Economic Inequality: It’s Far Worse Than You Think

You basically have to elect a majority of honest politicians to congress all running on the platform of fixing the tax code, and if you managed to perform that miracle greater than walking on water while turning it to wine, you would still be conceding literally every other political position to them because you had to do the most insane systemic uprising of policy in American history since prohibition, and anyone elected to vote for that would have their own anterior motives and agenda to replace the power vacuum from losing the tax morass.

And there's an awful lot of people driving $25K new ICE cars, so I can't agree that the EV credit is mostly going to cars that are beyond the reach of average workers. (I also don't think that the average worker is financially well-advised to buy a new $25K car, but they're doing it in droves, so...)

That's not what capitalism does, otherwise the Webvan investors would be massively wealthy.

It rewards effective deployment of capital with more capital. And it often rewards ineffective deployment of capital with less of it. So you can have massive transfers of wealth from "side to side", not necessarily from bottom to top.

In a natural economy from a flat start you have people funding the interests of those with entrepreneurial spirit to form businesses. Assuming you have some form of social organization where those with the means and wit cannot just inflict violence upon others to get what they want, what generally happens is that capitalists build industry to create goods everyone else wants, while paying others to work for them where they get more money from the labor than the worker gets in pay.

Naturally, the total wealth of the workers must decline while the capitalists profits rise. But the capitalists want more money, and the only way to really put their money to work is either internal investment in their own company, or funding the ventures of others. Rather than the base state group funding of an individuals venture, you have one or few wealthy sponsors funding new ventures.

That does mean that over time you get fewer and fewer capitalist entrepreneurs that are successful, because less money goes into making someone elses business dreams come true and more goes into making the established businesses stronger.

But in that natural capitalist market you cannot do many of the things modern American companies do to exploit markets and produce unnatural profits. All of which require the violence of the state to perform, which is why government is always a double edged sword - you need something to protect the people from violence in the first place, but that just gives the violence to an influencable, corruptable group, and money - especially concentrated - talks.

But it is much harder to get a monopoly in laissez faire system where you cannot use regulations and ordinance to block competition the way almost every major business in the US does. Be it (ab)use of the patent system, abuse of zoning, abuse of permits, abuse of straight up law, companies constantly goad politicians into giving them an unfair advantage.

In that free market if someone starts abusing their growing monopoly for profit it opens up infinite room for competition because the only barrier to entry to a goods or service market is the ability to produce it. That requires a whole economy of productive goods markets - but you can always fill the gap from the start wherever monopolies arise, and while you can have monopolies form, they cannot act against the market for long without opening up room for competition - they have to skirt the border where their goods and services cost just enough to disincentivize competition which means just below new-entry market rates, and that is after all extrinsic influencers outside price - business practices and ethics, employee retention and satisfaction, and general reputation. Look no further than Wal-Mart for an actual example of a business that competes at below market prices but loses significant business to its own awful reputation.

So my point is that while capitalists in a laissez faire system can perpetually concentrate wealth, it really cannot happen nearly as fast as it has in the last fifty years because you need regulation to capture markets as completely as so much of American enterprise has.

That's true, as long as the rate of return on capital is bigger than the growth of economy. Otherwise, as the economy grows faster than capital brings the returns, capital owners own smaller and smaller part of overall wealth.

Unfortunately, throughout almost all known history, the rate of return on capital was greater than growth. The only exception was the brief period of the post-WW2 years.

The central challenge of college today is not that everyone is going, but that everyone is going into so much debt to do it. Most people will be able to service their debt (in part thanks to the higher average earnings they'll realize), but it is coming at the cost of delaying other purchases. New grads can't afford new cars, houses, weddings, children, or savings. And the fraction of borrowers who can't afford their debt become a drag on the economy because it is so difficult to discharge.

The reason why education works is that it makes all parts of society function better. Having an educated population produces a higher functioning society. That's a society that, more often than not, is able to produce more wealth faster. In fact, it's in the enlightened self interest of society to have a broadly educated population. Basic research winds up driving GDP growth as science goes from the lab to products. Having more engineers and scientists is important, but so is having musicians, writers, nurses, and so on. All these types of education are important in a modern society. What's going on in the United States is that we are slowly short changing ourselves by making it harder and harder for people to get that additional education.

But in the process we're also creating a more stratified society. A lot of social mobility comes from the "first generation to go to college." By making college education less affordable, we keep people in the lower and lower middle classes that could have a transition up the income ladder from lower skilled, lower paying jobs to white collar professions. That's just one way we're becoming a society with little social mobility. American has moved away from the meritocratic American ideal. Now, even if you're an idiot, if you start out rich you'll probably stay rich. If you're poor, even if you're smart and capable, you'll probably stay poor.

And then again a 20x difference between the top 1% and top 0.1%

The point is for the 88% of Americans never see the top 1% even after their biggest windfall that's a vast gap. And nothing says 1% is defined by their annual tax returns lifetime earnings adjusted for age are a much better link to someones finances than what they made last year.

PS: Sure, in theory Bill Gates was not in the top 1% while at Harvard, but his nominal income had little to do with his status. Don't forget his Mother was friends with the CEO of IBM that's serious connections.

When we talk about "the 1%" we are not talking about that one hit wonder salesman or small business owner who cashes out and technically has >$1M income in one particular year. We are talking about year-after-year sustained income.

EDIT:

There's no question that there are problems with the phrase "among the top 1% of earners". It's not well defined. I think, though, it's safe to say that when the Average American talks about "the 1%" as a class, he's not talking about the person who had a single good year and went on to have a normal income for the rest of his life. He's talking about the class of people whose income is high and sustained. When the average person says, "I'll be among the top 1% of earners" he's imagining himself as attaining continuing membership in an economic class, not predicting a single-year windfall.

Look at where we are! Hacker News - 10,000s of people talking around start ups! Pretty much none of us will "make it." Yet here we are.

Moreover, it's worsened because life is more expensive in subtle ways as you move down the income bracket. [3] Even municipal fines -- as emphasized by John Oliver recently -- contribute to the problem.

[1] http://mattbruenig.com/2013/06/13/whats-more-important-a-col... [2] http://www.pewtrusts.org/en/research-and-analysis/reports/00... [3] http://www.slate.com/articles/life/family/2014/12/linda_tira... [4] https://www.youtube.com/watch?v=0UjpmT5noto

we are morally justified in taxing success BECAUSE it is success. its not because we desire to punish or disincentivize success (and indeed we must take care not to tax it too harshly for this reason), but simply put, success generates surplus and we can tax surplus without causing outsize additional suffering. we are justified in taking from those who have extra because they have extra and can afford it.

on the flipside we are not morally justified in taxing failure BECAUSE it is failure. its not because we desire to reward or incentivize failure (and indeed we must take care not to make it too inconsequential to fail for this reason), but simply put, failure generates hardship and we cannot tax a person experiencing hardship without causing outsize additional suffering. we are justified in not taking from those who have nothing left bcause they have nothing left and cannot afford to have anything more taken from them.

do you understand the ethical dimensions of the argument now? what is most fair from a purely financial or economic point of view is not at all what is most fair from a humanitarian or ethical point of view. pragmatically speaking, we have need to generate revenue for the government and it makes the best sense to seek revenue from where money is plentiful, just because that's where the money actually is. its the same reason why consumer brands try to market to wealthier customers (because they have extra money that they can spend).

Sort of like accusing someone of a strawman argument with nothing to back it?

I favor a system that guarantees equality of opportunity. I do not favor a system that guarantees equality of outcome.

Our economic and political system (mixed market capitalism) may not be natural phenomenon (what is?) but majority of voters prefer it to other systems.

On the other hand this is the first I witness someone to cry strawman to pull a strawman, how creative!

For example, if your neighbors are richer because they've been developing food infrastructure, it's quite possible that your grocery bill has actually gone down, because food is more accessible and cheaper thanks to their efforts.

If we're just talking about one neighborhood, this is unlikely. But if we're talking about an entire economy, the poor people are quite likely to benefit as long as the wealth has come from developing the economy.

What I had in mind with my final remark is more about the future, i.e., "how to handle things when the machines take over".

Margaret Thatcher had the last word on this: https://youtu.be/rv5t6rC6yvg Worth a watch.

Inheritance is the exact definition of anti-meritocracy.

Every time someone mentions "who will provide for your children if you don't leave an inheritance behind?" I immediately have to ask, "what about all the children whose parents are not able to leave them an inheritance (ie: most of them)?"

It seems that it is you who have not really thought it out. Here's Adam Smith on the topic btw:

> "A power to dispose of estates for ever is manifestly absurd. The earth and the fulness of it belongs to every generation, and the preceding one can have no right to bind it up from posterity. Such extension of property is quite unnatural." Smith said: "There is no point more difficult to account for than the right we conceive men to have to dispose of their goods after death."

http://budiansky.blogspot.ca/2010/10/adam-smith-thomas-jeffe...

The idea that the estate tax ever applies to most people has been very successful propaganda for a long time. The estate tax should absolutely be very high, because the people leaving large amounts of wealth are generally the only people the tax would affect.

[1] for parents dying in 2015; future years will probably have a higher limit ( http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employ... )

[2] for actual legal advice, see a proper tax lawyer

Let's say that American's perception of social mobility was found to be significantly skewed relative to that of other populations'. Would that show more or less indifference? You could argue that the 'American Dream' cultural thinking leads more Americans to believe that the poor can become rich and at the same time more passionate about ensuring that that is indeed the case. The fact that it blinds them to the reality does not imply that they don't care.