax systems in the world. The top 10% of tax payers pays the highest share of taxes in the OECD, 45.1%, which is 42% higher than the OECD average. The ratio of taxes payed by the top 10% to income earned is also the highest in the OECD at 1.35, which is 21.6% higher than the average.
Meanwhile social spending per poor person has never been higher in the US.

[puddleglum]

@Pearl_Clutching_Provocateur

Under Obama, I can’t think of a single Wall Street person who has prosecuted for the 2008 meltdown. (Madoff doesn’t count since that was a Ponzi scheme.) Can anyone on this forum justify this other than blame the Republicans?

When the subject of the Federal Reserve came up, my brain would shut off and I would think it was the obsession of tin foil hat Ron Paul types. But as I see people becoming obscenely wealthy by shuffling paper, I think there’s something wrong with the system. I always thought you became wealthy by providing an actual service or goods. What’s wrong with making widgets. And if your widgets are great and people love them, you became wealthy that way. Hell, even Bernie Sanders doesn’t want to audit the Federal Reserve in a meaningful way.

People on wall street are performing a meaningful service. They are connecting investors with companies who need capital and helping the companies that need capital to navigate the myriad regulations that govern finance.

[Voyager]

@Damuri_Ajashi

Almost everybody has the opportunity to succeed like brin and page. They are not the children of wealthy parents but they ARE the children of very smart parents.

I don’t know that you can really level the playing field of genetics and parentage.

Do you know their parents were smart? You can have smart kids from not so smart parents.
In any case, not everybody has this opportunity. They were smart enough to be grad students at Stanford, lucky enough to be working on a topic you can make a lot of money on (most students aren’t) and also lucky enough to be working on it in a place with access to venture capital. Even if my PhD topic were one that could be profitable there were no VCs within hailing distance of where I went to school.
Now, very few Stanford CS PhD students are going to be going hungry - but very few are going to make a bundle.
And to be clear, those guys deserve every penny they made. Some hedge fund managers, not so much.

[DSeid]

@puddleglum

What is your evidence that wealth is political power?..

… As for returning to a progressive tax system, the US already has one of the progressivetax systems in the world. …

First off, I did not limit to “political power.” The statement I did make, that wealth is power, is nearly a tautology.

How a wealthy individual or group exercises or does not exercise that power is another thing.

Some use that power to try to wipe out malaria. Some to exercise more political speech. Some to simply obtain access (often without having to spend a cent, because being wealthy is being powerful). Some to hire talent.

Yes, many less wealthy people can pool together (say via a union organization) and offset the political speech power of a relative handful of very wealthy individuals. And the powerful are not all in on a conspiracy with each other; they are not all of one mind.

The 100 biggest campaign donors gave $323 million in 2014 — almost as much as the $356 million given by the estimated 4.75 million people who gave $200 or less, a POLITICO analysis of campaign finance filings found.
And the balance almost certainly would tip far in favor of the mega-donors were the analysis to include nonprofit groups that spent at least $219 million — and likely much more — but aren’t required to reveal their donors’ identities.

But buying the opportunity to exercise speech is only a small part of power.
As to progressivity in the context of this discussion about inequality:

the U.S. tax and transfer system does less to counteract pre-tax income inequality than the tax systems of most of our peer countries … In addition to being less progressive relative to other countries, the U.S. tax system has also become less progressive over time. Over the last fifty years, tax rates for the wealthiest Americans have declined by 40 percent, while tax rates for average Americans have remained roughly constant. …

Specific to your top decile chart, I again point out … the top 10% has not been the beneficiary of inequality, not the top 5%, and not even most of the top 1%. The dramatic concentration of power has been in the top 0.1 and in particular the top 0.01%. The graph on that link shows how that plays out in tax code very clearly. As the article continues …

This decline in tax rates for the wealthy has coincided with an increase in income inequality, where most of the wage gains have been concentrated among a relatively small portion of the American people. For example, since 1979, earnings for households in the top 1 percent of the income distribution have risen by over 250 percent. At the same time, many households at the middle and bottom of the income distribution have experienced stagnating incomes or even declines in earnings (figure below, blue bars). This means that the very people who have received the biggest income gains in the past three decades have also seen the largest tax cuts …

And an OECD source. The U.S. is not alone in having become less progressive in taxation over time.

Last but not least, institutional factors such as changes
in tax policies have contributed to the rise in top
incomes and may have also driven the change in
compensation practices in turn. During the “Golden
Age” of post-war prosperity, pay norms used to limit
large wage gaps; but these norms have been gradually
eroded. At the same time, progressive income and
inheritance taxes, which drove a large drop of top
income shares between the 1920s and the 1970s, have
been substantially reduced in recent decades (see
Atkinson et al., 2011). While top tax rates were equal to
or above 70% in half of the OECD countries in the mid-
1970s, this rate had been halved in many countries by
the end-2000s. …

… The substantial reduction in top rates of personal
income tax that occurred in almost all OECD countries
over the last three decades has been closely associated
with rising top income shares. The decline in top rates
of income tax leads to a reduction in the tax burden
carried by high earners and thus increases their posttax
income. Higher disposable income makes it easier
for individuals to save and accumulate capital which
eventually increases incomes further. …

And of course increasing income further makes further accumulating capital/wealth/power easier …

[bump]

@Pearl_Clutching_Provocateur

Under Obama, I can’t think of a single Wall Street person who has prosecuted for the 2008 meltdown. (Madoff doesn’t count since that was a Ponzi scheme.) Can anyone on this forum justify this other than blame the Republicans?

Just what, exactly, are you going to charge them with? That’s the thing- they may have been greedy assholes, but there’s no law against that. And it wasn’t a tiny handful of mustache-twirling Wall Street types; it was someone who figured out a legal, if fairly sketchy way to package mortgage debt into securities, and then when everything sort of imploded, it turned out that these things weren’t worth the paper they were printed on, because a whole lot (most?) of the mortgages backing the securities were terrible subprime loans that ought never have been made in the first place. No law against that- the typical expectation is that someone loses the loaned money, because they took too high of a risk.

Problem was, there was little government oversight, and the whole risk assessment mechanism had kind of gone haywire because the actual loan originators were basically not being held responsible for these crappy loans (i.e. they were being securitized and bought up by someone else).

So this whole stupid thing heated up… probably because it seemed too good to be true / free money, and then like these things do, it all fell apart.

The problem was, it more or less cratered the US financial industry with it, as they had their tentacles too wound into it.

But none of that was illegal really, and certainly not in a criminal sense. That’s the thing- nobody did anything particularly illegal, just assholish, and that’s not something you can charge someone with.

[Damuri_Ajashi]

@Voyager

Do you know their parents were smart? You can have smart kids from not so smart parents.
In any case, not everybody has this opportunity. They were smart enough to be grad students at Stanford, lucky enough to be working on a topic you can make a lot of money on (most students aren’t) and also lucky enough to be working on it in a place with access to venture capital. Even if my PhD topic were one that could be profitable there were no VCs within hailing distance of where I went to school.
Now, very few Stanford CS PhD students are going to be going hungry - but very few are going to make a bundle.
And to be clear, those guys deserve every penny they made. Some hedge fund managers, not so much.

Yes luck was involved but anybody can get lucky.

I am assuming that their parents were smart based on their careers as professors and shit like that.

Sure average parents can have smart kids and vice versa but there is a genetic element to intelligence.

Hedge fund managers are usually pretty smart and they could better be using their god given talents doing much better things but the pay cut would be severe.

The rewards for being a hedge fund manager are already pretty high. We really don’t need to incentivize it more with favorable tax treatment. I don’t know any hedge fund managers that would quit being a hedge fund manager because their income gets taxed at the same rate as everyone else.