I saw this column on the Volokh Conspiracy discussing income inequality. However, economics is not my forte so I can't really rate the strength of his argument.

http://www.washingtonpost.com/news/volo ... ge-w-bush/

Geo have you seen anything like this.

Interesting.

Periods of growth tend to exacerbate inequality, and periods of low or negative growth mitigate against it. Of course, overall, there is usually growth.

Seems that Clinton's era was generally best for growth, but not the worst for equality.

Archduke Russell John wrote:I saw this column on the Volokh Conspiracy discussing income inequality. However, economics is not my forte so I can't really rate the strength of his argument.

http://www.washingtonpost.com/news/volo ... ge-w-bush/

Geo have you seen anything like this.

Yes, and it completely makes sense. If you have a lot of money, you have a lot of money invested. In times of good economic growth, those assets appreciate in value. If you take gains, or use mark-to-market accounting of wealth, rich people/organizations get a lot richer in good times. And in bad times their income/wealth goes way down. Love that huge loss in the GWB years: if you were invested you took a bath.

If you live off of the money you earn, the ups and downs of the economy don't hurt or help you (much) unless you lose or get a job because of it. If you live off the money you have, the ups and downs of the economy make a huge difference on both your income and your wealth. So in good times the rich are rolling in it, and in bad times they're taking a bath.

It's a good article and I have no quarrel with the data it uses. Income inequality is bad, but I'm not sure the best way to address it in a capitalist economy, other than paying attention to measures we already have in place.

The main policy issue, I think, is how does one fairly tax $$ in a world where there is such income inequality? Not how we do it now! It makes no sense to me (and I think anyone who's honest) that rates vary so much depending on how money is generated.

geo

If you live off of the money you earn, the ups and downs of the economy don't hurt or help you (much) unless you lose or get a job because of it. If you live off the money you have, the ups and downs of the economy make a huge difference on both your income and your wealth. So in good times the rich are rolling in it, and in bad times they're taking a bath.

The crash in 2008 wasn't ordinary cyclical "bad times". It was a crash brought on mostly by a lack of rigorous financial regulation.... It made everyone a victim of unscrupulous investment practices...
Most middle class families were invested in stocks through the their registered retirement plans, and because of that most middle and working class families took a huge hit too. Especially those near retirement. Pensions of working people were crippled too.
As well, much of most families wealth lay in their homes, and the mortgage fiasco and resulting housing crash, resulted in cratering many ordinary peoples wealth .
So GWB wasn't ordinary "bad times".
The period of financial deregulation that caused the boom and bust began with Reagan but was really let loose under Clinton ..... So perhaps Clinton's performance needs to be assessed under that light too.... What good is a decade or more of prosperity and wealth creation when it was all an illusion?
Maybe the whole period from 1980 to 2008 needs to be set aside as something other than a normal cycle?

relying on GDP or GDP per capita is a rather blunt way to measure the progress of a countries economy. The GINI co-efficient is more precise in that it helps indicate How the entire population is affected....
Many socio-demographic factors like crime rates, life expectancy, social mobility , are closely linked to the performance on the Gini-Coefficent . GDP can be entirely independent of these factors...
Maybe the Happiness Index is also a useful tool for analyzing what makes a society work for its populace?
http://unsdsn.org/files/2013/09/WorldHa ... online.pdf

rickyp wrote: Most middle class families were invested in stocks through the their registered retirement plans, and because of that most middle and working class families took a huge hit too. Especially those near retirement. Pensions of working people were crippled too.
As well, much of most families wealth lay in their homes, and the mortgage fiasco and resulting housing crash, resulted in cratering many ordinary peoples wealth .

I don't disagree for most of the middle class, but I will say that most of those in the bottom, say, 20% don't have stocks and don't own their home, unless its a trailer. Most live paycheck to paycheck, and in the words of a very fine singer: "If you ain't got nuttin', you got nuttin' to lose." It's an oversimplification, but you get the point.

What policies that exacerbate income inequality has accomplished...

The American middle class, long the most affluent in the world, has lost that distinction.
While the wealthiest Americans are outpacing many of their global peers, a New York Times analysis shows that across the lower- and middle-income tiers, citizens of other advanced countries have received considerably larger raises over the last three decades.
After-tax middle-class incomes in Canada — substantially behind in 2000 — now appear to be higher than in the United States. The poor in much of Europe earn more than poor Americans.
The numbers, based on surveys conducted over the past 35 years, offer some of the most detailed publicly available comparisons for different income groups in different countries over time. They suggest that most American families are paying a steep price for high and rising income inequality.
The struggles of the poor in the United States are even starker than those of the middle class. A family at the 20th percentile of the income distribution in this country makes significantly less money than a similar family in Canada, Sweden, Norway, Finland or the Netherlands. Thirty-five years ago, the reverse was true.

http://www.nytimes.com/2014/04/23/upsho ... .html?_r=0

Excellent. Thanks for this: it has some pretty great graphics to communicate a lot of data quickly.

The data suggest that for many people, growth doesn't really help them. If the economy is growing, but many people don't benefit from that growth, then why should those people care if the economy grows?

I think this may be a part of a larger recipe for social unrest that with the exception of Occupy, we haven't seen much of. If income inequality continues to get worst for the next 20 years, what's the country going to look like then? And from where I sit, why wouldn't it? All signs point to more and more income inequality. There are tremendous feedback loops that lead to more income inequality: it's so hard to see that changing.

They are interesting graphs. I do note some important points:

1. The graphs show income but not transfer payments such as some health care or food stamps. If there have been changes in benefit policies over time which have ameliorated or exacerbated income inequalities, they are not being measured. That means there is no feedback from the data on whether these policies have been successful or not. Should we double down on these policies even if they are already operating on the real world but not captured in the data?
2. I note that the average income of the 20th percentile has increased inflation adjusted. That's a good thing and in my view represents the right focus. I wish that it improves even more.
3. Focusing on income inequality is the wrong thing. What's important is whether people are absolutely enjoying better circumstances. Why are we so hung up on what other people have as opposed to considering what we have?
4. It makes sense that the U.S. positive results relative to other countries would decline over time.

Anyway, they are still interesting graphs.

ray

Focusing on income inequality is the wrong thing. What's important is whether people are absolutely enjoying better circumstances. Why are we so hung up on what other people have as opposed to considering what we have?

From the article quoted.

They suggest that most American families are paying a steep price for high and rising income inequality.

I get what you mean, that its the absolute quality of life or standard of living that matters. And its been noted by some on here that the poor in most other countries would rather be poor in the US.
But what metrics are you willing to offer to suggest that either the standard of living or quality of life has substantially changed for the better for the poor, working poor, or middle class?
The greatest driver of social mobility is education. The cost of education alone has increased dramatically and is increasingly out of reach of those who are poorer... And the debt that is required by many to achieve a secondary education is a revenue generator for banks and the government...
Does that make sense?
The greatest concerns for financial security are unemployment and health care costs. In a society where health insurance is provided by employment, this is a combined concern. With health care costs out stripping inflation for decades, this means that the cost of this security is greater, and the share of income that this takes up for the household budget is greater every year.... There's a clue that relative standard of living can't be better.
The countries where middle classes have gained on US middle class have two differences. Differences that are apparent advantages for the poor and middle class. Socialized health insurance and far less expensive secondary education. Provided for by the state and evening out the income disparities through these different priorities in tax expenditures and also moderately different taxation schemes that pay for these services...

Ray Jay wrote:They are interesting graphs. I do note some important points:

1. The graphs show income but not transfer payments such as some health care or food stamps. If there have been changes in benefit policies over time which have ameliorated or exacerbated income inequalities, they are not being measured. That means there is no feedback from the data on whether these policies have been successful or not. Should we double down on these policies even if they are already operating on the real world but not captured in the data?

Depends what 'successful' means. Are these policies intended to undo inequality, or to mitigate it? And also how the cause-and-effect works, or how people think it works is of course going to be part of the discussion.

Do you know where we could get an idea of the value of 'transfer payments' for different income levels in the past? Also, whether we can see the value of changes to taxation policy in the same period, which may be included in the figures assuming they are post-tax income, but then again may not and may also signal a change in the 'transfer payments' the other way.

2. I note that the average income of the 20th percentile has increased inflation adjusted. That's a good thing and in my view represents the right focus. I wish that it improves even more.

Why that percentile in particular? I notice when you click on the 'remove smoothing' box, we see for that group a particular trend: downwards during the 1980s, upwards in the mid-late 90s, flat for the 00s and (to be expected) until the recession and then down.

So the only real time that the focus has been right, as you see it, would be for a short period out of the past 30 years? And the trends do not suggest that it will simply continue as per your wish. And is the lesson to look at what was happening at that time, and try to repeat it?

3. Focusing on income inequality is the wrong thing. What's important is whether people are absolutely enjoying better circumstances. Why are we so hung up on what other people have as opposed to considering what we have?

Because we are human. Studies on humans and on primates suggest that we see 'fairness' as very important. We interpret the concept in different ways, of course. Some see it as unfair that those who do less work than them get more reward. (with 'less work' and 'more work' being subjective, of course). People sometimes interpret the system as a zero-sum game, and so when others seem to win relative to them, it looks like losing (even if in absolute terms they are a little better off).

Another question is whether inflation affects all income groups in the same way - different commodities and goods/services will have their own inflation

On the face of it, it should not matter if we are all getting better off. But when people observe that the overall economy is growing, per capita, and that while they are working as hard as they used to, they are not getting an increased reward while others are, that will naturally build up some resentment.

Similarly, given that 6 years ago we had a situation where large companies run by very rich people made a spectacular set of mistakes that led to an economic crash which hit everyone, some may also resent it when those same people still seem to be doing quite well financially (ie: getting rewarded for failure) while they or people they know are not doing as well and did not have any involvement in the banking crisis.

As much as we should not submit to envy, we should recognise that it is a natural emotion. And that sometimes it seems perfectly rational to envy the success of the very rich if you are not that well off, even if you are a little bit better off than before.

And then we look at the situation in those graphs. Let's face it, US productivity has risen. US GDP has risen faster than inflation and population effects (albeit more slowly than in the preceding 30 years). Which means that someone in work over that period has, on average, produced more output now than they used to. So it's not even 'envy' to look at that and feel a little aggrieved that while others at the top appear to be gaining the fruits of that growth, they are not.

4. It makes sense that the U.S. positive results relative to other countries would decline over time.

Why? I thought we were all socialist wrecks, heading for disaster and a salutory warning to maintain a more capitalistic outlook... :-)

But seriously, why does it make sense, and is this something that your country can simply accept or should it perhaps do something about it.

Ray Jay wrote:They are interesting graphs. I do note some important points:

1. The graphs show income but not transfer payments such as some health care or food stamps.
...
2. I note that the average income of the 20th percentile has increased inflation adjusted. That's a good thing and in my view represents the right focus. I wish that it improves even more.
3. Focusing on income inequality is the wrong thing. What's important is whether people are absolutely enjoying better circumstances. Why are we so hung up on what other people have as opposed to considering what we have?

They also don't include capital gains, and other income as well, so it's an imperfect look at things.

The important point about income inequality, in my opinion, is you want most people to have a sense of mutual self-interest, so we all work toward common goals, as a nation/society. I don't think of it as fairness. Life is unfair, and there ain't nothing we can do to make it fair. But powerful societies function best when their members work toward common goals: goals that benefit all. Social unrest happens when a few benefit while the many sit on the outside looking in. When the rich get richer and the poor do better, then we have a sense of common goals. When the rich get richer and the poor don't, then we start to see a divergence of common goals. If the poorest 20% show trivial gains while the top 20% show massive gains, it's hard to see how that is good for social cohesion.

And to be clear, I don't think the nation has a major problem now, but I see it heading that way as these trends continue.

geo

And to be clear, I don't think the nation has a major problem now,

Do you consider factors that occur with higher gini co-efficients (higher income inequality) that could be considered problems now. Higher crime rates. Lower average life span. Lower social mobility?

rickyp wrote:geo

And to be clear, I don't think the nation has a major problem now,

Do you consider factors that occur with higher gini co-efficients (higher income inequality) that could be considered problems now. Higher crime rates. Lower average life span. Lower social mobility?

Those are problems. By major problem, I was thinking more of revolution/social disorder/disruption. I was just trying to say that I don't think a revolution is around the corner.

Elizabeth Warren on Charlie Rose. Not all on topic, but partially.

http://www.businessweek.com/videos/2014-04-24/senator-warren-on-inequality-charlie-rose-04-23

geo

Elizabeth Warren

According to some sources being touted as Hillary Clinton's running mate by the largest democratic party donors.