
Why the Rich Are So Much Richer - prostoalex
http://www.nybooks.com/articles/archives/2015/sep/24/stiglitz-why-rich-are-so-much-richer/?utm_medium=email&utm_campaign=NYR+Ukraine+Stiglitz+Jewish+terrorists&utm_content=NYR+Ukraine+Stiglitz+Jewish+terrorists+CID_b2cf8552a449621ee6f6a15876c4afbd&utm_source=Newsletter&utm_term=Why%20the%20Rich%20Are%20So%20Much%20Richer
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curtis
I thought this part was interesting:

 _So what’s really going on? Something much simpler: asset managers are just
managing much more money than they used to, because there’s much more capital
in the markets than there once was. As recently as 1990, hedge funds managed a
total of $38.9 billion. Today, it’s closer to $3 trillion. Mutual funds in the
US had $1.6 trillion in assets in 1992. Today, it’s more than $16 trillion.
And that means that an asset manager today can get paid far better than an
asset manager was twenty years ago, even without doing a better job._

~~~
crpatino
I find it hard to believe that there are 2 orders of magnitude more goods and
services being bought and sold in the economy that 25 years ago. Rather, the
complexity of financial instruments is the one that has gone up and up, but
there's not that much more real wealth to back it up.

If that is the case, the short answer would be "because of inflation".

~~~
unclebucknasty
Exactly. Much of it is just leverage and financial engineering.

Create derivatives of derivatives until you're essentially divorced from any
underlying real asset. Still, it's all counted.

~~~
da02
Pardon my ignorance of economics, but does US/FED policy and trillion dollar
deficits have anything to do with this? Along with other countries printing
more money? I remember reading Zimbabwe had the best performing stock market,
but it was fueled through the "printing press". And they had no choice but to
stop printing more.

~~~
parasubvert
Not specifically, though indirectly. The FEDs activities are intended to
counter balance the lack of economic activity and investment capital coming
out of the banks after the 2008 crises left them having to unwind their debt
positions globally. Someone has to keep the fuel spigot on - usually that's
the government but most did the opposite (austerity) due to politics.

What you're witnessing is a LOT of unused capital sitting around trying to
find low risk returns. Interest rates are low so money is cheap, and there are
only so many places to park capital, thus... Prices go up. Post 2008 Companies
aren't investing as much in the real economy: wages, productive capital, etc.
are stagnant. they're profit taking and retaining the profits. What's
important to know is that while assets are trending higher historically ,
these are all mostly paper assets - they're indirectly tied to the real
economy, and haven't completely become unhinged yet like in 2000.

See [http://mobile.nytimes.com/2014/07/08/upshot/welcome-to-
the-e...](http://mobile.nytimes.com/2014/07/08/upshot/welcome-to-the-
everything-boom-or-maybe-the-everything-bubble.html)

Zimbabwe was a case of hyperinflation. Which is what eventually happens when
you have more money than productive capacity - prices of "real stuff" go up
fast. But real inflation in the U.S. and Europe is very low by historical
standards. We are not going to become Zimbabwe.

~~~
da02
Thanks for clearing that up. What do you think the US govt & FED should/should
not do now?

~~~
parasubvert
I think they should keep doing what they're doing - don't raise rates or
reduce the monetary base (the $ trillions they keep on the books since the
crisis) until real inflation is clearly setting in. Asset prices can keep
inching up so long as they're not into bubble territory (which arguably
they're not yet).

The economy is in a much better position but it's still underperforming and
the labor participation rate is still historically down as so many exited the
labor force during the 2008 crisis and ensuing layoffs. Once some inflation
sets in, it's a sign the world is returning to "normal" (after 8 years!), but
.. no guarantees given instability in Europe, Middle East, Oil Glut, etc.

Usual disclaimers: I am not an economist, but minored in it & follow it; the
economics profession has a wide diversity of opinions, though I think my views
aren't particularly radical.

I also think the government should be ready to invest in our crumbling
infrastructure for the next downturn/crisis. The 2009 stimulus helped but was
not well allocated and was too small. That said it's unlikely congress will
pass any such thing for many years due to current politics.

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vikingux81
"So an unequal economy is less robust, productive, and stable than it
otherwise would be."

Given this is true and Stiglitz is correct, the inverse may also be true: An
economy that is less robust, less productive and less stable becomes more
unequal. This would create a positive feedback loop, which may seem dismal.
However if thats the case then strategies and actions that break the loop by
improving robustness, productivity, and stability of the economies of
individuals, groups and organizations may prove effective. Examples include
skills training to become more robust, infrastructure investments to improve
productivity, and orienting choices to improve stability could be implemented
from the individual up to global scale. Simple redistribution may prove less
effective.

~~~
x5n1
America was set up by the elite for the elite, that's what liberal democracy
more or less means protection of the minority from the majority so that they
may prosper and create jobs for the masses who can then get a piece. It was a
bunch of rich people who no longer wanted to pay taxes. So as they say, "good
luck with that". What should be more often than not never is because the power
structures keep things going a certain way and are hard to challenge unless
the system is designed from its inception for that.

As the system is running, the next thing is automation which is a junction
where you can challenge power but it's already seeming like that's also going
to go to the wealthy. They own the capital, they make the entire machine run.
They are in a word, "untouchable".

At best it seems like we'll get a compromise where we will be given a minimum
income to live our menial lives with a very low level of income. But then
again you don't need things to be happy. You just need time and enough
resources for an relatively easy life.

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ClintEhrlich
The article omits some of the basic information needed for making sense of the
data: What is the composition of the one-percent?

I doubt that corporate executives make up a significant percentage of the
super-wealthy, despite the attention the media pays to them. If that's true,
then _ipso facto_ changes in CEO compensation cannot account for most of the
structural increase in inequality over the last half century.

A more likely suspect is the influence of technology, which has interlinked
global markets so that the dominant players are able to extract significantly
more value than in the past. Outsourcing has suppressed wages while increasing
profitability, which naturally contributes to inequality. And in an
interconnected global trading system, economies of scale become more and more
beneficial, which consolidates resources among the top competitors in a given
field.

One interesting question is how the sharing economy will affect this
phenomenon in the future. Will the creation of 'Ubers for everything' drive
down wages even further by saturating labor markets with even more surplus
human capital? Will it destabilize some of the entrenched social hierarchies
in America by gutting the fortunes that legacy industries currently enjoy?

Another issue worth serious thought is which kinds of inequality are most
harmful to society and why. Is stratification of the middle class and the
hyper-rich the primary dilemma, simply because it accounts for the greatest
resource disparity on paper? Or in practice is America's social cohesion
damaged more by the smaller gaps between members of the other social classes?

Finally, how should concerns about inequality influence America's immigration
policy? If we view the current situation as a problem, then importing more
low-skilled laborers will exacerbate things. It's hardly a coincidence that
the super-rich are some of the strongest advocates of comprehensive
immigration reform. That may well be a desirable policy for humanitarian
reasons, but we should remember the relevant externalities.

~~~
pcurve
"I doubt that corporate executives make up a significant percentage of the
super-wealthy, despite the attention the media pays to them. "

I'm afraid you're wrong on this point.

[http://www.motherjones.com/mojo/2011/10/one-percent-
income-i...](http://www.motherjones.com/mojo/2011/10/one-percent-income-
inequality-OWS)

Corporate executives account for almost 3rd of the top 1%, even if you exclude
bankers. Throwing in bankers, and it's almost half.

I agree with you on that technology and automation are the main driver in
increased leverage against workers. And sadly, government and regulations
failed to counteract this leverage.

~~~
ClintEhrlich
That is interesting, but I'm persuaded that the top one percent was _way_ too
broad of a sample. (My lapse. Sorry.)

The wealth is concentrated within a narrow subsection of that group. And I
don't think that many of them became rich as corporate executives, unless you
are including entrepreneurs like Bill Gates, whose wealth was derived from his
ownership of a business, not as compensation for his work as an executive.
Actually, maybe it is reasonable to include them. But I didn't do so when I
made my earlier estimations.

Ownership of the means of production is the main intergenerational conduit of
capital, which naturally creates large accumulations of inherited wealth. The
fact that so many self-made people are now among the world's hyper-rich is a
testament to the strength of the technological forces powering startups. And
in a sense, Silicon Valley has created the most merit-based process ever
devised for crowning an oligarchy.

What's really interesting is to think in terms of power laws, which predict a
trillionaire within our lifetime. What would that level of divergence result
in? Will someone eventually create something so valuable that the equity takes
over a significant percentage of the global economy? (e.g. nano or AI
breakthrough)

------
wstrange
Some good points in the article, but I am not sure I agree with all of its
conclusions.

CEO pay is going through the roof because of a ratcheting-up effect that has
been going for years.

The board brings a consultant to evaluate the CEOs pay. Said consultant is in
tight with board, and is looking for their next consulting gig. Not a chance
they are going to recommend a significant cut, or a performance plan that is
aligned with long term (5+ year) shareholder interests.

I'd like to see CEOs treated like true investors. Want to make 50 million if
the company does well? Cool. Company loses money? You owe $60 million. The
current status quo is all upside for CEOs - they have no skin in the game.

~~~
tsotha
>I'd like to see CEOs treated like true investors. Want to make 50 million if
the company does well? Cool. Company loses money? You owe $60 million.

I'd like to see people not worry about what other people get paid. Unless
you're a shareholder, what difference does it make? It's not your money.

~~~
sumedh
> Company loses money? You owe $60 million.

How about the CEO does not get a golden parachute?

> Unless you're a shareholder, what difference does it make? It's not your
> money.

It is your money when you bail them out when a too big to fail company fails.

~~~
tsotha
>How about the CEO does not get a golden parachute?

How about we let the CEO and the board work it out?

>It is your money when you bail them out when a too big to fail company fails.

There's no reason to bail companies out.

------
blueyes
Two words: compound interest. To those that have much, much accrues. In the
absence of redistributive taxes, societies become unequal because math.

~~~
tbrownaw
Except that this has been observed to not happen. Wealth differences between
families have been observed to not compound across generations. Wealth
differences between nations also don't compound across generations.

So, there's clearly _something_ that stops reality from matching that nice
pretty math.

~~~
harryh
Shirt sleeves to shirt sleeves in three generations.

Money is much easier to spend than to keep. And if you didn't have the
discipline to earn it in the first place it's even easier.

------
spiralpolitik
As proposed by Thomas Piketty in Capital in the 21st Century, when "r > g"
(where r = return on capital and g = rate of economic growth) the rich (those
with capital) get richer.

Apart from between 1930 and 1975 (which Piketty suggests were unique
circumstances due to WW2) r has generally been greater than g.

~~~
hglman
There was an article on the projected growth of the middle class in china. If
that was to hold, it would support the point.

If everyone gets some linear growth to their income, those at the bottom get
the most %. So the pie shifts down. If its about leveraging existing capital,
then more capital means more for you and the pie shifts up.

------
dean
"... the policies that shaped the US in the postwar era: high marginal tax
rates on the rich and meaningful investment in public infrastructure,
education, and technology."

This is interesting in the context of the current GOP race in the States,
where the candidates continually speak about how America has become weak
compared to what it was in the past. It seems these kinds of policies
contributed to making it strong. But these kinds of policies are anathema in
GOP circles now. Ironic.

~~~
maratd
When the GOP candidates are talking about "making America strong again" they
are primarily talking about foreign policy, not domestic. American foreign
policy under Obama has been haphazard at best, frequently angering allies and
ignoring threats. They're focusing on that.

