Why it's hard to share the wealth
newscientist.com
newscientist.com
We know no such thing. We know that wealth is distributed unequally (see, for example, the Gini coefficient). Whether or not an unequal distribution of wealth is unfair is a decidedly normative question - and beyond the purview of economists.
One of the many problems that I see is they assume that various attributes are independently normally distributed - which many studies have shown not to be the case. An individual's performance in a wide variety of seemingly unrelated disciplines tends to be highly correlated (http://en.wikipedia.org/wiki/General_intelligence_factor). Simply put, a person who is a great at one thing is also more likely to be good at other things.
Furthermore, there is no reason to expect the output elasticity of intellect to be anywhere near 1. Someone who is just the tiniest bit smarter than me may see a shortcut that they I don't that saves them a tremendous quantity of resources.
Study after study has shown that 'overpaid' people (sports stars, actors, etc) get paid a wage that is almost exactly equal to the marginal revenue they bring in - that is they are paid perfectly appropriately.
For example the "equal opportunity" American ideal doesn't match up if the greatest predictor of your economic success is not your intellect, hard work, creativity, etc. but rather the income of the family you were rather arbitrarily born into.
For example: http://www.portfolio.com/views/blogs/market-movers/2009/04/2...
"The truly amazing thing to me is that parental income isn't just crucial in getting to college, and getting through college -- its effects linger on, basically, in perpetuity. One of the most remarkable findings from the Pew Charitable Trusts' Economic Mobility Project is that a child from a family in the top income quintile who does not get a college degree is more likely to wind up in the top income quintile himself than a child from a family in the bottom income quintile who does get a college degree"
A large part of this is due to public policy and there are clear examples of many European countries where changing public policy produces less arbitrary income inequalities. As the developed world transforms into a more knowledge based economy which requires large long-term investments in yourself to really compete, income inequality will only grow between those that can make the investments and those that can't.
I'd also be careful to consider how the market pays people as necessarily being "fair" until you look at after-tax income and the institutions that help determine that price. There are many different ways to setup a distribution of resources in a society and there are many different ways to setup markets (property rights, laws, public services, regulation, taxes etc.). As such we should consider the fairness of our human created rules and institutions; the particular results they create are just indicators. Of course whatever people are paid is "appropriate" as long as it follows the system of rules we have setup.
The "appropriate" results would be very different if we changed how the system was setup.
An alternative explanation is that wealth doesn't beget wealth, but rather those with the characteristics which lead to the acquisition of wealth also beget offspring with the same properties. This isn't necessarily unjust, as Yglesias states, but rather an artifact of the reality of genetics, upbringing and their effects on productivity. If so, to achieve the "equal opportunity" you seek, you must wipe away these differences in both genetics and upbringing, in which case, just call me Harrison Bergeron.
In any case, there's no need to sit here and think up a priori explanations for this correlation. I'm afraid I don't have time to look them up right now, but I would guess that there have been studies done that examined the performance of adopted children of wealthy families, and I strongly suspect that these studies show that the adopted children perform comparably to biological children of wealthy families.
For such an explanation, I'll note that as the article mentions re. savings plans, much of the behavior which perpetuates poverty tends also to be associated with a short time horizon, or a high discounting of the value of future income. It may be that these practices are largely adopted for lack of educating and training the child of the alternative: that sacrifice and current effort can lead to greater happiness over time. Parents would be well-situated to impart such a lesson.
But my explanation need not be the only factor at play, it only serves to show that the view that income begets income (and thus needs to be equalized) is not the only conclusion supported by the facts.
You wouldn't have to wipe away the differences, but for some a "just" society should view someone who had poor parents, limited opportunities and an IQ of 70 and someone who had every opportunity, great parents, and an IQ of 130 as equally important and valuable. Such people view a society where the top 2% of the world owns over half the wealth and much of the world lives in absolute poverty as a sign that maybe our institutions are a bit out of wack.
Personally I'm more a fan of smaller "nudge" (nudge.org) like concepts combined with a progressive tax code and a strong commitment to helping minimize "brute luck" (being born to poor parents) while holding people fully accountable for personal decisions or "option luck" (choosing to take a risk, or making a life decision such as being a teacher vs. an i-banker; or going out at bars instead of saving). (Sort of in a Dworkin fashion see: http://en.wikipedia.org/wiki/Ronald_Dworkin#Theory_of_equali... / or http://en.wikipedia.org/wiki/Luck_egalitarianism).
About half of US workers don't pay income tax. They pay for part of their retirement (SS for them is a modest deal, because their ROI is subsidized by folks who pay more).
Our vice president said that paying taxes is patriotic. Shouldn't they be patriotic?
That sounds about right. It's not surprising, if that's the case, that the distance between the top few % and everyone else is increasing so much.
Most people aren't really trying to get rich.
The bulge around the average is because you need at least an average income to have a regular life, raise kids, etc. Many people work just hard enough to have an average standard of living.
Note that income is an especially bad measure if they didn't account for non-taxable sources of stuff, as is typically the case in such studies. Since those sources provide a huge fraction of the "support" for poor people, failing to account for it makes the results highly suspect. Moreover, since it is well known that non-taxable sources are significant, failing to account for them ....
To look at it in a nice, emotive context, which society do you suppose is happier: the one where the cure for all cancers exists, but is so labour intensive that only the rich can afford it, or the society where the cure does not exist at all, and all are in the same boat? I'd caution you not to underestimate the pain of knowing that your loved one could be saved, if only you had a bit more money.
Whether someone is ugly or not is not really something that society makes an active choice about at the moment - I'm not sure it's relevant.
NB: No, I am not a commie, and I am in full favour of some income disparity as a motivator towards useful output. I just find the assertion that it doesn't matter if the rich have an ever-increasing share of the pie as long as the pie keeps growing a touch disingenuous.
edit: formatting
Spare me the sanctimony.
Now lets look at it in a realistic context. The society where rich people can afford something today is a society where poor people said something tomorrow.
You're arguing that folks should die "forever" in order to spare the feelings of people who died "unnecessarily" during a "while". Do you really believe that people saved later are worth so little?
> I just find the assertion that it doesn't matter if the rich have an ever-increasing share of the pie as long as the pie keeps growing a touch disingenuous.
Oh really? You find what I say to be "lacking in frankness, candor, or sincerity; falsely or hypocritically ingenuous; insincere"? On what basis?
It's not that the pie keeps growing. It's that the amount of pie that the poor get keeps growing.
And where there will be another thing (of some critical importance) that the poor cannot afford tomorrow that the rich can.
> You're arguing that folks should die "forever" in order to spare the feelings of people who died "unnecessarily" during a "while". Do you really believe that people saved later are worth so little?
No, I'm arguing that a society where progress is slightly slower (i.e the pie grows more slowly), but has lesser income disparity will probably be happier than one with massive income disparity and faster overall progress. I'm not saying it's 'right' or 'wrong', but I am saying that this is a fact. Happier societies generally have lower income disparities than those displayed in the US, and really, what else do you need to justify it?
> Oh really? You find what I say to be "lacking in frankness, candor, or sincerity; falsely or hypocritically ingenuous; insincere"? On what basis?
Because I think when people say it that their motivation is not accuracy, it's just an excuse to justify not caring about the poorer segment of society - a way to ignore the fact that although the absolute amount of pie they get has increased, there's still a problem.
Yup. And then that thing will become available to the poor. Do you really want to argue that it's good to slow down that cycle?
> No, I'm arguing that a society where progress is slightly slower (i.e the pie grows more slowly).
Actually, you weren't. You explicitly stated "the society where the cure does not exist at all, and all are in the same boat". Even if we rewrite that to "no availability short of universal", we end up with "no progress" because you can't start with universal. You have to start with expensive and rare and grow from there.
Me - I'm glad that rich people are willing to pay to be alpha testers.
> I am saying that this is a fact.
Actually, it's largely a construct of an envy campaign. Telling people that they have it bad has consequences.
> Happier societies generally have lower income disparities than those displayed in the US, and really, what else do you need to justify it?
Do you really think that "happy, brutish, short" needs no justification? (Not to mention that "happy" is overstated.)
>> Oh really? You find what I say to be "lacking in frankness, candor, or sincerity; falsely or hypocritically ingenuous; insincere"? On what basis?
> Because I think when people say it that their motivation is not accuracy, it's just an excuse to justify not caring about the poorer segment of society - a way to ignore the fact that although the absolute amount of pie they get has increased, there's still a problem.
Look. You've accused ME of lying. How about some actual evidence.
As far as "caring" goes, you've conceded that my way results in faster delivery of essential goods to poor people. That leaves us with I'm evil and your way kills people.
To an extent, yes - we've gone over this already. As mentioned, the very fact of this imbalance can cause a society that is overall less happy.
> Actually, you weren't. You explicitly stated "the society where the cure does not exist at all, and all are in the same boat". Even if we rewrite that to "no availability short of universal", we end up with "no progress" because you can't start with universal. You have to start with expensive and rare and grow from there.
Whew, way to quote out of context. Yes, I stated that the society where such a cure was unknown is likely to be happier. This is not the same as advocating zero advancement. There is a suffering generated by partial availability of such a cure, and a suffering generated by the total unavailability of such a thing - and my point is that in the US and UK the latter is neglected.
quoth me: "No, I am not a commie, and I am in full favour of some income disparity as a motivator towards useful output".
You've set up a straw man. I could do the same to you - I could imply that you favour a society where the richest 1% have 99% of the wealth, can afford genetic manipulations that make them vastly physically and intellectually superior to the rest of society, while the rest have little more than they do now. Really, though, in the end we're talking about a matter of degree, not absolutes.
> Me - I'm glad that rich people are willing to pay to be alpha testers.
Poor analogy, implies that there's some kind of cost/downside to the rich in this role.
> Actually, it's largely a construct of an envy campaign. Telling people that they have it bad has consequences.
So the fact that people know they're massively less well off than another segment of society (despite working 63 jobs and getting hardly any time off) makes them unhappy? Sounds, well, kind of like what I've been saying.
> Do you really think that "happy, brutish, short" needs no justification? (Not to mention that "happy" is overstated.)
You're right, the lives of western european nations are happy, brutish, and short, thanks to their smaller income disparity. Have you ever visited? They tend to be happier, have longer lives, and experience less suffering. Class mobility is vastly higher than in the US. It would probably be a stretch to call them brutish, although those who spend much time driving in Paris may disagree ;).
> Look. You've accused ME of lying. How about some actual evidence.
shrugs I have none. After all, I can't see inside your head. That's why I said 'I think'. It's not so much of a stretch, though - it's in the interest of the wealthy to advance justifications to support their position, whether they're reasonable or not.
It is if you think that happy is the only relevant criteria, which you've written above.
> I could do the same to you - I could imply that you favour
Yes, you could attribute something to me that has no actual basis, again. It's unclear why you think that refraining from doing so is some sort of virtue.
> Poor analogy, implies that there's some kind of cost/downside to the rich in this role.
There is a downside. They pay 90% of the NRE. If they're not 90% of the relevant population, they've paid much of the NRE for the rest of us. Yes, they get a benefit, early access, but denying them won't speed up our access.
Yes, they clearly think that the benefit that they receive is greater than the cost that they pay, but that doesn't mean that there isn't a cost or that they're not subsidizing the rest of us.
>> Actually, it's largely a construct of an envy campaign. Telling people that they have it bad has consequences.
> So the fact that people know they're massively less well off than another segment of society (despite working 63 jobs and getting hardly any time off) makes them unhappy? Sounds, well, kind of like what I've been saying.
Reread what I actually wrote. Telling them that it's bad that that someone else has it better has consequences.
> Have you ever visited? They tend to be happier, have longer lives, and experience less suffering.
Smug much? Yes, I have. I've also lived outside the US, in US ghettos, and done "poor people" work. You're comparing different populations and the difference that you're fixated on isn't particularly relevant to that difference between the populations. If you look at comparable populations, the difference that you're fixated on disappears.
Or, in stat-speak - averages can be deceptive.
> it's in the interest of the wealthy to advance justifications to support their position, whether they're reasonable or not.
And what's my interest?
Note that everyone has "interest", yet only interests attributed to the wealthy rate a mention. And, you're assuming that the fact that they have "interest" means that they're wrong.
Overly simplistic. You ignored the rest of this paragraph, which explained my position. Please have the decency to debate fairly - this is HN, not Digg.
> Yes, you could attribute something to me that has no actual basis, again. It's unclear why you think that refraining from doing so is some sort of virtue.
My point being that you've attributed something to me with no actual basis. If you read my posts it's quite clear that I don't favour a society with zero advancement - merely that I think the balance we have struck between advancement and relative prosperity is out of whack, yet you insist that this is my position.
> There is a downside. They pay 90% of the NRE. If they're not 90% of the relevant population, they've paid much of the NRE for the rest of us. Yes, they get a benefit, early access, but denying them won't speed up our access. > Yes, they clearly think that the benefit that they receive is greater than the cost that they pay, but that doesn't mean that there isn't a cost or that they're not subsidizing the rest of us.
The rich benefit vastly more from society than the rest of us - they benefit for every worker they have that society has educated, for every worker that can drive to work thanks to good roads, etc etc. Looking at taxation purely in terms of direct benefits like Medicare or social security is simplistic.
> Telling them that it's bad that that someone else has it better has consequences.
You don't think it's bad position to be in, to be in the poorest segments of society? To be unable to finance care for your chronic illness if you lose your job? Frankly, I think I'd loathe that situation.
> Smug much?
Not really. I live in the UK, where we have a pretty similar issue to the US, if slightly less pronounced. I simply admire the basic civility of the economic situation in these other countries.
> You're comparing different populations and the difference that you're fixated on isn't particularly relevant to that difference between the populations. If you look at comparable populations, the difference that you're fixated on disappears.
Care to elaborate?
Please don't mistake my distaste for severe income inequality as jealousy. I live comfortably, and I can honestly say that I have little use for a great deal more cash than I have now. Honestly, though, I think we're going round in circles here. If you have something new to say I'll be more than happy to continue the debate, but I don't think we're going anywhere.
An accurate quote is an actual basis.
> The rich benefit vastly more from society than the rest of us - they benefit for every worker they have that society has educated, for every worker that can drive to work thanks to good roads, etc etc.
Rubbish. The educated worker benefits more from the education than the employer, absent some actual coercion. (Read "threatened or actual force", not "Google refused to hire me.")
> You don't think it's bad position to be in, to be in the poorest segments of society?
No.
The goodness/badness of my position does not depend on whether someone else can jet to Aruba. The goodness/badness of my position depends only on my position. Telling people otherwise is both wrong and harmful.
For example, I'd much rather be poor in much of the US than middle class in Mexico. I'd much rather be poor in the US than upper class in some of the post-colonial countries in modern Africa. I'd much rather be middle class in Mexico than upper-class/rich in the middle ages.
Do you really think that I'm not choosing better even though in each case I'm picking relative poverty?
Now, you could argue that rich and poor used to have it bad but now we've advanced so that only poor have it bad....
> To be unable to finance care for your chronic illness if you lose your job? Frankly, I think I'd loathe that situation.
That's irrelevant to this discussion unless you'd be happy if you were rich and had some incurable illness. (Hint: the real problem is your situation, not that someone else has it better.)
> I simply admire the basic civility
I like civility too, but given a choice between progress and civility, I'll take progress every time because progress makes people's lives better.
> Care to elaborate?
Not much beyond you don't know much about the US or you don't understand what averages obscure.
Do I misunderstand, or does this model hinge on the assumption that money (wealth, value, etc) can't be created? Assuming that wealth building is a zero sum game seems fundamentally flawed. It might look good in models as snapshots of the current situation, but as net wealth increases I'm sure it would throw things off.
Still, the Feds do print money, and wealth is added (not necessarily related), which goes against the article's premise, regardless of how you define money.
Huh? In what sense is modern technology not wealth?
Moreover, much of what passed for "wealth" in the past is common place today.
I didn't mean to imply technology isn't wealth, just that you had to factor it out for my point to be made.
Try living on $100K in 1900 (non-inflation-adjusted!), vs. $100K today. By the standards of the time, you'd be filthy rich... only you'd have no Internet, no TV, no radio, no air travel, no air conditioning, no antibiotics, no cellphones, etc., etc., etc.
For example, a percentage of the poor make their living by stealing, we can conclude that the little wealth they earned is illegimitative.
However, if a rich man make his living by providing excellent services to the poor, we cannot conclude that he is exploiting the poor.
If wealth are forcefully taken away in the name of aiding the poor, it is also illegimiative because you took wealth from somebody who did not consent.
There are many unfair circumstances for which the poor are forced to deal with. However, keep in mind that the poor and rich is relative to time and places. Indeed, the poor working classses are indeed richer than kings in some respect.
The middle class for example, have access to the world's largest media library via cheap broadband connections. It is also very probable that even the poor have TVs.
Part of the reason why they are poor may be lack of education, but it may also be attributed to lack of saving plan. If the poor don't save, than it is not possible to accumlate wealth over generations. If they have money to buy a TV, than it is possible for them to save.
In short, equality in circumstances cannot be considered the basic of an ethical society. We can only hope for equality in the right of men.
So how can we improve our society?
Part of our lives are indeed shaped by memes, ideas, as well concept of what is legimitative. These forces are the limitations which determine how well we struggle against mother nature and our unlimited wants and needs. While unjust insitutions like the government and laws like copyright persists, they only have the power to exists by the masses.
If the masses simply do not believe in them, than no forces of corecision and violence that was previously entrusted to these institution can force them to do otherwise.
By no mean that beliefs shape reality itself but if we do not understand reality itself, than we cannot take the full advantage of our power or use them correctly.
"Through careful academic research, we've decided what constitutes a smart, well-adjusted individual, but society is not rewarding us, err, I mean them, with material wealth—this unequivocally exposes inequities in the system."
For the record, it's this type of thing that makes me a religious person. I know there are a lot of atheists around here and I respect that. But when I see two completely unrelated processes that seem to follow the same underlying structure it makes me think our world is working off some kind of plan.
I'm not suggesting anyone jump on a religous bandwagon and become a Christian, Jew, Muslim or whatever. I'm simply saying a higher power of some kind is worth consideration when faced with this evidence.
That's harmony in a seemly chaostic system. The free market can be seen as a perfect example of that. It allocate resources effortlessly using price signals and billion of indiviual decisions on what to buy, sell, and conserve.
Random events, by their nature, should not follow a pattern. But we find time and time again that not only do they form a pattern but that they form the same pattern as otherwise seemingly random events.
Put it this way. If you can see gas particles following the same pattern as wealth distribution among people and not at least question your views about a higher power than it's you who is being irrational (Note: I didn't say change your view I said question)
I wasn't saying 'statistics' as a magical name, I was just using it as shorthand for the explanation that it provides. Frankly, I don't have the time or inclination to type up a half hour lecture on stats (especially since there are thousands of others who have already done so far better than I could).
But, here's the 10 second explanation: Many easily measurable outputs (height, weight, wealth, etc) are functions of a large number of roughly randomly distributed inputs. It's very unlikely that all these inputs are lined up in such a way that the observable output is maximized or minimized. It's much more likely that they will, in fact, on average cancel each other out. Given a sufficient number of trials (i.e., a large enough population), this results in a normal/guassian/bell-curve distribution of the observable output.
Given other distributions/correlations of inputs you get the other common distributions of outputs (lognormal, boltzmann, exponential, etc).
Just because you intuitively feel some concept is true, doesn't make it so. For example, the idea that heavy objects fall faster than light objects is very intuitive and was Aristotelian common sense until Galileo had the good sense to actually test the idea. Of course, it turns out that idea is not correct.
It is sometimes difficult to understand new abstractions like spontaneous order. But, I think it is worth trying.
Here are some articles to use as a starting point:
http://en.wikipedia.org/wiki/Spontaneous_order
http://en.wikipedia.org/wiki/Cellular_automataPut it this way. Ask any atheist why we have religion in the world and they'll generally give you the same answer. Humans have a need to put order to the universe so they invent benevolent deitys to give them that sense of order.
But if we discover, as we gain more and more knowledge through science, that there in fact is an order to the universe doesn't that least SUGGEST that MAYBE there is a higher power?
So, no, that the light from my lamp comes out in all directions does not suggest to me a higher power.
If there's no randomness and chaos, life wouldn't probably form. There wouldn't be the billion, or trillion of random cominbation that finally form the foundation of life. There wouldn't be any order to recongnize because the universe is inert. There would be nothing to see and nothing to do. Likewise, if there is no energy difference between different area of the universe, the structure of life couldn't form.
Why do spontangeous order exists? Because without spontangeous orders nothing can exists and no life would form. It doesn't need a reason, because its reason is to exist.
In other words, randomness is neccessary for the creation of an anthrophic universe. For that I am a discordian.
Of course, I am not a philosopher.
Of course those abstractions exists. An abstraction can't not exist.
What you actually mean to disagree with is the application of the abstraction to life or to the cosmos or to whatever you are worked up about here.
But, I never said you need to apply these abstractions to anything. I'm not interested in explaining the world to you in a internet comment.
I'm simply observing you do not understand the idea of spontaneous order and suggesting you take the time to think about it.
When a woman gives birth to a child, it is random whether it is a boy or a girl. But there is a pattern: when 100 women give birth to a child each, we expect 50 boys and 50 girls.
This article made me question how we think about the interactions between people, that you could make the same distinction in economics as we do between statistical mechanics and thermodynamics.
Do we uncover truth in the motion of atoms, or create models in our minds as play things?
From Pi; 'My new hypothesis: If we're built from Spirals while living in a giant Spiral, then is it possible that everything we put our hands to is infused with the Spiral?'
The question then: what differentiates those above the gas, and how do you get there?
"Rich are getting richer while the poor remain poor" is not supported by the stated evidence of the growing income gap _ratio_. The ratio can increase even if the poor are becoming richer, so long as the rich are becoming richer faster.
Why? None of the data addressed class mobility.
_It suggests that any kind of policy will be very inefficient," says Yakovenko. It would be very difficult to impose a policy to redistribute wealth "short of getting Stalin", says Yakovenko, who will talk in Kolkata next week._
As if the research wasn't abstract enough, this level of generalization and political inference makes him sounds like a crackpot.
IIRC, there is actually quite a bit of circulation in that set, but I can't seem to google up the studies on that I saw (I can't come up with non-generic search terms). This mollifies some people and others consider it irrelevant.