http://www.forbes.com/sites/kenrapoza/2013/01/20/the-china-m...
http://www.bloomberg.com/news/2013-02-05/china-approves-inco...
This is frightening to social scientists in China who analyze society from a Marxist framework, especially those who have noticed that regional wealth gaps in China are greater than those in Yugoslavia before Yugoslavia disintegrated.
I don't see what Yugoslavia has to do with it. Yugoslavia was a very different situation, in that each republic was populated by a different ethnic group, with a history of squabbling.
Slovenia and Croatia were wealthier than the other republics, and they resented the fact that Serbia held the reigns of political and military power in the federation. It is not accidental that these were the first two republics to break away -- and also that they managed to break away successfully. In contrast, Bosnia had a large Serb population, and they weren't about to let go without a fight.
China is different, in that most of the rich provinces have a majority-Chinese population, and most of the poor provinces are also majority-Chinese. The only provinces they're worried about are Xinjiang and Tibet -- and that's an ethnic problem, not an economic problem.
The reason that the Chinese Communist Party is worried about the distribution of wealth is that they don't want a grassroots communist revolution. They know all too well how those things get started ...
No. China is a divided country today, if you believe the official view of both the P.R.C. and R.O.C. regimes about Taiwan as a territory of China, and China was divided into territories ruled by warlords as recently as my own parents' childhood. There have been many periods of Chinese history when the territory that is now known as the country of China was ruled by multiple, warring regimes, and interregional ethnic tension among nominally "Han" people in China is well known to anyone who speaks Chinese (as I do) or has studied Chinese history (as I have). I referred to Yugoslavia in my comment to which you kindly reply because this is an example that has been pointed out to me by Chinese social scientists. If one accepts a Marxist framework of economic determinism, as many social scientists in China continue to do, the break-up of Yugoslavia was all but inevitable once regional economic disparities became as great as they were in Yugoslavia in the 1990s. But regional economic disparities in China are now greater, and not least in the large swaths of territory that historically have been part of Tibet and eastern Turkestan.
The reason that the Chinese Communist Party is worried about the distribution of wealth is that they don't want a communist revolution, such as the one that originally brought them into power.
Yes, the current leaders of China have violent regime change as well as territorial dissolution to worry about. I'm agreed with you there.
> If one accepts a Marxist framework of economic determinism, as many social scientists in China continue to do, the break-up of Yugoslavia was all but inevitable once regional economic disparities became as great as they were in Yugoslavia in the 1990s.
I said "China proper," not "the current borders of China, including Taiwan and Tibet and all the other acquisitions over the years."
I also said that China proper had a "tradition of unification," not "uninterrupted existence as a unified state." They may split apart from time to time, but they keep coming back together.
I find it strange that you keep bringing up the "Marxist framework of economic determinism." The Marxists like to view the world through a narrow lens of economics and class struggle. This is not necessarily wrong -- but it doesn't give them the full picture.
Slovenia and Croatia were not just the richest republics in Yugoslavia. They'd also been ruled by the Habsburgs for 400 years, used the Latin alphabet, and felt a greater affinity towards Western Europe than towards their brother Slavs. And as for economic determinism, why did every other Yugoslav republic also break away? Bosnia and Macedonia are quite close to Serbia in per-capita GDP.
Yes, Yugoslavia had a 4-1 ratio in per-capita GDP among its constituent parts, and so does China. But so does Mexico. So does Brazil. So does India. If those countries haven't broken up, then clearly economics sometimes takes a back seat to other factors, like ethnicity and nationalism.
Other social sciences have valuable insight into the dynamics of breakups, but I don't think it is accurate to think that economics would only be concerning with difference in per capita income of different regions.
if that's an example of regional tensions, it's a bad one; because there's also ethnic tensions involved. 3 million ethnic Tibetans in Tibet, and about 14 million Uyghurs, Kazakhs and so on in Xinjiang (living with 8 million Han - it's pretty much colonised now) won't overthrow the 1.2 billion Han.
There's so few minorities that China can afford to bribe them a lot (relaxed one child policy, reserved university places, reserved jobs - which partly makes up for the discrimination they face), and send in the troops if necessary. There still is a lot of tension on both sides, but a country the size of China isn't going to let a vast swarth of territory (with all its mineral / petrochemical wealth) go over it.
It would be better to talk about Hukou (social services linked to city of origin). Or maybe regional divides within Han China.
But the divide between rural and city people has often been a bigger deal (to >90% of Chinese) than ethnicity. Farmers starved in the Great Leap. City folk were persecuted in the Cultural Revolution. Farmers now struggle to get their kids educated, while they work the undesirable jobs in cities.
http://articles.latimes.com/2012/jul/18/business/la-fi-mo-wa...
Throw out the negative equity people and the numbers were not as bad, use median income and the numbers are better. I doubt the comparisons made in China and Russia are the same as this study you cite was.
Besides, most importantly, the Waltons earned it, most of the wealth locked in China and Russia are either ex political power players or their friends.
Still, when it comes to China and even Russia, what has really changed? The same people ruling and having control of the wealth when they were not "open" markets are basically the same now.
The distinction here is arbitrary. When we talk about such amount of wealth, I think the verb "to earn" lose some his significance. As a society, I don't believe we should accept that a few persons own such a huge proportion of the wealth (regardless whether they "earned" it, stole it, found it...).
Looking at the net worth of the bottom 40% of the American population doesn't tell you much about the level of oligarchy in American society. You would expect a big chunk of the population to not have much in the way of assets, simply because the trajectory of peoples' lives is to build up assets as they age over time. See: http://en.wikipedia.org/wiki/Wealth_in_the_United_States#Sta.... Indeed, things that are ostensibly good, say more people getting higher education or more job mobility, can push out the time when people settle down, buy a house, and start saving, thus increasing the number of people who don't have substantial assets.
The median family net worth of a household headed by someone under 35 is $10k, while it's over $230k for a household headed by someone aged 55-65. The "bottom 40%" category is also heavily skewed by education, with households headed by non-high school graduates having a median net worth of $30k versus $250k for households headed by college graduates.
The statistics indicate that the "bottom 40%" starts around $40k. How many people under 30 do you know that have a net $40k? With student loans and sky-high rents, I bet lots of silicon valley engineers are in that "bottom 40%" for reasons that have nothing to do with oligarchy.
I haven't thought thru it much nor come to conclusions, but do think one's "velocity of money" needs far more consideration.
One way I like to look at it, is how long would you have to save up to have 20xmedian (net) yearly income in your area in the bank? That is, after subtracting whatever reasonable living expenses, how long would you have to save all that's left to have 20 yearly incomes in savings? Because at that point, barring financial crisis -- you should be able to live off the interests -- at roughly median income.
It's actually a pretty small number -- the point at which you could reasonably retire just on your own savings pretty much indefinitely.
But it's something that is generally impossible to do unless you are "well off" -- and not at the bottom of the pile, so to speak. On the other hand, as soon as you start making "real" money (say 1.2x median income) it becomes almost trivial if you deem it to be a goal worth trying for.
I find it odd that those of us who make this observation, and follow it thru to its natural outcomes, are lambasted for the consequential opinions we hold thereon.
What about when wealth distribution is done not through simply handing poor people money, but through providing more social programs, mental healthcare, high-quality education, etc. to people most in need of it?
Most people who point out economic inequality would rather like to see long-term social stability programs, not just handing people money until we reach a good wealth curve across the population.
That's very true, but an equally important factor is compound interest, which tends to amplify what might initially be very small differences in wealth. I once wrote an article (http://arachnoid.com/example/#Compound_Interest_Example) in which, as an example, at age 20 a prudent person invests an inheritance of $20,000 for his retirement at age 60, expecting to withdraw $45.00 each week for walking-around money. In the experiment, if the investor withdrew 38 cents more each week, he ended up flat broke at age 60. If he withdrew 38 cents less, he doubled his money.
Another factor is that being poor is expensive, there's no other way to put it. When a rich person uses a credit card, he gets a free 30-day loan. That service is being paid for by those at the bottom, who have a constant balance on their cards.
A poor person has to buy insurance for his house and car, because they're both on bank loans, and the banks require insurance (and the bank loans sometimes double the cost of the purchases). A rich person can buy things in cash, and then self-insure using his assets to cover accidental losses.
Let's face it -- overall, being poor is a very bad business policy. But the point is that an old adage about the rich getting richer and the poor getting poorer is backed up by simple economics.
I contend the reverse is more often the case: bad [personal] business policy is a primary (though not exclusive) cause of poverty. The smarter you are with money, the easier it is to acquire more of it; likewise the reverse.
Pretty much everyone understands the primary principle: spending > revenue has, on the whole, obvious results. Rectify that. Yes, you can...you must.
> I contend the reverse is more often the case: bad [personal] business policy is a primary (though not exclusive) cause of poverty.
Yes, I agree actually -- I was being a bit ironic in my original post. There's plenty of personal responsibility in poverty, at least in Western, democratic countries. People could take a number of constructive steps to better themselves, like shred their credit cards, don't fall for some of the more obvious economic traps like borrowing money for unnecessary possessions, thinks like that.
And I also completely agree with your other point -- that understanding how money works is critical.
We're doing pretty good here if a poor person is implied to have a house worth insuring (implying either ownership or rental of sufficient value, containing sufficient assets) and a car, and is eligible for bank loans for both. In some countries, a person rich enough to have a house, a car and to qualify for bank loans for both is considered pretty well-to-do.
>>> A rich person can buy things in cash, and then self-insure using his assets to cover accidental losses.
I'm pretty sure most people, not only poor people, use car insurance. It's more convenient and usually (unless you drive exotic or super-expensive cars) cheaper than surety bonds that are usually required, and same with cash deposits (since cash deposited at DMV can't be used for anything else). For businesses having massive fleets, OTOH, it may make sense to self-insure since they get the same risk distribution as insurers, but without the middleman.
>>> overall, being poor is a very bad business policy
It's bad business, but you may have a lot of incentives for it, given that welfare subsidies and services you may get in many US localities pay more than minimum wage job and in some localities more than average wage job.
http://www.cato.org/publications/commentary/why-get-welfare http://www.cato.org/publications/white-paper/work-versus-wel...
>>> rich getting richer and the poor getting poorer is backed up by simple economics.
It may be but it definitely is not backed up but what you said. The thing is that statistics that talk about "rich getting richer" makes you assume that same people that were rich 20 years ago got even richer now, and same people that were poor 20 years ago are even poorer now. In fact, nothing in this statistics point to it - what statistics can tell you is that some people were rich 20 years ago, and some different people are rich now, but it usually says nothing about how many of people rich today were rich or poor 20 years ago. It is completely normal for a person to be piss-poor while being a young student and become quite well established when retiring. Usually it comes from working hard and making a number of right choices on the way. Including, yes, saving diligently and having long-term view, which leverages the power of compound interest - but for this you need the right behavior.
>> It's bad business, but you may have a lot of incentives for it, given that welfare subsidies and services you may get in many US localities pay more than minimum wage job and in some localities more than average wage job.
Wait, what? If you have the choice of making more from welfare, than from a job, picking the (hypothetical) better financial option is an incentive for you to stay poor? How's that? If the alternative is to make less doing more work -- surely minimum wage is more of an "incentive" to stay poor?
(Lets not get into the discussion of "rich" welfare receivers and such, I'm just curious how you could see choosing the option to make more money as an incentive to stay poor, vs making less doing something else -- now if the person had the option to get a decent job, then that'd be diffrent?)
Better welfare (say free college or other education/training) might make a difference, however.
Now I agree that it would be good if people worked (if they are able) -- but in and off itself that doesn't make them better off.
You ARE guaranteed an income cap if you choose the welfare route: you CANNOT make more than $X or they'll dock your benefits fast enough that the transition to work is a powerful disincentive to doing so.
Yes, of course, but if you can't buy milk for the children today, eventually isn't nearly soon enough.
http://www.bls.gov/opub/mlr/2006/07/art4full.pdf
"The likelihood of leaving low pay decreases dramatically as tenure in a low-paying job increases. Low- wage employment could itself decrease future wage growth if it causes workers to receive less training or skill development, conveys a negative signal to future employers, or provides access only or chiefly to weaker labor market networks. Significant numbers of stagnant low-wage earners could also be visible because of “sorting,” as those individuals with lower employment opportunities remain low- wage workers. The latter finding indicates that, not only is earnings mobility a reality for a substantial number of initially low earners, but also there is continued poverty within a large subpopulation of workers."
In other words, it's not quite as simple as "work will always win".
It's not an incentive, it's a trap, and it's why AFDC was abandoned. It works like this -- let's say you're on welfare. If it's a typical program you can stay in the program only if you don't make much money the usual way. Once you start making your own money, the welfare ends, often in such a way that you have a smaller income than before your personal income increased. This was true about AFDC and it killed the program -- it was a powerful disincentive to work, or to rise economically. It kept the poor poor -- they had a disincentive to move upward.
Basically I agree, but for many people, buying a house on a mortgage is a modern kind of economic slavery. Young people often don't get the big picture, and sign a mortgage or two before appreciating the meaning of compound interest.
House loan, car loan, a child or two, and your life is over. And there are forces in society who think that's a perfect outcome -- married people with these kinds of obligations have no political power or options -- they're doing all they can just to stay afloat.
>> rich getting richer and the poor getting poorer is backed up by simple economics.
> It may be but it definitely is not backed up but what you said.
But it is. In a mathematical sense and in the long term, the distinction between rich and poor is a delicate balance, teetering on the fulcrum of compound interest. A few bad choices that at the time may seem trivial, like accepting an unfavorable mortgage rate, over time can decide your economic fate.
Also my point about credit cards -- if you run a perpetual balance on a card, you're in essence loaning money to rich people. Over time these and other similar factors cause a widening chasm between rich and poor.
There really is some substance behind this folk saying.
Signing a mortgage is not that easy nowdays, you have to show appropriate income. Though yes, basics of economics, finance and statistics should be taught in every school right after arithmetic. There's not many things that are as important in modern world and as widely being ignored.
>>> House loan, car loan, a child or two, and your life is over
I know a lot of people who have houses, cars and children, and their life is far from over. Unless, of course, you understand by "life" the things you did as a freshman in college - but there's more to life than that.
>>> married people with these kinds of obligations have no political power
Married people with obligations have vast political power in any democratic society. That's why we have mortgage interest tax deductions and healthcare tax deductions - try to mess with those and your political ass would be kicked out faster than you can say "my words were taken out of context".
>>> if you run a perpetual balance on a card
If you do it, you constantly make irresponsible behavioral choices. That's the point - it's all about behavior. The chasm doesn't widen by itself - it's because you keep digging!
This is unsubstantiated hand-waving. I agree that you'd see quite a bit of inequality, but you have no evidence that "we'd soon return to the economic disparity & distribution we see now."
> Poverty/wealth is, on the whole, a consequence of chosen behavior.
While "chosen behavior" might be a component of outcomes, there's no good evidence as to how much impact it has on outcomes as compared to other factors. Also, how do you define "chosen behavior?" Are you including IQ? Impulse control? Personality traits? Are any of those "chosen behaviors?"
My personal experience with life is that those three things + parental wealth are a bigger components of outcomes than "chosen behaviors." It's easy to make the "right choices" when they're laid out right there in front of you, and easy to get back on the "right course" when you have those factors, which are the result of the grand lottery of life, on your side.
What is the equilibrium income/wealth distribution in a system where everyone is genetically engineered, taken from their parents at birth and raised and educated in identical conditions? That'd be the scientific way to isolate the impact of "chosen behaviors." I don't know any more than you do, but I bet its a lot narrower than what we "see now."
> I find it odd that those of us who make this observation, and follow it thru to its natural outcomes, are lambasted for the consequential opinions we hold thereon
I don't know your particular opinions, but I'm going to hazard a guess and say you're overstating how much of your process of "follow[ing] it thru to its natural outcomes" is based on analytical logic versus handwaving moralizing.
Shocking Behavior : Random Wealth in Antebellum Georgia and Human Capital Across Generations: http://home.uchicago.edu/~bleakley/Bleakley_Ferrie_Intergen....
The Ticket to Easy Street? The Financial Consequences of Winning the Lottery: http://www.mitpressjournals.org/doi/abs/10.1162/REST_a_00114
Regarding the first study: it looks at a small wealth shock (bringing people to the median level of wealth at the time), and compares outcomes (occupational status, literacy, education) that were largely irrelevant to the median people of the time. Simply put, why would you expect people winning a median level of wealth in 1832, a time when the median person was a poorly-literate or illiterate, uneducated, farmer, and then expect that the winners would be more educated, more literate, or have an occupation other than farming? Besides all that, it addresses a different point than the one I'm making. It essentially goes toward showing that poor people, given a windfall of wealth, do not invest it in their childrens' education. But whether your parents invested in your education or not is not a "chosen behavior" on your part. It's an external variable you have no control over. To counter my argument, what you need is a study showing either that rich people don't invest more in their children than poor people, or one showing that such investment doesn't matter.
Regarding the second study, I'm not sure what sort of extrapolations you can draw from a data set that consists purely of people who were already in financial trouble. These people probably have impulse control issues. Is that a "chosen behavior?" It's something we can measure in kids that are just a few years old.
If you really want to discern the magnitude of the impact of "chosen behavior" you have to factor out the effects of things that aren't "chosen behaviors."
The bottom line is that you don't choose your parents, and you don't choose the things you inherit from them. You don't choose your IQ, you don't choose the size of your trust fund, you don't choose to learn how to behave in professional society from an early age, you don't choose many personality factors like attentiveness or impulsiveness, etc. These things are not "chosen behaviors."
Weather you invest in the education of your children is, however.
Interestingly enough, most of the guys who made out like bandits were bankers and merchants selling good for prospecting. Nordstrom (the founder of the retail company) was one of them.
Do you have any evidence for this assertion?
The real eye-opener was when I spent an afternoon helping a poor family a variety of ways. I was repairing their couch, a bit puzzled at the damage thereto but continued fixing it; when almost done, the early-teen girls came to me and asked for a large sheet of plastic. "Uh, don't think I have any...what do you need it for?" "We just tore out the screens in the bedroom." I don't know if that means anything to you, but I was startled at the notion that these kids were deliberately destroying their home. I realized, with plenty of confirmation in other poverty-assistance encounters, that much of poverty can be linked directly to ongoing patterns of self-destructive behavior.
Yes, many poor are there as a result of "not their fault" circumstances (abuse, IQ, financial/medical disaster, etc.). But many of them will overcome poverty precisely because, whatever their condition/situation, they still embody self-improving behavior. Yes, they need help/food/money, and I try to provide it as possible.
Now, with those points in mind, it's pretty obvious that if you give everyone the same wealth and income, some will squander it unto poverty, and others will make wise choices - with financial results reflecting their personal choices.
That's not an "observation", its a claim. Actually, its two separate claims: one a claimed effect of a hypothetical action, and one a claimed mechanism of the claimed effect.
And while I see plenty of reason to suspect that the claimed effect would be true if a point-in-time redistribution occurred, the evidence from, oh, looking around at places that have different observed distributions of wealth and what factors correlate with them is that its not because degree of poverty and wealth are consequences of chosen behavior of individuals, but because the distribution of wealth toward which a society tends are determined largely by the policies (tax, social support, etc.) present in the society on an ongoing basis, such that a point in time redistribution will, over time, be eroded back to the distribution favored by policy (it might, actually, remix who is where on the distribution, but not what the actual distribution looks like over the long term.)
To put a bit of a finer point on it, it has to do with the things that would not be affected by a point-in-time redistribution of currency: access to education and social connections that affect policy. This returns us to a huge component that GP ignores in attributing poverty to choices: luck. As far as choices go, there is also a huge amount of effort spent in ensuring that the unlucky stay that way.
So the poor can only blame for themselves for their own poverty? really?
This is the common liberal speech so popular in america..
Thats what the 1% tell to other people so they can rule over them, and rise their profit margins using this meek labor force.. but the bad in all this is the 99%, repeating this out loud.. like if it was some sort of inherent truth..
This leads to the conformism of the lower classes, this make them work like a dog for the upper class.. pure and simple
This claim is very america-centric and it does not hold if you look to countries with different social and legal structures. Examples of such countries are Canada, Finland, Norway, Sweden, Denmark, and Germany.
The rich and powerful also profit from a society where people are educated and hard-working. If housing and student debts become such a burden that intelligent people well into child-bearing age (and halfway to retirement) have nearly no wealth and/or assets, while 1% of the populations hold 20% or more of total wealth, there is a problem. This problem will eventually reach this coalition of rich and politicians, but they are too short sighted to do something about it.
It is just so much easier at the moment for politicians to sustain their careers by pandering to a small group of rich people with the same interests then a large group of normal people with various interests. There are lots of reasons for this (right-to-lobby, corporate personhood, winner-take-all), but it's a big bug in the system when the majority feel unrepresented in a democracy. Arguing over whether 100 people or a few thousand control the top 1/3 of wealth only illustrates how big the issue of income inequality is.
I agree with "hard-working", but how do rich people benefit from everyone being "educated"? I'm inclined to agree if you bring up STEM or Medicine, but not so much about other fields.
> It is just so much easier at the moment for politicians to sustain their careers by pandering to a small group of rich people with the same interests then a large group of normal people with various interests.
Democrats pander just as much, if not more, to poor people and, in general, welfare recipients. Just look at Obama's recent focus on "redistribution", raising taxes and immigration and healthcare reform.
I'd add that, while you seem to suggest that the rich are behaving irresponsibly by concentrating so much wealth in their hands, the poor IMHO are also irresponsible because many of them are chronic welfare recipients, with no plans of getting off that and also voting for people who promise them more free money. One rich guy getting $1bn from the government is as bad as 100000 people getting $10k each.
If you're going to compare against collective net worth, then I personally have greater net worth than 25% of America, and the entire American federal government! Woo, I must be rich, right? Well, no, I've just paid off my student debt and don't have a mortgage. On the up side, I don't have any debt. On the down side, I don't have much in the way of equity, while some people with negative net worth have substantially more equity than I do, and if they, say, decided to sell their house and move to an apartment would suddenly have considerably more net worth than I do.
"Net worth" is not wealth. Measuring wealth is a somewhat difficult thing, but net worth is a fairly poor way of measuring it.
However, if you already have some student loan debt and the value of your house declines due to the housing crunch, you can easily be in the negative on "net worth", while still having more actual wealth than someone who's at 0.
However it works out, I've seen figures citing 25% of American families as having negative net worth. But I don't think that means that they actually have negative "wealth", nor is it all that useful to point to someone who has 0 net worth and say that they are wealthier than 25% of America combined.
Having the house that they need to make payments on means that not only do they have 0 or negative net worth, they also have strict cash flow requirements which the person with 0 assets and 0 debts does not have.
For someone with a family, struggling to keep the house is certainly better than living on the street. Still, being in a credit crunch could of course lead to that family being evicted, so yes, negative net worth isn't great.
Sounds like a statistic designed to rile people who don't understand the difference between wealth and income. You can be living quite comfortably but with no wealth accumulation (no savings or property). If you're also in debt, your wealth is negative. That bottom 40% probably includes a good number of people making over $100K per year.
In that year, I had more wealth than the bottom 25% of the American population combined. You probably did too.
http://blogs.reuters.com/felix-salmon/2011/12/13/how-alice-w...
"According to the latest data we have, 24.8% of American households had zero or negative net worth"
So basically if you have a net worth of more than $1 you are wealthier than ~25% of America.
The confusion over this stems from people living comfortable lives, despite negative net worth, because their cash flow satisfies creditors and their expected lifetime net worth (after the debts are finally paid off) is positive.
The statistics are misleading because they view the data as "game over right now", when the matter is ongoing. Someone might have negative worth right now, but that's not taking into account the fact they'll earn a million dollars over the next decade.
25% of the US population has 0 or negative net worth. Combine those and the sum is well south of 0, so if you have a positive net worth, you're worth more than the bottom 25% combined (and then some, because the people with negative net worth would average out some of those positive net worth).
The economic impact of such an act would be a huge direct stimulus to the economy and would change the lives of everyone for the better.
Obviously guanxi and party membership are unfair and create such inequalities in China, but it seems to me that in Russia the issue is a mafia-like situation, while in China it's more of a system-related issue. (I am not trying to minimize the problem in China, I am just not sure whether they can be compared)
http://www.scmp.com/comment/insight-opinion/article/1217811/...
isn't the same story either, but it is familiar to persons who follow news from China that the concentration of wealth at the top of the ruling party clique is very extreme--and unknown in its full extent, for lack of a free press.
In Russia it seems that it's a different problem altogether, that is, a mob were able to literally seize part of the country, including the president's cabinet. In Brazil and in China we can say (sometimes cynically) that all politicians are corrupt, but there are opposite forces at play, but to me it seems like in Russia the damage is really catastrophic. (granted that I do not follow Russian politics, so I am not completely sure)
(EDIT: Thanks for sharing the link btw, spot-on criticism from SCMP)