Economic Inequality Is Worse Than We Think (2015)

I wonder if this is just a lack of knowledge on how to survive while poor. I'm in a good economic position compared to most of the US and certainly most of the world, but I can't see myself having much of an issue with this. Growing up there were times where my family was homeless, and my first job I was a carpenter's apprentice, paid under the table, for less than minimum wage.

It's not that being poor is extremely difficult in the US in particular, but rather that those born wealthy who have never been poor, have no idea how to operate in that environment.

That book was well written but incredibly condescending to people who do live those lives and don't get to 'abort the experiment' when they aren't comfortable with the step down in lifestyle anymore. And obviously there are millions of people who live on those wages in the real world, not in the fiction she created for herself. She was obviously trying to make a point about the difficulty of being poor or 'working poor' which is hard to dispute. Obviously it is difficult being poor and it always has been.

The real questions of import are left completely unanswered in that book: what meaningful policy changes can be made to increase jobs, training, education, lower costs (that's a big one--she never mentions the supply side at all) and other meaningful metrics that actually move the needle rather than merely evince patronizing sympathy from her Prius-driving, suburb-occupying, Ivy League-educated audience.

"since most Americans don't even know about it, how can it be hurting them?"

By spending limited resources on yachts instead of schools and hospitals?

It uses wealth as a measure of inequality, which is an instant sign that it's not written by someone who has thought about the problem and tried to honestly change minds. I'm about to start a first job at one of the big programming shops next month and have been able to pay for Bay rents; according to a wealth calculator, 0% of Americans are poorer than me. This is an idiotic result.

Context matters. If we're talking about a first world country, income inequality is a meaningful metric.

That is a strawman - total equality (prison, grave) is not being advocated, merely reducing the current extreme inequality.

And inequality is a good measure because the benefit of an extra N dollars is greater, the less money one already has. So, all else being equal, smaller inequality leads to greater average quality of life.

Inequality is also a measure of for whose benefit a society is working - the benefit of the ones accruing the most wealth. So the more concentrated that wealth, the more the rest of society is being ignored in favour of the richest few.

A common counterargument is saying that as long as the wealth of the lower classes also rises, then why worry about inequality. But it has been stagnant for several decades in the US, the poor have to work long hours, all while more and more wealth flows to the top. So it becomes clear that merely improving the economy won't help, as the benefits are captured by those already rich.

Evidently Milton Friedman is not an expert on prisons.

There is no such thing as a measure of the health of a society. Inequality is one of many indicators that can help you predict the social stability and quality of life achievable in a particular society.

Inequality is important because of the studied link between peace and prosperity. Individual participants of a civilization give their social system power by buying into a social contract that their (mostly) nonviolent participation secures them the necessities of life.

When we have natural disasters, we sometimes see the rupture of the social contract. Now, imagine that there's a continuum of levels of nonviolent participation depending on individual cost-benefit analyses occurring all of the time around you.

When inequality shifts so dramatically over just a generation or two, there's reason to be concerned that people's buy-in on the social contract might shift, too.

If we suppose that the goal of society is to produce the greatest utility, and that the utility wealth provides an individual is sub-linear (i.e. twice as much money makes you less than twice as happy), then inequality is inefficient resource allocation.

However, we also suppose that some level of inequality can lead to greater productivity, and thus greater utility overall. The question is then what level produces the best outcome?

Personally, I don't think the current levels of inequality are remotely optimal. We could drastically improve thousands of people's lives for amounts of money that some rich individuals wouldn't get out of bed for, so I'm not convinced that reallocating that wealth would be harmful overall.

Just consider the practical consequences of inequality:

https://en.wikipedia.org/wiki/Economic_inequality#Effects

There is a lot of information there along the general lines of inequality is bad, which shouldn't be surprising. If you spend $1m of raw resources on building a bigger house, there is no benefit to society; theoretically it might incentivise somebody, but it's probably just pure waste.

Income inequality is probably not the best measure. The thing I'd really like to see is a good study of income mobility across 3 or more generations. But inequality can act as a proxy for mobility. Check this:

So now that we have organized our thinking, let us consider the empirical evidence. Most famously, it comes from the recent work of Miles Corak, building on previous studies by Gary Solon, Blunden, Gregg and Macmillan, Björklund and Jäntti and others. What these authors find is that there is a strong correlation between current and inter-generational inequality, or in other words, between inequality and low social mobility: the more unequal the society the less likely is the next generation to move upwards (or conversely, the less likely is the decline of the rich). So in terms of our simple diagram, Corak finds that societies are aligned along the diagonal: there are no outliers, whether the societies exhibiting the American dream or the guild-like ones.

The implication of that finding which was dubbed by Alan Krueger the Great Gatsby curve is that there is no American exceptionalism. The comforting picture of high inequality which does not impede mobility between generations turns out to be false. US does not behave any differently than other societies with high inequality. High income inequality today reinforces income differences between the generations and makes social mobility more difficult to achieve. This is also the point of my recent paper with Roy van der Weide. We use US micro data from 1960 to 2010 to show that poor people in US states with higher initial inequality experienced lower income growth in subsequent periods).

http://glineq.blogspot.com/2016/04/the-schumpeter-hotel-inco...

> I've never understood using income inequality as a measure of the health of a society.

Relative deprivation is empirically shown to be a significant source of disutility. Further, even if only absolute deprivation is held to be significant, aggregate statistics don't show you the degree to which that is present in a society without distributional measures. Either of these reasons, much less both together, make distributional measures important alongside aggregate measures.

> As Milton Friedman said, the only place where people are equal is in a prison and in the grave.

The “in a prison” part is obviously and flagrantly wrong, but even beyond that the observation is irrelevant to the discussion at hand. That some inequality will always exist in real societies does not mean degree of inequality is unimportant alongside other measures, just as the fact that some aggregate output will exist in real societies does not mean that the degree of aggregate output is unimportant.

So your solution is basically: "kill the poor".

jesus. Pick from: alcohol, depression, boredom, dynasty building, genetic programming.

I apologise for being rude but it sounds like you have limited compassion if you haven't been able to think this one through. What do you want to do, sterilise the poor?

I would remind you that despite a poor background children can and do still excel and even if they don't these children are often the backbone of our industry. You might not approve but these people are still the workforce and generation of tomorrow so you should afford their inception a little more respect and empathy.

>reproduction strategy

I.e. 'stick the winkie in the hoo-hah and wiggle it around'

So only rich people deserve to have a family? Only the rich deserve to find joy in nurturing and raising others? A lot of people, even though they don't have much, they find fulfillment in their family. If you think they shouldn't have children, that means taking away the only joy in some people's lives. Weird sentiment you have there.

So we should have only got Kings out of the middle ages?

> poverty would simply die out

Not at all. An economy based on competition and inequality automatically generates as many poor as needed to balance out the super rich. It's really basic math.

One could say the same for being in a high quintile of leisure time, but that doesn't stop all stressed-out rich people from having kids.

Most of humanity was born to parents with no monetary income at all, and volatile access to resources and shelter. Imagine that!