I agree with you but it remains a problematic point. The issue is the power imbalance it creates and outlines.
Because in and of itself, wealth is of little interest. Economy is first and foremost the study of exchanges. If the wealthy stayed amongst themselves with their wealth parked peacefully and little interaction with the rest of the system, you could pretend they didn’t exist and from the point of view of the economy experienced by the majority of the people that would mostly be true. That’s mostly what’s happening actually which is why people don’t riot.
It is both a blessing and a curse because as usual throughout history when an aristocracy arise, their main fear is that the general population realise they are not actually providing that much value and could be dispensed with. That’s why they use the power they own - the ability to put the system out of balance - to lobby in their favour, keep control of the political system and information apparatus in order to keep being able to extract value from the system.
From my point of view, we are in situation which has a lot to do with the Old Regime. Aristocrats used to explain that they could not be dispensed with because they had superior value and were needed to administer and guide while exploiting the collective labours of the population. Modern large shareholders and executives explain that they can’t be dispensed with due to their superior ability to manage and impart a strategy while exploiting the collective labour of their employees tolling for meager wages.
We have a general problem in that people do not consume enough to grow our economy. Now, endlessly increasing consumption sounds bad, but it’s basically required for the economy to keep growing in real terms, since it’s the main component of GDP. Most wealthy people, not even billionaires but lots of run-of-the-mill hundred-thousandaires and petit millionaires, save a lot of their money including their ROI, or at the very least spend money less quickly than they make it.
If people spent money more or said “enough” earlier in their wealth accumulation journey, asset prices would be lower and the economy would be bigger. This is good in a lot of ways because capital goods like land really ought to be inexpensive to allow the economy to grow. Same with stocks. Assuming a constant risk-free rate of return (ie treasuries) it’s actually better for equities to have a lower P/E ratio - it’s cheaper to purchase cash flow.
I think this general lack of propensity to spend, or basically hoarding, is caused by our perpetually low interest rates and also general government policy that is leading to inflated asset prices. But there is also a cultural aspect to it though. There are a lot of “middle class millionaires” these days with $10m+ fortunes who basically don’t spend it. It’s their right to do so, but it’s stifling growth for the reasons I’ve outlined
1. Because birth rates are lower, being directly supported by one's children/grandchildren is no longer feasible.
2. No socialized retirement system. As a result, each individual must accumulate a small fortune in order to retire. Most retirement plans rely on living off of the investment income without touching the principal. Therefore, the amount required to retire is also sufficient for a person to live indefinitely. (Back of the envelope calculation, assuming 3% annual return on investment after inflation, $3M in retirement savings yields about $90k/year perpetually.)
3. Currently, the first $11.18M of an estate is entirely exempt from the estate tax, and the even the top marginal rate is only 40%. At no point would it prevent inheritance of a perpetuity by several descendants.
(1) is a long-term demographic change, and I think it's good overall, in terms of the care and attention children can receive. (2) forces the accumulation of wealth, out of fear of societal abandonment in old age. (3) allows those accumulations to persist across generations. I think that the appropriate spots to break this cycle are at (2), by instituting better social safety nets and retirement care, reducing the incentive to indefinitely accumulate, and at (3) by significantly increasing the estate tax.
Plus, not everyone wants to work to 67 (full retirement age for SS for most workers today). Then, not everyone wants to drop their spending down to that of a median income household.
Combine those factors and social retirement systems aren’t going to be the solution to stop people from saving and investing privately to supplement.
I can’t see social retirement ever being funded to the level of a middle-class retirement; I think it’s a useful safety net to ensure people who worked their whole lives but didn’t save privately don’t starve, but dramatically expanding it is mathematically difficult to fund.
Nope, the max is around $4200 (or, will be in a few weeks). And that's per person. A couple could receive as much as $8400/month.
We have a general problem that our economy doesn't support certain use cases of wealth.
EG, the ECB recently "loaned" EU member states quite a lot of euros. They do this every year, with the amount determined by public deficits. The amount is not determined by the amount of savings in ECB savings accounts. They can loan as much as they need, subject to EU law.
Public surpluses (deposits by EU member states into their national ECB savings account) are not common. The public doesn't make up the difference. There's no auction of ECB bonds before budget season to balance savings and loans.
Banks access funds in a similar way, though the EU chain is more complex that the UK or US'. There are often rules that dictate a balance between savings and access to central bank funds. Basically though, banks can loan as much as their regulators allow them to... for the same reason that states can.
Isn't this evidence that the aristocrats were right? We beheaded them and new aristocrats sprang up in the same place, almost as if there must and will always be people in such positions.
Or possibly it's just a consequence of the kinds of society we've had up till now. Perhaps in [your favorite utopia] it's not necessary nor beneficial.
So, the market should look like "lots o small companies funded by cheap money" but it does not. And is that because Jeff Bezos is basically Marie Antoinette?
Do some people overcome their initial bad luck and generate wealth for themselves? Of course there are some. But it is not "the majority of those with vast wealth." That's head-in-sand silicon valley tech utopia wankery.
I thought the movie Knives Out did a great job of parodying this "Rich people are ENTREPRENEURS that EARNED IT!" idea.
If you count top 10% as wealthy, sure then you need to be wealthy to make it big. A kid with top 10% parents has everything they need to succeed and create a top company. A poor kid doesn't, true, but a poor kid in USA still has everything they need to get to top 10%, and then their kids has everything they need to become top 0.1%. So you are right, this process isn't perfect, but it works in 2 generations, which is still really good compared to historically.
As a poor kid who did this, this is an incredibly ignorant and out-of-touch statement. This is like the socioeconomic equivalent of that Verge PC build.
Generally, after a lifetime of honest, hard work, you'll make it 1, maybe 2 tax brackets higher than your parents. To make it further than that you have to be especially talented, lucky, or both.
I just looked it up: as of 2016, 7.5% of kids born in the bottom quintile make it to the top quintile, so it is indeed possible, though quite rare. [1]
I think your basic sentiment is right, though you'd probably need to insert one more generation: a poor kid has everything they need to make it to the middle class and live a not-poor life, a middle class kid has everything they need to make it to the top 10%, and a top 10% kid has everything they need to become fabulously wealthy.
The poor -> middle class leap is probably more difficult than any of the others.
[1] https://www.economist.com/graphic-detail/2018/02/14/american...
Is 7.5% “quite rare”? That’s around (and between) the portion of the population who is left handed and the portion of the US population that has naturally blond hair, neither of which would I describe as “quite rare”.
7.5% of the bottom 20% make it to the top 20%. In a perfectly fair and equitable society, you'd expect it to be 20%. I wouldn't call this "quite rare," though I would call this uncommon.
But what percentage of the bottom 10% do you think make it to the top 10%? It's probably even fewer.
And to go step further: I'm not convinced the "top 10%" actually has everything they need to become a billionaire. Zuckerberg's parents were both doctors, Bill Gate's dad co-founded a successful law firm, Musk's parents owned an emerald mine in South Africa. These folks almost certainly grew up in the top 5% of household income.
If you need to grow up as a child in a top 5% household to "have everything you need" to start a wildly successful company, what percentage of the bottom 5% make it to the top 5%?
I'll bet you it's indeed "quite rare."
This is obviously wrong. Take India vs Switzerland as an example. Also, in the post-war era, the Western European countries saw a diminution of wealth disparity at the same time as a great wealth increase.
Actually the history of the western world in the 20th century looks more like “the less wealth disparity, the more wealth growth” (I'm not implying causality, but at least the correlation goes this way).
Compare one billionaire buying a mega yacht and 10,000 people buying their first car, in both cases you've created say $200M in direct GDP, but in the later case you have 10,000 people more mobile to get a job or consume other goods or services.
> The second part of Bismarck’s strategy to destroy social democracy was the introduction of social legislation to woo the workers away from political radicalism. During the 1880s, accident and old-age insurance as well as a form of socialized medicine were introduced and implemented by the government. But Bismarck’s two-pronged strategy to win the workers for the conservative regime did not succeed. Support for the Social Democrats increased with each election.
I don't understand why the USSR failing or being 'bad' is necessary to further incentivize 'the rich', if anything I'd say the opposite is true.
The USSR was bad because they were neither socialist or communist but an oligarchy bent on maintaining power at all cost -- just like China is today. The people at the top are the aristocrats in revolutionary France.
https://www.npr.org/sections/money/2015/02/11/384988128/the-...)
https://www.stlouisfed.org/publications/in-the-balance/2017/...
Interesting take. I haven't ever heard trickle down proponents suggest we give the money to the working class. It's like they don't really believe that.
Because that would require taking from some people and giving to others through government, which is a very inefficient way to do it.
https://www.bls.gov/oes/current/oes_nat.htm#00-0000
I probably shouldn't have included doctors though. I always forget how grossly overpaid they are.
I would say even that is a straw man. The argument is that I’d rather trust the market than governments with that task given their respective track records.
I mean where do you think defense contractor profits come from? How about medical and Pharma? Medicare is the largest single payor in the US and they deal exclusively with the elderly who require more prescriptions and medical care. Many large industry's largest client is the federal, state and local governments. Where does that money come from? Our taxes; not only ours but the taxes of future generations through debt. We do it all-the-time with business to prop them up. That doesn't even get into tax incentives.
So what? What’s the argument here? Because we have programs that take X amount of dollars, burn a portion of it and give the rest to people in group Y, we should have other programs doing the same for the people in group Z1,Z2,…?
Call me crazy, but IMO the solution is not having programs that burn our collective wealth.
Follow the thread:
>> I haven't ever heard trickle down proponents suggest we give the money to the working class.
>Because that would require taking from some people and giving to others through government, which is a very inefficient way to do it.
The argument is even though trickle down proponents don't suggest we give the money to the working class, they're fine with giving money via several mechanisms to business, thus trickle down.
>Call me crazy, but IMO the solution is not having programs that burn our collective wealth.
Our collective wealth should be spent on helping the "collective," i.e. citizenry directly. It's been hijacked with trickle down theory. Trickle down theory basically says if you give all the collective wealth to business, it will be spent helping the citizenry. I guess it does in the form of jobs, but the businesses certainly get most of the cut.
https://en.wikipedia.org/wiki/Trickle-down_economics
"...means to stimulate business investment in the short term and benefit society at large in the long term."
Of course it's a sham, but it's been going on since at least Reagan.
Inefficiency
The way to fight it is not by giving more powers to government but giving less.
This is your paradise, your side won. Move the goalposts all you want, but we’re at the logical consequence of letting “the market” make every social, economic, and political decision.
> The theorem states that if trade in an externality is possible and there are sufficiently low transaction costs, bargaining will lead to a Pareto efficient outcome regardless of the initial allocation of property.'
Key phrase there being 'Pareto efficient' which basically means 'without addressing the initial starting point inequality'.
I'm also not sure what your last claim is about, it sounds like a garbled version of 'you need inequality to progress' which is a common trope, but not actually backed by any logic as far as I can tell, or even fleshed out enough to escape from the 'not even wrong' category.
That is a stark claim with little empirical evidence. If you look at the world, you will find that Europe, one of the most affluent parts of the world has the lowest wealth inequality. While wealth inequality is very high in Africa, one of the poorer regions of the world.
Wealth inequality is far more likely to be the outcome of policies. Europe has been dominated more by various social democratic parties which have actively worked to reduce inequality. While areas such as North American with high levels of inequality has been dominated by parties pushing neoliberal economic policies.
[0]: https://en.wikipedia.org/wiki/List_of_countries_by_wealth_in...
"The issue is that the accumulated inter-generational wealth compounds itself quicker than the Dutch government can reduce the money added to it. The Netherlands’ historical wealth can be traced back centuries ago, with huge money-makers like the Dutch East Indies company. They allowed an extremely small minority of the Dutch population to accumulate astronomical amounts of wealth that are still compounding and increasing the wealth gap to this day."[0]
Even with their ginormous disparity, the poor in the Netherlands are not doing so bad.[1]
[0] https://uweb.berkeley.edu/2021/04/11/the-duality-of-the-dutc...
[1] https://en.wikipedia.org/wiki/List_of_countries_by_percentag...
How so? Why would you assume that the distribution of wealth is correlated to the total stock? In reality this actually doesn't have to be the case at all. Aside from direct means of wealth redistribution, the are ways of setting up an economic system such that wealth inequality is reduced.
> Many or most people have no wealth, depending on your semantics of "wealth."
Again, this is not a fact of nature. It's not in the biological nature of most people to be poor. Poverty is a result of a badly functioning society and can be alleviated.
Increased wealth through technological means has had two effects.
1. It's raised the maximum possible wealth ceiling. That is, the wealthiest people who've ever lived, are alive today.
2. It's lowered the minimum survivable poverty floor. That is, it's possible to survive being poorer than at any previous point in history.
As Clark puts it in his introduction, "There walk the earth now both the richest people who ever lived and the poorest."
Sample chapter online: http://assets.press.princeton.edu/chapters/s8461.pdf
https://archive.org/details/farewelltoalmsbr00clar/page/n9/m...
Is it really an error if what is observed is what was expected is what was desired?
Your mistake is you’re listening to what they’re saying rather than looking at what they’re doing.
Similar themes came up in Ronald Coase's appearance (at a stunningly-lucid 101 years old) on this 2012 episode of EconTalk: https://www.econtalk.org/coase-on-externalities-the-firm-and...
Plugging this as it's one of my favorite episodes of one of my favorite podcasts.
100-something Ronald Coase
Coase's argument was that "given 0 transaction costs," it doesn't matter who owns what property or right. The market will achieve efficient solutions as firms sell each other radio spectrum or whatnot. Policy should focus on minimizing transaction costs and let the market organize itself.
Circa 2005, I heard a podcast with 90-something Ronald Coase. He has pissed. Everyone had been teaching his theorem backwards for decades, backed with the "chalkboard economics" he despised.
What Coase actually meant is that (1) transaction costs tend to be high (2) this explains the clearly observable inefficiencies of such markets. Literally the opposite of what I was taught as "Coase Theorem."
He meant that because market are imperfect, it really matters what the starting position is. Trickle down economics is the same kind of error. If we are extremely confident that markets work the way efficiency-assuming models do... Trickle down makes sense. It doesn't really matter where the money starts, the market will deal with allocation efficiently. If not it does matter where the money starts.
In any case, the "wealth disparity" discussion is almost always badly anchored. The first thing to understand about wealth disparity is that it maps pretty much to wealth. More wealth, more wealth disparity... almost universally. Many or most people have no wealth, depending on your semantics of "wealth." Therefore, if the value/quantity of wealth rises, wealth disparity rises.
The actual equality dichotomy is ROIs vs labour/income.