Why US Inequality Is Worse Than Other Developed Nations | Hacker News Reader

Why US Inequality Is Worse Than Other Developed Nations

scientificamerican.com

72 pointsdempedempe58 comments

> Some economists have argued that we can lessen inequality only by giving up on growth and efficiency. But recent research, such as work done by Jonathan Ostry and others at the International Monetary Fund, suggests that economies with greater equality perform better, with higher growth, better average standards of living and greater stability. Inequality in the extremes observed in the U.S. and in the manner generated there actually damages the economy.

An interesting passage in the article.

Edit: I think that refers to this paper, am not sure if that's the only applicable reference.

https://www.imf.org/en/Publications/Staff-Discussion-Notes/I...

It sounds like a "moderation" issue — you need some possibility of inequality to have a healthy level of motivation, but too much inequality leads to poverty and limits human potential!

I don't think you need inequality per-se, you need some amount of direct reward, but some amount of social reward for economic endeavors. Starving out either side of that I think yields poorer overall results.

The problem is not wealth inequality. The problem is lack of wealth. Even if you taxed every last billionaire in this country at 100% and stole every single asset from them, it still wouldn't get you anywhere: 2.7 trillion/ 300 million = roughly 8000$ per head, after that you'd get only tiny fraction, you couldn't squeeze any more out of them because they don't have it.

Even those at the 1% mark may struggle to afford a home because if you're earning that income, it means your paying through the nose on housing: 1.5M or more for a mediocre housing.

It's time we faced facts. We're not nearly as wealthy as we think we are. and it's time we started asking why? this question isn't easily answered and has many many many reasons, many due to economics and our lack of understanding of economics.

Where do you get the 2.7 trillion figure?

According to https://en.wikipedia.org/wiki/Wealth_in_the_United_States, total household wealth is $54 trillion, or 180k$ per head.

https://www.thebalance.com/what-is-average-income-in-usa-fam... gives $48k average income.

So if all wealth and income were redistributed, you'd end up with 180k$ wealth and $48k income, which is enough to buy an apartment and live well at least outside the most expensive cities.

The GP said take money from “every billionaire”, not from every person in the US.

One surprising thing about America is that there is a very large, almost invisible class of small businesses owners, good sales people, old farmers and random professionals that have in aggregate quite a bit of wealth. More than 4% of the US population are millionaires.

Yup. A lot of the reason the middle class is shrinking is because many of them have joined the ranks of upper middle class.

Here's some data to support this:

http://www.aei.org/publication/yes-the-us-middle-class-is-sh...

People want to believe things are getting worse, but they are actually getting better. What's changed is that negativity in journalism has increased.

The reason I don't agree with this is how much prices move to the margins. Look at real estate, cities that have a small fraction of super wealthy workers (SF, NYC, DC) have markets where the prices are determined by what the super-wealthy can afford to pay, and effectively it's a form of wealth extraction where long-term local landowners, most of whom are already relatively wealthy, extract value from the businesses that are making some people super-wealthy by refusing to allow new development to keep up with demand.

The losers in this scheme are literally everyone else, paying a steeper and steeper cut of their income just to keep their job.

Also, no offense intended, but saying that $8000 per head would not make a difference sounds out of touch to me. If you have a family of four and your household income is $30k, $8000 could be life-changing.

I agree with your broader point though that cash redistribution is not a real solution. What I would argue is that we need to be thinking about how to systematically reduce cost of living / increase quality of life, and ideally how to do this at a cost somewhere below $8k a head :)

but that's one time transfer because there's nothing left to transfer. So, you really have to divide that by 20 or more years. so 500$ per head per year, really isn't that much.

That's a wrong interpretation of this article IMO. When anytime income inequality is brought up, the point is not that we need to distribute the income equally, the point is that economy is primarily working for top 1% and not the bottom 99%. This means we need to find a solution so that it works for both classes. The incomes are NOT rising for bottom 99% in fact they are going down and that's a problem.

It would help a great deal if we stopped putting up so many hard right wing people, though, for say, a decade or so.

Sometimes I try to extrapolate out current conditions. I always end up with heavily policed cities for the protected class, ghetto suburbs and rural areas for the ones who didn't choose the right parents. We seem determined to build a caste system and in the US the Untouchables will be the ones who were born without professional parents. Every five years or so there will be a Hillbilly Elegy to remind the poor that it's all their fault.

This presumes that no trauma intervenes in between. Historically, war, famine, plague and ecological disasters have done pretty well at reducing inequality.

Yes, that seems to be the pattern!

I'd love to see us institutionalize a reasonable level of equality, rather than depend on disasters to provide it.

We certainly have plenty of wealth and productivity for everyone to a have a pretty great life in the US. And we're headed in that direction for more and more of the rest of the world. I spent 5 years in China, and it's happening there too.

We're just stuck with a survivalist attitude of "give me more" — held by people who have absolutely no threat to their survival.

But from our recent behavior — lack of prosecution of financial crimes after 2008, for example — we seem headed for a very severe learning experience.

I always seem to arrive at "start over with an entirely new set of laws."

And moral framework. Don't forget the moral framework.

One of my favorites is "Voting is sacred, and it is sacrilegious to try to influence anyone else's vote in any way."

The combination of democracy and term limits means that iterative change should be the norm. But something isn’t working right.

Have you heard of the Sugarscape simulation? It can be used as an economic model showing interplay of wealth and taxation and inequality. I don't think I would recommend setting economic policy based on this simplistic model, but it's food for thought.

http://greenteapress.com/complexity/html/thinkcomplexity012....

https://en.wikipedia.org/wiki/Sugarscape

What's not working right is people in office doing things to prevent iterative change.

Luckily climate change will give us plenty of trauma over the next few decades.

US inequality is worse for the same reason the US produces unusually gigantic corporations that other developed nations can't produce.

If you come up with a great business in the US, you can relatively rapidly scale it into the world's largest economy (typically within one generation), and it will make you extraordinarily wealthy. There's nowhere else on earth that you can so easily do that, except for recently in China.

The fortunes of Gates, Buffett, Bezos, Zuckerberg, Page, Brin, Ellison, Waltons, Ballmer, Koch, Knight, Bloomberg, Dell, Jobs, Musk, Hamm, et al. are so epic precisely because of this effect. In Europe, their wealth at the top is heavily dominated by dynasties that took multiple generations to build up. You can more easily accomplish the same thing in one generation in the US.

Sam Walton faced off against huge retail competitors like Sears and Kmart, starting from the middle of nowhere and one store. In his lifetime he was able to scale it across the US, replace Sears as the largest retailer, and make himself the richest person in the US.

If you wanted to tamp down on this effect, you'd have to apply an aggressive living wealth tax. Otherwise it will continue to exist perpetually no matter what (income taxes won't work, the US already has one of the most progressive tax systems; death taxes won't work, that only cuts into dynastic wealth transfer, not wealth built up in one generation).

I understand what you're saying, but the tax system is not as progressive at the highest ends as you might think.

Social Security Tax stops being collected once you've paid on ~$128k, so all your income above that is taxed at a much lower rate.

Most wealthy people are able to significantly reduce their tax burden via deductions that aren't that helpful to "ordinary" folks as well, and the very wealthy can arrange for most of their income to come in the form of long-term capital gains taxed at only 15-20%.

So in fact the US income tax system is relatively progressive up to the top bracket of $418k/$470k (single/joint), which just happens to be the bottom of the top 1%...

> Feedback loop

> money influences politics ... converting higher economic inequality into greater political inequality. Political inequality, in its turn, gives rise to more economic inequality ...

The article is well-written and cogent, but at this point it seems like common sense since we've heard and said these things so often, and they have become so blatant.

"Tax reform", deregulation, lack of prosecution of financial crimes, lack of enforcement ...

> And what we can do about it

But both parties seem to be captured by wealthy interests. I don't mean to be both-sides-ist — there are profound differences between the two major parties — but is there any non-destructive way for them to break free of that embrace?

Someone tell me how we can reform our system — realistically — without another Great Depression?

Honestly the "solutions" portion of this article was fairly weak to me. Or at least they were thing that have been fought over before and need to be won still. Perhaps also start looking at solutions constructed differently then the ones on already hard-fought political paths.

One example: a Social Wealth Fund distributing a universal dividend

https://www.peoplespolicyproject.org/projects/social-wealth-...

One thing I don't really like about that specific proposal is that it proposes a single federal management agency of the fund. I think politically and risk-distribution wise it would work out better if the fund were distributed in management. So split the single large fund into a single federal collection, and its management divided into state or regional subfunds so that state residents can both watch and be involved in their respective state's management.

> the largest defense expenditures (almost equal to the next 10 or so countries put together)

Not interested in reading an article that starts with this deliberately misleading "fact".

US spends a lot because it has a huge economy.

https://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS

The article doesn't argue this is the reason for inequality. It's just a piece of trivia.

Fascinating. I didn't know that the US military budget is a third of what it was 60 years ago. Yet another example of the media / popular perception being basically uncorrelated with reality.

>I didn't know that the US military budget is a third of what it was 60 years ago.

It's a little over a third of what it was 60 years ago as a percentage of GDP. And this is in line with most other developed nations.

As a percentage of the federal budget, military spending accounts for 16% of the total budget, and 54% of discretionary spending. The US also spends 2-3x more per capita on the military than France, the UK, and Germany.

60 years ago we were scaling down from the largest scale military action in human history and in the process of repurposing industrial capacity from military to peacetime.

As a proportion of GDP. Adjusted for inflation, GDP has grown 600% since 1960.

Also, see NATO members who can avoid defense expenditure because US is their defacto defense force.

which nato members are you speaking of? and, do they face any credible threat?

Ask any formerly eastern-bloc NATO member how they feel about Russian annexing portions of Ukraine and Georgia.

How do they feel about what the NATO did with the Balkans?

All of them except the UK, Poland, Estonia, and Greece. The ones that face credible threats are Poland, Estonia, Latvia, Lithuania and to a lesser extent Norway. The Netherlands believes they are fighting a cyber war with Russia. Trump is correct when he says that the US is subsidizing European defense. The US does benefit from this but not in a direct monetary sense.

This is not the only reason, though. The U.S. spends a higher percentage of its GDP on defense than other countries.

It can be argued this is necessary because some NATO members spend lower than they're supposed to. We basically foot their defense bill.

EDIT: Here's a chart https://www.defenseone.com/politics/2015/06/nato-members-def...

Makes you wonder though how despite all these collective spending, Russia with less than 10% of this budget remains a huge threat and NATO should further increase its budget to account for this. Seems more like we waste our money instead of spending wisely, doesn't it? Maybe someone should disrupt the war industry.

I think the two main considerations are the large number of countries that make up NATO allow it to seem very effective on paper, but in reality it'd be very difficult to coordinate the contributions of every country, especially considering the language and cultural barriers among members. It'd probably be incredibly inneffecient to try and lead the NATO members as a unified force. Another consideration is that even though NATO could easily win a war with Russia, member states probably want to present such an overwhelming military force that a war with Russia never breaks out in the first place.

I'm not advocating a wholesale increase in defense budget. There definitely is corruption and waste in there.

The point is that NATO members agreed in 2006 to spending 2% of their GDP equally and then didn't meet it. They agreed again in 2014 and the ball still hasn't budged.

Pledges are pledges. Whether it's a pledge to cut carbon and stop global warming or a pledge to chip in for the collective defense of everyone. Imagine if everyone decided to cut carbon and then it turned out to be all just hot air. If you don't honor your pledges it will hurt the any sort of future international effort.

It's cheaper to cause mischief than to maintain dominance. If we wanted to destabilize Chechnya, for example, we could do so for an infinitesimal fraction of the current US military budget.

> Maybe someone should disrupt the war industry

Boston Dynamics is trying to.

it's a bit complicated, because the US is also increasing the threat that those countries are under. With a military presence in 100 around the globe, the biggest stockpile of nuclear weapons, the diplomacy of a punk band, and operations to de-stabilize multiple countries, there is a lot that get reflected on the allies.

why is it necessary, exactly? and who isn't putting in their fair share, in your estimation? and what threats might be so great as to justify high expenditure anyway?

I wasn't sure exactly but I know VDH is into this sort of thing so I searched "Victor Davis Hanson Nato Contribution" and snagged this result

"And when Berlin decides it will not pony up the promised 2 percent of GDP for its NATO contribution, other laggard countries follow its example. Only six of the 29 NATO members (other than the U.S.) so far have met their promised assessments." https://www.nationalreview.com/2018/07/nato-biggest-challeng...

3.5% versus 2.2-2.4% for UK and France. Somewhat more but not inconsistent with US commitments to NATO, Japan, and SK.

But your total defense spending should be informed by your enemies' total defense spending, not necessarily by the size of your economy. From that perspective I find the above statement pretty illustrative.

We've made a lot of enemies.

To be fair to the U.S. every powerful country makes a lot of enemies and throughout history there has always been some country that spends a large portion of their money to protect their interests and expand their power base. Egypt, Rome, China, Spain, Britain, France, Germany, The Ottoman Empire, Persia, etc. There's always someone globally at the top who needs to spend a large portion to protect entrenched interests and they inevitably fall because those entrenched interests forget that a country only states at the top if it's willing to make new and more powerful interests.

Red herring.

That's not in any way the meat of the article.

Here's the first paragraph:

> Americans are used to thinking that their nation is special. In many ways, it is: the U.S. has by far the most Nobel Prize winners, the largest defense expenditures (almost equal to the next 10 or so countries put together) and the most billionaires (twice as many as China, the closest competitor). But some examples of American Exceptionalism should not make us proud. By most accounts, the U.S. has the highest level of economic inequality among developed countries. It has the world's greatest per capita health expenditures yet the lowest life expectancy among comparable countries. It is also one of a few developed countries jostling for the dubious distinction of having the lowest measures of equality of opportunity.

Also, it's fair to say that US has a huge economy because it spends a lot.

If it couldn't secure the global reach of its companies, it wouldn't be an empire

and two more:

The US military tends to buy things in the USA for obvious reasons. That costs more. One would expect the Chinese military to buy things made in China. That saves money, making the military effort look smaller.

The US military pays for lots of stuff that isn't really military. Consider VA hospitals for veterans. Some countries would count that sort of thing in a military budget, while others would not.

China buys a lot of of their current military from other countries, however that is changing as they seek to establish themselves. In 10-15 years they will probably be close to parity in technology, however nowhere near close in capability.

I'm not sure the US will allow China to close any type of military gap whether that's in technology or capacity. I worry the US will begin to view China as an existential threat over the next decade with a possible full scale war the decade after that.

Don't forget the US subsidizes the defense of European nations. How prosperous would they be if they had to defend themselves against foreign invaders?

This article doesn't mention the large number of illegal immigrants in the United States. To what extend does this affect income inequality? A large supply of unskilled labor would tend to keep wages lower.

Maybe the US should keep the unskilled labor market tight(er) and then wages should rise.

Does the US have more illegal immigrants as a proportion of it's population than other Western nations? I'm asking because I genuinely don't know. (I was tempted to put quotes around illegal immigrants because it's a fairly contested term but that would have possibly set the wrong tone)

I do get the sense that every country thinks they are a special case with regards to immigration. We definitely seemed to go through that phase in the UK.

If you're looking for a "better" term you could try using "undocumented immigrants" as that's the term normally used in more liberal media.

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