Wealth Disparity - Causes and Cures

[Grinkle]

This topic came up in the Crypto thread, and to me its a broad topic that needs its own thread for discussion.

I think increasing income inequality and resulting wealth disparity is a big driver of nationalism in the US. I'll post more thought later, running short of time right now.

Below is a reference around US wealth disparity.

1. Trends in income and wealth inequality

Barely 10 years past the end of the Great Recession in 2009, the U.S. economy is doing well on several fronts. The labor market is on a job-creating

www.pewresearch.org

 

[gleem]

A rough measure of wealth inequality is the GINI Index/coefficient, where 0 is perfect equality, i.e., everybody has the same wealth, and 1 is where all the wealth is in the hands of one person. The US index is 0.413. The Gini Index for Europe is scattered about 0.30, while South America and the southern part of Africa are greater than 0.40, with Colombia being 0.548 and South Africa being .63 are the highest.

While income increases do not seem especially different, the wealth increases are more dramatic. I think it shows what more disposable income does to increase wealth.

 

[dlu]

1971 - international gold standard for trade elimination. Money based on fiat system
1973 - exchange rate no longer tied to gold

It's an argument supported by some economists and think tanks.
With enfettered money printing, a boost to the economy.
But with inflation, and trickle down theory, once the average Joe gets access to some of the money, it's value has deteriorated to be of less value that what the 1% could enjoy.

 

[Grinkle]

An interesting snip from the Pew Research link above. There are at least two narratives for this, I don't know if either is accurate or if they can both be partially true.

1. Income inequality is even worse than the government reports, a lot worse (.6 vs .42).
2. The US already has very impactful policies in place to alleviate income inequality, and they are working as evidenced by what the number would be without these policies.

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The Congressional Budget Office (CBO) offers an alternative estimate of income inequality that accounts for federal taxes and a more comprehensive array of cash transfers and in-kind services than is possible with Current Population Survey data. The CBO finds that the Gini coefficient in the U.S. in 2016 ranged from 0.595, before accounting for any forms of taxes and transfers, to 0.423, after a full accounting of taxes and transfers.
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I believe (I can be argued out of this, I don't have a lot of conviction on this topic, it seems very complicated) that the only way to reduce wealth disparity is through direct wealth re-distribution. I don't think attacking inflation will change the distribution very much.

Examples of wealth re-distribution -

1. Funding need-based public services via property taxation (the only broad wealth tax currently in place in the US)
2. Minimum wage regulation
3. Funding need-based public services via asset taxes other than property taxes (afaik there is none of this in the US right now)
4. A universal income funded by income tax revenues (in the US this would mean increasing upper income tax brackets and probably require asset taxes or consumption taxes in addition, since many wealthy folks can borrow money to fund their lifestyle and not have much income to tax).

I can't think of a set of indirect policies that I believe would accomplish more even wealth distribution in the US - its seems to me that you simply have to directly re-distribute wealth, if that is to be a social goal.

I'd be very interested to find out I am overlooking things - either things done in other countries or things that might be tried and haven't yet.

 

[placebo]

It's an argument supported by some economists and think tanks.
With enfettered money printing, a boost to the economy.
But with inflation, and trickle down theory, once the average Joe gets access to some of the money, it's value has deteriorated to be of less value that what the 1% could enjoy.

What are you referring to by "it"?

4. A universal income funded by income tax revenues (in the US this would mean increasing upper income tax brackets and probably require asset taxes or consumption taxes in addition, since many wealthy folks can borrow money to fund their lifestyle and not have much income to tax).

I'd like to see Universal Basic Income (UBI) given more consideration, but when I mentioned the idea to friends, they—even the self-described socialist—have this knee-jerk reaction to oppose it. There's this deep-seated sentiment in America that people shouldn't get money they haven't earned. And they're worried that people will spend the money in ways they don't approve of. It's a little weird because UBI is pretty much what social security is to retired people, and they all support that.

 

[Grinkle]

I also think UBI is an intriguing idea.

Andrew Yang helped that conversation get some traction - to me it seems a very promising approach if one of the goals of more equal income distribution is to give all citizens a reason to care about the economic robustness of their society. We have too many citizens in the US who believe they have little or nothing to lose if our system of government is dismantled.

I like the reference to Social Security - retired people are certainly the most politically engaged voting demographic in the US, IMO because of their correct perception that Social Security matters and they need to be engaged to advocate for it.

 

[dlu]

What are you referring to by "it"?

First it is the elimination of gold standard had an effect on the income disparity.
The second it is the value of money decreases due to inflation, with trickle down to the masses over time, the masses enjoy less value than the more rich - ie expanding the money supply, it is thought the richer get first access.

I am not sure if the theory is valid, but something did happen around the 1970's.

 

[Grinkle]

something did happen around the 1970's.

Eliminating the gold standard enabled a lot of economic growth, and most of that wealth went to people who had the means to invest - the rich got richer, I'd be surprised if anyone argues otherwise.

I don't know if its constructive though, so say that going off the gold standard was a cause of increased income disparity because its possible to put policies in place to alleviate income / wealth disparity in a rapidly growing economy. The growing economy itself imo should not be seen as the root problem.

with trickle down to the masses over time

I agree trickle down as a default policy has shown itself to be inadequate to the task of maintaining an optimal or reasonable balance of income distribution in the US since the 70's.

Ask me what optimal is and all I can say is that what we have now is too top heavy, I'm not sure how to come up with some target distribution that would be acceptable to enough people to make it politcally viable.

 

[dlu]

There's this deep-seated sentiment in America that people shouldn't get money they haven't earned.

As a child you are on UBI, and in old age you are on UBI, in both cases of some sort.
It is during your working years that one, being able bodied, is expected to carry their own weight financially.
The right of passage into adulthood and to do something with your life for most societies.
These end of life UBI's have extended in years though the ages from kids working in coal mines , or whatever they did before that, and working til you drop - to spending early years getting an education or learning a trade, to the concept of freedom 55 so as to 'enjoy' later life.

UBI is not at all that alien a concept, and is accepted for the edges of life, and as a carry over of a tide of unusual difficult temporary conditions, but frowned upon as a permanent solution during the working years. With AI coming more on line, it may be the only solution if AI does what it is said to do, which is to eliminate all jobs.

----------------
So capital gains and investment income is OK with the socialists? Just wondering, as that income is not gained through ones own present-day work. Some got lucky (Bitcoin ), invested wisely( as we all hope ), or did the initial hard work (Musk ).

Some thought is given to stay at home moms, as Oprah would say, "doing the hardest job in the world", which is debatable. Still day care workers get paid.
More babies are wanted to raise the birth rate to sustainable levels, and encouraged in some ways.
The children are the upcoming new generation for society to continue.
Should being a mom be a valid career?

Just putting out some of the discourse around the topic of UBI.

 

[dlu]

Examples of wealth re-distribution -

Probably not a viable concept but it should, could be, with the reasoning that one comes into this world naked without possessions and should leave in the same way.
Hereditary 99% tax so as to not have offspring acquire extreme accumulated wealth that they did not earn directly through their own means. Mom and/or pop will have to dispose of their wealth to the IRS, charity, or suitable agent of finance so as to benefit all of society rather than only chosen few through blood lines. One will accumulate wealth and be admired for the contribution to society.
Do as Bill Gates and dispose of assets, prior to, or upon last will and testament.

What got me on this was recalling that a couple of weeks ago, one of Musk's baby mommas was complaining that he was not giving her enough to raise his child. The poor lass. Not remembering if it was 500G a year, or 500G a month. He, like Gates, is disposing his wealth by sharing with others. ( even if blood line, with kid but not the baby momma, only the kid, so I am extrapolating here in not quite an honest manner ).

 

[gleem]

This is a better breakdown of household incomes. Every bar is a $5k increment. Note that the final bar is for 14.4% of the households.


https://i.redd.it/xk2ht5v8t83e1.png

 

[Grinkle]

This chart sort of crys out for a negative income tax instead of a UBI. Just for discussion and simple math, 1k per month for every household means little to the top 20%, and 2k per month instead of 1k per month means a whole lot to the bottom 20%. A negative income tax is more targetted than a UBI.

 

[Grinkle]

Probably not a viable concept

Liquidation might be an issue with this concept. Sometimes transfer of ownership can destroy value - say a family owned farm that gets transferred to the IRS, a made up example that would benefit no one, I think.

 

[Spathi]

For those who are interested in this topic, I can suggest this blog at Medium:



The author attributes the growth of inequality to the fact that Reagan lowered taxes for the rich in the 80s. The inequality can be measured as the percentage of the property in the world which belongs to the richest 1% of population.
The author also writes that the mainstream Western media is silent about this problem or is lying. This is evident with CNN and Fox News (especially CNN). And this can be explained simply — these 1% of the richest are interested in such a state of affairs, and they control these media.
p.s. Is my link above working? If not, you can google the article at medium.com with keywords "real reason the american middle class is disappearing".

 

[dlu]

Stated in the article
Note that from the 1940’s until the 1970’s the tax rate on large inheritances was nearly 80%, explaining, in part, why the middle class grew, and also showing that large “death taxes” have been an important part of a strong capitalism in America in the past. These certainly should be reinstated.

Sounds similar to my post #10, n'est pas?

 

[OmCheeto]

For those who are interested in this topic, I can suggest this blog at Medium:



The author attributes the growth of inequality to the fact that Reagan lowered taxes for the rich in the 80s. The inequality can be measured as the percentage of the property in the world which belongs to the richest 1% of population.
The author also writes that the mainstream Western media is silent about this problem or is lying. This is evident with CNN and Fox News (especially CNN). And this can be explained simply — these 1% of the richest are interested in such a state of affairs, and they control these media.
p.s. Is my link above working? If not, you can google the article at medium.com with keywords "real reason the american middle class is disappearing".

Not laughing at you. I'm laughing with you.
The Hollywoodisationism of politics is a big problem.
Not sure why it caught on, nor why it's still here.

hmmmm....