The fading American dream: Trends in absolute income mobility since 1940
science.sciencemag.org
science.sciencemag.org
1. The desire to maximize personal capital and assets.
2. An individualistic mindset
3. The compounding effects of (1) and (2).
With all three, you get the current problem as described in the article. Suppose you removed (3), and somehow you could maximize assets, but upon death (or some other "big" event) all of your assets were given to the community. This would result in wealth not being concentrated. Here I'm also including the creation of foundations and other "charities", which in my view are just ways to keep your assets concentrated, and you have some tax advantages of doing so as well.
Say you removed (2). Wealth concentration without the desire to personally benefit from it would result inevitably in the helping of others, as a healthy, prosperous world would ultimately benefit you (though, again, its not the goal). After all, what's the point of money if it doesn't benefit you? You might as well make the world you live in better.
Without (1), you naturally would not see the problem described in the article.
So, what's the TLDR? Basically,
1. Create a culture where people don't need to be so prosperous themselves.
2. Encourage schemes that benefit everyone instead of someone.
3. Prevent the concentration of wealth, and all of its pseudo-forms (foundations, real estate, etc.)
If you put a 100% estate tax, then you're preventing people from working towards one of the biggest goals they work for, i.e. their kids.
Also, if a parent doesn't wanna give his wealth to his kids, no court in America would force the estate to go to the kids.
In other words, nobody is born rich, it's the rich individuals who make their kids rich.
The wealthy individuals are choosing to spend their money as they please. That happens to be by making wealthy some non-wealthy individuals.
In the case of this argument it's parents/children, but it doesn't have to be. The parents choose of their own free will. And they can choose to spend the money instead. Many do. Most, probably.
As I mentioned, the expiring bill would increase consumption but it would also be "wasteful". Someone unable to leave a business to a son might be tempted to build a huge gold statue in the middle of nowhere. Luxury goods would become a much more tempting market, even though the experiences they provide are of very limited value to society as a whole.
Also, figure all the big companies that couldnt exist because there is no legacy, every business owner would sell his business in life and frivolously spend all that money.
That is, if you were able to prevent people effectively from leaving money to their kids, which I assure you, its impossible.
Contrary to how people believe, you can't really 'hoard' money, when you hoard money, you merely invest in money itself, and like every investment, it gives society huge benefits (including, and especially the investor).
If you can place winning bets on how wealthy the parents were by how wealthy the children are long after the parents are gone, you are measuring unequal opportunity by the unequal outcomes.
I think some (statistically) unequal outcomes are unavoidable but the graph from 1940 shows that that we are moving drastically in the wrong direction.
I'm assuming you are aware of all this but I've been unable to deduce either your real question or your point. Can you elaborate?
https://www.opendemocracy.net/ourkingdom/david-cameron/scotl...
Everything isn't eventually owned by the state, because they periodically sell off bits of public land, and gain possession of others.
That's an oversimplification; he thought that there was no right to inheritance, and that any inheritance allowed ought to be viewed as a privilege granted at the discretion of the public (by way of their elected government), with whatever conditions and limitations s the public chose to impose.
It wasn't that the property should become community owned as that the deceased owner had no rights to direct it's disposition after their death.
(He had fairly similar views on laws, including Constitutions: that, as the dead had no right to rule over the living, laws, however fundamental, ought to expire each generation unless positive action was taken to renew them, so that—within the limits of practicality—the living were governed by rules they participated in forming, not by the hand of the dead.
First, the idea of declaring this un-American is grossly un-American itself. "We, the people" and "promote the general Welfare" seems to come somewhat before "mine, mine, MINE!" in the Constitution.
Second, Native Americans (and Puerto Rico) are fine with the idea of community property - which deals with your last point. I suppose you could declare them un-American, that's a very American thing to do, so you've got that going for you.
If you'd like to criticise this on the merits, go ahead - there's plenty of room. (For starters, a 100% estate tax will leave dependents destitute). But I'd be happy if HN could be kept free of the unthinking flag-waving approach.
Someone's estate is theirs to do with what they see fit, including after their death. It is, after all, their property. If they want to donate it to the state or fund a foundation/non-profit, or give it all to their children, that is their right.
The state should not take ownership of my home, my bank accounts, and my assets simply because I die.
Presently in the U.S. inheritence is as you say it should be. It doesn't have to be this way and this way is not the only ethical or American way of dealing with inheritance. Indeed, Jefferson disagreed with what you wrote.
Also, I presented no scenario and have given no indication on what my beliefs on the issue are. I just said that a 100% estate tax would not necessarily leave surviving family members destitute. This is not disputable.
It's not necessarily a bad idea to edit production live. It's not necessarily a bad idea to have JavaScript on the server.
I agree that a 100% estate would not necessarily leave surviving family members destitute. However it absolute would leave some (another weasel word when you don't have data) family member completely without a means of support.
My use of the word 'necessarily' was to highlight that we are talking about very small numbers. Indeed, it is disingenuous to bring up people with Down Syndrome who have wealthy parents into the conversation. It's such a small number of people. There are ways to help such people in a 100% estate tax society. There are ways to make legal exemptions based on extreme situations in a 100% estate tax society.
To say people will necessarily be destitute in a 100% estate tax society is wrong. It is bad thinking and indicates a poor understanding of public policy and potential remedies. It is wrong to say that absolutely at least one person would be destitute in a 100% estate tax society. It could be the case that this is true but it doesn't have to be the case.
One should strive to be accurate in how things are phrased.
This is your personal axiom; many others disagree, including myself. I think that if you want to give something to someone, you should have to actually give it to them. You should experience that loss.
Holding onto everything until it is of absolutely no use whatsoever to you, and then insisting that the wishes of someone who doesn't exist anymore should continue to apply to those physical goods? I don't consider that the same as you choosing to give something to someone, and don't see why it should be indulged.
"It is, after all, their property."
No it isn't. Dead people don't have property. It was their property, and if they wanted to give it to someone, they should have done that while they were alive.
There is a middle ground to be found here somewhere so that people don't give everything they own to their children, who promptly turn them out on the streets in an amusing but predictable turn of events, but the way estate taxes are going (i.e. ever more to the benefit of the very wealthy) is the wrong way.
Because I didn't "experience that loss," all of my wealth is now transferred to the state because I was randomly killed?
If I walk down the road and find $1 million I owe tax. If I win the the lottery I owe tax. If I work for the $1 million I owe tax. But if someone dies and I'm their heir I don't owe tax. To me if you didn't do anything to earn the money you ought to pay more tax than someone who did earn the money.
I don't advocate for a 100% estate tax but I be.ieve it should be much higher than it is in the U.S.
The money I earn is taxed. When I spend my after tax money to buy a car it gets taxed. The car dealership pays tax on the profit generated by my purchase even though I already payed income tax on the money I used to buy the car.
All money is "infinitely" taxed. When I find a million dollars on the street I owe tax on it. Why not when I get the money because someone died?
Extend to everything else anyone ever spends money on.
I can see a problem with this system.
That principle is that I believe that people should, broadly speaking, benefit from their own efforts, their own work, their own risks and indeed their own luck (and not the results of someone else's luck passed on by default because they get shot), and that we should aim for a society where this is the case and the opportunities to do so exist; not to benefit by default because someone else died rich.
As I said, there's a middle-ground to be found, perhaps in this case based on the belief that had you not been shot you would have given to your children for education or other such, and that can be accounted for (on the other hand, if you knew that in the event of your death, all your stuff goes back in the pot rather than to your children, perhaps you'd have bought some insurance against this event). If you make it to the age of 90 and you're still holding onto all your stuff, it's another matter.
In terms of middle-ground, if we're talking a few thousand dollars, it's not such a big deal. If we're seeing the rich get richer in each generation through accumulation of capital and passing it on, creating a new society of aristocracy and peasantry, it's a bigger deal.
Is your objection to this moral (you disagree with my position that people should principally benefit from their own success in life) or practical (you think rich people will find dodges)? I'm certainly not convinced it could be done, but I think we can do better than where we seem to be going with the concentration of wealth through completely unearned income.
[1] Tax law specifies that as a gross annual income of $4,050. Which in itself is probably debatable, but is certainly well below "making your own living".
I remember this from my citizenship test and always find it interesting that the people who quote the constitution all the time never use this phrase.
It is not a blank check to let the Government take everything it needs in order to provide everything everyone wants.
Look at the size of the Federal Government before World War I (meaning, for more than a hundred years after the writing of the Constitution). Look at the lack of even an income tax before 1913 (except for briefly during the Civil War, IIRC). If you're going to argue that "promote the general welfare" meant redistribution, you're going to have to argue that for over a hundred years, everyone forgot about that and the government didn't do its job.
But if you say that it's an explanation of the overall intent (as understood by the people of the time), but with a meaning that falls far short of large scale redistribution, then the historical actions of the Federal government make perfect sense, and the current understanding of that phrase is what's out of line.
I was arguing against redistribution because maehwesu raised that point (seven posts upthread from this one). I misread your comments as arguing that redistribution was the intended meaning of "promote the general welfare".
In America, the default assumption is not that the government owns something until proven otherwise.
Interested in your comments on the medical-industrial complex as applies to people with less than, say, $10M net worth at retirement. Which is only about 99.9% of the population.
My grandparents were like that. Low level limousine liberals, a couple million net worth, retire at 60, a couple chronic diseases which were kinda expensive, a couple very expensive acute diseases, by the death of my grandmother a good 30 years later, pretty much nothing left. They spent their first 30 in the great depression and WWII so they really had only 30 years of good times to save up for 30 years of retirement. Personally I've never been alive during good times, I wonder what it was like?
Also interested in your views on the invention of retirement as a 19th century concept. It never existed before that time, never existed outside a small number of white countries. I don't think the "standard American retirement" such as experienced in the 1900s is going to be experienced much outside the 1900s or across the entire world. Historically inheritance was a white nobility concept, and not all nobility, in all white countries, all the time, had inheritable titles and estates. The fact that the prince of England inherited his title from the King of England upon death is kind of a stretch to claim that proves some random bubba in America is owed grandpa's old car upon his death.
> Personally I've never been alive during good times, I wonder what it was like?
If that's actually true you can't be more than 18-20 years old at the absolute most. I'm not that much older than you (31) but I didn't know a damn thing about retirement or elder healthcare when I was 20. I'm willing to bet when I'm 50 I'll say I didn't know a damn thing when I was 40.
"Good times" are relative, anyway. Most of the people reading HN are not terribly effected by the overall US economy. Oh sure your SV startup gig might pay you $150k instead of $180k. But the folks here are almost exclusively students or in the top 4-5% of income nationally. Nobody here bags groceries for a living and is one paycheck away from collections on their car or a foreclosure. Those are the people for whom the broader economy has real implications.
I'm not claiming that estate inheritance is divine providence or anything of the sort. But someone has to take possession of estate assets upon someone's death. I think it makes a lot more sense to a) give it to whom/whatever the decedent wishes in accordance with their will; or, b) next of kin. I'd like to think I'm pretty cognizant of my own ethnocentrism, and I'm sure that's more than a little to play here, but the idea that a "random bubba" is owed grandpa's old car makes the most sense to me when it's actually his grandpa and not just an old guy the next town over. Or even more so that it's not the state taking it and just selling it to the public.
Just to pick on this, as HN is an international forum; I doubt this holds true much outside of the US. For example, in many European countries an average teacher enjoys a higher salary than an average programmer.
For instance, I am a public school teacher. I certainly make more than a grocery bagger, but many of the HN readers to whom you're referring probably spent more on their last car than I make in a year.
This recent thread offers some nice perspective on why people like me are on HN: https://news.ycombinator.com/item?id=13668870
I'm an older gen-x when you were born I was a young teen biologically possible for you to be a generation younger than me but its stretching the definition.
The income level is about right, I'm precisely at the 95th percentile where I live. For me, times are good and will stay that way until the inevitable wave of income inequality reaches me, I'll go down later than a lot of people but it hits everyone eventually. Being poor is going to be interesting. I was as a student. It'll be like a second childhood kinda, I suppose.
There are all sorts of systems people use to structure around the existing taxes - life insurance, gifts, family companies, trusts, marriages, etc. Unless you sweep away the whole lot (disastrously disruptive in itself), people are going to work round it.
My problem with the idea is if it /works/. How does all of that stuff find its way back into the hands of people that can make the most use of it?
https://books.google.co.uk/books?id=iYKXYgSAaLsC&pg=PA311&lp...
The result is that poor and unprepared get hit by the tax, while rich people that live longer and are more educated shelter themselves of it.
It is my opinion that people are truly ingenious and forcing them to do something will be met with tremendous resistance.
A 100% tax on the estate when someone dies seems totally legit. They're not going to need it, wherever they're going. If they want to give it to their kids before they die, then we can kick in the ol' gift tax or income tax.
That way we can make sure we don't have wealthy families where money ends up concentrated, decade after decade, displacing a disproportionate amount of political power.
There's nothing more un-American than a wealthy ruling class.
"By the late 1970s, the populist Brandeisian anti-monopoly tradition—protecting communities by breaking up concentrations of power—had been air-brushed out of the debate. And in doing so, America’s fundamental political vision transformed: from protecting citizen sovereignty to maximizing consumer welfare."
[0] https://www.theatlantic.com/politics/archive/2016/10/how-dem...
I am too skeptical to trust this assumption. And the current state of democracy in the U.S. does not make me feel too optimistic about the longer term either.
Where do you think all that hoarded money come from in the first place?
I'm not saying the idea would work though.
They observe that income mobility, under this definition, has been declining since 1940. They seem to regard this as a problem, which reflects a diminishing level of opportunity for each subsequent generation.
The data they present are interesting and worth further study, but I do not think I agree with their subjective assessment (that this is a problem to solve).
On seeing the data, my first hypothesis is that a major driver here is the fraction of a birth cohort that is more educated than their parents. People born in the 1940s and 1950s are much more likely to have more education (and more income) than their parents, compared to people born in the 70s and 80s. But if you're born later then it is more likely that your parents are "fully educated", in which case why should you expect to be able to out-earn them?
We are losing, they are winning. Infrastructure is losing, offshore tax havens are winning. People's healthcare is under threat, corporate earnings (especially after Trump's proposed tax breaks) are rising.
America doesn't miss manufacturing, it misses unions.
A friend of mine has the idea that American politics is about what amount to kaiju fighting on the sides of different factions. Yeah, none of them are great, and your giant monster might step on someone's house every now and then, which sucks, but at least it's keeping the other one from burning down the neighborhood. Traditionally the ultrawealthy were strong enough to practically be their own monsters, massive corporations had their lobbies, "trade associations" and various means of wielding significant influence, and the working class had... unions, and even the nasty old "political machines" to an extent.
Now the working class has no effective kaiju. We've been convinced to give them up. So it's just the rich and corporate giant monsters running around smashing everything in sight, with different factions of them more-or-less running the two viable parties (which is not a "they're both the same" claim—though I wouldn't say that Democrats have a monopoly on pro-working-class or pro-poor policies, either, just a majority). Meanwhile we're to believe everything's fine because we can still vote. But we have no kaiju on our side, while everyone else retained theirs, and in this system that matters a lot.
The rest can be explained away by a general stagnation of real wages. This graph, however, shows clearly a stratification taking shape.
There are a two ways to explain this:
1: The wealthy are enjoying artificial advantages to income generation that the less wealthy don't have access to. This would be an erosion of meritocracy in the US between 1940 and 1980
2: In 1940 the more 'naturally' gifted as far as income generation potential were somehow mixed more thoroughly with the rest of the population. The 1980 data simply shows that families are finding their ingrained strata in society. The meritocracy exists but those with more merit are simply rising to the top.
Occam's razor would suggest that explanation 1 is more likely since it doesn't require a whole population of people who would be naturally more apt to high income generation to be evenly mixed into almost every other income level than the one where they would rightly belong like oil being inexplicably emulsified and evenly distributed in a cup of water.
There is a growing and pervasive trend to believe that explanation 2 is the case. It may be possible but I don't think we can accept that without evidence.
The American Dream isn't just a feel good notion. If people are more or less biologically the same as they were in 1940 and there was no unnatural mixing occurring at the time and income can be used as a rough proxy for value creation then the income stratification represents artificial barriers to full productivity that hurts every single one of us. There are people out there -- a huge majority of people according to that graph -- that are not creating their full value potential.
That is a picture of a society in decline.
[1] https://d2ufo47lrtsv5s.cloudfront.net/content/sci/early/2017...
So as income falls into a more uniform distribution (more folks have access to most common jobs) we see 'mobility' decrease. The same as 'lifespan mobility' has decreased (folks no longer living longer than their parents). Its a good thing.
Either way in a country as rich as the United States there should never be hunger, fear of homelessness or other poverty generated afflictions we suffer here.
In addition people are born with different cognitive skills, should those born with average intelligence automatically be doomed to lead lives of poverty compared to others?
I'm not advocating asset seizures but we as a nation can do better.
> should those born with average intelligence automatically be doomed to lead lives of poverty compared to others?
Nobody born with average intelligence is doomed to a life of poverty so I'm not sure what the point of that straw man is. I think it's a fact of life that someone of average intelligence will have a harder time amassing great wealth than someone of exceptional intelligence. I'm pretty sure my intelligence is at best slightly above average and I don't see anything wrong with that.
Have you ever interacted with the under-privileged? Plenty of smart people feel their lives are doomed because of the way society is structured against them.
Income mobility affects you your entire life, and where you are is measured constantly. So no, it's not a good thing - because it means that if you're born poor, you stay poor. Calling it a good thing is the same thing as saying "more babies dying is great, it evens out the distribution to be more uniform, it's a good thing!"
And no, the distribution is not "uniform". If you bother to look at the data at all, you'll see that it approaches a pareto distribution. Awesome if you happen to be one of the few rich or well-off. Sucks if you're one of the vast majority of people who barely make ends meet, and who are now, due to decreased mobility, stuck there for the rest of their lives.
Decreased income mobility is only good for people who have a good income. And those are currently significantly outnumbered by people who don't. Traditionally, situations like this tend to end in war, revolution, or dictatorships. Really not what I'd file in the "good thing" category.
The only way to make it a good thing is to increase the amount of people with a liveable income. Hence all the discussion around universal basic income going on recently. But until that (or some other kind of reduction of inequality has happened), reduced mobility is really, really, really bad.
Its also useful to consider that the 3rd world has been kept the way it is for centuries, so claims that it could never be implemented in the USA or would never be stable/permanent state of affairs is pretty comical level unrealistic.
Finally WRT apocalypse claims, you have to realize that over a long term and from far away, Central and South America look pretty messed up, especially compared to "us" where "us" is the former western civilization, rapidly intentionally self destructing. Yet, their people none the less do a lot of smiling, their reproductive success is higher than ours, their lifespan isn't that much shorter... Americas future looks a lot more like Venezuela than Venezuela's future looks like America, and that's not really all that bad. The future is going to suck, and yes it will be entirely our fault, but its hardly the end of the world.
Look, you make your national political, economic, trade, immigration, frankly "all" policies to turn the USA into Brazil, don't act all surprised when USA starts looking like Brazil with Brazil reduced income, Brazil reduced public services, Brazil housing affordability, Brazil rape and murder rate, Brazil economic mobility. Brazil's got problems, but don't forget as USA dies and turns into Brazil, that Brazil's got plenty of good parts too. The powers that be want it this way and you're not stopping it but you can try to get ahead of the curve. So assuming the USA turns into Brazil what do you do today, so your kids do better in the Brazil-like USA of 2070 than some imaginary dead USA that will never exist in 2070? A cross cultural lesson is nobody ever got ahead in the world by endlessly ruminating on how unfair some awful disaster is unfolding. You can work on thriving in a Brazil-like USA of 2070 or you can feel really really bad about it, now let me know which is more likely to turn out well in the long run.
If there is an uneven income distribution, to decide that low mobility is fair, you need some other explanation for why people aren't moving from say, the bottom quintile up to the other quintiles.
For example, in a cartoon world where income outcomes are entirely random, you'd expect 80% mobility from each quintile.
[1] https://www.nytimes.com/2017/04/24/opinion/zombies-of-voodoo...
I don't know why I read Krugman columns. Yeah, Clinton raising taxes caused the boom. Not the proliferation of the Internet, drawdowns of the military, and relative global peace (as far as the US is concerned).
Solid single-input machines. Krugman's columns are nothing more than political hackery, with all due respect to his very good work otherwise.
Krugman's point was that if supply-side economics were true, only cutting taxes should boost the economy and raising taxes should cause a disaster. Clinton raised taxes and what actually happened was that the economy did great. Therefore, the prediction of disaster was clearly, indisputably wrong.
Besides the fact that he writes lucidly about economics, what really impresses me is that, having followed his column for 15+ years, his assessments are consistently proved right by history. Most recently, he argued forcefully against austerity, when austerity was in vogue and people were making dire predictions of coming inflation. Bernanke was relatively in agreement with Krugman and favored cheap money (too timidly, Krugman thought). Krugman's predictions of long-term low inflation were borne out, of course.
When Krugman strays from the topic of economics, I don't take him seriously. His opinions about politics are fairly worthless. You have to consider what his expertise is in.
Wouldn't say that. His predictions about the Internet, specifically, are laughably incorrect. He's since tried to play it off like he was intentionally trying to be provocative, or was supposed to say something silly... which is a coward's way out.
EDIT: His theories on Bitcoin are pretty devoid of intelligence, regardless of whether or not he ends up being correct.
>His opinions about politics are fairly worthless.
Yes, I agree. He should largely be banned from writing about them considering how much it undermines his areas of expertise.
The solution is not to force yourself to read the column if you know it's going to be bad. If it's not about pure economics, don't read it.
The OP column was about how supply-side economics (tax cuts for the rich -> so much growth that the tax cuts pay for themselves) has been tried many times and in no case has there ever been convincing evidence that it worked. Furthermore, when the exact opposite has been implemented (tax increases for the rich), nothing bad has ever happened. So a rational conclusion would be that supply-side economics doesn't work and the idea ought to die once and for all. But in reality, politicians keep bringing it back from the dead.