Income [in]equality - is it a bad thing? Why?

[MaxTheVool]

Something that’s come up several times in recent threads is that a poster of the more liberal stripe (including me) has mentioned income inequality as being a problem facing the US today, and a more conservative poster has disagreed, saying that it’s really not a problem.

So I figured I’d start a thread to lay out my position in a bit more depth.
First of all, it’s important to point out that income inequality, itself, is not really the problem. Nor, for that matter, is wealth inequality. If we start with a group of 1000 people and some are poor and some are middle class and a few are rich, and then one of the rich guys has a really great year and gets WAY WAY WAY richer, then hey, good for him, no one else was hurt by that, assuming he didn’t get richer by stealing money from other people or something. So when I refer here to “income inequality” it’s emblematic of, or symptomatic of, a variety of other issues that are, I believe, problems.
So, here are what I believe are actually important issues, starting with the most serious:
(1) Inequality of opportunity. I don’t mind people being rich. Heck, I like that. If you get super-rich and want to buy sports cars and yachts, good for you, the system works. But that tends to mean that your children, who did NOT work hard and did NOT build the proverbial better mousetrap, have a huge leg up in life over children who made the mistake of being born to poor parents. It’s pretty hard to see how that isn’t going to be the case to at least some extent in any non-dystopian society, but it’s still something that we should address. (This American Life had an absolutely heartbreaking episode last week talking about kids from a ghetto high school who were working hard to win scholarships to make it to good colleges, and how many of the ones who did “make it”, who got to college, were just totally unprepared to fit into that world and ended up failing and dropping out. Not, presumably, because they were dumb, or because they couldn’t work hard, because they’d already proven themselves to be the cream of the crop who did win scholarships to good private colleges despite their humble origins; but because they just had nothing in their experience to prepare them for what they were going to find there.)

(2) The vicious cycle of political influence. If there’s much greater income inequality now between CEOs and janitors than there was in the 1950s, but in the 1950s CEOs were just as smart and entrepreneurial and hardworking as they are today, then it’s likely (although not certain) that part of the reason for that increased discrepancy is changes in laws and regulations. Are those changes good or bad? Well, the CEOs presumably think they’re good. And because money buys political power and influence, the cycle (assuming there is one) becomes self-perpetuating. The political system in a democracy should be more responsive to 1000 janitors than 1 CEO. But if that CEO has 100,000 times the political power and influence of any single janitor it will not be.

(3) Breakdown of the social fabric. If there’s a small town in which there’s a factory, then we expect the owner of the factory to be richer than the janitors at the factory. As capitalists, we applaud that. But in the prototypical American town, the owner and janitors still go to the same church, send their children to the same public high schools, have picnics at the same parks, and so forth. The rich and the poor in that town still feel part of the same community, they know each other, they respect each other, they like each other. But if that income gap gets wide enough, then instead of richer or poorer members of the same community, you have entirely separate gated communities, private schools, and so forth. How can we function as a nation with a culture and an identity if different segments of our populace never even encounter each other? How can they have understanding and compassion and feelings of brotherhood for each other?

(4) Shrinking middle class. I list this one last because I’m not really confident about the numbers. But I think most of us have an image of America in which someone who gets a good solid middle job like a nurse or a teacher or a fireman and works for 40 years will be able to afford a house, and a car, and if they scrimp and save they’ll be able to send their children to college and take an occasional nice vacation. There’s certainly a perception that that is getting much harder. And it certainly seems related to income inequality, although of course it would be possible for the super-rich to get vastly richer without the middle class getting poorer or smaller.
Thoughts?

[Velocity]

I agree with a lot. Also, some income inequality is actually *necessary *for society. If brain surgeons are paid the same as fast-food workers, then few people, if any, would put in the many years of grueling study to become a brain surgeon.

[Unreconstructed_Man]

A major problem of income inequality (I assume you meant ‘Inequality’ in your thread title, not equality) is that, when it gets to a certain level, it depresses manufacturing and is injurious to the business cycle.

A man who earns 20 million a year isn’t spending 20 million a year. He only gets one haircut a month, can only drive one car at a time, can only live in one house at a time etc… Once he’s taken care of his every possible whim, he will still have 90% of his wealth left over. The vast, overwhelming majority of his money is going to go into stocks, hedge funds, bonds, and other saving tools. There it sits, generating possibly the most useless commodity in the world; more money for already very rich people.

The more money that the 99% have, the more goods actually get made and sold and the more jobs are created. That’s why unemployment benefits provide a greater stimulus than tax cuts for high earners. The money actually gets spent. If too much money is concentrated in the hands of the 1% then spending falls, and with it demand.

Case in point: As of 2012, the richest 400 Americans owned as much combined wealth as the poorest 150,000,000 Americans. When the poor have nothing to spend and the rich aren’t spending what they have it can only be bad for the economy.

[Ann_Hedonia]

I’ve always strongly disliked the term “income inequality” and I would like to see it replaced with the term “economic injustice”. It shouldn’t be about fixing the game so everyone scores the same amount of points. It should be about leveling the playing field.

[monstro]

Some people think the whining about income inequality is a “first world problem”. That is to say, poor people living in the US have it made, with their modern appliances and TVs and subsidized education and medical care. Some of them even have cell phones! The poor of today are a lot better off than even the poor of thirty years ago. Whining about income inequality is just a way to be Debbie Downer-ish on the success of American-style capitalism.

I disagree with this attitude. I don’t think income inequality is a trivial concern. I don’t think society is healthy when the policy-makers don’t live in the same milieu as everyone else. Why should our legislators care about protecting the environment or public health for all the rest of us, when they can afford to live in a cloistered sheltered bubble.

I work for a government environmental agency. My boss’s-boss’s-boss was recently invited to give a talk at a retirement center. If this place had been any other retirement center, she would have turned down the invitation. But no, this was the kind of place where the governnor’s parents might live. You just don’t say “no” to those kind of invitations. So those old people, by virtue of their $$$, were afforded special access to a high-ranking government official. That’s just not fair.

I think that pretty much seems up income inequality to me. It doesn’t promote fairness and the idea that we’re in this together. We need at least an illusion of fairness to keep everyone law-abiding and motivated. Ambition only happens when people can see themselves reaching their dreams.

[Stratocaster]

@Unreconstructed_Man

A major problem of income inequality (I assume you meant ‘Inequality’ in your thread title, not equality) is that, when it gets to a certain level, it depresses manufacturing and is injurious to the business cycle.

A man who earns 20 million a year isn’t spending 20 million a year. He only gets one haircut a month, can only drive one car at a time, can only live in one house at a time etc… Once he’s taken care of his every possible whim, he will still have 90% of his wealth left over. The vast, overwhelming majority of his money is going to go into stocks, hedge funds, bonds, and other saving tools. There it sits, generating possibly the most useless commodity in the world; more money for already very rich people.

The more money that the 99% have, the more goods actually get made and sold and the more jobs are created. That’s why unemployment benefits provide a greater stimulus than tax cuts for high earners. The money actually gets spent. If too much money is concentrated in the hands of the 1% then spending falls, and with it demand.

Case in point: As of 2012, the richest 400 Americans owned as much combined wealth as the poorest 150,000,000 Americans. When the poor have nothing to spend and the rich aren’t spending what they have it can only be bad for the economy.

This is wrong on so many levels, I don’t know when to start. Okay, I’ll start here: Is it truly your impression that investing in stocks and other “savings tools” is principally rich people making other people rich? Do you know who purchases most stocks? Is it your belief that money paid for stocks sits in a vault somewhere, unused?

[MaxTheVool]

@Unreconstructed_Man

A major problem of income inequality (I assume you meant ‘Inequality’ in your thread title, not equality) is that, when it gets to a certain level, it depresses manufacturing and is injurious to the business cycle.

Whoops, I definitely meant INequality in the thread title. Could a mod fix it?

And yes, I agree with your point. An economy with 1000 middle class people and 5 rich people is going to be much more healthy for ongoing development and spending than one with 1000 poor people and 5 really really really rich people.

[Kobal2]

@Unreconstructed_Man

Case in point: As of 2012, the richest 400 Americans owned as much combined wealth as the poorest 150,000,000 Americans. When the poor have nothing to spend and the rich aren’t spending what they have it can only be bad for the economy.

Perhaps more salient to OP’s points #1 and 3, out of these 400 a whopping 21% inherited their spot on the list wholesale, and most of the rest turned a large inheritance into a huger pile of money. Only 35% came from lower middle or middle class backgrounds - or in Forbes terms, inherited less than 1 million bucks from their parents, the poor beggars.
Also, there’s only one (1) black person in the entire list (in case you’re wondering, yes, it’s Oprah).

So, yeah. You tell me about social cohesion and equal chances.

[XT]

[QUOTE=Unreconstructed Man]
A man who earns 20 million a year isn’t spending 20 million a year. He only gets one haircut a month, can only drive one car at a time, can only live in one house at a time etc… Once he’s taken care of his every possible whim, he will still have 90% of his wealth left over. The vast, overwhelming majority of his money is going to go into stocks, hedge funds, bonds, and other saving tools. There it sits, generating possibly the most useless commodity in the world; more money for already very rich people.
[/QUOTE]

Seriously? You think that money invested in stocks, hedge fund and bonds (bonds??) is just sitting there, useless and simply is a little money making scheme for the rich??? :eek:

Which is why it’s really difficult to debate this stuff here on this board when this topic comes up over and over again.

Case in point: As of 2012, the richest 400 Americans owned as much combined wealth as the poorest 150,000,000 Americans. When the poor have nothing to spend and the rich aren’t spending what they have it can only be bad for the economy.

The poor have literally nothing to spend? And the rich aren’t spending any money and stocks, bonds and funds are worthless? They are just little money making machines for the rich, doing nothing else at all? Have I got all of that right?

[pool]

What about progressive vs. regressive tax, I’m honestly not that knowledgeable about the policies in place and would like to learn more, isn’t unearned income in the U.S. taxed less than the money people actually earned from people working a regular job? If so this seems incredibly unfair to me.

[XT]

(1) Inequality of opportunity. I don’t mind people being rich. Heck, I like that. If you get super-rich and want to buy sports cars and yachts, good for you, the system works. But that tends to mean that your children, who did NOT work hard and did NOT build the proverbial better mousetrap, have a huge leg up in life over children who made the mistake of being born to poor parents. It’s pretty hard to see how that isn’t going to be the case to at least some extent in any non-dystopian society, but it’s still something that we should address. (This American Life had an absolutely heartbreaking episode last week talking about kids from a ghetto high school who were working hard to win scholarships to make it to good colleges, and how many of the ones who did “make it”, who got to college, were just totally unprepared to fit into that world and ended up failing and dropping out. Not, presumably, because they were dumb, or because they couldn’t work hard, because they’d already proven themselves to be the cream of the crop who did win scholarships to good private colleges despite their humble origins; but because they just had nothing in their experience to prepare them for what they were going to find there.)

You can never equalize opportunity. If I’m born smart, or funny, or dashingly handsome (all of which are true of course) then I’m going to instantly have an edge over someone who isn’t those things. If I’m born in the US instead of, say, Somalia, then instantly I’m going to have greater opportunities, regardless of whether I’m born to poor parents or rich ones.

The other point here is that just because you inherit wealth doesn’t magically mean you get to keep it. Rich people become less rich people all the time, and whenever you see the stock market tumble you can bet that there are a lot of rich folks who aren’t nearly as rich anymore in the aftermath.

(2) The vicious cycle of political influence. If there’s much greater income inequality now between CEOs and janitors than there was in the 1950s, but in the 1950s CEOs were just as smart and entrepreneurial and hardworking as they are today, then it’s likely (although not certain) that part of the reason for that increased discrepancy is changes in laws and regulations. Are those changes good or bad? Well, the CEOs presumably think they’re good. And because money buys political power and influence, the cycle (assuming there is one) becomes self-perpetuating. The political system in a democracy should be more responsive to 1000 janitors than 1 CEO. But if that CEO has 100,000 times the political power and influence of any single janitor it will not be.

The adjusted wealth of the US and GDP has gone up orders of magnitude since the 50’s in the US. The average salary and standard of living for the average American, even adjusted for inflation and when coupled to benefits has also increase across the board int he US since the 50’s. The average salary for, say, a big ticket movie or TV star, or a professional athlete, even adjusted for inflation has also gone up in that time period. And the value of the average fortune 500 company has gone up immensely during that same time period, as has the perception, true or not that you need a super star CEO at the helm to really move your company forward today and you are competing with a relatively small pool of top shelf folks to get a top shelf CEO, thus inflating the price in a similar way to that of professional athletes today verse in the 50’s.

(3) Breakdown of the social fabric. If there’s a small town in which there’s a factory, then we expect the owner of the factory to be richer than the janitors at the factory. As capitalists, we applaud that. But in the prototypical American town, the owner and janitors still go to the same church, send their children to the same public high schools, have picnics at the same parks, and so forth. The rich and the poor in that town still feel part of the same community, they know each other, they respect each other, they like each other. But if that income gap gets wide enough, then instead of richer or poorer members of the same community, you have entirely separate gated communities, private schools, and so forth. How can we function as a nation with a culture and an identity if different segments of our populace never even encounter each other? How can they have understanding and compassion and feelings of brotherhood for each other?

I don’t know what to say to this, to be honest. There have always been and will always be barriers between various social groups. I don’t rub elbows with professional basketball players or movie stars, and I’m unlikely to ever do so (even if I were so inclined). I don’t hang out with the Mythbusters, sadly, so I’ll never get to spend time swapping anecdotes with Grant or sighing over Kari. I’ll most likely never get to sit and watch a movie with President Obama, despite voting for him twice nor get to yell at George R.R. Martin to hurry the fuck up with his next book, and he lives in my state.

(4) Shrinking middle class. I list this one last because I’m not really confident about the numbers. But I think most of us have an image of America in which someone who gets a good solid middle job like a nurse or a teacher or a fireman and works for 40 years will be able to afford a house, and a car, and if they scrimp and save they’ll be able to send their children to college and take an occasional nice vacation. There’s certainly a perception that that is getting much harder. And it certainly seems related to income inequality, although of course it would be possible for the super-rich to get vastly richer without the middle class getting poorer or smaller.

I suppose this depends on whether you are asking for self-identified ‘middle class’ or are setting some arbitrary amount of wealth or salary to say who is or isn’t ‘middle class’ as to whether it’s actually shrinking or not. My own WAG is that if you asked for folks who self identify as ‘middle class’ you’d find that the numbers are as high or higher than ever before (assuming you mean in the US and not in general with all of this), but that you could certainly cherry pick numbers and set arbitrary limits to show that it is indeed shrinking.

I suppose my main take on all of this is that income inequality is not necessarily a bad thing, and I don’t think it’s a major problem in the US. I think that poverty is certainly an issue, and one we should, as a society, be addressing a bit better than we are. I also think that, sure, many of the super rich could and should be taxed more and that, sure, they have access to powerful lobby groups and advocacy groups that allow them to leverage their wealth to distort the system in their favor, and that over time this has become an issue that should be addressed. But overall I think that the very thing a lot of 'dopers decry is something that makes the US economy so much more dynamic and powerful than just about any other nation on earth, and that this engine has been able to generate a huge amount of money and opportunities for people who live in this country. I do think that changes are needed, but I don’t want to kill the goose that laid the golden egg or destroy the engine that drives the economy and makes us such a great nation.

[MaxTheVool]

@XT

You can never equalize opportunity. If I’m born smart, or funny, or dashingly handsome (all of which are true of course) then I’m going to instantly have an edge over someone who isn’t those things. If I’m born in the US instead of, say, Somalia, then instantly I’m going to have greater opportunities, regardless of whether I’m born to poor parents or rich ones.

So does the fact that we can never fully equalize opportunity mean we shouldn’t even try to do what we can? For instance, I think that education should be publicly funded at all levels for everyone. That wouldn’t make everyone’s opportunity suddenly magically equal, but it would improve things a fair bit. So would funding schools on a national level rather than a regional level so that suburban high schools weren’t SO much better than inner city ones. Not that that would be easy to do, but it’s something that could be done without destroying capitalism.

Overall I’m a bit puzzled by your post. You seemed to have strong disagreements with every individual point I made, yet you summed it up by saying “I do think that changes are needed”. So… you DO agree that in fact there are problems? Because why would changes be needed if there were no problems?

The other point here is that just because you inherit wealth doesn’t magically mean you get to keep it. Rich people become less rich people all the time, and whenever you see the stock market tumble you can bet that there are a lot of rich folks who aren’t nearly as rich anymore in the aftermath.

Sure. And it is still POSSIBLE for people born poor to make it huge. The fact that there’s not an unbreakable concrete wall between rich and poor doesn’t mean that we shouldn’t be concerned about the barbed wire fence.

as has the perception, true or not that you need a super star CEO at the helm to really move your company forward today and you are competing with a relatively small pool of top shelf folks to get a top shelf CEO, thus inflating the price in a similar way to that of professional athletes today verse in the 50’s.

Even if it’s true that CEOs now are actually worth what they are paid, and I don’t claim to be enough of an authority on that arcane topic to really comment, my main point was about political influence. Money is power, so increasingly unequal distribution of money becomes increasingly unequal distribution of power. And don’t think that I’m some marxist saying this who wants to line the CEOs up and shoot them. It’s possible to be alarmed by the current state of capitalism in the US without wanting to destroy the system.

I don’t know what to say to this, to be honest. There have always been and will always be barriers between various social groups. I don’t rub elbows with professional basketball players or movie stars, and I’m unlikely to ever do so (even if I were so inclined). I don’t hang out with the Mythbusters, sadly, so I’ll never get to spend time swapping anecdotes with Grant or sighing over Kari. I’ll most likely never get to sit and watch a movie with President Obama, despite voting for him twice nor get to yell at George R.R. Martin to hurry the fuck up with his next book, and he lives in my state.

Again, I think you’re missing my point. What percentage of the children of the richest 1% attend public schools now as opposed to 50 years ago? Particularly public schools which have a diverse economic background? Do you think it’s unchanged? If, as I suspect, it’s vastly smaller, does that bother you?

I suppose this depends on whether you are asking for self-identified ‘middle class’ or are setting some arbitrary amount of wealth or salary to say who is or isn’t ‘middle class’ as to whether it’s actually shrinking or not. My own WAG is that if you asked for folks who self identify as ‘middle class’ you’d find that the numbers are as high or higher than ever before (assuming you mean in the US and not in general with all of this), but that you could certainly cherry pick numbers and set arbitrary limits to show that it is indeed shrinking.

I’d say, pick a profession, say, nursing or teachers. Is the general economic state of the average nurse or teacher (or firefighter or cop or manager-of-a-small-restaurant or any other occupation in the big zone that is higher status than waiter but lower status than doctor or banker) better now than it was 20 or 40 years ago? How likely are they to be able to afford a home? Save money? Afford college? If that’s unchanged, then I’m flat out wrong.

But overall I think that the very thing a lot of 'dopers decry is something that makes the US economy so much more dynamic and powerful than just about any other nation on earth,

But wasn’t that just as true, if not moreso, 10 or 20 or 40 or 60 years ago? It’s proven by history that we can have an awesome American-dream-providing economy without anywhere near the divide between haves and have-nots that we have now. Now, it’s possible that there’s no practical way to get there from here. And that’s a reasonable response. But I wasn’t proposing “hey, let’s do X and Y and Z”. I was just discussing whether this is something to be alarmed about at all. And I’m not entirely sure where you stand on that.

[Kobal2]

@XT

and whenever you see the stock market tumble you can bet that there are a lot of rich folks who aren’t nearly as rich anymore in the aftermath.

Actually the ludicrously rich are the ones most able to weather a stock market crash, even profit from it.
Having a large mattress of extraneous moolah to depend on and keep going, they can afford to keep their shitty stock and buy the undervalued stock of small shareholders, the better to either resell it at a huge profit a couple years down the road when the crisis is passed or simply have more dividends and more control of the companies from then on. As for stock that simply disappears because the companies crashed and burned, they feel much less of that sting since, again, they have a large estate to cushion it.

It’s the small shareholders and the Not_Rich_Yets, whose stock portfolio can represent most or all of their accumulated wealth and savings, that get the shaft.

[DinoR]

@MaxTheVool

I’d say, pick a profession, say, nursing or teachers. Is the general economic state of the average nurse or teacher (or firefighter or cop or manager-of-a-small-restaurant or any other occupation in the big zone that is higher status than waiter but lower status than doctor or banker) better now than it was 20 or 40 years ago? How likely are they to be able to afford a home? Save money? Afford college? If that’s unchanged, then I’m flat out wrong.

RN Median Income 1966 - $5,200 ($37,388.16 in 2013 dollars)
RN Median Income 2013 - $66,640
78% increase in purchasing power.

Teacher(public) Median Income 1960 - $5,135 ($39,829.91 in 2012 dollars)
k-12 Teacher Median Income 2012 - $53,090
33% increase in purchasing power

For those two professions the numbers aren’t only not worse, things are significantly better now than the 60s. While I’d submit that your test is overly simplistic, by that test and your own reasoning, you are quite wrong.

[Fear_Itself]

The invisible hand of the market will correct income inequality if it gets too extreme. The 1% will be dragged from their homes and immolated with burning tires around their necks. Even Caligula understood about bread and circuses.

[MaxTheVool]

@DinoR

RN Median Income 1966 - $5,200 ($37,388.16 in 2013 dollars)
RN Median Income 2013 - $66,640
78% increase in purchasing power.

Teacher(public) Median Income 1960 - $5,135 ($39,829.91 in 2012 dollars)
k-12 Teacher Median Income 2012 - $53,090
33% increase in purchasing power

For those two professions the numbers aren’t only not worse, things are significantly better now than the 60s. While I’d submit that your test is overly simplistic, by that test and your own reasoning, you are quite wrong.

Interesting. Although the math is clearly more complicated than that. Some googling suggests that the average cost of a house in 1960 was $12,700, and in 2012 was $220,000, giving your 1960 nurse far more ability to buy a house than your 2012 nurse. This link gives a similar picture for college tuition. All of which proves… I’m not sure what. That housing prices and college tuition have gone up way faster than inflation, I guess? Which doesn’t on the surface have much to do with income inequality. So… I dunno.

[The_Other_Waldo_Pepper]

@Fear_Itself

The invisible hand of the market will correct income inequality if it gets too extreme. The 1% will be dragged from their homes and immolated with burning tires around their necks.

Guess that means it hasn’t yet gotten too extreme.

[John_Mace]

@Fear_Itself

The invisible hand of the market will correct income inequality if it gets too extreme. The 1% will be dragged from their homes and immolated with burning tires around their necks. Even Caligula understood about bread and circuses.

Is that a prediction or a desire? Or both?

[Fear_Itself]

@John_Mace

Is that a prediction or a desire? Or both?

Just an observation from history, from which some refuse to learn.

[Master_Wang-Ka]

Income inequality has been around ever since Og had more rocks than Gurn did.

It isn’t going away soon.

My entire objection is based around two things:

1. “I am rich, but I must alter the playing field in such a way as to enrich myself, but interfere with others.”

2. “I will hire people to do jobs. I will work them like galley slaves, and disrupt their ability to get other jobs, or to better themselves, or to get an education, because I want them working as much, as hard, and as long as I can keep them working. But nevertheless, I should not have to provide any kind of benefits, or even pay a living wage, regardless of the nature of the work, its difficulty, or the number of hours per week.”