Aside from the major hiccup the economy faced during the COVID-19 pandemic, the economy has been on a steady upward trajectory ever since years ago when we were talking about extending the Bush-era tax cuts. In case you don’t remember, we did end up keeping those cuts in place permanently for any individual making less than $400,000 per year, and for couples earning less than $450,000. Nowadays, those fortunate few who make more than that amount are paying a marginal rate of 35%.
But like I said, it’s been years since we passed the extension into law and I still don’t personally know anyone bringing home $400,000 per year. So who is actually paying that top tax rate these days? 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 the 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.
On the other hand, most presidents end up receiving so many requests for speaking engagements after they hold office that he or she will be set for life. They also get a pension equal to the salary of the head of an executive department (Executive Level I) would be paid. In 2020, that is $219,200.
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 careers. Plastic surgeons can make up to twice that amount.
Most people are completely okay with that though. After all, these people do a very, very important job.
3. CEOs and Founders
The median salary of a Chief Executive Officer (CEO) of a public company is over $700,000. These individuals are in charge of both short- and long-term profitability for their companies. CEOs generally have to know the industry inside and out (although there are certainly plenty of counter-examples), and need to have worked their way up over many years.
There are also plenty of CEOs from private companies who make quite a bit of money. The job can be stressful, but when you are the top dog, you reap the reward whenever your company does well.
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 few years.
5. Mortgage Loan Officers
This may be surprising to you because not many people think of this group of individuals as ones who can earn the big bucks. However, there are some loan officers, riding the wave of historic low rates, who are raking in the dough right now. After all, their salary is directly tied to commissions they earn as a percentage of the total loan amount they get approved for their clients. They work hard, often seven days a week in many cases due to unprecedented loan volume these days, but they are definitely getting rewarded for their hard work.
6. Speakers in Public Events
Before the pandemic, the good speakers were booking speaking engagements left and right. Not only do they speak at conferences, but they also have opportunities to speak to employees in their offices as well. Some people even write books that tie into their brand. They travel all over the country (and some all over the world), so clients are plentiful.
The pandemic has slowed business to a trickle, but these people will bounce back because everything will eventually go back to normal.
7. YouTubers
Can you see why your son or daughter would want to be a YouTuber yet? The popular video creators not only make $400,000 a year, but they can have earnings in the millions every year. The vast majority of people who try to make it big fail to amass a following, but many dream of the life of recording themselves play video games and earning the big bucks all the time. What they don’t realize is that those who earn millions not only have talent, but they also work extremely hard. If not, then they have a team of people who are behind all the videos that get produced. An entertaining video takes hours and hours of editing, but most people just see someone talk, have fun, and collect cash.
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 in between, the government estimates that raising the tax rate on this small group raise about $600 billion in new revenues a decade.
Not bad for a group that small.
What other professions that earn annual incomes of $400,000?
{ read the comments below or add one }
← Previous Comments
Next Comments →
In light of our debate… and doing my taxes in 2015, I thought I’d share a story.
I recently graduated from an in-state college which cost my parents about $3000/year, most of which was room and board. I now have a job where I work for someone else – learning a business but making $20k/year. I live in one of the 10 most expensive cities in the country, so I currently share a 800 square foot apartment with my new bride which runs us about $1000/month. She works as well and makes about $27k/year. While her job has somewhat “normal” hours, I work 12-14 hour days 6 days a week. The majority of my time is spent doing menial tasks like stuffing envelopes or filing papers. We are about $15k in debt due to cost of moving, our wedding (which we paid for ourselves) and remaining college debt. We also have a cat who is ill – every time he has a “spell” we have to take him to the vet which costs $200-$300. Both of our cars have over 150k miles on them (my car must be parked on an incline when it rains or the car fills up with water) and neither have working air conditioning. Of course, with old cars I would say about every 3 months we are taking one of them to shop, which really hurts.
My friends are all calling me wanting me to join them on trips to the Caribbean or going out to bars, etc. But we can’t afford it – particularly if we want to save any money. Plus, most of them have better paying jobs than we do. Of course, the job I have chosen is to try and learn a trade where I could – in about 3 years – go into business for myself and possibly make quite a bit more money. 1 in 10 succeed in my industry – but I’m determined. If I succeed, I will likely make about the same amount of money I make now for about 5 more years – and then hopefully things will “take off” as I gain traction and more clients. Of course, I could fail – which then means I wasted working crazy hours doing crap work for no payoff. The odds are even more against me though since I am so young (early 20’s) and have no connections to money in my family or circles. This will truly be built from the ground up.
I am baffled by those around me that have newer cars, go out all the time, or constantly have new clothes. How do they afford to do this? It must be debt that is financing it … I can’t figure how they do it – because we are struggling. I fortunately pay very little in taxes at my current income rate – that is a big help in keeping me afloat.
I look around me and see all the others in my industry who have succeeded and study their every movement. What do I need to learn how to do to be successful in this business? What do they know that I don’t know? What can I learn from them? I don’t feel jealous of them (although it would be nice to not have to worry about money), nor do I expect anything to be given to me. It wasn’t given to them.
To be honest, I’m charged every day by the possibility of being successful. Every day is an opportunity to learn – and I’m getting it by being grossly underpaid and doing menial work. Hopefully if I show ambition and keep my eyes and ears open I’ll learn what I need to know to be successful. In the meantime, I’m going to keep my expenses to the bare minimum (lots of PB&J sandwiches and TV watching at home) and try to survive. I look at the successful (the 1%’ers if you will) with total admiration. Hopefully one day I can find myself in that group as well.
Ignoring all the ad hominem attacks and circular reasoning there seems to be a changing of the collective awareness of the direness of the situation. One only needs to look at the Russian Federation to see what our country will more than probably become if the sails are not trimmed. Every day more and more are becoming aware of the real power of our unelected government. What is needed is a narrative that addresses the ills of our economy that fits in bad times as well as not so bad times.
It all boils down to this: unequal growth concentrates wealth in the hands of a tiny slice of consumers who can only spend so much money. In turn, the vast majority of earners are left with little extra cash for goods and services. Resulting weak demand undermines growth. Low growth makes everyone poorer than they otherwise might be, including those who own the means of production. Inequality produces other bad economic outcomes, too, such as the underutilization of the nation’s human capital, inadequate public investment in both human and physical capital, and social ills that are costly to address, diverting away resources from investment.
More simply put, wealth does not trickle down; it trickles up.
Actions that can be taken now include increasing the capital gains tax as originally proposed by Lance way back when. Another important step must be the reimplementation of the ban on stock repurchases which has largely fueled the recent growth on Wall Street and the disproportionate growth of the very, very rich, albeit just paper.
Another change that must come quickly is this denigration of both the disadvantaged and the highly successful. The rhetoric used by both devolves any discussion into verbal warfare unworthy of continuance. The fond use of stereotypes is a large part of the problem. They are all overblown and overused. Our workforce is more underutilized instead of unmotivated. A direct result of lack of demand caused by insufficient disposable income by the majority of the consumers.
The safety nets our society has chosen to use to protect the least advantaged have never been the cause of any recession, near depression, or depression in our economy. That badge of honor rests completely with the captains of industry and their inability to adequately govern themselves consistently. Those who firmly feel that cuts to the Federal budget are absolutely necessary, then it is suggested that one look to the largest item of the discretionary budget to do so instead of nibbling around the edges and taking food and healthcare away from those that need it the most, which includes many of our more than deserving veterans who have and continue to make our health and safety in this country possible.
No political party is without blame. It is important that an orchestrated effort is made to elect representatives that put country in front of party, at least until this ship of state is righted. And it does need righting. It’s been a year since this report was published.
http://talkingpointsmemo.com/livewire/princeton-experts-say-us-no-longer-democracy
JTM,
You’re wrong on Obama Care tax. It is taxed on all incomes over the last threshold which is roughly $450,000. I had a salary when I owned my own company ( sold it 1year ago), plus I had income from owning stock in my own company. In addition, I am vested in a couple of smaller community banks, and at end of the day, all in income over the last break is taxed at 35% + 3.8%.
And as I pointed out earlier! they basically took away the deductions for charitable giving. I averaged in excess of $150,000 annually because it was deductible. Now to be on equal footing I give $90,000.
Lastly, there has been discussion of a tax on all your investments? What the hell? I sold my business, and now each year I would have to give a percentage of that up as opposed to income tax? That’s just another way of collecting estate tax up front, piece by piece.
When someone says “the 0.1% could give up $150b” dismissively it shows the lack of understanding and respect for those that have built wealth. But that’s been one interesting offshoot from this debate. There are people who legitimately want blatant income and wealth redistribution. Sure, they hide under the guise of “to pay for everything” but that “everything” includes ACA, welfare, Medicare, SS, food stamps etc. God forbid you consider even REFORMING any of these programs (not cutting – reforming) and you are labeled insensitive. But take $150B from the rich!!!! Unbelievable
Peter – I agree, that is not the PC way to say that and it lacks depth in explanation, much like the many claims on here and elsewhere that large portions of people on these programs are lazy drug addicts and the like unworthy of help. If you look at statistics of who uses these programs (other than SS and medicare, which I’m not sure why is lumped in here since they are for the elderly and not paid by “income” taxes but rather a separate tax and in need of different type of reform), people are generally on assistance for short periods of time and actually have jobs.
Reform is a good idea for support programs, as I see it most support programs don’t have a way to wean people off, a dollar too much income and all support is dropped. There should be a taper that allows people to continue wanting to grow their income without fear of actually having a drop in spending ability.
But, to ignore the fact that a big part of the reason for current and future deficits is because we have reduced tax rates significantly without a corresponding reduction in spending. Also, many focus solely on support programs (other than those for the retired), that don’t close the gap even if completely eliminated (which few actually want, most are focused on the much smaller amounts from abuse and being too generous). Many of these same don’t want defense spending to stop growing much less decrease, though eliminating waste there could also decrease our deficit significantly.
The economic growth that many hope to bridge the divide is not forecast at a fast enough rate to keep up with spending increases either. Therefor tax reform is going to also be necessary. It needn’t be only the uber wealthy that pay more, but collections need to be higher to cover expenses. We will soon find interest expense alone growing to hard to manage levels and the need for higher tax collections will only become greater. The sooner we act, the easier it will be on all.
Truthfully, I would like to see corporate income taxes reduce dramatically while eliminating the tax break for owning shares of these business. I don’t mean elimination of the investment rate for all investments, just those such as stock appreciation and dividends that don’t directly create hiring and that the justification for is generally because of high corporate income taxes (even if many large multinationals don’t pay anywhere near what would be expected). There could also be an exemption up to a certain amount of income. This change alone could increase tax collection and company valuations while increasing investment in the US by the many companies currently holding money offshore.
Overall, we need people to stop thinking any one problem is the whole problem and that fixing it holds the key to fixing everything. We need broad changes in both spending and taxation, to focus blame on one area while ignoring the others is folly and should be left to the silliness of talk radio hosts who can’t follow the ideals the espouse.
Thanks for your reply. I don’t disagree with the majority of this. I actually would say that the failure of many of these programs was in the construction – and in the lack of adjustment to the evolution of our society. Something like social security (which I don’t consider as important of a “right” as something like health care) could be reformed somewhat by pushing retirement dates much later, changing benefits/pay-in amounts for younger people, etc. but nobody will talk about it. Just like how we could benefit from cutting spending but nobody wants to talk about it either. The minute you mention this you are crucified politically. For instance, you could cut military, intelligence and defense spending without jeopardizing our safety. I mean, come on….
You are so right – it is a multi tiered problem. But both sides have all of these “off limits” parts of the debate that make it difficult. I’m not sure I understand how taxing stock appreciation more heavily is going to help increase corporate valuations though….
And one other thing – and I’m not suggesting this – but if you eliminated social security and Medicare both the budget deficit AND the national debt evaporate.
The looming problem our nation faces is higher interest rates on our debt (coupled with possibly a devalued dollar) We have enjoyed a nice smart steady recovery economically the past few years. I would have really, really liked to have seen us pocket some of this money to protect us against the next recession. But instead we added a massive program (ACA) and continued to ramp up expenses. The tax increase part of the equation happened, but the spending cuts didn’t.
We won’t be able to print money to bail ourselves out next time either….
Taxing stock appreciation/dividends more heavily doesn’t increase corporate valuations, but stock values are often determined as a multiple of earnings. If taxes are dramatically reduced, earnings go up, companies become more valuable. It also frees up more money for investment, investment that should also generate returns and increase company profits/value. Taxing these earnings more heavily for individuals while maintaining low rates for other investments, also doesn’t hinder job creation as buying stock doesn’t create jobs.
Another side effect, which would help generate more income, is that multinationals have a lot of motivation to avoid taxes. Huge profits make it affordable to hire high-priced accountants and lawyers to avoid as much tax as possible and to create shell companies offshore for the sole purpose of holding profits. Reduced tax rates creates much less of a return for the investment and allow companies to repatriate profits for reinvestment. For most individual investors, it’s not worth the time/effort/cost to reduce taxes and since the companies are not paying high taxes on earnings, the argument of double taxation goes away.
Yes, social security and medicare are huge drivers of future deficits. Of course, it has been sold to the masses as something we’ve paid for all our lives to receive back in retirement. While underfunded like most private retirement programs, social security will not become insolvent for decades, the real problem is it’s savings have been raided for decades and repayment is now required. Medicade is another story entirely.
It would be disastrous to our economy to eliminate or drastically reduce either, as for many this is their retirement nest egg. But, there are solutions, though politically unviable (as they have been for decades), such as increasing the employment tax rates, moving retirement age back, means testing for benefits, etc. The sooner these solutions are put into place, the less harsh the effects will be. Imagine if appropriate changes had been made back the in the 80’s when there were serious discussions about insolvency!
“When someone says “the 0.1% could give up $150b” dismissively it shows the lack of understanding and respect for those that have built wealth. ”
Mostly it shows when I am getting a little tired of explaining myself in depth. But yes I do also lack a certain amount of respect for that uppermost segment of earners who are dominated by financial industry titans and big business management teams. I think they are way overpaid, and that overpayment unbalances the economy.
And that is NOT because of a “zero-sum game”, but because there is no such thing as a “zero-loss gain”. It is possible to pay the financial sector more than what they are worth to the economy, and that IMHO is what we are doing.
I don’t think most of them are evil, immoral, criminal, or devious. But when you put a bunch of type A highly competitive and self-motivated folks in charge of the money and political systems and you remove the brakes off their revved up engines (through deregulation and tax breaks), an imbalanced economy is what you will naturally end up with. And the solution is to put the brakes back on and move the money back to where it can be more productive: in the real job creators and engine of the economy, which is the middle class.
Some call that redistribution. Perhaps a more PC term is “right-sizing the economic rewards”. 😉
Anyway, I am more than happy to let JTM suggest more subtle ways to raise the funds and I greatly appreciate his comments here. I agree the solution must be multi-pronged: spending reform, tax reform, and economic growth. But hidden in those “reform” terms is the unpleasant fact that tax reform is going to have to mean tax increases on somebody, and while we all in the upper half of the earners probably have to pony up a few bucks, it is still an undeniable fact that most of the “disposable income” dollars lie at the top of the heap. And my calculations earlier indicate there is a lot more money available there than the richest folks want to admit.
Something ignored here is that capital can and will flee and the very hard working will quit working. Again, SS and MC are NOT taxes as much as enforced saving for old age. Also, it is assumed that there is NO immorality in taking something from those who work very hard and smart and giving to those who don’t. Regardless, our tax and spend Dems and borrow and spend Repubs have us on the edge of the precipice. Again 100% taxation of the 1% doesn’t solve our deficit. We must and will go lower and lower OR seriously curtail payouts. Only other option locking up a lot of long term debt and printing money to inflate our way out of it.
Amen…. and the latter option results in the collapse of the dollar.
“Something ignored here is that capital can and will flee and the very hard working will quit working.”
YES!!!!
“Again, SS and MC are NOT taxes as much as enforced saving for old age.”
Wrong!!!! I will never get back what I have paid in.
“Also, it is assumed that there is NO immorality in taking something from those who work very hard and smart and giving to those who don’t. ”
Forget the immorality. If you subsidize inferiority you will get more of it. Like at the cases of generational welfare families.
“Regardless, our tax and spend Dems and borrow and spend Repubs have us on the edge of the precipice”
I fear we are already falling. We just haven’t hit the ground yet. SHTF hasn’t happened yet but it will.
There are no good solutions now.
David H – I’m not wrong, it’s called Net Investment Income Tax for a reason. It’s on investment income only after a threshold of $250k. Of course, there are a couple of exceptions for certain businesses. Take a look at the IRS website and read it yourself:
http://www.irs.gov/uac/Newsroom/Net-Investment-Income-Tax-FAQs.
Isn’t this what you were proposing? Taxes went up on investments and high earners. Where are the corresponding spending cuts?
No, I propose shifting taxes from corporations to investors. A shift from those with massive incentive and ability to hide profits (reduce taxes) to those with generally much less.
“The other artifact of the 80’s tax “simplification” was the effective flat tax on incomes of the upper 1 or two percent. Not even flat, it was regressive”
— quote from you Steven H.
There is no discrepancy here, I do not see your point.
AS I SAID,
“I did not claim that 1% are paying lower rate than middle class. Other stats I have seen show upper 0.1% paying lower effective tax rate than overall 1%.”
Since 1980’s tax changes, the marginal tax rate on all tiers within the 1% was the same. Thus there is effectively a flat tax within the 1%, at least with regard to the marginal income tax rates.
Before the 1980’s, there were more marginal tax rates and they went higher within the tiers of the 1%. Additionally, capital gains tax rates have been lower than income tax rates, allowing upper earners to have a lower overall effective rate for most years in the last few decades. Including corporate tax impacts on upper earners shifts things a bit. There are also some discrepancies between the TPC income tax rates and the tax foundation, probably due to minor differnces in methodology. TPC shows 0.1% with higher income tax rate in 2014 and 2011, but Tax Foundation shows 0.1% has slightly lower rate in 2011 (latest year of their data).
So depending on whose stats you use, and whether you include all federal taxes or just income taxes, and whether you include impacts of corporate tax, you get slightly different results. But the overall statement holds. We have effectively had a flat tax, or even a regressive tax (by some measures) within the upper 1%. The upper 0.1% and 0.01% do not pay an appreciably higher rate, by ANY measure than the overall average 1% do.
Clear?
Clear….. Makes sense. Nor do I think they should necessarily.
Another great FACT for you all.
The top 1%’s TOTAL average Federal Tax Rate:
2010- 29.4%
2005- 30.4%
2000- 32.4%
1995- 35.3%
1990- 28.1%
1985- 26.1%
1980- 33.1%
The bottom 20% TOTAL average Federal Tax Rate:
2010- 1.5%
2005- 5.4%
2000- 6.8%
1995- 6.7%
1990- 8.4%
1985- 9.2%
1980- 7.4%
Does the bottom 20% include earned income credit?
I don’t believe so…. Here’s more stats:
This one is EFFECTIVE tax rate for 2014 – so this is “what you pay divided by total income”. This would include all deductions, credits, etc.
Lowest 20% – 3.1%
Second lowest 20% – 8.0%
Middle 20% – 13.7%
Fourth quintile – 16.6%
80-90th percentile – 18.8%
90-95th percentile – 20.3%
95-99th percentile – 23.8%
Top 1% – 33.4%
Top .01% – 35.7%
This is EFFECTIVE tax rate, so this is actually what comes out of someone’s pocket. How Steven H (or anyone) can claim that we don’t have progressive taxation – or that the 1% – and even .01% – are paying lower rates than the middle class is preposterous.
Source: Tax Policy Center (a non-partisan organization)
1) I never said we don’t have progressive taxation. Just not as progressive as we once had. As your stats indicate, ffective tax rates on upper earners have dropped since 1980 or 1995 (periods when we paid down debt/gdp)
2) I did not claim that 1% are paying lower rate than middle class. Other stats I have seen show upper 0.1% paying lower effective tax rate than overall 1%. Your stats are the first I have seen that counter that, but the 2014 results must be pretty new. I have not yet seen them on the TPC website. Others (including Warren Buffet) have claimed that high earners with income primarily from capital gains and carried interest have paid lower rates than their secretaries. Perhaps the new tax rules have changed that … a good but very recent development.
And again…. I couldn’t be less concerned with comparing our tax rates to “what we once had”. Don’t see the significance as it was a completely different country and set of circumstances.
I’m pretty sure EIC is included. That is why income tax alone shows up as a negative in lowest quintile.
Peter is apparently using tax policy center info, since his stats match their site.Earned income credit is included which makes income tax alone negative for lowest quintile, but overall taxes (including SS) are still positive; i.e. they still have skin in the game (as some might say).
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=456
Note that effective tax rate of 1% went down by 5.9% since 1995 and by 3.7% (or, another way of looking at it is that 1% were paying only 83.3% =29.4/35.3 of rate they paid in 1995. This is while share of all incomes to 1% went up (doubled or more since 1980).1995 to 2000 are critical years since this is the time period when Debt/GDP actually dropped.
While the overall taxes on lowest 20% have dropped, this has not fully countered their economic losses due to suppressed wages and higher than official inflation on medical and education costs. And, as your question points out, much of the low tax rate is due to federal assistance through EIC which might not be necessary if wages and job markets were more robust.
1995-2000 tax rates went up largely because incomes, capital gains, etc. boomed so dramatically. There weren’t tax increases of any significance during that era.
The job market, suppressed wages, etc. comes back to my point all along with the lost manufacturing and unskilled labor jobs in our economy due to the information age. The unskilled shouldn’t be “compensated” for this. We have to keep what few of these jobs we have here, which is difficult when they can be had overseas for much less.
I have to say too that no amount of tax relief would have “countered my economic losses” during 2008. I lost about 35% of my net worth and about 40% of my income during that period.
Totally agree about the rising costs of health care and education being an enormous factor for the poor…..
Rambling…but just addressing a few things.
Clinton’s tax increases …
Omnibus Budget Reconciliation Act of 1993
Previously the top individual tax rate of 31% applied to all income over $51,900. The Act created a new bracket of 36% for income above $115,000, and 39.6% for income above $250,000.[2]
Previously, corporate income above $335,000 was taxed at 34%. The Act created new brackets of 35% for income from $10 million to $15 million, 38% for income from $15 million to $18.33 million, and 35% for income above $18.33 million.[3]
The 2.9% Medicare tax previously was capped to only apply to the first $135,000 of income. This cap was removed.
Transportation fuels taxes were raised by 4.3 cents per gallon.
The portion of Social Security benefits subject to income taxes was raised from 50% to 85%.[4]
The phase-out of the personal exemption and limit on itemized deductions were permanently extended.
Part IV Section 14131: Expansion of the Earned Income Tax Credit and added inflation adjustments
Looks like Peter and I were answering at the same time. Sorry for any redundant info.
A recent study on income fluidity (mobility) showed that by age 60:
– 70% of the population will have experienced at least one year within the top 20th percentile of income;
– 53% of the population will have experienced at least one year within the top 10th percentile of income; and
– 11.1% of the population will have found themselves in the much-maligned 1% of earners for at least one year of their lives.
At the same time, it’s much more rare for a person to reach the top 1% and stay there. Only 0.6% of the population will experience 10 consecutive years in the top 1% of earners.
The fluidity cuts both ways. Rank and Hirschl pointed out in their 2014 book Chasing the American Dream that some 45% of Americans will take advantage of a need-based welfare program, like Medicaid or food stamps, by age 60. And 54% of Americans will experience at least one year of poverty by the same age.
To follow this up…saw another study done by psychologists that show that Americans do think it is easier to move up the income ladder than it actually is – and harder for the rich to move down that reality too.
It also showed that conservatives tend to believe more in mobility than liberals. We have certainly seen that in here as well. Interestingly, the poor tend to believe more in income mobility than the rich.
Interesting info …
Steven H: Sorry, can’t help but poke a little fun at you. Interesting, did you see the black/blue vs white/ gold dress thing? (I saw the latter BTW.) It is a perfect metaphor for politics I think. Half see it one way, half the other. Neither can see how the other can possibly NOT see their point of view. Thoughts?
Just looked it up. I saw blue and gold …
Of course you did! I saw gold and white LOL!!
Did anyone else see blue/gold? I thought people were supposed to see white/gold or blue/black!
Hey guys! ACA shifted money to lower quartile and helped them. But I see the next quartile being consistently punished by higher premiums ($100’s per month) and $6K deductibles. Answers are to quit meds and stop coming for appointments. The highest 50% generally can afford it. This IS truly zero sum. Nothing in ACA really, meaningfully addressed cost, just shifted the burden of payment. Tort reform was ignored. A few seeds were planted, but this is a socialist, Robin Hood program and not a path to Affordable Care.
Re: insurance. I have practiced 30 years (50,000+ visits) and have NEVER seen a rescission. BTW, I wrote off ALL the people who couldn’t afford it. I sent about 10 people to collections in 12 years of private practice. They were extremely bad cases, trust me. HIPPA keeps me from going further. A friend of mine is an attorney and sues insurance companies and loves them to be fraudulent! Treble the damages! And juries ALWAYS sympathize with sick people. Fraudulent insurance companies are actually quite uncommon IMO. I collected $6 million (gross) or so in 12 years and only about $30k was not adjudicated with a little back and forth. So, Steven H, I disagree again! Shocker!
Your socialist diatribes are better supported, albeit just as wrong.
I went way back up and saw your responses to last thing I posted. So we should allow infinite chances for those who fail. Just heard a story about a mother who had 21 drug addicted babies. Where does she stand in your system?
Middle class is being screwed by the rich AND the poor AND globalization AND taxation. So just mandate government controlled wages and prices. Remember 18% mortgage rates? They were a result of the last time we did that.
I frankly agree with wealth taxes, not just at death, but yearly on securities and deposits. Income taxes just keep the middle class from being wealthy by robbing their investment capital and making them borrow more. Perhaps we could cut them some and raise wealth taxes. We tax real property, so why not securities? Say 1-2% with a floor of $10 miilion in nonretirement assets. Real property is already taxed so family farms and most businesses already pay them and would not be affected. There’s no uproar about that Why do we let Bill Gates and Warren Buffet (for example) off with owning tens of billions and paying miniscule taxes?
Of course, the spending side MUST be adressed. The movie “The Blob” was made in the 50’s as a metaphor for Communism eating all in it’s path with the sole goal of making itself bigger. Now we have the same situation with government, especially, but not limited to, rhe Federal government.
So, brush up on your Trotsky ans Lenin and tell me why I’m wrong.
Curious – when you say “floor of $10 million” – do you mean that the “wealth tax” would only be on assets over $10 million, not counting retirement assets?
Right. Number is arbitrary, but you get the point.
Would be interesting to see what revenue that would generate and whether it is significant.
There are trillions in stock market and more so bond market. Hard to tell what effect $10 mill floor would have on revenue though.
True. There is about $30 trillion invested. This probably has more legs than taxing income. The higher marginal income taxes barely change the revenue bottom line. Something hard to stomach about a wealth tax though, even though what you said about real property is a good point. I would rather see an annual 1% wealth tax on assets over $10 million than estate taxes though…..and I bet this would bring in more revenue.
Despite what the left the thinks, the 1% are getting close to being wrung out, income wise. Either go lower in the income distribution, or novel taxes. I’d like to see corporate rates dropped and incentives dropped as well, but that may not be palatble for the left. Of course, there needs to be decreased spending as well, but that seems to be the truly empty promise from Washington. I did the math last fall and taxing 100% of the 1%’s income doesn’t balance the budget. We also need to do some smart tax cuts too, like being able to write off $50k of inventory each year. You could see the small retailers really pop with that.
Stevendad ===========
Despite what the left the thinks, the 1% are getting close to being wrung out, income wise.
===================
??!!! Maybe the lower half of the 1% are getting stressed, but the upper 0.1% (10% of the 1%) are not. But i do agree that a wealth tax could make some sense.
stevendad =======
I did the math last fall and taxing 100% of the 1%’s income doesn’t balance the budget.
==============
You might recheck your math.
Deficits (from usgovernmentspending.com)
FY 2014: $483 bln
FY 2013: $680 bln
Incomes including realized capital gains in 2013
(calculated from Emmanuel Saez economic research spreadsheets)
…Income$Billions TaxRate untaxed($B)
top 1% ….. $1,824 0.35 …….. $1,185.90
top 0.5% … $1,443 0.35 ………. $938.16
top 0.1% …… $861 0.35 ………. $559.38
To calculate the untaxed column above, I am using approx 25% effective federal tax rate on upper 1% and about 10% effective state tax rate on upper 1%, though this varies by state. (That number is closer to 6% on average for upper 1% according to some sources, but I’ll overestimate with 10%).
Regardless, the numbers show that the untaxed incomes of 2013 (used since 2014 numbers are not available) of the 1% would pay off the recent 2014 deficit twice over, and the even the untaxed incomes of just the 0.1% would pay off the 2014 deficit.
I’m not saying we should tax 100% of anybody’s income, and I realize that you aren’t saying that either. But in terms of comparing buckets of money, the upper realms are not short of cash.
Realize also that we do not need to “balance the budget” to zero to reduce the debt/GDP ratio. The customary trick has been just to cut the deficit to something less than GDP growth, and then the debt/gdp shrinks over time. This is how debt/gdp plummeted from 1950-1980 even though the budget was never really balanced, and raw dollar debt actually increased.
Note that tax rate is 0.35 (35%) and those digits are not part of the income numbers.
“untaxed” should probably be relabeled “after tax”. Sorry for any confusion.
One more thing. Cutting deficit to 1% of GDP would be a good aggressive goal, since it is half of even our current sluggish 2.x% GDP growth. With approx $18T GDP, that means a $180B deficit is as balanced as we need to get. So 2014 was really only $300B short of a “balanced” goal, not $483Bn.
My point exactly. There isn’t enough revenue there where raising income taxes on the .01% (or even the 1% really) is going to make a big impact and solve the deficit.
You arent taking 100% of the wealthy’s income obviously so kind of silly to even suggest. Take even 25% more of it and jobs are lost ….
Taxation alone won’t fix the deficit. Neither will growth, alone, or spending cuts, alone.
Continued growth combined with balanced taxation can drop the deficit to 1%. And sure, cutting spending, or at least controlling it is good, but the major bills are not likely to drop anytime soon. Military isn’t going to get cut and safety nets can’t get cut unless and until economy gets a lot better.
I think the top 0.1% could give up at least another $150B without hurting the economy one bit. Every little bit helps!
Steven,
I told you before in many ways don’t feel I have the skills of the enhpglish language to come on here and debate issues with everyone, and specifically you. You use the word egregious, hell I had to look it up to see what it meant. I do have a college education, but in all sincerity I do feel incompetent compared to you and Peter and Ken.
But when it comes to common sense, and being objective and fair in a world that maybe isn’t always that way, I feel pretty qualified. I started a business in the late 80’s with 8 employees. When I was bought out by a partner with deeper pockets than I, our company had grown to 62 employees and over $100M in sales. We were located in the Midwest, so I feel fairly comfortable that maybe we didn’t see many extremes in business that everyone else does simply because Midwestern values are different than the coastal areas of population. In the Midwest, when two men shake hands over a deal, it is binding and good. But because of so much much fraud, distrust, outright cheating, when you do a deal these days, it tales the equivalent of two trees to creat the paper to ensure it is so well documented that leave a no question as to the intent of any particular deal.
I have read the debate and bantering between you and Peter and Ken. First of all, I give you credit for taking the time to research so many things as you do. When I was working and running my company, I didn’t have time to do that. And to be frank, often times I read what you link us to, and it makes no sense to me one way or another. Sometimes that’s the case in Peters posts as well. And I will stipulate up front my political thoughts are more aligned with Peters than yours, but I also pride myself in setting politics aside and debating and doing what’s right. I will pass on to you some real world business experiences I had in small tone rural America, and I think you will at least up understand why I think like I do.
For starters, the will always be a rift between management and non-management. I’m sure there is a percentage of those in non-management that don’t trust anything that comes from the mouths of their bosses. There are also a percent that do trust those running the company, and when they are locally owned more so yet. The men and women that worked for me as a high percent trusted me. I took care of them. I paid them well, maybe even higher than market for many, because the cost to rehire and train was more than paying them to do a good job and stay put. Three were years where I had 2-3 employees that made more than I did. I never was mad about it, and they certainly had faith in me and believed what I said in years following because they had lived through these experiences with me and I had a track record. For many years, I paid 100% of the health insurance premiums for them and family. Then when it got to be so cost prohibitive, I sat them down, as a group, and shared with them the history of premium raises. I told them in earnest that there were just so many dollars available, whether that meant lower benefits and higher wages, or higher wages and so less benefits. That’s when they forts started paying their share towards the health insurance premium. But it was only after we sat down as a group.
In 24 years, I had 12 people leave me to go to another job. Out of those 12, I had 6 return because the grass wasn’t greener across the fence. In those 24 years, I bet I had no less than 150 different people interview for jobs with me and when it appeared that they were going to be offered a job, they would say they really didn’t want one, they were just there hoping I’d say NO, have me sign their attempt paper, and they could continue receiving unemployment benefits. That’s the first time in all candor I really woke up to the idea that there were so many people cheating the system. Before that, I just read stuff like that and interpreted it as political jib jab.
Then after maybe 15 years of a great relationship with the manufacturer, things started changing. At one point, the relationship between them and businesses like ours were fair and profitable for both. Then came the swing of the pendelum where corporate greed affected the way they managed. Things I took for granted as common sense business practice, no longer was the way we were doing it. If I wanted to do it that way, it was on my dime. And that slide and way of doing business now became the norm. But they were so big, a dealer, there’s no economic way of fighting it, so you learn to deal with it.
Ok, so why do I tell of those two stories? The people really not looking for a job and the company that changed it’s business practices? Because in my very humble and literal limited macro economic expertise, I think those two stories set up the debate and reasoning as to what’s going on today in the real world. Not attacking you,because you are a very educated man,but in my opinion you put the working people and lower paid people in this one large pot of genuine,hard working, just wanting what’s right in that category. Just that. But the fact remains is there is a fair a it of people in this category that simply are lazy and don’t want to work, and think they are entitled to have society take care of them. And what plays into their hand even more is what I would call a very biased media that twists stories around to make them juicer and more righteous than what they are. So people take advantage of this. Then on the large company side, I do believe you when you say that there are many people being taken advantage of. And that the CEO’s of many companies are way overpaid. And truthfully, I agree. But the blame lies with the board of directors, as they are the ones that permit that to happen. Then there’s the free enterprise argument that simply states let the markets take care of itself. And companies that do this at some point will go backwards, and ones that do it right will emerge as the new king of the hill. I do agree with you to a point that companies take advantage of workers, but I also feel the other occurs a lot. How they balance out, I’m not smart enough to figure it out.
So now getting to compensation , I’m totally in Peters camp on this one. I totally disagree with you that you can trust government to “do what’s right”. If Peter is smart enough, and works hard enough to make a significant income, why should the government take a real high percent of it from him, and give it to those people interviewing with me not really wanting jobs? Im just an old Midwestern “brown shoe” guy, and the last 7 years of my life I made in excess of 7 figures. Why should I give the US government 60% of it just because I can afford it? That makes zero sense. Can I afford it? Yes. But why?
I lived in a $70,000 house for 25 years. I bought 3 new cars over that period of time. I rarely took more than 10 days of working days off for vacation. I lived modestly, no one would know I had done as well as I had. Why on Gods earth should I trust Washington to take what I made and give it to others? Which leads me to my next point. Overall,I think everyone would agree, for the most part, that America is a very generous country. Individual as well as companies. Well one issue that hasn’t been raised is that people in my tax category have two new raises that are paid. The first is Obama care tax. That cost me on average $35,000 a year. Why? The in my opinion the big one. Allowable deductions. Steven, are you aware that people in the top tax category are limited by what they can deduct for charitable giving? In it’s simplest explanation, if you take your gross income and subtract the last threshold ($450,000… Roughly) and multiply that by 3%, it’s that amount you can’t take for deductionss? Why?
Example. Let’s say your in one income is $1,450,000. When you subtract the $450,000, that equals $1,000,000. The first $30,000 in charitable giving is. Or deductible. Anything given over that amount is. That’s another tax increase people never talk about. It’s called AGI tax adjustment.
The same applies for Obama care. That same $1,000,000 is now taxed at a rate 3.8% higher than the top bracket. In the case above, that person now pays $38,000 more in tax than anyone else. Then when you factor in what it costs you not to be able to deduct that first $30,000, at 40%,that’s $12,000. So someone that made $1.45M now pays $50,000 more in taxes than they use to. I would call that substantial. No one else pays that. So in effect, those higher income people do pay more than they have the last several years.
As far as balancing the budget, it’s going to take both increases and less spending. It really is that simple. Stop the abuse andholdthese clowns in Washington accountable.
Lastly I want to address the big business way of doing business. Less services in exchange in theory for less costs. That happened to the point where the business over time offers less services in exchange for lower costs and drives out of business those that sold for higher prices yet offered more service. After they are gone, than those companies that sold for less now sell for more because they have driven out the competition. It’s the Wal-Mart way. I saw it happen over and over in rural America. Wal-Mart comes in, and many businesses can’t compete with them so they close shop. Then pricing starts increasing at Wal-Mart. I’m not certain how I feel about it. It is free enterprise but there is something inheritantly wrong with that.
So at the end of the day, I think both sides have arguments that make sense, it’s just to me a matter of keeping government out of my life as much as possible. That’s how I feel.
Great post by the way….was hoping someone would reply to you! Thanks for the perspective. I don’t think people that make under 7 figures realize the severe amount of taxation that already exists – and the counter- intuitive things like limiting charitable giving.
Hi David,
Sorry for the delay in replying but I have had less time to post here lately.
Thanks very much for your perspective. For me, one of the benefits of coming to this blog (or whatever it is) is hearing the perspectives and experiences of actual businesspeople. When I started posting here, I already had respect and admiration for the small businesses in America and the folks who start and run them. The conversations have boosted that respect, though that is perhaps not so obvious from the arguments posted back and forth. And of course, we still have disagreements, despite the respect.
Certainly I agree with your disappointment in attitudes and behaviors of big business, from your manufacturer to Wal-Mart, and also with the major CEOs and the boards of directors that allow and award such large compensation packages. It has been my long-held perspective (reinforced by recent economics research) that such behaviors are the inevitable result of evolutionary accumulation of power and wealth when large business and banking interests are allowed to write their own rules. One of the repeated discussions on this blog and in this nation is what, if anything, should or can be done about it, and what role does government play? One perspective demonizes government as impotent and/or incompetent with no role to play, and places trust in markets to balance things out. Another perspective (not mine by the way, but one others ascribe to me) puts full faith in government to micro-manage the economy. As in most things, the balanced path lies between the two extremes.
I believe that minimally regulated markets and businesses tend toward unstable economies and high income disparity, and that this is what we see today. And before I am lambasted for describing our nation’s economy as minimally regulated, I should point out that deregulation of the WW2-era banking rules has contributed heavily to the savings and loan and banking scandals and repeated economic downturns since the late 70’s when deregulation began. Dodd-Frank has had minimal impact, as yet, in rebalancing the regulatory environment, and there are still big interests trying to water it down. Also the lessened enforcement against monopoly business practices has helped give rise to the Wal-Marts and Amazons of the economy. They seem convenient, but it would be better for the country if they had more meaningful competition in their realms. As you say, they are free market … but something is not quite right.
As for trust in government, I neither trust, nor distrust it inherently. It is a tool, and the only one we have to manage our economy. Weakening government leaves the economy in the hands of those who can control it through economic power. Allowing those same people to control government does the same thing. What we need is to have people in government who recognize the imbalance in the economy and work to restore balance, and who will work to establish a more just and prosperous nation for all of us, not just a few who can buy influence.
Now wave the flag and sing the anthem! 😉
As for the tax policies, I know that any change in tax policy meets with great resistance, because one group generally “loses” by paying more while another group may “win”. The exception was back in the 80’s when everyone “won” with lower tax rates, but since that time we have all “lost” with the high deficits and debts that resulted from low taxes, and now someone has to pay the piper.
The other artifact of the 80’s tax “simplification” was the effective flat tax on incomes of the upper 1 or two percent. No even flat, it was regressive. Small businessmen like you have been paying higher effective tax rates than the investors and big business guys in the 0.1% and 0.01%, even as these upper tiers began accumulating larger shares of the nation’s income and wealth. This near-flat tax on the 1% seems imbalanced and unjust on those at the lower end such as small businessmen. Formerly, the many tiered progressive tax system kept increasing marginal rates on higher salaries, even up into the higher ends of the 1% . That seems more balanced to me. Rather than this hodgepodge of new tax categories we have added, I wish we had just restored a simple multi-tier (20+ tiers, not 4 or 5) marginal tax rate categories. It would be more straightforward and honest.
Lastly, I understand your disgust at the unemployment moochers. I had an acquaintance ask for the phone number of my company’s employment office, and i found she was doing the same mooch scheme. But these folks are really a tiny minority having little impact. 90% or more (my estimate) of unemployed folks are honestly just trying to get by and find that next job.
Have to go do chores now. Keep posting. It’s good to have more opinions here.
“One perspective demonizes government as impotent and/or incompetent with no role to play”
Which poster represents this perspective? I’ll vouch for incompetent. And just as corrupted and controlled by the power of the $$$ as corporate America.
I too thought this was a good post. I too am a small business owner and resent the “you did not build that” attitude of the liberals. My company pays for 100% of the healthcare premium for its employees plus it adds $100/month to their HSA accounts. Yet Obama wants me to pay the 3.8% you mentioned for some free loaders health care. This makes my blood boil.
Our turn over is very low. Our biggest problem is that we have too many people over 60 that are going to retire. In our business tribal knowledge is valuable.
Yes, just because something helps people in need doesn’t make it a smart or effective plan. Too often when people criticize the ACA or complain about taxes it gets interpreted as “insensitive”. Maybe the ACA is a badly constructed way to help those without health care? Maybe there is wasteful spending in the Federal budget? These aren’t concepts that should be off the table or dismissed as “not caring” about those who don’t have anything. Particularly when people like the posters in here are doing so much to help people who have the need.
Peter N – To be fair (with a few exceptions that may hit you personally) that 3.8% tax is not on earned income, it is only on investment income which is generally taxed at the lower 20% investment rate and which employment taxes (medicare/medicaid/social security) are also not paid on. For the most part, it only hits hard on those who’s majority of earnings are from passive investment activities and not hardworking business owners managing the business themselves.
I don’t care what income is being taxed. In this case I deferred immediate gratification for the future only to have 3.8% of it taken away. When or at what percentage will it will it stop? If I take a loss the next year can I get some of that 3.8% back?
I’m not backing the tax, I’m only asking that these types of things be talked about fairly. This is one area that has been continuously misrepresented and it’s quite easy to set things straight. It is fairly black and white, unlike most of the ideas put forth here in this blog and others.
You have been quite clear about your position on taxes, most any tax is too much to you. Even if rates have dropped significantly compared to past decades, you will complain about any increase and tell us all how painful it is and how much waste there is or how lazy people other than you are. It is a very large list of things which you feel are a waste of government money, yet if someone were to want to take away something you have decided is worthy you would be unhappy with and fight the spending cut. You don’t seem to really care that we are in debt up to our eyeballs, to you it’s a reason to cut tax rates more and blame spending.
As for your question about recouping the 3.8%, as far as personal taxes I haven’t heard about being able to do recover for past years tax payments. But, a loss in the current year would reduce the current years taxes and it’s possible to carry some losses forward to future years.
If I’m in a higher earned income bracket and then my income drops dramatically, I can’t go to past years and recover taxes paid then, either. Why then should one be able to recover past taxes on earnings from investments?
Which isn’t to say, of course, that there aren’t some rogue insurance claims people who violate the law. They should be prosecuted accordingly, when they do. It’s just that they are the exception, not the rule.
From the Congressional Report linked earlier:
===========
Insurance companies have evaluated employee performance based on the amount of money their employees saved the company through rescissions. The Committee obtained an annual performance evaluation of the Director of Group Underwriting at WellPoint. Under “results achieved” for meeting financial “targets” and improving financial “stability,” the review stated that this official obtained “Retro savings of $9,835,564” through rescissions. The official was awarded a perfect “5” for “exceptional performance.”
==============
This is not a case of rogue claims people. This is a case of major insurers financially motivating their employees to abuse customers.
Considering Wellpoint has annual revenue of $61 billion, the $9.8 million in savings from rescissions is fairly insignificant.
Why would we not trust the opinion of someone (Ken) who works in the industry vs. media reports? How are they equally expert?
… furthermore….. Car salesmen get bonuses selling warranties that are largely a waste of money and bad for the consumer. The same thing happens at retail stores like Best Buy. Rental car companies pay incentives for paying for extra insurance that likely duplicates your existing coverage.
The US is littered with industries where the corporate motivation is to sell you something that isn’t in your best interest. It doesn’t make them evil. And it isn’t the company’s fault if you buy something you don’t need or can’t afford. Again – PERSONAL responsibility has to play a role at some point.
The fact is the US is one of the most regulated countries in the world to protect the consumer. It’s almost to a fault as we have suffocated several major industries with red tape to the point of ridiculousness. (Have you refinanced a mortgage lately?)
Travel to most Pacific Rim countries and just walking around on the streets is a constant barrage of scams, “bargains”, sales pitches and people trying to screw you. If you visit somewhere like Bangkok and get completely ripped off by saying YES! to everyone that approaches you – the problem is you. Sure, we can sit around and rail against the irresponsible lack of oversight in the Thai business community – or we can just use our own freaking heads and make smart decisions.
Not evil … Fine.
Personal Responsibility … great.
There are hawkers and sellers of useless junk everywhere … I get it.
But insurance companies were not just selling extra stuff people don’t need. With rescissions, they were taking money for providing a product and then removing the product when they could get away with it. And the results were life and death, not just a small useless expense. In such cases, I don’t really care what small percentage of the time customers were defrauded, and essentially murdered, by insurance companies rescinding policies for trivial or unintended information omissions. It should never have been allowed to happen.
Moot discussion, now, since ACA halted the practice, as far as I can tell.
There is a difference between being an expert and being unbiased. I completely respect and trust experts to provide technical explanations in their field. But that does not make their own personal biases or opinions any more valid. Nor do an abundance of facts and expertise uphold an illogical argument.
Non-experts can and should call out biased pronouncements that are shielded behind the facade of superior knowledge. Sometimes you need the knowledge of an expert to unravel the intricacies of a complex argument or to understand a complex system. But sometimes you don’t, because the issues are not actually that complicated.
To pick on Ken briefly: Ken explained in an earlier post from November 13,
http://moneyning.com/career/who-actually-earns-400000-per-year/#comment-1048117
that based on his experience and expertise in the field of insurance, the most proper method of evaluating efficiency of Medicare vs Private Insurance, is cost per policy. A primary reason for the assertion is derived from his knowledge, as an expert in the field, that this is the standard method for evaluating cost and efficiency in the commercial field. He then uses a banking example as a representative analogy, showing (presumably) how it is absurd to evaluate cost of bank accounts based on the value of the accounts, and thus how it should be similarly absurd to evaluate the cost or efficiency of Medicare management based on the expenses paid.
So, is this subject so complicated and intricate that I should simply defer to Ken’s expertise, or can I, as a non-expert in the field, find logical flaws in his argument?
First, I’ll restate his point that I think is legitimate: that Medicare accounts may gain some measure of efficiency in terms of account expense per medical dollar spent, due to the increased spending per account. Or in another way of stating it, the same number of expenses are spread over fewer accounts and, in fact, over fewer claims, since the medical claims and procedures for older folks will generally be more expensinve that the under-65 private market.
However …
Expense per policy is at least as improper a method in which to compare efficiency of Medicare and Private insurance, and the reasons are simple to understand.
1) Private insurance has many policies for younger folks which have almost no account expense. There are few claims and they tend to be covering annual checkups or simple maladies, requiring little oversight.Averaging these policies into the whole set drops cost per policy artificially for the private insurers.
2) Single claims under Medicare may cover more expense, but they can also be very complicated. I spent long hours reviewing and reconciling my father’s hospital and Medicare statements in order to reconcile a billing issue. The diligent Medicare account manager would also have to spend a lot of time reviewing such accounts. Cost per claim and cost per account to administer such an account can and should be expected to be magnitudes higher.for Medicare vs. Private.
So here is a case where Ken provided legitimate knowledge and insight based on his expertise, but his argument still has logical holes that undermine his conclusion.
I should be clear that I am not claiming a perfect understanding of insurance efficiency. I am simply pointing out that even experts can put forward incomplete or flawed arguments. “Media reports” may be comprised of an amalgamation of information from multiple experts, OR they may incorrectly express a biased view based on either expert or non-expert testimony. You cannot trust a perspective just because it is written by an expert, and you cannot distrust a perspective just because the author is a non-expert (because he is possibly informed by experts). It’s always best to assess multiple sources and perspectives.
It occurred to me last night that when a lot of these issues are discussed, oftentimes what appears to be “true” to those who are not directly involved in the industry turns out to be something quite different when you know a little bit more about the subject. The example that sparked this insight in my mind was, of all things, “pre-existing conditions” in health care.
On the surface, and the way in which this issue has been presented in the mainstream media, “pre-existing conditions” is all about evil insurance companies not wanting to insure sick people so they can greedily keep all the premium dollars to themselves (or something similar). Those nasty bastards.
Well, it just so happens that I have worked in the insurance and financial services industry for more than three decades. As I mentioned in a post several months ago, during the course of my career I have earned numerous professional designations, including but not limited to the ChFC, CPCU, and FLMI. I know a thing or two about insurance.
One of the fundamental principles of insurance is that you need a group of people whose claim propensity is unknown, so that actuarial and statistical methods can be applied to the pool to arrive at appropriate premiums. As an aside, the typical insurance company makes little to no money on its underwriting. In most years insurnace companies operate at an underwriting loss, not an underwriting profit, from daily operations. They don’t make their money out of cheating insureds out of benefits, either. Where insurance companies make their money isin investments. They collect premiums, then invest those premium dollars and realize gains on those investments. Then they pay claims from this fund. By the time the claims are paid, this fund, because it has experienced an investment gain, has more money in it than is needed to pay the claim(s). But moving on…..
The reason “pre-existing conditions” clauses came about was because a large number of potential insureds would only sign up for insurance after they knew they were sick. In other words, they violated a key provision of insurance because their propensity for having a claim was a known fact… 100% chance of a claim. But the interesting part if that they were the only people in possession of this knowledge. Information was asymmetrical in that they had knowledge peculiar to the health insurance contract that the insurance company didn’t — namely, that they were already sick. Then they typically misrepresented or omitted mentioning this special knowledge on their insurance application. Potential insureds would not pay premiums for years and years, and then only after being diagnosed with a dread disease, then, after they knew they were sick, they would sign up for insurance and collect significant reimbursement.
There are many words and phrases to describe this kind of activity. “Adverse selection” would be one. “Insurance fraud” would be another. “Felony” would be third. But setting that aside for the moment, what insurance companies did to protect themselves, and to protect the rest of its customers, from these fraudulent activities was to write “pre-existing conditions” clauses into their health insurance contracts. Typically, these limit the ability to collect either by dollar amount or, more often, by time horizon. Exclusion periods often are in the two-year range.
My point in saying all of this is that, as in this case, when you know more about the subject than those who are critics from 50,000 feet, the issues are oftentimes different than they appear on the surface. Usually there are substantial reasons for things being the way they are. And, what first seemed to be true oftentimes turns out to be the opposite. In this case, what at first seemed like nasty insurance companies trying to screw people over for pure greed is perhaps in fact the opposite — insurance companies protecting themselves and their good policyholders from the greed and underhandedness of not-so-good potential policyholders.
This is very true- and in some cases knowing more from the inside is even more nefarious than someone might think. Depends on the situation. But reality doesn’t matter to people as much – I blame our political landscape and polarizing talk radio-types. They tell whatever narrative they want regardless of truth.
I mean, who is going to ‘root for’ the insurance companies? Not a popular side to be on.
Ken,
Your description is accurate, and I agree with it, … except the part about it being unknown and not understood by most people in the argument.
Again, you and Peter keep trying to justify the insurance companies or investors, or businessmen as “not evil”:, as if that closes the discussion. To me, that is not even relevant to the discussion.
Most people with even a passing understanding of insurance understand that you can’t have a system that forces insurance companies to insure pre-existing conditions if you also allow people to exclude themselves from the system until they need the insurance. As you correctly described, combining the two leads to a fraudulent and unprofitable and unsustainable condition for the health insurance system. If the goal is to insure everyone, including those with pre-existing conditions, you have to compel everyone to be part of the insurance pool, or at least fine those who refuse to participate. This is why RomneyCare and ObamaCare both operate the way they do, and why the conservative think-tank that first designed these systems came up with this mechanism of everyone participating. It is the only fair and sustainable way to make it work.
The people who seem not to understand the system are those who claim their freedom is infringed by being forced to participate, even though they should recognize that they will typically be taken care of (if less efficiently) at emergency rooms or by public charities when they are in need. So everyone is inherently participating in the system simply by living in the US. Some people just don’t like paying for the service they are already a part of.
So I would say that the people who do not understand the insurance system are NOT those who insist on pre-existing care coverage (along with universal participation), but instead are those who fight to be excluded from participating, when that is not really possible or practical.
And by the way, this is not an issue of media distortion and defamation of insurance companies. There are very real issues of insurance companies fraudulently denying coverage on trivial or even fraudulent grounds.
Such “rescission” of policies is always claimed by the insurance companies as fraud by the consumer, when in fact many cases are trivial technical omissions on initial forms that are then used as excuses by insurance companies to refuse or drop coverage for completely unrelated health issues. For instance, a company may refuse to cover cancer treatments because a person did not initially mention unrelated issues with minor back pain.
This was beginning to happen a lot before the ACA and is only one reason why universal coverage should be required.
… meant to include a link for above:
http://www.washingtonpost.com/wp-dyn/content/article/2009/09/07/AR2009090702455.html
This article is actually a pretty good example of what I was talking about. It presents one side of the debate only, citing selected individual cases and presenting them as though they are the norm, when in fact they are very likely to be the most egregious exceptions to the norm that the author could find.
By law, insurance companies are prevented from rescinding policies based on trivialities. Rescission is available only when there are substantive issues, such as material misrepresentations or material omissions. And of course one such material omission in health insurance would be failing to notify the insurance company of a significant pre-existing illness.
And even in that case, rather than prosecute the insured for an attempted felony, the insurance company simply cancels the insurance contract …. and then returns the unearned portion of the insurance premium to the insured. To say the least, this is a far cry from the slant that this article takes. In addition, due to the fact that insurance companies write the insurance contracts which the customer then accepts or rejects, if contested in court the customer almost always gets the benefit of the doubt, and wins, if and when there are disputes or ambiguities in contract wording.
Further, insurance is one of the most highly regulated industries in existence. Nothing happens without the knowledge and consent of each state’s insurance commission and commissioner. If insurance companies made it an ongoing practice to deny valid claims based on non-material omissions or misrespresentations, they would be routinely violating the law as a matter of everyday business practice. In that event, at the very least, the insurance commission(ers) of each state would order a processing review. And if the illegal behavior were found to be true, substantial fines would be levied, at least. The insurance company would then be placed on a list for scheduled and unscheduled processing reviews from the commission(er) as follow-up. And if the behavior continued, the insurance commission(ers) could, and would, ultimately deny the insurance company the ability to do business in that state.
Accordingly, it is actually in the insurance company’s best interests both in the short and long term to process claims fairly and legally. Of course all of these nuisance facts will never make it to the storyline of an article like this one, because it doesn’t create a cartoon character villain that a sixth-grader could easily identify. But why be balanced and truthful when your goal is increased readership, or trying to influence people’s opinions in a certain direction?
Interestingly, in the one and only sentence that might lend balance to the article, there is an estimate that insurance fraud might run as much as $100 billion annually. It appears that this is an estimate for private insurance only, as the FBI estimates that the annual cost of insurance fraud from Medicare alone is between $75 billion and $250 billion. Accordingly, I think it could reasonably be stated that total insurance fraud, both private and public combined, is more in the range of $200-$350 billion annually, not $100 billion.
So, then, by comparison, I think it would be interesting to know what the annual fines are on insurance companies for illegally denying claims, as compared to $350 billion in annual health insurance fraud. And what percentage of health insurance claims result in a fine or an adverse court judgment against the insurance company. And perhaps a comparison of how many dollars in claims are processed without incident, compared to those where some kind of insurance company malfeasance is involved.
As it stands, the article is actually an example of the very thing I said was the case. In the average media account from 50,000 feet, and in critiques from anti-capitalist academics not involved in an industry, typically only one side of the picture is ever presented. And once again, in this case, based on my 30+ years in the industry, with significant knowledge of how things actually work, and with personal friends who supervise people processing insurance claims, that kind of presentation is nearly always a false narrative.
What always kills me about this – particularly in the industry I am in, which does also involve insurance companies (annuities, life insurance, long-term care insurance) is the incredible amount of scrutiny and regulation these industries have – and the complete lack of oversight and scrutiny the media has when talking about them.
For instance, everything I post online, put in the mail, or email anyone gets picked through – word by word – to be sure I’m not misrepresenting anything. It gets as specific as my compliance department correcting me from using the phrase “financial planning” (we have to say “investment planning”). In no way can we ever use the word guarantee – even if something is actually guaranteed.
My point is that while we keep heaping red tape and regulations on top of the financial industry because of a few rogue players, we continue to allow the media to represent things however they like. Fortunately, some see through the slant of one-sided articles – but many do not.
The last thing I would want is censorship. But in today’s world, I think it is increasingly difficult for people to discern reality from a false narrative – especially if you agree with the narrative.
Look at Fox News as an example. Ask any liberal-minded individual what they think of Fox News and they will tell you it is a “false narrative” – a right-wing propaganda machine. In converse, most conservatives view the “mainstream media” as a liberal-run propaganda machine.
What I had hoped for with this discussion – and all of the rare discussions I get involved with – is that people can see through all of this and think for themselves.
Ken,
Of course any writer illustrates his argument with egregious examples. All writers, including the posters on this blog, tend to do this. But describing such abuses as a false narrative because it only impacts tens of thousands of policies out of a policy population of tens of millions mis itself a false narrative. Insurance companies were systematically abusing their customers from a position of power, because it saved money, and they could get away with it. What they were doing was often difficult to prove as illegal, expensive to prosecute, and the savings to the company were worth the risk.
“By law, insurance companies are prevented from rescinding policies based on trivialities.” Perhaps, but it was not stopping them. Three major insurance companies reported to Congress that they rescinded about 20,000 policies in the 5 year period from 2003 to 2007 (and that number was incomplete due to gaps in the reporting). While some of the rescissions may have been justified, the overall practices for determining rescission were inherently imbalanced and prone to abuse by insurers:
=========
Rather than reviewing individual medical histories at the time applications are submitted, some insurance companies award policies quickly to begin collecting premiums. If the policyholders subsequently get sick and file expensive claims, these insurance companies initiate investigations to scrutinize the details ofthe original application materials and medical records in order to find discrepancies, omissions, or misrepresentations. This practice is known as “post- claims underwriting.”
Based on the results of post-claim investigations, insurance companies may rescind coverage, retroactively cancel policies, return premiums, and refuse payment for medical services.
…
A Mississippi court described why this practice is controversial :
An insurer has an obligation to its insured to do its underwriting at the time a policy application is made, not after a claim is filed. It is patently unfair for a claimant to obtain a policy, pay his premiums and operate under the assumption that he is insured against a specified risk, only to learn after he submits a claim that he is not insured, and, therefore, cannot obtain any other policy do cover the loss. The insurer controls when the underwriting occurs…. If the insured is not an acceptable risk, the application should [be] denied up front, not after a policy is issued. This allows the proposed insured to seek other coverage with another company since no company will insure an individual who has suffered serious illness or injury.
===========
http://democrats.energycommerce.house.gov/Press_111/20090616/rescission_supplemental.pdf
Now I suppose you could also call the above report imbalanced because it does not discuss fraud against the companies. The thing is, you can’t just balance the two wrongs, as if fraud against insurers justifies their fraud and abuse against their customers. Insurance companies are big boys and should institute strong policies to discourage fraud. failure to do so is their own fault. They should also not be allowed to commit fraud and abuse against their own customers.
And your contention that customers actually have the upper hand in a dispute against the monolithic insurance companies is idealistic, but rather doubtful. Perhaps if regulation worked as perfectly as it is supposed to … but how often does that happen?
From the same link as above:
============
The current regulatory framework governing the individual health insurance market is a haphazard collection of inconsistent state and federal laws. Protections for consumers and enforcement actions by regulators vary widely depending on where individuals live.
In October 2008, the Oversight Committee requested information from 50 state insurance regulators about the size ofthe individual insurance market in each state, legal standards governing rescissions, and investigations relating to rescissions. 10 Most states were unable to answer basic questions about rescissions and the individual health insurance markets in their states. Forexample:
• Only four states, Hawaii, Kansas, Texas, and Washington, were able to provide the total number of rescissions that occurred within their jurisdictions.
• Only ten states were able to provide the number of individual health insurance policies in effect in their jurisdictions.
• Over one-third of state commissioners were unable to supply a complete list of the companies within their jurisdictions that offer individual health insurance policies.
One significant area of confusion and dispute is whether insurance companies are legally permitted to rescind coverage without demonstrating that policyholders intentionally misrepresented health information.
============
As with all of these arguments, the balance of truth is in trust and in degree. I distrust the business of insurance more than you do and am less willing to give them benefit of the doubt. You think insurers are assaulted by fraud and rarely commit it. I think that insurers committed fraud and abuse as standard business practice, and the fraud against them was also partially due to their own negligence, and their own willingness to pass off such fraud as a cost of business to be passed on to customers.
I see no clear method to come to agreement, but I hope the linked report at least portrays some details you may not have been aware of.
The good news is that the ACA pretty much eliminated the practice of rescission.
“….http://democrats.energycommerce.house.gov/Press_111/20090616/rescission_supplemental.pdf”
I read through the document on this link. I would note several things.
First, it was written for and by only one of the two major political parties, a party which occupies a particular political viewpoint. I think the article was written with a political purpose; namely, to support sweeping healthcare reform at the federal level.
Secondly, and more importantly, the report does little more than list a series of anecdotes about different insurance companies and how they have mistreated customers. It never provides context. It never, for example, compares the number of health insurance claims where problems were discovered, versus the total number claims processed. Or the volume of claim dollars processed where there were problems, versus the total volume of claim dollars processed without problems.
In short, I see it as a poltiically motivated piece that does not move the conversation forward. It does nothing to give an objective account of degree — which is the central issue. Are the cases cited in the report the rule, or are they the exception? Based on my 30+ years in the business I would say they are the exception. But we’ll never know from this report because the report fails to give that context. So I have to wonder why stats which would provide critical context and degree were intentionally omitted.
“…Now I suppose you could also call the above report imbalanced because it does not discuss fraud against the companies. …”
Yes I would call it imbalanced, but not for the reasons you cite. It is imbalanced, but not becuase it fails to discuss fraud against insurance companies, but because it does not provide context for understanding the extent to which the problems it cites are commonplace, or not. By providing only anecdotal evidence, it tries to lead the reader to a particular conclusion — namely, the conclusion that the problems are widespread. But it leaves out any facts which would allow the reader to independently draw their own conclusions with regard to degree and context.
“…The thing is, you can’t just balance the two wrongs, as if fraud against insurers justifies their fraud and abuse against their customers. …”
My point was never that two wrongs make a right. My point was about pre-existing conditions, and why they exist…. a point of which I still contend most people are unaware.
“…Insurance companies are big boys and should institute strong policies to discourage fraud. failure to do so is their own fault. They should also not be allowed to commit fraud and abuse against their own customers….”
I agree that insurance companies should not be allowed to commit fraud. Neither should consumers. Consumers commit between $200-$350 billion in insurance fraud every year. It would be nice to know how much fraud is committed by insurance companies, for comparison purposes. Or the total dollar volume of claims vis a vis those involving fraud. And so on.
“…And your contention that customers actually have the upper hand in a dispute against the monolithic insurance companies is idealistic, but rather doubtful. Perhaps if regulation worked as perfectly as it is supposed to … but how often does that happen?….”
It really has not much to do with regulation. It has to do with how the courts view “contracts of adhesion”. Here’s a link which goes into several issues the courts look at when settling disputes over contract wording.
http://www.pearsonitcertification.com/articles/article.aspx?p=415191&seqNum=3
Note the following passages which talk about “contracts of adhesion”.
“…Unclear Contract of Adhesion Interpreted Against the Insurer…
If a contract contains wording that is unclear the courts will interpret the language used against the writer of the contract, unless the wording used is required by law to be stated in a specific manner. Insurance contracts are contracts of adhesion, which means the insured had no part in determining the wording of the contract; therefore, the courts will interpret the contract in favor of the policyholder, insured, or beneficiary….”
“….Adhesion…In insurance, the insurer writes the contract and the insured adheres to it. When a contract of adhesion is ambiguous in its terms, the courts will interpret the contract against the party who prepared it…..”
Ken,
Thanks for reading the article.
Two important facts in the article that went beyond mere partisan persuasion were
– the existence of “post-claims underwriting” which is a pretty clear example of moral hazard, and a policy which puts consumers at clear disadvantage.
– the existence of financial motivations within insurance companies that rewarded rescission.
The difficulty with claiming the consumer was protected in these cases lies with the apparent ambiguity in the rules. What if I forget to list a surgery or condition, and the insurance company interprets that as fraud and refuses to cover an unrelated condition and cancels the policy? I may consider that unfair, but it may in fact be legal for the insurance company to operate that way, depending on laws in the state and details of the contract.
And how widespread of a problem does it have to be to be worthy of concern? I have every reason to believe it was widespread, if insurance companies are providing financial incentive to twist the rules to deny coverage.
Zero-Sum Game vs. Zero-Loss Gain
I want to refine what we are talking about when we say “zero-sum game”. Starting with a web definition:
“In game theory and economic theory, a zero-sum game is a mathematical representation of a situation in which each participant’s gain (or loss) of utility is exactly balanced by the losses (or gains) of the utility of the other participant(s). If the total gains of the participants are added up and the total losses are subtracted, they will sum to zero. ” [Wikipedia]
If person A complains that a CEO is way overpaid for his contribution, person B might say “It’s not a zero-sum game you know; that CEO is paid well because he manages a large successful company and few people can do what he does. The company makes more money because he runs it. His pay has nothing to do with what the rest of the workers are paid.”
Whatever the actual merits of the particular CEO above, person B is claiming two separate and disparate things. The first is “The company makes more money because [the CEO] runs it,” which corresponds to the assertion that the company and the CEO’s contribution are NOT a zero-sum game. But the second assertion that “His pay has nothing to do with what the rest of the workers are paid,” is a separate claim which could be labeled as a belief in a “zero-loss gain”.
A “zero-loss gain” is a gain by one participant which is completely independent of gains or losses by other participants.
(I made up this term. I don’t know of anyone else who uses it. I needed a simple term to describe the antithetical concept to a zero-sum game.)
Zero-sum game and zero-loss gain are idealistic book-ends on opposite ends of reality. There are a few situations which may be described as zer0-sum game, or zero-loss gain, but most situations fall in-between. Someone who believes in a zero-sum game economy might think that every rich person took something from a poor person. Someone who believes in zero-loss gain might think that a rich person’s income and wealth has absolutely no impact on what anyone else has or receives. Neither extreme is generally correct.
I am often accused of believing in a zero-sum game economy. This does not reflect my beliefs at all. What I refuse to believe in is a zero-loss gain economy.
I believe that a successful company’s contribution to society is OFTEN reflected as a non-zero sum game; meaning that society overall is enriched by the company products and/or services. I also believe that, once the annual profits have been determined (or forecast) within the company, then the distribution among re-investment needs, stockholders, workers, and management actually IS a zero-sum game. There is a total from which any one participant’s gain is another’s loss. And this is how the CEO’s salary impacts everyone else. Whatever he makes is money that is unavailable to the other participants. To say otherwise would be a belief in a zero-loss gain.
You could argue that a really skilled CEO might leave the company if he is insufficiently paid, and that could have a negative impact on profits. Therefore, high pay to the CEO is not a loss to other employees, because keeping the CEO increases profits to the company. On the other hand, the CEO and management team might demand so MUCH money that nobody else in the company gets a raise, even in a very profitable year.
Does the CEO deserve the compensation he demands, because its “not a zero-sum game”? Or does the CEO need to cut back his demands because its “not a zero-loss gain”?
There is no clear single answer as to what the CEO will or should get paid. It depends on markets, negotiations, and the leverage and power of all participants to get what they want. In the overall picture, it’s not a zero-sum game AND it’s not a zero-loss gain.
You can argue similarly for the overall economy. The income disparity arguments against the compensation of the very rich (whether it be the upper 1% or 0.1%) question whether the high compensation is appropriate. Some object to the morality or fairness or justice of the very high pay to the top earners. The problem with that argument is that the morality, fairness, and justice is pretty subjective. Others object to the economic inefficiency of high income disparity. This is a better argument but the problem here is that it is difficult to persuade a few of the most fortunate that they may be better off in the long term by giving up some wealth and income in the short-term.
And on the national stage, it is also not quite true that there is a zero-loss gain. What very rich people receive DOES make a difference in what the rest receive.
Arguments in both situations arise because it is difficult or perhaps impossible to know the true value of the business leaders or of the national economic titans. Some say let the markets decide, because the markets perfectly determine value. But that is a fallacy also. The markets are formed and created by political and economic negotiations as well, and thus the markets are subject to change. Determining the perfect market is about as hard as determining perfect value for work.
And yet, as hard as it is to determine perfect value of work, we should at least recognize when economic indicators reach historical extremes. Maybe we don’t know exactly what a CEO is worth, but we know he is worth higher compensation than the lowest level workers, and considerably less than the net profits of the company.
And the upper 1% are therefore worth somewhere between 1% and 100% of all income. But what, more specifically? History suggests a more constrained limit between 8 and 20% of all income, with the most stable economies occurring at around 11% to 15%.
But regardless of the right answer, you should never accuse those of us who object to high income disparity of believing in a Zero-Sum Game. We just don’t believe in a Zero-Loss Gain. And there is a vast landscape between those two extremes.
“the overwhelming majority of the rich didn’t become rich this way [from making other people poor]”
“Rich people can’t get rich by making people poorer – unless you are talking about government interference.”
Steven H- Both sentences say the same thing. Obviously I’m not a big enough idiot to think that you can’t become rich just by beating people over the head and taking their money. You could rob banks, embezzle money, sell drugs, or do any number of illegal things and become rich. Some have done this.
I thought we were talking about actual legal ways to become rich – and the ACTUAL stories of the 1%. You can mince words all you want, but you think very clearly that the 1% becoming richer and richer is making others poorer. I disagree. I hardly think you misunderstood me and think the above statements are so different from one another.
My point is that the fastest way to become rich is to provide a service, create a product, etc. that makes others’ lives better. The rich have typically enriched our lives more than they have hurt it. Your point of view is that they are gobbling up all the gains for themselves, leaving nothing for the poor. Again, I disagree.
And I appreciate the compliment for ‘clarifying my positions’, but Steven H – you must ask yourself, if after over a year and hundreds of posts 90% of what you wrote about my point of view needed “clarifying”….. are you really listening?
The conversation ebbs and flows, Peter. Sometimes your position is clear and sometimes it seems to shift. Much of this long conversation seems to me to have been an attempt to find the common language, refine the terms and definitions, and is also an attempt for both sides to identify and abstain from the insults and exaggerations that too often dominate and distract and detract from such discussions.
Along that line, saying that “Rich people can’t get rich by making people poorer” is a far semantic cry from “the overwhelming majority of the rich didn’t become rich this way [from making other people poor]”, and along with your other statements in the last long post, I was happy to see the more nuanced language. I have been listening.
Continuing this topic, you and I obviously disagree as to how many people get rich by “making” other people poorer. And yes I am still talking about legal means, not bopping people on the head. I do agree with you that people and companies which make innovative products and/or make quality commodities and/or provide useful services get money by enriching people’s lives. I think most people agree.
It is less clear to me how the vastly expanded and expanding banking and investment sector in the country is enriching anything other than itself. I recognize the general need for, and usefulness of, some banks and investors. And yet this sector, more than any other, seems to exist primarily to find ways to extract money out of the economy and not to enrich anyone else, or improve or enhance the rest of the economy in any significant way. If these are the “rich” we are talking about, I would say that a good majority of them do indeed profit by making other people poor. They wouldn’t describe it that way of course.
So if we include all of the 1% as “rich”, probably more are in the entrepreneurial class which enriches other people’s lives. But the very richest of rich, are, by my estimation, mostly (with the rare exceptions of the entrepreneurial, sports and entertainment superstars) in the business of just making money and enriching themselves. These people know how to profit at a zero-sum game.
… which brings me to a short zero-sum-game post below.
So now you have narrowed down what you perceive to be the problem with the 1%’s income disparity with the lower 70% even further. It’s not everyone in the 1%. We can now exclude small business owners, innovators, people who provide quality service and products, entertainers and athletes) From what I can tell we are left with two categories of people in the 1% where you see a problem – those that have become wealthy from the banking and finance sector, and people like Sheldon Anderson who run casinos. Let’s table casinos and talk about the banking and finance sector.
I think you can narrow down your targets here as well. You have excepted me for instance – someone who helps people manage their wealth. I can’t imagine you have an issue with money managers, mutual fund companies, 401k administrators, CPAs, etc. as well.
This narrows us down to a very small sliver of the 1%. So why don’t you go after these people rather than the entire 1%?
The thing I think you are missing is that making money by running a hedge fund, trading options, venture capital, commodities trading, etc. isn’t making “something for nothing” or “rent seeking”. If I personally was to buy oil futures and then sell them for more than I bought them for, I’m not really ‘earning’ the money through labor, nor am I creating anything of use to society. But I’m also not taking from the poor – and I could lose money as well. I’m taking a risk and being rewarded for it. As long as I bear the brunt of the penalty of the failed risk, all is completely fair and shouldn’t be frowned upon.
Where I have the problem is when major corporations bear the risk and fail and are bailed out or not held accountable. I imagine you feel the same way. But it doesn’t mean that the very act of risking capital is immoral or bad for society. None of this hurts the poor unless the government interferes and spends taxpayer money to save those that lose.
“Where I have the problem is when major corporations bear the risk and fail and are bailed out or not held accountable. I imagine you feel the same way. ”
Yes.
“But it doesn’t mean that the very act of risking capital is immoral or bad for society.”
Agree. But the risks have lessened and gains have increased. We need to rebalance.
“None of this hurts the poor unless the government interferes and spends taxpayer money to save those that lose.”
The banks should have suffered more, but a bank collapse would have hurt everyone. It was a tough call on saving the banks. But excess money shifted up to the risk-takers who pursue riskier and riskier strategies DOES hurt the poor. Much of that gambling pool should be elsewhere in the economy.
Totally don’t agree that “the risks have lessened and the gains have increased”. I wish that was the case – I would have a lot more money. :).
Again I’m not ever sure what do with the phrase “excess money”. Another subjective judgement call. And also don’t see how what risks I take with my millions impacts the poor in any way whatsoever. .
“You can mince words all you want, but you think very clearly that the 1% becoming richer and richer is making others poorer. I disagree. ”
I don’t mince those words at all. You have it exactly right. To be clear about my position: Approximately 10 to 15% of all national income is going somewhere in the realm of the upper 1% when it ought to add to the income of the lower 90% and/or pay our national debts. The upper 1% ought to receive about 10 to 12% of all income, not 20 to 25% of all income. The extra income going to the upper 1% takes away from that which can go to others. Furthermore, the shift of income from middle class to upper incomes has not improved national productivity; it ha slowed it. Shifting income back to the middle class will not stall productivity; it will increase it.
I also recognize that not every person in the upper 1% (you, for instance) may be benefitting equally from the income growth of the overall group. I think small business owners have borne the brunt of tax increases and their incomes have been hurt by the rise of corporatists and the expanded banking industry. So even though I talk about the extra income going to “the 1%”, I also realize it is an uneven field. About half of the income of the 1% go solely to the upper 0.1%, for instance.
I do NOT believe the shift in income is due primarily to evil, immoral or illegal activity. It’s just that incentives are out of whack. I recognize that entrepreneurs benefit society, as do investors and bankers. They are not without value, but simply overpaid, and I know this because most of the country is clearly underpaid.
I know that you oppose all of the last post, Peter. But I wanted to be clear that I am not removing people from my “target” just because they have use and value. The point has never been about who is evil or who is stealing from the poor. You don’t need to describe the useful function of each element of the financial sector to somehow prove that they deserve every penny they get … because their function is good.
It’s not a binary argument. There are choices between (a) they are evil and should receive nothing, and (b) they are useful and should keep as much as they can get. I choose answer (c ) they are useful and necessary but have been receiving high reward while others who are also useful and necessary have suffered from low reward.
The point is that there are groups who are benefitting from an imbalanced economy and there are those who are not doing as well as they ought because of that imbalance. And the economy as a whole suffers from the same imbalance. It’s truly NOT a zero sum game. The true job creators are the middle class and as soon as they are refunded, the economy is likely to grow a lot faster.
I’ll be away for a few days. We may have reached another impasse, but i am interested to know whether my zero-loss gain argument helps to explain my position.
Again…. “Ought to”. “Excess”. “extra income” “overpaid”. “Fair share” (from prior posts)
There is no constructive way to debate you on this. Those are subjective words that you continue to use. How can I argue against that?
I think you understand my meaning. I wish you would not let minor semantics disagreements disrupt the conversation.
It would be interesting to see what your argument sounded like without those words. They completely tilt and color your point of view….it’s no different than the way you dismiss Peter N’s arguments because he uses language that colors his opinions.
The economy is less efficient when the pool of disposable income available to the middle and working classes is diminished by shifts of that income to the banking and investment class within the upper 1%. The decline in disposable income by the majority of Americans leads to fewer customers for potential new business opportunities, and simultaneously compels the growing pool of investment capital to be placed in high-risk ventures that, even if successful, yield benefit primarily to the investor alone, and not to the infrastructure or broader commerce of the nation at large. The imbalance of disposable income vs capital also increases the motivation of capital to be lent at high interest to those in lower incomes who find themselves wanting of economic sustenance. This accelerates the disparity by shifting even more income and wealth from low income to high, and increases probability of a personal debt crisis. Additionally, when financial deregulation allows significant capital investment risk to be applied to creating dubious and complex financial and investment instruments, and to increase risky leverage of small investments, it puts the entire financial system at risk of recession or collapse.
Thus, when such high disparity occurs, it is in the interest of government, as the representative arm of society, to stabilize the economy by acting in ways that decrease financial leverage, fractionally diminish the high return of capital that drives disparity, and implement any other suitable policy that restores a balance of capital for a few and disposable income for many.
How’s that?
Much more reasonable…. Don’t agree with it but at least it sounds like an intellectual point of view and not a bitter or politically motivated one. Well done!
Recent Cornell study:
One in 5 Americans will reach the top 2% at some point in their lives.
One in 8 Americans will spend at least a year in the top 1%.
And even someone like who is in the 1% now will instantly drop to around the 50th percentile or lower the day I retire.
On another note, there was another cool article I saw talking about the income disparity WITHIN the 1%. Found this interesting – that someone making $400k is just barely in the 1%, but to be in the top 10% of the 1% (0.1%), you would need to make about $2 million. The top hundredth (.01%) would mean about $11 million a year.
It amazes me that there continue to be comments on this site, I first commented many months ago. The article talked about who was rich. At $362,000, that is a very nice income and apparently in the top 1%, but that doesn’t sustain a “rich” lifestyle. There are clearly examples of wealthy people or people who attempted to get wealthy with schemes like Enron or Bernie Maduff that make all “rich” people look bad. There are other rich people who have changed the world by building companies, employing large numbers of people and/or through philanthropy who make the world a better place. There is a disparity of wealth in this country and world, and it has become more unequal over time. A large portion of that disparity has been created by wealth created in the tech space. In the last 30 years, the world has changed with technology and that has created an extreme amount of wealth. I don’t think that too many people would argue that Bill Gates or Steve Jobs didn’t positively change the world many times over what their net worth is/was. And most of what these tech entrepreneurs have come back to the rest of us through taxes and philanthropy. Even if their tax rate may appear to be low to some, if you look at the corporate taxes their companies pay plus their personal income taxes plus their philanthropy they have contributed billions back each. I think thats a lot for any individual regardless of what they have.
Exactly.
I can’t remember if I ever posted this link or not. It’s a fairly short article from the Federal Reserve Bank of St. Louis on income inequality.
https://www.stlouisfed.org/Publications/Inside-The-Vault/Spring-2010/US-Income-Inequality-Its-Not-So-Bad
Ken, I can see why you like this article. My response is in line with that of this author.
http://www.examiner.com/article/federal-reserve-economist-declares-that-income-inequality-is-not-so-bad
I’m not surprised…. If you choose to give equal weight to the opinion of an actual economist who works for the Federal Reserve of St Louis and a political commentator, then there you are…. ugh……
I just had to post again the more I thought about this…. the article Steven H posted really hits at the heart of what I think is wrong with today’s media society and why we have so many misinformed people.
Read the article Steven H attached. The entire article is simply a quoting and restating of what Mr. Garrett said in his article. He then chooses to compare a Fed economist to Glenn Beck / Tea Party member. The only point that he actually makes is to sarcastically use Paris Hilton and Lindsay Lohan (misspelled by the way) as examples of the 1%. There is no original thought in this article – just sarcasm and a repeating of segments of a much more in depth technical article.
And all written by someone apparently under 35 who is a political “teacher”, quoted by “Huffington Post, Media Matters, Daily Kos and Think Progress”. His email address even has his favorite football team as part of it.
ANYONE with access to the internet can simply pull quotes from articles, mock them, or basically repeat stuff they heard in other articles. What is missing is people who THINK for themselves. This kind of stuff infuriates me – and it’s not just people like Steven H – it’s even worse on Fox News. Steven H can use as a defense “If I don’t know anything about economics, why do so many people agree with me?” This is the problem with the groupthink that the internet is perpetrating.
And frankly, it’s what I loved about this debate before Steven H became the main voice for the left. Oh how I miss Man-Of-Reason. 🙂
Even people who are presumably experts can write shallow, ideologically slanted articles. One would expect an economist writing an article under official Fed letterhead to honor the dignity of his office and write a balanced informative article to the American public. The article by Thomas Garrett is not such an article.
But this article serves a purpose for this blog. IMHO, t is explicitly the OPPOSITE of the way to make a convincing argument. So, if you will be patient, let’s honestly explore this “in-depth article”. I will attempt to do it matter-of-factly and with minimum of snarky comments. I think that even those who agree with the article ideologically (such as Ken and yourself) will recognize and acknowledge the flaws in the article when they are pointed out.
And by the way, I will be quoting the article in order to comment on it, which is, in fact, a common method of critiquing accurately, avoiding distortions from paraphrasing, and reducing confusion as to what is being critiqued. We all do it here throughout this blog. I find it puzzling that you would denigrate that pattern of writing when you use it yourself.
Article: =========
A comparison of the annual data over time reveals that the income of wealthier households has been growing faster than the income of poorer households – the real income of the wealthiest 5 percent of households rose by 14 percent between 1996 and 2006, while the income of the poorest 20 percent of households rose by just 6 percent. As a result of these differences in income growth, the income of the wealthiest 5 percent of households grew from 8.1 times that of the income of the poorest 20 percent of households in 1996 to 8.7 times as great by 2006. Such figures commonly lead to the conclusion that income inequality in the United States has increased.
===========
In this introduction, the author has mischaracterized the overall problem and the statistics that actually create concern. Have you heard anybody rail about ratios of incomes increasing from 8.1x to 8.7x? Or are people really concerned about wealthy incomes rising by 14% over some cherry-picked decade? If the author is seeking to be honest and informing, he has failed right off the bat. People are concerned about the growth of income shares by approximately 2x, 3x, and 4x by the 1%, 0.1%, and 0.01% respectively, along with the stagnation of income to the lower 90%. Not some 14% increase by the upper 5%.
He doesn’t have to argue this way. It is just as easy to present the more alarming statistics and then counter with milder statistics and present an argument as to which represents the better or more correct perspective. But he does not do this.
So one has to question why the author chose this method of introducing the problem. Is he unaware of the real statistics of concern (unlikely) or is he being purposely deceptive?
Article: =============
However, the common measures of income inequality that are derived from the census statistics exaggerate the degree of income inequality in the United States in several ways.
==================
… As the gentleman kindly demonstrates by distorting the statistics in his article through selectively presenting non-alarming statistics as the presumed cause for alarm. OK that was my one snarky comment. I’ll stop that now.
Article: ==========
Furthermore, although many people consider income inequality a social ill, it is important to understand that income inequality has many economic benefits and is the result of – and not a detriment to – a well-functioning economy.
===============
This is a logical error occasionally made in such arguments. When people rail about income inequality, it is about HIGH income inequality, not the existence of ANY inequality. Countering the argument against unusually high levels of income disparity with simple platitudes of capitalism and normal inequality is corrupting the discussion. It’s like objecting to complaints about high levels of salt in American diets by noting that the body needs certain levels of salt and that it can be a good thing. Yes, for both salt in diet and income inequality in the economy, a certain level is good. But not so MUCH.
Again, is the author trying to inform or distract from the real issue? Whatever his intent, his statement does the latter.
Article: ============
An Inaccurate Picture
… One big problem with inferring income inequality from the census income statistics is that the census statistics provide only a snapshot of income distribution in the U.S., at a single point in time.
==================
In this main section of the article, the author discusses many topics that have been brought up here: statistics of quintiles and how they may be misinterpreted, existence of income mobility and how people move from one quintile to the next, and the limitations of census statistics in general. The quote I present above is not exactly wrong but it is limiting the scope of information, as is this whole section. There is a lot more data available regarding income inequality than that regarding quintiles, and the examination of the quintile statistics neither reveals nor explains away the real concerns of high income inequality. This whole section seems to serve as another attempt to distract from the actual concerns of inequality and talk about a different topic.
Article: ==========
Wealthy people are not wealthy because they have more money; it is because they have greater productivity. Different incomes reflect different productivity levels. The unconstrained opportunity for individuals to create value for society – and the fact that their income reflects the value they create – encourages innovation and entrepreneurship.
================
This is perhaps the central dispute in income inequality discussions, and yet there is no discussion or defense; simply an extreme ideologically pure declaration of the perfection of our markets. Of course, those concerned about high income disparity have deep doubts that the uppermost fractions of a percent of earners have incomes that reflect their value, and many of the lower 90% have understandable resentment to be told that their labors have so little value in comparison. This is a central issue of high income disparity discussions which the author just ignores.
So I have great concern and disappointment that you and Ken find this article to be a worthy or “in-depth” discussion of the income inequality issue. I understand, as I told Ken originally, why he likes it because it clearly expresses an ideological position he shares. But as an informative discussion of income inequality, it falls way short of the mark.
As for the article I posted, I found it most revealing that the article seems primarily intended for distribution to primary and secondary school teachers and students. As that author noted: “Of course, everyone is entitled to their opinion. However, some may question whether a taxpayer funds should go toward supporting an unbelievably opinionated piece which simply dismisses the very real problem of income inequality in America. Of particular concern is the distribution of this op-ed piece to elementary and secondary education teachers.”
That is certainly a valid observation. There are times to defer to the expertise of authorities. The Garrett article seems instead an abuse of authority to propagandize an issue. The Examiner journalist was entirely right to call him out.
PS. It occurred to me that the Garrett article may have suffered from being written in late 2007b or early 2008 (I could not find an article date and imply this time period from the dates of the included statistics). Perhaps Garrett was not aware of the concerns about the 1% and the fractional portions thereof, as this was way before the “Occupy” movement?
So I looked up an Economist article from 2006, from which I saw that the discussions of the 1% and smaller fractions were already taking shape and causing concern. I was going to quote from the article, but it is such a remarkably good discussion of the problem that I would rather you read it yourself.
I think you will readily see the difference between the ideological and shallow article that Mr. Garrett wrote and the informative, balanced, and and comprehensive survey of the problem expressed in the Economist.
http://www.economist.com/node/7055911
Peter, I understand your concern as expressed here:
============
ANYONE with access to the internet can simply pull quotes from articles, mock them, or basically repeat stuff they heard in other articles. What is missing is people who THINK for themselves. This kind of stuff infuriates me – and it’s not just people like Steven H – it’s even worse on Fox News. Steven H can use as a defense “If I don’t know anything about economics, why do so many people agree with me?” This is the problem with the groupthink that the internet is perpetrating.
==========
You express this valid concern about people finding fluff articles that they happen to agree with and then you back this fluffy ideological op-ed Garrett article as an “in-depth” “technical” article, just because you happen to agree with it and the guy has an impressive title? Please tell me you have reconsidered that assessment. The content of this article is sorely lacking. It is not only a poor discussion of income inequality, but it never even addresses the problem in the first place. At least not the problem that anybody else has been talking about, now or at the time of publication.
You are a victim of the very groupthink you disparage.
I have drawn my own conclusions from life experience and thinking everything through. I didn’t post the article – I read through it and honestly didn’t think it had much in it we haven’t already covered. But then you counter it with total tabloid garbage. That was my point. I wasn’t swayed one bit by either article- neither really told me anything completely earth shattering.
I’m growing really tired of this.
The Economist is not tabloid garbage. The other article isn’t either. It was an honest article calling out a govt employee for using his position to give credence to opinion and editorializing.
“I have drawn my own conclusions from life experience and thinking everything through. ”
So have I.
I think most readers of this thread know – I wasn’t referring to the Economist as tabloid garbage.
Call me crazy but I tend to listen to successful business people and experts in the financial sector more than I do to academics who have never run a successful business, and in some cases have never worked even one day in the private sector in their lives.
To me this like wanting to learn how to repair cars, but rather than going to an auto mechanics’ school and actually learning how to fix them, instead you go to meetings of the Sierra Club and learn about the evils of fossil fuels.
In the end you still don’t know how to fix cars, and in fact have never fixed a car in your life, yet you feel fully qualified to criticize car mechanics on the subject.
The original link I sent was not intended to be an exhaustive treatment of the subject. It was clearly intended to be a short rejoinder on some key points regarding income mobility and quintiles, points which are typically omitted from analysis on the subject by those who want to use quintiles to prove the need for drastic (government) action.
Articles from The Economist, by comparison and contrast, while interestingly also being opinion pieces from Oxford graduates in England, are intended with a different purpose to be much longer and more detailed than the short article was. To then contend that the short article I posted and the Economist article are typical representatives of each side of the argumen, or that one was “disappointed” in how shallow and short the article was is, well….. fill in the blank.
Interestingly, as short as the original article was, I haven’t seen a convincing rebuttal to its basic assertion: namely, that there is significant movement up and down quintiles across time, and this is but one several moving pieces. As a result, comparisons across time are much more complex than simply quoting point-in-time statistics, and thus quintile differences do not necessarily prove as much as proponents of them as analytic tools might think.
The other Peter said:
“Your last few posts remind me of my frustration with our debate. With all due respect, I think you lack a bit of an understanding in how the economy works. You see things through a very bitter prism. When you look at all solutions to the economy from the perspective of the bottom 20%, you find your way to mediocrity for all. Economies of our size and diversity just don’t grow at the consistent rate ours has with this sort of perspective.”
I take a break and now I see things haven’t changed.
Steven H is still clueless. If he actually started a successful small company he would have a different perspective but he will NEVER have that. He thinks the world owes him and others like him a living. Steven H, there will always be winners and losers. To those that want to take away from the winners I still ask what is your fair share of other people’s money? I/we never got an answer to this.
You’ve been answered many times. To you, everyone needs to be a business owner or they don’t count. You have no perspective. You think the world owes you their wealth. I still ask how much do the 1% deserve of everybody else’s labor, wealth and income? You never answer this.
You don’t need to be a business owner. You just need to understand how business operates a little more. Your beef is valid. The solutions you suggest are missing some real world applicable logic though.
============
The 1% doesn’t shop at Walmart, do they?
============
Why not? I’ve heard of many thrifty millionaires.
============
Walmart is a go-to place in most lower income communities for affordable products – clothes, groceries, etc. This is how they benefit others. If they didn’t do this, they would charge higher prices for their products and not do as well business wise. This would mean higher prices for consumers, less jobs, etc.
============
Wad-Marts take more than they give. We discussed this before. Walmart moves into small-town community and destroys the economy, destroying local businesses and good-paying jobs and offering low prices and lower paying jobs. Ask the former business owners if they are better off. Ask the towns that have declined due to the Wal-Mart that has come, siphoned off the wealth of the local economy, and sometimes closed down afterwards, leaving the community with no retailers for most goods. Wal-Marts make profits, right?, … and that profit LEAVES the community. Clear evidence of a siphon.
The evidence of destruction is less obvious in large cities, but no less harmful.
What I meant was that the primary market demographic of Wal-Mart is CLEARLY not the 1%.
Your last few posts remind me of my frustration with our debate. With all due respect, I think you lack a bit of an understanding in how the economy works. You see things through a very bitter prism. When you look at all solutions to the economy from the perspective of the bottom 20%, you find your way to mediocrity for all. Economies of our size and diversity just don’t grow at the consistent rate ours has with this sort of perspective.
The fact that you think that the era from 1950-1975 should be used as an “example to build policy” is very telling. I think you’d be hard pressed to find any student of economics who views that era as the utopia that you do. Much like the policies of the Reagan/Bush/Clinton era erupted in the banking crisis of 2008, the era you describe exploded into astronomical inflation and slow growth – and a lost decade (70’s).
Your passion for this topic is admirable – and certainly being a champion for those that are struggling is commendable as well. I am trying to find a way to say this respectfully…. but your understanding of economics, particularly our country and concepts like risk/reward relationships, ownership interest and basic capitalistic principles are misinformed and jumbled.
You said earlier that “you wish you lived in the country I describe”. I think you do, but like many others, you have chosen to subscribe to the “glass half empty” perspective that our media lays upon us. Today’s citizens focus too much on what they don’t have and outward blame rather than the means to improve one’s situation and go get it. The media is a large perpetrator of this.
Please don’t be offended (I’m trying HARD to not be condescending) – but take me up on taking an economics course. I’m not saying you will change your opinions – I don’t think you will. I do think however it will give you the insight you need to connect the dots a little better to a solution to create the country you desire.
From your perspective I am misinformed. From my perspective you are narrow-mindedly focussed on individual achievement and fail to see big picture economics as a system.
I am not an economic expert but I test my ideas and perceptions frequently against articles and research on the web. And no, I don’t just search for ideas that agree with my own. Honest, clever, well-informed researchers explain how tax policy can have major impact on wages throughout the economy, but you claim to be unable to envision any connection. You also claim that high incomes at the top have no impact on wages for anyone else when that is clearly not true, and is plain as day for many folks both more and less clever than yourself.
And I get frustrated that you keep shifting the argument. You repeatedly refer back the lower 20% when my primary focus has been on the middle 70% (20 to 90 percentile), who are neither unskilled, uneducated, lazy, suffering from chronic divorce, or suffering any of the other irrelevant mythical maladies falsely used to blame the majority of Americans for their plight. You repeatedly indicate how individuals can climb the ladder when I am talking about lifting the entire working and middle class, not just a few individuals up through the pack. Whenever I suggest that simple market solutions that have been tried before should be considered, you start asking if I want to micromanage individual salaries like some central politburo, or claim that I am living in the past, or claim that I am just badly misinformed and don’t understand the economy.
If I am so ignorant of the workings of the economy, how is it that I find so many economists that agree with me? How is it that a leading and respected economist has a bestseller economy book based on theories that align with my arguments but not yours?
You and I agree on a few select points and I certainly don’t expect you to fully agree with my point of view. I realize my proposals on taxes and higher wage labor fly in the face of principles that competitive entrepreneurial folks such as yourself treasure. You don’t want government interference or higher costs of business from wage minimums, health care mandates or added taxes. I get it. Running a business is hard work. I’ve not done it, but I’ve seen it. I respect it.
What I want is for you to acknowledge three simple truths. We can work on the wording to get to a statement we agree on, but I believe the heart of the ideas themselves are pretty well irrefutable, and are necessary to agree upon in order to proceed to any solution.
1) A finite growth economic system distributes its economic growth within the components of the economic system.
2) The particular pattern of distribution of growth within the system impacts the efficiency and rate of growth of the overall system.
3) An economic system generally has controls that can manipulate the pattern of distribution and thus can can be used to optimize the system.
Replace the 70% for the 20%. My points still hold true.
What points? This one?: “When you look at all solutions to the economy from the perspective of the bottom 20%, you find your way to mediocrity for all. ” and then “Replace the 70% for the 20%. My points still hold true.”
I could more accurately answer that when you look at all solutions to the economy from the perspective of the upper 1%, you find your way to prosperity for that 1% and mediocrity for the rest.
Do you honestly think the solutions are best found by considering only 1% of the population vs 70% of the population? That is the most absurd perspective you have professed, and I suspect you will retract it when you consider it more carefully.
Solutions must be considered holistically across the whole breadth of the economy. Your side needs to stop obsessing about the tragedies of uppermost earners being compelled to survive on only $50 million/yr vs 100 million. or maybe $7 million vs 10 million. Stop worrying about taking money from individual pockets and worry instead about how to optimize the economy.
Do you acknowledge the basic postulates in the last paragraph?
To clarify: This paragraph.
1) A finite growth economic system distributes its economic growth within the components of the economic system.
2) The particular pattern of distribution of growth within the system impacts the efficiency and rate of growth of the overall system.
3) An economic system generally has controls that can manipulate the pattern of distribution and thus can can be used to optimize the system.
Your three-point post is verbal gobbledy-gook. What in the world is a “finite economic growth system”? Is this an economics term? My last 6-7 posts were very clear, simple, easy to understand situations involving Wal-Mart, economic growth and innovation and got zero reply. I’m not going to have the debate on your level – with political rhetoric, loaded questions and non-sensical terms. Maybe Ken will address you here – I’ll pass.
Peter, this is the problem with the conversation. You refuse to even consider getting out of your narrow perspective. You refuse to consider the economy as a system and instead focus on your narrow comfort zone of how individuals can succeed.
You are certainly no economic expert. You are obviously as much an amateur as myself and the other posters on this blog. Running a business, as hard as it may be, does not make you an economist. And while we can all, as intelligent individuals, post information and share opinions, none of us here study national macro-economics for a living. You have even confessed complete confusion about an economic article explaining how tax policy can impact wages. So excuse me that I am rightly offended when YOU tell ME that I “lack understanding on how the economy works”, and that I need to take a course. You could do a little reading, yourself.
Actually I did major in economics in college and manage money and give seminars on the economy all over the country. So yeah – I actually do know a little something. Not as expert as some obviously but I know enough to know that a “finite economic system” isn’t an actual thing. Think you are confusing me with someone else again.
Nice try though! My apologies though. I was just trying to help you (in as respectful way as I could). Sorry to offend.
To suggest Wal-Mart hurts small business is absolutely accurate. To say it destroys the economy is ridiculous. And part of the reason many Wal-Marts have closed is due to reduced food stamp benefits. 20% of the people that shop at Wal-Mart use food stamps. Frankly, a whole host of retail stores are now being forced to close due to Amazon.
Just when you thought Wal-Mart was public enemy #1, here comes Amazon with an even cheaper business model, lower prices. Why is this? Due to innovation – which also means less employees. This innovation helps everyone as products of all types become more affordable and more convenient. Yet, it seems as though you would rather have a more labor intensive economy with higher prices but more jobs.
Our world is changing, due to innovation. I’ll say it again – the robust unskilled labor market of 50 years ago is shrinking at the same rate the agricultural labor market of the 1920’s shrunk in the 20th century. People have to adapt.
http://www.independent.org/events/transcript.asp?id=125
The IPhone is a great example of this which I referenced above. As recently as 25 years ago, a cellular phone was considered something only the uber-wealthy could afford (remember “Wall Street” with Michael Douglas walking on the beach talking on a giant cell phone?). Did you know that now 91% of all American adults have a cell phone????? Steve Jobs and others became very, very wealthy helping people with $20k/year jobs afford cell phones.
Again, success is a win-win for all involved. Rich people can’t get rich by making people poorer – unless you are talking about government interference. In free markets, rich people get that way by enriching the lives of others.
Peter: ===========
Rich people can’t get rich by making people poorer – unless you are talking about government interference. In free markets, rich people get that way by enriching the lives of others.
===============
This is an ideological statement and not one I would expect from someone trained in economics. Of course, people CAN get rich making other people poorer, and your knowledge of economics has surely equipped you with many examples of how this has happened throughout the world and throughout history, and how it continues to happen in modern times today in our own nation. There may be dispute as to the proportionality of such behavior and its impacts, but ignoring the very existence of the behavior does not strengthen your arguments nor advance this discussion.
I completely disagree. I suppose you could get rich by robbing banks…..
Oh come on. Are you trying to get me to doubt the credibility of your economics background? You can’t think of any examples of businesses or businessmen getting rich by making other people poor or poorer?
Let me give some hints:
“No one can do what Countrywide can.”
“Flashboys”
“Enron”
“PayDay Loans”
“Credit Default Swaps”
“Banks ‘losing’ refinance paperwork work”
“Foreclosure Robosign Scandal”
“Wage Theft Policies (forced unpaid overtime, managers filling out timecards improperly for employees)”
“Colleges (especially on-line versions) with false claims of accreditation or credit transfer abilities”
“Banks selling financial instruments to customers as good investments when internal documents show the instruments are known junk”
“Credit Rating Agencies paid by the agencies they rate (moral hazard)”
“Vulture capitalism”
That’s just off the top of my head. Some of the above are illegal, but others are not. Many represent “rent-seeking”. Some directly impact people, others represent part of the leverage that helped produce the crash that impoverished millions. All of the businesses or actions described result in honest hard-working people getting significantly poorer and the perpetrators getting richer or at least attempting to.
One more:
Sheldon Adelson is #13 on Forbes 400. His business is listed as Casinos. I think Casinos, more than any other legal enterprise, could best be described as being in the business of making other people poorer.
Perhaps you should rethink your statement:
“Rich people can’t get rich by making people poorer”
“No one can do what Countrywide can.”
“Flashboys”
“Enron”
“PayDay Loans”
“Credit Default Swaps”
“Banks ‘losing’ refinance paperwork work”
“Foreclosure Robosign Scandal”
“Wage Theft Policies (forced unpaid overtime, managers filling out timecards improperly for employees)”
“Colleges (especially on-line versions) with false claims of accreditation or credit transfer abilities”
“Banks selling financial instruments to customers as good investments when internal documents show the instruments are known junk”
“Credit Rating Agencies paid by the agencies they rate (moral hazard)”
“Vulture capitalism”
First of all 3 or 4 of these are essentially the same thing – the selling of bad mortgages and repackaging them to the public as higher quality paper. We all know about that.
How many of the 1% got rich on the above things you listed? 1% of the 1%? Look, there is no changing your mind that the US is an evil place full of greedy rich people who are keeping the poor down. The problem is with your argument is that the dots don’t connect at all. It’s all based on false premises about simple economic processes and wishful thinking.
I’m sorry you think the world is the way that it is and I’m sorry that you can’t learn anything new. Good luck with the debate going forward. I’ve really had it with you this time. You’re not worth my time.
Peter,
“Look, there is no changing your mind that the US is an evil place full of greedy rich people who are keeping the poor down.”
You keep characterizing my position that way, as if there has to be evil to create an unbalanced system. You refuse to see the world as a system. You think if people are getting hurt, there must be evil, and you don’t see the evil, so you presume people are only getting hurt through their own actions.
People can also get hurt because the incentives are mis-managed. We encourage innovation and risk-taking, which is good. We also encourage risk-taking in financial institutions to a degree which is very bad. We reward all of these risk-takers, those that take good risks and those that take bad ones, with heaps of riches so vast that our most brilliant minds are hired by the bad risk-takers rather than the good ones. And as a side effect of all of the riches directed to the top, the rest of us have only the dregs of that national reward.
“The problem is with your argument is that the dots don’t connect at all. It’s all based on false premises about simple economic processes and wishful thinking.”
I would say the same about your position: claims that the rich can’t get rich out of making other people poor, that the prosperity of the rich matches their productivity. You claim that all you have to do is get an education, work hard and you will receive your just rewards. That is BS and has been less true with each passing decade since 1980. YOU do not connect the dots: that we have more college educated Americans than ever, and yet that has not allowed most of those folks to grow their incomes appreciably, or many even to pay off their college loans in less than 10 years, or ever; that people in power can and do and always have and always will seek to use their power to gain economic leverage and advantage over everyone else and THAT is the reason, way beyond the productivity of a few tech giants, or the lack of appropriate education, that incomes and wealth tend shift from the majority to the powerful few.
“I’m sorry you think the world is the way that it is and I’m sorry that you can’t learn anything new.”
Also how I feel. You are stuck in the delusions of the self-important, though many of your posts gave me hope that you might be persuadable to at least acknowledge the valid existence of another perspective.
Look over your arguments and you may see that they are all based on the idea that rich people are worthy and that those who are struggling are somehow failed of their own accord (with the rare exception of the true victims, whoever they are.) They need better education, more stable marriage, a better work ethic, and then success is just around the corner. That’s good for a motivational course, but lousy economics, because it has not been true for a long time. You have to look at what is actually happening in the world, and not describe some idealized utopia of perfect reward for perfect effort. You think I am too focussed on greed existing, but you deny it has any influence. So which of us is the realist?
I am all for some of your suggestions such as improving and reducing the cost of education, but that is not the cause of the explosive growth of incomes at the top and the stagnation for most. I am all for efficient government but not for cutting programs that help the majority so that the already fortunate can keep low taxes. I am also for establishing a system where most people get more reward for their labors and a few people who have plentiful reward get somewhat less. More balanced reward for labor, improved economy and the government debt declines as a side-benefit.
Look at what I am actually trying to accomplish: a little understanding and communication so that the hard-working business owners can get on the proper side of this argument. You admit that Corporatists like Wal-Mart and others hurt small business. You admit that significant income and wealth has shifted from middle class to rich and you must surely understand that that makes most people’s lives harder than it needs to be. Do you really want to spend your time and effort defending the Corporatists and bankers who actually hurt the small business economy, with your claims that they are perfectly rewarded? Why? Sure you have offered suggestions regarding education and you and I agree on some points. But until the power and wealth and leverage of the Corporatists and bankers are reduced, no amount of education will be sufficient to bring this country back to its full potential. The small businessmen can protect their interests best by siding with the majority of Americans, not with the 0.1%.
“You think if people are getting hurt, there must be evil, and you don’t see the evil, so you presume people are only getting hurt through their own actions.” Hardly. I think some people are hurt by others and some by their own actions. I don’t think the majority of the people who are rich did so by making others poor.
“claims that the rich can’t get rich out of making other people poor”
Never said that. Just said that the overwhelming majority of the rich didn’t become rich this way.
“that the prosperity of the rich matches their productivity.” Never said this. You are the one worried about “matching” income to productivity. I don’t see it that way. Income is also related to innovation, impact, luck, timing, scarcity, etc.
“You claim that all you have to do is get an education, work hard and you will receive your just rewards.” It’s not all you have to do. But it is a pre-requisite. And it sure does help. And sometimes you do all these things and it is still a struggle.
“that people in power can and do and always have and always will seek to use their power to gain economic leverage and advantage over everyone else and THAT is the reason” This is definitely true on a political front. I don’t think this is true at all though for the majority of the 1%. Again, I don’t think the majority is trying to figure out how to game the system to take from others.
“you might be persuadable to at least acknowledge the valid existence of another perspective” I am – which is why I keep coming back to you. But your lack of understanding of the basics of economic “systems” (as you call them) makes this difficult. You use terms that don’t exist and nonsensical logic about cause and effect that just doesn’t make sense. Nonetheless, I do see your larger point.
“They need better education, more stable marriage, a better work ethic, and then success is just around the corner. That has not been true for a long time” COMPLETELY disagree. And even if it wasn’t, on a personal level I might even be in denial here – because once you believe this statement – it’s over and the “give up” sets in.
Also, I never denied greed has “any” influence – of course it does. But income disparity and the majority of the 1%’s wealth was not created by the things on your list above. You continue to think the economy is a zero-sum game. It isn’t. Never has been.
And just because Wal-Mart hurts small business doesn’t mean it is bad for the economy, jobs, or all American citizens – particularly the lower wage earners.
We both agree that our political leaders are in bed with corporate America. And the current President is disappointingly as bad as any other. That needs to change, but probably never will.
The bottom line is this – there is no system change that we can put in place (aside from socialism) that will help the struggling unless they do all of the things we have listed above – education, hard work, attitude, etc. All the crying about how much other people have just misses the point completely and continues the victimization that so many people are riddled with.
Thank you Peter, for clarifying your positions. What you just posted is a much more balanced and reasonable set of positions than a few of your recent posts indicated (at least as I interpreted them). I would much rather continue the discussion from this post of yours, including your current clarification of “the overwhelming majority of the rich didn’t become rich this way [from making other people poor]” than your Feb 18 quote of “Rich people can’t get rich by making people poorer – unless you are talking about government interference.” which sounded like a much ideologically extreme position (and frankly, unlike you).
I’ll continue the conversation further below, as this sub-thread has run out of reply buttons.
I read this four times trying to decipher…. I just don’t follow your logic here. A few clarifications ….
– What I meant is by Walmart or whoever keeping costs down, they are able to offer products at a cheaper price so regular citizens can afford these goods. The 1% doesn’t shoo at Walmart, do they? Walmart is a go-to place in most lower income communities for affordable products – clothes, groceries, etc. This is how they benefit others. If they didn’t do this, they would charge higher prices for their products and not do as well business wise. This would mean higher prices for consumers, less jobs, etc.
– That is one hell of an assumption that risks of investment are lower. You make it sound like starting or expanding a business is somewhat foolproof. You sound foolish when you make stock market investing sound so easy. Trust me, it isn’t.
– Even if you are unhappy with the higher returns of the stock market, what do you propose? Government controls over rates of return? You do know that they are already doing everything in their power to ENCOURAGE stock market investing by keeping risk free rates so low. Your point would have more validity if interest rates like the Fed Funds rate were kept artificially high. This would reward the “haves” with bonus risk free income. But they are almost zero….providing a huge premium for anyone who is willing to take the risk. And to dismiss this risk as inconsequential is misinformed.
============
– That is one hell of an assumption that risks of investment are lower. You make it sound like starting or expanding a business is somewhat foolproof. You sound foolish when you make stock market investing sound so easy. Trust me, it isn’t.
============
EasiER is not the same as easY. Don’t twist my words. It’s obviously easier to get rich because so many more people are doing it and acquiring so much more. What else should i assume? That it’s harder?
If it is easier to get rich, then problem solved…..
Only easier if you already have sufficient amounts of capital to invest …
Well if that is the case then you are already rich.
============
Even if you are unhappy with the higher returns of the stock market, what do you propose?
============
I’m not opposed to the high return of the stock market, but with the monopolization of its profits and benefits by a select few, at discounted tax rates on the gains. So how about taxing capital gains progressively? How about tax breaks if you take the higher returns and feed it back to charity or research certain types of investment that produce new jobs?
=============
I read this four times trying to decipher…. I just don’t follow your logic here.
=============
Thank you for reading it 4 times. I truly truly, don’t understand how the logic is difficult to follow. I struggle to find the analogy or explanation that makes the perspective clear.
As a money guy, you may know a lot more about “double-entry accounting” than I do. My limited understanding is that it is [a system of bookkeeping so named because every entry to an account requires a corresponding and opposite entry to a different account. For instance, recording earnings of $100 would require making two entries: a debit entry of $100 to an account called “Cash” and a credit entry to an account called “Income.”] — Wikipedia
To me it seems that simplistic analyses of economies are like single-entry accounting wherein you need double entry thinking to get the whole picture. Wage increases are a “higher cost of labor” (a deficit to profits), but also a “reward of labor” (a benefit to worker income and also an increase in customer discretionary income). Low prices at mega-stores save customers money but also decrease the profitability of small business competitors. Every positive has a corresponding negative and vice versa. What you have to evaluate is whether policies have a net negative or positive benefit overall.
I believe the (positives) cumulative savings to Wal-Mart customers is more than offset by the (negatives) lower profits to distributors and lower wages to employees, and fewer jobs remaining of small business competition. And the negatives must clearly outweigh the positives in a local community because Wal-Mart makes a hefty profit with Low Prices and Low Wages. And the profit leaves the community, whereas with local businesses it would get re-invested locally.
Wal-Mart is just one example.
Another key point… People get rich by making people better off – not by taking from them. By creating IPhones, entertainment, providing services, innovating, etc….. This is how people get rich. Success is a win-win for all involved. Rich people can’t get rich by making people poorer – unless you are talking about government interference. In free markets, rich people get that way by enriching the lives of others. Make something nobody wants, you won’t get rich. Make people’s lives more enjoyable or easier, and you’ll get compensated. That’s the fundamental tenet I think Steven H is missing here.
Furthermore, raising taxes hasn’t ever been proven to increase income equality. On an after-tax basis (which is what matters … spendable income) we have similar income inequality to the UK (who has higher taxes) and even Sweden, a country famous for its outrageous tax rates. Raising income taxes is just a BS way to win votes of the common man – in actuality it doesn’t really solve the problem.
I would love to live in the world you describe.
Peter:==================
Another key point… People get rich by making people better off – not by taking from them.
======================
Comaanies necessarily do their best to keep costs low, both of labor and material. Wal-mart in particular has proven very efficient at demanding that their suppliers keep their costs low as well. This is expected but this “efficiency” in the nation’s largest employer and retailer has several side-effects. While Wal-Mart’s COSTS of labor are suppressed, so are the employee’s REWARDS of labor. As Wal-Mart’s SUPPLY costs go down, so do the suppliers’ profits. It is reasonable to descfribe this as Wal-mart getting rich by making everyone who is an employee or supplier a little poorer. Yes, Wal-Mart provides an ootlet for sales and a large number of jobs. But the net effect is to accumulate wealth that otherwise would have gone to other people in the middle income tiers.
I pick on Wal-Mart a lot, but they are not evil, nor unique. They, like all businesses, react to the motivating elements of the market. Keep costs low, maximize profit, invest in markets and products that will provide a healthy ROI. The problem is that the motivating elements of the changing market encourage wealth and income to accumulate at the top, and the net result is that hard work and education and labor are less rewarded for everyone else. And not just for the lazy and unskilled. Wages have stagnated for college students, tradesmen, and professionals of many stripes.
One way to look at it is that the risks of investment have been reduced. With better technology, global markets, efficient manufacturing, the risks of investment are less and so capital, more than ever, can grow in the hands of those who know how to wisely invest. Unfortunately, it also means that most folks who have little of such capital struggle to keep pace with the needs of the rmodern economy.
The answer to this is simple but abhorrent to those at the top. If the risks of capital investment have been reduced, then the rewards of capital investment also need to be reduced. Not eliminated, but cut back in accordance with the reduced risk. The economy is most efficient if everyone struggles a bit to get ahead. If all you have to do to make money is drop $10M in the stock market and live off the growth, then you will get no useful labor from those who can make such investments.
The economy is a limited resource. It only grows so much each year. And if 95% of new growth goes to a small sector of the economy, because the motivations within that economy are inherently imbalanced, the rest get almost nothing. No matter how much education they get.
When the economy is balanced, national income growth is shared across all sectors as you describe. When it is imbalanced, that does not happen. In such circumstances, the rich are cannibalizing everyone else, not helping them.
So while it is a nice thought to believe that rich people make everybody rich, that a rising tide lifts all boats, that trickle-down actually works, it is the very EXISTENCE of increasing income and wealth disparity that defeats your argument. If a rising tide truly lifted all boats, then all boats should be rising. That is clearly not the case. If it was, we would not be having this conversation.
My comments are below….meant to reply directly. Steven H, this is a very, very foolish statement:
—-If the risks of capital investment have been reduced, then the rewards of capital investment also need to be reduced. Not eliminated, but cut back in accordance with the reduced risk. The economy is most efficient if everyone struggles a bit to get ahead. If all you have to do to make money is drop $10M in the stock market and live off the growth, then you will get no useful labor from those who can make such investments.—
Please enlighten us how you think the government can manually reduce the reward of higher risk investing? Will they also protect investors against the downsides as well? Or do they just cap the gains?
…and if there is one thing the free market has been extremely efficient with it is allocating proper reward to proper risk.
I disagree. Wealth attracts wealth, independent of risk.
WHAT???? This makes ZERO sense. If I have $10 million and take no risk with it, how will I attract more wealth? I’ll still have $10 million – and even less purchasing power.
Come on, Steven H….
Peter, look up the Wikipedia article on rent-seeking. (I also reference this in another post.) Understanding this may be a key to some of our disagreements.
Rent-seeking behavior uses money to acquire more money without CREATING wealth, but by acquiring the wealth of others. You have proclaimed earlier that this does not happen, but it does. A simple archaic example is of a land-owner charging toll for boats to pass through where the river crosses his land. He makes no improvement to the river and provides no service, but makes money simply by virtue of owning the land. The article also provides more modern examples.
Rent-seeking is an example wherein wealth can acquire more wealth at relatively little risk.
I know what rent seeking is. But most people aren’t building wealth something like this. Wealth does NOT attract wealth independent of risk.
=============
… this is a very, very foolish statement: …
=============
Quite the contrary. Why do you think income and wealth have shifted to the upper 1% and 0.1% and 0.01%. You have said it is partly due to globalization and modern automation. You have said that the wealthy have “benefitted” from the economy. What does that mean except that it has gotten EASIER for the rich to get richer. Don’t twist my words and start to get offended that I am minimizing the efforts in building up a business from scratch. That misses the point.
The rich have gotten richer in both wealth and income. I contend that, unless someone has been genetically breeding super-managers, the very same efforts of past generations are generating vast multiples of past rewards and shares of income and wealth for those at the top. This is what I mean by easier, and I fail to see how it can be disputed that capital has become easier to accumulate today than in the past, if you already have a lot of it.
========
Please enlighten us how you think the government can manually reduce the reward of higher risk investing?
========
Isn’t that what capital gains taxation does? (along with other investment taxes such as surcharge on trades)
If you reduce the rewards for risk-taking, you will get less risk-taking.
This of course is the main criticism of socialist-leaning western Europe: too many barriers to entry for businesses to take risks, not enough reward / too much punishment (e.g. 75% personal income tax rate in Piketty’s France), for those who manage to overcome governmental obstacles to success.
So what you get is a lackluster economy, overall mediocrity, and lack of innovation relative to what we have here in the U.S. Hey, if government is just going to take 75% of my money anyway, why should I break my back trying harder?
It’s not a surprise to me that most tech and other innovations in the last couple of generations have occurred in the U.S. rather than overseas.
Very true Ken….
“If you reduce the rewards for risk-taking, you will get less risk-taking.”
We need to reward SOME risk-taking, but the economic crash of 2008 was largely due to excesses of risk taking, as most economic crashes are. To stabilize the economy, we may need to cut back on the motivation for the richest of rich to keep acquiring more and more. Let them take their winnings and go home, so the next guy can step up to the table.
“the economic crash of 2008 was largely due to excesses of risk taking” True. “as most economic crashes are” Patently and absolutely false. More evidence that you don’t know what you are talking about when it comes to economics.
Peter, you are getting a bit testy here. I have sound basis for my statements, and you have no basis for your random insults.
Peter: ===========
“the economic crash of 2008 was largely due to excesses of risk taking” True. “as most economic crashes are” Patently and absolutely false. More evidence that you don’t know what you are talking about when it comes to economics.
================
Have you read the book “A Short History Of Financial Euphoria” by John Kenneth Galbraith (acclaimed economist, also wrote the definitive history of the 1929 crash “The Great Crash, 1929”)? The common theme is that most speculative episodes that cause the large economic crashes, going all the way back to Tulip Mania of the early 1600’s, have multiple common psychological and economic properties. The common economic property (or one of them) is excess leverage, where leverage is use of debt to acquire more capital. Excess leverage is, of course, inherently risky.
Thus, according to one of the most respected economists of the last 100 years, most large economic crashes associated with banking and speculation are indeed results of excess leverage/risk taking.
BTW, if your argument is that lesser economic downturns, such as common recessions, are not necessarily associated with leverage, you are correct. They may be caused primarily by other factors, such as high interest rates, reduced real wages, inflation, or other factors. But I didn’t say recession, I said crash, as a specific attempt to reference the more cataclysmic events associated with speculation.
Well then when were these other “crashes” you speak of? This is part of our miscommunication. The word “crash” isn’t a technical economic term and can mean all sorts of things. If 2008 counts as a crash, then so does 1973-1974 or even the short lived drop in 1987. If you are just talking about the Depression and 2008, then yes I suppose you are correct.
Gini Index: (Higher value is higher inequality)
US: 41
UK: 38
Sweden: 25
Sweden inequality is far from US. It has one of lowest inequality indices of developed nations, while US has one of highest.
On an after tax basis….they are essentially the same. The higher progressive taxation is doing what you want it to do.
http://www.economist.com/blogs/democracyinamerica/2013/11/inequality-america
“On an after tax basis….they are essentially the same.”
WOW! Great article. Do you realize it says the polar opposite of what you just proclaimed? The PRE-TAX Gini indices (light blue lines) of US and Sweden are the same, but the POST-TAX indices (dark blue) have successfully reduced Sweden’s Gini index to 0.33 vs US 0.42 (huge difference in that index, by the way). US Progressive taxes have microscopic impact on inequality vs Sweden’s taxes and social programs.
” the American taxation and welfare state clips only 0.15 off of the pre-tax-and-transfer Gini coefficient, while more aggressively egalitarian countries slice off 0.20 (Luxembourg, Norway), 0.24 (Germany, the Netherlands, Sweden) or 0.28 (Ireland).”
The article goes on to make some other cogent points.
“In the US, we tend to rely heavily on programs targeted on the poor, such as TANF, SSI, Food Stamps, and Medicaid. We even means-test most types of government-supported child care. In many European countries, social policy provisions have a more universal structure. So the rich, the middle class, and the poor are in the same programs. Rich and poor are enrolled in the same health insurance systems, they send their children to the same public preschools, they receive the same family allowances—and so on. That’s crucial for building political support for these programs, and that widespread support makes them more stable. ”
“… pouring less money into low-income health programmes in favour of universal social policies like national health insurance seems to be the recipe for greater equality. With more all-embracing programmes like Social Security, buy-in is broader and the social benefits are more stable.”
This article makes a good point about how to solve the inequality conundrum, and a very sound argument for universal healthcare, government financed education programs and higher taxes on all to support them. Thanks for the article. Please post more like this.
So… if it agrees with you, you “like it”. And if it doesn’t, you post an article that you do agree with. Cracked research technique.
The Gini Index article YOU posted indicates facts about inequality and analysis of how different countries approach it. Yes, i agree with it, but I also appreciate the level of analysis and insight provided in a short article.
The “Inequality is not so bad” article was written as a propaganda piece for 10 year olds (literally … I’m not just dissing the article) and glosses over the very real issues of inflated incomes of the 1% 0.1% and 0.01% by masking it in statistics of quintiles and the upper 5%. It is a fluff piece and it shows. I would be embarrassed by it even if I agreed with it.
I think we should substitute the word “success” for “inequality”, and then re-read the Gini indices.
With the numerous examples of tech innovation I cited a few weeks back I think it goes without saying that these were successes, and the key people who made them happen (Gates, Jobs, Zuckerberg, Allen, etc.) were highly compensated for their efforts. And because these individuals and millions of others like them were highly compensated, “inequality” increased because these individuals were highly compensated. Without these people, of course, the non-key employees of their companies might not have had jobs at all, such as if Gates had never founded Microsoft. “Inequality” could have become “unemployed”, or maybe “under-employed”.
… or maybe substitute the phrase “opportunities for financial success” instead of “inequality”.
You are deceiving yourself. Success is creating wealth. Massive income inequality is acquisition of wealth and income from other people’s efforts.
Jobs and Gates are/were successful. They may also have been over-rewarded for their efforts (can anyone really EARN a billion dollars for their accomplishments?); that is difficult to evaluate for individuals. But the massive growth of the financial sector to 8% of all income is not “success”, and the outrageous growth of CEO incomes are far beyond appropriate compensation for what most of them contribute to the company success. These examples are indicative of, and major contributors toward, the massive income inequality that has very little relation to wealth creation, or “success” in any kind of useful context.
Wow…… How you are the judge of this I have no idea.
“…Massive income inequality is acquisition of wealth and income from other people’s efforts. ”
No, massive income results from enriching the lives of others at prices they can afford, and agree to, when they purchase the product or service being offered. These “other people” (employees) agreed to the terms and conditions of their employment contracts, which means that they considered their salaries full and complete compensation for their efforts. And in the end, they are the ultimate judges of what’s “fair”, not people who were not party to the contract negotiations.
Agreed. Its so ridiculous to label Gates and Jobs “over-rewarded” for their efforts. Words like over-rewarded, outrageous, beyond appropriate….. who makes this call? I think Katy Perry is overpaid – she doesn’t interest me. But I think Arcade Fire is underpaid. They are a really good band. It’s not fair.
There are lots of interesting stories about people working for startups like Google and Yahoo who were paid in stock rather than taking salary who are worth millionaires. But they took the risk. Most employees want the steady paycheck – and thus enter into that contract. Of course, this isn’t news – everyone knows this.
How about substituting “overpayment of success” for “inequality”?
😉
Let’s get back to the topic at hand rather than veering off into political rhetoric….
It is fairly clear that we all agree that keeping jobs in the US, increasing training and education, campaign reform, etc. will help improve the lot of the poor. One huge point of disagreement is in the budget imbalance. You think that spending is relatively normal and that revenues are what need to be increased. I disagree. But rather than run down that rabbit hole – which have a million times before – let’s get back to Ken’s main point and my follow-up comment, which you have yet to address.
Ken’s point was about “ownership” interest and the factor it plays in income disparity. Most of your replies appear to me to be very 1950’s labor-market solutions. I am interested in hearing your thoughts on how you address the Wal-Mart executives and owners making for more than what you deem “fair” relative to the cashiers and other workers. My original post:
“Should WalMart be told by the government how much they have to pay people? Should a greeter, shelf stocker, cashier all make mandated amounts? Do they all get paid the same regardless of what city the WalMart is in? Would there be a cap on what the Waltons can make? Do shareholders have a say in this?”
Please address this.
I also do not see ANY connection, in spite of your Piketty articles, between raising personal income taxes on the higher-ups at major corporations and increasing wages for the lower earners. This ABSOLUTELY would not work in small business. That I can assure you…. But after reading the linked article and thinking it through I sure don’t see how a logical connection can be made between raising personal taxes on executives and pay going up for the rank and file.
Please address this as well.
Peter: =========
It is fairly clear that we all agree that keeping jobs in the US, increasing training and education, campaign reform, etc. will help improve the lot of the poor.
==============
Yes, we agree on this. And not just the poor. Remember that 90% of Americans’ salaries are stagnating. Solving those issues helps everybody.
Peter: ===========
Most of your replies appear to me to be very 1950’s labor-market solutions.
================
Taxes, up or down?
Progressive or flat taxes?
Labor-friendly vs management-friendly policies?
Break monopolies or encourage them?
Free trade or protect home employment?
These are enduring, recurring issues for all times, not just the 50’s. The only thing special about 1950-1975 is that we got the balance of policies correct. We should use that as a guide and adapt the successful policies to modern times. Not continue so many of the tax and labor policies from the last 30 years that have repeatedly failed most Americans.
Peter:=========
I am interested in hearing your thoughts on how you address the Wal-Mart executives and owners making for more than what you deem “fair” relative to the cashiers and other workers. … Should WalMart be told by the government how much they have to pay people? Should a greeter, shelf stocker, cashier all make mandated amounts?
=============
1) It’s not about “fair”. It’s about a sustainable, productive economy.
2) I have expressed my thoughts repeatedly, but here goes again. Don’t micromanage wages. I have NEVER expressed that as a good idea, but you keep suggesting that is my solution. It’s not. The solution is not to micromanage wages, but to change the shape of the markets. Taxes, trade and labor policy are key. We have market rules and policies that encourage and practically mandate that wealth accumulates unproductively at the top and is diminished in the middle class. We have trade policies that encourage good jobs to be taken out of the country. We have labor policies that prevent average workers from having a strong hand in negotiating a higher wage. We need to change our policies to allow hard work at all income levels to be sustainably encouraged and rewarded.
Peter: ==============
I also do not see ANY connection, in spite of your Piketty articles, between raising personal income taxes on the higher-ups at major corporations and increasing wages for the lower earners. This ABSOLUTELY would not work in small business.
===================
If you see your competitors hiring away your best workers, you will raise wages. If that means cutting your own salary by 10 or 20% to maintain the growth of your company you will likely at least consider that. You will respond to the demands of the market, not the tax rates or government policies directly. The tax rates and government policies define the shape of the market. They always have. The market is also shaped by changing technology and conditions. On that much at least, you and I will agree. Where you may object is in the need to adjust government policy as the external conditions change.
You may not see or easily envision how income tax changes at the top could impact your salary decisions. It may seem disconnected, but according to economists much more clever than I, it’s not. It would be a cascade of events that shapes the markets, just as the tax cuts and high deficit spending of the 80’s reshaped markets to enable income shifts from middle to rich.
“If you see your competitors hiring away your best workers, you will raise wages. If that means cutting your own salary by 10 or 20% to maintain the growth of your company you will likely at least consider that. You will respond to the demands of the market, not the tax rates or government policies directly.”
OK – but these dots don’t connect. Lead me from raising my income taxes to raising wages of employees. How will raising personal income taxes on the 1% and business owners allow them to steal my employees with higher wages?
OK, I’ll give it a shot.
Smooth Curve: The analogy of the wage structure as a spring works pretty well here. Note that we all talk a lot about superstar incomes of Tech giants or Hollywood stars or Sports heroes. But in fact, the wage slopes are a pretty smooth curve. You can describe the wage curve through the available published data points (e.g. 80, 90, 95, 99, 99.9 99.99 percentiles) with a simple mathematical formula.
Connectedness: So wages impact each other as we, as earners, observe what those around us make. We know (or guess) about what our immediate boss makes, we know what the new hires make, and what our friends who got jobs at competitors make. The folks on the management team know what the the next guy up and down the ladder makes. If there is a perceived disparity between our own income and those we perceive as peers or even as inferiors, then we will often fight to adjust our own wage higher (e.g. ask for a raise, or change jobs), as necessary to remove the disparity. The point is all the wages are connected. When one wage goes up, it tends to cause the wages of connected earners nearby in the ladder to go up as well.
The converse is true. Drop wages in one economic area such as a particular career, and the nearby connected wages for related careers also drop.
Motivation: We all make a decision about how hard we ant to work for the next dollar. A worker may not want to add an extra 20 hours to his 40-hour week, but if he is offered time-and-a-half, it sweetens the pot. Similarly raising taxes on upper-most incomes discourages people from striving for that extra income.
Put it all together: If a truly progressive system is applied with increasing rates into the upper incomes of millions (instead of rate increases stopping at $250K or $400K or perhaps $1M for some effective rate changes in the US), then uppermost pre-tax incomes are somewhat suppressed, and after-tax incomes at upper levels are reduced more. (Consider Sweden from your Gini article.) Because incomes are all connected in a smooth curve, other very high and medium high incomes also reduce. This frees up that same money for other uses, like offering more money to lower-level employees to encourage loyalty and better performance. At least a few employers will initiate this tactic to get an advantage, and others will follow suit.
I’ve described one mechanism of tax increases impacting wages. There are probably many others that would occur in parallel. For instance, high incomes often (not always) correlate with high wealth, and high wealth encourages “rent-seeking” behavior which is a term derived historically from obtaining income simply by renting out land or property. It has also more broadened definition, meaning: “an attempt to obtain economic rent (i.e., the portion of income paid to a factor of production in excess of that which is needed to keep it employed in its current use) by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth.”
http://en.wikipedia.org/wiki/Rent-seeking
1. Why are pretax incomes suppressed by having higher tax rates? Wouldn’t the opposite occur?
2. And even if they did come down, who is to say that the company would give this other money to lower paid employees?
You would cut your company’s talent level off at the top – the people that manage and spearhead the entire companies direction so you could pay your rank and file more? What company would do this?
===========
1. Why are pretax incomes suppressed by having higher tax rates? Wouldn’t the opposite occur?”
===========
Let me illustrate with an extreme case. If marginal rates on income from $5-10 M were 60%, and for $10M plus were 75%, and two companies were competing for a particular CEO, they could raise salary offers to compete. But 3/4 of what they offer above $10M will go to taxes, and so only provides 1/4 of the incentive relative to their expense. They will look for other possibilities, like stocks or options or company perks. The interesting thing is that stocks and options require that the company grows in profits to obtain best value, and perks require continued employment at the company. So, from an incentive standpoint, the high taxes encourage this alternate pay structure and reduces simple wages. It also has the benefit of keeping the CEO focussed on the company on not just on what he can take home each week.
Specifics may change, but the general psychological point remains: Higher salaries are less appealing if most of it will be taxed away. It’s like putting some friction on the process. It should slow down or even reverse highest income growth.
==========
2. And even if they did come down, who is to say that the company would give this other money to lower paid employees?
==========
No guarantee, but it would increase the odds. Some companies will allocate a certain amount of profits to go to salary increases. If less is going to upper management it is more likely that more will go to other workers. And only a few companies have to make this leap to impact the economy, because others will do the same as competition for best employees heats up.
===============
You would cut your company’s talent level off at the top – the people that manage and spearhead the entire companies direction so you could pay your rank and file more? What company would do this?
===============
I don’t really get your wording of “cut your company’s talent level off at the top”. How is reducing pay of highest paid CEOs the same cutting off a talent level?
Remember that all companies are impacted, and all companies would be reallocating pay. It might take a while. Maybe high-paid CEOs retire with their current contracts, but next CEO is hired at lower pay … because the extra pay taxed at 75% wasn’t that much of a perk anyway.
A company could spend $100M to add $25M after-tax income to the CEO, or they could use the same money to distribute $85M of pay increases among lowest paid workers (assuming 15% marginal tax rate). The reasons are market-driven. Some companies will make the shift due to philosophy, others due to a trade-off in cost of incentives, others simply to compete with the first two sets.
Oh so your theory is that all companies will reduce their management pay in concert with each other? If a company has a president or muckety-muck who has led the company into innovation, record profits, etc and they lower his pay – wouldn’t another company be willing to hire him or her away? You admit this is the case with lower level employees. I would argue it is MORE so with higher level employees. I am constantly being offered insane sums of money to leave my firm and go elsewhere. If my firm decided to cut my pay, this news would travel fast and my phone would ring like crazy. Lower the pay of management and they leave – it’s that simple. Only way it works is if you can get all of an industry to agree to do this in concert. Or mandate it.
Missed the first post….
First of all stock options are part of the compensation packages you complain about with CEOs and higher ups. Call it what you want but it is all compensation. I actually think higher tax rates would possibly make pay go UP – as you would have to pay people more for the same personal benefit. To assume it would make people throw up their hands and pay people more is a bit of a leap and to say “well they would just get paid differently” is no real change to create all this extra money you think would flow to the bottom.
Just realized that you might not be aware of something here…
When an employee exercises stock options or sells restricted stock, the proceeds add to their adjusted gross income. When you are quoting data for income inequality this number is included in income measures.
There’s probably not much more we can add to this sub-topic. I think higher tax rates would cut down pre-tax and post-tax compensation because benefit per dollar spent would increase. You think companies would try to hold post-tax compensation constant and further increase pre-tax compensation. It’s hard to find historical “proof” of either theory on pre-tax compensation, but I think there is more evidence that high marginal rates at least decrease post-tax income and reduce disparity (reference the GINI article you posted). IMHO, there would be no practical way or reason for companies to pull even more money out of worker’s wages or stockholders’ profits to further double or triple management salaries just to hold the post-tax number constant. Why would they do that?
In either case, government gets better funded.
As for considering all the different compensation options: direct, performance-based, stock, stock-option, carried interest, retirement package, golden parachute … it does get complicated. The government might have to plug a lot of loopholes to efficiently task high compensation the way they intend.
Typo (sigh).
I think higher tax rates would cut down pre-tax and post-tax compensation because benefit per dollar spent would DECREASE (not increase).
Amazing what one can do with numbers. That’s why I posted the raw data. The majority of our spending goes to pay for public programs that were poorly thought out in the first place. But we are getting off topic. I’m still curious how you think that taxing the rich is going to get them to pay their employees more. Or how you can legislate this.
Peter, I don’t manipulate the numbers. You want to look them up yourself, they are at usgovernmentspending.com and usgovernmentrevenue.com. Too many to post. I summarized in as succinct a manner as I could WITHOUT distortion or manipulation. Deficits averaged 4% GDP for 12 years under Reagan/GHWB when the highest 4 year Pres term average before that point was Nixon/Ford at 2.5%. Facts. Not “what one can do with numbers”.
You totally missed the point. I will not engage in partisan blaming … Just don’t see how we come to any constructive conclusion or solution by doing so.
At what point in my last post did I say anything other than name the administration and state the changes in deficits and mention how tax rate changes played a role. I didn’t call anybody nasty names or use derogatory terms. Very neutral I thought. If there is an accusation present, it lies in the numbers themselves, not what I said.
You had claimed “The stats show a consistent flatlining of revenue vs GDP via taxes regardless of administration and a slowly creeping up spending number.” That was incorrect and so I stated the facts, and then you accuse me of blaming. What’s up with that? You don’t like me correcting inaccurate posts?
What I said was accurate.
By “last post” I mean the one starting “When the baselines …”
Until now, you said Republican presidencies created the largest deficits in history. Now you admit Obama created the largest deficits. But you say it’s still Republicans’ fault, even though Obama’s been in office six years, and despite Obama’s total and per capita spending in constant $2009 being by far the largest in history.
The point is not really Dem vs GOP, as much as it is the failure of the tax cutting policies since 1980. The lower the top marginal tax rate, the faster the deficits pile up.
In earlier post, I did say
“What I said earlier was that National Debt (not spending) was over 100% GDP around WW2 (119% in 1946) and that we dropped it to 31% by 1981, at which point Reagan established the GOP pattern of cutting tax revenue and increasing spending, thus driving Debt/GDP back up to 82% by the beginning of Obama’s first budget year (even though Clinton had driven Debt/GDP down by 9% during his terms).”
I don’t consider this blaming. The GOP did establish such a pattern, as I later showed with numbers. Then I said
“The point is that the tax cut regimen prescribed by Dr. GOP promised us prosperity for all, increased employment, reduced debt, stable economy, reduced poverty. The result has been just the opposite.”
That was bit snarky and partisan. But really, that was pretty mild don’t you think? Anyway the next post was pretty neutral. I can post more raw numbers if you like, but I don’t see that this conversation thread is going anywhere. Suffice to say that my position, borne out by raw data, is that GOP administrations that apply tax cuts to the rich are tightly correlated with high deficits and increased debt and increased income disparity.
All I posted was raw numbers.
“…Suffice to say that my position, borne out by raw data, is that GOP administrations that apply tax cuts to the rich are tightly correlated with high deficits and increased debt and increased income disparity.”
What the raw data (in constant $2009) actually says is that the deficits under Obama are about twice as high as the highest deficit under any of Reagan, Bush 41, or Bush 43. Source: http://www.usgovernmentspending.com.
Reagan FY 82-89: Total spending $21,032b; Total deficit $2,451b; Yearly avg deficit $306b; Total per capita deficit $10,318; Yearly avg per capita deficit $1289.75
Bush 41 FY 90-93: Total spending $13,040b; Total deficit $1,481b; Yearly avg deficit $370b; Yearly avg per capita deficit $1463.75
Bush 43 FY 02-09: Total spending $39,790b; Total deficit $3,729b; Yearly avg deficit $466b; Yearly avg per capita deficit $1558.13
Obama FY 10-14: Total spending $29,243b; Total deficit $4,810b; Yearly avg deficit $962b; Yearly avg per capita deficit $3074.00
Ken,
And Obama’s presidential terms are unique in modern times as they are the only one’s started after WW2 with an economic crash of the scale only surpassed by the Crash of ’29 and the ensuing Great Depression. In such an environment where increased spending is mandated by conditions, and especially when simultaneously faced with a Congress that refused for several years to raise taxes to REDUCE those deficits, of COURSE deficits will be high. And yet the deficits have now been cut drastically relative to GDP, as compared to FY2009.
The point is that high deficits occur when you cut taxes and do not cut spending. GOP administrations fought to cut taxes, but they are just as lousy at cutting spending as anybody else. The only time GOP can unite to cut spending since 1980 is in order to hurt a Democratic President in office. So tax-cuts as a policy to force spending cuts (the “Starve The Beast” philosophy) is a failed policy. That is my point.
If politicians want to vote to cut spending, they are free to do so. But until they accomplish that task, we need to fund government with taxes that will raise revenue as percent of GDP to within 1% of spending/GDP, in order to bring down the debt.
I would say that if you look at federal spending in constant $2009, either overall spending or per capita spending, government continues to grow at an alarming rate. Making it relative to some other variable such as GDP, or relative to itself, to me, is an attempt to obscure the obvious.
It would be like talking about the fact that you gained weight, and saying “Hey I only gained 10% of my body weight”. The obvious next question would be, “How much do you weigh overall?” or “Ten percent… of what?”
For a five foot ten inch man, ten percent of 180 pounds is far different than ten percent of, say, 300 pounds. Going from 180 to 198 for a man that height is a bit of a concern, but going from 300 pounds to 330 is clearly a much bigger issue. And the larger you get, of course, the more weight that 10% represents, and the more you weigh overall. Speaking in percentages masks what the actual numbers are.
This latter scenario is exactly what we have going on with the federal government. My main criticism of representing spending and deficits in percentage terms, or making them relative to some other indicator, such as GDP, is it obscures or attempts to normalize out of control spending. I think this is intentional.
And overall I would also say the deficit is mostly a spending problem, and less a revenue problem. No matter how much revenue has come in, the federal government has outspent it. And here is the kicker: spending continues to increase whether or not the revenue is there. Revenue is almost an irrelevant factor when budgets are developed, hence the $18 trillion in accumulated national debt.
Ken,
GDP is tightly coupled to sum of national income, a real and meaningful indicator. Almost all governments are scaled to the GDP of their country, not just the inflation adjusted coinage per capita. I see your reasons for objecting to the GDP scaling but I think arguing your position is a losing battle:
1) Governments generally increase their services and hence, the quality of life of their citizens with the increased spending. The higher value of expanded services is a reason for growth in terms of adjusted per capita coinage.
2) Why spend time objecting to a standard everyone else uses?
The answer is that per capita and overall spending in constant dollars is a much better indicator of what’s really going on than are comparisons to a shifting indicator like GDP, like my body weight example.
And just because socialist Western Europe (i.e. “everybody”, “the rest of the world”) scales their spending to GDP does not mean we should goose-step into a steaming pile of eonomic malaise as well. It’s this kind of thinking which has led us into the mess that we have today, where we have an $18 trillion national debt.
And no, it’s not a revenue problem. It’s a spending problem, which the per capita and overall spending in constant $2009 clearly shows. No matter how much money has come in, the federal government has outspent it.
I would also point out that the availability of increased revenue does not mean that government should be entitled to (over)spend it, particularly when you already have $18 trillion in debt.
I also object to the notion that increased government spending improves the quality of life. This is a non-sequitor, particularly when you consider how wasteful our government is with its spending.
Peter: =============
I’m still curious how you think that taxing the rich is going to get them to pay their employees more. Or how you can legislate this.
==================
At some point of high taxation, it’s not worth the bother to give high earners a raise. Whether that point is at 60 or 70 or 90%, I’m not sure. It likely has an incremental effect all the way up.
I’ve often wondered how Hoover’s folks and subsequent administrations designed the specific tax rates that went up to 90%. I suspect they intentionally tried to sculpt the shape of the income slopes, but I don’t know that. I’ve also wondered what some of the past tax rates of 1950’s or 60’s would look like if they were projected on today’s total incomes. I’ll calculate that sometime.
But as for paying employees more, the other elements of my plan may be more significant: adjusting trade and labor policy. The tax rates are just one part of the motivation back to balance the economy.
You really must acknowledge that 1950’s solutions won’t work in a 2010’s economy. Since I know you hate the GOP – this is their big achilles’ heel in my mind…. pointing to the Constitution or our “founding fathers” (or even the Bible) for social policy. The country has changed dramatically over its history and the post WWII environment of the 1950’s which demanded “all hands on deck”, outrageous taxes and then eventually a military draft are not very applicable to today’s environment.
In 1950 our economy was about 30% manufacturing and 20% agriculture. This is now about 10% manufacturing and 2% agriculture. Just that fact alone is one example about how different our world is. Another factor – in the 1950’s private sector companies almost ALL offered pensions to retirees. The 401k didn’t even exist until the 1970’s. The shift has moved over the last 60 years from companies and governments taking care of their people to the responsibility being on the individual. This has caused much separation in wealth as some have done so and others have not. But in a world without pensions, this is inevitable. You don’t fix this with a 1950’s solution though.
Saw this in a comment section and thought it shed light on what we have been discussing. Would be curious to hear Ken’s take on this:
————The issue of the next few decades will be the global labor surplus.
Civil unrest, most recently in the Middle East, is driven by a large number of people who are under-employed with insufficient income to meet their daily needs. This is an untenable situation in a globally connected society where the most pervasive media forms are filled with images of a better life than what is possible for most of the world.
The future for gainfully employing all these people, in the world, in the US, is dimming. Thanks to highly productive equipment and processes, a smaller and smaller manufacturing sector can out-produce the demands of the world. In fact, we probably have a manufacturing system that can out-produce the raw-materials of the planet.
The top end of the manufacturing employment has rising wages but represents a very small number of people who possess very specific knowledge related to running expensive, specialized machines. The other end of the manufacturing employment– the forklift driver, the wrench-turner, and the box-packer have wages that have fallen (new hires in auto plants now make $14/hour).
That leaves the service sector which has the problem of needing to be affordable. Can you have a store like Starbucks where the customers have the same income as the server? It seems unlikely. Likewise, can you have the world most expensive health care system in a world when the patients cannot afford the cost of care and more and more cannot afford even the cost of insurance to cover a portion of the cost? How about financial services? Does a teller make more than a Starbucks employee?
The service sector ultimately dependent upon an economy that has sectors that generate more spendable income than is made within the service sector.
The problem comes down to, there is no shortage of labor, there is a shortage of jobs, a shortage of demand in excess of supply, and ultimately a shortage of raw-supplies to supply the demand.
Its a very different world than the post-WW2 world where the US was the king of the world. and the fortunes of ordinary workers in the US were rising.—————
It’s an interesting article, with a pretty good analysis of the problems, but no offered solutions.
This brings up an interesting question. If you extrapolate the dark predictions implied in this article, you get an inevitably divided society with fewer jobs available except for the most educated and skilled, and certainly not even enough for all of those. The wealthy will continue to rake in higher shares of the nation’s wealth and pay handsomely for the services and products that they can afford, but that more and more people will find are out of reach. Those lucky enough to have low-level medium or low-skilled jobs will have no benefits, meager living accommodations, and lives shortened by second-rate medical care grudgingly provided at public expense. If it can be had at all. The rest? Unemployed, with no hope of a job or of getting a shot at increasingly expensive higher education. They will live on the merest of doles, resented by the rest for simply attempting to live, and disparaged for their presumed laziness, and despairing of any better future. Is this how we want to direct our country?
Sound miserable? This is where we are heading. We have enough income and wealth in this country for everybody. There is enough work and food and housing and opportunity. But as log as we have a system that allows and even encourages the most powerful and wealthy to acquire according to their endless appetites and deprive the rest of Americans of the bounty we have here, we are in danger of bringing about the dark future described above.
Agreed. We are at a crossroads in our society where jobs for the uneducated and unskilled are becoming scarcer and scarcer. People have been replaced by robots, more efficient processes, or simply higher worker productivity. We MUST educate our population with skills that fit the new economy. Maybe it starts just as simply as reconfiguring our primary school curriculum to focus heavier on technology, rather than studying Shakespeare, calculus or the periodic table.
Those that choose to get no education or no skills will definitely be left behind. We must improve access to this training and education.
I will counter one point you made – that the wealthy will be the only ones able to afford anything …. This innovation will make things more available at more affordable prices – not more expensive. The IPhone is a great example. As recently as 25 years ago, cellular phone was considered something only the uber-wealthy could afford (remember Wall Street with Michael Douglas walking on the beach talking on a giant cell phone?). Did you know that now 91% of all American adults have a cell phone????? Steve Jobs and others became very, very wealthy helping people with $20k/year jobs afford cell phones.
As far as the people that are left behind in the new economy being resented, disparaged or presumed to be lazy – that’s conjecture. If someone wants to be that shallow to disparage others, they are going to be…. regardless of the economy.
You continue to not get that our economy is not a zero sum game. But nobody is going to just hand money to the unskilled and uneducated. They need to have opportunities to be a part of this growth, not handouts. Teach a man to fish……..
I agree that education is important … but your earlier post evokes another question. Is it possible for technology and efficiency of production to evolve such that a society simply does not have enough jobs for the population, no matter what their educational level? What if everyone was getting educated, but only 50% could be employed?
That is an extreme case, but it seems like extreme income slopes are bringing us closer to that type of calamity. Colleges are getting more expensive, partly because they can cater to the very wealthy who can afford the costs, and partly because parents are willing to mortgage their future (and their childrens’) to obtain college education for those children to help secure a good career. This process reinforces the advantage of the rich (who obtain education at a cost they can afford) against the middle class and poor (who either cannot afford an education or become impoverished by the attempts). The disparity in education then limits the ability of the society to advance and create employment opportunities for the whole populace.
This reinforces, to me, the idea that we should be providing cheap or even free education to the population at the cost of society. This will reduce disparity, educate the population, and advance the society.
It will also most likely mean tax increases on high wealth/income. (Sorry.)
Your extreme scenario is more in line with what I think the worry should be rather than overblown things like rent-seeking or things that don’t make any sense (like wealth attracting wealth regardless of risk).
I think our future society will have a lack of manufacturing jobs. No doubt. They will be replaced by two things….skilled technology oriented jobs and service jobs. I don’t think you necessarily need college for either. I think we can improve the odds of our youth being more employable in the public school experience. But your idea of subsidizing or at least helping control college costs isn’t altogether bad.
This is usually done at the state level – but if you must spend more federal money why don’t we take it from the billions we spend on trying to solve the worlds problems or that we waste on useless programs. Frankly, I would rather us have a “social education” system than social security. I think in the long run it is more important that we educate our society than fund their retirement at 62. Teach a man to fish…..
Perhaps these folks can explain better than I.
How much can tax policy curb income inequality growth? Maybe a lot
http://www.epi.org/blog/tax-policy-curb-income-inequality-growth/
… recent research by Piketty, Saez, and Stantcheva (pdf) suggests that the post-World War II reduction in top marginal income tax rates has encouraged “rent seeking” behavior by executives and managers to bargain a higher share of total income, without changing the overall size of the pie being divided up. Essentially, a lower top tax rate increases the rate of return to efforts demanding greater compensation from boards of directors, and successful efforts will come out of workers’ paychecks, not shareholders’ portfolios. Time series regression analysis for the United States as well as cross-country comparisons suggest that a substantial portion of the net behavioral response to top tax rate cuts reflects this zero-sum, nonproductive shift of income from nonsupervisory workers to managers and executives. Research by my colleagues Larry Mishel and Natalie Sabadish regarding U.S. executives’ compensation in relation to workers’ average compensation similarly suggests that staggering increases in executive compensation, particularly in the financial sector, has fueled rising income inequality.
This “rent seeking” model suggests raising top marginal tax rates could yield large reductions in market-based income inequality growth without substantially reducing productive economic activity.
This whole argument that the government is underfunded is somewhat foolish in my opinion. Maybe some facts would help:
Obama’s proposed 2015 budget allows for about $3.7 trillion in spending. Only about 30% of this is what is called “discretionary spending” – meaning this is what the politics get involved in with Congress and both parties squabbling to settle on. The rest is mandatory.
Discretionary Spending:
About 65% goes to military, veterans and international affairs
Another 10% goes to help fund medicare and social security
That leaves 25% for everything else including education, energy, transportation, science, etc.
Non-Discretionary Spending:
90% of this goes to Medicare, ACA, Unemployment, Welfare and Social Security
A few other facts:
Government spending as a percentage of GDP: 21%
Spending in his proposed budget is around 21% of GDP, down from about 25% a few years ago. We never spent 100% of GDP. It rose to about 50% of GDP in WWII.
Revenue as a percentage of GDP: 18%
Revenue under Obama’s plan is right around 18%. It has been between 15% and 20% consistently since before WWII when it was much lower.
Percentage of Federal Revenue that comes from Individual and Corporate Income Taxes: 46% for individuals, 13% for corporations
Corporate income tax has not been above 20% since the 1960’s and has been slowly declining as a percentage of total revenue. Individual income tax as a percentage of total revenue has been in in the 40% range consistently since WWII.
No judgment here – just actual factual numbers. I’ll draw my conclusions in a different post.
Stats look Ok, but I think you misunderstood a previous post. You say:
“We never spent 100% of GDP. It rose to about 50% of GDP in WWII.”
What I said earlier was that National Debt (not spending) was over 100% GDP around WW2 (119% in 1946) and that we dropped it to 31% by 1981, at which point Reagan established the GOP pattern of cutting tax revenue and increasing spending, thus driving Debt/GDP back up to 82% by the beginning of Obama’s first budget year (even though Clinton had driven Debt/GDP down by 9% during his terms).
The point is that the tax cut regimen prescribed by Dr. GOP promised us prosperity for all, increased employment, reduced debt, stable economy, reduced poverty. The result has been just the opposite.
Fair enough on your WWII quote….
But the stats don’t show your GOP blame quite the way you want it to. The stats show a consistent flatlining of revenue vs GDP via taxes regardless of administration and a slowly creeping up spending number.
Yet with all this spending, we still won’t be able to fund the massive public programs that most of this money goes to. The problem is in the planning…..they were folly to start with. Kicking the can down the road…..
When the baselines hover around 16-20% GDP , the changes of “only” one or 2% seem deceptively small. But an increase from 20% GDP to 21% GDP is still a 5% relative spending increase.
Between 1950 and 1975, annual deficit as % GDP was less than 2.8% and averaged half of that. The Nixon/Ford 4 year term averaged 2.5% deficit and Carter pulled back to 2.3% deficit with spending increasing to 20.1% average and revenue at 17.8%.
Reagan’s first 4 years dropped revenue about 0.8% GDP (to 17.1%) and increased spending about 0.9% GDP (to 21.8%), which each sound minor, but left the deficit at an average post-WW2 high of 4.75% GDP for his first term. His second term average deficit was 3.4%, still higher than any previous post-WW2 President. GHWB matched him at average 4.0% deficit. So there were three terms with deficits averaging 2.7 times the average %GDP deficits preceding them since 1950.
Under Clinton, revenue went up and spending went down for many reasons.Some of that is creditable to Clinton, some to Congress, and some to circumstance. But Clinton’s tax increases helped significantly in countering the red ink of the previous 12 years.
Revenue plummeted under GWB as low as 15.3% GDP in his first term (in 2004) and down to 14.6% GDP in his last budget year, largely due to the crash. Meanwhile his spending was consistently high (both with GOP and DEnm Congresses, by the way, leaving him with average deficit of 3.3% GDP for his 2 terms.
Obama’s first term is difficult to compare appropriately, starting as it did in an economic crash, with record low revenue and tax rates, hemorraging jobs, and the requirement to spend to prop up the ailing economy. Nevertheless, real and relative spending has declined since 2009, revenues have increased and deficits are getting back to manageable levels. Deficit for 2014 as % GDP is lower than 11 of the 12 Reagan/GHWB years.
Do my stats make more sense now?
Ken: ======================
I have yet to see any concrete examples of how the tax money taken from wealthier people by government has done anything to decrease income disparity or poverty.
===========================
Ken, perhaps that is because we are taking LESS tax money from the wealthy (as effective tax rate) and that indisputably INCREASES income disparity. You aren’t going to see increased taxes have a tempering effect on income disparity until you actually increase those effective tax rates on the wealthy closer to pre-1982 levels.
Ken: =====================
Since LBJ’s Great Society of the 1960s we have spent more than $15 trillion on social programs, yet the poverty rate has remained essentially unchanged.
=========================
Actually poverty dropped quite a bit in first decade of war on poverty. And even now, there would be an additional 10% of population in poverty WITHOUT the social programs.
Ken:===============
I think at some point you have to ask whether or not this whole idea of government redistribution of wealth is working.
==================
Poverty programs and redistribution of wealth are related but different topics. We are spending money to help the poor, while at the same time going into national debt to give tax breaks to the rich and simultaneously dismantle labor protections and lower effective minimum wages, all of which hurt the poor. Over the last 30 years redistribution of income has not helped the poor because all of the redistribution has gone flooding in the wrong direction. Jobs and education and opportunity will be of most help to the poor, but we have exported the jobs, raised the costs of education, and put severe limits on opportunities for the poor and the reward of labor. When we stop attacking the poor, maybe we will make better progress against poverty.
Ken: =============
Further, if government were truly the good guys that you portray them to be and wouldn’t allow themselves to be bought, private interests wouldn’t be able to buy them and, according to your analysis, we wouldn’t be $18 trillion in debt.
=================
I never said government are the “good guys”. It is not inherently good or bad. It is us. It is what we make it. However, to disregard it as evil or incompetent or impotent, is to cede control of it and the country to the perils of tyranny of those who seek unlimited wealth and power. I am not ready to cede that control. Government is our only protection against chaos and anarchy.
Ken: ==============
To then think that government will rise above its historical behavior patterns and, among other things, solve the national debt by yet again increasing taxes on wealthier citizens is, I think, a self-defeating argument.
==================
You neglect that government and this country took national Debt from WW2 highs of over 100% GDP down to 32% GDP in 1981. This is a clear pattern that we can follow. It was after 1981 that:
– tax cuts to the rich were firmly established, and effective tax rates on rich plummetted
– high income slopes and redistribution to rich accelerated
– war on poverty stalled
– labor unions were systematically attacked and dismantled
– monopoly controls were eased
– regulations on financial institutions were dismantled
– economy became more unstable
So I think that if you want to control the debt by continuing this unsustainable and thoroughly discredited system of low tax rates on the rich, I think it is a self-defeating argument. History has already proved it is a disaster.
Stats for those who think the top earners keep having their tax rates unfairly increased:
Top 400 earners: average income increased from $80M in 1995 to $265M in 2010. Their effective tax rates fell from 29.9% to 18% in same time period.
http://america.aljazeera.com/opinions/2014/11/taxes-rates-wealthyirsdatainequality.html
Top0.
Their effective tax rates fell from 29.9% to 18% in same time period.
(Sorry for rogue paragraph at bottom of last post.)
You know I don’t use the word “unfair”.
It occurred to me last night that one of the points of contention in this lengthy, ongoing discussion is the idea of “ownership interest”. If I can summarize a bit from both points of view, and limit the discussion to small businesses for a moment….
In my view, and I think Peter’s, after all expenses are paid, including but not limited to salaries and benefits as per employment contracts, the residual profit is the property of the small business owner. This is the way things work today, and should work, since the small business owners actually own the business. Also, their responsibilities, stresses and risk taking are far different than those of the people they employ.
Steven H.’s view is that since the employees helped the small business owners create the profit, that the employees also have, or should have, an ownership interest in the business and share proportionately in residual profits accordingly. But this of course is not how it works today, or at least not primarily how it works, and thus the debate.
Isn’t that about it — whether employees have, or should have, an “ownership interest” in the business?
…and if he does believe this – how do you legislate such a thing? And to what level?
The reason I brought this up is because I realized, after lo these many months, that this property ownership thing seems to be a recurring issue in many of these debates. Could be “the” central issue.
If you read back through Steven’s posts, the notion of collective ownership is there throughout. “Distributing national income” presumes it’s collectively owned and that the only issue is how it’s disributed, even though the rank and file worker do not have an ownership interest in the business.
The comments about “income shares” has the same bend. The underlying assumption is that non-owners actually own part of it. Comparing one person’s salary against another is the same thing, as though all income is collectively owned, when in fact there is no ownership interest for those who are supplying only their 9 to 5 labor. Via the employment contract, non-owner employees very clearly are exchanging their labor for specified compensation…and without an ownership interest.
The starting point in Steven’s responses is collective or group ownership of the income, which is why the responses always revolve around “distributing” that income “fairly”. Or characterizing highly compensated individuals in negative terms when their companies finally become highly profitable and thus their salaries go way up. Nevermind that owners actually own the company and rank and file empoyees do not. Nevermind that these owners invested their own money to start the company, came up with the product, idea, or service that is generating the income, took the risk of failure that rank and file employees did not, took little or no salary when times were hard, and probably went into debt to pay their employees their full salaries so that those employees could still have an income even though the owner didn’t. None of that matters. All that matters is that the company is successful now, so employees “deserve” an ownership interest in the profits, now that profits actually exist.
Well, not to beat a point to death, but there it is. It goes without saying that group, collective, communal ownership flies in the face of the capitalist system. I think it is a frontal assualt on capitalism, actually.
“You say you can’t solve the distribution problem by taking from the rich and giving to the poor. You are correct. You fix it by stopping and correcting the process of over rewarding the rich and under rewarding everybody else.”
I think you hit the nail on the head. The above quote is a good example of this. since he isn’t around, let me try and argue Steven H’s point of view to see if I understand it. He would argue that none of those profits – no matter how great the invention – would have been possible without the infrastructure provided by our government and the hard work of the employees of the company. So they should be compensated at a better ratio than they are currently – or at least more like the 1950’s.
Of course I don’t agree. This gets back to my Justin Bieber argument from about a year ago. Sure, the multi million dollar grossing concert tour can’t go on without the light guy, the security people, the ticket takers, etc. But if you don’t have Justin Bieber, there is no show to be had. He is the irreplaceable piece of this – the OWNER if you will. The marketplace decides how much all the other help gets paid. And there is no such thing as “fair” here. Nobody should tell Justin Bieber that he can only make 1/2 of the profits of the concert. That’s just idealistic and ridiculous.
I think the “solution”as per Steven H’s worldview is to fundamentally dismantle the current system and replace it with something that he sees as more fair. And the only way to ensure that happens is to have it be run by government.
In my view there are a number of problems with this “solution”, not the least of which is the notion that government is more trustworthy than the private sector in managing money. $18 trillion in national debt is my first exhibit.
Peter, Congratulations!
Your second paragraph actually describes my position pretty well. You may disagree, but at least you can state my position without distortion. Thank you.
As for Justin Bieber, I have several issues with your argument. First, you and I do not know if JB currently gets as much as 50% of “profits” from his concerts. Never underestimate the power of managers, promoters, and stadium renters to get their share. Consider that Dixie Chicks made almost no money off of their first very successful albums, and that Van Morrison has NEVER received any royalties from writing and recording “Brown-Eyed Girl”, one of the op pop hits of all time.
JB is apparently doing a lot better than that. But another point is that everybody else DOES deserve decent compensation, and they generally will not get it unless they get some sort of negotiating leverage, which is what unions are for. The decline of unions is a big cause of the underpayment of labor.
The biggest point is this: “The marketplace decides how much all the other help gets paid.” Yes it absolutely does. But who gets to control and manipulate the marketplace? Right now, control lies with the rich and powerful who buy the politicians, dismantle the labor unions, give tax cuts to the rich and attempt to dismantle the safety nets. You have scoffed at this view and yet that is exactly what has happened. I’m not saying it’s YOUR fault. But it is SOMEbody’s fault.
The reason we have 18 trillion debt is because the private sector bought government and gave themselves a tax cut.
I have yet to see any concrete examples of how the tax money taken from wealthier people by government has done anything to decrease income disparity or poverty. Since LBJ’s Great Society of the 1960s we have spent more than $15 trillion on social programs, yet the poverty rate has remained essentially unchanged. I think at some point you have to ask whether or not this whole idea of government redistribution of wealth is working.
Further, if government were truly the good guys that you portray them to be and wouldn’t allow themselves to be bought, private interests wouldn’t be able to buy them and, according to your analysis, we wouldn’t be $18 trillion in debt. To then think that government will rise above its historical behavior patterns and, among other things, solve the national debt by yet again increasing taxes on wealthier citizens is, I think, a self-defeating argument.
“….But who gets to control and manipulate the marketplace? Right now, control lies with the rich and powerful who buy the politicians, dismantle the labor unions, give tax cuts to the rich and attempt to dismantle the safety nets. You have scoffed at this view and yet that is exactly what has happened. I’m not saying it’s YOUR fault. But it is SOMEbody’s fault….”
As you can imagine, I think you vastly overstate the problem, and that you are painting nearly all business owners and managers with a broad and highly negative brush stroke. This seems, at the very least, overly simplistic.
I also wonder how you can completely de-legitimize the millions of private employment contracts, which both employer and employee agreed was fair by virtue of their signatures on them, by simply declaring that they were one-sided, or made under duress, or whatever? I don’t agree that only one side in the negotiations had any say in what those terms, conditions and compensation would be. Or that it’s the demise of unions that caused everything.
People negotiate their salaries all the time. They leave if things are that unfair or one-sided. Some start their own companies.
And, no Ken, I have never advocated “dismantling” the current system. At the most extreme, I have suggested that re-establishing the income tax rates (adjusted to current GDP growth) of 1960 might be a good idea. How is that “dismantling” anything?
I would like to play devil’s advocate for a second….Let’s say we go with some kind of solution that you would be more apt to support, some kind of change in the current system which raise the floor for lower-compensated employees and lowers the ceiling for higher-compensated employees.
How would that be administered? Would we have government-mandated wage and price controls? What would happen if, say, companies were found to be in violation of the system?
You act like we don’t ALREADY have a distribution system and that I want to just establish something new, run by the government. We ALREADY have a distribution system run by the government. That’s what regulated capitalism is. Capitalism exists because our government established that as an economic system. The rules of capitalism are established by government. Taxation, regulation, trading policies are all established by government.
I am not advocating a government takeover of capitalism, because government has ALWAYS ruled over our capitalism-driven economic system.
The problem is that the rich have taken over the government and rigged the distribution system for their own benefit. I just want to tilt the scales back to something more balanced.
Ken, let me address one of your scenarios in more detail.
Ken: ====================
The starting point in Steven’s responses is collective or group ownership of the income, which is why the responses always revolve around “distributing” that income “fairly”. Or characterizing highly compensated individuals in negative terms when their companies finally become highly profitable and thus their salaries go way up. Nevermind that owners actually own the company and rank and file empoyees do not. Nevermind that these owners invested their own money to start the company, came up with the product, idea, or service that is generating the income, took the risk of failure that rank and file employees did not, took little or no salary when times were hard, and probably went into debt to pay their employees their full salaries so that those employees could still have an income even though the owner didn’t. None of that matters. All that matters is that the company is successful now, so employees “deserve” an ownership interest in the profits, now that profits actually exist.
=============================
Obviously, I would object to the scenario you describe, as would most people. But there are other scenarios. just as absurd, that have actually played out in the real world. Such as when coal miners worked in company towns, forced by circumstance to buy their goods at inflated prices in company stores and pay their high rents in company housing such that they were always in debt. They risked their lives and their health daily, but never even broke even on living expenses, while the coal companies profitted handsomely. Some would say they worked willingly according to a mutually agreed contract. Others would say they deserved better and were being taken advantage of.
Again: I do NOT believe in collective or group ownership of income. That is a complete distortion of my argument and my philosophy. But I also do not believe that bullies should be allowed to keep whatever they can acquire by force, whether that force be physical, political, or economic. If you truly believe there is nothing wrong with 95% of new income going only to 1% of the population, I would like to hear your justification. Do you truly believe that the American workers have not justifiably earned more of that income; that only the managers and investors who control the markets have legitimate moral rights to those profits; and that this is an economically sustainable system? Or do you think maybe that the economy would function better if SOME means were established to reward more Americans for their honest labors?
That’s not it exectly, Ken. You make my argument sound more socialistic than it really is. What I believe, rather simply, is that wealth and power aggregate. In other words, in a competitive system with few or no rules, the more agressive and competitive factions continue to grow at the expense of the less aggressive factions. Referencing back to Piketty, capital is shown to grow faster than labor income. Why? Because those with money know how to get more money. They have the nogotiating advantage and leverage. Wealth and power begets increased wealth and power.
It’s a little like a car accelerating out of control down a hill. It seems like rapid progress to the inhabitants of the car until they find they can’t steer away from the cliff. What I advocate is putting “brakes” on the growth of capital so that the ideals that you and Peter obviously advocate can actually occur. I want to live in a world like you describe, where all you need to do is get your education, work hard, apply your mind and body, find your place in the world, and receive a just and happy and economically sustainable reward. But if the aggressive competitors in the world continue to be as successful as they have been at vaccuuming up the spoils of progress before any one else can get their share, we will not be able to re-establish such a world.
How do you propose you keep “wealth and power from aggregating”. I still have yet to see any specific proposal that you have in mind that will do this. Even our brief agreement a while back doesn’t change the system. Wealth and power will still ‘aggregate’ as you say.
I would also request a specific example (anecdotal, I know) of “the most aggressive competitors vaccuuming up the spoils of progress”. We have established already that this is not the case with:
1. Small business owners – mostly “eat what they kill”
2. Innovators like Apple, Facebook, Google, etc. – even rank and file employees are typically treated quite well by these companies and I think we all agree that those that answer phones shouldn’t get paid anywhere CLOSE to what those that design IPhones and invent things do.
SO – Where exactly is this happening? Specifically.
Look, I know it seems like this is the case. But I keep engaging with you looking for the source of your point of view. I want to see, feel, hear and understand how you have come to the conclusion that people are being “stolen from” or “treated unfairly” or that the ability to make your way in our society has been usurped. I still haven’t seen it. Just pointing out that there is income disparity doesn’t tell me anything. Where is the source of this evil? Who are those that seek to ruin others while fattening their own pockets?
Peter: ====================
How do you propose you keep “wealth and power from aggregating”. I still have yet to see any specific proposal that you have in mind that will do this.
=========================
I thought I covered this already. Here are my specific proposals.
1) Trade laws that encourage domestic hiring
2) Labor laws that balance negotiation leverage between labor and management
3) Highly progressive tax laws that encourage reinvestment in business rather than overpayment of executives.
4) Tax rates that fully fund government and national infrastructure
Peter: ========================
I would also request a specific example (anecdotal, I know) of “the most aggressive competitors vaccuuming up the spoils of progress”. … I want to see, feel, hear and understand how you have come to the conclusion that people are being “stolen from” or “treated unfairly” or that the ability to make your way in our society has been usurped. I still haven’t seen it. Just pointing out that there is income disparity doesn’t tell me anything. Where is the source of this evil? Who are those that seek to ruin others while fattening their own pockets?
========================
WalMart, most fast food franchises, almost any corporation with more than 2000 employees, banks, investment houses.
Even professionals are fleeced. I know folks who have worked at large law firms who are worked 80 hour weeks with only small increases in salary, while the partners profit handsomely. The big accounting firms are notorious for similar treatment of their low-level employees. Even large engineering firms tend to give pay raises barely above inflation as annual profits soar.
The proof is in the pudding. Much of the wage suppression is subtle; the difference between decades of 2% annual raises vs 4%. But the mere existence of the huge increases in disparity that have been proved, shows there is a serious problem. There doesn’t have to be some evil mastermind behind it all. I am not saying that there is some evil thieving usurping cadre of cloaked money manipulators. It’s all being done in plain sight, often by earnest businessmen such as yourself who are just trying to wring out those extra profits by keeping wages and expenses low, and who feel like they earn a hefty percentage of corporate profit for their labors and note that others should just follow their example if they want to earn more.
But just because the people controlling the economy and wages and policies may be earnest, does not mean that their actions are not damaging and insidious. I don’t have to find an evil economic mastermind to know that the impact of high income slopes on our economy is more destructive than most plans such a mastermind could establish.
Your examples both here and in the reply to Ken are interesting. To say that most companies with over 2000 employees aren’t paying their lower ranked employees enough is a heck of a statement.
And out of your “solutions” only really #2 even addresses this. Raising personal income taxes won’t get big corporations to pay their employees more. How do you make that connection?
Should WalMart be told by the government how much they have to pay people? Should a greeter, shelf stocker, cashier all make mandated amounts? Do they all get paid the same regardless of what city the WalMart is in? Would there be a cap on what the Waltons can make? Do shareholders have a say in this?
You are very idealistic. Still….you offer no real applicable solution for modern day society. Saying “taxes that fully fund government infrastructure” for instance is just political conjecture and not a real specific, actionable solution.
Peter’s explanation of Income Disparity:
=====
Income disparity – due to many factors including a changing economy, tighter corporate spending due to fear, higher expenses and taxes and government gridlock, changing demographics (the marriage issue Ken has brought up) and the continual transition from the manufacturing age to the information age. There is a larger premium than ever being paid for education, skilled, experienced workers. Those with basic skills just don’t have the options they once did in a 2015 economy.
=====
– Changing economy (Yes)
– tighter corporate spending due to fear, higher expenses and taxes and government gridlock (No, taxes went DOWN, not up in 80’s which was when income disparity began its meteoric rise. Yes, gridlock did impact disparity by preventing government from taking more immediate actions to raise taxes and help middle class.)
– marriage issue (No. Emphatically no. This is just more poor-shaming. Can’t we talk about economics without talking about what awful, immoral, unwholesome people the poor are? Divorce by poor does not cause the richest 0.1% to have 3 to 4x their share of historical income and 3 to 4x historical wealth. It’s more likely the reverse. The poverty at the bottom is caused by usurpation of national income and wealth at the top, and this in turn breaks up families and marriages.)
– There is a larger premium than ever being paid for education, skilled, experienced workers. (Really? How about this?
http://americawhatwentwrong.org/story/programming-jobs-fall/
)
Unemployment and underemployment of college graduates are double what it was in the 1990’s, as college graduation rates have increased.
google: Slate How Bad Is the Job Market for the College Class of 2014
My point is that college education is not a panacea, nor a guarantee of success. College is important for a certain percentage (30%?) of the population. But we also need to efficiently direct the rest of the population toward the trades and other jobs available or required, and encourage companies to train non-college-grads for the specialized positions they need filled.
The marriage issue is not even related to what you call ‘poor shaming’. It actually has more to do with the top than the bottom. Ken explained this in detail several times a few weeks back. Nowhere in that point is there any assumption that the poor are awful people (you should know me better than that by now).
Tighter corporate spending has led to a slower increase in jobs – which hurts the middle class more than the 1%.
Nobody said college education is a panacea. Last I checked, there was no solution that was a cure-all to income disparity. Just throwing out important ideas – and education is certainly one of the big ones.
OK I overstated the “awful people” part. I’m just tired of hearing about divorce as a cause or marriage as a solution to economic woes.
As for tighter corporate spending and not creating jobs … I think that has more to do with there being less significant market and disposable income in the middle class. I can’t fault businesses for not building more shops and hiring more employees when there are no customers. Customers are the job and wealth creators. Customers spend the money. But customers have to have money to spend. Corporations have been so concerned about the COST of labor that they have almost comletely diminished the REWARD of labor that creates customers, jobs and national wealth.
Don’t agree but kind of a pointless argument to speculate why companies aren’t hiring. Most of what I know about is in the small business world which has been choked a bit by the recent tax increases. But those aren’t the people we are talking about here – talking about mega corps. Who knows….
“kind of a pointless argument to speculate why companies aren’t hiring.”
I disagree. Much has been stated about how the middle class and working class are struggling, how disposable income has shrunk, how increased prosperity of the middle class and working class would actually spur the economy and create jobs and business opportunities. Such speculating and investigation about these things is not pointless. It is essential.
Perhaps you mean that speculation is pointless when we don’t know the actual reasons. But we do know the reasons. Companies create jobs to feed a market and customers. Small or negative growth in customer base means no new jobs.
How about this article (from 2013 I think)
https://smallbusiness.yahoo.com/advisor/obituary-american-middle-class-155040791.html
“… the middle class in the U.S. economy is actually earning less, which is something the politicians are not talking about.
Since the beginning of 2000, the rate of change in real disposable income per capita in the U.S. economy (that’s disposable income adjusted for inflation) has been declining.
In the first quarter of 2000, the 12-month rate of change in real disposable income per capita was up 3.2%. In the first quarter of this year, the same statistic was in negative territory—and there was no change in the second quarter. (Source: Federal Reserve Bank of St. Louis web site, last accessed September 4, 2013.) The incomes of Americans are actually declining, contrary to what you’d see in periods of economic growth.”
I meant pointless to argue about it with you. We won’t get anywhere here.
To clarify … What I mean is that companies are hiring, but not at the rate they have been growing. Companies like Apple are sitting on billions of dollars in cash and not putting it back into growth. You tend to lean towards greed or corporations thinking they can’t sell their products, so why expand? I don’t agree. I think more has to do with the uncertainty of our economy, our labor markets, and our policy. That’s all…. but we probably won’t agree here, which is fine – as this is somewhat of an auxiliary topic.
Perhaps we can’t find enough concrete data to prove this either way, but it is a really important point and so I’ll try to justify my position.
The one thing big corporations are really good at is aggressively identifying markets for growth and investing money to wring profits out of that market. Saying that companies are sitting on money because of some “uncertainty” diminishes, I think, the aggressive posture they usually take and that they are designed to take. I think it makes a lot mores sense to assume that they are not investing money in expanded products and jobs and marketing because they foresee insufficient likely return in such investment. Meaning there is liitle or no market for that investment. And it makes a lot of sense to me that there would be MORE market if consumers had MORE income.
So my theory (not really mine, but the one I ascribe to) basically has the following elements.
1) Income has migrated to Rich – We already know that the lower 90% of Americans share of all income has dropped from 66% of all income to 50%; and that the upper 1% American shares have grown from about 10% to almost 25%.
2) We know that there is a lot of investment money in banks, investment houses and mega-corps that is either on the sidelines and/or in greatly increased (by historic comparison) top salaries and incomes.
3) We know that debt in middle class has increased and that salaries have grown slowly, stagnated, or declined (depending on specific part of middle class).
4) We know that middle class consumers are repeatedly described as the “engine” or driving force of the economy.
From the above four points, all of which are numerically provable and/or generally acknowledged, it is a small leap to suggest that the overall economy would improve if we could somehow move the sidelined investment money (and some of the inflated high-end salary dollars) back into the middle class. Perhaps the only disagreement here is HOW to do it.
Grammar correction – I should have said subscribe, not ascribe …
“A new study shows that the gap in the wealth that different American households have accumulated is more exreme than any at time since the Great Depression”
http://fortune.com/2014/10/31/inequality-wealth-income-us/
“From the Great Depression in the 1930s through the late 1970s there was a substantial democratization of wealth. The trend then inverted, with the share of total household wealth owned by the top 0.1 percent increasing to 22 percent in 2012 from 7 percent in the late 1970s. The top 0.1 percent includes 160,000 families with total net assets of more than $20 million in 2012.”
“Saez and Zucman show that, in America, the wealthiest 160,000 families own as much wealth as the poorest 145 million families, and that wealth is about 10 times as unequal as income. They argue that the drastic rise in wealth inequality has occurred for the same reasons as income inequality; namely, the trend of making taxes less progressive since the 1970s, and a changing job market that has forced many blue collar workers to compete with cheaper labor abroad. “
Many points get unanswered in the rush hours of this blog. Since we’re at a lull, I want to go back to a few items:
Peter: “I do believe wealth inequality is largely determined by decision making – particularly in an economy with upward income mobility. … What higher taxes on the wealthy will indeed do, however, is decrease WEALTH inequality. Which is where I strongly object and have a total and absolute fundamental difference with people like Steven H.”
Decision making certainly impacts your relative position within the economic lineup, both in income and in wealth. The critical question in both the income and wealth distribution issues are not whether successful hard-working people should earn or keep more than their less successful citizens, but how MUCH more.
Growing wealth inequalities are just as troubling as the high income slopes and are just as worthy of consideration. As always, the issue is not whether people who accumulate massive wealth have the right to keep it in their and their family’s domain, but whether the wealth of the nation is being invested in productive fashion. It get’s back to the old Ben Franklin homily:
“All the Property that is necessary to a Man, for the Conservation of the Individual and the Propagation of the Species, is his natural Right, which none can justly deprive him of: But all Property superfluous to such purposes is the Property of the Publick, who, by their Laws, have created it, and who may therefore by other Laws dispose of it, whenever the Welfare of the Publick shall demand such Disposition. He that does not like civil Society on these Terms, let him retire and live among Savages. He can have no right to the benefits of Society, who will not pay his Club towards the Support of it.”
Wealth and income taxes are just means for adjusting the economy, although the founding fathers were also aware that it was a touchy subject.
“Taxes are never welcome to a community. They seldom fail to excite uneasy sensations more or less extensive. Hence a too strong propensity in the governments of nations to anticipate and mortgage the resources of posterity rather than encounter the inconveniences of a present increase in taxes. . . . when not dictated by very peculiar circumstances, is of the worst kind. Its obvious tendency is, by enhancing the permanent burdens of the people, to produce lasting distress, and its natural issue is in National Bankruptcy.”– Hamilton
“The critical question in both the income and wealth distribution issues are not whether successful hard-working people should earn or keep more than their less successful citizens, but how MUCH more.”
Who is authorized to make this judgment call? And no matter what the laws are or how society is distributed, we will never settle on what you call a “fair share”. Pointless conversation and very subjective. Just when we were starting to work towards productive solutions, you come right back to taking more out of the pockets of others. (Or, taking more of a share of future inflows) Also not a panacea.
Income disparity levels are not completely arbitrary and relative. It’s not as if they can’t be measured. There are historical norms and standards. When you tune an engine, you take it out for a drive and see what works. We have been driving this national car for almost 250 years and we have a lot of history to tell us what works and what doesn’t. The income and wealth disparity levels of the Gilded Age are clearly not healthy. The levels of the post-WW2 years are healthy. We are closer to the Gilded Age right now.
Consider the following and see if you don’t agree we are headed for (or already in) big trouble.
http://www.salon.com/2015/02/10/5_facts_that_show_half_of_america_is_seriously_struggling_partner/
Short version:
1) No savings – Almost two-thirds of Americans don’’t have savings available to cover a $500 repair bill or a $1,000 emergency room visit.
2) Lost wealth – Between 2007 and 2013 median wealth dropped a shocking 40 percent, leaving the poorest half with negative wealth (because of debt), and a full 60% of households owning, in total, about as much as the nation’s 94 richest individuals.
3) Higher costs, lower income – Food costs have doubled since 1978, housing has more than tripled, and college tuition is eleven times higher. The cost of raising a child increased by 40 percent between 2000 and 2010. Median household income has been going down since 2000, with the greatest drop occurring since 2009, as 95 percent of the post-recession income gains have gone to the richest 1%.
4) Wage declines – Jobs that kept the middle class out of poverty — education, construction, social services, transportation, administration — have seen a decline since the recession, especially in the northeast. At a national level jobs gained are paying 23 percent less than jobs lost.
5) Child Poverty – There’s been a stunning70 percent increase since the recession in the number of children on food stamps. State of Working America reported that almost half of black children under the age of six are living in poverty.
Steven,
On several occasions you have referred to our time as most similar to the Gilded Age.
I’m thinking our age is a bit closer to pre-Revolutionary France. Simple solutions trump complex realities. Assertions are judged not on their merits, but by who made the assertion, and who is the target of the assertion. Emotions trump reason. Mob rule prevails. Jokes by news-comedians demeaning our adversaries carry more weight than actual knowledge. Beliefs trump evidence. Challenging the assumptions and beliefs of “the cause” is highly discouraged. Those who don’t agree with the “right” point of view, or who we deem as our enemies, are candidates for whatever we deem appropriate, such as economic decapitation. Group identity politics dominate. Being a member of an approved victim group is a valid excuse for all kinds of unacceptable behavior.
Ken,
I don’t know that much about pre-revolutionary France or “approved victim groups” (Who grants the approval?), or French news-comedians (who were they?). Part of the cause of the revolution (so I read in summaries) was due to intense resentment of the privileged aristocracy, such as has been building in this country, so perhaps your analogy is apt. Hopefully, our coming revolution here will be less violent.
I have to object to part of the rhetoric you keep using. Adjusting taxes is not “taking money out of the pockets of others” unless you also consider suppression of unions and tax breaks to the rich that underfund national programs as also “taking money out of the pockets of others.” You don’t like me to talk about the rich taking from the poor but you seem perfectly comfortable accusing the poor of taking money from the rich. Government is a shared enterprise, a compromise to meet the interests of all citizens. If you start describing every tax and every economic change as a theft from one person by another, then you are hindering the conversation and the process.
We have clearly had a shift in income and wealth from poor to rich and it is clearly hurting the overall productivity of the nation and the individual prosperity of more than half of the citizens. Do you want to describe that as the rich taking from the pockets of the poor?
And the problems of income and wealth disparity are a distribution issue. GDP will grow at average rates of 2 to 5%, and it is up to the leaders and voters of this nation to design the laws and negotiating strengths and market rules that govern the distribution of that income and wealth to the citizens. It is crazy to me for people to admit that we have an income distribution problem but they want it to be solved without actually altering the distribution.
I have never once accused the poor as “taking from the rich”. I also don’t think the rich have taken from the poor either.
I guess I don’t carry the same weight as you do for “historical norms and standards”. I don’t see how anyone can compare our current society – in all its strengths and weaknesses – to any prior American era. Nor do I think we should try and strive to achieve this.
“you come right back to taking more out of the pockets of others”
“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.”
“How do you propose changing the length of the spring (so to speak) without taking from the pockets of those at the top?”
“You don’t “solve” the income disparity by taking wealth from others.”
“But the problem can not be solved by simply taking more money out of the pockets of others. ”
No, Peter, i agree you have not directly said the poor are taking from the rich, but you obviously believe that someone is or is trying to “take from the rich”. What I am saying is that rhetoric is empty and counterproductive. Every tax policy, every economic decision, every new law and regulation moves money around from one place to another. If we go around describing every economic policy in terms of someone picking our pockets, we get nowhere.
We have an income DISTRIBUTION problem. That means to fix it, by definition, the DISTRIBUTION must change. You have convinced me that small business should be largely left alone in this process, but if we are to fix the problem where two thirds of the country can’t afford an extra $1000 medical or car repair bill from month to month and the top 94 families own as much as the lower 60% of households, and 95% of new income gains go to upper 1% while most salaries stagnate and decline, then the richest 0.1% are going to have to start getting less or getting taxed more, and wages to middle and working class must increase. Yes this is redistribution. Redistribution is NOT a dirty word. it is the SOLUTION to the really crappy income distribution that is dangerous and crippling to this nation.
You say you can’t solve the distribution problem by taking from the rich and giving to the poor. You are correct. You fix it by stopping and correcting the process of over rewarding the rich and under rewarding everybody else.
Couldn’t disagree more. You change the SYSTEM so that everyone has a chance to earn more money. You create opportunity, the answer doesn’t lie in continuing to widen the progressive tax code. I have said a million times – and illustrated with numbers – that this doesn’t solve anything. In order for the solution to be redistribution, you would have to dramatically increase taxes on the 1% which would include far more people than the CEO types you loathe.
“You change the SYSTEM so that everyone has a chance to earn more money. You create opportunity, the answer doesn’t lie in continuing to widen the progressive tax code.”
How, Peter would you change the system? So far, you have only proposed that people at the bottom of the stairs push past their neighbor to get further up the stairs, but none of that changes the SYSTEM. It is just individuals jockeying for a better position in a bad system. Currently, the nation’s economy is growing but 95% of the income gains from 2009-2012 went just to the upper 1%.
Again: 95% of ALL income gains from 2009-2012 went JUST to the upper 1%. Why do you not find this appalling?
http://blogs.wsj.com/economics/2013/09/10/some-95-of-2009-2012-income-gains-went-to-wealthiest-1/
I want to change the system to get some of the national profits to everyone. Like we used to do. You keep saying that hard work and success is already rewarded in this country, but for 99% of America it is not true. What in the SYSTEM are you willing to change to fix this?
I would note once again that the world has changed dramatically in the last 30-40 years. What some people describe as “increased wealth/income inequality”, I see as evidence that some people were highly compensated for world-changing accomplishments. Let’s just look at some of what’s happened in just the last 15 years.
Fifteen years ago, there was no Twitter, Facebook, blogs, TiVo, Wikipedia, YouTube, online shopping, Wi-Fi, Google, downloads, iPhones, iTunes, iPads, online phone books, or phone apps. China was still a Third World country. There was no online bill pay, hybrid cars, digital cameras, and of course, no phone cameras. Nobody knew what GPS was. “Kindle” was what you did to a fire. DVRs didn’t exist, only VCRs. There were no flat screen TVs. There was no text messaging, no satellite radio, and Amazon was a river… or maybe a large woman.
Bezos, Zuckerberg, Jobs, Allen and thousands of others like them made a lot of money because they created enormous value at a price that people could afford and were willing to pay. They innovated. They employed hundreds of thousands of people. Some of those people retired as millionaires. They did nothing less than change the world.
Yet because these world changers were highly compensated for doing so, we are to believe that the salaries they drew is evidence that things have actually gotten worse.
Well said Ken. Should have read this before I replied to Steven H. There is no comparing our society to historical norms in the aftermath of the unprecedented growth of the Information Age.
So Ken, would you like to just give ALL of the nation’s wealth to the technical pioneers since nobody else deserves any of it? Or maybe just let everyone else have a small food stipend and a hovel to sleep in?
Of course not. It is crazy to speak as if there is no reward too great to give to the most successful inventors and businessmen. At some point you have to recognize that the economy only grows so much each year, and that we should not be giving all of the new national profits to just a few people. It is unstable. You don’t have to even compare to history to see that is a dumb way to invest our national profits.
“….(These world-changing innovators) …employed hundreds of thousands of people. Some of those people retired as millionaires. ….”
So being able to retire as a millionaire… oftentimes in your thirties…..is “a small food stipend”?
Words to be removed from this debate…. “deserve” and “fair”. No industry illustrates the “rising tide raises all boats” story like the technology explosion of the late 90’s. Again, the offshoot of the information age is that we have much larger separation between the innovators, the educated, skilled labor, and unskilled workers. We must educate people to move into the information age as every year we lose more and more unskilled jobs to robots (remember the worry about this in the 70’s and 80’s?) and the higher pay premiums goes to those with skills.
[So being able to retire as a millionaire… oftentimes in your thirties…..is “a small food stipend”?]
How did you get that out of what I said? Not at all what I said or meant.
My point is that great reward should be given for great achievement. But you seem to think that there is no limit to the reward that is justified, and that only those who control the money flow or own the invention should receive any reward. There are limits that should be applied at the top, and credit that should be given all around. And it has nothing to with being fair or deserving. It’s all about maximizing economic growth and opportunity for everybody, not just heaping excesses of reward on a few superstars.
“….There are limits that should be applied at the top, and credit that should be given all around. And it has nothing to with being fair or deserving. It’s all about maximizing economic growth and opportunity for everybody, not just heaping excesses of reward on a few superstars.”
No, it’s about “ownership interest” in the profits as I mentioned in the previous posts. You want everyone to have an ownership interest in the profits when in fact they are not owners. That’s what this boils down to.
What you decribe as “excess rewards” is simply unjustified opinion having nothing to do with key pillars of business such as contract law (employee contracts which clearly state what the compensation will be for services rendered); business law (who owns and is entitled to retained earnings); risks taken or avoided (what risks have rank and file employees taken vis a vis the business owner?); “key” employees (where would the business be without the owner-operator, i.e., Peter’s Justin Bieber argument), and so forth.
This is what I mean when I say you want to dismantle the current system. You want government to step in and “fix” things. You want government to insert your idea of “fairness” in lieu of the contractual relationships that business owners and employees have already determined for themselves were “fair”… as evidenced by their signatures on the employement contracts. You want to take away “excess” profits, whatever those are, from the people who earned them.
Add “justified” to a word to remove from the debate as well. All of those words – deserve, fair, justified, reasonable, excessive, etc. are subjective.
Ken is right in that you are denying the fact of “ownership rights” as part of the equation. You see everything like a giant labor market. 21st century America just doesn’t operate like this.
Ken – What Steven H would say is that yes, he understands contract law – but the game is rigged to give those with money and power the negotiating power. The rank and file employees get screwed in this deal as they have no ability to negotiate better pay for themselves. He also thinks that with this power, it allows the “key employees” the ability to keep more of the money for themselves.
The problem with this argument is – who is Steven H, Obama, or anyone to say what is “fair, justified, etc.”. This is all a judgement call that I don’t want anyone making for me. The irony of this is that it is the PUBLIC employees that most people would argue are the most ‘underpaid’ – teachers, firefighters, police officers, etc.
If someone invents something that completely changes and innovates the world (especially creating products that our bottom 20% in wage earners can all own, afford and improve their lives with), then they should likely become VERY, VERY wealthy.
And I would fully expect that anyone who worked for them through the process – in research, production, or even answering the telephone would benefit greatly as well, albeit proportionately.
Where you seem to have the issue is that the innovators (Gates, Bezos, Jobs, etc.) accumulate far more income AND wealth than the people at the lower end of the scale. And you view this as “out of proportion”, “historically askew”, “unfair”, “imbalanced”, “undeserved”, etc.
Of course those high income earners and wealth accumulators pay far more taxes than those at the bottom – which is a blatant attempt by our society to redistribute and equalize. We as a nation charge those that can “afford” it more to use the same services our government provides that others use for free (or at least much cheaper).
So – we already do this. But still you are troubled. Still you are bothered that Gates or Jobs made a higher multiple of their rank and file employees than the innovators of the 1950’s.
My simple question to you is this – how do you legislate this? And to what level? Do you propose that Gates and Jobs should have taken less stock options or less income? Should the government be setting limits on this – for instance telling them they can only have 10% of the company’s profits as income and that they must pay out the rest to their employees?
Your recognition of the situation is accurate. Your awareness of solutions like campaign reform, education programs, tax credits for keeping jobs at home are all very sound. But this is the part where your idealism falls short. Sure, you can say that the income share of the rich is out of “historical proportions” – but how do you propose we legislate this?
And I will ask you yet again… if you raise taxes on a small group of people, to what level do you propose? How high should they go to where it will feel right and improve the lot of our nation, yet not stifle innovation and entrepreneurship.
I would love to see a Steven H response to the long post above…. (starting with “if someone invents something”. Don’t want to repost but would love a reply.
Peter,
As they say, “the devil is in the details”. I have agreed that successful enterprise should be rewarded more than unsuccessful enterprise. But how much more? You are unwilling to set limits while I am. You say “let the markets decide”, but you don’t seem to acknowledge that the markets can be tilted, shifted, and manipulated. So then the question is: Who gets to control the markets, and how OUGHT they be controlled to get the most benefit for all?
So my question to you is this? How much of a share of all wealth and income to the upper 1% is too much? 20%, 30%, 50%, 75%, 90%? Anything is possible if you set the rules up right. How do you figure out when too much is enough?
How do you legislate a more balanced economy?
1) Trade laws that encourage domestic hiring
2) Labor laws that balance negotiations between labor and management
3) Highly progressive tax laws that encourage reinvestment in business rather than overpayment of executives.
4) Tax rates that fully fund government and national infrastructure
You didn’t answer my question with anything particularly concrete, but I’ll addres your reply….
3). How do highly progressive tax laws encourage reinvestment in business?
4). Why must the revenue side be to blame here. Do you really think we need more taxes to “fund infrastructure?”
Peter,
Peter: “When you used the term lobbyist, you made it sound like people were coming here to make millions petitioning the government to get favorable laws passed to help their respective industries. This has always been the case (maybe worse now, I wouldn’t know).”
It IS worse. That was a big point of the article. Lobbyists have quadrupled since 1981.
======
“At a time when promising investments were hard to find, corporate America learned that lobbying was one of the most surefire ways of bolstering its bottom line. … A growing number of companies,” Drutman said, “became fully convinced that having a large-scale Washington presence was a good strategic decision.” Pages in the Washington lobbying directory have *** quadrupled *** since 1981, he said.”
Campaign reform will or should probably cut down some of the lobbying money, but it will take awhile.
Fair enough – but hardly the primary reason for the economic explosion in the DC area. Campaign reform is definitely a big part of what we need – these last administrations have been an absolute joke and I can’t say I have much hope that the next administration will be much better. A function of the political process….
I would have to agree with this one point, that campaign finance reform is a good idea. The average guy on the street does seem to get drowned out by large campaign contributors.
I would note, however, that over the last 25 years corporations are not the largest political contributors. Unions are. They are 13 of the top 15 contributors to political campaigns between 1989 an 2014. See link below. Having said that, I think both unions and corporations are about equally culpable in this area.
http://www.opensecrets.org/orgs/list.php
That is interesting, isn’t it. Of course that makes sense since the actions of the government affect institutions like teachers and service workers FAR more than big business. As you scroll down though you see nothing but big corporations listed…. I agree they are both culpable and neither are really helping the average citizen or our nation’s progress.
http://www.motherjones.com/kevin-drum/2015/02/heres-big-problem-liberals-middle-class-agenda
This is kind of along the lines of what I have been saying….
Interesting post. What I get out of it is this:
Programs to help the actual middle class get torpedoed because better off folks, who have less or little need for the benefit, demand to also get a piece of the pie and it drives up the cost. It’s a big problem in democratic society, especially when money controls so much of the politics.
It also gets at a definition problem I have never understood. What is the middle class? From the basics of the name, it would seem to be the middle quintile, or perhaps the middle three quintiles, if you expand it. But while the bottom of the 2nd lowest quintile is almost in poverty and probably not feeling like “middle class”, the top of the 4th quintile is far from feeling like they are about to transition from middle to upper class.
In fact, Wikipedia charts for 2014 (under “American Middle Class”) suggest that the middle class is not in the middle at all. It has a low end of around $50K, or about the 50 percentile salary. Below that and you are in the lower/working classes. And Middle Class in this chart extends up into the $600K salary range, which I find absurd. Middle class should possibly stop at the upper 10% ($100K) or at least at the upper 2% ($200K). Not very much of a”Middle” if it extends well into the upper 1%, is it?
If no one recognizes how high up the ladder they actually are, it’s hard to help the lower folks climb.
Steven H – continually falling back on baseless classifications of people like “high income influence peddlers” and “economy manipulators” really doesn’t help what was starting to be a more interesting conversation. This is the exact equivalent of Peter N and others who you dismiss who use words like “libtards” and describe a lazy, worthless workforce looking for handouts.
Can’t we explore the situation objectively? My point in bringing up DC is to show the income distribution in an area that is prospering. I think you would take that income distribution, wouldn’t you? About 1/3 of everyone falls between $20k and $100k. Less than 10% are under $20k. While 19% are over $200k (which bothers you for some reason), very few of those are over $1 million in income. You slap this income distribution over the whole country and I think we have a pretty happy environment.
Of course, the DC situation can’t be completely replicated as you won’t get corporations and employers to spend as freely as the government. But I do think that the education level of an area, the types of jobs available and the strength of the economy are what drives all of this.
Why can’t we explore solutions along these lines? Why does it always have to be the “greedy CEO’s taking more than their fair share” vs. “lazy, good-for-nothing bums who are sucking off the Fed government” debate. This is a very banal and pointless juxtaposition.
I think that describing DC as a haven of lobbyists, who are basically influence pedddlers, is a fair description that most people would consider accurate. And I fail to see how it is offensive to point out that politics is largely a scuffle about how to manipulate the economy to benefit certain constituencies, and that political money is injected in great quantity to favor those who can inject it. I think these characterizations are straightforward and self-evident. It’s nothing like Peter N’s continuous foul-mouthedness. But if you prefer, apply the term lobbyists instead of influence-peddlers to my argument and it means the same. I am simply pointing out that part of the prosperity of DC may come from direct spending by government, but also there is significant attraction of high income lobbyists to the area due to it being a base of political and economic power.
I think that imagining the income distribution of DC to be replicated across the US is a pleasant fantasy, but I fail to see how DC serves as a model that would indicate a path the nation can take. That’s all.
The problem with your angle…
It’s certainly not offensive to me to talk about the “dirty” politics largely driven by corporate or big money interests, but lobbyists are a small percentage of the high wage earners in the DC area. The DC area hasn’t grown the way it has due to lobbyists. That’s as dismissive as saying that a big part of our poverty situation is due to people just being losers.
You keep missing my larger point. You are trying to dismiss the DC area example with conjecture about lobbyists – which isn’t the reason this area has grown. The growth started almost immediately after 9-11. That is not related to lobbying.
Peter: ” You are trying to dismiss the DC area example with conjecture about lobbyists – which isn’t the reason this area has grown. The growth started almost immediately after 9-11. That is not related to lobbying.”
====
Not conjecture. Perhaps the facts below don’t dilute your larger points, but i am surprised that you, as a resident, would dismiss the impacts of lobbyists on DC economy, when my perception is defended by articles just a 5 second google search away.
http://www.stltoday.com/news/national/govt-and-politics/d-c-awash-in-contracts-lobbying-wealth/article_53336d9b-a75f-5a1a-bb19-d46d3186a960.html
“The avalanche of cash that made Washington rich in the last decade has transformed the culture of a once staid capital and created a new wave of well-heeled insiders.”
“The winners in the new Washington are not just the former senators, party consiglieri and four-star generals who have always profited from their connections. Now they are also the former bureaucrats, accountants and staff officers for whom unimagined riches are suddenly possible. They are the entrepreneurs attracted to the capital by its aura of prosperity and its super-educated workforce. They are the lawyers, lobbyists and executives who work for companies that barely had a presence in Washington before the boom.”
” … big companies realized that a few million spent shaping legislation could produce windfall profits. They nearly doubled the cash they poured into the capital.”
“Every morning on the Beltway, contractors, lobbyists and some of the country’s highest-paid lawyers sit in the nation’s worst traffic.”
“It’s hard to say exactly how many of Washington’s households in the top 1 percent draw their incomes from the broad business of serving, supplying or influencing the government. But an analysis of tax data by the Economic Policy Institute shows that the area’s 1-percenters are most likely to be lawyers and executives, or those who work in management consulting or IT. Nearly [ONLY!!! … steve] 1 in 10 of those households is headed by a government worker.”
“The federal government wasn’t the only one pouring buckets of new money into Washington in the 2000s. Big business did it, too.
At a time when promising investments were hard to find, corporate America learned that lobbying was one of the most surefire ways of bolstering its bottom line.”
“”A growing number of companies,” Drutman said, “became fully convinced that having a large-scale Washington presence was a good strategic decision.” Pages in the Washington lobbying directory have *** quadrupled *** since 1981, he said.
Legal services also boomed, fueled by the growing complexities of federal business regulations. The number of lawyers in the D.C. metro area increased by a third from 2000 to 2012, nearly twice as fast as the growth rate nationwide. And those lawyers have the highest mean salaries in the country, according to George Mason University’s Center for Regional Analysis.
The more companies spend on influence, the lower their effective tax rates and the higher their stock returns compared with competitors’, according to recent research. A company called Strategas has built an index to track the stock performance of the 50 companies that lobby the most; last year, that index outperformed the rest of the market by 30 percent.”.
OK – we agree here too but just using different rhetoric. I mentioned contractors as the primary beneficiaries in this economy, which is largely what the article is talking about. Secondly, the article also points out the fact I mentioned about the “rising tide lifting all boats” as many other non-government sectors (like the Tesla dealership for instance) are benefiting from the booming economy here.
There is such an astronomical amount of money being spent by our government that the contractors are all scrambling to get a piece of the pie. This is my point. The same thing would happen in Wilmington, DE if DuPont decided to ramp up spending at the rate the Fed has.
When you used the term lobbyist, you made it sound like people were coming here to make millions petitioning the government to get favorable laws passed to help their respective industries. This has always been the case (maybe worse now, I wouldn’t know). The government has become larger and more entrenched in our major industries as well in recent years, which increases the need – and impact – of lobbying as well.
But what a great article. The story of Mr Jefferson (movin’ on up?) does really tell in a nutshell the story of many of the 1%’ers I come across in the DC area. Small business entrepreneurs able to benefit from the booming public economy. Or small business entrepreneurs able to benefit from Mr Jefferson spending his money. Look at the bonuses he paid his employees and charitable giving, too – that’s what I see with the typical 1%’er as I have mentioned before.
It’s a truly astounding case study – again, one that can’t be replicated completely. It’s also one that could very possibly come crashing down very hard if our government continues to spend as they do and infiltrate the business world at this scale.
Love this line from the article: Crowell was drawn back to Washington by one of the byproducts of the boom years: a smart, highly educated workforce — the foundation for most of the world’s successful economies.
I do believe that education is the answer to most things – as you and Ken have been discussing. I know that I could double my revenues, for example, if I were to hire more people to replicate what I do (to allow me to be in more than one place at a time, essentially), but am reluctant to expand. I’m not reluctant because I don’t want to make more money. I’m reluctant because I haven’t found anyone properly qualified or with the right tools, education and background that I can even train. And those that I have didn’t want the slow trajectory of rising incomes I would offer, even if it meant making $500k or more at some point. We need more educated workers in the pot. You and Ken have had a good dialogue on this, which the comment in the article made me think of as being another place to improve income disparity.
Steven H, I am still watching you.
” It’s nothing like Peter N’s continuous foul-mouthedness.”
I have a foul mouth because I called you a libtard? Did you see that video I posted a link to a few days back. How else would you describe Democrats that want to tax all of a corporations profits? They probably don’t realize that their union’s retirement plan has invested in those very same companies.
“A prosperous corporate America – one in which companies spend their earnings rather than hoard cash (like they have been doing in the last 5-6 years) – will have the same [e]ffect across the nation.”
Well, I agree with you on this. If that is your point about describing DC, then I see it, and applaud it. If corporations spend their earnings, including the prospect of raising the rewards of common labor, providing training and apprenticeships for technical jobs, and applying reasonable restraint to the unfettered salary demands of CEOs and upper management, then we could be a much more prosperous nation. I don’t see that most of Corpoarate America is interested in this approach, which is why government may have to force their hand.
We agree!!!!! 🙂 That is EXACTLY my point about the DC example. This approach is FAR better than just taking money from the 1% (both past earnings and future earnings by the way) and giving it to the lower 20%. Now we are getting somewhere……
Then how do we compel Corporations to spend their cash to make the nation prosper, in a way that you find appealing?
I do have a few ideas here, although I wouldn’t claim to be “expert” in this. First, there must be incentives for hiring people domestically. Secondly, I do like the idea of tax breaks or even credits for training and education programs. An overly simple way to look at this is – say a company had X amount of dollars of the government’s money to spend on training. Use it or lose it. They would then establish these programs – not at their cost – and not only find more attractive employees with the skills they need, but also help the community have more of an entry into the job market. Thirdly, low interest rates are supposed to help keep corporations investing their capital. Finally, I do really believe that if corporations didn’t feel so much uncertainty and instability from Washington, they would put more of this money to work. The ACA act and constant rhetoric about future programs and extra taxes definitely plays a role in companies being much more careful with cash.
Those are my “off the top” ideas. Would love to hear more thoughts. Of course all of this does take having elected officials that don’t have their campaigns funded by corporations. So campaign reform – maybe not allowing corporate campaign donations – would be a fifth idea.
I agree with 1, 2, 3,and 5 and have no opinion on 4. Those are all good ideas!
Delighted we are in agreement on something! I was too busy earlier to note this with a longer post earlier. I not only agree, but have had thoughts along the same lines. As you said, we must encourage companies to hire domestically. If too much outsourcing is damaging our economy at home (as many believe it is), then there must be a carrot/stick to keep jobs here, whether that be an added cost to outsourcing jobs, tax break for hiring locally, or both. Same for training and education programs. It can be “government’s money” as you put it (really our own tax money), or could be a tax break for companies spending their own money. Companies also need to be incentivized to reinvest their capital in the business (and not in excessive management salaries). And campaign reform is essential. Corporations are not people in a political sense, and a few leaders of a large corporation should not get to use the weight of that corporation to swing their own influence around.
I think this is at the heart of the solution of income disparity – far more than taxing individuals more. It is also without the negative impact of choking small business owners with more taxes, which does directly impact employment and the economy. Getting major corporations to reinvest their capital is beneficial for all parties involved though.
Think we are in agreement here. And look, there is nothing wrong with raising taxes on individuals if necessary. Frankly, we already did that significantly in this past few years. Time will tell whether that helps or is not enough. The problem is if that is the “go-to” for the solution then it becomes somewhat of a bottomless pit. If we simply raise revenues by taxing our most successful people more and more – and offset that with more and more spending for political gain – where does it all end? The government can continue to claim they “don’t have enough” and ask for more money from the pot and more taxes from the rich.
The government has shown consistently over the years – as have many of us as individuals – that once you start tapping into a source it is addictive and hard to stop. Psychologically it works a lot like a credit card does for the individual consumer. We have to break our dependence and addiction to debt – and I truly don’t believe increasing revenues will do this. I think we will just spend more. But this is just conjecture as neither of us know what future leadership may do.
And by the way – I am genuinely THRILLED that we have moved past some of the rhetoric in here to come to an agreement. Thanks for the posts.
Hopefully people do not get mired in the politics of your post – differentiating and defending one party over the other. This is unfortunate. The general point I am highlighting is beyond that. The increased spending of the Federal government has buoyed the DC economy over the last 10-20 years….and that prosperity did indeed help the majority of the people, not a select few. Therefore, growth of corporate America would have a positive, across-the-board, impact on the economy as well.
A few differences though between the private and public sector:
1) The public sector’s “growth” is somewhat artificial. They simply started spending more and more money. Most companies (particularly those with shareholders) would likely only significantly increase expenses – i.e. hiring – if they had the revenue to cover it. Almost no major corporation runs a deficit year after year after year, for example. So for the same thing to happen in the corporate world, we would need actual revenue growth.
2) The Federal government has a cap on salaries (around $165k). Of course this isn’t the complete story as they also pay people hazard pay, overseas cost of living adjustments & housing, and of course contractors have NO cap in pay. They are the small business owners that we have been talking about (like me) where the sky is the limit. But, I don’t think even Steven H says they are not the problem.
To sum up, I think the following:
Income disparity – due to many factors including a changing economy, tighter corporate spending due to fear, higher expenses and taxes and government gridlock, changing demographics (the marriage issue Ken has brought up) and the continual transition from the manufacturing age to the information age. There is a larger premium than ever being paid for education, skilled, experienced workers. Those with basic skills just don’t have the options they once did in a 2015 economy.
Wealth disparity – largely due to decision making, long-term planning, patience, family values, etc.
You don’t “solve” the income disparity by taking wealth from others. You don’t solve it by giving the government more money to either spend or redistribute to others. Maybe you raise minimum wage. Maybe you improve education and training with subsidies and incentives. Maybe you help this with immigration reform or tax penalties for shipping jobs overseas. Maybe you change the education system to get our youth more prepared for the 2015 job market. Maybe the government readjusts their priorities from helping places like Iraq get the tools they need to have a democracy to helping our own citizens get the tools and skills they need to be successful here. But the problem can not be solved by simply taking more money out of the pockets of others. We are already tapping into their pocketbooks significantly as it is anyhow we still have budget deficits and more unaffordable programs being added every day.
(Need to proofread before hitting send…meant that most don’t think small business owners ARE the problem)
The reason I picked the administrations I did was because they were relevant in the discussion about whether or not the size of government has expanded in the past 20 years or so. Both parties seem culpable as per capita spending in constant $2009 have steadily risen regardless of administration.
“Has” steadily risen, not “have” steadily risen…. in that last sentence. Sheesh.
Agreed. Just saying that when you put administrations names people sometimes miss the point and start defending their party. I agree that both parties have been very similar in steady spending increases.
“The reason I picked the administrations I did was because they were relevant in the discussion about whether or not the size of government has expanded in the past 20 years or so.”
As GDP has risen (which is closely related to the sum of all incomes), government size has risen also. But, to be more complete, this is not just a trend of the last 20 years, but of the last 60 years. Per capita spending of federal govt in 2009 dollars has risen from $3,133 in 1954 to $10,174 in 2014, an increase of 3.2x. GDP has also risen by a multiplier of 3.2x in that same time frame.
We can each dispute whether government spending should grow with inflation or with GDP, but tha world-wide trend has been for government to increase with GDP.
None of this justifies increases in government spending to the extent that we’ve seen. “Everybody else is doing it” is not a good reason for us to do it as well.
The private sector has gone about the hard work of creating valued products and services to generate income. This does not entitle the government to increase spending without also providing added value.
At least for me it doesn’t. Maybe for you it does.
“Well, I would say DC is an anomaly unto itself, different from the rest of the country in a lot of ways, and yes, with its economy highly dependent on federal government spending. So my best guess is that the burgeoning economy in the DC is probably is due in large part to government spending, though I don’t know for sure.”
I agree DC is an economic income anomaly and that government spending likely directly funds part of that. An equally important influence is likely to be that DC attracts the high income influence peddlers who are trying to manipulate the economy to their (and their employers’) advantage; thus the existence in the DC area of about 10x the national average of $200K plus incomes.
I’m not really sure what the distorted income profile of DC has to do with this discussion however, except that it also distorts the true perception of the national economy for anyone living there.
LOL – interesting reply. How does DC attract ‘high income peddlers’ who are ‘manipulating the economy’? What are you even talking about? Most of the DC economy is driven by the Fed. This makes no sense at all!
My point is that the DC economy has grown tremendously due to government expansion and increased spending. And the rising tide raised all boats as the data I showed indicated. A prosperous corporate America – one in which companies spend their earnings rather than hoard cash (like they have been doing in the last 5-6 years) – will have the same affect across the nation.
Peter — I also found this rather short article not too long ago regarding income disparity. Granted, it is from 1996, and so it is a bit dated. But it hits on several of the issues which have been mentioned in these threads — education, two income families, and so forth.
http://www.ncpa.org/sub/dpd/index.php?Article_ID=13578
These two things caught my eye in particular….
” • More than 40 percent of the lowest fifth (quintile households) reported having no wage earners…”.
” • The fact that nearly 43 percent of the lowest income fifth have a head of household with less than a high school education seriously impedes their ability to earn…..”
I also found this article recently http://www.heritage.org/research/reports/1999/09/income-inequality
which I think sheds a bit of a different light on the quintiles discussion.
Among other things, it points out a fallacious assumption that most people probably have about quintiles: namely, that the quintiles have an equal number of people in them. That is, if you had 100 people and divided them into five quintiles, that there would be 2o people in each quintile.
But in fact, there are NOT 20 people (20% of the population) in each quintile. As of the date of this article (1999) over 24% of the population was in the top quintile, for example, and less than 15% were in the bottom quintile. This of course distorts income disparity analysis accordingly.
Another misleading feature of quintiles is that they don’t account for family structure, a fact which we have mentioned in this thread several times. Quoting from the article. …”…Only about 30 percent of all persons in Census’s bottom quintile live in married couple families; the rest either live in single-parent families or reside alone as single individuals. In the top quintile, the situation is reversed: Some 90 percent of persons live in married couple families….”.
The article specifically mentioned that people tend to marry others who are similar to them. So people in the top quintile often have two professoinal incomes, while those at the bottom are more likely to only have one non-professoinal income. This is similar to a point I made a while back about marriage/re-marriage and the tendency for divorced people like myself to seek out partners of equal earning ability.
Great articles. And yes – if two mid-quintile people marry, don’t they likely move up? The most organic way to income mobility.
And by the way, federal government has grown “dramatically” over last 20 years from 20.0% of GDP in 1994 to … wait for it … 20.3% of GDP in 2014. Revenue has grown dramatically from 17.2% of GDP in 1994 to … 17.5% of GDP in 2014 (after several years of <15% GDP revenue).
So maybe government has not grown so dramatically as you think in 20 years.
Interesting. So if the government hasn’t grown, why does the DC area have such a solid economy – from top to bottom – if the government revenue has seen the same percentage growth as the rest of the nation? That’s an interesting question isn’t it?
Could it be that we are among the top cities in education levels? Or that we have some of the best schools in the nation?
Here’s what is interesting – the District itself still has one of the highest income spreads (inequality) in the nation. Yet there is a VERY strong middle class across the entire area. Here are the spreads – mind you, from the District alone (from 2009):
under 10k – 12%
10k-20k – 9%
20k-30k – 8%
30k-40k – 8%
40k – 50k – 7%
50k – 60k – 7%
60k-75k – 8%
75k – 100k – 11%
100k- 125k – 8%
125k – 200k – 7%
200k + – 10%
I know this is just the District itself and not the suburbs. And just one American city. But do these numbers upset you?
Actually forgive me – these numbers are wrong….
under 10k – 4%
10k-20k – 4%
20k-30k – 4%
30k-40k – 5%
40k – 50k – 6%
50k – 60k – 6%
60k-75k – 9%
75k – 100k – 13%
100k- 125k – 11%
125k – 200k – 12%
200k + – 19%
Pulled from wrong chart. 🙂
The second set of numbers are the correct ones. Doesn’t look bad to me – little poverty, solid middle class.
Are you telling me that DC area has 19% of population making $200K +, when that is the upper 2% nationally? No wonder you have a distorted view of the economy. DC is a friggin rich man’s paradise!
Where you live and work is NOTHING like the rest of America.
Also, the numbers only add to 93%. I think you missed 7% somewhere.
Of course this is nothing like the rest of America. That’s kind of my point. We have a far more educated population and an economy that largely missed the “great recession” of 08-09 due to the massive government spending. This is MY POINT. A growing economy helps everyone. The problem is that most of America doesn’t have the major employer in the area writing blank checks. For things to turn around in Dayton, Ohio you need a growing economy – and for companies to feel comfortable spending their earnings. You need education. You need training. We need something to replace the manufacturing jobs that have been lost.
The DC area has been a benefactor of foolish and rampant government spending. It has put 19% of its population in the top 2%, yes. But think how many of those people were not in the top 2% prior to this economic boom. The growth of the DC area brought everyone up – some people jumped into the top 2%, while others moved out of poverty.
And I didn’t include the decimal points after each number, by the way.
I crunched the ACTUAL spending numbers in constant 2009 dollars for selected administrations / for the years in question. Source: http://www.usgovernmentspending.com.
I began each president’s administration in the second year after they took office. That’s because the budget for their first year in office was passed before they took office, by the previous administration. And for the same reason, they get “credit” for the year after they left office, as they were the ones who passed that budget, in the year before they left office. Here are the numbers….
Reagan FY 82-89: Total spending $21,032b; Yearly avg spending $2629b; Total deficit $2,451b; Yearly avg deficit $306b.
Bush 41 FY 90-93: Total spending $13,040b; Yearly avg spending $3260b; Total deficit $1,481b; Yearly avg deficit $370b.
Clinton FY 94-01: Total spending $29,687b; Yearly avg spending $3711b; Total surplus $25b; Yearly avg surplus $3b.
Bush 43 FY 02-09: Total spending $39,790b; Yearly avg spending $4973b; Total deficit $3,729b; Yearly avg deficit $466b.
Obama FY 10-14: Total spending $29,243b; Yearly avg spending $5849b; Total deficit $4,810b; Yearly avg deficit $962b.
So, Ken – your conclusion is that the burgeoning economy in the DC area is indeed due to increased government spending, correct? That’s certainly been my “man on the street” observation.
Well, I would say DC is an anomaly unto itself, different from the rest of the country in a lot of ways, and yes, with its economy highly dependent on federal government spending. So my best guess is that the burgeoning economy in the DC is probably is due in large part to government spending, though I don’t know for sure. What I can say for sure, though, is that the federal government currently spends approximately 61% more per person under Obama than what it spent per person under Reagan. Here’s how I came up wiht that number.
I took the average annual spending in constant $2009 that I previously posted, and I divided it by the approximate US population for the duration of each presidency. I looked up the population numbers at the US Census Bureau’s website. But rather than taking the actual population and dividing by the number of years in each administration (too much legwork), I took what seemed to be the average for the entire administration that I quickly calculated in my head. Mostly I looked towards the middle years of each presidency and if my estimated number seemed representative of the actuals, I used it. So my population numbers aren’t exact, but they are in the ballpark, and I think representative. So here we go…..
Reagan FY 82-89 – Avg annual spending $2629b divided by Avg of 240 million ppl in US = $10,954 average annual per capita spending in constant $2009 for Reagan administrations.
Bush 41 FY 90-93 — Avg annual spending $3260b / Avg of 250 million ppl in US = $13,040 average annual per capita spending in constant $2009 for Bush 41 administration.
Clinton FY 94-01 — Avg annual spending $3711b / Avg of 270 million ppl in US = $13,744 average annual per capita spending in constant $2009 for Clinton administrations.
Bush 43 FY 02-09 — Avg annual spending $4973b / Avg of 300 million ppl in US = $16,576 average annual per capita spending in constant $2009 for Bush 43 administrations.
Obama FY 10-14 – Avg annual spending $5849b / Avg of 330 million ppl in US = $17,724 average annual per capita spending in constant $2009 for Obama administrations.
So what I would say is that the federal government is spending 61% more for each man, woman, and child today under Obama ($17,724) than it did under Reagan ($10,954), in constant $2009. And since a lot of federal spending is concentrated in and around DC, probably a disproportionate number of those dollars are going into the DC economy.
“I took the average annual spending in constant $2009 that I previously posted, and I divided it by the approximate US population for the duration of each presidency. ”
Do you realize that the usgovernmentspending.com website allows you to plot and chart using multiple axes selections, including spending per capita in 2009$? You could have saved yourself some legwork by making that selection and reading numbers right off the table, rather than looking up population yourself.
Just trying to be helpful.
Peter,
Thanks for your perspective. I never want to give the impression that income mobility is unimportant. And yes, long-term decision making makes a critical difference in success. But income disparity still makes a huge difference, at the lowest and highest ends of the ladder, but also to the middle earners. Perhaps in DC there is a “false” economy; false in that it varies from the nature of the rest of the country. But unlike DC, in most of the country middle range wages have not increased much in decades. More kids are graduating college than ever before, but unemployment in that group has also skyrocketed in the last few years. The economy is starting to recover, but most of the gains in national wealth and income are still going almost exclusively to the upper 1 and 0.1%.
I think I understand your frustration that I don’t weigh the importance of mobility enough. But I am frustrated that you see no impact from increased disparity. If you will forgive yet another analogy: you are the economic gardener and it it is your job to make the financial trees of others grow. You see the difference that a little water fertilizer and sunlight and nurturing make. You want to focus on the potential of any individual tree to grow. But in focussing on individual trees, you are ignoring how the river has been dammed upstream to block the river from flowing as freely to the rest of the forest. You neglect how the well-nurtured trees upstream who get first shot at the water and sunlight, receive more water and grow taller to block the sunlight from the rest of the forest.
But we have been over this. You say that one tree has no impact on any other tree. Yet clearly, when negotiating advantages shift, then one person gains and another loses.
You ask “how significantly higher taxes on the rich is going to help increase the INCOMES of the lower wage earners. Why would taxing the CEO of a local company in my area cause increased wages to the other employees?” Here are some examples.
1) If government is to be funded, a dollar more from the rich is a dollar less that has to come from the middle or poor. After tax income of both groups is clearly impacted.
2) If programs are implemented to boost education of middle class, and they are primarily paid for with taxes from rich, the middle gets a long-term boost without the crippling college loans. Incomes of middle are boosted, as well as debts being decreased.
3) Increases in tax rates on high-earners and capital gains, as well as tax incentives to re-invest in companies or workforce may discourage the skyrocketing CEO wage competition, as boards will insist on more profitable (and less taxable) use of corporate profits, than paying their CEO more than the next CEO just to boost ego. Salaries up and down the line are impacted, because if the CEO is making less, the CFO and his team are making less, the rest of management team is making less, all down the line, except then there is more funding available to boost the common worker salaries, and companies will see the benefits in increased productivity and employee loyalty, and less turnover.
Just had some more random thoughts and figured I’d post them here….
I really do struggle with the idea of ‘income inequality’ as anyone who has read my posts knows. I do believe in the American dream and certainly have seen mounds of statistics and data and anecdotal personal stories of people moving up (and down) the income ladder. To me, mobility is what matters the most – not disparity – I just want to know that me and my family, friends and people I care about will have the opportunity to succeed.
Let me share what I see in my world…. I live in the Washington DC area, where there are many, many Federal government employees. The government has grown dramatically in the last 20 years as we have all documented. Much of this higher spending is paid to employees or contractors. Interestingly, the number of Federal employees hasn’t necessarily grown. Yet, their pay has increased quite a bit and opportunities for those servicing the government such as contractors (who the government often pays more to to accomplish the same task) have been abundant. This has been an enormous factor in the greater DC area becoming one of the top 2 or 3 most well-off metro areas in the country. I have been a huge benefactor of this myself – and in 20 years moved from making $20k a year to making more money than I ever dreamed of.
But here is my point…. Locally, this has created a tremendous middle class. Sure, we have the 1%’ers and we have our share of poverty. But we have a gigantic workforce making between $40k and $100k. Because of the rising tide of the economy, a dentist in the DC area makes alot more than they did 20 years ago, as does a dry cleaner, an auto mechanic, etc. In turn they have more money to spend as well which flows back into the economy and into our local, county and state governments as well with higher taxes both on income and real estate. This, in turn, helps the poor and less fortunate .
Additionally, this brings to light my last point (which Steven H didn’t reply to directly) – the impact of decision making. As a financial planner I do get to see many of these people’s finances and how/why they got where they are. I have seen hundreds of people who make $70k-$80k a year (as an example) and a wide variance of wealth accumulated. People make a wide variety decisions – marriage, children, moving often, buying a bigger home, etc. that impact them. The largest two factors I see that determine your wealth is your determination to save money for the long term and your decision making with those funds thereafter. Sure, I realize that if you are making low wages in an area that is more expensive it will be difficult to save much – but you can still do it. The decision making thereafter is where the biggest dividing factor is. I have seen people with millions who have never made a six-figure income. They also drive 20-year old cars, don’t take big vacations, don’t eat out in restaurants, contribute to tax shelters like 401ks and IRAs, budget their expenses carefully, don’t carry credit card balances, invest in riskier investments for the long-term, and don’t move money in and out of the “hot” or “cold” asset classes at the wrong time.
Steven H has pointed out on here a key point in our discussion. There is a difference between income inequality and wealth inequality. Wealth inequality is what I am talking about here. I do believe wealth inequality is largely determined by decision making – particularly in an economy with upward income mobility.
Income inequality is something else entirely, as Steven H would no doubt remind us. However, in a booming economy like the DC area – one driven by PUBLIC spending – we have seen ALL incomes rise. Even if the CEO of a local company increases their income faster than their employees, everyone is making more and more money as the tide rises. Without using the words “fair” and “deserves” in this debate (they simply have no place in an economics discussion), I’m curious how significantly higher taxes on the rich is going to help increase the INCOMES of the lower wage earners. Why would taxing the CEO of a local company in my area cause increased wages to the other employees? Wouldn’t it have the opposite effect? (It certainly would for small business owners)
What higher taxes on the wealthy will indeed do, however, is decrease WEALTH inequality. Which is where I strongly object and have a total and absolute fundamental difference with people like Steven H. There is a huge difference here.
Sorry for the long post – just had to vent and try and clear up one angle of this debate.
Peter Schiff at a libtard convention
http://youtu.be/07fTsF5BiSM
Anybody can see these guys are truly libtards.
It is total insanity that libtards are running the country.
They make me want to scream.
The libtards have no clue.
They truly deserve the name libtards.
The libtards don’t deserve respect because they don’t respect the efforts of others that can actually create wealth and jobs.
Peter N,
You do not respect the 99% of Americans who TRULY create wealth and jobs. Don’t you think the TRUE wealth creators should be able to keep some?
And you do not respect this blog when you continually use derogatory language. Say something intelligent. You haven’t in a long long time.
You seem to think that these 99% of Americans work for nothing. They get paid what the market will bear. It is a mutual agreement.
Since my last post my company has hired 2 more people. Lets see, before they were not working and now they are or before they were working but now they are getting paid more. If I don’t pay what the market rate some one will hire them away from me. That is the way things work.
A question you never ask yourself is how much of the wealth created is due to workers efforts or the return on capital?
Steven H, what have you done besides whine?
“They get paid what the market will bear. It is a mutual agreement.”
It is not a mutual agreement. You know better. The negotiating strength between a Wal-Mart and an employee is not on equal terms.
“A question you never ask yourself is how much of the wealth created is due to workers efforts or the return on capital?”
100% of return on capital is due to worker’s efforts. Without the workers, there would be no return on capital, and no value to the money whatsoever.
To be clear, the return on capital is due mostly to the efforts of workers who do not actually own the capital.
I’m not talking about those that didn’t invest. I’m talking about the millions who sold at the bottom and bought at the top. I do think you see victim shaming where it isn’t and read between the lines and hear political rhetoric where it isn’t. Your denial of individual culpability – and just how widespread self-damage is – is just as extreme as those who think that everyone in the bottom 20% is lazy and worthless.
I have repeatedly said that I support personal responsibility and culpability. I am just as offended at you mis-stating my position as you are when I have mistakenly put you in the GOP camp. Stop it.
As I said, some people had to sell at the bottom because they needed access to the only wealth they had left. Others panicked when they should not have. I just want you to consider all potential situations and not assume and blame people when you do not know their reasons.
Most panicked when they shouldn’t have. The data shows that the majority of the money in motion during these swings (i.e. sold at the bottom) were in 401k plans. They were not withdrawn – they were simply moved to money market options. The Federal government retirement plan itself sees hundreds of millions of dollars chasing returns every month – buying high, selling low – it happens like clockwork. These are not decisions that are explained away by “needing the money”. This is just foolishness and lack of understanding and education. This was my point. Decisions like this happen every day and widen the wealth gap constantly. (And never mind the 30% + of 401k assets that continue to sit in money market each year)
OK, I agree some percentage of people make poor decisions. I don’t know how many do this or why. I suspect it has to do with the fact that most people prefer to focus on what skills they are good at, and most people don’t make their careers studying how to make money, so they are not good at it. Which is why the financial services industry is so good at accumulating other people’s money; those other people’s bad decisions are the gain of those who spend their life doing nothing but figuring out how to get more money. Which is why the financial services industry is so bloated and why I distrust them.
Sorry, Peter, I know that is your business area, and there certainly needs to BE a financial services industry. But it was sized at less than 3% of GDP in the early 50’s and it is over 8% of GDP now. It really needs to be cut in half, or have most of it taxed out of existence. Just an opinion. I’m sure your business is incredibly useful, Peter.
Actually the “losses” people take by selling low don’t go into the pockets of the financial services industry. In fact, what we do is try and keep people from making these sorts of decisions. (selling low for example) The industry has grown from 3% to 8% as more and more individuals in our country have assets and need help managing them. In the 50’s most people had pensions and didn’t need to save on their own as much – nowadays with 401ks, IRAs, mutual funds, etc. there is a much greater demand for assistance.
I don’t consider my life’s work “figuring out how to get more money”. My job is to help people use their financial assets to achieve long term goals like paying for college, retirement, estate planning, etc. – getting people to plan beyond this upcoming paycheck and build wealth and financial security by making smart decisions.
Sure, there are always predators – people who try and “sell” the public into stupid investment decisions. Although I must say this was largely cleaned up in our industry by Eliot Spitzer’s Wall Street reform. To suggest that there should be some arbitrary cut to the financial service industry is idiotic. It’s growth is simply due to swelling demand. I honestly have more people asking for my services than I can handle…..I’m not out there “recruiting” or talking people into my services.
I am not sure what happened to you to make you so cynical and distrusting. To use an analogy, I feel like talking to you is like talking to a racist. (Not to suggest you are anything that awful, by the way….) You have decided that the majority of the members of a certain group are stereotypes that you choose to believe – evil, greedy, self-centered…. Even if I offer anecdotes about my personal life or the community I live in that counter this – you chalk me up as an “outlier” – unchanged in your blanket opinions of a particular group of people. It’s a shame, really – and I do think that your worldview and politics would be enhanced with a little more understanding. To anyone who knows anything about investing, the stock market, or the financial service industry, your last post looks really misinformed and undermines your otherwise valid perspectives.
Peter — I have friends who have done this repeatedly. While they also dollar cost averaged, they bought individual stocks when equity markets were up, hoping to make a killing. Then they panicked and sold when markets fell off. Exactly what you don’t want to do: while being risk intolerant, buy high, and then sell low.
In their case they bought stock in both WorldCom, and in Enron. Lost about $100k between the two of them.
On second thought, the WorldCom and Enron situations aren’t really examples of selling low, since both companies went bankrupt and my friends thus didn’t choose to sell low.
But they are good examples of buying high because you think markets are going to continue to go up, and taking on speculative risk when you are risk intolerant (which they are).
I know plenty of these stories too. Just like fear can motivate people to move their 401ks into cash, I remember during the dot-com boom people leaving great jobs to go work for “high upside” jobs in the tech industry. One friend took a job that paid 1/2 his pay at his current job, but offered stock options (that ended up being worthless). He worked 80 hours a week for half the pay. Had he taken the job two years earlier, those options would have been worth millions.
Lots of these examples in the real estate boom/bust. I had another friend who sold all of their stocks after the market went down in 2002 (about 35% down from highs) and bought real estate since it was “booming” in our area. Of course, he bought this real estate with interest-only loans, thinking that he had to ‘get in on the money to be made there’. Of course then this imploded soon after and he had to file for bankruptcy.
Investing and financial planning are just like dieting and general fitness and health. We know what to do – and it is hard to consistently make the good decisions on a daily basis we have to make to be successful. We have to think long-term rather than instant gratification. This is VERY difficult for most people.
Peter,
“Actually the “losses” people take by selling low don’t go into the pockets of the financial services industry. ”
I don’t just mean advisers such as yourself when I mean “financial services industry” (FCI). That covers banks, professional investors, insurance companies, hedge fund managers … all of it. And, no, the FCI has not grown from 3% GDP to over 8% because of financial advisers helping people out. It is because many of those folks in the upper 0.1% are in the FCI and their salaries and incomes and wealth have skyrocketed, and most of that is them helping THEMSELVES out by sucking the financial lifeblood out of the rest of the economy.
Perhaps my view is cynical, but it is also more realistic than yours. I would like to believe the quaint view that we can all be successful by just getting a good education and working hard. But the financial field has definitely rotated to help the rich get rich easier and to put weights on the poor to keep them poor. And yes, despite all of the objections about it not being a zero-sum game, the shift in negotiating strengths means that the poor’s loss goes to the benefit of the rich. So while you may be creating wealth and keeping a reasonable share, there are many who create little but accumulate many times their contribution, and this is to the detriment of the economy and most people.. I don’t know how you can be persuaded in the truth of this. It is obvious to many.
Then maybe you should zero in on who exactly you think is “creating little but accumulating many times their contribution” or who is “putting weights on the poor to keep them poor” instead of making blanket statements about a large group of people. Your commentary over the last few years certainly has included people like me in your wrath.
You are missing the point anyhow. Bad decisions play a GIANT role in separating rich from poor. To think that greedy CEOs play a bigger role than personal responsibility is what I think is foolish. I don’t think this is “obvious to many”.
And actually – you do think that raising my taxes (significantly) is the primary answer to the problems. You have repeatedly connected the dots to “those that have earned surplus or bonus income” – to those that should pay more to help the middle class. So you are telling me that my situation (and that of many small business owners) is not really the problem or the proper target culprits, yet you want to raise my taxes?
Peter, my posts of the last few months have REPEATEDLY said that I do not believe small businessmen such as those posting on this blog are the main problem. Yes I do believe that you, along with others at your income level, may be receiving SOME benefit from the changed slope of the economy, but probably not enough to be crippling to everyone else. And yes, I think a few more percentage points of tax has not hurt and will not cripple you. Ultimately, I think everyone in the upper 10% (includes me) may have to pay a little more to get the country on track.
But I have moved on, some time ago, to primarily critiquing another group which IS NOT YOU (unless you receive considerably more than you have implied). The upper 0.1% have, on average, tripled their share of the economy, and I do not find their function in such high esteem or purpose that the money they receive should be deemed either well-earned or wisely invested.
So please, when I point my ire at them, please quit jumping in the way to take the bullet. It’s not meant for you.
Our points are actually all too frequently firing past each other.
However, I really do get the point that quality of personal decisions and hard work generally make the difference in where you fall on the sequence of poor to rich. You could conceivably line everybody up in sequence of income and find the harder workers and the best decision makers are higher up the chain. There are a whole lot of exceptions as we have discussed, based on some measures of luck of birth or opportunity, genetics, friends, illness, etc.
But here is my point, which you NEVER acknowledge. Along with the ability to moe up the chain, or down it, which most people can control, there is the underlying structure of the economy which most people cannot control. You can think of it as a sloping playing field that has been tilting the rich to be richer and the poor to be poorer. Everyone can still move up or down the slope, but those on the bottom are a lot worse off than they should be when the tilt is sloped too high.
Another model, if you prefer, is a spring stretching vertically. You can have the two ends at an initial distance X or it may be stretched to 2X. When it is stretched, the top is higher and the bottom is lower. You can tell all the people at the bottom to climb up, but it doesn’t change the shape of the spring.
I keep to trying to argue how much better it would be to change the slope of the field or the stretch of the spring. You ignore this point and just keep saying the people at the bottom should just climb up. But that will not change the slope or the stretch. You just end up with different people at the bottom. You have to change the shape of the structure to make the economy work for everyone.
Fair enough. I won’t take your ire personally targeted at me..
Ok. I’ll play along with the spring analogy. Hopefully you do still acknowledge there is mobility among the spring. I certainly believe so.
How do you propose changing the length of the spring (so to speak) without taking from the pockets of those at the top? And without affecting someone like me who has had nothing to do with the problem you identify, nor benefitted significantly from it.
“How do you propose changing the length of the spring (so to speak) without taking from the pockets of those at the top?”
1) If the spring is unstable, it may change at any time, crashing the economy and taking from all. If you adjust the shape of the spring, the PROJECTED incomes at the top may fall, but nothing has been “taken from the pockets” because it was never in the pockets to begin with. It is in the future.
2) If you tax a person’s income, the person may feel that he temporarily had extra money that is being taken away. I think this is an inaccurate evaluation. The taxed portion, whatever it is, is the membership fee for being in the club. It was never the person’s to keep. The country provides an environment in which businesses can thrive. The country deserves payment for maintenance of that environment.
3) If the spring is temporarily stretched, those at the top have received a significant benefit, to the detriment of those at the bottom. When it is relaxed back to a normal tension, why should it be a requirement that the top keep it’s full benefit that is only possible from the existence of the unstable condition? What it receives instead is more long term stability at a still superior, though somewhat less elevated, position.
All of which takes from a person at the top….. Just a different way of saying it.
Just wanted to repost this as I thought it was a key point to what others have tried to say:
Steven H:
This thread of James and Confused is exactly the problem with the conversation. Rich, or even not-so-rich people thinking that every person with hard luck or a bit less success is a fool or an idiot.
I believe in personal responsibility but also social responsibility, charity, forgiveness, and helping someone get a leg up instead of a kick in the pants when they are down.
James:
Not a kick in the pants. Just don’t feel sorry for people that make stupid decisions and then play “victim”. There is no nefarious influence that makes people sell their stocks when they are low. And behaviors such as this continue to separate the rich from the not-so-rich.
I’m not part of the 1% – but hopefully I keep making the good decisions and long-term strategies that will one day make me part of that group.
======
Nothing separates the rich from the poor faster than good and bad decisions. The decision to buy or sell stocks is a great example of this. And I agree – there is no nefarious evil force talking the poor into making stupid buy/sell decisions. In fact, the financial advisory world is built on just the opposite. I imagine the wealth gap has widened significantly with the 6-year growth of the stock market. Yet, I know MANY people who sold in 2008-2009 and have been sitting this one out, making less than 1% in savings. I have since tripled my investment assets, while those that sold have not kept up with inflation.
Should there be something that equalizes our accounts?
Most Americans have almost no spare income available to invest. Complaining that a struggling family trying to meet housing and medical and education expenses is stupid for not investing in the stock market, is a little like asking why the bread-starved poor don’t just eat cake instead. Maybe these people pulled their money out because they needed it; because the crash devastated their income and other wealth. Did you ever consider that?
No one is questioning whether good decisions should be rewarded and bad ones should result in unpleasant consequences. It’s all a matter of degree. If someone falls off a horse, they should suffer the pain and be helped back up, so they can learn from their error; not be pushed off the cliff. A recurring unpleasant truth of human nature, reiterated up and down this blog, is the attitude I have dubbed “victim-shaming”, wherein those who are successful belittle and ridicule and disparage those of lesser circumstances. They always proclaim they pity the “true victims” which they have the irrefutable power to distinguish from the mere fools and layabouts, but that they are reasonably sure that most of the unsuccessful are the latter and not the former. This is a self-deception that is common and dangerous and which should be rooted out and discarded by anyone who believes themselves to be of even moderate intellect and humanity. We do not know our neighbor’s pains and barriers and troubles. All we really know is that they are not our own. We all can disparage our own bad decisions and punish ourselves for them. But that gives us neither right nor wisdom to disparage and punish others for circumstances we will never fully understand.
Steven H — “…No one is questioning whether good decisions should be rewarded and bad ones should result in unpleasant consequences. It’s all a matter of degree.”
I agree with this part of your post. A lot of the discussion in these threads has been a matter of degree. The question seems to revolve around where you draw the line between giving a helping hand, versus requiring the individual to do their part. I would say that the perspective I have is that there is a small percent of the population which cannot help themselves due to any number of reasons, mental or physical incapacity, disease, or whatever.
However, I would also say that most people are not in this boat. And it also seems to me that there is a lot of opportunity in this country for those who are able bodied and are willing to do their part. I will cite education as an example.
As I’m sure you know, an oft-quoted saying is that “Education is the great equalizer”, meaning that higher education is the great equalizer of outcomes for people who came from signfiicantly different socio-economic backgrounds. Numerous studies have shown that a person with a college degree will earn $1 million more than a person with a high school diploma.
So, since the discussion here is about inequality and “best paths” (or at least “some” paths) for helping the poor, I think one of those paths is making the opportunity for a higher education extremely accessible. This is why I have suggested it in various forms more than once in the many months these threads have existed.
One requirement of higher education, though, is that you have to be an active voluntary participant in it in order to acquire it. You cannot be passive and have it handed to you. You are not required to go to college as you are K-12. You have to choose it, and then do the work required to earn it.
Currently, only 30% of the population does this, and this is actually an improvement from when I was college aged, i.e. when dinosaurs roamed. Used to be only about 20% had a college degree. Stated in the reverse, 70% of the country does not have a college degree. I woud say this makes a large difference in their life experiences, and in particular, in their career earnings. I would say it makes about a $1 million difference.
And while the cost of education has admittedly skyrocketed in the past 30 years, I would still point out that there are signficant avenues available to acquire one. Perhaps the most obvious example is military service. Via the General Issue (GI) Bill, the federal government will pay your tuition and fees for as many years of military service as you first provide. So despite the rising cost of education over the past few decades, cost itself should not be an obstacle. You can perform military service and get a free higher education.
This is how my dad and many others got their educations following World War II. Granted, they didn’t volunteer for military service, as there was a compulsory draft at the time. Still, after the war, my dad and many others like him got their college educations in part or in their entirety via the GI Bill. This opportunity is still available today for those willing to make the sacrifice. And colleges and universities are ubiquitous. A huge percentage of the population has a comunity college or university within a reasonable drive of their home.
Now you might say that those at the bottom had poor schools and thus a poor education, so for them college is not an option. Whie I agree in principle with this, and I would say that while that is definitely a hurdle, and we should talk about what we can do to improve inner city schools, I would quickly add that my dad was one of those people who had poor schools and a poor education, too. His dad died when he was 11, his mom was an alcoholic who gave him and my uncle to a great aunt and uncle to be educated in the “elite” public schools of Jersey City. Yet despite this challenging background, after serving in the Army in Germany, he was able to cme back home and earn a bachelor’s degree from Seton Hall University, and then a master’s degree from New York University (NYU). Ultimately, after 40 more years of hard work, delayed gratification and astute money management, he became a millionaire.
I guess I’ll stop there for now. So back to my original point….sort of….
Where does one draw the line between equality of opportunity, versus equality of outcomes? Seems to me that even if you blur the line betwqeen opporunity and outcomes, in this one area, the great equalizer of education, we have a number of ways to equalize outcomes. Specifically, we have GEDs, military service, pell grants, student loans, community colleges, and state universities, to name but a few.
Ken,
Good post.
Comments in a minute, but first; here is an interesting chart, and a question. First the chart.
http://en.wikipedia.org/wiki/Educational_attainment_in_the_United_States#mediaviewer/File:Educational_Attainment_in_the_United_States_2009.png
Note that high school and college degree attainment in US have been steadily increasing since 1940. This any argument that lack of education is a cause of the stellar increase in income disparity since 1980.
Now the question, and please pardon the intentional wordplay.
Would you agree: that while it is good advice to every child to strive for a college degree, it is not advisable that every child should strive for a college degree?
Dropped a word: ” This CONTRADICTS any argument that lack of education is a cause of the stellar increase in income disparity since 1980.”
I would say that every child should strive to do as well as they possibly can, that they should pay attention in school, and they should strive to reach their potential. Sadly, this is not always the case. People who could have gone on to acquire a higher education prevent themselves from doing so because they (and probably their families of origin) devalue education. They see education as a burden, an oppression, something that somebody else is “making” them do. So they skip school. They want to get out as fast as possible. Maybe ultimately they drop out. And if they drop out, because they then have no skills, they limit their income opprtunities. They devalue what education offers, and for any number of other reasons choose not to go on for higher education, and so shut themselves out of what higher education can bring. I have seen this first-hand in my extended family.
I had a late aunt and late uncle (my dad’s sister and her husband) who were like this. Their attitiude was that people who went to college didn’t know about “real life”… as though the only things that are “real” are the things that they valued. They would say that college kids didn’t have “street smarts”, weren’t any smarter than anyone else, were “overpaid” for what they did, and so on. He served in the Navy and so could have had two years of college paid for by the GI Bill.
Not surprisingly, though, he never went on to college. Neither did his wife, my aunt. His career ended up being as a greenskeeper at a golf course, and part-time auto mechanic. She never worked outside the home, either. So when it came time to retire they couldn’t. They had no pension, hardly any savings, you can guess the rest. I would peg them as having been in the lower half of household incomes for their entire lives.
Interestingly, they were both reasonably intelligent people. In my view, either or both could have easily earned degrees if they had chosen to go that route. But their own beliefs about the (lack of) value in education caused them to choose not to go. Their career earnings suffered accordingly.
Which isn’t to say that we ought to look down upon people like this, or shouldn’t treat them with dignity, or befriend them, and so on. They were really interesting, respectable people, who in particular valued deep friendships with others. It merely means that if you choose to not go to college you can expect to earn about $1 million less over the course of your lifetime, on average, than if you had gone. And that’s pretty much all it means.
I’ve known quite a few people who have gone this route. One is a friend of ours who built our house. The house he built us is extraorindaly high quality — bettter than any house I’ve ever been in. We paid him really well for his work. Awesome guy. Smart. A workaholic perfectionist. Exactly the kind of person you want working for you. He could have picked any career he wanted. There are two major universities in our town, and one community college. He could have gone to any of them.
Instead, he chose carpentry, and with it, a salary that I happen to know is about half of what I make. Fair? Who is to judge what “fair” is? Whose “fault” is it that he only earns half of what I do, or that I earn twice what he does? It is nobody’s fault. It simply is what it is. It is what the market bears. I as a senior technocrat earn what I earn because my company has to compete at an international level for the skills I have, and I have been there 33+ years. His skills, by contrast, compete at the local level and earn at a rate which is half of mine.
I would say that if you choose not to go to college, you mostly lose the right to complain about the $1 million in career earnings you will forego. You’re the one who chose the career you chose. Nobody made you choose it.
Now…. All of the above applies to people who are able bodied and capable of learning. I would call these “normal” people, or some word like that. I would also say that the vast majority of people are in this group. Percentage of people who fall in this group? I don’t know, but certainly a lot more than 50%.
There is another group who are truly victims due to mental or physical incapacity, disease, trauma, tragedy, and so forth. I’ll get to them in the next post…..
Or to reword my last question more plainly:
How do we determine what the optimal percentage of college graduates is?
As of 2013, over 31% of US population has a bachelor’s degree and over 41% has an associate’s and/or a bachelor’s degree. Is the optimal level for som sort of college degree 50%? 60%? 100%?
Realize that the reason college graduates make more than other people is because other people DON”t have that degree. It is a differentiator. If almost everyone gets a college degree, the ones that do will no longer have a $1 million advantage. They will be no better than the next guy. As the saying goes: When everybody is special, nobody is.
Let me rephrase your position, and ask an obvious, if rhetorical, question….
So instead of improving the incomes of the poor by making college more accessible and affordable, increasing their lifetime incomes by an average of $1 million, the answer is for the poor to not even try.
Instead, their best hope is to use the power of government to increase taxes on those who do try. And all of this because of a college degree would be devalued if everyone had one, correct?
OK., so my last post was a little snarky. Let me try to rephrase to what I imagine your position is, and see where that gets us.
I imagine you would say that not everybody can go to college for a variety of reasons. And the gist of those reasons are that they are outside the individual’s control. Stuff happens. So college is not an option for these people. Because of that, they will never avail themselves of the additional $1 million in lifetime earnings, whereas other, luckier people will. And because we want (or should want) to be a compassionate society, we should therefore even things out to an extent after the fact because these people are, in effect, victims.
Is that close?
OK, Ken, now to reply to your post:
“A lot of the discussion in these threads has been a matter of degree. The question seems to revolve around where you draw the line between giving a helping hand, versus requiring the individual to do their part. I would say that the perspective I have is that there is a small percent of the population which cannot help themselves due to any number of reasons, mental or physical incapacity, disease, or whatever. … However, I would also say that most people are not in this boat. And it also seems to me that there is a lot of opportunity in this country for those who are able bodied and are willing to do their part.”
One initial comments on this, and I’m sorry if I am being repetitive: There are two or three rather independent problems that recur on this blog. (1) How to solve the problem of poverty, which affects mostly the lower 15 to 20% of the population. (2) How to solve the problem of high income disparity, which lessens the prosperity of about 90% of the population, and (3) How to pay for government.
I bring this up because it is important to understand what problem and solution we are discussing. You seem to be addressing problem #1.
I am glad we agree that much of the discussion does hinge on matters of degree, and on numbers, and on getting the math right. Some items are mathematically provable and others less so — and for those latter, we have to make judgment calls. Too often, the folks who are well-off seem to judge the unsuccessful as completely victims of their own decisions — not impacted by policy, poor initial circumstances, medical/phsical maladies, externally induced hardship, or bad luck — and thus not worthy of helping. Clearly this is going too far. It would also be a mistake to just reward laziness and sloth (like children receiving princely inheritances … but that’s a different discussion). There is a middle ground in which we allow the consequences of bad decisions to take their toll, but still offer folks help when needed.
The problem is that successful people always seem to think the challenges of being poor are easy to solve. Need a job? Just finish high school. Need a better job? Just go to college. Can’t afford college? Just borrow the money from your parents! (That was the Romney solution there.) Just buck up and try harder.
So when you say that there is a small percent of the population that cannot help themselves, are you referring to the 15% in poverty, since 15% is a somewhat small percentage of the population? Or are you saying that only a small percent of that 15% deserves our sympathy and the rest are just not trying hard enough? This is not a snarky question. I’m serious and I don’t know which you mean.
Because if you are truly saying that the barriers to success of the vast majority of those in poverty are trivial or have some one-shot simple solution like “just go to college”, I think you are being more than a little condescending and may be failing to appreciate the barriers that put and lock people into poverty. So I am hoping you mean something else.
I’m not saying there is no path for success out of poverty. I am saying it’s a lot harder than most people think. The poor DO have skin in the game, they DO suffer for their bad decisions, and they WILL work hard to climb a ladder if honest help is offered. And we should not begrudge the help given by all of us, through our government, via WIC and SNAP and Head-Start and such. What we should be doing is building ladders: free or very low cost college and trade school; counseling, not jail, for non-violent drug crime; apprenticeships; better grade schools, not constant budget cuts; higher rewards for labor instead of just seeing wage increases and minimum wage laws as a “cost” to management.
It’s a matter of degree. Do you trivialize and minimize the challenges of the poor? Or do you try to actually understand and help solve them?
“I imagine you would say that not everybody can go to college for a variety of reasons. And the gist of those reasons are that they are outside the individual’s control. Stuff happens. So college is not an option for these people. Because of that, they will never avail themselves of the additional $1 million in lifetime earnings, whereas other, luckier people will. And because we want (or should want) to be a compassionate society, we should therefore even things out to an extent after the fact because these people are, in effect, victims.”
Thanks for trying the rephrase approach, but that is not quite what I mean.
What I heard you saying is that everyone should try going to college to get that extra million in lifetime earnings. But college is only an appropriate venue for pursuing certain types of jobs; and the country has millions of necessary jobs that do not require college nor benefit from having a college graduate in that position. Sure I want everyone to be well-educated. Education provides-self-fulfillment and satisfaction and better equips people to be flexible in the tasks they can do. But society requires millions of other jobs from construction workers to restauranteurs to auto repairmen to plumbers, etc. Apparently 70% of American jobs do not require a BS or greater college education, since America has never graduated more than 30% of population with a BS or higher degree.
Think of the job landscape as a bunch of peg-holes that need to be filled and the population as a bunch of pegs that have to be whittled to fit those positions. What good does it do to whittle all the pegs to only fit in the 30% of peg-holes that require college? And similarly, what sense is there in punishing those who fill 70% of the peg-holes because they should have tried harder for the glitzier 30% (when that would have simply meant knocking some of those folks already in the preferred positions into the less-desirable positions)?
If society has certain roles that need to be filled, we should provide reasonable reward for filling those roles, and be continually denigrating the lower echelons for their status.We NEED people to do those jobs in the lower 90% or 80% or 50% of the pay scale. We don’t have to pay them EQUAL to their more successful brethren. But giving everyone an equal percentage pay increase as GDP rises is a reasonable and historically sound approach. This nation grows due to the efforts of all of us, not just the few with the most money and power and negotiating strength. It does no good to punish and denigrate and underpay the folks at the lower echelons just so that the most successful can be extravagantly overpaid. And that is what we are doing. That is what high income disparity is.
Last paragraph; missed word: “and NOT be continually denigrating the lower echelons for their status.”
Not totally the point of my comment….. But who said I was in the GOP? Actually more on the liberal side.
Comfused/Confused,
I don’t know any liberals who would suggest that people despondent in poverty should just kill themselves. Just sayin’ …
The point is that GOP and conservatives and their sympathizers (which you certainly seem to be from your comments) spend a lot of time making it seem as if some HUGE proportion of the population of the country are making poor decisions, are dragging the rest of us down, are not paying their share, have no skin in the game, are being pushed around in the wheelbarrow by the rest of us, or other such ridiculous nonsense. All that 47% noise from Romney and every single ultra-conservative news outlet? Garbage, and easily refuted for anyone with at least half a brain. Yet the far right reveled in this political propaganda. And there were highly public proclamations from the right that those who cannot afford medical insurance should just die. So you are not the first on the right to offer such a suggestion to the poor “problem”.
All of the finger-pointing to the poor is just a political distraction to keep people from looking at the piles of wealth and income accumulating in the coffers in the most highly rewarded small cadre of wealthy on Earth and of all time.
As, I’ve said before to illustrate the scope of the problem: If the 15% of all US national income that has been transferred from the lower 90% to the upper 1% was returned, then 90% of Americans would get a 30% raise, the rich would still be as rich as they were in our most nationally prosperous decades, and there would still be plenty of capital for investment and job-creation (without so much for dangerous and risky economic speculation). Wouldn’t that make a heck of a joyous Christmas shopping season!
Actually not on the right at all. Never have been. But certainly don’t believe in crying “victim” in my situation – nor do I feel like people making more money have taken from me. But I understand how you feel and the type of articles and rhetoric you seek out. I just don’t get it. That’s all
You don’t have to feel like a victim. Even people who have been cheated out of what is their due can often climb the ladder and be successful. Difficulty in life can make us stronger. What I am asking is that you do not pre-judge and assume, when many people have barriers and difficulties you have not experienced and may not even have conceived of. You assume (as many do) that assistance to the poor is wasted and that most of poor are livin’ large off the generosity of others. From what I have seen, nothing could be farther from fact. Poverty is not pretty and no one wants to be there and nobody in poverty is kicked back and enjoying themselves.
Try to have a little empathy. It’s what makes us human.
I don’t think assistance to the poor is wasted or that they are living large….putting words in my mouth there. I just don’t feel like a victim. I don’t blame others for the fact that I don’t have much.
Apologies: I was mixing up your comments with Bill’s where he said: “Say for instance, stop incentivizing unionized social workers to get more people on SNAP, WIC and other grants ”
I never said you have to blame others. Blame is irrelevant. Victimhood is irrelevant. The rich should stop blaming the poor and the poor should not blame the rich. We are all riding in a car that needs repairing and it needs to be fixed. And the repair bill needs to go primarily to the people who have most profited from the transportation. No blame required.
Confused, I guess my point to you is that you have every right to declare that your personal economic position is not impacted by high income disparity, by decades of tax cuts benefitting the rich, by corporatist policies that fail to restrict monopolies, and which encourage excessive CEO pay and suppressed pay to most labor, and by ever-increasing influence peddling of the political leaders by monied interests. But there are indeed unfavorable impacts of these policies and actions, and I am just requesting that you join in recognizing that the system can and should be improved.
This is what I’m saying Steven H – if those are the things that you think keep Confused from moving up the ladder, then why don’t we attack those rather than someone like me?
Seems to me like the solution is in the corporate tax law and labor laws rather than taxing income or capital gains, which impact far more people than the ones you vilify.
By the way, for those who do not understand why poor people could ever make such bad decisions, read this testimonial from someone who knows.
http://killermartinis.kinja.com/why-i-make-terrible-decisions-or-poverty-thoughts-1450123558
===== Excerpt from middle:
…..
Nobody gives enough thought to depression. You have to understand that we know that we will never not feel tired. We will never feel hopeful. We will never get a vacation. Ever. We know that the very act of being poor guarantees that we will never not be poor. It doesn’t give us much reason to improve ourselves. We don’t apply for jobs because we know we can’t afford to look nice enough to hold them. I would make a super legal secretary, but I’ve been turned down more than once because I “don’t fit the image of the firm,” which is a nice way of saying “gtfo, pov.” I am good enough to cook the food, hidden away in the kitchen, but my boss won’t make me a server because I don’t “fit the corporate image.” I am not beautiful. I have missing teeth and skin that looks like it will when you live on B12 and coffee and nicotine and no sleep. Beauty is a thing you get when you can afford it, and that’s how you get the job that you need in order to be beautiful. There isn’t much point trying.
…
(Read the rest at link above …)
LMFAO. Why doesn’t this person just commit suicide? I have been really poor myself and know this mentality…..and yes, while sometimes it is clinical depression, many other times it is just a bunch of pathetic excuses. God forbid it actually be ones own fault.
Did you read the whole article? I found absolutely nothing to laugh at. Are you a sociopath, to find such humor in the downtrodden?
Sometimes I think the GOP is rife with sociopathic bullies. You are reinforcing this belief.
I believe confused has said that he/she is not GOP. Not everyone who disagrees with you is on the right. You keep putting me over there too, even though I have voted just as many times for democrats or independents as I have for republicans.
Nonetheless, it is a sobering experience trying to get started. And she is right in that rest is a luxury. I can remember the days of eating microwave burritos – and having a car that had to be parked at a certain angle to keep the roof from leaking.
The unfortunate thing for people is that bad decisions early can completely cripple someone’s life. I heard Oprah Winfrey talking about this a few weeks ago – she was pregnant at 15 years old and had a miscarraige. Would Oprah have had the ability to find herself as a billionaire had this baby survived? Very, very unlikely – or at least more difficult. A DUI, running up debt, ruining a job opportunity – all these things are far too crippling for people. Early in the game you must play your moves carefully and smartly to have a chance to rise above.
This is what I think is most needed going forward in our society as we move away from manufacturing and into the information age. The mechanism of “blue collar” or “white collar” career paths is antiquated. We now need a third path – one that can equip people with the knowledge and training they need to succeed in our society. Because once you screw up, it is very depressing and hard to climb out of.
The beautiful thing about this country is that the path is there. The majority of the successful like myself spent at least some time circumstances familiar to the woman who wrote this article. People get out of bad situations all the time.
Sure, some people on here will continue to think that the path is no longer there – that the rich are closing the door on new entrants to the game. Maybe they think this because they see others around them struggling. Maybe they are just pessimistic and “glass-half-empty” types. But there are countless, wonderful stories of people making better lives for themselves. Sometimes on a grand scale (like Oprah), sometimes on a smaller scale, and sometimes generationally (Asian and Jewish immigrants for instance). People come from all over the world for this opportunity – often risking their lives to be here.
And let me say furthermore, that just because I still believe in the American Dream under our current construct am I a Republican. I have said on here repeatedly that I am in complete conflict with the majority of the principles that your typical GOP talking head would support. But don’t be fooled – if you think that being in bed with corporate America is a GOP trademark, look again at the left. This is a problem with our political system across the board, not just one party or another. Obama didn’t raise record funds for his campaign from the gay community or working class Americans….. And Romney didn’t raise his money from small-business owners and gun-toting rednecks. There are no good guys and bad guys – there is just a jammed up system full of self-serving self-promoting narcissists. At least that’s the way I see it.
I should be clear…. my point was that I am NOT a Republican. Just believing in the American Dream under our current system doesn’t make me as such.
Peter,
Thanks. You obviously read the article and understood the perspective, unlike Confused, who was dismissive. I agree we need to equip people better to succeed in our society. It’s too much of a random shot for most kids. They don’t know what direction will lead to success, and we don’t do enough to guide them. And, as you say, poor decisions early on can be crippling. This is why we need to build more ladders and ways up. Yes, I know, there are paths out of poverty and many inspiring stories of people who have made it. But there are way too many stories of despair, and people like Confused or others who feel that assistance to poor is wasted, that we need to cut back on WIC and SNAP, or that we need to otherwise remove ladders and assistance. People need to fall when they fail, but they need a way back up. Always. No matter how many times they fall.
The playing field has tilted. There is no way around that simple fact. You and I may disagree on why and how and what to do about it, but the simple fact of income disparity means that it is a lot easier to get poorer if you are middle class or poor and a lot easier to get richer if you are already rich. I agree that paths to climb up still exist, but the inspirational stories we hear today tell of times when those paths were not so rocky and poorly tended as they are today. We need to be making the American Dream MORE accessible, and not less. That is my overarching point and reason for my posts. We need prosperity for all, not prosperity of the few built on the productivity of every one else.
Nobody disagrees with that – although I would say that it could be argued as to how many times (or how severely) someone can fail and still be bailed out or assisted by the government.
All of that ideology sounds great and in some ways gets back to Ken’s question. How can we improve these pathways without taking from someone else?
And like Ken said….”I’d like to know what the argument is for how a 1%-er like Peter took money from middle and lower class quintiles in order to create his 1%-er status. Or me, for that matter. I’d like to know how I, a 2%-er, took money from the less fortunate. Or how my “income share” is inappropriate to the work I do. I would submit that neither Peter nor I “stole” money from people in other quintiles. We earned it.”
It’s assumptions and hateful accusatory rhetoric like he is responding to that keeps the discussion from moving forward. How can we further the American Dream for all without disrespecting, belittling, or flat out taking from those who have achieved the dream themselves?
Regarding Ken’s comment and your requote: “”I’d like to know what the argument is for how a 1%-er like Peter took money from middle and lower class quintiles in order to create his 1%-er status. Or me, for that matter. I’d like to know how I, a 2%-er, took money from the less fortunate. Or how my “income share” is inappropriate to the work I do. I would submit that neither Peter nor I “stole” money from people in other quintiles. We earned it.”
Reiterating what I told Ken:
“do i believe that Ken and Peter have stolen from the lower classes? No. Do I believe you each have benefitted from a system which has gotten out of balance? Yes. Do I believe that highly competitive and ambitious people with little empathy for lower classes have manipulated our economic system in such a way that they and you and the rest of the 1% and 2% have benefitted in a disproportionate way, relative to most Americans? Yes.”
You have benefitted from a good system that has shifted drastically to a point that many believe is unstable and unsustainable. The playing field has tilted. Some people blame the majority of Americans for not being sufficiently educated or productive. Some of us believe most Americans are as productive as they ever have been, but that their productivity is driving the skyrocketing prosperity of a select few.
You are not convinced of my accompanying statement that what we all get paid is arbitrary, and perhaps that is not the best word. But you would probably agree that the appropriate pay for any task is not a scientifically derivable and precise amount. No one can go to a calculator or computer program and determine that Peter earned precisely X% more or Y% less than he actually receives. Everything depends: on todays’s market conditions, here and around the world, on the negotiations for salary all up and down the income slope, on past history and future speculations, on inventions and rumors and politics and tax policy and labor rules. All of it sets the stage. What we receive is arbitrary and we can only judge it on relative terms. Am I making more than the next guy? Am I making more than I made last year? How much more? What are my competitors making? But all of these questions and observations are LOCAL in time and space; a gnat’s eye view of a much wider landscape.
Even in a set market landscape, there is a lot of variability, such as Costco workers getting superior pay and benefits than Sam’s Club workers for arguably the same work. Changes in the market and tax rules and conditions amplify these small differences even more. Tax policy may encourage businesses to invest back in their business and discourage high CEO salaries, or not. Tax and trade policy may discourage outsourcing, or not. Labor rules may enable workers to argue for higher pay and benefits, or may discourage such negotiation. All up and down the salary scale, such changes get amplified, as each worker or manager or investor looks at the next guy making less or more than he makes and tries to assess his own worth, and whether he can negotiate for more. This is what I mean by arbitrary. The slope of the landscape is shaped by many forces, and there are human knobs that control some of those forces, even if they are not yours or mine. The tilt and shape move in ways that are intentionally directed by those in political control, but arbitrary to the individual, and in ways a bit unpredictable by all.
What researchers like Piketty do is try to give a wider perspective. What happened decades ago, or a hundred years ago? How have markets and pay scales changed? What works and what doesn’t? These are valid and important questions. Thy tell us, not what Peter or Steven specifically should make, but what the general slope of the landscape should be in order to achieve something near an optimal combination of income mobility, reduced poverty, and shared national prosperity.
Meanwhile, what you see, and what most of us always see and worry about, is what any changes will do to shake up our own local landscape. Nobody wants to see their worth devalued from what it is at the moment, nor see their pay decline, nor their prospects for growth quelled.
I have said before that I respect and admire the small business owners in this country. I certainly have no great insight as to whether such individuals who create and maintain these businesses are over or underpaid. But I must say i have a great suspicion and general disregard for the larger corporations and their managers, and for the largest banks and investment houses and their leaders. Based on research of Piketty and Saez and others like them, these individuals and corporations are simply overpaid; relative to history, relative to the income curve; relative to their contributions; and relative to all of the rest of us.
So if you ask how hedge fund managers can keep their outrageous incomes and wealth and prospects of continued year on year growth far beyond the GDP growth rate, I say that is not possible. But I don’t propose taking anything away from anybody. You can’t take away what has not yet been given. Next year’s salary, next year’s return on investment, is not yet earned or received by anybody, and it is never ever certain what we will receive. The market can crash again, our local economy may have a downturn, our health may falter. The future is uncertain and high income disparity makes it more so. What I propose is planning for the future in a way that is sustainable and balanced. That may mean changing the rules about capital gains or carried income, or on tax exemptions on mansions or princely inheritances. It may mean shifting the tax rates so that middle class gets a break, and higher incomes shoulder something closer to the burdens of past generations. It almost certainly will mean some will receive less and some more. I don’t know of any policy change ever in history that has not resulted in such a shift.
But it is difficult for me to muster a lot of sympathy for any of those who have doubled or tripled their income shares, albeit over some number of decades, and yet who grumble and grouse about how they are being cheated if an added charge of a few percent in taxes are added to their bill. If you do not feel you or your business fall in this category of historical windfall, then I do not mean you. However, it could also be that the rest of us in the upper 10% may be called upon to pay a bit more back into this great country to help restore its balance and its future prospects. We can afford it. If I can, at the 92 percentile, then I sure as heck know that those at the 98 percentile and up can as well.
The problem with your argument isn’t in the above comments….. You perceive there to be a ’tilted’ playing field that has helped the people who are now in the 1% earn far more than you feel they would have were the marketplace more “fair”. My first argument is that many of these people in the 1% were not the same people in the 1% 30 years ago – which cuts a huge hole in your argument – but for now, let’s just go on the hypothesis that the same 1% has seen their income triple while the bottom 50%/90% has seen stagnant wages due to various factors.
First – let’s address the issue of small business owners. The income for someone in my situation is unaffected by things like salary negotiations, labor laws, outsourcing jobs overseas, corporate tax loopholes, unions, etc. – all things you have stated that you believe created this disparity. So can we eliminate people like Ken and myself from your wrath? I have not made my wealth on the backs of the poor. I have not “taken” more than my “fair share” (whatever that is). I do not “owe” anyone anything.
Your issue seems to be with CEO types. Perhaps overly simplified, you view a company like Costco as a perfect example of your big beef – the managers, CEO’s and muckety-mucks make far more than they would have 50 years ago, while the workers make less.
Here’s the problem…. how do you fix this? So far, your primary answer has been to raise the taxes on the high income earners. Well, that affects people like me and Ken – who had nothing to do with the CEO/worker problem you are referring to. I don’t make a “salary” – there is no raise for me, nor is there any guarantee I make $1 this year. I eat what I kill so to speak…. What exactly am I doing to suppress the middle class? Why should I be on board with my taxes going up (AGAIN)?
So do you force the CEO of Costco to make less? How do you take back what you perceive as “surplus income” from this CEO and give it to the people that run the cash registers? Seriously…. HOW?
My point is – you have an interesting perspective on the income disparity situation – but think you need to narrow your vitriol at the right people. Your problem isn’t with the 1%, it is with the 0.01%. Your problem isn’t with small business owners, it is with corporate America. Your problem isn’t with neo-Cons, it’s with the political system and it’s influence on the economy in general.
People like Ken and I and others on here are actually perfect examples of what you WANT to be the case. A free enterprise system where anyone can make it “rich” – maybe not to the 0.01% lifestyle but at least to the top 5% – if they truly want to. Confused and others who are not in the 1% have even indicated a hint of inspiration that they hope to be in that group at some point. That situation still exists whether you tax me more or less.
To quote your “solution” portion of your last post:
“What I propose is ….. changing the rules about capital gains or carried income, or on tax exemptions on mansions or princely inheritances. It may mean shifting the tax rates so that middle class gets a break, and higher incomes shoulder something closer to the burdens of past generations.”
Questions –
– What do you mean by carried income? Dividends and interest?
– You do realize that you can only deduct interest on $1 million worth of mortgage, correct? And that exemption is all but gone when you make enough income to be in the 1%. So, tax exemptions on mansions is already something that doesn’t exist.
– We already have estate taxes – and they aren’t just on “princely inheritances”. They are on estates as low as $5 million – and in some states as low as $1 million. And these rates are already close to 50%.
So this leaves capital gains rates – and maybe dividend and interest income (if that is what you meant by carried income). Raising both of those is certainly an option – and one that would hurt the savers, but also keep less money in motion. This is what crippled the Japanese economy for decades. (Money just being saved and locked away)
But that’s not the problem. Raising capital gains rates might feel good from a political standpoint (sticking it to the rich), but run the numbers….it raises VERY little revenue. If you offset this with a middle class tax cut, you are likely continuing to run a deficit. Sounds good, but isn’t really the answer.
And actually…. if you research it you will see that raising capital gains tax rates actually results in LOWER revenue to the government. Surprising, but true.
Any comment on my thoughts: limited lending of A LOT of money to the wealthy (who qualify) enriches the rich (with modest help from tax breaks), introduction of immigrant cheap labor and rewarding people to not work makes the poor poorer and the middle class stagnates in growth due to the reduction of high paid production jobs (which I think are coming back). Throw in large swaths of poor education in cities and rural areas and poor family structures and it all feeds on itself.
Stevendad, I agree that the points you list impact inequality. The differences between my view andy yours are in the magnitude of the impacts.
– Immigrant cheap labor. We have had this for a long time. It’s not like it’s new.
– Rewarding people not to work: This is just slander. Most people prefer to work. There are always slackers, but unemployment insurance has never been shown to be a big driver of continued or increased unemployment.
– Poor education, and poor family structures: This is just victim blaming and is offensive. Has there really been explosive growth in a poorly educated populace? There are more college graduates in US than ever before. And it is much more likely for poverty to break up families than it is for broken families to produce poverty — though there is sort of a cycle there.
– Lending to rich – This is one area where i have no stats. But again: If the rich are benefitting so much from government largesse then it should be perfectly fine to tax those very same rich on the windfall, right?
I know I must sound like a broken record, but I honestly cannot comprehend how intelligent people can see 90% of America — not 5%, not 20%, not just poverty-stricken people, but 90% — with declining shares of national income, and a select few receiving almost ALL of new income in the country, and declare that it is somehow the fault of the education, ethics, or efforts of those 90% and NOT the manipulations of policy that are in plain sight and that are so publicly paraded and financed.
Obviously, if the rich continue to get richer and the middle and poor continue to stagnate or decline, then either (a) most of our population has genetically declined or (b) the system has altered to increase reward of monied interests for no additional effort and also to punish less-monied interests with less reward for their same efforts.
Let’s fix the system and quit blaming 90% of Americans for something that is not their doing. We all need to work to adapt to an ever-changing economy, but the very rich must stop acting so smug and superior and condescending toward the vast majority of America.
Steven H – you are a smart, well-written man, with whom I hardly agree. I chime into this thread every now and then, and in my last foray, I participated in “victim-shaming” myself. But I don’t consider it victim-shaming to simply call things as I see them, in my admittedly narrow observational swatch of the world around me. Yes, there are a lot of white-collar people who suddenly and probably catastrophically found themselves unemployed the past two decades as globalization went into full effect. I would never shame these folks. But I have no sympathy for those who reached for nothing higher than a GED at best and/or made chronically stupid decisions that help dig their personal holes deeper and deeper and yet feel they are entitled to any and all government supports which are only made possible by taking money out one’s pocket and putting it into another pocket.
If I haven’t said it before, I am not rich. I am not making anywhere near $400k and won’t get there between now and the end of my career either. I am solidly in your 90% that you are defending and I don’t, and would never, consider myself a victim of any monetary policy or any 1%-er. I play within the rules, and while I don’t like many of the rules, neither major party is inclined to change them and perhaps that gets to your point about corporatism. But there are a million things or so we can do to relieve and eliminate the various burdens placed on all of us by local, state and federal government. Say for instance, stop incentivizing unionized social workers to get more people on SNAP, WIC and other grants which traps people into that cycle of dependency and requires even more unionized social workers to manage case loads and keep union coffers healthy enough to elect Hillary. Or legalize marijuana (and I don’t use it), tax it, release the many prisoners incarcerated for it and cut way back on the corrections officer ranks and the physical infrastructure. Lets get another case before the Supreme Court to challenge the ruling that corporations are “people” rather than made up of individual people in terms of political contributions. But when that happens, also realize that union contributions should be tossed also, because a union is just another organization made up of individual people. Lets cut way back on phys ed teachers since one out of every two kids in the US is involved in one or more organized sports that gives them better physical activity than three hours per week in gym class. Lets dedicated that extra time to a core subject in the STEM fields. I can go on and on, but you get the point.
Hi Bill,
There is certainly nothing wrong with calling things as you see them, but I make the point of “victim-shaming” to attempt to counter the surprisingly vicious attacks of the well off against poor people, or even middle-class people, as if they deserve no sympathy when they get in dire straits. Even the examples you cited: “… I have no sympathy for those who reached for nothing higher than a GED at best and/or made chronically stupid decisions that help dig their personal holes deeper and deeper” might merit some sympathy if you better understood the challenges that some of these people have in their life. Of course, I realize some people just need to suffer failure to be motivated to lift themselves up and succeed. But there are others who are working really hard against frightening odds, and no one should assume that their hardships and barriers are trivial, or that that GED was not a hard-won success, or that SNAP and WIC are somehow frivolous give-aways for these people rather than essential survival tools. The old bit about walking in other people’s shoes applies, I think.
As for your specific suggestions, I agree with a few. I agree we should not be punishing or incarcerating people for weed, nor should we be preventing people from getting a scholarship because they were caught smoking a joint. I agree that the “Citizens United” case put too much money in politics (as if there wasn’t too much already).
Where I disagree on the other points are not that important, except perhaps that I think physical education and exercise in school IS quite important, especially for the 1 in two kids who are NOT in organized sports. We have an obesity problem, and kids NEED recess in elementary school and gym class in upper grades. Personally, I think there also ought to be a daily warmup every day (jumping jacks, pushups, sit-ups) just to get the body moving. It’s a machine and it needs to get blood flowing to get the brain thinking. But that’s just an opinion.
What we also do need in education is to stop teaching every kid to go to as if they are all going to college (many won’t anyway) and prepare some of them for trades and professions that do not require college. Again, just an opinion.
Oh, and I should thank you for the compliments at the beginning of your post. They are appreciated. And it’s good to hear the extra voice in and among the “regulars”.
Bill, I should reiterate one point. Discussions of poverty, sympathy and the impact of poor personal decisions on the plight of poor people, are important discussions and can impact how we as society can help these people. However, those discussions involving income mobility, and how to move people out of poverty, have almost nothing to do with the larger problem of high income disparity. Poor decisions by a small fractional minority of the populace do not greatly impact income disparity across the entire populace. High income disparity is a systemic problem in which capital, disposable income, and survival income are imbalanced and inefficient for the economy, decreasing the prosperity of the country and of most Americans, to the extraordinary benefit of a select few. Improving the income mobility of the poor by improving their decision making, while highly commendable, will do nothing to solve this larger problem. However, solving the larger income disparity problem will benefit most Americans including the poor, at trivial expense to those who can most easily afford that expense, and it will benefit the nation, and even the world.
Point taken Steven H – I am somewhat off-topic I guess.
As I contribute here, I always consider the basis of the article that has triggered this thread for over a year now – jobs that pay $400k. I don’t think that is a lot of money for a person living in NYC, LA, San Fran, Boston, the coastal Carolinas, coastal NJ, etc. It would be quite a bit of money where I am in upstate NY though.
But I think no matter where one wants to draw the line of “rich” or not, or “1%” or not, that the line will always move because the economy is a living thing of sorts. I think that once we, as a society, get on the slope of who makes “too much” or isn’t paying their “fair share,” (and we’ve been on that slope for at least two decades now) then there will always be someone arbitrating not only whether Buffett makes too much money, but also whether Steven H and Bill make too much money too. It’s all relative, but none of us should be surprised when they come for a greater share of taxes on our (or at least my) middle-class income with pitchforks and torches blazing after the 1% are beaten like rented mules and big government finds that there still isn’t enough revenue to do everything they want to do.
Bill says:
======
I don’t think that [$400K] is a lot of money for a person living in NYC, LA, San Fran, Boston, the coastal Carolinas, coastal NJ, etc. It would be quite a bit of money where I am in upstate NY though. … But I think no matter where one wants to draw the line of “rich” or not, or “1%” or not, that the line will always move because the economy is a living thing of sorts. I think that once we, as a society, get on the slope of who makes “too much” or isn’t paying their “fair share,” (and we’ve been on that slope for at least two decades now) then there will always be someone arbitrating not only whether Buffett makes too much money, but also whether Steven H and Bill make too much money too.
======
For me, it is not a matter of who makes too much money, but a matter of how new national growth in GDP is distributed.If GDP per capita goes up 3%, then all income classes ought to see roughly a 3% boost in reward. This happened from 1945-1980, but not since. Since then the increases in national reward have gone almost exclusively to the upper 1%, with even more imbalanced proportions going to the upper 0.1 and 0.01%. This seems to me, and to many, as not only imbalanced and unsustainable but unfair.
The resulting share of the economy going to the upper 1% and 0.1% has therefore shifted to some of the highest levels of the last 100 years, if not longer. This also seems unsustainable and inefficient. Money languishes in the upper echelons and is scarce in the middle class. The economic fuel is not flowing through the economic engine.
The only time periods that the upper 1% income shares have been at more than 22% of all income in the last 100 years, were around 1929, 2000, 2009, and now. The first 3 of those 4 instances resulted in major economic downturns.
The point is, not everything is arbitrarily relative. Pressure is building in the engine. There are distinct warning indicators on the dashboard we should not ignore.
The new tax proposal by Obama will never get passed, but it still doesn’t change the fact that the actual President of the United States presented the case as he did in the State of the Union address. His proposal includes increasing capital gains taxes on the high earners AND taking away the step-up in basis on inherited assets, forcing heirs to pay the capital gains. (For those that don’t understand, when you inherit assets with gains they can be sold without paying capital gains.)
Frankly, you could make a strong argument that there is no ethical or reasonable basis that estate taxes should even exist. Sure, tax everyone’s income to pay for infrastructure – that makes some sense – as this infrastructure does in a small way help us function in the business world. Taxing property, or even capital gains is a little bit more flimsy – but something that we have simply accepted for years.
But how can estate taxes in general be justified? I make sacrifices my entire life – working long hours, taking risks, being thrifty and smart with my money – and accumulate a nest egg that will change the lives of my children and grandchildren and beyond. This fills me with joy knowing that not only have I provided for my family, but that I have created a legacy that will change my family tree for generations.
I already am facing up to 40-50% of my assets possibly being taken for estate taxes. If I leave funds in an IRA or 401k, they will also be subject to income taxes for my children – as high as 45%. Now, under Obama’s proposal, if I leave any appreciated assets, they will be subject to capital gains rates – as high as 30%.
You add these figures up and regardless of the planning or how I leave my children my savings, they could be forced to give anywhere from 50% to 95% of it to our government. For what? How is this justified? How should I feel about this? And how should this change my behavior?
I’m afraid the answer to the last one is to spend more. Rather than live off of 20% of my income (like I do now), I should quit planning for the future and just go spend. I find this to be the most obnoxious “rich guy” behavior there is.
We can debate all the different points people have made on here about income inequality and the causes / cures of changing the trajectory of this. Unfortunately, most of the answers are Robin Hood-style take from the rich and give to the poor. This is nothing new. But the extremes that this is going to does and should bother people like me who are trying to make sound decisions and change the path of my family (and community) forever.
Like most others, I left this thread over the holidays. I expected that I would receive an email notification when it started up again. Well…. not so much. Fortunately a few of the old emails were still in my “Deleted Items” folder.
At any rate, despite some reservations about the degree to which anything posted on this thread has changed anyone’s mind about anything, I’ve decided to jump back in once again.
I found the discussion to be riveting a few months back. I have made no bones about the people (one on each “side”) who I do think are unable to see the opposing side and thus bog down the conversation. I just decided to come back and post a few things to see if anyone was still here…. When this discussion was good, it really was enlightening. Maybe it will get back to that sort of debate. Hopefully people like Man-of-Reason, JTM, Stevendad, JB, etc. re-engage as well. Doing my taxes got me riled up enough to find my way back here to vent…. 🙂
What I would like to see from those advocating more equalized outcomes is a proposal for how to lift the lower and middle classes without taking wealth from others to do it. A job-creation proposal of some kind, if you will. Or maybe an education proposal.
An example might be a plan for how to better educate people into higher-paying (e.g., high tech) jobs. Or maybe a plan for lowering the cost of education overall, which has become enormously expensive in the past few decades.
Oh… and before anyone jumps all over the education example and cites Obama’s “free” community college proposal, I would like to point out that this “free” education is not really “free”. Somebody is paying for it.
The way it would be paid for is by taxing previously tax-exempt 529 education savings plans. In other words, money would be taken from one group by taxing the 529 investors who were previously not taxed, and giving that money to the other group, the community college student.
In other words, it is yet another redistribution scheme, while I asked for proposals which do not involve taking money from one group to give to another.
Is it really? I didn’t realize he was proposing taxing 529s. This would be a brutal mistake as millions of people have been saving for college this way with the idea that the withdrawals (if used for education) would be tax free. To pull the rug out from under them now is just wrong. And in simple terms, you would be taking money out of the pockets of those that planned and saved and giving it to those who did nothing. And most of the 529 savers are not 1%’ers either. They are the middle class.
I do see this now. Amazing. This proposal also doesn’t say anything about current 529 plan balances being “grandfathered”. This would be the first time where something like this actually happened – where people plan as if something were going to be tax-free, but then it wasn’t. I can say as someone in the financial planning industry, this would be a devastating move for the government’s credibility and just increase skepticism that promises will be kept. Even if he were to get this passed, it absolutely has to have a grandfather clause for those who have put thousands of dollars in these vehicles.
Sorry for the multiple posts, but it just occurred to me. This (Obama’s SOTU address) should all be taken with a grain of salt. Bush did the same thing late in his tenure, proposing that people be allowed to put up to $20k/year into Roth IRAs and even $20k/year into tax-free savings accounts. This was equally ridiculous and much like Obama’s loony ideas from the other night, stood no chance of ever being passed.
Sorry to distract from your question (or from my post about estate taxes) – but let’s get back to the question you posed. What sort of ideas do people have that don’t involve taking money from someone?
Perhaps legislation could be drafted, for example, to limit the amount by which state universities could raise tuition in any given year. Part of the reason I say this is because this is what happens in the insurance industry today. Whenever any insurance company wants to raise rates, it has to get them approved by the insurance commission(er) of that state.
Why can’t this approach be applied to state (government-run) universities? Tuition and fees cannot exceed (let’s say) the amount by which the Consumer Price Index (CPI) has risen over a certain period.
Or how about proposing programs where local entrepeneurs teach entrepeneurial skills to particular audiences, and there is no cost to the student? And instead of raising taxes yet again by taking money from other people, let’s pay for it by reducing spending in some other governmental area….such as….(fill in the blank). Or maybe some entrepeneurs would volunteer their time. Who knows? Thoughts, anyone?
Love the idea of tuition controls. And in some ways the marketplace is already adjusting…. more and more kids are heading to cheaper alternatives for the first 2 years of school, then going to the state schools for degrees. Offering companies incentives for training programs isn’t a bad idea either. That, to me, seems like a win-win.
Ken, the problem that successful people have with helping out in education is that there are too many hurdles placed in front of them.
“What I would like to see from those advocating more equalized outcomes is a proposal for how to lift the lower and middle classes without taking wealth from others to do it. ”
Ken, I don’t see how this is possible. It’s as if there are 3 lakes, each in deep vertical walled canyons, with the middle one 9 times the smallest, and the largest one 90 times the smallest. A series of pumps and flow-ways transfers water among the canyon lakes, also the total volume of the water in the lakes accumulates due to more rainfall than there is evaporation or outflow.
After a time somebody notices that the smallest canyon has way over 2.5 times the depth (and hence 2.5 times the water) as its former level, and in fact has 2.5 times the former share of all the water. The largest lake has 25% total share of the total water than it used to. The causes are a combination of reasons: the rainwater flows have changed, and the residents of the small lake have blocked some its former outflow (efficiency! they proudly claim). The residents around the smaller lake have grown accustomed to the higher level and they like it where it is, but the shallow depth of water in the large lake is causing problems.
The small lake residents ask. Why don’t you just double the water in your lake like we did? The large lakers answer: You grew your lake by blocking the water from getting to our lake! Well the small lakers answer: We like our deep lake and we refuse to consider redistribution. Surely there is some way to increase your lake without taking away from our level or from the flow into ours.
Well, no, there really isn’t. The small lakers have grown accustomed to a growth and accumulation far beyond the average growth rate of the lakes due to increased inflow. They want to believe they deserve or even “created” the growth in their lake due to their superior skill and wit, when in fact they had been accumulating excesses of water for years that was rightfully owed to others.
Eventually they realized that there were more people around the large lake than the small one, and that they would come calling for their rightful due if was not fairly returned. So the small lakers negotiated a gradual outflow of their excess bounty and readjusted the pumps and flow-ways so that the rainwater increased each of the lakes by the same percentages each year. Some of the small-lakers were resentful, but they got used to it, and eventually the water supplies were balanced once more.
Correction: “The largest lake has 25% LESS total share of the water than it used to …”
Clarification: To analogize our economy, the SURFACE AREA of the middle lake is 9 times the smallest and the SURFACE AREA of the large lake is 90 times the smallest. The depths are all different, with the smaller lake starting out at 10 meters deep (and growing to 25 meters deep) and the middle lake about 2.5 meters deep (staying constant) and the large lake starting only about 1/3 meter deep (and dropping to 1/4 meter deep).
“Ken, I don’t see how this is possible.”
I think this is where we will always differ, Steven. To co-opt your lake analogy for a moment, if your view is that the lakes are half empty because someone stole your water, then yes, one solution would be to take the water back from them. But if you think the lakes are half-full, that other didn’t steal your water, that there are opportunities for you to acquire more water if you altered your thinking and behavior, then your approach is likely to be quite different.
One fundamental pillar of your worldview, I think, is the presumed collective ownership of income, and thus the division of the fixed income pie into quintiles and so forth. In this view, the pie is a fixed size, and so in order for people in upper incomes to have more, they must have taken it from people in the middle and lower classes. Needless to say, I disagree. I think the pie is as big as people make it, that people move from quintile to quintile on a fairly regular basis, and that the main driver for income acquisition is personal behavior and personal choices.
Hopefully without sounding snippy or sarcastic, I’d like to know what the argument is for how a 1%-er like Peter took money from middle and lower class quintiles in order to create his 1%-er status. Or me, for that matter. I’d like to know how I, a 2%-er, took money from the less fortunate. Or how my “income share” is inappropriate to the work I do. I would submit that neither Peter nor I “stole” money from people in other quintiles. We earned it.
I think the only way you can justify your point of view is if you discard the notion of contract law, where people enter into employment contracts and are compensated according to those contracts. I think people earn what they earn according to the employment contracts they sign. Or, in the case of sole proprietorships and partnerships, they earn what they earn in accordance with the net incomes they generate. That’s it. I don’t believe that people are “given” their salaries. I don’t believe they “stole” their salaries from other quintiles. I believe, and I think I can prove, that they earned them in accordance with the employment contracts they signed.
This whole notion of collective ownership of income is at the root of where we disagree, I think. I think society as a whole should (or does) tilt heavily in the direction of private property ownership. I would say that you believe society should (or does) tilt more in the direction of collective ownership. And those drive the thinking on both sides.
I have more, but I’ll stop there for now.
Again you assume the economy is a zero sum game.
Like Obama, you keep suggesting redistribution. You haven’t shown how you can make the lower 90% more productive.
Peter N.
The lower 90% are as productive as they have ever been. The upper 1% are prospering quite well off their productivity. That’s the point.
You don’t even understand what “not a zero-sum game” means. It means that wealth can be created. It does not mean that those with the most negotiating advantages get to accrue and keep the wealth that other people create.
Ken,
Replying here to the “I think this is where we will always differ …” post; since this post has a reply button and that one does not.
Your assessment of my position is mostly fair, with a few adjustments I’ll get to in a moment. One thought that occurs to me is that the reality of my philosophy, and very likely of yours as well, is that it is riddled with complexity and compromise and subtleties. But what too often comes out in these conversations is the more extreme and simplified end of the philosophy at hand. This is not surprising. What makes a conversation interesting, like a good movie or book, is a certain amount of conflict and disagreement. Too little conflict and everyone sort of mushily agrees that we are all good, we have different perspectives, and everything is complicated … but then nothing is really learned from such mush. Too much conflict and people harden into uncompromising positions publicly that do not reflect the true subtleties of their philosophy. Nothing is learned then either.
I mention this because I like the tone this conversation is taking, without the hard extreme positions, and I want to continue to discuss the subtleties, but still recognize where we truly disagree.
Re my “presumed collective ownership of income”: That’s certainly not how I would word it, but yes I think that there is a social responsibility in a community as well a personal responsibility. I believe that people should receive the benefits of their labors such that personal effort and responsibility is amply rewarded. I also believe that rules should be put in place so that strong people do not oppress or unfairly take advantage of the weaker members of society. Such rules are not indicative of socialism or communism, but instead are simply the basis of civilized society. Such rules are also not a natural outgrowth of capitalism, for capitalism is a very individualistic enterprise, and by its competitive nature, very often opposes societal cooperation. But IMHO, social responsibility is the bedrock of civilization that allows capitalism to function smoothly.
So I don’t believe in “collective ownership of income”. I do believe that a nation has collective ownership of resources, and that the national populace has some say in how those national resources are used and allocated. Perhaps that sounds like the same thing to you, but to me it is quite different.
“In this view, the pie is a fixed size, and so in order for people in upper incomes to have more, they must have taken it from people in the middle and lower classes.”
No and Yes. This gets back to the old “zero sum game” argument. Do I believe the “pie is a fixed size”? No, not at all. GDP and average per capita national income (inflation adjusted) increase every year (well, maybe not in 2008 or 2009). The pie unquestionably gets bigger. Do I believe that wealth can be created? Absolutely. Technological advance, in particular, saves time and money, and people create wealth by such inventions and advances. Do I believe that hard work and success should be rewarded more than average or mediocre work, or failure? Of course.
It is not true that everyone who has a bit more money has taken it unfairly from lower classes. But we are adults here. We all know that greed and desire exist. We all know of fair employers and unfair ones; of some people who are generous and others who are stingy; of those who are scrupulously honest, and others not so much. But even aside from such divisions by virtue, there are people who are simply highly ambitious and competitive. Such people are virtuous enough, but may have a bit less empathy, and offer less sympathy, to those who lose out in a competition. For people in the extreme of this category, winning is everything and losers are to be forgotten and ignored, not coddled or helped. For, after all, ANYone can be a winner, right? Except, of course, not EVERYone can be a winner.
But perhaps I digress. Do I think you or Peter “stole” money from other classes? No. You entered the economic game and played by the rules as they were set out. There was no theft. Do I think the rules need to be changed? Yes. Why? To be fair? Fairness is subjective. To return what was stolen? I already said nothing was stolen. What possible reason can exist then?
I think I need another small analogy here. In electronics classes, one common learning exercise is to build amplifiers using feedback. Part of the energy out of the amplifier is fed back to the input in order to increase its efficiency. Too little feedback and it is inefficient. Too much and you are likely to get an oscillator, similar to when you put the PA speaker too close to the mike. The economy is like that. Feeding the right amount of money back into the various levels keeps it efficient. Too much money feedback, especially in the upper incomes, and the economy goes into oscillation: crashing and then growing and crashing again in tighter cycles. In order to control the amplifier, you have to get the circuit design just right, with the proper settings of resistors, transistors, capacitors, etc.
The money that you and I make for our labors is completely arbitrary. A manager will make more than a low laborer, but how much more? What is the precise value of each contribution? We let the markets decide. But how do the markets determine value? By supply and demand, of course, but also by negotiation, and (this part is important) by the rules set down by government. Government sets tax policies which control the money feedback at each income level. Government sets the rules which can resist efforts of the powerful to dominate the weak. Government designs the circuits of our economy. Government is tasked to keep the economy as an amplifier and not an oscillator.
Again, what you and I make is arbitrary, even though the relative INCREASE in amounts is relatively easy to predict in the supply and demand system. Some jobs are more difficult or valuable than others and will be rewarded more. But how MUCH more? Under one set of rules, a manager may make 10 times what his average employee makes. Under other rules, the manager may make 100 times as much as the average employee. The difference in this scenario I describe is not how much work is done by each party, or how much income is available to be divided, but simply a difference in the rules of the game. How much negotiating power does each party have? What labor rules are in place? What are the prevailing pay rates elsewhere? These all determine the otherwise arbitrary division of the profits.
This is getting too long, but I must offer one last point. I just said that the division of profits is arbitrary; that when the manager gets more, the employee gets less. For this, I usually get attacked and accused of believing in a zero-sum game. That’s not it. What I believe is that reward is arbitrary and dependent on negotiation, and that powerful, competitive people have an inherent advantage in such negotiation, especially if they own or control the business, and even more so if they influence the overall economic rules of the economy, through political influence. You say that employment is a mutual contract. For many professionals, yes. For common labor, not so much. For common labor (and even for professionals in big corporations), the boss sets the rules and the employee has virtually no say, except as mandated by government and society. Government, unions, and rules of society are the negotiating strength of most workers. And these knobs impact income disparity in a big way. They have to. Why else would big business keep trying to control those knobs? Because it allows business to keep costs of labor low and profits and CEO pay high. So this is one of the big drivers of income disparity.
So, again, do i believe that Ken and Peter have stolen from the lower classes? No. Do I believe you each have benefitted from a system which has gotten out of balance? Yes. Do I believe that highly competitive and ambitious people with little empathy for lower classes have manipulated our economic system in such a way that they and you and the rest of the 1% and 2% have benefitted in a disproportionate way, relative to most Americans? Yes. Is income disparity also influenced by technological advance, globalization, lags in education, automation? Yes. If it is primarily from these “external” causes, shouldn’t we leave it alone? No. For two reasons: (1) High income disparity has never been shown to fix itself without either intentional government intervention or unintended economic collapse, and (2) Just because external influence is a cause of damage to the economy, does not make the damage unimportant. Temperature changes in environment of the amplifier circuit can make it transform to an oscillator, even when the original design was good for the original temperature. But the amplifier is still broken and must be fixed to adapt to new conditions.
I hope this makes sense, and that i have not sounded too obstinate. I will appreciate any comments on my expositions and analogies.
Actually what I make is not arbitrary. I charge my customers a fee and that is what I make. The more customers, the more income. Like most small businesses.
And under this construct, there is zero case to say I have benefitted from an unfair system.
Peter, you are a smart guy. Surely there are some words that will get you to at least understand my perspective if not agree with it.
You operate your business in an environment that is systematically unbalanced in your favor. What you do in your business reflects microeconomic dealings within this unbalanced market and may be “fair” within the shifted marketplace, but the marketplace itself has been tilted to make it easier for rich people to get rich and harder for most people to succeed. This is unjust as a system, and unsustainable as a system. It has nothing to do with whether or not you are ” fair” in your business dealings within this overall unbalanced system. It has to do with fixing the system.
And what you make is not arbitrary within the current system, but it IS arbitrary once you realize the tilt of the system itself is subject to arbitrary shifts.
I.E. If you were operating your same business within the tax and labor rules of the 1950’s (but assuming today’s technological advance), you would still be relatively rich but not quite as rich, and the rest of the populace would not be as poor. You would likely get rewarded a bit less, others would likely get rewarded a bit more, national commodities like housing, medical costs, and education would likely not be stretched so high (which they are to market to the most prosperous), upper income folks who choose to live ostentatiously would likely have houses a bit smaller, and the economy would be in better shape. The difference between those two systems is arbitrary in the sense that the economy’s knobs of tax and trade and labor policy can be set in any number of ways. But the previous tax and labor policies allow for a more efficient and sustainable economy and more prosperity for more people.
I don’t agree.
And what specific points do you disagree with, and why?
My fees would not be lower. The labor market for my industry was no different in 1950. In fact, if anything, I would have made MORE money in my industry decades ago due to the lack of regulation. Fees in my industry were actually much higher until around the mid-to-late 90’s (and still dropping).
I know you really want to believe that somehow the success of most of the wealthy is due to somehow taking from others – but much like Ken’s response to you earlier to your faulty lake analogy – it doesn’t work that way. But we have been round and round on this before…..
Tuition controls are good. We used to have them in Texas, but then the legislators were conned by the schools into removing them, with the schools claiming that rates would not skyrocket. What happened next was that rates skyrocketed.
It’s really good to hear Ken and Peter agree on sensible and necessary government regulation.
Estate taxes are truly unethical. Taxing estates over $4 million is hardly a law to prevent aristocracy. I should be able to leave my funds to whomever I choose – whether they earned it or not isn’t the point. You’re thinking about it from the wrong perspective – it is a true JOY to give these funds to people (family, charity, friends, etc.). Why take that away from me and give it to our inept gridlocked government to spend as they choose?
I would hardly call an estate of $5-10 million a “dynasty” or an “aristocracy”.
It is much fairer to make the servant who cleans the toilets of someone inherits $10 million pay taxes on their wages than make the person who inherits $10 without ever lifting a finger pay any taxes at all.
Of course the servant has a much greater ability to pay than the person who inherits $10 million because paying anything on the unearned $10 million inheritance will cause emotional harm to the multimillionaire.
Todays Rich/Republicans are like the Palestinians who have to only win once in order to wipe out the Israelis. Todays Rich/Republicans have to only get control of the whitehouse and congress once to impoverish the middle class for generations by shifting the tax burden.
Lance –
Not sure I follow. The low wage earner doesn’t likely pay income tax, but does pay payroll tax (for SS) and would pay estate taxes as well. Everyone who inherits money pays estate taxes if it is a large enough amount – and best I can tell, everyone who inherits money likely didn’t “earn it”. This is regardless of what they did for a living and whether they were a servant, a CEO or a lazy bum. That’s not really the point.
It’s either fair or unfair…. you can’t draw a line across a certain dollar amount or income level on this one. Estate taxes are simply blatant wealth redistribution politics – they are as blatant as they come. And it is frustrating to think that I must give half of whatever I don’t spend to the government. I think anyone would feel this way whether they had $10 or $10 million.
Peter – If there wasn’t the ability step up in value to current value without tax consequences you would have more of a point. Why should one not pay any taxes on any of that income just because the originator died? If we are all to pay taxes on our income, we should all pay completely, death should not let us out of it. Now, if you want to argue the percentage paid, that only the step-up in value should be paid for, or something similar, that is fair game. But, for a great amount of untaxed wealth to be transferred tax-free seems quite unfair.
On another note, a family business, such as a farm or non-listed company, with great assets and little cash or ways to generate cash should be shielded from paying what would otherwise be a crippling or business destroying tax until the gain is realized.
That is a fair point JTM. I completely agree with everything that you said….
Generally, estate taxes are established to prevent an aristocracy of wealth accumulators from hoarding all of a nation’s wealth and passing it on to the heirs, who have done nothing to actually earn that money.
====
Weekend Edition had a segment on the estate tax [around Sep 10, 2010] which included an interesting comment by Abigail Disney, grand-daughter of Walt. When asked why she supported the estate tax the had the following to say:
“It’s absolutely an accident of my birth. And that’s sort of the point — that there shouldn’t be dynasties built around the simple good luck of being born related to somebody very wealthy.”
=====
I do believe you wrong. In the 1980’s, I insured a radiology group…11 radiologists in practice. All made in excess of $350,000 except the rookie who was hired in at $250,000. That was 30 years ago. I can cite countless others in the medical field making well into the millions of dollars per year.
Also
5) Limited returns on savings for the poorer elderly due to vey low interest rates.
Just had to see if you’ve changed your mind after Repub rout in November, which I predicted by the way. Apparently not. Three major factors in income inequality:
1) flood of immigrants working against the lowly skilled (high supply, met demand, low wages)
2) poor education limitimg those who are highly skilled (low supply, unmet demand, high wages)
3) Fed pouring money into banks who aren’t allowed to lend to all but the rich who then buy stocks, binds and real estate and profit handsomely.
4) NOT evil CEOs.
Refute
You’ve addressed the plight of the lowest 20%. What about the next 70%? (1) They are not impacted by immigrants, except as cheap laborers for their house renovation. (2) They are not poorly educated but they are hurt by the declining state support of state schools that makes their kid’s education more expensive. (3) The point about the Feds policy benefitting the rich is correct. So what the heck is wrong in taxing that bonus money to the rich to get some of it back? (4) CEOs are not evil. Just way way overpaid.
Welcome back, stevendad, BTW.
And no, I have heard not a single fact-based argument to persuade me to change my mind. Mostly it’s a bunch of mis-informed rich people telling hard-working poorer people they are uneducated and lazy. As for the Repub rout … they have 2 years in which they will firmly establish themselves as the defenders of the 1%, after which they will be out of power for a long, long time.
I’m not rich by any means – in fact I struggle from one month to the next – but you sir are just a fool. Please try and think this through if you can and stop victimizing yourself and everyone else. What good does that do anyone.
I am not “victimizing” anybody. I am making a point. Income has been redistributed from middle to rich such that about 15% of all income has moved from lower 90% to upper 1%; effectively giving 90% of Americans a 25% pay cut and the upper 1% a 150% pay raise. The “victims” of this economic travesty were made victims by the misguided tax-cut and anti-labor pro-big-business policies of the last 30 years, not by me.
This economic shift ultimately slows the economy, creates class warfare, increases poverty, and hurts all but the very wealthiest businessmen.
I guess I just don’t view my situation as being what it is because someone took something from me. I don’t feel like a victim.
I find the Republican spin amusing most of the time. Like Mitch McConnell claiming it was the anticipated Republican election success is what is making the economy so much better. Sounds more like the barnyard rooster claiming his morning crowing is what made the sun rise.
Our Republican Fall was an anemic victory at best. But a victory it was and I congratulate those who were victorious. And, unless Citizens United is overturned, or marginalized by the growing clamor for a Constitutional Amendment backed by resolutions from 16 states and a reported 62% of Americans, we are witnessing the demise of the government of the people, by the people and for the people.
Senator Paul Wellstone said it best in 2001 in his book “The way in which money has come to dominate politics is the foremost ethical issue of politics of our time. The corruption is far more serious than any wrongdoing by an individual officeholder. It is systematic corruption, in which there is a huge imbalance of power between the vast majority of people and those few who have the financial wherewithal to count more.”
Our democracy, and our economy, was more resilient in the middle of the last century when one out of every three American workers belonged to a union. Today, only 1.5 out of ten illustrates the shrinking voice many in the middle class find themselves fighting with. While not the only reason for wage stagnation, it is unarguably a symptom of the shift of the benefits of increased productivity away from the workers who have partnered with management to achieve those gains.
Couple that with the demands of Wall Street for positive short term metrics and the replacement of managerial talent who know nothing more than immediate shareholder value, and we may well be at a tipping point that can’t go well for anyone. For example, companies such as WalMart are buying back outstanding shares of stock to create wealth that is on paper only. Is this a type of economic cannibalism without sustainability?
I’m looking to those who embrace compassionate capitalism so that we can climb out of these ambivalent economic dark ages. It’s not job creation that should be our focus as much as it is creating demand. And, that demand creation requires a more healthy middle class. Management needs to relearn the lesson of sharing productivity gains which creates good customers for all.
Best post of the week, Joe. Thanks.
Question: If someone offered to double your income if you only had to pay a 5 or 10% higher effective rate on the total income, would you take the deal? Would you appreciate the added income and rejoice in your good fortune, or would you complain about how much your taxes went up?
To help answer what some reasonable and sustainable tax rates might be to help pay for government and put a brake on excess income disparity:
Average (effective) federal income tax rate of 1% in 1980 was 34.5%.
This was just before the tax reforms and cuts to rich that blew up the deficit and debt.
In 2011 (latest tables) average (effective) federal income tax rate was 23.5%.
These both exclude Soc Sec taxes.
Since 1% have double the share of all income now, compared to 1980, perhaps that effective federal income tax rate should now be higher than 34.5%. Since 0.1% and 0.01% have each triples and quadrupled their share of income, perhaps most of the higher taxes should go on such extraordinary incomes and on the capital gains and carried interest that make up large parts of those incomes in the upper realms. This would increase the overall effective rate of the 1% without overburdening the entrepreneurial class (the lower 0.9% of the 1%).
2nd paragraph rates above all apply to the upper 1%. Just to be clear and precise.
Just did my 2014 income taxes.
Federal rate – 30.5%
State rate – 5.6%
TOTAL – 36.1%
Someone other than Steven H tell me what would be a “fair share” to help those at lower income levels?
And by the way, my father makes about 5% of what I make and payed under 5% in total income taxes.
And I am not in the 0.01%.
Should read “paid”….LOL
The problem is getting worse. Quite in opposition to claims made on this blog by businessmen, income disparity does not diminish in a recovery; it accelerates.
http://www.huffingtonpost.com/2015/01/19/world-wealth-oxfam_n_6499798.html
=============== begin article excerpt
The rich keep getting richer, and by next year, just a handful of the upper-class will have accumulated more than half of the world’s wealth. A new report released on Monday by Oxfam warns that this deepening global inequality is unlike anything seen in recent years.
Using research from Credit Suisse and Forbes’ annual billionaires list, the anti-poverty charity was able to determine that the richest 1 percent of the world’s population currently controls 48 percent of the world’s total wealth. If trends continue, Oxfam predicts that the most-affluent will possess more wealth than the remaining 99 percent by 2016, The New York Times reported.
Drill down the numbers even more and you’ll learn that the 80 wealthiest people in the world possess $1.9 trillion, which is almost the same amount shared by some 3.5 billion people at the bottom half of the world’s income scale. Thirty-five of the lucky 80 were Americans with a combined wealth of $941 billion. Germany and Russia shared second place, with seven uber-rich individuals apiece.
Not surprisingly, the richest were titans in the finance, health care, insurance, retail, tech and extractives (oil, gas) industries, and they paid fortunes to lobbyists to maintain or increase their riches. Seventy of the world’s wealthiest were men. And 11 members of the elite 80 simply inherited their wealth.
“Do we really want to live in a world where the 1 percent own more than the rest of us combined?” Oxfam executive director Winnie Byanyima said in a letter. “The scale of global inequality is quite simply staggering and despite the issues shooting up the global agenda, the gap between the richest and the rest is widening fast.”
================= end
And yes, I know the article is about wealth disparity, not income disparity. The two are separate but closely related.
Yes, we, as individuals, can recognize the problems and subscribe to the suggested solutions identified by the experts, researchers and economists. However, implementation will depend upon the political will of legislators and that will is now controlled by those who drive the national conversation – the corporations. Money controls what gets said and not said and now that the Supreme Court has authorized unlimited and anonymous spending by corporations and their wealthy shareholders, middle class Americans may never implement any meaningful election reform so that anyone other than the very wealthy can be heard. Our voices and our money are now vastly overwhelmed in America’s political dialog.
Regrettably MOR, you hit the nail right on the head. A complete revolution notwithstanding, Karl Marx’s words may well come true.
http://business.time.com/2013/03/25/marxs-revenge-how-class-struggle-is-shaping-the-world/
The Commission on Inclusive Prosperity, convened by the Center for American Progress, unveiled a detailed argument about the economic and political future of industrialized nations on Thursday. I’m sure there’s lots of dismissive attitudes that will scoff at the notion. But, we can’t afford to not have the hard conversation that some, if not many, don’t want to hear.
http://thinkprogress.org/economy/2015/01/15/3612252/restore-inclusive-prosperity-save-democracy/
Great Article, Joe!
Here is a teaser for those who haven’t clicked the link:
======
The report casts unchecked economic inequality as a threat to democracy itself, and offers specific suggestions for how to reverse wage stagnation, class tension, and corporate profiteering in both the United States and other industrialized republics.
The commission’s report makes detailed arguments for a host of familiar policy solutions to rising inequality, slack consumer demand, and a labor market that fails to reward workers for their productivity. It spells out the rationale for a higher minimum wage that will rise automatically in the future, family-friendly labor policies around paternal leave and universal pre-school access, broadened public investment to make both education and housing more affordable and accessible, larger and better-targeted investments in public infrastructure, and tax code changes to support the middle class.
=====
I’m going to repost most of a previous comment that summarizes my frustration with this general conversation; i.e. it seems obvious to me too much of the conversation about income disparity is focussed on whether rich people are good or bad, whether poor people are worthy or unworthy, or are making good or bad decisions, and whether or not folks should just jolly well work a bit harder and then they can improve their lot.
Income disparity has nothing to do with morality of rich or poor people. I submit that people’s morals and hard work and ingenuity have not changed at either end of the economic spectrum. What has changed is technology and policy. And national policy therefore needs to adjust to the modern world and the needs of the nation. We are a nation of, by, and for the people, not of, by, and for the business leaders and bankers. So here is the previous post:
=====
Let’s step back from the moral judgments on poor or rich people and just look at the economy as a system. Income share has moved from the lower 90% to the upper 1%, and most of that to the upper 0.1%. Is this a good thing or a bad thing for the economy? Has this helped or hurt the economy? Has more money at the top correlated to faster or slower national average economic growth? Have the fortunes of most Americans improved or stagnated? Has unemployment increased or decreased? Is the economy more or less stable?
I think a fair observer would note that increased shares of total income being shifted to the top corresponds with
– unstable economy
– higher unemployment
– stagnating wages for most Americans
– slower real GDP growth
The next question is whether the income shift is a cause of the bad things just listed? It’s hard to prove such things but we can certainly see mechanisms where such an income shift creates damage. Higher income at the top means:
– less motivation for the rich to create new businesses or jobs (because they already have enough money)
– more money at the top to buy political influence that favors interest of the rich
– depletion of disposable income of middle class that powers markets and new business opportunities
– incentives for most to borrow money they need, and for rich to lend it to them at usury rates (high-rate credit cards, payday loans, etc)
– Etcetera, etcetera, etcetera.
There is NOTHING positive about shifting large chunks of this nation’s money away from the middle class and into the hands of rich non-entrepreneurial people who do NOT create jobs or wealth for anybody but themselves. And there is really no good reason for the good hard-working entrepreneurs on this site to defend the majority (not all) of folks in the upper 0.1% who either make very poor use of this nation’s wealth and income or receive far more of it than their meager contributions would merit.
Try this… While the stock market was falling to 6,700 in 2009, my employees were selling everything in their 401(k) because “it’s all I have. I’m not going to lose anymore.” I and others I know who have a little bit, were doing just the opposite. We were buying!!! Many of these dear friends NEVER got back in as “I’m not going through that again!”
The market is now 17,500. Need I say more about inequality of income/wealth?
And your point is?
Great point. Or another anecdote – during the real estate boom, people I know were buying more house than they could afford with no money down and negative amortization loans or interest only loans only to end up underwater. I sold my house and rented an apartment, banking the money. Then the government bailed out the underwater people.
Need we say more about inequality of income/wealth?
When I first bought a house in 1984, the salesman for one house we considered described a fixed loan at a good rate 1/2% below market and we put money down and set up an appointment to talk to their finance folks. When we got there the loans they offered were all negative amo. When we asked about the fixed rate loan, they said that was wrong and “You don’t expect the salesman to know the finance terms do you?” I answered that I certainly did if he was going to sell people on certain loans. I had to write letters and raise a stink to get the deposit back and out of the rotten deal.
People get bamboozled and roped into these loan-shark deals. The banks make money, and very few people got bailed out because banks kept “losing” paperwork for the refinance deals. The loan-sharks who robbed the house borrowers have kept the money, and now they are going after the people they foreclosed on illegally, to get more money.
http://money.cnn.com/2013/02/20/real_estate/zombie-foreclosures/
The rich crooks are still stealing from the bankrupt victims. Need we say more about inequality of income/wealth?
I see now. The point is victim-shaming. Typical bully response.
Victim shaming?? What planet are you from Steven H?
What planet are you from, confused? Never heard of slut-shaming? Fat-shaming? This is victim shaming, and the conservatives do it every day.
“47% of Americans don’t pay their share” because they don’t pay income tax. Never mind, that most of these people are retired, or students, or military, and the remaining few are too deep in poverty to be taxed.
Even our conservative in chief, John Boehner gets in on victim-shaming.
‘Last week John Boehner, the speaker of the House, explained to an audience at the American Enterprise Institute what’s holding back employment in America: laziness. People, he said, have “this idea” that “I really don’t have to work. I don’t really want to do this. I think I’d rather just sit around.” Holy 47 percent, Batman!’
http://www.nytimes.com/2014/09/22/opinion/paul-krugman-those-lazy-jobless.html?hp&action=click&pgtype=Homepage&module=c-column-top-span-region®ion=c-column-top-span-region&WT.nav=c-column-top-span-region&_r=0
Bullies who harass and attack the weak and then blame the weak for their predicament is nothing new, but it is still despicable.
Anyway – good points James and Bob. So many stupid decisions are made every day that separate the winners and losers.
So, confused, these people are so poor that they cannot afford to leave their money in declining investments until, maybe, the market recovers, and they are so stupid that they let bullying banks and realtors cheat them out of their money with poor advice.
You find amusement in this? You think these people deserve to lose their hard-earned money to the rich liars and cheats and flimflam men who are good for nothing except accumulating other people’s money?
Uh yeah … If someone can’t afford to leave their investments where they are for the long term, then why did they buy risky investments such as stocks? Bad decision. Greed leads people to make poor decisions. Own it.
And somehow the public is not culpable at all in the real estate mess? No greed there?
Dude you are a lost soul.
Agreed. Nobody is being cheated when someone moves their whole 401k into cash when the market is down. Nobody is being cheated when someone buys too much house than they can afford and is then unable to pay the mortgage. No rich liars are a part of this….. 90% of the game in investing is saving and investing in proper investments and understanding and withstanding the risk. Not everyone is capable of this and no flim-flam men are responsible for people’s stupid decisions when it comes to stock market investments. If anything, the professionals in the industry are there to KEEP people from doing as such.
Look, some of this situation is due to ‘the system’ – but absolving the entire public of personal responsibility is ridiculous.
“Nobody is being cheated when someone buys too much house than they can afford”
False meme. That did not happen that often. More often that people owned a very reasonable house, but still went underwater when the market crashed, and could not afford to move and sell when they needed to. And there were liars and cheats who signed people up for subprime when they qualified for better … but banks made more on the subprime.
There is a reason that banks were prosecuted for making bad loans, and for robo-signing foreclosures, and it is NOT because the house-buyers roped the BANKERS into a bad deal.
James and Bob and Confused (appropriate name by the way) , I readily admit that people can make poor decisions and should own them. But banks … the experts in money who should KNOW better … made COLOSSAL stupid decisions and we all suffered for it and they have NEVER owned the results of those decisions.
You apparently don’t perceive how offensive you sound when you pronounce your smug glee and derision in painting all of the victims of the economic crisis as stupid morons who deserved it. A few — a VERY few — can perhaps be portrayed as you paint them. The rest are people as smart and clever as you are, but caught off guard in a financial storm.
Yawn…. Just a ridiculous perspective completely victimizing the public. So misinformed. Explain how fat cats are to blame then for people losing money in the stock market. Victimize the public on that one if you will.
Actually it happened quite often (people buying more house than they could afford). That was the appeal of an interest only loan – you can have a lower monthly payment and a bigger mortgage. Given the opportunity to turn giant purchases into low monthly payments, the foolish will jump on this at every turn. This is how the credit card companies make so much money. And why there are pawn shops, and check cashing places, and reverse mortgages, and all sorts of other businesses that continue to stay afloat year after year. Because like it or not, there is a parade of poor decision makers that want everything now vs later at whatever cost. It is not the fault of the mortgage companies telling people about these loans (now what they did with the subprime mortgages after the fact was terribly wrong) – each person in our society has their own personal responsibility to navigate the good and the bad and make proper decisions.
James, you have no comprehension of how you are victim-shaming. Have you ever known someone who was pressed into getting a payday loan? I’m not going to say the payday loan people are evil, but neither are the borrowers stupid. Very often they are desperate with no other choice.
I’ve known a grandfather and grandmother trying to be parents to their grandchildren when the parents were not able to parent. The grandfather was still pouring cement driveways at 75 yrs old to make some money. He gets injured and they have to make mortgage payments on their very modest house. They have debts to pay or the debt collectors start coming. They have to get a payday loan because no other choice was available to them. Yes the rates are terrible and usurious and ought to be avoided if possible. The rates, frankly, should be illegal. But the borrowers are not all stupid. These people were not stupid, just desperate.
When the system drives people into poverty, erodes their ability to build up savings and nest eggs, corners them into a point where every decision is a bad one, you should not then call them stupid as well. Maybe you should figure out how to fix the system so ladders are available instead of building more chutes downward.
This thread of James and Confused is exactly the problem with the conversation. Rich, or even not-so-rich people thinking that every person with hard luck or a bit less success is a fool or an idiot.
I believe in personal responsibility but also social responsibility, charity, forgiveness, and helping someone get a leg up instead of a kick in the pants when they are down.
Not a kick in the pants. Just don’t feel sorry for people that make stupid decisions and then play “victim”. There is no nefarious influence that makes people sell their stocks when they are low. And behaviors such as this continue to separate the rich from the not-so-rich.
I’m not part of the 1% – but hopefully I keep making the good decisions and long-term strategies that will one day make me part of that group.
Good point. I rode the recession out. Most, if not all, of the people in our company did too because their job was secure. My attitude was that if the market and economy was going to tank that money wouldn’t soon matter anyway. The economy did recover somewhat to very well depending on your point of view. Since we contribute to our 401Ks every month during the recession our 401K came back stronger than before. However, I noticed that the young people are invested MUCH more conservatively than I think they should be and this will hurt in the long run. The 2001-2002 and 2009-2010 is a significant part of their investing experience.
Quite frankly it was a nice break in the action not reading the constant attacks on one another over the holidays. But now Steven has begun his crusade once again in addressing the in one disparity in this country, and how it is negatively affecting the country.
Steven, you must be a very smart person and certainly well read if you actually read all the articles you claim you do. And trust me, I have no reason to doubt you. I don’t think I can debate you from an intellectual standpoint, I’m fairly certain I would lose that battle because if a couple of reasons. One, I don’t have command of the English language like you do, and secondly, I don’t read near the number of articles on the subject as you. But I do want to ask you some questions to maybe help me understand why you think like you do.
My first question is if you were a business owner, or held a patent on a product that was going to go wild, and regardless of which one of the above you did or had, and you were starting to make several million dollars per year and you had the strategy for that to continue for a number of years, how would you handle the excess money? I’m serious, I’m not being a wise ass, I would like to know.
Here’s the example. Your business is an S Corp, you are the sole owner, and your company just closed the books on a record setting year. You took a salary of $1M, you had the perfect blend of employees ranging from assembly to sales, had a marketing department that was darn near perfect…all of it just hummed right along. And all of the staff I just mentioned, along with others that worked for you ( administration, bookkeeping, IT, etc) all made wages/ salaries above the industry standard. Now you have a taxable income of $10M.
But now you head into the last meeting of the year, and your team tells you that next year is going to make the past year look like child’s play. In fact, there is the potential for you to make $50M, with one catch. You now have to expand. You have to build a new facility that’s going to cost $25M, and add staffing that’s gonna double what you currently have in place. And instead of building a new facility, there’s a new facility sitting out the in small town America that the business leaders of that town will make available to you at an extremely low cost. All your staff is willing to move, the new location has the people to expand your business, so now is my question to you.
In the first case of you making $10M, what are you going to do with the money? In the second case, are you going to make the move?
After you answer, I will then come back and explain why I asked these questions.
David H, My first response is that your command of the English language is quite good. If it is a second language for you (as it must be from the implication of your statements), your mastery as exhibited in the post is as good or even superior to that of most native speakers.
As someone who does data analysis for a living, my typical answers to your questions might be “that depends”, based on various additional factors, but that is probably not a useful answer to you, so I’ll take a stab at answers.
1) What would i do with extra money from a patent? I would either invest it into similar research and development or invest it in stocks, with some amount set aside for trust funds for children, and probably some set aside for home improvements and a nice vacation.
2) Would i move the company? This might largely depend on whether I want to live in the new area. From a purely financial standpoint, it sounds like it would make sense to move the company but i would else weigh my personal and family ties to the local community and the appeal of the new location to myself, my family and my staff. I would also carefully assess the real enthusiasm of my staff for the move. A successful small company such as you describe depends on the right people and domain knowledge and i would want to make sure they were not only WILLING to move but actually enthusiastic at the prospect.
I hope that helps. I am interested in where you are going with this.
If I may, I would also like to clarify my position regarding companies, investors and the like. I think small business is important and investors have their place in our economy. I understand that companies and investors make decisions in their own interest that may be negatively impact others. There is no system where everyone wins all the time. But there are degrees of reward applied in any system. If you take a stable system and alter it such that the share of rewards of a few are doubled or tripled, while the share of rewards of most are dropped by 10 or 20 or 30%, this can be a problem.
So let me also ask you a question, and I apologize that my scenario is not stated as neutrally as yours. Lets assume there exists an economy that works pretty well, with big and small business, investors, workers of all incomes, and a healthy annual growth in GDP, where this growth is distributed more or less evenly as a percentage growth to all incomes. Then a combination of global technology changes and local policy changes alters the economic landscape such that most of the nation’s growth goes only to a relative few people while most people’s incomes stagnate or decline, and the share of new reward for most people drops by 25%. What is the most appropriate action for an elected government?
a) Nothing, because free market economies are best left alone to achieve their own balance point, and the income disparity will likely reverse on its own.
b) Follow the wishes of the business leaders and investors in adjusting new policies that favor them, since they are the most successful people and should know best.
c) Focus on policies that will compel the poor to work harder for success since they are clearly falling behind their more successful economic superiors, and since their lesser fate is reasonably only due to their own poor decisions and lack of education and industry.
d) Despite the well-financed opposition of the more prosperous citizens, government should attempt to reverse government policies that have encouraged income disparity because this is clearly damaging the overall economic balance, increasing poverty, and depleting the disposable income of the working and middle classes which are the engine of the economy.
e) some other option (please state) __________________
And lastly, what do you consider unfair, if anything, to the setup of my scenario above?
David H. , after rereading your post, I fear I may have assumed incorrectly about what you were implying about your mastery of English. You did not say it was a second language for you, and I may have made an incorrect assumption that you were implying such. If so, I apologize. Regardless, I think you underestimate your skills, and possibly overestimate mine; though i do thank you for the compliments.
I’ll answer – and without loaded political spin or returning rhetorical questions …..
I move my whole company to small town America into the new facility (in a heartbeat) and give them all nice raises or bonuses for joining me – possibly even deferred comp to insure they stay with me for the transition to the new expanded facility for at least a few years. To make that much more money would almost always be worth it – just doing that for a few years means that I could set up my family for generations. If there were some family reasons why I couldn’t move (like I have a kid that is a junior in high school for example), with that kind of money I could commute or higher a few managers to oversee things for me when I am not there.
I would personally invest the money – a diversified portfolio of mutual funds seems reasonable, or property either for investment or my personal enjoyment. I would give quite a bit to charity as well to both reduce my massive income taxes and help others at the same time.
Honestly an easy question to answer…… can’t imagine anyone answering anything differently.
Those are good answers james, except perhaps for the last sentence. It occurred to me, upon reading it, that part of the problem with some of narrower-minded posters on this blog (and I am not directly implicating you, but just using your sentence to make a point), is that they have no imagination to believe other people can or should act differently than themselves. In retrospect, don’t you think that last little phrase “can’t imagine anyone answering anything differently” is a bit presumptuous?
Nope. Sure don’t. The way he threw out the details of the story I am not sure how anyone could answer differently. Remember, I put some parameters in my answer so it wasn’t that rigid anyway (since we don’t have all the info). No reason to react to that other than try and start a debate. Let’s see where he is going with this.
OK.
Still very few posters this January, but I still have a few stored posts to get out of my system. Perhaps they will be interesting enough to spur a response.
Here is an engineer’s view of the Excessive Income Slope problem. Perhaps a mechanical analogy will help separate the issue from people’s emotional response.
Forget blame, ideology, emotion, politics.
The US economy is a black box with inputs of national labor and ingenuity and outputs of reward, which we measure broadly as GDP. The machine in the black box is of the “capitalism” design, which makes it one of the more efficient models. Attached to the economic black box is an instrument that regulates the economy with various knobs and measures its status with various numbers and gauges. This regulating box is the government and is also one of the better designs, being of the Democratic-Republic variety.
Of the various knobs on the regulator, there are some that adjust the economic flow through various channels by encouraging specific investments, rewarding or punishing various behaviors, restricting or preventing other behaviors, and also directing a percentage of the economic flow through the regulator itself. These controls, again being of the “Democratic-Republic” design regulating a “Capitalism” clockwork, are coarse and very general, unlike the overly-complicated and nearly impossible to manage “Socialist” and “Communist” black box controls. Some of the largest and most impactful controls on the Dem-Rep regulator are the “tax policy” controls and the “trade policy” controls. Another important set of controls are those that manage the “insurance” and “welfare” reservoirs, wherein a certain percentage of money flowing through government is collected and used to sustain the parts of the machine which are too injured or damaged or too new or too old to sustain themselves.
One significant set of gauges on the machine indicate the “income disparity”, or distribution of money flow through various essential components of the machine. These machine components have many specific functions but can be described in general terms as the investor/managers (upper 0.1% in income), the entrepreneurs (next 0.9%), the professionals (next 9%), and the remaining 90% which include the middle class and working class (remaining wage earners) and the retired and indigent. The distribution typically (in modern history) has a mathematically consistent distribution curve allowing for approximate description of the distribution curve as a single number: the percentage of income going to the upper 10%. This Disparity number N has varied over the last 115 years (those for which it has been calculated) between about 30 and 50 (percent). Interestingly, when N% goes to the upper 10%, about the same N% of that amount goes to the upper 1%, and N% of that goes to the upper 0.1% and about N% of that goes to the upper 0.01%.
Observations show that there are various maladies that can occur when this Disparity number gets too small or too big. Historical optimum (based on values in most prosperous years) seems to be in the range 32 to 36. When the Disparity number gets below 30 or so, then too little capital is available to the investor class for seeding new businesses and ideas. This slows economic growth. When the Disparity number is between 40 and 50, capital starts to accumulate unproductively in the investor class, and disposable income becomes depleted in the middle and working class, both of which slows the overall economy, as well as restricting benefits of economic growth primarily to the upper classes. When the Disparity number gets over 50, the economy becomes unstable and more likely to collapse into Recession or Depression.
There are strong indications from research (as well as common sense) that Tax and Trade controls have a dominating impact on the Disparity number. Tax policy in particular can have direct impact on the Disparity number as it can either encourage or discourage the excess accumulation of income and capital in the upper incomes, which is a principal characteristic of disparity. Trade controls impact (among other things) how much of national income can be sent outside the national economy to obtain cheaper labor. Increases in international trade CAN increase overall economic efficiency, but it also tends to increase the number of US unemployed (increasing number of indigent), and suppress the wages of the remaining employed wage-earners, while directing increased reward to the entrepreneur and investor classes, thus increasing the Disparity number.
An engineer examining this economic black box and its controls would seek to adjust the knobs, guided by history and current feedback analysis, and find a balance
that optimizes GDP growth, minimizes the number of indigent, and prevents excess accumulation of capital in unproductive channels, while fully funding the government.
What has been happening instead is that these economic knobs are (not surprisingly) subject to contentious political battles for control. Even though our Disparity number is at or perhaps even slightly over the danger threshold of 50, there are those who seek to prevent any change that would reduce the number, and some who (unfathomably) advocate policies that would increase Disparity even more.
But when we look at the economy from this “black box” and historical perspective, it seems to me that many of the arguments against adjusting the knobs to decrease disparity go away. It does not make sense to blame the rich for taking the money, nor the poor for not working hard enough. Disparity changes over time for multiple reasons. It’s true that wealth and power tend to centralize and this needs to be countered. It also makes no sense to make claims about class warfare, or punishing success, or takers and makers. It’s not so hard, really to discern that we are out of balance, and there is no need to make insults when people are simply trying to restore a balanced, prosperous economy.
There is no compelling evidence that the indigent or the lower working classes are any less productive or more morally deficient or any more ill-suited to a changing economy than they have ever been. There have always been divorces, and a few lazy folks, and a changing labor market. It is much more likely that the victims of our economy are getting the blame because that is what people tend to do: blame victims. And even if there were some statistical indication that the poor are contributing less to the economy, is that really more likely to be a cause of disparity, or is it an effect? If they pay no federal income taxes, is it because they have no skin in the game, or is it because they have been forced out of the game?
Similarly, there is no evidence that most rich people are greedy awful misers. Certainly there have always been a few. But many businessmen and even cash-heavy investors have useful positions in the economic ladder. If our economy has made them richer while the poor suffer, it may not be their wish nor ambition to prosper unjustly. Surely they feel that they have just won their just desserts from their hard work.
And yet, the evidence is clear that high income slopes do exist and are dangerous. And while uninformed and unintended harmful actions can be forgiven, there reaches a point where it should be obvious that wealth and riches are accumulated in unproductive tiers of the economy, as other tiers are depleted.There reaches a time when everyone should recognize that changes must be made, even if there is some economic pain involved. It is not enough to understand HOW our economy rewards the rich such that they keep getting richer. Understanding why the economy is broken is not enough. At some point we have to be willing to fix it.
And here is where the battles usually get nasty. There are some who think there is a symmetry in the positions of rich and poor. Each thinks that the other is receiving more than their earned share. And yet, there is a massive asymmetry that cannot be ignored. The rich have already been receiving more and the poor have already been receiving less. If we are going to fix the high disparity, both ends must end up getting just a wee bit closer to the middle. The rich won’t be happy if they think of it as giving to takers. But that is not what it is. They should just think of it as payback for the prosperity that this nation in this age has meted out, which is more prosperity than any other nation in any other age thus far. There reaches a point when those who keep winning more and more of the economy need to be willing to revert back to receiving a more historically balanced economic share.
Steven, you are using libtard weasel words again. You say receive, I say earn.
Those on welfare and food stamps receive, they don’t earn what they get.
Libtards don’t know the difference.
Yes, I am back.
OK. Done griping about nits in past posts. On to musings on the substance of actual arguments for the problems at hand: especially causes and solutions for high income slopes, aka excessive income disparity.
I’ve been trying to review some of past arguments on both sides as listed on this blog and am still trying to conceive how intelligent people can see the same problems so differently. Even though the posters on this blog, on both sides of the issues, are generally far more intelligent (to at least they post far more probing posts) than the average poster on the average news blog, arguments still don’t mesh. A few agreements are made and then people generally revert to default positions.
I think there is something psychological in this, as it defies logic for intelligent points in arguments to be continually rejected. I heard a term once about people arguing based on “resentments wrapped in rationalization”. This seems to be a contributor to the continues disagreements, and I am not just accusing one side. It is, I think, a strong human psychological trait. It indicates when one has a strong emotional tie to a particular argument or perspective, especially when one feels they have been personally attacked or insulted or cheated or similarly impacted by actions of others. From this emotional response, people rush to a concluding perspective and then afterward they rationalize the argument that defends that perspective. If a flaw in the rationalization is discovered, it is immediately replaced with a new piece of logic to defend the pre-ordained conclusion. Seldom is the conclusion itself at risk of being discarded because it is based on emotion, and not actually based on the rationalizing logic.
Naturally, I think my opponents on this blog suffer from this logical malady. Naturally, they probably think the same of me. If we assume, for arguments sake, that everyone involved truly wants to seek truth and does not WANT to be self-deceived by rationalizations, how do we recognize and discard the rationalizations?
It’s an interesting problem.
Regarding my last substantial December post, Ken and Peter seemed to feel that I had mis-represented their positions. I would like to address that, not only to defend my statements, but also to invite some clarification of their positions.
I said:
===
This is clearly a different world Peter sees: one where greed has little impact on the economy, and where government regulation and tax policy neither causes nor can correct economic problems. And where taxing the biggest pot of money held by the least needy is somehow a terrible idea.
=== end
This seems a simple restatement of Peter’s position denying greeted, government, or taxes are primary causes or solutions of disparity. Is there something wrong with how I reworeded it?
I then said:
===
In Peter and Ken’s world, as they describe it, nobody has any responsibility for how their actions affect others. That is somebody else’s problem. Our fate is completely our own credit/fault. And our impact on the rest of the world is not an issue. It’s not the fault of the rich people if the businesses they build destroy small towns, export American jobs, or bankrupt the families of their workers. They don’t mean to hurt other people by taking all they can get for their shareholders. That’s just the rules of the game.
=== end
This is just a slightly less kind rewording of Ken’s quotes such as “My issue is in classifying so many people as helpless victims who bear no responsibility whatsoever for the choices they have made. …”, and “Yet I rarely (never?) hear that personal responsibility side of the equation mentioned in your responses. It’s apparent to me that you consider personal responsibility a minor part in how people’s lives turn out, relative to forces outside personal control, such as government policy, nefarious schemes of “the rich”, and so on. I think this is where we will always disagree.” and Peter: “Even the Wal-Marts of the world are simply trying to make more money both for the company and their shareholders (which every single one of us can afford to become one of). They aren’t trying to make sure the population is so poor that they crush their dreams. They are just looking out for their own company’s best interests. ”
So my rewording simply points out the mirror reflection of personal responsibility, which is social responsibility. Too many conservative pundits lambast social programs by saying that people need to take responsibility for their own lives, implying that government and society have little or no obligation to help anybody. Ken says people are simply the product of their own decisions (not impacted by others). Peter excuses the crimes of the Wal-Marts of the world by saying they are just looking after themselves.
My point is that personal and social responsibility go hand in hand. You can’t just push everything off on personal responsibility. People may not be owed a job, but neither are businesses owed a fully trained employee. It requires both personal and social responsibility to make our nation work.
To be clear, I consider personal responsibility and hard work as very important components in determining success. Just not 100% of the components. Not even 80%.
So I spun your position of exclusively focussing on personal responsibility as the negative position of neglecting the importance of social responsibility. Isn’t that fair?
————————–
And BTW, I HAVE mentioned and advocated personal responsibility multiple times:
Nov 16: “Personal responsibility is important, but it is in societies best interest if we provide paths to success that are manageable.”
Sep 18: “Cons think individual effort and responsibility is key, and that success in life and business is purely by one’s own efforts, and that therefore the rewards of that success are fully owned by the individual.
Libs think individual effort is important but that societal cooperation is key, and that success in business and in life requires the efforts of a community as well as the individual, and that therefore a portion of the rewards of individual success are owed back to the community.”
Aug 12: “Hard work and responsibility is also a skill that needs to be taught. That is something our grade school system does not necessarily focus on, and which needs to be taught at ALL economic levels, along with ethics. Schools used to have civics classes on community responsibility and pride. I’d like those to be re-instated.”
By the way, in reading some of the early pages (most of pages 1-3, way before I started posting) I see that MOR was one of the earliest contributors on page 1 and has stuck around the longest. More remarkably, he has been extraordinarily consistent with cool-headed intelligent responses even when attacked with truly nasty rhetoric from a few posters. Kudos to you MOR. I am truly impressed.
Also, Peter and Ken have been long-time cool-headed posters representing the entrepreneurs and I want to thank them in particular for their insights and detailed responses to my posts.
However … I have a couple gripes, these directed to Peter:
1) Peter: I’m still surprised and disappointed that you have seemingly just closed your mind to some assertions by stating:
==== start peter quote
The big thing I will NEVER agree with Steven H’s worldview on is that the crux of our problem lies in our government, greedy rich people, or our tax system. I will also NEVER agree that the solution lies with higher taxes on the wealthy. There are much bigger, more complicated tactical shifts happening in our economy – all of the tax/government/policy stuff is largely politics, not solutions.
==== end peter quote
Offhand dismissal of any discussion of tax or other government policy, and claiming those as being irrelevant to the problem — all with no backup or factual basis — is pretty disrespectful to those of us who have repeatedly cited quotes and studies that specifically indicate that tax and other government policy have huge, if not primary, implications for income disparity and imbalance in our economy. If you are just going to proclaim that you will not even consider the arguments of the opposing side, how can we have a conversation?
2) Peter, after your overt exclusion of cause and solution options, you THEN chastise me for making my problem statement in such a way that you think limits discussion because I included opinion and didn’t form it as a question. From your post, quoting mine in the middle:
========== start peter quote – December 4, 2014 at 9:27 pm
This is the problem with your posts….. This :::
“Let’s get back to the completely independent problem of high income disparity and the 30 year stagnation of the hard-working, industrious, well-educated and skilled middle class, due to centralization of economic and political power and reallocation of an additional 8% of the economy taken away from the middle class and funneled to the 0.1%.”
… is not a real question. This is a political statement. These is the way YOU see it, not necessarily a real problem like say, slow economic growth or government gridlock. There are so many words in this post that are opinion and carry tremendous weight that there really is no “discussion” to be had around it.
================= end peter quote
Your critique alone is not so problematic, except that a mere 22 minutes later, you make the same sort of statement you have just lambasted me for, but worse, because while I just stated my view of the problem, you told me that I “have to” accept your assessment of “fact” regarding cause of disparity:
================== start peter quote – December 4, 2014 at 9:49 pm
You have to open up your mind to the fact that the rising income of the 1% is a function of this economy and not the cause. These people did not do this intentionally to keep everyone else down….they were the benefactors of a changing economy. And many of them were in the bottom 20% just a few years ago themselves.
=================== end peter quote
To recap:
First, you shut down discussion by refusing EVER to even consider my primary list of causes.
Second, you lambast me for just making a problem statement that contains some opinion.
Third, you tell me that I HAVE to accept your version of fact regarding cuse.
I realize the passions get hot and heavy here, but I feel obliged to hold up the mirror and point out these inconsistencies in your arguments, partly because they are beneath the general tenor of your posts and I think that you yourself would not accept such contradiction from others.
Your contradiction and disrespect as indicated above are the primary reasons I felt I had to leave the conversation in early December.
LOL.
“Let’s get back to the completely independent problem of high income disparity and the 30 year stagnation of the hard-working, industrious, well-educated and skilled middle class, due to centralization of economic and political power and reallocation of an additional 8% of the economy taken away from the middle class and funneled to the 0.1%.”
Hard-working, industrious, well-educatoin and skilled middle class = OPINION
Due to centralization of economic and political power = OPINION
Taken away from the middle class and funneled the the 0.1% = CONJECTURE
Peter,
1) Yes, I think the middle class is hard-working, educated and industrious. Do you have a different opinion? Are you blaming the middle quintiles as well as the lower 20%? Do you really have such low opinions of most Americans?
2) Centralization of economic power: That is not opinion. It is FACT. What do you think high income disparity means?
Centralization of political power: Not opinion either. Big money and unlimited campaign donations is a FACT.
3) Money moved (the term “taken away” is just another way of saying the same thing) from middle class to upper 1% and 0.1% is FACT, and you even agreed it happened, so don’t claim conjecture, now.
“You have to open up your mind to the fact that the rising income of the 1% is a function of this economy and not the cause. ” – Unsupported conjecture
“These people did not do this intentionally to keep everyone else down….they were the benefactors of a changing economy. ” Unsupported conjecture. You don’t know what people are thinking. And it doesn’t matter WHY they broke the economy; what matters is that they DID and continue to do so.
“And many of them were in the bottom 20% just a few years ago themselves.” – Unsupported conjecture. How many, exactly?
I now remember why I left this conversation. Wow…… Good luck with the debate going forward Steven H.
Peter, one of my goals in joining the conversations on this site was to learn the perspective of the 1%, to express my perspective, to persuade if possible, but also to be persuaded. While I have learned some useful things about their, and your, perspective, there seems to be remarkably little persuasion on either side.
The predominant arguments of the entrepreneurs are perhaps expressed most concisely in your rant: “I will NEVER agree … that the crux of our problem lies in our government, greedy rich people, or our tax system. I will also NEVER agree that the solution lies with higher taxes on the wealthy.” The other half of that argument is a constant barrage of assault against the non-rich; that they are not educated or hard-working or very smart. You personally have refrained from saying this directly, but your “favorite” posts and articles posted are simply lists of what the non-rich have done wrong and of what poor decisions they make. Or you also assign cause to neutral elements such as mechanization, globalization, changing economy, but woe to the poster who suggests that government should rebalance the economy, tax policies, or trade policies to account for these changes. No, the changing economy shifts wealth to the rich, and so it seems they, and you, reject any plan to alter that windfall.
One thing i have come to believe from these conversations is that the entrepreneurial class of small business owners is not the crux of the economic problem. But the longer that they, and you, continue to side with the over-rewarded moneycrats who are your economic superiors, the more likely it is that you will be caught up in the almost inevitable economic attacks of the 99% who will not stand for continued oppression and derision indefinitely. You would do well to favor higher taxes on the moneycrats and suppression of the out-of-control growth of the super-rich. You need the 99% a whole lot more than they need you.
Happy New Year!
I’ve been looking over some of the early pages of this blog as well as reviewing the recent couple of pages. I thought I might read the whole ten pages of this thing, but MAN are these pages LONG!
The year ended on some sour notes (more on that in a bit), but I wanted to recall that there were also some significant agreements in November. There were comments such as:
======
Peter: 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. … You won’t hear much push back from me on regulating big business and getting their influence over our political system under control.
======
JTM: 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.
======
So here at least, on the issue of dangerous Corporatism and limiting big business influence on government, some on the left and right can converge. I think this is significant because the outsized economic and political influence of big corporations (as well as big banks and the massive financial industry) inhibits small business prosperity. And I believe that small business is where most of the innovation and job growth occurs. (Surprise! I can praise entrepreneurs.)
Peter an JTM are on the right? I’m confused….who did you think was on the right here? I do enjoy your posts, by the way. (Probably not in the way you intend though haha)
Peter on Right.
JTM on Left.
Peter holds a clear conservative position on most issues.
JTM has taken a liberal stance on economic issues.
The quotes were a tiny subset, and a somewhat more complete assessment of agreement is back here at the November 8 comment linked here:
http://moneyning.com/career/who-actually-earns-400000-per-year/comment-page-10/#comment-1039107
if you are interested.
Oh OK – I never really saw either of them as leaning one way or the other – thought there were two of the more objective people on here.
I’m happy to amuse you while educating you.
😉
You can start generating up to $3,488 a day using Push Button Commissions app. Register Your Free Spot Here.
http://goo.gl/fJb6su
This is a first!
SPAM alert! Please remove the spam and this reply. Thanks.
How about 2 middle class not working hard enough or 3 middle class not getting enough skills are statements that are judgemental and totally disregards ones decision to live an average American lifestyle not being consumed with the need to be the elite 1pct of which most are terrible people whose kids hate them and spouses are sleeping with the infact middle despised middle-class. I can go on and on… and no, I am actually part of the 1pct, just need to open a few blind eyes and let you pompas jack-asses know that your 1pct money means nothing with substance.. also what is the world was filled with 1percenters’… oh so exciting.
sorry guys, my reply was a reply to Stephen H and James convo on Sept 28/29 2014… ha ha ha, that’s what my 1pct wine does to me.
DY,
I appreciate someone in the 1 percent (if that’s who you really are) sympathizing with the lower 99, but really there is no need for, nor productive conversation produced by, such indiscriminate and baseless insult and slander. If you really want to open some eyes, say something about yourself, how you got to the 1 percent and what you think about causes and solutions to the income disparity dilemma. But please don’t troll, hate and slander.
Steven H
DY I’m pretty sure, based on the grammar cues, your post left out “not”, as in “and no, I am [not] actually part of the 1pct”. Funny how one word can reverse meaning and create confusion.
This is why Steven H is fighting a losing battle.
http://youtu.be/7Pq-S557XQU
My company automates things. Our jobs are relatively secure if we can keep contributing to the automation of things.
Those that have capital can buy the robots. In general the robots are better than people at what they do. This explains why the rewards of capital out pace the rewards of labor.
There is trouble ahead. Most people will be relatively useless in the future. Even off shore workers will not be able to compete with local automation.
Gene Roddenberry’s Star Trek was famous for hypothesizing a future in which increased automation and technological advance allows humans of all classes to increase their leisure time and use their time for self education, improvement, and invention and exploration.
Peter N.’s projection might be titled Future Schlock, in which those privileged few with the capital and means to build and/or purchase rights to all of the technology can drive the rest of “useless” humanity into poverty and despair. Good job, Peter N. Is this really what you strive for?
Survival of the fittest rules now and forever. I didn’t make the rules. Any deviation is just a hiccup in the true order of things.
@Steven H, your Piketty has been found to cherry pick data to make his points.
I saw those accusations early on, but they have been refuted. I’m sure there are some minor glitches in such massive research, but Piketty’s data has been generally validated and thus his primary theses below have been confirmed. [My comments below are in brackets.]
1) Income disparity occurs in large part because capital grows faster than wages. [This is why higher progressive taxes on capital and excessive incomes are required to stabilize the economy.]
2) Income disparity does not reverse itself. [This is why it requires economic crashes and/or government intervention to reveres it.]
The opposing force to “survival of the fittest” is called civilization. It’s a radical idea, but we’ve been having some success with it.
After googling, I found those “cherry-pick” headlines from way back in May. Honest researchers on both sides have since said that the errors found have no real impact on any of the results or conclusions.
From Forbes’ Scott Kinship, who dislikes the conclusions of Piketty, but nonetheless respects his research:
=========== From Forbes:
On Friday, the Financial Times published allegations by its economics editor Chris Giles that Thomas Piketty’s wealth inequality data in his heralded Capital in the Twenty-First Century gives a suspiciously skewed impression of trends and cross-national rankings. I will confess that I clicked on the link full of schadenfreude; …
However, I also believe that few researchers that achieve Piketty’s prominence fake their data, and I have deep respect for how readily Piketty and his colleagues have made vast quantities of data available online for anyone to see. For that matter, having read the book, I know that it cannot be reduced to the charts Giles criticized. And as someone who criticizes research and who is criticized, I have an interest in promoting the fair adjudication of research controversies.
My initial assessment from Friday is mostly unchanged. The Financial Times blew the data issues it identified out of proportion. Giles discovered a couple of clear errors and a number of adjustments that look questionable but have barely any impact on Piketty’s charts. Much of his critique could have been consigned to a footnote to the effect that he uncovered other mistakes and questionable choices that do not actually change Piketty’s results. Giles’s post is written in a way that makes you think the alleged problems with Piketty’s data are more legion than they are. And he’s made some errors himself along the way. …
A area of wealth they did not mention is the area of so called non profits. They do in the article mention CEOs but most of the public when they think CEOs they think of say Ford, GM, Insurance companies. The American Legacy Foundation a so called non profit pays their CEO close to one million a year to come up with ways to fight tobacco. The American Cancer Society pays their top brass big bucks while even a consolidated division director makes over $500k!
I am taking a hiatus for the rest of December. There is no progress in the discussion. My thesis does not seem that complicated or bizarre, but I cannot seem to find the right way to express it to convince the skeptics.
I simply think the economy is unbalanced, that the economic and banking sector is too big, that CEO salaries are too high and non-market-driven, that big business is writing its own rules, and that as a result of these and other factors, a significant percentage of the economy (5 to 15%, depending on how you count) is wasted in decreased competition and inefficient and unproductive investment and/or money-changing schemes. I believe this is due to the unending drive to make money – call it greed or just business; it’s the same thing. No moral judgment implied, just fact. Waste at the top and under-regulated business and permissive trade policy allows salaries to be suppressed, jobs to be exported, money to be shifted from those who have little negotiating power, to those who pull all the economic strings.
Nothing I just stated is controversial or unusually accusatory. Most people can see this behavior in history, in the previous Gilded Age, in coal-mining history and company towns, in railroading history (hence the term of “being railroaded”), in union fights , in every competitive area of business. Those in power accumulate power. Those with wealth accumulate more wealth. Those with less money and power have weak negotiating positions and have less freedom in choosing and controlling their fate. Throughout history, the inevitably destructive impulses of business are held in check by only two things: competition and government regulation. And only government regulation helps assure that there even exists any competition.
But Peter, PeterN, and Ken (and others) apparently see the world differently.
Peter proclaims: “You have to open up your mind to the fact that the rising income of the 1% is a function of this economy and not the cause. These people did not do this intentionally to keep everyone else down….they were the benefactors of a changing economy.” and “The big thing I will NEVER agree with Steven H’s worldview on is that the crux of our problem lies in our government, greedy rich people, or our tax system. I will also NEVER agree that the solution lies with higher taxes on the wealthy.” and “A growing economy helps everyone. Period.”
This is clearly a different world Peter sees: one where greed has little impact on the economy, and where government regulation and tax policy neither causes nor can correct economic problems. And where taxing the biggest pot of money held by the least needy is somehow a terrible idea.
Ken attributes all of fate to individual choices. “My issue is in classifying so many people as helpless victims who bear no responsibility whatsoever for the choices they have made. Rather than seeing people as hapless victims (and correspondingly, evil victimizers), I see people more as the product of the myriad of choices they have made and behaviors in which they have engaged over the course of their lives.”
In Peter and Ken’s world, as they describe it, nobody has any responsibility for how their actions affect others. That is somebody else’s problem. Our fate is completely our own credit/fault. And our impact on the rest of the world is not an issue. It’s not the fault of the rich people if the businesses they build destroy small towns, export American jobs, or bankrupt the families of their workers. They don’t mean to hurt other people by taking all they can get for their shareholders. That’s just the rules of the game. But don’t let government change the rules to help these towns or jobs or employees. That is unfair to the businessmen! That is redistribution! And don’t tax the increasing profits of business or capital gains! That is class warfare! That is hurting the job and wealth creators!
I’m sure this will just be seen as another rant, and you will start ascribing things to me which i did not say: that I do not believe in personal responsibility, that I think everyone is owed a job, that I think all businessmen are evil, but I don’t think any of those things.
I think that one L of a lot of people in the middle quintiles are working very hard and being very productive and being grossly underpaid and exploited by the economic elite in the investor and big business management realm. I think that all of the arguments about lack of skills or education of the lower 20% are completely irrelevant when you talk about these working middle income Americans. I think that all of the obsession about talking about the presumed faults and bad choices of the lower 20% or the unemployed is a distraction. I think that even those in the investor and CEO class who are hard-working and productive are grossly over-compensated due to political distortion of the market.
And, sadly, I have come to believe that all of the statistics and evidence in the world will not move the world-view of Peter, Peter N and Ken even one inch toward believing that greed, government and tax policy are significant causes and/or solutions to the income disparity issue. For while these men are seemingly good people and are willing to participate in noble acts of charity for the victims they actually see, the vast sea of name-less victims over the horizon are held responsible for their own fates. Never-mind how their freedoms and choices and fortunes are hindered by greed of the rich usurping the national profits, or how they are impacted by tax policies favoring the rich and government policies cutting the safety nets. After all, these people are wholly controlled by their own choices. They are somebody else’s problem.
I’m tired of beating this drum, though I still strongly believe it need beating. It is folly to believe the banking sector will voluntarily shrink, or that CEOs will start cutting their own salaries. Income disparity will not fix itself.
See you in January, if at all.
Have a Merry Christmas Steven. I’ve enjoyed the discussions you’ve generated.
Thanks, MOR. Merry Christmas to you as well. And also to all the posters and readers on this forum.
I would hardly say this characterizes my position but do think it makes a good case for a hiatus.
I agree.
My spouse is a bread and butter general surgeon and makes 400k pretty much right out of residency. It isn’t reserved for those that have been in practice for many years.
Interesting. I had no idea general surgeons started out that high.
I found a link which shows how much Americans earn, stratified by educational achievement. granted, it is a wikipedia link, but still I know of no reason to think that its contents are inccurate. Scroll down a bit on this hink and you will see it…. http://en.wikipedia.org/wiki/Educational_attainment_in_the_United_States
I thnk what this shows is that education matters. If people want a “living wage”, for example, a reasonable answer is “If you finished high school but did not go on for further education, you can start earning a living wage by getting a college degree. You will roughly double your salary compared to only finishing high school.”
Related to that, one of the things I’ve noticed in these lengthy discussions is that I think we are conflating two issues: whether or not good paying jobs are available is, to me, an issue separate from the issue of whether or not the .001% have altered laws in their favor. Just an interesting point, I think. May explain part of why we are often talking past one another.
Currently, only 30% of the country has a college degree, as this link from th U.S. Census Bureau states. http://www.census.gov/newsroom/releases/archives/education/cb12-33.html
As a starting point for increasing the wages of the bottom 20%, I think getting a college education is a good place to start. It is also achievable, and does not require raising taxes on anyone.
Ken: “Related to that, one of the things I’ve noticed in these lengthy discussions is that I think we are conflating two issues: whether or not good paying jobs are available is, to me, an issue separate from the issue of whether or not the .001% have altered laws in their favor. Just an interesting point, I think. May explain part of why we are often talking past one another. ”
===============
YESSSSS! This is what I have been saying for several pages. Thank you for seeing and restating this point.
But I would say it is the 0.1% not just the 0.001%. Though certainly I agree the higher up you go, the more political control is held by that ultra-elite group.
https://hbr.org/2014/11/why-the-falling-u-s-unemployment-rate-matters
It’s all going to be just fine….. The economic cycle is a beautiful thing.
From above:
Steven H: “But just because businesses are MAKING money does not mean they are HELPING the economy either.”
Peter: “This is the very definition of what a growing economy is …. Businesses making more than they did the year before. I am getting exhausted again.”
==============
If businesses make more money, the economy of the businesses improves. It does not mean the economy of most Americans improves. A rising tide lifts all boats … except when the biggest boat owners build dams to retain the water for themselves.
The stock market has more than doubled under Obama’s watch. Rich people should hail Obama as their hero. They are the only people who have profited from the recovery. But the stock market is the economy of business and the wealthy. Only. It is not THE ECONOMY. Can you see the difference?
This is 100% wrong. This is what you do not understand and what is making it difficult for you to articulate your position. What you replied to me makes NO sense. Maybe someone else can help explain???
There are not separate economies in our country. There is one …. The US economy. A growing economy helps everyone. Period. I am not talking about the stock market by the way. I’m talking about the economy.
Of course like we have said a million times many will be left behind if they lack the skills of the times. That has definitely been in play in the last 10-15 years with the dawn of the information age.
There is no utopian economic growth path that helps those without skills as much as those with skills. And a growing economy is much better for everyone than a stagnant or contracting one.
I’m sorry but we reached our impasse that makes me want to bail again. I would love for someone else to interject here on either side who understands economics so I’m not the only one trying to explain it. Or help me understand the logic Steven H is applying…..
Ther is not one economy. That is what the income disparity argument is all about. If you do not understand this basic point, then you do not understand anything I have said, or anything about increasing income disparity.
Do you not see how it is possible for big business to thrive while the fortunes of most Americans stagnate or decline? This is what is happening. This is not the characteristic of a single unified economy. You can average it all out and get one number for national economic growth, but the prosperity at different income classes is diverging and has been for decades. This is what I mean by multiple economies.
There is the economy of the 0.1% (economic elite) which has tripled their share of all income since 1980.
There is the economy of the next 0.9% (entrepreneur class) which has doubled their share of all income since 1980.
There is the economy of the next 9% (professional class) whose share of the economy has held about steady, or with slight growth.
There is the economy of everybody else in the lower 90% whose share of income has declined by 25%, from about a 67% share to 50%. (50/67 = 75%).
The rising economy is not lifting all boats. It is lifting a few boats very quickly, and most boats hardly at all. Does this make sense now? Do I need to get more stats?
I do not believe that 90% of Americans are getting left behind because they are suddenly devoid of skills. Maybe some of the lower 20%. But not the next 70%.
“Do you not see how it is possible for big business to thrive while the fortunes of most Americans stagnate or decline? This is what is happening. ”
Yes, so what?
People are replaced by machines and cheaper labor elsewhere.
Public companies are supposed to make profits for the stock holders.
The solution is to be able to do what a machine cannot and be more productive than those elsewhere.
Now what are people doing to be more productive and learn skills that can’t be replaced by a machine?
You seem to think the world owes everyone a living.
The other Peter said
“A growing economy helps everyone.”
Not without effort.
And the stock market didn’t double under Obama’s watch by the way. Just couldn’t let that go. Look back at when he took office and where it is today. Just saying….
Not sure where you are getting your calculations.
DJIA on Dec 3 is 2.25x what it was on Jan 20 2009 (Inauguration Day).
and 2.73x what it was on March 9, 2009 (market low point just a few weeks after inauguration).
So, yes, the market has more than doubled. You should be more careful with your data and calculations. Just saying …
One of the points I keep hearing (usually from Peter N, but others as well) is “If you are so concerned about good jobs, go start a business and create jobs.”
First, businessmen more clever than I have stated that businesses don’t create jobs. Markets and customers create jobs. Businesses are just one part of the cycle. Starting a business with no market and no customers just creates a failed business.
Second, the accusation that many of us don’t know how to start a business is true. That is something that we should do a better job of teaching in society.
Third, there is a really good indication that markets for new businesses don’t exist, and that the problem is NOT one of a shortage of financing or entrepreneurs. The wealthiest 1% and 0.1% have more money (inflation adjusted, even) per capita than at any time in the last 100 years. Or more. Surely these people have enough financing and enough know-how to create businesses to meet any market needs, and to become the legendary job creators of conservative myth. But the new businesses are not there. The new jobs are not there. It’s not a shortage of money or expertise. It’s not a shortage of skilled or educated Americans. College graduates are out of work too. I can only conclude the market is not there. The market is broken.
Why is that? You know my answer. What is yours?
In the early 20th century Rockefeller and a handful of others had over 10% of the nations wealth and controlled the railroads and supply chain for vital goods like oil and coal. How is it worse now again?
That was a gilded age. It was followed by economic collapse. We are now in the next gilded age. Not quite as centralized, but getting there and getting worse.
And my answer is clear. First of all unemployment is falling. Almost right on schedule as is typical after a recessionary period. Nothing overly significant here statistically. It rose to close to 9% and is now much lower and still falling slowly (as this economic recovery has also been slow). Look at the math – it is right in line.
Other factors play a role too with immigration, LACK of skilled workers, grown children who choose to live with their parents rather than look for work, etc but honestly these have been issues in the past as well.
Look, I need people to come work for me. I need SKILLED educated people who are willing to work for me for the next decade and maybe be underpaid (relative to me) for a few years to earn their stripes and necessary experience. I can’t find them. Sure I could find someone to take the job – and I have tried – but they will soon be gone as their inadequacies or work ethic will ultimately force me to look elsewhere. So there appears across many industries to be a giant hole in the “talented, skilled and career-oriented job applicants”. Where there is a long, long unemployment line is in the “punch the clock, non skilled labor type jobs”. These jobs are drying up with advances in technology, shipping jobs overseas, or simply the transition out of the manufacturing economy. No change in tax law, economic stimulus, or creation of businesses by the 1% is going to find jobs for all of these people. The public is in the process of adapting (you can already see evidence of this) to our new economy – and unemployment is falling rapidly.
You have to open up your mind to the fact that the rising income of the 1% is a function of this economy and not the cause. These people did not do this intentionally to keep everyone else down….they were the benefactors of a changing economy. And many of them were in the bottom 20% just a few years ago themselves.
For those who claim education, drive, drugs, children and the like are the only things holding people back and those who have neither should be allowed to rot (to take things to the extreme). What happens when a larger portion of society becomes more educated? My guess, the rich become richer, things will become more lopsided as workers have even less bargaining power than today and much less than some on here feel people have today. I write this from Brazil where I have met many struggling to find good paying work even (maybe especially) with advanced degrees. When education of society as a whole become greater than what is needed, those who hold the press strings will devalue it, first by those that are greedy and only see value in themselves them by others who see it as the only way to compete with the first group. Along the way, we also end up with many individuals with education well beyond what is needed for the jobs they find available. How are we to deal with this? Why does everyone need to strive to be elite or earn more money to be of value in society? Especially when we need bartenders, cleaners, delivery personnel and the like? I’m very much for education, but why do these jobs needed to be devalued to the point where one is almost better of not working? How hard is it to see that it is CUSTOMERS that drive the economy, not the elites? Why do some elites on here feel the need to devalue those at the bottom further by pointing out flaws that some but not all have? Flaws that a good number of elites also have.
I think this is the problem with the discussion…. to many polarizing words like “always” and “only” and “most people”. None of us have a clue about whether these words apply. And all of us know exceptions to every rule.
I don’t follow the logic as to how a more educated society (or rather, trained to work in the new economy) results in the rich getting richer.
And certainly not everyone needs to strive for wealth. My own brother is following his dream as a musician/artist and knows that he will never be in the 0.1%. But you know what? He is happy. He is doing what he loves. And he doesn’t feel ‘ripped off’ by the wealthy people in our society.
There should never be a situation where it is better off not working than it is taking a service job. And the answer isn’t to pay them $15 an hour.
I know Peter N has taken many shots at the “bottom” (as you call them) but I think the larger point is the one Bill is making. Anyone who plans on having a career flipping burgers or answering phones can expect to struggle their entire lives. More education is needed to teach these people the skills, training, ambition, pathways, (whatever word you want to use) to springboard from these jobs into better ones. Ones that will build wealth and provide better for their families, but also carry more responsibility- possibly even not working 9-to-5 and clock punching – but also reward hard work, knowledge and experience.
We can debate as to the percentage of people that are content flipping burgers for life vs those that do it (like I did myself) for a time only to move on to other things. But the opportunity is there. Paying burger flippers more is kind of missing the point.
Unemployment of recent college graduates in 2014 is 8.5%. Underemployment of this group is at 16.8%.
http://www.slate.com/blogs/moneybox/2014/05/08/unemployment_and_the_class_of_2014_how_bad_is_the_job_market_for_new_college.html
There may be mismatch of jobs and skills in the market, but it is unfair to categorize the problem as being primarily with people not getting an education. People are paying a LOT of money for an education but getting no jobs because the jobs are not there. And the jobs that are there for the college graduate are not necessarily any good, or are ones that don’t even require a college degree.
We are talking about a macro-economic problem here, where a big chunk of the nation’s economy has been rerouted to the wealthiest 0.1%. It came from the lower 90%. Not just the unemployed or the folks in poverty or the lazy no-goodniks, or the liberates, or the fast-food workers. You can argue about how to advance this lowest 20% of earners with education and training and that is all fine and good. But there are three and one half more quintiles to go (20 to 90 percentile), who have not been getting much of a boost in pay in decades. And the reason they have not is because it is all getting sucked up into the upper reaches of the economic elite where it is DAMAGING to the economy. Bankers developing complicated money instruments HURT the economy. CEOs cutting low income workers pay to boost their own HURT the economy. Near-Monopolies destroying small businesses paying good wages to make a mega-corp that exports jobs and/or pays cr@p wages HURTS the economy.
All of the training and education and attempts to create new jobs in a woefully imbalanced marketplace will not fix the income disparity. We need to fix the marketplace. Not just teach a few burger-flippers a new skill. We have people with lots of skills and a college degree or two. And they are still flipping burgers. Because that is all there is.
You are never going to be convinced that there is opportunity for the bottom 20% despite tons of evidence showing this upward mobility. The glass is clearly half full. I just wish you could see the joyous inspiration of those that have built lives for themselves in this country and appreciate what a country we live in.
Acting like growing businesses and high CEO pay is hurting our economy when ignoring the rising Federal debt, our propensity to print money, a devaluing dollar, an inept government, wasteful spending, etc is just selective vision and misguided angst.
OK, Peter. I’m convinced. You’re right. There is opportunity for those at the lower 20%. We do need some education and training programs to get people additional skills and matched with the right jobs, and get them advanced into the hard-working, industrious, well-educated and skilled middle class. There will need to be some funding from somewhere for all of that, but I’m sure society can deal with that.
Now that that problem is closed …
Let’s get back to the completely independent problem of high income disparity and the 30 year stagnation of the hard-working, industrious, well-educated and skilled middle class, due to centralization of economic and political power and reallocation of an additional 8% of the economy taken away from the middle class and funneled to the 0.1%.
Because the problem of advancing the lowest quintile into the middle quintiles is really quite a different issue than the stagnation of the middle quintiles and the redistribution of their incomes to the economic elite. And I really wish that people would quit mixing the two issues and claiming that solution A solves problem B.
“Acting like growing businesses and high CEO pay is hurting our economy when ignoring the rising Federal debt, our propensity to print money, a devaluing dollar, an inept government, wasteful spending, etc is just selective vision and misguided angst.”
Ignoring how centralized wealth and power is hurting our economy while focussing on rising Federal Debt (which is largely due to tax cuts to wealthy due to centralized political power) , propensity to print money (which helps the bankers while solving an economic problem largely caused by bankers), and wasteful spending (exaggerated issue), is selective vision and misguided angst.
This is the problem with your posts….. This :::
“Let’s get back to the completely independent problem of high income disparity and the 30 year stagnation of the hard-working, industrious, well-educated and skilled middle class, due to centralization of economic and political power and reallocation of an additional 8% of the economy taken away from the middle class and funneled to the 0.1%.”
… is not a real question. This is a political statement. These is the way YOU see it, not necessarily a real problem like say, slow economic growth or government gridlock. There are so many words in this post that are opinion and carry tremendous weight that there really is no “discussion” to be had around it.
The fundamental thing I said which you did choose to ignore the challenging of your implication that growing businesses and rising CEO pay is hurting our economy. You very sarcastically dismiss any other issue I bring into the equation to keep the blame squarely on one issue. Again for the hundredth time…. It is just not as simple as you wish it to be.
I’m not sure why, but things on here never seem to get anywhere. Steven H has held one extreme and pushed it too it’s limits. Now that he has come back towards the centre(without really conceding any point), those of opposing view seem intent on pushing boundaries the opposite way instead of looking for or conceding commonalities. Why must we fight and look for differences instead of focussing on a task that can benefit all? Could it be that some like to fight or feel special or prove themselves correct at any cost?
How so?
Bloomberg Businessweek:
“Raise Taxes on Rich to Reward True Job Creators: Nick Hanauer”
I’m a very rich person. As an entrepreneur and venture capitalist, I’ve started or helped get off the ground dozens of companies in industries including manufacturing, retail, medical services, the Internet and software. I founded the Internet media company aQuantive Inc., which was acquired by Microsoft Corp. in 2007 for $6.4 billion. I was also the first non-family investor in Amazon.com Inc.
Even so, I’ve never been a “job creator.” I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be.
=====================
Now is someone going to claim THIS guy doesn’t know how businesses work?
I keep getting the feeling that this debate, or what resembles a debate, is very similar to the climate change debate going on now. On one side are the proactive, science based, big picture protectors of the future of society. Then there is the other side that sees no problem to the point of outright denial that a problem even exists.
If the latter end up being correct, the former has to fess up and admit over-reach. But, if the former end up correct, where does that leave us? Maybe with a group of deniers sitting on the sidelines on their doomsday ranches shaking their heads at those that are in chaos claiming that they should have done something.
Maybe that something should have been slapping the deniers on the side of their heads and telling them to sit down and shut up? I would like to suggest we try a game of roll play and imagine yourselves on the other side of the divide. It’s a very effective management tool when gridlock seems unsurmountable. How would you shape the argument? Imagine the consequences of being wrong without a plan B.
Unless you intend to rely on the Fed’s quantitative easing stuffing cash into the economy which is largely why the stock market has been booming because creating wealth regardless of the consequences, there can be no other alternative other than creating ways to stimulate demand to prime the pump of the economy so it can become a healthy thing again.
Right but I think we disagree on how to do that though…..
And both climate change and the economy have something in common. Very few people understand what they are talking about. Both are extremely complicated phenomena that some people devote their lives to studying and predicting. Both are based on historical and empirical data and using all of this expertise to draw conclusions.
I don’t claim to be an expert on climate change – so I stay out of the debate. The only things I “know” about it have been filtered through the lens of the polarized talk-radio and politi-tainment filters on Fox News, MSNBC and the like. But I do know about the economy – it is my life’s work – and that is why I’m engaging in this debate.
My argument for both issues is that some people who “deny the situation” are simply repeating what they heard from their favorite pundit. Some who view this as a large-scale emergency are doing the same.
As we have seen with the economic debate, once you pull back the layers of the discussion, many frequent posters on here don’t have the understanding to back up their initial statements and philosophy. They just back it up with more rhetoric and links to things that agree with them. This is not a debate.
And much like what our inept government is doing as well. We need more people thinking for themselves without the influence of polarizing rhetoric to really see a debate or discussion or real solutions.
Peter, we do need people thinking for themselves, but based on research, history, and experts. For some people (and no i don’t mean you) “thinking for themselves” means rejecting everything that experience has taught us and believing wholeheartedly in the first pretty idea that pops into their head, as long as it makes themselves look good and other people look bad.
I’m thinking Glenn Beck is an illustrative example, but there are others.
And as for “many frequent posters on here don’t have the understanding to back up their initial statements and philosophy”, I know that I am at least one of the targets of this accusation … but most often it is the result of your gross misconstruction and complete misinterpretation of my posts. It’s been a long road, but one of the benefits of this forum, for all of its rancor, has been that we are each slowly (way too slowly sometimes) learning a little about how to talk to the other side. There have been a lot of studies lately about how conservatives and liberals have completely different thought patterns. I have seen it here. We don’t just have different ideas. We often have different languages and even social constructs of how to behave.The instincts, attitudes, and philosophies are difficult to bridge but I applaud those here who keep trying.
Just remember that while you think I know nothing about how the economy works, I think the same of you with regard to some of your statements. And the links to intellectual explorative articles on the subject at hand are just as fairly called research as they are “links to things that agree with [me]”.
I’ll give you the same advice you gave me: Listen. Both of us need some improvement in that area.
“Just remember that while you think I know nothing about how the economy works, I think the same of you with regard to some of your statements.”
I’m curious. What area of this discussion do you think I lack understanding?
Peter N on November 28 posted: “” The federal government needs to be scaled back to the 20 or so responsibilities granted to it in the constitution and let the states and localities take it from there.” I have been saying this from the beginning.”
I would have hoped that you were more informed than that. If you know your history you would know that this country tried that at first and it failed miserably.
“The Articles of Confederation established the first governmental structure unifying the thirteen states that had fought in the American Revolution. They went into effect on March 1, 1781 and lasted until March 4, 1789 when they were replaced by the US Constitution. Why did the Articles of Confederation only last eight years? In effect why did the Articles of Confederation fail?”
“The purpose of the Articles of Confederation was to create a confederation of states whereby each state retained “its sovereignty, freedom, and independence, and every power, jurisdiction, and right . . . not . . . expressly delegated to the United States in Congress assembled.” In other words, every state was as independent as possible with the United States only responsible for the common defense, security of liberties, and the general welfare. To this effect, the Articles were purposely written to keep the national government as weak as possible. However, there were many problems that soon became apparent as the Articles took effect.”
“Following is a list of the weaknesses of the Articles of Confederation:
* Each state only had one vote in Congress, regardless of size.
* Congress had not have the power to tax.
* Congress did not have the power to regulate foreign and interstate commerce.
* There was no executive branch to enforce any acts passed by Congress.
* There was no national court system.
* Amendments to the Articles of Confederation required a unanimous vote.
* Laws required a 9/13 majority to pass in Congress.”
“Under the Articles of Confederation, states often argued amongst themselves. They also refused to financially support the national government. The national government was powerless to enforce any acts it did pass. Some states began making agreements with foreign governments. Most had their own military. Each state printed its own money. There was no stable economy.”
“In 1786, Shays’ Rebellion occurred in western Massachusetts as a protest to rising debt and economic chaos. However, the national government was unable to gather a combined military force amongst the states to help put down the rebellion.”
“As the economic and military weaknesses became apparent, individuals began asking for changes to the Articles that would create a stronger national government. Initially, some states met to deal with their trade and economic problems. As more states became interested in meeting to change the Articles, a meeting was set in Philadelphia on May 25, 1787. This became the Constitutional Convention.”
Are you promoting a return to such chaos?
http://americanhistory.about.com/od/governmentandpolitics/f/articles_of_confederation_fails.htm
Good point Joe. Also, for those who keep trying to turn back the clock, recall that Social Security was created in the Great Depression to avoid the economic devastation inflicted on the elderly by economic depressions and recessions. It worked pretty well in this last recession, didn’t it?
Also, even if folks just want to idolize and freeze the Constitution (not the Articles), they should recall that even Jefferson advised against this:
“Some men look at constitutions with sanctimonious reverence, and deem them like the ark of the covenant, too sacred to be touched. They ascribe to the men of the preceding age a wisdom more than human, and suppose what they did to be beyond amendment…But I know also, that laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths disclosed, and manners and opinions change with the change of circumstances, institutions must advance also, and keep pace with the times.”
— Thomas Jefferson
As you know, Joe, there are reasons our society, via the Constitutions’ own processes and institutions, have established the laws we have today. And while we should always keep striving to perfect and improve, it is a fool’s errand for opponents of current laws and programs to try to undo those aspects of the law of the land that the people have advocated, and that now benefit the nation, such as SS, Medicare, Medicaid, and even the ACA. These programs solve societal problems and are unlikely to go away, so we would do better to just pay the bills and move ahead to solve new problems, and not recreate old ones.
StevenH: ” And others seek to acquire the wealth of others.”
PeterN: You were doing well up to now. Provide an example.
Peter: This is a ridiculous statement. Other than thieves and petty criminals, who in the world is doing this?
=================
Are we still speaking English and living in the same society?
99% of Americans have no trouble observing that people, including businessmen, seek to acquire the wealth of others. I did not say rob. I did not say steal. I did not imply illegality or even moral failing. I said acquire. What is competition if not the desire to acquire? What is the driving force of capitalism except to acquire?
Perhaps an example will explain. When Wal-Mart moves into a small town, willingly takes a loss on pharmaceutical sales, drives down prices on multiple business areas (toy sales, grocery, electronics, clothes, infant supplies, hardware, auto, stationery and office supplies, pet supplies, clothing, kitchen and household supplies, etcetera, etcetera) such that other businesses go bankrupt, and former businessmen are driven to take jobs at minimum wage with their former competitor, has wealth been created? No. Maybe for Wal-Mart, but that money is siphoned off from the town economy into the pockets of Wal-Mart executives and shareholders. And where did that wealth come from? The people and economy of the town. This is wealth acquisition, not wealth creation.
There are many more examples, but if you cannot see this, if you cannot understand by observing with your own eyes and minds how acquisition, and not wealth creation, is not only possible but prevalent in the economy feeding the economic elite of the 0.1%, then I am not sure I can explain or convince.
But I am really tired of hearing that I somehow don’t understand how the economy works; as if I am speaking gibberish or economic nonsense. Perhaps some other voices will be convincing: (I am providing searchable titles and not links, because excessive links create problems on this forum).
======
Forbes: “Forget the 1%” (Nov 2014)
Yet one should not yet rule out the return of Mr Piketty’s “patrimonial capitalism”. The club of young rich includes not only Mark Zuckerbergs, the authors argue, but also Paris Hiltons: young heirs to previously accumulated fortunes. What’s more, the share of labour income earned by the top 0.1% appears to have peaked in 2000. In recent years the proportion of the wealth of the very rich held in the form of shares has levelled off, while that held in bonds has risen. Since the fortunes of most entrepreneurs are tied up in the stock of the firms that they found, these shifts hint that America’s biggest fortunes may be starting to have less to do with building businesses, just as Mr Piketty warned.
USA Today: “Super-rich 0.1% pull ahead even more” (March 2014)
But even the top 1% can’t keep up with the top 0.1%, which posted average earnings of $6,373,782, or 206 times the average families’ income, Sadoff found.
Nearly a quarter of these uber-weathy work in the financial industry. And 40% are executives, managers and supervisors, …
Business Insider: “the-critical-difference-between-the-top-1-and-the-top-1-capital-gains-2011”
Correspondent S.R. is an entrepreneur and business owner who identifies himself as a top 1% income earner. He rightly (and politely) takes me to task for accepting what he suggests is rank propaganda, that is, conflating those who are creating value and jobs with those in the very top rungs who escape ordinary tax rates via Panzer divisions of tax attorneys and political influence.
======
Earning income via capital gains and/or deferred interest and political influence to keep taxes low on those special incomes is not entrepreneurial skill. It is acquisition, pure and simple. Monopolistic ventures that put entrepreneurs out of business and profit by driving down wages and supplier prices and eliminating competition (rather than competing in a balanced market) are not wealth creators. They are wealth acquisition experts. They accumulate, siphon, and usurp.
Compare raising the minimum wage with raising the corporate income tax. Corporate income tax receipts, whose incidence falls entirely on the owners of corporations, were 4% of GDP in 1969 and are now less than 1%. During that same period, payroll tax rates as percent of GDP have increased dramatically. Raising Corporate income taxes would have absolutely no effect on wages, employment or prices since every corporate decision regarding on wages, employment or prices that maximizes pretax income also maximizes after-tax if corporate taxes are a percentage of pretax income.
If a corporation could increase pretax and after-tax profits by increasing prices they would have done it before any tax increase. Whatever level of prices maximizes pretax profit also maximizes after-tax profits, if taxes are a percentage of profits.
Raising the minimum wage would result in higher prices that would be paid by the customers of firms now paying the minimum wage such as McDonalds but most likely not in establishments that cater to the wealthy whose employees now generally are paid above minimum wages. Some of the higher minimum wages would go to the children of the rich earning extra spending money for their next trip to Aspen.
….Equally unhelpful in terms of addressing the income and wealth inequality which results in the overinvestment cycle that caused the depression are various non-tax factors. Issues such a minimum wage laws, unwed mothers, globalization, free trade, unionization, problems with our education system and infrastructure can increase the income and wealth inequality. However, these are extremely minor when compared to the shift of the tax burden from the rich to the middle class. It is the compounding effect of shift away from taxes on capital income such as dividends each year as the rich get proverbially richer which is the prime generator of inequality…”
http://seekingalpha.com/article/1543642
By the way … usurp means to ‘take with force and without legal right’. A heck of an allegation you’re making there. Even the Wal-Marts of the world are simply trying to make more money both for the company and their shareholders (which every single one of us can afford to become one of). They aren’t trying to make sure the population is so poor that they crush their dreams. They are just looking out for their own company’s best interests. So is Amazon, Cisco, Microsoft, Alcoa, GE, Wells Fargo, Apple, Exxon and every other one of the S&P 500 companies. Buy some shares. Participate in the growth to help your own family.
Usurp (primary definition from Webster):
1a : to seize and hold (as office, place, or powers) in possession by force or without right
b : to take or make use of without right
It’s a strong word, but when wealth and income is shifted upward by force of political power by those who have already accumulated unprecedented wealth and power, I think it applies.
” Even the Wal-Marts of the world are simply trying to make more money both for the company and their shareholders”.
Of course they are. They have much and want even more. That is what greed actually means: a selfish and excessive desire for more of something (as money) than is needed. Tell me, when does a business ever say: we are making too much money. We have enough. Our goal is to make less next year. Businesses are greedy. That is not a moral indictment. Business is amoral, not immoral. Their stated goal is make as much money as possible; i.e. to be greedy.
Why should I allow big business to destroy the economy of the country by accelerating high income disparity and move even more money from poor to rich. Are you saying it’s all OK, because “they’re just trying to make money” and that somehow compensates for the destruction they inflict? Are you saying that the means justify the end, and that as long as everyone plays by the arbitrary rules in place, it does not really matter that we first bankrupt the poor, and then the middle class, and the government, and finally even the rich and the nation because the very markets necessary for sustainment of us all have had their foundations undermined? And it’s all OK because “Gee, we/they were just trying to make some money.”
We have to actually look at where we are going and not just say that the destination must be OK because we approve of the road and the car.
“Buy some shares. Participate in the growth to help your own family.”
Funny. Seems like good advice, but I hear echoes of “Join the Dark Side” or “You will be assimilated. Resistance is futile.”
Well, it beats whining! I would hardly equate buying shares of stock to joining the dark side.
Of course a business is going to keep trying to make money. Their shareholders would have it no other way. I’m honestly growing tired of trying to explain this to you – just because companies are growing their profits doesn’t mean that they are “destroying the economy”, “taking from the poor”, “causing destruction”, “bankrupting the poor”, etc. This is where you and I break apart….your perception of how the economy works is skewed by politics.
I’m not sure how Apple coming out with a new IPhone and increasing profits is taking money from the poor and giving it to the rich. And it makes no sense for Apple to say “we have enough money now, let’s give away our next IPhone” or “let’s stop trying to make new products, we have made enough money already”.
Sure would be easier for the struggling individuals to get proper training, build long-term career plans, spend less than they earn, invest in stocks, small business, etc. than it would be trying to hope that big business just stops trying to make so much money (or that the government stops them).
Peter, you are COMPLETELY misunderstanding my post.
I don’t misunderstand the economy. I don’t think businesses are going to stop themselves from making money. Quite the opposite. I am stating emphatically that their very purpose is to make as much money as possible. This is their goal and purpose. No one should ever expect more or less from them.
But just because businesses are making money does not mean they are destroying the economy. OK. But just because businesses are MAKING money does not mean they are HELPING the economy either.
It is the business’ responsibility to make as much money as they can under the laws and business rules.
It is government’s responsibility to make sure that those laws and rules benefit society. Failure of balanced rules and laws are what allows business to destroy the economy. Regulated capitalism is a powerful force for economic good. Deregulation and unfettered capitalism is a dangerous thing.
It is possible for businesses to make money and either help or to hurt the economy at the same time. How do you tell the difference? By determining if their actions contribute to overall economic growth and a balanced economy (good) or if their actions contribute to economic slowdown and an imbalanced economy. OK. How do you tell about THAT? By looking at whether their income is derived from (a) job growth vs job depletion in THIS country (b) Decreased or increased income disparity in THIS country. Wal-Mart (as the convenient example) is not destructive because they make money. They are destructive because their actions contribute to job depletion and income depletion and increased income disparity in THIS country. Sure, they are the country’s biggest employer. But they get that way by destroying more jobs and more incomes of competitors and absorbing them into their Borg-like infrastructure.
The jobs they destroyed are those of people with skills and training in running their own business.
“But just because businesses are MAKING money does not mean they are HELPING the economy either.”
This is the very definition of what a growing economy is …. Businesses making more than they did the year before. I am getting exhausted again.
” (My point on this issue has always been that NEW income and wealth in the country is due to the efforts of everybody but almost exclusively goes in the pockets of a select few.) ”
So? I read an article that said now much of the new wealth has gone to the top 1%, 0.1% and especially the top 0.01%. I don’t see how this affects me. I am a top 1% and I do make a lot investments relative to income on the W2 but a lot of that is paper wealth. Stocks can go down and they will in a dramatic way some time in the future. Then a lot of this increase in wealth will be wiped out. The question is how much of this increase in wealth is real or permanent.
Also, if you add all the benefits the lower 50% get the ratio isn’t as bad is it seems.
“What amazes me is the prevalent and persistent “Blame the victim” mentality among the businessmen”
You have to be in my shoes. When I met people it doesn’t take too long to figure out who is a doer. Too many people expect things to come to them instead of going out and working for them.
“Even in the Great Depression, when unemployment was was over 20% and people had clearly lost jobs due to no fault of their own, society tended to look down on ALL of the non-working as lazy and inferior. ”
My grand father made $65K one year during the great depression. That was a lot of money back then. He made his own businesses. He didn’t work for other people. He closed down one business rather that submit to government pressure to hire certain people. He then started another company. I have my own company. We export about 40% of our products. That creates jobs here. Create your own business. This is a challenge I have put to all libtards.
If people can’t create their own business there is something wrong. It is obvious that a lot of the work force, including you have no clue. I was raised in a different environment since I come from a long line of independent business people.
BTW, my parents use to tell me about how terrible the great depression was but it wasn’t for those on my father’s side or mother’s side because they didn’t work for and depend on big companies.
“What’s wrong with you people that you so strongly despise the victims of our economic changes and downturns,”
There is nothing wrong with us. Why should be have to pay for the losers? They, libtards, are not blameless. They perpetuate the myth that government can perpetually provided for them.
“Of course there are always a small percentage of people who are lazy or otherwise evoke little sympathy from the rest of us. But do you really believe that there has been such an epidemic of increased laziness and stupidity that THIS is the predominant cause of high income disparity, persistent slow economic growth, and high unemployment? ”
Yes, too many believe the world owes them a living. There is/was a program called “Portlandia”. Portland is a place where young people go to retire.
http://cnsnews.com/blog/lars-larson/portlandia-no-joke-city-where-young-people-go-retire
“Conversely, while we talk about what is earned and deserved, do you really believe there is such an outbreak of superior intelligence and productivity in the economic elite that they “deserve” 3 to 5 times the historical share of national income and the highest share of national wealth since 1917?”
Yes, known is king in a technological society. I am very good at physics and math. I can solve problems that few can do. You can’t match what I do by hiring a 100 engineers. It would take one that can match my knowledge. This is why there is such a distortion. Some programmers are 10 times better than others. The scale is almost logarithmic.
“Do really truly believe that human behavior has changed so much or could you accept that maybe there are some structural flaws and distortions in the system that could be tweaked?”
I don’t believe human behavior has changed except to get lazy when they are provided for without effort. The real problem is that people have not adapted to the changing economy.
I was recently in China. China is in for a big change as their economy becomes more automated and there is less need for so called cheap labor. What is China going to do with 100 million unemployed? Foxconn has said they want to have a million robots doing their production. That will displace a few people.
My company is selling automation controls to China and I know low skilled workers will be displaced. I got a thank you e-mail from one of our Chinese customers wishing me a happy thanks giving. He knows that knowledge and technology is going to outweigh manpower.
There will always be an “elite”. Some will already have money and others will know how to earn or generate it.
” And yet, we keep coming back to this blame game against the victims.”
What makes these victims a victim? It is their own inability to compete with others that can compete. They have not adapted to the new economy.
Steven H, you have not addressed the issue of being able to generate jobs. Libtards should do what they demand of others and generate jobs paying a minimum wage or better with a 401k and health care. I have already done more than my fair share. It is up to the libtards now to do their fair share.
You continue to defend small businessmen, when you and they are not even being discussed in my argument. Peter N, it’s not about you. You have an engineering firm employing a bunch of people. You want praise? OK, I think engineering firms are some of the best firms in the country. I’m glad you and your business are there.
The issue is not you. The issue is the non-productive economic elite in the 0.1% and 0.01%. Nothing you have said explains how taking about 10% of the economy away from the lower 90% and giving it to the upper 0.1%, largely via special tax favors won by purchased political influence is somehow a good thing. You want the economic “losers”, the least capable in the economic game to start businesses and hire people. I have a better idea. Why don’t we take the people FAR RICHER THAN YOU who have won the economic jackpot in this economy and compel them to reinvest in this economy with new businesses and jobs HERE and not overseas (giving them an opportunity to make more money) or, alternatively, pay additional taxes to the government so that the government can afford to fix the budget deficits and education and training problems.
I doubt I can ever convince you, Peter N, that other people in society are worthy of aid or sympathy. By your posts, you are competitive and egotistical nearly to the point of sociopathy. But you might consider that the business environment you live and work in would be more competitive, more profitable, and even more enjoyable, if the excessive income disparity problem was solved. The wealth at the upper end would be more productively applied and the disposable income of the middle class would be greater, allowing for more market opportunities. Perhaps if you get over your hatred of those below you economically, you will find that helping them out also helps you. And then perhaps you might also consider that the problems and solutions to this nation’s economic woes are largely above you on the economic ladder, not below.
No. You will never convince those like Peter N. They are entrenched in their beliefs because and their beliefs make them feel special and justified to belittle others. They have no interest in what is best for society even if it is also what is best for them. They “know” they are elite and therefore know best for all, especially those who would belittle their greatness. This fondness shows brightly through his posts and overwhelms the valid points he does make. These types know the price of everything but the value of nothing. Public works that many appreciate and value are waste to them, as are public lands that could be sold for profit along with public transportation that may not fully pay for itself through fares. If they don’t see a direct bottom line for themselves they cannot fathom a public benefit greater than the cost. They don’t see the reduced traffic and increased number of available parking spots, not to mention the reduced fuel costs and many other indirect benefits and fight passionately arguing if you would only look through their eyes while failing to do the same.
They say they are elite, then proclaim anyone can follow their example and be the same, failing to understand we cannot all be elite ‘ we cannot all be rich.
As an “elite” as you all so fondly like to call us….. Let me say the following:
(And I know this was directed at Peter N – I just want to show you that not all of the so-called elite agree)
1. There is nothing about my beliefs that make me feel “special”. If anything, I’m proud to have thought through my beliefs myself and obviously have done so by having such a smorgasbord of far-left and far-right beliefs all wrapped up into one. If anything makes me feel “special” about my beliefs it is this.
2. The biggest misconception of the ‘elite’ is that they don’t care about society. First of all, a strong economy helps the elite tremendously through stock investment and their own businesses.
3. As an ‘elite’ (I really hate that term by the way), I am proud of what I accomplished for myself and my family. And you would be too. And it is annoying to have people belittle our accomplishments. ANYONE would feel this way if they worked hard at something and succeed and others want to undercut them.
4. I literally have NEVER met an “elite” who thinks public works like roads, firefighters, soup kitchens, etc. have no value and are a waste. Who are these people? If anything, many of the “elite” I know help fight for and fund thes things. Our local soup kitchen here for example is FULL of members of the local “elite” community helping those in need. Charity is alive and well and the generosity of all people should never be insulted.
5. My biggest thing that offends me on here that Steven H himself has said in the past is that I (a so called elite) would only vote for what helps me. I have constantly called for a smaller Fed government which would CRUSH my income stream. One of the advantages of becoming wealthy that others may not understand is that it frees you up somewhat to think MORE about other people. You no longer are in a constant battle to feed your family – you have excess wealth and resources that can be used to help others. In no way do I see people in my ‘elite” community hoarding their assets at the detriment of others. In fact, just the opposite….
6. Finally, yes – many of us in the “elite” are frustrated that more people won’t enable themselves. Many do – but many also do not. The opportunities in this country are outstanding….the path is there and Americans in particular are so generous and willing to share their time and expertise to help someone who ‘wants it’ climb the ladder. I can think of a dozen of these people in my life who really helped pave the way for me and I am forever grateful.
I know you don’t intend to – but you are simply mirroring the same tactics that undermine Peter N at times. You sound emotional, bitter and angry. These debates would be a lot more productive if we had sympathy and understanding for people who are actually in these situations. On both sides.
Peter – FRom your posts, you are not part of the self anointing “elite” I was railing against. The post was against those with all the answers who are not open to real discussion. One could probably put Steven H in this group as well, though when he’s not on a rampage he adds more than just his opinion to back his thoughts. You are much more reasoned and open minded. You are the type that we need leading these types of discussions in our leadership. I’m sure there are some in our current congress, but they don’t seem to be leading the discussions, that is being left to the talking heads kowtowing to the special interests and extremists in both parties.
Wow, thanks JTM….. appreciate the compliments. There was a time when the dialogue was a little more diplomatic in here…. 🙂
“So? I read an article that said now much of the new wealth has gone to the top 1%, 0.1% and especially the top 0.01%. I don’t see how this affects me. ”
===
It affects the entire economy. When 10% to 15% of all income is being wasted and usurped by people who simply acquire wealth by virtue of already having wealth and “work” to usurp wealth by acquiring it (as most big CEOs and much of the financial industry does) and not creating it (as your business creates wealth). Disposable income is depleted for most people and moved instead into the excess acquisitions of people who neither earn nor need nor profitably reinvest to benefit the nation. Wealth creation is useless to society if it only benefits the people who already have too much.
Meanwhile YOUR business and YOUR economy and YOUR friends and relatives and neighbors suffer because the economy is less efficient and less prosperous than it could be. If you would stop blaming the victims and defending the perpetrators, we could fix this.
Is this what Bill Gates did? Try and take money that was not rightfully his rather than create it? Yet, now he is giving away billions to fight AIDS around the world? Is that money he didn’t need that isn’t profitably helping the nation? Has the existence and growth of Microsoft crushed the dreams of the bottom 10%? Has he emptied their pockets into his own? Literally every sentence in this post is just rhetoric. It is sour grapes and a totally ideallistic reaction to what you believe to be true.
One or even a few examples don’t characterize an entire class of people. It’s not right to just cherry-pick some admirable wealthy people to claim all wealthy people are a force for good or cherry-pick a few lazy poor people to make it seem that poor people are all lazy uneducated and unworthy.
Let’s step back from the moral judgments on poor or rich people and just look at the economy as a system. Income share has moved from the lower 90% to the upper 1%, and most of that to the upper 0.1%. Is this a good thing or a bad thing for the economy? Has this helped or hurt the economy? Has more money at the top correlated to faster or slower national average economic growth? Have the fortunes of most Americans improved or stagnated? Has unemployment increased or decreased? Is the economy more or less stable?
I think a fair observer would note that increased shares of total income being shifted to the top corresponds with
– unstable economy
– higher unemployment
– stagnating wages for most Americans
– slower real GDP growth
The next question is whether the income shift is a cause of the bad things just listed? It’s hard to prove such things but we can certainly see mechanisms where such an income shift creates damage. Higher income at the top means:
– less motivation for the rich to create new businesses or jobs (because they already have enough money)
– more money at the top to buy political influence that favors interest of the rich
– depletion of disposable income of middle class that powers markets and new business opportunities
– incentives for most to borrow money they need, and for rich to lend it to them at usury rates (high-rate credit cards, payday loans, etc)
– Etcetera, etcetera, etcetera.
There is NOTHING positive about shifting large chunks of this nation’s money away from the middle class and into the hands of rich non-entrepreneurial people who do NOT create jobs or wealth for anybody but themselves. And there is really no good reason for the good hard-working entrepreneurs on this site to defend the majority (not all) of folks in the upper 0.1% who either make very poor use of this nation’s wealth or receive far more of it than their meager contributions would merit. And a few Gates and Jobs examples aren’t enough to defend the rest.
I give up. You are probably right. Back to work I go….
I am not surprised at the disagreement from Peter, and Peter N and Ken, but am once again astonished by the DEGREE of the disagreements and some of the specifics.
First though, I will restate a few points of agreement. As Peter stated, one of the facts of our economy is that it is in transition and we as a nation have to deal with this by providing the educational and workforce training to fix this aspect of the problem. Peter’s suggestions of incentives and education improvements are a good start. Even Peter N and I have a few things to agree on: Of course businesses create wealth. I never said that they don’t. (My point on this issue has always been that NEW income and wealth in the country is due to the efforts of everybody but almost exclusively goes in the pockets of a select few.) And we agree that banks are getting an unfair good deal on loans and that the fortunes of big business CEOs and management should be tied to the stocks and successes of their company.
What amazes me is the prevalent and persistent “Blame the victim” mentality among the businessmen. This in old and persistent tendency in society, but I thought the crowd here was smarter than that. Even in the Great Depression, when unemployment was was over 20% and people had clearly lost jobs due to no fault of their own, society tended to look down on ALL of the non-working as lazy and inferior. And still today, the businessmen blame (from Peter N:) low earners who “aren’t worth” the minimum wage, and fast-food workers that “chose” that career over “other opportunities” [that are largely non-existent in an economy where there are 3 times as many people looking for jobs as there are job openings], or (from Ken:) that workers who are unskilled remain so only because of their “freedom” to choose that path (not due to economic restrictions that prevent them from climbing up), and (from Bill:) that low wages must mean you are divorced with children (as if rich people don’t get divorced or have kids and it is only a sin if you also lose your job), or not a high school graduate, or on pot, or a failure because you were insufficiently prescient about your own job or business area and were not able to train yourself in multiple work skills at the same time, just in case. And while Peter refrains from such diminution of his fellow man in his own posts, he actively applauds Bill’s attacks on the poor as his “favorite post”.
What’s wrong with you people that you so strongly despise the victims of our economic changes and downturns, and that you so readily place blame on the many many blameless as well as those very very few who might match your accusations and partially deserve your spite?
Of course there are always a small percentage of people who are lazy or otherwise evoke little sympathy from the rest of us. But do you really believe that there has been such an epidemic of increased laziness and stupidity that THIS is the predominant cause of high income disparity, persistent slow economic growth, and high unemployment? Conversely, while we talk about what is earned and deserved, do you really believe there is such an outbreak of superior intelligence and productivity in the economic elite that they “deserve” 3 to 5 times the historical share of national income and the highest share of national wealth since 1917?
Do really truly believe that human behavior has changed so much or could you accept that maybe there are some structural flaws and distortions in the system that could be tweaked? Most of you regular posters have submitted just such possibilities with admissions that education, and even Corporatism may be partly at fault. And yet, we keep coming back to this blame game against the victims. Can we just stop going down that road?
Yes I do believe we have had an intellectual outbreak with the explosion of the internet and Information Age economy. Absolutely. And to say this explosion was “within the economic elite” is silly …. They BECAME the economic elite due to this explosion. The rest I have addressed before but wanted to touch on this point.
Peter, a few internet entrepreneurs became millionaires. Good for them. Many of these folks are also the same ones advocating for higher taxes on their own brackets. People should listen to them.
My point is that most of the CEOs, high-end managers, and financial industry gurus are NOT intellectual or entrepreneurial geniuses commensurate with their pay grade, and much of the work they do has more to do with wealth acquisition and money-changing than it does with wealth or job creation in this country. The average high-intelligence soldier in the army of programmers keeping our technology alive is not reaping huge benefit. They are not the larger part of the 0.1%.
Yes their was an internet boom … and bust. And the country reaps benefits from the internet and tech advances. But the largest share of the monetary reward is going to bankers and financiers and high-end CEOs of multi-nationals. Now some of these folks are smart and hard-working, no doubt. But their reward has not been meted out by a fair and balanced market; it has been warped to an excessive reward due to political influence on government policy.
You see, I am not against markets. I am against the uber-wealthy and monied interests warping the markets for their own outsized benefit, and to the detriment of the country.
So if we accept your theory, Steven, that the underlying issues can mostly be traced to the fact that economic elites warp the sytem in their favor by influencing (buying) legislation, why then, do you advocate government-based solutions to these problems? Politicians are the very people who caused the problems in the first place, aren’t they, by taking bribes and/or altering legislation to favor monied interests? Had these politicians had the moral backbone to do what was right for society rather than for their own political careers and/or special interests, we wouldn’t have these problems, correct?
What makes you think that politicians will suddenly turn over a new leaf and become principled, upstanding people when given the charge of fixing the mess that they themselves caused?
It’s a good question, Ken, but you have to realize that there are two ways of looking at the problem: (1) Government caused the problem so it cannot possibly fix it, or (2) Government is the battleground of ideas between opposing interests, and when one side takes control and does harm to the country, it is our duty as citizens to take back control and correct the damage.
I choose number 2. There are good and bad politicians, and amazingly, the good politicians will actually legislate for the best interests of the country when given a fighting chance.
One side (I assume you mean Republicans) didn’t create this problem. That is the illusion and political brainwashing groupthink. I disagree that the government is the battleground of ideas between opposing interests. For about the last decade or so, it has been nothing but a political stonewall between groups that largely think in a similar fashion – but are controlled by the special interest groups at the fringe of their party. That’s what frustrates me. The great mediators like Clinton and Reagan are nowhere to be found.
Steven H –
I am not a business owner. Still, if I were, I would not pay the people I described $15 or $30/hour to flip burgers. The people I described tend to be lacking in self-control and personal responsibility and they want someone else to pay for it – which also doesn’t speak highly of them being paid to do a job. And while my followup post caricatures them in the extreme to say the least, someone who actively chooses to participate in drug possession or usage well into their 30’s, 40’s, 50’s, as evidenced by my local Police blotter’s many arrests every week; or the 27 year old woman with five kids by five different men who needs Christmas presents for her kids and so steals them from Walmart also evidenced by the police blotter and the court appearance, have made horribly bad decisions in life. And they want someone else to pay for it. There is no denying it.
I am not a Republican, evidenced by my belief in legalizing and controlling all manor of illicit drugs (and prostitution and whatever other Biblically-inspired vices are outlawed). And I am not a Democrat, evidenced by the fact that I think we all owe or owed it to ourselves to at least graduate from high-school, stay out of trouble, avoid sex or at least use contraception until you are at a spot where you can also take care of your offspring without requiring federal legislation to do so.
Yeah, we’re all kids at one point doing dopey things. But many of us are able to mature beyond that and make something of ourselves. If those that do not mature past the dopiness are merely “victims” rather than lacking personal responsibility and accountability, then I guess those that do mature past that are simply “lucky,” and I find that objectionable.
Idoubt anyone in this forum is arguing for a $ 15 minimum wage for burger flippers. How do you know the current and past work histories for any of those on your police blotter? Never heard of a down on his luck upper management type caught with drugs? Or one just trying to blow off some steam?
Fair enough, no one on this forum is arguing for $15. However, that number has been used in articles related to fast food strikes. It is used as a basis to describe a living wage and above poverty level. Maybe, as Steven H posits, it is a “starting point” in order to achieve $11 or $12. The point remains that these jobs were never intended to be “careers” as they are entry-level for people with little or no education and experience. No business owner should have to pay a lot of money for little or no education and experience for entry level positions.
I don’t know current / past work histories of the local PD blotter and yes, some of these busts could very well be C-suite. But it comes back to personal responsibility and accountability. If one ever got involved in this phase, one would presumably have moved past it as one aged and realized the magnitude of such indiscretions on family, career, health.
I come across as judgmental, but think about this. I was a C & B student in high school and college without really trying. Just good enough to have made a pretty good life and career. Had I worked harder and been an “A” student throughout, perhaps I make the $400k or more this article discusses. Whose fault is it that I took the easier road? The school, the college, the teachers and professors, the business owner who won’t pay me $400k? Or is it my fault? If you respond that I am at fault, then why are others who have behaved in some of the ways I described just victims of an unjust system?
Re-posting on this earlier thread. Here in NY, Cuomo is proposing $10.50 / hour minimum wage – to lift people out of poverty. After years (decades?) of stagnation it has bumped up several times the past two years or so. My own high school senior’s entry-level job went from $8 to $8.75 on January 1. Pretty good scratch for a kid with no expenses and 10 or so hours per week to spend at a “job” that was never intended to be a “career” on which one could raise a family of four.
So, at least here in NY, I don’t think the $15/hour is science-fiction. He won’t blatantly propose it, but the armies of the left will probably be proposing it in the next year or two, especially if they get $10.50 in this year’s legislative sessions.
Steven — With regards to your assertion that I think true victims in our society deserve our “spite”, that is inflammatory distortion not worth addressing. My issue is in classifying so many people as helpless victims who bear no responsibility whatsoever for the choices they have made. Rather than seeing people as hapless victims (and correspondingly, evil victimizers), I see people more as the product of the myriad of choices they have made and behaviors in which they have engaged over the course of their lives.
People choose what careers they will have, where they will live, whether to marry or not, and whether to become educated or not. Nobody chooses those things for them. And before you launch into the “education is too expensive” response, consider two things 1) state governments are reposnsible for the cost of education at state run universities; and 2) over the course of their lifetimes people with college degrees earn about $1 million more than those who don’t, so the cost of education more than pays for itself in the long run. Not saying the cost of education has skyrocketed and is a concern. Just saying that even so, education is still worth it, is still accessible to nearly all who want it (student loans, pell grants, community colleges, etc.), and actually is a bargain in the long run. Moving on….
People choose whether or not to have children, and/or how many. They choose to engage in the use of illegal drugs, or not. They choose to overspend their incomes, or not. They choose to commit crimes, or not. They choose to drink too much, or not. They choose to work 40 hours a week, or conversely to work 60-80 hours a week, or not. They choose to start their own businesess, or not. They choose the words that they use to engage with others. They choose how they will respond to each situation facing them. They choose to reign in their emotions, or not. And so on.
So after all of these choices (and thousands more), in the country with the most economic opportunity in the history of civilization, I have a hard time picturing such a huge chunk of society are hapless victims who bear no responsibility whatsoever for the choices they have made, and havein fact had little to no input in how their lives are turning out. Having said that, I would say that some people clearly are victims and need help. We definitely need to help those who are truly needy. I’m completely on board with that.
However, most people are not victims and should not be seen as such. Quite to the contrary, we should expect that most people be productive members of society who take responsibility for the choices they have made. Yet I rarely (never?) hear that personal responsibility side of the equation mentioned in your responses. It’s apparent to me that you consider personal responsibility a minor part in how people’s lives turn out, relative to forces outside personal control, such as government policy, nefarious schemes of “the rich”, and so on. I think this is where we will always disagree.
As I have stated in the past, I think the primary determinant of how a person’s life will turn out is their personal behavior, and the choices they make over the course of their lives. And I think the reasons for increased income disparity, as I have also stated in the past, are much more due to organic causes than they are politics, or govermental policy, or schemes of the rich. These causes include but are not limited to the transition from the Industrial to the Information Age, and the divergence in incomes for those who chose to arm themselves with Information Age skills versus those who chose not to; social forces such as the unparalled rise in divorce rates and the entry of full-time working women into the workplace post-1970; and globalization.
Awesome post. And this in a nutshell is what makes living in America so great. We have full freedom to make our own choices. Some view the game as “rigged” and there is no changing their opinions. I just hope those people don’t choose the ‘give up’ strategy, as that has a 100% failure rate.
We will always have people who play the ‘victim’ card all the time, eschewing personal responsibility and blaming outside forces or circumstances. My own mother is one of these as are many others in my family.
What I would like to see changed though is the open trashing of the wealthy as though they are keeping their foot on the neck of the poor, stealing from their pockets, rigging the game or whatever other perspective you want to have. We made some progress in here in separating the vilification of the rich to the super-elite (and not those making $500k), but it is still grossly unfair, and frankly pointless.
And I am in complete agreement with Ken that we absolutely need systems to help the truly needy. But we have to be careful to not enable those that choose to make poor personal decisions.
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.
Agree with you? NEVER!
Income disparity is due to the fact that those on the low end simply aren’t worth it. They aren’t worth the minimum wage. You have yet to address the question if those that want the minimum wage are worth it what they are asking.
I do agree that the banks are getting a good deal when they can borrow money at an extremely low rate that none of the rest of us can get. This is not right.
“With a different income slope, most workers would make 20% to 30% more, ”
What is a market slope? It is all about supply and demand and a mutual agreement
“Our economy consists of growth elements”
Does that mean you finally agree that the economy is not a zero sum game?
I do agree the stock market is a zero sum game.
” Some people and businesses become profitable by creating wealth and opportunity.”
Wow, you do agree that business can create wealth. Finally.
” And others seek to acquire the wealth of others.”
You were doing well up to now. Provide an example.
” 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)”
Acquisition of what? I am not in the top 0.1% but I buy stocks and mutual funds. The stock market has been good lately. My stocks and mutual funds go up more in one month than what the average person makes in a year. So what? I haven’t really made any money until I sell. On top of that would you prefer that the stock market goes down? That would hurt a lot of retirees and those that depend on their 401K plans.
” 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.”
Where is your evidence? Like I said, I am not in the top 0.1% but more of my income comes from investments than others here. I acquire stocks and mutual funds. I bet most of the other 0.1% do the same unless they want to own a company outright.
I really don’t see how you can justify your statements.
I am a small business owner. If my company fails my finances will hurt a lot. My complaint is that CEOs, top board members and other officials don’t own stock in the companies that they manage so they don’t hurt if they screw up like I would.
Other than that I think you are totally clueless about how things really work because you have not been a small business owner. Libtards, in general are not business owners yet they think they know about what it takes to run a business.
TO PROVE MY POINT. THERE WOULD BE NO UNEMPLOYMENT IF LIBTARDS WOULD CREATE JOBS FOR THE UNEMPLOYED BUT THEY CAN”T BECAUSE THEY DON”T KNOW HOW.
From Peter N’s post…
” And others seek to acquire the wealth of others.”
You were doing well up to now. Provide an example.
This is a ridiculous statement. Other than thieves and petty criminals, who in the world is doing this?
Steven H – your comments Peter N highlighted do show that you don’t really understand how the stock market and wealth building really works. ” 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.” This statement is very uninformed.
I’m not sure why we can’t accept that the problem might be due to a changing world – and adapt accordingly. Why does it have to be Republicans or “Libtards” that are to blame? Why does ANYONE have to be blamed? There is absolutely no denying that the world economy has changed from agriculture to manufacturing to information technology. ADJUST! The labor force must adjust to this as well, and for those of you that think the government can help “fix this”, then that is where there focus should be.
Creating a business does not create jobs. There must be a market niche available for the business to fill. There must be customers willing to pay money to create the cash flow to support the business. There must be disposable income in the middle class, which would come from higher wages.
In order to create jobs and cash flow, we must move money from the unproductive coffers of the economic elite back into the hands of the middle class, who are the real wealth creators.
[See post below, at this link, for further explanation]
http://moneyning.com/career/who-actually-earns-400000-per-year/comment-page-10/#comment-1069192
Yeah, can’t say I stopped posting because I agree with you…. LOL. The first paragraph is reasonable – although I agree I don’t love the way you took one of the key factors and spun it as if it were the primary cause of income disparity. I don’t agree with the rest of your post.
If I had to restate what I feel is the primary factor for income disparity it would be like this…. We are in a transitionary economic period – one that is moving away from a blue-collar manufacturing economy to a technology based information-age economy. This is very hurtful to the unskilled labor market. Combine this with a recession in 2008-09 (not a depression), which typically creates wider income disaparity – and we are in the situation we are in now. The economic cycle plus the explosion of our skilled-labor economy vs. the unskilled has created a widening gap. A third leg of this would certainly be the outsourcing of what little unskilled labor jobs we have to other countries, where they can be done for much lower wages.
Solutions: Education and training of our workforce. Tax credits and incentives for companies investing in this. An upgrade of our school system to include education on applicable skills like computer literacy.
The big thing I will NEVER agree with Steven H’s worldview on is that the crux of our problem lies in our government, greedy rich people, or our tax system. I will also NEVER agree that the solution lies with higher taxes on the wealthy. There are much bigger, more complicated tactical shifts happening in our economy – all of the tax/government/policy stuff is largely politics, not solutions.
Peter, I say so below, but i will also reiterate here that I heartily agree with your suggestions on education. We do a poor job of matching skills to jobs, or even providing students an inkling of where they should direct their studies to be successful in society.
But I must object to the idea that you, or anyone should reject a specific solution out of hand when the problem is incompletely understood. You say “I will also NEVER agree that the solution lies with higher taxes on the wealthy.” Why is that? How is that a sane response? The poor have less, the average folks are struggling and in debt , the rich folks have more than ever, and the government is struggling and in debt. The rich are doing very well partly because they pay a smaller percent of income to the government than in the past, and the government is in debt in part, for much the same reason. So the solution is (a) cut assistance to the already struggling poor and middle class (b) raise taxes on the already struggling poor and middle class, or (c) tax the outrageously fortunate wealthy who have higher share of income and wealth in this nation than at almost anytime in the last 100 years.
Picking a or b increases disparity and damages the economy. Picking c decreases disparity, partially solves the debt crisis, and does nothing to hurt the economy. But you say we cannot possibly pick c. I don’t get it.
Even if you disagree with my analysis (which i am sure you do), how can you so completely reject even the idea of increasing taxes on those 0.1% economic elite whose incomes have tripled while their effective tax rates have been cut. If they can’t bear higher taxes, who can?
Peter: “The big thing I will NEVER agree with Steven H’s worldview on is that the crux of our problem lies in our government, greedy rich people, or our tax system. I will also NEVER agree that the solution lies with higher taxes on the wealthy. There are much bigger, more complicated tactical shifts happening in our economy – all of the tax/government/policy stuff is largely politics, not solutions.”
==========
Peter, The more I think about this statement, the more it irritates me. For pages and pages, you have lambasted me for being closed-minded and unwilling to process ideas outside of my comfort zone. I have adapted both my ideas and my rhetoric. I have admitted to multiple potential causes and rejected none (except for claimed increases in laziness of the poor, for which no proof has been offered, nor defense for proportional impact).
But now, YOU completely reject specific potential causes and solutions as something you will “NEVER agree with”. Not due to any accompanying data or statistics or proof or convincing logic. Just an off-hand dismissal that these causes don’t really matter, and these solutions are irrelevant. Because you say so. Excuse my Texan, but that is complete bull-hockey. You can’t go around shouting at everyone else for being closed-minded and then shut your brain up like rotten potato salad in fully burped Tupperware.
And don’t answer that I am just as stubborn for insisting on solutions that include more taxes on the rich. I have provided statistics, articles, history, and impeccable logic; none of which you have offered to defend your new-found (or just newly-revealed) obstinance.
You reject Greed, Government and Taxes as primary causes. Here are additional arguments (above what I have previously presented) for you to reconsider.
Greed: Here is an investment strategist’s take on greed. “Goldman Sachs legendary Gus Levy created the term ‘long-term greedy.’ Greed is defined as wanting more than you have. Nothing wrong with greed. It is neither good nor bad. … Over the years about one-third of the world’s largest hedge funds are or have been clients of mine. Of the top guys whom I know personally, I would say almost all are long-term greedy.” [Charles Biderman]
Greed is a powerful intoxicant and has caused many a mess in this world. Greed is the love of money and has been said to be the root of all evil. On what basis would you claim it has no influence on the imbalances of our economy?
Government: Government sets the rules of the economy. It sets tax rates, defines what is fair and unfair, decides whether and how to regulate monopolies, sets up rules to establish businesses, establish trade policy, regulate the banking sector; in short, it is involved in every aspect of our economy and is the primary architect of the shape of the market in which businesses and suppliers and customers trade and interact. And yet you offer with a straight face that government cannot POSSIBLY have anything to do with excessive income disparities, which are basically the shape of the labor market. I am flabbergasted and disappointed that you could even make such a statement. Of course, government policy is a primary contributor to and influence on excessive income slopes. To deny it would be like saying da Vinci had no impact on Mona Lisa’s smile.
Taxes: The most powerful influence of government on the economy. That’s why we fight over it. That’s why the founders wrote so much about it. Taxes are a despised yet necessary evil. Everyone always think they pay too much. And yet there is one group of people who have no defense whatsoever against having their taxes raised. When their income share has tripled and their effective tax rate has dropped (in half as of 2010, probably back up slightly now) and their primary claim to receiving extraordinary income is that they have a whole bunch of money to begin with, and when the government is starved for cash, … well there is really only one sensible outcome. Unless of course they can dupe a whole lot of people poorer than themselves to defend their vast fortunes on vague claims of defending economic liberty or freedom of something. Seems to be working. It’s quite a con game. What are your reasons for advocating for those who have so much and give so little, Peter?
Greed, Government, and Taxes. If you will truly NEVER unburp your brain and even consider these as important contributors and/or solutions to the excessive income slopes, then we can end our discussion immediately. For a closed mind gathers no light.
Please don’t get distracted from the passion of the last post and miss the message. You made a declaration that your mind was closed. This is unlike you, and I think you need to reconsider.
What I said is that I’ll never believe that the crux of the problem is greedy rich people, government or our tax system. I’ll also never believe that the crux of the solution is in raising taxes on the wealthy. These are political footballs that simply decorate the fringe of the issue and win votes rather than attack the problem. Band-aids if you will. I have read every word you have written and remain unconvinced that these are the source of either the problem or the solution.
I think a lot of these discussions have hinged on whether or not you think that large income differnces are necessarily bad. I don’t. I think they might be, or they might not be, depending on everything.
I think a lot of the differences in income are what you get when people have the freedom to behave as they so choose. Freedom to make a lot of money, or freedom to choose lesser-earning careers. Freedom to retool with information-based skills, or freedom to remain unskilled or tooled with only industrial-age skills. Freedom to found Facebook, Amazon, or Google, or the freedom to choose to work for someone else.
I think a lot of income disparity is due to organic causes, such as the propensity for people of similar high (and low) earning levels to marry/live together. Or the high divorce rate and resulting higher poverty levels for both former spouses.
I think government-based solutions presuppose that income disparity is always a problem, and that government is always the entity which needs to solve it. I don’t buy either of these premises.
Completely agree. Well said.
I agree too. I recently got this
“IN GOD WE TRUST
Subject: Minimum Wage………………
For those fast food employees striking for $15 an hour, let’s do some math. At $15 an hour Johnny Fry-Boy would make $31,200 annually. An E1 (Private) in the military makes $18,378. An E5 (Sergeant) with 8 years of service only makes $35,067 annually.
So you’re telling me, Sally McBurgerflipper, that you deserve as much as those kids getting shot at, deploying for months in hostile environments, and putting their collective asses on the line every day protecting your unskilled and misguided butt!?
Here’s the deal, Baconator, you are working in a job designed for a kid in high school who is learning how to work and earning enough for gas, junk food and hanging out with their equally goofy high school pals. If you have chosen this as your life long profession, you have already failed miserably! Get a life!
If you don’t want minimum wage, don’t have minimum skills — the choice is yours, if you have gumption enough to seize the opportunities afforded you! Redistribution of Wealth puts us on the path to “Communism” and has never worked anywhere on planet Earth and will never work in the United States of America!”
The message I received assumes one has minimum skills. What about those that aren’t worth the minimum wage?
There will always be winners and losers but kids are sheltered from that. This needs to change. I repeat, my mother said the world does not owe me a living nor does it revolve around me. This is something the libtards should learn.
About time this was stated. None of these service industry and retail industry jobs were meant to be a “career” for adults, let alone adults with children unless you are the manager or owner of the franchise. They were meant for retirees, stay at home moms and high school kids to have some walking around money. If you are 35 years old, divorced with two or three kids and you are working at one of these jobs, look in the mirror because you did something to yourself to put yourself in this situation.
Did you graduate from high school? Regardless of what public education is or is not, you still owe it to yourself to see it through.
Are you still smoking weed or dabbling in other stuff? You might want to give it up and start acting like an adult. (Sidebar: I actually think it all should be legalized and controlled like alcohol and tobacco).
Did you get divorced because you simply “fell out of love” (as opposed to a domestic violence situation for example) or you had an affair and your spouse left you? Maybe you should have seen it through until at least the kids were out of the house.
Did you think the assembly line job would always exist and you took no steps to better yourself in case it was moved to China? We’ve got a 40 year track record of shipping manufacturing overseas and while I personally find that deplorable, the consumer market has spoken and would rather have a 42″ inch flat screen TV for $300 than to pay Joe Six-Pack $25 or $30 an hour to sweep up the plastic bezel trimmings from under the conveyors.
Raising the minimum wage of these service jobs results in diminishing the salary of people that avoided all of the above and did the right things for themselves, their families and their careers. I make a solid middle-class salary and it will not suddenly go up $15,000 because Sally McBurgerflipper’s goes from $15k to $30k. It also results in more automation that will reduce the number of jobs for the aforementioned retirees, stay at home moms and high school kids. It particularly hits the high school kids hard as these jobs are often their first experience proving job-worthy and my own 18 year old took more than 12 months to find a job willing to pay her with no experience $8.50/hour in New York state. And last but not least it increases the retail cost of the products thus depressing future sales and job openings for the people that these jobs were originally intended.
By the way, both major parties are equally complicit in social engineering experiments that have wrecked this once great nation. The federal government needs to be scaled back to the 20 or so responsibilities granted to it in the constitution and let the states and localities take it from there.
Undoubtedly my favorite post in this whole thread….. Welcome Bill!
” The federal government needs to be scaled back to the 20 or so responsibilities granted to it in the constitution and let the states and localities take it from there.”
I have been saying this from the beginning.
Bill,
Bill: “Raising the minimum wage of these service jobs results in diminishing the salary of people that avoided all of the above and did the right things for themselves, their families and their careers.”
=== This sounds logical but there is absolutely no evidence that this occurs. There is also no evidence that raising the minimum wage by a reasonable amount as proposed will “[depress] future sales and job openings for the people that these jobs were originally intended.” These types of doom and gloom predictions are always proclaimed before the minimum wage is raised but they never actually come to pass.
Current minimum wage is lower than what I made in my first minimum wage sales counter job in the 70’s (after inflation adjustment). It’s time to bring it back up-to-date, that’s all.
Unless I am doing something wrong, I can’t reply inline to your replies to my reply.
Peter – thank you – I have been following this thread forever it seems, and Peter N’s post struck a nerve obviously.
Peter N – there must be many millions more like us that want this to happen, Libertarians aside, so how to organize?
Steven H – I have no real problem with inflation adjusted minimum wage I suppose as I probably benefited from the same adjustments in the 70’s – 80’s as a teenager delivering newspapers, stocking shelves and pumping gas. However, today’s fast food strikers want a “living wage,” which tends to be defined as above poverty level for a family of four. My $5.15/hour growing up in NY back in the day was enough to put gas in my car, buy some Big Macs and Led Zeppelin and AC/DC music. It was not enough to put a roof over my head, pay my car insurance (thank you Mom and Dad), feed three other people, have decent clothing and all the things that a “real job” or career are meant to furnish. That “living wage” is $15/hour for a full time fast food worker. Since none of those exist, then it needs to be $30/hour for the typical 20-hour fast food worker week.
Without posting my salary, paying $30/hour to the 30 year old 10th grade educated, full sleeve tatted, drug using single parent of four, diminishes the effort and work that went into making me a CIO at a medium sized business. It certainly makes justifying the educational expense that went into it harder to do. (I realize, not all adult fast food workers are the caricature I described, but this type does exist in the fast food worker ranks).
And yes, fast food jobs can be eliminated, the benefits to do so, haven’t outweighed the costs…so far. The gas pump kids of the 80’s were already being augmented by self-service pump islands and price-points and then the pumps themselves became credit card capable. Unless you live in New Jersey, it’s safe to say that gas pumpers have gone the way of the do-do bird. Same with newspaper carrier routes. Today it’s a job for a car because the delivery region is too big for a kid on a bike. Fewer jobs, bigger routes. And the newspaper business in general is being replaced by the internet as well.
Bill,
You aren’t doing anything wrong, we are just at the last “indentation level” for replies. Usually when this level goes on for a few replies, I try to start the conversation anew with a new post below. But while I am here …
The primary goal of the current minimum wage push is to bring it back up to historical levels, adjusting for inflation. Some folks are pushing for $15/hr, but nobody expects 30/hr. And 15/hr may just be a (reasonable) bargaining ploy to get 11 or 12.
If you are OK with inflation adjusted minimum wage, then we are on the same page on this issue.
I would probably add that we need legislation to disable the 30 hour exemption on health benefits. Currently employers limit to 30 hours/week to avoid paying health benefits. I would like to require proportional benefits below 30 hr/week, i.e. a 15 hour worker gets half benefits. This would encourage businesses to go back to hiring people full time.
Peter N. cut and pasted a common theme among those who don’t really understand the value differences between “minimum wage” and military pay. As a former minimum wage worker, a veteran of military service, and a college graduate who has built for himself a real professional career I have to point out how demeaning and out of touch that rant is in reality (and how disappointed I am to hear it coming from many of today’s enlisted veterans. But, back in my day we had more college level intelligence at the enlisted level due primarily to the draft.).
As a high school student I worked various jobs that paid minimum wage back when the minimum wage was worth about $11/hour in today’s dollars. This included farm labor essentially moving old fashioned water pipe and sprinklers across acres of potatoes during the growing season. It also included washing dishes in a local restaurant/ice cream parlor.
After graduating from high school with a curriculum designed to aid me in going on to college, I ended up enlisting in the US Navy because I was going to be drafted into the US Army and wanted some control over my situation, be it rather limited. I took a big cut in pay because of some very real reasons.
While serving the country has once again become an honorable endeavor, it was not at that time. But there are perks that come with that low wage that are not inconsequential, and expensive. Do the arithmetic. Along with that wage you receive a roof over your head, a bunk to sleep in wherever you are stationed (with the very real exception of combat duty), three square meals a day, a paid vacation (length of which increases with promotions for skill acquisition and longevity), and most importantly, free medical care where cost is no prohibition as to what type of care you need.
After my tour of duty concluded, I went back to minimum wage jobs, and school. I was able to leverage my GI Bill education funding into a full time student at first one of those newly created county community colleges set up to help make education more affordable for more people. I left my home at 6 AM to go to school, had a job in the Veteran’s Affairs office on campus, and got home to my new wife about 10 PM every weeknight. After getting all that I could from a two year institution, I was able to afford the final two years in an accredited business university and obtained my degree in Accounting without going into debt (except for the home I bought with my wife during this same time). This is IMPOSSIBLE today. By the way, I continued to work minimum wage jobs in construction to fill in the holes in my cash flow until the day I landed that career making position in one of the top banks in the country and started my way up the ladder. Those minimum wage jobs were worth much more then than they are now, and that must be changed just to keep from falling behind.
In the final analysis, there is no comparison between the two career choices and the rant smells like trailer trash belittling a job that grew into the modern version of the assembly line. The mess hall personnel usually entertain visions of leveraging their experience into meaningful jobs on the outside just as many who entered the food service industry of my youth entertained visions of earning positions of management in the industry. To state that these jobs were not meant to be career opportunities is ignorant. Just not to all is more accurate.
“I think a lot of income disparity is due to organic causes, such as the propensity for people of similar high (and low) earning levels to marry/live together. Or the high divorce rate and resulting higher poverty levels for both former spouses.”
=====
But this has not changed over the last 100 years and thus does not explain todays problem of EXCESSIVE and historically EXTREME income disparity. Changes in income disparity are due to something that changed, not human nature which has stayed constant. What has changed is the market and government policy.
Income disparity is not always a problem. Out of control income disparity that we have today, the likes of which have only occurred a few times in the last century, is definitely a problem. Allowing the economic elite and most politically powerful to refashion the political and economic rules of the market to benefit their own interests at the cost of degrading the economic efficiencies of the wider economy is a really really bad idea. Always. It is a government and politically created problem and it can only be corrected with government and political correction. IMHO.
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
Hi grace,
It sounds like your dad was wise with his money.
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
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?
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.
Good for you! Congrats on getting lucky. 🙂
And yes, I cringe when I see the dollar amount of Federal taxes I pay. Just got a check last Friday and YTD I will pay more in Federal taxes this year than I did the first 8 years of my career combined. But it’s still not enough for the government.
You do bring up a key factor – knowledge and experience. As my career progresses I have realized that THIS is what I possess that pays so handsomely. And this would be true even if I was an auto mechanic.
Whatever career you choose, if you accumulate knowledge and experience you will find “luck” shine on you eventually. This usually requires working VERY hard and being grossly underpaid for a good portion of your career. Just like losing weight might mean eating more green beans and less ice cream. Life is all about choices – and if we make them with a long-term view in mind, we can all have success beyond our wildest imagination.
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.
I couldn’t disagree with this last post more. In almost every way.
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.
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?
Peter N, Do you understand how utopian and naive your position sounds about anything except what creates wealth IYHO?
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.
There are some gov jobs that are necessary but that doesn’t mean they create wealth.
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.
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.
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.
“…. 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.
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.
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?
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
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.
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.
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.
Credit Default Swaps. Unregulated monetary schemes. Bad investments. Stole money from the economy. The perpetrators are still rich.
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.
Agreed. Good to hear from you again, JB.
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.
Stray sentence fragment at bottom of 3rd paragraph of last post. Strike phrase “In many cases.”
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.
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.
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.
===== 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.
“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.
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:
=================
“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.
=================
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.
“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?
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.
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?
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.
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.
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.
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.
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.
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.
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?
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????
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)
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. 🙂
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:
=========
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.
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.
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.
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?
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.
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.
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.
Correction, that’s TWO levels of the hierarchy, not THREE as erroneously written.
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.
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.
GUARANTEE, that is, without the M.
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.
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.
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.
“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.
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.
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?
In case of any doubt, above was reply to Peter N.
“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.
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, 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.
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.
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.
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.
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.
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”.
=====
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?
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, 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.
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.
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.
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.
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, 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?
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).
To be fair, for most, “lack of employee loyalty” was preceded by “lack of employer loyalty”.
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?
Still think it is largely antiquated in our economy. Many of these “laborers” today are employed by small businesses. Or they are skilled workers.
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?
Previous response was to Peter.
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.
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?
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.
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.
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.
“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%.
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.
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.
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.
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.
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.
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…..
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. 😉
“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.
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%.
“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.
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.
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.
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.
Which is how much?
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.
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.
Which is how much? Again…. no answer for this.
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.
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.
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.
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.
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.
” 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.
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.
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.
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.
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.
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.
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.
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?
“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.
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”?
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. 🙂
” I just hope when that happens that I get subsidized by the government.”
You already are, via the Reagan/Bush tax cuts. 🙂
“” 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.
Ignoring is a better strategy.
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.
So why are you still blaming Reagan for all the ills?
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.
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.
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
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.
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 …
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.
“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.
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.
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.
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.
“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.
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.
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.
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.
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?
“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.
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.
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.
“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.
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…. 🙂
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
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/
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.
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.
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.
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
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?
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.
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.
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.
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.
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.
“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.
….
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?
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.
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?
Yes, because the Democrat’s policy of wealth redistribution is something I can no longer support.
I agree. But I also don’t support many things the Republicans stand for. Do you agree with their entire platform?
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
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.
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
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.
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.
Correction in first sentence of my last post
“The Constitution does indeed INCLUDE the taxation and general welfare clauses …”
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.”
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?
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.
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.
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?
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.
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.
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?
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?
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.
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.
My error…. replying to drivel with drivel isn’t helping anyone.
“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.
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.
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
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…..
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.
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.
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.
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.
Not really bragging or gloating…. I didn’t write the article.
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?
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
So what did you learn from the article, Steven H?
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.
“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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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?
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.
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?
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…..
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).
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).
“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.
@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.
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.
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…..
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.
=== 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?
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
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.
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.
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.
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.
“. 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.
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.
Read reply to Peter. “Bottom 15%” is not the correct stat.
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?
Most unskilled labor fall into the middle class, skilled labor upper middle class, which has grown. College graduate is due to supply and demand. too many people are graduating from college.
Primer on declining wages of the NINETY percent.
http://www.bloomberg.com/news/2012-10-02/top-1-got-93-of-income-growth-as-rich-poor-gap-widened.html
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.
” 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.
One point that hasn’t been made (as far as I can see):
CEO’s often set their own salary, with no constraints. By this, I mean that often a BOD will set a salary that mirrors what the CEO asks for. It is a cycle that feeds on itself. I used to work for Goldman Sachs, and the bankers there spoke about it. It works like this:
For any medium to large company, 1/4 of the CEOs are in the bottom 25% of pay (of course – but you may not have thought of it that way.) These CEOs (and I’m using CEOs, there’s also CFOs, etc.) complaint that they are not being paid competitively. The BOD will often respond “Why, OUR guys are as good or better than THEIR guys! Why aren’t they being paid more?” Now you get a whole new bunch of lowest 25%. It was happening back then, in the 90’s, and the bankers would talk about how it would affect business.
By and large, they were right. The gulf has grown to levels not seen in 100 years. As Jeff Bezos said in an article last year, if something isn’t done, the pitchforks and torches will be brought out soon.
To Russell:
You are correct, and thanks for chiming in. While CEO salaries being non-market-driven has been discussed, you have added a detail that is new to this discussion. Thanks.
By the way, your comment here may not get a lot of notice since it is back in a portion of the thread that is a few months old. But keep commenting!
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.
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.)
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.
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.
Good point. Foreign competition and the technology age are two huge factors here.
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.
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.
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?
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.
← Previous Comments
Next Comments →