I'm asking because I'm wondering whether it's "the rich are too rich" vs "debt is getting crazy" or somewhere in between.
Imagine an island with two residents. Alice and Bob. There is no difference between these two scenarios:
1: Alice has 1 seashell. Bob has 0 seashells.
2: Alice has 0 seashells. Bob has 0 seashells. Bob owes Alice a seashell.
Either way, Alice can go to bob and exchange her wealth for an apple. In scenario 1, she gives him a seashell. In scenario 2, she pays by voiding his debt.
Either way, Alice owns 100% of all wealth.
3: Alice has 0 seashells. Bob has 1 seashell. Bob owes Alice a seashell.
Once all the accounts are settled by Bob paying Alice the seashell he owes her, it becomes scenario 1, so this seems a better match for scenario 1 than scenario 2 does.
What I wanted to emphasize is that a dollar "In the bank" means nothing else then "The bank owes you a dollar".
And banks do not lend money they don't have. And where do they have it from? From other customers.
Ergo: Your $1 in wealth is someone elses $1 in debt.
Actually that is exactly what banks do. You go to the bank and take out a loan, they credit your account with $1000 and then you owe them $1000 and they owe you $1000. The thing balancing the cash in your account isn't some other customer's cash, it's the debt you owe them. The amount of physical cash in their vault as a result of you taking out the loan hasn't changed at all.
They're required to have a certain amount of cash in reserve to cover cash withdrawals, but that amount is not 100%.
Supposing we had a scenario where once all accounts are settled, Alice has 2 seashells, and Bob had -1 seashells, does alice have 100% of all wealth? 200%? (Equivalently, Alice has 1, Bob has 0, and Bob owes Alice 1)
(edit for everyone else: this thread is confusing because I changed my comment to respond to founderling's edit, but founderling responded to my original comment before I changed it... ¯\_(ツ)_/¯)
Alice has 2 seashells, and Bob had -1 seashells
does alice have 100% of all wealth
Housing is an obvious one - the rich accumulate capital, the gross inequality reduces the market for the "good" kinds of investment capitalism is purported to promote - small business creation, innovation, etc - so without opportunity - and wealth inequality diminishes opportunity society-wide - the rich will instead find other avenues to grow their slice of the pie. Buying politicians for tax cuts like were seen last year, speculative housing bubbles because of the few things that are scarce and nobody can opt out of land occupancy is one of them (and the poor want to move towards opportunity, almost exclusively found in cities in the modern era, where land capture can be made its most lucrative), stock buybacks in corporations, etc.
So housing prices go up, lack of collective power means the working class see no wage increases, debt has to increase to maintain lifestyle. Higher debt means less potential for upward mobility and the lenders are almost exclusively the rich - so you are constantly making short term loans where the interest is diverted from your productive gains right in the pockets of creditors.
But its not just housing. There are dozens of nigh independently influenced aspects of living in the US that are impacted by wealth disparity and the distorting effects its concentration have on liberty, prosperity, even security. But almost all of them cause increases in debt because as you get relativistically poorer the fixed costs of life go up and you cannot opt out of them.
Ugh I really wish we stopped caring so much about homeownership. Misguided pro-homeownership policies got rates unusually high in the mid 2000s, reaching almost 70% by 2005. It had no impact on wealth equality and almost certainly made the Great Recession worse, if not causing it entirely.
Since there’s such a large number of renters, what happens if we just convince them to ignore the non-renters?
We also know that the policies that fix this, namely a wealth tax and or extremely high taxes on the wealthy generally don't produce the results you want (the ultra-rich tend to find ways to avoid said taxes so only the minor-rich end up paying).
So what do we do?
Also, there are European countries like Germany with an income distribution pretty close to the US.
Wealth inequality is more about the influence money has in both micro and macro-economic and social contexts than "I want what they have". Its no different than how other monopolizations work - the more of a supply you hold, the more distorted the market is around you. The same applies to money. Except money impacts all aspects of society, all markets - it gives you a greater voice in government, gives you influence over the lives of upwards of billions of people, etc. Just taking away that power from private individuals is often by itself a net positive for liberty.
People have more purchasing power and access to goods/services than ever before. Perhaps the relative ubiquity of smartphones is the most emblematic sign of this. Put another way, things are better than they’ve ever been and even in the last ten years, quality of life has improved in many ways. So is there really a problem?
That's begging the question. Things are better for you, but is the improvement across the board or did the rich getting richer screwed over some people and made them even poorer?
Toilets are also a "near requirement" in any meaningful sense that phones are a near requirement. But toilets (and sewage more generally) are obviously quality of life improvements over what humans had in previous epochs of history.
Stated more succinctly: hasn't it always been common for major improvements in quality of life to eventually become the default, rather than the exception? Or am I misunderstanding your point?
Give someone a smartphone and Internet connectivity, and all of a sudden, they are a customer waiting to happen.
Point being, look at what is not ubiquitous. Housing, ability to get medical care, financial security enough to start a family...
Focusing on Net Access, and possession of the most powerful tool known to Marketing is an absurd metric from which to argue that systemic economic inequality isn't a problem.
Edit: also is housing actually in a bad shape or is it just that housing in the most desirable locations isn’t universally accessible to every income group?
Or maybe it’s that anyone without a contact number and internet connection is at a huge disadvantage in our society in 2019?
Here is a good meta-analysis of the research on it:
You don't fix this through income redistribution. You fix it by offering free/cheap education, healthcare, etc. this generally requires taxes and, yes, the wealthiest should bear the most.
But it's not about taking from the rich and giving to the poor.
It's about creating opportunities for the poor.
That's just income redistribution with a middle man. To be clear, I'm all for those things and I think they will help, but don't pretend it's not income redistribution, which mostly hits the mini-rich and not the ultra-rich.
And lots of small things like making it easier to vote, more polling places so that people aren't waiting around for 5 hours, better civics education in highschool so that young people know how to engage with their local party, clearer and standardized ballots, etc.
> Which exact voting rights are missing at the moment?
And the answer, as reported in various places, is that the right to vote is for all intents and purposes non-existent for people in certain areas. Voter disenfranchisement is a real and documented thing. Polling places are shutting down, which puts an undue burden on people who don't have the luxury of taking the day off or getting out of work early.
You might appreciate a tech example: if Facebook doesn't actually remove all of your data, just "deactivating your account" while keeping the data stored on their servers, do you really have the option to opt out of Facebook?
1. Are voting rights missing? (Gather information)
2. If they are missing, would adding these specific rights improve the quality of voting?
3. If the answer is no, then the fact that certain rights are missing is less relevant.
You clearly disagree with him, because you see expanded access to the vote as a good in and of itself. That's a tenable position, but not everyone agrees with it (I certainly don't), and so it's good to see where others are coming from.
tldr; Some people think that more voting always = good, some people are more consequentialist.
AlexTWithBeard did not make the claim you seem to be making now. He specifically asked what rights are missing, as if the status quo allows everyone to vote.
I'm arguing that voter disenfranchisement and other roadblocks lead to a situation where technically people have a right to vote but in practice have difficulties.
You can argue about the quality of the vote, but we are currently not in a position where everyone who is eligible to vote actually has an opportunity to vote. Having to wait many hours on a business day to vote is malicious compliance.
The nonsequitur here is conflating "is it necessarily better if everyone can vote?" with "does everyone have the right to vote?", which are fundamentally different questions
And in that same time period, most people did that. The incentive worked. Not many people paid 90% rates.
And the U.S. middle class wage growth was the envy of the world, it was the world's largest creditor nation, and we built massive amounts of private and public infrastructure.
But then we reverted to a neo-feudal and prosperity theology model. People either have to understand these things, and understand that voting matters, or the inequality will get worse and at a certain point civil society will break. It's automatic. Violence is the most successful corrector of wealth inequality humans have yet invented. Rational liberal types keep wanting to build something different, but plutocratic illiberals keep successfully convincing just enough people that being a hoarder has merit, is a right, or brings you closer to a deity, etc.
These are very old ideas, it's all very old history, none of it is original.
During the times when those rates were in effect there were so many deductions that nobody with an accountant actually paid them. It wasn't just that business expenses were deductions, people were deducting their homes and personal vehicles and everything.
> Basically, don't be a hoarder. If you really think you can spend your money better than the government, grow or start a business and take a tax deduction which will permit you to avoid the tax.
That is the exact thing the rich do already, which is why wealth inequality continues to increase -- if you make money and use it to grow your business (which is a tax deduction) then you make even more money, which you then use to grow your business...
The canonical example of doing this is probably Amazon, a company that for years made no "profit" not because it was hiding it offshore but because it was reinvesting it all. Which at one point had the highest market cap of any company and is still in the top three, and Bezos is the richest man.
But that's not even the biggest reason for the increase in wealth inequality we've seen. It's the cheap credit. If you lower interest rates for years, people are willing to borrow more which inflates asset prices. Then people are forced to pay interest on money they otherwise wouldn't have had to borrow to begin with in order to pay the higher cost of housing and education, meanwhile stock prices increase because demand there is driven by people borrowing too.
The result is that ordinary people have to borrow money and pay interest just to live, which reduces their wealth, meanwhile the borrowing-driven demand increases the value of assets already owned by the wealthy, which increases their wealth.
To fix this, interest rates have to increase. And then there are two options. The first is that housing and stock prices crash as people sell to pay back the loans they can't afford at the higher interest rates. The second is that we raise interest rates while printing enough money to cause inflation sufficient to offset the reduction in asset values, which effectively leaves housing and stock prices where they are but allows for non-asset inflation (i.e. allows wages to rise) to catch up with them. Bonus points if the printed money funds a UBI.
Quite a lot of people with accountants paid the highest tax bracket rates during the Clinton era, and the ~70% rates prior to the Reagan era.
>It wasn't just that business expenses were deductions, people were deducting their homes and personal vehicles and everything.
I agree the system is gamed to favor things wealthy people perceive as good for them, and have been successful at convincing enough of the political participants that it's good for the country generally.
We're unlikely to see a federal reserve policy change. It's becoming increasingly clear the relationship between the stock market and interest rates, and the economy and possibly the politics will not accept an increase in rates. Even the most recent attempt at doing so caused an immediate backlash, even if it's good policy. If there's a recession, how do we combat it by lowering already low interest rates?
Solving the political problem first also has difficulties. How do we get a more representative political class, when it functions on money as if politics is a product that you can buy? Establish only living persons can contribute a thing of value to a campaign, and perhaps even only citizens can do so? That would take a constitutional amendment, as the Court has ruled that corporations have free speech rights and money is free speech.
Instead of borrowing $2 trillion in cheap loans in exchange for infrastructure assets, the political class chose to borrow $2 trillion for tax cuts primarily for the wealthy. So it isn't just poor people going into debt to buy things.
De-feudalizing this system by either politics or law is going to be very difficult. And that leaves something economically breaking in order to compel some kind of political change, whether non-violent or otherwise.
The highest marginal rates in the Clinton era were about the same as they are now, and people did not pay ~70% effective rates prior to the Reagan era. The deductions they used to avoid that were eliminated at the same time as the rates were reduced.
> It's becoming increasingly clear the relationship between the stock market and interest rates, and the economy and possibly the politics will not accept an increase in rates. Even the most recent attempt at doing so caused an immediate backlash, even if it's good policy.
Because you can't just raise interest rates. Raising rates when people are heavily in debt is deflationary, which is catastrophic. You need to create inflationary pressures at the same time to counterbalance that or it all goes south.
> If there's a recession, how do we combat it by lowering already low interest rates?
Combating recessions by lowering loan interest rates is the bad policy. It's a corruption of the Keynesian policy of having the government borrow money so it can spend without collecting taxes, to stimulate the economy during a recession.
The problem is that in the original formulation the government was then expected to collect taxes during the next boom and use them to pay back the debt. This generally didn't happen anyway (the government debt keeps getting bigger), but the real problem is that it can't work that way in the private sector because raising interest rates doesn't generate money indebted people can use to pay back their debts with, it takes away money because they have to pay more interest on their existing debt, which induces defaults and tanks the economy.
> How do we get a more representative political class, when it functions on money as if politics is a product that you can buy? Establish only living persons can contribute a thing of value to a campaign, and perhaps even only citizens can do so?
This is really not the problem. The problem is that most politicians are shortsighted or bad at economics.
You take a policy like the mortgage interest tax deduction and you sell it to everybody. The banks like it, more people taking out bigger mortgages. Current prospective homeowners like it because it reduces their new mortgage payment. Current home sellers like it because it becomes easier to find a buyer to pay your price.
But the long-term effect is to gradually raise housing prices to an unsustainable level. And then it's hard to undo, because all those factors are still there. Getting rid of it reduces business for the banks, it raises mortgage payments for new home buyers until housing prices adjust (which takes a while unless there is a big crash), and it makes it harder for sellers to find buyers.
They actually staged a minor coup recently and did something genius by raising the standard deduction to the level that most homeowners are no longer taking the mortgage interest deduction. Which reduces the deleterious economic effect of the mortgage interest deduction, and in a couple years when they propose to get rid of it, not enough people will care to prevent it from happening. That's the kind of ingenuity we need to get out of this mess.
Just thinking about the campaign money misses the goal. Many of the problematic interest groups are the likes of the AARP, who get there not by having a lot of money but by having a lot of soft power and then advocating policies that aren't even in their own members' interests (e.g. expanding Medicare coverage in a way that unsustainably explodes healthcare costs while somebody else pays for it is not in the interest of someone who has working children and wants them to have a good life).
> Instead of borrowing $2 trillion in cheap loans in exchange for infrastructure assets, the political class chose to borrow $2 trillion for tax cuts primarily for the wealthy. So it isn't just poor people going into debt to buy things.
Government debt is bizarre and counter-intuitive. They never really pay it back, they just re-borrow it again from somebody else, and that's likely to continue indefinitely.
The tax cuts are a combination of good and bad. The idea of billionaires paying less is fairly idiotic, but companies are now finally repatriating money they've held offshore for years and returning it to shareholders, which is good because it allows the shareholders to invest it more efficiently -- Apple can stick to making iPhones and not have to manage an internal mutual fund because the tax code de facto requires it even though they have no specific competence in doing that. Which should mitigate at least some of the effect the previous rules had of growing these companies so large.
The problem is that the changes we actually need are more fundamental than a few little tweaks, but big changes are hard to pass. For example, one of the best things we could do is replace income tax with VAT or DBCFT and replace all federal welfare programs and subsidies with a UBI. You can make that as progressive as you like by adjusting the amount of the UBI.
But the benefit of doing that is why it's so hard to do -- there are so many interest groups with an existing carve out in the tax code that they all array against any clean slate proposal like that, even if it's against their own interests on net. Because they have a lobbying organization all set up for preserving the capital gains exemption for home sales but nothing exists to say "no, actually, this bill as a whole will benefit our own members in non-real-estate-related ways by more than the cost of not satisfying our organization's stated policy goal and we should just shut up and let it pass."
> De-feudalizing this system by either politics or law is going to be very difficult. And that leaves something economically breaking in order to compel some kind of political change, whether non-violent or otherwise.
I have some minor hope that we could get somewhere by convincing everyone on both sides that doing everything at the federal level is a bad idea and hand it all over to the states. Then different states can do different things and see which one works, then either adopt the policies that turn out to work the best or just agree to disagree and each do their own thing.
But that's as big a change as anything and has the same level of difficulty with challenging established interests.
Note that unless everyone should have exactly the same amount of whatever resource is under discussion, then the answer to that question is not N should equal M, because that is mathematically impossible.
This involves a value judgement that goes beyond reporting the facts that the article does. You'd have to go to the op-ed section for that.
Piketty has some ideas in his book:
And even given the topic, and the book's length, I found it quite readable. Highly recommended.
According to the previously discussed Bloomberg piece (about Zucman and Saez), the top 0.1% of taxpayers own 20% of US wealth, the top 1% control 39% (and the bottom 90% have 26%).
So, it might be worse.
EDIT to add: Bloomberg piece discussed here: https://news.ycombinator.com/item?id=19991496
Hiding wealth is not quite as easy as it once was. Thanks to financial transparency legislation and the pressure the US has mounted on the international banking system, simply dumping money in to a Swiss bank account isn't as effective as it once was.
I'm frankly surprised that such measures were successful in countries that are run largely by and for the wealthy, and they are one of the developments that keeps my customary pessimism about the way the world is heading in check.
Still, the ultra wealthy still have the resources to hire some very smart and creative people to hide their wealth in other ways.
Think about it, you're just an engineer. Anybody can build something trivial like a rocket ship, a super computer or a large hadron collider. However, not everyone has the leadership skills to actually inspire you build that rocket ship. That's why CEOs are so rare. If we weren't giving the majority of Americas wealth to these CEOs there wouldn't be any technology in the world today because nobody is around inspiring the engineers build this stuff. So this wealth inbalance makes perfect sense. The amount of skill involved with inspiring people vs building a light speed drive is incomparable, only the CEO can inspire engineers to build such a thing. If you hire 10 CEOs instead of 10 engineers and pay them 90 percent of Americas wealth you'd be accumulating so much leadership skills and potential into a single company that you won't even need the engineers anymore... The technology will just materialize from excess inspiration.
You can get a more holistic view using, say, quintiles: (grabbed off Wikipedia)
42% of children born to parents in the bottom fifth of the income distribution ("quintile") remain in the bottom, while 39% born to parents in the top fifth remain at the top. Only half of the generation studied exceeded their parents economic standing by moving up one or more quintiles. Moving between quintiles is more frequent in the middle quintiles (2-4) than in the lowest and highest quintiles. Of those in one of the quintiles 2-4 in 1996, approximately 35% stayed in the same quintile; and approximately 22% went up one quintile or down one quintile (moves of more than one quintile are rarer). 39% of those who were born into the top quintile as children in 1968 are likely to stay there, and 23% end up in the fourth quintile.
Children previously from lower-income families had only a 1% chance of having an income that ranks in the top 5%. On the other hand, the children of wealthy families have a 22% chance of reaching the top 5%.
EDIT to add some sources:
> The key observation, based on a growing body of research, is that when it comes to upward social mobility, the U.S. is truly exceptional — that is, it performs exceptionally badly.
> Although the discovery of America’s low mobility, compared to similar countries, is relatively new, it turns out that mobility’s been low for some time.
> A new study indicates that from the 1980s to the 2000s, it became less likely that a worker could move up the income ladder.
This is a distraction from the problem of wealth concentration and lack of mobility in the United States by saying: Yeah, well, you’re richer than the Haitians, so quit whining. Being part of the largest economy in the world, I would certainly hope the poorest in my country, would be better off than the those in the least developed country in the Western Hemisphere.
WRT intergenerational mobility, the US does quite poorly when compared to other modern economies, with a very strong correlation between parental wealth and the child’s wealth. For instance 42% born into the bottom quintile, stay there in the United States, but only 25% remained in Denmark. 8% rose to the top in US, but again, 14% did in Denmark.
Intragenerational mobility in my opinion is a bit of a red herring. Often you’ll hear someone trumpet some number about people moving from one group to another in a single year, but you have to look closer to the reasons why. Some people are just on the cusp of the cutoffs and so will bounce around it. Others are experiencing temporary outlays, and will very quickly return to their original levels. Unless the person’s move has some stickiness, along with some large absolute change, it’s meaningless noise.
A surprising number of upper middle class yuppies love to act like they are downtrodden proles just because they have less money than Jeff Bezos.
But most of what you said is very problematic.
> then you are a beneficiary of inequality, not a victim of it, and you don’t have the right to whine about the billionaires hoarding all the wealth at your expense.
"Whining" about behavior that harms society is not a right we lose by engaging in that behavior. It's an obligation, and you can't get out of it by being rich.
But perhaps more relevantly, there's much be more to someone's well-being than their net worth. I'd be better off if crime were lower, if we had more scientists figuring out how to make my phone battery last longer (or curing cancers; pick your priority).
But instead, so many potential Einsteins had nutritional deficiencies as children? (Fun fact: the poorest 20% of kids had cognitive gains equivalent to a full standard deviation when given multivitamins).
Maybe you make it past that. Cool, but oops, you have to drop out of high school so you can work to support their families. (I've personally known quite a few students who dropped out for precisely this reason.)
People with good education and a safety net, tend not to get addicted to drugs, or commit violent crimes, or break into homes, because they don't have to.
I want that for all people. That would not just improve their well-being. It would improve my well-being. Having a society of healthy, happy, smart, educated people with food and housing security would make my life better. People who are financially well-off need to "whine" about this shit until it's fixed.