Income Inequality: Empirical View
ourworldindata.org
ourworldindata.org
"The frequent claim that inequality promotes accumulation and growth does not get much support from history. On the contrary, great economic inequality has always been correlated with extreme concentration of political power, and that power has always been used to widen the income gaps through rent-seeking and rent-keeping, forces that demonstrably retard economic growth."
http://www.economist.com/blogs/freeexchange/2007/12/the_fron...
Though other political factors do have a role to play, a dysfunctional two-party political process where many feel disenfranchised may well be the link that explains the graphs for english speaking nations differing from the European nations for example.
Political power is far less concentrated in a big government elected on a wide franchise which legislates and redistributes in a way not seen as conflicting with the perceived interests of a diverse majority than if wielded through a set of local private or quasi-private enforcement services effectively owned by those with the means to purchase their decisions.
It's not just literally true - you can exchange money for raw materials and energy (power), but every time you give money to someone else to do your bidding, you are exercising power over them.
The only time this power is not really being exercised (as in "power over other people") is when you're spending for your own pleasure, buying things like a new car or a spa visit. Investing money is almost always exercising power, depending how much and with what intent you will affect future of others. For example, you can buy a newspaper company to make good PR about you.
So to be able to "destroy the power", in capitalist society, you would have to very tightly control how people spend money. This is not only fiendishly difficult, but also undesirable from a free market perspective.
Reducing inequality is a much simpler way to remove power from too powerful people, because it simply gives more power to other people. And there is in fact not much need to be wealthy in the first place, unless you can have associated power - there is only so much cars one person needs.
I disagree. As long as you're referring to a non-coerced transaction, each side agrees to the transaction because they receive more benefit from engaging in the transaction then not engaging in it.
I don't think you're addressing the point I raised. Allow me to rephrase in case there's some ambiguity. The quote I originally replied to indicated that income inequality was an affect of a high concentration of political power. Assuming it is true that income inequality derives from a high concentration of political power, then using political means to solve income inequality is not only futile but demonstrates either a misunderstanding of the cause of income inequality or a kind of Stockholm syndrome from those who advocate to do so.
That directly implies that removing income inequality and adding feedback loops that avoids excessive capital concentration is the way to go.
And to your point about non-coerced transactions, where does coercion start? Monopolies? Excessive costs? Does Comcast coerce their customers, if they have only no internet as the alternative? Does uber coerce people with surge pricing? And that pharma guy, raising the price of the drug, did he coerce people ? I would tend to say yes in the case of the Comcast monopoly, no in the other cases.
But it's hard to define exactly where coercion starts.
A more fundamental examples, from my libertarian socialist perspective: advertising in public view. Is that coercion of a third party(the advertised to?) Microsoft windows/ apple and other walled gardens with no data export, but payed for upgrade path and end of support?
And even more fundamentally, sometimes any and all transactions you make can be under duress and make you inherently dependent on the partner: Getting a shitty job that barely feeds you, because your skills are obsolete and your country doesn't provide basic income?
Startint that shitty job early, due to not having the same resources, stability and growing opportunities because your father is working a shitty job just to make ends meet?
That's not how I am reading the quote. It states there is a correlation between a high concentration of political power and income inequality. Thus it seems absurd, even if you don't think the former causes the latter, to believe you can solve the latter through political means.
> And to your point about non-coerced transactions, where does coercion start? Monopolies? Excessive costs? Does Comcast coerce their customers, if they have only no internet as the alternative? Does uber coerce people with surge pricing? And that pharma guy, raising the price of the drug, did he coerce people ? I would tend to say yes in the case of the Comcast monopoly, no in the other cases.
> But it's hard to define exactly where coercion starts.
I think you're having difficulty with those scenarios only because you have not first defined "coercion". Google gives me this definition:
> the practice of persuading someone to do something by using force or threats.
To clarify my use of the word, and hopefully not completely distort the use of the word I would like to amend the definition as follows:
> the practice of persuading someone to do something by using violence or threats of violence.
When clearly defined it is clear in all of the scenarios you raised, none of them involve coercion.
If both parties receive the benefit, obviously you can still model that as power exchange where both parties apply their power to the other party. Just like physical forces on an object can be nonzero and yet it stays still. It actually seems like smoother model of social interaction than all the kerfuffle around coercion, but I haven't thought about it in depth.
In reality though, there exist many coerced transactions. For example, I need to eat, and that's why I go to work. I am being coerced by nature. But maybe someone thinks it's better to die in freedom from hunger than to live under coercion with full stomach.
Regarding "political power". What is that? I don't see significant boundary between "political" and "economic" power, but rather smooth transition. Therefore, to me power is power regardless of the social domain where it manifests.
Sorry, could you explain what you mean by that last comment?
No. I am not in a mood to receive a false accusation of sexism.
Rather, I wanted to understand your world view, because I guessed it might disagree with mine, but listening to other people's POV is a good way to learn and question your own beliefs.
Most girls/women have a very sensitive detector of social status or it's various proxies, because that's what they sexually select for. (It's kind of similar to how boys/men are attuned to detect physically attractive women.) And many of them are quite self-aware and honest about this capability, and they will confirm that having money is related power and status. Some will even openly admit that they're attracted to wealthy and powerful people.
So I was merely suggesting, if the GP doesn't personally believe there is a strong connection, he should find a honest girl and ask her, she will probably confirm that, it shouldn't be too hard. (Actually, Piketty makes a similar point indirectly by quoting various Jane Austen's works, where people are just obsessed with the question how to marry to wealth).
To clarify, it doesn't mean that men don't want to gain social status; men can do the detection too of course, but it's less of a concern for them, so they're probably less skilled at it (they are interested only indirectly).
Of course, this is not even remotely sexist, because I am not talking about anyone's preferences to begin with. But I was worried that explaining my point could cause derail of the discussion (not necessarily by you).
Exclusionary zoning, occupational licensing, overpriced government services, these are probably the biggest (in terms of $) examples of rent seeking in the US. These generally favor some middle class and poor folks at the expense of other middle class and poor folks.
If this theory were true, where is the rent seeking?
LOL. You forgot big banks and "too big to fail", military-industrial complex and all the wars.. Your examples are peanuts compared to these.
While I'm not generally a proponent of war or the military, it's hardly clear that these are a large amount of rent seeking compared to the broader economy.
Regulatory complexities in general are also a burden on smaller companies and sole proprietors. Ted Turner described his experience building CNN as one where he was climbing a ladder and seeing the rungs he had just climbed knocked away. Outsiders now simply don't have the ability to handle the regulatory costs of creating the next CNN unless they're already extraordinarily wealthy.
Finally, our banking system is a model of rent-seeking. There are fees charged for doing just about anything with money (borrowing it, lending it, exchanging it for another currency, etc), many of the fees are invisible and once again they are extremely difficult to avoid. Example: how much of the money from YouTube's acquisition went to the financiers? How much do banks make when a tech company IPOs?
http://taxfoundation.org/blog/no-country-leans-upper-income-...
http://taxfoundation.org/article/new-data-top-1-pay-greater-...
I agree with you about regulatory complexities. But you seem to be going very counter to the narrative - greedy rich people pushing for more regulations to harm incumbents and consumers? So, yay for deregulation?
This used to be called "envy", and seen as a vice to be avoided. Interestingly, the description of it as a "basic property" of humanity is in a way similar to symbolic interpretations of the Christian notion of "original sin" (Christians/theologians please correct me if I'm wrong).
You seem to want a society where envy is absent, but greed drives economic growth. That won't happen.
They're related in that they're both pejorative terms for the act of wanting something, but their meanings differ. Envy means wanting something 'cos other people have it, greed means wanting something for some intrinsic property of the thing. E.g. if I want to get rich so I can afford a hundred hookers, coke and pizza a day, I want that for the intrinsic satisfaction those things bring, not because I care about having more hookers/coke/pizza than anyone else.
But I get your point. It is another trick of the rich to use religion to solidify their wealth. You want what I have? Sin! I want to enclosure more land? Not sin.
The level of inequality is not inevitable: There's a wide spectrum of (in)equality levels in extant human communities, and it's widely accepted that inequality can be regulated by for example redistributing income or universal coverate of services like education and healthcare.
It's also widely accepted that this inequality can be regulated, for example by social norms discouraging female promiscuity.
So I suppose you favor this also, in the interests of not being inconsistent?
I don't have enough information to be confident that your suggestion would increase happiness. Then there's the value question of happiness vs other virtues (which I also intentionally didn't go into in my inequality vs happiness arguments).
Various studies on social networks have shown that virtually every society has high friendship inequality. Maybe friendships also don't generate happiness?
Unfortunately good studies are hard to come by - I've never actually seen any. In virtually all cases, anchoring effects drown out the signal.
But as a thought experiment, consider two individuals. One individual is a nerd in a frat house, watching a bunch of bros get laid while he's still a virgin. The other individual is an analyst on a prop desk (i.e., low level person at a bank), making maybe $70k/year while interacting with folks making $10M+.
Which of these people do you think is more unhappy? Maybe I just love women a lot more than the average person, but I sure know which one would make me less happy.
This is actually empirically true, someone recently mentioned the book The Spirit Level in another HN discussion about equality, this book shows that on some metrics like social issues.
There are two sides to the coin. What you call "envy" has a very good (evolutionary) reason for its existence.
Take a look at ultimatum game (https://en.wikipedia.org/wiki/Ultimatum_game). If people didn't have capacity to deny unfair splits, even though they seem irrational, then they would be worse off.
I posit that denying unfair splits in ultimatum game is envy. Think about it, envy is the reason to do it - the other party doesn't deserve the bigger split, so let's kill it for both! The similar game can be for instance used as a model of worker's strike against a capitalist.
(I think in fact most people consider envy a vice only where it's extreme or there are other circumstances that make it unfair. But in general it's just an expression of longing for fairness.)
An evolutionary reason isn't _necessarily_ a good reason, unless the definition of good is "helping propagate one's genes". Evolution doesn't select for "living a happy/contented life".
This trait is only a subset of what's normally considered "envy". Not all of envy has an apparent use like that. E.g. if Joe feels bad because Neighbour Bob's house is 1030 square feet while Joe's house is only 1020 square feet, this doesn't really help anything, it just makes Joe unnecessarily miserable.
But to your example - I will be long time happy with social (in)equality before we get to 1% differences in income. I think in your example Joe absolutely deserves the unhappiness he has.
Meanwhile in reality, when I suggest that maybe there should be a limit of personal income/wealth like around 100x the average (which is amount of money I can't imagine reasonable person would know how to spend), I get shooed as crazy pinko full of envy. Yet, is that really envy, or is it just longing for fairness as in the ultimatum game example?
EDIT: to the silent down-voters might I suggest you more equally distribute your down-votes to increase HN happiness.
Also, note that I didn't say that private property is "nothing more" than a social construct. I said it is a social construct, and as a social construct it's a lot, because that's all there is for most if not all our values, and that's plenty. But, being a social construct, it cannot apriori take precedence over other social constructs (like the value of fairness).
Now, in general, the question of "rights" is a hard one, because obviously there is nothing to give anything a right. A right is a common (perhaps universal) shared value, sometimes with extrinsic justifications but most of the time without (in the end, it's hard to ascribe a truly objective value to anything in the universe, as you quickly get to circular dependencies of values). But, it is not a bad starting point to assume that all rights originate in social convention, and those conventions, in turn, are based on human psychology and circumstance. This too is an incomplete description, because we haven't established the boundaries of the fixed/universal portion of human psychology, and much of it is well known to be a product (through a feedback loop) of social convention...
> Also, note that I didn't say that private property is "nothing more" than a social construct. I said it is a social construct, and as a social construct it's a lot
I'm really confused at what you find controversial about what I said or how it is relevant.
Regardless of whether private property is "constructed", the reality is we do have property rights. If you are going to distribute that property there is only one way to accomplish that: by force.
Oh, I simply meant that most or all values are built around social constructs, so they all have similar validity.
> If you are going to distribute that property there is only one way to accomplish that: by force.
And my point was that preserving that private property is also accomplished by force. The question is, what do you mean when you say "force". If you mean coercion, then many things in society are achieved through coercion. That is pretty much the essence of civilization (see Freud's Civilization and its Discontents). Coercion and freedom will always live side by side. Most values conflict with one another at some point and need to be prioritized, but freedom is rather unique in that it conflicts with itself. If you have a society (i.e. two people or more interacting), then an individual is either free to restrict the freedom of another or she is not. In either case, someone's freedom is restricted -- through coercion. And it turns out that surprisingly many of the things we do in our interactions can restrict the freedom of others, which is why freedom (without qualification) is a self-conflicting value and therefore not a well-defined one, as different kinds of freedom then need to be prioritized and balanced; that also means that coercion, or "force" (without qualification) is not a negative value by itself. So the question is, what kind of force? So when you say that distribution of property is done coercively, then there's nothing really special about it.
It sounds like you're perfectly fine with my original reductio ad absurdum that it would be ok to force everyone in a wheelchair, or force everyone to shave their head, etc.
>And my point was that preserving that private property is also accomplished by force.
No it's not. When you or I own something we are not using force at all. Now it is possible that there are those who possess things which they obtained by force, but discussing those individuals in relation to private property is only an example of the violation of such ownership.
How do you figure? I don't follow.
> No it's not. When you or I own something we are not using force at all.
Of course we are! We've just internalized it[1] are so we don't notice it (which is why we need to learn about power in order to see it), but it's there:
Suppose you have a lot of money and I want some. So I hack your bank account and take it, except you don't let me because you call the police who arrest me, or maybe just the threat of arrest deters me. Either way, you are using force to restrict my freedom to take the money lying there in the bank. Now, if you say that you didn't give your consent to my taking the money, and it was I that used force when taking it, then we will get into a very long discussion about what consent means, and I will say that consent or coercion are not binary but a spectrum and a person is almost never at either extreme (as various psychological experiments have shown).
For ownership to be effective it must be enforced by violence or the threat of violence towards those who want to violate it, hence -- it requires force, and is therefore a restriction on freedom.
[1]: Internalized mores and self-supervision are in themselves very powerful forces that have been studied extensively, but I'm not going to discuss them here. For a beautiful demonstration of how we've gradually internalized things over history to the level where they seem "natural" to us, see Norbert Elias's seminal work, The Civilizing Process (https://en.wikipedia.org/wiki/The_Civilizing_Process)
You dismissed the idea that forceful redistribution of capital is a problem at all because force already exists throughout society. By extension you must be perfectly fine with the other forms of force enumerated.
>Suppose you have a lot of money and I want some. So I hack your bank account and take it, except you don't let me because you call the police who arrest me, or maybe just the threat of arrest deters me. Either way, you are using force to restrict my freedom to take the money lying there in the bank. Now, if you say that you didn't give your consent to my taking the money, and it was I that used force when taking it, then we will get into a very long discussion about what consent means, and I will say that consent or coercion are not binary but a spectrum and a person is almost never at either extreme (as various psychological experiments have shown).
In other words you've perverted the definitions of otherwise very clear words as to make this discussion entirely worthless.
>For ownership to be effective it must be enforced by violence or the threat of violence towards those who want to violate it, hence -- it requires force, and is therefore a restriction on freedom.
I think I understand what you're getting at but I still fail to see how it's relevant. Yes, if I own something and I protect it from theft, I will use violence. But when I previously mentioned force, it was not the reactionary use of violence I was referring to. In theory, I have no problem with the use of violence in reaction to an offense on person or property.
I'm not sure what your comments on restrictions of freedom have to do with the conversation as I have not called for unbridled "freedom."
First of all, I'm not "fine" with force, but humans interactions are very often forceful (like I said, freedom is self-contradictory, and implies some force). It's like saying that I'm "fine" with gravity; or hydrogen. Also, not all kinds and measures of force are the same. I don't see why accepting the fact of gravity implies that I'm OK with dropping pianos on people. Maybe I've accepted that a little force is unavoidable or perhaps necessary, but a lot is excessive and bad.
> In other words you've perverted the definitions of otherwise very clear words as to make this discussion entirely worthless.
One of the problems when discussing such things is that we sometimes make arbitrary definitions, which then determine the outcome we want, without taking into account the actual dynamics. So, if we start with "force is bad", and believe that it is bad because, say, it restrict freedom, we can't then arbitrarily define force to be particular uses of it, but we must define it to be all forms of restricting freedom. And how do we know what restricts freedom, i.e. what constitutes force? We need to study human psychology and sociology as it exists in practice. Otherwise, you have to explain why your definition of force is bad while mine isn't.
> it was not the reactionary use of violence I was referring to. In theory, I have no problem with the use of violence in reaction to an offense on person or property
But whether you view it as reactionary or not depends entirely on your pre-conditioning. If you thought all property was shared to begin with, you'd view forcefully holding on to some property as your own as very aggressive and very much non-reactionary.
Imagine that your son decides to stop letting you into his room. He thinks that his room is actually his, while you know that the room is his only in a limited sense. I don't think you'd view his use of force as a reaction, or your incursion as an offense at all.
Similarly, private property could just be a limited form of ownership granted to you by society.
> I'm not sure what your comments on restrictions of freedom have to do with the conversation as I have not called for unbridled "freedom."
Well, when discussing values you have to define them. You implied that you view the use of force as bad, but "no force" isn't a value. I assumed you believe it is bad because it restricts freedom. If you have other reasons to exclude force, please state them and explain why they only apply to your definition of force.
OECD research: http://www.oecd.org/newsroom/inequality-hurts-economic-growt...
IMF discussion note: http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf
The Economist article based on IMF paper: http://www.economist.com/news/finance-and-economics/21597931...
http://www.manhattan-institute.org/pdf/e21_01.pdf
The stats supporting this are not very solid.
Those on the bottom must obey bosses (if they indeed have the privilege of wage slavery), treated as prisoners in school then thrown into prison, homeless, open to abusive predators of all sorts, sex slavery, in fear of drones blowing up your neighbors...
There was an article recently from some conservative think tank about how if countries like Sweden and Germany were U.S. states, they would be among the poorer ones. That's true--per capita PPP income is 75-80% as high in those countries as in the U.S. But I doubt very many Germans or Swedes would rather their country be like, say, Maryland (the richest U.S. state, where wealthy suburbs surround the relative poverty of Baltimore).
[1]: https://en.wikipedia.org/wiki/Power_(social_and_political)
And I don't understand the justification for doing the chart by every $5,000 and then doing huge brackets at the end.
Why shouldn't income distribute logarithmically instead of linearly?