The point of the article is that the meritocratic system in this country is broken. In part this is because we have systematically transferred wealth out of the bottom to the top. For example, focusing on tax cuts that benefit high income individuals while cutting support for public colleges. These two things are usually done at different times with tax cuts usually to stimulate the economy and spending cuts coming to reign in budget imbalances. The result is that you could work your way through college in the 1960's by working about 20 hours a week. Now you'd have to work 40+ hours a week to pay tuition at a public university. The difference income throughout someone's working life between a college degree and no college degree is about 1,000,000 dollars. So the middle and lower middle income people don't see the benefits of tax cuts but they bear the burden of college tuition increases. And their long term earning potential suffers. And the country as a whole suffers because we have a less well educated work force.
You can repeat this pattern with a whole host of other programs and issues. For example, the minimum wage is still behind where it needs to be if it were adjusted for inflation. We're becoming a casino culture where people keep playing the game because they believe they're going to be the ones that turn out okay. For the most part, your ability to leave your social class is pretty close to zero, with the rich staying rich because their wealth can insulate them against bad decisions. The only real mobility for most people has been down.
I'd build on that to point out that the systematic transfer of wealth from the bottom to the top is not something that "we're doing", but simply the natural product of capitalism. It doesn't require an evil mustache twirler sitting in a dimly list room scheming about how he's going to systematically conduct a massive wealth transfer. Wealth transfer is the natural result of any system that rewards the deployment of capital with more capital.
There exist lawmakers that focus on cutting taxes on the rich and reducing access to education, health care, and economic opportunity. While they are helping to widen the gap between the haves and the have-nots, they're unnecessary--the gap would widen with or without them.
Wealth transfer is the natural result of any system that rewards the deployment of capital with more capital.
That's not what capitalism does, otherwise the Webvan investors would be massively wealthy.
It rewards effective deployment of capital with more capital. And it often rewards ineffective deployment of capital with less of it. So you can have massive transfers of wealth from "side to side", not necessarily from bottom to top.
Sure - but "effective" here is essentially a random variable, and the central limit theorem does the rest.
"Wealth transfer" isn't transfer to/from particular individuals. As a group, the wealthiest will tend to accumulate wealth faster than everyone else. Furthermore, it may be possible for individuals to enter/leave this class, but it gets less likely the further you are from the dividing line.
On the whole, though, it is fairly easy to make more capital with capital (e.g. tracking the stock market, at least in the medium term). And the more capital you have, the easier it is to make more capital. In general, having more capital offsets deploying it effectively.
Certainly there are clear mechanisms for wealth transfer from both bottom to top and side to side. What is more interesting to consider is: What are the mechanisms for wealth transfer from top to bottom? From what I can tell, that sector is shrinking – as mass deployment of labor diminishes in importance – and has little prospect of recovery outside of government intervention. Would love to hear some different perspectives on that.
This class of emergent behavior hypothesis of capitalism is a good point, but too much emphasis upon this behavior risks absolving and abdicating the agency all participants possess in democratic settings. It has always been pointed out that republican-type democracy only functions when both represented and representing participants continuously, actively engage the system and each other, making changes cautiously and introspectively. More than the economic system alone is broken; the political context it takes place within is arguably also severely missing vital transmission functions.
I'd build on that to point out that the systematic transfer of wealth from the bottom to the top is not something that "we're doing", but simply the natural product of capitalism. (...) Wealth transfer is the natural result of any system that rewards the deployment of capital with more capital.
That's true, as long as the rate of return on capital is bigger than the growth of economy. Otherwise, as the economy grows faster than capital brings the returns, capital owners own smaller and smaller part of overall wealth.
Unfortunately, throughout almost all known history, the rate of return on capital was greater than growth. The only exception was the brief period of the post-WW2 years.
I'd certainly argue that the tremendous disparity is impossible to have under purist capitalism and entirely free markets. Assuming your starting point is not where all societies actually start from (destitute masses and lavish rulers) but instead have everyone start out equally educated and wealthy. You also have to discount corruption of the state, which is another critical aspect to the extravagance of elite wealth.
In a natural economy from a flat start you have people funding the interests of those with entrepreneurial spirit to form businesses. Assuming you have some form of social organization where those with the means and wit cannot just inflict violence upon others to get what they want, what generally happens is that capitalists build industry to create goods everyone else wants, while paying others to work for them where they get more money from the labor than the worker gets in pay.
Naturally, the total wealth of the workers must decline while the capitalists profits rise. But the capitalists want more money, and the only way to really put their money to work is either internal investment in their own company, or funding the ventures of others. Rather than the base state group funding of an individuals venture, you have one or few wealthy sponsors funding new ventures.
That does mean that over time you get fewer and fewer capitalist entrepreneurs that are successful, because less money goes into making someone elses business dreams come true and more goes into making the established businesses stronger.
But in that natural capitalist market you cannot do many of the things modern American companies do to exploit markets and produce unnatural profits. All of which require the violence of the state to perform, which is why government is always a double edged sword - you need something to protect the people from violence in the first place, but that just gives the violence to an influencable, corruptable group, and money - especially concentrated - talks.
But it is much harder to get a monopoly in laissez faire system where you cannot use regulations and ordinance to block competition the way almost every major business in the US does. Be it (ab)use of the patent system, abuse of zoning, abuse of permits, abuse of straight up law, companies constantly goad politicians into giving them an unfair advantage.
In that free market if someone starts abusing their growing monopoly for profit it opens up infinite room for competition because the only barrier to entry to a goods or service market is the ability to produce it. That requires a whole economy of productive goods markets - but you can always fill the gap from the start wherever monopolies arise, and while you can have monopolies form, they cannot act against the market for long without opening up room for competition - they have to skirt the border where their goods and services cost just enough to disincentivize competition which means just below new-entry market rates, and that is after all extrinsic influencers outside price - business practices and ethics, employee retention and satisfaction, and general reputation. Look no further than Wal-Mart for an actual example of a business that competes at below market prices but loses significant business to its own awful reputation.
So my point is that while capitalists in a laissez faire system can perpetually concentrate wealth, it really cannot happen nearly as fast as it has in the last fifty years because you need regulation to capture markets as completely as so much of American enterprise has.
Wealth transfer because of the tax code occurs all the time, every day. Yet some here I can guarantee would scream bloody murder if they lost their piece of that wealth transfer. Two of which are easy, the ACA and EV tax credits, both transfer wealth but in different ways. The first from the young and healthy who usually are at the beginning of their income generating years and hopefully their lowest pay in their career to those at career and life end where they might have the homes paid for, retirement incomes, and more. Then the EV tax credit gives to people making purchases of cars beyond the reach of average workers.
What is the point? The tax code created this imbalance and continues to do so as it is the number one means by which politicians separate us. They play us off each other and the tax code allows the to reward or punish.
Simplify the tax code so that anyone with a high school education can see the money and that will lead to people clamoring for a change.
Which is why it will never happen. It is against every elected representative with voting power to fix the American tax code to do so because they gain significant power with a system nobody can interpret without significant mental and time commitments.
You basically have to elect a majority of honest politicians to congress all running on the platform of fixing the tax code, and if you managed to perform that miracle greater than walking on water while turning it to wine, you would still be conceding literally every other political position to them because you had to do the most insane systemic uprising of policy in American history since prohibition, and anyone elected to vote for that would have their own anterior motives and agenda to replace the power vacuum from losing the tax morass.
There are more EVs sold with an after-credits price under $25K than over $50K.
And there's an awful lot of people driving $25K new ICE cars, so I can't agree that the EV credit is mostly going to cars that are beyond the reach of average workers. (I also don't think that the average worker is financially well-advised to buy a new $25K car, but they're doing it in droves, so...)
Fair point, though those average workers who can do math and plan ahead would lease the car, where NMAC (or the competitors' equivalent) would purchase the car and take the $7500 federal credit as a cap cost reduction and the lease payments would reflect the full value of that credit.
I would be in favor of a simplified tax code, even if it takes away the mortgage interest deduction (mine is partially phased out already), the EV credits, etc (and especially if it gets rid of ACA as my health care plan changed dramatically for the worse and by an amount far greater than historically normal rate increases).
It's unclear that the mechanism you describe behaves as you claim.
Supposing that it's true that a college degree confers (typically, on average, whatever) an extra million over a lifetime career, what would happen if everyone did attend college?
Would that effect remain? If college educations become more common, they also become less scarce and valuable.
You talk about how affordable it was in the 1960s, but this is also a period when a relatively small portion did attend college. If we're willing to return to that rate of college education, the budget likely will make it possible to afford this...
Of course, the screams of institutional racism, sexism, and elitism will be deafening.
The Supply/Demand analysis of college degrees assumes that education is a fungible commodity. In some ways that's true -- because many technical skills developed in pursuit of a degree are intended to be generally applicable. But there is also broad economic value in an educated population beyond the instantaneous value of the credential. A college education is about creating value by obtaining an education.
The central challenge of college today is not that everyone is going, but that everyone is going into so much debt to do it. Most people will be able to service their debt (in part thanks to the higher average earnings they'll realize), but it is coming at the cost of delaying other purchases. New grads can't afford new cars, houses, weddings, children, or savings. And the fraction of borrowers who can't afford their debt become a drag on the economy because it is so difficult to discharge.
> But there is also broad economic value in an educated population beyond the instantaneous value of the credential. A college education is about creating value by obtaining an education.
Even if we assume this is true, none of your claims follow.
If it costs X to educate 10% of the population, it takes more than 2X to educate 20%. And that's only if the population is static. The population has increased since 1960, especially in the demographic we're discussing.
It's not so bad down in the 10% and 20% range, but once we start talking about universal college, it quickly becomes expensive.
> The central challenge of college today is not that everyone is going, but that everyone is going into so much debt to do it.
Costs have ballooned. No longer is it some spartan experience for the nation's managerial and elite classes, before they run off to their lives of gold-plated yachts and spas where they bathe in the tears of orphans.
Now college is something everyone's entitled too, and the dorm rooms no longer pack 4 students into something that looks like a closet. All those new buildings... someone must pay for them.
The price would be roughly the same even if those weren't paid with by loans, but rather with grants.
And since there is no relief from lowered enrollment, prices will stay high.
> Most people will be able to service their debt (in part thanks to the higher average earnings they'll realize),
Only the graduates. You should look at how many drop out after $20,000 or $50,000 worth of student loan debt. This number is significant, I do not know if it's half, but it's close enough.
This isn't a problem that can be fixed with "but those goshdarned republicans broke things, we need to return to the 1960s-era quasi-socialism and it will all go back to normal!". Those policies worked because so few attended college, attended colleges that were much different (and fewer) than today, and were already well within the upper middle class anyway.
That was my claim. To wit, that a college education is more valuable than the credential.
> If it costs X to educate 10% of the population, it takes more than 2X to educate 20%.
Why would the cost of providing education to more people increase as a multiple of the baseline costs?
> And since there is no relief from lowered enrollment, prices will stay high.
Restricting enrollment would increase costs as there is more competition among prospective students for the service. Students would have to outbid each other, not merely outperform each other to secure a spot.
> Now college is something everyone's entitled too... [sic]
An education is what we should entitle them to. As you note, colleges have been locked for decades in a competition for students by investing in new buildings, amenities, and sports with no regard for the effect on costs because of the price inelasticity of demand. And it has been a safe investment because student loans & grants have been so readily available.
The best price controls available to us are exercised by holding the institutions accountable for certain outcomes (like excessive dropout & loan default rates), by providing an equivalent service at a lower cost (something like Obama's "free community college" option), and by making student loan debt dischargeable like most other debts. The ready availability of capital is part of what has driven up costs.
> You should look at how many drop out after $20,000 or $50,000 worth of student loan debt.
The national graduation rate was approximately 60% in 2012 [1], while the national student load default rate was 13.7% in 2014 [2]. Students who do not graduate are several times more likely to end up in default, but it is still a manageable risk overall for investors because student loans are so difficult to discharge and because most people will eventually pay them back, and still worth it for students because they still have a positive net ROI.
Let's step back for a second and realize there's nothing magical about college. We can make the same arguments about the validity of a high school education. In fact, I can take your argument and say that providing everyone a high school education lowers every high school graduate's wages. We can then apply the same argument to middle school or any even providing any education at all. If we teach everyone to read and write, under your model, it devalues reading and writing. Because fundamentally, your model is one where there is a fixed pool of demand for educated people and beyond that any additional education add little additional value. And that is a completely wrong assumption.
The reason why education works is that it makes all parts of society function better. Having an educated population produces a higher functioning society. That's a society that, more often than not, is able to produce more wealth faster. In fact, it's in the enlightened self interest of society to have a broadly educated population. Basic research winds up driving GDP growth as science goes from the lab to products. Having more engineers and scientists is important, but so is having musicians, writers, nurses, and so on. All these types of education are important in a modern society. What's going on in the United States is that we are slowly short changing ourselves by making it harder and harder for people to get that additional education.
But in the process we're also creating a more stratified society. A lot of social mobility comes from the "first generation to go to college." By making college education less affordable, we keep people in the lower and lower middle classes that could have a transition up the income ladder from lower skilled, lower paying jobs to white collar professions. That's just one way we're becoming a society with little social mobility. American has moved away from the meritocratic American ideal. Now, even if you're an idiot, if you start out rich you'll probably stay rich. If you're poor, even if you're smart and capable, you'll probably stay poor.
And, it's only going to get worse while [1] 39% of Americans either believe they are already among the top 1% or believe that they one day will be. If your mentality is one of "Don't tax the top because that's me (or will be)", you're going to constantly vote against your own economic self-interest, and continue to support policies that help the real rich get ultra-rich.
Lots of things can temporarily boost your income by consolidating several years’ income into one big payment. Sell a flower shop you built up over 40 years for 150k and you are clearly not doing that well. Gamboling can be a net loss over someone’s lifetime and give them one very good year. Even just swapping jobs and seeing getting a few months of saved vacation in one big chunk.
The point is for the 88% of Americans never see the top 1% even after their biggest windfall that's a vast gap. And nothing says 1% is defined by their annual tax returns lifetime earnings adjusted for age are a much better link to someones finances than what they made last year.
PS: Sure, in theory Bill Gates was not in the top 1% while at Harvard, but his nominal income had little to do with his status. Don't forget his Mother was friends with the CEO of IBM that's serious connections.
And non-competition clauses are unenforceable in California. Yet other states wonder why no mater how many tax incentive they give business, silicon valley remains stubbornly in CA.
Those figures include people who had a lucky year. I'd like to see data showing what percentage of people who start out in the bottom 99%, and end up at any point in their lives spending at least 10 consecutive years (or until their death) in the top 1%.
When we talk about "the 1%" we are not talking about that one hit wonder salesman or small business owner who cashes out and technically has >$1M income in one particular year. We are talking about year-after-year sustained income.
EDIT:
There's no question that there are problems with the phrase "among the top 1% of earners". It's not well defined. I think, though, it's safe to say that when the Average American talks about "the 1%" as a class, he's not talking about the person who had a single good year and went on to have a normal income for the rest of his life. He's talking about the class of people whose income is high and sustained. When the average person says, "I'll be among the top 1% of earners" he's imagining himself as attaining continuing membership in an economic class, not predicting a single-year windfall.
That's not true. Most of my friends and aquaintences are software engineers or masters+ in some other STEM field. (Or are students of a similar caliber). The people you know aren't a good random sample. The top 1% tend to have more friends who are also top 1%.
The only way I can explain myself these numbers is heritage: Many people will at some point in their life have a heritage above typical yearly salaries. That information doesn't help much. We should find a mid-way between income, wealth and earning potential. Maybe "currently-expected-lifetime-earnings"?
an admittedly cynical view is that we can be sycophants and cowards, and so we want to feel that we belong in the most powerful group.
I think this is why some of us bash welfare, even though there isn't much evidence of fraud. if a little steals my one dollar bill and runs one way and a big guy steals my hundred bill and just stands there laughing, I turn and run after the little buy screaming 'Thief'! we know we've been robbed, but we're too afraid to confront the big guy
You honestly believe that people think "Don't tax the top because that's me (or will be)"?
I suggest people believe their jobs and technological innovations we all enjoy are on the line if the rich are taxed more. If that is true or not is a separate conversation, but I don't think it's 39% of Americans think they will reach the 1%. That's absurd and the kind of thing you hear in mass media sound bites.
Hacker News is far from just talking about startups and/or for people who expect to start one. I'm here to talk about tech. Startups are cool and all, but I wouldn't come here just for them.
Not sure why you are downvoted. Even pg admitted that their ROI are absurd, so they must (and can afford to) fund thousands of startups to have success at the current winner takes all digital economy.
The most telling polling result from the 2000 election was from a Time magazine survey that asked people if they are in the top 1 percent of earners. Nineteen percent of Americans say they are in the richest 1 percent and a further 20 percent expect to be someday.
Your arguing style is very sad. You make a suggestion and then when it is rebutted you don't try to refute it very well at all. Find the data and then you can make arguments.
There is an equality in possibilities, not in results. You can't blame anyone because you are bad in investments or can't do business. If you tax people who reach success, why not tax those who was failed? Let's redistribute bankruptcy, depression and suicides.
That's the problem though -- there is not equality is possibilities. Analysis [1] of a study from the Pew Research Center on economic mobility [2] found that you are 10x more likely to be in the top 20% if you're born there than if you're born in the bottom 20%. Someone born in the top 20% who doesn't go to college is still 2.5x more likely to have an income in the top 20% as an adult than someone from the bottom 20% who does go to college.
Moreover, it's worsened because life is more expensive in subtle ways as you move down the income bracket. [3] Even municipal fines -- as emphasized by John Oliver recently -- contribute to the problem.
Doesn't anybody else find the "equality of opportunity" and other phrases way too abstract for analysis?
There are many facets to how an economy functions and how individuals navigate it, and I think a proper analysis of the action on the ground is needed. For example how individuals learn skills and what prerequisites are needed in terms of access to information, ability to focus and think abstractly, and how one trains those abilities. This affects competition in the market, who gets rich, who gets an opportunity and so forth, and yet all the articles I see talk in these distant abstract terms, like they're appealing to someone in the government to fix it or something.
Another aspect is consumer responsibility and the way we tend to buy what we want but not think of the large scale consequences. People use gmail and facebook out of habit. They buy groceries in a big store out of habit. We use products dependent on petroleum yet expect someone else to fix global warming. Being interconnected and living in a rather fragile world where systems affect each other is not a responsibility us as individuals are ready for, and I haven't even touched on civic responsibility and the need for everyone to almost be lawyers and critical thinkers for law to function. There are so many complex interconnected parts and we always fall victim to the movements of the herd
This is analysis of results not possibilities. Having possibility doesn't means you have to use it. Having possibility to walk doesn't means you will walk same route and distance as an other person who has this possibility too.
Something is "possible" if we have an expectation that it might come to pass. How should we analyze possibilities except by looking at what actually happens? The premise of my counterpoint is that there is a probability distribution attached to what's possible, and that the distribution is not the same for everyone.
let me make pragmatic and ethical argument (about the ability of people to afford to pay taxes) that might help add some perspective that seems to be sorely lacking here.
we are morally justified in taxing success BECAUSE it is success. its not because we desire to punish or disincentivize success (and indeed we must take care not to tax it too harshly for this reason), but simply put, success generates surplus and we can tax surplus without causing outsize additional suffering. we are justified in taking from those who have extra because they have extra and can afford it.
on the flipside we are not morally justified in taxing failure BECAUSE it is failure. its not because we desire to reward or incentivize failure (and indeed we must take care not to make it too inconsequential to fail for this reason), but simply put, failure generates hardship and we cannot tax a person experiencing hardship without causing outsize additional suffering. we are justified in not taking from those who have nothing left bcause they have nothing left and cannot afford to have anything more taken from them.
do you understand the ethical dimensions of the argument now? what is most fair from a purely financial or economic point of view is not at all what is most fair from a humanitarian or ethical point of view. pragmatically speaking, we have need to generate revenue for the government and it makes the best sense to seek revenue from where money is plentiful, just because that's where the money actually is. its the same reason why consumer brands try to market to wealthier customers (because they have extra money that they can spend).
It seems like you think that redistribution == robbery.
I'm curious what is your preferred solution for financing public infrastructure. All private? Every street and sewer line is a company's property?
Even human societies like hunter gatherers redistributed food within their groups so some of them could concentrate on child rearing and basic tool making while others acquired food. Even if duties were shared, they couldn't all be done at the same time.
Redistribution of surplus was a major contributing factor which led to the specialization necessary to develop early technology like agriculture, which ultimately led to where we are today.
It was certainly a critical part of the creation of the American middle class and consumer culture after the second world war.
Taxation is not robbery. Taxation is a way to pay the bill of being a citizen of a place.
Your confusion may arise from the following: In a robbery, someone takes something from you. With taxation, an organization takes something from you.
The difference is, in a robbery, you get nothing back. With taxation, you are getting something from the government, so you're actually just paying for that.
Correct, your parents chose that for you, when they chose your place of residency when you were born. As a child, your parents had custody of you and the legal right to make that decision for you.
As an adult, now, you may renounce your citizenship and move to another place with no social contract; that is how you may terminate your obligations to the government where you live.
you're probably not going to convince a lot of people that taxing is robbery. that's an incredibly extreme point of view that is completely at odds with living in a developed industrial nation.
Is property rights completely at odds with living in a developed industrial nation? When you're threatening to force people to give up their property - it's a robbery.
I'm paying medical, education, internet and other bills. It's okay. If I don't want paying I just shouldn't asking for this service. But with taxation I can't not pay for things that I don't want. I have to pay NSA for skying me. I have to pay police for not having ownership of myself (can't do drugs, can't commit suicide - I'm just property of the state, not myself).
I always feel a number of important metrics are left out, either by accident or on purpose, when people talk about inequality. Most importantly when it comes to wealth itself, by most measures there is a very, very long tail of people with no wealth. 'No wealth' ranges from the most poor, to those living from paycheck to paycheck all the way to those who have as much debt as their assets. Many of these people are fine because, for example, their earnings potential over the next 40 years is good. They are wealthy in things like skills, social connections, etc. and they are certainly not comparable to someone with few skills, bad health and no money. The other issue is the longer term earning potential of top earners. Apart from the fact that companies are bigger and more global and that 'hits' can be bigger (like Kesha selling more records than The Beatles), the average tenure of a CEO has also gotten shorter and is around 5-7 years which usually can be described as the prime of their career, while the average worker can be anywhere in their career including eventually being a CEO one day.
>while the average worker can be anywhere in their career including eventually being a CEO one day
From the article:
> our indifference lies in a distinctly American cultural optimism. At the core of the American Dream is the belief that anyone who works hard can move up economically regardless of his or her social circumstances.
Aside from the factual error in the notion that there's more social mobility in the US than other countries, there is a difference between "anyone can become CEO" and "everyone will become CEO". If antebellum southern plantations had been structured such that one of the slaves might occasionally become the owner, it would not make it acceptable.
No I think you are wrong to want to include those metrics.
You are including people who are probably in the bottom 80%. And they may be fine in the long run. Certainly a large mortgage is not a terrible thing if you can pay for it. And they may make it to CEO but statistically they won't.
This article is about the top 0.1% and the fact that the slice of the pie owned by the 0.1% is increasing faster than the size of the pie. People aren't unhappy with other being wealthy (on average) but a system that means the gap is widening implies that something in the system needs to change.
Sorry to be negative but I think it's important to focus on the problem raised by the article.
It is worth noting that this trend is actually more common in history then what we consider normal (a large middle class, moderate income inequality). See Piketty's 'Capital in the 21st Century' for a comprehensive look at wealth ownership over time.
> Most importantly when it comes to wealth itself, by most measures there is a very, very long tail of people with no wealth. 'No wealth' ranges from the most poor, to those living from paycheck to paycheck all the way to those who have as much debt as their assets. Many of these people are fine because, for example, their earnings potential over the next 40 years is good. They are wealthy in things like skills, social connections, etc. and they are certainly not comparable to someone with few skills, bad health and no money.
the point you're trying to make here is completely tangential to the point being discussed in the article. the fact being reported on is that public knowledge about the size of the income and wealth gap is heavily flawed and most of the survey respondents used in the study believed things that were not true.
the fact that the population size (and correspondingly, the GDP) is larger today than it was 40 years ago has nothing to do with this.
Wow, the "ideal" wealth distribution based on what people want is simply nuts. If top quintile owns 35% and bottom two own 25% (perhaps 15% and 10%, respectively)...that means the richest would own 3.5x more than the poorest, on average.
(If you think this makes any sense at all, consider the median American has a net worth of about $45K. Having 3.5x that amount wouldn't allow you to retire, or even own a 3BR house in Minneapolis.)
A person's wealth should (hopefully) increase as they grow older and save more money. It's clear that the responders to this survey didn't account for that at all.
Yes, but the average net worth is 301k. It doesn't make any sense to look at median numbers when talking about uneven wealth distribution. Of course the median is going to be very low, that's the whole point!
That's the problem I had with the article as well. You might as well ask the average person what his ideal LDL to HDL cholesterol ratio would be.
I'm not prepared to accept the importance of the intuition of the average person in society on wealth distribution any more than I am to accept it on belief in god or taste in music.
The fact that someone is rich does not mean he took anything from you, no matter how poor you are. Statements like "If poor people knew how rich rich people are, there would be riots in the streets" are not only stupid but also dangerous.
Well, but it also does not mean that he didn't take anything from me.
Generally, the US tax code is designed in such a way that capital begets capital. Put differently, if you make money passively from the money you already have, you pay a lower tax rate then if you haul brick on your back, or teach children.
Is this taking? No, not directly, but indirectly, sure.
Feel free to head to Somalia then. I hear they have a wonderful libertarian system setup.
EDIT: Seriously folks, taxes pay for civilization. If you don't like it, don't work (so you don't have to pay) or leave. Roads, schools, fire, police, infrastructure aren't built with unicorn dust.
The context was the differences in tax rates, not taxes as a whole. You can support the concept of taxation while considering the State takes more than it should from certain groups.
Taxes in the US are at the lowest levels since 1941 [1]. OP I replied to commented that the State was taking from them. Of course the State takes. It provides the framework you operate in that allows you to make that income. If anything, taxes should be much higher for a number we should agree on (whether that's $500K/year, $1MM/year, or $10MM/year is TBD).
What group is the State taking "more than it should" from?
Apples and oranges. Ordinary income is not capital gains. If you buy your first stock, you are using money that was already taxed at the ordinary income tax rate.
I don't get why it is apples and oranges. Why is it fair to take 45% of the income I toil for, but it's OUTRAGEOUS to take 25% of someone's passive investment.
>If you buy your first stock, you are using money that was already taxed at the ordinary income tax rate.
Which is why we only tax the amount gained. I don't see why it should matter if the gain is an investment or working.
And a lot of my salary is a return on an investment that I made into my own education and training.
IMO, captial gains should be adjusted for inflation* and then taxed like any other income.
*you really do a have to adjust for inflation. Right now inflated gains (which aren't real) are taxed as if they are.
I hate this type of argument because it completely circumvent the point. The point isn't that if you're rich that means you've stolen something from the poor. It's the belief that the way our civil society is organized is broken, and plenty of riots have occurred for that reason in the past. The idea is that increased concentrations of wealth to an increasingly smaller percentage of people leads to a less innovative and content populace. And that we should be trying to avoid those trends, it's says something about what and who we value as a society.
So stop bringing up the strawman of "rich people are evil" when the article wasn't even trying to making that point. Can we have a discussion about income inequality without that bogus line of thinking?
Gosh, strawman is such popular word these days .. hey, at least look around you before you start speaking about what others believe. Here, right in this forum: "Unjust wages", "business is benefiting from work of others", "the filthy rich", "top 1% have made the rules to their favor", "economic output of the planet", "if they claim to own it then you can't freely use it anymore", "People don't get rich in a vacuum", "they get rich because of the thousand of workers in their offices and factories" ... these people are saying black on white that the rich stole something from them.
On the other hand this is the first I witness someone to cry strawman to pull a strawman, how creative!
Were you commenting on the article or some specific comments here? I'm not sure, but I thought your comment was talking about the article ...
If you want to take issues with someone specific views, then do so, but don't make a generalization like you did on a viewpoint that wasn't really even stated by the original post.
And posting some out of context quotes give me very little go on, the discussions you can have about this should involve a little more nuance than random text bites from user comments that come from people from all sorts of backgrounds and political leanings.
My general point, which seems to have been completely ignored in favor of attacking my use of the word 'strawman', is that discussing income inequality doesn't have to devolve into an us vs them argument, that it has a lot more to do with what sort of society we wish to foster and build. But you seem content in holding on to the former view.
If my income remained the same, and suddenly all of my neighbors doubled their incomes, I would indeed be economically worse off. Everything would start costing more: Housing, groceries, health care, education--anything priced by a market, because "what the market will bear" has increased.
While they're not technically "taking anything from you", when someone else gets richer, you indeed get poorer.
That depends on why your neighbors are richer, and how localized the efforts were.
For example, if your neighbors are richer because they've been developing food infrastructure, it's quite possible that your grocery bill has actually gone down, because food is more accessible and cheaper thanks to their efforts.
If we're just talking about one neighborhood, this is unlikely. But if we're talking about an entire economy, the poor people are quite likely to benefit as long as the wealth has come from developing the economy.
Finally a valid point! It certainly has effect on things like global prices of bread when the rich regularly throw away 20% of their fridges or use crops for bio fuels. But the discussion in this article is more about the top 1%, I doubt you compete with them on the same housing or grocery market. Certainly there could be a spill.
Rich people living in US got rich because of the healthy middle class who can afford to buy stuff (or get a loan to). They get rich because of the thousand of workers in their offices and factories.
So this is the way wealth is distributed in US. While the inequality is growing in all OCDE countries (and possibly all countries in the world), in US it's much higher than other countries.
>The fact that someone is rich does not mean he took anything from you
Of course it does. That's the definition of private property - if they claim to own it then you can't freely use it anymore. The creation of private property involves taking land that nobody owned and anybody could use, and using force to prevent anybody except the owner using it.
Wealth can be created, economy is not a zero sum game. Also you are confusing private property with land, 99% of wealth these days is created without the use of land.
Locations, the electromagnetic spectrum, minerals... these are all still very important, and all of these are land in an economics sense. If land isn't important anymore, I'll happily accept any donations of Silicon Valley land titles.
The allocation of money is about the same as the allocation of the economy's output. Someone's getting more out of it than others. If "him" disappearing from the economy would damage the economy more in dollars than he earns, then he's not taking your money. Otherwise he is. My guess is that the filthy rich add orders of magnitude less to the economy than they take out. Warren Buffet and Steve Jobs are probably exceptions, but I don't complain about them. Most CEOs are probably fine. It's inheritors that are the real problem.
The fact that someone is rich does not mean they took anything from 'you'. But the fact that there is such a disparity between their income and your income means they claim a much larger part of the economic output of the planet, and a much larger part of any increase in that output.
The planet does not produce economic output, individuals do. In totally free market everyones output would be proportional to his work x talent x luck. The market is not free and the rules are skewed but that does not mean inequality is on its own bad or that we should eat the rich. You still have democracy, you may blame the rich but in fact 60% of voters don't even bother to come (and most of those who do agree with tax cuts for the rich anyway).
They always rely on people all around them who engage with them, the people who came before them that built up the pool they're swimming in, the people all around them who maintain the pool today...
That doesn't diminish any individual's own effort; but to ignore the world around any successful person, when talking about their success, is a little nonsensical.
You could argue that they took something from other people by claiming a larger share of economic output for themselves. Something seems wrong when the largest share of economic growth goes to the top as we have seen over the last decades. And I believe this is not because of some economic law but because the top 1% have made the rules to their favor.
a) you have democracy, the top 1% are heavily influencing it but that is far from making the rules. 60% of Americans don't vote.
b) "Something seems wrong with..." -> http://en.wikipedia.org/wiki/Argument_from_ignorance
So where did their wealth come from? Most likely, they made it through 'business' - which usually means, through benefiting from the work of other, significantly less paid workers. The fact that our economic and political system permits this (and to the extent that it does) is not some natural phenomenon.
Workers are paid significantly less because that is the value of their work on the free market. Anyway, the important thing is whether they have equal opportunity to leave their shitty jobs and start business themselves and earn more through their genius (or loose their savings in free competition on the market).
Our economic and political system (mixed market capitalism) may not be natural phenomenon (what is?) but majority of voters prefer it to other systems.
Every time someone says "X people have a higher net worth than Y% of people COMBINED" I get very, very skeptical. Some net worths are negative. Some net worths are significantly negative. A homeless man has a much higher net worth than 8,000 people who just graduated from medical school with some debt combined. Relevant article.[1]
I think the popular conceptualization of economic inequality (effectively, "inequality is suffering") is misleading because it doesn't take marginal utility into account.
What I mean is, take the pizza-dividing example and suppose we have doubled the pizza. The inequality (expressed as the ratio of pizza owned to the available total) would stay the same but those with the smallest part of the divide would be noticeably less hungry than before.
In a world of plenty inequality would not mean suffering. More realistically, inequality would not mean (nearly as much) suffering in a world where a minimum slice of pizza was the birthright of a citizen.
Edit: This line of thinking is seriously flawed when applied to the real world. See drabiega's comment for why. metaphorm mentions some examples of where competitive costs may apply.
The problem with this is that many costs are inherently competitive. The pizza metaphor starts to break down here but I'll try to maintain it.
The problem is that share is a flow, not a fixed quantity to be divided up. Because of competition for resources, people are forced to use part of their share of those resources to compete for future resources. You've got to use part of your slice to ensure that you keep getting slices. When the pie increases but your share stays the same you need increase the amount of your share allocated towards ensuring future slices, meaning that the amount you actually get to eat diminishes.
Whether a basic income or even a basic job program is plausible under the current conditions in the US is very debatable (you can find yummyfajitas' criticism here on HN).
What I had in mind with my final remark is more about the future, i.e., "how to handle things when the machines take over".
> In a world of plenty inequality would not mean suffering.
This has a nice feel to it mathematically, but I suspect the reality is somewhat different. Access to non-scalable resources like land will remain problematic. In a world where money translates to power, if inequality is high, the power imbalance stays high.
this is a distraction. first off, why should we suppose we have "doubled the pizza"? I see no point in discussing abstract hypotheticals. We ought to stick to real world examples of the real world economy or else we're not really talking about anything meaningful.
you have a lot more work to do to establish that "the poor are not worse off in absolute terms". to conclude that you would have to take into account cost of living, inflation, quality of their (local, regional, and national) community, quality of their living situation, access to quality education, access to quality medical care, ability to meaningfully participant in civic life and governance, level of political participation and enfranchisement, and the impact of law enforcement and the criminal justice system. and that's hardly a comprehensive list, just a few things off the top of my head.
in other words, you really have no ability whatever to make judgments about the wellbeing (or lack thereof) of the poor if the only thing you're looking at is GDP (thats what your pizza pie metaphor represents, right?). that is a grossly inadequate measurement and drawing conclusions about the wellbeing of millions of people based on it is misinformed.
You want the economy to be top heavy. You want the best people managing the most money, and you want them to have the strongest incentive for managing it correctly.
When you have 10 billion dollars in capital and you are trying to figure out what to do with it, you want the people managing that money to be top-notch, 0.1% or better. And you want to make sure they have an appropriate amount of personal stake in the game. It's not necessarily fair to the 99% that they aren't given similar opportunities to manage that much wealth, but it's what's healthiest for the economy.
It's also healthy to heavily emphasize education, and make sure every kid is brought to their full potential. It's downright unhealthy to have an intelligent human being caught in a poverty spiral.
My point is that the emphasis should not be on the fact that we are a top-heavy economy. A healthy economy is going to be top heavy, potentially extremely top heavy. The emphasis should be on the bottom, where people are getting completely bottlenecked by their own poverty. The question shouldn't be 'how can we redistribute wealth?'. The question should be 'how can we give every person a proper education' and 'how can we make sure poverty does not get in the way of a person's creativity and potential?'
Nothing in the article explains why "economic inequality" is a bad thing. Which seems to be a logical pre-requisite to declaring it to be "worse than you think".
"Nothing in the article explains why it is a bad thing that x. Which seems to be a logical pre-requisite to declaring it to be 'worse than you think'"
It's quite simple: Some things you have to accept as a given, it's a shared social norm. No one will bother to write a paragraph why rape is bad each time an article about rape is written, no one will bother to write a paragraph why police brutality is bad each time an article about police brutality is written and no one will bother to explain why "economic inequality" (i.e. some people starve while others live in luxury) is bad. It would be cumbersome and tiring for most readers for the sake of a tiny minority to write articles in the style you seem to prefer.
If you have twice as much as I do, and both of us see our real wealth doubled, we would undeniably both be richer and happier. However, the entirely abstract, purely-on-paper metric "economic inequality" would also double. That, in a nutshell, is why the premise is dubious. If you would argue for sacrificing real-life prosperity in order to prioritize a purely abstract "KPI", you have to prove it.
That's assuming the thing you want to prove. (I'm sure there's a Latin term for that, but I don't remember it.) It's a logical error that Margaret Thatcher blew apart beautifully probably before you were even born. (Bing the video.)
The estate tax should be near 100%. We do not need dynasties. I don't mind people making the wealth, but they can't take it with them. It shouldn't just transfer to their children.
Consider the time, money and effort that people put into avoiding taxes under the current system. You would exponentially increase their incentive to do so.
Let's think about what would happen if this were to become reality...
When wealthy people were approaching death, they'd simply give their money to their heirs and only incur a gift tax.
Do you propose that we ban monetary gifts between family members or friends?
In that case, they would just hire their next of kin as advisers and pay them increasing portions of their remaining wealth. Then, they would only pay payroll taxes.
So next do we ban hiring family members?
In that case, they could set up a corporation, sell stock to their heirs, dump their fortunes into making the company valuable and the stock owned by the heirs would skyrocket. They could cash out and only pay capital gains taxes.
Your points are good. I think most people can agree that dynastic wealth is a social ill, but good luck trying to devise a loophole-free way to stop it. But the IRS is not fooled by things that look like a duck, swim like a duck, and quack like a duck. For example, they catch employers who try to pass off employees as contractors. I think if there was political and cultural will, our society is capable of stopping perpetual dynastic wealth transfer.
It's a losing proposition to even try to stop people from passing their wealth to their offspring.
People will tolerate some taxation but once it becomes too burdensome, they will find ways to avoid it.
That's the biggest problem with using tax policy for social engineering.
We would see an unprecedented expatriation of wealth.
If someone has a billion dollars worth of assets that they know will be confiscated by the US Government upon their death, they wouldn't keep it in the US. They'd structure their finances in such a way as to make it impossible or impractical for the US to get anything.
One could become partners with (for example) a Costa Rican shipping magnate in a company located in Costa Rica so that upon their death, the US government won't get any liquid recompense. Sure, they can take that 49% ownership in the hypothetical Costa Rican company but then they have to find a buyer. Who's going to pay dollar for dollar to the US government for an asset that is only useful as a wealth sink?
Do we ban foreign investment? What happens when the rest of the world retaliates and bans their people from investing here? Do we require government oversight for all investment decisions? That will certainly cure the problem of there being too many rich people. It'll make everyone poor.
The only way to prevent the generational acquisition of wealth is under a totalitarian regime and that is a far worse problem than modern day robber-barons.
If you believe in equality of opportunity, parents should not be the main source of provision for children.
Every time someone mentions "who will provide for your children if you don't leave an inheritance behind?" I immediately have to ask, "what about all the children whose parents are not able to leave them an inheritance (ie: most of them)?"
It seems that it is you who have not really thought it out. Here's Adam Smith on the topic btw:
> "A power to dispose of estates for ever is manifestly absurd. The earth and the fulness of it belongs to every generation, and the preceding one can have no right to bind it up from posterity. Such extension of property is quite unnatural." Smith said: "There is no point more difficult to account for than the right we conceive men to have to dispose of their goods after death."
Equality of Opportunity as defined legally has nothing to do with taking care of the children.
1) n. a right supposedly guaranteed by both federal and many state laws against any discrimination in employment, education, housing or credit rights due to a person's race, color, sex (or sometimes sexual orientation), religion, national origin, age or handicap.
Most human cultures are built on the nuclear family.. especially when it comes to raising children. I'm not sure what system you propose to replace that..
Adam Smith lived in the clouds. We live in a civilization where we have to consider actual use cases, transitions, exceptions, etc.
>> Most human cultures are built on the nuclear family
>> Adam Smith lived in the clouds
>> Family structures of one married couple and their children were present in Western Europe and New England in the 17th century, influenced by church and theocratic governments.[5] With the emergence of proto-industrialization and early capitalism, the nuclear family became a financially viable social unit.[6] The term nuclear family first appeared in the early twentieth century. [...] The concept that a narrowly defined nuclear family is central to stability in modern society has been promoted by familialists who are social conservatives in the United States, and has been challenged as historically and sociologically inadequate to describe the complexity of actual family relations.[8]
If you have some amazing Utopian plan where everyone has the same opportunities and equal chance to succeed at life regardless of which backwater hellhole they grow up in, please share.
I seriously doubt that there are a lot of young parents that are leaving more than $5,430,000[1]. Below that amount, it usually isn't necessary[2] to even file an estate tax return.
The idea that the estate tax ever applies to most people has been very successful propaganda for a long time. The estate tax should absolutely be very high, because the people leaving large amounts of wealth are generally the only people the tax would affect.
You assume that such wealth was earned in the first place which is rarely the case and is less so every year. The meritocracy is broken and will be so exactly to the degree that there is inheritance, the two are directly connected.
Inheritance is the exact definition of anti-meritocracy.
> You assume that such wealth was earned in the first place which is rarely the case and is less so every year.
Fair point. It's true that my statements only applied to individuals who earned the money themselves, and I failed to consider people who had themselves inherited money.
The wealth of the US at times shortly after the second world war came from the broad middle class. Today the wealth of the US is lying in the hands of the top 1% of the society. Something must have been happening in between.
In the European Union there is also a similar trend. There exist studies that today it is much more difficult for somebody coming from lower income (and society) levels to become rich than it was 40 or 50 years ago. There is nearly no exchange anymore happening, because today's rich can rely on the fact that their money will beget more additional money nearly automatically. Also times are over, where many people build their riches from scratch. Most rich people today are rich in the second, third or fourth generation today.
Low taxes on wealth and inheritance are doing their job. But also the fact that earning money by just having (enough) money costs less tax than hard working for money in Europe (in Germany, you will pay for your worked-for money (if you earn enough) up to ~40% on taxes and additionally you have to pay social security fees that can eat up an additional 20% (estimated) of your earnings. For money you got threw having money, you will today come away with 25% flat rate tax.
With such tax laws in action, you could come to the view, that letting work your money for you is more difficult than working in a factory and must be promoted by the state.
There isn't much of a practical difference between 1MM and 10MM or 10MM and 100MM. Or even 10K and 100K. It's not that there isn't any difference, it's just that (ignoring extreme scenarios like having to pay medical bills in the US) the difference is mostly a luxury.
But below a certain threshold, it's not a matter of luxury. It's a matter of being able to afford the bare necessities.
I don't make 100K/month. Right now I don't even make 10K/month. To be honest, I'd probably be able to cope (as I have had to in the past) with as little as 1K/month or less. But I don't mind if some investment banker or Fortune 500 CEO makes several orders of magnitude than me.
The problem isn't just that someone who works two full-time jobs can barely afford the absolute minimum of necessities. The problem is that making money is a requirement to have access to these essentials. We don't need more jobs, we need better social care. We don't need to cut rich people's wages, we need to eliminate poor people's reliance on wages to keep them housed, fed, warm, healthy and content (or "maintained" if that sounds less socialist and more business-y).
Minimum wage is a red herring. Minimum wages are (and should be) dictated by economical concerns alone. It's impossible to regulate them. You can dictate numbers, but that doesn't solve the problem they're meant to address.
Minimum wage jobs are not only useless because they can't pay for a living. They're also useless because they generally don't offer any opportunity for personal advancement. If you mop floors at McDonald's for a living, you're likely not going to turn that into a career. If anything, it's a stop-gap, but any effect it will have on your future occupations will likely have nothing to do with the actual tasks you performed (except maybe for a marketing sob-story if you make it big).
So separate the two concerns: give people what they need whether they have a job or not, and pay them whatever is economically sensible for any job they take.
Basic income and/or strong social services are a better solution than always trying to regulate businesses into supplying sufficient wages against market demands. If anything, the latter just encourages businesses to eliminate those minimum wage jobs entirely to reduce unnecessary costs.
You can't compete with technological progress. If you artificially inflate wages, that just makes the humans even less appealing.
I'd argue that there's a massive difference between 1MM and 10MM USD. The former is not enough to comfortably retire on at age 30 and heading up a household of 4.
If you mean being able to live comfortably without having to work, I'm arguing (for some definitions of "comfort") that's where you should start in the first place.
If you mean having a house, money in the bank, paying for your hobbies and taking regular vacations overseas, then that's what I'm arguing is a luxury.
Sure, if you define "luxury" as something that goes beyond your goal in life (say, having a reliable amount of savings to afford your lifestyle), then retiring with a yacht at 30 may possibly not be something you'd consider a luxury. But that doesn't change what I said.
I don't view retirement (in any shape or form) as "normal", unless medically necessary. But I also don't conflate unemployment and poverty. So you may very well decide to stop working at 30 regardless of your savings and prior income -- assuming you're guaranteed access to all necessities by default.
As far as I'm concerned, the only reason you should ever end up in poverty is if you have extremely unreasonable spending habits (e.g. gambling), and even then it's most likely an indicator of an underlying psychological or social problem than "your own fault".
In today's world, absent social security or other income programs, $1MM in a post-tax account provides about $35K in income over a 60+ year projected period of non-work (aka "retirement").
This is about 75% of the median income for families of 4 and has to cover everything (including rent, unless you take some of the $1MM and buy a house, reducing your safe withdrawal rate accordingly).
That's a fairly spartan existence, IMO. Proponents of basic income systems (which are certainly appealing emotionally and viscerally) need to account for how to give every family the purchasing power of millionaires, forever. That seems economically a non-starter, regardless of whether or not I think it would be awesome to live in such a world where every precious hour of my labor could be devoted to improving my family's comfort and overall lot in life instead of more than half of it going to "run the family".
I would love to see these types of metrics for other domains. I think any technical question about some distribution across the american population will produce results that contrast with reality, simply because people don't know how to reason about mathematical distributions or large numbers very well. This isn't to say that America does not have an issue with economic inequality, of course.
It isn't a zero sum game. The top 20% doesn't take away 84% of the wealth pie and leave the rest to us. They also create a lot of it. If fact, if the top 20% can create enough wealth for the whole country to live a good quality of life, that is not a bad thing.
Three things define American culture when it comes to economic values, decisions, and status:
1) The Lottery Effect
"...the other main reason Americans seem so unperturbed by the widening chasm between the rich and everyone else is what I like to call the lottery effect. Buying lottery tickets is clearly an irrational act -- the odds are hugely stacked against us. But many millions of us do, because we see the powerful evidence that an ordinary person, someone just like us whose only qualifying act was to buy a ticket, wins our favorite lottery every week. For many Americans, the nation’s rowdy form of capitalism is a lottery that has similarly bestowed fabulous rewards on the Everyman." - http://www.nytimes.com/roomfordebate/2011/03/21/rising-wealt...
2) Last Place Aversion
"that poor Americans’ antipathy toward redistribution might be due not to their desire to one day be at the top of the income distribution, but to their fear of falling to the bottom. We show that humans have a deep psychological aversion to being in “last place” -- recall the shame of being picked last in gym class -- such that individuals near the bottom of the income distribution may be wary of redistribution because it could help those just below them leapfrog above them." - http://www.nytimes.com/roomfordebate/2011/09/19/do-taxes-nar...
3) The Just World Fallacy
"The just-world hypothesis (also called the just-world theory, just-world fallacy, just-world effect, or just-world phenomenon) refers to the tendency for people to want to believe that the world is fundamentally just. As a result, when they witness an otherwise inexplicable injustice they rationalize it by searching for things that the victim might have done to deserve it. This deflects their anxiety, and lets them continue to believe the world is a just place, but often at the expense of blaming victims for things that were not, objectively, their fault." - http://en.wikipedia.org/wiki/Just-world_hypothesis
Hopefully articles like this will get more people to understand these things.
We have an inequality problem in our own backyard: the disparity in equity between CEOs, SVPs/upper management, and rank-and-file employees.
I remember all the stories of how google made 1000 millionaires at IPO. Wonderful! They built a powerhouse and were rewarded. But Larry and Sergey had BILLIONs between them. Possibly more than all the rest combined. Two people (plus throw in Eric Schmidt and whoever else).
We all just accept this huge inequality and take it for granted, spouting some rationale about risk, etc. I do believe the founders and earlier people should have higher reward, but not at such extremes.
Every time an engineer joins a startup as employee #5 and accepts .5% of the company, they are promoting this huge discrepancy.
Or it's far better than you think. What if the cause of the misconception of the true distribution is that standard of living is far closer than ever before, so the relative distance of wealth is less visible.
"Work hard enough" doesn't mean the same thing it did in the middle of the 20th century. The amount of resources available to the everyman today is orders of magnitude larger, be it tips on frugality or ways to supplement income. They don't really expand upon it in this piece, but it feels like they're using it in the "older" sense, i.e. simply working your job dutifully and being conservative with your money.
At least some inequality is the result of our choices. Meaning, Google's new CFO is going to make 70 mln. But, how many people would like to be CFOs? CFOs work crazy hours and have insane amount of responsibility - many people wouldn't want that tradeoff. So, should we somehow normalize inequality numbers for this phenomenon ?
Alternative title: Humans are bad at estimating things on logarithmic scales, and probably don't adequately factor in things like student loans and mortgage debt when estimating the wealth of the "poor"
Is it just me, or does the article contradict its own conclusion?
> They asked about 55,000 people from 40 countries to estimate how much corporate CEOs and unskilled workers earned ... the patterns were the same for all subgroups, regardless of age, education, political affiliation, or opinion on inequality and pay
> One likely reason for this is identified by a third study, ... that suggests that our indifference lies in a distinctly American cultural optimism
If 55,000 people from 40 countries make the same poor estimate of the reality of inequality then surely the affect of American cultural optimism is insignificant?
The 2014 research of 40 countries actually shows that Americans estimate a relatively high inequality of CEO to unskilled worker pay (a ratio of 29.6 compared to an average estimate of 10.0). However, the actual pay ratio for American CEOs is much much higher than in any other country's (354 - as mentioned in the article. The next highest actual pay ratio is in Switzerland at 150 times while most countries have a ratio below 100). The research states:
"American respondents (n =
1,581) in our data estimated the ratio of estimated
incomes of CEOs to unskilled workers to be 29.6, demonstrating
that Americans drastically underestimated the
gap in actual incomes between CEOs and unskilled
workers."
So, yes there is a significance in the figures for America both in terms of estimated inequality and actual inequality that shows that American CEO pay is significantly less egalitarian than other countries and Americans in general significantly less aware of this than other countries.
I think the keyword is "indifference." While everybody miscalculates the CEO - unskilled pay ratio, the article is implying the indifference caused by "American cultural optimism" is what prevents us from changing it.
That may well be true but there is a difference between 'ignorance' and 'indifference'. The former is relatively easy to measure but the second is not. In fact the study on social mobility that supposedly demonstrates this indifference doesn't mention the word. It simply shows ignorance of American's understanding of social mobility but does not compare these findings with populations from other countries.
Let's say that American's perception of social mobility was found to be significantly skewed relative to that of other populations'. Would that show more or less indifference? You could argue that the 'American Dream' cultural thinking leads more Americans to believe that the poor can become rich and at the same time more passionate about ensuring that that is indeed the case. The fact that it blinds them to the reality does not imply that they don't care.
I would love to know why my questions trying to critically analysing the claims made in the article should be downvoted? I've made some pretty un-constructive comments on articles in the past but I don't think this was one of them?
Europe is unequal, not quite as much as the US, and yet they are implementing austerity. Why? Because capital needs to flow to where it is most useful. If it does not your economy suffers and everyone loses.
This is a well-intentioned advocacy piece. It would be at home on the Op-Ed page of the New York Times, the Washington Post or even the Wall Street Journal. It seems much of the reporting in SA has gone the way of editorializing the flavor of the month rather than reporting on well, science.
You can repeat this pattern with a whole host of other programs and issues. For example, the minimum wage is still behind where it needs to be if it were adjusted for inflation. We're becoming a casino culture where people keep playing the game because they believe they're going to be the ones that turn out okay. For the most part, your ability to leave your social class is pretty close to zero, with the rich staying rich because their wealth can insulate them against bad decisions. The only real mobility for most people has been down.