Milton Friedman on greed and income inequality: https://youtu.be/RWsx1X8PV_A
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.
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...
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.
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.
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.
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.
When one person has 10 Ferraris in their garage while someone just a few miles away can't afford to feed their children, it's unfair and unsustainable. You don't need to advocate absolute equality to see how that situation could be improved.
What counts as extreme? Has much really changed in the last few years since this became something discussed daily? Why do such articles ignore payments in kind and fail to address subtleties to do with the different measures (personal income, household etc).
I don't personally consider the existing situation extreme, and the fact that people underestimate it doesn't change my view.
Do you always address only the arguments of the least reasonable people in some arbitrarily defined group?
There are many other examples of people's instincts being off by surprising amounts, including in ways that do not affect them positively.
That's what I intended to address. Don't really see the need to get personal and extrapolate hypocritically.
The current rate of inequality is massively inefficient if you're trying to optimize happiness. The bottom 2 quintiles of Americans control so little wealth that keeping food on the table is their primary concern. Meanwhile, an extremely small and shrinking proportion of the population control an outsized amount of wealth, to the point where it's not reasonably usable in an efficient way by those people.
It's like saying that the proper way to divide 100 loaves of bread between 100 people is to give 1 person 95 loaves and every other person a slice of bread. No one is starving, but you're making 1 person very happy at the expense of 99 others.
My argument is, for the bottom 40% of Americans, it is at that level. The fact that the top 20% holds a vastly disproportionate share of the wealth isn't bad because the 40% are losing a dick-measuring contest, it's bad because the lack of wealth of the 40% has a real effect on their happiness.
I understand how '85% of Americans are doing just fine' isn't great political rhetoric, but don't you think it's disingenuous to pretend that 'inequality' arguments which mostly highlight what % of wealth the wealthy have compared to everyone else is really about the poor, and not what it's really about, which is soaking the rich and middle class for higher taxes? I mean, after all, that's why phrases like 'the 1%' exist in the first place, to create some sort of camaraderie of outrage amongst the 'proletariat' to pursue a particular economic policy, right?
In any event, if people who truly cared about the poor advocated for solutions to poverty, instead of focusing on 'inequality', they might find their arguments fall on less deaf ears.
Tax cuts and the cuts in government programs that come with them directly affect those with the least. Telling people not to covet and not actually addressing inequality is how you get things like the French Revolution.
Do you think that this kind of disproportion doesn't affect the way the whole system works? I expect the voice of a CEO to be heard more than that of a ordinary worker, and at 20:1 maybe I can sort of keep up. But at 354:1, how will I ever keep up? That's stopping the CEOs of the world from banding up in a gang that distorts how democracy works up to a point where I don't matter at all?
A valid criticism of socialism for running societies (rather than institutions) is that it doesn't align well with "human nature" - but it might also be the case where the "winner takes all" aspects of capitalism also have similar problems.
http://news.nationalgeographic.com/news/2003/09/0917_030917_...
I'd argue that inequality pretty much always leads to unfairness.
Edit: And I say that as someone who pays for their kids to be privately educated at a prestigious private school because it is obvious that doing so gives them an unfair advantage.
What do 'the rich' (as a class) choose to do with their money that is causing problems, and what are those problems?
I'm not a Labour supporter - but the fact that a hard left party is within striking distance of winning the UK general election (despite the horrendously biased media coverage) shows that there things have got so bad for many people that extremely far left wing policies (by US standards) are starting to look attractive to an awful lot of people.
Not all rich people abuse their positions to obtain disproportionate political influence - but to get disproportionate political influence you have to be rich. Wealth isn't the problem - abuse of the power that wealth can bring is the problem.
Edit: Labour's motto of "For the many not the few" sums up the current political mess rather nicely.
The claim was that society is becoming more feudal. I would like to see some evidence that is the case.
Reducing inequality down to the point of literal equality was shown to lower the quality of life.