Technology and wealth inequality
blog.samaltman.com
blog.samaltman.com
To me this misses the point. The problem is not inequality, the problem is poverty. If everyone had enough that their basic needs were met and they were not struggling to survive, the fact that some people can afford Lamborghinis and some cannot would not be unjust in my opinion.
Without inequality, there are no Elon Musks. Bootstrapping SpaceX and Tesla required more than 1/6,000,000,000'th of the world's resources. Big results require investment, and it's not practical to crowdfund a multi-million dollar investment. So who should we entrust to make big bets? Doesn't it only make sense that the people who have already been the most successful in creating wealth should have the freedom to take that wealth to try out new ideas?
Inequality is not the problem. Poverty is the problem. Lack of access to education is the problem. We should strive to see that everyone can focus on improving their life and doing interesting things without struggling to survive. And if the most successful people take their spoils and build a 150-foot yacht, or take a ride into space, or invest in the next big company, more power to them.
What matters is how well the poorest in society are doing, not the income distribution. If a system creates a mega rich class but ends up with the poorest in society being better off - then that's a better system.
I'd also qualify that "poverty" is flexible and always changing. I live on 10K/yr in college (2 years ago). I had to share a room with a roommate, ate a lot of rice and beans. I was a pain in the ass - though not nearly as bad as I thought it would be. However not being able to afford a cellphone or a car, having an ancient computer and not being able to afford a lot of social activities (movies, restaurants, etc.) had a noticeable negative affect on my life. If I had grown up my whole life on 10K/yr it probably would have had a major impact.
20 years ago, a car and a phone and internet were a luxury, in Africa or South America it's still a luxury. In modern america, it's poverty.
In terms of experienced disutility, the two are largely the same; relative deprivation is a very significant source of disutility.
Well, in a world where no one studied the issue, maybe.
> Being hungry, homeless or sick is an actual problem that causes people great suffering.
So is relative deprivation.
> Driving a Honda while one's neighbor drives a Ferrari shouldn't cause anyone any suffering.
"Should" and "is" aren't the same thing. One is a statement of preference, the other of reality.
No. You can tell that, because I didn't:
1) Assert the premise you propose, or
2) Assert the conclusion you propose.
> I don't think even the most hardcore communists ever asked for that.
Probably not. It's a ridiculous strawman you just invented.
Not necessarily. The article doesn't develop the argument, but hints at the fact that if the perception of unfairness (due to observed wealth inequality irrespective of the poverty rate) in a society becomes sufficiently widespread, there could be negative consequences. The most extreme example is probably a violent revolution of the less wealth against the extremely wealthy.
I don't think anyone cares about rich people driving fancy cars. They can spend their money how they like. Additionally, I don't think we will ever get rid of poverty entirely. The implicit agreement that we have reached as a society is that as long as the government ensures equal opportunity and social mobility, we will tolerate a certain degree of wealth inequality. Unfortunately, that inequality is so extreme that it is negatively impacting opportunity and mobility.
- "too much" wealth inequality is an a priori problem
- "extreme" inequality negatively impacts opportunity and mobility
- the increase in school tuition is somehow a symptom of this
How can an individual be an example of extreme wealth inequality?
His net worth is 210,314 times what would be "allowed" in a world with perfect equality.
A coherent community smaller than the whole universe of interest that demonstrates the same distributional features can be an example of extreme wealth inequality, an individual cannot -- this is important, because you can have extreme outliers with a relatively flat overall distribution, so its an error to try to say that being against extreme wealth inequality (in the sense that people are usually speaking when complaining about it) means being against any individual extremely wealthy person.
First of all, it makes it easy for the wealthy to lock the poor (and the rich) into their locations on the income graphs. The systems the wealthy can set in place are an impediment to a meritocracy by ensuring the rich stay rich and the poor stay poor, whether that is through boarding schools and trust funds or the Drug War and a toothless minimum wage. If the resulting massive disparity in wages implies one thing, it's that our civilization is wasting a lot of untapped human productivity on the low end of the wealth graph.
Secondly, it creates social resentment, fragmentation, and stratification. These are just emotions and Sociology Major words, yes, but that doesn't mean they aren't real. If the people at the bottom of the ladder feel like they don't have the power to climb, a society can end very badly as its political process becomes more polarized and communities are segregated.
Finally, it creates large gaps not just in material wealth, but political. Whether you're a liberal or a conservative, you think either the Koch Brothers or George Soros are destroying America. Either way, it can be agreed that democracies are undermined by a few unelected individuals wielding huge amounts of power. Less income inequality means less political inequality.
Nothing you said is wrong, but it's unhelpful. It distracts from how important dealing with growing income inequality will be in the future by saying "The discourse... is frustrating to me, because it's not pedantically right." It might be necessary if sama was arguing against large wealth disparities in a post-poverty civilization, but that is not what we have. Like you said: Poverty is the problem. And while we have poverty, poverty and inequality are closely linked.
This is where you lose me. Solving the problem of poverty is a matter of making sure that the poorest people have enough. Solving the "problem" of inequality is a matter of making sure that nobody has "too much."
Actually, if the universe is spatially infinite (which it is according to our best current models), this is not true even if we equate "resources" with "quantity of matter", which is what you are implicitly assuming.
However, this implicit assumption is false: what counts as a "resource", i.e., how much of what kind of matter it takes to accomplish a particular goal, is not fixed. It changes as technology and human knowledge changes. In principle there is no lower bound to how much of what kind of matter it can take to accomplish a particular goal, which means that in principle there is no upper bound to the amount of wealth that can be created with a fixed quantity of matter.
> Actually, if the universe is spatially infinite (which it is according to our best current models), this is not true
If the universe is temporally finite, it is, even if the universe is spatially infinite.
This will only be true if the universe is closed, i.e., spatially finite.
Which, according to the Einstein Field Equation, there can only be if the universe is closed, i.e., finite in size. I wasn't talking about what's conceivable logically; I was talking about what's actually possible, physically, given our best current theories.
In any event, "resources we can access before time T" unequivocally finite, and some needs must be met before time T for any T far enough out that it dramatically changes the resources we have available. Which means that in terms of considering distribution and making sure needs are met, there is a theoretical upper bound on the resources available, and zero-sum thinking would be appropriate once we have allocated enough to some individuals that there is literally not enough for others and have reached limits on improvements in efficiency. As I've said, I'm not at all convinced that we are near either.
"In principle there is no lower bound to how much of what kind of matter it can take to accomplish a particular goal, which means that in principle there is no upper bound to the amount of wealth that can be created with a fixed quantity of matter."
On the contrary, in principle such a bound exists, for any specific task (and accompanying present configuration of the universe). We are similarly not likely to be near the theoretical limits imposed by physics and the well-ordering principle, but again practical constraints may bind much tighter - particularly in the short term.
What of it we can access, and what use we can make of it (I notice that you have left out this point completely), at this point in time is limited by our past light cone and our current knowledge and technology, obviously. But what of it we can access, and what use we can make of it, indefinitely into the future is not; it is only limited by the entire universe and our future knowledge and technology.
On the contrary, in principle such a bound exists, for any specific task
For any specific task undertaken at a specific point in time, in a specific, fixed state of knowledge and technology, yes, there is such a bound in principle; but you made a much stronger claim than that.
Also, whether or not that in principle limit has practical significance even over "short" time scales such as a human lifetime depends on how fast our technology and knowledge changes, not just on what they are at a given instant.
"(I notice that you have left out this point completely)"
No, I didn't. I addressed it in the other half of my post, which you obviously saw since you responded to it. If every sentence must address all parts of the argument, we're all guilty of flagrant violations up and down this thread (and every other) and will need to be writing some awfully convoluted sentences.
"What of it we can access, and what use we can make of it [...] at this point in time is limited by our past light cone and our current knowledge and technology, obviously. But what of it we can access, and what use we can make of it, indefinitely into the future is not; it is only limited by the entire universe and our future knowledge and technology."
Per my understanding of relativity and the present state of physics (significantly received from others but I think that I followed it at the time) this is simply not the case (in particular, if time is finite then "everything our light cone will encompass before the end of time" is finite - and I think an expansionary universe makes things worse). I think we're going to need to bust out some math or expert testimony instead of simply making assertions at each other if we're going to get anywhere.
"For any specific task undertaken at a specific point in time, in a specific, fixed state of knowledge and technology, yes, there is such a bound in principle; but you made a much stronger claim than that."
There is a set of possible futures from any present. You hold that, for any task in any situation, with sufficient knowledge, the resources it can take can approach arbitrarily close to zero?
'Also, whether or not that in principle limit has practical significance even over "short" time scales such as a human lifetime depends on how fast our technology and knowledge changes, not just on what they are at a given instant.'
I don't think the bounds given by physics have any impact yet. I'm not convinced they ever will - my point was there is a theoretical bound, and there may be more practical bounds that matter at any time-scale.
Let's try to get this back closer to useful.
My original point, which I think too much was read into, was simply that there are situations in which some having more can lead to others having less, and that paying attention to whether we're in such a situation is worthwhile. I stated right there in that first comment that I didn't think we presently were, in most respects.
That was followed by a levelling of a charge of "zero-sum thinking" in an explicitly hypothesized zero-sum situation, which (again) I said I thought unlikely to be relevant. I found this amusing.
I see that you did say "for any specific task", but, as I noted in my response to that, it seemed inconsistent with the much stronger nature of the claim that seemed to me to be either implicit or explicit in the other things you said. So I was confused about exactly what position you were taking. I'm clearer about it in view of this post; see below.
Per my understanding of relativity and the present state of physics (significantly received from others but I think that I followed it at the time) this is simply not the case (in particular, if time is finite then "everything our light cone will encompass before the end of time" is finite - and I think an expansionary universe makes things worse).
If you think this, then your understanding of relativity is wrong. As I responded to your other post upthread, "time is finite" only if space is finite, per the Einstein Field Equation. And the expansion of the universe does not "make things worse" in any sense that I can see, because the only reasonable solutions for the universe as a whole are dynamic (the only static solution, Einstein's static universe with a nonzero cosmological constant, is unstable, like a pencil balanced on its point, so it's not really reasonable as a real-world solution).
You hold that, for any task in any situation, with sufficient knowledge, the resources it can take can approach arbitrarily close to zero?
Yes (with an appropriate definition of "any task in any situation"). Julian Simon, AFAIK, was the first to defend this claim in detail, in a series of economics papers in (IIRC) the 1980's. It was in this same time period that he made his famous bet with Paul Ehrlich (of "Population Bomb" fame) about whether the price of 5 common resources would fall (Simon's bet) or rise (Ehrlich's bet) over a period of some years. Simon won the bet for all 5.
I don't think the bounds given by physics have any impact yet. I'm not convinced they ever will
Then what's the point of talking about them? If you think there are more practical bounds, what are they?
My original point, which I think too much was read into, was simply that there are situations in which some having more can lead to others having less, and that paying attention to whether we're in such a situation is worthwhile.
But this is a different statement from "resources are finite". Some having more can lead to others having less even if there is plenty to go around (for example, consider investment banks and the economy tanking in 2008). I would say that skewed incentives, and our failure as a society to properly punish people who undermine basic institutions, are far more pressing problems than resource limits.
Maybe I'm wrong, but I have a feeling that the Drug War comes as much from conservatives in the middle class as from rich people (in a "think of the children" way, they want to keep their communities clean and healthy). (Not saying I agree with the Drug War, it's been a disaster so far).
Why is that? Why has all this enormous improvement in productivity not made the necessities of life so cheap that even someone making minimum wage can easily afford them? It seems to me that fixing that would go a long way towards fixing the problems Altman is talking about, yet nobody talks about it.
This is because, and I know this statement is controversial, America is radically wealthier at all levels in 2014 compared to 1974.
However, I do think costs have come down in a lot of areas.
Aren't unsafe neighborhoods so because of, first and foremost, their inhabitants?
Because of some inhabitants, yes. But there have always been a small percentage of people that are going to try to prey on others. Whether or not they succeed depends on how the rest of society deals with such activities--not just the people living in the same neighborhood, but society as a whole.
If, on the other hand, we include under "transportation costs" the costs of dealing with corrupt governments in many countries who enrich themselves at the expense of their people, then yes, there are significant transportation costs in getting food to poor people in many countries.
Food is dirt cheap compared to housing, especially if you shop smart.
Don't be ridiculous. Have you ever tried to buy food on a minimum wage budget? If you want to eat anything that has even a modicum of nutritional value, minimum wage won't get you much.
I'm not suggesting that expensive/organic food is worth it's price. Nor am I suggesting that minimum wage should be raised to the point where everyone could afford to shop at Whole Foods. But if you honestly believe that the author is wrong when he writes "it's still difficult for people working low wage jobs to afford food", then you need a reality check.
Sure it will; it just won't get you much in the way of enjoyable food. People mostly don't like living on beans and lentils; but you can get sufficient essential nutrients from unappetizing foods like that for a few dollars a day.
Please note that I am not saying anyone should have to live on beans and lentils; I'd be no good at it myself. But we should be clear that the problem is not "getting enough to eat"; the problem is "getting enough to eat with some kind of decent quality of life".
I think it really depends a lot on where you live. I live in NYC now, and fruits and vegetables here are about 75% cheaper than when I lived in the midwest. I can get a pound of blackberries for $2, when I'd pay probably double that for just a few ounces of them in my home state. Takeout is almost as cheap as cooking (filling, tasty meal for $4-5), which helps drives down costs when you're exhausted and don't have any more energy left to make something.
If you want cheap, healthy food, try shopping in some of ethnic stores in lower income neighborhoods. That's what I do. I can walk out of the local Asian grocery store with enough food for 2 for a week and it costs me about $50. It's mostly vegetables.
I kid, of course - and I'm actually interested in hearing the parent poster's response - but clearly food hasn't fallen in the same way that electronics have.
Exactly; that was my point, or at least part of it. For the rest, see my response to patio11.
No; that wasn't the point I was making. The point I was making was that, as a responder to you noted, food has not fallen in price the way other things like electronics have. Granted, there isn't a Moore's Law for food the way there is for computers, as someone noted downthread; but still, it doesn't seem like food has fallen in price as much as it should have given the increases in productivity that have taken place. I think a key reason for this is that the government messes with food prices in ways that it does not mess with prices in other sectors of the economy.
But another point that could be made is that, if food has fallen significantly in price (which, as several posters now have quoted numbers to show, it has), why do we still hear so much about people having trouble making ends meet at the low end of the income scale? In other words, is the problem Altman is talking about a real problem, or just a perceived problem?
Food production has certainly advanced with GM crops that are resistant to insects, droughts, etc. and produce more edible material per acre, but not that much more. Fertilizers and insecticides have also improved yields, but just a bit. Farm machinery has advanced tremendously but, as discussed in the article, it lets fewer farmers work more land rather than making the land itself more productive. Food is still pretty expensive to produce. Most nations do produce more food than they can consume though, even some that experience famine. Distribution is still a big problem and a huge part of the cost of food.
The average person now has access to a huge variety of foods from distant places. Transporting food costs a tremendous amount, both in terms of money and environmental impact. This is why you often hear about local foods being better for the environment. However, a rather large portion of the world's population has only seasonal access to locally produced fresh produce, which we now consider necessity for good health. If, like a large portion of the world's population, you live in a place where fresh produce is seasonal, consider what your diet would have looked like before canning came along. Technology has performed wonders for the average person's winter diet!
Of course, technology has a funny way of turning on itself. The triumph of spinach, oranges, and bananas in January has been followed by potato chips and cola. We turned food from a necessity into an addiction. Brilliant minds toil away in corporate labs, trying to find some new way to increase the "mouth share" of their product lines. The goal is not to satiate, but to arouse never-ending hunger for your product!
One simple, practical thing that could be done would be to rework farm subsidies. Corn is one of the most heavily subsidized crops in the U.S.. Corn farmers are paid well to produce a crop that has often not been in demand. One root of the anti-globalization movement is the Zapatista revolt in Mexico, which was, in part, sparked by NAFTA flooding the Mexican market with super-cheap subsidized Iowa corn and putting marginal, non-mechanized unsubsidized corn-farmers out of business en masse. Domestically, it's not a huge surprise that high-fructose corn-syrup found its way into most processed foods. High-fructose corn syrup is cheap because corn is cheap, and corn is cheap because our taxes pay farmers to grow it. If you look at the other top subsidized crops in the U.S., you'll not a common theme. After feed-crops (mostly corn), there's cotton, wheat, rice, soy, dairy, peanuts, sugar, wool tobacco[1]... It's mostly high-calorie crops rather than high-nutrient. How Tobacco snuck in there, I have no idea.
Why not change subsidies to be aware of crop destination and emphasize dietary health? Slap a big-ol subsidy on spinach and broccoli sold fresh to market and obliterate the subsidy on corn used for high-fructose corn-syrup. Healthy foods get cheaper, unhealthy foods get more expensive.
[1]http://en.wikipedia.org/wiki/Agricultural_subsidy#United_Sta...
I think one thing ties these together (as a common denominator): land. There's a limited supply of land in any city/county/state/country/planet, so people must compete for it. Agriculture also requires land, and you can't even scale it vertically as well as you can scale housing (you may build taller buildings, but not taller farms).
I think a lot of our discussion about this topic is limited because we're still a capitalist society that largely views social trends through the lens of economics. At some point in time, things like "GDP" and income distribution where fairly good proxies for notions like "overall well being" and "aspirational stability" (more thought is required on this second term).
I think as technology progresses, we're going to see the use of money as a proxy for social measurement drift further and further away from actual reality. Any new social paradigm is going to have to start with fundamentals of human nature -- human competitiveness, equal opportunity, etc.
In short, I think our failure to respond to these changes is mostly a failure of us to think clearly about what actually going on in the day-to-day lives of actors in this new technological world. I don't know where we start, but existential philosophy seems like a good jumping board.
My thoughts are jumbled. I'd flush them out, but I need to get back to work.
It seems quite a few HNers are familiar with Pareto's principle & 80/20 and the current wealth distribution reflects that almost perfectly (Top 20% = 84% of wealth).[1]
I'm not saying that being in that top 20% doesn't bear certain responsibilities, but it shouldn't necessarily be surprising.
[1] http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/06/t...
e.g. the Gini coefficient for an idealized Pareto distribution displaying the 80/20 principle is by definition 0.60. But Gini coefficients can obviously vary a lot from that, so societies definitely can exhibit either more or less wealth inequality.
But I'm confused when the article shifts between talking about what "is really unfair" and what "feels really unfair" (i.e. normative vs. descriptive fairness). I would have preferred a more consistent foundation for the thesis. Either argue why the normative view is valid, or demonstrate that a large portion of people do think wealth inequality is unfair. I think the latter is a more potent argument, especially paired with the claim that "the traditional endings to extreme wealth inequality in a society are never good."
And to be clear: government enforcement of property through violence provides plenty of social value, but those reformulated property rights are socially defined and subject to change, and not natural in any sense.
Personally, I don't like it, although I don't claim to be privy to any objective notion of morality.
Every discussion of fairness or - on this topic - distributive justice must acknowledge the different starting points / moral axioms that people might bring to the table. There are the egalitarians, often of a Rawls-type background, there are the procedural justice people (most internet libertarians, though usually not consistently so), there are just deserts (also typically applied inconsistently) and probably more that I am missing right now.
That's the main reason I think the descriptive argument has more potential. I think that goes for any argument involving morality or ethics.
We do the same thing today. Everybody knows you're a rube if you're just working—that's why there's Founder Mania around here. Get your fake 60% ownership, hire people to create value under you, capture most of the profit/exit yourself.
Congrats on including actual charts (and some infographics too). Much nicer than just another "X is happening. Oh noes!" perspective.
Imagine Bill Gates is sitting next to a McDonalds employee. Bill is millions of times wealthier than this guy. He could afford to hire 100,000 minimum wage employees for life.
By all accounts Bill is lucky. He's smart and works hard too, but he's basically lucky.
And increasingly, society suggests that we deserve some slice of his luck, because we have less. But why? Our government guarantees your right to private property. Once you own something, it's yours. When we choose to believe in a threshold at which the rules of private property cease, we erode Bill's incentive to participate in the market. If that doesn't feel like a big deal now, wait until the disincentive slides down to your level of income.
I'm not saying that civic society shouldn't do anything for marginalized people. Education can have a meaningful effect on their wages and technology is going to shake the markets and people need help to smooth their individual outcomes, but to say that they deserve Bill's money simply because he's rich is a nasty nasty attitude.
We need to seek an environment that allows everyone to grow through profitable employment, not artificially rebalance the top-end.
The economy is a collective thing. It's a network of people with money, goods, and services flowing between them. Serious wealth is and has always been primarily about one's positioning in the system, and only indirectly about their abilities or value delivered. Yes, presumably ability and achievement often have some influence on that positioning, but it's that mechanical fact of sitting in the thick part of the flow that matters when it comes to making a lot of money. (E.g. I get paid the same pretty much no matter what I do, while my blue-collar friends have to log hours and really work. Yeah, eventually I could potentially lose my job if I really do nothing, but in reality I can get away with doing very little - direct deposit still happens, because that's the system. I am so positioned with respect to the company's payroll system.)
I don't see the problem with making changes at the systemic level to how the flow works (taxes, basic income), as well as making it easier for people to move around (which you addressed, re: education. e.g. returning college to affordability would be truly great).
> The economy is a collective thing.
The economy is a collective of individuals, all of which must put in effort into making things work; people generally don't put in effort unless rewarded. For real-world examples of societies that put the collective above the individual, take a look at communist countries. Most of them failed, whereas the individualistic West still stands (I say this coming from Eastern Europe and seeing how much damage collectivism can do).
Big players contribute to the economy as a whole through capital investment and get a return on their investment's growth. To the extent that we tax them into a corner, we reduce their incentive to make capital investment.
In the long term, we do not increase opportunity by reducing capital investment.
But he doesn't, does he? In other words, Bill Gates is not using his wealth very efficiently; it would be more efficiently used if it were spread around. It's not his fault, exactly: no single person can be expected to make efficient use of $30 billion, or whatever his current net worth is. But the fact remains that it seems likely that there is some maximum level of wealth that a single person can make reasonably efficient use of, simply because a single person doesn't scale. If that's true, then that's an argument for altering the rules of private property if a single person accumulates wealth above that level.
As for incentives, I find it very difficult to believe that if, for example, we set a threshold net worth of $100 million and said that anything above that gets taxed away (of course it would be more complicated than that in practice, but let's keep it simple for this discussion), Bill Gates wouldn't have started Microsoft because, oh, well, he's only going to get $100 million from it.
Likewise, I doubt a person from Mississippi genuinely feels a disparty with his investment banking brethren in NYC.
In short, I don't think inequality is something people feel unless there's an ongoing public debate. People judge themselves by their immediate environment, which I believe follows a normal distribution nearly anywhere (there are always some more successful than others; business owners, entrepreneurs, paid workers and homeless. It's like that nearly anywhere).
It's should be also noted that while nationwide inequality among western world countries is rising (all across the board), it's shrinking on a global level [1].
Implement basic income, which HN is well aware of. But, instead of funding it entirely through income taxes, fund it primarily with what the Fed would call "Quantitative Easing" but what I will call "printing money."
Right now, I believe the Fed has actually made inequality much worse by printing a metric ton of money and pumping it into government and the financial sector. The hope is that this will, to use a loaded term, "trickle down" to everyday Americans. Instead, it seems there isn't much trickling.
So, why print money? Because it's a wealth tax. It's also the easiest tax to implement: you don't have to collect anything! No IRS. A huge amount of the US government would be gone: no more means testing government expenditures (benefits), no more tax collecting for revenue.
That said, I'm not convinced it's a terrible idea. What it would likely do is get businesses to stop sitting on cash reserves... if they do that by increasing production, that might lead good places. If they do it by fleeing into other assets, we'll just see the dollar crater. Increased demand expressed by those whose increase from the money they've been handed is less than their loss from inflation might mean that increasing production is the better move for them. I'm not sure I'd want to bet on it, though. Printing a portion of what is handed out (particularly in down times) seems less crazy.
For comparison we have had around 5% real wage growth over the past 40 years and are having difficulty absorbing a similar number of poor immigrants despite being almost 10 time more populous.
To paraphrase Santayana: "Those who cannot remember the past are condemned to be UNABLE to repeat it."
In the past this has been mitigated by crazy amounts of philanthropy a la Carnegie or Rockefeller. I get the impression this is less so now, for two reasons. The first is that we're a more global culture, so philanthropy efforts go toward the third world rather than the third precinct. The second is that I suspect some of the rich feel persecuted by all this talk about the rich, and aren't kindly disposed towards donating their money to people who hate them. I'd love to hear recordings of Bill Gates's phone calls gone bad.
As for solutions: I don't know. One that I've been working on is better financial software for the common man (to run on a phone, rather than a PC); perhaps that will at least stop him from being suckered by predatory lending.
https://en.wikipedia.org/wiki/Income_tax_in_the_United_State...
You're leaving out the role of social upheaval.
But what does that tell you about where we're headed?
Yet, people have (initially surprising to me) visceral reactions against these proposals -- despite these proposals coming from all over the political map -- as unfair.
Jonathan Haidt has an excellent article on morality of fairness:
http://www.democracyjournal.org/28/of-freedom-and-fairness.p...
In short, individuals see fairness on a scale -- from "what people receive should be proportional to what they contribute" to "from each according to his ability, to each according their means".
It also makes sense to add a slightly more nuanced pole to this, namely "just desserts": "people should be able to keep everything that they earn, with the exception of fees for services they use and externalities they impose on others"; in other words, fairness concerns should also be balanced against negative liberty.
This could explain why there's such strong opposition to a basic income: significant chunk of the population people see it as less fair as opposed to more fair, another chunk views it as just another form of theft. It's also why many aren't easily bothered by supposed excesses of idleness of the rich, as long as the wealth was acquired legitimately. This isn't to endorse these views, but to acknowledge that these positions are sincerely held by individuals of all races, genders, and incomes.
This is also why many of the wealthy vote for politicians that (on paper) promise to reduce wealth inequality and one of the reasons why many of the poor vote for candidates that don't think inequality is a problem. In short, these are moral views as opposed to matters of rational self-interest.
Contrary to Marx not everyone is fighting for their class interests, contrary to popular view of economics (which is different from how economists actually see it) not everyone is trying to maximize their own net worth by any means possible. Economists say individuals try to maximize their utility, which to nearly all means -- to some extent -- wanting to see good in the world, but with their own definition of what is good.
So here's a proposal: when speaking on inequality and social justice, let's identify who the audience is, and justify policy proposals according to their values. If someone is a libertarian, address the negative effect concentration of wealth (which often begets political power) has on liberty (e.g., politicians buying their way into office to push Nanny state policies, wealthy funding campaigns that lead to criminalization of vice, etc...)
Likewise, if someone cares about proportionality, point out that labour theory of value is false: law of supply and demand means it's inevitable that people will get rich as result of sheer luck or doing something that seems trivial. That's not to mention that many of the wealthy are wealthy as result of rent-seeking -- and fight both rent-seeking and the inequality it leads to.
Otherwise, quite frankly, these ideas will remain dead in the water politically.
Edit: one thing that should be noted is that it's unlikely that in a free market (which is generally a good thing) wealth distribution will be anything other than power law (which isn't to say we can't smooth it out, but we can't turn it to a normal probability distribution). However, wealth isn't everything: why not divorce wealth from status (to the extent, we already do this)? For example, Silicon Valley (it's getting hard to use that term non-ironically, unfortunately) does tend to praise the value of individual contributors as well as that of entrepreneurs and managers, yet there's disconnect in mainstream culture -- where remaining an individual contributor (or even a mid-tier manager) is _not_ considered a successful outcome. This change will have to happen organically, of course.
In the video, he focuses on a theoretical tax system just like our current progressive income tax, but with all brackets >25% limited to 25%, and argues that it would be an improvement (according to ideal goals). But I think the argument could be extended to basic income or negative income tax, the latter of which Friedman also advocated.
There are actually lots of viewpoints from which that set of "ideal goals" are not ideal.
And, of course, tax reform can happen with a different set of goals than Milton Friedman's ideals.
> In the video, he focuses on a theoretical tax system just like our current progressive income tax, but with all brackets >25% limited to 25%, and argues that it would be an improvement (according to ideal goals).
Well, if its just like our current system but for that change, the main difference will be a tax cut for high income earners and reduced revenue. That doesn't seem consistent with the so-called "ideal goals" set out earlier.
Perhaps, but I deliberately left the goals vague. I think they represent what an average taxpayer would think. Do you have any specific examples of other goals might be?
> Well, if its just like our current system but for that change, the main difference will be a tax cut for high income earners and reduced revenue.
In that video he specifically argues against that idea. He says revenue should increase, and one side effect would be that corporate declarations should increase since there is less financial incentive to find ways to "hide" income.
Why not? Do you think there is no limit on the amount a corporation would be willing to spend for each dollar they can remove from their tax declaration?
"ss" for super sweet!
I do think that Milton Friedman may not have foreseen the way automation might lead to at least long-term (but perhaps not permanent) structural unemployment.
Exactly, and fairness keeps getting shifted along this scale. Here's an example that comes to mind when I think of taxation: let's say you have a country of 1 million people, and with total government expenses of $1 billion/year. The first taxation idea that comes to mind (and perhaps the fairest) is that every citizen pays exactly $1000 each in taxes. Now some people are going to scream "that's no fair, some people don't make that much per year, you want them to starve?" So then the next idea is "how about everyone pays 10% instead, so rich people pay more in raw dollars, but everyone still pays the same percentage?" The reply becomes "but that's still not right, rich people can afford to pay much more". Eventually, you wind up with a progressive tax that tops at around 90%, and nobody thinks this is fair (all in the name of fairness).
http://www.multpl.com/us-gdp-growth-rate/table/by-year
http://www.ntu.org/tax-basics/history-of-federal-individual-...
Given that, it's sort of ridiculous for Fred to complain after dinner that he has to pay more than everyone else, and then to try to guilt trip them into paying an equal amount as him.
First, as always with economic analysis, many other things are changing at the same time (inflation, trade, technology, etc.). Any one or some combination of other factors could actually be driving this and you would not know it. Additional event studies and evidence from other countries would be a start.
Second, you are effectively cherry picking your sample periods. 1936 was the very bottom of the Great Depression. Why don't we also look at the period before the US had income taxes, other countries, etc.
Third, tax rates are only one part of tax policy. Effective tax rates would be a start but then how to measure income when there is a big incentive to hide it.
Lastly and probably most importantly, what is the logic here. How exactly do high tax rates increase growth. It makes sense that they would reduce incentives. How much money would it raise? And if there is some great spending projects that increase growth why aren't we already doing them?
http://en.wikipedia.org/wiki/File:USDebt.png
> People don't make 50 million a year living in a hut in the middle of nowhere.
They also are aware of other countries and venues to receive that income. While a poor schmuck getting his $15 mil bonus from AIG won't have anywhere to hide - we got him, anybody who has a choice of where the payments are made will choose a more accommodating tax regime.
I completely agree that we can't know how it will turn out in the long term (but why not try it and scrape it if it doesn't?), but the idea is that individuals could use the income to retrain when forced out of work, and to be able to provide an environment for their kids that give their them at least a chance at upwards mobility.
Again, I don't think it will lead to perfect equality. Nor is it a magic bullet: one pet-peeve is that everyone seems to be concerned with income, but less so with wealth per-se. Some people have proposed a tax on land itself but not improvements to land: I am not trained in economics so I can't speak to its efficacy (perhaps it's an outmoded idea today), but from a moral standpoint such a tax (with perhaps a "homestead exemption" for one's primary residence up to a certain value) seems a lot more fair than an income or property tax (which also taxes improvements to property that benefit the community).
(... amusing to consider, probably not participate in.)
It removes sharp cliffs as benefits are removed, which encourages work. It provides people the freedom to actually meet their most pressing needs (and allows competition to meet those needs cheaply and effectively) rather than the set of needs we guess will be most pressing. Those who, per their situation and opportunities and values, have better things to do will be more able to work less, which might make room for those who more need the opportunity - examples might be one spouse staying home to watch children and keep house, or someone pursuing their art or music, or volunteering at any of the remaining important causes.
All that is aside from the basic dynamic of "taking more money from those above the mean and giving more money to those below it" inherently pushing a bit toward more equality.
Today, everyone consumes the necessary amount to survive. If they didn't, they'd be, well, dead. I guess the relevant point is that few people, at least in Western countries, are dying of starvation or exposure (and those who do usually have severe mental illness).
This means that even with the particular kinds of capital arranged in the particular way we do today, we can produce enough goods so that everyone consumes enough to survive. It's just a question of financing. Most people at the lower end end up financing the consumption either through personal debt or through imposing negative externalities on society, be it theft, drawing down the resources of friends or family, or soaking up charity dollars that could be more effectively used as capital investment. And personal debt just kicks the externalities toward the future, with the additional option of bankruptcy, which increases lending costs for all borrowers, itself a costly externality.
A basic income makes these externalities legible and puts the finances on the books instead of off of them. In addition it gives psychological security and improves the negotiating power of everyone.
For example, the Earned Income Tax Credit in the U.S. already effectively creates negative taxes for certain people, but only if they have "earned" income. While this isn't as efficient as a pure negative income tax or basic income, it's a good start.
You could also try paying people a basic income for community service, voting, registering for the draft, etc.
First you start with basic civic duties. Then there are the things that are a bit more problematic in principle but'd still have a broad base of support--denying it to murderers and pedophiles and then all of a sudden anyone who's been convicted of a felony. Then, whoah, anyone who's committed a misdemeanor, and then you've got to start pre-emptively giving drug tests to anyone who might want to claim it. And then you add in ideas like "well, if you're disabled or a civil servant you should get more" and "obviously if you're a billionaire you shouldn't get any," and then if you make seven figures, then six, then five. And then "well, people shouldn't be spending money on Obamaphones, let's make it so that only food and housing can be purchased with it." And then only certain kinds of food and certain kinds of housing, TBD by policymakers and the helpful white papers that corporations specializing in those areas are happy to provide for free.
And then at the end of it all you end up with the deeply broken welfare system we have now, one that encourages dependency, dehumanizes recipients, and incentivizes against work, while simultaneously throwing away huge gobs of social value through administrative costs and corruption.
Also, if you keep the narrative simple and consistent, and the initial base is broad enough, I think it can maintain its appeal. The message behind Social Security is that you're entitled to payments because you put money in initially -- even if you ultimately get out more than you put in. As such, it's proven to be surprisingly resilient to attempts to impose restrictions on it.
Likewise, because the EITC is administered through the tax system, which everyone participates in -- regardless of whether you're a felon or not. Because it's framed as a tax benefit that everyone is potentially eligible for, it's also held up surprisingly well.
Paying immediately removes intrinsic benefit and self-motivation. If before you were (and considered yourself) a great sport for coaching a local kids' baseball league and volunteering at a library over the weekend, once the money enters the equation, you're just another chump trying to pull money out of the system, grinding at it before you can go home and relax.
That's called a "behaviorally conditioned social welfare program", and along with means-tested social welfare programs, its exactly the efficiency and administrative problem that unconditional basic income sets out to solve. That's not making basic income work politically, that's the exact thing that basic income is proposed in opposition to.
In modern times I see that these people have changed skins and they are not talking about "inequality" and "environment" as tools to counter mostly free market enterprise and small government arguments.
Eventually it all boils down to which policy would fetch more votes. Number of unproductive freeloaders in American society is probably increasing, there is tendency to look down upon the legal temporary job seekers in USA as job thieves depriving Americans of their jobs and we are told to be compassionate about the illegal migrants.
The vote bank in favor of taxing the productive and paying the unproductive is increasing at a rapid pace. Yes, it will bring equality where everyone will be poorer and no hope for future. (Note: Big ships take longer to sink, I have no doubt USA will continue to be a leader over next 20 years or so but the decline after that will be catastrophic).
This distinction is critical. But, I'd wager that many libertarians (like myself) would happily match the total welfare spend + proposed minimum income on a per person basis as long as we cut out the middle-class bureaucrats and administrators.
It will be hard to reach consensus for the reasons Sam mentioned, but not impossible, since some elements are supported by otherwise diametrically opposed politics. I much prefer the debate be between libertarians & progressives (or even anarchists & socialists) than the center-left and center-right.
> But this still doesn’t address the fundamental issue—I believe most people want to be productive.
I'm not too worried about that people will be lazy or feel alienated due to not being productive. Science and Technology are not the only outlets for human creativity: my prediction is that we will see a flowering of the Arts and Recreation: more music, more writing, more painting, more sculpture, more sports & games etc. This will enhance all of our lives ..
As an aside, I think its a mistake to measure the delta in wealth distribution primarily in terms of assets. Technology, while increasing wealth disparity in measurable ways, often decreases it in immeasurable (and more important) ones: for example, wikipedia vs encyclopedia britannica.
"Technology makes wealth inequality worse by giving people leverage and compounding differences in ability and amount of work."
to "differences in ability, amount of work, and utilizing existing wealth and assets."
Technology helps the rich get richer, so it's naive to chalk its benefits up to only hard work and ability.
This is a factor, but not much of one.
Let's see who is wealthy. The top ten of the Forbes 400 wealthiest Americans.
#1 Gates - grandfather ran a bank, and had a million dollar trust fund for him. #2 Buffett - father a Congressman, grandparents owned a chain of stores #3 Ellison - grew up middle class, self-made #4 Koch - inherited oil company #5 Koch - inherited oil company #6 Walton - inherited Walmart #7 Walton - inherited Walmart #8 Walton - inherited Walmart #9 Walton - inherited Walmart #10 Bloomberg - grew up middle class, self-made
The incubi hovering over Silicon Valley are the limited partners whom VCs raise money from. Like the Forbes 400 list, or like the Federal Reserve Survey of Consumer Finances, most of the wealth is inherited.
I've sat next to too many Chinese and Indian guys, running the whole show for some Fortune 500 company in terms of their databases, storage, or some programming group, who were on H1-B visas and making a pittance and living in a small apartment in some crappy neighborhood to think that "work ethic" and "ability" is what is making all the money. These people not only have a work ethic (like many in society), they also have the technical ability. They have the ability and they're using the ability. And making nothing.
Those who get wealthy expropriating the surplus labor time profits of we workers who work and create wealth - they are the ones who are benefiting, not the "hard working" or "able". Watch the documentary "Born Rich" by one of their tribe. How many of the people interviewed their have the ability to know which data structure is proper for a certain project? Or how to set up BGP connections on a Cisco router? And so forth. They are benefiting due to the new technology, but it is they who benefit, the hard working able people building and implementing these things are getting scraps from the table.
While GDP per capita has risen over the past decades, inflation-adjusted wages per hour have fallen. Things have gotten better for those who do not work, and worse for those who do work and create wealth.
The only answer from those who parasitically expropriate profits from the surplus time of those of us who work and create wealth is this - "spend more of your time studying math. Go into debt to pay for college and spend four years paying for your own job training. Then you might live as well as your parents did, who did not have to do these things (or who would live better than you ever will by doing these things."
Ultimately an economic system built on this has too many self-contradictions. Once you drain all the spare money from the average worker, no one has any money to buy the things these companies make. They can go into debt, but that just kicks the can down the road and makes the ultimate crash work.
In fact Sam Altman's business, Green Dot, is predicated on this new reality. Poor people don't have the credit to get credit cards, so they go to Green Dot and get charged exorbinant amounts of money. His business is one of the heaviest into the transfer of wealth from the poor to the rich.
This is a bit unfair to Green Dot. First of all I don't think their fees are that high. Secondly it's not their fault that most merchants and services expect everyone to have a bank account and nineteen credit cards. That didn't used to be the case, and eliminating credit cards would do much more to help the poor than eliminating Green Dot.
Why does this perpetuate? Informational asymmetry aided by naive hope, marketing, and desperation. The "American Dream" is the most viral marketing campaign in the history of mankind, spread by Hollywood around the globe. As such, there's a never-ending lineup of suckers waiting to take the plunge.
"In society after society, he saw, when the mortality rate falls—specifically, below 10 deaths per 1,000 people—the birth rate follows, and population growth stabilizes." (http://www.forbes.com/sites/matthewherper/2011/11/02/the-sec...)
How great would the world be if every 10th person was a comedian, a juggler, a jester or a magician. We could really have performers livening up every street, and they would be well fed and housed.
Imagine more time for recreation, more time for bonding with our fellow man, for playing with our children and our grandparents, more time to travel the world, and one day the universe. I think that is the great promise of technology, that it will give us humans more time to enjoy being human.
It would probably be possible to support a basic income system just by getting rid of existing entitlements (although that is a big 'just')
(The name for the policies that do include that tapering off is a guaranteed minimum income, not a basic income.)
> Schemes that do taper off create steep marginal disincentives to work
There is no reason the marginal disincentives need to be steep. You could otherwise make the same argument about progressive income taxes. Those don't seem to disincentivize people from making more money, neither does guaranteed minimum income need to.
It's not an on-or-off switch: you've got to look at the margins. At the margin, you'll work less if you get $100 in return for an hour's labor than if you get $200 in return for it. Maybe still more than half as much work, but you'll still decrease the amount of labor you perform. Income taxes do exactly that.
It's possible to make the marginal disincentives less steep, but the more you do that, the more you lose the cost savings you were hunting for in the first place.
E.g. imagine a basic income of $20k. And suppose you make it phase out such that at $40k you don't get one. That amounts to a whopping 50% marginal tax rate. And that tax rate is on top of existing taxes, and it's not hard to end up with a result where someone making $30k/year is paying a 75% marginal tax rate. Which is much too high for anyone making so little.
So let's try spreading it out. If it phases out at $60k, that's a 33% marginal tax rate; $80k is 25%; $100k is 20%. That's much better, though still a significant tax. But you've also made the guaranteed minimum income much closer in cost structure to a simple basic income. At least 90% of individuals make less than $100k, and their average per capita income is probably below $40k (remember we're cutting out the long tail that accounts for a large percentage of income). So we're paying out around $12k to each of them on average; and since we cut out the people making above $100k, that's around $11k per person, 55% the direct financial cost of a basic income.
Cheaper, definitely, but you're still going to face sticker shock. And you've paid for the cheapness in the disincentives due to taxes; administrative costs; and in creating incentives to misreport income.
> We are becoming a nation of haves and have-nots—of prosperous San Francisco vs. bankrupt Detroit.
Based on the people protesting/blocking the shuttles, San Francisco has plenty of have-nots.
> and we’d presumably cut a ton of government bureaucracy.
LOL. A $3.5T govt program is going to cut bureaucracy? Even if it swallowed up other existing entitlement spending, I don't see this happening.