Who Actually Earns $400,000 Per Year?

by Emily Guy Birken · 3,995 comments

Surgeons

After the unending media coverage of the fiscal cliff throughout December 2012, it was a relief to everyone when a last-minute compromise was reached. In particular, the most reported-on compromise had to do with the extension of the Bush-era tax cuts. Those cuts will remain in place permanently for any individual making less than $400,000 per year, and for couples earning less than $450,000. Those fortunate few who make more than that amount will see their rates rise from 35% to 39.6%.

The news about this particular tax rate increase got me wondering: what professions can expect to earn that kind of money? Since I don’t personally know anyone bringing home $400,000 per year, I decided to find out what kind of jobs command such high salaries:

1. The President

Perhaps the most famous $400,000 per year job is the leader of the free world. The office of president not only pays a $400,000 annual salary, but also provides the president with a $50,000 annual expense account, a $100,000 nontaxable travel account, and a $19,000 entertainment account.

There are some obvious downsides to this particular career, however. Besides being very difficult to get, the job is highly stressful, and advancement post-office can be considered somewhat iffy. And, of course, you can’t expect regular raises: the last salary increase for the commander-in-chief (from $200,000 to the current rate) was in 2001. Prior to that, the previous raise (from $100,000) occurred in 1969.

2. Surgeons and specialists

Even a local general practitioner can expect to pull in over $100,000 per year, but the real money in medicine is reserved for those who specialize. Anesthesiologists, heart surgeons, and brain surgeons can all expect to make up to $400,000 per year at the height of their career. Plastic surgeons can make up to twice that amount.

3. CEOs

The median salary of a Chief Executive Officer is over $700,000. These directors are in charge of both short- and long-term profitability for their companies. CEOs generally have to know the industry backwards and forwards (although there are certainly plenty of counter-examples), and need to have worked their way up over many years.

4. Wall Street Bankers and Lawyers

If you work in either finance or finance law, the place to go for fat paychecks is Wall Street. According to an October 2012 report, “the average salary of financial industry employees in New York City rose to $362,950 in 2011.” While that still falls short of the mark required for the higher tax bracket, it’s important to remember that this figure represents the average (meaning some people are making more) and that there have almost certainly been raises in the past year and a half.

The Top Percent of the Top Percent

These high-income earners are really rare. Consider the fact that most articles listing the highest paying jobs in America don’t even include any professions with median salaries of $400,000. Those individuals making $400,000 per year are in the top one percent of the top one percent — and often, they’re also public figures.

Thankfully, even though individuals in this bracket are few and far between, the government estimates that raising the tax rate on this small group will raise about $600 billion in new revenues over the next decade.

Not bad for a group that small.

What other professions that earn annual incomes of $400,000? 

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{ 3995 comments… read them below or add one }

Steven H September 28, 2014 at 3:00 pm

James,

Discussion of this list may be useful.

How do you disagree with 2 if you agree with 1? Are you saying that high income disparity is undesirable, but that it is still not something we should try to change? It is a problem that lessens the efficiency of the economy but we are powerless to stop it? Please explain. I truly don’t understand how you agree with 1 but not 2.

And then, regarding 3, which do you agree with, as a cause of high income disparity?
a) It is a business cycle thing that will solve itself.
b) It is due to poor and middle class not working hard enough.
c) It is due to poor and middle class not getting the proper skills.
d) Other. (Please specify.)

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James September 29, 2014 at 10:23 am

80% of it is A
c plays a partial role – unskilled labor job market has shrunk considerably and isn’t coming back

b may play a partial role but none of us can truly judge whether that is true and to what extent So I would dismiss B unless were are talking political rhetoric.

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Peter N September 30, 2014 at 12:51 pm

Steven H is ignoring other better options like foreign competition and competition with machines.

The business cycle will not fix anything. It always competition and where can a business own make the most profit.

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James September 30, 2014 at 2:51 pm

Good point. Foreign competition and the technology age are two huge factors here.

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Steven H September 30, 2014 at 6:16 pm

Peter N., I’m not ignoring reasons nor trying to make a complete list. Hence: d) other (please specify).

I take it from these and your previous comments that you would choose foreign competition and automation as primary reasons, but also a, b, and c to varying degrees.

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Steven H September 30, 2014 at 6:19 pm

No, sorry, my mistake, you excluded a) Business cycle, and I have to agree with you there. Competition and capitalization always push wages down and are unlikely to self-correct the increasing wage disparity. This is why forces external to the business cycle and capitalism have always been necessary to reverse high income disparity in the past.

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Steven H September 30, 2014 at 6:29 pm

Peter N has discarded business cycle, and I agree. There is nothing I can see in the business cycle that would reverse high wage disparities. History has always had to introduce something outside the business cycle to correct the problem. Even the 1929 crash and 1930’s bank failures did not automatically reverse wage disparity. It took a combination of political changes of the new deal along with impacts of the war to change the income and wealth balance to the more stable post WW2 equation.

I agree that b is rhetoric. I discard the idea of slothful poor and middle class.

We can agree that C (education and skills gap) plays a partial role though we may disagree on how much. Would you agree then, that since the poor and unemployed clearly do not have the resources themselves to close this gap, that society needs to invest more in education, new skill development, and apprenticeship programs?

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Steven H September 30, 2014 at 9:03 pm

By “this list” I mean the 1 through 8 list from the previous page, also repeated a couple posts down on this page in the main thread.

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Steven H September 28, 2014 at 3:04 pm

James, I don’t understand how 4 and 5 are contradictory. To me they seem complementary, and I truly don’t understand how partisan blame has anything to do with 4 or 5.

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Steven H September 28, 2014 at 3:06 pm

New page. Better put the list from previous post here for handy reference:
===========
The path to solving the problem of high income disparity is slow.
1. You have to get people to admit the high income slope actually exists, and that about 10 to 15% of US income share has actually shifted from the lower 90% to the upper 1% since 1980.
2. You have to get people to admit that this a problem worth solving, and that it is damaging to the economy not to solve it.
3. You have to get people to admit that it is not just a business cycle thing that will solve itself, and that it is not primarily an issue with lazy poor people not working hard enough.
4. You have to get people to admit that government policies have significantly contributed to the problem.
5. You have to get people to agree that changes in government policy can fix the problem without creating worse problems.
6. You have to identify the specific changes that will fix the problem.
7. You have to get people to agree in principle to the changes and the timeline of changes.
8. You have to make the policy changes.

Several business people here got past number 1, and most are waffling on number 2 and arguing vigorously against number 3. I think some are still arguing against number 1. There is a long way to go.

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Peter N September 30, 2014 at 10:39 pm

“. You have to get people to admit the high income slope actually exists, and that about 10 to 15% of US income share has actually shifted from the lower 90% to the upper 1% since 1980.”
Yes, I have admitted it before but so what? Those lower 15% have not adapted to the new economy.

“2. You have to get people to admit that this a problem worth solving, and that it is damaging to the economy not to solve it.”
It would be good to solve this problem but how? Taking from those that can is not the answer. How do you back the bottom 15% better? In reality this is stupid. There will always be a lower 15%.

“3. You have to get people to admit that it is not just a business cycle thing that will solve itself, and that it is not primarily an issue with lazy poor people not working hard enough.”
Although we agree that the business cycle will not solve the problem I don’t agree with the latter part. Lazy may not be the right term in most cases but poor choices and priorities result in less than optimum outcomes.

“4. You have to get people to admit that government policies have significantly contributed to the problem.”
Yes, if you cut welfare there would be fewer people on welfare. If you subsidize sub mediocre people you will get more sub mediocre people.

“5. You have to get people to agree that changes in government policy can fix the problem without creating worse problems.”
It can’t. Politicians do what is politically correct or die. They won’t make the right decisions. Politicians are opposed to optimal outcomes.

“6. You have to identify the specific changes that will fix the problem.”
Make everyone better. Force everyone to be better but that is against my libertarian principles. People have the right to make bad choices. They don’t have the right to force others to pay for their bad choices.

No matter what. There will always be a lower 15%. There is absolutely nothing you can do about that.

“7. You have to get people to agree in principle to the changes and the timeline of changes.”
This will never happen.

“8. You have to make the policy changes.”
What changes?

The changes I would like to see are:
1. Stop high frequency trading or put a tax on ultra short term trades.
2. The top management and board of directors must buy significant amount of stock in the companies they manage. This way managers of big corporations suffer when they fail just like those that that own small companies.
3. Those that caused the pain of the great recession are held accountable. Holder didn’t put any of the crooks in jail.

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James October 1, 2014 at 1:39 pm

Or another way to put what you said in #5 is – Politicians will always choose what is best in the short term – rather than choose what is best long term.

And yes there will always be a bottom 15%. Sorry. Best we can do for those people is educate, train and motivate. Give them a base to work off of and opportunities. Give them skills that can aid society.

Attacking the rich as greedy hoarders that are ruining the lives of the bottom 15% is just silliness. And expecting the government to fix this is even sillier.

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Steven H October 1, 2014 at 5:59 pm

Read reply to Peter. “Bottom 15%” is not the correct stat.

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Steven H October 1, 2014 at 6:47 pm

Peter N and James,

Bottom 15%? You didn’t read the stat correctly.

15% of all INCOME has been taken away from the bottom 90% [Ninety, not Fifteen Pertcent] of the population. Almost everyone in the lower 90% has had their wages stagnate or decline. This includes new college graduates, most middle class, beginning professionals, blue collar workers, as well as fast food workers and “the lower 15%”.

How do you use the skills gap of un-skilled workers to explain declining middle class and college graduate income and income share?

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Steven H October 1, 2014 at 6:50 pm
Steven H October 1, 2014 at 7:06 pm

Peter N, Thanks for the response.

I agree with the 3 changes you place at the bottom of your post. Good suggestions.

A critical error in the middle of the post is addressing “the lower 15%” as if they are the problem. I am much more concerned with the 15 to 90 percentile group, i.e. the 3/4 of the population who are skilled and working but not receiving the benefits of a growing economy.

I am all for improving education and skills in this country. But none of that will be worth a hill of beans if the wealthy elite — not you but your much richer economic superiors — are allowed to continue to control and extract most of the country’s economic growth into their own hands. And I know you don’t think the country works that way, but before you start quoting Econ 101 at me again, consider that most economics research today indicates that the wealth and income increases of the very rich are produced more by wealth accumulation than by wealth creation; i.e. we all create the wealth but the most wealthy and powerful gather it up for themselves. This is the thesis of Piketti’s extensive and detailed research as well as research of others, so don’t just discard their findings as “a liberal book”.

To me this is just part of “Those that caused the pain of the great recession are [to be] held accountable. ” Glass-Steagall should be re-established, banks should be partitioned to become “small enough to fail”, and the most extraordinary incomes should be taxed more, because that is what achieves economic balance.

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Peter N October 4, 2014 at 8:16 pm

” And I know you don’t think the country works that way, but before you start quoting Econ 101 at me again, consider that most economics research today indicates that the wealth and income increases of the very rich are produced more by wealth accumulation than by wealth creation; i.e. we all create the wealth but the most wealthy and powerful gather it up for themselves.”
Not everyone produces wealth.

If you keep people from getting a return on their investment they will invest else where or not at all. You keep ignoring this fact.

This accumulation of wealth you talk about, most of it is through investments. There must be rewards for taking a risk. These same people will lose a lot if the stock market goes down.

You keep avoiding a few points.
1. Deals are negotiated. Both parties agree the deal is mutually beneficial.
2. A minimum wage will not work if the pay is more than what the employees are worth.
3. Those that are unemployed are unemployed because every potential employer thinks they are not worth what the wannabee employee is asking.

You have no refutation so far because you can’t.

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Steven H September 28, 2014 at 3:22 pm

=== James
If you agree with 4 then why would you think 5 is possible.[?]
=== end

James, If someone thinks that government policy changes created high income slopes (#4), then doesn’t it follow naturally that reversing those policies would also reverse the income slopes back to earlier levels (#5)? How could you possibly see these as contradictory?

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James September 29, 2014 at 10:27 am

I see why you would think that – to clarify….

If you agree with 4 – that government policies contributed to the problem, how can you have confidence that the same people that put in these policies will/can put in policies to reverse it? It’s like saying – our favorite NFL team has had a losing record for years and it is largely due to the coaching. If the coaches just coach differently they can fix it. Ideally this is true, but an odd place to look for a solution.

Of course, I don’t agree with this in the first place – I think it plays a small role but nowhere near as big as you do. But the last thing I EVER have as a major part of any solution is government policy. You rely on that, you will be disappointed.

Anyway, as I said above – your list isn’t anything for us to really debate off of as it is politically loaded. i.e. ‘get people to admit that….’. But that is my 2 cents

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Steven H September 30, 2014 at 7:47 pm

OK, you point out a clear difference in approach that helps define our positions.

It’s no surprise to me that we disagree about whether or how much government policy contributes to the problem of income disparity. I think it is a major cause, and you apparently do not.

But what surprises me a bit is the degree to which you are willing to suppose, and proclaim, that government cannot possibly be part of the solution, even if it means correcting government policy that may be shown to be a cause of the problem. It as if (and there will be some slight exaggeration that follows here) you believe that our nation and society just naturally exist as long as good businessmen and capitalists are allowed to do as they will and the market forces and self-interest will compel social and economic balance. Government, by such proclamation, is just some bumbling monster that gets in the way and messes things up.

Not the best analogy. But your bumbling coach description (which is a pretty good analogy to describe your perspective, by the way) says much the same thing. If bad coaching is the problem, it is not at all “odd” to correct the coaching. Your approach says to me: “Who needs a coach, just let the players run the team.” Believe me, we need a coach. And if we have a bad coach, we get a new one. We shouldn’t just dispose of coaches, or governments, altogether. Then, completely by definition, anarchy reigns.

Here’s the problem. Government is not a single-minded beast. And it is not a lumbering bumbling creature outside of the goals of society. It is society. It is us. It is the voice of the people. That is how it was designed, and that is how it supposed to work. It is not supposed to be taken over by a single “faction” whether that be the very poor, the very rich, or any other minority interest. This nation is built on the idea that government, whether local, state or federal, is part of the solution, because WE are part of the solution, and in fact, the entire solution. We are entrusted to look after ourselves.

Leaving the control of the country in the hands of the business cycle and market forces alone does not bring balance or prosperity. Good men have been corrupted by power and money and influence across the entire history of mankind. The only thing that counters those forces in this country has been the will of the people as expressed through elected government. Capitalism is a fantastic tool to harness the ambitions of men to pull society to greater heights, while rewarding the most creative and ambitious at the same time. But when those most ambitious and creative begin to think that they are the only people that matter, and that they have every right to exploit the labor of others without fairly distributing the profits of such labors, then capitalism has broken it’s reigns and abandoned its harness, and also broken the bonds and conventions of society that ultimately create the prosperity they enjoy.

Alan Greenspan, former Fed chairman, was a member of Ayn Rand’s inner circle, a high priest of the temple of laissez-faire, an advocate and promoter of the benefits of capitalism and self-interest, and yet even he had to publicly confess that the 2008 crash left him disillusioned as to the capability of monied self-interest to even look after itself, much less the good of the country.

So I propose to you that you should reconsider. If government policy can be shown to be part of the problem, then reversing that policy is of course the most direct and credible approach to achieve a solution. I’m not saying it is simple. There are legislative nuances and loopholes, conflicting political interests, and hidden or even unintended consequences.

But to suggest that we should leave bad policy in place just because we distrust any government action whatsoever seems to me foolish, and even deceptive. There are many (and I am not accusing any on this blog) who claim distrust of government action, but who want to leave bad policy in place because they profit from it. They preach the evils of government while simultaneously controlling it to meet their own ends. This is why we need to keep big money out of politics. The US government is designed to be of, by, and, for the people, not of, by, and for business.

It is bad policy to weaken and bankrupt government (economically, politically and ethically) and lessen the democratic control of government, merely so that business can manipulate the system for its own maximum profit. That has never been what our nation is all about.

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Peter N October 4, 2014 at 8:35 pm

Get this. The government is incompetent and corrupt. The gov doesn’t give a hoot about you or me. The politicians just want to get re-elected.

The politicians have no solutions. They are fools elected by fools that don’t want to face reality. If they did all the problems you mention would be fixed. I am more realistic. There are no solutions to all the problems you mention. There will always be winners and losers and there is nothing you and I can do about that. It is the survival of the fittest or more adaptable at work. You can’t change this. You can’t refute this.

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Steven H September 30, 2014 at 9:12 pm

As for the list being politically loaded, yes it is. It is basically my list of steps to get you to agree with me. I know that you and others will not follow me to the end of the list, but it is still useful discussion (I think) to understand at which specific points we agree or disagree.

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Random Poll Poster September 30, 2014 at 8:34 am

http://www.pewresearch.org/fact-tank/2014/04/28/americans-agree-inequality-has-grown-but-dont-agree-on-why/

Steven H – this poll doesn’t back up your view of what “most people think”.

– 65% of all people think the gap has widened while only 8% say it decreased.
– As far as the “reason” for the gap widening, the work ethic of the poor was rarely cited as a cause. Even among Republicans (who you clearly have disdain for) only 9% cited this as a reason.

The telling thing here is that there are a myriad of factors people cited as the reason. Not that these people know anything about the economy, but I’m posting this as a reminder that it is wise to not rail against an invisible enemy but rather stick to the facts in a debate. You might be fighting against yourself.

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Peter N September 30, 2014 at 12:46 pm

I think the first comment in your link is right. The fact the the poll didn’t provide these options shows it is flawed. Pollsters can get any answers they want by asking leading questions or by not providing right choices for an answer.

I agree with James about relying on government policy. It has none. It won’t face up to the real problems.

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Steven H September 30, 2014 at 8:56 pm

Government policy doesn’t face up to the real problems because there is too much partisanship and infighting. And there is a significant faction (the GOP/wealthy) who profit economically by legislative stagnation.

You, Peter N, recognize at least that the economy would be better off with less income disparity. Congress admits no such claim. Your far wealthier economic superiors, who pull the strings of Congress, like the system as it is, with high deficits serving as an excuse to suppress the safety nets of the poor, and with taxes and wages as low as they can be forced. You may at least partiallyhave the good of the country at heart. The upper economic tiers have little such sentiment and are dominated almost exclusively (with some noble exceptions) by self-interest and greed.

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James October 1, 2014 at 6:35 am

Conjecture. Just when you have some good points you undermine it with this. Again, as someone who is not in the 1% but works in that world, I can say I have seen nothing like what you speak of.

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Steven H October 1, 2014 at 8:01 pm

OK my characterization of the rich is harsh. And perhaps it dampens the conversation. There are good people with a lot of money — no doubt. But so many of the really wealthy in the upper tiers are so disconnected from the common trials and travails of most of the populations that disparaging many of them as wrapped in greed and self-interest may be more accurate than you think — despite their simultaneous status as good people who would be entertaining and congenial at dinner or a party.

When the upper 0.1% have simultaneously tripled their income share and halved their tax rate and yet still complain they are over-taxed and under-appreciated, it is difficult not to despise them for their greed and self-centered attitude.

James October 1, 2014 at 9:42 pm

You just don’t get it. You think my opinion of the wealthy is as shallow as “they are congenial at a dinner party”???? I’m talking about generosity, sympathy, community, consideration – important qualities. And I am just saying I have literally never seen this complaining, greed or self centered attitude. In fact, I have seen it more at the upper middle class level. This is no different than your offense taken when people say the poor are lazy.

Steven H October 2, 2014 at 8:27 am

James, Maybe you and I have a different idea about what comprises greed and a self-centered attitude. What I am saying is that people can be greedy and self-centered without being comic book villains.

Perhaps this line of conversation is even less productive and more polarizing than I realized. Let me try expressing it another way. People, all people, sympathize best with people they know. They empathize with social and economic classes they are most familiar with and that are like them. The rich don’t associate much with the poor so they disparage them in political speech. This is prevalent and you must have heard it. I don’t personally know any multi-millionaires or million-earners. I disparage them based on what they say politically and what the people they vote for say politically. I only know them by this political speech. And the thrust of that political expression is that the safety nets are too expensive and should be drastically cut or eliminated, the poor are unworthy and lazy, corporations are more worthy of legal protection than actual people, 47% of Americans are being pushed around in the wheelbarrow by the hard-working rich, and that the rich create all the jobs, take all the risks, create all the wealth and are over-taxed. This has been the GOP message created by and for the rich for at least 5 years now. I don’t know the rich except by this political message which is trumpeted all through the GOP and especially the TEA Party (which was originally created and funded by the rich Koch Brothers and promoted as the FNC Tea Party by Fox News Corporation.) From this political messaging, how could anyone think that the rich are NOT only interested in themselves?

Steven H October 2, 2014 at 8:48 am

Ultimately it doesn’t matter what poor opinion I have of the rich. The critical point is that the richest 0.1% have tripled their income share and halved their effective tax rate. There is 9% of all income that they receive and control and about 6% out of that 9% is beyond what they used to receive, and the 1.5% of all income in after-tax income they used to keep has become over 7%. All indications are that the boosted income to the very rich has not helped the economy and has not been created by the people who are receiving it; it has only been redirected to them. When a company sees that it’s corporate profits are invested in unprofitable ventures, it redirects its resources to more profitable sectors. The upper 0.1% have used their boosted capital of 6% of all income in unproductive and dangerous ways, and are largely responsible for the economic crash that devastated most Americans. The country needs to redirect that capital elsewhere. Paying off the country’s debts would be a good start.

James October 2, 2014 at 12:00 pm

You still don’t get it. Let me try expressing it another way. People, all people, sympathize best with people they know. They empathize with social and economic classes they are most familiar with and that are like them. The poor don’t associate much with the rich so they disparage them in political speech. This is prevalent and you must have heard it. I don’t personally know any people living below the poverty line. I disparage them based on what they say politically and what the people they vote for say politically. I only know them by this political speech. And the thrust of that political expression is that the rich are greedy and unsympathetic to their plight, they make way too much money and must be taxed far, far more than they are, and that they do not pay the wages that would be “fair”, only seeking to fatten their pockets and improve their own personal bottom line. This has been the liberal message created by and for the poor and middle class for the entire Obama administration. I don’t know the poor except by this political message which is trumpeted by Obama and all of his constituents who got him elected in the first place (the working class, poor, minorities, etc.) From this political messaging, how could anyone think that the poor are NOT only interested in themselves?

James October 2, 2014 at 12:03 pm

I literally disagree with almost every word of your last two posts. Your whole ideology is down one path – and frankly somewhat offensive, misguided and painfully narrow minded. Moving on…..

Steven H October 3, 2014 at 2:43 pm

LOL, you did a nice turnaround on my post. I should not have let my animosities loose. Let’s get back to data, facts and causes, and dispose of the factional slamming. You are correct in that it distracts from the more productive discussions.

I am more interested in how you defend the idea that government should not do anything when you simultaneously advocate trade policy changes (a government function).

Steven H October 3, 2014 at 2:48 pm

And I am curious what points came across as good. It helps me to know when I have made a point well. Most posters here just slam me when I get off course (or occasionally when I hit too close to home, LOL).

Peter N October 4, 2014 at 8:41 pm

“You, Peter N, recognize at least that the economy would be better off with less income disparity.”
Yes but only if the bottom could be made better. Not if you want to “tax the rich, feed the poor, until there are no rich not more”. People must be allow to act in their own best interest as long as it doesn’t harm any body else and you haven’t made that case yet.

The difference between you and me is that I realize that there will always be those at the bottom that can’t or won’t adapt.

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Normal Joe October 5, 2014 at 7:50 am

@Peter N – I don’t think that our differences of opinion are as polarized as some try to portray. When you say “The difference between you and me is that I realize that there will always be those at the bottom that can’t or won’t adapt,” you are incorrect. Only a fool would disagree with that statement. I think the difference is in the perception as to how many there are. And to paint all with the same brush is just as foolish.

One of the significant differences is how some people choose to speak in absolutes. Such as:

“1. Deals are negotiated. Both parties agree the deal is mutually beneficial.”

History has shown that there are a few bad apples, or some who believe that their primary goal in life is to take more than they give. This is true at all levels of society. From the Carneys and the Rubes, to the Pimps and the Prostitutes, to the pharmaceutical companies and which market pays the most profit, to the landscaper and the illegal immigrants. Your statement taken at face value is more than often not accurate.

“2. A minimum wage will not work if the pay is more than what the employees are worth.”

The only reason this country adopted a minimum wage is because there are those who so undervalue a person’s worth that they would pay less if it wasn’t illegal. From all accounts in our dialogue you are not one of those unscrupulous business owners. The point of the matter is that it is not focused on your business, but for those who stink up the marketplace.

“3. Those that are unemployed are unemployed because every potential employer thinks they are not worth what the wannabee employee is asking.”

I can’t seem to comprehend how you can make such an unequivocal statement. When you shop for any goods and services, don’t you try to find the lowest price available? I would hope that quality comes into that thought process, but I know many a person who is only interested in getting the cheapest they can regardless of how many times they may need to replace it.

The same applies to labor. Some will seek out quality, which you obviously do, but there are also many more who don’t care and will just churn through the talent (or lack thereof) because they refuse to pay anything but the bottom dollar. The minimum wage attempts to set the floor for that bottom dollar, not because of your behavior, but because of those who don’t give a damn.

Steven H September 30, 2014 at 8:42 pm

RPP,

I’m a little puzzled by your post. You may have misinterpreted something I posted earlier. Or I am misinterpreting your post. But I’m not sure what you reference as to my view of what most people think.

So to clarify: I don’t think my “a through d” list at the top of this page describes the reasons that most people would give as reasons for income disparity. That post, in context, was specifically asking this question: If you don’t believe that government policy was a cause, then what do you think causes income disparity?

As to the poll, thanks for posting it. It is interesting. It makes sense that most people think the gap between rich and poor is widening, because research also shows that it actually is. As for low work ethic of the poor, I clearly don’t think that is a valid primary reason, but it is rather telling that 9% of Republicans think this not just A reason but the PRIMARY reason. (Less than 1% of Democrats answered similarly.) No telling from this poll how many Repubs think it is the number 2 or 3 reason.

Yes there are myriad factors described as the primary reason. Look how many of these reasons are related however, and tie into the following coherent scenarios:

Liberal view: The gap between rich and poor is defined as both a wealth gap and income gap, with incomes and wealth of the executives, bankers, and other rich folks being greatly boosted by favorable business and tax policy passed by government, and wages being suppressed and minimized by both business and government policy, due largely to outsized political influence of greedy and influential wealthy political donors.

Conservative view: The gap between the rich and poor, if it is getting larger, which some of us doubt, is primarily due to globalization, loss of unskilled jobs, and mechanization of jobs, requiring that people acquire new and different skills to compete, which takes time to accomplish and results in high unemployment during this retraining, and which too many do not accomplish due to laziness and poor ethics.

Add up the scores from the poll:
First note that 71% of Dems cited these top 9 reasons, while 65% of GOP cited these same top 9

Liberal view causes of gap:
Tax System/Loopholes
Congress/ government policies
Corporation/Executives
Greed
Wages/ Gaps in wages
Rich have power/opportunity

62% of Dems cited one of these 6 liberal reasons for the gap
43% of GOP also cited one of these liberal reasons

Conservative Causes of gap:
Recession/General Economy
Jobs/Unemployment
Work Ethic of Poor

Only 23% of Republicans and 12% of Dems cited these 3 conservative reasons.

More GOP actually supported the 6 Liberal reasons (43%) than the Con reasons (23%).

Now, there were actually MORE GOP that cited “government policy” (14%) than Dems did (9%), and certainly the Dems and GOP would likely disagree on which policies to change. But note that tax policy is inherently a government policy, so that when you add up tax and government policy scores in the poll, more than 1/3 of Dems and more than 1/4 of GOP think these are the primary drivers of rich-poor gaps.

Clearly this differs from the opinions of the businessmen on this blog, who not only argue that tax and government policy is not a main driver but is not even a significant driver.

All very interesting. Thanks for the post.

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James October 1, 2014 at 1:42 pm

LOL – I don’t see any point in your post above, or the part of the poll that divides us even further. I abhor polls that ask “liberals” and “conservatives” or Dems/Reps what they think. Just more division.

What is wrong with someone who uses their own mind? In the diatribe you posted above, I agreed with some of the things you put on the “liberal” list and some on the “conservative” list. I vehemently disagree with some things on both lists. Most people feel this way but are constantly bombarded with “camps” that they should belong to. So frustrating. And so tired…..

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Steven H October 1, 2014 at 5:49 pm

OK, I respect that you align yourself independent of typical partisan positions. To be fair, I would list everything on the list of 9 except work ethic of the poor (no indication that has changed recently or contributed significantly) and greed (too vague and no indication that has changed recently). And I would also add globalization/trade policy and automation and education systems as contributors.

My primary observation from the poll is that the items most consistently blamed as a PRIMARY cause by BOTH Dems and GOP are taxes and other government policy. This is also consistent with much of the current research: that tax and business policy is instrumental in keeping economic balance and that bad policy is what creates the imbalance.

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Ken October 2, 2014 at 9:20 am

OK, I unsubscribed from this thread a couple of weeks ago, but am still getting notifications. It’s like Hotel California — “You can check out any time you like, but you can never leave”. Anyway, I thought I would jump back in here on this latest discussion about the causes of income disparity.

Way, way back, probably hundreds of posts ago now, I told my personal story of how I came to be part of the 2%. In short, after my divorce where I lost more than $1 million to an ex who made a lot of promises to work, but never did any actual work, I vowed to only ever date women who were (roughly) my financial equal. Ones who had actual, real jobs comparable to mine. My thought was that if it was going to be 50/50 going out, then it sure as heck from now on was going to be 50/50 coming in. After more than a decade of being single, I found such a woman who was compatible in that as well as many other ways. We combined incomes into our new household, and we are now in the top 2% of all household incomes in the country.

To me, this and many other behavior-based explanations, such as a rise in divorce itself, account for much of the rise in income disparity. Here’s an article from the national Center for Policy Analysis which supports this view. It says that two primary causes of increased disparity are 1) education and 2) family structure. It also talks about specifics, such as how those at the lowest end of the income spectrum often are either single parents, or are unemployed, and those at the higher end tend to have two professional incomes, as my household now does.

http://www.ncpa.org/sub/dpd/index.php?Article_ID=13578

Rather than government policy, I think a more plausible explanation for why some have moved ahead while others have fallen behind is because of behaviors and life choices that invidividuals have made. Notably, behaviors and choices specifically related to education, and to family structure. I would also add the Information Age and globalization as major factors that have influenced household incomes over the past 30-40 years.

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Ken October 2, 2014 at 9:49 am

And here is a much more recent, and much more lengthy, article from the same gang at the Center for Policy Analysis which goes into a lot more detail about the causes, effects, and analysis of the income inequality debate.

http://www.ncpa.org/pub/st358

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Peter October 2, 2014 at 12:31 pm

Ken – I get those notifications too even though I was long gone from the discussion. Just wanted to pop back in to thank you for posting that article (the more lengthy second one). It was the best logical, objective, thorough, non-partisan article I have ever seen on the topic.

Frankly, I think it is such a good article about the overall situation that anyone who happens upon this site should just read it rather than the divisive and partisan arguments of the past month.

It continues to amaze me how the psyche workes when reading an article such as the one you posted vs reading the ongoing debate between Peter N and Steven H (sorry to call you out guys) . Listening to their debate makes me frustrated and increases my disdain for politics. It makes me want to just give up – as in “what’s the point?”. Unfortunately, most of what I see on TV is like this – hence why I try to watch as little as possible. People talking in stereotypes and generalities – and largely just talking at each other rather than genuinely trying to think the situation through.

By contrast, the article that you sent left me feeling inspired – in fact, so much that I read about 10 other articles on this site (which I had never seen before). It offered real discussion and real solutions and as a 1%’er, it encouraged me to continue to get involved and do what I can in my local community. Why isn’t there more of this?

I saw a filmmaker on Bill Maher’s show this week that made a great point about this. We all say “get involved!” but the reality is we are not. Our society has moved towards the easy way out – just sitting on our couches whining and railing but not doing anything. Even if it is small, we can all help our communities. This is what I try to do every day (for example, overpaying my workers and employees that take all of the manual labor and unwanted jobs out of my life). Of course, I’m not claiming to be perfect – but this is how we impact people’s lives and effect real change.

Thanks again Ken…..

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Ken October 2, 2014 at 2:02 pm

Thanks for your note, Peter. I appreciate it.

Yeah, for a long time I had thought that the income disparity issue, and our economy in general, were far more complex than the problem statements and solutions I was seeing here.

I agree that the longer of the two articles was excellent. It acknowledged points made by many in this thread on both sides of the political spectrum, while offering the best detailed discussion of income disparity that I have seen so far.

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Peter N October 9, 2014 at 11:21 am

Ken’s link is a good article. It says a lot that I have said and more, even the example of using grades to explain the injustice of socialism or communism. This is exactly how my mother explained these concepts to me when I was a 3rd grader.

What isn’t covered is the effect of automation. Fewer people are required to do more. Those that make and maintain the machines will do well. The machines are getting smarter, more precise and more reliable all the time.

One industry I am very familiar with is the sawmill industry. It is much more advanced that what most people realize. It is so automated now. Only a fraction of the people are required compared to what was required 30 years ago. The machines can make decisions about how to cut the wood much faster, with less waste and yielding more value from the wood than a person ever can.

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Peter October 10, 2014 at 10:42 am

Best part about the article is that it quieted the racket that was going on in here. I mean, what more can be said? The long article is so thorough that it is ultimately spin-proof. If we had seen this weeks ago, we would have all felt silly with our nickel-and-dime analyses.

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Normal Joe October 10, 2014 at 2:11 pm

Don’t jump so fast to think it quieting. There are some pretty big assumptions being made in that article that don’t stand up to scrutiny. The most obvious is the assumption that the quintiles are not representative of numbers of people. It’s just not the truth. The quintiles most used are numbers of household tax returns, so the assertion that there are more people in the upper fifth than the lowest fifth is wrong. There is also no relationship conveyed to the changes in public policies that accompany the changes in family behaviors where there is an arguable cause and effect relationship.

So, hang on to your braggadocio for just a little bit longer. The silence is that of thoughtful reflection to provide a scholarly response. Unless, of course, you only expect knee jerk reactions.

Peter October 10, 2014 at 2:34 pm

Not really bragging or gloating…. I didn’t write the article.

Steven H October 13, 2014 at 5:00 pm

Thanks for the article Ken. Unfortunately, it undermines its factual content with blatant partisanship and deceptive assertions.

1) “This paper, however, will focus on reasons for the wealth and income gaps that have gone largely, if not completely, unrecognized.” Actually, it spends a lot of time describing principles and concepts that are thoroughly understood by all but the most casual investigator into income inequality. Nothing in the article is “largely, if not completely, unrecognized” to professional economic researchers or even the well-informed amateur investigator. Mobility of individuals across quintiles during career advancement, variation of household size with income, temporary membership in the upper 1%, are not new or unexamined statistical truths, and they do not diminish the unsettling and dangerous realities of rising income disparities.

2) The repeated partisan labeling of main-line economic researchers as “left-leaning pundits” says much about the imbalanced perspective of this article and its authors.

3) Income growth rates – The article disputes some stated income growth rates for the median income or for different quintiles, by using different inflation measures. However, this is just a minor distraction. It never disputes (because it cannot truthfully do so) that the income growth rates of the upper 1% still far outstrip the income growth rates of any other economic group.

4) Fringe Benefits – This is a difficult area to analyze, and the article takes a limited view that tries to inflate income growth unfairly. Among other flaws, it fails to point out that dollar increases in medical benefits from companies do not feel like an improved benefit if the net result is constant or declining: paying to go to the doctor. In fact, employee medical costs are increasing just as employee costs are. on one hand the article says inflation is overstated but ignores the medical costs which rise much faster than inflation.

5) Surplus Value – The article tries to claim that the improved standard of living, improved quality of goods, etc somehow diminish the importance or measure of income inequality. Yes washers and TVs are cheaper as a percentage of income. And the internet and computers in the home allow convenience and entertainment unknown in past generations. But all of these advancements are enjoyed by rich and poor, and even more so by the rich. The underlying implication that average Americans should be grateful that the rich even allow them to participate at all in the technical and internet revolutions of the last few decades is offensive and demeaning. Of course technology is better than the last generation. But that does not diminish the fact that increasing prosperity in America is no longer shared fairly, and it does not eliminate the truth that debt and despair and declining fortunes have increased among many many Americans while 70 to 95% of national income increases have gone to a very fortunate few.

6) Morality – “Is it moral to take away the wealth of such people after they have earned it, after they have played the game fairly?” The middle class and poor have also played fairly, putting their lives and careers and children’s educations at risk. It is always moral to adjust the rules of the game to improve the overall economy. The rules were changed to benefit the wealthy at the expense of the poor and to the detriment to the treasury, and they did not complain then. How is it then immoral to tap the immense income growth of the fortunate few to restore the treasury and impart a more just income and society to most Americans?

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Steven H October 13, 2014 at 9:49 pm

Ken, I should also (in all fairness) point out some things that I can agree with in the article. It has a decent list of reasons for income disparity. I add some comments in [brackets].

=================== Start quote
Numerous social and economic factors explain why the income and wealth gaps have grown:

— Family structures have broken down, limiting the economic progress of many children due to lack of support from both parents.
— Executives have gained control of their own compensation packages, allowing them to push their incomes into the stratosphere.
— Schools, especially those in impoverished neighborhoods, have deteriorated, handicapping low-income children at a time when the value of education in the workplace has risen. [Rising costs of college also block poorer students from higher education.]
— Government welfare programs have provided many low-income Americans with disincentives to move out of poverty. [Personally, I think this is overstated, but I must confess there is some impact. What is left out is the economic policies that push families into poverty in the first place.]
— The political system has grown progressively rigged in favor of the economic interests of the already rich.
— The globalization of the economy, along with the downfall of communism in China, has worsened the position of American assembly-line workers, who now have to compete on wages with the lowest-paid workers around the world.
====== End quote

The most surprising (and somewhat disparate) point made in the article is that income inequality arises partly because the rich have a wealth advantage that allows their capital to grow faster than wages of lower income folks who depend primarily on wages and have less opportunity and capital for investment. This is precisely the point made by Piketti in his acclaimed and best-selling economic study and yet the article inexplicably claims this cause is “unheralded”, as if there could be anything less “unheralded” than an economic best-seller’s primary thesis.

It is remarkable and welcome that this article, whose primary arguments seem calculated to diminish and undermine the existence and extent of income disparity and generally attempt to absolve the wealthy of responsibility for the problem, should then confess and proclaim that the rich have distinct economic advantage that multiplies upon itself simply from being rich.

====== Start quote

An analysis of portfolio investment over time reveals another unheralded reason the “rich” have become richer absolutely and relative to the “poor.” Because the “rich” are rich, they necessarily have a substantial amount of wealth to invest (from past performance, luck, station in life and/or inheritance). The top 1 percent of households hold over a third of the country’s total wealth, while the bottom two quintiles hold a fraction of that wealth.26 The wealth of the rich enables them to develop and maintain highly diversified portfolios of investments, including stocks, bonds, derivatives, insurance, precious metals, degrees, multiple homes and other real estate holdings. They have the financial means to acquire new businesses and social networks, to explore new and untried ventures.

====== End quote

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James October 14, 2014 at 9:38 am

So what did you learn from the article, Steven H?

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Steven H October 14, 2014 at 4:39 pm

james, it is difficult to learn anything of substance from such a poorly written, rambling article. It takes well-known principles of statistical analysis of income distribution, such as mobility within quintiles or deciles and variations of family size by income, presents a cursory explanation as if they are new and game-changing facts, and performs some hand-waving to claim they diminish the existence or importance of income disparity measurements. It does the same with its discussion of different inflation measures. At one point it claims, with no real explanation that [Pundits rarely recognize that the success rate of people at the bottom of the income distribution can increase the growth in inequality, leading to an incorrect deduction that “only the rich are getting richer” in the country.] I would counter that pundits rarely recognize this because the sentence is complete rubbish. It is not defended or explained but simply proclaimed as fact with no substantiation whatsoever. Success at the bottom does not increase inequality; in fact it will tend to decrease it. And as I already mentioned, the article takes the prime thesis of Piketti’s book and claims it as an “unheralded” revelation that the authors reveal in this article.

At first read, the article’s mish-mash of fact and reference and assertions sound convincing, but after re-reading it multiple times, I am of the opinion that it is one of the least coherent and most poorly written articles on income disparity that I have seen. It takes no coherent position [claiming neither left, right, nor central ground], does a poor job of explanation of basic principles, claims what is well-known as hidden, and claims the absurd as obvious.

The Koch Brothers should get their money back from this particular think tank.

The following article is much better, providing no political position, but at least presenting a compendium of current thought on the subject.

http://en.wikipedia.org/wiki/Economic_inequality

Meanwhile, I will endeavor to find some better-written position articles that present either the left, right or center perspectives in a more coherent and honest fashion than this particular NCPA article.

Man-of-Reason October 14, 2014 at 8:21 pm

“I really started PAYING ATTENTION when things were crashing down in 2008. Then I realized I had been lied to all this time by the media.”

You claim that you became a stay at home mom in 2004 and studied politics until 2008 when you realized that the “liberal media” was lying to you about all things GOP, so you had this great conversion from voting Democratic to voting Republican.

If that’s true Allison, why ever did you vote for Obama in November of 2008? Something smells bad here.

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Man-of-Reason October 14, 2014 at 8:29 pm

We really must follow the money to understand the spin.

As of November 2013, the NCPA web site reported that for 2011 its funding breakdown was 52% from foundations, 21% from individuals and 22% from corporations.

According to an article in The Guardian newspaper, in 2008 the NCPA received USD 75,000 from ExxonMobil. ExxonMobil’s public policy giving report for 2012 shows no donations to the NCPA.

According to Greenpeace, the NCPA received at least USD 570,000 from Koch Industries in the eleven-year period ending in 2008.

In 1992, the New York Times reported that the NCPA was partially funded by the insurance industry.

You may assume what you want from such facts.

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Ken October 15, 2014 at 8:07 am

So maybe we should evaluate all links and references based on where the money supporting them is coming from, rather than on the merits of what they are saying?

If so, then maybe we should follow the money of the country’s #1 contributor to political campaigns, ActBlue.

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Peter October 15, 2014 at 9:25 am

There is no open mindedness here. The telling comment is that the article doesn’t “take a position”. That’s personally what I liked about it.

Peter N October 18, 2014 at 7:33 am

I always check to see who supplies the money for the information.

I have been gone for a week or more. I can see Steven H is still complaining about income inequality without any solutions as to how he would make the poor more productive.

Steven H October 18, 2014 at 7:54 am

Peter, for someone who repeatedly trumpets the merits of open-mindedness and respect, you seem remarkably closed-minded and disrespectful of my posts.

My problem with the article is NOT that it takes a neutral position, but that it takes no consistent or coherent position. That is what I meant when i said “It takes no coherent position [claiming neither left, right, nor central ground]”. It seems partisan in tone, chastising “left-leaning pundits”, yet also presents causes (natural accumulation of capital that increases disparity) that those same left leaning “pundits” proclaim. It then takes such causes and, rather than indicating that a solution is implied, it summarizes that, based on the items on the article, increasing income disparity is simply “inevitable”.

Yes, many things about the article irritate me. And yet, I have presented further below, in an answer to Ken, a calm and coherent point by point discussion of it. I would be interested in your response to the points i am trying to make. If you want to go the way of Peter N and simply discount me as a closed-minded partisan with a political agenda, I suppose that is your right. But, in fact, I am trying to promote some legitimate discussion and understanding here, and your snide comments are not helping.

Steven H October 18, 2014 at 12:10 pm

I think the arguments should be analyzed on their own merit. Yet when arguments start to appear partisan, imbalanced, or non-sensical, it is useful to look at the funding source as potential motivation for the partisan intent.

Steven H October 18, 2014 at 12:18 pm

Peter N, the poor would be more productive if grade school education was better funded, and if our higher education was better coordinated with business needs, more affordable, and restored to higher subsidization by states. All of this requires more government intervention and higher taxes.

Of course, you have produced no statistical evidence that indicates that productivity of the poor has any significant impact on high income disparity. So maybe we need to consider other solutions, like restoring all of the other policies that kept high income disparity in check.

allisonfaye October 10, 2014 at 12:00 pm

I also have ‘checked out’ of this thread but I wanted to comment on GOP policies. I want to start by saying that I was a longtime Democrat. Although I mostly voted Democrat, I was always registered independent. I thought all of the things mentioned above: GOP hated women, GOP only cared about the rich, yada, yada. I voted for Obama the first time. For years, my husband had been telling me I was snowed (in his nice husbandly sort of way) and that the media was biased toward the left. I didn’t believe him. I laughed at his ignorance. All the things the media told me were facts, right? Then when Obama came in and all he talked about from day 1 was taxing the evil, rich people, I started really paying attention. I started watching ALL news sources and yes, Fox as well. I became a stay at home mom back in 2004 and my brain was starved (I guess) for sustenance. I really started PAYING ATTENTION when things were crashing down in 2008. Then I realized I had been lied to all this time by the media. I started digging deeper. The GOP, it turned out, wasn’t about rich people. It was about free markets and keeping what you rightfully earn. It was about personal responsibility as opposed to looking to the govt to provide everything for you. Once my eyes were opened, I realized all the things I believed about the GOP had been fed to me by the media (aka the Democrats). And as long as I lived, I can’t see myself ever voting for a Democrat again.

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JTM October 10, 2014 at 4:07 pm

So you prefer to go from one extreme to the other? That is what is wrong today! We need politicians who are willing to take a more central ground and work together, but the noisy extremists won’t allow it. Any time someone goes near the center, the noisy ones pull support.

Why not be truly independent? Why not take your own stances on individual policies and candidates? Neither party is all bad or all good. Would you really choose a Rep candidate you didn’t like just to not choose a Dem?

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allisonfaye October 10, 2014 at 4:57 pm

Yes, because the Democrat’s policy of wealth redistribution is something I can no longer support.

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Peter October 11, 2014 at 9:00 am

I agree. But I also don’t support many things the Republicans stand for. Do you agree with their entire platform?

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Man-of-Reason October 14, 2014 at 7:39 pm

It has always been the perview of government to redistribute wealth. That’s reality so get real here. Anytime people are taxed or revenue flows to the government, it comes from our pockets directly or indirectly. Anytime legislation is passed, costly services flow to one group or another and it benefits some people more than others. Raise taxes or lower taxes, increase or lower services, and some people win while others lose because it redistributes wealth. Hopefully, in the end, we all benefit. But something sinister has occured, starting with the election of President Reagan.

However, don’t give me the BS that such redistribution only flows from rich to poor and middle class. During the last 43 years, quite the opposite is true. The redistribution has flowed from the poor and middle class to the top 1% as the increases in productivity and tax relief in this great nation have only benefitted that top demographic at the expense of the middle class and especially the poor who’ve seen their tax burdens rise while their standards of livings have decreased. Nothing can change that fact

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Peter October 15, 2014 at 9:28 am

Taxing the wealthy a higher amount and increasing public programs for the bottom 10-20% is a direct redistribution. That actually is a zero-sum game. What you claim has happened in the past 43 years was not a zero-sum game. The rich didn’t ‘take from the poor’. What is more accurate is that we saw a giant growth period in our country that the rich profited more from than the poor. Of course there is an element of this that is self-evident. If the poor had profited equally they wouldn’t be poor. But nonetheless it doesn’t diminish the disparity. But I would hardly call that systemic wealth distribution.

Steven H October 15, 2014 at 9:50 am

Peter,
You and I disagree on the full range and proportional impact of causes of income disparity. However, the following items are widely cited as substantial causes, and each of them are systemic policy issues established by government and those in political and control of government. To this degree that these items have contributed to diminished negotiation power of wage-earners and to income disparity, they are representative of systemic wealth redistribution by policy makers to benefit the most wealthy.
– Tax cut policy that reduces tax code progressivity and heavily favors high incomes
– Decline of real minimum wage (allowing inflation to diminish value)
– Anti-union policies
– Anti-labor policies
– Diminished enforcement of anti-monopoly laws and rules
– Starve the beast economic policy that tends to suppress funding to social and safety net policies
– Voter restrictions that suppress minority and lower income impact on elections
– Tort law changes that make it more difficult to sue large companies for egregious behavior
– Bank and financial deregulation

Peter N October 18, 2014 at 7:43 am

MOR is still misleading people.
“It has always been the perview of government to redistribute wealth. ”
There is nothing in the Constitution about this.

“But something sinister has occured, starting with the election of President Reagan.”
It started with FDR.

“However, don’t give me the BS that such redistribution only flows from rich to poor and middle class. During the last 43 years, quite the opposite is true. The redistribution has flowed from the poor and middle class to the top 1%”
BS. Provide an example.

“the poor who’ve seen their tax burdens rise while their standards of livings have decreased. Nothing can change that fact”
Again, where is the proof? The poor get paid for not working by our tax system.

You are as full of it as Steven H.

Steven H October 18, 2014 at 8:12 am

Oh, Peter N, we have been down this road before.

The Constitution does indeed the taxation and general welfare clauses which do indeed allow for collection of federal revenue from either the entire population or only the wealthiest, and then spending of those funds to sustain the country as a whole, but potentially benefitting one group more directly than others.

15% of all income has indeed flowed from the lower 90% to the upper 1% for various systemic reasons which we have been discussing these many months. That is redistribution of income. You have even agreed in previous posts that this shift has occurred. Don’t feign ignorance of past discussions.

And your mischaracterization of the poor greatly exaggerates their burden on society and inaccurately glorifies their economic position.

I don’t understand your unending resentment of the poor who have been victims of poverty arising from high income disparity, and your casual acceptance of and respect for the barons of wealth in the financial sector and multi-national management who usurp the nation’s wealth, destabilize our economy, suppress and over-tax small business to the benefit of BIG business, and purchase and corrupt our politicians. It seems they would be more deserving of your ire.

Steven H October 18, 2014 at 12:20 pm

Correction in first sentence of my last post
“The Constitution does indeed INCLUDE the taxation and general welfare clauses …”

Peter October 20, 2014 at 12:37 pm

From the Constitution directly:

“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and General Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.”

Then, in 1913 – the 16th Amendment….

“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

Steven H October 13, 2014 at 4:01 pm

I think it is unfair to characterize Dems as wanting to redistribute wealth. It is more correct to characterize Dems as working for economic opportunity and just reward for the common working American. 2/3 of income gains from 2002 to 2007 and 95% of income gains from 2009 to the present went to just the upper 1% of households. Is that fair?

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James October 14, 2014 at 9:41 am

Isn’t your entire position based on generalizations and characterizations? If you can characterize the wealthy as greedy and only voting for things that benefit them, then it is completely reasonable to paint Dems with this brush too. Spin it however you like, but a part of the Democratic platform is to do what she is describing. If you don’t like it, you call it redistributing wealth. If you do, you call it “working for economic opportunity and rewarding hard working Americans”. Same thing – different spin.

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Steven H October 14, 2014 at 1:10 pm

Both sides of the argument often rely too much on generalizations and characterizations and mischaracterizations. Arguments using volatile terms such as redistribution of wealth and class warfare can be applied to both sides against the other. The irony is that GOP are most prone to use these terms when in fact all of the redistribution over last 30 years has gone from poor to rich and if there is class warfare going on, the rich have been winning. People always think it is immoral to be taken from but they have little problem in taking from others.

But that is not to say that everyone is equally right and that both sides are morally balanced against each other. Look at how wealth and income have shifted over the last 30 years. Look at the measures of income and wealth disparity as they exist now and across our country’s history. Where do we stand relative to stable and unstable time periods, and relative to times of prosperity and decline? If you answer these questions honestly I think you will find that the current imbalances cannot continue on the path they have been on, nor can they stay at the precarious levels they have been hovering at for some time now. The pendulum swings and it takes tremendous political and economic pressure to keep it at it’s current apex. It must swing back to a more balanced position. The question will be whether equilibrium is achieved in a controlled and managed process or whether the pendulum crashes pell-mell through it’s artificial restraints.

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Steven H October 15, 2014 at 6:37 am

James, I should answer your question more directly. No my entire position is NOT based on generalizations and characterizations. My position is based on measurement, macro-economics, history, and statistics. What is your position based on?

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Ken October 15, 2014 at 6:55 am

Steven,

Without wanting to get into a sparring match, I would say that your position (and everyone’s position) is based on selected measurements, selected macro-economics, selected history, and selected statistics. What we choose to emphasize depends on what we think is important, or want to emphasize, and upon our assumption and beliefs. Selective attention and retention, that sort of thing.

As an example, Piketty (with a “y”) and Saenz are the latest (French) iteration of Marxian macro-economic theory, which emphasizes certain economic theories while de-emphasizing others, positing certain solutions (taking from the rich, centralized government control) while being silent about others (how to improve the economy as a whole, how to improve job prospects for the poor), and so on.

Let’s just say everyone comes at these issues from certain vantage points, and nobody has a corner on the market on truth.

Peter October 15, 2014 at 9:33 am

Totally agree. Which is why is disengaged with any debate with Steven H. The last reply to James is a good example. Saying “everyone talks in generalizations but the GOP does it more” is the equivalent of a child saying “he hit me first!”. Both Steven H and Peter N’s whole debate was a battle of generalizations and stereotypes. We all talk from a different vantage point but some appear to have open minds rather than political agendas. Our society as a whole needs more of that.

None of us know the inherent reasons, magnitude or solution for income disparity. The point of spirited discussion is to talk it through with open minds. Everyone has a point of view – and a point to make – and most all of it is valid. We need to learn from each other rather than talk in divisive politics.

Peter N October 18, 2014 at 7:48 am

The democratic mantra is
“make the rich pay their fair share”
when they already pay most of the taxes.
Again I ask the Democrats, what is your fair share of other people’s money?

Steven H October 18, 2014 at 11:51 am

Peter N, The upper 0.1% have more than double the share of income and half the effective tax rate than pre-Reagan. The share of taxes they pay, if it has increased, is only due to them having much more money. Effective tax rate is a better measure than share of taxes.

How is doubling their money and halving their effective tax rate anything close to fair? Whatever they are not paying, that they formerly paid, is either made up by taxes on everyone else or increased federal debt. What is the wealthies’s fair share of the nation’s treasury?

Peter October 18, 2014 at 1:25 pm

Love all this talk about the past. With this logic, we should pay all black people 1/2 the wage of other races – since it is better than what they had in 1850. My advice to the rich – just keep working and helping the economy along both nationally and locally. No time to be bogged down worried about what everyone else is doing and what is “fair” in the eyes of the entitled.

Steven H October 18, 2014 at 8:25 pm

So, Peter, we are to learn nothing from history?

I am sorry to see your decline from a poster of intelligent insightful posts to poster of sniping closed-minded drivel.

I would be happy to see the return of posts that indicate your obvious intelligence.

Peter October 20, 2014 at 7:59 am

My error…. replying to drivel with drivel isn’t helping anyone.

Man-of-Reason October 14, 2014 at 7:49 pm

“I really started PAYING ATTENTION when things were crashing down in 2008. Then I realized I had been lied to all this time by the media.”

You claim that you became a stay at home mom in 2004 and studied politics until 2008 when you realized that the “liberal media” was lying to you about all things GOP, so you had this great conversion from voting Democratic to voting Republican.

If that’s true Allison, why ever did you vote for Obama in November of 2008? Something smells bad here.

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lalollie October 12, 2014 at 11:16 am

A profession left off of this list is small business owners, the lifeblood of this country. Raising taxes on LLC businesses, which are privately owned, not REIT or publicly traded companies will put great strain on us. Unlike people who make vastly more $$$ declaring dividends and are taxed at 15%, small business owners are taxed at the full value of anything left over after expenses. This includes monies which are reinvested into the company. In my case, I am taxed on $800,000 a year, but after reinvesting in the company to keep it afloat, and paying taxes on this at not 39.5%, but 45%, I end up with $250,000 a year at the most. For a 16% ownership in a company which employs over 200 people (and we paid full medical and benefits 30 years before the Affordable Health Care Act) this is my compensation for a lot more than 40 hours a week.

The ceiling should be raised and privately owned LLC small businesses should be taken into account. The result will be all REIT and large corporations otherwise. We already are becoming a rare species. Don’t let envy destroy small businesses.

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Peter N October 12, 2014 at 11:30 am

I am a small business owner too. If you go back through the thread you can see that small business owners have been represented.

“(and we paid full medical and benefits 30 years before the Affordable Health Care Act) this is my compensation for a lot more than 40 hours a week.”
Yes, I have complained about this a few times earlier in this thread.

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JTM October 13, 2014 at 12:15 pm

Curious, if you reinvested the money, wasn’t the money spent an expense deduction?

I think many on here would agree that it is unfair individuals in your situation are lumped in with those earning much more. It is also unfair that businesses such as yours are taxed at 3Xs the rate of those earning dividends and stock investments which don’t directly create jobs and top of that whom don’t pay employments taxes on these earnings either. They use the argument that the companies already paid taxes, unfortunately we all know that’s not necessarily true with all of the high paid tax accountants finding loopholes provided in the tax code (some real and others later found illegal). I would rather we allowed these companies to pay minimal taxes, but then tax the earners at regular rates, possibly allowing for some lower rates for the first X amount of dividend income.

I would also like to see something where a tax break is given based on actual creation of jobs, jobs with a livable wage where the workers don’t qualify for government assistance, but rather actually pay income taxes. I know some on here would rather allow companies to pay workers peanuts to get us to full employment, but what good is full employment when the wages being paid allow the workers to qualify for as much or more in government assistance than what they earn from the job? Yes, we have to compete with workers in other countries, but there is no getting around the fact that it costs more for basic necessities to live here than many other countries, our workers need to be paid more because of this. Why try to bring our standard of living down to meet those in a 3rd world country?

Problem is, many employers would like to pay their workers more, but they are afraid to lose out to another company willing to exploit workers. That is what necessitates the need for minimum wages, unions, and government oversight, there are some employers who are more than happy to exploit workers and the environment and the rest of the employers have to compete against these bad employers.

Yes, I also agree some workers are bad and workers need to take some responsibility, but they can’t all be expected to adapt as fast as the employment environment or to know where it is going. Employers need to also take some responsibility to make sure their are qualified workers to work for them, if that means working with technical colleges, training workers themselves, or something else. Either way, as of now, these are jobs that need to be done, and any job worth paying someone to do is worth paying a reasonable wage, otherwise take it elsewhere or automate so we can continue growing our economy. Junk jobs do little to help our economy.

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Steven H October 20, 2014 at 6:27 pm

Those are all excellent points and well-stated, JTM. One of the things i have learned from this blog is the degree to which small business is taxed at HIGHER rates than larger business. Your idea of tax incentives for the small businesses that create jobs and/or added tax disincentives for the large businesses that pay only minimum wage or provide only exploitive jobs, seems like something politicians should strongly consider.

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Steven H October 13, 2014 at 3:45 pm

It would be interesting to know what percentage of 1% are small business owners and what percentage of SBO are in 1%. I think many SBO make less than $400K pre-tax, and certainly (as in your case) make less than that post-tax.

I agree that small business is essential to the economy and is likely getting a raw deal. Big business and banking industry control the politicians and get the tax breaks while providing less overall benefit to the economy — and hurting small business as well. I was just recently in another small town (less than 10,000 pop) where a resident described how the encroaching Wal-Mart decimated their small businesses.

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Peter N October 18, 2014 at 8:30 am

“Curious, if you reinvested the money, wasn’t the money spent an expense deduction?”…
JTM, I/we can expense a lot of the equipment we buy. However, when it comes to buying my share of my company and financing the building I paid for that out of my own pocket with after tax money. I/we had to get a loan for the rest of the building. We can deduct interest and depreciation. There is nothing magic.

“It would be interesting to know what percentage of 1% are small business owners and what percentage of SBO are in 1%. I think many SBO make less than $400K pre-tax, and certainly (as in your case) make less than that post-tax.”
It depends. My company is a regular c-corp. I can pay myself less and retain earnings in the company. A s-corp or partnership or individual is different. They can make higher incomes but they can’t retain their earnings in their company.

….

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Steven H October 18, 2014 at 11:45 am

Peter N, Your explanation of C-corp vs S-corp is very helpful. Thank you. Do you suppose that business owners behave differently depending on the type of corporation? Certainly, it seems that a C-corp owner would be more likely to re-invest profits in the business research, capital or employee salary if there is tax advantage to do so, whereas it seems that S-corp owners may be more motivated to extract money in owner salary. Is this correct?

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Ken October 15, 2014 at 7:50 am

I feel like stirring things up today, just because…..

The recovery since 2009 has gone dispoportionately to the investor class. Of course, those are the people who lost approximately half of their investment wealth during the 2008 financial crisis, when the Dow lost half its value, going from 14,000 to about 7000. Since bottoming out at 7000, however, the Dow and related indices have recovered all of that ground, and the Dow is now up to about 17,000 (notwithstanding the last week or so).

Question — Senior citizens own a disporportionate share of investments, and of wealth in general. Is it fair that the recovery goes to seniors, who already have more than their fair share of the country’s wealth? Should we stage a “War on Grandma”?

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Peter October 15, 2014 at 9:36 am

I used this same argument earlier with white / black people. The wealth gap has grown disproportionally in favor of white people. Is this fair?

Nothing will “equalize the wealth gap” like the stock market falling 50%. I just hope when that happens that I get subsidized by the government. :)

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Steven H October 15, 2014 at 1:32 pm

” I just hope when that happens that I get subsidized by the government.”
You already are, via the Reagan/Bush tax cuts. :-)

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Peter N October 18, 2014 at 8:34 am

“” I just hope when that happens that I get subsidized by the government.”
You already are, via the Reagan/Bush tax cuts. :-)”
More distortions. How is a tax cut a subsidy?
Why didn’t the democrats “correct” the Reagan tax cuts when they had the chance?

I can see i must watch Steven H all the time to counter his distortions.

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Peter October 18, 2014 at 1:21 pm

Ignoring is a better strategy.

Steven H October 18, 2014 at 12:29 pm

Peter N,
‘Why didn’t the democrats “correct” the Reagan tax cuts when they had the chance?’
They did.
Clinton increased taxes (despite the doom and disaster that GOP claimed that would cause), helping to slash deficits and then Bush cut them again, producing huge deficits that still exist to this day.

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Peter N October 19, 2014 at 8:25 pm

So why are you still blaming Reagan for all the ills?

Steven H October 17, 2014 at 3:40 pm

Hi Ken,
Responding to earlier post that had no reply button …

===== Start Ken quote
Without wanting to get into a sparring match, I would say that your position (and everyone’s position) is based on selected measurements, selected macro-economics, selected history, and selected statistics. What we choose to emphasize depends on what we think is important, or want to emphasize, and upon our assumption and beliefs. Selective attention and retention, that sort of thing.
====== End Ken quote

Ken, that’s a reasonable position, but I do have some questions. What then is your view, and what are the selected measurements, macro-economics, history, and statistics that support that view? I think we all have come to agree that there are multiple causes of income disparity and you and I might agree on some of those causes but might rank them differently. I have put studies and stats that support my view. If I am ignoring facts and statistics that contradict my view I would like to know what they are.

====== start Ken
As an example, Piketty (with a “y”) and Saenz are the latest (French) iteration of Marxian macro-economic theory, …
====== Interrupting Ken …

Three things.
Thanks for correcting my misspelling of Piketty. I prefer to get names correct.
Saez is spelled without the ‘n’ between e and z.
If we are going to respect everyone’s opinion, and use non-offensive language, we could start by not labeling Piketty’s work as Marxist, because Piketty’s book (despite a seemingly referential title) really is not based on Marx or his work or his philosophy. It is just an insult to label it that way.

======Start Ken
… which emphasizes certain economic theories while de-emphasizing others, positing certain solutions (taking from the rich, centralized government control) while being silent about others (how to improve the economy as a whole, how to improve job prospects for the poor), and so on.
====== End Ken

I don’t believe centralized government control is a big part of Piketty’s philosophy. And the whole premise of such an economic book is indeed about improving the economy as a whole. The premise of studying and attempting to solve the income disparity problem is that doing so will improve the economy, and failing to do so will damage it.

===== start Ken
Let’s just say everyone comes at these issues from certain vantage points, and nobody has a corner on the market on truth.
==== End Ken Quote

Agreed.

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Steven H October 18, 2014 at 7:29 am

After re-reading posts, it occurs to me that you may find it peculiar for me to ask for statistics supporting your views when you have just posted linked to an article that seems to do so. My difficulty with that article, as already stated, is that its arguments are weak and incomplete.

I have already posted my irritation with that article with regard to “presentation”, and the unfounded assertions placed throughout. However, it does also have some factual information which can be discussed. It would be helpful to me to know what specifics in this article you consider most convincing, in order to focus the conversation. However, I will attempt here to briefly summarize the reasons why I think this article does not adequately address causes of the the income disparity issue.

First, a problem description. The income disparity issue can be described many ways, but the one I would like to focus on is “The Income Shift”. By this I mean the significant change in share of national income that has moved from the lower 90% to the upper 1% since 1980 or so. The middle 9% (90 to 99 percentile) have benefitted only slightly, and in fact, within the 1%, the upper realms (0.1% and 0.01%) benefit from this shift vastly more than the lower realms of that group.

The longer NCPA article you linked addresses the following “unrecognized” or “unheralded” causes of income disparity that make income disparity “inevitable”. (These are taken from the Executive Summary).
1) Exaggerated income disparity statistics due to distorted statistics that exclude impacts of family size and government transfers.
2) Income mobility across quintiles during lifetime
3) Intergenerational income mobility
4) Temporary membership in top 1% or Forbes 400 (non-static income groups)
5) Statistics that 2/3 of Forbes 400 are “self-made” (wealth-not primarily inherited).
6) Financial advantages of holdings of wealth or capital, as held by many with high income, in producing additional wealth and income.
7) Federal Reserve Policy
8) Family “breakdown”, aka changes in marriage and single parent households in lower quintiles.
9) Distorted statistics because “success at the bottom can increase inequality”

Item 1 has some relevance, but by the articles’ own statistics, it only changes the median income growth from 18% to 37%, while income growth of upper 1% was 275%. [And I would argue that there are reasons for excluding transfers from the measure, as income disparity measures should reflect actual income measures not anti-poverty mitigation.] So Item 1 does not explain much of income disparity, and is not a “cause”, so much as it is a dispute of its measurement.

Items 2-5 all have to do with income mobility. While interesting to understand, this has almost nothing to do with the Income Shift issue. You can have high or low income mobility with no Income Shift, and you can have high or low mobility with even greater income disparity and Income Shift than we are now experiencing. Also, the mobility of income within the lower 90% has no relevance to the major Income Shift from the lower 90% to the upper 1%. While income mobility is also an important social issue, it is neither a cause nor a significant mitigating factor of general income disparity, and certainly not of the Income Shift.

This leaves items 6-8, which I think are the only “causes” of income disparity presented in the article.

Items 6 is interesting because it basically describes the reason why income and wealth disparity is destabilizing. The existence of high proportions of national wealth among a small population makes it much easier to increase and accumulate even more income and wealth within that population. This is the primary thesis of Piketty’s book on capital. Item 6 is not only a very good “cause” of income disparity, it is a good explanation of why it is unstable, why it will not fix itself, and why only external factors (like government intervention) are necessary to correct the problem.

Item 7 is legitimate and is another good reason and justification to increase taxation on the high incomes. If government policy has given wealth and income at the upper tiers, as a side-effect of economy stabilization efforts, it can hardly be deemed unfair or immoral for the same government to tax that windfall to similarly stabilize the economy and restore the treasury.

Item 8 may have some legitimacy, but there is no statistical argument presented here (or elsewhere that I can find) to quantify the effect on disparity. It seems unlikely to me that this is a primary contributor, as families t the bottom of the income ladder have always been unstable. You could even argue that instability of poor families is increased by high income disparity, making it an impact as much as a cause. Blaming income disparity on the actions of those most impacted sounds very much to be the human tendency of “blaming the victim”.

Item 9 is just silly, has no merit, and displays a basic misunderstanding of the relationship of income mobility and income disparity.

So the article basically presents 9 items, only 3 of which can be said to be causes of income disparity, and only 2 of which can be proved to be a cause and not an impact. These two causes, taken together, improve the argument that income disparity tends to accelerate, and should be controlled by government intervention, especially taxation. Increasing income disparity is indeed “inevitable” without such intervention.

I’m sure you disagree, but (a) do you understand my reasoning and (b) can you find a flaw in my logic? I am interested in your perspective.

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Ken October 21, 2014 at 9:55 am

Steven,

Article by the Tax Foundation analyzing the economic impacts of Piketty’s recommendations.

http://taxfoundation.org/article/what-would-piketty-s-80-percent-tax-rate-do-us-economy

Here are a some other things, some of them statistical in nature, others not, but which are my thoughts based on what I know of Piketty and his proposals. This list got pretty long, so I’ll probably have to separate it into several posts.

1) Capitalism has created more wealth for more people in the history of civilization than any other system. Piketty offers no alternative system that can do a better job of harnessing the human spirit and making it work for the betterment of humanity. In fact, at one point I think he even admits that to this. Accordingly, his prescriptions are limited to taxing the system after the fact. The question then becomes whether his prescriptions will work or not.

2) In his home country of France the top tax rate is 75%. It is not surprising to me, then, that he thinks an 80% global wealth tax is a good idea. People like Gerard Depardieu, the French actor, are leaving France due to its punitive tax rate. Not sure why Depardieu chose to live in Russia instead. Sounds like kind of an idito to me. Anyway, Piketty omits mentioning his country’s 75% tax rate, and the France’s economic problems in general, in his book. Likewise, I don’t believe he ever mentions the economic malaise of Euro-socialist countries similar to France, such as Spain, Italy, Greece, Portugal, and Ireland, who have tried similar high levels of taxation, and high levels government control and intervention.

3) Interestingly, Piketty and Saez (thanks for the corrected spelling of Saez’ name, btw) have not received nearly as much attention in France for their work as they have received in the US. I suspect this is because France is used to extremely high (I would say “punitive”) tax rates. Also, anything coming from Europe, especially socialist-democratic Europe, is almost universally hailed by the American Left as worthy of consideration… because the American Left typically gets their ideas from these Euro-socialists. And it is really only the American Left who think that Piketty ‘s ideas are a good prescription for what ails us. Thus the use of the term left wing “pundits” in the NCPA article. I guess you found the term derogatory. I found it merely descriptive.

4) Sorry, but when your main solution to world income disparity is to propose an 80% global wealth tax, and you want to put that money in the hands of government to redistribute to the poor, then you are a Marxist. If you don’t like the term “Marxist”, call it “Socialist”. Whatever you call it, the principles are the same: group identity politics, economic class warfare, taking from the wealth creators to redistribute to non-wealth creators, state or collective ownership and administration of the distribution of wealth, and so on.

to be continued

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Peter October 21, 2014 at 11:57 am

I for one am not interested in labels (as you all know) – such as “left” or “marxist” or even the clever “libtard”. But I completely agree with the above post (Ken) and have a few additional observations.

I have said on here multiple times – we ALREADY have a system that takes from the rich and gives to the poor.

– The higher earners pay higher marginal income tax rates. Period. Despite random anectodal evidence of a few multi-millionaires with accounts in the Caymans.

– This is aided with things like AMT and elimination of deductions over certain income threshholds

– The poor have a multitude of Federal assistance programs such as welfare, unemployment, medicaid, etc. to name a few.

– The poor also have very minimal income tax liability and multiple credits for things like education and child care.

We already take more from the rich’s pot than the poor and the poor receive these funds through assistance and other means. I’m not saying this is wrong. Let me say that again…. I AM NOT saying this is wrong.

What I am saying is – we already have this system.

Yet the problem with this is that there will continue to be those who think it isn’t enough. We need to “up” the assistance to our poor. We need to tax the “rich” even more. There is no stopping to this – no matter how high it is as long as we have poor people and a national deficit, there are those that will say the “system is flawed” and we need to tap into the rich’s pockets even more.

An 80% global wealth tax – or a 75% income tax bracket – is insanity. Any reasonable entrepreneur or hard working person – regardless of what bracket they are in – wouldn’t want to live in such a country. Plus, the assumption is that this “solves all of our problems”. Months ago, I detailed what an increase like this to our ‘rich people tax’ would do to the bottom line – and it is surprisingly minimal. And it operates under the assumption that the Federal government would appropriate these funds properly – rather than simply increase spending even further. It also assumes similar economic growth and currency stability. France has seen none of these assumptions come to fruition. Why should we?

Again, we already have this system in place. I pay close to 40% in Federal income tax, while my mother pays 0% on her earnings. This has already been increased several times in just the last two years. Enough. Time to address the moronic MANAGEMENT of the funds for once and quit coming to the rich with palms out.

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Steven H October 21, 2014 at 8:01 pm

Wow. A lot of good discussion here, Ken. Thanks. I’m going to try to reply to your posts individually, but probably not always point by point in the same order, because I’m afraid that would sound too petty and tedious.

So this response covers Capitalism replacement (or not), global wealth tax, Saez and Piketty background and their Marxism/Socialism.

First of all, it is my perspective, and as far as I can discern from the posts of the other liberals (if I may call them that) on this blog, and for that matter, most of the liberals and Democrats that I speak with, that Capitalism is just great as an economic system for the U.S. I don’t know of anyone in that group that wants to create something even close to the true definition of a Socialist country here, or even a Democratic-Socialist country. So for my part, there is not much cause to discuss “replacing Capitalism”. The goals and remedies that have been proposed and discussed here have pretty much stayed within the bounds of historically effective policies previously enacted here in the U.S.

The work of Piketty seems to me quite a bit less Marxist and more respected overseas than you infer, especially after reading the following WSJ article. You are correct that his book created more controversy here and thus achieved best-seller status. In France, his ideas are old news, and he is considered a bit on the conservative side (having opposed socialist policies like the 35 hour work week). But that does not mean he is not respected. The following short article is balanced and is unlikely to change your general opinion of Piketty, but may give you some perspective. http://online.wsj.com/news/articles/SB10001424052702303480304579575890128783848

Saez is indeed a French citizen still (as far as I know) but also an MIT graduate and a teaching professor at Berkeley in California, so he has a bit of US history and background. In fact, according to Wikipedia, ‘he was the recipient of the 2009 John Bates Clark Medal, awarded to “that American economist under the age of forty who is judged to have made the most significant contribution to economic thought and knowledge.”‘ So at least the judges apparently considered him American enough to also be eligible. And so he is seemingly well respected in centrist economic circles, not just leftist ones.

But all this talk about labels is tiring, and I see why Peter avoids it. I just think it soils an otherwise vigorous conversation to attach unsavory labels to every thinker who has an opposing idea. It would be helpful to the conversation, I think, and respectful to the other side, for all parties to exclude the gratuitous use of partisan or unsavory labels unless those labels somehow advance the argument. Just a suggestion.

As for the wealth tax proposal … I must say I am more interested in Piketty’s work (and Saez’ for that matter) with regard to their research on past and present than their speculative proposals for the future. Where their research is useful though, is in attempting to measure what tax rates are in fact sustainable and effective. This can guide policy. I can see where Piketty is going with the wealth tax idea. You don’t want to raise taxes in just the US, or just a few of the leading Democracies, only to have some country volunteer as a tax haven for the ultra-wealthy. But I don’t think a global wealth tax is practical, myself.

My opinion: If taxes are to be increased in the US, the purpose should be to pay down debt already accrued and to pay for policies already established. Should waste also be ferreted out and eliminated? Certainly. But we have to be realistic. A certain level of social programs “to promote the general welfare” of the US are widely supported in the US, and rather than trying to starve the beast (and getting eaten in the process), we ought to consider just feeding the beast in accordance with laws and policies already in place.

One more item: the phrase you used of “taking from the wealth creators to redistribute to non-wealth creators” has always seemed to me a peculiar and inappropriate way to describe the policies that I and most Democrats advocate. This gets back to that whole “you didn’t create all that wealth by yourself” argument that is so fraught with emotion and politic. But there is an important point that needs to be acknowledged in any important argument: it is POSSIBLE for people to get rich by appropriating not only the wealth that they create, but also the wealth that others have created. Perhaps one example is enough. Consider when companies raid retirement plans to funnel the money back into the business or into management salaries.
http://finance.yahoo.com/blogs/daily-ticker/retirement-heist-u-pensions-plundered-corporate-greed-author-131151510.html
This is not creating wealth. This is reallocating (aka redistributing) wealth from employees to management. Of course wealth creation exists, and especially in the small innovative companies that truly create jobs. But it really irks people on my side to continually hear the pretense that every dollar of income of the very rich is earned by them and them alone, and that the company employees (or stockholders, or small investors) whose negotiating power has been systematically suppressed earn (deserve) only what the managers reluctantly allocate to them.

Enough for this response. Onward …

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Ken October 21, 2014 at 10:00 am

5) I personally do not think government is more trustworthy than private industry. Most of history agrees with me. To then to put money from the 80% global wealth tax in the hands of government, thinking that government will “do the right thing” is, I think, to put it mildly, very optimistic. Nevermind the political lack of feasibility for getting agreement on Piketty’s global wealth tax in the first place. But let’s say we get that agreement. Who would then administer it? The U.N.? Their record on global events is, to say the least, spotty. Ok, so let’s forget looking at the rest of the world. Let’s look at the U.S. alone. We have $17.5 trillion in national US debt; economic disasters in many US states such as my home state of Illinois, the state of CA, the fiscal condition of nearly every other US state; we have bankrupt cities such as Detroit and San Bernardino, among others. Add to that the many state and federal programs which are in economic straits (Amtrak, Social Security, Medicaid, Medicare, US Post Office, more), and it is not a pretty picture. To then think that we should place an 80% wealth tax on individuals and give that money to government as a solution to income disparity is, well, not supported by actual results.

6) Piketty never quite says it this way to my knowledge, but one of his primary drivers is that he doesn’t like inherited wealth. My perception of his point of view is that, to him, inherited wealth distorts what would otherwise be an even playing field, giving unfair advantage to children of “the rich”. I actually think there is a more sinister motive in play: he wants to find reasons for centralized government control of wealth, which is his solution to income disparity. Government intervention and control is almost always the solution insocialist, left-leaning politics. But getting back to inheritance, creating better lives for our children is a central driver is all parents’ minds. Why is it not OK to want your children to live better lives than you lived? Because some people succeed at doing that, while others don’t? Is it OK for the poor to leave money to their children, or not?

7) To my knowledge, Piketty never admits that the way in which people acquire capital is by earning it with labor. Listening to him, you would think that money just appears in the wallets of the rich, who then selfishly don’t share it with others. But the reason people have capital to invest is because they earned it. Additionally, it is their money, not the government’s money. Earning money to invest does give people who own capital an advantage. It is also what gives them an incentive to achieve. But they earned this money with their labor… at least initially. How, then, is this a bad thing? Piketty never explains or addresses this.

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Steven H October 21, 2014 at 8:27 pm

“I personally do not think government is more trustworthy than private industry. Most of history agrees with me.”
=====
This is a highly debatable point. If big business was so trustworthy, we would not need antitrust laws. We broke up big companies in the late 1800s and early 1900s for a reason. More recently, it was private industry in the financial realm that is largely responsible (among other players) for the 2008 economic crash. Greenspan’s quote is particularly memorable.
“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself especially, are in a state of shocked disbelief. “—Alan Greenspan, October 23, 2008
The whole exchange is quoted here:
http://duanegraham.wordpress.com/2010/10/01/remembering-the-confession-of-alan-greenspan/

I will be the first to admit that governments can be flawed (witness our dysfunctional Congress), but at least government is ultimately answerable to voters. I don’t really think that most people would be comfortable with unregulated businesses, with no minimum wage laws, no antitrust laws, no labor laws, no safety regulations, no health regulations. I really think people only trust most businesses about as far as they can lift and throw their corporate headquarters. Figuratively, of course. Well, mostly figuratively. IMHO, only government oversight makes business trustworthy.

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Peter October 22, 2014 at 7:00 am

Think you misunderstood what Ken was saying. He wasn’t saying big business was trustworthy. Think he was implying that the assumption that government is MORE trustworthy than businesses is not one he agrees with. An indictment of both, if you will….. Not a case that corporate America is particularly trustworthy.

I don’t believe government is any more “answerable” to voters than businesses are to shareholders. If that was the case, we would have voted out almost every elected official multiple times in the last 20 years.

Ken October 22, 2014 at 9:45 am

That’s it exactly, Peter. I was saying that there is no evidence that government is more trustworthy than private business. I would say both have bell-shaped curves of trustworthiness. I could cite numerous examples where the weight of the evidence actually tips in the opposite direction, where governemnt has proven to be less trustworthy. Actually, I did cite numerous examples. Here are some more, with a few repeats.

Watergate, and all the other “-gates” that have followed. IRS scandal. Fast and Furious. No WMDs in Iraq. Iran Contra. Whitewater. 2008 financial crisis. Savings and Loan crisis. Monica. $17.5 trillion in debt. VA scandal. Newt. Benghazi. Chappaquiddock. In fact there are so many federal government scandals, there is actually a “Scandal Tour” in DC where you can ride on a bus and the driver takes you to the places where different government scandals took place. No kidding. Here’s a more complete list of federal government scandals.

http://en.wikipedia.org/wiki/List_of_federal_political_scandals_in_the_United_States

I look at state governments and it is more of the same. Here in Illinois we have two ex-governors in jail, although I think George Ryan may have served his time and be free now. Blagojevich is still in the pen, though. The Chicago political machine and its ties to organized crime are legend. Think Al Capone. The Illinois state workers’ pension fund is currently $100 billion in the hole because state government officials stole the money and didn’t fund pensions as required by law. Nobody knows where the money went. It’s just gone. Poof. When Illinois passed the law to allow a state lottery, government officials swore up and down that the money was going to go to education. Needless to say, it hasn’t. In 2011, state lawmakers increased the state’s flat income tax from 3% to 5%, a 67% increase. They promised that it was just a “temporary” increase. Now of ocurse they’re talking about making it permanent. There’s still no talk of cutting spending, though.

California’s state budget is hundreds of billions in the hole. Forty-six of fifty state budgets are currently in the red. Detroit is bankrupt. So are San Bernardino, and Stockton, Calif. And Jefferson County, Ala. And Central Falls, R.I. Look at what happened with government officials in Louisiana, and how they diverted funds that should have been used to enhance/repair levees, the result being that Katrina destruction was far worse than it should have been. The list goes on and on.

I would also note that while government oversees business, virtually nobody oversees government. I know you would say we the people, oversee government via elections. And while that’s true, my response is that government oversight of private business is immediate and ongoing (audits, mandatory compliance with numerous laws, government in control of whether or not you get a license for whatever it is you want to do, such as a driver’s license, etc). By comparison, general public oversight of government is vague, not immediate in any sense since elections are often years in the future compared to when the offense was committed, there are no compliance mandates for government, no penalties for non-compliance, no fines they have to pay if they screw up. Government lack of accountability is also fogged by goverment being in control of the evidence, thus the ability to deny, obfuscate, claim executive priviliege, redact or lose documents (or entire hard drives, or a collection of hard drives/servers), and so on. Add to this the fact that in any election there are numerous issues on the table, and there’s a good chance that the government official will never be held accountable in the election(or ever) for his/her “mistake”. Government also has the ability to prosecute prviate individuals for lack of compliance, whereas the reverse is not true.

And yes, there are a long list of atrocities in private business, and government intervention and oversight in that regard has provided benefit. But my point was that there is ample evidence that government is no more trustworthy than private enterprise as far as “doing the right thing”. There are bad players in roughly equal numbers in both places.

In short, and on balance, however, I trust private industry more than government. And the basic reasons are that private industry is directly accountable not only to government, but to shareholders, and to customers. Government is accountable only to the public, and that accountability is delayed, is much more fuzzy, much more subject to obfuscation, and much easier to dodge, in general.

Steven H October 21, 2014 at 9:24 pm

Regarding capital and inherited wealth:

There is probably some really good economic theory terms for what I am about to describe, but I’m not actually an economist, so I’ll just wing it with words and terms at my disposal.

Dollar/Labor Inequality – Every dollar earned does not represent the same amount of labor to earn it. There are many valid reasons for this, and I am not trying to assert that there should be Dollar/Labor Equality. I’m just defining a term and an idea.

First Dollar is Hard, Next Dollar Is Easier – In many situations, earning the first dollar is hard, and earning subsequent dollars gets progressively easier. Often this is because some investment and planning is necessary to get that first dollar. Acquiring education, getting a job, getting a business idea, researching, building prototypes, etc.

Dollar Accumulation Is Not Creation – There are many situations where wealth and income is accumulated by the wealthy beyond any pretense or measure of wealth creation. I don’t think I need to provide examples.

So: The reasons that folks on my side of the fence distrust large capital and large inheritance are (a) frankly, we ain’t got it, and (b) large inheritance violates the First Dollar Is Hard principle, and (c) capital accumulation from investment seemingly takes unfair advantage of the Next Dollar Is Easier principle. Sure the next dollar should be easier, but living off accumulating investments takes virtually no effort.

Also, Dollar/Labor Inequality is acceptable to the average worker, but only up to certain ratios. Sure, a business owner may work 2 to 3 times as many hours in a week as a salaried worker. And the business risks and ideas are his. The SBO should indeed get well-rewarded if his business takes off. But what should the ratio be between CEO and average employee salaries? Whatever the market will bear, up to any maximum? 12:1, 20:1, 46:1, 200:1, 1000:1 ?? (Those are the respective ratios at Microsoft, General Motors, FedEx, Home Depot, and Wal-Mart, by the way, according to this table:
http://www.payscale.com/data-packages/ceo-income-2013/fortune-100 ).

At some point of wealth and income disparity, the non-wealthy begin to feel they are being scammed. There is constant downward pressure on wages, benefits, federal safety nets, all from the same corporate leaders whose next dollar is extraordinarily easy and whose kids will benefit from increasingly lenient inheritance laws, and who purchase good favor of politicians with their large donations.

So Ken, I actually agree that it makes sense that earned capital should be allowed to earn investment income, and that kids should be able to have a life that is cushioned by the hard-work of the parents — up until the point that such accumulating benefit to the most wealthy becomes an undue burden on the non-wealthy. And of course, there will always be disagreement as to where that point exists. But I think it is important to at least acknowledge that it exists, and that accelerating and unchecked income disparity from easy capital accumulation and lenient inheritance laws can ultimately reach an unsustainable imbalance.

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Peter October 22, 2014 at 7:10 am

“At some point of wealth and income disparity, the non-wealthy begin to feel they are being scammed.”

So? Feeling that they are being scammed doesn’t make it a reality. There is no circumstance where leaving my children millions becomes an “undue burden” on the non-wealthy. Frankly, I think estate taxes are among the most disgusting and indefensible laws that we have. Fortunately Obama supported increasing the exemption so that it doesn’t affect as many people.

Plus it is all relative. If I raise my family in North Dakota and leave them $100k, this would be quite an inheritance that could last a long time. However, if I raise my family in SoCal or NYC and leave them $100k, this might not get them through the year. How can you think that a) anyone else has a right to take some of these funds or b) that my children’s inheritance somehow burdens the public? Again, it’s not a zero-sum game.

Ken October 21, 2014 at 10:03 am

8) Piketty apparently believes that the economic pie is a fixed size, and that how we divvy up the pie is the important issue. I would say the pie is as big as the wealth creators make it, and everyone can be a wealth creator if they choose to invest the time, skill, risk taking, and education. This notion seems to escape Piketty, or at least he considers it unimportant enough to not make it into the central part of his thesis. Rather than divvying up a fixed pie, the much more important issue, in my view, is how to help people become pie creators, and thus how to make the pie bigger. Again, this viewpoint is notably absent in Piketty’s analysis. I suspect it’s because you can’t teach what you don’t know. Piketty has never run a small business and therefore doesn’t know how to create wealth. Thus his thesis is restricted to prescriptions for what to do after the wealth has been created….by others.

9) The inference in his approach is that if other people’s money isn’t being used the way he wants it to be used, the government is entitled to confiscate it, as per his 80% global wealth tax proposal. If it isn’t being used to create jobs, but rather to increase personal wealth, then it is “wrong”. Really? Exactly why? Because he says so? Why can’t others who want more wealth become wealth creators and create their own capital? Why is that not the solution Piketty offers?

10) As mentioned earlier, Piketty has never created or run a successful business. He would have much more credibility with me if he did. Because he has never run or created a successful business, his prescriptions for how to manage the economic and business environment ring hollow. They strike me as academic theory at best. I give much more weight to the opinions of people like small business owners, who have had actually made things work in the real world.

11) One of Piketty’s underlying assumptions is that all labor is of equal value, thus the notion that the worker bees are being cheated when large profits are had and owners/management get more of thoe profits than the worker bees get. However, there are huge difference between worker bee labor and owner-opearator labor. Non-owner labor isn’t risking their own money to make a business an ongoing entity. They will not lose money if the business folds. They play it safe by offering only their labor as an input. They also escape responsibility for keeping the business afloat, making a profit for shareholders, being responsible for their livelihoods, and making payroll, among a long list of other things. The absence of these differentiating factors means (to me) that Piketty considers them trivial. i think they are not. Keeping an ongoing business afloat, making a profit for shareholders, being responsible for their livelihoods, all of these are far different set of risks, expectations, stress and therefore, compensation, than merely showing up 9 to 5 and taking home a paycheck.

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Peter October 21, 2014 at 11:59 am

This point needs highlighting:
“Piketty apparently believes that the economic pie is a fixed size, and that how we divvy up the pie is the important issue. I would say the pie is as big as the wealth creators make it, and everyone can be a wealth creator if they choose to invest the time, skill, risk taking, and education.”

A key point. This is not a zero-sum game. Fundamental to the disagreement on here.

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Steven H October 21, 2014 at 9:57 pm

Ken and Peter, You have both provided some really good discussion material today. I can’t answer it all today, but will get back to it soon. You are making me think through the problems and i want to take some time to formulate an adequate reply. And there is one of my replies already posted that you can’t see yet because it awaits moderation. Don’t worry. I’m being nice. But the post has more than one link and I think that alerts some sort of sp@m-alarm.

By the way, I hope MOR and JTM are following this discussion and will get their thoughts in as well. And of course, for anyone else listening, new players may join in at any time.

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Steven H October 22, 2014 at 8:35 pm

Let’s start with the easy stuff.
====
“Non-owner labor isn’t risking their own money to make a business an ongoing entity. They will not lose money if the business folds. They play it safe by offering only their labor as an input.”
====
I agree .. partly. While i respect and admire the effort and risk of the business owner, it is too often forgotten that every employee represents about a 20 year production effort of two to three people (individual plus parents) in time and economic investment. Being an employee may also involve moving expenses and purchase of a house near the business. Loss of a job is one of the three most traumatic events a person encounters in life, comparable to death of a close family member or divorce. If the business folds, there may be a period of unemployment, search for a new job, possibly requiring sale of house and uprooting of family and children from a familiar environment. To say that employees have no personal investment in the success of the business and no economic impact if it folds is simply not correct.

Now the hard part. And please be patient with me while I rant a bit, just for one paragraph.

Wealth Creators. The term makes (at least some) liberals cringe with disgust. You think “You Didn’t Build That” is offensive. At least most liberals have the sense not to toss that phrase into casual conversation with a conservative. But Wealth Creator is the title not so humbly proclaimed by businessmen, as if (it seems to the liberal) to proclaim themselves Lord and Creator of all that is Good and Prosperous. All Hail to the Wealth Creators. Lay Down Your Offerings Of Tax Cuts Upon Their Altar.

OK. Done now. Out of the system. (Deep breaths. Ahhhhhhh.) Back to the discussion.

If a businessman starts a small business and it grows to hire 99 other people and makes a decent profit year after year, how many wealth creators are there in the company?

Are there 100, because all of those employees are necessary to achieve the profit?

Is there only one, because the owner gets all the credit, and the employees are just cogs in the machine?

Or might there be none at all? Wait, what? The company makes a profit, so it is creating wealth, right? Depends … It may be creating wealth for itself, but is it creating net wealth for the community or the country? There are some pretty good arguments on the web that (excluding impacts of dividends) the stock market is a zero-sum game, meaning: Every dollar received for stocks is a dollar spent by some other investor for those stocks. Every winner has a loser, with sums of wins and losses (buys and sells) zeroing out, which is the definition of a zero-sum game. If you include the costs of transaction fees subtracted by investment houses, the market is a negative sum game. So, back to our business. Is it a stock investment house? Then it is creating no wealth because it is simply moving paper around and extracting wealth from an otherwise zero-sum game.

Another example of successful company that creates no wealth: A single company that merges two companies that formerly made widgets and wodgets, and now continue to make widgets and wodgets, at the same quantity and price, but now the lack of employee competition between companies allows (a) downsizing, (b) wage cuts, (c) higher wages to management, and (d) larger profits. So it is making more profit and thus creating more wealth right? Not really. It has just reallocated wealth and a corporate income stream that already existed, from workers to management and investors. No ADDITIONAL wealth created whatsoever. And in fact the impact to the local economy is negative, because employees have less money to spend, there is more unemployment, and the spending of the executives won’t make up the difference.

In fact, the determination of wealth creation is difficult. Economists are widely split (as far as I can tell from my quick research) on what the term even means. It happens, generally through innovation, labor-saving ideas and devices, more efficient processes, etc. But not every profitable company is so easily designated as a wealth creator.

I find that idealism distorts arguments. Sometimes we all have to simplify arguments to explain and make a point. But the general designation of business owners (and ONLY business owners) as wealth creators both offends people and distorts the bigger picture. Everybody who is providing a needed or desired service or product, private and public sector, manager or wage earner, might be considered a wealth creator. We all need (most of) each other to survive. Maybe we even need the investment house business.

So let’s be realistic about (a) who makes a company successful and profitable (everyone involved, not just the owner) and (b) where and when wealth is actually created for the wider community. Does that make sense?

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Peter October 23, 2014 at 7:37 am

“There are some pretty good arguments on the web that (excluding impacts of dividends) the stock market is a zero-sum game”

Patently false. The stock market has been a wealth “creator” for over a century. If it were a zero-sum game the market wouldn’t rise in value. Same with any other market (real estate, commodities, bonds, etc.). I honestly can’t believe you wrote this…. This entire email shows a total lack of understanding of corporate America, Steven H.

First of all, not all of corporate America makes widgets. There are service companies and other industries as well. But let’s take your widget example. Company A makes widgets and sells them for a profit. They pass a portion of their profits on to shareholders via dividends and reinvest the remainder into the company to expand into new markets/products/etc. Let’s just say everyone at the company makes a salary. As the company becomes more profitable, they can expand (i.e. hire more people) or pay their own employees more. Just as I described with my job, this pay is not distributed equally throughout the company as the owners have FULL discrection. Nonetheless, this is an addition to the salary base across the board. The success of the company indirectly causes the stock price to rise. Anyone who owns a share in the stock profits and is richer than they were the day before. If the company merges with company B, they create efficiencies. This might cause layoffs in the near term, but over the long-term should mean more profit for the company, higher pay for employees, higher dividends for shareholders, and an increase in stock price. Therefore, Company A is a wealth creator – not just for the original starters of the company, but for employees, new hires, and shareholders. Companies don’t merge just to make the same amount of money but reallocate it to fewer. They merge to streamline their business and make more profit.

Of course, this is a success story. As with anything else, there are winners and losers. Some companies go completely under and all of the owners and shareholders lose wealth. Employees lose their jobs.

I do have a new perspective on your ideology now – the biggest incorrect assumption in your philosophy is detailed in your last post. At the end of the day, you believe that a business or corporation is a zero-sum game. When management takes more, employees get less. This is not the case. Your more valid angle you could take is this…. when companies make more, management/ownership/the rich take more of the profits and employees get less. This may (and probably is) true.

Peter October 23, 2014 at 7:43 am

Steven H said:

Let’s start with the easy stuff.
====
“Non-owner labor isn’t risking their own money to make a business an ongoing entity. They will not lose money if the business folds. They play it safe by offering only their labor as an input.”
====
I agree .. partly. While i respect and admire the effort and risk of the business owner, it is too often forgotten that every employee represents about a 20 year production effort of two to three people (individual plus parents) in time and economic investment. Being an employee may also involve moving expenses and purchase of a house near the business. Loss of a job is one of the three most traumatic events a person encounters in life, comparable to death of a close family member or divorce. If the business folds, there may be a period of unemployment, search for a new job, possibly requiring sale of house and uprooting of family and children from a familiar environment. To say that employees have no personal investment in the success of the business and no economic impact if it folds is simply not correct.
—-

This is also horribly misguided. An employee having to move and look for a new job is hardly what Ken means when he says that the owners are taking more risk. There is a VAST difference in putting everything you have accumulated into a company and possibly coming out of the other side not only having lost it all – but possibly even in debt or having to file bankruptcy. This is common among failed small business owners. An employee – say a “file clerk” – can then just go take their skills – a commodity by the way – and go find another job. Sure this is a short-term hardship, but to compare this to putting all of your chips on the table and ‘betting’ on the success of a company is foolish. If I lose my job as a file clerk because a business failed, I still have my 401k, savings, house, etc. Hopefully I have planned properly to have reserve assets to sustain me while I look for another job as a file clerk. And I can even collect unemployment while I am looking. The business owner is often penniless and even unable to purchase a house or start a new endeavor due to debt and/or bankruptcy.

Ken October 21, 2014 at 10:06 am

12) Generally, Piketty like most socialists, appears to think that labor is more “honest” than capital. He speaks of labor in glowing terms, but denigrates capital as simply a means of enslaving others (my words, not his). Nevermind that invested capital is the means by which businesses, and jobs, are created. Capital is still evil, labor is good. I think this is utter nonsense.

13) Another of Piketty’s underlying assumptions, perhaps the central underlying assumption, is that disparities in income are inherently bad. Income equality is good, income inequality is bad. But no proof is ever offered as to why. It is just assumed equality is good, and inequality is bad. He then goes on to paint the picture of the altruistic, perpetually virtuous victim low wage worker, versus the narcissistic, greedy, high wage “wealth baron”. I do not accept this theory or viewpoint. It is based on belief, distortion and hyperbole. One way to make everyone equal is to make everyone equally poor. Is that a better solution? This has happened in numerous socialistic societies, including current examples like Venezuela and Cuba. How’s that working out for them?

14) Hours worked per week is never mentioned as a cause of income disparity. I recall reading a book about Bill Gates, and in particular I remember the story about Gates sleeping under his desk at night during the fledgling days of Microsoft. Does Piketty ever do any analysis of hours worked, compared to income disparity? The average small business owner works, I would say, 80 hours a week. Their employees work perhaps half of that, as a rule, give or take a few hours here or there. Setting all of the management, ownership and risk taking elements of business leadership aside for the moment, and looking only at hours worked, should the business owner who is working 80 hours a week be paid the same as the employee who only works 40? This would make their incomes equal, right, which according to Piketty would be the “fair” thing to do, right, since income inequality is by definition bad?

15) Does Piketty ever talk about the benefits that world society has derived from innovation in private industry? Or how even the lowest classes of American society have cell phones, flat screen TVs, and cars? Does he ever say that in any competitive environment, some people are going to compete better than others? These would be interesting to take into account in his analysis, to say the least.

16) Other organic causes of income disparity are not mentioned by Piketty, either, especially factors in the US such as the rise in divorce, the rise in two-earner professional households, the rise in illegal aliens in the US, the decline in pay for industrial age job skills and unskilled labor, and many others. All income disparity is inferred to come from nefarious causes, such as the greed of the rich. Needless to say, I disagree. I think all of the afrorementioned causes, and more, are factors, and they do not all emanate from nefarious causes.

I guess I’ll quit there. All in all, I think that if Socialists-Democrats-Marxists would spend more time trying to create wealth, rather than trying to find reasons to take wealth from others, we would all be a lot better off.

Having said all of this, I do appreciate your point of view, Steven, although I rarely agree with it. You frequently have made me think.

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Peter October 21, 2014 at 12:20 pm

“Other organic causes of income disparity are not mentioned by Piketty, either, especially factors in the US such as the rise in divorce, the rise in two-earner professional households, the rise in illegal aliens in the US, the decline in pay for industrial age job skills and unskilled labor, and many others. All income disparity is inferred to come from nefarious causes, such as the greed of the rich. Needless to say, I disagree. I think all of the afrorementioned causes, and more, are factors, and they do not all emanate from nefarious causes.”

Another great quote. This is where the “offensive” part of the point of view of some irks me – and what has been the biggest turnoff for me to some people’s otherwise interesting points of view in this thread.

This is much like racism, or discrimination against homosexuals, or stereotyping any other group of people with a commonality. It is just simply too convenient and easy for those who are mad at the system to stereotype the 1% as:

– Greedy, hoarders of $$$
– Wealth barons who will bend and twist the system to their advantage any chance they get
– People who vote only in what is in their own personal best interest
– Selfish, uncaring types who think the poor just need to ‘man up’ and work harder
– Unsympathetic to others in less fortunate situations

I had others listed – but these are the main 5. I just know that even though I am likely in the top quartile of the top 1% myself, I don’t exhibit these traits at all – nor do most of those in my social circles and peer groups.

Our country has a serious problem of overcharacterizing people as caricatures. Reality TV is a prime example of this. We have a hard time accepting people as individuals it seems, but would rather group everyone as liberal or conservative, rich or poor, white or black, gay or straight so we can figure out who they are and how to treat them. In important political debates like the one on this thread, it is poison.

I’m not completely immune from this myself, but try really hard to avoid liberal/conservative talk (because I am neither) or labeling anyone’s opinions. Every time I see a word that classifies a group of people it rings in my brain like seeing the “N” word. That may seem dramatic to you, but as someone in the 1% – having to endure the assumption that I am nefarious, greedy, unsympathetic or flat-out heartless is infuriating and tiresome.

More importantly, it undermines what would otherwise be a good discussion of our economy and our society and what tweaks need to occur to make it a better one for ALL.

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Peter October 21, 2014 at 12:31 pm

Oh and I’ll drop this point from now on….. I realize I’ve made it many times now but it continues to frustrate me in this dialogue. Maybe I need to not be so sensitive…. :)

Steven H October 22, 2014 at 9:06 pm

I am handicapped by not actually owning (yet) a copy of Piketty’s book, but I have not gotten the impression from the summaries that i read that Piketty actually caricatures the rich as evil or greedy. The summaries and excerpts i have read are drier than that. What I HAVE read is conservative blogs taking offense at the book AS IF he made those accusations.

Here is a summary from a liberal reviewer:

“Piketty’s main point is that wealth disparity inevitably grows when the income from capital investments exceeds the income from work and a nation’s productivity growth. As wealthy family dynasties become richer and more powerful, their money increasingly takes a larger share of a society’s resources and productivity. High progressive taxes, especially on corporations and the wealthy, reduce this disparity, and helps fund programs that reduce the initial maldistribution of wealth.”

There is no offensive accusation against the rich here, just impacts of various economic factors. Until you actually read such accusations against the rich in his own words, i suggest you assume they do not exist.

Here is an article I just ran across that may be useful. Bill Gates discusses Piketty’s book and while I don’t necessarily agree with everything Bill says, I don’t agree with everything Piketty says either. But it is interesting to see on what points they agree and disagree.

http://www.gatesnotes.com/Books/Why-Inequality-Matters-Capital-in-21st-Century-Review

Ken October 23, 2014 at 5:30 am

Here is a review of Piketty’s book by Lawrence Summers, President of Harvard, Secretary of the Treasury under Clinton and the Director of the National Economic Council under Obama. It is the most balanced review of Piketty I’ve seen so far. I will attempt to respond to other posts today as time permits, but have a heavy meeting schedule.

http://larrysummers.com/2014/05/14/piketty-book-review-the-inequality-puzzle/

Steven H October 22, 2014 at 9:38 pm

Ken, here is the best brief sum may i have seen of Piketty’s book (without the specific wealth tax policy recommendations).:
“Piketty’s main point is that wealth disparity inevitably grows when the income from capital investments exceeds the income from work and a nation’s productivity growth. As wealthy family dynasties become richer and more powerful, their money increasingly takes a larger share of a society’s resources and productivity. High progressive taxes, especially on corporations and the wealthy, reduce this disparity, and helps fund programs that reduce the initial maldistribution of wealth.”

From this, (and other more extensive summaries I have read) I think perhaps you are taking too much offense at the assertions he makes and extending them into something they are not. Now I have not read the book yet and perhaps you have seen more of his writing than I (my apologies if that is the case and if I am misinformed). My perception of his writings is just this: based on extensive data and research, that owners of large amounts of capital have an inherent advantage over the rest of the population in acquiring more income and capital, and that this is unstable for the larger economy. The Next Dollar is so much easier to earn for the rich with Capital than anyone else, that increasingly more of the nation’s wealth flows up the ladder. It is not a matter of evil rich, or of the rest of the country not working hard enough, not striving hard enough for the goalpost. It is a matter of the tilted field continuously increasing it’s tilt until the lower income players can no longer make any reasonable progress up the field. This in not a matter of evil, but of economic instability, threatening a collapse that is bad for everyone.

As for Piketty describing “Income equality is good, income inequality is bad.”; nothing could be farther from the truth as a portrayal of his, or any American liberals’ philosophy. This is why i really hate the term “Income Inequality”. The problem is the DEGREE of Income Inequality, or High Income Disparity (a term I prefer). NOBODY in this argument is arguing for Income Equality. The problem is the INCREASING level of Disparity causing us to approach a second gilded age. You agree the Gilded Age was bad, right? That is what we are trying to avoid.

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Ken October 21, 2014 at 6:09 pm

I agree that item #1 does not deny that income disparity has increased. It just says that it has increased less than previous calculations. Even if you accept the revised figures, it was a weak argument, and not compelling. Merely notable.

I disagree about the relative impacts of the others. I still feel the economy is much more complex, and therefore solutions need to be much more complex, than by yet again increasing taxes on the rich.

I would like to see more discussion about potential solutions that do not involve taking money from one group in order to subsidize another. We’ve been doing that for years, and it isn’t working.

I’d like to see proposals for how to create more high quality jobs, how to enable (and ultimately require) the able poor to eventually fend for themselves more successfully, teaching them how to fish rather than just continually giving them a fish year after year.

I’d like to see proposals for making government-run state institutions of higher learning more affordable, and how to make government entities more accountable for keeping tuition costs in line.

I’d like to see proposals for how government can better utilize existing funds, rather than asking for more funds.

And in all of these, I would prefer that government overall be less of a player, not more of a player. I think government adds a lot of cost and inefficiency, relative to the value it provides.

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Ken October 21, 2014 at 6:12 pm

Crap, the post immediately preceding this one got shoved WAY too far down. It was in response to Steven H’s post dated October 18, 2014 at 7:29 am.

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Steven H October 21, 2014 at 9:38 pm

I knew what you meant. But here is the link back to my original comment (if this works), for those who need it.
http://moneyning.com/career/who-actually-earns-400000-per-year/comment-page-10/#comment-1005470

Steven H October 22, 2014 at 9:49 pm

I agree the economy is complex and the combined problems of High Income Disparity, slow economic growth, loss of higher paying jobs, and high public debt don’t have a single solution.

I agree completely abut the need for high quality job creation and helping poor to move out of poverty and up the ladder.

I enthusiastically agree that higher education needs to be more affordable, and making it so will help solve the previous issues.

Where we may have to disagree is in the role of taxation and government. Solving all of these problems will cost money. If entrepreneurs and businesses can be persuaded to take on these problems with no government intervention, then God bless ‘em. Otherwise, government is the institution that is responsible for the “general welfare” of the country and is the only player likely to take charge. And the money will have to come from somewhere. Somewhere where money in the economy actually exists. Where would that be?

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Steven H October 19, 2014 at 8:06 am

Open note to Peter and any others I have offended: I apologize for any insults I have tossed your way. I am sometimes hurt if you provoke and insult me but I shall seek not to return such provocation in the future. Except to such as Peter N who knows, I think, that my pokes are all in good fun. I would be distrustful and concerned, I think, if he ceased to call me a Marxist libtard. I wish everyone who posts here well, and welcome any insights you may choose to provide. Even the now-absent stevendad. Know that I am seeking truth and that the accusations of any other motive attributed to me are ill-informed. The posters here have strong opinions and get rancorous, myself included. That should not result in anyone fearing to post their honest opinions and contributions. It certainly will not stop me.

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Peter October 20, 2014 at 7:12 am

Appreciate the sentiment but my problem wasn’t with the smarmy word use or the “provocation” you describe. My problem is that you are truly not ‘seeking solutions’ or ‘seeking truth’. The lack of ability to listen or be open-minded that your philosophy may not be 100% perfectly correct has left me and many others frustrated with the debate with you.

There truly is no point- it’s like arguing the existence of God with a devout Christian. They just “believe” and you aren’t going to open their minds to the possibility that the whole thing might be a lie.

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Peter October 20, 2014 at 7:57 am

I honestly have gained quite a bit of perspective on here from both sides of the argument – from people like Ken, JTM and Man-of-Reason. And these people aren’t coming from the same angles or perspectives. I miss those debates and even though I disengaged a few weeks ago – I find myself checking in now and then hoping that sort of productive discussion will start back up again.

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Steven H October 20, 2014 at 4:54 pm

Peter, I also get frustrated with the stubbornness I see on the other side. Don’t you see that you and Ken and James, et. al, appear just as stubborn and inflexible from this side of the fence?

I truly am struggling to find the common language that bridges the partisan intellectual gap. Facts, studies, logic … nothing seems to work. I am trying, really. For instance, you may see my critique of the article of Ken’s as closed-mindedness, but I spent a lot of time to offer some very specific critiques of both substance and style that are honestly put forward, legitimate, and could be discussed. Maybe I am off base and am missing some point in the article. But rather than discuss the article, everyone is getting off base about who funded it and whether that is a valid issue. It is somewhat valid. But it is a side issue. Can we discuss the points of substance, like how income mobility is a separate issue from income disparity (or how it may be related), or what statistics may or may not exist defending the idea that behavior of the poor are a bigger cause than government policy?

If so many people are hungry for substantive conversation, then why do I get no response to a substantive post?

What I primarily find is that the conversation is heavily biased by the differences in faith and trust on both sides. I understand that but am surprised by the extent. In broadest, most general terms: Cons trust business and wealthy people, and distrust government and poor people. Libs: vice versa, on all counts. The intelligent people posting here recognize, I think, that both aforementioned institutions are imperfect and that all classes of people are only human and are prone to the same flaws and virtues. And yet, the partisan biases persist. But I have to believe that intelligent discourse can find some common ground, if not in common conclusion, than at least a fair assessment of the postulates of disagreement.

My perspectives have been changed by this blog on several points as well. Really. But I have seen absolutely no movement from the business owners here on even the remotest POSIBILITY of my primary assertions:
– that lessening the high income disparity levels in the US COULD possibly improve the overall economy
– that the nation’s wage and income structure is PARTIALLY controlled and impacted by government policy as well as the idealism of market forces
– that government policies MIGHT be responsible for significant proportions of the increase in income disparity
– that the increased share of incomes at the very top of the economic ladders MIGHT be better allocated as disposable income of the working class
– and that government policy changes, including taxation changes that increase government revenue from the most wealthy, COULD have net positive effects on the economy while not over-burdening the wealthy.

Of course, you could argue that I have not moved on accepting the negative of each of these statements. The difference, as I see it, is that I have offered statistical and historical and logical evidence for my above statements, whereas, I have not seen such strong data or arguments for the negatives. Primarily, it seems, that people “just don’t believe that”. Why? What are the reasons? Where is the data? Or did I miss something?

Where are the articles that prove that government policy has no impact on income disparity? Where are the articles that prove high income disparity such as we have today is good for the economy? Where are the articles and studies that show that adding back the higher tax brackets on the most wealthy would be bad thing?

I am formulating my thoughts for a post about why I think income mobility is irrelevant to the income disparity problem (although it can be a separate concern if mobility is too low), and why income disparity is a problem even with high mobility. I am not doing this to be hard-headed and stubborn. I am striving for truth, exploring and refining my own thoughts on the issues, and seeking the perspectives of others. I would appreciate your continued commentary and the contributions of any others toward forthright intelligent debate.

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Peter October 21, 2014 at 12:41 pm

I would simply say this …. if I were coming into a society as a young person wanting to build wealth for myself and my family, I would be primarily concerned with income mobility. Income disparity wouldn’t bother me as long as I have the ability and opportunity to move up the ladder.

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Steven H October 21, 2014 at 1:13 pm

I agree … as an individual, income mobility is very important, and is probably more important when thinking on an individual level about pursuing and advancing in a career or as an entrepreneur.

Income disparity is a macro-economic characteristic that comes into importance when a country is making big decisions about how to improve the economy. It is important when considering issues of taxation and costs of health, education, and housing. High income disparity has very little to do with the EXISTENCE of income mobility, except that it can actually LIMIT income mobility by making services like higher education too expensive for the lower incomes.

This is why I said some pages back that discussions about how to achieve individual success should not be presented as an answer to the income disparity issue. Solutions that primarily focus on increasing or improving income mobility are likely to have almost no direct impact on income disparity.

Peter October 21, 2014 at 2:01 pm

Fair enough….makes sense. So I suppose that brings us to the question – if income mobility is there, then why should we worry about income disparity?

Is your case simply that it is bad for general economic growth?

Steven H October 21, 2014 at 9:44 pm

“Is your case simply that it [income disparity] is bad for general economic growth?”

Yes, and that’s a perfect segue to my post below
[at: http://moneyning.com/career/who-actually-earns-400000-per-year/comment-page-10/#comment-1009403 ]
which discusses income disparity and also links to a good TED talk on the subject that explains it much better than i can.

Peter N October 19, 2014 at 8:22 pm

“Open note to Peter and any others I have offended: I apologize for any insults I have tossed your way…..”
There can be no forgiveness. Not until the money you and your fellow marxist/libtards have stolen from me using the gov to back you up has been returned. You have voted for a fool that has forced me to pay for other peoples health care even though I already provide it for the people in my company.

You and other marxist/libtards are stealing from me.

You have no solution. You don’t create wealth or jobs. You have not walked a mile in my shoes. You can not know how much “You didn’t build that” pisses off those that have created small businesses. Especially when it comes from our Marxist in chief that has done none of the above but live off the gov ( other people’s money). You are a Marxist the rest of the democratic party.
The fact you still haven’t answered “what is your, or anybody else’s, fair share of other people’s money” makes you a libtard. A libertarian or tea party member could answer that.

You may think you are only against the few 0.01% but your libtard polices actually penalize those that in the top 2 or 3% that are hard working small business owners that actually create wealth and jobs.

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Steven H October 20, 2014 at 3:47 pm

Peter N, I’ll not be lured into name-calling. I’m fond of your affectionate pet names for me, but you are getting yourself all into a dither and you need to step back and look at reality.

By all likelihood, you have benefitted significantly from the decades of GOP policies that have simultaneously and systematically drained the treasury and shifted income from those much poorer than you to those much richer than you. Nothing, NOTHING has been stolen from you or your economic superiors. The rich are richer and the poor are poorer. And blaming the victims just does not cut it.

It makes no sense to describe yourself as a victim if you are in the 1%.

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Peter October 22, 2014 at 7:59 am

“It makes no sense to describe yourself as a victim if you are in the 1%.”

From my earlier diatribe…. this is the kind of thing that bugs me. Do the 1% have any right to complain? Could they possibly be being taken advantage of? It this is an impossibility or taken off the table of the discussion, then there is no discussion.

He didn’t even describe himself as the victim – just saying that policies (slur omitted) penalize the wealth and job creators who are making more money.

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Steven H October 22, 2014 at 6:42 pm

Peter (original),

Peter N said “You and other [blankety-blank] are stealing from me.”
and
“… money you and your fellow [blankety-blank] have stolen from me …”

That certainly seems like victim-talk to me. Doesn’t it sound like it to you?

As for whether “the 1%” have right to complain: it completely depends on the individual and the complaint. Do small businessmen have the right to complain that they are being unfairly taxed relative to big business? I think so. Do small businessmen get a larger share of the tax burden because we don’t have higher marginal rates on the inflated incomes of multi-national CEOs and financial industry leaders? Yes that would be a legitimate complaint. Does Peter N have a point when he claims that the poor are stealing from him and he is getting a raw deal, when, on average, people at his income level are doing much better than previous generations, and the people he complains about are not? No I don’t think he has that right.

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Peter October 23, 2014 at 7:22 am

I disagree. Everyone’s reality is their own. I, for one, get no solace in the fact that “I’m doing better than previous generations”. If all 4 of my grandparents died in their 50’s, yet at age 65 I get a horrible cancer, it offers me no solace that I outlived my grandparents.

This is the flimsiest argument you have. That somehow it is justified to take more of Peter N’s earnings and that he has no right to complain because he makes more (relatively) than prior generations. Horrible argument….

Also understand – he isn’t complaining about the poor (best I can tell). Hard to blame anyone for wanting money handed to them. He just poses a valid question – how much of his money must you take to be satisfied? You haven’t answered this. You are already taking almost half of my income – how much more would you like? Valid question.

Man-of-Reason October 23, 2014 at 8:26 am

Enough from each so that the pain of such investment is offset by the opportunities provided to every citizen and opportunities increase for all. Not so much that any citizen is greatly deprived of his incentive to merit as much as that opportunity allows.

Peter October 23, 2014 at 8:58 am

Which is how much?

Ken October 27, 2014 at 5:53 am

I would note that in this quest to discover “how much is enough” that there’s a word for taking 100% of someone’s income. It’s called slavery.

I will leave it up to the intelligent participants of this thread, by whom I mean everyone, to determine for themselves what that implies for tax rates of 75% (France) , 80% (Piketty), 90% (highest mariginal rate under Carter), and so on.

Steven H October 23, 2014 at 4:39 pm

As I’ve said before, I think small business owners may be over-taxed and should probably get a break for their significant contribution to the economy. But Peter N didn’t ask how much more he should pay. He demanded to be given money back because it has been “stolen” from him. That is different.

Even though he is likely (by statistics certainly I do not know his precise finances) historically better off on income and likely pays a lower effective tax rate than a generation back, or even less than tax rates just 20 years ago, he complains that he is worse off because taxes went up a few percent in the last 5 years.

You say history does not matter and that it is a flimsy argument but I adamantly disagree. History teaches us and is the absolute best argument. We don’t copy history just for tradition, but must learn from successes and mistakes of the past. Failure to learn is disastrous.How much better off does he have to be than the rest of society before he is satisfied? He is in the upper half percent of the richest country in the richest generation in history. His taxes are lower than historical and the share of the country’s wealth to his income bracket is phenomenally high. By some measures more than 100% of all new wealth in the US has gone to the 1% that he is a member of, and yet he gripes that he has to pay taxes.

And for the record, I advocate higher tax brackets ABOVE his income level, where people are making many times historical incomes for comparable positions and yet paying about half the historical effective tax rate.

How much money should the citizenry pay to the government? Enough to pay the bills and debts duly acquired by government through our elected representatives. No more and no less.

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Peter October 24, 2014 at 9:37 am

Which is how much? Again…. no answer for this.

JTM October 24, 2014 at 1:02 pm

Peter – Enough to pay the bills created by our “leaders”. Maybe if the very wealthy put more of their resources into pushing for reduced spending instead of concentrating on reduced taxes, we would get somewhere. Of course, it also has to be realized that reduction of spending cannot only come from entitlements and “welfare queens”, it has to also come from defense and other areas they would prefer to protect and some of them would become much less wealthy with these reductions in spending. Government spending has created many very wealthy individuals.

Peter October 25, 2014 at 6:42 am

Couldn’t agree more JTM. I am one of those as I live in the DC area and have benefitted from the local economy greatly. What I am hoping for (severe reduction in spending and shrinking of government) would significantly reduce my income – but it is what the larger economy and our country needs. Defense is one of the main places I would start, although it certainly isn’t the only solution.

Ken October 27, 2014 at 6:27 am

I also agree JTM. Reductions in spending need to be (somewhat) across the board. Defense is a good candidate, as we spend more than 10x what the next highest country does on defense. However, the reason we spend that much is because a lot of our allies simply have chosen not to fund defense. They’ve shifted that repsonsibility to us, opting instead to fund domestic social entitlement programs. Why are we paying fir their defense? We need to shift more of the cost of defense back to them, especially now in our new world of global terrorism. I also think domestic social entitlements need to be addressed, as those costs have skyrocketed out of control as well.

The key issue for me, though, in general, is that there is always an incentive for politicians to overspend, mainly to create a “legacy” for themselves. Or at the very least to bring home the bacon to their consitituents in hopes of getting re-elected. There are no negative repercussions for overspending that I can see. Politicians euphemistically call it “kicking the can down the road.” I would call it “stealing from our grandchildren”. In either case, the overspending has no siginificant impact on their re-electability.

Anyway….In my view we already have plenty of money to run government. We just need better ways to spend it more judiciously, and we need better ways to make politicians accountable for misspending it. Defense and social entitlements are the two big hitters on the budget, so I would look at both as far as potential reductions. And don’t tell me that we already have obligations in those areas which cannot be changed. We can change if we want to change. It’s just a question of political will.

Steven H October 23, 2014 at 5:47 pm

I suppose the simplest answer is that US citizens are, as Ben Franklin alluded, members of a Club, and club members must pay their dues, which are the taxes. The question “What is my share of other people’s money?” is a fallacious one that has no relevance to taxation. Citizens are obliged to pay taxes as part of the condition of being citizens.

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Ken October 27, 2014 at 6:56 am

Actually, I think that the income tax only permanently came into existence in 1913, via the Constitutions’s 16th Amendment. Prior to that, we ran the federal government (mostly) without an income tax, via tariffs and excise taxes.

The two exceptions wereg during the Civil War, to raise money to fight the Confederacy, and brief period circa 1894-1895. A federal income tax was passed in 1894, only to be declared unconstitutional in 1895. Eighteen years later the 16th amendment was passed, making the federal income tax permanent.

So we have been paying income taxes for almost exactly 100 years… out of the 238 years of our country’s existence.

Peter N October 27, 2014 at 10:14 am

” Citizens are obliged to pay taxes as part of the condition of being citizens.”
Fine, I will pay my share of what is mandated by the Constitution but not what is mandated by some libtard politician that never represents my interests.

Steven H October 20, 2014 at 9:01 pm

Some thoughts on income disparity vs. income mobility.

Income disparity is the difference between the incomes of the richer and poorer parts of society. The more unequal the distribution of wealth in an economy, the greater the income disparity. There are various measures of income disparity, including the Gini index (a complicated integral across all incomes), 20/20 ratio (income ratio of upper and lower quintiles), Palma Ratio (income ratio of upper 10% to lower 40%), and others. The income share of the upper 10%, or 1% or 0.1% is also sometimes used as a measure.

Economic mobility is the ability of an individual, family or some other group to improve (or lower) their economic status—usually measured in income. Economic mobility is often measured by movement between income quintiles.

Mathematically, these two characteristics CAN be completely independent. An example thought-experiment may be helpful.

Imagine a simple situation with a stable zer0-growth population, no inflation and no changes in income disparity over time; i.e average income in each quintile (or other division) is constant. We can imagine further a condition where there is zero income mobility. This is a completely static society, and kind of a caste system. The poor always stay poor and the rich always stay rich.

Now imagine the same situation, but give the society high and predictable income mobility. Imagine that everyone starts their career in the lowest quintile at age 20, spends 10 decades in each quintile, and dies at 70. Their children follow the same path. What is the income disparity in this society vs the static society. Precisely the same. Is it high or low? It can be anything we set. Income mobility is mathematically independent of income disparity.

Another question is whether income disparity even matters if you have high income mobility. If everyone, or everyone who makes a concerted effort, can climb the ladder and achieve economic advancement in their lifetime, who cares how far apart the rungs are? Certainly, high income disparity in a static mobility society seems more dismal than societies with either low income disparity, or high mobility (or both). But there are more reasons to worry about high income disparity, even with good mobility. High income disparity accelerates itself, as shown in Piketty’s research, and the earlier article here linked by Ken. It raises the price of commodities that everyone needs, such as housing, education and medical care, because the producers of these commodities can make more money by catering to the wealthy, even if it means unaffordability for the less wealthy. We see this in the US health, education, and housing markets. It decreases longevity and increases social ills, as measured and excellently described and presented in in this TED talk which I highly recommend:
http://www.ted.com/talks/richard_wilkinson?language=en#t-787673 .
You owe it to yourself to see this talk if you think high income disparity should be ignored.

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Steven H October 20, 2014 at 9:05 pm

Correction: I copied some definitions from elsewhere into my first paragraph of the above post. It said “The more unequal the distribution of wealth in an economy, the greater the income disparity.” It should have said: “The more unequal the distribution of INCOME in an economy, the greater the income disparity.”

Wealth and income disparity are separate, if often related, measures and should not be confused with each other. I apologize for quoting a poorly stated definition.

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Steven H October 20, 2014 at 9:08 pm

Another correction: In an example, I stated that people spent ten decades in each quintile. They must be long-lived. I obviously meant 10 years, or one decade, in each quintile.

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Peter October 22, 2014 at 8:41 am

I honestly found this talk to be very “fluffy”…. surprised you found the article Ken posted to be biased and lacking substance while you liked this TED talk so much. Making a loosely-built case that higher income disparity causes more ill-will, mental illness and unrest isn’t exactly a compelling reason to take money from the rich. And any article that continually draws parallels to Sweden (or even Japan) always concerns me. Apples and oranges…..

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Steven H October 22, 2014 at 6:28 pm

I guess I should have liked Ken’s article, as two of the three “causes” of income disparity it supplied supported my arguments. I just didn’t like how it threw in a bunch of extra irrelevant information on income mobility and claimed incorrectly that mobility either causes or mitigates income disparity.

As for the Ted talk, I liked it because it is data based, not just some random opinion, and proves multiple real impacts of income disparity on society, including life-span and health and well-being. And after all, the original meaning of wealth is “health” or “well-being”, not “little green pieces of paper”.

I also don’t understand the argument, which i have heard from you and others, that the US is somehow so special and unique that we cannot learn anything from the positive aspects of other economies. Economics is a social science, which means it is all about human behavior and, last time I checked, there are humans in those other countries too. ;-)

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Peter October 23, 2014 at 8:19 am

Steven H –

Just so you know….my last two replies above (both on October 23) were meant to be helpful to you – not to be smarmy or condescending. Your comments about wealth creation and how businesses work really took me aback and caused me to engage with you again. My reason for re-engaging is to attempt to help you understand how the reality of the business world works. You have some decent points of view on income inequality and express a lot of the frustration of the working class – which I appreciate – but if you are operating under the assumption that business owners and employees are all assuming risk and/or the stock market is a zero-sum game, then your arguments will fall short due to misinformation.

I don’t claim to understand everything (this is why I never get in a debate about our foreign policy for instance), but how the business world works is my life’s work. When I disengaged with you in the past and said that you were closed-minded – this is what I meant…..

You lack some understanding of the business world and many others on here have either been business owners or have spent their careers studying it. PLEASE – I beg you – take this opportunity to learn from those on the board with this experience and then apply this knowledge to your larger argument. Instead of working from the endgame of vilifying the rich and raising their taxes, open your minds to the minutae of the business world and work towards a solution.

That’s all I ask – I love your passion for your point of view and that you take the time to post in such detail on here. But there are many others on here with fascinating perspectives – which is why I continue to be unable to quit coming here.

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Steven H October 23, 2014 at 12:40 pm

Thanks for your comments. I am always ready to learn something new.

The bit about stock market (or at least stock market trading) being a zero sum game was pulled from a web article, and was mentioned partly to provoke discussion. There is apparently a lot of discussion online about the question. As far as I can tell, you can define stock trading as a zero sum game as long as you neglect (a) dividends, and (b) unrealized stock value. All that the proponents of a zero-sum stock market are expressing is the mathematical fact that every buyer has a seller, and the buying and selling price cancel (except for trading fees which are a small percentage). I think most people agree that the unrealized value of most stock is real unless our economy totally collapses (in which case money also has no value) and as long as the stock market continues to grow, it is not a zero sum game.

You could probably explain it better than I. I really don’t pretend to be a business expert.

What I really DON’T understand (and would therefore appreciate some clarification on) is what wealth creation really means. I can’t find a clear and simple explanation. I can think of simple examples:

Primitive community lives on an island and gets most of nourishment from fruit that falls to ground. Inventor creates a ladder allowing access to more fruit on the tree before it spoils. His invention “creates wealth” because it allows more access to needed resources.

Another explanation is that the human mind has potential energy that can be turned into better utilization of resources through ideas, inventions, and directed labor.

But in the real world, how does profit relate to wealth creation? If one company fails and a new company arises to replace its production to meet market demand, no new wealth is created in the community but new wealth is created for the new business owners and employees (assuming the new employees are not just the employees from the old business. If a new manager takes charge and cuts salaries to increase profits, is that wealth creation? Or just redistribution?

My gut feel is that profits are not equal to wealth creation, that every profitable business is not necessarily a wealth creator, and that wealth creation is actually difficult to measure. Can you clarify?

With regard to the sum of wealth and income creation in this country, here is the reason many people give no credence or honor to the wealth creator mantra: almost all of the new income and wealth in the last 30 years or so have gone to the upper 1%. So if the 1% are the wealth creators and all of that newly created wealth just goes back into their own pockets, the rest of us are not impressed. It is our shared resources, sons and daughters, and labor that go into making that wealth and we think we deserve a significant share. Doesn’t that make sense?

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Peter October 24, 2014 at 7:31 am

Wealth creation, at least on the personal level, is a snowball-effect. Whether you are an individual, a small business, a corporation or a government in order to create wealth you must RETAIN some of your profits. A bricklayer making $15 an hour who saves $1 an hour is creating wealth. At first, it won’t amount to much – but over time the wealth will accumulate. The article Ken posted illustrated this. As you attain more wealth, it becomes easier to accumulate more – it is almost exponential.

The reality is most people don’t make the sacrifice early. I made almost nothing for 4 years starting my career and chose to live in a tiny apartment, eat at home every day and didn’t go on any sort of trip the entire time. Never took a day off, never took a vacation and certainly denied myself of quite a bit. When I finished those 4 years I had a nice 5-figure savings accumulated. As my lot in life improved, I ended up not needing this money. This was 20 years ago. As my income rose, I had developed good budgeting habits so I was able to save much more money each year, which earns more money on itself.

Wealth accumulates exponentially. But it must start somewhere. Like it or not, most people don’t want to make the sacrifice. More than ever, we want everything now – instant gratification. Read the book called “The Richest Man in Babylon” – great parable about this very thing.

Of course the wealthy will increase their wealth at a faster rate. This makes total sense. Particularly in a rising stock/bond/real estate market enviroment.

The poor can choose to participate – yet they don’t. I do talks in lower income areas about contributing to your 401k at work. Some enormous percentage of people don’t take advantage of this even though many companies MATCH your contributions! Sure, you could say “I can’t afford to contribute” – but if your company gave you a 5% pay cut, would you quit? NO – so put 5% in your 401k – which is often matched at 100%. I have one company of laborers – bricklayers making 3 to 4 times minimum wage (about 150 employees) where I manage their 401k. 10 of the employees are ‘office employees’. They ALL participate in the 401k – 7 of them to the max. Out of the 140 laborers, only SIX participate in the 401k.

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Ken October 27, 2014 at 10:55 am

Peter — To me, this is a really good example of why some people are able to accumulate wealth, while others have a much harder time. A big factor is what you choose to do with the money you have, and what your thought processes are behind your choices.

I work at a Fortune 500 company, and so I have many co-workers who are similarly positioned to me financially. We are one of the few remaining Fortune 500 companies which still offers a pension. We also have a 401(k) plan, although the company is nowhere near dollar for dollar, or even 50 cents on the dollar. Regardless, the fact that we have both a 401(k) and also a pension puts us well into the top 10% as far as employer-sponsored opportunities for long-term financial success. Very few companies offer both a defined benefit a defined contribution plan anymore.

At any rate, I am often amazed at how few of my co-workers take advantage of the 401(k) plan. These are by and large smart people, most of them college-educated, who you would think would see the long-term picture and take advantage of the 401(k). And they are paid as well as any other large company for what they do, so they have disposable income.

But not as many as you might think take advantage of the 401(k) opportunity. I forget the actual percentage of participants versus the total number of employees. Don’t hold me to this number, but I think the it’s less than half of employees participate in their company’s 401(k) plan. Maybe you have more reliable numbers on this, since you are a financial advisor/planner type. But what I remember it that it is nothing but stunning how many who have investible disposable income yet choose not to save any of it in a tax advantaged way, to save for the future. Amazing.

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Peter October 28, 2014 at 8:21 am

It is a little higher – around 75% of all people participate. But the amazing thing is that almost half of this money sits in the money market option. This is the default for most plans – so most people are earning nothing on their 401k assets. For some it is just laziness or ignorance, for others it is aversion to risk.

But you want to start talking about “almost all of the new wealth in the last 30 years has gone to the upper 1%”, this is a huge reason. In 30 years, the S&P 500 has grown from 100 to 2000. This means you would have turned $1,000 into $20,000. If you had it all in the money market option, you would have about $2,200.

Peter N October 27, 2014 at 10:22 am

“almost all of the new income and wealth in the last 30 years or so have gone to the upper 1%.”
You make me laugh. This is why they are in the top 1%.

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Steven H November 3, 2014 at 6:05 pm

Don’t be dense. Haven’t you listened to a single statistic? Before 1980, when the nation’s net income went up 3%, roughly every income tier got a 3% raise. Yes, the rich’s 3% was bigger than the median income 3%. And yet, the lower 90%, who received about 66% of all income, also received about 66% of all NEW income.

This makes for a stable economy.

Not since 1980. Rich get “raises” far beyond national economic growth and the rest of us get almost nada. This creates disparity and an unstable economy.

It’s not a matter of lazy poor people and industrious rich people. It’s not an Ayn Rand novel. It’s a matter of income redistribution from poor to rich, due to government rules, tax policy, massive growth in the financial industry, and changes in negotiating power in different economic tiers.

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Steven H October 23, 2014 at 12:46 pm

Oops just found the actual Oct 23 responses you referenced. (There were more than two.) Now reading. My post above was not yet informed by the earlier posts. Just so you know.

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Steven H October 23, 2014 at 1:05 pm

OK. Read your two posts.

I know that business owners are taking tremendous risk. I was just pointing out that many employees put more than just their labor into a job. This varies with profession. It’s a matter of respect, I think, to simply recognize that employees are often more than commodities, and thus deserve recognition as partners (not equal partners, but partners nonetheless) in any wealth creation that occurs. Yes the business owner has more at stake. But the employees also have a stake.

I’m still unclear on wealth creation. Wealth creation for an individual company may be its profit and payroll in some cases. And I understand that a company merges to create efficiency. But in that merge, it may create more profits for itself and simultaneously cause a net loss of wealth for the community. So how do you measure wealth creation in a macro-economic sense?

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Steven H October 23, 2014 at 1:05 pm

Previous response was to Peter.

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Steven H October 23, 2014 at 7:12 pm

Peter, I am continuing conversation down here from up above. I’ve said some of this before, but I’ll try expressing it a bit differently now that I am learning to be a kinder, gentler liberal. :-)

You said:
====
I do have a new perspective on your ideology now – the biggest incorrect assumption in your philosophy is detailed in your last post. At the end of the day, you believe that a business or corporation is a zero-sum game. When management takes more, employees get less. This is not the case.
====

First, I do understand your points that successful corporations as a whole are not zero-sum, and that realistic situations are usually much more complicated than a shift of money between employees and management. And yet, I think you are dodging a valid point by denying that such shifts could ever occur. I want to explore this here (a) to make a point and (b) establish the basis for an argument that may be central to our different perspectives.

Most large companies and many small businesses have an annual ritual called the pay raise. In companies where I have worked, the accountants report the previous years profits and earnings and assess the business climate in a report that comes out early in the calendar year. Sometime after that, employees start to hear (probably leaked from accounting) about the “target” annual percentage of pay raise that year. Employees can expect to get something just above or below that percentage based on pay grade, performance and some other factors.

So this pay raise number is very important, both to employees and the company bottom line. Too small and employees may leave, but there is a frequently little danger there. Staying just above inflation often is enough to retain the workforce, with an extra % or 2 for the really superior performers. But too high and it eats into the bottom line, not just for this year but all future years as the percent increases multiply together.

Some people suggest that pay is a negotiated contract, but at most companies, it is more fairly describes as a distribution system. Management has complete control over what the mean pay increase will be and who gets more or less. A few employees may object to the particular performance review and get an adjustment but it won’t make much difference to the overall payroll expense.

So, in this system, a conscious decision is made between accounting and management on how to divvy up the year’s corporate income (after expenses) between management salaries, other payroll, and profit on the balance sheet.

This decision is a zero-sum game.

There may be subtleties I have left out (forecasts for the current year, plans for hiring, etc) but at some point management gets to decide if they get more of the pie and it must be balanced against payroll and reported profit. So generally, when management (and investors) get more, employees get less. It’s hard to see how this is not the case.

Now let’s talk about negotiation strength. What i described above is a situation where employees are just passive, or where they have little negotiation strength. Conditions that improve negotiation strength may cause management to increase pay raises (or entry salaries) either on their own or as a result of active negotiation:
– high local employment, resulting in general employee shortage and hiring competition
– shortage of employees with specific skills
– generous management (Hey, it happens. More so at small companies than large ones.)
– unions
– need to retain longer-term employees for various reasons (skills, domain knowledge, known leadership)
– any tax policy that makes it more favorable to reward employees than to reward management or declare profits
– etc.

I probably left something out but you get the idea. Stronger negotiation position of employees results in bigger employee salaries, and by some degree (since pay raises are a zero-sum corporate game) smaller management salaries. Everything is bounded by actual business income and expenses, but there is quite a bit of wiggle room.

So, now, consider the change in the shape of income distribution that occurred around 1980, where national income increases used to be distributed evenly as percentage income increases across the spectrum, and the situation since then where almost all real national income increase goes only to the upper 1% or so.

Why has this happened? One reason is almost certainly the changes in negotiating power. Why did negotiating power of employees decrease?
– Decline of unions (including suppression via politics and laws)
– Larger companies (resulting in less generous management and less employee competition; caused by changes in antitrust enforcement))
– High unemployment (since 2008)
– Globalization (increase in potential employee pool or outsourcing of labor; impacted by trade policy)
– Tax law changes that encourage high management salaries over reinvestment in company or in general payroll.

The point is that, among all of the factors that impact employee negotiating power, and hence their pay, several are impacted by government policy (labor laws impacting unions, tax laws, trade policy, antitrust enforcement) and some are not, at least not directly (world and national economic conditions, global competition, unemployment rates).

The difference in income disparity might therefore be significantly reversed by any national policy that improves employee negotiating position (tax incentives against high management pay, changes in trade policy, increased antitrust enforcement, pro-union policies).

And if reduction in income disparity truly will help economic growth, as some suggest, then we could all win with such policies.

Comments?

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Peter October 24, 2014 at 7:19 am

Add “lack of employee loyalty” to the list too. One of the key reasons that some of the labor laws changed – as well as the almost total absence of pension plans these days – is due to employees jumping from job to job. We live in a vastly different world than the industrial age. This must be acknolwedged. Many of your ‘hypothetical’ theories about labor sound about 50 years old. The current business world is very, very different and we must have 21st century solutions for them. And yes, this is impacted by government policy which has by and large simply fattened the pockets of corporate America (and your Democrats are just as guilty of this as Republicans).

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JTM October 24, 2014 at 12:54 pm

To be fair, for most, “lack of employee loyalty” was preceded by “lack of employer loyalty”.

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Steven H October 24, 2014 at 3:40 pm

Good point about employee loyalty and pensions. And even i have to admit that the old model of unions striking for more pay is unappealing. But it seems that there must be a system to restore some strong negotiating position to employees. One approach used in Germany is to have a representative of labor interests on the board of directors. Do you have any opinion on this?

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Peter October 24, 2014 at 3:50 pm

Still think it is largely antiquated in our economy. Many of these “laborers” today are employed by small businesses. Or they are skilled workers.

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Steven H October 23, 2014 at 11:45 pm

Pardon me. I got distracted with my discussion of negotiating power, and did not complete an earlier thread of thought. And please also excuse me because it is late and i am feeling more philosophical than statistical and so the following will either strike you as profound, poetic, or rubbish. But here it goes.

I believe the real crux of our differences, Peter, is that you seem to believe that all of the resources you see about you – employees for your business, a marketplace for your wares and services, the country in which you do business with its stable government, courts, roads, health inspectors and various crucial civil servants – are either unimportant, free, or just unworthy of any extraordinary payment. You seem to believe that you have paid full price for all of these resources with your established business, salary to your employees, and the taxes which, by the way, have been insufficient to pay government bills. Even as your business prospers, the country that allows that prosperity sinks into governmental debt, and the vast majority of people who ultimately finance your success by making up the larger community sink in debt themselves, and unemployment, and shrinking shares of this nation’s wealth. What more should you pay? Not money. You have probably paid enough of that. How about your intellectual support for policies and ideas that can actually make a difference. This country’s wealth, and wealth per capita have grown, and yet you see no injustice that 90% see a lesser share and only about 1% see an increase of that growing bounty. You seem to proclaim that only the few who have managed to build and negotiate their way into control of the worlds of business and finance have any right to grow in prosperity, and those who have lost or fallen behind in this competition are unworthy of aid. You join with those who proclaim that the the laggards should just work harder or start their own businesses even when the resources and capital to accomplish that task are increasingly rare except in the upper echelons of the economic ladder. You object that you are portrayed as heartless and cruel and greedy, but you still act the part you deplore by refusing to support the very simplest answers to many the nation’s troubles: supporting a tax system that actually pays the bills, paid for by the increased national bounty and out of the vaults of those wealthier than you who have retained it; and working to lessen crippling income disparity through reasonable means such as a small increase in minimum wage, and increased government payment for higher education, and pro-labor policies that will restore negotiating power to the people who need it. Other policies and ideas are possible and welcome, but those such as systematic education changes will take time, and some of these very basic straightforward ideas that can be implemented quickly are needed right away.

I say you seem to believe some of the above because i cannot tell what you truly believe. At times you seem to be the fairest minded and most even-handed, cogent voice on this thread. At other times you seem to share the more raw resentment and vulnerabilities of Peter N, with his strong distrust of government and disrespect of those of lesser means. I don’t mean to insult you or disrespect you. I am just trying to understand your contradictions. And I am trying to portray my passions in a way that you may understand. You will either see this as the foolish rant of a socialist liberal or the heartfelt plea of a concerned citizen. But we need answers and solutions and i think you are clever enough to at least understand my perspective and you seem compassionate enough to embrace at least some part of it.

I’ll return to a more statistical and logical discussion this weekend, if you still agree to participate.

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Peter October 24, 2014 at 7:13 am

Let me address for clarification:

“you seem to believe that all of the resources are either unimportant, free, or just unworthy of any extraordinary payment.” No – I am paying for these with my taxes and they are vital to success. Plus a lot of the things you listed are funded from the state level anyhow.

“You seem to believe that you have paid full price for all of these resources with your established business, salary to your employees, and the taxes which, by the way, have been insufficient to pay government bills.”

I pay more than enough in taxes to pay government bills. The government has been very poor in spending the money with the right priorities – whether it is foolish overseas endeavors, corruption, catering to special interest groups, or just simply foolhardy spending. When 50% of the country pays almost no income tax and I pay 50%, the last thing I will accept is that I’m not paying enough to pay government bills.

“Even as your business prospers, the country that allows that prosperity sinks into governmental debt, and the vast majority of people who ultimately finance your success by making up the larger community sink in debt themselves, and unemployment, and shrinking shares of this nation’s wealth.” Who is financing my success exactly? Not that I look at this way, but when I pay several hundred thousand dollars in Federal tax every year I am certainly paying more into the “infrastructure” than I am getting out of it. I can sleep at night knowing I’m not being financed by the masses.

“How about your intellectual support for policies and ideas that can actually make a difference. ” This is why I am on this site and in this discussion.

“You seem to proclaim that only the few who have managed to build and negotiate their way into control of the worlds of business and finance have any right to grow in prosperity, and those who have lost or fallen behind in this competition are unworthy of aid.” Wrong. Never said anything about unworthiness.

“You join with those who proclaim that the the laggards should just work harder or start their own businesses even when the resources and capital to accomplish that task are increasingly rare except in the upper echelons of the economic ladder.” Not entirely true either. Never said anything about starting your own business. Income mobility is still alive and well though – so there is much that individuals can do to improve their situation. Trying to get our inept government to fix (or help) your personal situation is a much more painstaking (and I think, futile) endeavor.

“You object that you are portrayed as heartless and cruel and greedy, but you still act the part you deplore by refusing to support the very simplest answers to many the nation’s troubles” I resent this. Show me where I have been heartless, cruel or greedy. I just don’t support YOUR ideas, which mainly revolve around raising my taxes. We all agree on certain things – tax credits for not shipping jobs overseas, funding for education and training, etc. What I don’t support is the single-minded answer that the people who are paying the majority of the taxes need to pay more. This does not make me heartless or cruel. You may want to look closer at your beloved government and how much of their spending is structured to actually BENEFIT big business. This is the problem – not policies making me richer at the expense of the poor, but policies keeping big business in the catbird seat to keep politicians elected.

“At other times you seem to share the more raw resentment and vulnerabilities of Peter N, with his strong distrust of government and disrespect of those of lesser means.” I think you view disagreement this way and unfairly lump me in with Peter N. If I thought that raising my taxes would go directly to those in need I would happily vote for this. I have extra money – I can help people with it – I just don’t want the government as my middle man. That is a totally defensible and respectable opinion. So instead I give money directly to people in my community. I have paid for other people’s children to go to school. I have hired people both in business and in my personal life and been very generous. I have supported charity VERY significantly. To say I’m heartless and disrespectful of people with lesser means is an outright insult and just foolish. To say I do not trust the government to appropriate my funds in a smart way would be very, very accurate.

“You will either see this as the foolish rant of a socialist liberal or the heartfelt plea of a concerned citizen.” It’s neither. It’s emotional, not logical. You have to be able to open your mind that maybe your solution is incorrect – or at the very least, quite incomplete. You are the one that has to learn to be respectful and sympathetic to others (the 1%), not me. You have repeatedly lacked any sympathy for people in my situation, not the other way around. In order for progress to be made on this there must be a mutual respect and understanding. I’ve been in every one of the income tiers in our country at some point in my life – I know what it is like to struggle and I know what it’s like to have more money than you can spend. I have family members and close friends in financial situations across the spectrum. The last thing that I am is heartless and unsympathetic- and certainly not close minded. You should reflect on whether you can say the same.

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Steven H October 24, 2014 at 3:34 pm

Thanks for your responses. Many times i spend hours crafting a post, but sometimes (as above) i am compelled to let the more clumsy stream of consciousness flow out even as you and others have done on occasion. I appreciate your patient responses to both types of post.

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Steven H November 2, 2014 at 9:32 pm

Peter,

I was a bit too harsh on you in particular, and did seem to lump you in with other posters. I apologize for that. You do not seem like a heartless individual in your business or personal affairs, and seem instead generous and fair-minded in most posts on this thread.

To clarify my position, which has changed somewhat over these last months: I think that businessmen such as yourself are at the front-line of the 1% battle, meaning you are at the lower end of multiple tiers of income scale within the 1%, and relatively speaking have received less from the vaulted Reagan/Bush Tax cuts than your economic superiors and have been impacted more by recent tax increases. You are therefore sensitive to the insults against the 1%. I don’t particularly think your income tier deserves heavier taxation, and I instead think that small business needs to be encouraged at every turn.

And yet, I think it is a mistake to just assume that all of those in the multiple tiers above you should be held in the same sympathy or esteem. As of 2010 (for when I could find such statistics), the upper 0.1% was receiving about 3x their previous share (from the 70’s) of national income while paying half the effective tax rate. Taxes have changed a bit since 2010 but not that much on that group. And we are not talking about a minuscule fraction of the economy. Their share of the all income went from 3% to 9%, and thus it’s an INCREASE of 6% of all income to just that small group.

Who are these people and what have they done of such great benefit for our nation’s economy that we should have rewritten the rules to reward them so handsomely? (Yes riches are partly from rewritten rules – for who can deny that really great wealth and income result not only from work, but also in the ability to shape the market and rewrite the rules of the game and alter the negotiating strengths of all players to one’s own benefit?) Have they reinvested the money in our economy to create a vast variety of new well-paying jobs? Has their wealth trickled down to bring shared prosperity to all income classes? Or has this great reward at the top simply resulted instead in policies that concentrate wealth and income further, purchasing political power for the elite, cutting taxes primarily for the benefit of the already wealthy, and rewriting rules to increase negotiating power of monopolies and big business? I think it is pretty clearly the latter.

You said something as an argument against me that I actually whole-heartedly agree with:
“You may want to look closer at your beloved government and how much of their spending is structured to actually BENEFIT big business. This is the problem – not policies making me richer at the expense of the poor, but policies keeping big business in the catbird seat to keep politicians elected.”
ABSOLUTELY!. Except that government is not “beloved” to me. It is just the only tool for which I have some modicum of control over my nation. I object to the policies that keep big business in the catbird seat, but the answer to that is not less government. When government makes bad policy, the answer is not to make government smaller or larger. The answer is to correct the policy.

I simply do not understand the argument that says that a government policy is broken and so therefore the answer is to shrink or eliminate government policies altogether. The answer to bad policy is good policy, not zero policy. Big business absolutely wants small, weak government. Such government has no funding or strength to regulate or to limit monopolies or big business. The answer to bad policy is good policy. The answer to big business being out of control is a strong government that can regulate and limit their harmful impact to the economy. No one said it was easy or that government is perfect. But we have one of the best designed governments on earth (despite it’s current dysfunction) and we need to use it and use it wisely. Not turn it over to control of the highest bidder.

Up the way, James said “It’s like saying – our favorite NFL team has had a losing record for years and it is largely due to the coaching. If the coaches just coach differently they can fix it. Ideally this is true, but an odd place to look for a solution.” I am seeing this sort of argument a lot. ‘Coaching is bad but let’s not fix the coaching — that’s an odd and crazy way to fix it. Instead, let’s make the coaching team smaller!’ Where is the logic in that? If coaching is bad, by all means fix the coaching!

So this is why I believe government policy must be altered — not because I love or inherently trust government, but because government is the only means we have to control [to govern] our nation. Government keeps an eye on business and the people (and media) keep an eye on government. That’s the only way this is going to work.

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Peter November 4, 2014 at 8:27 am

Thanks for the reply. And very fair point about not eliminating or reducing government influence but rather, changing it…. Do you really think that is going to happen though? And I hope that you don’t think that this is a Republican/Democrat issue either. (Just look at how insurance companies were protected in the ACA if you think liberals don’t do this as well)

The whole game is rigged, which is why I do kind of throw up my hands at “changing it” but rather refocus my energy on my local community and business world where I can have a profound impact.

Eventually, my hope is that they let a third party voice (or many third party voices) into the debate to detonate the two-party dictatorship that leaves the public with no true choice. The tea party, the rise of libertarianism, and the power of social media and the internet should make this a possibility. What I think I disagree with the most is the idea that everything would be fixed or improved if the Republicans would just quit stonewalling everything Obama is trying to do, or if the “libtards” as Peter N calls them would get elected out of office.

This is what I mean when I say “fire the coaching staff”.

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Steven H November 4, 2014 at 8:35 pm

=====
And very fair point about not eliminating or reducing government influence but rather, changing it…. Do you really think that is going to happen though?
=====
It can happen. It must happen eventually. How? Well, you and I, despite our many differences, seem to have found a few narrow areas of agreement. If the wider electorate can compel action on similarly broadly agreed issues, we have some hope. Unfortunately, the influence of big money and big business threatens to overthrow such popular agreement.

And of course, you and I disagree still on many things. You seem to agree (if I understand your earlier comments) that big business and their government allies are damaging to the economy. And yet, I have not heard any support for tax policies or monopoly enforcement that would help to restrict such big business dominance. I think that regulation and tax policy are powerful tools to suppress the big business and financial industry beasts (as well as reducing income disparity and balancing budgets). But I am continually beat down for this view. Clearly we still see different solution paths.

Your work to improve communities at the local level is noble, and will have useful impact. But what national policy can be changed to control and constrain the big money in big business and financial sectors?

Peter November 5, 2014 at 9:43 am

I would totally support smart policies on big business. Or better yet, actual enforcement of the regulations that we already have. I totally agree with you on this front.

What I beat you down on is when you say that I should pay more than I do in personal income taxes….that I am not paying my fair share, that I have “bonus” income, that I am greedy or insensitive, that I’m “taking” from the poor, etc. I also will continue to say (and have proved mathematically on this thread eons ago) that raising the income taxes on the 1% has a minimal impact to our budget and is more of a political statement than an actual solution.

You won’t hear much push back from me on regulating big business and getting their influence over our political system under control. Those aren’t the sorts of comments you make that cause people to fire at you.

Peter N October 27, 2014 at 10:36 am

“Peter N, with his strong distrust of government and disrespect of those of lesser means.”
I don’t disrespect people of lessor means. I have made it clear I was once one of those once but I did something about it. Most of us start out with little.

I am not alone in distrusting the government.

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Steven H November 3, 2014 at 5:33 pm

Peter N, you may have been in the lower economic tiers, but you seem to have no respect for anyone who doesn’t precisely follow your path, even as you happily kick down the ladders behind yourself. Not everyone has the good fortune to grow up before the 80’s before the Income Shift, start their business career in the 80’s during the Income Shift and have a mature business after the Income Shift. People today have fewer ladders and a more difficult climb up.

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Peter November 4, 2014 at 8:29 am

For the record I started my career in the late 90’s. I missed that too. I do think that you give the “income shift” way too much credit in people’s success. This is where your own words for Peter N sometimes ricochet back to you as far as respect for others.

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Steven H November 4, 2014 at 8:44 pm

The income shift has resulted each and every individual in the lower 90% of working Americans having as much as a 25% drop in salary. Or conversely (due to the math of percentages), these 90% of Americans could conceivably be earning and receiving 32% more than they receive today. Don’t you think that a 32% increase in income could help a lot more people to be successful?

As for my words to Peter N, I show him a lot more respect than he shows me. Credit me at least with that. Never once have I called him a Conservaturd. Though it has been tempting.

Steven H November 4, 2014 at 8:47 pm

And I said the income shift made things easier on some and harder on others. Just because there are still some ladders and some income mobility does not mean there is not a problem.

Peter N October 27, 2014 at 11:18 am

No one has mentioned former first libtard saying
“Business and corporations don’t create jobs”
http://www.foxnews.com/politics/2014/10/26/hillary-clinton-corporations-and-businesses-dont-create-jobs/
She is a socialist and should NEVER be considered for president. We already know Obummer thinks we didn’t build our business. These ‘slips’ show how the libtards really feel. The current crap of democrats is definitely socialists. Oh, I meant crop.

Meanwhile the other Peter has done a pretty good job if keeping the libtards on this blog in line but we still haven’t got the answer to “what is your fair share of other people’s money.”

Oh, come on now and be truthful libtards. Obummer, Clinton, Steven H and others have shown their true colors. You don’t consider other people’s money to be theirs. You consider their money to be our money. You think it is just ‘bonus’ money ripped off from other people.

If the libtards want respect then they should show some. I wish the news media would post my point of view like they do Obummer’s and Clinton’s.

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JTM October 27, 2014 at 12:25 pm

Peter N – Respect, really!?!?! You have shown little here and I doubt you are any better in real life. But, the problem with your assessment comes when you ascribe most ills to Democrats and call them “Libtards”. Few politicians today, of any party, actually fully believe in what you profess enough to do anything about it. The Republican spiritual leader, Ronald Reagan, would be considered too liberal for many far right conservatives today, though we prospered well under him and Clinton. Many hardcore conservatives forget that many expenses geared to help the poor and elderly have actually been implemented under and with full support of Republican rule.

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Peter N October 28, 2014 at 1:06 pm

“Peter N – Respect, really!?!?! You have shown little here and I doubt you are any better in real life. ”
Why should I show any respect to anybody that says “I didn’t build that” or than I don’t create jobs?
The other libtards haven’t denounced these statements. They all must think the same way as Obummer and Clinton.
WTF have these libtards built and what jobs have they created?

No one has taken issue with my statement about other’s people money and the libtard’s “right” to take it because it is really “their” money.

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Peter October 28, 2014 at 11:00 am

They do post this point of view on Fox. Not saying that facetiously, but the whole “Clinton and Obama are socialists” angle has certainly been explored there I would think.

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Steven H November 2, 2014 at 8:24 pm

Are very large egos always so fragile and so easily bruised? I respect business and businessmen. I just don’t worship them, or you, as Creators, either of wealth or jobs. The title seems a bit … narcissistic. Especially when almost all of the new wealth goes back in their own pockets, and so many of the new jobs go to people outside of the borders of the nation where they live. Why should society praise you for rewarding only yourself? How much of the nation’s wealth and income do you demand for yourself? What, indeed, is your fair share of other people’s money?

Businessmen, and especially small businessmen, are essential to our economy and I respect their contributions. They should be justly rewarded. But that does not mean that we should not continually adjust the shape of our markets through business rules and tax laws to make the economy stronger and the distribution f wealth and income more balanced. No one really benefits from high income disparities that increase poverty, increase sloth and moral hazard in the uppermost echelons of wealth, and slow the overall economy.

No one is taking away what you earned last year or taxing you more on it. But next year’s rules and taxes are a negotiation, as always. And chances are you will still do just fine.

And besides, if those who work less than you do. and contribute less benefit to the economy than you do, and yet earn more than you do, get taxed a bit more, what skin is it off your nose?

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Steven H November 2, 2014 at 10:02 pm

In case of any doubt, above was reply to Peter N.

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Peter N November 4, 2014 at 3:55 am

“Are very large egos always so fragile and so easily bruised? ”
It isn’t about egos. It is about libtards taking what they don’t deserve from those that produce wealth.

I am in China right now. I have had a successful business trip. My company exports machine controls to China and Obama didn’t have anything to do with that. I(my company) did it not the gov or obummer.

Even Deng Xiaoping said “wealth is glorious”.
Obummer is worse that a pragmatic communist.

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Steven H November 4, 2014 at 8:03 pm

Peter N, you clearly will never admit that every working person in America creates wealth. You only see your contribution, and perhaps a few people in your line of sight that you respect. Just because you or others above your wealth class have negotiated away the incomes of the less powerful into their own coffers, that does not mean the winners of that negotiation “deserve” their spoils, or that the losers of that lost reward “deserve” to be paid so little. This is a nation of wealth and income creators. We all deserve some of the reward.

Peter N November 7, 2014 at 12:00 am

“Peter N, you clearly will never admit that every working person in America creates wealth.”
I would never deny the working person creates wealth but they do it in the environment created for them by business and other people like me.

“You only see your contribution, and perhaps a few people in your line of sight that you respect.”
This isn’t so. I pay my “serfs” very well so they don’t want to leave.

” Just because you or others above your wealth class have negotiated away the incomes of the less powerful into their own coffers, that does not mean the winners of that negotiation “deserve” their spoils, or that the losers of that lost reward “deserve” to be paid so little.”
What are you smoking? None of my full time “serfs’ get paid less than the median wage. I am not a demon. I believe in helping those that help me but I any attempts to get me to pay for the other free loaders is not opposed.
” This is a nation of wealth and income creators. We all deserve some of the reward.”
And my company provides big bonuses.
Meanwhile, while you are sniveling about small shit I am spending a lot of money to visit China on trade shows, sales, education. etc. Last Monday I gave a presentation to about 60 Chinese engineers, production workers and sales type. I signed about 10-12 autographs on my design guide. The managers of the company thought this was so valuable that we got free transportation.
My company spent a lot of money to send two people to China for 2 week.

As I convince more and more people to use our product I make more money but I also have more people dependent on what I do or don’t do both in the US and China.

Steven H,you have no clue WTF you are talking about.

My company create wealth. 40% of our business consists of exports. That is bringing wealth back to the US.

WTF have you or your fellow libtards done? Nothing!

BTW, having been to China I know they too will have severe problems as more and more people are replace by machines.

Finally, I found the hospitality of the Chinese to be fantastic. The food is good but the water must be bottled. It is too bad the Chinese government has allow smog and pollution to get so bad.

Steven H November 2, 2014 at 9:59 pm

A small post about zero-sum games.

There are a lot of articles and post that talk about zero-sum games and non-zero-sum games as a kind of faith issue. Seemingly you either have to believe that every dollar to a rich person is a dollar taken away from a poor person (a zero-sum game), or if you reject that notion, then you must believe that every dollar of increased profit from a business is newly created wealth that belongs to the business owner alone (non-zero-sum game).

This is a kind of binary thinking in extremes. It says you either believe one completely idealistic position or you believe the opposite idealistic position. As in most things, reality falls somewhere between the ideals. While a successful business brings some wealth and income to its owners, investors and employees, the amount of wealth creation it brings to the community may be a net positive or negative relative to the conditions or businesses it replaced upon its creation. Also, the economy has many zero-sum elements within it, even though there are clearly non-zero-sum wealth and income possibilities from the new ideas and improved processes in many businesses. An example? I already described how the annual pay increase is a zero-sum game. Revenues from the previous year and projections of the current year are used to distribute money among management, employees, investors and re-investment in the company. In many cases. When one group gets more, the other categories get less.

Similarly, most people correctly understand that negotiating strengths influence the zero-sum pay negotiation process. A strong union, for instance, can force higher wages and benefits for employees at the cost of less pay to management. Lack of union or other strong negotiating partner for labor usually means that management will push salaries down to the lowest range the market will bear. In any case, a certain amount (not zero% and not 100%) of the increase in money going to the rich is indeed a loss of money that would have gone to other economic tiers given slightly different market rules or negotiating strengths.

To simply claim that the rich’s gain has absolutely nothing to do with the loss of share to everyone else is to be blindly idealistic.

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Steven H November 2, 2014 at 10:06 pm

Stray sentence fragment at bottom of 3rd paragraph of last post. Strike phrase “In many cases.”

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Peter N November 4, 2014 at 4:09 am

Pay raises are not a zero sum game if all get raises. What a libtard! If some get raise while other have the same amount deducted then that is zero sum.

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Steven H November 4, 2014 at 5:13 pm

Peter N,
You are (again) not listening. No one said the sum of all salaries equals the previous year! The point in dispute is whether management getting more money means employees getting less money. And I have been repeatedly told it does not work that way. And yet it very very clearly does work that way. Less money for workers means more money for management. The loss to the poor and middle class is gain for the rich. Management does not simply “create” income. It also accumulates income to itself that has been “created” by all of the workers in the company and which management redistributes among the company employees however they please.

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Peter November 4, 2014 at 8:40 am

Yes, but where a business chooses to distribute their profits (pay increases for employees, themselves, dividends, retained earnings, growth, etc.) is an enormous factor that determines the growth of the business. The growth of the business is what is creating these profits in the first place. That’s what you’re missing.

Tell me what the motivation is for a business owner to give their employees the same pay raise they get? Remember my personal example? I have three assistants – two of which are already the highest paid (or close to it) assistants in my entire office. In 7 years, the pay of my top assistant has gone from $75k to $125k. This is a 67% pay increase. My pay has gone up 400%. Let’s say I wanted to be “fair” (as you put it) and have her pay increase be the same as mine. She would then be making close to $400k and making 3x what anyone else in her job makes. Why would I do this? And yes, I am the one who is responsible for this growth. I’m the one with the expertise – I’m the one with the personality that attracts the clients – I’m the one working in the evenings and on weekends. I don’t feel any sense of guilt here. In fact I feel very fair and generous. Am I delusional here? Sure I couldn’t do this without an assistant. This is why I pay her what I do. She would be crazy to leave – and if she did, I’d hire someone else who is 75% as good for about 1/2 the money. This is how the business world works – idealism doesn’t play a role.

The growth of my business has increased the incomes and lifestyles of all of those who work for me both here at work and at home – but I have benefitted the most. This is how it works.

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Steven H November 4, 2014 at 5:41 pm

===== Peter:
Yes, but where a business chooses to distribute their profits (pay increases for employees, themselves, dividends, retained earnings, growth, etc.) is an enormous factor that determines the growth of the business. The growth of the business is what is creating these profits in the first place. That’s what you’re missing.
=====
I agree that the distribution of profits is an enormous factor impacting business growth. And I cannot claim that it makes sense for every single business to have percentage growth of all incomes equal across all pay grades. What I can say, is that ON AVERAGE, that is the way it used to work. And I can also say that the market used to have more pressures to encourage that effect. If you have highly progressive tax rates (for example), then there is less motivation to distribute all of the revenue for pay raises to the top management. It might make more sense in that circumstance to reinvest in the company or boost pay of employees a bit more.

And it’s about a lot more than being “fair”. Companies do better when employees are well-paid, because (a) they are more loyal, (b) they are more motivated, and (c) they are less distracted by outside economic pressures.

For instance, there is the example of “DeMoulas Market Basket” chain of discount grocery stores (google the Wiki page) which has low grocery prices, good profits, and yet pays employees above market wages and benefits. Employees are so loyal they fought to retain the CEO that supported them, and helped beat back a takeover by his brother.

There is also this article about Container Store CEO, who has an interesting take on pay wages:
http://www.huffingtonpost.com/2014/11/04/container-store-ceo_n_6096478.html

But most importantly, the country and the economy does better if the nation’s profits benefit all workers and not just a select few who control the payrolls. We can’t count on the benevolent dictatorships of management at Costco, Container Store, Market Basket, or Peter Inc. If different motivations are required to distribute incomes in such a way as to shape a more prosperous economy, then we may have to shape that better market with improved policy.

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Peter November 5, 2014 at 7:14 am

“Companies do better when employees are well-paid, because (a) they are more loyal, (b) they are more motivated, and (c) they are less distracted by outside economic pressures.” – Which my employees are, even though my pay has gone up way more than theirs. They can’t make any more money anywhere else – why would they be less motivated/loyal?

I do see how your example (at 7:39) increases disparity – but I disagree that it is unsustainable. It doesn’t affect those employees that the CEO makes more money. They still got a 10% pay increase. And more importantly – there is NO WAY to stop this! I don’t want to live in a country where I’m told how much bonus or pay raises to give. And if you think raising my taxes will motivate me to pay my employees more, you are wrong. Raising my taxes will push me to either look for more ways to defer compensation (stock options, NQ DC plans, etc.) or cause me to CUT my payroll.

“there is a lot of pressure and freedom to undervalue employees and overvalue management contribution” This IS an insult. I am the primary reason for the growth of my practice, not my assistants. Sure, I couldn’t succeed without them – or without roads, or without electricity, but I am the primary reason for my success. Replace me with someone off the street and the “business” goes south. This is why there are countless other people in my industry making no money – some succeed, some fail. My assistants – as good as they are – are far, far easier to replace and a commodity. That is the reality. Does it mean I treat them like $*#@!? No…. not at all. But they are not going to make $350k/year answering my phone and processing paperwork. No matter HOW much I make or how much my business grows. That is the reality.

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Steven H November 6, 2014 at 3:02 pm

A lot of good responses and convergence on ideas lately, and I don’t have time to comment on all of it here. But I want to smooth over one point:

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“there is a lot of pressure and freedom to undervalue employees and overvalue management contribution” This IS an insult. I am the primary reason for the growth of my practice, not my assistants.
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I have tried to walk on eggshells and repeatedly say that I have to make some generalizations about businesses that may not apply to you or every single manager. I think it is a fact that there is pressure and freedom PRIMARILY for big business but also, to a lesser extent, for small business managers to undervalue employee contribution. The fact that you (and seemingly many small business owners/managers) are able to resist this temptation and pay your employees above market wages (and probably boosting the success of your business in the process) is admirable and helpful to the economy. But pointing out that the pressure exists is not meant to be an insult, nor should it be taken as one.

Steven H November 4, 2014 at 7:39 pm

“Tell me what the motivation is for a business owner to give their employees the same pay raise they get? ”

OK, now that your business has matured and you have a rather remarkable income, what happens if your company, with the full support of your employees, brings in profits sufficient (after other capital and reinvestment costs) to increase payroll (including yours) by 20%. This is neglecting calculations (for simplicity) that involve hiring more workers. Would it be outrageous to give everyone a 20% raise? And whatever decision you might make in that circumstance, would you imagine that many managers would be more likely to do something like a 10% or less raise to staff (still a substantial boost) and boost their own salary by the rest? And in this latter case, multiplied across all the businesses across the country, do you see how this increases disparity and is unsustainable?

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Steven H November 4, 2014 at 7:44 pm

PS. And there is the obvious point that the “same pay raise” as an equal percentage is 5x the pay raise to the manager in dollar terms if that manager starts out with 5x the initial income. That is not really “the same pay raise” in practical dollar increases. Just saying.

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Steven H November 4, 2014 at 7:51 pm

And lastly, to be clear: an actively involved manager such as yourself ultimately has to judge the value of himself and his employee contributions. What I am trying to point out is that, in the benevolent dictatorship that exists in a business, there is a lot of pressure and freedom to undervalue employees and overvalue management contribution. This is not meant as an insult to you or to small business owners. I am pointing out something well-known in human nature. We all think we are important to the bottom line. But only some of us get to set our own salaries. This simple fact is at least a partial contributor to increasing disparity, right?

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Peter November 5, 2014 at 7:23 am

One clarification from my above reply that may help make the distinction for you. Most of your rhetoric seems more appropriately placed at the doorstep of Fortune 500 CEOs who are in the 0.1%, not at small business owners like me or others who have been offended by your comments.

Your argument that a company like McDonalds could run just fine without the CEO – or with a different one – may have some weight. I don’t know – I don’t work in that world. However, that is NOT true for the majority of small businesses. Many times – we ARE the business. And many of us make 7 figures…. But that doesn’t make us evil, insensitive, or the cause of economic turmoil nationally. And we are well within our ethical and practical rights to be offended by comments like “you didn’t build that” or that we are “overvaluing management contribution”.

I do see your point of view and where your vitriol comes from. I just think it is misplaced.

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Peter November 5, 2014 at 7:26 am

Your issue is with the fact that our government – including the Democrats by the way – is in “bed” with corporate America and big business. But honest hard-working small business owners and others who earn over $350k are getting caught in the crossfire. And they have to….. if you raise the taxes only on those making over $1m, then you don’t raise enough revenues to either cut debt or fund new programs (that get votes) like the ACA. So you have to try and tie in those people making even as low as $200k…… which is about 40% of the people in the city I live in.

JTM November 5, 2014 at 8:35 am

I think you are quite right here, Peter. The issues are much more with larger corporations than the small businesses and the owners of small businesses. Large corporations have more power to set wages for whole industries, small companies have little effect and often follow the large companies for fear that they cannot compete otherwise. Large companies are much more likely to overvalue management contributions and in an excessive manner. Small companies are more likely to value loyalty, see how a good employee affects their bottom line, and be willing to pay a bit more because of that. This, while the vast majority of small business owners do not earn anywhere near enough to put them in the 1%.

Overall, corporate profits of publicly traded companies have had phenomenal growth recently. But, part of the increases in profit have come from holding down wages of lower level employees while upper management has reaped the benefits. To me, this is a big part of the problem. It doesn’t acknowledge that those at the lower levels are the foundation of our economy, without them businesses fail. Corporate America needs to feed these lower levels at a reasonable level to keep everything functioning properly, otherwise they will eventually starve themselves. By also passing along corporate profits to lower level employees, employees that are required for the business to function properly, they are also helping the economy and therefor helping themselves grow profits. Problem is, rich or poor, many expect someone else to do these types of things instead of themselves.

Man-of-Reason November 5, 2014 at 2:36 pm

Peter, I absolutely believe you are right to say that there is a vast difference between the top ½ of 1% and the lower half! and even a much greater difference for the top 1/100th of 1%. It is those who are the wealthiest who invested heavily in politics to reduce their tax burdens, an investment which has obviously paid off to the detriment of a balanced federal budget. You are also correct in saying that anything other than a large income tax increase on those making more than $1 million would not cover the federal deficit. For every 1% increase, the government would only receive $17.53 billion. Therefore, we’d have to raise taxes on the 1% back up to 70% top rate to make that happen – politically impossible.

However, if the top marginal rates are raised 10% for the top one percent, 8% for the next four percent, 6% for the next five percent, 4% for those between seventy five and ninety percent, and 2% for those above fifty percent, we could balance the budget. This is based upon 2010 figures so I’m sure it would be overkill by now, but this is only one example of numerous possible solutions. Although no one wants to pay more in taxes, we must balance the budget as painlessly as possible.

Peter November 6, 2014 at 7:30 am

MOR – thanks for the reply. I’m curious. When you say taxes raised by 10% on the top 1%, what do you mean? I’m in the top 1% and let’s say my marginal tax rate – including all of the extra surtaxes for ACA and such – comes to around 40%. Do you mean I would now pay 50%? Or would you increase by 10% to 44%? And I assume you mean on TOP of the recent tax increases.

And yes, this is one example of possible solutions and we definitely explored these numbers at some point months ago. And obviously spending reform has to be a part of this. The big unknown is if cutting spending and raising everyone’s taxes like this will choke the economy. The right way to do this is to implement this reform over a 10-20 year period, but that not only requires politicians to work together now – but on an ongoing basis across administrations. Unlikely.

Man-of-Reason November 7, 2014 at 3:05 am

Yes, I meant raising the top rate to 50% Peter – very much like it was prior to the Reagan tax cuts. However, all I’m saying is that it’s possible to balance the budget and we are getting very close to that point that if something isn’t done, drastic cuts to government programs which will cause us all much pain, but especially the poor and lower middle class.

With the Ebola scare, Americans suddenly realized the pain even moderate cuts to the CDC may cause. We’ve built programs to protect our people from many different threats, and also to insure against personal catastrophes like homelessness or starvation due to job loss, illness, or simply old age. So what I’m saying is that it’s possible to fund these programs at their current levels with historically moderate tax levels, without causing extreme pain to anyone.

I’m not suggesting that the tax increases I suggested are the ultimate answer or that they shouldn’t be tweaked to reflect a smoother transition, but only that we can balance the budget. You’ll notice that where tax rates like we presently have once balanced the budget during Clinton’s years in office, the increase in national debt due to the tremendous imbalance in the interim, now requires that we pay more – and the longer we wait the more painful the solution will be. You are also correct that if done too quickly we risk damage to a still fragile recovery. But sooner or later, Americans will have to bite the bullet, so let’s figure a way to share the pain somewhat equally.

Peter November 7, 2014 at 10:11 am

That’s true – although the balanced budget in the late 90’s was aided by two things we probably won’t see again for some time – 1) the explosion of the internet economy and 2) the minimal interference in overseas affairs. I am all for #2 by the way – although the right would argue that our more passive handling of overseas affairs during the Clinton administration just made the problem worse. Who knows….

A balanced budget is a pipe dream without MAJOR overhauls to SS and Medicare (and probably unemployment, disability, ACA as well) a significant military and defense reduction, and most importantly elimination of waste and kickback spending that is rampant throughout the budget.

It’s going to be very hard to get people like me to stand by and smile paying 50% in Federal taxes to cover waste, the “liberation of Iraq” and feeding into fundamentally flawed ponzi-scheme programs like SS, ACA and Medicare. I wish others could see this point of view – it’s not about greed or selfishness or lack of sympathy. I got to the point I am financially by making smart financial decisions. I don’t give to a lot of charities because I worry about them using the funds for the purpose they state. The last place I would want to give MORE money to is a government that already misappropriates the money that I give them now. Doesn’t that point of view make some sense?

Peter November 7, 2014 at 10:19 am

MOR – And was there really an Ebola scare? What was it – like 3 people who got Ebola and only one died? Was this a scare? I’m so tired of the media and government building up these sorts of things as justification for increasing funding. (It’s like – we will all die of Ebola if we don’t give CDC another $1 billion)

The same thing continues to happen with wars. The perceived fear of Hussein, Iran, Al-Qaeda, ISIS, etc. drives the public to feel ok with writing blank checks to try and “save us all”. The fear game is in full swing – particularly on Fox by the way (just look at the top stories on their website on a daily basis for verification).

We didn’t screw up Ebola, Hurricane Katrina or the Iraq war for lack of funds. We screwed them up because of incompetence from the people running these programs. We screwed them up because we pander to politics more than reality. THIS is my fundamental problem with government and why I’m tired of hearing that the blame lies in the biggest wage earners not paying their fair share. I’ll say that sentence on more time – Our government continues to screw up because they pander to politics more than reality. Creating an “Ebola Czar” or the “Department of Homeland Security” just makes the public think the government is taking care of them. There is some merit in that, but much like FEMA – do they actually do anything but cost us money????

Man-of-Reason November 7, 2014 at 3:00 pm

Here come’s Ebola. Run for your lives! For a few days, politicians and pundits were screaming that the sky was falling, while the CDC and NIH were trying to tell us to calm down. It turns out that our medical facilities are very capable of responding to Ebola patients within the US, just as the bureaucrats were saying. The one thing it did was to publicly assess our actual readiness to respond to other, more contagious plagues which we will eventually face. We didn’t do well, and the CDC cuts deserve some of the blame for that.

I certainly agree with you about the “fear game” played by those same pundits and politicians whether it’s Ebola or Saddam Hussain, and especially when it leads to the tremendous loss of life and treasure that we’ve experienced over the past 12 years. But those big defense contractors and arms manufacturers are now able to buy politicians with unlimited campaign contributions, so it will certainly continue until we amend the constitution. Don’t hold your breath.

I have not, nor has anyone that I know, blamed the top 1% for not paying their fair share. Yes, there are some at the very top who “invest” in politics which has paid off handsomely in favorable tax treatment of their incomes and corporations. They are the mega-rich like Adelson, the Kochs and the Cuban sugar corporations in south Florida who use their money to assure less competition rather than a free market. It’s called corporatism and you are not part of that in any way. But not all of the very wealthy indulge in such advocacy for lower taxes on the supposed “wealth creators”. Gates and Buffett are high profile. However, Gate, Buffett, and even you have benefitted greatly while most Americans have not since the ’70s. However, because you benefited doesn’t mean you are to blame, nor do I think most people think so.

Moral hazard happens at all levels of society, whether it disincentivizes the poor from getting a job, to disincentivizing the “too big to fail” banker from performing due diligence as happened with the subprime loan meltdown. Therefore, we must always adjust accordingly. But, where the poor have no political clout, the wealthy have a great deal and it’s growing. When we point to the woman picking up her food stamps in a Mercedes as an example of abuse, it’s only a distraction to the real danger of waste and fraud. http://www.washingtonpost.com/posteverything/wp/2014/07/08/this-is-what-happened-when-i-drove-my-mercedes-to-pick-up-food-stamps/ The real danger comes from amoral corporate greed and their increasing influence in our political system. (Oh how I do go on – gotta run now – adios)

Peter November 7, 2014 at 10:04 pm

Excellent points MOR as always. Think we are on the same page as to where the problems lie and who is really to blame. But don’t kid yourself za there are many that attack us in the 1%. Just follow along in the posts…. I appreciate your reason as always. I look forward to teaming up with you to fix all the country’s problems. :)

Steven H November 8, 2014 at 9:51 am

Peter, JTM, MOR,
This is a watershed moment in this conversation. There is something here that we can all agree on. To restate and condense the argument from the relevant quotes below:

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The Problem
=========
Peter: “the fact that our government … is in “bed” with corporate America and big business.”

JTM: “Large corporations have more power to set wages for whole industries, small companies have little effect and often follow the large companies for fear that they cannot compete otherwise. ”

JTM: “Overall, corporate profits of publicly traded companies have had phenomenal growth recently. But, part of the increases in profit have come from holding down wages of lower level employees while upper management has reaped the benefits. ”

MOR: “It is those who are the wealthiest who invested heavily in politics to reduce their tax burdens, an investment which has obviously paid off to the detriment of a balanced federal budget.”

MOR: “The real danger comes from amoral corporate greed and their increasing influence in our political system.”

========
The Blame
========
Peter: “But honest hard-working small business owners and others who earn over $350k are getting caught in the crossfire.”

JTM: “Large companies are much more likely to overvalue management contributions and in an excessive manner. Small companies are more likely to value loyalty, see how a good employee affects their bottom line, and be willing to pay a bit more because of that.”

MOR: ” … there are some at the very top who “invest” in politics which has paid off handsomely in favorable tax treatment of their incomes and corporations. They are the mega-rich like Adelson, the Kochs and the Cuban sugar corporations in south Florida who use their money to assure less competition rather than a free market. It’s called corporatism and [small businessmen] are not part of that in any way.”

=======
Solutions
=======

JTM: “Corporate America needs to feed these lower levels at a reasonable level to keep everything functioning properly, otherwise they will eventually starve themselves. By also passing along corporate profits to lower level employees, employees that are required for the business to function properly, they are also helping the economy and therefor helping themselves grow profits.”

MOR: “However, if the top marginal rates are raised 10% for the top one percent, 8% for the next four percent, 6% for the next five percent, 4% for those between seventy five and ninety percent, and 2% for those above fifty percent, we could balance the budget. This is based upon 2010 figures so I’m sure it would be overkill by now, but this is only one example of numerous possible solutions. Although no one wants to pay more in taxes, we must balance the budget as painlessly as possible.”

MOR: “I’m not suggesting that the tax increases I suggested are the ultimate answer or that they shouldn’t be tweaked to reflect a smoother transition, but only that we can balance the budget.”

Peter: “And obviously spending reform has to be a part of this. The big unknown is if cutting spending and raising everyone’s taxes like this will choke the economy. The right way to do this is to implement this reform over a 10-20 year period …”

MOR: “the longer we wait the more painful the solution will be. You are also correct that if done too quickly we risk damage to a still fragile recovery. But sooner or later, Americans will have to bite the bullet, so let’s figure a way to share the pain somewhat equally.”

===============

Steven H: If I can add my voice to the excellent quotes above, I would say that the solutions need to better divide the tax impacts between the different income levels of the 1%. We all seem to agree that small business income is not the economic region that is the problem or the primary part of the solution. Yet solutions (such as suggested above) usually involve taxing “the 1%” as a singular group — which hurts small business. One way to correct this is to split the impacts of tax policy changes by adding new marginal rate divides at the 0.1 and 0.01% levels.

Man-of-Reason November 8, 2014 at 10:57 am

I follow you so far Steven H, and agree. Good of you to listen to the rest of us and meld what we have said. Please carry your thoughts out further. I’d like to know what you ultimately propose.

The biggest problem we face in passing any legislation that will either empower the individual citizen, or raise taxes on the .1% or .01%, is the greatly empowered oligarchy from whom we must gather the power and the money. (Did I hear that 80 wealthy individuals and corporations contributed 80% of the outside money in this election cycle?) Money talks, especially in politics, and especially now that the wealthy can contribute unlimited tax deductible dollars to dark money super pacs in order to propagandize and defeat any effort. Until Americans understand the damage being done to their democracy, nothing will happen. So the first effort must be to defang the corporations and billionaires and give political power back to the citizen, and that can only be done through a constitutional amendment.

Although difficult, I have hope, but it’s going to be a long uphill slog.

Ken November 12, 2014 at 8:11 am

I’ve been gone for a while on vacation, and am just now getting back to reading these posts.

I don’t know if I agree or disagree with the gist of this thread, as I haven’t read all posts. I skipped to the end, and I see that we’re getting back to the idea that monied special interests (I would call them “parochial” interests) are the villains in a lot of what’s wrong with our economy. I can’t say I disagree with that idea. Having said that, I rarely see the top contributors to political candidates ever mentioned as a potential villains.

With that in mind, here’s the list, which I have posted once before.
http://www.opensecrets.org/orgs/list.php

It’s hard to agree or disagree with the idea of “dark” money’s influence, since by definition there are few if any reliable stats on how much is contributed by whom.

Ken November 12, 2014 at 8:48 am

I would add also that even if we are able to somehow punish all villains sufficiently, in my opinion that’s not enough to fix what ails the economy right now.

I think the real problems are things like how to create good jobs, how to lower unemployment (without simply reducing the unemployment % by eliminating those who are no longer looking for work from our calculations), and so on.

Where is the discussion about positive solutions like creating jobs, as opposed to the negative solutions such as punishing villains?

Steven H November 14, 2014 at 7:44 pm

This reply thread is getting difficult to continue at this level (no reply button) , but I want to answer a couple of questions here where they were asked:

MOR: I don’t have time right now to work out a credible tax plan, but if I were going to add tax brackets, I would probably top them out at 60% for 10 million and up (the current 0.01% threshold), with 45% at 1 million, 50% at 2 million (the 0.1% threshold) , and 55% at 5 million. This is just a thumbnail sketch of what might need to be done. You are absolutely correct that removing money and power from those in the uppermost tiers who have appropriated so much to themselves is difficult. While I believe that tax bracket changes make the most sense, it may be more politically feasible to close tax loopholes on the high incomes to achieve some of the same ends. And of course, education, apprenticeships, trade policy, immigration policy reform, and political donation restrictions all have to be addressed at the same time.

Peter: The upper 0.1% is much more than the Fortune 500. There were 160,681 families in the upper 0.1% in 2012 and they received at least 1.9 million income for each family, with an average of over 6 million each. This was about 10.3% of all income. For comparison, the upper 1% (a group ten times larger) received the same 10.3% of all income in 1983, and levels hovered at or just below that mark for the previous 30 years, with the upper 0.1% receiving less than 4%.

The point is this “tiny” fraction of earners has moved an additional 6.3% of all income from the lower economic echelons to themselves. And while small businessmen arguably have earned their place on the economic ladder, it is less clear that these economic elites really have contributed to the economy in such a way that their reward is justified. We can argue all day about how the mechanisms of their economic rise is legal or understandable or the natural consequence of certain intricacies and established rules of the current market. But in the end, if this economic shift is bad for the economy and bad for the populace, there is good cause , and motivation, for that self-same populace to alter the rules to attempt to stop and even reverse the shift. But I have said this many times before. The statistical argument doesn’t seem as convincing to businessmen here as it is to most folks.

Ken: It really isn’t about punishing anybody. The whole idea of reducing economic disparity has nothing to do with vengeance, jealousy, or rage. There are really only two reasons to fight to reduce income disparity, whether through taxes, education funding reform, banking reform, political campaign reform, or other methods: (1) Improve the economy and quality of life for most citizens (2) Balance the federal budget.

Tax changes are not a silver bullet for shooting down our economic problems, but it is increasingly evident that tax policy contributed to high income disparity and would be a useful tool in reducing it now. If the market can be reshaped to make more capital available at the middle incomes, there would be more capital for TRUE job creation in small businesses, as well as increased consumer spending. This would be the real solution: growing our economy by putting our economic resources where they do the most good.

Steven H November 14, 2014 at 7:58 pm

I forgot three other points I wanted to make to Ken.
(1) Welcome back. I hope you had an enjoyable vacation.
(2) You say the negative influence of big political donors is hardly mentioned. You might have missed MOR’s excellent quote: ” … there are some at the very top who “invest” in politics which has paid off handsomely in favorable tax treatment of their incomes and corporations. They are the mega-rich like Adelson, the Kochs and the Cuban sugar corporations in south Florida who use their money to assure less competition rather than a free market. It’s called corporatism and [small businessmen] are not part of that in any way.”
(3) Your donor list is interesting, but it should be pointed out that big political donations are not, in and of themselves, harmful. It depends on what the donor is trying to accomplish with those donations. Not all money is used equally for good or ill. In general it would be better to quash the influence of big donors from individuals. But that does not mean you can point to every large donor and say they are evil.

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Normal Joe November 8, 2014 at 3:54 pm

I’ve been away from participating due to workload, but not far from monitoring what is being discussed. After some thoughtful reflection and listening to the opposing points of view, I’ve come to a few conclusions.

First, the government should not be in the business of redistribution of wealth, I have to agree. The citizens that are elevated to this level of authority can not and should not be allowed to meddle in the daily lives of all Americans.

Second, the spiraling conflagration of wealth inequality must be addressed if our nation and economy are to survive intact for all citizens. Eventually it will even consume those who are either unable or unwilling to recognize it’s impact.

Third, each and every citizen in this country has a role to fill in the economy. One of the ofter overlooked outcomes of the 1940’s was the sense of teamwork that come from fighting a common foe. Just as there was a need for leadership, there was also a need for followers, at all levels, not just the upper management layers.

Fourth, and often mentioned here, is that every layer of this hierarchy needs the skills necessary to fulfill their roles competently. Business has long recognized the need for training to make this happen so that everyone knows what their responsibilities are and how to fulfill them.

Fifth, more emphasis needs to place on the first three levels of Maslow’s hierarchy of needs for all workers. For this discussion we are only interested in the bottom layers, physiological and safety needs. Satisfaction of these two levels are critical for a motivated and loyal workforce. Physiological needs are the basic requirements for human survival. If these requirements are not met, the human body cannot function and will ultimately fail. Public policy must be crafted so that all people are protected by available food, clothing, and shelter. Safety and security needs include personal security, financial security, health and well-being, and safety nets against accidents/illness and their adverse impacts.

Finally, and the crux of many of our strident conversations, is government’s role in society and the marketplace. The Constitution’s Preamble says the federal government was established (and the Constitution was adopted) to “form a more perfect union, establish Justice, insure domestic Tranquillity, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.”

The Constitution’s articles, and the subsequent Amendments, specify the prerogatives of the Feds. They are listed in Article I, Sec. 8; Articles II-V; Amendments XIII-XVI, XIX-XX, XXIII-XXVI. These prerogatives belong to one of the following categories:

1) Defense, war prosecution, peace, foreign relations, foreign commerce, and interstate commerce;
2) The protection of citizens’ constitutional rights (e.g the right to vote) and ensuring that slavery remains illegal;
3) Establishing federal courts inferior to the SCOTUS;
4) Copyright protection;
5) Coining money;
6) Establishing post offices and post roads;
7) Establishing a national set of universal weights and measures;
8 ) Taxation needed to raise revenue to perform these essential functions.

I’ve drawn some of my own conclusions and offer them for discussion. Points one and two are best addressed through the use of the Federal Minimum Wage. The case upholding the federal minimum wage was unanimous, and over the past 70 years or so, under Courts of widely varying political and judicial philosophies, there has been no serious move to overturn either of those cases. Virtually every Supreme Court justice, regardless of their liberal or conservative leanings, views those cases as well-settled law. Even in today’s court, an argument that the minimum wage is unconstitutional is unlikely to fall on sympathetic ears. This is clearly a leadership role that government can and must exercise under promotion of the general welfare and interstate commerce responsibilities of the constitution. When the bottom of the labor ladder is earning more, they will be paying more in taxes and stimulating the economy with much more critical mass that we do now.

The third and fourth points come down to one word, education. As a nation, we need to re-evaluate our school systems and provide quality education for all, not just a select few. Public schools need to be made a higher priority for funding at the state and federal level. Time and time again the courts have found that minimum standards continue to be neglected and for whatever reason, the local governance of the school systems repeatedly fail to operate competently in many cases. The fact is we can’t fund these schools with bake sales. And our workforce is showing how these failures affect our economy increasing the ranks of the unemployed.

Other democratic governments are adopting programs that ensure free higher education. I would not foolishly pretend that is a reasonable solution for all, but we do need to get tax dollars back into funding state and county institutions of higher eduction. There will always be a need for more expensive private school of higher learning, but we need to ensure that education is available and affordable for all who qualify.

Now, about that “government for sale” issue. There is a growing grass roots movement that is committed to eliminating dark money and disproportionate availability to seemingly unlimited funding for political campaigns. This is the root cause of many of our problems that have been growing over the past four decades. If this is to change, we all must commit to electing only those candidates that not only pledge to drastically reform campaign spending, but also walk the walk with steadfast commitment and success in dealing with this arguably high priority issue of the 21st century in the USA.

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Normal Joe November 8, 2014 at 4:20 pm

Correction, that’s TWO levels of the hierarchy, not THREE as erroneously written.

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JB November 12, 2014 at 12:18 pm

There is a free education for every citizen. There just aren’t enough teachers or classes to make sure every single person get a perfect education. There are just too many people that don’t care about making sure their kids stay in school. But every kid has a chance to learn something and get a HS diploma.

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Steven H November 19, 2014 at 1:51 pm

Free grade school education is good. But we need to stop the constant pressure to defund public education. More dollars does not GUARAMTEE better education, but fewer dollars into a struggling system almost guarantees the system will degrade. We need to pay teachers more, not less; make class sizes smaller, not larger.

And high school diploma is just a start. We need to better direct kids to go to college OR trade school OR an apprenticeship program, and not have businesses require college degrees for the receptionists and clerks. And those college and trade school educations need to be more affordable than they are today. The costs are way out of control. We are saddling a generation with crippling debt for no good reason except for directing huge profits to the “entrepreneurs” who run the schools and the financial industry that makes the loans.

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Steven H November 19, 2014 at 7:30 pm

GUARANTEE, that is, without the M.

Steven H November 16, 2014 at 7:30 am

Excellent post, Normal Joe. I didn’t respond right away because I wanted to to take some time to absorb your points.

I find the main strength in your arguments in your conclusion points 3, 4, and 5, restated here with my added comments:

(3) Everyone has a place in the economy: This is too often forgotten. A business has the luxury of picking and choosing who they will hire, train, and retain, and can ignore everyone else. Governments and societies have no such luxury. They have to deal with the plight of every single last citizen. Personal responsibility is important, but it is in societies best interest if we provide paths to success that are manageable. We should always be building ladders, not knocking them down.

(4) Every layer of the economy needs skills to succeed – It is not enough to tell the people at the lowest rungs to invest in their education, when salaries plummet and education costs skyrocket, and local grade school education may be inferior. We need multiple well financed ways to educate and train our people, at all levels.

(5) Physiological and Safety needs of all workers must be met – I agree this is essential. How successful is a marketplace if wages set by that particular marketplace for the lower rungs of workers are so low that government subsidies are required to help feed, clothe, doctor, and house those workers? A successful market, and a successful nation, must provide those necessities to workers either directly or indirectly. Indirect provision means that pay is sufficient for workers to purchase these goods and services themselves. Direct means that government or business provides such services universally, separate from a paycheck. We have a mix of the two methods, but the system is still deficient.

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Steven H November 3, 2014 at 6:19 pm

Here’s another analysis I had not heard:

Edmund Phelps, published an analysis in 2010 theorizing that the cause of income inequality is not free market capitalism, but instead is the result of the rise of corporatism.[27] Corporatism, in his his view, is the antithesis of free market capitalism. It is characterized by semi-monopolistic organizations and banks, big employer confederations, often acting with complicit state institutions in ways that discourage (or block) the natural workings of a free economy. The primary effects of corporatism are the consolidation of economic power and wealth with end results being the attrition of entrepreneurial and free market dynamism. His follow-up book, Mass Flourishing, further defines corporatism by the following attributes: power-sharing between government and large corporations (exemplified in the U.S. by widening government power in areas such as financial services, healthcare, and energy through regulation), an expansion of corporate lobbying and campaign support in exchange for government reciprocity, escalation in the growth and influence of financial and banking sectors, increased consolidation of the corporate landscape through merger and acquisition (with ensuing increases in corporate executive compensation), increased potential for corporate/government corruption and malfeasance, and a lack of entrepreneurial and small business development leading to lethargic and stagnant economic conditions.[269][270] Today, in the United States, virtually all of these economic conditions are being borne out. With regard to income inequality, the 2014 income analysis of University of California, Berkeley economist Emmanuel Saez confirms that relative growth of income and wealth is not occurring among small and mid-sized entrepreneurs and business owners (who generally populate the lower half of top one per-centers in income),[271] but instead only among the top .1 percent of income distribution … whom Paul Krugman describes as “super-elites – corporate bigwigs and financial wheeler-dealers.”[272][273]… who earn $2,000,000 or more every year.[52][274] In another example, The Economist propounds that a swelling corporate financial and banking sector has caused Gini Coefficients to rise in the U.S. since 1980: “Financial services’ share of GDP in America doubled to 8% between 1980 and 2000; over the same period their profits rose from about 10% to 35% of total corporate profits, before collapsing in 2007-09. Bankers are being paid more, too. In America the compensation of workers in financial services was similar to average compensation until 1980. Now it is twice that average.”[275] The summary argument, considering these findings, is that if corporatism is the consolidation and sharing of economic and political power between large corporations and the state … then a corresponding concentration of income and wealth (with resulting income inequality) is an expected by-product of such a consolidation.

http://en.wikipedia.org/wiki/Income_inequality_in_the_United_States#Neoliberalism_and.2For_Corporatism

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Peter N November 7, 2014 at 12:04 am

Steven H, Bill Gates or Warren Buffet do no affect me at all. I don’t see why you are so hung up but how much money they have. It doesn’t bother me.
I can see it only bothers libtards that can do any productive themselves and are envious.

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Steven H November 7, 2014 at 5:55 am

You think that everyone drills their own individual separate well and “creates” (finds) their own water. Someday you will realize we are all pulling from the same groundwater supplies

When the economic resources of the country are concentrated among too few people it is poorly invested. This affects us all.

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Peter N November 9, 2014 at 1:49 pm

Bad analogy, one doesn’t create water. One can create wealth.

“When the economic resources of the country are concentrated among too few people it is poorly invested. This affects us all.”
How would you know what is and what isn’t a good investment? People with money don’t stay rich making poor investments.

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Steven H November 14, 2014 at 3:39 pm

Credit Default Swaps. Unregulated monetary schemes. Bad investments. Stole money from the economy. The perpetrators are still rich.

JB November 12, 2014 at 12:08 pm

There are plenty of companies that aren’t mega companies that are public that probably give out more stock options than necessary. IMO, there should be a rule that either all employees get some form of stock or the C-Suites can only get X shares a year. Then they can’t just jump from company to company to get a bigger better deal. But I am all for paying someone in stock to get them to make the company perform better. If it means laying off people, oh well.

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Steven H November 14, 2014 at 7:59 pm

Agreed. Good to hear from you again, JB.

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Steven H November 7, 2014 at 12:20 pm

Peter,

At the risk of getting distracted from the main points on this thread (where there has been significant progress in mutual understanding IMHO), I am a little puzzled by your examples of frustration with government.

— “And was there really an Ebola scare? What was it – like 3 people who got Ebola and only one died? Was this a scare?”

Actually about 13,000 people have gotten Ebola this year and about 5,000 have died. The US response, while too slow getting started and justly criticized for starting too small, is now being credited with helping to get this under control. The impact of this disease that is presently mostly overseas had (and may still have) extremely dire consequences here in our country if it is not managed and attacked properly. This is a horrendous and frightening disease. I am shocked that you would choose this as an example where media and/or government has overplayed the threats or importance. I would say the opposite is true.

— “fundamentally flawed ponzi-scheme programs like SS, ACA and Medicare”.
SS has been incredibly successful in preventing the scope and extent of elder poverty that existed in the Depression. Medicare costs are much more efficiently applied than private health care systems. For example, see:
http://www.hopkinsmedicine.org/about/Crossroads/06_13_03.html
ACA is increasing the insured population and contributing to the overall slowing of the rise in health-care costs. I just met a guy who started his own coffee roasting business. He said that the ACA allowed him to break from his former corporate master (and it’s health insurance), so that he could start his own business and still be able to insure his family. I’m not saying these programs don’t have flaws. What I’m saying is that these programs ARE arguably rather smart economic decisions and we would be worse off without them.

The point is that government does a lot of things right and media only covers the screw-ups. Our federal government receives less funding as percent GDP than governments of most advanced countries, and we do more and many times we do it better. Our government is a bargain.

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Peter November 7, 2014 at 10:01 pm

I couldn’t disagree with this last post more. In almost every way.

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Steven H November 8, 2014 at 9:16 am

Then we need to set this one aside. We won’t solve the big/small government debate here. However, it would be at least helpful to acknowledge when the government does something right. And while the media (and politicians like Christie) went overboard in scaring the US population, the CDC and the military response overseas were essential to our safety here. Instead of poo-pooing the problem and declaring it overblown, we should all give thanks that we have a government that can and did intervene.

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Peter N November 9, 2014 at 2:03 pm

All those gov people doing bureaucratic type work are not creating wealth. In general they are inhibiting the creation of wealth. Those that can’t be productive should go on Ark B.

“we should all give thanks that we have a government that can and did intervene.”
It shouldn’t have let that first person in until the 21 day quarantine period has past. Who pays for this screw up?

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Average Joe November 10, 2014 at 11:34 am

Peter N, Do you understand how utopian and naive your position sounds about anything except what creates wealth IYHO?

JB November 12, 2014 at 12:03 pm

Hey Peter, there are a ton of gov’t jobs that aren’t necessary, but there are a ton that are. who else is going to collect your taxes or put criminals behind bars or do building inspections? Don’t lump all gov employees together even if you think the job is bureaucratic.

Peter N November 12, 2014 at 11:12 pm

There are some gov jobs that are necessary but that doesn’t mean they create wealth.

Steven H November 14, 2014 at 3:37 pm

Peter N,

Without government and society and customers, and workers at your company, there would be no means to create wealth. How much credit do you give to each of these elements in this interlocking system of creating wealth? All to yourself? I thought so. I disagree.

And I find it amusing that you think government is completely unnecessary until it fails to do something YOU think it should have done. How many cases of Ebola were successfully blocked from coming here? How much effort was put in fighting the disease overseas? You credit none of that. But at least you acknowledge, in criticizing its imperfection, that government has essential responsibilities in protecting society.

JB November 12, 2014 at 12:05 pm

SS isn’t a Ponzi scheme. It may not be totally funded, but money goes in and money goes out. There might be more money going out than coming in, but at some point, reductions will occur. It won’t be to most already getting it, but if you are 15 years away, it is all just an estimate anyway.

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JTM November 13, 2014 at 12:53 pm

Here is at least one thing we can agree on. It may not be properly funded due to underestimating life longevity and politicians not being willing to deal with that when brought to their attention, but it should be viewed separately from the rest of the budget. Just because our leaders have chosen to use the money as their slush fund in order to not raise taxes or to increase spending, doesn’t make it a budgetary expense in the same way defense, infrastructure, etc are. As far as entitlements, we have all paid in, just like unemployment insurance, and we should be able to count on receiving back when we need.

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Ken November 13, 2014 at 9:29 am

“…. Medicare costs are much more efficiently applied than private health care systems. …”

I have earned the Chartered Property and Casualty Underwriter (CPCU) and the Chartered Financial Consultant (ChFC) professional designations, I am a Fellow in the Life Management Institute (FLMI), and have worked in the insurance and financial services industry for more than 33 years. Accordingly, I feel I can lend some perspective on this question of whether or not Medicare is more efficient, or less efficient, than private industry in providing health care, particularly as it relates to cost of providing insurance.

The industry standard measurement for determining cost is expense per policy. Generally speaking it’s total costs divided by the total number of policies in force. This of course tells you how much it is costing you, on average, to support and administer each policy.

However, when those claiming that Medicare costs are “lower” than private industry costs for delivering insurance, the industry standard expense per policy metric is never mentioned. This is significant. Instead, Medicare costs (the numerator) are compared against the dollar value of Medicare benefits paid (the denominator). This is a critical difference, and one which invalidates the claim of Medicare being more efficient. Here’s why….

Let’s say that Peter and I have the same bank, and he has a checking account with $1 million in it, while I have a checking account with $1,000 in it. And let’s say the cost of servicing a checking account at our bank is $50 a year. In calculating expense ratios as a percentage of account balances, in Peter’s case you get $50/$1 million, or an expense ratio of .00005. In my case, however, you get $50/$1000, or an expense ratio of .05. This would suggest that the bank managing Peter’s the bank was 1000 times more efficient at managing Peter’s account, because his expense ratio was 1000 times better than mine. But of course this is utter nonsense, as our two accounts were charged exactly the same annual fee, and are at exactly the same bank! The point is that account balances have absolutely no bearing on measures of efficiency, and should be disregarded.

On a side note, there are other problems with how Medicare-efficiency proponents are doing their calculations. One is that the people who are enrolled in Medicare are by definition 65 years and older, and therefore their medical claim costs are much higher than those under 65. In other words, the account balance denominator in the efficiency equation is artificially inflated for the Medicare patients vis a vis younger non-Medicare patients. This of course artificially lowers the result of the calculation again, adding to the illusion of “efficiency”….as in my checking account example.

Dividing costs by account balances as a measure of efficiency is misleading and misguided. It is not the iundustry standard method of measuring efficiency. Cost per policy is the measure that should be used (or in the case of Medicare, cost per beneficiary). When cost per policy/beneficiary measures are used, Medicare costs are significantly higher than private industry costs. I can provide links demonstraing this if anyone wants to see them.

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Steven H November 14, 2014 at 8:21 pm

Still absorbing your post but … If Medicare covers inherently more expensive patients (the over-65 population), isn’t there a problem with comparing cost per policy of this group to cost per policy of less expensive younger groups? It seems this artificially inflates the cost per policy of Medicare, making that method seemingly less relevant than the method you criticize.

For instance, the cost of managing a policy that is used multiple times a year (an older person with multiple health problems visiting doctors and hospitals more often) is naturally going to be much higher than a policy on a relatively healthy twenty-something who only goes in for an annual checkup and occasional cold.

I see your point that the two systems are not equal, but when comparing systems that manage many low cost policies vs fewer high cost policies, it seems that normalizing by dollars flowing, rather than by policy, would get you CLOSER to an accurate accounting of efficiency, while still being imperfect.

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Steven H November 14, 2014 at 8:25 pm

Ken,

Just to be clear, I am greatly appreciative of you sharing your expertise in this argument, but it seems that the cost/policy method for comparing efficiency of private insurers of the under-65 population does not directly apply to measuring Medicare because of the necessarily higher administration cost per policy of the more aged population. Wouldn’t you agree?

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JB November 12, 2014 at 11:57 am

Wow, you guys are still at this? Well, since I probably haven’t posted in a few months, my wife got a hard earned promotion and a $75K raise. She will also get another huge raise next year. Guess what, it wasn’t luck or being in the right place, or knowing the right person. It was fucking hard work and 25 years of knowlegde and experience. It really means I am retiring in about 6 years at 55. We are going to pay over $125K in Federal taxes.

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Peter N November 15, 2014 at 7:12 pm

I am not the only one that thinks there are libtards. Gruber, a democratic consultant said people are stupid. The democrats in congress are libtards. Fortunately, some got voted out.
http://video.foxbusiness.com/v/3891956966001/melissa-francis-i-was-silenced-by-cnbc/?intcmp=fbfeatures#sp=show-clips

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Steven H November 16, 2014 at 3:34 pm

People can be stupid. The thrust of Gruber’s argument (which he stated really poorly) is that people want government to do stuff but they don’t want to pay for it. Witness Kansas. Absolute stupidity. They don’t want to pay for government, but government is important. So they slash taxes, destroy their budget and have to cut back on essential services like education funding. Is this stupid? You bet it is.
http://www.cnn.com/2014/11/14/politics/obamacare-voters-stupid-explainer/index.html?

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grace November 15, 2014 at 11:41 pm

my dad made about $2,000,000/year back in the late 90’s-early 2000’s through the stock market down in Chicago and i always thought we weren’t as rich as everyone else in my town because they all live like they make twice as much when a lot of them would be lucky to come close to $400,000/year

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Steven H November 16, 2014 at 3:26 pm

Hi grace,
It sounds like your dad was wise with his money.

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Steven H November 20, 2014 at 9:09 pm

Conversation has slowed down. It looks like we must all be in agreement that high income disparity is due to multiple economic factors, one of which is a distortion of the markets by Corporatism, wherein Big Business and Big Finance has taken control of government and is using it to reshape tax and business policy for their benefit.

One thing to remember is that the income slopes ARE the wage market. When businessmen only want to pay employees the market wage, that is TODAY’s market wage. With a different income slope, most workers would make 20% to 30% more, increasing disposable income and consumer spending. Businesses would pay a different market wage and still be profitable. Where would that money come from? It would come from economic growth arising from a more profitable and efficient economy; one where the wage slope is not as distorted toward over-compensation of the economic elite.

Our economy consists of growth elements and competition elements and acquisition elements. Some people and businesses become profitable by creating wealth and opportunity. Some compete to control wealth that already exists. And others seek to acquire the wealth of others. The growth of income and wealth of the 0.1% has been largely from acquisition, not growth (at least not in the macro-economic sense). In this respect, PART of the economy really is zero-sum.

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