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I don't automatically assume it's a problem, as so many people seem to. I don't assume that all economic inequality is the medieval type, where the rich are the winners of a zero sum game.

At the high end of the scale it doesn't seem to be a problem. I've seen a lot of people go from middle class to rich when their startups succeeded. Most live pretty quietly.

I would guess most of the damage done by economic inequality is at the low end. I don't think there is much debate that societies should try to mitigate that.

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I don't automatically assume it's a problem, as so many people seem to. I don't assume that all economic inequality is the medieval type, where the rich are the winners of a zero sum game.

The problem I see with growing income inequality is not the "inequality" part, it's the "growing" one.

From a purely mathematical point of view, in any economic climate there's some level of income inequality that's going to be economically optimal for whatever it is that we want to optimize about our economy (some combination of jobs, happiness, wealth, or whatever). This is trivially true, as zero income inequality is a really crappy situation by most realistic measures of economic health, as is ultimate income inequality (i.e. a small handful of people holding all the wealth). In between those extremes there's got to be some optimal distribution of wealth.

But when I see a march towards higher levels of inequality, I'm left to wonder whether there are actually any forces in play that will keep us anywhere near that optimum, or if we're just seeing a runaway "wealth begets wealth" situation, as folks like Mandelbrot have suggested. Sure, it could be the case that the changing technological climate means that the optimal level of inequality is going up, and we're actually keeping pace with that, but that's just a "could be", and I've never seen a particularly compelling argument that our economy should work more efficiently now at higher levels of income inequality than, say, twenty years ago. An argument that increasing income inequality is inevitable, or even that it's fair, is not an argument that it's economically helpful.

I completely agree with your thesis that technology is a perfectly valid reason for the growing gaps, FWIW, it's a pretty unassailable argument. But I don't agree that it's not cause for concern: we're sliding at an increasing pace down the slippery slope, and at the bottom is complete human level AI, where a vanishing percentage of humans have anything at all of value to offer to the economy. Are you really comfortable with the wealth distribution that's going to result from such a thing?

Personally (and this is quite controversial, I admit), I think that we have to start taking that inevitable outcome to heart, and realizing that the next 50 years should be a period where we move a lot closer to a full welfare state, with full acceptance of the fact that more and more of us will be at the unemployed and useless end of the spectrum as time goes on. Then again, an economy where humans are less useful than their machines, even as far as designing and running those machines, is a completely different world than we've ever considered before, so perhaps it's premature to even consider what that means...

You can have growing inequity whilst at the same time having better non-monetary benefits for all.

For example, in medieval times in Europe (and identically in sub-saharan africa), there was very low inequity.

The ruling class did not own anything except the shirts off their backs. Their jewels were "crown jewels" and couldn't be sold. They had control of the land, but usually couldn't sell it between themselves.

The few fungible valuables they had (salt, and other trade goods) barely elevated them above the common masses.

Today, the power of the ruling class is magnified a 1000 fold, but the working bottom 10% lives better than they ever have thanks to innovations in technology. Indeed, the bottom 10% lives even better than medieval kings despite living in a highly unequitable society.

"The ruling class did not own anything except the shirts off their backs."

If they didn't own anything then why do their ancestors still own great chunks of places like the UK - where many members of the upper classes can trace their ancestries, and the lands they own, back to the Norman conquest?

Life as a royal in medieval times was pretty tough, but largely because they were still expected to fight to maintain their position, compared to the lifestyles of most people in the countries they ruled they were well fed, well clothed and had much better accommodation than most.

Fair enough, they "owned" it but it wasn't a liquid asset. That much was what I was trying to get across.

That's not true either.

Both land and other stores of value (eg gold & silver) were frequently traded between medieval landowners.

Even looking at Europe alone, the Kinghts Templers acted as bankers as early as 1000AD, which allowed the rich to transfer money over distance. By the 1300's the Medici's had created an institution that would be recognizable as a modern bank.

Interestingly, the Medicis also created the prototype for modern, "democratic" government. I found that incredibly fascinating and confusing.

Robert Reich had a piece on NPR's Marketplace the other night [1] that seemed to contribute to this idea: the notion that while some were accepting 9% (rather than 6%) as the "new normal" in terms of unemployment rate, this was a calamitous development. If you imagine a correlation between unemployment and economic inequality, then at one end of the spectrum, high unemployment and economic inequality leads to anarchy; as you slide down the scale, you pass through revolution, civil unrest, and malaise.

Let's assume that the optimum is farther down the spectrum (somewhere around "sustainability" but not so giddy as to be in "bubble" or "artificially-crafted giddy delusion"). Then what are the forces at play to drive us there? From a political standpoint, it's electability; yet if we're too far into the inequality part of the spectrum, the fixes take more than an election cycle, and therefore require strong political leadership or near dictatorship (think FDR and no term limits as a model; think Japan and its many prime ministers over the last decade and stagnation as the counterexample). That's not promising since it may mean only the Senate, with its six-year terms and only 1/3 of the membership up for re-election has a long enough time-frame to do what's needed.

But what about from a business perspective--what incentives and forces are there today in business to try to close that income gap? Henry Ford allegedly paid well and understood that he needed to create a market for what he made, yet the auto industry today can't close that gap alone. If Apple's prominence in the economy is comparable to Ford's, what hope is there that the jobs they create in China will create a positive feedback loop of income equality? Perhaps with a global perspective it will.

Therefore, I come to the conclusion that the Ford Motor of the 21st century will be a company that is able to further its own market by empowering its customers (and the common, untrained person) to become value creators from an economic standpoint. You see Google and Apple and even eBay nibbling around the edges, but who is going to emerge that harnesses and transmutes that latent economic power?

[1] http://marketplace.publicradio.org/display/web/2011/09/07/pm...

>Henry Ford allegedly paid well and understood that he needed to create a market for what he made,

Ford paid well because that was the only way he could attract workers to do the relatively boring assembly line work.

The idea of paying people to buy your products is simply not a viable business plan. Ford created the market by making the cars cheap so ordinary folks could afford them.

On some level, income inequality is intrinsically problematic even if you don't care about social issues at all, or don't think it's a zero sum game.

Rich people have higher savings ratios than poor people. As a larger amount of income goes to those who have more than enough money than enough already, the average savings ratio increases. This is a drag on aggregate demand that hurts the economy.

Supply side economists will tell you that savings are not a problem because investment will go up. But then why would somebody invest when the people who would be interested in your product don't have the money to buy it because they're poor? This is pretty much the situation we're in right now, where there is no shortage of capital, but rather a shortage of possibilities for profitable investments because consumers have become more careful with their spending.

(I realize that it may look different from where you are standing - I am not an insider in the tech startup scene - but that is the picture in the larger economy.)

Another question that I am less certain about is how inequality affects economies of scale. Basically, as society becomes more equal, the larger size of the potential customer base makes investments in efficient production techniques more viable. Of course, there is the other side of the coin, which is that rich people finance advanced technology out of boredom, e.g. space travel.

This is pretty much the situation we're in right now, where there is no shortage of capital, but rather a shortage of possibilities for profitable investments because consumers have become more careful with their spending.

This is simply not true - personal consumption is at an all time high. It is even higher now than it was before our recently ended recession.

http://research.stlouisfed.org/fred2/series/PCEC96

http://research.stlouisfed.org/fred2/series/PCEC

[Edit: added graph of real expenditures, didn't notice my first graph was nominal.]

After seeing your comment, I was reminded once again of the futility of discussing economics and politics on internet forums, and deleted my comment elsewhere on the thread.

Your parent comment claims that "consumers are spending less", then you provide data that refutes that (and I remember you've done that several times on other threads too). Does that further the discussion? No, nobody changes their mind. They just cherry pick other data that confirm their views, and question the neutrality of any data that doesn't.

I think most time people change their views on politics, it's by reading books, having life experience and thinking. Rarely by being convinced by someone on a forum.

Compare to discussions on other topics: in every HN thread about Javascript or systems security or nutrition or music theory, there's bound to be quite a few readers who actually learn something or even change their minds about some preconceived idea they had.

(now I'll stop rambling cause there's an earthquake here)

Thank you for the data.

As is so often the case, it comes down to how you interpret it and put it into relation to other things going on in the economy.

So real consumption is slightly above the previous peak. Now if productivity has increased in the three years that consumption had this "U" shape, it means the same amount of consumption goods and services can now be produced using less labour. This means that even though GDP may have returned to its previous peak level, this level of GDP is now accompanied by higher unemployment - unless new jobs have been created by something else.

A typical candidate for such job creation would be investment. However, given that consumption has only barely increased over the previous peak, there is currently little need for companies to make investments to satisfy consumption demand.

So I admit to not looking up the latest numbers before making my post, then I would have rephrased my statement. What's clear is that consumption hasn't returned to the previous trend (and probably won't), and that's a problem for the recovery (especially compared to the recovery from the 2000 recession, for example, where consumption did not deviate from the trend as the graph you linked to shows).

There's no loss in aggregate demand from savings and investment...investment is still spent, just on factories and equipment and research instead of consumer goods.

It seems to me that you are implicitly assuming that savings always equal investments. This is not true. Savings minus investments is the private sector balance, which has varied wildly, see e.g. the graph here: http://pragcap.com/sectoral-balances-and-the-united-states

>I don't think there is much debate that societies should try to mitigate that.

You haven't been reading HN then, and you haven't met the Tea Party. There are a lot of people here who believe that poor people deserve their lot and should wallow in it.

In my opinion society needs to use tax dollars to ensure a basic standard of living for all citizens. This idea (the welfare state) is deeply unpopular in contemporary America.

Just because I might disagree with your methods of equalizing income, doesn't mean I "believe poor people deserve their lot and should wallow in it."

You've turned a political disagreement about the methods to accomplish some desirable goal do so into a moral argument. You've decided that if I think there is a better way to elevate the poor than your way, I must want them to stay poor and thus must be evil.

Why do you feel you need to frame the argument as such?

Politics and morality are intimately related.

There are SOME free market ideologues who believe that unrestrained corporations will enrich the poor, however I believe they are in the minority. You may be one of them.

The majority of libertarians believe that individual property rights are sacrosanct and that it is wrong to forcibly redistribute wealth to prevent poverty, hunger, suffering. This is the argument of the Tea Party to my knowledge. Am I wrong?

Right now the excess wealth is in the hands of the rich, especially the top one-tenth-of-one-percent (0.1%). Society is presented with a choice: (a) we can take it from them and redistribute it to the bottom 80%, or (b) we can let them keep it and allow people to suffer.

(a) is a moral statement, that the poverty of the poor trumps the property rights of the rich.

(b) is a moral statement, that the property rights of the rich trump the poverty of the poor.

Almost all proposed actions in this situation amount to either (a) or (b). The wealth of society can increase over time, but at any single point in time it is a fixed quantity whose distribution is intimately related to whether poor people exist or not.

It is good to take care not to create a false dilemma.

Of course the government is not the only actor that can, or should, address moral problems.

As I understand libertarianism, they are not at all against solving issues of poverty or hunger. But they do believe that the government is not necessarily the best solution to every problem. Of course that statement should be obvious, as government tends to be less efficient and more watered down than other organizations. So the question is in the details.

Economics is not like religion; there are actual correct and incorrect answers. As a newer field, we not always know how to find the correct answers yet. But that isn't an excuse to start treating it more like religion and less like science.

"we can let them keep it and allow people to suffer."

Using your feelings to guide your monetary policy decisions is no better than the creationists forcing ID to be taught in schools. If your hunch is that a Keynesian approach is ideal, cool. Many would agree. But choosing it because it's the obvious "moral" choice just dumbs down the whole debate, opens the door to all sorts of emotional reactionary ignorance, and doesn't get us any closer to the right answer.

Economics is exactly like religion. There are correct and incorrect answers, but most people ignore them, and believe something that makes them feel good about their place in the world.

"As a newer field, we not always know how to find the correct answers yet."

If I may say so, that is a rather refreshingly humble statement for an economist to make.

There are correct answers to questions like "will redistributing income from group X to group Y improve overall productivity?" but they're neither necessary nor sufficient criterion for policy formulation. (Keynesians, like their neoclassical economist critics tend to be favourably disposed towards assessing policy impact based on empirical evidence; Austrians on the fringe Right argue the economy is too complex to act as a testing ground)

Questions like "is better aggregate economic growth a justification for disproportionate tax increases for these people?" or "if the bottom percentile are hungry, should feeding them take precedence over growth objectives?" are inherently moral

So many false dilemmas. Proposition (a) only demands a non-zero level of redistribution (call this X). One might believe (a), but also believe that our current level of redistribution is greater than X.

Assuming one does believe (a), and also believes that our current level of redistribution is lower than X, it still does not follow that we need to redistribute from the rich. We could also redistribute from politically connected insiders (e.g., teachers unions, the military, real estate speculators) to the poor.

Your dichotomy of helping the poor also excludes a third possibility:

(c) Some of the poor are deserving of assistance, and some are undeserving. It is morally right to redistribute to the deserving poor, and morally wrong to redistribute to the undeserving.

(I tend to favor policies which automatically make the deserving/undeserving distinction. E.g., eliminate welfare/unemployment and replace them with unpleasant, low skill government jobs that pay welfare-like wages. Poor people willing to work get the benefits and those unwilling to work do not.)

My dilemmas aren't false they just contain assumptions. Challenging assumptions is reasonable but don't assume that the presenter is unaware of their own assumptions.

There are ALWAYS more assumptions available to be challenged. Plenty in your post for instance. Turtles (assumptions) all the way down.

For instance, if the goal is to reduce poverty, you assume that it is mathematically possibly to take money from teachers. But if teachers are already on the brink of poverty, that won't work to reduce poverty. You're creating new poverty cases as you solve old ones.

Politically connected insiders are less relevant than those who actually have the majority of the money. It's not teachers, and it's not unions. It's software entrepreneurs, MBAs, and oligopolists. They have the far majority.

That's not an assumption, it's a simple fact.

http://lmgtfy.com/?q=teacher+salary

Teacher wages are not even close to poverty, and they get lots of non-wage compensation which costs real money (not to mention they only work 9 months/year).

Politically connected insiders are less relevant than those who actually have the majority of the money.

On the contrary, the existence of politically connected insiders mooching off the system is evidence that we can provide more assistance to the poor without raising taxes.

Did you check your link? It looks like the average salary for teachers is about average for America.

http://lmgtfy.com/?q=income+inequality+in+america

That puts them well below the mark where they'd need to be to be to place in the top X% (10-30, depending on what study you use) that own 80% of American wealth. If you believe that shuffling around the remaining 20% will work, more power to you. But I'd have to disagree.

I will, however, agree that politically connected insiders mooching off the system is DEFINITELY an issue in the US. I would just point to Corporations and the Rich in place of Teachers on your list.

I was responding to this claim: But if teachers are already on the brink of poverty, that won't work to reduce poverty.

The fact that teachers may receive average pay for below average work does not put them at the "brink of poverty".

As for finding the insiders, follow the money. Teachers and old people are some of the biggest recipients of government money.

http://usgovernmentspending.com/piechart_2009_US_total

For one thing, because there is no evidence I'm aware of that any tangible, real-world action originates from the belief that the poor should be "elevated" in some other manner.

When the government gives poor single moms peanut butter to make sure that her kids have protein to eat, that gets measured, and we can perform efficacy studies on it. When the government gives housing stipends to poor families so that they have a home to live in, we can measure that too.

If the enormous segment of the population that doesn't believe the government should be helping the poor is initiating some kind of private action that has broad, measurable effects on the plight of the poor, I would be delighted to hear about it. If not, then this claim that some other action should be taken kind of seems like a red herring in the discussion, because that means that the only practical options on the table are for the government to do something or for the government to not do something.

The government has largely crowded out private action. Before the American welfare state was created, mutual aid societies and churches filled the welfare gap. These institutions were generally more effective in their mission than government today, and the fabric of our society was far richer for it.

Today, helping the poor largely means lobbying for more spending for some program.

There was very little to be crowded out. When funding was opt-in, the result was a vanity safety net far too weak for any serious problems. That's why Dickens portrayed such a hellhole. Why communities organized around private charity declared defeat and posted "OKIES MOVE ON" signs during the Great Depression (which is what led to creating a welfare state that actually kind of met the needs). Why even churches need government funds to keep their own food banks open. The problem is bigger than the number of volunteers paying more than their share.

The reason that the government should take care of the poor and the sick is not because it is the most efficient and moral way to do so. Indeed, given appropriate conditions, I concede that "the market" and the goodwill of "the people" would be capable of ensuring that their needs are met in a more efficient and, according to libertarian logic, more ethical manner.

The reason that the government should provide this welfare service, however, is that it results in an incredibly desirable situation where any citizen of the United States would know that, no matter what the state of the (semi-)unregulated economy, it is guaranteed that they will be taken care of.

Were welfare left to the emergent logic of the market, somebody who, say, depends on medication to fight a chronic condition or somebody who cannot for some reason hold a job reliably (like my pan-handler friend who can't get a job because of his face tattoo and rotting teeth) would not be able to count on being able to survive should there be a severe economic depression or a war.

To live in a society where somebody who depends on an external institution to them to keep them alive cannot absolutely depend on that regardless of the economic climate is, in my opinion, uncivilized, and for such a person, downright hellish.

If you could convince me that the market is more reliable over time than the US government, then by all means, I might consider the dismantling of the welfare state a viable option.

> The reason that the government should provide . . . welfare . . . is that it results in an incredibly desirable situation where any citizen of the United States would know that, no matter what . . . it is guaranteed that they will be taken care of.

I don't see it desirable to disconnect causes from consequences. Quite the opposite. Society functions best when people are very aware that their choices have consequences and when they choose to act in ways that produce good consequences. In fact, individual responsibility is essential to civilization. Society would just fall apart if more than a few percent of people began acting irresponsibly.

For example, America has a problem with education. There are a lot of children not learning despite a lot of money being spent. I think a root cause of the problem is students knowing that nothing bad will happen to them if they don't work hard in school. If all the unmotivated students would be put to work for a few weeks in picking crops, with the promise that this will be their lot in life if they don't learn, I suspect the education problem would solve itself quickly.

We live in a world where it is possible to be tremendously productive and wealthy. But it is still necessary to labor and be disciplined to achieve wealth.

Retirement, doing nothing productive knowing that you will still be able to eat tomorrow, should be the reward of years of diligent work, not the entitlement of the lazy who want to benefit from the toil of others without contributing.

>If all the unmotivated students would be put to work for a few weeks in picking crops, with the promise that this will be their lot in life if they don't learn, I suspect the education problem would solve itself quickly.

Except this wouldn't work for the kids of rich parents who wouldn't have to worry about that actually being their lot in life. Also people can say "fuck that" & go to a life of crime. This also assumes that our agriculture sector would even want these legal workers who they'd have to provide at least minimum wage to.

> Why do you feel you need to frame the argument as such?

While it might not be your view, the notion that the poor "deserve their lot" and even that their being poor is the Will of God (evangelical prosperity theology) is literally a mainstream conservative position.

If this doesn't ring a bell then you haven't actually been paying attention.

Myself, I'm libertarian, but I grew up in a very conservative household, surrounded by conservatives at church, and I was a conservative until my early twenties.

I have never met a conservative who believed that the poor "deserve their lot." And I can't think of one single conservative I know who wouldn't love to see the elimination of poverty. They just disagree with the liberal method.

If this were really the case why would conservatives donate money to charity? Why would conservative churches run food kitchens?

How many of those conservative churches accept government money to run their soup kitchens?

Just as anecdotally, I have met plenty of them.

I should have clarified that when I said "mainstream conservative position" i meant that it's espoused by mainstream political figures (some current republican pres. Candidate for instance), rather than that it is the dominant conservative opinion.

Such people seem more than ready to forget about something called "Jubilee" in the Old Testament, it seems. Jubilee was essentially a 100% property tax (property, not income) collected (and redistributed) twice a century. Of course, that era in that tradition had no aristocracy, despite the supposed "divine right" of such.

It's funny how people can skim through a 1200 page book and select just the parts they want to emphasize. I could go on, but I'm getting way off topic.

The first half of your comment is idiotic and unworthy of HN. Find me someone who has actually stated that the poor deserve their lot. The Tea Party's primary gripe is that the government is picking winners and losers and the best way to get rich is now to lobby rather than to work hard. Even Reagan, the godlike idol of the small-government right, never thought the poor deserved it, he just thought that the best way to help them was to grow the economy as a whole (through policies that ultimately sucked).

The second half I also disagree with, but it's just a failure of logic and a disconnect of values, not flat out idiotic.

The Tea Party has millions of people, so there may be a few different views in there.

However my impression was that the bulk of the Tea Party harbors a lot of hate for welfare recipients and social services in general.

They believe the poor should pull themselves up via bootstraps and should not receive direct help from the government.

Am I wrong about this?

Believing that someone shouldn't receive direct help from the government isn't the same thing as believing that they shouldn't receive help. This is a false dilemma.

As, perhaps, a kind of silly example, a couple of weeks ago, my car wasn't working, I was immobile. I didn't and don't believe that the government should've helped me get my car working. But I did believe that I should be helped. I called a couple of my friends and now my car is working again.

It is quite the opposite of "hate" to believe that independence and self-reliance are the best approach to solving poverty.

Although my instincts are the same (i.e. inequality per se should not be a problem, logically), both introspection and some academic studies* suggest inequality actually is a problem. While the incremental benefits of more _absolute_ wealth seem to vanish in the limit, the psychological cost of _relative_ poverty seems to be constant. In his excellent book "Fault Lines", for example, Raghuram Rajan attributes a lot of the pressure on US politicians to funnel credit to ever wider segments of society to growing inequality in the US.

The problem is compounded by growing inequality of opportunity or decreasing social mobility (lower now than in many parts of supposedly "socialist" Europe, even!). Indeed, from my perspective -- as a European of East-Asian stock and traveling between the two regions -- the US looks more and more like a plutocracy, not unlike post-communist Russia, and not like a liberal democracy. The start-up system acts like a pressure valve in that system, but that just means there is pressure to begin with.

Which indicates another problem with high inequality: it seems to be self-reinforcing (ossification is the keyword here). You can see this on so many levels, starting with the fact that higher education in the US costs real money.

_____________________

* which I'm too lazy to locate and properly cite here and now

I would guess most of the damage done by economic inequality is at the low end.

Yes, I would imagine so. At least, up until the point the rioting and looting starts, followed closely by the guillotines.

When money is considered free speech, gross inequity is the same as disenfranchisement of all but the richest.

Another word for gross inequity is plutocracy.

Status is a zero sum game. Also:

a perceived threat to one's status activates similar brain networks to a threat to one's life. In the same way, a perceived increase in fairness activates the same reward circuitry as receiving a monetary reward.

http://www.edbatista.com/2010/03/scarf.html

Unequal societies are unhappier.

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