Notes from Howard's Sabbatical from Working. The name comes from a 1998 lunch conversation. Someone asked if everything man knew was on the web. I answered "no" and off the top of my head said "Fidel Castro's favorite color". About every 6-12 months I've searched for this. It doesn't show up in the first 50 Google results (this blog is finally first for that search), AskJeeves says it's: red.
Wednesday, February 23, 2011
It's the Inequality, Stupid
Mother Jones wrote It's the Inequality, Stupid "Eleven charts that explain everything that's wrong with America."
Here are two:
7 comments:
Karl
said...
People seem to make a big deal about this all the time. Do you have any pointers to good explainations of why it matters beyond the general "fairness" arguement?
I've got a folder of bookmarks on this that I have to get to. I think the issue isn't "fairness" at all, rather it's that the poor and "middle class" are so strapped they aren't spending as much. The crisis is one of demand, people aren't buying much so companies aren't producing much and aren't hiring. They are cutting costs and increasing profits. That's how profits are up but the economy isn't. One Bill Gates can only spend so much, the same money in the hands of thousands (or millions) will circulate more. Henry Ford had it right when he turned his employees into customers.
At some point any tax policy is about redistributing wealth. Pick an amount that people give to the government and then figure out what the government spends it on. The argument for a progressive tax system is that it's fairer because the rich pay a bit more because they have more and can afford more (than in a flat tax system). It also gives the poorer ones a bit of a break. The cut the upper tax rates of the last 3 decades was all about trickle down. Let the rich keep more money and they'll invest it and grow the economy. But it hasn't trickled down at all, it's just stayed concentrated in the top. The middle class has gotten smaller and that's hurt the economy, they're the ones that grow it.
The issue of "fairness" should not be dismissed so lightly.
Was "fairness" an issue for the following?
Ministry of Jesus Christ Magna Carta French Revolution Russian Revolution Chinese Civil War (Modern)
and more recently events in:
Egypt Tunisia Libya
Did these events have profound consequences?
I'm not a professional historian and I'm sure the list is much more extensive than what I have posted.
It has been "scientifically" demonstrated that there is some innate human trait regarding fairness and equitability. Please look up the work of Dr. Fehr on (no kidding "Fehr" on "fair"ness - you can't make this stuff up). It involves what is called "inequity aversion".
In extreme inequity situations, I believe this "trait" can lead to severe reactions.
Total free market capitalism is damaged by its own excesses as is total communism (or other forms of totalitarinism).
Both situations ultimately result in extreme concentration of political and economic power, which in the long run are unsustainable without the use of extreme violence (or threats of violence).
History has shown that extreme concentrations of wealth and power generally end badly, in tumultuous situations.
By the way, just how much economic inequality is acceptable?
Is economic slavery acceptable?
Seems to me it sucks to be a serf, even a "free" one.
Yes fairness is important as a concept, I just think using it as an argument in this situation isn't that helpful. We have a rule of law and nothing like slavery or serfdom. The counter argument is that a flat tax would be fairest and that success shouldn't be punished.
I think it's too easy to get bought into the socialism quagmire if the argument is based on fairness. We want fairness in the system not necessarily in the outcome. But the evidence of a problem is that the outcome is now skewed. Big money is now so big that it overshadows everything and controls politics which makes the law favor the already wealthy. That's Lessig's ChangeCongress point.
The right keeps saying we have to make it easier on small businesses because they drive the economy. It's really the middle class that drives the economy and they're getting most hurt by the right's policies.
The massive accumulation of wealth that has occured in the US over the last 30 years, doesn't seem to have happened elsewhere to the same extent. Must be our American exceptionalism at work.
Actually, the explanation is quite simple. Both political parties are now under the control of the largest donors. Period.
Unfortunately, most of those large donors represent the interests of the very wealthy and powerful. A few large donors (the unions) represent the interests of the their members, and by extension and relation, the rest of the population that is labor - the true middle class .
Capital vs labor - yes it's that simple.
The repubs understand that if they are able to destroy the unions, they will control the big money in politics, plain and simple, and then control our "elected" officials.
You linked to an article - Plutocracy Now: What Wisconsin Is Really About screwing unions screws the entire middle class. — By Kevin Drum
Where is the fairness in "the system" if our elected representatives serve only those that fund their elections?
On the topic of the flat-tax, which I don't believe is fair, but may be more equitable than our current disaster of a tax code - please consider the following:
Adam Smith, taken from his book "The Wealth of Nations" (a primer on modern capitalism and free market economics), mentions progressive taxes, and pretty much sums up my position:
"The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
Imagine that, fairness as part of the most important treatise on economics in the modern era.
For what's it worth, the right wing couldn't give a rat's ass about small business. They just use small busienss as a talking point for lower taxes (for their rich donors).
Your statement that the middle class drives the economy is correct, but incomplete.
It's actually the middle class that drives the economy for the middle class. The uber-rich can live very nicely without a large or strong middle class. They can do just fine sucking the lifeblood out of the working poor. A viable and strong middle class is necessary to support itself.
I might not have made it clear enough that my statement "The counter argument is that a flat tax would be fairest and that success shouldn't be punished. " was me playing devil's advocate. It should be clear I'm strongly for a (more) progressive tax system and don't need to be convinced.
And yes, the GOP doesn't care about small business just like the "death tax" had nothing to do with family farms.
The problem I have with fairness is that it is totally subjective based on your personal ethical views. It makes a powerful political tool to stir up the masses, but lends little to a thoughtful analysis of a complex system. Showing that wealth concentration removes money from the economy since rich people don't spend enough (or just spend it in the wrong places?) is something concrete that could be backed up with data. I've always liked the idea of trickle-down from a theoretical point of view, but I get that it doesn't work in practice because historical data exists to demonstrate it. So basically (and perhaps a little cynically), rich people don't know how to spend their money effectively, so the government should do it for them.
The whole idea of placating the lower class to prevent riots perhaps comes into play here too, but I would say more as a corollary result of malcontents leveraging the inequity to gain power than as a direct result of the inequity.
7 comments:
People seem to make a big deal about this all the time. Do you have any pointers to good explainations of why it matters beyond the general "fairness" arguement?
I've got a folder of bookmarks on this that I have to get to. I think the issue isn't "fairness" at all, rather it's that the poor and "middle class" are so strapped they aren't spending as much. The crisis is one of demand, people aren't buying much so companies aren't producing much and aren't hiring. They are cutting costs and increasing profits. That's how profits are up but the economy isn't. One Bill Gates can only spend so much, the same money in the hands of thousands (or millions) will circulate more. Henry Ford had it right when he turned his employees into customers.
At some point any tax policy is about redistributing wealth. Pick an amount that people give to the government and then figure out what the government spends it on. The argument for a progressive tax system is that it's fairer because the rich pay a bit more because they have more and can afford more (than in a flat tax system). It also gives the poorer ones a bit of a break. The cut the upper tax rates of the last 3 decades was all about trickle down. Let the rich keep more money and they'll invest it and grow the economy. But it hasn't trickled down at all, it's just stayed concentrated in the top. The middle class has gotten smaller and that's hurt the economy, they're the ones that grow it.
The issue of "fairness" should not be dismissed so lightly.
Was "fairness" an issue for the following?
Ministry of Jesus Christ
Magna Carta
French Revolution
Russian Revolution
Chinese Civil War (Modern)
and more recently events in:
Egypt
Tunisia
Libya
Did these events have profound consequences?
I'm not a professional historian and I'm sure the list is much more extensive than what I have posted.
It has been "scientifically" demonstrated that there is some innate human trait regarding fairness and equitability. Please look up the work of Dr. Fehr on (no kidding "Fehr" on "fair"ness - you can't make this stuff up). It involves what is called "inequity aversion".
In extreme inequity situations, I believe this "trait" can lead to severe reactions.
Total free market capitalism is damaged by its own excesses as is total communism (or other forms of totalitarinism).
Both situations ultimately result in extreme concentration of political and economic power, which in the long run are unsustainable without the use of extreme violence (or threats of violence).
History has shown that extreme concentrations of wealth and power generally end badly, in tumultuous situations.
By the way, just how much economic inequality is acceptable?
Is economic slavery acceptable?
Seems to me it sucks to be a serf, even a "free" one.
TT
Yes fairness is important as a concept, I just think using it as an argument in this situation isn't that helpful. We have a rule of law and nothing like slavery or serfdom. The counter argument is that a flat tax would be fairest and that success shouldn't be punished.
I think it's too easy to get bought into the socialism quagmire if the argument is based on fairness. We want fairness in the system not necessarily in the outcome. But the evidence of a problem is that the outcome is now skewed. Big money is now so big that it overshadows everything and controls politics which makes the law favor the already wealthy. That's Lessig's ChangeCongress point.
The right keeps saying we have to make it easier on small businesses because they drive the economy. It's really the middle class that drives the economy and they're getting most hurt by the right's policies.
The massive accumulation of wealth that has occured in the US over the last 30 years, doesn't seem to have happened elsewhere to the same extent. Must be our American exceptionalism at work.
Actually, the explanation is quite simple. Both political parties are now under the control of the largest donors. Period.
Unfortunately, most of those large donors represent the interests of the very wealthy and powerful. A few large donors (the unions) represent the interests of the their members, and by extension and relation, the rest of the population that is labor - the true middle class .
Capital vs labor - yes it's that simple.
The repubs understand that if they are able to destroy the unions, they will control the big money in politics, plain and simple, and then control our "elected" officials.
You linked to an article - Plutocracy Now: What Wisconsin Is Really About
screwing unions screws the entire middle class. — By Kevin Drum
Where is the fairness in "the system" if our elected representatives serve only those that fund their elections?
On the topic of the flat-tax, which I don't believe is fair, but may be more equitable than our current disaster of a tax code - please consider the following:
Adam Smith, taken from his book "The Wealth of Nations" (a primer on modern capitalism and free market economics), mentions progressive taxes, and pretty much sums up my position:
"The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
Imagine that, fairness as part of the most important treatise on economics in the modern era.
For what's it worth, the right wing couldn't give a rat's ass about small business. They just use small busienss as a talking point for lower taxes (for their rich donors).
Your statement that the middle class drives the economy is correct, but incomplete.
It's actually the middle class that drives the economy for the middle class. The uber-rich can live very nicely without a large or strong middle class. They can do just fine sucking the lifeblood out of the working poor. A viable and strong middle class is necessary to support itself.
TT
I might not have made it clear enough that my statement "The counter argument is that a flat tax would be fairest and that success shouldn't be punished. " was me playing devil's advocate. It should be clear I'm strongly for a (more) progressive tax system and don't need to be convinced.
And yes, the GOP doesn't care about small business just like the "death tax" had nothing to do with family farms.
We mostly agree.
The problem I have with fairness is that it is totally subjective based on your personal ethical views. It makes a powerful political tool to stir up the masses, but lends little to a thoughtful analysis of a complex system. Showing that wealth concentration removes money from the economy since rich people don't spend enough (or just spend it in the wrong places?) is something concrete that could be backed up with data. I've always liked the idea of trickle-down from a theoretical point of view, but I get that it doesn't work in practice because historical data exists to demonstrate it. So basically (and perhaps a little cynically), rich people don't know how to spend their money effectively, so the government should do it for them.
The whole idea of placating the lower class to prevent riots perhaps comes into play here too, but I would say more as a corollary result of malcontents leveraging the inequity to gain power than as a direct result of the inequity.
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