Joseph Stiglitz Says American Inequality Didn’t Just Happen
evonomics.com
evonomics.com
And it is a fiction. Here's a thorough takedown: https://hbr.org/2017/05/managing-for-the-long-term
This makes a lot of good points, but one I find particularly telling is that maximizing shareholder value is not even a well-defined goal, because it doesn't specify a time frame. A public company could be run in such a way as to cause wild swings in the share price, and the day traders and HFTers would love it, because surfing volatility is how they make their money. Of course no one thinks that those are the shareholders whose value should be maximized, but someone who accumulates a position over a couple of months betting on the price going up after the next quarterly earnings report, and who plans to sell shortly thereafter, really isn't that different — and yet somehow these are the people who have managed to seize the narrative that they are the shareholders whose value maximization counts.
And the consequences of people believing this are just massive. Offshoring, reductions in R&D, stock buybacks, a general failure to invest in the future — all of these are driven, to some extent, by this idea that the stock price must be goosed at all costs.
Furthermore, it is mostly hedge funds that benefit from short-term price gains, as they're frequently leveraged, often with options. Long-term holders like individuals and mutual funds are usually unleveraged.
People need to educate themselves on personal finance matters like this because inaccurate thinking towards seriously emotional issues like this has dangerous consequences.
Your example looks correct. But I don't see how is the common case. Middle class investors usually don't have more percentage in the market that the 0.1%. Most middle class main investment is the home they live in.
While this is true for many, the extent of 401(k) might signal differently. Also, most of the wealthy I know have far less in the stock market than you might imagine. Real Estate, development and private placements. Stock Market is too tax inefficient.
Keep in mind that when referring to real estate the value is often the equity (asset - debt) not the asset value itself. Pretty sure that is the case with SCF data from the Census.
https://www.financialsamurai.com/what-percent-of-americans-o...
That doesn't necessarily mean 48% cannot invest in stocks - they just may be unwilling to. I know many middle class people who invest in other things besides stocks, like bonds and real estate, as well as the proverbial mattress.
> strapped with significant debt
Buying a house with a mortgage is leveraging an investment debt. In fact, leveraging an investment IS taking on debt.
It's funny, that I came into the thread to make the same point to an extent. The problem is that it is a fiction but that fiction has become law [0]. I honestly don't know the legal system well enough to know how this gets fixed but in the interim it seems a slightly to strong effort in navel gazing to talk about how its incorrect without acknowledging that it is.
It is unfortunate that such transitions happen so consistently in management. The field seeks to be treated as a science (in the paradigm sense) despite not having the basic philosophical characteristics. Findings in physics may change what I look for in future physics experiments but observing a phenomenon isn't going to change it (and grant me some grace...we aren't talking about quantum). In management, the observations are the behavior of humans and the results inform human practice. That makes research management and practice inseparable, no matter how much they want to be science. However, that is ignored an an attempt to take a scientific stance. The result even affects pedagogy with techniques designed to communicate the development of critical thinking through engagement of multiple perspectives is usurped over time into just teaching the current 'rules' of business [1].
[0] https://www.litigationandtrial.com/2010/09/articles/series/s...
[1] Bridgman, T., Cummings, S., & McLaughlin, C. (2016). Re-stating the case: How revisting the development of the case method can help us think differently about the future of the business school. https://doi.org/10.5465/amle.2015.0291
If that were true, the S&P 500 would have terrible long term performance.
But this is just not happening.
Look how richly rewarded AMZN is for long term choices.
Periodic exceptions appear, almost always in winner-take-all network spaces over this period (energy companies being a possiblee exception), frequently showing a rapid rise and more precipitous fall. AT&T, IBM, Microsoft, Google, Amazon, among them.
https://www.forbes.com/sites/stevedenning/2012/01/25/shift-i...
Need to take into account the ever-greater share of the GNP consumed by the government.
MSFT has been around for >30 years. Still waiting for their sacrifice of the long term to produce a precipitous fall.
Microsoft eventually climbed above its Dec 9, 1999 close. In late 2016.
(and Microsoft's profits continued to rise during the 2000's, their P/E dropped, not their profits)
PG's essay, as with most realisations, postdates reality, and specifically suggests by 2005.
I'm not hypothesizing that corporations don't make strategic errors, of course they do. I'm saying they are not rewarded for sacrificing the long term to pump up quarterly results - and I've seen no evidence of Microsoft doing that.
I responded noting that an earlier period's darling had in fact declined.
I really don't have the time or patience to go into details here, though I can point to Microsoft's monopolistic and anticompetitive business practices, its quality problems with bugs, security, malware, and spyware, its "plays poorly with others" reputation (see PG's essay for a manifestation), and considerable brand erosion, to the point that Microsoft branding, particularly within the mobile space (WinCE, Windows Mobile, Zune), and search (Bing).
Much of which might be traced to pursuit of short-term returns over long-term risk.
Or in a word: yes.
I.e. speculation
> long term decline
Microsoft stock is dancing around its all time high. Not bad for a company that supposedly has been sacrificing the long term for the short term all along, and so should have died out 30 years ago.
Yes, Bezos made it clear that he was going to reinvest all profits for a long time. Although obviously some people thought this was a great strategy, it was considered quite unusual.
Google is another example of a company that has done very well while making it clear they were not going to dance to Wall Street's tune.
But the existence of notable exceptions doesn't disprove the overall trend. An awful lot of companies these days don't seem to be able to find any better use for their retained earnings than stock buybacks ... at a time when technological change is only continuing to accelerate. Even if overall R&D spending is up, as might not be too surprising in an era of record profits, it could be up a lot more.
I do know a couple companies that "danced to Wall Street's tune", or what they imagined it was, and screwed the long term position for quarterly profits. WS investors were not fooled, and their stocks tanked.
Do you really think that sophisticated investors who study the companies they invest in are so stupid as to reward companies for doing this?
So there is a Worldcom or Enron or Toys R US or Sears or Montgomery Wards every once in a while to totally collapse but something like Kodak can go through a long period on top until it declines when its moat declines or even two of the three car manufacturers in the USA and most of the major financial institutions would have gone bankrupt without government intervention in the last 20 years.
First of all, as you point out, even if it were a legal standard, the lack of timeframe makes it is such a flimsy concept as to be totally unenforceable. Cut R&D spending? The money could be better allocated elsewhere. Increased R&D spending? Increasing long term share holder value by creating new revenue streams.
Even if we assume every board member is a slave to profit making on a short timeframe with no concern for the environment or human life, I can’t think of any issue before a board that would not have strong, profit oriented arguments on both sides. Buying solar panels? Screw the environment, that was just to reduce reliance on fluctuating local emergy prices. Cutting ties with your sweatshop? Just want to avoid the bad PR. And on and on.
The idea that company board members would be acting in a more environmentally friendly and humane way, except that they think they have to operate under some vague legal standard just doesn’t make sense. Unlike the Internet, board members likely get their legal advice from lawyers.
The answer is far simpler. Board members that act without regard for the environment and human life do so because they have none. Let’s not pretend they would all be Like Mother Theresa but got duped by Internet rumors.
Google makes > 50% of its revenue outside the USA. Here is Apples's percentage: https://www.statista.com/statistics/263435/non-us-share-of-a...
Apple employs 123,000 people, 80,000 in the USA (best stats I could find). Google employs 80,000, and AFAIK over 50% are US based.
So what we have are companies with a growth rate far in excess of US GDP as they create wealth from the world, with the majority going to US based employees and shareholders. Doesn't it just make sense that this leads to inequality? Those that work at global scale - and the locales that house such employees (READ: Bay Area) will have outsized results vs US centric businesses and locales.
I think it is even worse than simply "easy credit", I think the rewards built in encourage exploitation. Allow me to explain.
1) You have capital seeking a return.
2) There exists a basic need that can be facilitated by the application of capital (a degree for a "good job").
3) You remove all the risk out of providing capital for filling the need through government guarantees.
4) You provide a rate of return that is higher than the government guaranteed rate on their own capital instruments (treasury bills).
#4 there, which gives you higher returns on low risk investments, creates a demand for those instruments. And that demand causes a supply of instruments to be created. And the regulation on that supply is minimal.
The result is you get financial institutions giving loans to students for useless degrees at inflated cost institutions knowing that the government has made defaulting nearly impossible (hence the low risk) and they can offer better rates than t-bills.
Students are being exploited exactly like unqualified home buyers were being exploited in the mortgage fiasco of 2008.
What annoys me about the journalistic coverage is that the 'rage views' are "Students are graduating with few prospects from college and a mountain of debt" whereas the bigger story is that "Rich people demanding higher returns, enslave unsuspecting youth through their loan seller proxies."
https://news.ycombinator.com/item?id=6225976
Then there is this observation by dsirijus a few years back which now with the ICO craze seems ever truer:
Any sufficiently advanced business model is indistinguishable from a scam.
Purely?
We regularly hear people concerned about the hypothetical existential threat of a paperclip maximizer AI being invented in the future, yet this concern reliably ignores the AI overlords we already have: paperclip^Wprofit maximizing corporations. The VM for this type of AI has an incredibly slow clock rate and an extreme CISC ISA that often modifies itself in the RTC interrupt. The AIs are not a future threat; they already enslaved us.
The problem is our unregulated capitalism. Until that is addressed[2] we are merely debating which profit-maximizer AI we want to serve.
(my thanks to Charles Stross for the maximizer-AI/corporation metaphor[1])
[1] https://media.ccc.de/v/34c3-9270-dude_you_broke_the_future
[2] I suggest heavy regulation to protect the useful parts of capitalism. Left alone, capitalism destroys the very markets it needs to survive.
Ah yes, the unbridled laissez-faire capitalist markets throughout the world. It couldn't possibly be that our markets are more regulated than ever before, or that the very regulations and bureaucracy meant to protect us have caused these failures.
No no no, it's capitalism's fault. It's certainly not that government power has for decades been exploited by the incumbents to kill competition.
The market has failed. Now government regulation is necessary to protect us from the evil rich corporations who want nothing but profit. Rest assured, if we allowed them to operate freely it would result in catastrophe!
So pure, unregulated capitalism, lead to wealth inequality far, far more extreme than our current situation.
58 Peter R. Shergold (1982). Working-Class Life: The "American Standard" in Comparative Perspective, 1899–1913. University of Pittsburgh Press. pp. 5–7, 222, 224. ISBN 978-0822976981.
59 Steve Fraser (2015). The Age of Acquiescence: The Life and Death of American Resistance to Organized Wealth and Power. Little, Brown and Company. p. 66. ISBN 0316185434.
Wealth inequality is misleading as it doesn't represent standard of living very well. Income inequality is better in that regard.
With regard to class mobility, can we say at what level it gets too extreme or conversely at what level it is just perfect? A country such as Albania has a lower Gini coefficient than the US but is much, much poorer, but as such has less income inequality. I don’t believe that social mobility is much better there (I happen to have a good friend that lives in Tirana).
Good law in a democracy is a positive externality. Desirable policies benefit everyone but their private benefit to an individual is small even if the individual is altruistic. Government is supposed to resolve market failures, but it itself is the sole reason they exist.
Creating the middle class was a deliberate, hard fought policy choice. The USA has done it (massive redistribution of wealth) three times. We're overdue for the fourth cycle.
Wealth and Democracy: A Political History of the American Rich [2003] http://a.co/6rMyoc1
"The Second Gilded Age has been staggering enough in its concentration of wealth to dwarf the original Gilded Age a hundred years earlier. However, the tech crash and then the horrible events of September 11, 2001, pointed out that great riches are as vulnerable as they have ever been. In Wealth and Democracy, Kevin Phillips charts the ongoing American saga of great wealth–how it has been accumulated, its shifting sources, and its ups and downs over more than two centuries. He explores how the rich and politically powerful have frequently worked together to create or perpetuate privilege, often at the expense of the national interest and usually at the expense of the middle and lower classes.
With intriguing chapters on history and bold analysis of present-day America, Phillips illuminates the dangerous politics that go with excessive concentration of wealth. Profiling wealthy Americans–from Astor to Carnegie and Rockefeller to contemporary wealth holders–Phillips provides fascinating details about the peculiarly American ways of becoming and staying a multimillionaire. He exposes the subtle corruption spawned by a money culture and financial power, evident in economic philosophy, tax favoritism, and selective bailouts in the name of free enterprise, economic stimulus, and national security.
Finally, Wealth and Democracy turns to the history of Britain and other leading world economic powers to examine the symptoms that signaled their declines–speculative finance, mounting international debt, record wealth, income polarization, and disgruntled politics–signs that we recognize in America at the start of the twenty-first century. In a time of national crisis, Phillips worries that the growing parallels suggest the tide may already be turning for us all."
Although I also think that GGGP comment is also a drive-by, it just has a color of 'reasoning'.
It reads like a book review. It hints at topics, but never declares what is to be said about them.
It was such an imposing wall of text, that I read it thrice hoping to fine anything that I could reply to in argument, but there's simply nothing there.
It's not evidence.
It's not a source.
It's not even an argument.
It's a teaser to buy the book and find out if the book has an argument within it.
I encourage you start your quest by clicking the handy link provided.
So blame me, not the esteemed economist.
The middle class appeared in the US right along with industrialization. You can see it in paintings of towns and such before the Civil War. All sorts of businesses and middle class homes. A few years ago a pre-war Mississippi steamboat wreck was dug up and it was stuffed full of trade goods for middle class people.
The alternative proposal was selling the land to raise money directly for the government.
Imagine if that had happened. We probably would have had South American style share croppers in toiling in usury and enduring inequity.
After WW2, the Soviets trucked every asset they could out of Germany to the USSR, but what was left still produced a much wealthier middle class than in the post war USSR.
I suggest the historical record is that massacring and seizing doesn't produce a middle class.
https://www.goodreads.com/book/show/86154.The_Mystery_of_Cap...
Though I haven't kept up on all the subsequent criticisms and refinements, I'm confident his central thesis is solid. At least solid enough to be worth criticizing.
When people cannot own property, and/or there is no enforcement of property rights and contractual obligations, there's little to no economic progress.
I'm just pointing out that the creation of a middle class is a deliberate policy choice, not the magical outcome of Freedom Markets™ fairie dust.
There was also a system for allocating land to the pre-Revolutionary colonists, but I don't recall the details.
I'm pretty sure the American Civil War was over before then.
In other words, things might be getting better for the upper middle class as compared to 150 years ago, while the lower and lower middle class remains similarly situated. (If you model their economic contributions as hours-of-labor, that’s not all that surprising an outcome.)
[0] Mere millionaire is nearly meaningless at this point IMO despite the political rhetoric against the “millionaires and billionaires”. A million bucks, half tied up in a house, provides a passive income stream of around $20K/yr. It’s the $10MM (maybe $7MM) mark where I start to think of unequal privilege being a possible concern.
While there are “more millionaires” than before, that’s a bogus metric due to inflation. You have to look at concentration of wealth as a percentage and a ratio between. Wealthy and poor and “middle class”.
If you do that it’s obvious what the issue is; wages have stayed very flat for the poor and middle class and almost all wealth gain has been concentrated in the top very few percent. Because most wealth gain is happening in finance and investing, and like I said wages have stayed flat for many decades.
People selling hours of labor are selling those hours in some ratio of dollars and that's what their labor is worth. What's happening on the high end is that advances in technology, finance, and manufacturing have made gains in excess of inflation, and under that set of conditions, of course wealth flows to the owners of those advances.
(I'm not saying that what we have today is exactly right, but I'm sharing my mental model of why it's entirely unsurprising.)
It's that existence of these two completely different economic realities that makes the inequality issue at once so intractable, and so critical to address.
It should be enough to say, only rich (or soon to be rich) people can live in SV.
The thing that’s crazy is that this can cost 2-3 million dollars in many places in the Bay Area. The housing crises in affluent cities is absolutely the driving factor of our growing inequality issues. It’s been shown in different ways in many studies. We need to build a lot more housing if we hope to make any real progress on these issues (and in desirable places like the Bay Area it probably requires shifting the ideal to be a 3 bedroom condo rather than a standalone house).
how can this be so? i agree it sucks that {insert middle class profession} can't afford a 3br in the bay area or NYC, but how can that be the root cause of inequality across an entire nation? there are tons of affordable 3br houses around where i live (mid-size coastal city).
i see that it is a bad thing for service workers the wealthiest cities to be pushed ever further from their place of work, but this seems like a more local problem.
i feel that this claim is exaggerated. anecdotally, i live in a suburb of a midsize city. i rent a 3br house for under $2k a month and there are tons of tech companies within a 25-45 minute drive of my dwelling. an entry level job at any of them would easily put a person in the high end of middle class incomes for this area.
to be sure, companies in the wealthiest US cities offer experienced employees compensation that is unmatched anywhere else. but for entry level and/or average skilled developers, it seems like SF, NYC, etc. are the only places where you aren't guaranteed an upper-middle class lifestyle.
You bring up a point about how can this be causing inequality across the nation. Well if you think about it there really isn't consistent inequality across the nation, wealthy people by and large tend to live in or around big expensive cities, where their returns are consistently driven higher than they would otherwise be thanks to housing prices. It's not only NY and SF that have housing issues, it's more pronounced in these places but lots of cities across the country are seeing housing costs increase quickly.
[0] https://www.brookings.edu/bpea-articles/deciphering-the-fall...
If our family had $5MM net worth and paid off our house, we'd be looking at a passive income stream of somewhere around $120K/yr, or about what two median public school teachers make. That's hardly Scrooge McDuck or "day drinking mojitos on the fantail" territory...
Couple A with $3MM in liquid assets and self-funding their retirement is not particularly better off than couple B[0] who has zero liquid assets and $120K/yr in state-funded pensions, yet couple A is the target of multi-millionaire scorn and couple B is just "well, that's why we have unions and pensions..."
[0] Couple B is probably far better off as most state pensions include healthcare coverage.
Missing an /s? The expected value of my Fidelity account is >$0, which is more than I can say for Social Security or public pensions in almost any state.
In Australia, it's A$35k (US$27k) a year for a couple. I would have thought the US amount to be less than ours off the top of my head.
It's not really that the top 1% has more money it's mostly that the top 0.1% has vastly more money. https://www.theguardian.com/business/2014/nov/13/us-wealth-i...
PS: People often think of themselves as middle class but frankly 5million is far from it. 5 million means you can pull 250k per year safely and really should consider retiring because more money has diminishing returns.
However, you don't need to pull 250k before taxes to match the equivalent of what a 250k salary provides after taxes due to preferential treatment of investments. And even less to cover what a 250k salary after covering retirement investments.
(A) 3 people earn 25k a year, 4 people $30k, 3 people 40k.
moves to:
(B) 4 people earn 50k a year, 4 people earn 60k a year, 1 person earns 300k a year.
B is typically viewed as both preferable and less equal to A. I'm not saying we were at A and got to B. What I'm saying is that I don't know, and a treatise of A/B is always left out from every single article I come across on the topic of inequality. What kind of inequality are we talking about and is it an issue?
It's like the gender gap. Tons of studies indicate if you correct for things like job choice, experience, overtime etc, the gender gap is about 2 or 3 cents on the dollar (and shifts in favour of women under certain conditions. Cultural gender roles likely influence things like job choice and you can make a sensible claim that this ought to be fixed. But the framing of unequal pay (20% less!) for equal work just isn't the case. However, plenty of data now shows the gender gap isn't as big as we think, mostly unrelated to blatant discrimination and quickly becoming smaller and smaller. The literature is more nuanced than some of the political movements behind it. But in the realm of inequality all I read is 'top x% makes y% of the money', without delving much deeper into why this is a problem, there's no nuance or depth in most news articles on the topic, and I'm not familiar with (or too interested in reading) super technical research on the topic.
Don't get me wrong, I'm a leftist, I'm aware that inequality correlates strongly with a whole range of shitty social outcomes like crime or teenage pregnancy. But I want to know what I'm arguing against and why, and I've got no clue whether we're talking about inequality between regular folk growing, or inequality between equal regular folk and a few bill gates types growing, and which is problematic and why.
So point me to some (not too extremely academic) literature if you can! Thanks.
Your examples involved totals of 325k and 740k, so yeah, of course the one with more than twice the wealth (and divided among one fewer person) is considered more deisreable.
An example to match the inequality we have today would be closer to 1 person earning 900k, 90 people earning 10k, and 9 people earning 100k.
The issue isn't just inequality, your point that some level of inequality is?expected and even good in a capitalist system is correct. The issue is EXTREME inequality and increasing inequality.
Even if the argument was accepted, one would have to prove such inequality truly generated 2x the wealth creation, which is an economically HUGE difference.
Thirdly, comparing 1@900k, 9@100k, 90@10k (1 mill total) vs 100@10k (1/2 mill total) and you see that the difference is only there for those 10 people. Were I one of the 90 (and to be clear, I'm one of the 9 in this model) I'd not give much care for arguments that the extreme difference is worthwhile.
Lastly, In addition to inequality, there's also the issue of mobility (one might defend my example by saying the 90 want the chance to be one of those 10). Social mobility has been dropping for quite a while. If you want to live the American Dream, you have notably better odds outside of America. The chance at social mobility as an incentive is not an effective argument for the point-in-time system of today. A system where it IS an effective argument doesn't have to be radically different, but it does have to be different.
And I think it makes sense if you consider things in a thought experiment. In a nation with a king and a 100 impoverished citizens inequality would be mostly invisible. But now imagine our king decides he's been cruel keeping everything to himself. And so he decides to grant 10 of the citizens great tracts of lands means of production. Well now the inequality would become quite a bit more visible. Instead of just one king you now have 10% of the entire population living in the lap of luxury.
The king realizes this is a problem and so decides to greatly expand the holdings of these 10 individuals and now grant an additional 30 individuals holdings comparable to what the 10 prior had. So now you have a king, 10 incredibly wealthy individuals, 30 wealthy individuals, and 60 commoners. But of course the problem becomes even more apparent. Now an entire 40% of the population is living in luxury while 60% feel completely left out. What made those 40% so special anyhow?
As more and more people make their way to the top, even as a percent of society, the apparent inequality somehow grows. This feels paradoxical because if we look at things objectively society has become vastly better off as a whole, yet it would feel quite the opposite. And that does seem to be exactly what is happening to America today.
But of course people are not suddenly content. When the standard of living changes people take it for granted and then seek more. It's not a bad thing. This never-ending desire for more is undoubtedly a big part of the evolutionary drive that's brought us to where we are, but it also means people will never be content. Describe the life of the poor today to people from not all that long ago and it would seem like we live in a utopia - air conditioning, electric toys, color television, cars, regular access to food, indoor plumbing? But of course we see things quite differently! And I expect in a few hundred years we'd see the lives of the poor of that time as something like utopia, but they too will undoubtedly see things quite differently! Man's nature is a great and awful thing!
Rich people demanding higher returns, enslave unsuspecting youth through their loan seller proxies.
But it's not even rich people demanding higher returns. As Planet Money observed in what I consider a seminal piece for understanding the 2008 financial crisis, The Giant Pool of Money, what helped precipitate the bubble and collapse was institutional investors demanding a simple reliable 3% ROI:
https://www.thisamericanlife.org/355/the-giant-pool-of-money
After Greenspan had warned money managers not to expect the US government to provide it with T-bills any more, Wall Street stepped forward with their innovation: NINJA loans, ARMs, CDOs, and the other crap covered in The Big Short. These had the effect of inventing new ways for everyone, but especially working and middle-class people, to go into debt to cushion returns for a wealthier investor class. Just as many people who traditionally would have never gone to college can now go to college by taking on huge nearly unmanageable amounts of debt, people who would have never bought a house before were sold the illusion of being able to afford a house -- by taking on huge unmanageable amounts of debt.
So yes, I agree, more millionaires fattens the right side of the tail. But it still seems to come at the expense, and the exploitation, of their down-class fellow citizens.
I also doubt that this new class of millionaires is evenly distributed geographically and the resentment being bred among, for example, Trump supporters, has less to do with observing the local Rockefellers tooling around town in their limousines, than watching the Kardashians on television and, nowadays, Potemkin Lifestyle Celebrities on Instagram.
But the eye opener is this. This is the change in the size of each economic group between 1979 and 2014 as a percent of the total population:
- Rich: 0.1% -> 1.8%
- Upper Middle Class: 12.9% -> 29.4%
- Middle Class: 38.8% -> 32%
- Lower Middle Class: 23.9% -> 17.1%
- Poor or Near-Poor: 24.3% -> 19.8%
Statistics like this are certainly subject to biased interpretation and 'massaging'. If one is curious about the source, wiki has a section on the political stance of the Urban Institute [2]. Though the paper itself is very transparent in their methodology and extremely readable. I found it all eye opening to the point that it actually changed my worldview.
[1] - https://www.urban.org/research/publication/growing-size-and-...
[2] - https://en.wikipedia.org/wiki/Urban_Institute#Political_stan...
- rich: 13% -> 31.2%
- middle: 38.8% -> 32%
- poor: 48.2% -> 36.9%
There has been a major migration of people upwards in society. The poor are becoming middle class and the middle class are becoming rich. I think most people instead think society is remaining stagnant with all the wealth going to the same people, even more incorrectly that society is becoming more poor except for a small handful of people.
We are doing some things seriously right. You would never imagine this from how things like inequality are normally framed. Like mentioned I certainly didn't. I found this study looking to confirm my bias that society was actually deteriorating (or at best stagnating) socioeconomically. The problem is that is utterly and absolutely wrong!
In the US, I'd hesitate to call it an improvement when the cities became unpopular, and the newly minted middle class chose to live in the suburbs, with tech parks, and factory parks. Then the poor could live affordably in cities, which people would still go to for entertainment, but crime sky-rocketed, and educational opportunities plummeted till inner city schools were the worst in the country.
To me, the issue of the underclass is systemic. You can't bandage over it with rent-control, or temporary welfare programs. The only way to deal with it is a universal entitlement that anyone, of any income, benefits from like for example universal healthcare which in Europe has leveled out infant mortality rates between the poor and the middle classed.
If we could provide education, food and housing in the same universal way, it would eliminate much of the issue of inequality.
The real cause is the regulatory capture of the Republican party by business generally and the subsequent maintaining of that process through, first, gerrymandering and subsequently, gaming appointments to the Supreme Court.
It will be a difficult and long process to reverse this attack on the public interest.
And the devolved nature of the Republic meaning that reforms that the UK and Europe went through haven't happened has nothing to do with it?
The weak party system is another problem makes it much easier for fringe candidates and entryisiam to take place
When you say someone is worth N billions, that’s all money that’s out of the economic and spending budged loop; trophies to vanity and greed hanging over a fireplace
“Think of Alan Turing, whose genius provided the mathematics underlying the modern computer. Or of Einstein. Or of the discoverers of the laser (in which Charles Townes played a central role) or John Bardeen, Walter Brattain, and William Shockley, the inventors of transistors. Or of Watson and Crick, who unraveled the mysteries of DNA, upon which rests so much of modern medicine. None of them, who made such large contributions to our well-being, are among those most rewarded by our economic system.”
I thought Watson, Crick, and Franklin were working on a team and that she was left uncredited?
Photograph 51 is a good play about Rosalind Franklin BTW.
Your statement is at least[#] as ignorant as saying that J.J. Thompson discovered electricity since he discovered the electron. Of course, the electricity had been discovered long before that.
[#] What I have in mind here is that even the statement that she discovered the molecular structure of the DNA is not strictly speaking accurate.
Our system rewards value extraction (rent, financial hacks) far more than value creation.
Your rhetorical question provides no value. I want to know how we should decide who should be rewarded, how we can obtain the money to reward them and what benefit does rewarding them in this fashion provide to society.
Sure.
An innovation tax, and a group of cross industry and academic people (e.g. a mix of successful founders, engineers, great researchers, Nobel winners, plus a jury of common folk etc) that decides, every e.g. 5-10 years, who gets to share the money among a shortlist of potential benefactors.
"Hmm, looks like this Turing person did good work in retrospect that hugely helped our society. Let him have $100 million of the $1 billion innovation fund".
Who said that? For one, we can tax people more. For another, we could do a better job on spending the tax money (e.g. stop trillions going to tax cuts or military spending or BS projects).
>Also are we really going to trust some bureaucratic institution to dispense billions of dollars in a fair manner?
I mentioned a panel of non-government successful people, on academy and the market, who votes, not an "institution", much less a "bureaucratic" one.
Not all rewards need be monetary or zero-sum.
Also, one does not reward someone to provide a benefit to oneself. THAT is thinking that creates the greatest inequality in our system if you ask me.
Oh, let me pay this employee... but wait! That money goes right into a retirement account, that invests in an index fund, that supports me and my business partners...
A reward is something given at a COST to another in recognition of their accomplishment. You give it without thought of a return, because what they have done is made your life better.
The fact no one in economics wants to think through the money trail thoroughly doesn't change that the corporation is no longer a provider of services as it's primary goal... It is an enricher of the few who jump on the equity train.
Is it really that surprising to people that you wont become rich unless you convince thousands upon thousands of people to hand you money?
What our system rewards are practical products that provide value that the average working class person would want to spend money on.
This is because all the money is now at the top. Your customers are the ones who can pay.
A related phenomenon is Internet companies where the user is the product. Advertisers and others who want user data or access to attention have far more money to spend than users. Computing has transformed into a surveillance platform to monetize users because users are not the ones paying for anything.
The largest rewards are going to people using their money to finance the creation of businesses that create products people want to buy? Yeah that makes sense to me.
You can say that what our system rewards is always derived from practical products the average person wants, but that doesn't seem like a useful way to think about things.
Nowhere did I suggest that the only way to become rich was to sell practical products. I will state that this is the primary way people acquire vast amounts of money and that whether people become rich via second order and abstract systems such as financing makes no difference. Ultimately the products would not exist without the financial system that was in place.
I don't understand what you mean by this? Is this a comment about the current startup funding phenomenon?
Obvious under the current system maybe.
Obvious that it should be so, and that it's better that it's so, or that it can only ever be so? Not so much.
I, for one, think that society would be so much better if production of value like what Einstein did or what Tesla did etc, was rewarded with richness, rather than selling something.
For one, we'd have gotten rid of fucking SPAM email and social media leeching on private data to sell ads...
Unfortunately, there's no mechanism for doing this in a decentralized, dynamic fashion.
The great strength of markets is their decentralized and dynamic nature. They are the original hivemind and crowd-sourced wisdom. Of course, they have many weaknesses (especially with the corruptibility of governments). But for now, it seems these weaknesses are best handled by continually attempting to apply layers of patches and one-off fixes, instead of altering it fundamentally. Perhaps advanced AI will enable a new paradigm... although I would certainly not want to rush into such an enormous change.
I do agree that we can do a better job of rewarding and incentivizing fundamental research and innovation. But it's not going to be easy. Part of the problem is that it often take significant hindsight to know which breakthroughs are the most important.
The problem is that markets optimize for one thing, to the detriment of all others: profit.
Anything else (e.g. more inventions, etc) is a byproduct. If avoiding it will bring more profit, that's totally fine for the actors involved.
And it's not even long term profit (which, because of costs to reputation and such, will require more good behavior) -- quick term profit is equally good a motive under such a market system, human costs and externalities be damned.
Under such a system, if people could sell baby milk mixed with chlorine to make a profit, they would (and they have -- among countless of other examples of putting profit first).
We should create and foster decentralized and dynamic systems that optimize for a better world in aspects that we want -- instead of piggybacking on a naturally occurring decentralized system based on greed like monkeys.
> What our system rewards are practical products that provide value that the average working class person would want to spend money on.
Hmm. The first statement either tautologous or ignores the importance of inheritance and marriage; the second one ignores the importance of property.
http://uk.businessinsider.com/sunday-times-rich-list-2017-ri...
In addition to fairly standard retail I can see: gambling, property, inheritance, diamonds, inheritance (Earl Cadogan, Duke of Westminster, Heineken), property, actual inventions (Dyson, Rausing), corruption/oil oligarchy (Abramovich, Usmanov, Blavatnik), and war profiteering (Fredriksen).
"Productivity" here means the amount of income one generates, for their employer or themselves. So in other words, if someone is good at making money, they are productive and should be rewarded with more money.
For instance, people like me, who make their living sitting in front of a computer screen all day are paid significantly higher salaries than people who do back-breaking, physical work, like fruit pickers.
Picking fruit is really hard work and although you don't need a university degree to be employed as one, it is not the kind of job that everyone can easily do. Now that the UK is leaving the EU, fruit producers are starting to have problems with employing people to pick their fruit, because local workers will not do the job. "Will not" but also to a large extent "cannot" [1]. Agricultural work is not just a matter of good will- one needs to be able to accomplish very physically demanding tasks. People who have spent most of their working life as office workers do not have the experience, or the stamina, to do agricultural work, even if they had the inclination. They might be enticed to give it a try, if only the salaries for this type of job were comparable to their usual fare. They're not- fruit pickers typically make minimum wage.
And yet, agricultural work is an important part of the economy. Not to mention that, without it, city-dwelling, office-working types like myself have nothing to subsist on. We depend on the work of those low-paid workers who are poor in formal skills but high in ability and determination, but we treat their job as inferior, indeed less "productive" and therefore deserving of rewards than ours.
Inequality is certainly constructed, and ideas like "marginal productivity theory" are at the root of this construction. Much like god-given ruling rights of Western monarchies their use is to justify and legitimise absurd social injustices, so that we can all cling on to the belief that the current state of affairs is not so bad after all.
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[1] https://www.theguardian.com/politics/2018/feb/11/british-far...
Catalin Constandis, a Haygrove farm manager, said British workers did not want to pick fruit because it was too physically demanding.
“In my team in the past two years, no English people have worked here. We had some graduates once; they didn’t last a day,” said Constandis, who has just become a British citizen.
Then the whole thing just sort of goes to hell.
Also, the viewpoint you advocate is extremely patronizing. It assumes that a large swathe of voters are just rubes who have been taken in by parlor tricks and sleight of hand. Have you considered the possibility that, instead, they have taken the earnest position that the point of democracy is not to use the votes of the many to take from the few, but rather to set up a system that is reasonably fair to all?
My guess is that once you factor-in payroll taxes & regressive consumption taxes, the poor contribute a larger % of their income than do the rich.
> ...the viewpoint you advocate is extremely patronizing.
W/ all due respect, spare me the crocodile tears. Using economic chicanery to persuade huge swathes of voters is a storied tradition in electoral politics (as is accusing those who would call it chicanery of having 'no respect for the common man,' or whatever).
> ...is not to use the votes of the many to take from the few, but rather to set up a system that is reasonably fair to all?
I'd love for democracy to take from the many and give to the few, but for _some MYSTERIOUS reason_, the many don't appear to have much to spare these days.
So, until the Gini coefficient starts to tick-back towards this "reasonably fair" system you mention, I'll likely stick to my rube-like habit of suspiciously asking '_cui bono_?'
Some argue that b/c the rich benefit unjustly from our money, we are, as an act of justice, entitled to extract their wealth. The problem with that position is that instead of addressing the problem, it normalizes the pathologically unjust exploitation of the rich. It gives the rich even more incentive to pillage b/c of the categorical levying taxes on wealth. It erodes respect for ownership and property, things that are necessary for the good of human beings and the maintenance of social order (eminent domain has a place, but I'm talking about the common case, and even then, compensation is due). It legitimizes greed. It normalizes theft through taxes since taxation that goes beyond covering the administrative costs of the state and the financing of necessary public services is unjust. The net effect is that the rich, along with the gov't they control, become virtual slave owners on whose graces the poor are made dependent (no doubt, this is useful during elections). The middle class is in effect sandwiched between an exploitative upper class and a lower class beholden to the rich, encouraging animosity toward the middle class from both ends. That the government controls taxation does not mean all that much when the rich have significant sway over the government. The tax revenue in such situations is more likely to be used to fund things that benefit the rich, such as a public education that conforms to the designs of the rich.
One way to counter the excessive accumulation of wealthy is to require companies to make workers stakeholders in the companies they work for. What percentage they should own I don't know, but enough to be able to significantly influence things like the compensation a CEO receives. This would eliminate the need for unions as something distinct from companies since all parties have skin in the same game.
Other ways are the elimination of corporate subsidies that create monopolies and a subsidiarist approach to the distribution of political power, making it difficult for the rich to maintain power over its diffuse allocation.
It is a mistake to think that state socialism is the solution to state capitalism. In fact, they are two sides of the same coin and reinforce one another until they are effectively indistinguishable.
"Economic division was built into USD: you either pay interest on Treasury bonds, or you live off it."
I also don't think it is all so clear because I assume the distribution of entities holding gov. debt is not the same as " the top 0.1% vs the rest" (I found https://www.thebalance.com/who-owns-the-u-s-national-debt-33... but let's continue...). Don't banks, insurances and pension funds also hold a lot of it? Furthermore, we cannot simply look at who owns those entities, the funds they get directly and indirectly from holding government bonds don't go directly to the owners after all but are used in their business. So I don't think that one sentence helps all that much because no, I don't think it's that simple.
Historically, however, debt has been social nitroglycerine, which is why Christianity outlawed usury and Judaism had a 50-year debt jubilee built into it. We will relearn this lesson eventually, but in the meantime our bandaged finger goes wabbling back to the fire.
For an economic prediction to be meaningful, it needs an approximate date attached to it.
On the other hand, if you enjoy the surprise of financial crises every decade and major currency crises every five decades, you can continue listening to modern economists.
Not quite true: it’s the money we owe our future selves.
So you can arrive in the future and find that the pension that should have been waiting for you there was borrowed by past-people and they never paid it back. And you can’t go back in time to demand it back.
Money is an idea, nothing more. It is incredibly flexible, humans can do with it whatever they want, whenever they want. Did you notice, looking at history, that whenever there was a crisis humans discovered that "money" is not an obstacle? For example, financing wars (WWII especially), or the recent crisis.
Economics and money are tools that could help mitigate the consumption-at-all-costs problems we have today.
I don't think that that is true. For one, the meaning of "easily" shifts all the time, second, I don't see the problem when people actually have something worthwhile to do with their lives.
I am very concerned about what we do to the environment (as someone who had chronic heavy metal poisoning treated by chelators in a university clinic when I hear about mercury in sea fish it actually has a deep personal meaning), but that is a different issue than resource extraction (which of course may make the environmental situation even worse).
On the other hand, I see researching and developing capabilities to understand and manipulate the environment on a large scale much much better as a very worthwhile economic endeavor. For example, this also gives us a starting point for future projects in space, including "terraforming". It's obviously something we could have lots of fun developing - instead of selling insurance, "financial tools" (on top of financial tools), and other BS "products". People working in that sector, which could very well be(come) a major part of humanity, would not have the problem of finding their job meaningless, as so many do today. That the control system we use to steer humanity is incapable of steering us into such an obviously useful and worthwhile direction, but instead steers us towards environmental destruction, creating meaningless jobs, gets people to cheat one another like there's no tomorrow and being honest actually takes a real effort tells me our control system is really bad and out of control. Th eproblem is that the control system (e.g. "finance") has become the final target, instead of being seen as a tool. Instead of optimizing the tool for society we try to optimize society for the tool ("everybody has to be in the stock market - for retirement!" -- Wallstreet approves).
I’m not talking about “generations”, I’m talking about us.
The people who enjoyed an easy credit-fuelled boom in the 00’s didn’t fully understand that they were merely spending their retirement money now (or rather, then)
Now, whether society allocates less resources to some people and more to others despite being perfectly capable of producing enough for all is an entirely different question, that's a problem at any given point in time. Such as right now, today, in the by far richest country on this planet in the last four billion years. The numbers stored in computers don't force this upon us (there is no law of nature that connects the tiny electrical charges in silicon with a family not getting adequate housing, a dentist, or food despite all of those easily available, or easily producible), that is all completely man-made.
"Saving for retirement" on an economic level must be one of the biggest scams in history. Unless the government stores products and services (like doctors) in warehouses to be used 50 years from now for retirees paying to get all of that produced and stored right now - and I don't think the government or anyone does any of that that - on an economy level there is no such thing as "saving for retirement". What will be needed in the future will have to be produced in the future. They also don't need "saved money" of today in the future, since it's all virtual they can and will create that on the fly anyway, just like today (money creation process).
It could be useful if the original purpose was still true: When resources (work, machines) are scarce, do you use them to fulfill today's consumption dreams, or do you use them to build capacity for the future, i.e. instead of building consumer goods you build more and better machines and factories. In that case "saving" actually has a meaning. However, today we don't live in an economy that has that restriction. What is not being consumed now does not increase the work put into future productivity in any meaningful way or amounts. Well, maybe in some countries, but hardly anywhere in the West.
So farmers should eat their seedcorn now and worry about what to sow only when it’s already the next season?
If this were true humans wouldn't even have a concept of "hyper-inflation". The Venusualian government could just print up all the money they need instead of trying to get people to eat their pets[0].
Money, as an "idea", serves two purposes -- as a store of value and a means of trade. Without money trade would be so inconvenient (ie the coincidence of wants problem) complex societies probably couldn't even function as you would have to go out and perform multi-party trades for everything you needed. By solving the coincidence of wants problem money also allows you to delay consumption of current production since it, historically speaking, is generally based upon a non-perishable good.
[0]https://www.npr.org/sections/parallels/2017/09/14/551026492/...
The economy won't grow forever.
Inflation has a large aggregate effect, the people who first get the newly minted dollars can spend them at the current dollar value before their distribution dilutes the value of the dollar as a whole.
The effect of each newly created dollar may be immeasurably small but over time may result in things like, perhaps, growing wealth inequity and the "destruction" of the middle class.
The federal reserve driving limited inflation has occurred for around 100 years, and the time in America with the least income inequality fell squarely in the middle during the 1950s and 1960s.
The Federal Reserve and it's monterary policies aren't the issue.
The federal reserve driving high monetary inflation (ie low interest rates) has fallen squarely in the times of the most income inequality, the 1920's and today.
The Federal Reserve and its monetary policies can not be ruled out as the issue.
[...]
> The Federal Reserve and its monetary policies can not be ruled out as the issue.
The current easy-money policy postdates the trend of rising inequality by around four decades; it can unequivocally, therefore, be ruled out as the cause of that trend, unless one accepts retrocausality as plausible.
This is why I'm all in on cryptocurrency.
Sounds vaguely Schumpertarian.
Though your first description is mor National System / Friedrich List.
Why wouldn't he have started one of the numerous profitable companies of the 50s? It seems more likely that an entrepreneur would do that rather than work in another field.
> In 1998 he was able to start his own company and become a billionaire.
This appears to prove Stiglitz' point doesn't it? There was no deficit of innovation in the mid 20th century, all without massive economic inequality.
The main argument of Keynesianism always comes down to the baseline of wealth for all people though. The average person today is far wealthier than the average person in 1950, and that's the real goal. Not necessarily equality of outcomes for each individual.
I'm not sure human beings really think like that. I suspect many people would be happy to freeze the economy at its current size, so long as they stay near the top. How many people would swap places for a historical monarch, even when most such monarchs didn't have a flushing toilet?
I think relative status looms large in many peoples minds.
There needs to be a reckoning about what the goals of economic control are, because the current thought, "as long as it's going up for most people", doesn't seem to square with what people actually feel.
Wage and salary suppression is a real thing and will eventually bring our society to the breaking point. We are just beginning to feel the first tremors.
Yet a person in the third world is now able to feed a whole family and live in relative comfort even on the cut rate salaries of outsourced programming work. The point is that as long as the total amount of wealth generated in the world increases, the ends justify the means.
The report below shows global wealth from 1960 - 2015.
Per capita average ingome has increased, from $8.8/day to $17.7/day, or about $3100/yr to $6200/yr. (Fig 2.1, p. 19.)
The ratio of income disparity between the US and the world's poorest country has increased, from 47:1 in 1950 (Tanzania) to 73:1 2000 (Sierra Leone). (Fig 22.3, p. 25.)
https://piie.com/publications/chapters_preview/348/2iie3489....
Multiple authorities state that the state of the poorest people in the world is worse now than at the beginning of tyhee Industrial Revolution. E.g., Gregory Clark, A Farewell to Alms, Chapter 1. Available online.
The innovation that happened in 1950 consisted of General Electric getting into a new line of business, not a grad student starting his own company.
"In a three-month period at the end of 1879, Thomas Edison tested the first practical electric lightbulb, Karl Benz invented a workable internal-combustion engine, and a British-American inventor named David Edward Hughes transmitted a wireless signal over a few hundred meters. These were just a few of the remarkable breakthroughs that Northwestern University economist Robert J. Gordon tells us led to a “special century” between 1870 and 1970, a period of unprecedented economic growth and improvements in health and standard of living for many Americans."
https://www.technologyreview.com/s/601199/tech-slowdown-thre...
The history of computing is precisely one of government policy, namely the ARPA funding from the 60s and early 70s.