
Rising US Inequality: How We Got Here, Where We're Going - atlasunshrugged
https://www.gsb.stanford.edu/insights/rising-us-inequality-how-we-got-here-where-were-going
======
sokoloff
“But the last 50 years have been terrible for people with lower skills.
Adjusted for inflation, the average earnings of a man who didn’t go to college
is lower now than it was 50 years ago. That’s unheard of.”

How much of this effect is the vastly higher percentage of people who now go
to college? If you line up 100 people by vague estimation of their likely
earning potential in 1970 and do the same today, but now 2.5 times as many
people attend college, the population remaining with "no college" in 2020
isn't really the same population as it was in 1970.

~~~
kazen44
Also, how much of this effect is basically the rest of the world playing catch
up in terms of economic production?

China and the rest of Asia are magnitudes more competitive compared to 50
years ago. And prior to that US industry was unmatched thanks to the massive
effects world war 2 had on the other, western industrialized nations.

~~~
deogeo
> Also, how much of this effect is basically the rest of the world playing
> catch up in terms of economic production?

If the rest of the world becoming more productive results in US workers being
worse off, then something is severely wrong with US trade policy. For one, it
contradicts the dogma that more trade is strictly beneficial.

~~~
cycrutchfield
>For one, it contradicts the dogma that more trade is strictly beneficial.

It is strictly beneficial, in aggregate. But in any situation, there are
winners and there are losers. There are no decisions you can make where
everybody wins. If you live in a first world country and your skill set is
worse than somebody in the developing world, you’re going to have a bad time.

~~~
deogeo
> But in any situation, there are winners and there are losers.

The usually trotted-out theory of comparative advantage claims there are only
winners.

~~~
ACow_Adonis
again, only in the aggregate/ entity of measurement level.

I would argue anyone who says otherwise is either being disingenuous or
doesn't actually understand economics.

That is not to say that is not trotted out frequently.

Also, to be fair, during my economics education they had this whole focus on
modeling policies and finding optimizations where no one is worse off.

Of course, in the real world, that practically never happens... and there is
an argument that the focus on efficient/competitive markets/
equilibria/rational agents is also a bit "wouldn't it be nice if the world was
actually like this...", whereas in the real world only the most trivial
goods/markets can vaguely be described as such...

------
car12
I wonder how much effect immigration has had on the matter of inequality.

I'm going off these assumptions:

-> Lesser immigration would've led to a higher GDP/capita figure for US.

-> More resources to subsidize college and lesser cut-throat competition for jobs.

-> Employers would be forced to pay higher wages and people would be more easily to retrain for different jobs.

-> Bonus points: We can help Africa and South american countries with a much higher monetary amount and resources to help them catch up to a developed world status.

~~~
pjc50
Huge assumptions there. And some significant work has gone into investigating
the first and found it's the other way round: [https://www.oecd-
ilibrary.org/docserver/9789264288737-8-en.p...](https://www.oecd-
ilibrary.org/docserver/9789264288737-8-en.pdf?expires=1561925471&id=id&accname=guest&checksum=2A3252FE21068EDB1E66CE9EB3362356)

> We can help Africa and South american countries

It would be a significant improvement if the US stopped "helping" South
America. Allende would like a word.

~~~
Kiro
The effect you're talking about is not instant. If you get a lot of asylum
seekers in a short time your GDP/capita will take a hit until they've been
integrated into society and become a net positive.

~~~
car12
And that period to get assimilated and become net positive might be a period
of +- few decades which is an insanely long time in today's world of super
fast moving money and economic conditions and 4 year hyper partisan election
cycles.

------
gleb
Most of perceived rise in inequality is actually growing healthcare costs.

[http://www.econtalk.org/mark-warshawsky-on-compensation-
heal...](http://www.econtalk.org/mark-warshawsky-on-compensation-health-care-
costs-and-inequality/)

"Using data from the Bureau of Labor Statistics, Warshawsky shows that because
health care benefits are a larger share of compensation for lower-paid than
higher-paid workers, measures of inequality and even measures of economic
progress can be misleading or distorted. "

------
lilsoso
The credibility of the article is undermined by hyperbolic statements such as,
"For a lot of children, when they’re 8 years old, it’s too late. If your
parents aren’t engaged in the education system, in 10 years you’ll be
competing in the labor market against people whose parents sent them to violin
lessons and summer programs in the Dominican Republic. There’s inequality of
opportunity."

It's too late for "a lot of children" by age 8? And you're underprivileged if
you didn't attend a summer program in the Caribbean?

~~~
hn_throwaway_99
I think that's an un-generous interpretation of the quote.

Yes, I think there is good evidence that if you are in a poverty-stricken
family and you don't get very early intervention, that by mid-elementary
school it _is_ too late for your _average_ poor kid. The reason being that the
rest of your environment of poverty is going to be pretty much pulling against
you the rest of your childhood, so intervention while your hopes and goals are
not yet formed is your best bet.

And come on, the author wasn't saying if you didn't attend a Caribbean summer
program that you're underprivileged. I believe he was just using that to
highlight the pretty extreme lengths that middle class and above parents go to
provide their children with educational enrichment (including music lessons,
sports programs, summer camps, etc.) that put poor kids at a lifelong
disadvantage.

~~~
lilsoso
I largely agree with you. But the following line from the article is
devastating, "For a lot of children, when they’re 8 years old, it’s too late."

And this mawkish line is published under the banner of Stanford, an arbiter of
the truth. I expect better.

edit:

My comments seem to have sparked a nerve. I simply wanted to point out bad
rhetoric that undermines the cause and weakens an institution of trust. The
situation is bad, so there's no need to exaggerate or lie to deliver the
point. And this isn't a partisan issue. A conservative like Thiel would
deliver a similar message.

There is, however, a pernicious insinuation in that quote. The notion that if
you haven't achieved x by y age you're done. That's a debilitating notion. And
we have it in the tech community, if you can't code by z age give up. Or if
you haven't achieved some startup success or some corporate title at an early
age you're a failure.

~~~
hn_throwaway_99
It is possible for both to be true: For many children, if they have not had
early childhood intervention, by 8 years old it _is_ too late, but that for
_any individual_ child, they can still improve their lot later in childhood
(or even, of course, well into adulthood).

As a similar example, it is _extremely_ likely that a child who is overweight
or obese by middle school will be overweight or obese their entire life, and
many scientists and clinicians believe that it is much easier to prevent
childhood obesity than try to correct the weight imbalance later on. That
doesn't mean that some people who are overweight kids won't eventually lose
the weight and keep it off.

Hanging on to the hope that people can change at any point in life does not
mean we should ignore the fact that many of our personality and social
"guiderails" are laid down pretty early.

------
DoreenMichele
_A large portion of what reduced inequality was the destruction of wealth
during World War II and the fact that the U.S. benefited afterward from being
the last standing industrial economy._

I seriously doubt that.

We shipped essentially all able-bodied men off to war, so much so that we
filled a lot of jobs with women. Birth rates were low because the men were
physically absent.

People were encouraged to grow Victory Gardens so farm food could feed
soldiers. Tobacco, sugar etc were all rationed. We stopped making cars and
converted car factories to keep factories.

A lot of families had two incomes, no children and couldn't spend their money
on luxury goods because they simply weren't available. Savings rates during
the war were extremely high, above 50 percent some years.

The boys came home, bringing veterans benefits with them. This included help
buying a house and going to college.

Unlike with modern lottery winners, this formula did not encourage people to
just blow their money frivolously. They began buying houses at such high rates
we invented new ways to throw them up quickly, giving rise to the modern
suburb.

Celibacy, low birth rates, frugal living, hard work and high savings rates
helped reduce inequality. A lot of that could be replicated. We just don't
typically have the self discipline to do so individually.

~~~
ahaferburg
I'm not sure what you mean by that last sentence. Are you saying if only the
poor were better with money they'd stop being poor?

~~~
DoreenMichele
I'm saying there were large-scale forces at work during WW2 that forced many
people into that pattern. It's much harder to do on an individual basis
without those forces, but can be done sometimes.

Among other things, I paid down debt while homeless. My last student loan
payment was made in July 2017. I was back in housing in September the same
year.

Of course, your framing sounds like I'm being accused of blaming the poor. I'm
not. I'm just questioning the assertion of the article because it honestly
doesn't fit with what I have read of history.

The Baby Boomer generation is the children of the WW2 veterans. It was a very
widespread phenomenon.

There are factors at play now that are definitely different from then. Most
new houses in the 1950s were about 1200 sqft. Now they are nearly 2500 sqft.

We desperately need to do something about our housing supply. But most people
don't want to.

------
maxxxxx
Other than "We’ve also had a combination of tax and regulatory policy that has
encouraged capital formation and increasing returns to capital, so labor’s
share of returns has decreased. The last round of tax policy out of Washington
made this worse." it seems they have nothing concrete to say. I definitely
agree that capital should be taxed at the same rates as labor. Maybe there was
a time when it made sense to tax capital lower but right now we don't seem to
lack investment money but we lack demand.

------
xwdv
I wonder if multiple people of low incomes may someday pool income together
and use it to buy housing and food that they can all use to live comfortably.
I feel this may be the only way to solve the inequality crisis.

~~~
ikeyany
You are describing roommates/co-ops.

------
dnautics
Of course, no mention of inflation, the policy choice which robs from the poor
and gives to the rich.

How does it rob from the poor?

[https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-
hi...](https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-
inflation/)

"when you have very low inflation, getting relative wages right would require
that a significant number of workers take wage cuts."

In other words, inflation is a policy choice to combat sticky wages, which (if
you think that's a problem), the solution is to, apparently, screw labor by
devaluing their wages from under them.

How does it give to the rich? The eroding value of the currency all but forces
individuals and, e.g. pension funds, to dump resources into the stock market,
venture investments, etc, which are largely playgrounds of the economically
advantaged.

It also has unfortunate side effects like consumerism and environmental
destruction, but that's outside of the scope of the OP.

The timing lines up, too. What happened 50 years ago that caused the
divergence? With the ending of Bretton Woods, Nixon closed the gold window
which was the last thing holding back policy from rampant inflation.

~~~
nabla9
> In other words, inflation is a policy choice to combat sticky wages, which
> (if you think that's a problem), the solution is to, apparently, screw labor
> by devaluing their wages from under them.

This is complete misunderstanding of how this works. Inflation does not
increase the real return from stock markets. Inflation erodes also capital.
Capital must work just to stay still.

Inflation or not, the wages reach equilibrium. You can't improve the aggregate
sum of wages by deceasing inflation. If nominal wages are too high the
equilibrium is found trough periods of unemployment. Small inflation keeps
unemployment and friction in job markets in check.

Small inflation keeps income inequality in check.

[https://www.cepweb.org/wp-
content/uploads/2014/05/CEP_WP_Inf...](https://www.cepweb.org/wp-
content/uploads/2014/05/CEP_WP_Inflation_and_Income_Inequality.pdf)

>Inflation and Income Inequality in Developed Economies

>We find a U-shaped link between long-run inflation and income inequality. Low
inflation rates are associated with higher income inequality. As inflation
goes up, inequality decreases, reaches a minimum with an inflation rate of
about 13%, and then starts rising again

~~~
imtringued
>This is complete misunderstanding of how this works. Inflation does not
increase the real return from stock markets. Inflation erodes also capital.
Capital must work just to stay still.

I think you made a basic mistake there. The assumption you're making is that
the inflation is spread over every single citizen. In reality there is no
reason for that to happen. It is equally possible for all inflation to happen
in the stock or housing market which is inaccessible to the average low income
worker. Therefore the one who is staying still is the low income worker.

~~~
dredmorbius
Asset price inflation != currency devaluation.

There are structural incentives to inflate asset prices (free wealth to the
holders), though those aren't ironclad (bubbles burst). Bernhard J. Stein's
work (1930s - 50s) is interesting here.

Commodity price inflation tends to have different mechanisms, as does wage
erosion. There are other classes of economic goods, including public goods,
taxes, interest and (in some cases distinguished from assets) capital goods.

For all that Adam Smith discussed these (the better parts of books 1, 2, and 5
of _Wealth of Nations_ ), they are, IMO, poorly considered in most modern
economics. Marginal analysis only explains part of their dynamics.

I'm also increasingly convinced inflation is a symptom rather than a
fundamental problem.

------
astazangasta
>Because the low-wage jobs that left here are considered really good jobs in
China. We’ve lifted a billion, two billion people out of poverty over the past
30 years.

This sort of shit is the worst. People in China doing well is not our problem,
just like people in Germany doing well is not our problem, and there is
something deeply racist at the root of this suggestion, as if poor people in
China are stealing wealth that rightly belongs to Americans. This is not how
productivity works. The people stealing from Americans are rich Americans.

------
roenxi
The article is a lot more substantive than the headline, but the frame that
_inequality_ is the problem will lead to 'solutions' that do not solve the
real problems.

The root problem here is clearly that living standards are at risk of
dropping. That is not necessarily linked to inequality - inequality can rise
in tandem with living standards. The policy tools that raise living standards
are not the same policies that promote equality (the experiences in the 20th
and 21st centuries suggest quite the opposite).

If people became rich relative to their ability to raise living standards -
which is the main line of defense for capitalism as a system, by the way -
then we expect higher inequality because the people who figure out how to
raise mass living standards by small amounts should become disgustingly
wealthy. The problem is that current policies are making people rich who
aren't productive members of society. They are making idiot bankers rich who
set us up for things like the '07-'08 financial crisis, then bailing them out
when it looks like the market might call their bluffs.

------
cleandreams
Living standards have gone down and life has become much more economically
insecure for most working people as a result of the policies that economists
recommend. This includes globalization, free trade, low taxes, destruction of
labor unions, and the like. The authors support these policies. These changes
have been accompanied by a political system that no longer represents the left
behind. So of course the losers are not compensated; that is by design, not
accident. I think we have the choice to either become more equal or face
increasing political instability and viciousness - and the latter is more
likely, witness Trump, Brexit, etc. I have lost respect for economic analysis
because it has been so out of touch with political and social consequences as
to be hugely destructive to the fabric of society. Much more of this and I
hate to see what will become of our society.

~~~
devonkim
Economists have not necessarily been blind to social needs - policy makers and
politicians benefiting from a revolving door of oligarchs enabled by various
institutions culturally stationed to manipulate a larger population into
working under these few for smaller and smaller pieces of power. Milton
Friedman made it quite clear that a free market doesn’t provide a social
safety net in any way and that a population that doesn’t succeed in the market
should need some basic way to survive or we’s face huge social unrest. While
America had social security and Medicare early on, we’ve dismantled their
efficacy with a toothless, captured government while private sector has gained
in power enormously in the form of multinational corporations the Founding
Fathers all distrusted (they were no fans of the British East India Company).

I think we’ll have one or two more larger scale revolutions before people
around the globe learn that consolidated power of any sort whether it comes
from religions, the public masses (populism), government, corporations, or
perhaps even science is dangerous.

------
naveen99
their are natural limits to inequality. As successful people sell out their
will to compete. Good news is it opens up opportunities for not yet successful
people.

------
baybal2
Very simple — Dollar is a global reserve currency, and T-bills are of equal
prominence in the debt market.

Foreign holding of US debt increased by few times since year 2000.

The more US government borrows, the more TBills are there for purchase for
foreign institutional buyers at attractive prices.

Those are of course the real movers of the current account deficit: rates and
tbill market

US exports and labour will never be competitive until US can radically
rethinks its view on government spendings and debt policy.

------
twright
> Q: A much steeper income tax has gotten attention — some pitching even 70%.
> Is that possible?

> Oyer: I can’t imagine a 70% tax rate. And I don’t think we’ll see a
> universal basic income for a long time. These are hugely expensive ideas.

Then Oyer is experiencing a failure of the imagination as well as historical
recollection. Tax rates have been that high before. Today a marginal tax
income over what, 100 million at 70%--even 50%-- and there's suddenly a lot
more money to build a social safety net with.

