
Income inequality today may be higher today than in any other era - jgalt212
https://www.washingtonpost.com/news/wonk/wp/2016/07/01/income-inequality-today-may-be-the-highest-since-the-nations-founding/?tid=pm_business_pop_b
======
jondubois
The reason why income inequality doesn't matter when compared to wealth
inequality is this:

If you're a high-income earner in a big city and you want to buy a
house/apartment, you're going to have to take on massive debt and you will end
up paying double what a wealthy person would pay for the same house/apartment
(due to interests).

In effect, prices on the housing market are not determined by income-earners;
they are determined by wealth-owners.

To buy a house (or anything which is in limited supply), income-earners are
forced to compete with wealth-owners; and wealth owners can afford to drive
market prices way up - This is in part because wealth owners, on average, do
not value money as much as income-earners do. Also, as mentioned above, they
don't have to factor in interest rates when making purchasing decisions.

~~~
charlesdm
As someone with a few very wealthy friends, this is not always true. It does
however help to close a deal faster than someone who wants to purchase the
same property using a mortgage.

1\. Interest rates matter, because if they're low, they'll usually invest
their money elsewhere / pay the interest / pocket the difference. They'll
often do a deal "cash" (meaning, without debt) and refinance later.

2\. Using debt to offset taxes matters too.

~~~
jondubois
But surely you must agree that wealthy people do drive up property prices more
than mere high-income earners. Just look at the case of Mark Zuckerberg's
purchases in Palo Alto (as an extreme example):

First he bought a house for $7 million (which was widely regarded as massively
overpriced at the time). Then he ended up buying all adjacent properties for
$30 million.

In a few short years, he single-handedly contributed to a massive increase in
property prices in his entire neighbourhood. This is essentially the story of
San Francisco's property market over the past 10 years.

~~~
charlesdm
Of course, because high income != wealth. It's only the first step.

It could become significant wealth if they saved + invested it well, but most
high earners are excellent at spending it all. Just look at the amount of
bigtime basketball / football players who remain with nothing a few years
after they stop playing.

------
Murkin
Honest question, can anyone explain WHY this is considered to be such a big
problem?

Really why, not just throwing slogans around. And why it should be treated
before things like absolute poverty, etc.

~~~
mcguire
Taking the US in isolation...

Absolute poverty is a solved problem. People rarely starve to death in the US.
It's an El Niño year; out here in not-SF we're having a bit of a drought, but
no one is seriously afraid of a famine. Sure, there are things like health
care that could be better, but those are second-order effects and fairly minor
on the poverty scale.

The actual problem is power. (That may not be a popular statement[1] in this
forum, where single young adults are commonly making 2-3x the median household
income and yet are fond of complaining about disenfranchisement.) Money is
power, the power to do things and the power to tell others what do do.

Now, I admit that the technology industry seems spectacularly bad about
translating it's assets into political power, so it may not be apparent to
people reading this, but I don't expect that to last forever. (C.f. Thiel and
Gawker.)

On the other hand, a lot of money in a small number of hands is not in the
hands of the tech industry. Consider the Kochs, or Citigroup/JP Morgan/Goldman
Sachs. That money buys politicians, to an extent, but it also buys agendas,
access, and, rather amazingly, consensus. (Why do Americans seem to have a
weird habit of voting for ideology instead of their presumably enlightened
material interests?)

This power held by a few people means that the actions of a country may not
necessarily be in accord with the wishes of its citizens. Take a look at the
third graph in the article. The peak of the England-Wales line is roughly
1825-1875, roughly the high point of the British Empire and, strangely,
including things like the Irish famine.

But, fortunately, for the likes of you and me, there isn't a problem. Yay. (As
long as no one sets up guillotines.)

[1] Dare I say it?: not a politically correct statement.

~~~
cjlars
Are there any facts to substantiate your assertion about power being the
problem? It would seem to me that the power of elites is trending down if
anything. The rise of Trump, the Brexit vote, and the rise in taxes as a
percent of GDP across most rich counties would seem to go against the selfish
interests of the monied elite.

~~~
Futurebot
Start with these:

[https://en.wikipedia.org/wiki/Economic_inequality#Effects](https://en.wikipedia.org/wiki/Economic_inequality#Effects)

[http://rooseveltinstitute.org/stiglitz-why-inequality-
matter...](http://rooseveltinstitute.org/stiglitz-why-inequality-matters-and-
what-can-be-done-about-it/)

[http://www.economist.com/news/briefing/21640316-children-
ric...](http://www.economist.com/news/briefing/21640316-children-rich-and-
powerful-are-increasingly-well-suited-earning-wealth-and-power)

Also read "Twilight of the Elites" to learn about how inequality leads to
greater "vertical social distance" and how the government now largely reflects
the interests of those at the top ([http://www.newyorker.com/news/john-
cassidy/is-america-an-oli...](http://www.newyorker.com/news/john-cassidy/is-
america-an-oligarchy))

~~~
cjlars
Thanks for the links, I wasn't aware that the Wikipedia article was so flashed
out on this topic.

However, I'm not sure I see any actual evidence to support the power theory.
The economist article paints a link between education, IQ and income, but not
political power. Stiglitz breifly asserts it's truth in point six in his
article, but doesn't actually provide any documentation. And similarly,
despite clicking through to a dozen promising sources in the wiki, I wasn't
able to find any evidence of any sort of trend or change in political power
associated to income inequality.

~~~
Futurebot
The ability to get the best jobs, go to the best schools, live where you want
to live, retire while others cannot, and bend the government to your will are
all forms of power. The last, in particular, is _political_ power.

From the Princeton study
([http://www.huffingtonpost.com/2014/04/15/government-
wealthy-...](http://www.huffingtonpost.com/2014/04/15/government-wealthy-
study_n_5154879.html)):

U.S. government policies reflect the desires of the wealthy and interest
groups more than the average citizen, according to researchers at Princeton
University and Northwestern University.

“[W]e believe that if policymaking is dominated by powerful business
organizations and a small number of affluent Americans, then America’s claims
to being a democratic society are seriously threatened,” write Martin Gilens
and Benjamin I. Page in an April 9 article posted on the Princeton website and
scheduled for fall publication in the journal Perspectives on Politics.

“Not only do ordinary citizens not have uniquely substantial power over policy
decisions; they have little or no independent influence on policy at all,” the
researchers write in the article titled, “Testing Theories of American
Politics: Elites, Interest Groups, and Average Citizens.”

Affluent Americans, however, “have a quite substantial, highly significant,
independent impact on policy,” Gilens and Page write. Organized interest
groups also “have a large, positive, highly significant impact upon public
policy.”

------
cs702
What matters is not so much the _degree_ of income inequality, but whether the
masses on the fat tail of the income distribution feel they are struggling to
satisfy basic needs like food, shelter, and education.

Societies in which the majority of people are struggling to satisfy such needs
are probably not sustainable, regardless of the "fairness" of their economic
and political systems.

Put another way, the system 'must work' for a majority of people in it.

~~~
conanbatt
I take it as the direction of income inequality is worse than wealth
inequality. If 10U$S of new value are created, and only 1$ of it goes to the
bottom 60% the bottom will stay there.

In a way, the direction of where you are going matters more than where you
are. Even if everyone had food and shelter, we would feel less anxious but
inequality would still get more profound and unavoidably end up in some people
owning others.

------
ascotan
These studies are nothing but troll bait.

1\. What is 'income'. Do you mean taxable income that is received through an
employer? Because if you do, most of the 1% at the top probably don't receive
'income'. For example John Kerry is worth about 600mil but received $60K in
'income' for the year he was running for president. The rest of the money gets
funneled into off shore bank accounts 503B organizations, shell companies,
etc. I think the only reason that he had any 'income' at all was because he
sold a few paintings that year. Most of the super wealthy don't have any
'income' at all.

2\. Globalization effects. I've lived in some of the wealthiest places in the
US and many very wealthily people in the US are foreigners that happen to live
here or have many their money overseas. So if Jack Ma decided to live in
Washington D.C. would he be part of the top 1% of the US graph? Splitting a
graph into US vs UK for instance may no longer be realistic in the modern
world. Most 1%ers are globalized.

Couple of other ideas I had:

>> Technological change and globalization have widened the gap between skilled
workers and less-educated workers.

Take a look at india. Tech workers do alot better than their peers. Is that
bad? Isn't that raising the standard of living for indians? Should all indians
all go back to poverty so that they can not have any 'income inequality' in
their country?

I feel like these pieces are written to justify tax increases by getting
people to believe that there is someone out their that can be 'squeezed' for
money because 'it's just not fair'. The reality is that most Americans that
make above 50K a year are probably in the top 1% of the global population. So
maybe in that sense all americans are part of the super rich 1%ers.

------
justsaysmthng
Note that it's not just a frozen fact, but a growing trend.

Those charts go up up up, meaning that things are going to get even worse for
more people if all parameters stay the same.

This never ends well. Radical new ideas take hold in the minds of the
frustrated lower classes and then everything explodes into revolutions, wars
and rivers of blood.

The reason for the violence is the frustration morphed into hatred on one side
and feeling of superiority and entitlement morphed into fear on the other
side.

Nothing good can come out of clashing hatred against fear.

Some "skilled" politicians channel the feelings of frustration-on-the-verge of
hatred towards other nations or social classes, like immigrants, political
unions (EU), etc and that's why you have the populists gaining traction all
over the world.

Technology was supposed to save us from this - yet it seems to have
accelerated it.

The cherry on this cake is the fact that the biosphere and climate are
collapsing, while the population is growing, so something's got to give first.

Interesting times ahead for sure.

------
yummyfajitas
Title is misleading. Globally inequality is falling. The reason for this is
primarily that the poor are getting richer.

[http://www.maxroser.com/economic-world-history-in-one-
chart/](http://www.maxroser.com/economic-world-history-in-one-chart/)

[http://siteresources.worldbank.org/INTPOVRES/Resources/47722...](http://siteresources.worldbank.org/INTPOVRES/Resources/477227-1142020443961/Module5_chap9_10.pdf)

Article means inequality within certain arbitrary borders.

~~~
shawndumas
To the people that downvoted yummyfajitas' comment; can you maybe explain why
it's wrong/not germane?

Please and thanks.

------
StavrosK
Income inequality in the Revolutionary era was the lowest ever[1].

[1] If you don't count the Native Americans who were persecuted and
slaughtered for their land.

Plus, isn't it very easy to have low income inequality if you have a whole
continent of land free for the taking[1]?

~~~
riprowan
> Income inequality in the Revolutionary era was the lowest ever[1].

> [1] If you don't count the Native Americans who were persecuted and
> slaughtered for their land.

Also [2] if you don't count the imported slaves who contributed much of the
raw labor.

~~~
Joof
They counted the slaves. Whether they counted them appropriately is another
matter.

~~~
GavinMcG
This is a wry comment, but it's not actually making a claim about the issue
the parent and grandparent post are discussing – whether Revolution-era
inequality was very low.

------
breck
Related:

[http://www.fooledbyrandomness.com/FatTails.html](http://www.fooledbyrandomness.com/FatTails.html)

"How to (not) estimate Gini indices for fat tailed variables":

[https://dl.dropboxusercontent.com/u/50282823/GINI-1.pdf](https://dl.dropboxusercontent.com/u/50282823/GINI-1.pdf)

~~~
mortehu
Quote from the summary of the article:

    
    
        Consider 10 separate countries, cities, or other units
        of equal size, with population 1000. Assume the wealth in
        each unit follows a power law distribution, say a ParetoLomax,
        all with the exact same parameters. Assume a
        tail exponent of 1.1. The average Gini index as obtained
        by direct measurement will be ≈ .71 per country. Now
        aggregate them into a single country. The composite
        Gini — as traditionally and currently measured — will
        be ≈ .75, that is 6% higher – for the same sample.
        This inconsistency implies not only that the Gini cannot
        lend itself to comparisons between units of different size
        but that intertemporal assessments are vitiated by the
        population changes.

------
mindcrime
I'd be more interested in "standard of living inequality", especially given
two aspects which may be true:

1\. It may be the case that everyone today has a higher standard of living
overall, than in years past, due to a combination of technological advancement
and an overall "a rising tide lifts all boats" phenomenon.

2\. There may be a point of diminishing returns in terms of the relationship
between income and standard of living. That is, if you double your income,
maybe your standard of living doubles (this is all assuming we have a good,
objective metric for this). However, if you quadruple your income, your
standard of living may not quadruple in turn. And so on...

I'm not saying that relative income disparities don't matter at all, but I
think some notion of absolute standard of living might actually be more
important in the grand scheme of things.

------
SixSigma
The hon. Gentleman is saying that he would rather that the poor were poorer,
provided that the rich were less rich.

[http://www.margaretthatcher.org/speeches/displaydocument.asp...](http://www.margaretthatcher.org/speeches/displaydocument.asp?docid=108256)

------
Mz
As the world gets wealthier, the ceiling goes up, the floor doesn't really
change. So, duh, the Delta grows larger.

This is not a problem per se. The problem is that people at the bottom cannot
get their needs met, in part because we simply do not build affordable housing
in anywhere near sufficient quantities. If we would remedy that, some people
being crazy rich would not, per se, be an issue.

------
jondubois
I don't understand why there is so much focus on income inequality. Income
inequality doesn't matter. It's not the problem; it's only a symptom of the
real problem which is wealth inequality.

If you work REALLY HARD in an area which takes 20 years to master and after
doing so you end up earning $200K per year, then you probably deserve it. It
is hard getting to such point; you have to constantly plan your career,
educate yourself and put yourself through a lot of emotional/psychological
trauma for a very long time to get that stage.

On the other hand, if you inherited $6 million worth of company stocks from
your parents and you earn $200K in dividends each year from those shares and
you don't work at all, then you probably don't deserve that income.

... And somewhere in between these two extremes, there are entrepreneurs; who
work really hard and take huge risks to create a successful company (and often
fail), but when they do succeed, they tend to get disproportional payouts.

~~~
blahi
And why is it a problem? The "poor people" now live better than any other
point in history. Everyone now lives better than any other point in history.

More educated, less crime, better living conditions, better nutrition.

The only problem I see is jealousy. Poor people are jealous of what rich
people have and want to take it.

~~~
Retra
That is an extremely insulting thing to say.

And even if it were true, if jealousy is a barrier to happiness, why shouldn't
it be seriously addressed? What is the point of human society if you're just
going to casually discard the concerns of the vast majority of people?

~~~
blahi
Because you should address the jealousy instead. You don't change because of
somebody's jealousy. You don't study less because somebody else can't achieve
the same results.

Jealousy is a problem with the individual, not a problem with society. They
are jealous because of their own shortcomings, not because someone else is
successful. They just channel their self loathing into hating the successful.
You can't cure that by taking away money from the rich.

------
nstj
> We know, of course, that incomes are highly unequal today

I pine for the day when journalists who make statements like this in defence
of their own articles aren't taken seriously without hard data to support
their argument.

~~~
pwinnski
Do you earn minimum wage? Do you earn a million dollars or more per year?

Given that there are people in both categories, I'm not sure more "hard data"
is needed. If you actually dispute the claim, there's a Wikipedia page with
many links. That's probably a better source than expecting every article on
the topic to explain it again.

------
xyzzy4
The main problem is housing in my opinion. Everything else is affordable
enough. It takes a few months to build a house, but decades for someone to pay
it off, assuming they even have a job. Doesn't make sense.

~~~
StavrosK
It takes a few months for one person to build a house from raw materials? I'd
like to meet this superman.

~~~
gregpilling
I built a house. It took 3 days to frame it up, so it looked like a house, 3
months until all the doors, windows, etc were in and it could be locked up,
and I moved into it at the 6 month point. All work done on weekends, and
evenings by myself and my wife. A bit of help from some friends. We did all
the work except for the pouring of the concrete foundation and the hot tar
roof.

It was a good experience, something I had never done before. I learned a lot
and it was a set of skills I have used often since then (this was in 1998).
The confidence that you get from finishing a large project has been great too.

The real time consumption is all the little things - network cabling,
gardening, finishing and trim inside and outside. Just building a structure to
live in is quite easy, and does not take that long.

~~~
internaut
I want to do this as well for a Tiny House (320 sq ft + 160 sq ft loft). I
think the physical building part will take six months (assuming I take part-
time work with my day job). I estimate I will save hundreds of thousands in
the end when compared to the traditional route.

It is the legal, planning and design, all the research, which is the invisible
cost that takes at least as long as the physical building activity.

Even non-Tiny Houses have a cost which is mostly paper. I'd like to see a
breakdown of costs excluding labour and materials across the world. I don't
think people realize how much of a house price is arbitrary. High house prices
aren't necessarily a sign of a wealthy neighbourhood, it could be just the
opposite e.g. new regulations made it cost prohibitive for new builds, which
makes everybody look good on paper. And now the average person can't buy the
average house.

> The real time consumption is all the little things

Yes! The impressive part, the framing/sheathing/cladding is instantaneous in
comparison.

~~~
gregpilling
You should do it! I don't think it will take 6 months if you are only working
part time. The house I built was 1600 sq ft, 3 bedroom and I was working 60
hours a week while I built it. I found working all weekend on the house re-
charged me for the job during the week.

A tiny house should not cost hundreds of thousands - wood is just not that
pricey at Home Depot. You should start pricing it out and give it a shot. It
is a tremendous feeling of accomplishment to live in a house you built
yourself.

~~~
internaut
> I don't think it will take 6 months if you are only working part time.

It wouldn't take very long but I have some special features in my Tiny House
design nobody else has. Here are three examples:

I am using a spiral staircase of 3 sq ft. Marvelous design!
[http://www.eestairs.com/en/36_1m2_by_eestairs_%28efficient_s...](http://www.eestairs.com/en/36_1m2_by_eestairs_%28efficient_stairs%29.htm)

Then I am creating a space illusion using a special one way mirror.

I can place two one way mirrors with a terrarium (a small indoor garden)
between them. This way two different rooms (bathroom and stairs) can see the
terrarium reflected but neither space can see the other. .

Normal one way mirrors require one side to be light and the other dark. With
this one way mirror I can have light on both sides.
[http://www.okaluxna.com/products/viewblock/](http://www.okaluxna.com/products/viewblock/)

I also hope to use natural daylighting with a solar collector and fibre optic
cable. This will require some experiments so I am going to do those first.

I'll put all this up online for HN when things get interesting. In particular
I'm looking for a cheap way transmit daylight (I have fibre cable but the
normal kind is very thin).

> I found working all weekend on the house re-charged me for the job during
> the week.

I hope that happens to me! ;-)

> A tiny house should not cost hundreds of thousands - wood is just not that
> pricey at Home Depot. You should start pricing it out and give it a shot.

Looks to be 50k - 75k so far. You can build Tiny Houses really cheaply, even
for 5k, but I'm optimizing for longevity (like a custom built stainless steel
trailer foundation) and have unusual design features so it will be at the
higher end.

------
jgalt212
This is why "leave" won, not racism or xenophobia.

~~~
k-mcgrady
It's a mix. A lot of people voted that way for economic reasons BUT they think
those problems are caused by 'foreigners taking our jobs'. A lot of people I
saw interviewed were also trying to protect jobs that are unsustainable or
wanted protection from competition. People who voted economically were
thinking sort-term. A lot of people in their 50's who want to protect their
job and don't want to retrain.

~~~
crdoconnor
>protect jobs that are unsustainable or wanted protection from competition

A) Everybody wants protection from competition. Where do you think profits
come from? There's no shame in wanting protection, _especially_ not as the
social safety net is hollowed out. If they were not subjected to austerian
measures / offshoring in the heartlands the "remain" vote probably would have
won.

B) The same economists who are absolutely certain that these people's jobs are
unsustainable are the same economists who pushed for offshoring and were
_completely_ blindsided by the financial crisis in 2008. The experts thing
rang true because economists have no credibility left any more.

In fact, the only economist I know of who actually saw 2008 coming wanted
brexit (though not for economic reasons).

------
Bombthecat
I think 1200 and earlier was worse.

But i also think we go back to that :)

------
massysett
"Incomes were more equally distributed in colonial America than in any other
place that can be measured"

If you weren't a slave.

Stopped reading right there. hahahahahahahahaha.

~~~
eksabajt
Perhaps you shouldn't comment when you haven't read the post then. If you had,
you would have learned that Lindert and Williamson's analysis did account for
the income of slaves. Five of the eighteen paragraphs of this short article
about their work discusses that part of the analysis.

~~~
massysett
Comparing colonial America to today's free societies is laughable no matter
how they "account" for the work of enslaved people.

