Is Increasing Inequality Acceptable If Everyone Benefits?

[thankz]

I remember watching a documentary on pbs on equality vs freedom, wish I could remember the name of the guy hosting, it was very enlightening. basically it stated that you could only have one of the two, I put my vote in for freedom. the truth is that some people are born 'better' than others so their will never be true equality anyway.fyi, I didn't read the whole thread.

 

[Vanadium 50]

Stephen Rose has an article http://www2.itif.org/2014-rising-productivity-middle-class.pdf

where he addresses the claim of growing inequality. As he writes

Their [Pikkety and Saez] claims are stark and widely cited to the point where they have become the received wisdom: between 1979 and 2007 (the last year before the onset of the GreatRecession), over 91 percent of income gains due to productivity growth since 1979 has been captured by the wealthiest 10 percent of the population. This left just 9 percent of the economy’s expanded output for the bottom 90 percent of the population who only managed a meager real income growth of 5 percent while GDP per person for all Americans, including the top 10 percent, was rising 74 percent.

Why does this matter? Because if it’s actually true that productivity no longer benefits most workers, then why should elected officials do the hard work of advancing pro-productivity policies like corporate tax reform, investment in science and technology, and the development of sector-based productivity strategies. Better to concentrate their efforts on policies to redistribute gains to the bottom 90 percent.

He argues that comparing the people in a given percentile in Year X with the people in the same percentile in Year Y compares different people, and it is more enlightening to look at cohorts of people as they move through time: i.e. compare the incomes of the people in a given percentile in Year X with the same people in Year Y. He argues that the bottom 90% received about half the gains, and the quintile that received the largest gains was the fourth. He also discusses the difficulty in calculating living standard (even in the lowest quintile, the average housing space has increased - how do you account for that?) and in calculating wealth (which I didn't realize is inferred from capital gains taxes, which means the inference is complicated).

 

[Muti]

I have never studied economics, but it has a big influence on my everyday life so as a layman if such thing happen like Vanadium 50 said then in my understanding reply given by some peoples that poor will become more poorer may result. If some limitation as said by vanadium 50 like no increased inflation allowed then I think peoples mostly borrowed answers from other sciences and not from economics. In my understanding (please remember I have never attended an economics course, so I may be wrong) economics is science/ mathematics when it is calculating things like interest rate etc but it has theories of how peoples may behave under some circumstances. If economics is like that then I think that economics basics theory (capitalism) in vogue around world tells you to invest your money and make a profit (mostly by interest) before your money has depreciated and your buying power from that money reduces. So to answer whether peoples will become rich or poor will depends on society/ country peoples thinking, that they want more money for satisfaction or spend the extra buck (not alms but increased wages, bonuses, social work etc) on poor peoples for satisfaction. I don't think economics has answers to this question or if it has can someone tell me how??

 

[HuskyNamedNala]

If we are talking about the same article, then yeah inequality is pretty bad.

The article discusses the convergence of the US economy into a dumbbell shape; there is a significant population that are highly skilled and super rich, and there is a much larger population which is in the service industry..they "serve" them. And then there area few small group of people who are in the middle class.

How can you not see a problem with this. I am guessing you don't live on your own or don't pay your bills.

 

[bhobba]

I am not a fan of Margaret Thatcher - this head banging overly tough medicine to fix problems leaves me cold. There is simply no reason for it IMHO - its ideologically driven which in itself raises issues for me.

That said there was a famous scene with her in Parliament where in response to something or another she said the opposition wants a system where she had her hands low with a small gap rather than where she had her hands high with a large gap. That resulted in a lot of debate both pro and con - but it shows this issue has been around for yonks.

I don't really have a strong view one way or the other (I come down a bit on the side of hands high with a large gap - but am flexible about the issue), except the discussions on both sides were largely ideologically driven which for me is a red flag. I much prefer simply facing issues in a common-sense way.

Thanks
Bill

 

[bhobba]

How can you not see a problem with this. I am guessing you don't live on your own or don't pay your bills.

That's not ideal - and I don't think anyone says otherwise.

The issue though is balancing it against other things like standard of living. If you have a system like that but everyone's standard of living is higher is that ;preferable to doing something about the inequality but everyone has a lower standard of living?

I know which I prefer (the second one) but that's me - its really up to, via the democratic process, for society to decide. I think most people don't particularly worry about it - what concerns them is day to day issues rather than ideology of the type of society you want. I believe if you simply take a common-sense approach to that stuff the overall structure will take care of itself.

IMHO some people get caught up too much in ideology.

Thanks
Bill

 

[mheslep]

Paper from Horwitz in Social Philosophy and Policy. The points drawing attention to the difference between statistical groups, consisting of different people over time, and cohorts, consisting of the same people, have often been referenced here on PF wrt to economic outcomes. Abstract:

The conventional narrative that the last generation has seen the rich get richer and the poor get poorer while the middle class gets hollowed out has serious flaws. First, the claims of growing inequality overlook data on income mobility. It is not the same households who are rich and poor each year, and many poor households become richer over time. Second, the claim of middle class stagnation is largely a statistical deception based on an incomplete interpretation of median household income. The middle class has shrunk but so has the percentage of poor households as the percentage of rich households has grown significantly in the last few decades. Third, looking at consumption rather than income enables us to see both the absolute gains of poor US households and the narrowing of the gap with the wealthy. Poor US households are more likely to have basic appliances than the average household of the 1970s, and those appliances are of much higher quality. Together these three points offer a much more optimistic view of the degree of inequality and the ability of the poor to become rich. The picture is not all rosy and a final section discusses the relevance of housing, health care, and education costs to this argument

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2559403

 

[Nikitin]

MIT's Technology Review ran an article on inequality, where they argue that a) it is bad, and b) it is technologically driven, in that it raises some people's income and wealth more than others.

I see a tension in these. Suppose I could wave a magic wand, and double the income of everyone in the bottom half, and triple it for everyone in the top half. This would benefit everybody, at the cost of increasing inequality. Would this not be a good thing?

Is increasing inequality + a doubling in wages preferable to no inequality and no increase in wages? SURE. But what does this have to do with anything? Why would an increase in inequality result in an increase in general wages? Here is how real-life inequality works:

Better technology, not better management, is driving productivity up. So why should management take all of the profit? Don't you think developments like these would cause social tensions?

 

[OmCheeto]

Paper from Horwitz in Social Philosophy and Policy. The points drawing attention to the difference between statistical groups, consisting of different people over time, and cohorts, consisting of the same people, have often been referenced here on PF wrt to economic outcomes. Abstract:

The conventional narrative that the last generation has seen the rich get richer and the poor get poorer while the middle class gets hollowed out has serious flaws. First, the claims of growing inequality overlook data on income mobility. It is not the same households who are rich and poor each year, and many poor households become richer over time. Second, the claim of middle class stagnation is largely a statistical deception based on an incomplete interpretation of median household income. The middle class has shrunk but so has the percentage of poor households as the percentage of rich households has grown significantly in the last few decades. Third, looking at consumption rather than income enables us to see both the absolute gains of poor US households and the narrowing of the gap with the wealthy. Poor US households are more likely to have basic appliances than the average household of the 1970s, and those appliances are of much higher quality. Together these three points offer a much more optimistic view of the degree of inequality and the ability of the poor to become rich. The picture is not all rosy and a final section discusses the relevance of housing, health care, and education costs to this argument

alter-bolding, mine

This reminds me of an image I saw many years ago.

​

All the poor people, living in cardboard boxes, have laptops and I-phones, so they must be doing well. Pfft!

Anyways. I've never heard of this Horowitz fellow, so I googled him. I found an interesting, finger pointy, "it's not our fault!", type of letter he wrote a few years back. I always compared economists to phrenologists in the past, but this guy seems more like a politician. I only state this, as he goes on and on, telling me what I already know, but doesn't come to the point, until the very last paragraph:

An Open Letter to my Friends on the Left
September 28, 2008
... (ad absurdum)
Those of us who support free markets are not your enemies right now. The real problem here is the marriage of corporate and state power.
...

IMHO, yes.

ps. Re-reading the Horowitz abstract, I do believe he missed his calling, as a politician.

 

[mheslep]

...All the poor people, living in cardboard boxes, have laptops and I-phones, so they must be doing well. Pfft!

If that was what the abstract said or implied one might well mock it. It did not. The author made comparisons, e.g. "more likely", "higher quality", "more optimistic", not absolute statements.

"I always compared economists to phrenologists in the past, but this guy seems more like a politician."

Yes, here's the author's CV and 15 page list of papers in the Phrenology journals and books on same, similar to the CV of most politicians.

 

[bhobba]

Re-reading the Horowitz abstract, I do believe he missed his calling, as a politician.

Well said.

Thanks
Bill

 

[Vanadium 50]

Here is how real-life inequality works:

You might want to look at this: http://www.heritage.org/research/reports/2013/07/productivity-and-compensation-growing-together

Heritage is a right-wing site, to be sure, but what I draw from this is that there is enough data out there taken under enough different conditions and methodologies that one can draw many different conclusions. I started this thread with the MIT article; it gives the methodology it used. If you want to argue that the methodology is wrong, have at it. If you want to argue that it must be wrong because it draws conclusions different from "real life" - i.e. a different study with a different methodology - I don't think people will find that very convincing.

Stipulating that your plot is the correct one, though, I think Rose has a very good point: if increases in productivity do not benefit most workers, why should we have government programs to support higher productivity? Someone who believes that plot represents "real life" should be opposed to government programs intended to raise productivity, n'est pas?

 

[russ_watters]

But what does this have to do with anything? Why would an increase in inequality result in an increase in general wages? Here is how real-life inequality works:

Uh, no, that graph doesn't show inequality, it just shows one set group's wages. We've posted data previously that does show inequality and wages do tend to rise along with inequality.

Where did you get that graph, by the way? I know it says BLS data is the source, but it doesn't say what data and the BLS didn't produce that graph.

Better technology, not better management, is driving productivity up. So why should management take all of the profit?

Who is more responsible for the technology, the managers or the workers? Or, flip the question over: why should a worker get paid more to do an easier job?

Don't you think developments like these would cause social tensions?

I see no evidence of that. It appears to me that prosperity reduces social tensions and economic downturns increase them. The Occupy Wall Streat protests, for example, happened toward the end of an economic downturn, after inequality dropped.

We live in quite the remarkable time. Never in human history before about 1900 has it been normal to expect continuously improving living conditions, for everyone. That people get upset that the living conditions of others is improving faster than theirs is a bit annoying to me (seems ungrateful), but it is, nevertheless, better than the alternative of having an actual problem - like decreasing living conditions - to complain about. I only hope that the complaints about the one thing don't cause the other to actually happen!

 

[russ_watters]

This reminds me of an image I saw many years ago.

​

All the poor people, living in cardboard boxes, have laptops and I-phones, so they must be doing well. Pfft!

Well, let's see -- one image is drawn with statistics and the other is a cartoon. One is real, the other is a joke.

 

[Vanadium 50]

To add to my last message (and to Russ'), one of the assumptions that goes into the #113 plot is that only wages are included - not benefits like medical, retirement, etc. If you want to argue that is the right metric to be used, you have to be consistent, and that means that's the metric you want to use to calculate inequality. Since much of the income for the very wealthy is not from wages, this will also cause measured inequality to move down.

 

[lavinia]

While I don't see how equality can fairly exist in any economy, I do see how some inequality can be unfair and even oppressive. One does not need a slave economy to have exploitation. There is little doubt in my mind that our economy has become increasingly exploitive over recent decades. For instance, young people today are often asked to work for no pay - as "interns" as they are euphemistically called.

The current disparity in income in the United States is discussed by Paul Krugman. As I understand what he says, this is a modern trend that began during the 1980's. The book I read, Peddling Prosperity, is probably not his most relevant book but I found it informative. He argues that the current level of income inequality is an aberration.

I think of money as a large river. Where it flows determines the character of an economy. Today much of it flows into the military, into semi-monopoloistic businesses, such as agribusiness, and into high stakes gambling in financial and commodities markets. For instance, among the wealthiest people in our country now are essentially professional gamblers. I think it a fair question to ask whether this is a healthy trend.

 

[Pythagorean]

http://www.npr.org/blogs/money/2015/02/11/384988128/the-fall-and-rise-of-u-s-inequality-in-2-graphs

 

[OmCheeto]

If that was what the abstract said or implied one might well mock it. It did not. The author made comparisons, e.g. "more likely", "higher quality", "more optimistic", not absolute statements.

Ugh. After reading the paper, I can only say that, in any discipline, other than the "Social" sciences, this paper would have been laughed at.

"A 3lb chicken in 1997 cost a mere 9.5% of what it did in 1920"

Well, let's see -- one image is drawn with statistics and the other is a cartoon. One is real, the other is a joke.

It's always nice to get an agreement from you, Russ. Horowitz's paper is a joke.

I think I posted in one of the older threads, that I had an electrically powered air conditioner in my window, something which no Pharaoh could ever have dreamed of. And therefore, I, as a mere pauper, live better than a king.

What a bunch of hogwash.

Yes, here's the author's CV and 15 page list of papers in the Phrenology journals and books on same, similar to the CV of most politicians.

bolding mine

Skreeetch! I didn't realize until just now, that you were just joking.
His CV is most laughable.

My apologies.

 

[mheslep]

Ugh. After reading the paper, I can only say that, in any discipline, other than the "Social" sciences, this paper would have been laughed at.

"A 3lb chicken in 1997 cost a mere 9.5% of what it did in 1920" ...

Is that amusing to you because you think it is not true, or because you think it is not relevant?

 

[OmCheeto]

Is that amusing to you because you think it is not true, or because you think it is not relevant?

It's about as relevant as my Pharaoh analogy.

I think I should have unsubscribed a couple of weeks ago from this thread, when I agreed that inequality was not bad, but inevitable.
Even your Horowitz, buried in his papers, admits what the "real" problem is.
I'm not sure why he buries it though.
Some people just seem to like others to listen to hours of their blather, I guess.

Unsubscribe.

 

[russ_watters]

UI think I posted in one of the older threads, that I had an electrically powered air conditioner in my window, something which no Pharaoh could ever have dreamed of. And therefore, I, as a mere pauper, live better than a king.

What a bunch of hogwash.

You should ask someone without air conditioning whether that is hogwash or not. It's amazing how quickly we become so accustomed to luxury that it becomes mundane.

 

[mheslep]

Ugh. After reading the paper, I can only say that, in any discipline, other than the "Social" sciences, this paper would have been laughed at.

"A 3lb chicken in 1997 cost a mere 9.5% of what it did in 1920" ...

Is that amusing to you because you think it is not true, or because you think it is not relevant?

It's about as relevant as my Pharaoh analogy.

US meat consumption per person per year, lbs.

 

[jz92wjaz]

I've lived in a poor area of a developing country. Living without A/C was no big deal. It was regularly 95 and everybody is just used to it. I value a washing machine way more than I value A/C (and I'm pretty sure Pharaoh didn't have to wash his own clothing).

Some people I know who don't have running water and live in tiny makeshift houses have cell phones and TVs, so there is some truth to that comic posted earlier.

 

[russ_watters]

I've lived in a poor area of a developing country. Living without A/C was no big deal. It was regularly 95 and everybody is just used to it. I value a washing machine way more than I value A/C (and I'm pretty sure Pharaoh didn't have to wash his own clothing).

Fair enough, but it is just one of many examples of technologies we take for granted today. For my part, I spent one summer without air conditioning and it was my Plebe Summer at the Naval Academy in 1995. I think it is still the hottest summer on record for that area. The only time I wasn't sweating the entire summer was when I was in the shower (I hate cold showers, but I took them anyway). It was pretty awful.

Some people I know who don't have running water and live in tiny makeshift houses have cell phones and TVs, so there is some truth to that comic posted earlier.

In some developing countries, things get flipped-around and develop out of order. It doesn't make the luxuries any less amazing that they happen in a different order, though: a cell phone is also a luxury a Pharoh couldn't possibly have dreamed of.

And let's get our eye back on the ball here: it doesn't matter how much you and OMC are impressed by such technologies. The fact of the matter is that you have them and no amount of subjective downplaying of their importance will ever make it better to not have them than to have them. Standards of living continue to improve, across all demographics in the Western world, and in most of the rest of the world too.

 

[Bystander]

Russ quoted earlier post: "Some people I know who don't have running water and live in tiny makeshift houses have cell phones and TVs, so there is some truth to that comic posted earlier."

And replied, "In some developing countries, things get flipped-around and develop out of order. It doesn't make the luxuries any less amazing that they happen in a different order, though: a cell phone is also a luxury a Pharoh couldn't possibly have dreamed of."

It's a consumer choice to text or watch TV rather than eat. Those who don't like what the consumers are doing should take their complaints to the consumers.

 

[Nikitin]

You might want to look at this: http://www.heritage.org/research/reports/2013/07/productivity-and-compensation-growing-together

Heritage is a right-wing site, to be sure, but what I draw from this is that there is enough data out there taken under enough different conditions and methodologies that one can draw many different conclusions. I started this thread with the MIT article; it gives the methodology it used. If you want to argue that the methodology is wrong, have at it. If you want to argue that it must be wrong because it draws conclusions different from "real life" - i.e. a different study with a different methodology - I don't think people will find that very convincing.

Stipulating that your plot is the correct one, though, I think Rose has a very good point: if increases in productivity do not benefit most workers, why should we have government programs to support higher productivity? Someone who believes that plot represents "real life" should be opposed to government programs intended to raise productivity, n'est pas?

I don't see how my post and the MIT article disagree. Indeed, from what you summarized in the OP, theirs and mine opinions seem to be the same: inequality is increasing.

As for the graph I posted, fine. Granted, I am no economist, and I do not have time to read everything on this issue in detail either. However as I'm sure you are well aware, one can twist statistics easily by using different methodologies and interpretations of data for political purposes. Look here for another economist's take on the issue http://www.epi.org/blog/understanding-wedge-productivity-median-compensation/.

As for your second argument: Uhh I suppose the solution is to support higher productivity while taxing the richer heavily, so they won't accumulate too much capital, like they do here in Europe.

 

[Czcibor]

Hey, I've found one interesting article on NYT. You know, we're happy when inequalities go down, right? So we should rejoice the last crisis because it hit the top layers of society especially strong, thus reducing this evil inequality:

http://www.nytimes.com/2015/02/17/u...e=MoreInSection&pgtype=article&abt=0002&abg=0

:D

 

[Evo]

Look here for another economist's take on the issue http://www.epi.org/blog/understanding-wedge-productivity-median-compensation/.

All right, now that this is under GD, no more "blogs" as sources, it's against the rules.

 

[Vanadium 50]

Czcibor brings up an interesting point. If reducing inequality is a virtue in and of itself, how much worse off are we willing to make the poor in order to reduce inequality. If we could make the Walton family millionaires instead of billionaires at a cost of $10 for every poor person, should we? $100? $1000? Reducing their quality of life to that of poor Londoners in the 19th century? Poor Calcuttans in the 18th century? Poor Judeans in the 1st century?

This is the other side of the question "how much inequality are we willing to generate if it helps the poor?"

 

[thankz]

no one seems to say that the reason that their is inequality is that poor people settle for less, don't know enough to earn more and don't inherit wealth.

if you live in china where for 20 square miles the only place to work is a textile factory do you risk starving to leave that area to go out into the unknown for an education?

"that's just the way it is, some things will never change... that's just the way it is... but aww don't you believe them."

I have a theory that after four generations the rich don't know how to keep wealth anymore, they need fresh blood that are hungry and so a few of the lucky poor will make it. we need the rich, there has to be an incentive to create, manage, succeed, organize and grow else we'd all be moss on a stone.

now gimmi your money edit: maybe this had nothing to do with anything but after dealing with the 'poor' (I'm poor myself but that won't be forever) everyday I say let um die, I KNOW first hand just what a bunch of scumbags most are. you have to ask yourself just what good a person does in this world and I don't try and look at it as a question of morality or circumstance but it is what it is, and who am I to judge? I'm probably better than no one else but still I think I'm the most special, don't we all (the healthyist mindstate lol).

i'll stop the rant now.

 

[Muti]

Hahaha...

 

[Nikitin]

Hey, I've found one interesting article on NYT. You know, we're happy when inequalities go down, right? So we should rejoice the last crisis because it hit the top layers of society especially strong, thus reducing this evil inequality:

http://www.nytimes.com/2015/02/17/upshot/inequality-has-actually-not-risen-since-the-financial-crisis.html?action=click&contentCollection=The Upshot&region=Footer&module=MoreInSection&pgtype=article&abt=0002&abg=0

:D

You're failing completely to grasp the point. The ideal is that income should be distributed more equally, not that the rich must suffer.

 

[russ_watters]

You're failing completely to grasp the point. The ideal is that income should be distributed more equally, not that the rich must suffer.

I think you missed the point: the poor suffer when inequality drops, not just the rich. As V50 asked: how much are you willing to make the poor suffer in order to have better equality?

I think the basic problem in these discussions is that even after seeing the data in black and white, people simply refuse to accept it (consciously or unconsciously).

 

[russ_watters]

I think the basic problem in these discussions is that even after seeing the data in black and white, people simply refuse to accept it (consciously or unconsciously).

Let me say that a different way:
Logic would suggest that if equality is improved by taking money from the rich and giving it to the poor, that the poor get richer as a result. That may be true in isolation, but the data shows us that a general rise in inequality goes hand-in-hand with a rising economy that lifts everyone -- just not lifting them equally.

 

[Evan Maxwell]

I am still not sure how you could have complete inequality without devaluing the skills of those who have spend extra years in school or had years of back breaking job training in order to learn said skill set. I still do not see how the artificial inflation that eliminating wealth gaps would cause would not lead to drastically lower standards of living for everyone, standards that would be considered simply intolerable by many if not most Americans.

I am not cool at all with the fact that so few people have so much of the wealth around the world. But I think that finding innovative ways for everyone, using their own natural abilities, to be more industries and creating an economy where we have as many opportunities to move up remains to me the best possible solution.