6 ms·

Rising Wealth Inequality: Should We Care?

26 points by edwardshui 16y ago

jbooth 16y ago
Well, so aside from the revisionist statistic-slicing, it's pretty clear that income inequality has skyrocketed, income mobility has decreased and we've been reducing taxes disproportionately on the rich for the last 30 years. For exhibit A), we can examine the present job prospects of a computer programmer vs your typical laborer or service employee. Fairness aside, this is an issue for the rich as well. How you gonna stay rich if the middle class doesn't have disposable income to spend? It seems like a lack of middle class jobs/income would hurt the future value of any investments. That's the thing I really don't understand about the "I got mine, you can go screw" attitude towards income inequality / income mobility. It hurts you, too, and you have more to lose.
- yummyfajitas 16y ago
  Could you define middle class, just so we know what you are talking about? I'm not particularly worried about a lack of middle class jobs if the primary cause is merely inflation of the definition of "middle class". Also, I'd be curious to see stats on time variation on income mobility.
  - jbooth 16y ago
    The middle 50% or so of the income scale, whatever that happens to be? Pulling that out of my hat. The study you linked upthread said a bunch about income mobility or lack thereof. I see that as a much bigger problem than equality for it's own sake, although I'd be very concerned about a completely hollowed out system.
    - yummyfajitas 16y ago
      With that definition, there can never be a "lack of middle class jobs" (to borrow your phrasing). Precisely 50% of the country will be middle class at all times.
      - jbooth 16y ago
        Yeah but there can be a transition of those jobs from "paying a wage you can support a family on" to "not doing that". That seems to be what's happened, we've replaced a lot of trade skill jobs in manufacturing, etc, with non-skill jobs at Walmart or the gas station.
anamax 16y ago
http://taxprof.typepad.com/taxprof_blog/2011/03/tax-foundation.html http://taxprof.typepad.com/taxprof_blog/2011/03/tax-foundati... Summary - while the upper 10% of Americans have a greater share of the national income than in many other countries, they also pay a significantly larger share of the income and payroll taxes. (Yes, that includes SS.) Method - find share of income. Find share of taxes. Divide latter by former. In all but a few countries, that ratio is >1. The US ratio is 1.35, the highest. Next comes Australia, at 1.29, the Netherlands at 1.28, and Ireland at 1.26. No other country's ratio is over 1.2. Sweden's ratio is 1 while Norway's ratio is 0.95. Yes, you read that correctly - their income/payroll taxes are NOT progressive wrt the top 10%. Me - I don't care what someone else has, aka envy. I care what I have, aka greed.
- cantastoria 16y ago
  I agree with your analysis but I think you missed the fact that al ot of other countries tax spending through VAT rather than income. I'm not saying this is a better system (I don't think it is...). For instance, the standard VAT in Norway is 25% (14% for food and drink) so the slack is being taken up (in a big way) somewhere else. I also don't care if there is a large income disparity. All the remedies I've seen proposed to fix this "problem" essentially just raise taxes on top earners. I can't think of a worse place for that money than in the hands of a politician.
  - adolph 16y ago
    Wouldn't a large consumption tax make the overall effect even more regressive? (Maybe you are reinforcing the parent comment's point?)
  - anamax 16y ago
    > I agree with your analysis but I think you missed the fact that al ot of other countries tax spending through VAT rather than income. Sales taxes and VAT makes the US even more progressive in comparison because the rich spend a smaller fraction of their income on VAT-taxed things. For example, Bill Gates spends maybe 5x as much as me on dinner yet we both pay the same tax rate on said dinner. His "dinner budget" is in the noise in his budget. Mine isn't. Luxury item taxes are in the noise for him so the fact that I don't pay them doesn't make a significant difference wrt progressiveness.
yummyfajitas 16y ago
The most interesting data cited (in this essay: http://www.nytimes.com/roomfordebate/2011/03/21/rising-wealth-inequality-should-we-care/most-americans-by-midlife-feel-rich-enough http://www.nytimes.com/roomfordebate/2011/03/21/rising-wealt... ) is this report: http://www.pewtrusts.org/our_work_report_detail.aspx?id=58965 http://www.pewtrusts.org/our_work_report_detail.aspx?id=5896... (Previous HN discussion here: http://news.ycombinator.com/item?id=2355141 http://news.ycombinator.com/item?id=2355141 ) This says that incomes have risen by at least 60% (relative to parental income at same age, inflation and family size adjusted) for all categories of Americans. The bottom 10% gained 61%, the top 10% gained 92%. Our increase in inequality is the result of a rising tide lifting all boats. Another interesting implication of this: the alleged CPI-adjusted decline/stagnation in median wages must be primarily caused by immigration. If Americans are richer than their (American) parents, but incomes are down, then the decline/stagnation must be concentrated among people who don't have American parents. [edit: added italics to parenthetical in 4'th line in response to locopati's comment. Also added link to essay citing this report.]
- locopati 16y ago
  It should be clarified that you are referring to income mobility between parents and children, and not income gain over the lifetime of an average worker or change in average wages over time.
- jbooth 16y ago
  I don't see how we get to "decline/stagnation in median wages must be primarily caused by immigration". You're only referring to income compared to parents at the same age. If I call home to the suburbs, I can find a whole bunch of 35-55 year old white people named "murph" and "sully" who exceeded their parents' incomes at 25 on a generation-over-generation basis but have been personally stagnant/declining in income for the last 10 years. Furthermore, I can find another group of 25 year olds who are very much not making what people used to make in non-knowledge-worker jobs a few decades ago. The average might say otherwise but the average includes me. I didn't stay home. That's the story of the last 30 years for many Americans who aren't high end knowledge workers, and there's a lot more of them than there are recent immigrants.
rick888 16y ago
In a free society, you will always have wealth Inequality. Some people make poor life choices (having kids too early, drugs, crime, etc), some people choose not to get educated, and others decide to sacrifice their time and be successful. The answer isn't to take away from the rich and give to the poor. This will just create a class of people that rely on the government for handouts. We should be educating the poor on poor life decisions. If they still don't listen, there isn't much we can do.
- AlexandrB 16y ago
  I get this argument. It has strong intuitive and emotional appeal. The problem is that it ignores all the environmental factors that make poor life choices particularly punishing for the poor. Certainly, there are some individuals that can overcome hardships while coming from any background - but these are rare. The more typical case is someone who will make some good choices and some bad choices. If that individual comes from a well-off background, the poor choices (e.g. kids early) can be papered over while the good choices can be better leveraged through access to more opportunities. For someone from a less well-off background each mistake can be very costly. Have kids too early and you are unlikely to be able to support the kids while working and paying for college. Opportunities are harder to seize as well - living paycheque to paycheque would make it hard to pick up and move to SF to found a startup for example. I'm not saying it's impossible to escape poverty without help - as I said, a dedicated individual can most certainly do it. From a statistical point of view, however, poverty will beget more poverty because the average poor person will not have enough second chances to make it out. If we want society to improve, we MUST provide a way for the average poor person to get past some of their mistakes. Yes, it looks like undeserved handouts, but I think it's the right thing to do. P.S. Don't get me started on education. This is the single best thing we can do to help kids escape their background and we continuously underfund and mismanage it. It's fucking criminal.
  - artmageddon 16y ago
    I had a long comment to the parent but yours was more eloquent. There will be people who game the system re: "handouts" but that's the price you pay. The health care system in the US is horrendous, too.
delackner 16y ago
Rising wealth inequality is not in itself a bad thing, but the many hundred-fold increases in executive compensation over the past 20 years have nothing to do with results, performance, profits, etc. They are the result of a broken system of corporate governance that puts the interests of executives and the interests of shareholders at odds.
- yummyfajitas 16y ago
  So what is the cause of the hundred-fold increases in compensation for athletes and musicians?
  - delackner 16y ago
    I'll leave the details there up to people more knowledgeable in sports and music, but are you saying you think the system is working well when many CEOs steering their companies to destruction yield massive guaranteed compensation packages that are totally disconnected from performance? I'm all for paying people whatever it takes, even if that means some people make previously insane sums of money. But they should have to make their company MORE profitable, not less.
    - yummyfajitas 16y ago
      No, I'm saying that if you observe the same phenomenon in a variety of areas, an explanation which only applies to one area is unconvincing.
      - delackner 16y ago
        That doesn't make any sense. The vast majority of highly skilled or highly sought-after professions saw modest but nice increases in wealth decade over decade. Only a very specific FEW saw multiple hundred-fold increases, making them the odd outliers away from the general trend.
  - OstiaAntica 16y ago
    Television and expanded marketing opportunities, for athletes. I suspect that musicians are earning less than they did a decade or two ago. There's no way for a Michael Jackson to sell a Thriller album in today's fragmented, digital marketplace.
ctdonath 16y ago
The article is a great example of gross innumeracy. The author confuses linear distributions with exponential ones, comparing them as stacked bar graphs without suitable differentiation of axis. Doesn't take much of a consistent percentage increase in income from one person to the next, spread across a large population, to result in that top 20% indeed dominating most wealth. ETA (after playing with Excel for a few minutes): If each person in the USA makes just 0.000003% more than the next, the resulting "20%s" wealth distribution graph looks exactly like the "Actual" part of the Percent Wealth Owned graph. I'd say a wealth inequality of three millionths of one percent between one person and the next is about as fair a wealth distribution as you could ask for. The author needs to educate himself about statistics before self-righteously educating others about the virtues of communism. ETA2: reduce the differential to 0.000002% and the graph approximates the "Estimated" part of the graph in question. To achieve the alleged "Ideal" distribution, further reduce the differential to 0.000001%. Innumeracy indeed.
- ckuehne 16y ago
  "The author confuses linear distributions with exponential ones, comparing them as stacked bar graphs without suitable differentiation of axis." Could you elaborate? By the way, the graph is taken from the original paper (click the details link below the graph).
  - ctdonath 16y ago
    The graph (and the article's conclusion) would be more sensible if the bottom bar were on a linear axis while the top was on a suitably scaled logarithmic axis. The author does not comprehend the consequential differences between percentages and absolute values.
    - ctdonath 15y ago
      Addressing my own innumeracy, reworking the numbers I find that all three bars are indeed exponential, expressing percentage increases of different orders of magnitude (the top is increasing wealth accumulation at 10x the percentage rate of the bottom). Mea culpa aside, the author is using a linear X axis instead of a far more suitable logarithmic scale, thus skewing the reader's perception of the graph (as exemplified by the fact that all the HN comments failed to notice this).
olalonde 16y ago
> even more equitable distribution I think the author really means equalitarian distribution.
dstnbrkr 16y ago
The United States is definitely an outlier compared to it's industrialized peers in terms of inequality: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html https://www.cia.gov/library/publications/the-world-factbook/...
Symmetry 16y ago
I'm really not at all concerned about wealth inequality except to the extent that it causes consumption inequality. Imagine a perfect world where everybody makes the same wages and invests those wages prudently. They're born, go into debt a little to pay for college, make money and save it, then eventually retire on their savings. In this world where everybody's lives are the same there would still be huge inequalities in wealth between people just starting out and people about to retire.
- hackinthebochs 16y ago
  The difference there is that in your scenario income inequality would appear "fair" to most people. The problem with what we see around us is that it appears very unfair. This is where the real problem is. Some people might want to dismiss the idea that things should be or seem fair, but this ignores the fact that fairness is a very important attribute of economic stability. The more unfair the system seems the more unstable it will be in the long term. Social unrest is detrimental to an economy.
  - Symmetry 16y ago
    I'm not sure what you're saying here. The point of the scenario is that you can have large differences in wealth while everybody has the exact same income. Certainly I wouldn't say that we shouldn't worry about matters of fairness. I'm guessing that you think that I think that the scenario I gave says something about whether our society is fair or not. I don't think that. Instead what I think, and what I was trying to show, is that if you're concerned about fairness looking at wealth inequality is almost entirely useless when we could be looking at income or consumption inequality - because its very easy to have a society with large amounts of wealth inequality even if almost everybody would agree that it was fair.
    - deleted 16y ago
      [deleted]
    - hackinthebochs 16y ago
      Gotcha. Yeah I thought your point was that the current wealth inequality is OK because here's an example of a society with large wealth inequality that we would all agree is also OK. I think when people mention wealth inequality they're understanding it in their minds as income inequality; I generally do.
Duff 16y ago
I don't think this matters, as most of this wealth is on paper and is thus ephemeral. The inconvenient truth is that our levels of spending and accumulation is debt is not sustainable, period. That leaves two choices: 1. Dramatically cut entitlement and military spending, which requires that Congress vote for gutting many programs. 2. Continue borrowing and servicing debt by having the Federal Reserve continue printing money. This indirectly cuts entitlement spending by devaluing the benefits and doesn't make elected officials accountable. So if you're worth hundreds of millions, and that worth isn't in the form of assets with intrinsic value, you may not be worth anything after all. The rest of us, on the other hand are debtors.
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geebee 16y ago
I found this "room for debate" to be a disappointment. The nytimes wrote an earlier article titled "how we value the super rich" that I thought was far more insightful. This article indicated that Americans distinguish between super-rich who create wealth, and super-rich who are essentially toll collectors. It appears that conventional wisdom does an ok job at this - tech entrepreneurs, for instance, are generally admired, whereas wall street is generally despised, especially these days. There is some merit to this: http://www.newyorker.com/reporting/2010/11/29/101129fa_fact_cassidy http://www.newyorker.com/reporting/2010/11/29/101129fa_fact_... Unfortunately, there is nuance, and I don't think there is really any possibility that the public will fully grasp it. Not because they're dumb, but because it takes a huge amount of time to figure it out. Even that new yorker article, which takes a severely dim view of wall street, absolutely acknowledges that banking fulfills a critical role in the creation of wealth. How do you make sure you keep the baby when you throw out the bath water? And we're all too familiar with "innovative technology development" companies that really just exist to patent stuff, in order to extract a toll from those who do create (often completely independently of the original "innovation"). As for what to do? I don't even have a good answer in theory. I browse the randian/libertarian literature at top dog in berkeley every now and then, and there is a compelling case that many rent-collecting segments of the economy are propped up by government regulation, though even then, what do you do, eliminate the patent system? go back on the gold standard? abolish the AMA? Some people would say yes, I'm not so sure. I wonder if just a more vigilant attempt on the part of government to identify and eliminate rent-collection would help... I know, I know, a lot of people would hear this and say "in your dreams", and as usual, I'm really unsure about this myself.
- olalonde 16y ago
  A moderate libertarian? Wow, that's refreshing :) More seriously, I think there is a strong case for seriously limiting if not completely eliminating government intervention in the economy as those interventions often lead to very unintended consequences, notably favoring special interest groups at the expense of others. As Milton Friedman said: "One of the great mistakes is to judge policies and programs by their intentions rather than their results." Regarding income inequality, I do think it is a worrying phenomenon but a very small price to pay for a healthy economy and most of all, individual liberty.
VladRussian 16y ago
what would you expect when you decrease taxes for the top and increase taxes for everybody? The total tax burden is equal to government spending [minus any income from government owned productive enterprises]. That total tax burden is financed either through explicitly collected tax or through deficit. During recent decades, the skyrocketing government spending and decreased tax rates mainly for the top, caused skyrocketed deficit spending - the skyrocketing of the tax paid by everybody. To illustrate, imagine the situation with 0% tax rates and the government financed by printing amount of money equal to 50% of GDP - that will make effective tax rate 33% as 100 dollars of produced goods and services will be presented with 150 dollars of money. So people who made 100 dollars will be able to buy only 66 dollars worth of goods and services - thus effectively have their 33% collected and spent by the government even with 0% explicit tax rate. edit: please don't mistake described process for inflation which itself is another tax [in addition to described above] collected next year and the year after that and so on... on the earnings of this year. The deficit tax can be thought of as a dilution in case when government would additionally issue itself a chunk of stock in your company in exchange for some "protection" to you.
- VladRussian 16y ago
  replying to myself as the parent post was already upvoted and this one may sound politically charged. The reason for economical problems under Republicans is that business, and thus economy, doesn't do well when total tax burden is increased. The Republicans when in power, especially in 198x and 2001-2008, while decreasing nominal tax rates in some cases, have significantly increased the total tax burden.
jcampbell1 16y ago
If every single american made exactly $50k/year, then the bottom 50% would have zero percent of the wealth (spend everything they make), and the top 10% would consist of frugal people, who save 60% of their income every year and have 70% of the total wealth. In this world where everyone has exactly the same income, there would still be a wealth disparity far more than the estimate and ideal cases. The chart proves that people are bad estimators, and has no basis in actual human behavior.

26 points by edwardshui 16y ago

Well, so aside from the revisionist statistic-slicing, it's pretty clear that income inequality has skyrocketed, income mobility has decreased and we've been reducing taxes disproportionately on the rich for the last 30 years. For exhibit A), we can examine the present job prospects of a computer programmer vs your typical laborer or service employee. Fairness aside, this is an issue for the rich as well. How you gonna stay rich if the middle class doesn't have disposable income to spend? It seems like a lack of middle class jobs/income would hurt the future value of any investments. That's the thing I really don't understand about the "I got mine, you can go screw" attitude towards income inequality / income mobility. It hurts you, too, and you have more to lose.

yummyfajitas 16y ago
Could you define middle class, just so we know what you are talking about? I'm not particularly worried about a lack of middle class jobs if the primary cause is merely inflation of the definition of "middle class". Also, I'd be curious to see stats on time variation on income mobility.
- jbooth 16y ago
  The middle 50% or so of the income scale, whatever that happens to be? Pulling that out of my hat. The study you linked upthread said a bunch about income mobility or lack thereof. I see that as a much bigger problem than equality for it's own sake, although I'd be very concerned about a completely hollowed out system.
  - yummyfajitas 16y ago
    With that definition, there can never be a "lack of middle class jobs" (to borrow your phrasing). Precisely 50% of the country will be middle class at all times.
    - jbooth 16y ago
      Yeah but there can be a transition of those jobs from "paying a wage you can support a family on" to "not doing that". That seems to be what's happened, we've replaced a lot of trade skill jobs in manufacturing, etc, with non-skill jobs at Walmart or the gas station.

anamax 16y ago

http://taxprof.typepad.com/taxprof_blog/2011/03/tax-foundation.html http://taxprof.typepad.com/taxprof_blog/2011/03/tax-foundati... Summary - while the upper 10% of Americans have a greater share of the national income than in many other countries, they also pay a significantly larger share of the income and payroll taxes. (Yes, that includes SS.) Method - find share of income. Find share of taxes. Divide latter by former. In all but a few countries, that ratio is >1. The US ratio is 1.35, the highest. Next comes Australia, at 1.29, the Netherlands at 1.28, and Ireland at 1.26. No other country's ratio is over 1.2. Sweden's ratio is 1 while Norway's ratio is 0.95. Yes, you read that correctly - their income/payroll taxes are NOT progressive wrt the top 10%. Me - I don't care what someone else has, aka envy. I care what I have, aka greed.

cantastoria 16y ago
I agree with your analysis but I think you missed the fact that al ot of other countries tax spending through VAT rather than income. I'm not saying this is a better system (I don't think it is...). For instance, the standard VAT in Norway is 25% (14% for food and drink) so the slack is being taken up (in a big way) somewhere else. I also don't care if there is a large income disparity. All the remedies I've seen proposed to fix this "problem" essentially just raise taxes on top earners. I can't think of a worse place for that money than in the hands of a politician.
- adolph 16y ago
  Wouldn't a large consumption tax make the overall effect even more regressive? (Maybe you are reinforcing the parent comment's point?)
- anamax 16y ago
  > I agree with your analysis but I think you missed the fact that al ot of other countries tax spending through VAT rather than income. Sales taxes and VAT makes the US even more progressive in comparison because the rich spend a smaller fraction of their income on VAT-taxed things. For example, Bill Gates spends maybe 5x as much as me on dinner yet we both pay the same tax rate on said dinner. His "dinner budget" is in the noise in his budget. Mine isn't. Luxury item taxes are in the noise for him so the fact that I don't pay them doesn't make a significant difference wrt progressiveness.

yummyfajitas 16y ago

The most interesting data cited (in this essay: http://www.nytimes.com/roomfordebate/2011/03/21/rising-wealth-inequality-should-we-care/most-americans-by-midlife-feel-rich-enough http://www.nytimes.com/roomfordebate/2011/03/21/rising-wealt... ) is this report: http://www.pewtrusts.org/our_work_report_detail.aspx?id=58965 http://www.pewtrusts.org/our_work_report_detail.aspx?id=5896... (Previous HN discussion here: http://news.ycombinator.com/item?id=2355141 http://news.ycombinator.com/item?id=2355141 ) This says that incomes have risen by at least 60% (relative to parental income at same age, inflation and family size adjusted) for all categories of Americans. The bottom 10% gained 61%, the top 10% gained 92%. Our increase in inequality is the result of a rising tide lifting all boats. Another interesting implication of this: the alleged CPI-adjusted decline/stagnation in median wages must be primarily caused by immigration. If Americans are richer than their (American) parents, but incomes are down, then the decline/stagnation must be concentrated among people who don't have American parents. [edit: added italics to parenthetical in 4'th line in response to locopati's comment. Also added link to essay citing this report.]

locopati 16y ago
It should be clarified that you are referring to income mobility between parents and children, and not income gain over the lifetime of an average worker or change in average wages over time.
jbooth 16y ago
I don't see how we get to "decline/stagnation in median wages must be primarily caused by immigration". You're only referring to income compared to parents at the same age. If I call home to the suburbs, I can find a whole bunch of 35-55 year old white people named "murph" and "sully" who exceeded their parents' incomes at 25 on a generation-over-generation basis but have been personally stagnant/declining in income for the last 10 years. Furthermore, I can find another group of 25 year olds who are very much not making what people used to make in non-knowledge-worker jobs a few decades ago. The average might say otherwise but the average includes me. I didn't stay home. That's the story of the last 30 years for many Americans who aren't high end knowledge workers, and there's a lot more of them than there are recent immigrants.

rick888 16y ago

In a free society, you will always have wealth Inequality. Some people make poor life choices (having kids too early, drugs, crime, etc), some people choose not to get educated, and others decide to sacrifice their time and be successful. The answer isn't to take away from the rich and give to the poor. This will just create a class of people that rely on the government for handouts. We should be educating the poor on poor life decisions. If they still don't listen, there isn't much we can do.

AlexandrB 16y ago
I get this argument. It has strong intuitive and emotional appeal. The problem is that it ignores all the environmental factors that make poor life choices particularly punishing for the poor. Certainly, there are some individuals that can overcome hardships while coming from any background - but these are rare. The more typical case is someone who will make some good choices and some bad choices. If that individual comes from a well-off background, the poor choices (e.g. kids early) can be papered over while the good choices can be better leveraged through access to more opportunities. For someone from a less well-off background each mistake can be very costly. Have kids too early and you are unlikely to be able to support the kids while working and paying for college. Opportunities are harder to seize as well - living paycheque to paycheque would make it hard to pick up and move to SF to found a startup for example. I'm not saying it's impossible to escape poverty without help - as I said, a dedicated individual can most certainly do it. From a statistical point of view, however, poverty will beget more poverty because the average poor person will not have enough second chances to make it out. If we want society to improve, we MUST provide a way for the average poor person to get past some of their mistakes. Yes, it looks like undeserved handouts, but I think it's the right thing to do. P.S. Don't get me started on education. This is the single best thing we can do to help kids escape their background and we continuously underfund and mismanage it. It's fucking criminal.
- artmageddon 16y ago
  I had a long comment to the parent but yours was more eloquent. There will be people who game the system re: "handouts" but that's the price you pay. The health care system in the US is horrendous, too.

delackner 16y ago

Rising wealth inequality is not in itself a bad thing, but the many hundred-fold increases in executive compensation over the past 20 years have nothing to do with results, performance, profits, etc. They are the result of a broken system of corporate governance that puts the interests of executives and the interests of shareholders at odds.

yummyfajitas 16y ago
So what is the cause of the hundred-fold increases in compensation for athletes and musicians?
- delackner 16y ago
  I'll leave the details there up to people more knowledgeable in sports and music, but are you saying you think the system is working well when many CEOs steering their companies to destruction yield massive guaranteed compensation packages that are totally disconnected from performance? I'm all for paying people whatever it takes, even if that means some people make previously insane sums of money. But they should have to make their company MORE profitable, not less.
  - yummyfajitas 16y ago
    No, I'm saying that if you observe the same phenomenon in a variety of areas, an explanation which only applies to one area is unconvincing.
    - delackner 16y ago
      That doesn't make any sense. The vast majority of highly skilled or highly sought-after professions saw modest but nice increases in wealth decade over decade. Only a very specific FEW saw multiple hundred-fold increases, making them the odd outliers away from the general trend.
- OstiaAntica 16y ago
  Television and expanded marketing opportunities, for athletes. I suspect that musicians are earning less than they did a decade or two ago. There's no way for a Michael Jackson to sell a Thriller album in today's fragmented, digital marketplace.

ctdonath 16y ago

The article is a great example of gross innumeracy. The author confuses linear distributions with exponential ones, comparing them as stacked bar graphs without suitable differentiation of axis. Doesn't take much of a consistent percentage increase in income from one person to the next, spread across a large population, to result in that top 20% indeed dominating most wealth. ETA (after playing with Excel for a few minutes): If each person in the USA makes just 0.000003% more than the next, the resulting "20%s" wealth distribution graph looks exactly like the "Actual" part of the Percent Wealth Owned graph. I'd say a wealth inequality of three millionths of one percent between one person and the next is about as fair a wealth distribution as you could ask for. The author needs to educate himself about statistics before self-righteously educating others about the virtues of communism. ETA2: reduce the differential to 0.000002% and the graph approximates the "Estimated" part of the graph in question. To achieve the alleged "Ideal" distribution, further reduce the differential to 0.000001%. Innumeracy indeed.

ckuehne 16y ago
"The author confuses linear distributions with exponential ones, comparing them as stacked bar graphs without suitable differentiation of axis." Could you elaborate? By the way, the graph is taken from the original paper (click the details link below the graph).
- ctdonath 16y ago
  The graph (and the article's conclusion) would be more sensible if the bottom bar were on a linear axis while the top was on a suitably scaled logarithmic axis. The author does not comprehend the consequential differences between percentages and absolute values.
  - ctdonath 15y ago
    Addressing my own innumeracy, reworking the numbers I find that all three bars are indeed exponential, expressing percentage increases of different orders of magnitude (the top is increasing wealth accumulation at 10x the percentage rate of the bottom). Mea culpa aside, the author is using a linear X axis instead of a far more suitable logarithmic scale, thus skewing the reader's perception of the graph (as exemplified by the fact that all the HN comments failed to notice this).

olalonde 16y ago

> even more equitable distribution I think the author really means equalitarian distribution.

dstnbrkr 16y ago

The United States is definitely an outlier compared to it's industrialized peers in terms of inequality: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html https://www.cia.gov/library/publications/the-world-factbook/...

Symmetry 16y ago

I'm really not at all concerned about wealth inequality except to the extent that it causes consumption inequality. Imagine a perfect world where everybody makes the same wages and invests those wages prudently. They're born, go into debt a little to pay for college, make money and save it, then eventually retire on their savings. In this world where everybody's lives are the same there would still be huge inequalities in wealth between people just starting out and people about to retire.

hackinthebochs 16y ago
The difference there is that in your scenario income inequality would appear "fair" to most people. The problem with what we see around us is that it appears very unfair. This is where the real problem is. Some people might want to dismiss the idea that things should be or seem fair, but this ignores the fact that fairness is a very important attribute of economic stability. The more unfair the system seems the more unstable it will be in the long term. Social unrest is detrimental to an economy.
- Symmetry 16y ago
  I'm not sure what you're saying here. The point of the scenario is that you can have large differences in wealth while everybody has the exact same income. Certainly I wouldn't say that we shouldn't worry about matters of fairness. I'm guessing that you think that I think that the scenario I gave says something about whether our society is fair or not. I don't think that. Instead what I think, and what I was trying to show, is that if you're concerned about fairness looking at wealth inequality is almost entirely useless when we could be looking at income or consumption inequality - because its very easy to have a society with large amounts of wealth inequality even if almost everybody would agree that it was fair.
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  - hackinthebochs 16y ago
    Gotcha. Yeah I thought your point was that the current wealth inequality is OK because here's an example of a society with large wealth inequality that we would all agree is also OK. I think when people mention wealth inequality they're understanding it in their minds as income inequality; I generally do.

Duff 16y ago

I don't think this matters, as most of this wealth is on paper and is thus ephemeral. The inconvenient truth is that our levels of spending and accumulation is debt is not sustainable, period. That leaves two choices: 1. Dramatically cut entitlement and military spending, which requires that Congress vote for gutting many programs. 2. Continue borrowing and servicing debt by having the Federal Reserve continue printing money. This indirectly cuts entitlement spending by devaluing the benefits and doesn't make elected officials accountable. So if you're worth hundreds of millions, and that worth isn't in the form of assets with intrinsic value, you may not be worth anything after all. The rest of us, on the other hand are debtors.

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geebee 16y ago

I found this "room for debate" to be a disappointment. The nytimes wrote an earlier article titled "how we value the super rich" that I thought was far more insightful. This article indicated that Americans distinguish between super-rich who create wealth, and super-rich who are essentially toll collectors. It appears that conventional wisdom does an ok job at this - tech entrepreneurs, for instance, are generally admired, whereas wall street is generally despised, especially these days. There is some merit to this: http://www.newyorker.com/reporting/2010/11/29/101129fa_fact_cassidy http://www.newyorker.com/reporting/2010/11/29/101129fa_fact_... Unfortunately, there is nuance, and I don't think there is really any possibility that the public will fully grasp it. Not because they're dumb, but because it takes a huge amount of time to figure it out. Even that new yorker article, which takes a severely dim view of wall street, absolutely acknowledges that banking fulfills a critical role in the creation of wealth. How do you make sure you keep the baby when you throw out the bath water? And we're all too familiar with "innovative technology development" companies that really just exist to patent stuff, in order to extract a toll from those who do create (often completely independently of the original "innovation"). As for what to do? I don't even have a good answer in theory. I browse the randian/libertarian literature at top dog in berkeley every now and then, and there is a compelling case that many rent-collecting segments of the economy are propped up by government regulation, though even then, what do you do, eliminate the patent system? go back on the gold standard? abolish the AMA? Some people would say yes, I'm not so sure. I wonder if just a more vigilant attempt on the part of government to identify and eliminate rent-collection would help... I know, I know, a lot of people would hear this and say "in your dreams", and as usual, I'm really unsure about this myself.

olalonde 16y ago
A moderate libertarian? Wow, that's refreshing :) More seriously, I think there is a strong case for seriously limiting if not completely eliminating government intervention in the economy as those interventions often lead to very unintended consequences, notably favoring special interest groups at the expense of others. As Milton Friedman said: "One of the great mistakes is to judge policies and programs by their intentions rather than their results." Regarding income inequality, I do think it is a worrying phenomenon but a very small price to pay for a healthy economy and most of all, individual liberty.

VladRussian 16y ago

what would you expect when you decrease taxes for the top and increase taxes for everybody? The total tax burden is equal to government spending [minus any income from government owned productive enterprises]. That total tax burden is financed either through explicitly collected tax or through deficit. During recent decades, the skyrocketing government spending and decreased tax rates mainly for the top, caused skyrocketed deficit spending - the skyrocketing of the tax paid by everybody. To illustrate, imagine the situation with 0% tax rates and the government financed by printing amount of money equal to 50% of GDP - that will make effective tax rate 33% as 100 dollars of produced goods and services will be presented with 150 dollars of money. So people who made 100 dollars will be able to buy only 66 dollars worth of goods and services - thus effectively have their 33% collected and spent by the government even with 0% explicit tax rate. edit: please don't mistake described process for inflation which itself is another tax [in addition to described above] collected next year and the year after that and so on... on the earnings of this year. The deficit tax can be thought of as a dilution in case when government would additionally issue itself a chunk of stock in your company in exchange for some "protection" to you.

VladRussian 16y ago
replying to myself as the parent post was already upvoted and this one may sound politically charged. The reason for economical problems under Republicans is that business, and thus economy, doesn't do well when total tax burden is increased. The Republicans when in power, especially in 198x and 2001-2008, while decreasing nominal tax rates in some cases, have significantly increased the total tax burden.

jcampbell1 16y ago

If every single american made exactly $50k/year, then the bottom 50% would have zero percent of the wealth (spend everything they make), and the top 10% would consist of frugal people, who save 60% of their income every year and have 70% of the total wealth. In this world where everyone has exactly the same income, there would still be a wealth disparity far more than the estimate and ideal cases. The chart proves that people are bad estimators, and has no basis in actual human behavior.