Why is supply-side economics and growing wealth inequality bad if living standards are better all ar

Great Debates
1

Relative poverty is measured as being less than 60% of the median income. The United States gets criticized a lot for its wealth inequality, but many fail to realize that the average poor American lives in a 1,400 square-foot house compared to the average European overall living in an 857 square-foot house. A lot of progressives don’t seem to realize that America’s poor in general is better off than the world’s average middle class and a lot of times even upper middle class.

While there is a little bit of extreme poverty, most of those in poverty in the United States are having their basic needs met. In China, if you make $5.08 worth of purchasing power in the United States economy a day, you’re not considered to be in poverty. Being the average poor in the United States is better than being upper middle class in China, I’ve heard anecdotally.

So does “wealth inequality” and how many people are in “poverty” even matter anymore when the poverty line is such a joke in the first place? I’m not the only one saying this. People in poverty themselves say they don’t feel like they’re poor. There are people using up all their food stamps on beer. A girl I dated last year, whose family was most likely in poverty, blew all her money that she earned from babysitting traveling the country to attend concerts of her favorite celebrities.

If this is the case, isn’t supply-side economics better? There’s no longer a need to sacrifice efficiency for equity since most people’s needs (even those in poverty) are being met, and by prioritizing efficiency, we can further maximize overall GDP growth and make our economy stronger and stronger worldwide. Plus, if we keep doing going with supply-side economics, overall living standards will keep getting better and better and not too long from now, even basically everyone in poverty will be able to survive and meet all necessities.

Now for Third World countries in Africa where poverty actually means something, of course equity should be prioritized, but why should wealth inequality be of concern in such a rich First World country where overall living standards are so much higher and the poverty line doesn’t really mean anything?

Also, this idea of America’s poor being better than the Third World’s middle class being a low standard is ludicrous but not as good compared to the poor of other First World countries. Of course, because the United States is a lot more capitalistic and libertarian compared to most First World countries, and therefore efficiency is being prioritized over equity, we are going to have more wealth inequality and perhaps in some areas they’ll miss out compared to the poor in those countries (probably the biggest one being universal healthcare). But actually it’s impressive that despite having a system that gives very little prioritization to wealth equity, America’s poor are still better off than most of the world’s middle class and even reside in bigger living spaces than median income Europeans on average.

2

Relative poverty is still a bad thing.

Living standards aren’t good enough for very many people. Hundreds of thousands of us live only one paycheck away from eviction. Hundreds of thousands of us have no retirement savings. Hundreds of thousands of us have no medical plan.

Meanwhile, the shabby bastard at Wells Fargo, who ripped of thousands of customers, retires with a multi-million dollar bonus.

This is what makes some people into wobblies.

3

A couple of thoughts. Say you are living in a 1,400 square foot rancher you like, surrounded by people in similar homes. Then someone buys 4 of those homes, levels them, and puts up a 10,000 square foot 3-floor home. Might this affect your sense of your home? If it might, then you have some sense of how wealth can be relative as well as absolute.

Second thought. Wealth buys more than homes. Those who have more wealth may be able to buy better healthcare, better education, better access to the political process, from changing those zoning laws to allow the big house to drafting your kid into the military. So in that sense as well, that wealth may be relative may matter quite a bit.

4

Well, among other things, wealth inequality makes the people on the losing end really mad, mad enough to threaten the overall stability of a society. See, for example, this blog post from last June, which more or less predicts the exact manner of Trump’s victory.

5

I have been a free market advocate all my life but I see serious problems where we can be easily extorted to one degree or another when it comes to things we absolutely need. Not only does it cost us more money, it also drives down our purchasing power and expendable or invest able income.
Same old things, healthcare, education, to a lesser degree energy. The word demand needs to be distinct from need when placing regulations on the markets. With current trends socialization of these programs is inevitable, most likely they would run parallel with current services.

6

Some good answers already given, but the short version is that wealth inequality is itself a very good measure of living standards, which is exactly why it’s used, and many of the other mercenary measures of “better off” are artificial and meaningless. For instance, that 1400 sq-ft. house doesn’t mean a lot if there are gang wars in the neighborhood, there is lead in your water, you might get mugged once in a while, your kid’s school is underfunded, his schoolteacher is an incompetent, and the school itself is a heroin distribution center. But that’s what it’s like when the wealthy consume the limited resources of the social commons, even in a rich country.

7

It’s not just living space. If you look at the above bullets, America’s “poor” is actually doing quite well off. And what do “gang wars”, lead in water, crime rate, and lack of funding for schools have to do with income inequality? Or rather, how can these things not be handled in spite of wealth inequality?

8

I guess it says a lot that you’re quoting from the Heritage Foundation and are not embarrassed by that fact. They cite the same kinds of useless mercenary statistics that you did, like microwave ovens and flat-screen TVs. These are not the determinants of quality of life, and only a dollar-worshiping right-wing extremist could possibly think they are. Nowhere did I see them cite the quality of life in poor neighborhoods like the quality of schools, the opportunities for real education and the opportunities they afford in later life, or access to health care, or freedom from crime and harassment or the opportunities for kids to grow up in safe and culturally enriching neighborhoods. The US is the richest country in the world and not only has one of the highest crime rates in the civilized world – and the poor are right in the middle of it – but the highest incarceration rate in the world. And in population-average terms it has among the worst and least equitable health care systems in the world, the only industrialized nation on earth without universal health care. Those are the consequences of the policies you advocate.

9

Wealth inequality is bad because it leads to inequality in who wields political power. The more inequality, the harder it is keep up a figleaf of democracy or believe there’s such a thing as shared citizenship. Long term it can lead to political and social instability, such as recessions or the rise of demagogues.

Adam Smith, the supposed high priest of capitalism, had this to say:

There’s a question on what theoretical levels of inequality should be, or how best to encourage investment. From what I’ve seen, most economists don’t think America is near the sweet spot. They’re more likely setting their hair on fire. YMMV, though.

10

A few thoughts:

  1. Even if things aren’t so bad now, which way is the trend going? Wealth and income disparity are getting larger. I think it’s fair to ask why this has been happening in recent decades, and whether there’s a point at which it becomes a problem, even if you don’t think we’re there yet.

  2. It’s about more than just material wealth. Rich people have more access to politicians, better services like schools, etc. Executives choose to send lower-level jobs offshore to save money, but their own jobs are safe from foreign competition.

  3. I don’t have cites at the moment, but from what I’ve read people are working harder than they used to just to maintain the same standard of living. You used to be able to afford that 1,400 sf house with just one family member working; now you need two. Seems to me that everybody is working harder and/or smarter than before, and we’re all helping to make the economy more productive. We should all be enjoying the benefits of that. The rising tide should lift all boats; if most people’s standard of living is just staying constant, that’s not good enough.

11

We have a (relatively) very wealthy nation overall in part because we don’t use supply-side economics. Under non-voodoo economics, the poor do much better than they do under supply-side economics. That much, at least, is relatively unsurprising. But under non-voodoo economics, even the rich actually end up doing a little bit better, too.

12

[QUOTE=R3d Anonymous;19829222 ]
There are people using up all their food stamps on beer.
[/QUOTE]

Absurd. EBT (foodstamps) has extensive restrictions on what can be purchased with the card. Alcohol cannot be purchased with foodstamps. Unless we’ve traveled back in time to the '90s.

13

Just to add to what Chronos said: There is no evidence that supply side economics maximizes the average GDP. Experiments (most recently in Kansas) have again and again shown it to be a failure.

Furthermore, there is some evidence / theories that extreme inequality actually leads to lower growth, so that in fact, there is not necessarily even a tradeoff between efficiency and equity. There was a good book written many years ago called the “Winner take All Society” that talked about this. There are all sorts of ways in which things get inefficient when the rewards go to such a smaller and smaller fraction of people.

Finally, it is useful to distinguish between median and average GDP. There is no strong reason to maximize average GDP…After all, you take a room with 99 homeless people and Bill Gates and the average person in the room is a billionaire. And, the fact is that, while incomes at the top have gone up handsomely in the last 30-40 years, incomes in the middle and bottom have been considerably more modest http://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality (although this past year, median incomes showed some nice growth: US Census Bureau: Real median household income saw the largest recorded increase in history in 2015, rising 5.2%, almost $3,000)

14

First off, the plural of anecdote is not data.

Secondly, you have postulated a scenario that is not credible/sustainable. If it were merely a question of living standards, I wouldn’t have a problem. Paper your bathroom wall with twenties, jump stark naked into a vat of ice-cold Roosevelt dimes. But what most people don’t realize is that, past a certain point, wealth is redundant and doesn’t impact the living standard of the owner. Buy all the shoes you want, you still only have two feet.

Therefore, what the wealth mostly does is sit on deposit attracting other wealth in a sort of analogy to gravitation. It “games the system” to tilt the rules to allow the accretion of more wealth, creating more power. Lather, rinse, repeat.

15

The poor in America can generally still afford public health (cleaning drinking water, vaccines, sanitation) as well as basic food. Those are the most important things to health and well being. People get sick and die fast when infectious diseases and famine are rampant.

However the poor in the US still have trouble affording things like education, health care. Actually, pretty much anyone who isn’t upper middle class has trouble affording those things, at least the health care one.

I wouldn’t say the poor in the US have it better than the poor in other western nations. Other western nations have free and reliable health care. Affordable college. Guaranteed vacations and paid sick days. Paid maternity leave. Even many in the professional class and upper middle class in the US lack these things.

Also, I’m obviously not an economist, but it was my understanding that globally there was at least 7 trillion in capital sitting around not being invested. I think that is just corporate cash, I don’t know if there is also personal cash on top of it, but I assume that figure doesn’t include wealthy individuals. But in that situation, why would supply side tax cuts help? The impression I get as an amateur is not that there is a lack of investment capital, it is that there is a lack of quality investments that are worth investing in. Creating more capital won’t fix that problem.

16

America’s poor are indeed doing fairly well, compared to what is considered poor in Africa or Asia or even America of 100 years ago.

I don’t get why supply-side economics should get the credit for this, though, nor on what basis anyone would assume supply-side economics would make things better still. “A girl I dated spent her money irresponsibly, therefore we need supply-side economics” … bwuh? There’s an excluded Step 2, here.

17

One concrete impact is that when things get too lopsided, you lose the benefits of meritocracy. Bright people from poor households lose their ability to grow and contribute to their full potential, while the dim-witted children of wealthy families are placed in positions far over their capabilities.

18

Basically income inequality will be taken care of one way or another. It always has been. Either through confiscatory taxation, war, or revolution. Take your pick.

19

This, plus most people don’t think in terms of how they compare to the rest of the world. Most Americans will never leave the US. Donating money to help out starving kids in Gribundi is the equivalent to prayer; something that makes you feel good, but that you don’t actually expect to have any real meaning.

So you still end up with Americans looking at other Americans to decide how “rich” and how “poor” everyone is relative to one another. And you still have people deciding how “fair” life is, based on social mobility and such.

When people think that things are too unfair, they tend to get violent. When people feel that they can’t move up the ladder, they tend to become corrupt - requiring bribes just to do their job, and using “favors” as currency - and slowly this could begin to affect the entire economy.

Communism is, by all means, bad. You do want a ladder to climb. You do want a reward for excelling at something. Technological advancement (and thus quality of life) probably requires income disparity of some form. And, you really get some massive corruption when there is no ladder, let alone the ability to climb it through honest means.

Ultimately, more isn’t better and less isn’t better. There’s an ideal level of income inequality which leads to faster economic and technological growth of the country, diminishes violence, and preserves meritocracy and honest labor. The goal should be to figure out what that rate is and figure out smooth ways to hit that number.

This is basically just the Laffer Curve. Too much is bad. Too little is bad. The ideal is somewhere between. The hard part is deducing where that is from the data. There are a lot of variables and laws which affect the same number, and very few countries in the world who are ripe for comparison, to try and pull out the real numbers. And, like the Laffer Curve, assuming that you’re above or below the ideal point, without doing that sort of math, is almost certainly stupid.

20

This is the real reason why interest rates are so low world-wide. All the large-scale profitable investment opportunities are already taken. Any new investment generally comes in Energy Exploration, Entertainment, or Technology (or some of both), and those are all extremely risky. There’s very little “there’s a huge untapped market for our product in Unobtainistan” left - it’s all been filled. There are few to whom the product is available that don’t already have it, want it, and can afford it, but it’s not available in their market or they don’t know about it. This is continually emphasized to me as I see Facebook ads for products that I literally cannot get additional utility out of buying more than I already have, like one for Pandora where I already pay for their premium service.