Wealth inequality is soaring – here are the Why it’s happening
theguardian.com
theguardian.com
You can see this all of the time:
- CEOs get huge bonuses when the company is succeeding, but when the company fails there are layoffs. In the worst case they often leave with a large amount of severance compensation.
In short I think the problem is a lack of alignment (in addition to many others). The other problem is that our "democracy" is highly crippled. I might even conjecture that in a functional democracy large inequality should be impossible as the large poor population would always take actions to restabilize things.
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To elaborate on this last point. People in this thread are commenting on all of the "loop-holes". Those loopholes don't really matter. In a functional democracy the poor would simply find all of them and vote to have them removed.
I don't think "the poor" care about others having more wealth than them any more than they care that some are taller than them. The issue is that the current level of inequality is, dare I say it, unnatural. Take any human property you want -- height, weight, intelligence, mile time, anything objective. You'll see that the distribution in ability for that property (or properties) is no where even close to the wealth distribution. So, maybe the natural wealth distribution should be closer to the distribution of those "natural" properties.
- The "1%" is ever changing, the mobility in and out of that group has only increased over time [0]
- Most measures of inequality are local or national. The same markets that have enriched the 1% have also brought a billion people out of poverty globally in the last 30 years. [1] Globally, workers are doing better than ever.
- The practicality of inequality changes over time. Most people in the middle 50% in developed nations live better than the .1% of a hundred years ago.
Inequality may be a problem, but it's not an existential threat or even a primary concern to developed countries.
[0]https://marginalrevolution.com/marginalrevolution/2014/04/mo...
[1]https://www.economist.com/news/international/21719790-going-...
But that's an entirely different notion from becoming part of the top 1% richest people in the country.
Here's a graph on how wealth inequality is far worse than income inequality: http://inequality.comm.ccsu.edu/wp-content/uploads/2014/09/I...
Now, income inequality tends not to matter too much beyond a certain figure. At some point, which is far below the 1% level, you get marginal returns to your income in terms of quality of life.
However, wealth is different in that it affords so much power, which isn't compatible with democratic ideals where everyone's voice or vote is approximately equal. When 1% of the population holds 40% of the ownership and shareholder votes of all companies, land, factories etc, that can be problematic. And it is worsening.
Again, I'm not terribly concerned and I don't see wealth inequality as inherently dangerous, but it is a problem and it isn't getting any better.
And it makes sense if you look at the tippy top of the wealthy as an illustration: In nominal dollars, Bezos is less wealthy than Walton was less wealthy than Rockefeller, and Bezos is a major beneficiary of globalization.
Rockefeller had an outsized influence on American politics because his wealth was chiefly American.
Bezos, on the other hand, to hold his wealth incumbency needs to influence politics in the U.S., Canada, Mexico, the UK, the EU, Japan and China.
Globalization definitely allows the rich to reach newer heights, but it also diffuses their influence and spreads their power thin.
If a single person's net worth is more than a medium sized country's GDP, we DO have a problem.
If you have $70B you can buy votes/governments (through "lobbying").
It is no longer a democracy, because a very rich person has many many votes, rather than one.
>If a single person's net worth is more than a medium sized country's GDP, we DO have a problem.
I added italics to parts of our respective posts. They seem to indicate we agree.
We might disagree on the size of the problem or how to fix it, but that would be covering new ground.
- The general secretary of the ruling party changed every couple years.
- Unemployment and hunger was comparatively lower than during the pre-WWII period.
- Most people lived better lives in the late 80s than in the early 50s.
Do you get my point? Whether you like it or not, comparative wealth (AKA fairness) does matter to people. (Also it's funny that when talking about economic results of communist regimes, suddenly, comparative, not absolute metrics are used as an argument.)
You might think someone proposing x as a cause of inequality would check it against lists of rich people to see if it explained why they were rich. But few people who write about inequality ever seem to do this.
I'm not sure why. Is it because they're far removed from the world of startups and don't understand how it works? Is it because they have pet theories they don't want to risk falsifying? In most cases I would guess a bit of both.
Most people who write about increasing inequality seem to assume as an axiom that it's due to changes in policy, rather than changes in the world. But if you work your way down the Forbes 400, changes in the world are clearly a big factor. You could tax away 90% of Zuck's wealth, and he'd still be a billionaire.
I don't see how it is a problem. It is just another opportunity for talanted people to start their own business. Not everyone can run a company and not everybody's as creative or smart as someone who earns millions of dollars a year. So here's a question: why should someone, who doesn't have any abilities to run business, who isn't creative or smart have the same income per year? I don't really understand what's equal about this.
Please, we all know someone is going to make the argument you just did. It is the lowest effort, most intellectually shallow argument you can start with. In fact, it's a thinly veiled ad hominem if you think it through long enough as it boils down to "Poor people are poor because they suck."
In the United States, we hold it to be self-evident that all men are created equal. Period. When inequality of some form becomes so ingrained in our society so as to become everyday and even praised, it is only natural for a culture that holds equality amongst people as a core characteristic to wonder if something may be a bit off about the system.
To answer your question...
Why should someone who acts as an executive be worth so much more than the carpenter or operator in the eyes of their fellow men? Businesses are social structures, nominally intended to benefit society (often redefined as shareholders for the hard core capitalists out there) as a whole.
Yet... We see that executives and C levels get an exaggerated share of the value produced by the structure.
"But they have business savvy!" I imagine someone would retort.
Doesn't justify the compensation disparity. They just got an MBA and learned about how to structure a business while the carpenter was learning to woodwork. A business for business sake without professionals capable of understanding and executing the craft or service at hand is meaningless.
"No one would accept the responsibility without that level of compensation! It's too straining!" Another may retort.
That sounds a bit disingenuous to me. Is it mentally straining? Of course. Not so much so that orders of magnitude difference should justifiably exist between the average worker and the top of the pyramid.
Nominally, everyone should have an equal chance to start a successful business. Realistically, the later you come to the game, the more the cards are stacked against you, and in favor of everyone who is already there.
I would like to see society move in a direction where there wasn't so much incentive to "get money at all costs", but rather to solve pressing issues that are having a clear and present deleterious effect on society. The inability of many mundane laborers to be able to keep up with the market is one sych issue.
My experience of wealth has been through working in financial services where families have billions (UKP) in assets and whole firms managing that for them for many generations. Also of living in a country that's been owned in very large chunks for hundreds of years (Scotland).
The problem is that most of us consume near to what we earn, even when that's not necessary and don't have the ambition to start your own business, which now a days can start as simple setting up a webpage or selling some craft online where there is enormous amounts of free support. So becoming wealthy is impossible without, as you put it, winning the lottery.
I completely agree with you that dynastic wealth is a huge negative, but at least in America it's not as huge a deal as it would seem. And I think people like Bill Gates are at least going in the right direction. He will be giving each of his offspring 'only' $10 million in inheritance. That's an enormous amount of money, but it's also literally about 1/10000th of his peak wealth. If your parents were worth $1 million, it'd be like them giving you an inheritance of $100. But I'm not sure this direction should be forced. Though I used to find a death tax very reasonable, lately I've come to wonder how justified it is, from the perspective of liberty, for a government to forcibly seize some large majority of the assets of an individual in passing, just because they happened to live a very successful life. And even if we do find this reasonable, enactment is going to be dubious at best as it would simply encourage people to distribute their assets, prior to death, to the same people it would have gone to previously by right of will.
[1] - https://www.fa-mag.com/news/most-millionaires-self-made--stu...
#1 is the tax code and the tax code explains a lot of how those three got so rich (e.g. Amazon's sales tax avoidance).
>I'm not sure why. Is it because they're far removed from the world of startups and don't understand how it works?
Out of curiosity how close are you to the field of tax avoidance?
Personally I think it’s luck, a lottery with no upper bound with ever diminishing odds of winning as the prize goes up.
The whole point of the article is that there are more ultra wealthy now than there ever were before.
>Personally I think it’s luck
So what, some people are just luckier now?
Yes. Partly. Peak relative wealth — or the specific Gini coefficient — is not something I would expect to be constant, but is something I expect to be modified by social policies more than tax rates: what the money is spent on is more important than how much is raised.
Increasing inequality is the natural trend of capitalism because it's easier to make money when you have more money. The only way to reduce this is to raise taxes (like we did with our 70% marginal tax rate on incomes over $5 million/yr in 1940 in today's dollars). Problem is we elect politicians that don't make this happen.
Better solutions are needed.
More to the point, they can hire the best propagandists to spread the idea that it's too hard to tax them and you should do something else.
No seriously, am I wrong? Has taxing the rich ever been successful in the long term?
Take for example the much-lauded United States marginal tax rates of the 1950s. Do your research and you’ll find that the wealthy evaded those taxes quite handily.
I don’t see how it’s possible to get any more blood from that turnip. Better solutions are needed.
[0] https://files.taxfoundation.org/20170804133536/Average-Effec...
I just mailed the feds my owed taxes for 2017; my high earner effective federal tax rate is ridiculously low (lower, because of the cut off for social security at ~120k, than significantly less well paid people).
I didn’t ask for these tax cuts, and they’re certainly not enhancing my propensity to work, they’re just going to allow me to retire earlier.
But if your point is that income taxes aren’t an awesome way to raise revenue, I’m with you. Land-value-taxes would be almost impossible to avoid, and would have the salutory effect of improving efficiency in dense urban areas.
The wealthy are clever, or they can hire some downright clever people to help them. Better solutions are needed.
If rich people want to move out to rural areas to lower their taxes, that’s fine by me.
The main difficulty with land value taxation is deciding what the actual land value is.
Because for some recipients, especially for the non-rich, these are non-repeatable, you do need to add some handling to the regular income tax system to address inconsistent incomes with multi-year smoothing mechanisms to make taxation of those kinds of income fair, but that also makes taxation of variable regular income more fair, too.
When these laws are passed, will assets be sheltered by accountants?
I know a Bitcoin millionaire. He avoided capital gains taxes this year by upgrading his Jeep. The money that would have gone to taxes, he used instead for upgrades, because of a loophole that permits upgrades to be taxed at a much lower rate.
They’re smart, the rich.
The military budget is the elephant in the room that no one will address for fear of appearing as soft or anti-American.
* By the rich, I'm not referring to the doctors, engineers, and lawyers in the upper middle class, I'm referring to billionaires
Capital, like water, takes the path of least resistance. There's ample academic literature which shows and explains international tax competition exists, we can't pretend it doesn't. Any country that increases taxes just signals to the increasingly mobile tax base that they ought to go somewhere else. And tax coordination, i.e. countries agreeing on minimum tax levels, is an incredibly difficult political problem. You're literally putting the heart of a country's budget on the negotiation table, it doesn't get more political.
As such, it's not at all extremely easy to solve. It's not just an issue of integrity, it's also an issue of international politics.
If, say, US would pass laws that allow them to tax everything that touches/ does business with a wealthy individual - that would make it very hard for said individual to avoid taxes (relocation to other countries doesn't help, and avoiding any business with US is impractical). I mean - what I present here is certainly not a "workable idea", but the gist of it should be that "because it was impossible in the past, it's not necessarily impossible in the future".
Who would pass these laws; politicians, right? The same politicians who are influenced by lobbyists, right?
You might then outlaw lobbying but the wealthy would just find another way to bring influence, wouldn’t they?
In the US at least, the rich (top 1%) pay almost 40% of all taxes. Look at the top 10% and it's 71% of all taxes.[1]
Why do you say it's hard to tax the rich?
[1]https://taxfoundation.org/summary-latest-federal-income-tax-...
The fact that the 1% can pay 40% of all taxes and still be wealthy is an indication of how massive inequality is on the US.
So let's see if that's happening...
Top 1% pay 40% of all taxes. How much of total income do they earn? Interesting, only 21%. Looks like they already take on a much higher burden than their income alone would suggest.
The only tax analyzed here is the federal individual income tax, which is responsible for more than 25 percent of the nation’s taxes paid (at all levels of government). Federal income taxes are much more progressive than federal payroll taxes, which are responsible for about 20 percent of all taxes paid (at all levels of government), and are more progressive than most state and local taxes.
Should the top 1% be paying 100% of all taxes? 90%?
If we had a target we'd know how to get there.
So it sounds like you believe the current level of tax take is sufficient and we needn't press for more?
[1] https://en.wikipedia.org/wiki/Taxation_history_of_the_United...
"Quantitative easing", CPI, "Debt-based money", "Zero interest-rate policies", and "The decline in the purchasing power of money".
Raising the interest rate would constrain investment and lead to recession. This is a key part of the conventional understanding of interest rate/inflation links, which have been managed fairly effectively in the West for decades.
The only really sound thing he says is "Wages have not risen by the same amount. Those who rely on their salaries to get by have suffered an inexorable erosion of their wealth. Those who own assets have made good."
Keywords that don't exist in this article: Job, Workforce, Education, Technology. None of those even get a place in the top 10?
A fiscal/monetary policy problem like this is potentially best served with a fiscal/monetary policy fix.
I used to assume other people being rich caused no harm to me, but turns out that on a societal level, there's decent evidence that it does hurt us.
It's also worth noting that it would be dishonest to present the options as current system or no distribution vs. total redistribution. The argument is generally for more distribution than we have, but way, way below full redistribution.
Full redistribution would be very harmful to society as a whole, but there's evidence for a significant gain to increasing beyond the current level in the US. Wilkinson focuses on the evidence that this is true more than he does the causes (iirc -- it's been a while since I watched his talk), but it's not hard to come up with some possible reasons -- regulatory capture on the high end, dead-weight loss from losing the productivity due to malnorishment, insufficient education, insufficient healthcare on the low end. (Malnorishment and tropical diseases clearly results in productivity loss in poor communities in sub-Saharan Africa, but even in the US, simply providing multivitamins to "working-class" students for three months did very little for most, but for 17% of them boosted the IQ 15 points. What do you think funding that would do to the economy 10-20 years from now?)
Ever heard of aggregate demand? https://en.wikipedia.org/wiki/Aggregate_demand
Think oligopoly, democracy, absolutism, slavery... All these concepts, they're not just useless words someone came up with to be a bitch, a lot of them were the 'status quo' one day and people wrote about them and frequently refer to them because it was a mess to disentangle them. There's a warning in each and everyone of them, you of course can not care or think it will all just be ok, but they're still warning regardless.
Lots of us do, because the fact that the three richest people in America own as much as the poorest half combined tells us that the laws that govern our playing field may not be presenting a particularly fair or level playing field, despite claims that anyone can work hard and win at life.
Wealth inequality is a problem for those of us who do care because we want a society that actually does work for everyone in some semblance of similar proportion, not one in which everything is peachy for a few, miserable for the rest; this one doesn't seem like it is.
Again, you don't have to care.
I'm not sure I agree with that.
Can we at least agree that the distribution of wealth has changed dramatically in the last few decades? That the middle class is shrinking? That income mobility (in the US) is worse now than in the immediate post-war years?
If we agree on that, can we next agree that the current trend is likely unsustainable? Either because market forces will correct it, or because of some form of revolution, or something else?
The question then becomes "should we intervene?" The answer to that would seem to depend on what you consider the likely outcome lacking intervention. Is it a massive and disruptive market correction? Is it an actual guns and tanks revolution? Something else?
I don't think anybody (at least not anybody reasonable) is calling for text-book communism or anything close. Only that we consider what it means to us, as a society, that some families have this unfathomable wealth, while other families should be homeless and starving.