I’d like to know what the informed teeming masses of dopers have to say about this silly question: The per capita income of the U.S. is about $24,500, according to some govt. data. If every person in the U.S. actually HAD that income, how would people fare? Clearly a lot of lives would improve. Some would deteriorate, in terms of material goods and their accompanying lifestyles. But there’d be a lot of better off people at first. A husband, wife and their new child would have about $76,500 per year. The CEO of Exxon would make the same. So would a Senator. So would a fireman. So would a janitor. (hmmm, who would do certain undesireable jobs?) So would Alex Rodriguez. Just doing some mind babbling. So?
Actually, according to http://www.cia.gov/cia/publications/factbook/geos/us.html
The U.S. has per capita income of $36,300.
But thing is, if you leveled off everyone’s income, you would remove the incentive to work harder to make more money. Generally people who make lots of money do so because they are very productive, and generate at least as much as they make.
For example, the decisions made by the CEO of Exxon generate far more wealth than the work done by say a janitor. Thats why he makes more money.
Although, I do think it would be a good idea to limit the pay of elected officials to the per capita income; gives senators and representatives more of a incentive to increase economic growth.
DC: Generally people who make lots of money do so because they are very productive, and generate at least as much as they make. For example, the decisions made by the CEO of Exxon generate far more wealth than the work done by say a janitor. Thats why he makes more money.
Well, that’s the standard explanation, at least. Of course, if the janitor had as much input into the decisions about his/her own compensation as the CEO does, the janitor would probably have a pretty high salary too.
As for the OP: as nobody will be surprised to hear, I think that income/wealth inequality in the US is currently too high; and not just on bleeding-heart-liberal grounds, but for very practical reasons of general economic prosperity and productivity. Economies with vast divides between the haves and the have-nots generally don’t do as well as ones that are more egalitarian.
However, in my view (and, I suspect, the view of just about everyone else who responds to this thread), making incomes exactly equal across the board would be just silly, and would nullify a lot of the demonstrated benefits of market forces in an economy. Personally, the prospect of making a steady annual $36K or so would be a nice economic step up for me, but I can’t let personal considerations override my responsibilities as a reasonably intelligent citizen. So, nix on da zero Gini index, sez I.
just to clarify - I found the per capita INCOME after being sent to some site by the U.S. govt. server. The $36 K number in the above site appears to actually be the GDP - gross domestic product, I believe. And while it may be a better measure of one thing or another - I certainly don’t know economics, as you can see by my OP - I was thinking in the most simplistic of terms - income.
I’m not sure how society would function if everyone, working or not, got paid the same amount.
What would prevent every American from abandoning their job to do what they always wanted to do, like write a novel or travel?
Along these lines, an interesting recent book on the subject that I am currently in the middle of is The Winner Take All Society by Robert Frank and Philip Cook. The basic thesis is that the vast inequalities in rewards, even if “deserved” in some sense, lead not only to inequality but to considerable inefficiency in the economy, e.g., as too many try to “win the lottery” so-to-speak rather than pursuing tasks at which they might be more productive. So, in the end, the old tradeoff between equality and efficiency that has often been considered gospel may well not hold at all…They recommend policies that they believe can increase our society’s equality and in the process increase the efficiency & thus total amount of wealth.
As kimstu said, complete income equality is a silly idea, but more equality than we currently have in the U.S. would be an excellent idea.
As usual, jshore makes a lot of sense, but what I can’t figure out is how do we get there without causing more harm than benefit? Every means of accomplishing the reduction of income disparity that I can think of would be basically disasterous to our free market system.
I think this is kind of defeatist. The US already has some mechanism in place to reduce income disparity - a progressive income tax, and a social security system. These can be tweaked to alter the level of income disparity if desired, or other mechanisms can be introduced. Other free market economies have acheived quite different levels of income disparity without disaster.
The problem is not so much how to acheive the optimal level of income disparity, as how to know what the optimal level of income disparity is.
At least it’s clear that we’re not near that optimal level now. I guess that’s what prompted my OP in the first place, having read recently that the top 16,000 incomes in the U.S. equal the incomes of the bottom 20,000,000 (!)people. So I began to wonder what would happen if the field were more level, and how that might affect society.
Well, one simple thing would be making compensation over, say $500,ooo- non-deductable by the payer. Thus, large corps would have a good reason to not pay the CEO’s such obscene high compensation.
Next would be be to re-introduce the higher brackets, and also re-introduce the Estate tax.
Then, increase the “standard deduction” by, say- double, thus fewer folks would need to itemize, and poorer families would pay less taxes.
Now- I am not suggesting here we actually DO these things- but they would all work towards reducing the disparity of income.
Aside from the fact that the current level of income equality isn’t “nice”, do you have evidence to back up the notion that we’re clearly not near that optimal level?
Remember the Soviet Union? Their field was pretty level. That’s where we would be at, if every person in the nation had a guaranteed equal income.
In order to re-introduce the estate tax, we’d first have to get rid of it, wouldn’t we? The current plan to phase it out gradually, and then immediately afterwards reinstate it at the pre-2001 level doesn’t qualify as eliminating it.
Jeff
Hard to say. in todays economic structure, $24,500 is nothing. If everyone made roughly $25,000 then it stands to reason that market forces would make everything cost less.
I don’t buy that that income disparity makes people work harder, per se. No matter how hard you work, some jobs have a fixed raise structure. What income disparity does allow is for the market to attract employees into the fields that need them most. Shortage of engineers? Wages go up. Too many programmers? Wages go down or layoffs.
As for massive CEO salaries, that’s a diferent issue.
Yes, Jeff, I can give you a cite that you can refer to. It is the New York Times Magazine section about 3 issues back. The article provides a good deal of data to support the assertion that we have moved a great distance from when the gap was the narrowest - the post WWII years. We are back to, and actually beyond, the days of the early 20th century plutocracy. By the way, congress is just on the verge of totally eliminating the estate tax, despite that 10 year window that was built in. Stand by.
Ms. Smith - I imagine that market forces do have a large impact on wages in some parts of the economy, but it’s pretty easy to see where your example does not apply, too. e.g. - we have a huge shortage of teachers, and wages aren’t rising to attract them. We don’t need more entertainers, but those wages are rising anyway - e.g. today, the average annual salary of a professional baseball player is, I believe, $2,000,000.
Greater income parity for everyone. God, what a beautiful concept.
And while we’re at it, throw in some universal (meaning not contingent on income or other factors) safety nets and services. It works in other countries. Who gives a shit if it makes people work less hard? That is quite a sadistic outlook. Is that the most important thing in life – the more you knock yourself out the better a human being you are? Why is it so important to keep them on their toes? Human beings are not machines.
Overall morality would greatly improve if people had more job security and security in general. A subject I get very passionate about. But I have just discussed this very issue to death on another forum, and redundancy gets boring. It’s one of those things where I have so much to say that I don’t know where to begin…
Well, CC, about teacher salaryies not rising even though there is a shortage, it is because teaching is mostly a government job, and unless people are willing to be taxed more, the school can’t get any more money to raise their salaries. Government jobs in general tend to be less responsive to market forces than other jobs. As for multi-millionaire entertainers, you may think we don’t need anymore, but lots of other people think differently, otherwise why would they go to games, and buy all that merchandise and such. Also only those who want to see their entertainment pay for them and if a basketball player generates $4 million in profit for the team, why shouldn’t he be paid $2 million?
DC: Also only those who want to see their entertainment pay for them […]
Not necessarily true. Sports teams can frequently pay their players higher salaries because they don’t have to bear the full costs of the teams’ sports arenas and other expenses. Those costs are picked up by the taxpayers as a whole, not just sports fans.
It’s sometimes argued that subsidizing sports arenas is a public investment because it boosts a city’s economy, but the return on the investment is frequently not that good. (From a 1996 Houston Business Journal article, “Sports welfare” growing with more subsidies to U.S. stadiums.)
In short, it’s not economically sound to argue that very high salaries, as they currently exist for people like CEO’s, sports/entertainment stars, etc., are the result of pure free-market supply-and-demand principles. Markets don’t produce optimal pricing unless they satisfy a number of stringent conditions like perfect competition, full information, fully internalized costs, and so forth. Knowing that, I’m pretty skeptical about claims that thousand-kajillion-dollar salaries for glamor jobs like rock stars and sports players merely reflect the efficient operation of a competitive market.
CC: It is the New York Times Magazine section about 3 issues back. The article provides a good deal of data to support the assertion that we have moved a great distance from when the gap was the narrowest - the post WWII years.
What CC’s referring to is the 20 October 2002 NYT Magazine cover story by Paul Krugman, “The End of Middle-Class America (and the Triumph of the Plutocrats”.
Here it is online.
Yes, that is the problem (what is the optimal level)? How will our central planners figure this one out?
Hey, I know, let the market decide. Don’t like baseball players making millions? Don’t watch it on TV. Don’t buy the merchandise.
[sarcasm]
You say you don’t, it’s all those other dolts who are doing it? Well then, let’s just make a law against people spending their money on what they feel like spending it on. What do they know anyway?! Fools!
[/sarcasm]
I agree. No sports team, or any private business, or private person should get a taxpayer funded ride. But most of the revenue for salaries comes from television. It’s the power of a mass market that make them prosperous. If we only had 1 million people in the US, baseball salaries would not be the same, unless we all really loved baseball.
Only economic theory geeks (i.e. professors) think markets are perfect, etc. and not too many of them either. The free-market system does not have to be perfect to use supply and demand as the primary explanation for these high salaries. As I said above, the primary reason for the high pay of rock stars, etc. is that there are so few of them to so many of us who pay for their entertainment. It is simple economies of scale. The first Harry Potter movie made nearly 1 billion dollars worldwide. Over 100 million tickets sold (my estimate). Clearly a large part of the population felt that seeing the movie was worth $8 or so. Is that unfair that someone had a good enough idea that so many of us wanted to pay to see it? Hardly.
With CEO’s I think there are probably other factors besides supply and demand (but that is a part of it), but no one claims that markets are always in balance. Sometimes they go crazy. It happens all of the time. Remember the $5,000 beanie baby? The $300 .com stock? CEO pay will correct itself once enough stockholders demand accountablity. But stop and think for a sec how hard it must be to run a large corporation. I’ve been involved with very small corps and they are damn hard to make successful. I can’t imagine the challenge of a large one. And bigness does not guarantee perpetual success either. Plenty of large companies have completely failed or suffered miserably, and not just because of greed and stupidity either (Enron).
Paul Krugman is an economist, yes, but that alone doesn’t mean he is always right about economics. Economics is far from a precise science and there are many schools of thought. I’m not, by the way, implying anything about this particular article as I have not read it.