I took a class from a famous economics professor who had emigrated from the former Soviet Union after its collapse. He made the point one day that there have always been rich and poor - and always will be. In America, the predominant distinction is capital wealth - dollars. In the USSR, it was political power; if you had political power, you had private planes, villas, and servants. At the end of the day, the inequality is always present.
Link: http://www.foreignaffairs.com/articles/141218/tyler-cowen/ca...
"It is wrong to say God made rich and poor; He made only male and female, and He gave them the earth for their inheritance." -- Thomas Paine, On Agrarian Justice
http://www.ssa.gov/history/paine4.html
The Social Security system Paine advocated was more targeted to 21 year olds and was designed to offer everyone opportunity at the height of their lives. While he also theorized keeping the elderly from poverty, it was not the core idea of his plan.
Yes, and Jesus said[1] "ye have the poor always with you."
Likewise, there will always be crime, and disease, and suffering.
But do you agree that extreme inequality is a bad outcome? That putting more and more wealth and power into the hands of fewer and fewer monopolists and oligopolists is toxic to democracy and freedom?
If so, then working to reduce extreme inequality is a noble cause just like reducing crime, disease and suffering is worthwhile.
Even if these maladies will always be with us.
Inequality has increased, but the net standard of living has increased as well. Objectively, everyone is better off. Of course, some people may feel poorer because now they see the mcmansion on the hill and wonder why they don't live in that level of luxury (which didn't even exist before).
Most economists seem to credit capitalism with the extreme advancements in quality of life, even for the poorest citizens, in first world economies. Sometimes the problem isn't inequality but envy and jealousy - I believe the Bible speaks to these two emotions as well.
It's also challenging to just look at consumption and assume everyone is the same. Consumption levels might be stable, but the lower income brackets may be taking on more debt to finance that consumption.
Additionally, as Pikketty points out, a lot of the spending/benefit gap between higher and lower incomes has emerged in categories like education and healthcare, which is not as easy to track by looking at people's houses or a consumption based standard of living.
So what did you do so special that you get a 5-fold increase in your living area and what did others do so wrong that they got a 2-fold increase only?
Sometimes the problem isn't inequality but envy and jealousy - I believe the Bible speaks to these two emotions as well.
The part that grinds on the human psyche is just a plain old sense of fairness and justice. Why muddy it up with religion?
Furthermore, relative gains matter because they say something an individual's economic standing in society. Your average person's quality of life might have improved significantly compared to a generation ago, but so has that of everyone else, with whom one is in economic competition. It's great than an iPad of 2014 is many, many times more powerful and costs less than a Mac of 1984, but having a Mac in 1984 gave you a significant economic edge, whereas owning an iPad today just means that you're not poor. Notwithstanding the enormous technical superiority of the current device, its economic utility depends on how well you can leverage it in today's economy, not of an earlier one where such a device would have been miraculous and allowed you to take over a small country.
I'm not a Christian anymore so I care less than I once would have, but your biblical interpretation is goofy. (It may still be common?) The context of that statement by Jesus was that he had just gotten a nice rubdown with an expensive oil, and people criticized the nice lady who gave him the rubdown for wasting money that could have been given to a soup kitchen. Jesus told them not to sweat it because he only had so much time left in which to receive rubdowns, while the homeless dudes weren't going anywhere. The very next sentence in the text says, "but you will not always have me."
We have seen again and again that policies, programs and revolutions aimed at "reducing inequality" succeed only in increasing the misery of all and especially the poor who suffer the most from any absolute declines.
Those who perpetrate such evil on mankind always seem take their failure well, resting easy on the nobility of their intentions. In their own minds, their moral rightness excuses their mathematical error. They believe output to be an independent variable, immune from effect by their policies. But far from immune, it is hypersensitive.
We have known for a very very long time that the type of order that causes the prosperity of mankind to shoot skyward, enriching all in absolute terms, can also, to our moral horror, enrich some more than others. Our graphs an charts usually fail to show that it also greatly increases mobility; hardly anyone stays poor across generations. The only thing that can keep people poor are programs designed to reduce inequality.
Of course, there are certain policies that do create inequalities which could be unwound without shrinking output. To name a couple: debasement of money by central banks, corporatism (cronyism + bailouts). These simply transfer wealth from poor to rich without creating any value.
The Bushes and Clintons did not derive political power from wealth. Likewise, their great political power does not bestow upon them great wealth (though they certainly are wealthy, they're not in the same universe of, say, Donald Sterling).
And those with wealth, such as the much discussed Koch brothers? Their influence on policy seems to be near zero. Bill Gates had his company dragged through the mud several times.
GWB's great grandfather was a wealthy industrialist that was business partners with one of the wealthiest people in the country, E.H. Harriman (Director of Union Pacific, Southern Pacific, and Wells Fargo). GWB's grandfather, Prescott, made his fortune as VP and Partner at Brown Brothers Harriman, a bank that eventually would employ Prescott's son George HW Bush, as well as Alan Greenspan and several other senators and cabinet members. BBH spun out a division that was ultimately Drexel Burnham Lambert -- the 5th largest I-Bank in the country until Michael Milken blew it up. HW Bush's maternal grandfather started an investment bank that was eventually sold to Merrill Lynch, and was also a director at Harriman brothers. HW's maternal grandfather was president of McCall's (publisher of Popular Mechanics, Redbook, and McCalls before selling them to Hearst).
George HW Bush's business career started at an oil equipment company, Dresser Industries a subsidiary of BBH, where his father had been Director for 20 years. Dresser formed a spin-out JV with Ingersol-Rand and still operates as Dresser-Rand (Mkt Cap: $4.5B). Dresser Industries would go on to be purchased by Halliburton via a Dick Cheney-negotiated deal for ~$8 billion. Some years later, HW Bush would co-found Zapata Petroleum Corporation (with a recently retired CIA agent) and Zapata Offshore (funded largely by Phillip Graham, the owner of WaPo), which he would lead until 1966. Zapata Petroleum became Pennzoil (worth an estimated $4.2B in 1998). Zapata Offshore would eventually rebrand as Harbinger Group (Mkt Cap: $2.4B).
Zapata has a great history if anyone's in the mood for some conspiracy theories: http://en.wikipedia.org/wiki/Harbinger_Group.
Tl;dr:
* Most of their SEC and disclosure records from the 1960's were accidentally destroyed just after HW Bush was appointed to be VP.
* Zapata owned off-shore rigs that served as bases of operations for anti-Castro missions
* The CIA's official codenames for the three boats used in the Bay of Pigs invasion were was actually 'Barbara', 'Houston', and 'Zapata'.
* Within 24 Hours of JFK's assassination, before he had ever ran for office, HW Bush is mentioned by name in a memo prepared by J. Edgar Hoover.
* Bill Liedtke, co-founder of Zapata Petroleum, and then-current Chairman of Pennzoil, personally flew nearly $1M of money laundered through a Mexican bank, to DC to beat the impending campaign finance disclosure midnight deadline on behalf of Richard Nixon. $89,000 of that money ended up in the bank account of one of the Watergate burglars.
George W. Bush, much like Donald Sterling, owned a Major Sports Franchise, though granted it was with an ownership group that only netted him tens of millions when it was sold. I'll ignore all the earlier failures GWB saw when he was backed by US and Saudi billionaires (William Draper, Lewis Leherman, Salem bin Laden, Khalid bin Mahfouz).
So I guess being scions to a family that's spawned multiple billion dollar businesses with activities in banking, venture capital, machinery, railroads, oil and gas, and airlines and being family friends with billionaies had nothing to do with their political power?
It lists $80MM for Clinton.
If the Koch brothers weren't getting a return on their political contributions, I highly doubt they would continue to do so. After the recession there was a big push for wall st regulation, higher taxes on the 1%, and increases in welfare program funding, and yet nothing meaningful came from it despite popular support. My guess is the Koch brothers consider that a success.
"...it's almost impossible to quantify whether the Koch brothers or Soros dominate this political realm. That said, both the Kochs and Soros have spent incredible riches in this area with no sign of stopping."
http://www.opensecrets.org/news/2010/09/opensecrets-battle--...
In the latter case that's pretty clearly true, at least as to their own wealth (as the Clintons weren't particularly wealthy independently of their political success), in the former case, not so much.
I don't agree that the Koch's influence on policy is near-zero, though nor do I think they have the entire GOP in their pocket as the Democrats like to imagine. They're not stupid, they expect a return on their political investment. I'm guessing they've done OK out of subsidies, if nothing else.
I don't mean to be partisan here, you couold say the same thing about various union groups.
Since inequality does not intrinsically harm anyone (unlike crime and disease), we can only evaluate the nobility of reducing inequality by it's consequences. So what, pray tell, are the intrinsically harmful consequences of inequality?
The definition of poverty also shifts ... in North America today everyone has a tv, and probably a computer, all of which could be considered luxury goods at points in the past - no one lives today like the poor of a hundred years ago, but we still have people who we consider poor, and who consider themselves poor.
But does it always need to grow without bound? Is it the same in all countries - and if not, why not? And how does welfare for the worst off change with different amounts of inequality?
The second is whether the conceptual idea of a global wealth tax would work even if we assume it could be implemented in the real world in such a way that there are no loopholes or favoritism. Let's also just assume the taxed wealth is somehow simply destroyed, to avoid the potential problem of favoritism in the way the government spends the tax revenue. In that case, it seems to me that it absolutely would reduce inequality. But I think the better question is whether reducing inequality itself is a good thing, because I think there would be other disastrous effects by this tax despite inequality being reduced.
Aside from him, no, I've literally seen not a single person defend the policy suggestion, even among reviewers who are otherwise completely positive on Capital in the 21st Century.
The main purpose of the tax is to track this wealth. When Piketty did research on the fortunes of the very wealthiest individuals, he had to rely on estimates from Forbes magazine, whose methodology is far from scientific. The idea is that with a better public understanding of where and how wealth is concentrated, we can formulate better policy.
I imagine Piketty would consider that a problem if he knew India existed.
If you want solutions for empowering those at the bottom, look to Bryan Caplan rather than Piketty.
http://econlog.econlib.org/archives/2014/05/meant_for_each.h...
Well, that's bullshit. I'm not endorsing Piketty, but you're making even less sense, unless there's a joke I've missed.
I do agree about unrestricted international immigration, such that there's a free flow of labor as well as capital. Unfortunately most people are mercantilist and opposed to the promulgation of global standards that would be required to make this work.
I'm not sure why you believe we need some sort of "global standards" for open borders to work. I'm undecided on the issue, but I can't see how "global standards" play a role.
http://en.wikipedia.org/wiki/List_of_countries_by_income_equ...
http://economix.blogs.nytimes.com/2011/01/31/the-haves-and-t...
Anyway, as far as open borders go, the primary argument against them is that everyone will flood into those countries which have the most favorable conditions for workers, not just in terms of pay but in terms of safety, contractual rights and so forth. You would certainly want some sort of receiprocal arrangement, such that if people from China want to immigrate to the US, US people should be equally free to live, work and invest in China. You don't need to harmonize everything of course, but it's an incredibly difficult sell politically if you don't have reciprocity, on top of being an incredibly difficult sell because of mercantilist and xenophobic tendencies in the receiving economies. I'm heartily in favor of open borders and free trade in general, but most people hate the idea - even Tea Party types who profess a general disbelief in governmental competence.
India is a perfectly good example, since it illustrates that a relatively smooth wealth distribution doesn't mean you get a flush toilet. The caste system is still here, though nowadays it's more a social problem than an economic one.
Your discussion of harmonization sounds like countries need to harmonize to avoid competing with each other. What's wrong with competition, and allowing the better countries to get more workers?
This is obtuse even by your standards, Chris. You could equally well argue that South Africa with a Gini of 63 is enormously economically empowered, but you're not guaranteed a flush toilet there either.
What's wrong with competition, and allowing the better countries to get more workers?
Try being a politician explaining that to economically dislocated domestic voters. Hell, look how bent out of shape people here get about immigration and the US only ranks 180th out of the world in population density. I don't think it's it's an economic necessity, but it's a political reality, unfortunately.
I'm arguing only that inequality is orthogonal to what we really care about: standard of living. But discussing standard of living is a political loser - poor Americans have a very high standard of living, and the historical story is one of more or less consistent improvements.
(If you disagree, try this thought experiment: name a good or service people at the bottom lack.)
As for political reality you are correct. The fact that a few million rich Americans are jealous of their richer neighbors will always seem more important to politicians than hundreds of millions of truly poor people who can't vote for them.
I have no idea why people keep saying this about Piketty. You know that he's written on India quite a lot, both in the book and seperately where India is the sole subject of his work, e.g.: http://piketty.pse.ens.fr/fichiers/public/BanerjeePiketty200... as well as China: http://piketty.pse.ens.fr/fichiers/public/PikettyQian2009_AE...
In the book, I recall him only saying that he has no 200 year long timeseries. If someone can hadoop a wordcount, I'll bet that the word "Balzac" appears more frequently than "China". Any book which purports to discuss inequality, yet somehow ignores the inequality between France and India, is almost comically myopic.
It's society deciding that we've already done everything worth doing, now it's time to destroy what has been built. Such irrational occurrences are not without historical precedent. Just hope you don't personally have to live through one.
ISTM that Piketty is reaching for a global wealth tax because he doesn't have anything in his economic modeling toolbox that would do the trick instead, so proposes reducing inequality by fiat. He's right about the problem, without having a good solution.
the problem is not the existence of inequality per se. I am fine with some inequality and consider it is natural for Pareto distributions to emerge in economics, just as in nature the existence of whales and elephants is not the result of a conspiracy against plankton or ants. Indeed, there are abundant examples of unequal distributions in nature, from the lengths of rivers to numbers themselves, ie Benford's law.
However, the distribution of capital is not an entirely natural process, and most people who think it is are handwaving simplistic economic models of perfect competition, infinitely substitutable goods, and so on, and forgetting that these perfect models only exist ceteris parabus, ie 'all other things being held equal.' In reality capital flows through a complex contractual, regulatory, and legislative economic environment that treats different participants differently, interferes with default supply and demand (often for perfectly good reasons), and which in turn can be influenced by the infusion of more capital through political lobbying or plain old corruption. What we often end up with instead of a 'free market' is a 'superstar economy' where capital flows increase disproportionately towards people in the top 1%* of the economy, resulting in much greater inequalities than we would expect in a Pareto model.
There's an excellent book on this trend ion the Entertainment industry called Blockbusters, written by Anita Elberse last year. Here's a salient excerpt taken from http://lefsetz.com/wordpress/index.php/archives/2013/10/16/t... (~1000 wrods, worth your time) with this particular bit pointing out that Chris Anderson's 'long tail' model doesn't seem to be panning out as he predicted or as a lot of digerati and creative types (including myself) hoped that it would:
The same patterns are visible in album sales. …out of a total of 870,000 albums that sold at least one copy in 2011, 13 album titles sold more than a million copies each, together accounting for 19 million copies sold. That’s 0.001 percent of all titles accounting for 7 percent of sales. The top 1,000 albums generated about half of all the sales, and the top 10,000 albums around 80 percent of sales. Deep in the tail, 513,000 titles or nearly 60 percent of the assortment, sold fewer than 10 copies each, together making up half a percent of total sales.
tl;dr while we expected a power-law distribution in economics because we're so used to them from nature, the way our economic system is actually calibrated results in a much more extreme distribution that almost disappears into the axes of the demand graph.
Now this sort of thing is a problem for a lot of creative types, because while we can all leverage the incredibly low marginal costs of digital distribution (hooray), there are often significant fixed costs too, and if you can't spread those out over a sufficiently large number of copies then You Are Fucked because you won't be able to get enough capital to pay those fixed costs.
On the positive side, this works out well for writers: writing is of course time-consuming, but since computers are so cheap these days and most people in the developed world have one anyway, the non-labor cost of producing a literary work is very low. So you can have a runaway hit like 50 Shades of Grey where the author typed up a bunch of sexual fantasies, released the result as an e-book (which turned out to be a great move because it's hard to tell what people are reading on a Kindle, compared to a peperback novel with a lurid cover), and made a fortune. For musicians, it's a bit different; some people are blessed with musical talent, others work hard at it as a craft. But then musical performance has to be recorded or brought to the public, and while that's far cheaper and easier than it used to be thanks to digital technologies, it's not free or super-easy and so you see a lot of people raising money from fans on Kickstarter to record albums or launch a tour (depending on whether the artists are better skilled/equipped to play live or record themselves). These artists need an extra capital infusion because launching a new musical product has some significant fixed costs which are otherwise tough to accumulate from normal operating revenues.
Then there's movies, the field I work in. This too has been affected by digital technology; in that there's no need to shoot on film any more thanks to digital cameras, and you can also do amazing special effects that would either not have been achievable with practical (physical) methods or which would have been prohibitively expensive. Yay digital. However, the cost of film and the inconvenience of film cameras are only a small part of a typical film budget. You still have to pay for things like actors, propers, locations, food, transport and so on, and where effects are concerned people's expectations of spectacle increase to match the processing power available, so the public wants ever more elaborate effects and ever-higher production quality (eg color-grading that requires a much greater degree of visual consistency through the whole film than used to be the case a few decades ago). So the cost of manufacturing a film product that meets normal commercial expectation is still in the hundreds of thousands, if you get lucky; if your business strategy is to sell it rather than hope for awards and then sell it, you need to spend at least $1 million, a sum which does not grow on trees.
(There are many famous instances of hit films being made on tiny shoestring budgets of only a few thousand $. And occasionally that happens, but: a) they're vanishingly rare; b) they usually take many years to produce; c) the actual cost to get into the theater is always far higher - the low number is what the producers had spent before a movie executive wrote a check to pay for commercial-quality post-production; and d) the shoestring film almost always involves a ton of freebies from friends/relatives/industry insiders. The odds of making a hit film for a few thousand are about as good as the odds of you outdoing Flappy Bird this weekend, ie virtually nil.)
Now getting back to economics, this is a problem for filmmakers because unless you start out rich or have good social capital, it's not that easy to get your hands on $1 million in the first place, and it's more difficult to do so when more and more consumer spending on tickets/DVDs/rentals goes towards blockbuster movies, as there are fewer unit sales over which you can average your fixed costs. This is not to suggest that the pie of consumer movie spending is completely fixed such that if someone who watches my film will necessarily skip yours; but the pie isn't infinite and (more to the point) the acceleration of revenue concentration around blockbusters is greater than the overall sales growth, so blockbusters get larger and larger shares of a slowly-increasing pie. The overall increase is not sufficient to maintain sales growth or even parity for less popular/populist offerings. B-movie film god Roger Corman summed up the problem succinctly here: http://blogs.wsj.com/speakeasy/2010/09/18/film-school-roger-...
What happens in practice is a race to the bottom; because it's increasingly hard to raise funding for a venture of uncertain commercial prospects as the demand tail shrinks and the (externally) perceived costs of production and distribution fall, that exerts downward pressure on wages as a factor of production for films that are not well-budgeted, such that the extremely bimodal distribution of film sales in reflected in wage scales. Rather than resulting in equilibrium (because goods in this market are not easily substitutable), it's far more likely that less successful participants will simply exit the market, which further exacerbates and accelerates concentration.
"Progressive" is orthogonal to "wealth"/"income". You could have a progressive wealth tax, where individuals with large amounts of wealth are taxed at a higher rate than individuals with smaller amounts of wealth. E.g., if a $10 million house was taxed at 10%, and a $100,000 house was taxed at 1%, that would be a progressive wealth tax. If all houses were taxed a flat $1000, regardless of their value, that would be a very regressive wealth tax.