
Our Broken Economy, in One Simple Chart - a3n
https://www.nytimes.com/interactive/2017/08/07/opinion/leonhardt-income-inequality.html
======
nateabele
> _Different policies could produce a different outcome. My list would start
> with a tax code that does less to favor the affluent, a better-functioning
> education system, more bargaining power for workers and less tolerance for
> corporate consolidation._

It floors me how anyone, especially anyone with even a _basic_ STEM
background, could look at a growth curve that approaches infinity _that_
rapidly, then turn around and say 'gee, I wonder if tinkering around the
periphery of the system would solve the problem'.

No! Clearly some central mechanism has gone horribly awry.

The only explanation I've ever seen that adequately accounts for those curves
is inflation. Inflation drives up prices, both of goods and of assets. A
higher cost of goods narrows the margins for wage-earners (i.e. the poor and
middle class), and higher asset prices inflate the net worth of people who
earn income from assets (i.e. rich people) — this effect compounds over time.

If I'm wrong, please, convince me. Article & book recommendations gladly
accepted.

~~~
nostrademons
I think you're partially right. The other half of the puzzle is negotiating
leverage.

One of Warren Buffett's annual reports (I forget which year, but I think it
was the late 1990s) had an interesting observation: inflation doesn't affect
all firms equally. Instead, it pools where there is a competition bottleneck.
If you are the monopoly provider in a market, you have complete and total
ability to raise prices in response to your customers having more money
available to pay. If you are in a very competitive market, then every time you
try to raise prices, some other entrant undercuts you and your customers and
suppliers capture the surplus instead.

The Fed, however, measures inflation based on a basket of goods bought by the
"average" consumer. Most of these goods are in competitive markets: groceries
and gas and consumer electronics. And so the measured inflation rate that the
Fed uses to control the money supply significantly undercounts the true
inflation rate, with much of the money injected into the economy pooling in
differentiated industries like high finance, elite universities, health care,
Google & Facebook, etc. From there, it doesn't circulate the way it should,
because people in those industries need few goods that the average American
produces. Instead, it goes into asset prices, as they try to buy up more
future earning potential.

I've suspected that maybe a simple way to fix this would be with "helicopter"
Bernanke's crazy idea: drop money out of helicopters. Maybe not literally
(imagine the fights on the ground!), but perhaps the Fed could inject money
into the economy at the bottom, through direct deposit into consumer's bank
accounts or tax refunds, and then collect it from the top, through fees on
banks. That way, the money is immediately spent, and so the true effect of the
money injected is more easily measurable in the CPI.

~~~
utexaspunk
Our top marginal tax rate starts around $418k(single) to $470k (joint). It
seems ridiculous to me that every dollar beyond that amount is taxed at the
same rate, whether it's dollar 500k or dollar 500m. IMHO, we should have
several more brackets, like for the top 0.25%, 0.1%, 0.01% and 0.001% of
incomes, with the rates rising sharply. Tax the shit out of the ultra-rich and
spread it around.

~~~
bcherny
I agree with that (you're talking about Piketty's direct redistribution), but
there is a tinge of "tax the other guy more because he's making more than me
and it's not fair and I'll never be in his bracket anyway so I won't have to
deal with it" to your argument.

~~~
utexaspunk
It's more like "tax the guy whose work is being disproportionately rewarded in
comparison to everyone else". I wouldn't argue with the idea of a doctor
making more than a dishwasher, or possibly even a good hedge fund manager
making more than a doctor. But 1,000 times more? No way!

~~~
jstanley
Fortunately, this isn't communism and you're not a dictator.

People aren't awarded money arbitrarily... Nobody will pay you more than
you're worth. If a good hedge fund manager is able to make 1000x as much as a
good doctor, he _is_ worth 1000x as much as a good doctor, by definition, no
matter how distasteful that might seem.

~~~
bcherny
You and @utexaspunk may be talking about different things.

I believe @utexaspunk is saying that salary should be tied to the amount of
social good you do.

You are saying that the market sets salaries based on how much value you
create, as measured in dollars.

------
omot
Actually I think the hyper growth of the top 1% is attributed to development
of Automation and globalization. Here is a brief explanation of how each move
money to the top.

Technology - Here is a simple thought experiment. You have 10 cashiers each
are paid $100 a day. The total expense for these workers are $1000. The store
in total makes $10000 a day. The owner nets $9000 a day. New technology comes
out that replaces workers, you now only need one machine that costs $100 to
maintain a day. The store owner nets $9900. Now just imagine this kind of
replacement happening at every level of society.

Globalization - With technology comes better ways to communicate with foreign
countries with cheap labor. Take the same experiment but instead of replacing
workers that cost $100 a day with machines, we replace them with foreign
workers or undocumented immigrants which cost $1 a day. Your total expense is
now $10 a day. The store owner now nets $9990 a day. This also happens at
every level of society.

This is the cost of efficiency and technology.

~~~
yoz-y
Ben Thompson was talking about this on his podcast. His idea was that over
time capital earns more money than labor - due to automation, as you say.

If the end game is 100% automatised then basically 100% of income will be
produced by machines/robots/algorithms owned by a tiny proportion of human
population.

~~~
ddxxdd
The counter to that argument is that if the owners of robots make 100% of the
income while customers make 0%, then the owners of the robots will have a very
small market to sell their goods and services.

If you are capable of making 10 billion fidget spinners, you're going to lower
your prices until as many people can afford fidget spinners as possible.

~~~
yoz-y
Indeed. But what are the solutions. One proposal is "raise taxes on capital by
a lot, and then provide basic income". Another option would be "nationalize
all production and distribute the profits". There is the luddite option of
course but I do not believe that the progress can be stopped. And I do not
think that there are nearly enough "new" jobs created in services,
entertainment and arts.

~~~
ddxxdd
My point was actually that there is no way automation could possibly leave
more people worse off, since it brings more goods into circulation.

------
wnissen
The chart says "Note: Inflation-adjusted annual average growth using income
after taxes, transfers and non-cash benefits." Does that include employer-paid
health insurance? I assume that is part of what is meant by "non-cash
benefits". If so, the reality is even more desperate than the already shocking
graph. Because that health insurance is a big chunk of money, especially as a
percentage of income, and the employee never sees a dime of of it. It's not
available to pay rent because it's going straight into medical care. Not that
it's not valuable, health insurance is extremely important. But the take-home
paychecks of workers in the lower-income range are actually going down.

~~~
gehwartzen
Good point.

The other thing I often hear from people that don't view this as a problem
(not suggesting this is you OP)is that, yes, its true that, the income of the
top 1 percent has grown but so has the income of everyone else (save for the
bottom 5%) just not at the same rate. Your standard of living has increased
slightly over just maintaining (matching inflation).

Personally I think its still a problem because like it or not humans tend to
get upset when there is perceived (and in this case real) injustice in the
distributions of productivity gains despite not strictly being worse off.

I notice a lot of this in the hierarchy working at F100 company. The higher up
you go the more managers pat themselves on the back for the productivity gains
seen at the company. For them increasing productivity is a mater of the size
of the bonus. For those on the production floor working harder/smarter becomes
a mater of having a job or not.

------
xg15
I really like the two charts further down, comparing the growth _distribution_
with the growth _average_.

I keep seeing a lot of statements/articles/op-eds/etc saying things are fine
because if you look at the data, you see that the average (insert measure
here) actually hasn't changed much. Those charts show why such a statement is
a fallacy.

~~~
AstralStorm
However median is correct in showing that in general things are not so hot.

------
tengbretson
> Different policies could produce a different outcome. My list would start
> with a tax code that does less to favor the affluent, a better-functioning
> education system, more bargaining power for workers and less tolerance for
> corporate consolidation.

> less to favor the affluent

We already have progressive tax brackets. For crying out loud, the top 20% of
earners shoulder 84% of the tax burden of the federal government[1]. Where
does that number need to be in order to silence the socialist rabble-rousers?
90%? 95%?

1\. [https://www.wsj.com/articles/top-20-of-earners-pay-84-of-
inc...](https://www.wsj.com/articles/top-20-of-earners-pay-84-of-income-
tax-1428674384)

Edit: I've only received 1 answer to my question, and it involved allusions to
bloody revolution, so I'll ask again:

Where does that number need to be?

~~~
justforFranz
I dunno. Does 95% beat getting shot?

BTW, your comment is yet another indication that Hacker News is infiltrated by
people likely to be paid to post pro-hyper-rich propaganda. I mean, what's in
it for you to oppose a more progressive tax rate except to prove your deep
misunderstanding of the power of capitalism to push all the money to one
corner?

So what if the rich pay for everything. Look, man. The poor have nothing.
There's nothing left. They're not going to retire. They'll work until they
drop dead. They don't get decent health care. They'll die from avoidable,
treatable illness. And if conservative Congress had its way, there'd be less
Medicaid. Oh, and now they want to take away the right to sue elderly nursing
homes. At what point do you decide that torturing your fellow American is
enough?

~~~
tengbretson
> I dunno. Does 95% beat getting shot?

I'm not thin-skinned enough to consider this a threat, but I do think its
inflammatory enough to be in violation of HN's guidelines.

As for the accusations of astroturfing, I don't know what to say, but I hope
this paranoia that is increasingly common on the internet goes away. It's
downright unhealthy.

~~~
Balero
I didn't read this as a threat at all. It was quite bluntly put, but came
across clearly to me as saying that the consequences of a small minority doing
very well and the vast majority being worse off, is some sort of uprising.
Such as the Russian or French revolutions. I'm pretty sure we all wouldn't
like something like them to happen again.

I do agree with your point on the astro turfing, your comment didn't come
across as one to me, but I have been noticing myself thinking "oh, this must
be a paid for comment" more and more. I'm not sure if this is healthy
skepticism or not.

On topic. I largely agree with both comments. The top 20% shouldn't be asked
to even pay as much tax as they currently are. I like the idea of a
progressive tax system, those with the strongest shoulders carry the heaviest
burden. But this is clearly, to me, too much.

Additionally this shouldn't be fixed by lowering taxes. The top 20% shouldn't
be in a position that they make so much more than the remaining 80%. We need
to fix a system of work not paying enough, large companies exploiting workers
and poor healthcare and education systems.

~~~
tengbretson
> We need to fix a system of work not paying enough, large companies
> exploiting workers and poor healthcare and education systems.

I think we're awfully close to agreement here. I'm hesitant to advocate
attempting to engineer this by forcing higher pay. I just don't believe we can
snap our fingers and collectively decide that the output of our workers is
worth more than it is.

I don't know the exact problem or solution, but I believe that our technology
has failed us. Our modern technological advancements have been laser-focused
on displacing human labor, rather than enhancing it. We're making automated
systems where the few human operators left at all are more replaceable and
therefore less valuable. We need to find technological solutions where the
combined output of automation and expertise of humans are leveraged together.
That was what built the middle class in the first place. Not shaking down the
wealthy.

~~~
evanlivingston
It feels like the underlying sentiment here is that wage should be a function
of the value of labor. The issue I take with that is that capitalism is
necessarily exploitative and culturally we have deep seated beliefs about the
value of different classes of labor. Currently, those classes of labor that
require the least "expertise" tend to be those that are the least compensated.
I fail so see how technology can be leveraged to increase the quality of life
of unskilled labor. That is, how can technology help put food on the table and
clean water in the pipes of those that can't currently afford those things?
Why does labor need to be enhanced? Is the current output of human and machine
labor not more than enough to give everyone 2500 calories and healthcare and a
home? Perhaps if technology could be of use it would be in the distribution of
those goods that we already have but arnt finding their way to those that need
them.

Why can't we snap our fingers and decide the output of workers is worth more
than it is? We have many many dillusions of value. Value works by people
collectively agreeing something is valuable, that's the history of value.

------
zip1234
I wonder how much having to be globally competitive affects the income growth?
Non-skilled factory labor is the easiest thing to move to a different country.
The 1990s-now were huge for pulling the lowest of the low out of poverty
around the world. It seems that unskilled laborers in developed countries took
a hit at the same time. Until the world is playing on a level playing field
wage-wise, I'm not sure the situation will improve.

~~~
dmode
This is my hypothesis as well. It will be great if someone can juxtapose this
graph with growth in China and India's GDP, growth in middle class income in
these two countries, and growth in manufacturing and services output in China
and India (India more so starting late nineties).

~~~
notfromhere
It's probably related in that markets beforehand were more national than
international. Nowadays, the national barriers are pretty porous, so lower-
skilled workers have to compete with labor at a fraction of a cost of theirs.

------
a3n
> My list would start with a tax code that does less to favor the affluent,

The problem doesn't seem to be taxes, but division of profits. Almost none of
the gains seen by the 1% would have happened at all if the bottom 50% hadn't
produced them.

No one person "earns" 10M or 100M per year. No one's 24/365 is that
productive. It's done by keeping a larger share of the pie than the people who
do the actual production.

Start with the (IMO) problem, not the side-show. I really don't care how much
my CEO is taxed. I just want a fair share of gains.

------
mc32
Apparently, construction work has seen a 30% rise in wages in Texas in the
last few months --some attribute it to a tighter market precipitated by fewer
undocumented workers. It'd be interesting to see if those results pan out and
if tightening labor markets lead to significant rises in wages in other
sectors of the economy where imported labor resulted in downward wage
pressures.

~~~
madamelic
Wouldn't increasing wages increase the cost of those goods?

For instance, the reason the US can have cheap produce is cheap, illegal labor

[https://cis.org/Report/Retail-Produce-Prices-Without-
Illegal...](https://cis.org/Report/Retail-Produce-Prices-Without-Illegal-
Farmworkers)

~~~
mc32
They would raise prices, not different from Europe or Japan or Korea. Organics
and the trend toward bespoke/crafts items seems to indicate people may not be
as price sensitive as we might suppose.

~~~
neo4sure
Again no sources....

------
keebEz
With the 1980 chart: if we should be ensuring high income growth to people
according to their income percentile alone then gradually you'd assume they'd
move up along the curve (since its income, and not wealth, and income*growth
over time would move to the right then).

In this world, everyone would slowly move up the curve according to their
tenure/age.

However, if we believe that people should have income growth more dependent on
their willingness to work (rather than just income percentile) then over time,
with high income growth on the low end, those most willing to work would move
up.

In this world, then the income growth is a dependent variable of 'willingness
to work' and logically would move up the income percentile over time as labor
re-sorts itself into higher income growth percentiles based on that
willingness to work.

One simple chart doesn't tell you much. It'd be best to see cohort effects
across this time period to see if the bottom percentile is a bunch of 18 year
old kids now (millennials), versus a bunch of prime age baby boomers itching
to work hard.

Having said that, the cohort effects I've seen are reassuring, but there are
still big issues. The main point is that this chart isn't that great at saying
anything conclusive.

------
devrandomguy
One of the authors, Thomas Piketty, wrote Capital in the 21st Century, a
fascinating book about the mechanics that drive wealth concentration. He
explores the limits of wealth concentration, as a positive feedback loop that
inevitably destabilizes, often violently. I don't want to spoil it, but it
isn't all just analysis and observation, he does also make recommendations.

[https://www.goodreads.com/book/show/18736925-capital-in-
the-...](https://www.goodreads.com/book/show/18736925-capital-in-the-twenty-
first-century)

------
stevenmays
Result of quantitative easing. When you pump liquidity into the market asset
prices rise. Wealthy people have assets. Super wealthy people have more
assets.

------
rloc
I really liked the "income growth" animated graph. Does someone know if the
nytimes used a specific library ?

~~~
askmike
Its d3.js - just follow the debug logging they didn't disable for production
in the console ;)

------
z5h
It seems that after inflation, nearly everyone earns more over time. Isn't
that good?

~~~
ptr_void
There has been almost no increase in median household income since 1970s.

\-
[http://web.stanford.edu/class/polisci120a/immigration/Median...](http://web.stanford.edu/class/polisci120a/immigration/Median%20Household%20Income.pdf)

\-
[https://fred.stlouisfed.org/series/MEHOINUSA672N](https://fred.stlouisfed.org/series/MEHOINUSA672N)

\-
[http://www.usinflationcalculator.com/](http://www.usinflationcalculator.com/)

~~~
randyrand
This depends on very closely with how precisely you account for inflation.

Accounting for inflation is not scientific. Its a social science. A median
household can afford more of and better quality things today than the past,
but some measures of inflation will not account for this correctly.

~~~
ptr_void
Thanks, I didn't realize this aspect of inflation. Although I'd imagine the
straight forward measure is good enough when it is used for relative
comparisons between top x% to bottom y%.

------
mizchief2
I think that the problem is that the middle class is experiencing the "real"
growth rate of the economy, and the top classes are just getting the benefits
of all of the QE and other tricks on the monetary system.

------
TwoFactor
Some speculation - this trend would make sense if wage growth had stagnated,
and the upper class earners are making more of their income from capital gains
and other similar sources.

------
dowjones
Let's not forget that both inflation and unemployment were in double digits,
Iran was holding Americans hostage, and gasoline rationing was barely in the
rear view mirror

------
jnordwick
Piketty, Saez, and Zucman think US economy is broken and needs to be more
socialist. I think I've read this before.

------
davidreiss
Income growth isn't the biggest "wow" factor in this economy. Check out the
wealth/asset/capital growth of the wealthy.

Ever since the FED bailout, the wealth of has grown by leaps and bounds.

Usually, in economic booms, the wealthy took the lion share of the wealth and
threw the crumbs to the middle/lower class in the form of income growth. But
not this time.

It's also reflected by the decline of unions.

------
randyrand
A few points:

1\. the fixed pie fallacy[0]. You actually need separate evidence to suggest
that the 1% are taking away income growth from the rest of the percentiles.

2\. The 1% generally makes the most in good times, and loses the most in bad
times. The chart did not seem to include asset devaluation loses - e.g. the
housing crises, stock market loses, investment losses etc. This is a huge
omission. The past 34 years may also not be a very representative prediction
of the future.

3\. There is nothing morally wrong with income diversity, particularly if the
poor still live long lives, are not hungry, have access to modern technology,
transportation, and modern entertainment. I personally think income diversity
is a good thing. As my right bias, I believe generally that "Disparities are
natural and just" , and not "Disparities are due to injustices" \- Fired
Google Engineer.

[0] [http://www.aei.org/publication/the-fixed-pie-
fallacy/print/](http://www.aei.org/publication/the-fixed-pie-fallacy/print/)

~~~
clavalle
1 'Fixed Pie' is only a fallacy if you define the gains to some fixed external
standard. When the values are defined relative to the other values in the
comparison, the Fixed Pie fallacy falls apart. In this case, gains made by one
group are compared to gains made in another -- we all understand that gains
are had by both parties but are comparing them relative to each other. Unless
you are arguing that increased relative income makes no difference in terms of
increased economic power which is, of course, nonsense.

2 We're talking about income, not profit and loss from capital. Different
things.

3 You seem to be arguing that the poor are living long lives, are not hungry,
and have access to transportation and adequate health care. They are not
living as long as their wealthier contemporaries, many are hungry, and many
are in circumstances where their desperation is readily taken advantage of by
those that are not in desperate circumstances. Inequality is not, in and of
itself, bad but inequality in which some groups are desperate and taken
advantage of by those better off because their alternative to a negotiated
agreement is total loss is bad (if you care about things like moving toward
market efficiency, anyway).

4 The fired Google engineer spent 10 pages setting up ridiculous straw people
and knocking them down. He attributed a rigidity and absolutism to those he
disagrees with that doesn't exist and allowed himself extreme (and sometimes
contradictory) flexibility in side stepping imagined counters. And he still
managed to make himself out as a bigot. I'm not sure quoting him is a great
way to make any kind of point.

~~~
randyrand
1\. sure. Im saying that readers should be aware of the fixed pie fallacy.
People like to think that there is a fixed amount of growth given to us, and
then we divide it up between the percentiles. It does not work like that.
People can create growth, it does not come from the gods.

2\. Income can be negative, yet the NYTs did not even touch losses. Change in
wealth is what people care about, it makes more sense to compare, and it what
people naturally assume when we compare income over time. NYT were comparing
revenue only and calling it income purposely to hide the full picture.

3\. yes, but the gap in lifestyle is small is my point. Smaller than any point
in history. Whether you think diversity is natural and just, or injust, is
more opinion however. Not worth going into that further.

Keep in mind, despite any income changes, a larger fraction of todays wealthy
income goes to investments than any time in history. Because of this, while
they may be incredibly rich, their QoL is not as vastly improved by income
changes as the past. Most investments will be in things that have very little
impact on their QoL, foreign homes, stocks, bonds, etc. I think this is
because today it is easier to reach a level where you are satisfied with your
QoL, and don't see the reason to consume your income in QoL changes than in
the past. Profit from these investments will generally be reinvested, not
consumed on QoL.

4\. That single point was well stated. I'm not quoting the whole thing - just
giving attribution.

~~~
danans
> yes, but the gap in lifestyle is small is my point. Smaller than any point
> in history.

What point in history are you benchmarking against? If you are comparing the
current moment to pre and early-Industrial periods, then yes the gap is
smaller. That's hardly a standard by which to judge the moment though.

If, however, you are comparing it to the lifestyle gap of a generation ago,
there has been a clear increase in the gap. Key goods that are the bedrock of
a high quality of life: healthcare, education, decent housing - have become
far less accessible to the working class and poor than they were in the recent
past. No quantity or variety of cheap electronics and entertainment can make
up for the loss of a huge number of people's ability to purchase those goods.

~~~
randyrand
All points in history. Even a generation ago.

The life expectancy gap has continued to close since we started measuring it,
nationally and globally.

The education gap is closing too, more people are college educated today than
at any time in the past. In the recent past, only the elite could afford
college. This gap has only been closing, with or without government
intervention.

As for 'decent housing', the housing quality gap between the rich and the poor
has never been smaller either. Today poor homes are just as good at rich homes
at things homes should do. Both poor and rich homes are similarly good at
keeping out weather conditions, at heating, cooling, having bathrooms,
kitchens. Even in the recent past this was not true. Yes, rich homes are
bigger and made of more luxury materials - those both have a tiny impact on
quality of life compared to the measures I've given. The housing quality of
life gap has closed tremendously, and has only continued to close. The gap is
small as-is. I see little reason to close it further.

~~~
danans
> The life expectancy gap has continued to close since we started measuring
> it, nationally and globally.

This article is referring to the US, not the whole world. In the US, the life
expectancy gap is _increasing_ between the rich and the poor:

[http://jamanetwork.com/journals/jamainternalmedicine/article...](http://jamanetwork.com/journals/jamainternalmedicine/article-
abstract/2626194)

Life-expectancy is also not the end-all of health care, just one indicator.
Prior to the CHIP program, many poor children had no access to preventative
health care at all.

> more people are college educated today than at any time in the past. In the
> recent past, only the elite could afford college. This gap has only been
> closing

More people have degrees, but the goal-posts have also moved considerably and
a college degree (depending on the type) doesn't have nearly the value in
terms of job prospects that it used to have. Just citing the degree rate
doesn't provide any of that very important context.

When it comes to primary and secondary education, the gap between rich and
poor is considerable and persistent:
[http://news.stanford.edu/2016/04/29/local-education-
inequiti...](http://news.stanford.edu/2016/04/29/local-education-inequities-
across-u-s-revealed-new-stanford-data-set/)

> Both poor and rich homes are similarly good at keeping out weather
> conditions, at heating, cooling, having bathrooms, kitchens.

Take a drive through a very poor section of a city or rural area, say in the
rust belt or in a rural area, and you will find that this is often not the
case. Beyond the home itself, these locations often have worse infrastructure:
buckled roads and in recent cases contaminated water.

> The gap is small as-is. I see little reason to close it further.

No doubt, for people who think as you do, all of the above disparities are
totally acceptable, a natural state of affairs, and we as a society should
just stop any efforts to further mitigate them.

~~~
randyrand
>No doubt, for people who think as you do, all of the above disparities are
totally acceptable, a natural state of affairs, and we as a society should
just stop any efforts to further mitigate them.

Correct. But I have no issue with people that want to help. I just wish they'd
stop literally forcing others into their cause.

------
jgalt212
1\. Thank you Obama.

2\. I don't think UBI is the solution. Have you met any trust fund babies who
don't have to work? Do you think it's wise to create more of them?

~~~
AnimalMuppet
> Thank you Obama.

Take a look at the animated graph in the middle of the article. There was a
lot of movement under Clinton and Bush Jr. as well. Obama didn't fix it, of
course (or even stop it), but it's not fair to single out Obama for your
scorn.

~~~
damon_c
Yes.

The biggest % change was during the years 2003-2008 and as far as I can tell
the chart peaked in 2011 and receded slightly after that.

