US Income Inequality: All for the Top 1%
nytimes.com
nytimes.com
Despite some of the recent coverage, this chart indicates that gains are not going to the top 20%: they are going to top 1%, and particularly <1%.
To be clear, this is not many programmers: "In 1980, the top 1% of adult earners in the U.S. made $420,000 a year, on average (before taxes and measured in 2014 dollars) — 27 times as much as the average for the bottom 50% of earners. Today the top 1% of earners make an average of $1.3 million a year — 81 times as much as the average for workers in the bottom half."
HBR also found that gains are increasingly going to the top firms: there is a global set of winners and losers. Inequality is growing everywhere, in all fields. https://hbr.org/cover-story/2017/03/corporations-in-the-age-...
EDIT: I'd also like to plug this really great article on regional inequality which is a huge problem but usually goes unmentioned in these sorts of discussions: http://washingtonmonthly.com/magazine/novdec-2015/bloom-and-...
On another side of life, the moment people have enough to pay the bill, anything more will not make them any happier. Leveling the income or the wealth is not doing anything effective to increasing happiness. What's and where's the problem of inequity? The fact that I can't afford a luxurious yacht trip?
Rich can also afford to hire servants and employees to do things for them. They can also afford expensive extra things or medical procedures without getting bankrupted. Capital such as factories, research facilities. Teams to manipulate both common people (marketing) and politicians (lobbyists).
How do you tackle this?
http://nypost.com/2017/05/23/amazon-gave-away-too-many-free-...
Jason Cohen has a lot of good advice on the competitive advantage of small companies: https://www.youtube.com/watch?v=1rMPbAN6i7s
And let's not kid ourselves. Those on top intend on staying there by growing the gap.
What do you mean?
its no surprise to me that if you juice the markets and inflate asset prices (mostly stock), that the richest benefit most. what was surprising to me is how bad actually making stuff did. I understand that juicing the markets might not benefit that, but it seemed as though QE3 actually hurt producing tangible things.
Also, something seems off. The animated chart is not data for a given year, it's for the last 34 year ending in that year. Since you're averaging growth over 34 years, the only way the top percentile can go from 3% growth (over 34 years) to 5% is if you average in really huge growth.
Also, the 34 year measurement makes me suspicious. Seems like an odd time period to capture. Maybe if you made it 30 or 40 years the data isn't quite so compelling?
> (The economists used 34-year windows to stay consistent with their original chart, which covered 1980 through 2014.)
Note that a sharp rise in the curve can also be explained by bad years dropping out of the 34-year window. This would probably explain the increases in the 1%'s weath around 1992 and 2003 (1958 and 1969-70 recessions, respectively). See https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit...
Income Progress across the American Income Distribution, 2000-2005 (https://www.brookings.edu/testimonies/income-progress-across...)
"Finally, incomes are growing less equal. Over the past quarter century Americans at the top of the income distribution have seen much faster income growth than people in the middle class. If average income grows 1% a year and top earners enjoy gains of 2% a year, many people in the middle and bottom will see their incomes grow much more slowly than 1% a year. Top income earners experienced sharp income declines in the last recession, but in the last couple of years their incomes have rebounded strongly. This reinforces the impression that the gains from prosperity have flowed disproportionately to people at the top rather than in the middle of the distribution."
Income Gap Is Widening, Data Shows (https://mobile.nytimes.com/2007/03/29/business/29tax.html)
"Income inequality grew significantly in 2005, with the top 1 percent of Americans — those with incomes that year of more than $348,000 — receiving their largest share of national income since 1928, analysis of newly released tax data shows.'
"Income is the sum of all the wages, salaries, profits, interests payments, rents, and other forms of earnings received... in a given period of time." Case, K. & Fair, R. (2007). Principles of Economics, p. 54.
when i buy a stock at $100/share and i sell it later at $110/share, that gain is not a wage, salary, profit, interest, rent or any other form of earning - it is called a "capital gain".
In some jurisdictions they receive special tax treatment, but they are income nonetheless.
For example, for the US, they are included in the "Adjusted Gross Income" calculated on a 1040 tax form, but the amount of tax on the income due to capital gains is calculated differently than the tax on wages.
If you look at section 3 of the paper (which goes over their methodology), they explicitly talk about capital income:
The truth is that the elites in any nations are gaining from the poor.
The idea is to blame one nation's inequality on another nation is like blaming one poor man's tragedy on another poor man's being more tragic; while ignore the ones who causes the tragedy...
The problem is that the Gini index is built to be robust against outliers (those 1%). So no, both locally (US) and globally, inequality is on the rise - even if the Gini index is going up in both cases.
In other words, why graph income and not wealth?
I think it's because people's wealth is really hard to estimate. The border between people's assets and their companies', foundations' and what not are usually blurry enough that you would get a graph that shows no insight.
Although income is not a great KPI, at least there are reliable methods to figure it out, or at least make estimates with a quite acceptable precision.
Say someone could have a small business that takes off and retires after a few years with a reasonable retirement fund. This doesn't fit the mold of a hoarding 1%-er.
It seems like discouraging this kind of income spike would actually decrease social mobility.
"“The probability of ending where you start has gone up, and the probability of moving up from where you start has gone down,” Carr said. For instance, the chance that someone starting in the bottom 10 percent would move above the 40th percentile decreased by 16 percent. The chance that someone starting in the middle of the earnings distribution would reach one of the top two earnings deciles decreased by 20 percent. Yet people who started in the seventh decile are 12 percent more likely to end up in the fifth or sixth decile—a drop in earnings—than they used to be."
This advantage has nothing to do with individual skill or hard working ethics. Taxation schemes that don't take this into account are simply unfair.
From Wikipedia: "A preferential attachment process is any of a class of Citation dynamics processes in which some quantity, typically some form of wealth or credit, is distributed among a number of individuals or objects according to how much they already have, so that those who are already wealthy receive more than those who are not."
It's an interesting principle that plays out in economics as well as other situations where skill is involved. It is similar in some ways to the "80/20 rule" if you are familiar.
I would definitely recommend researching the topic a bit. It will definitely add some dynamics to your view of income inequality.
Would nobody else reading this want some further information to back up this statement? Its a shame it wasn't nearer the beginning of the article as I could have stopped reading earlier.
Did you gather this view from reading the tax reform?
In 2016, if you were single and made $25,000 your tax was $3290. The standard deduction for singles is $6300. Is there a trick here?
In short, if all the gains happen for one group, even if the other group isn't directly losing money, their purchasing power will be eroded by the rich. And I'll add that this sort of thing keeps stacking up, because as the rich continue to be able to buy up things like land at a higher rate than the poor, the rich are then able to extract even more money from the poor through rents.
Which economists? Economists generally support freer trade, more open borders and the like because they see trade as fundamentally not a zero sum game: if two parties are willing to make an exchange, it must be because the exchange somehow makes them better off than they would be without it. All of developmental economics is built on this: it's why the majority of the world's population enjoy an incredibly greater standard of living than they did 100 years ago. Everyone is better off.
Which is not to say there aren't situations where economists recognise trade-offs. For example, https://en.wikipedia.org/wiki/Factor_price_equalization: a commonly accepted economic theory that proposes that international trade between poorer and richer countries will make unskilled wages in the poorer countries higher and in the richer countries lower.
"This long-run increase in income inequality not only raises social and political concerns, but also economic ones. It tends to drag down GDP growth, due to the rising distance of the lower 40% from the rest of society. Lower income people have been prevented from realising their human capital potential, which is bad for the economy as a whole."
" Causes and Consequences of Income Inequality: A Global Perspective", from the IMF.
"First, we show why policymakers need to focus on the poor and the middle class. Earlier IMF work has shown that income inequality matters for growth and its sustainability. Our analysis suggests that the income distribution itself matters for growth as well. Specifically, if the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20 percent (the poor) is associated with higher GDP growth. The poor and the middle class matter the most for growth via a number of interrelated economic, social, and political channels."
I think this is particularly relevant to software developers. It's often fairly easy for us to go into contracting, or start our own business, but many developers with those opportunities (myself included) still choose to work for others. Perhaps we prefer the stability of not having to manage our own business, perhaps we like the projects a particular company is working on and lack the resources to attempt them ourselves, perhaps we want to acquire more savings before starting out on our own, perhaps we want to learn from a particular company. And even when we do start our own businesses, for some reason we still tend to prefer traditional structures over more equal structures like cooperatives, prefer structures in which people work for others.
But it doesn't really matter. The analogy is flawed, that's the point, because it's not how it works in the real world. In the real world, people are not getting 1000000x higher income just because they do 1000000x more of the same work.
The main problem is in how we value things that are collectively produced (via cooperation of different people, especially in different points in time). There are basically two main solutions to the problem, both of them wrong. One is the neoclassical solution, which is to deny that we cooperate. Then there is Marx's solution, which is labor theory of value.
I don't believe it has a good solution.
You could argue that they get 1000x (1000000x is disingenuous; 1000000x the minimum wage is around $15,000,000,000 per year, practically nobody makes that) higher income because they do something that people value 1000x more. If we assume people pay others for doing this they value, if a developer can't find somebody who values what they provide enough to pay them more than $80,000, while a fund manager can find someone to pay them $80,000,000, some people must value what the fund manager is doing a lot more or else they wouldn't pay him/her.
>One is the neoclassical solution, which is to deny that we cooperate.
How does it deny we cooperate? I have an apple and I want an orange, you have an orange and you want an apple, we exchange those things, how is that not cooperation?
That's a strong assumption and as a matter of fact, they don't. For example, when I go to cinema, I pay to the ticket seller. I don't pay to the people who actually produced the movie. I rely on some (unknown to me) mechanism according to which those people get paid, but I don't pay them.
> How does it deny we cooperate?
So you can see that in the above example. I don't pay individuals for doing things for me that I value. Instead, I pay to some organization which then redistributes the money. Neoclassical solution denies an existence of such organization. (Which is not quite wrong - I have no idea how to define this organization correctly for all edge cases - as I already mentioned, I don't see a solution. But it is also not correct.)
And it gets even worse! Some people cannot be paid for what valuable they are doing for me, because they are already dead. For example, I am not paying to Beethoven. There are even things that produce things of value without any human intervention; who do I pay then?
So yeah, maybe it kinda works for apples and oranges, and picking strawberries, but not in general.
The mechanism is the same; it's transitive. You pay the ticket seller, the ticket seller pays the distribution company, the distribution company pays the production company, something along those lines. If we assume nobody's going around stealing or printing money, then that's the only way the people producing the move could be getting money.
If you don't like all those middle-men, that's why things like Kickstarter are appealing to many people. I wanted the people who made Planescape Torment, one of my favourite games, to make a sequel. I paid them in advance directly, via Kickstarter, as did many others. They made an excellent (at least in my view) game.
>And it gets even worse! Some people cannot be paid for what valuable they are doing for me, because they are already dead. For example, I am not paying to Beethoven. There are even things that produce things of value without any human intervention; who do I pay then?
Payment motivates somebody to give up something and give it to you. If something can be taken without depriving anybody of it, why is payment needed? Some people oppose intellectual property laws for this reason, because unlike physical property, using intellectual property doesn't deprive the creator of it due to text being practically free to reproduce.
The problem is, how you ensure all these people get paid? Contracts, law, government.. it gets very complicated very quickly. It's not just a series of independent transactions between two parties, as the neoclassicals like to portray it. It's also the whole social system, which ensures, as you say, nobody is going around stealing and printing money.
You cannot just ignore this structure because it is this structure which determines, if say a film director gets paid say 2x than film cutter. It's not you as a viewer who determines this. That's the main contradiction - this cannot be objectively determined (if we want fairness by any reasonable definition), yet it somehow must be determined for those people to be paid.
> If something can be taken without depriving anybody of it, why is payment needed?
That's a good question. Unfortunately, if you answer it positively, then you are effectively against all property rights, not just intellectual property. For example, let's say I have two houses but I need only one. Why shouldn't you use my otherwise empty house for free, if you keep it in the same order?
Ultimately, again, you will get a contradiction within any sort of moral framework, some people who provide value will not get paid, some will get paid.
In your example, a shared resource has labor applied to meet a clear human need, and those that physically do more of it reap more rewards. In the real world, someone owns the field, does no work, pays individuals (potentially) far less than the value of their labor to do the picking, and reaps most of the rewards. Then that field gets passed down to their offspring who continue to gain the rewards without doing any work.
Why should they get to do that?
Passing physical goods to offspring goes in the same bucket as passing monetary units to offspring, goes in the same bucket as passing valuable ideas to offspring.
In other words, parents should be able to pass whatever they want to their offspring.
To inject the state in that process and break it... you're making (basically) a god of the state. It's all powerful, benevolent, and able to do anything in any capacity in any situation.
Your Skittles analogy does not work.
About three only abundant energy resource we have is the Sun and it is quite hard to extract it's output.
Then there are certain biological restrictions like having to eat - a chemical input. Arable land is worth quite a lot, fertile much more still. It is not evenly distributed over Earth. (Similar with fertile paths of the oceans and seas.)
Dense energy sources are yet more scarce.
For one, you're talking about a digit currency derived from a (currently) finite resource: electricity. While you suck up electricity mining BTC, you add to the demand for said electricity. Higher demand means higher prices, meaning those with money can afford more electricity and mine more BTC, while those who can't afford more electricity to mine cannot. Additionally, those who could afford just enough power for non-BTC mining now struggle to afford power at all; and even if they do, they now must save less, growing the gap.
I didn't say the word "steal"; that's something you derived from my analogy because my analogy is obvious. Resources, and wealth, are all finite; so more for one literally means less or none for another if that one takes as much as they please. Otherwise, I could walk into any bank in the world and just take out as much money as I wanted to.
I was once told that if I were in the middle of a discussion with my wife and she completely refocused the discussion onto something else, I should be happy internally that I was right, but externally I should take the loss.
You're talking about BTC now, so I guess I'll take that L.
It depends on where you got those skittles? If you are increasing the skittle count by just taking from other peoples' bags of skittles then you're literally the mortgage/banking industry and there are probably lots of empty skittle bags out there propping up our never-ending-skittle-bag.
You could argue that the process was never really "yours" in the first place.
Society, our laws, our armies and natural resources, our roads, bridges, power lines, telecoms structure, are 99% of that process and you added 1%.
You simply took advantage of a lot of luck, a little bit of hard work and probably a bunch of your parents' money to end up owning it.
Maybe you should get a chunk of the rewards, but all of it?
Luck is always involved, but by increasing opportunities while giving workers more leverage, it is definitely doable.
Make no mistake, only one side is concerned with 'fair'.
I thought eliminating the minimum wage was a common sense libertarian ideal. Google Economist Walter Williams!
Ask people if they would support everyone getting 2x their income tomorrow.
People think in terms of dollars instead of purchasing power, the fed need only boil the water slow enough for people to remain compliant.
All that matters is what that money can purchase.
This is the funny thing about our steadily increasing minimum wage laws. I've not seen many people discuss why purchasing power keeps declining.
In 1990, $15/hr then was equivalent to $28.72/hr today. [0]
Obviously, something is happening to purchasing power of our dollars, but it doesn't get discussed much.
[0] https://www.dollartimes.com/inflation/inflation.php?amount=1...
this would just kill the bank accounts of anyone holding cash.
FWIW income inequality is normally reported proportionally (using the Gini coefficient or something similar) so even in your hypothetical case inequality would be reported as constant rather than increasing.
More to your actual point, the imagined choice isn't between doubling incomes for everyone or stagnation. It's between shared growth and the top 1% quadrupling their income, the next 50% growing slowly, and the rest dog paddling or getting poorer.