Real v. Imagined wealth distribution in the US
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In the beginning of the 20th century, class warfare was apparently imminent, but the difference between now and then isn't wealth distribution, it's wealth - period. Being poor then meant worrying about whether or not you could shelter and feed your family, today and tomorrow, not to mention over the winter, and the way to do that was more often than not through long hours of backbreaking work that might very well kill you. Being poor today means worrying about an entirely different, and much more comfortable, set of issues.
And that's just being poor, not even thinking about life in the second and third quintile.
The rich got extremely rich, while the poor got very rich. Life in general became much cheaper, safer and more comfortable. I'm sure you could find plenty of fifth-quintile people in 1915 who'd be happy to switch life with first quintile people anno 2010.
And the short version: Marx was wrong about a lot of stuff. Let's quit being surprised when reality doesn't fit Das Kapital.
People vote and support policy based on how their perceptions. It's important to understand what those perceptions are.
first of all, THAT is a giant strawman.
and second, so that's your justification for less equality - "be glad you weren't born in 20s!"?
maybe you heard about "American Dream" and stuff...
The way I read this passage of the Declaration is twofold:
A. In the eyes of the law (that is, the only way that the government can view us), all men enjoy the same rights, privileges, and protections.
B. We are clearly diverse; it is obvious that no two of us are exactly alike, or in any way interchangeable. However, it's not possible to assign a value to those differences. The way each of us fit into the grand scheme of society is far too complex to tease apart.
[1] About: https://secure.wikimedia.org/wikipedia/en/wiki/Harrison_Berg... ; Text: http://www.nationalreview.com/nroriginals/?q=MDllNmVmNGU1NDV...
0) either there is 100% inequality (which is where America seems to be headed now)
1) or there is 100% equality (that previous commenter likens to nuclear war)
That seems to me to stem from polarisation of those issues by American media: you're either rich hard working patriotic american or muslim terrorist commie.
No wonder you get the same partisan politics in Parliament and Obamas and Palins as leaders.
Well, in my world aka ROW there are larger inequalities and there are smaller inequalities and when the pendulum swings too much in one direction it's time for society to rethink something, not engage in witch hunt.
Anyway, this whole topic is too tiresome by now. After all it's called American Dream, not European or Asian Dream. Go figure it out for yourselves!
Isn't it more akin to showing programmers those source code listings, and then being appalled that so many got it wrong? We're talking about asking the relevant people who make decisions: programmers should know the facts about algorithms, or else it's likely they will make poor choices when writing software; and voters should know the facts about their society/economy/etc., or else it's likely they will make poor choices when voting.
Nowadays, mostly being rich means you get a bigger chair on the airplane, a bunch of rooms in your house that you pay to heat but never go into, a car that requires more fuel, and if you got your money faster than sense, the idiotic practice of gold plating ordinary objects and gluing diamonds all over them.
This can change if the lack of wealth once again has the potential to threaten life. With the way we are cavalierly poking the health care beast, its not that difficult to imagine. If parents are ever told in a way that makes it clear to them that their sick children will be denied treatment that could save their lives because of a lack of money (that a richer person would think nothing of wasting on a weekend in Vegas), class warfare once again becomes a possibility.
Given the fact that the US needs a huge part of the resources of the rest of the world (labor, oil, etc.) in order to be "rich" by whatever definition, it's kind of cheating to exclude the rest of the world's population from your argument on the distribution of wealth.
Marx may have only been wrong about time and scale...
There are legions of people working 80 hours a week to put a bowl of soup on their own table and televisions on the tables of the American poor.
This one is too good. Can I use it?
They didn't revolt when they were poor, why should they start now?
Also, I didn't exclude anyone - the article is very explicitly about wealth distribution in the US.
I'm not sure you have a full appreciation of the extent of poverty in contemporary U.S... The official US Government definition of poverty is (according to Wikipedia):
The "absolute poverty line" is the threshold below which families or individuals are considered to be lacking the resources to meet the basic needs for healthy living; having insufficient income to provide the food, shelter and clothing needed to preserve health.
Wikipedia claims that in 2008, 40 million people (13%) met that definition.
Every now and then an article calls me a rube for not voting for the redistributionists (who have so many other things so horribly wrong with them). But I'm not buying it. I'm honestly not envious of how much the next guy has and I'm very grateful for what I have.
It's not my relative level of wealth that concerns me, but the absolute level.
There is no such thing as an 'absolute' level of wealth, once basic survival needs are met. Study after study shows that people's perspective on wealth is entirely relative, which is why there were several recent articles here on HN regarding rich people who don't feel rich.
What exactly is a healthy and efficient distribution of wealth is open to debate, but a split where 1% of the population hold 35% of the wealth certainly doesn't seem either healthy or efficient.
There is a floor for poverty but not for wealth. You can be really really poor, but you'll never be poorer than having $x.xx of debt associated to your name (I am just ballparking like $50,000, though I know this can fluctuate some -- please no nit arguments about Bernie Madoff)
The rich have no ceiling to how much they can accumulate. In fact, they can accumulate vast sums (maybe more than poorer people make in a lifetime) by simply letting their money sit in a bank account.
1% holding 35% of the wealth doesn't mean anything beyond the most superficial level. What is more important is if the remaining 65% of wealth is distributed in such a manner that allows the other 99% to survive with some amount of quality of life.
Children from low-income families have only a 1 percent chance of reaching the top 5 percent of the income distribution, versus children of the rich who have about a 22 percent chance.
http://www.americanprogress.org/issues/2006/04/b1579981.html
Rich people tend to be smart, smart people tend to have smart children, smart children tend to grow up to be rich, and so rich people wind up having rich children. Rich people would have rich children even in a society where all children were taken away from their parents at birth and raised communally.
Add to this the fact that children also pick up financial literacy and values (good or bad) from their parents, and there's your low upward mobility right there. I doubt if the other effects (i.e. rich children inheirit wealth and can often get into better schools) are nearly as important as the genetics of it.
this is so full of misconceptions that I won't even start.
If you don't have anything specific to say except "You're wrong, about everything, ner ner" then don't comment at all.
If you "won't even start", then, y'know, don't even start.
You seem to have some weird theory that wealth is somehow correlated with genetics - a theory that you cannot support with any evidence, but continue to reintroduce.
And then you seem to make a conclusion that it's all quite ok and the research in question is totally pointless. I mean, what do all those former middle-class and newly-poor are whining about? There's nothing we can do if they were born with genetic defect, right?
That's a weird theory? I think it follows quite naturally from:
1. Wealth is correlated with intelligence, and
2. Intelligence is at least partly inherited.
These both seem like they would be fairly obvious and noncontroversial, and I'm sure could be backed up with a few minutes googling. Which one would you like to take issue with?
PS. It's possible your misconception comes from thinking that "wealth is correlated with intelligence" allows us to make statements about specific cases -- like that rich person A is necessarily more intelligent than poor person B, or that the lower average wealth of group C than group D implies that group C is of lower average intelligence. Of course it means nothing of the sort.
From that paper's conclusion:
The results confirm other researchers' findings that IQ test scores and income are related. Depending on the method of analysis used and specific factors held constant, each point increase in IQ test scores is associated with $202 to $616 more income per year. This means the average income difference between a person with an IQ score in the normal range (100) and someone in the top 2% of society (130) is currently between $6000 and $18,500 per year. While income and IQ test scores are related, results do not suggest a link between IQ scores and wealth. Regression results range from a negative to a small positive relationship depending on the specific analysis done. Moreover, since most of the statistical results are not distinguishable from zero, this suggests IQ test scores and net worth are not connected.
What exactly does cause the concentration of wealth is an interesting question, but it appears to be more complex than simply making more income, and unlike income doesn't appear to be as strongly associated with intelligence (if associated at all).
While those with above-average IQs were three times more likely to have a high income as those with below-average IQs, they were only 1.2 times more likely to have a high net worth. "Simply put, there are few individuals with below-average IQ scores who have high income, but there are relatively large numbers (of those with below-average IQs) who are wealthy," he wrote.
"I was expecting that smarter people would have greater wealth," Zagorsky said. "And you kind of expect people with higher IQ to make fewer mistakes. . . . I thought, 'Wow, I must have made a mistake.' "
http://articles.moneycentral.msn.com/SavingandDebt/LearnToBu...
Many of the traits that hugh3 refers to may well be a matter of culture and values. These are heritable traits, in that children tend to acquire them from their parents. But they have nothing to do with DNA.
Thus, there's very little in this claim condemning a person's offspring, for all of eternity, to menial drudgery, simply due to an accident of genetics. The children or grandchildren can learn a different way of life, and improve their lot -- and pass that on to their own children.
It's been observed that if you (1) finish high school; (2) get a job; and (3) get married before having kids, the chances that you'll wind up in poverty is virtually nil. This says nothing about ethnic groups, the finances of your parents, etc. It's just a matter of displaying the values that have proven to lead to success.
How you got a 13 karma for being all "ohh don't do that, please do argue your point" when your original point is so similar 19th century racism "research" is beyond me; it speaks to the hugely ignorant view of history, politics or economics that is present in some HN commenters
Oh and if you're gonna leave an anonymous snarky comment, feel free to; your view has zero value to me (as does your downvote)
You can't argue against something just by calling it an unfashionable name.
I've heard it said that nobody can agree on what "social Darwinism" means but that everybody is against it. I'm trying to remove the stigma to promote a more sober discussion of ideas that often suffer from this label.
The reason everybody is against it (except the children of rich people, generally) is that it's not much more than post-facto rationalization for the nineteenth century. I know I didn't come of rich stock, and yet I think I'm pretty smart. I can think of a couple of examples of the stupid rich, too. Lots of them, lately.
I'll grant that richer families have better educational opportunities and you could perhaps make an argument based on cultural transmission of "beneficial" behavior - but the primary trait that causes wealth is ruthlessness, not intelligence, and it's no way to run a railroad.
Apparently there's nothing wrong with it. It's alive and well as your upvotes prove.
On a factual level, you're right (and don't deserve all those downvotes). Every study I've seen suggests a strong correlation between genetics and intelligence, between intelligence and income, and between income and wealth. When you multiply them out, the correlation becomes somewhat less, but it still seems like a fair statement to say that genetics is correlated with wealth.
That doesn't imply that this correlation indicates a functioning meritocracy, because to the extent that intelligence is genetic, intelligence is not merit. Merit usually implies that something admirable that someone chose to do, and if someone was born intelligent, how is that merit? It's like making a value judgment on any other inborn trait - say, that blondes are better than brunettes, or fair-skinned people are better than dark-skinned ones.
The part of intelligence that people usually associate with "merit" is the part that's not inborn, the part that people have to work for. Intelligence can lead to a functioning meritocracy despite its genetic component, not because of it.
I think there are multiple definitions of "merit" at work here. The form of merit which is chosen and admirable is not necessarily the same as the "merit" in "meritocracy".
I agree that merely being born with an attribute is not really "merit", but on the other hand I think a "meritocracy" is about rewarding ability, not "merit", and perhaps needs a better name.
Wikipedia defines it as:
Meritocracy is a system of government or other organization wherein appointments are made and responsibilities assigned to individuals based upon demonstrated intelligence and ability (merit).
which is different again to what I meant... the form of "meritocracy" I mentioned would exist even in the absence of society. If the world consisted of a bunch of individuals on isolated and identical islands who never interacted then it would be a perfect "meritocracy" in the sense I meant it, because each would acquire wealth and quality of life depending only upon his own ability to hunt, gather, build shelter, et cetera.
Certain things in like can accurately be described by a normal distribution curve (the Gaussian or Bell Curve). What we see from the examples of crowd sourcing is a real-life version of a central limit theorem: if you have enough observations in a sample, the sample mean will approach the population mean, if the distribution of the population is normal. Many natural phenomena are normally distributed, making the bell curve a fantastically useful statistical tool.
However, Taleb goes on to note that while the normal distribution is very good with natural phenomena, it often does very poorly with social phenomena. Many social phenomena are best approximated with power law distributions rather than bell curve distributions. As such, attempting to model social phenomena with a normal distribution will end up underestimating extreme occurrences or fat tails. This is Taleb's critique of using standard inferential statistics, based on the normal distribution, to examine social phenomena such as income distributions or financial markets.
In the article, we see that the central limit theorem does not hold when the distribution that is being modeled/approximated is too skewed. (One of the statistical tests for normality measures skewness.) Things like income and wealth distributions, as social phenomena, have been shown time and again to follow a power law distribution rather than a normal distribution. Thus it shouldn't be a surprise that averages estimates of the distribution fail to capture the 'fat tail' of the top quintile.
"If you have enough observations in a sample, the sample mean will approach the population mean, if the distribution of the population is normal."
That's not even close to the central limit theorem.
The other effect which confuses things is that we're talking about the distribution of wealth, not income. Many people survive very comfortably with a near-zero or even negative net wealth... a new law-school graduate on a $140K salary probably has a negative net wealth thanks to student loans, but nobody would call him poor.
Depends on how you account for his future income.
If it did, I'm guessing the distribution would look a lot more equitable.
I am a poor college student that got a scholarship that paid for most of my college education. My family is too poor to pay for such an education. I got no issue with incredibly rich people. What they're going to do? Buy that 100 inch TV?
> Why aren't the bottom 99 percent marching in the streets?
> One possible answer is sheer ignorance.
And then goes on to demonstrate said ignorance.
It's generally not poor people who revolt, it's the middle class. Especially if there has been an event which created a newly disenfranchised middle class. If the middle class is doing ok, there's little to worry about. If they feel they are getting shafted... that's when potential trouble starts brewing.
Actual levels of wealth and disenfranchisement have little to do with social stability as it relates to wealth. It's all relative perception.
The United States doesn't exactly resemble historically tumultuous places where there is widespread abject poverty and a few wealthy nobles.
I can't think of any society where most people had A/C, cable TV, two cars, and a college education that revolted because some people had a bigger house, a bigger TV, a more expensive set of cars, and a slightly better education.
Interestingly, to the extent that there is social unrest in the United States today, it is a revolt against the would-be equalizers and the centralization of power.
If one advocates against wealth inequality on the grounds that angry mobs might engage in violence if inequality were too large, shouldn't one also advocate against X whenever there is a significant risk of violence by mobs?
If policy should cater to angry mobs threatening violence on issues of wealth inequality, should policy cater to angry mobs on issues of racial hatred or religious conflict as well?
Regardless, you are ducking the meta question. Is "a mob might become violent if we don't do X" a good argument for doing X? I.e., if angry racist mobs start rioting over a black president, should we impeach Obama? Should we engage in appeasement, paying each racist $500 to go home (perhaps levying a tax on blacks to pay for it)? Similarly, should we ban criticism of Christianity if Christians form lynch mobs of their own?
Which angry violent mobs should we surrender to?
Interesting. That sounds like it's a problem with poor people being angry and violent, not with income inequality per se.
It seems like spending money on the military and law enforcement would be a better investment than reducing income inequality under your scenario. And it makes sense, too--if people threaten violence, and you can afford to beat them, why pay tribute instead? It's not barbaric, but it does mean letting barbarians rule your society.
Even if you don't have an issue with rich people being rich, on a personal level, you may have an issue with the system allocating wealth in such an unequal matter.
Unfortunately, in the real world it's correlated with a lot of unpleased effects. See the other replies to your comment or http://en.wikipedia.org/wiki/Economic_inequality#Effects_of_... for some details.
This can obviously happen without them being aware that they're doing that. A good example is the Chicago law prof who laments being too poor for the temporary Bush tax breaks to expire.
What he's not saying explicitly is; "I don't want to pay for healthcare for poor people". Probably as he's already got a pretty nice health plan already.
Now you can bet that a Law Professor has more clout than your average construction worker, so his ignorance at his own wealth is more damaging.
I'm saying that vast inequality in the distribution of wealth is a bad thing; historically, such inequality tends to lead first to oligarchy and then to entrenched aristocracy.
You are interpreting this as an argument for absolute equality of wealth for all people, an argument I've not made and would not make. Some inequality of wealth distribution is a good thing; concentration of extreme percentages of total wealth into a tiny fraction of the populace is a bad thing.
A good explanation of the difference this makes shows up in chapter 3 of de Tocqueville's "Democracy in America", where he discusses the impact of different inheritance laws on American and European society. The traditional European system of primogeniture created and favored hereditary aristocracy; the American system of division among multiple heirs made this impossible, and created more opportunities for social mobility since wealth could not be hoarded across generations, but instead was gradually distributed through the effects of the inheritance laws.
Hawthorne said that "Families are always rising and falling in America" and to a large extent this is true. The rich don't necessarily stay rich, and the top 100 companies from 50 or 100 years ago bear little or no resemblance to the top 100 companies today. While we may have high levels of inequality, it does not appear to be an entrenched inequality.
That's why progressive taxation is a rational solution. The rich are benefited from an stable environment that they can make their wealth. It's only sensible that they pay to upkeep it. In war and violent uprising, wealth can disappear overnight.
Wealth people built are done in the framework of a society. You can live in an island all by yourself and be your own government and print your own billion of money, and no one would care. When you derive your wealth from a society with people, other people would care about you paying your share since they build the system and you benefit from it.
I can see how that could justify taxation somewhere between "poll tax" and "flat tax", but nothing more "progressive" than flat tax.
If I have a hundred thousand dollars, and I'm paying for the government to protect my assets, maybe I should pay $N. If I have five hundred thousand dollars, and I'm paying for the government to protect my assets, that's logically worth 5 times $N.
The component of my taxes which go towards protecting my wealth can quite sensibly scale linearly with my wealth, but not super-linearly.
This would also only apply to that portion of the tax burden associated with enforcing contracts (a very small fraction, basically just the police and judicial system).
Our tax is not just funding for the judicial system so that the rich can get their properties protected. Our tax is funding a functional society that's the basis for all these.
If all the workers are uneducated and dumb, if all the contracts are out of the window, if all the banks collapse, if the money are worthless, if no court or police to protect your property, if no firefighter to rescue your burning home, how much millions you can make? How much are you willing to pay for those?
If taxes are considered as a cost of doing business in a functional society, it won't be contested so much.
That's even without accounting for services such as protection of intellectual property that add far more to the incomes of wealthy beneficiaries than public education does to a lower income taxpayer.
If the government was a corporation it would be entirely logical for it to price discriminate by charging the super-rich elevated "enterprise" rates
If you think money can protect you in a class revolt, you are deluding yourself. The guys with gun simply shoot you and confiscate your money. The money guys can only survive if the system protect them.
And here we are talking about how to maintain a system so that the money guys can continue to enjoy their wealth.
A thought process might go something like this: "Should I buy the CD or pay my daughters tuition? I expect Social Security to pay half of what it does now in inflation adjusted terms by the time I retire, so I need X in real income to maintain my lifestyle taking that into account. Running the numbers I can afford to help her"
Since social security is relatively tiny for the wealthy and large for the poor, it biases against wealth generation by the poor since they have better things to spend it on. This is absolutely a crude estimate but retiring at 66 making 45k pays 1235 a month. Assuming a median age of death of 85, and a 4% annual interest rate compounded monthly, that's 1235/0.003333-1235/0.003333(1/1.003333^(1220))~= $200,000 at the time of retirement or roughly $100,000 at middle age. If there are 150 million people in the workforce that's $150 trillion in uncounted wealth. The total household wealth as estimated now is $55 trillion. So by that metric 3/4 of the wealth of the US is tied up in expected social security benefits. That seems really high to me, obviously I've made some big assumptions about length of payments received, median income, etc. but I think it'd be tough to justify excluding a stream of payments that last until you die, even if we are expecting cuts to the program in the near future.
Also, it looks as though the middle class and poor are actually wealthier than is assumed by the survey respondents using this metric, the opposite conclusion of the article.
In real dollars, the subsistence level is much lower now than in 1919. Assuming that subsistence in any era gives roughly the same utility, dollars over subsistence can be a useful metric.
I quickly dashed out 2 distributions, for then and now. I just plugged in numbers that looked sane and got the percentages to come out right. Then i plugged in 2 subsistence levels, assuming that NOW is 50% of THEN, in real dollars. The $ over subsistence % comes out roughly equal then and now.
https://spreadsheets.google.com/ccc?key=0AsZT04jfENsidEpHLTM...
Or more generally, a breakdown of the areas of work of the richest 1 percent of several countries would definitely be interesting (again, both wealth and income).
My suspicion is that this study has been presented and promoted as justification for increased taxation of the wealthy. Of course, increased taxation of upper quintiles won't actually change the distribution of wealth unless the government directly transfers the proceeds of increased taxation to those in the lower quintiles. But that won't happen. Instead, the increased taxes would be used to give those in the lower quintiles services that the government has decided they need (or to further subsidize corn farming or other friends of the party in power).
As a thought experiment, I wonder how many people would support a proposal to take the aggregate payroll of their local NFL/NBA/MLB/NHL franchise, and distribute it evenly among all of the players on the team roster. Not many, I suspect.
An unequal distribution of wealth, at least in America today, implies that great success is possible (in a system with less income mobility it might imply something else, but that is not the case here). Given the right combination of luck, brains, talent, hard work, or beauty, you too could become fabulously wealthy. Your startup could be the next Google, or Facebook. You could be the next Bill Gates. And if your plans for greatness don't pan out, well, even the bottom quintile has it pretty good compared to most places.
In the other graphs, the chance for relative comfort is increased (assuming a certain base standard of living), but the chance for huge rewards for great success is drastically reduced. In the Utopian version it is non-existent: No matter how hard you work, you will get the same result.
Maybe I am still young and idealistic, but frankly I prefer the first graph. I'll take freedom over security, and a chance for greatness over comfortable mediocrity.
The media make people feel "close" to people who a incredibly more wealthy than they are, making them feel poorer than they actually are.
When you live in a place like Chicago, with a city sales tax alone of 11%, $250,000/year (among other taxes) might not be considered wealthy. Wealth is relative. A job in the midwest for $100,000/year will go much further than a Job in the Bay area for the same.
Nearly half of all people in the US don't pay federal income tax:
http://finance.yahoo.com/news/Nearly-half-of-US-households-a...
Before we start taxing the rich even more than they are already paying, we should figure out how to get tax revenue from the people that aren't paying. This will never happen because the democrats don't want to lose votes (taxing the rich always seems to be the only answer to getting more revenue).
Everyone should also get taxed the same percentage. This way, everyone knows what it feels like.
Middle class: Average real wages do not change much aside from slow moving meta-factors like industrialization, etc.
Lower Class: By definition has no wealth
Upper Class: By definition has invested/growing wealth. Wealth rarely grows at > 3% per year in real terms.
Now run the simulation for a few dozen iterations and simply because of returns on investments, the distribution gets more and more skewed.
This is actually the main principled argument for an inheritance tax (though there are, I think, stronger arguments against it).
Fortunately for egalitarians the rich suffer from: trophy spouses, bad luck, bad investments, and spoiled rich kids that throw it all away. Also the non-rich often succeed in an investment, startup, etc.
The two groups intermarry often since things like beauty, intelligence and luck are doled out by different (but analogous and equally un-egalitarian) lotteries.
For very small values of often...
Suppose a freak disease killed off everybody with an IQ below 120. Obviously society would take some time to adjust to the new reality, but once the adjustment occurred, what do you suppose the weath distribution would look like? Significantly more equitable, I assume.
We don't have a bad distribution of wealth, we have a bad distribution of talent.
It seems as obvious as "height is correlated with gender" to me, but feel free to go read The Bell Curve or something.
Some very smart people do things like found startups or become teachers or lit PhDs, marry a rich person, or decide to avoid the rat race.
You won't find many of these PhDs in the bottom 10%, though (except in cases of mental illness). Smart people are smart enough to figure out how to avoid desperate poverty, and some of them are also smart enough to figure out that making $400K a year for Bain won't make them happy.
edit: We have now crossed the $1 million mark: http://www.ctv.ca/CTVNews/Autos/20100406/vancouver_100406/
I grew up in Vancouver (now in CA), it is one of the most beautiful cities in the world, but million dollar average home values are not sustainable when the average income is $68k.
http://www.marshegroup.com.au/SiteMedia/w3svc627/Uploads/Ima...
Sydney, as you may recall, had the Summer Olympics (generally much bigger than the Winter ones) in 2000, and if anything that's just the start of another spurt of bubble.
Vancouver is bubbly for all sorts of reasons (and so is Sydney). Mostly I think it's the same bubble that hit the United States, but due to less crazy lending standards in Canada there hasn't been the sudden burst there.
Here we go again