"Income inequality" and human capital

In My Humble Opinion
1

It seems to me that there’s a big problem with all the wealth coalescing into the hands of a few. First of all, it’s kind of obvious why this would happen :

  1. Rich people have the same human needs as anyone else, so they can spend a larger percentage of their income reinvesting
  2. Rich people get certain efficiencies of scale. They never overdraft at their bank. They pay fixed fees for all sorts of services, leaving more money to invest. When they invest in something, the transaction cost of their investment is less, so they get a larger net return.
  3. Rich people pay less income taxes as a percentage of their income, so richer people get richer faster than less rich people

And so on.

Anyways, the problem is, from a nation state level, if the rich have all the assets and everyone else has nothing, you’ve got a human capital problem. A nation as a whole would be wealthiest if all of it’s people were educated to the limits of their talents, all of it’s people were kept as healthy as known medical knowledge can practically make them, all of it’s people were not exposed to excess amounts of crime, environmental pollution, and could get access to high quality food in order to not be stupid.

The extreme case of the rich getting everything, you end up with Somalia. The uber rich have some nice stuff, everyone else lives in the dirt. The people living in the dirt can’t work hard and better themselves - they can’t learn anything, get access to modern tools, get better if they get sick, get good food, and criminals are around to victimize them and the cops ignore it.

To a less extent, you end up with Chicago. Same problem. There’s no money to send those people to real schools (universities), the cops serve the rich areas better, the residents can’t get access to real food (instead they get Sunny Delight and twinkies), medical care (the hospitals charge prices only the rich can pay), and so on. So it’s a perpetual spiral. North side of Chicago is where the rich people are who have everything.

It occurs to me that as a nation, we should be concerned that this is happening. “America” can’t remain the strongest nation in the world if a huge chunk of the populace is being under-utilized. Moreover, “the rich” have a vested interest themselves. If more Americans have university degrees and real jobs, can get access to medical care, etc, the nation as a whole will develop new technology faster and there will be more taxpayers to shoulder the burden.

I’m not saying we should be “redistributing” wealth. Though the conservatives probably would see it that way. I’m not saying we should tax, say, the rich in North chicago and just give checks to the poor in the south side. That won’t solve anything. But there should be more cops, and they should be less corrupt. Programs to get those kids real employment instead of slinging dope. The same forgiveness that rich kids get when they get caught with drugs, with diversion programs instead of instant prison. Cops should investigate drug dealing murders with separate units who aren’t concerned with the drug charges. And so on. All that will cost money, and yeah, it has to come from the people who have it.

2

I believe Marx and Engels came up with a cunning plan to combat this problem.

3

Didn’t Marx predict the end product of capitalism was all of the wealth being concentrated in the hands of just a few people? Looking at the various charts and graphs, that does seem to be what’s happening. At the present rate, by 2100 1 person will own the world and everyone else will have nothing! (not that extreme but close)

I’m just pointing out it’s kind of a problem. Obviously, a potential solution to this problem turned out not to work. Doesn’t mean you can just put blinders on and pretend the problem doesn’t exist because a particular solution failed…

4

The US maintains the 4th highest average net worth despite ranking only 19th in median net worth.

According to a CNN report, the US ranks fourth in average net worth ($301,000) but only 19th in median net worth ($45,000). “Americans’ median wealth is a mere $44,900 per adult – half have more, half have less.” This is due mainly to lower rates of home ownership in the United States.

Australia ranks second in average net worth and first in median net worth, and apparently most Australians own rather than rent their home.

http://money.cnn.com/2014/06/11/news…-class-wealth/

5

Rich people pay much higher tax rates than other people. The average effective tax rate after credits and deductions for all taxpayers in America is 10%. The effective tax rate for those making more than 250K per year is 22%.
The main problem is that income inequality does not have to mean poverty. As measured by the World Bank Pakistan has less income inequality than Japan. However since Japan is a much richer country the poor in Japan have it much better than the poor in Pakistan. If the rich get richer at a faster pace it doesn’t hurt anyone else as long as everyone is getting richer.

6

Everyone who does this calculation forgets social security/medicare taxes. Those are 15%. (you only see 7.5% visible on your pay stub as an employee, but the real tax rate is 15% - the “employer” is paying it. In reality, you are)

They go to 0 over a bit over 100k. That’s why the rich pay less, because 15%+10% = 25%(ordinary folks), which is greater than 22%(the rich). Also, the rich can make sure most of their gains are taxed via capital gains taxes which were a flat 15% for a long time. (it’s 20% now)

Also, a lot of the things rich people buy are not subject to sales taxes, fuel taxes, cigarette taxes, and other “regressive” taxes. There’s also a whole host of fines and fees that are the same amount of money whether you are rich are poor, so in practice they end up taxing the poor much more heavily. If a rich person gets 10 speed tickets a year, it’s a much smaller percentage of an income than what a poor person pays.

7

Everything you’ve stated so far strikes me as nothing more than class warfare.

Only the top percentage of:
[ul]
[li]Athletes make it to the pros[/li][li]Actors make the A-list[/li][li]Independent businesses succeed[/li][li]Students go on to higher education[/li][li]People create large personal wealth[/li][/ul]
And in every case the results are primarily from hard work. This is all just common sense. And any attempt to artificially change these things is doomed to fail or worse, create a miserably unfair dystopian society.

8

Rich people spend more as a percent of income on income taxes, however virtually every other tax hits the less. Sales, sin, payroll, etc. The end result is a fairly flat tax in the US.

Another major benefit to being rich is you don’t pay interest. A family starting out may spend 20% of income on interest. Student loans, mortgage, credit cards, car loans, etc. The rich earn money rather than spend it on interest. That’s part of the problem, the rich loan money to everyone else and get an even bigger share of the economic pie from it. The trend of increasing debt cannot continue.

A big risk is that rich people can use their riches to buy and influence the government, courts, media, police, military, schools, etc and co opt them for their service. They already have with the media in some ways, and definitely have with the government.

I’m assuming we will do what Latin America did. The worse it gets the more appealing socialism becomes. The media will tell us not to like it, but that won’t stop it forever.

9

All but the last one, unless you are going to underline create. As the OP pointed out, wealth tends to breed wealth even if the person spends all day in bed getting BJs from A-list actresses. At a certain point - perhaps $100M? - it becomes difficult NOT to get continually wealthier unless you’re a waster of colossal scale or a really gullible investor.

I’d agree almost completely with you for those who built their own wealth. Not so much for the growing class of descendants, inheritors and other “lottery winners” who are born with a silver Mercedes in their garage and will likely never have to work a day in their life for a living.

10

If you includeall taxes, the poor pay 17 percent of income, the middle class pays 25%, and the rich pay 29%. A rich person can only make sure their gains are taxed via capital gains if most of their income comes from capital gains. 80% of millionaires are first generation wealthy. They make money from work, not from investing.

11

If I build my own wealth, paying taxes as I go, will you let me give it to my kid?

12

I wasn’t aware it was up to me. :slight_smile:

Nor was I particularly judging the subjects - just disagreeing with the contention that wealth always comes from hard work the way academic and career success do.

13

I entirely agree with this approach. To solve the problem of poverty, we need to not look at the pocketbooks of rich people, but rather at government policies that hurt the poor. In addition to reducing prison sentences for minor crimes and shifting the goal of criminal sentences from punishment to rehabilitation, here’s a few more:
[ul][li]Remove regulatory barriers that prevent people from starting their own small businesses.[/li][li]Break up the public school monopoly, so that poor kids can escape from government schools that the government itself describes as failing.[/li][li]Promote alternative approaches to higher education. Few poor people can afford a 4-year university or even a 2-year community college. Focus on online education options that let poor people earn a degree while working.[/li][/ul]

14

Incorrect

[ul]
[li]Athletes require both good health and a good roll of the dice to have the raw ability to reach the top.[/li][li]There is considerable luck involved in acting - you need good looks (another roll of genetic dice), good scripts, the right connections.[/li][li]You can be history’s best buggy-whip maker but if your niche is outmoded by technological advances you’re screwed no matter how hard you work.[/li][li]If you define “higher education” as “college” then actually MOST students go on to that these days.[/li][li]People who inherit wealth - that roll of the dice again, “choosing” the right parents - have a head start on creating “large personal wealth”.[/li][/ul]

Yes, you need hard work in addition to all of the above, but let’s kill the myth that just hard work will get you ahead in life. Millions of people work very hard indeed, but have only meager resources to show for it.