As you may gather from things I've written here before, I don't particularly care very much about whether 1% of the population has a really large portion of the wealth in the country - or if it's just a handful of exceedingly rich people like Gates or Zuckerberg or the rest of the Forbes 400. There are many reasons, but the biggest reason is that they're just irrelevant to me. They have no power over me. My local county commission can make my life miserable with crazy new laws or taxes, and we all know how simply saying "No" to your local government always ends with your dogs (and often you) getting shot, but there is no way on God's Green Earth that Bill Gates or Michael Dell or the Mars family can make me buy anything they sell that I don't want.
But let's say you care, or you're talking with a family member, coworker or neighbor who are all upset about the CEO earning around 400x what the guy in the factory earns. What do you say? Where do you start?
A good starting point is a reply video by Learn Liberty, emphasizing income mobility. When we look at these pictures, what we're seeing is a snapshot of the income distribution, and much like the snapshots you take with your camera, it's a moment in time. I've read several papers that say that the income inequality, and large number of people in the bottom quintile is from immigration. Without a constant influx of dirt poor immigrants we'd see steady growth, because of the steady move up through the quintiles of people working their way up.
But there's a more fundamental question: is the first video even right? Is the income inequality he talks about even real? A year and a half ago, I posted some research into a term called the Gini coefficient or Gini factor:
The Gini Coefficient is a measure of how much distribution there is in a variable. If one person (or a tiny group) had all of the income in the US, the value would be 1.0. If everyone had exactly the same income (socialist paradise), the Gini value would be 0. The tiny change (I don't know if it's really statistically significant) is in the direction opposite of what we hear all the time; toward more equal incomes. What about before 1994? Ivan Kitof has done a similar analysis that goes back to 1947 (rather dense and chunky pdf here) that shows very similar trends.Clearly, the Gini coefficient chart (below) is relatively constant, and nowhere near 1.0, so a tiny portion can't have all of the income. That contradicts the income inequality video. Among the interesting conclusions of the column on the Gini was that "It implies that the difference is due to lower income households, and a very reasonable explanation is the increase in single parent households. For an example, consider a two parent household with each making $50,000. If they divorce, the two household/family incomes go down, while individual income stays the same (notice that if they stayed married and one became unemployed, the household/family and individual incomes would both go down). " Instead of one household income in the second to top quintile, you have two in the lower one. Bang: twice as many people making lower incomes.
But beyond all that, it's just such a weird thing to argue about. We don't have "fair", uniform distributions of virtually anything in life. We don't have uniform distributions of virtually any physical characteristic of people: height, weight, intelligence, hair color, eye color - anything. We don't have uniform distributions of potable water, farmable land, mineral deposits or anything in the natural world. Why should we have a uniform distribution of "wealth"? (Which, BTW, isn't as crisply defined as many of these other things). So who decides what's fair? A giant, fascistic government who is always happy to rob Peter to pay Paul, and get Paul's vote? I'll go with the market.
I would suggest, though, that anyone who agonizes over what percentage of the wealth anyone else has is suffering from some envy problems and could use some quality time with a trained counselor.
While I largely agree with your conclusions, but to say that "the 1%" don't have power over you is to dismiss the corrupting effect of money in politics. While the Forbes 400 may not have a direct effect on your life, they most certainly have indirect ones. Money is power. Money buys influence.
ReplyDeleteI was going to go there, but didn't in the interest of brevity. In my mind, the day government has gotten too big is the day business starts going to government to get them to make us buy their products. The day it gets more cost effective to buy senators than improve products.
DeleteAs you know, we reached that point over 100 years ago.
Most people don't have a clue how well off they are. Not a iota of an inkling. The extra 500 billion the super rich guy has does equate to a 500 billion better standard of living. Our "poor" live, literally, better than Kings of old, with clean water, abundant food, medical care,TV's, cell phones, auto's, travel by jet, the actual difference in how the "poor" today live, and the "wealthy", is tiny in historical terms. Is Dimons cell phone really that much better than Bill the Barkeeps? Is Bill's steak that much worse than a bigwigs filet? People claiming this are utter fools.
ReplyDeleteThe above should read "does NOT equate"
DeleteThere are so many fallacies in the video it's hard to know where to start. The video did kind of bouce back and forth between wealth and income. But I notice when they showed the poorest they indicated that many of them had almost no income. So I suspect the first error here is the one commonly made when we report anything about the poor and that is we intentionally ignore any welfare or other assistance they recieve. We often hear that a single mother with 2 or 3 kids can get so much welfare that she would need to have a job earning $60k before taxes to have the same income and benefit level. But this kind of fact would be left out of the discussion by those who would want us to move towards socialism.
ReplyDeleteSecond big issue is as you say focusing on the rich. I suspect that almost everyone who advocates this kind of thing would be really pleased if everyone in the top 20% lost their money and was thrown out on the street even if all the money and assets were simply lost and not redistributed. That is what really pisses them off is that someone has so much more then them.
The third point is the single biggest factor preventing the majority of people in the middle class from being much better off is high taxes and in fact the inequality of taxes. If you took the average guy earning $50-60k and eliminated all his taxes his takehome would about double. Where do most of these taxes go? To the lower 20%-40%. How could that be since the poor are still so poor? And that brings us to the forth big issue the video ignores or doesn't understand. That is "you can not help somene by doing for them that which they should be doing for themselves". We pay the poor to be poor! We don't do anything that makes them more self sufficient we simply pay them every month or every week and they reward us by remaining poor and pushing out babies to create another generation of poor people who cannot take care of themselves. WE are the problem. Do gooders on the left (mostly) are the problem. The great society programs are the problem. Our willingness to accept that a unwed mother who gets pregnant must be supported by someone totally unrelated is the problem. That the same mother could then have another child and get even more money and benefits is the problem. The problem is NOT lack of opportunity. And that brings me to the last issue. In this country anyone could become a millionaire. You could do it by hard work and dilligent saving or by education and applying that education to the marketplace or 100 other tried and true methods. What you cannot do is expect to live like a millionaire and spend everything you earn and can borrow and somehow expect to end up in the top 20%.
Outstanding! Simply nothing I can think of to add to that.
DeleteI find nothing in this screed that suggest that you have even the slightest idea what is happening on a macroeconomic scale. Please answer me this: how will the disposable income to purchase the output of lights-out robot factories get into the pockets of the consuming masses, who are primarily laborers in the traditional sense of trading their work output for wages?
ReplyDeleteAnd your acknowledgment that "we reached that point over 100 years ago" effectively refutes your philosophical position, to wit: "So who decides what's fair? ... I'll go with the market." The rest is either nostalgia or inability to come to grips with Political Economy: money is power and power is money.
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While the concept that the local city council can make you more miserable than any CEO etc.
ReplyDeleteis fundamentally correct and that Bill Gates has no power other than the power to offer me
something to buy is partly right it misses one factor. The uber rich have the influence and
assets needed to get laws passed that favor them at the expense of the rest of us....and they
exercise that power to the point now where big business no longer has to suffer the fates
of pooer decision making. The profits have been privatized so they get rich and the risks
have been made public so John Q Public bears the costs of their failures.
Excellent elaboration on my point. Welcome to the Fascist States of America. The finest government that corporations can buy. Money is power. Money buys influence. Always has. Always will.
DeleteTrue. But that is always true and doesn't matter if you are in a socialist nirvana or a dictatorship. But here is the important fact that you glossed over; most people in business don't really want to spend time and effort lobbying congress for favorable legislation. They do this because congress spends time writing regulations that are unfavorable to business. So you really have it backwards, that is the government stuck their nose in the businessmans business and now the businessman is forced to spend some of their profit trying to keep the government from destroying them. If the government would get out of the business of harassing businesses then businesses would be free to leave government alone.
DeleteI might add that you have the definition of fascism wrong. Fascism is when government forces their will upon private businesses not the other way around. Fascism is merely a form of socialism where instead of the government owning all the property and production they instead let it remain in the hands of the businessmen and control it.
"most people in business don't really want to spend time and effort lobbying congress for favorable legislation. They do this because congress spends time writing regulations that are unfavorable to business."
DeleteI'd retort that most people in government don't really want to spend time and effort cleaning up them mess left by business either. The question of why govt. would "stick it's nose" in to the businessman's business often came back to Mr. Businessman's externalizing some cost (like the stream of arsenic-laden water coming out of his abandoned gold mine) or what the majority of the electorate felt was Mr. Businessman's taking undue advantage of them in their role as either employees or rate-payers. Mr. Free Market's screw-ups is what gives Big Govt. (of which I'm Definitely No Fan!!) its opening.
reedsch@hotmail.com
Not to barge in on a good exchange, but never overlook that government may be f*cking with business because they can. Not to mention that business has money, and big business has lots of money - which draws politicians like sharks to blood. The politicians can lord power over them, extort money, etc.
DeleteIt's a common idea in the high tech world that the reason the fed.gov hydra went after Microsoft in the 90s was that Microsoft didn't spend enough money on politicians. They saw DC as being a country away and irrelevant in their world. So the Clinton DOJ jumped on them and didn't let up until they spread some money around.
I've heard the same story why DOJ went after MSFT; I find it highly plausible, and it may explain the prosecution, but falls a bit short in explaining the judicial finding that Billy actually was operating a monopoly, legally defined. So perhaps the better question is, why DOJ wasn't messing with MSFT sooner? Maybe MSFT hadn't crossed into legal Monopoly-land earlier, in the considered judgment of the US Attorneys, given that we do pay US Attorneys to exercise their considered judgment and give them all kinds of hell for making cases that don't stick. In any event, I perceive Right-inspired carpet-bombing of US Govt. actions to be no more relevant or instructive than Left-inspired carpet-bombing of Corporate ones.
Deletereedsch@hotmail.com
You commented on this:
ReplyDeletehttp://street-pharmacy.blogspot.com/2012/07/is-one-man-worth-more-than-3000-people.html
The CEOs are living in a system that is screwing the rest of us. I don't think that government intervention is the answer, but what is? The current system isn't working.
As I said in that comment, I think it's the companies' issue to solve. I think that in a publicly traded company the board of directors determines the CEO's pay, and there are complicating factors that act to keep it high.
Delete1) Boards want to pay a competitive wage, because everyone believes a good CEO could get a job elsewhere, and everyone is paying high wage.
2) The board members tend to be on each others' boards and many are CEOs of other companies. If they vote to cut another CEO's pay, they're indirectly voting to cut their own pay.
3) When investment analysts (stock analysts) evaluate companies, they should consider if the company is losing money and paying their CEO as if the profit was rolling in.
The last time congress got involved, they levied extra taxes for CEO salaries over some number ($1 Million, IIRC). The result was a push toward stock options and other forms of pay that were taxed differently, which made companies even more likely to be managed for short term appearances rather than long term health. IMO, it did more harm in the long run.
http://mathbabe.org/2012/08/30/citigroups-plutonomy-memos/
ReplyDelete"A plutonomy is a form of capitalism that is designed to make the rich who control a nation's government and its economy—aka, the plutocrats—even richer. Cornerstone policies of plutonomies include government deregulation and reduced taxes on the rich. In order to sell the idea of plutonomy to the citizens of a democracy, the plutocrats must convince average citizens that trickle down economics will not only work, but ultimately make it possible for them to get rich, too. " http://rationalwiki.org/wiki/Plutonomy
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