Our Invisible Rich
nytimes.com
nytimes.com
[1] http://krugman.blogs.nytimes.com/2014/09/24/having-it-and-fl...
So the reasonable question is why do you expect consistency from an apparatus of the power elite beyond consistently covering their own dirty tracks?
Krugman's point is that David Brooks' criticism of the flaunting of wealth does not jibe with Brooks opposition of progressive taxation.
Whatever else you may think of Krugman, he is a pretty smart guy and if you want to try to find flaws in his arguments you should try to pay careful attention to what he actually says.
"...for many of the rich flaunting is what it’s all about...So it’s largely about display..."
Then he says:
"...the truly rich are so removed from ordinary people’s lives that we never see what they have."
So I guess Krugman thinks that the rich flaunt their wealth for no reason, since ordinary people never see it.
Krugman is just a ridiculous hack.
Except he didn't say that.
It seems you couldn't be bothered to spend 2 minutes reading ~500 words and decided to compare on headline alone.
If you are cool with the morality or utility argument that you need to take from the haves within a country to help the have-nots/increase velocity of money/etc., it seems to me you should at least be pre-disposed to do the same on a world-wide basis where the inequality/need is much greater. And if you are reading this in the US, the rich is you. Roughly $32k a year in income makes you a one-percenter on a worldwide basis.
We are making criminals out of vast oceans of people because a few people at the top don't feel much like paying a fair share of the taxes.
http://www.cepr.net/index.php/blogs/cepr-blog/2014-job-creat...
Econ 101 provides an extremely limited understanding of economics.
Your assumption is that the company is a closed system -- a fixed pile of money. But in the real world it isn't, it's part of the overall economy. If people are spending more, the overall economy expands, which increases the earnings of our hypothetical business, which leads to them having more than $100.
The benefit of a minimum wage increase is in the way it puts money in the hands of people who will spend it.
on another note, most people assume incorrectly that this bottom portion of earners is a fixed group of people year in year out. Simply not true. look at us bureau census data. Over half of people earning minimum wage are under 24. If you don't have skills for a job, you work for min wage, gain skills and experience so you can get better jobs. When the government makes companies pay more for these teenagers they will hire less. these would-be workers will have more difficulty gaining skills/experience.
So we must never question our reading of "econ 101", because it surely reflects some immutable eternal truths, and everything that contradicts it must therefore be wrong.
/s
EDIT: s/value/utility/
Perhaps you mean marginal utility? Strictly in terms of value, the wealthy tend to trade that dollar for assets rather than consumption. Marginal value of any dollar is higher when it generates a return.
If you do mean marginal utility, there is a strong philosophical position that interpersonal utility comparisons are not meaningful. Diminishing marginal utility holds for any one person, but subjective preference and merely ordinal (rather than cardinal) preference confounds any attempt at interpersonal comparison.
I think it's going to take rather more than a "strong philosophical position" to convince me that 1/100000 is somehow not bigger than 1/100000000.
Diminishing marginal utility holds for a single person, and it ought to hold for interpersonal comparisons ceteris paribus, but of course ceteris paribus is a logical impossibility for interpersonal comparison given subjective preference. To hold ceteris paribus for two people is to assert they are the same person, and we're back to diminishing marginal utility for a single person.
Our only guide to interpersonal utility comparison is intuition, which is easily confounded. There is no way to say that my number one preference has more utility than yours, and we have even less reason to say anything meaningful about my number X preference compared to your number Y preference.
So, to clarify your position: absent some specific ratio, is a single dollar worth more to a person of modest means than it is to someone wealthy? Or is even that degree of comparison meaningless in your estimation?
> There is no way to say that my number one preference has more utility than yours
== Ninja edit in response to clarification ninja edit: ==
That is correct. We have no reason, other than intuition, to believe that a dollar is "worth more" to a poor person than a rich person. I can easily give some counterexamples:
* Poor person is a monk
* Poor person believes in barter rather than purchase
* Poor person has no counterparties that accept dollars
* Poor person has material needs satisfied
* Poor person has wacky preferences
Let me ask the question even more pointedly: to whom would the unexpected receipt of $1000 be more beneficial, a single, paycheck-to-paycheck mother who drives a '90s Accord, or the scion of a squillionaire tycoon, trying to decide between different colors of leather for his new Ferrari?
Do you still maintain those things can't be compared?
Only intuition tells us they can be compared. Utility theory given subjective preference gives us no tools to make the comparison nor any way of verifying it. We have only the pretense of knowledge. Compare to e.g. diminishing marginal utility for a single person, which has a clear theoretical and verifiable basis.
Here is why intuition is misleading: we can easily intuit the fact of our own diminishing marginal utility. Then we can say: if I was poorer, diminishing marginal utility makes the marginal dollar worth more to me. However, this does not hold across a different set of subjective preferences. Our intuition is strongly biased against the full recognition of subjective preference because it operates by injecting our own subjective preference onto others. When we imagine how some other person lives, we really imagine ourselves in that position. Unfortunately, we can only know others' preferences via revealed preference. Intuition is a poor guide.
Furthermore, for any specific (and particularly extreme) example, our intuition might be strong enough to dismiss theoretical concerns. However, this does not generalize. Finally, if the mother prefers to spend the $1000 on crack, then any choice of leather is more beneficial.
My objection is only to the specific justification of progressive taxation based on interpersonal utility comparisons. There are other justifications of progressive taxation not subject to my objection.
Tautologies are true, and identities necessarily hold. You are saying that a single dollar is a larger portion of a smaller net worth than that of a larger net worth, I gather. Of course this is true. The relevance remains unclear. It's the next step that is treacherous.
Taxation in the States is at an all time low, and a handful of decades ago the US has much higher taxes at the top and much bigger growth. So there's also plenty of historical evidence supporting the case for redistribution.
There are also a number of moral arguments (which I think are much stronger).
Not true in 2014.
Obama raised a number of taxes for the top bracket: Ordinary income: 35% -> 39.6% Capital gains: 15% -> 20% Medicare tax: 1.45% -> 2.35%
Meanwhile in California: 10.3% -> 13.3%
Marginal taxes and the top for residents of California are: 39.6+2.35+13.3 = 55.25% The number is similar for New York City.
You have to go back to the Reagan's first term to find higher tax rates.
Now all we have to do is wait for the growth.
Generally speaking, though, I don't think most of us who are concerned about inequality think that our tax system is the only, or even the most important, thing that needs to be addressed. The fact that I could work 40 hour weeks and still be eligible for food assistance, Medicaid, and other poverty bandaids tells me that we don't properly value work in this country... and that's a cultural problem.
You could say employers are greedy and hoard excess profits while keeping wages low, or you could say that they generously provide much needed jobs to a struggling low-skill labor market. Both are true. It would be nice if low-skilled labor drew higher wages, but wages above the economic rate are just another form of charity. You don't compromise your value of hard work by choosing to pay low wages, you just lack charity.
In regards to your comment that "You don't compromise your value of hard work by choosing to pay low wages, you just lack charity." Perhaps to a business owner in a competitive market, paying more than prevailing rate would feel that way. But on a broad societal level, it's not charity to hold that everyone who works full-time should at least earn a lower middle class subsistence. If this were polled, broad majorities of progressives, conservatives, and libertarians would agree that work should be enough to raise one out of poverty. Nonetheless, we lack the political will to enact any kind of reform to realize that, because we worship "wealth creators" and the "invisible hand," and, for instance, raising the minimum wage is hence off the table.
If we really truly valued work in more than a symbolic manner, this wouldn't be the case; the libertarian right would be providing concrete policy proposals that would actually address the problem in a way they consider non-coercive. Instead, we hear post-facto justifications for our inequality, or even arguments that it's a good thing. Hence, I stand by the idea that we don't "value," as in moral value, work, no matter what we claim our values are.
Teachers are primarily public servants in the US (before college, and probably even the majority of college professors though I won't make a wager on that). Their pay is directly determined by our culture as reflected by who we elect and how we vote on referendums. Clearly, our culture does not value teachers if me choose to pay them poorly with respect to their scope of responsibilities and the time required to perform their jobs. Along with 6-8 hours of instruction and student interaction each day, their primary time for prep and grading is outside of those school hours. Pair that with having to sponsor clubs or coach athletics to earn a little more money to make ends meet (especially if they're the primary or sole earner or have children) they have to commit to 12-16 hour workdays throughout the school year. And then we require them to maintain certifications and professional education (not bad things on their own) that require spending losing many evenings and weekends to satisfy (and sometimes money spent from their own pocket just to be allowed to stay in their job).
They say teachers are highly competent, qualified people who work hard and deserve more pay.
If it is true that teachers are generally good, then they are paid appropriately to attract highly competent, qualified, hard working people to do the job.
Ironically, it is because teachers are so highly valued by our culture that they are not highly economically compensated.
Apparently, there are non-economic incentives to work as a teacher.
If you think a lot of teachers are complete clowns, then teachers are probably not compensated appropriately.
So, if teachers aren't paid enough then a lot of teachers should be fired and replaced with superior candidates.
Not to mention the marginal value of dollars to the hyper rich is substantially lower.
The wealth/income distribution we have now looks very different than it did even 10 years ago, so it is worth discussing as a society what the 'correct' distribution should be. Hedge fund managers now are no better than the managers of 10-20 years ago, the system has evolved to favor them more.
We can argue about whether they 'deserve' said wealth, but research shows that the wealthy need a given dollars less than the impoverished and growth can benefit when the distribution is more equal as well.
Don't hedge funds now have better technology and bots etc that boost the productivity of each trader?
1) In a society whose economy is driven by sales of consumer goods, having wealth spread more broadly results in greater sales of consumer goods, which means more economic activity and a higher standard of living for everybody. (Concentrating wealth in a small strata of very wealthy people doesn't have the same effect, because once people get past a certain level of wealth they don't spend money they earn beyond that on consumer goods; they put it in the bank or the stock market.)
2) You've heard of the Bastille, I assume?
“a more vibrant middle class… increased long-run economic growth.”
http://www.academia.edu/248659/Does_Income_Distribution_Affe...
I've always thought that libertarians and free-market extremists are some sort of outliers on the morality spectrum - probably sitting near the extreme low end of the axis. That's just how their brains are wired. Then the rational mind starts spinning reasons, trying to justify the givens of their intuition.
That's funny, because I'd think it the exact opposite. The linchpin of most libertarians, the non-aggression principle (NAP), is pretty much all about morality. It might not be correct, especially with the sticky issue of defining property rights and whatnot, but it certainly aspires to be a moral framework.
A libertarian would say it's not moral for you to take resources from the "haves" by force and redistribute it to the "have-nots" just because you think it's for the greater good; morality is achieved by voluntary cooperation. Basically this: http://i.imgur.com/vmMrN6O.png
* Iphones in the hands of welfare moms
* Lavish consumption habits which distribute cash throughout the goods and services economy
* Massive amounts of investment yielding better technology and higher productivity and efficiency
* Charitable giving and other altruistic endeavors
It is not at all obvious, even if 90% would vote to do so, that taking resources from those who have earned them and putting them under government control and distribution would put them to better use. Leaving aside the moral concerns of taking justly acquired property from individuals, and the undermining of private property as an institution, there is great reason to believe that government distribution puts resources to lower use rather than higher. Positive sum games are always to be preferred over zero or negative sum games.
You cannot divorce the economy from politics.
Not exactly true.
https://en.wikipedia.org/wiki/Fiscal_multiplier#United_State...
> More recently three economists with the NBER and IMF have published a working paper examining economic features that impact fiscal multipliers. They found that the output effect of an increase in government consumption is larger in industrial than in developing countries, the fiscal multiplier is relatively large in economies operating under predetermined exchange rate but zero in economies operating under flexible exchange rates; fiscal multipliers in open economies are lower than in closed economies and fiscal multipliers in high-debt countries are also zero.
US has an open economy, high debt, and flexible exchange rate.
>They start by looking at multipliers for government consumption... In developed countries, they find that the long-run multiplier is 0.66.
but then
>However, government investment—things like infrastructure building—results in higher multipliers. Here, the long-run multiplier was 1.5 for developed countries
So that shows that the "what" matters. Here's the "when":
>They examined several European countries and showed that fiscal multipliers are substantially higher than previously assumed. Previous IMF studies had assumed multipliers of roughly 0.5. In other words, a €1 injection of government money into the economy would only have a net benefit of 50 centimes. By contrast, Messrs Blanchard and Leigh found that the actual multipliers in the early years of the crisis were “substantially above 1”.
That being based on a 2013 study by the IMF, later than the 2011 study quoted on Wikipedia.
http://www.economist.com/blogs/freeexchange/2013/08/fiscal-p...
Aside from Larry and Sergey, who is making a billion dollars a year and does not fit this exception?