
Is vast inequality necessary? - the_duck
http://www.nytimes.com/2016/01/15/opinion/is-vast-inequality-necessary.html
======
richmarr
Personally I think the '3 stylised models' that the author paints as being the
possible sources of high inequality are somewhat wide of the mark.

The majority of 1%ers are there because their parents were 1%ers, and western
society is broadly set up to allow those with large amounts of capital to
protect it and use it to gain advantage & accumulate more capital. It's not
necessarily a bad thing, except where those with capital can use it to bias
the system in their favour.

An example is access to education. In the US, the lowest ability quartile of
high earners now has a better chance of graduating collage than the highest
ability quartile of low earners. From memory it was something like 31% to 29%
respectively. The real shame there is the 71% of high-ability low-wealth kids
who can't graduate college but really should. That value is being squandered.

However... inequality itself is a trailing indicator of other indicators
relating to social cohesion, so it's possible that addressing inequality alone
won't have a lasting effect. Robert Putnam is an interesting source on this
stuff if anyone is interested.

~~~
bufordsharkley
Yes, I couldn't agree more.

Generational passing-down of wealth (largely a result of rents that can
extracted from resources kept within one's family) is completely elided in the
article.

~~~
pc86
Intergenerational wealth transfer accounts for almost none of today's
inequality. The vast majority of it is gone within a generation or two.[0]

[0] [http://time.com/money/3925308/rich-families-lose-
wealth/](http://time.com/money/3925308/rich-families-lose-wealth/)

~~~
jhundal
I see this figure around a lot, does anyone have a pointer to the actual
study? I got as far as a book called "Preparing Heirs: Five Steps to a
Successful Transition of Family Wealth and Values", no detail on the actual
study.

------
bko
> And power is surely a big factor, too. Reading someone like Mr. Graham, you
> might imagine that America’s wealthy are mainly entrepreneurs. In fact, the
> top 0.1 percent consists mainly of business executives, and while some of
> these executives may have made their fortunes by being associated with risky
> start-ups, most probably got where they are by climbing well-established
> corporate ladders. And the rise in incomes at the top largely reflects the
> soaring pay of top executives, not the rewards to innovation.

Most probably got there by climbing well established corporate ladders? Is
there a source for this? It seems "Executives, managers and supervisors (non-
finance)" is rather broad and does not address whether these are corporate
structures that can "set their own compensation".

~~~
paulddraper
" most probably got where they are by climbing well-established corporate
ladders. And the rise in incomes at the top largely reflects the soaring pay
of top executives, not the rewards to innovation."

Then why the heck are you here?

If you want piles of money, shouldn't you be climbing the uncreative,
guaranteed ladder to wealth?

If being the 0.1% were really that easy, it wouldn't be the 0.1% anymore.

------
blacksmith_tb
I like Krugman, and agree with him on this; though it's quite an example of
Betteridge's Law. Obviously vast inequality isn't necessary, there are plenty
of historical examples of merely ordinary inequality (and even a few of
almost-equality). To me the question his piece begs is "how do you legislate
redistribution when your lawmakers are beholden to the vast amounts of money
the super-rich happen to have?"

------
xlm1717
It's interesting that one of the articles in the header says "Why Spin Is Good
For Democracy". Seems Krugman takes that hook, line, and stinker.

I personally would reframe the luck argument into one based on scarcity of
resources. It's not about whether inequality is "necessary". It's about
whether it can even be avoided.

~~~
h_r
Did you get to the end? He says explicitly that inequality is inevitable. He's
asking whether the American kind of _vast_ inequality is necessary.

------
Mikeb85
Krugman channelling his inner Piketty.

They're not wrong though. The greatest growth did come when there was the
least inequality, and the gilded age wasn't exactly a time of phenomenal
economic growth...

~~~
icebraining
_the gilded age wasn 't exactly a time of phenomenal economic growth..._

Wasn't it?

 _n the quarter century following the war, America’s economy grew at the
fastest rate ever in the history of the country. In the half century between
1870 and 1920, the number of Americans employed in manufacturing jumped almost
450%, climbing from 2.5 million to 11.2 million. This created a vacuum that
encouraged immigration and, during the same period, 27.5 million immigrants
came to the United States. In order to support the country’s burgeoning
population, farmers increased the number of acres under cultivation by an
astonishing 234%_

[http://www.saylor.org/site/wp-
content/uploads/2011/05/HIST31...](http://www.saylor.org/site/wp-
content/uploads/2011/05/HIST312-Industrialization-and-Economic-Growth-
FINAL.pdf)

~~~
Mikeb85
> n the quarter century following the war, America’s economy grew at the
> fastest rate ever in the history of the country.

This is exactly my point. Fastest ever growth. 1945-1970.

> In the half century between 1870 and 1920, the number of Americans employed
> in manufacturing jumped almost 450%, climbing from 2.5 million to 11.2
> million. This created a vacuum that encouraged immigration and, during the
> same period, 27.5 million immigrants came to the United States. In order to
> support the country’s burgeoning population, farmers increased the number of
> acres under cultivation by an astonishing 234%

This is simply population growth. Economic growth, as a metric that actually
matters to quality of life, is defined as Real GDP per person.

[http://arxiv.org/pdf/1205.5671.pdf](http://arxiv.org/pdf/1205.5671.pdf)

If you look at the main chart in this paper, you will see the growth was,
relatively speaking, rather flat throughout the gilded age, which was also
characterized by wild swings in the economy. Growth becomes higher and more
constant after WWII (largely due to the rather left-wing policies at play that
started with the New Deal, and later the restrictions imposed during the war,
and high tax rates immediately after the war).

~~~
icebraining
>This is exactly my point. Fastest ever growth. 1945-1970.

They are talking about the Civil War.

>This is simply population growth. Economic growth, as a metric that actually
matters to quality of life, is defined as Real GDP per person.

First, it's not just "simply" population growth. Try ferrying 27 million
immigrants to current Southern Europe and see how the GDP fares.

But more importantly, I just don't get the idea that GDP per capita _inside
the country_ is the only metric that matters to quality of life. Dozens of
millions of people were able to increase their income by coming to the US,
that doesn't count?

What you're essentially saying is that if a country has ten people earning
$100 each, and then ten more people who were earning $2 in other countries now
join the first ten (whose income is unaltered) but earn only $5, the quality
of life has been reduced.

To me this is simply nonsense unless one doesn't care about the quality of
life of immigrants.

~~~
Mikeb85
Here's a fun chart for you. US real GDP per capital from 1790 to the present:

[https://www.quandl.com/data/MWORTH/0_5-United-States-Real-
GD...](https://www.quandl.com/data/MWORTH/0_5-United-States-Real-GDP-per-
capita)

Here's nominal GDP: [https://www.quandl.com/data/MWORTH/0_0-United-States-
Nominal...](https://www.quandl.com/data/MWORTH/0_0-United-States-Nominal-GDP)

> They are talking about the Civil War.

My bad. I forget about these things since I'm not American.

> First, it's not just "simply" population growth. Try ferrying 27 million
> immigrants to current Southern Europe and see how the GDP fares.

A certain economic development model says growth is a function of technology,
labour, and capital utilization. Assuming there's excess capital available,
more population growth will always lead to economic growth. Whether or not you
actually believe the model doesn't matter, economic growth has generally
followed population growth, according to data.

> What you're essentially saying is that if a country has ten people earning
> $100 each, and then ten more people who were earning $2 in other countries
> now join the first ten (whose income is unaltered) but earn only $5, the
> quality of life has been reduced.

That's essentially what slavery was...

> To me this is simply nonsense unless one doesn't care about the quality of
> life of immigrants.

This is a different discussion altogether. We can see today, in places like
Saudi Arabia, migrant workers come and are unable to attain anywhere close to
a living standard the Saudis enjoy, is that the model we want?

Also, the US can't take in 6+ billion immigrants. Nice thought, but not
possible.

And finally, I'm well aware of the plight of immigrants and those in 3rd world
countries - my wife is an immigrant from a 3rd world country. However, when
you factor in the cost of living, it's not always an upgrade (in my wife's
case, she's done well so it is, but many of her family are in worse condition
in Canada than back home)...

~~~
icebraining
_Here 's a fun chart for you. US real GDP per capital from 1790 to the
present:_

I understand that GDP per capita didn't grew much during that time. I just
don't think it disproves the idea that the economy grew; that's the GDP, and
it did grew a lot.

I also don't agree that GDP per capita is the metric that matters to quality
of life. Like I showed, GDP per capita can drop despite an overall growth in
the quality of life of every person. And it can also grow a lot despite
quality of life generally dropping, if a few become fabulously wealthy while
most people become a bit poorer.

Dividing the GDP by the number of people is simply not that useful in
determining how wealthy the median person actually is.

On the other hand, here's a report on wage growth during that time:
[http://www.nber.org/chapters/c2500.pdf](http://www.nber.org/chapters/c2500.pdf)

 _This is a different discussion altogether. We can see today, in places like
Saudi Arabia, migrant workers come and are unable to attain anywhere close to
a living standard the Saudis enjoy, is that the model we want?_

The discussion regarding the model we want is the different one. It can still
be a model with economic growth and even improvements in quality of life. That
doesn't mean better models don't exist, nor did I claim so.

 _That 's essentially what slavery was..._

Right. Except this was after the Civil War, and these were actual immigrants,
not slaves.

 _A certain economic development model says growth is a function of
technology, labour, and capital utilization. Assuming there 's excess capital
available, more population growth will always lead to economic growth. Whether
or not you actually believe the model doesn't matter, economic growth has
generally followed population growth, according to data. (...) Also, the US
can't take in 6+ billion immigrants. Nice thought, but not possible._

Why not, if the economy will just automatically grow, as you write?

