
Why US Inequality Is Worse Than Other Developed Nations - dempedempe
https://www.scientificamerican.com/article/the-american-economy-is-rigged/
======
dv_dt
> Some economists have argued that we can lessen inequality only by giving up
> on growth and efficiency. But recent research, such as work done by Jonathan
> Ostry and others at the International Monetary Fund, suggests that economies
> with greater equality perform better, with higher growth, better average
> standards of living and greater stability. Inequality in the extremes
> observed in the U.S. and in the manner generated there actually damages the
> economy.

An interesting passage in the article.

Edit: I think that refers to this paper, am not sure if that's the only
applicable reference.

[https://www.imf.org/en/Publications/Staff-Discussion-
Notes/I...](https://www.imf.org/en/Publications/Staff-Discussion-
Notes/Issues/2016/12/31/Redistribution-Inequality-and-Growth-41291)

~~~
neolefty
It sounds like a "moderation" issue — you need some possibility of inequality
to have a healthy level of motivation, but too much inequality leads to
poverty and limits human potential!

~~~
dv_dt
I don't think you need inequality per-se, you need some amount of direct
reward, but some amount of social reward for economic endeavors. Starving out
either side of that I think yields poorer overall results.

------
megaman8
The problem is not wealth inequality. The problem is lack of wealth. Even if
you taxed every last billionaire in this country at 100% and stole every
single asset from them, it still wouldn't get you anywhere: 2.7 trillion/ 300
million = roughly 8000$ per head, after that you'd get only tiny fraction, you
couldn't squeeze any more out of them because they don't have it.

Even those at the 1% mark may struggle to afford a home because if you're
earning that income, it means your paying through the nose on housing: 1.5M or
more for a mediocre housing.

It's time we faced facts. We're not nearly as wealthy as we think we are. and
it's time we started asking why? this question isn't easily answered and has
many many many reasons, many due to economics and our lack of understanding of
economics.

~~~
devit
Where do you get the 2.7 trillion figure?

According to
[https://en.wikipedia.org/wiki/Wealth_in_the_United_States](https://en.wikipedia.org/wiki/Wealth_in_the_United_States),
total household wealth is $54 trillion, or 180k$ per head.

[https://www.thebalance.com/what-is-average-income-in-usa-
fam...](https://www.thebalance.com/what-is-average-income-in-usa-family-
household-history-3306189) gives $48k average income.

So if all wealth and income were redistributed, you'd end up with 180k$ wealth
and $48k income, which is enough to buy an apartment and live well at least
outside the most expensive cities.

~~~
danielvf
The GP said take money from “every billionaire”, not from every person in the
US.

One surprising thing about America is that there is a very large, almost
invisible class of small businesses owners, good sales people, old farmers and
random professionals that have in aggregate quite a bit of wealth. More than
4% of the US population are millionaires.

~~~
malandrew
Yup. A lot of the reason the middle class is shrinking is because many of them
have joined the ranks of upper middle class.

~~~
malandrew
Here's some data to support this:

[http://www.aei.org/publication/yes-the-us-middle-class-is-
sh...](http://www.aei.org/publication/yes-the-us-middle-class-is-shrinking-
but-its-because-americans-are-moving-up-and-no-americans-are-not-struggling-
to-afford-a-home/)

People want to believe things are getting worse, but they are actually getting
better. What's changed is that negativity in journalism has increased.

------
LarryDarrell
Sometimes I try to extrapolate out current conditions. I always end up with
heavily policed cities for the protected class, ghetto suburbs and rural areas
for the ones who didn't choose the right parents. We seem determined to build
a caste system and in the US the Untouchables will be the ones who were born
without professional parents. Every five years or so there will be a Hillbilly
Elegy to remind the poor that it's all their fault.

This presumes that no trauma intervenes in between. Historically, war, famine,
plague and ecological disasters have done pretty well at reducing inequality.

~~~
staticautomatic
I always seem to arrive at "start over with an entirely new set of laws."

~~~
ozmbie
The combination of democracy and term limits means that iterative change
should be the norm. But something isn’t working right.

~~~
dv_dt
Have you heard of the Sugarscape simulation? It can be used as an economic
model showing interplay of wealth and taxation and inequality. I don't think I
would recommend setting economic policy based on this simplistic model, but
it's food for thought.

[http://greenteapress.com/complexity/html/thinkcomplexity012....](http://greenteapress.com/complexity/html/thinkcomplexity012.html)

[https://en.wikipedia.org/wiki/Sugarscape](https://en.wikipedia.org/wiki/Sugarscape)

------
adventured
US inequality is worse for the same reason the US produces unusually gigantic
corporations that other developed nations can't produce.

If you come up with a great business in the US, you can relatively rapidly
scale it into the world's largest economy (typically within one generation),
and it will make you extraordinarily wealthy. There's nowhere else on earth
that you can so easily do that, except for recently in China.

The fortunes of Gates, Buffett, Bezos, Zuckerberg, Page, Brin, Ellison,
Waltons, Ballmer, Koch, Knight, Bloomberg, Dell, Jobs, Musk, Hamm, et al. are
so epic precisely because of this effect. In Europe, their wealth at the top
is heavily dominated by dynasties that took multiple generations to build up.
You can more easily accomplish the same thing in one generation in the US.

Sam Walton faced off against huge retail competitors like Sears and Kmart,
starting from the middle of nowhere and one store. In his lifetime he was able
to scale it across the US, replace Sears as the largest retailer, and make
himself the richest person in the US.

If you wanted to tamp down on this effect, you'd have to apply an aggressive
living wealth tax. Otherwise it will continue to exist perpetually no matter
what (income taxes won't work, the US already has one of the most progressive
tax systems; death taxes won't work, that only cuts into dynastic wealth
transfer, not wealth built up in one generation).

~~~
burlesona
I understand what you're saying, but the tax system is not as progressive at
the highest ends as you might think.

Social Security Tax stops being collected once you've paid on ~$128k, so all
your income above that is taxed at a much lower rate.

Most wealthy people are able to significantly reduce their tax burden via
deductions that aren't that helpful to "ordinary" folks as well, and the very
wealthy can arrange for most of their income to come in the form of long-term
capital gains taxed at only 15-20%.

So in fact the US income tax system is relatively progressive up to the top
bracket of $418k/$470k (single/joint), which just happens to be the bottom of
the top 1%...

------
neolefty
> Feedback loop

> money influences politics ... converting higher economic inequality into
> greater political inequality. Political inequality, in its turn, gives rise
> to more economic inequality ...

The article is well-written and cogent, but at this point it seems like common
sense since we've heard and said these things so often, and they have become
so blatant.

"Tax reform", deregulation, lack of prosecution of financial crimes, lack of
enforcement ...

> And what we can do about it

But both parties seem to be captured by wealthy interests. I don't mean to be
both-sides-ist — there are profound differences between the two major parties
— but is there any non-destructive way for them to break free of that embrace?

Someone tell me how we can reform our system — realistically — without another
Great Depression?

~~~
dv_dt
Honestly the "solutions" portion of this article was fairly weak to me. Or at
least they were thing that have been fought over before and need to be won
still. Perhaps also start looking at solutions constructed differently then
the ones on already hard-fought political paths.

One example: a Social Wealth Fund distributing a universal dividend

[https://www.peoplespolicyproject.org/projects/social-
wealth-...](https://www.peoplespolicyproject.org/projects/social-wealth-fund/)

One thing I don't really like about that specific proposal is that it proposes
a single federal management agency of the fund. I think politically and risk-
distribution wise it would work out better if the fund were distributed in
management. So split the single large fund into a single federal collection,
and its management divided into state or regional subfunds so that state
residents can both watch and be involved in their respective state's
management.

------
kryogen1c
> the largest defense expenditures (almost equal to the next 10 or so
> countries put together)

Not interested in reading an article that starts with this deliberately
misleading "fact".

US spends a lot because it has a huge economy.

[https://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS](https://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS)

~~~
bmmayer1
Fascinating. I didn't know that the US military budget is a third of what it
was 60 years ago. Yet another example of the media / popular perception being
basically uncorrelated with reality.

~~~
dieterrams
>I didn't know that the US military budget is a third of what it was 60 years
ago.

It's a little over a third of what it was 60 years ago _as a percentage of
GDP_. And this is in line with most other developed nations.

As a percentage of the _federal budget_ , military spending accounts for 16%
of the total budget, and 54% of discretionary spending. The US also spends
2-3x more per capita on the military than France, the UK, and Germany.

~~~
tcbawo
60 years ago we were scaling down from the largest scale military action in
human history and in the process of repurposing industrial capacity from
military to peacetime.

------
pcardh0
This article doesn't mention the large number of illegal immigrants in the
United States. To what extend does this affect income inequality? A large
supply of unskilled labor would tend to keep wages lower.

Maybe the US should keep the unskilled labor market tight(er) and then wages
should rise.

~~~
andybak
Does the US have more illegal immigrants as a proportion of it's population
than other Western nations? I'm asking because I genuinely don't know. (I was
tempted to put quotes around illegal immigrants because it's a fairly
contested term but that would have possibly set the wrong tone)

I do get the sense that every country thinks they are a special case with
regards to immigration. We definitely seemed to go through that phase in the
UK.

~~~
d1zzy
If you're looking for a "better" term you could try using "undocumented
immigrants" as that's the term normally used in more liberal media.

