'Splain me "Income inequality"

In My Humble Opinion
1

All of a sudden the concern is income inequality. On its face, it might sound like a terrible thing; “Oh no! Some people have a lot more income than others!”

But some people will always make more than others…sometimes a lot more.

I decided to do a little research and think I found a pretty even-handed article here.

What I took away from is that the top 1 or 10% have more money than the same percentile used to.

Middle class earnings have increased at a steady rate.

The income of the poor has not increased over time, and poor people have more trouble escaping that stagnation than perhaps they should.

So the rich are indeed richer, the middle class is no worse off, and while the poor aren’t necessarily poorer, they are not progressing well in comparison to the middle- or upper-class.

How to fix the problem, then? Two possibilities come to mind: increase the social safety nets (unemployment, minimum wage, food assistance, vocational training, subsidized day care) to make it more likely for the poor to improve their lot and move to the middle class. This would require increasing taxes to pay for the programs, and amounts to a circituitous transfer of wealth from the rich to the poor. The second option would be a direct transfer of wealth; higher taxes on the rich, transferred to the poor through something like a guaranteed base living expense. Maybe there are more options I haven’t had time to think of.

Either method is dangerous because it can be framed as “class warfare”, and it really actually feels like an old problem re-packaged to push progressive ideas from a different angle. And maybe that’s what needs to happen, I don’t know. I’ve long since stopped being conviced that letting rich people keep their money will magically result in job creation that will lift people out of poverty.

Well, left a lot of open ends there and not trying to start a debate. Just attempting to wrap my head around this. So any insight would be helpful.

2

I never cared or had much interest in income inequality until I read “The Spirit Level: Why Greater Equality Makes Socities Stronger”. I highly recommend it.

3

Why not a third option - create an environment where there would be a sufficient number of good paying jobs. People would be able to pay for their own benefits and food without relying on a handout from the government?

4

Paul Graham sees income inequality as a good thing, provided those at the bottom are not living in absolute poverty. Relative poverty is not necessarily horrible; the poorest people in the US live better than most of the people in Ethiopia, for example.

I found his 2004 essay, “Mind The Gap,” to be a very interesting read. One big issue is that suppressing income inequality suppresses innovation. The final paragraph distills that issue nicely:

Look at what Elon Musk is doing with Tesla. If he didn’t have the potential to reap obscene profits if/when the company really takes off, it’s hard to imagine him deciding to take on that enormous risk/effort in the first place.

5

Yes it is, considerably so. Alternatively (depending on how you define “middle class”), there are proportionately much fewer of them, and, concomitantly, proportionately more “poor”.

This is only “dangerous” or a ‘bad thing’ in the context of the propaganda put out by the wealthy ruling classes in order to retain and increase their advantages. (The wealthy, of course, simply in virtue of being wealthy, have a disproportionate amount of control over the media, and thus have disproportionate influence on how political and economic issues are discussed and framed. It is, of course, very much in their interests to make any actions people might take that would leave them proportionately less rich sound like a bad thing, and they can hire the best minds to push their point of view. “Class warfare” really means “oh noes, they are going to take some of our money!”)

To say that concern about income inequality is “old problem re-packaged to push progressive ideas from a different angle,” is silly, incidentally. Income inequality (and, as they see it, injustice) has always been the most important issue for the political left. If it seems like a new concern to you, that is just because you haven’t been paying attention.

To be fair, though, you may have been hearing more about the issue from the mainstream (i.e., mostly capitalist controlled) media lately because the problem, the degree of inequality and injustice has lately been getting so extreme that even some of those not all that far to the left, and who have, up until now, been considered sufficiently safely conservative to be allowed a voice in the mainstream media, have begun to worry about it. Some of the sharper minds among the very wealthy themselves may also be worried about it, because they fear that if inequality and economic injustice go to far they may lead to social, political, and economic instability that will lead to the wealthy eventually losing even more than they would lose by a little judicious redistribution, to calm the plebs down, now.

6

Here is a TED talk by one of the authors, for those who don’t want to read the book. (But you should read the book!)

7

Your use of the word “obscene” is duly noted.

As to the rest of your post, yes, capitalism, which depends on at least a certain amount of income inequality (though not necessarily a huge amount) in order to function, does have some good good things that can be said about it, and while it continues to sustain a class of the very wealthy there will be no shortage of shills who will accept handsome remuneration from them in order to emphasize all its good points and play-down and obfuscate its (many and dreadful) bad ones.

Mind you, the notion that no-one would ever innovate or produce anything useful or beneficial to their fellow humans without the prospect of profit (obscene or otherwise) is nothing more than a lie which flies completely in the face of well known and easily observable facts about actual human psychology.

8

You should not read the Spirit Level. It purports to find that inequality if bad for the health of people in society as well as a few other things. The standard way of measuring inequality is the GINI coefficient and the standard way of measuring health is life expectancy. The Spirit Level does not use GINI and life expectancy because if you use the standard measures depending on which countries you include it turns out that they are positively correlated, so that people live longer in more unequal societies, or there is no correlation.
It creates strange definitions of income inequality and health to prove its point. If you look at the 11 most common ways to measure health: 1. Life expectancy at Birth 2. Infant mortality, Deaths per 1,000 live births, 3. Suicides, deaths per 100 000 population, 4. Cerebro-vascular diseases, deaths per 100,000 population, 5. Cancer, deaths per 100,000 population, 6. Diseases of the respiratory system, deaths per 100,000 population, 7. Diabetes, deaths per 100,000 population, 8. Tobacco consumption, % of population
9. Alcohol consumption, Litres per capita, 10. Obesity, percentage, percentage of population 11. Overweight, percentage, percentage of population, only two, obesity and infant mortality are negatively correlated with income inequality, while four of those are positively correlated. The authors of the Spirit Level engaged in data mining to try to prove their agenda, not engage in serious scientific inquiry. Here is a better overview of the data that shows there is no direct link between health and income inequality. It is by one of the world’s leading economists in this area.
Further if you look at what has happened over the last thirty years countries where income inequality has increased have had higher growth in life expectancy than those countries with smaller growth in income inequality.
They also claim that in the US states with unequal incomes have worse health outcomes. However if you control for demographics there is no significant difference between high and low income equality states in health outcomes.
If you would like to read more about this topichere is a pdfabout it.

9

You’ll pardon me if I find that less than impressive. Most of the poorest people in the US live better than imprisoned sex slaves (in any country) but I hardly think that’s a good yardstick either.

10

There’s a difference between “income inequality” and “wealth inequality”. Although income inequality is what generally what leads to wealth inequality. And a little bit vice versa. People with more wealth (capital) will tend to earn more off of their capital by virtue of investing it as opposed to spending it.

But why so much focus on what the 1% are earning and accumulating? Why not worry about what you, yourself are earning and accumulating? While the numbers have changed over many generations, this is not really a new phenomena for society.

So what if the wealthy are really really wealthy? Why must there be a redistribution of societal wealth? Why is that considered a problem?

11

As they should. I don’t want to live in a world where Derrick Jeter makes the same salary as the batboy.

It’s “dangerous” because it is based on a flawed assumption that you can make poor people wealthier by taking money from rich people.

You talk about “letting” the rich keep their money, but where does their money come from? if someone creates a successful company that employs a hundred people, makes a valuable product that people buy, what gives someone else the right to take more than his fair contribution? Keeping in mind that wealthy and middle class people already pay significantly more taxes than poor people simply because they have more income to tax.

Where income inequality has become an issue is with people like investment bankers, hedge fund managers and CEOs who make huge fortunes, but don’t really produce anything of value. And in many cases, their fortunes may have been created in a manner that is at best unethical and at worst illegal and fraudulent.

What compounds the issue is that these people are perceived to be (or are at least close to being) a closed hereditary class. By being born into families with the means and connections to send their children to the top schools or connecting with the right people who can put them into positions that will lead to greater wealth.

Wealth creation is also a virtual cycle much as poverty is a vicious cycle. It allows for better education which provides opportunities to learn how to manage and grow wealth and connect with similarly minded individuals. Disposable income can be invested in more revenue producing assets like real estate or businesses. Extra wealth provides more means to better ride out downturns. So IMHO, there is a tipping point where once you exceed a certain level of income or wealth, you can continue to grow it at an ever-increasing rate. If you’re smart.

12

Yay! :slight_smile:

Aw. :frowning:

13

THIS. Also, great wealth can be used to buy political power - and that political power, once gained can then be leveraged to pass laws which advantage the already-wealthy and disadvantage their would-be competitors. Without a level and fair playing ground, free-market economics become impossible. So high levels of wealth inequality, over time, destroy capitalism.

14

It is true that tinkerers will still tinker for the heck of it, and inventers will still invent. But those inventions and innovations don’t benefit many people unless someone endeavors to refine, revise, polish, and mass-produce them on an economically large scale - and that doesn’t happen unless some wealthy person or group has a huge pile of capital to invest - and private individuals will not put their entire net worth at risk unless there’s the potential for correspondingly large rewards.

It is true that people engage in charitable giving of their wealth or time with no expectation of finanical payback, but this is rarely done on the same scale as venture capitalists pouring financial resources into a new business interest. A retired doctor doing charity work in the third world is a noble individual - but if his multimillion dollar nest egg is invested in a risky startup company that is researching ways to produce medical supplies more economically, then he deserves to profit handsomely if they do succeed (since he will lose all if they fail), and in the process, the rest of us benefit from those innovations.

Shadetree hypermilers will always be tinkering with electric vehicles, but it takes large-scale capital to fund research that results in improvements in batteries and the ability to mass-produce an EV that will then be available to people other than just the tinkerers. If Musk hadn’t been allowed to become a billionaire through his business ventures, it’s doubtful whether he would have started Tesla Motors - or PayPal or SpaceX, for that matter. To paraphrase Graham, letting Musk get rich wasn’t so that he would hire a few of us as waiters for his next pool party; letting him get rich convinced him to create unique new ways for us to move money, satellites, and motorists around.

15

Actually I take that back. The more wealth you accumulate, the less “smart” you need to be as the consequences for failure are diminished.

The first million is always the hardest. But it’s a lot easier to make a million if you start with ten million.

Not just political, but economic power as well. To a certain extent that’s not necessarily a bad thing. If someone is good at creating wealth, it stands to reason that you would want to incentivize them to create more wealth. Where it becomes a problem is when they can use their wealth to influence legislators to enact self-serving laws.

16

The central issue is all wealth is relative. This is one of the fundamental tenets of the free market. If you pretend how much money other people has doesn’t matter to you, then you’re throwing out most of modern economics.

The basic idea of supply and demand is that there are only so many goods in the world at any given moment and we’re all in competition for them. There are goods you have and goods you want and you’re out there in the free market offering to trade one for the other. And everyone else is in the exact same basic situation doing the same thing at the same time. The only difference is they all have different sets of goods.

So if somebody else out there has a bigger set of goods they have an advantage over you in the free market. And because everyone is participating in the same free market, the two of you are competing against each other (and everyone else).

17

That’s true, but only when the two “wealths” you are relating are not too far apart. Comparing $1000 and $10M in those terms is exactly the same as comparing $1000 and $10B. Past a certain ratio, the absolutes on the high side don’t matter anymore.

18

It’s arguably immoral but how is it a flawed assumption? If I take a million dollars from some rich guy and give it to some poor guy, then the poor guy undeniably got wealthier.

But then you get into arguments about what’s “fair”. It’s sometimes true that wealthy people pay more money than non-wealthy people. But wealthy people pay a lower percentage than non-wealthy people pay.

I think the more significant tipping point is that if you become wealthy enough, you can afford to hire people to manage your wealth for you. In such a case, these managers are the ones who are doing the work and providing whatever benefits society receives from investment. The owner of the wealth is providing nothing to the process but is reaping the majority of the rewards.

19

No, you’re wrong. That was my entire point - we are all in the same free market. When you stop in a 7/11 to buy a Diet Pepsi you’re participating in the same economy as Warren Buffet buying a corporation - and the two transactions are connected.

20

You are not competing with Warren Buffett. Not in any meaningful sense of “compete”.