It floors me how anyone, especially anyone with even a basic STEM background, could look at a growth curve that approaches infinity that rapidly, then turn around and say 'gee, I wonder if tinkering around the periphery of the system would solve the problem'.
No! Clearly some central mechanism has gone horribly awry.
The only explanation I've ever seen that adequately accounts for those curves is inflation. Inflation drives up prices, both of goods and of assets. A higher cost of goods narrows the margins for wage-earners (i.e. the poor and middle class), and higher asset prices inflate the net worth of people who earn income from assets (i.e. rich people) — this effect compounds over time.
If I'm wrong, please, convince me. Article & book recommendations gladly accepted.
One of Warren Buffett's annual reports (I forget which year, but I think it was the late 1990s) had an interesting observation: inflation doesn't affect all firms equally. Instead, it pools where there is a competition bottleneck. If you are the monopoly provider in a market, you have complete and total ability to raise prices in response to your customers having more money available to pay. If you are in a very competitive market, then every time you try to raise prices, some other entrant undercuts you and your customers and suppliers capture the surplus instead.
The Fed, however, measures inflation based on a basket of goods bought by the "average" consumer. Most of these goods are in competitive markets: groceries and gas and consumer electronics. And so the measured inflation rate that the Fed uses to control the money supply significantly undercounts the true inflation rate, with much of the money injected into the economy pooling in differentiated industries like high finance, elite universities, health care, Google & Facebook, etc. From there, it doesn't circulate the way it should, because people in those industries need few goods that the average American produces. Instead, it goes into asset prices, as they try to buy up more future earning potential.
I've suspected that maybe a simple way to fix this would be with "helicopter" Bernanke's crazy idea: drop money out of helicopters. Maybe not literally (imagine the fights on the ground!), but perhaps the Fed could inject money into the economy at the bottom, through direct deposit into consumer's bank accounts or tax refunds, and then collect it from the top, through fees on banks. That way, the money is immediately spent, and so the true effect of the money injected is more easily measurable in the CPI.
> I've suspected that maybe a simple way to fix this would be (snip) to drop money out of helicopters.
Wouldn't a simple way to fix this, be to change the relative importance of the "basket of goods" so that it reflects what real people actually spend money on?
Because housing, healthcare, and daycare/education when totaled should probably be 60-75+% of that basket, since that's where most people's money actually goes. Based on this - https://www.bls.gov/news.release/pdf/cpi.pdf - the percentages the Fed currently uses seems far, far too low.
The cost of gasoline going up 50%, or the cost of laptops going up 50% is far less hurtful than say, the cost of rent going up 50%, or the cost of healthcare going up 50%. I suspect if we used realistic numbers for inflation cost calculations, we'd see the real rate is far higher than is currently claimed, which would help economists better understand why so many people are suffering so much under a "good" economy.
The Fed already tries to adjust the basket of goods to reflect what real people spend their money on. The problem is that the average dollar is not reflective of the average person. Dollars are concentrated among the rich; that's what inequality means. The rich spend their money on asset purchases like buying stocks, real estate, and businesses. To my knowledge, asset prices are not included in the CPI at all. If all the money that the Fed pumps into the economy ends up being concentrated in Facebook and then is used to buy Whatsapp for $19B, that doesn't count as inflation at all. So they keep pumping money into the economy, it keeps going to the 1%, asset prices keep rising, and the rich get richer while the poor get nothing.
If anything should be progressively taxed its individualized capital gains. It is simultaneously very healthy to incentivize everyone to invest a bit in capital, and extraordinarily detrimental to the health of civilization to let capital concentrate without any impediment.
When do you assess the tax? If it's at any predictable interval of time, it opens the market up to massive manipulation schemes where people crash their own stocks to avoid paying taxes and bid up their rivals so they'll be forced to owe a massive tax bill.
You could I guess take an average over time to avoid the manipulation efforts, but then you still run into the issue many dot-com paper millionaires faced, where they were assessed a tax bill based on the paper value of their options but when it came time to pay it, the stock wasn't worth enough money to cover the taxes.
That's why we have the current system, where capital gains are taxed as income (though at a lower rate), but only when you sell them. That's the only time when you can put a fair value on the asset being sold, when it's convertible into the currency you actually plan to pay the taxes with.
IE, buy all the stock you want. It doesn't matter. The dividends you get, and any payout you get from selling those stocks (even for immediate reinvestment) count as income.
People aren't awarded money arbitrarily... Nobody will pay you more than you're worth. If a good hedge fund manager is able to make 1000x as much as a good doctor, he is worth 1000x as much as a good doctor, by definition, no matter how distasteful that might seem.
I believe @utexaspunk is saying that salary should be tied to the amount of social good you do.
You are saying that the market sets salaries based on how much value you create, as measured in dollars.
And he wouldn't be in my bracket so he doesn't have to deal with struggles either.
That would be great but think of the difficulties. Firstly, which politicians would support it? Most politicians spend their time fundraising ( begging the wealthy for money ).
Can you imagine the future of such politicians?
Especially now that corporations can donate as much as they want?
Secondly, the ultra-rich will simply move money/assets offshores in hidden accounts. A lot of them already do that to avoid paying taxes. If it were to increase, a lot more money will go underground.
Thirdly, citizenship is something that can be bought and sold in modern society. The ultra-rich will buy citizenship in countries with lower taxes and simply move their companies/assets there. Look at what the pharmaceutical industry has been doing the past 10 years.
The problem is that the international world order is corrupt and the wealthy write the rules/laws. Even if there was a raise in taxes, they would add a loophole for the wealthy to bypass it.
The Australian Government did just this during the Global Financial Crisis, https://en.wikipedia.org/wiki/Rudd_Government_(2007%E2%80%93...
It included a lot of measures, such as an increase in infrastructure spending and tax cuts, but one of the most interesting was the $950 AUD outright cash payment to individuals earning less than $80,000 AUD a year.
Australia did not feel the Global Financial Crisis nearly as much as other countries, and it is argued that the stimulus package was a big part of that.
There are concerns that the stagnation of wage growth we are seeing now is our economy paying for the stimulus package but I am waiting for a thorough retrospective report to make comment.
I find/believe shadowstats.com to be more accurate than the gov't stats on inflation and unemployment.
Interestingly, they never seem to adjust inflation upward because of product debasements (other than price per unit in a bundle), so that seems to bias the numbers.
> Dudley tried to explain how the Fed sees things: Yes, food prices may be rising, but at the same time, other prices are declining. The Fed looks at core inflation, which strips out volatile food and energy costs, to get a better sense of where inflation may actually be heading.
Guess exactly when food and energy costs were declared volatile. If you thought "when they went up" you'd be right.
If you disregard those actual inflation is 5%.
It seems like you have a lot of different prices in the economy, and if all prices stay the same, except milk goes up 20% and yachts fall 20%. How much has inflation changed? You have to pick some way to weigh the prices. And it seems to me that the best way to do this is weigh them by how much the average consumer is spending on them.
It was intended as an emergency measure to help the poor when grain prices had risen sharply due to meager harvests.
Today we can produce so much food we have to come up with creative ways to keep it valuable - subsidies, dumping it, etc. We've "lost" a ton of agriculture jobs since that experiment was tried, because we can do it with less people. Seems reasonable to transfer those gains back to the people instead of all of them going to the guy that owns the harvester.
Imagine where we would be if instead of baling out the banks after 2008, letting those banks fail and forgiving the loans they held. Millions of Americans owning their houses free and clear as well a having an extra few thousand dollars a month to spend or save.
Inflation the hidden Tax
" Although inflation causes generally rising prices, it should not be understood as detrimental to all parties involved. It is highly lucrative for the government and the banking industry. When new money is printed (today, created electronically), it greatly benefits the first recipient because assimilating the new money into the economic organism takes time. Those first recipients (government and banks) can purchase goods and services at the old prices. As the money slowly works its way through the economy prices are bid up. Eventually when it reaches the salaried workers, prices have mostly adjusted. This process is a hidden tax on salaried workers, or anyone who receives the money late in the cycle. It is especially detrimental to those on fixed incomes, such as pensioners. Not only does the government understate the effects of inflation in its official numbers, any price decrease that would have occurred as a result of productivity gains are denied to the consumer as well. Inflation is nothing but wealth transfer. The government prints money and buys stuff with it. Prices rise and the salaried worker can buy less stuff. All the stuff the salaried worker could have otherwise bought has accrued to the government. Simple. Politically, it is far more palatable than raising taxes because the process is badly understood and well obfuscated. "
(Note that the graph on the parent article is inflation adjusted. "Note: Inflation-adjusted annual average growth using income after taxes, transfers and non-cash benefits.")
The idea of a 17% mortgage is frightening.
Inflation from 1946-1980 (34 year period): 322.6%
Inflation from 1983-2017 (34 year period): 145.9%
Actually, this disparity growth has been driven by the extremist anti-inflationary policies of the Federal Reserve Bank under Alan Greenspan and his successors. Reduced of inflation allows accumulated wealth to mean more over time, whereas higher inflation puts pressure on workers to demand (and obtain) wage increases and keeps the inequality in check.
You have this backwards. Inflation allows those with debt (leverage) to disproportionately capture a larger percentage of wealth.
Those with more debt make out better... who do you think has more debt? Inflation is wealth transfer from the lower and middle class to the upper class.
The minimum wage stagnated starting in the 1970s and fell to a lower level (adjusted for inflation) from the '80s onward. The federal minimum wage adjusted for inflation around 1970 would be around $9-10/hr now. As a share of per capita GDP, which the minimum wage used to roughly track, the minimum wage has fallen much more. If we were at the equivalent levels to the 1960s it would be near $20/hr right now. That combined with a shift in the balance of power from labor (unions, etc.) to employers has translated into depressed wages for the working and middle classes for the last 40 years or so. And from that everything else follows.
And if you think some central mechanism has gone horribly awry, what central mechanisms changed around 1980?
Disclaimer: I don't know enough about this stuff to make a definitive argument.
The Copyright Act of 1976, perhaps? If we look at the list of wealthiest Americans, most of them are there because they provide something to the world that nobody else is able to directly copy. Without competition, there is no mechanism to spread the money around.
To my original point, though, making money off of a copyrighted work represents income from an asset, the value of which compounds over time, due to inflation.
I'm not sure it is that broad to begin with. The 99.999 percentile of adults with these near-infinite income gains represents only ~2,000 people. While wealth and income aren't the same thing, I expect there is a lot of overlap with this list that outlines 400 of the potential names.
If you look at how they made their fortunes, many are directly attributable to copyright. Bill Gates certainly wouldn't have topped the list if anyone was free to copy/resell Windows.
> To my original point, though, making money off of a copyrighted work represents income from an asset, the value of which compounds over time, due to inflation.
Increased value of an asset does not necessarily translate to increased income. A primary residence, for instance, is a good example. The value of your home may be increasing, but nobody is paying you to live there. Many people are quite happy to pay top dollar for an asset that generates no revenue on the hope that capital gains alone make the purchase provide returns.
But you do rightfully point out that those who have entire control over a certain asset have complete control over the streams of money directed at that asset. That is not exclusively limited to copyright, but changes to copyright opened up a whole new set of wide-ranging assets to hold that were previously not there. Anyone holding hard assets was presumably already milking it for everything it was worth, thus, while incredibly profitable, not increasingly profitable.
An exponential growth curve is an exponential growth curve, irrespective of what it measures. Thanks anyway for the pedantry.
> And if you think some central mechanism has gone horribly awry, what central mechanisms changed around 1980?
In 1974, the US dollar switched from being a store of value to a store of debt: https://www.amazon.com/Creature-Jekyll-Island-Federal-Reserv...
And sometimes it's hard to have a discussion with someone when they don't understand the fundamentals of a field.
However it would be nice if you went into detail as opposed to just linking to that book. It's not part of the standard economic body of knowledge so I don't think it would be appropriate to expect your would be arguers to read it, especially when the author's wikipedia page is
G. Edward Griffin (born November 7, 1931) is an American far-right conspiracy theorist, author, lecturer, and filmmaker. He is the author of The Creature from Jekyll Island (1994), which promotes theories about the motives behind the creation of the Federal Reserve System. Griffin's writings include a number of views regarding various political, defense and health care interests. In his book World Without Cancer, he argues that cancer is a nutritional deficiency that can be cured by consuming amygdalin, a view regarded as quackery by the medical community. He is an HIV/AIDS denialist, supports the 9/11 Truth movement, and supports a specific John F. Kennedy assassination conspiracy theory. Also, he believes the actual geographical location of the biblical Noah's Ark is located at the Durupınar site in Turkey.
Other people have cited links elsewhere in the thread , and I don't feel especially compelled to be redundant. Not sure what to suggest other than googling some Austrian economists and their views on inflation.
Aren't there multiple schools of thought about economics? How do I know which one is the Right One to believe? Do they differ fundamentally on some levels?
I feel like googling for some school's teachings runs the risk of drinking one side's kool-aid, without even realizing what the counter-viewpoint is. Is there a good way to get a neutral overview of the different economic schools of thought, other than taking courses at a local university?
Mainstream economics has a much larger reliance on empiricism(especially recently after the Great Recession invalidated a lot of Chicago school models).
They differ fundamentally but like any field you should start with the mainstream. Start with the consensus of how the recognized leaders of a field agree on how the world works. Then start branching off into sub-fields(some of which will be labeled quackery like the Austrians). This doesn't mean they're wrong. Many times a sub-field is labeled as quacks before the mainstream finally accepts them. But more often than not the mainstream is right.
Some recognized leaders would be Greg Mankiw(representing conservative mainstream economic thought) and Paul Krugman/Brad Delong(representing liberal mainstream economic thought).
Also I think the best way to start an education in a particular field is with a textbook. They are great overviews of a field.
> I think the best way to start an education in a particular field is with a textbook.
Many of their followers forget the fact that they are thinking in simplified models. If reality seems to contradict the model, it is because the reality is somehow deficient from the ideal of the model and if we could only just shape reality to be closer to the model...or so most economic arguments seem to go especially when it comes to public policy.
Wikipedia is actually pretty good at being a neutral source in this area.
Understand the implications of the inevitable simplifications and you'll avoid drinking anyone's Kool-Aid.
I'm also not aware of James Watson's wacky ideas about biology. I know he has some controversial and maybe racist ideas about intelligence, but I don't think any of his ideas about biology are described as quackery.
And its about Bayesian inference, sometimes the mainstream is wrong. Not as often as it's right, but sometimes it's wrong. Sometimes people without credentials make large contributions to a field, not nearly as often as the credentialed make contributions but sometimes. Rarely a conspiracy theorist is right. But I think people who maybe don't know that much about economics should at least be aware of his position in the field before investing considerable amount of time reading his book.
Maybe vaccines cause autism, but it's a weird place to start a biology education.
On the second, thanks for the reference, haven't read that. Would be interested to hear how you think that change would lead to these effects.
Okay, slice the upper quartile and graph it over time. Now it's a proper growth curve, but it communicates the exact same idea.
> On the second, thanks for the reference, haven't read that. Would be interested to hear how you think that change would lead to these effects.
Quick thought experiment that expands on my explanation in the original comment: Suppose you have (a) a wage-earner who spends 90% of their income on goods & saves/invests the other 10%, and (b) an investor who earns an income from assets, spends 10% on goods and reinvests the other 90%.
Now (for the sake of simplicity) suppose inflation is 10% per year. What happens after year 1? What about year 2?
It seems plausible that over a long term, the top marginal tax rate can have a non-linear affect on growth. If safe returns on investments outpace inflaction+taxes, then you have exponential runaway of inequality.
Between 1980 and 1982 the top marginal tax rate dropped from 70% to 50%. This is a large change in a short period of time, and the tax rate drops continued until 1989 when 28% was the top rate.
There is a similar, but less drastic pattern for capital gains: https://www.fool.com/retirement/2017/02/11/a-95-year-history...
Inflation doesn't affect your day to day purchases much. Prices go up, but wages go up too (wages are just prices on labor) so it cancels out. What it affects is savings and investments.
Your typical middle class person has some savings and a big mortgage. Their net worth is positive but their net cash is negative. Inflation effectively shrinks their debt over time, making them better off.
Poorer people living paycheck-to-paycheck without significant assets or debts aren't much affected either way.
Wealthy people probably hold equities and bonds rather than cash, so they're not much affected either.
The people who are hurt are people with large cash hoards, in excess of any debt they may hold. Which I think is not a particularly significant proportion of the population.
I wonder about the long period of low inflation we have being the problem. The Fed puts the brakes on the economy all the time, to prevent inflation.
Inflation would imply that everything is increasing in cost at about the same rate. Instead we have ballooning costs for a few critical expenses(housing, eductation, healthcare).
As inflation is also a form of government intervention (insert hand-waving gestures re: the Fed not really being a government agency), I think the principle still holds, but generalizes to something I can't articulate succinctly off the top of my head.
Its kind of difficult to find the similar strand in all of them to be honest. That's the reason the article ends on such a sour note: he never really figures out what's causing this.
The possible solutions are innumerable.
#1 Labor glut.
#2 "Surplus" (profits) of increased productivity not shared with stackholders.
#3 Transfer of tax burden from corporations onto the people.
Prof Sonia Marciano has an interesting theory for the why and how and when #2 happened.
"Bigger Isn't Always Better" Jul 26, 2017
"In recent years, there has been a palpable shift in the nature of the US economy. Corporations are getting bigger at an unprecedented rate. The share of US corporate income earned by the 100 largest firms is at a staggering 85 percent. Facebook has 77 percent of mobile social traffic, Amazon controls 45 percent of US e-commerce, and Google has an 88 percent market share in search advertising. We can connect the shift in the business landscape to the observation that Americans today are highly divided economically, socially, and philosophically.
The L2 Digital Leadership Academy, led by faculty from NYU Stern, Kellogg School of Management, Harvard Business School, and L2 researchers, is a two-day conference rooted in business fundamentals coupled with tactical sessions on digital topics.
Sonia Marciano has been a Clinical Professor at the Stern School of Management since July, 2007. She is currently the Stern academic director for TRIUM – a joint executive MBA program that includes Stern, LSE and HEC. Prior to Stern, she was at the Columbia Business School and prior to Columbia, she spent 2.5 years at Harvard’s Institute for Strategy and Competitiveness (ISC), where she developed content for the Institute’s Microeconomics of Competitiveness course which she co-taught with Professor Michael E. Porter.
Before HBS, Professor Marciano spent eight years as a Clinical Professor of Management and Strategy at the Kellogg School of Management, while also lecturing at the University of Chicago. She has also taught in both executive and full time programs for the Wharton School and Yale SOM. Currently, Sonia teaches core strategy as well as electives in advanced strategy and global competition. In addition, she teaches strategy and economics for corporate executive education programs in the U.S., Canada and Europe.
Sonia has won several teaching awards for distinction in teaching, most recently for best professor Yale’s, Kellogg’s as well as in Stern’s Executive MBA programs in 2010, 2011 and 2012. She was among the highest rated management professors at Stern, Columbia, Harvard, Kellogg and the University of Chicago.
She received her BA with honors from the University of Chicago. She worked in consulting, banking and the insurance industries before returning to the University of Chicago to receive her MBA in 1994, and her PhD in Business Economics and Industrial Organization in 2000."
Technology - Here is a simple thought experiment. You have 10 cashiers each are paid $100 a day. The total expense for these workers are $1000. The store in total makes $10000 a day. The owner nets $9000 a day. New technology comes out that replaces workers, you now only need one machine that costs $100 to maintain a day. The store owner nets $9900. Now just imagine this kind of replacement happening at every level of society.
Globalization - With technology comes better ways to communicate with foreign countries with cheap labor. Take the same experiment but instead of replacing workers that cost $100 a day with machines, we replace them with foreign workers or undocumented immigrants which cost $1 a day. Your total expense is now $10 a day. The store owner now nets $9990 a day. This also happens at every level of society.
This is the cost of efficiency and technology.
If the end game is 100% automatised then basically 100% of income will be produced by machines/robots/algorithms owned by a tiny proportion of human population.
If you are capable of making 10 billion fidget spinners, you're going to lower your prices until as many people can afford fidget spinners as possible.
The other thing I often hear from people that don't view this as a problem (not suggesting this is you OP)is that, yes, its true that, the income of the top 1 percent has grown but so has the income of everyone else (save for the bottom 5%) just not at the same rate. Your standard of living has increased slightly over just maintaining (matching inflation).
Personally I think its still a problem because like it or not humans tend to get upset when there is perceived (and in this case real) injustice in the distributions of productivity gains despite not strictly being worse off.
I notice a lot of this in the hierarchy working at F100 company. The higher up you go the more managers pat themselves on the back for the productivity gains seen at the company. For them increasing productivity is a mater of the size of the bonus. For those on the production floor working harder/smarter becomes a mater of having a job or not.
"You got a 20% raise this year, because this year I 'billed' you $15k for the medical services and comped it, while last year I 'billed' you $5k and comped it. (Cash salary of $45k.) Yes, the service was physically the same but we wrote it down as being worth a lot more!"
Did you really get a raise? You don't know, because that "fee" is almost entirely unhinged from actual market dynamics. That's an extreme version of the current situation, but illustrates why it's not the same as increased real compensation.
I keep seeing a lot of statements/articles/op-eds/etc saying things are fine because if you look at the data, you see that the average (insert measure here) actually hasn't changed much. Those charts show why such a statement is a fallacy.
> less to favor the affluent
We already have progressive tax brackets. For crying out loud, the top 20% of earners shoulder 84% of the tax burden of the federal government. Where does that number need to be in order to silence the socialist rabble-rousers? 90%? 95%?
I've only received 1 answer to my question, and it involved allusions to bloody revolution, so I'll ask again:
Where does that number need to be?
Secondly, the entire point of a progressive tax system is that the utility of wealth is not proportional to the amount of wealth. Doubling the wealth of someone below the poverty line can completely change their life, whereas someone with $10 million net worth lives much the same as someone with $20 million.
Progressive tax rates allow us to extract more wealth from the rich (who don't "need it" as badly) for the benefit of society as a whole. You can call that socialist if you like.
Here's an interesting thought experiment: Temporarily imagine our economy as a barter exchange between the rich and the poor. If the exchange rate between goods and services provided by the rich and goods and services provided by the poor remains constant, then no tax policy could ever possibly change the income distribution.
Much like I'm going to ignore the ad hominem of suggesting anyone who sees the current American economy as less-than-perfectly fair is a member of the "socialist rabble-rousers", you seem to be ignoring the fact annual taxable income represents a smaller and smaller percentage of one's assets as income increases. There are hundreds of exceptions, loopholes and incentives that are tilted toward the better off. Why do I get to write off some of my mortgage payments on my taxes simply because I can afford to take on a mortgage?
A. Because it's popular with swing voters.
B. Because it puts your purchase of a financed house on a more equal footing with a commercial landlord's purchase of that same house from a tax perspective. (Interest expense incurred in a bonafide profit-seeking business endeavor is tax deductible. If your private mortgage were not equally tax deductible, the tax policy would favor for-profit landlords over private homeownership. I believe that there are valid public policy reasons to encourage private homeownership at least to the extent of putting it on equal footing with commercial real estate leasing.)
To be very specific, if tax policy didn't do this, commercial landlords could literally bid more to purchase a given house than a private buyer could for a given projected rent [real or imputed] and investment hurdle rate. You could argue "well, then disallow all interest deduction!", which is a policy change that's been floated somewhat frequently, including recently, but is more complex and needs study [IMO] rather than simplistically eliminating the mortgage interest deduction and assuming that would make housing more affordable or more evenly accessible.
> X increasing is an indicator that Y is increasing. Therefore we need to increase X more in order to make Y decrease.
The issue is that inequality is growing to a point that there is a potential for social, economic, and political destabilization. How do you propose the issue be addressed? Because it should be apparent that trickle-down economics isn't occuring, and I don't see how things can improve without some sort of wealth redistribution.
I would actually recharacterize Piketty's (and the author of this chart) argument as:
"X increasing is a symptom that Y is increasing. Let's implement policy A. This may temporarily increase X, but it will stop Y from increasing, which will in turn stop X from increasing in the long run."
"Percent of income tax burden landing on top 20% of income earners" isn't a figure anyone is particularly interested in engineering or specifying for it's own sake. Where do you think it "should" be, and how can you justify it?
This is an emotional, not a rational appeal: "Won't someone think of the well-looked-after?"
The top 20% of earners earn more than half of the earned income that exists to be taxed. You could increase taxes on the rest quite a lot without actually collecting much.
Honestly I thought my household was in the top 20%. I was going to write that sometimes our financial situation feels tight, but that taxes aren't really the reason. But it turns out I was wrong; in 2015 we were probably third quintile. Should make it to fourth quintile this year.
I suspect a lot of people think they're higher on the ladder than they are. It's hard to percieve just how high the ladder goes.
An easy way to lower that percentage would be to lower their share of income. If your income share grows disproportionately it's to be expected that your tax burden grows disproportionately too. You are also forgetting that their tax rates have gone down a lot in the last 30 years.
A few years ago I went to a seminar put on by Fidelity about trading options. A person asked about minimizing tax liability. The trader who was doing the seminar said something that stuck with me since: "if I'm being taxed, I'm making money. So I don't worry about the tax burden."
All your stat shows is that the top 20% are making the money, and the rest aren't.
As for an answer to your question, you should know that it isn't as simple as a single number. For instance, why come about October do I no longer make Medicare and Social Security payments? Of all people more capable of taking that hit, I instead get a discount. Everyone else gets taxed on every dollar they make, but myself (a relatively wealthy person in that 20%), I don't pay Medicare and SS tax on about 25% of my income. Why? I make a pretty good sum on capital gains every year. Why is that taxed at a lower rate than income, when all I did (at most) was click a mouse button a few times?
IOW, any single sentence solution for a complex situation, be it the Middle East or taxation, should be ignored.
Income tax is less than half the revenue of the federal government. Payroll taxes are huge, and disproportionately borne by the poor. Excise taxes are huge, and disproportionately borne by the poor. Overall, including state taxes (which are strongly regressive as well) the US has very close to a flat tax system, not progressive at all.
Income tax is not synonymous with the tax burden. The article states it's less than half:
> The individual income tax remains the most important levy in the U.S., providing nearly half of federal revenue.
For example if we set a taxation of 99% over 1 billion dollars, you pay 99% only the parts exceeding that limit
Assuming you earn 1 B and one dollar, you pay 99 c. more taxes, and that's it
It is a simple way to discourage accumulation of improductive wealth
Second: the bulk of state taxes income is not from salaries it's from corporate taxes, but corporation are very good at avoiding them.
Many people would say: It needs to be whatever results in roughly equal income growth across all income percentiles.
BTW, your comment is yet another indication that Hacker News is infiltrated by people likely to be paid to post pro-hyper-rich propaganda. I mean, what's in it for you to oppose a more progressive tax rate except to prove your deep misunderstanding of the power of capitalism to push all the money to one corner?
So what if the rich pay for everything. Look, man. The poor have nothing. There's nothing left. They're not going to retire. They'll work until they drop dead. They don't get decent health care. They'll die from avoidable, treatable illness. And if conservative Congress had its way, there'd be less Medicaid. Oh, and now they want to take away the right to sue elderly nursing homes. At what point do you decide that torturing your fellow American is enough?
Be careful here. It's one thing to disagree and to point out percieved logical fallacies. It's another thing to group everyone who disagrees with you into a category that you dismiss. People very easily form an us-vs-them mentality due to our tribal evolution, and this line of thinking has the potential to go down that path.
I'm not thin-skinned enough to consider this a threat, but I do think its inflammatory enough to be in violation of HN's guidelines.
As for the accusations of astroturfing, I don't know what to say, but I hope this paranoia that is increasingly common on the internet goes away. It's downright unhealthy.
I do agree with your point on the astro turfing, your comment didn't come across as one to me, but I have been noticing myself thinking "oh, this must be a paid for comment" more and more. I'm not sure if this is healthy skepticism or not.
On topic. I largely agree with both comments. The top 20% shouldn't be asked to even pay as much tax as they currently are. I like the idea of a progressive tax system, those with the strongest shoulders carry the heaviest burden. But this is clearly, to me, too much.
Additionally this shouldn't be fixed by lowering taxes. The top 20% shouldn't be in a position that they make so much more than the remaining 80%. We need to fix a system of work not paying enough, large companies exploiting workers and poor healthcare and education systems.
I think we're awfully close to agreement here. I'm hesitant to advocate attempting to engineer this by forcing higher pay. I just don't believe we can snap our fingers and collectively decide that the output of our workers is worth more than it is.
I don't know the exact problem or solution, but I believe that our technology has failed us. Our modern technological advancements have been laser-focused on displacing human labor, rather than enhancing it. We're making automated systems where the few human operators left at all are more replaceable and therefore less valuable. We need to find technological solutions where the combined output of automation and expertise of humans are leveraged together. That was what built the middle class in the first place. Not shaking down the wealthy.
Why can't we snap our fingers and decide the output of workers is worth more than it is? We have many many dillusions of value. Value works by people collectively agreeing something is valuable, that's the history of value.
Why are you so focused on the tax burden stat? What is the significance or takeaway from that? Are you arguing that rich people's lives are being too adversely affected by their income taxes? Are you saying poor people should pay more taxes? Are you basically arguing the libertarian/objectivist view that the government shouldn't be meddling in free enterprise?
As others have argued, I would say that relative income tax burden alone is not a great indicator of much.
Oh, please. It would take some pretty thin skin to even remotely take this personally, rather than as a reference to The Revolution(tm). "First against the wall...", that kind of thing. And, personally, it's a statement worthy of a moment's thought or two, as I'm sure there's a breaking point. I just couldn't say where that might be. Perhaps a 95% top tax rate would forestall that for just a little bit.
In general I find these "you're better off poor now than rich in the past" articles really highlight how thick the author's bubble is.
Either way, the justifications are the point of my comment. He starts off with luxury homes being hard to travel between and traveling the world when many Americans don't travel internationally at all or even move out of their state.
I'd throw in that his first point was one I MOST agreed with all things considered. I can't deny A/C is important to all Americans, and basically makes the sunbelt hospitable to humans. And about 80% of Americans do fly so they might miss that (1) (however, should be noted about half fly less than once a year, it might be possible a lot of people only flew a long time ago in better times. I can't find the data though so that's the most I'll say).
For his other points:
Red Curry and Vindaloo Chicken? In a time where popping in the microwave or ordering fast food is at an all time high compared to preparing food or actually going out? A lot of people would be happy just to have a personal chef even if it's only local food.
The internet being gone? What a shame that people lose out on the largest source of depression in their lives! In 1916 you have the advantage of occupying yourself with activities modern society has stamped out, like English fox hunting or playing IRL Sims with a company town! Funny thing about that second part, since paternalism was already dead and towns in general was in decline, it kind of makes the argument that it would be better to be rich even further into the past.
Medicine's a bit of a wash. Modern Medicine is effective but you need to actually afford it in the first place. For a lot of people, it would just be a trade of actually having some treatment for not having as many vaccines. Speaking of which, 1916 was around the time anti-vaccination had lost in the original argument. Now its gaining steam again, so they might not even have that benefit soon. Dentistry is better, but its telling he only mentions the toothbrush. 22% actually floss, and its a bit telling the amount of people that getting a cavity before adulthood is the complement (2). I'd imagine a lot of people would be fine with dentures if it was still socially acceptable like it was in the past. They're already fine spending money to cosmetically have better teeth instead of actually taking care of them.
Overall, its a bit funny that, when you think about it, the article is basically written by a staunch right libertarian, but sounds like it was written for every stereotype of the "liberal coastal elite". Reminds me of that Popehat article where he realizes that while he's libertarian he's probably more "coastal elite" than the left overall.
(Also, by spreading the wealth more evenly, society would likely progress faster. Less solid gold iPhones, more standard iPhones. Less Bugatti Veryons, more Tesla Model 3s.)
Isn't it intriguing that in all of these talks and comparisons of now to "the good ol' days", whenever you pick those days to be, it's seldom mentioned that the world population grew by multiple billions since the comparison started? There are twice as many humans on the planet as there were in 1970. What that means for income distribution isn't for me to say, but it seems a safe bet to assume it's at least _related_.
The problem doesn't seem to be taxes, but division of profits. Almost none of the gains seen by the 1% would have happened at all if the bottom 50% hadn't produced them.
No one person "earns" 10M or 100M per year. No one's 24/365 is that productive. It's done by keeping a larger share of the pie than the people who do the actual production.
Start with the (IMO) problem, not the side-show. I really don't care how much my CEO is taxed. I just want a fair share of gains.
For instance, the reason the US can have cheap produce is cheap, illegal labor
In this world, everyone would slowly move up the curve according to their tenure/age.
However, if we believe that people should have income growth more dependent on their willingness to work (rather than just income percentile) then over time, with high income growth on the low end, those most willing to work would move up.
In this world, then the income growth is a dependent variable of 'willingness to work' and logically would move up the income percentile over time as labor re-sorts itself into higher income growth percentiles based on that willingness to work.
One simple chart doesn't tell you much. It'd be best to see cohort effects across this time period to see if the bottom percentile is a bunch of 18 year old kids now (millennials), versus a bunch of prime age baby boomers itching to work hard.
Having said that, the cohort effects I've seen are reassuring, but there are still big issues. The main point is that this chart isn't that great at saying anything conclusive.
Accounting for inflation is not scientific. Its a social science. A median household can afford more of and better quality things today than the past, but some measures of inflation will not account for this correctly.
This is why in both theaters you see trends towards oligarchy - the will of the people has no demonstrable influence on the behavior of congress, whereas wealthy interests have correlation. The demands of the many (cheaper housing, accessible healthcare, strong transit infrastructure) are ignored for the wants of the few (real estate investment bubbles and stock buybacks) because the few have so much more influence than they did before in the form of their wealth.
Its like going to a lunch time business meeting and there is a slice of pizza waiting for everyone. Great! a free slice of pizza. Next week there is still a slice of pizza for everyone but the senior manager now gets a steak dinner. People naturally get upset and the reason is not just because someone got more than someone else. The food didn't come out of no where but was payed for by extra money the company gained through everyone working harder and smarter (productivity gains). And when everyone asks why they don't get something other than pizza they are told that yes the company did better but it was really only because the work this senior manager put in.
Now people are usually okey with not having exactly equal pay and benefits as long as they generally believe that the extra pay is justified because those higher up are working harder or have more valuable experience. I think when you get to the point that the CEO effectively says he is working 1000X harder/smarter than everyone else there is a problem.
And really maybe the CEO is 1000x smarter and works that much harder, but, at the end of the day, perceptions matter.
Yes it's good, but it's not good enough.
Ever since the FED bailout, the wealth of has grown by leaps and bounds.
Usually, in economic booms, the wealthy took the lion share of the wealth and threw the crumbs to the middle/lower class in the form of income growth. But not this time.
It's also reflected by the decline of unions.
1. the fixed pie fallacy. You actually need separate evidence to suggest that the 1% are taking away income growth from the rest of the percentiles.
2. The 1% generally makes the most in good times, and loses the most in bad times. The chart did not seem to include asset devaluation loses - e.g. the housing crises, stock market loses, investment losses etc. This is a huge omission. The past 34 years may also not be a very representative prediction of the future.
3. There is nothing morally wrong with income diversity, particularly if the poor still live long lives, are not hungry, have access to modern technology, transportation, and modern entertainment. I personally think income diversity is a good thing. As my right bias, I believe generally that "Disparities are natural and just" , and not "Disparities are due to injustices" - Fired Google Engineer.
2 We're talking about income, not profit and loss from capital. Different things.
3 You seem to be arguing that the poor are living long lives, are not hungry, and have access to transportation and adequate health care. They are not living as long as their wealthier contemporaries, many are hungry, and many are in circumstances where their desperation is readily taken advantage of by those that are not in desperate circumstances. Inequality is not, in and of itself, bad but inequality in which some groups are desperate and taken advantage of by those better off because their alternative to a negotiated agreement is total loss is bad (if you care about things like moving toward market efficiency, anyway).
4 The fired Google engineer spent 10 pages setting up ridiculous straw people and knocking them down. He attributed a rigidity and absolutism to those he disagrees with that doesn't exist and allowed himself extreme (and sometimes contradictory) flexibility in side stepping imagined counters. And he still managed to make himself out as a bigot. I'm not sure quoting him is a great way to make any kind of point.
2. Income can be negative, yet the NYTs did not even touch losses. Change in wealth is what people care about, it makes more sense to compare, and it what people naturally assume when we compare income over time. NYT were comparing revenue only and calling it income purposely to hide the full picture.
3. yes, but the gap in lifestyle is small is my point. Smaller than any point in history. Whether you think diversity is natural and just, or injust, is more opinion however. Not worth going into that further.
Keep in mind, despite any income changes, a larger fraction of todays wealthy income goes to investments than any time in history. Because of this, while they may be incredibly rich, their QoL is not as vastly improved by income changes as the past. Most investments will be in things that have very little impact on their QoL, foreign homes, stocks, bonds, etc. I think this is because today it is easier to reach a level where you are satisfied with your QoL, and don't see the reason to consume your income in QoL changes than in the past. Profit from these investments will generally be reinvested, not consumed on QoL.
4. That single point was well stated. I'm not quoting the whole thing - just giving attribution.
What point in history are you benchmarking against? If you are comparing the current moment to pre and early-Industrial periods, then yes the gap is smaller. That's hardly a standard by which to judge the moment though.
If, however, you are comparing it to the lifestyle gap of a generation ago, there has been a clear increase in the gap. Key goods that are the bedrock of a high quality of life: healthcare, education, decent housing - have become far less accessible to the working class and poor than they were in the recent past. No quantity or variety of cheap electronics and entertainment can make up for the loss of a huge number of people's ability to purchase those goods.
The life expectancy gap has continued to close since we started measuring it, nationally and globally.
The education gap is closing too, more people are college educated today than at any time in the past. In the recent past, only the elite could afford college. This gap has only been closing, with or without government intervention.
As for 'decent housing', the housing quality gap between the rich and the poor has never been smaller either. Today poor homes are just as good at rich homes at things homes should do. Both poor and rich homes are similarly good at keeping out weather conditions, at heating, cooling, having bathrooms, kitchens. Even in the recent past this was not true. Yes, rich homes are bigger and made of more luxury materials - those both have a tiny impact on quality of life compared to the measures I've given. The housing quality of life gap has closed tremendously, and has only continued to close. The gap is small as-is. I see little reason to close it further.
This article is referring to the US, not the whole world. In the US, the life expectancy gap is increasing between the rich and the poor:
Life-expectancy is also not the end-all of health care, just one indicator. Prior to the CHIP program, many poor children had no access to preventative health care at all.
> more people are college educated today than at any time in the past. In the recent past, only the elite could afford college. This gap has only been closing
More people have degrees, but the goal-posts have also moved considerably and a college degree (depending on the type) doesn't have nearly the value in terms of job prospects that it used to have. Just citing the degree rate doesn't provide any of that very important context.
When it comes to primary and secondary education, the gap between rich and poor is considerable and persistent:
> Both poor and rich homes are similarly good at keeping out weather conditions, at heating, cooling, having bathrooms, kitchens.
Take a drive through a very poor section of a city or rural area, say in the rust belt or in a rural area, and you will find that this is often not the case. Beyond the home itself, these locations often have worse infrastructure: buckled roads and in recent cases contaminated water.
> The gap is small as-is. I see little reason to close it further.
No doubt, for people who think as you do, all of the above disparities are totally acceptable, a natural state of affairs, and we as a society should just stop any efforts to further mitigate them.
Correct. But I have no issue with people that want to help. I just wish they'd stop literally forcing others into their cause.
Sure, it's not a full picture and I agree with you that wealth would be much more complete but it is also orders of magnitude harder to compare.
Despite the gap in lifestyle being smaller than at any point in history, history is a dismal stick to measure by. Smaller doesn't mean small. Not being able to afford daily common medicine is not a small problem. Having little choice but to get a loan at 1300% to 3000% per year interest in order to fix your car to get to work or lose your job is not a small problem. Having to work every waking hour to afford food and shelter for your kids or they go hungry is not a small problem.
We've made progress and that's great but I personally don't think that we've made it until people have the freedom to choose for themselves and that includes the freedom to correct their past missteps. If a person chooses to have a kid at 15, for example, chances are that dictates a life path (a series of severely limited choices) that is devastating in terms of what they can provide for themselves, their children, and society. It is a waste.
As long as resources are needlessly wasted because a class of people's decisions are weighed down with desperation and the specter of immediate physical suffering for themselves or their loved ones then there is too big of a gap.
I have nothing against disparity and everything against desperation.
We are close. I think it is possible (perhaps for the first time in history) to solve desperation, at least in the US. It is frustrating that the tide of opinion seems to be shifting away from that goal. I think if we reach that level and eliminate desperation we will see some remarkable things happen in the market. When 50 million people are trading for gain rather than to tread water or worse, we will see an explosion of value creation. Will some people end up with more than others? Of course! Largely, I hope, according to their ability and willingness to do something useful with those resources. But until we eliminate desperation we will never know and we will always be trying to balance the desperate classes losses against everyone else's gain.
They have their bread and circuses, what are they complaining about?
That said, I don't deny that disparities still exist. Disparities are natural and just, and I have no problem with that.
Along with that, if you still want to help the poor and donate your income, go do it! I think it's a great thing. And importantly, nothing is stopping you. You don't even need to government to help you. There are inumerous private charities more than willing to help you.
I think you have a pretty poor understanding of what it means to be poor in the United States.
Just consider the consequences of what it truly means if you don't have the ability to cover for an emergency that would cost $1000 to fix. That's the reality for millions and millions of Americans.
You don't have to even start thinking about the lack of access to quality education, healthcare and other essential services to see the absurdity of your claim.
To compare their living conditions to how it was in the middle ages is just moronic. The poor in middle ages still had it better than the poor saps who had to fight saber tooth tigers on occasion.
I'm comparing the ratio between the living conditions of the poor to the rich in the past, and to the poor to the rich today.
The ratio has never been smaller, but the NYT would never admit that.
This has been true from the beginning of history ~4000BCE til now.
Or rather, whether or not you have experienced what the living conditions of the poor are.
I dropped everything and moved across the country when I was 20. I had nothing. I lived in a run down house that was originally a three story single family home but had been subdivided into five apartments. My bathroom had mushrooms growing through the floor boards at the base of the tub and toilet. One of my neighbors was a prostitute turning tricks out of her apartment. Which I suppose was tolerated because she was "dating" the landlord's alcoholic brother who also lived in the building.
I spent about three months living on plasma donations plus my girlfriend at the time's meager wages. I hauled laundry three blocks for the privilege of paying $50 to get a week's worth of clothes washed. The central heating was garbage so when the snow storm came that winter we were sleeping in our winter jackets and layering thermal underwear. Trying to go to a grocery store for food was an adventure...riding the bus with one transfer to a different line out to the store, then a ride back carrying all the bags.
I ate more rice and beans and potatoes than I want to remember.
And that wasn't even that bad to be honest. There are conditions that people live in which are much, much, much worse than that. In terms of dilapidated housing where, no, they don't get to keep out the elements, and no, they're not guaranteed to be free of lead or asbestos or other known contaminates. Food insecurity. Lack of clothing. And don't even start on access to health care. Forget about mental health care.
It's a totally different world being poor. Contrasted with the lifestyles of even the moderately well to do today I think the gap is quite enormous.
2. I don't think UBI is the solution. Have you met any trust fund babies who don't have to work? Do you think it's wise to create more of them?
Yes, if what you mean is "is it wise to let anyone who has no desire or ability to work subsist at a level where their basic needs are met?"
Yes, if what you mean is "is it wise to separate subsistence and health care from work, so that creative destruction of jobs does not condemn the displaced to bankruptcy, homelessness and a shorter lifespan?"
No, if what you mean is "is it wise to allow the wealthy to create further generations of trust-fund babies who have no incentive to do anything?"
What is your basis for believing that UBI would create more of them? UBI would be ... universal, so A) society would better adapt since it's pervasive and B) there's no way any single individual would have access to a trust fund baby lifestyle off it.
Take a look at the animated graph in the middle of the article. There was a lot of movement under Clinton and Bush Jr. as well. Obama didn't fix it, of course (or even stop it), but it's not fair to single out Obama for your scorn.
The biggest % change was during the years 2003-2008 and as far as I can tell the chart peaked in 2011 and receded slightly after that.
You mean for failing to convince the general public that Hope is a good approach when faced with a broken economy?
Please correct me if Im wrong with an amount.