Some are more equal than others
economist.com
economist.com
While differences do exist, framing the question that way makes it obvious that the very highest levels of the income ladder are largely a result of network effects and leverage rather than productive activity.
Another way of framing the question: was Mark Zuckerberg's contribution to computer networking more than a million times more valuable than that of Tim Berners-Lee?
I'm starting to see the rise of "market fundamentalism" over the past 35-ish years as part of the general trend toward the naturalistic fallacy over the same time period. If it's "natural," it's by definition good. So if the "natural" free market concentrates >50% of all wealth in <0.1% of hands, well dag nabbit that's what nature obviously intended and who are you to argue with nature? Wealth redistribution or other mitigating strategies are sort of like vaccination and GMO foods-- tampering with nature and "playing God."
A spurious argument - Zuckerberg's money isn't from computer networking. Berner-Lee is essentially the inventor of the wheel while Zuckerberg created a Ferrari. So a better question would be "Has Zuckerberg made a significant contribution to ad sales and market intelligence data gathering?", in which case the answer would be an obvious yes.
Obviously that leads on to a question about whether the inventor of an enabling technology such as the web should be significantly remunerated for their work, which society would apparently answer with a resounding no.
If you are a highly intelligent and motivated person, you have many choices about what to do. This suggests that doing the kind of basic R&D work that might lead to the invention of the WWW is a sucker's game. You shouldn't invent wheels. Instead you should invent Ferrari's using other peoples' wheels.
This over time will lead to brain drain from the realms of basic research and invention. I'd posit this as a possible explanation for the decline of fundamental innovation since roughly 1970, which coincidentally is the era when the groundwork for this shift in wealth distribution really got laid with the emergence of the "new left" and the "new right." (What I call the reactionary left and the reactionary right -- note that in both cases the naturalistic fallacy is a cornerstone of these belief systems.)
I'd count myself among the drained. I decided not to do a Ph.D partly because I didn't want to take a vow of poverty to do work to make other people rich.
Free markets reward things exponentially as they near the point of consumption. The person who puts the icing on the cake is rewarded exponentially more than the person who baked it, who in turn is rewarded exponentially more than the person who made the flour, and so on. The folks rewarded exponentially most of all are the financiers who simply move money around to fund these activities.
This seems unfair in virtually every case, but it's incredibly unfair in the realm of ideas, invention, science, and technology. In ordinary manual labor the difficulty of each step tends to be similar, while in intellectual realms the fundamental steps of invention and discovery are often exponentially harder than the ones closer to the end of the line. So for intellectual work, the relationship between difficulty and importance and compensation is really pathologically skewed.
Right. That explains why there's so much more money in gas stations than oil wells. And why HP is so much bigger than Intel.
Free markets reward business to business sales very well.
This analogy is ridiculous. But to follow through with it it should be rewritten like this:
- Tim Berners-Lee invented the wheel, the tires, the diesel engine, the windshield and the electronic that allow to roll the window down by pressing a button, the airbag and the car charger, etc. He made the car safe and usable by anyone. For free. Then he designed how those cars should behave when on the same highway.
- Mark Zuckerberg built a car a century or two after Tim introduced the world to the wonders of high speed travel, painted it blue and charged[0] people for riding it.
[0] That was the plan but in the end he went with social graph thingie to try to be the next advertisement agency.
> Obviously that leads on to a question about whether the inventor of an enabling technology such as the web should be significantly remunerated for their work, which society would apparently answer with a resounding no.
Society ? More like wall-street gamblers.
Tim Berners-Lee did little to capture the value he created (and I am grateful for it!).
I'm a fan of markets -- they are excellent systems for allocating resources and allowing permission-free innovation.
But I am not a market fundamentalist, nor do I agree with the naturalistic fallacy argument that "because it turns out that way in the free market, it is therefore right."
It seems like people have lost the ability over the past 30 years or so to think in non-fundamentalist terms. Everything must be absolute. It's idiotic. In complex systems, it's actually pretty rare for the optimum point to lie at the extreme end of any variable range. Fitness peaks are almost always found at some intersection point that represents a best compromise between multiple interacting tradeoffs.
History seems to indicate that a free market economy with some amount of wealth redistribution represents an optimum, or fitness peak. Experiments in extreme free markets seem to devolve into pathologically ridiculous wealth concentration, while experiments in pure egalitarian socialism seem to succumb to free rider parasitism problems and corruption. The terminal state of pure capitalism seems to be corporate/financial feudalism, while the terminal state of pure socialism seems to be the mafia state (e.g. Putinistan or the Chinese kleptocracy). Neither extreme seems either desirable or stable, and both seem to devolve rapidly into some form of totalitarianism.
I'd personally advocate a simple, completely impartial system like a universal basic income or a negative income tax along with some benefits like a basic level of universal health coverage and public education. Taxation should be progressive because it's precisely at the extreme ends of the income curve that the relationship between value creation and renumeration seems to break down and become most pathological, but that progressiveness should probably be rather skewed toward the high end. The taxation curve should probably look like a hockey stick.
Look very closely at the graph. Income inequality was falling before the income tax was instituted in 1917. And not a few years later it went haywire and income inequality basically maxed out in the runup to the great depression.
So you agree that Zuckerberg deserves millions of times more compensation than Berners-Lee?
as for the question of just desserts, i don't think there really is such a thing. I work towards curing cancer, plowing a lot of personal resources towards it (including money) and not expecting any profit. I also feed people with HIV/AIDS every week and volunteer at a homeless shelter, but do I expect to 'deserve' anything from that? Not really.
What 35 years are you talking about? Since the 1980s, there have been massive amounts of federal intervention into the financial industry (home loans, student loans, corporate bailouts). That's to say nothing of internationalization and its effect on certain categories of jobs.
> was Mark Zuckerberg's contribution to computer networking more than a million times more valuable than that of Tim Berners-Lee?
Devil's advocate: maybe there's a big element of luck involved in getting ridiculous amounts of money. Why is that a bad thing? Maybe being talented is like entering the billionaire raffle. Why is paying everyone $100k more fair than paying everyone $50k and giving some the chance at being billionaires?
It's not more fair, but it's more efficient. The boost in happiness that you get from having a billion dollars rather than $50k is not 19999x bigger than the boost you get from having $100k rather than having $50k. If it's really just luck, then the argument against taxing all income above a certain threshold and redistributing it evenly is pretty weak.
That's one perspective. Another perspective is that letting luck play a role is a more cost efficient way to get people to take big risks. Maybe people wouldn't do some things (like move to Silicon Valley to re-imagine the way we do blah blah blah) without the chance of a big payday.
And taxing the big payday at extremely high rates would mute the motivation to play for the jackpot. Would as many people play slots if winnings were taxed at 90%?
This is why I'm not a fundamentalist. Human economic systems are unbelievably complex, full of feedback loops and paradoxes. Anyone who thinks they can take a system like that and reduce it to some set of laws culminating in a series of absolute fundamentalist diktats that will always work is delusional.
It's even possible that the system is dynamic at the meta level -- that a series of economic rules or practices might work for a while and then stop working since the system has adapted to them.
What I don't accept is the naturalistic argument that since understanding economics is hard we should just throw up our hands and take whatever nature gives us. In the realm of medicine that gives us short lives and death from communicable disease. In the realm of economics it seems to give us any number of pathological degenerate states that are undesirable to anyone except some randomly selected group of casino winners.
I've toyed around with the idea that the nature of the economy might need to oscillate between winner-take-all and redistribution. During the 70s, we arguably had a supply-constrained economy with insufficient funds available at the top to fund expansion. We had an oversupply of fundamental innovation and an under-supply of entrepreneurship, etc. Now we seem to have a demand-constrained economy with an excess of wealth at the top chasing a diminishing number of opportunities and an undersupply of fundamental innovation-- the total inverse of the 70s. This looks more like the 20s, or the "long depression" of the late 1800s. Keynes and other left-ish economic thinkers were wrong in the 70s-- their policies just created stagflation. Maybe they're right now. Maybe they'll be wrong again in 30 years.
Economies are dynamical evolving systems, not static physical systems.
Diminishing returns on money are supported by happiness surveys and common sense. There is no reason to assume, as you seem to, that risky things are automatically better for society than non-risky things. IMO common sense suggests the opposite.
Also, risk is fungible. If you want people to do a thing that has a 0.1% chance of earning $1m, you can find a thousand people and just pay them $1k each. If you have $1k and want to turn it into a 0.1% of $1m, you can play roulette a few times (not completely free, but the house take is pretty low).
> Would as many people play slots if winnings were taxed at 90%?
Probably, yes. My country's lottery is taxed at 50%. Gamblers are not generally rational.
The 16,000 families comprising the richest 0.01%, or “1% of the 1%,” now control 11.2% of total wealth—that's over half the wealth of the rest of the 1%.
So demographically, older workers have not saved enough for retirement. That drives them to maintain employment. With a lack of job opportunities (the slack), the youngest generations are presented a significant challenge – with amongst the highest debt levels and least job prospects, the youth cohort entering its first (or prime) earning years can be paired with another observed phenomenon, that of the wealth disparity. As a premise, poor people and young people spend aggressively, wealthy households invest and don’t spend proportionally to their means, and a significant number of older Americans have no retirement savings to speak of, and therefore cannot spend proportional to offset their declining economic contribution. Essentially, this is a perfect recipe to grind an economy to a halt: Wealthy people don’t spend, elderly workers don’t spend, poor people and young people love to spend but can’t without reasonable access to funding.
Hi, Federal Reserve, is it comfy in between that rock and hard place? Didn't think so. Ineffectual bunch of elites.
In any group (the whole population, or any subgroup such as the top 1%) where the are wealth differences within the group, then it is mathematically inevitable that the top X% of the group will have more than X% of the group's wealth.
If there is an individual who has more wealth than any other individual, then it is also mathematically necessary that wealth_of_top(X)/X increases as X decreases.
In general, but not exclusively, growth in the share of wealth by the 90% is correlated to growth of the overall economy and good times for all.
And the role is government is bigger than ever. Back in the day if there was an earthquake, people didn't storm Congress asking what they would do about the earthquake problem.
More significantly, people attributed bad health to nature, not bad insurance policies.
Also, demographic have changed a lot. Now we have:
* fewer productive adults per household due to demographic trends (single parenthood, divorce, etc.)
* fewer children per household that grow up and contribute payroll taxes
* fewer people dying at their prime (and contributing to pensions, etc. without drawing anything)
* higher standards of living (bigger houses, multiple TVs, grandma lives across instead of upstairs, obesity outweighs starvation as a problem, etc.)
"INCOME INEQUALITY IMPAIRS THE AMERICAN DREAM OF UPWARD MOBILITY"
http://intelligencesquaredus.org/debates/past-debates/item/1...
So our middle class is indeed shrinking but also moving towards being upper class.
Remember: (1) wealth tends to be correlated with age and (2) baby boomers make up a much larger percentage of the population (i.e. age distribution is not equal).
If you have a large bolus of folks moving through their careers, the graph follows the typical wealth trajectory. Right now, baby boomers are at or near the peak of their wealth.
http://www.zerohedge.com/sites/default/files/images/user5/im...
http://www.zerohedge.com/sites/default/files/images/user5/im...
Full article:
http://www.zerohedge.com/news/2014-10-03/hiring-grandparents...
There's also a slide deck for a talk on the paper: http://eml.berkeley.edu/~saez/SaezZucman14slides.pdf
Not to mention that the regulatory landscape has changed over time, and since that directly influences several classes of errors (from waiters under-reporting tips to "the 1%" hiding money in now-illegal tax shelters) estimating historical trends is an exercise in futility.
And we effectively have no way to benchmark how well these different studies are doing at measuring the underlying phenomena that they're trying to measure, this is really just making up numbers and calling it "wealth distribution".
>this is really just making up numbers and calling it "wealth distribution".
We can go deeper. Almost everything you hear about the "economy" is based on a mathematical model that makes a variety of assumptions. What is income? What is wealth? Who are the people participating? How does information get transmitted? What is a "good" outcome and what is a "bad" outcome?
Further, "waiters undereporting tips" is a tiny problem next to "wealth is somewhat unmeasurable since we don't survey it or tax it".
The best we can do is measure what we can and try to make reasonable inferences. But it's not an exercise in making up numbers. It's an exercise in interpreting what the numbers we have are saying.
I'm not disputing your claim that everyone is much, much better off, but the "poor people have lots of stuff!" kind of thinking pollutes the discussion.
...doesn't that go right to the core of the issue? Some people think that relative "wealth" is the proper measure of "well-being". And others think that absolute "wealth" is the proper measure of "well-being". All the arguments around this issue seem to boil down to this essence.
Or, more likely - you consider the lower middle class "poor" by your inflated Silicon Valley standards.
Reminder: avg. US HOUSEHOLD income is 52K/year.
If I go onto Amazon right now, filter sellers by Amazon.com, sort by low to high, and look at the cheapest two TVs: Samsung UN24H4000 720p: $147.75 and LG 22LB4510 1080p: $159. Both "HD."
So, using HDTVs as a metric of poverty is dumb. They're the only game in town.
Which was the point.
Just pick anything that 90%+ of the population have: internet, electricity, gas, water, a car, heating, a telephone line, etc and then declare it your "line" for poverty.
If poor people could not afford televisions, they would likely be subsidized. The food stamp program provides the bread, and broadcast television provides the circuses.
How about tracking something that rich folk would be nervous about the poor people owning, like long arms or dissenter-friendly networks? How many poor people own an AR-15 and a software-defined radio?
http://www.statista.com/statistics/183648/average-size-of-ho...
...also a huge number of people live in low cost of living areas. I have friends and family out in rural areas with perfectly comfortable lifestyles who wish they made 52k a year.
I'm not from the US but this is hard to believe, as "In 2012, 5.7 percent of U.S. households (7.0 million households) had very low food security[, e.g.] the food intake of some household members was reduced and normal eating patterns were disrupted at times during the year due to limited resources" (source: http://www.worldhunger.org/articles/Learn/us_hunger_facts.ht...).
...unless you want to argue that the persons in these 7 million households choose to starve to be able to afford three flat screens and an Xbox, but in that case I insist on a proper source ;)
also: Wide-screen TV? Are you speaking from the 90s? All TVs are wide screen, and having one is simply proof that you had $200 at some point within the past 5 years.
In the United States today, it's still fairly common for homeless people to freeze to death in the winter because they can't afford or find shelter on cold nights. Much less afford 3 TVs and an XBox.
What if the data showed that in 1800 American slaves had lower death rates than the population of the regions from which they were kidnapped? Does that make slavery ok?