News How Accurately Do Income and Wealth Statistics Reflect Reality?

[Vanadium 50]

I've read a lot of posts, and think it might be helpful to point out some facts that I think would help clarify people's arguments.

1. Income is not wealth. Using one as a proxy for the other is like using velocity as a proxy for position. A small disparity in income, acting over time, becomes a much larger disparity in wealth.

2. Demographics matters. Over the course of a lifetime, people's income and wealth changes. Typically, income rises slowly and wealth less slowly over one's career, peaking just before retirement. At that point, income drops substantially and wealth decreases more slowly. Statistics that are not age-corrected can be highly misleading.

Because of this, a plot of an income percentile (or quartile etc.) does not track a given cohort of people. People move into and out of that percentile. This is even more true for wealth than income. Statements like "such and such percentile gained/lost such and such" do not tell you anything at all about what is happening to individuals. This is even more true for wealth than income.

Additionally, there has been an increase in the number of illegal immigrants to the US. Illegal immigrants make up about 7% of the population (according to the Bear Stearns remittances study), up from about 1.5% fifteen years ago. Today this group makes up a large chunk of the bottom decile in both wealth and income; that was much less true in the past. Any study needs to clearly state how this was treated for it to be interpreted.

3. Accounting is important. Perhaps this is best illustrated by example. Bob taught in the public school system and has just retired. He has a $40,000 a year pension. Joe taught at a private school system and has just retired. His 401(K) is returning $40,000 a year to him. Otherwise they have the same assets. Who is richer?

In most studies, Joe would be considered about a million dollars richer than Bob, even though their standards of living are identical. This is solely due to how we usually calculate wealth - we include defined contribution plans and exclude defined benefit plans. As the fraction of people with defined contributions plans instead of defined benefits plans rises, the calculated wealth disparity will rise, even if the standard of living disparity stays the same.

I hope people will take this into account, and will use this to make arguments like scientists, and not like cheerleaders for their favorite team.

 

[WhoWee]

3. Accounting is important. Perhaps this is best illustrated by example. Bob taught in the public school system and has just retired. He has a $40,000 a year pension. Joe taught at a private school system and has just retired. His 401(K) is returning $40,000 a year to him. Otherwise they have the same assets. Who is richer?

In most studies, Joe would be considered about a million dollars richer than Bob, even though their standards of living are identical. This is solely due to how we usually calculate wealth - we include defined contribution plans and exclude defined benefit plans. As the fraction of people with defined contributions plans instead of defined benefits plans rises, the calculated wealth disparity will rise, even if the standard of living disparity stays the same.

I hope people will take this into account, and will use this to make arguments like scientists, and not like cheerleaders for their favorite team.

I'm glad you posted this illustration. Please consider the person who works for minimum wage and progresses to an annual income of $40,000 - but will rely on SS for retirement. Next consider the person who works just a few hours per week, has a lifelong housing subsidy under Section 8, along with food stamps, Medicaid, EITC, Make Work Pay, other child credits (possibly SSDI) - then retires on Social Security (albeit based on the min income contributions) but retains other benefits.

If paid from private investments, it would take a tremendous amount of assets to provide the benefits received by the welfare person over a lifetime. The cradle to grave welfare person is comparable to a lottery winner.

The person that works at minimum wage from the ground up and can't afford to save - retires on funds contributed through payroll deductions over time. Given the drain on the SS system due to expansion and an aging population - those funds may not be available at the levels the worker had hoped.

I say the welfare recipient is richer than the working person - and there's greater job security.

 

[russ_watters]

Those are issues with the stats themselves. Of equal concern to me is the common implication that wealth inequality is a measure of/proxy for poverty. This comes largely from the fallacy that wealth is a zero sum game: "the rich get richer while the poor get poorer."

 

[John Creighto]

I've read a lot of posts, and think it might be helpful to point out some facts that I think would help clarify people's arguments.

1. Income is not wealth. Using one as a proxy for the other is like using velocity as a proxy for position. A small disparity in income, acting over time, becomes a much larger disparity in wealth.

True but surely some people in that 99% have the resources to save. Consequently wealth disparity would still give some measure of inequality. Of course both income and wealth statistics should be use to get a complete picture.

2. Demographics matters. Over the course of a lifetime, people's income and wealth changes. Typically, income rises slowly and wealth less slowly over one's career, peaking just before retirement. At that point, income drops substantially and wealth decreases more slowly. Statistics that are not age-corrected can be highly misleading.

I agree. Perhaps the statistics should be divided up into age groups of 5-10 years. For income, this could be 20-30,30-35,35-40,40-50,50-60,60+. For wealth the 20-30 group is largely irrelevant. Still, it is convenient to be able to communicate the overall picture with just a few numbers. We could average the statics for each age bin and then this should give a number which should be independent of age demographics.

Because of this, a plot of an income percentile (or quartile etc.) does not track a given cohort of people. People move into and out of that percentile. This is even more true for wealth than income. Statements like "such and such percentile gained/lost such and such" do not tell you anything at all about what is happening to individuals. This is even more true for wealth than income.

Please explain more.

Additionally, there has been an increase in the number of illegal immigrants to the US. Illegal immigrants make up about 7% of the population (according to the Bear Stearns remittances study), up from about 1.5% fifteen years ago. Today this group makes up a large chunk of the bottom decile in both wealth and income; that was much less true in the past. Any study needs to clearly state how this was treated for it to be interpreted.

So, If we remove the bottom decile from the statistics does this significantly change the results?

3. Accounting is important. Perhaps this is best illustrated by example. Bob taught in the public school system and has just retired. He has a $40,000 a year pension. Joe taught at a private school system and has just retired. His 401(K) is returning $40,000 a year to him. Otherwise they have the same assets. Who is richer?

I agree. Of course we can't count all social services as income someone receives. Someone young benefits little from Medicare. Someone on welfare might not consider it much benefit to have to see a social worker or do a drug test to get their welfare dollars. Housing certainly should be counted as income. If Medicare is counted as income it should be age adjusted. Social security is paid for via pay roll taxes, so only what is in excess of these fees should be counted as additional income. I'm curious what studies you think do a good job adjusting for these accounting concerns and how different the results are.

I hope people will take this into account, and will use this to make arguments like scientists, and not like cheerleaders for their favorite team.

If you want people here to do this then you should show them where they could find the raw data and evaluate their code to analyze the data. My understanding is that these forms do not let the posters do their own interpretation/analyses of the raw data.

 

[mheslep]

2. Demographics matters. ... People move into and out of that percentile. ...

We commonly see PF posts stating the opposite is mostly the case, that except for the higher income groups most people are stuck where they start. Long term data demonstrates instead what you state here, individual incomes are mobile in all groups, especially at the bottom. Caveat: for those that are unemployed, and at the moment in the US there are many, the usual methods for increasing income are blocked.

 

[Vanadium 50]

In 2006, these are the figures:

Age Median Income
15-24 $31K
25-34 $50K
35-44 $60K
45-54 $65K
55-64 $55K
65+ $28K

Age Median Net Worth
20-29 $8K
30-39 $44K
40-49 $118K
50-59 $182K
60-69 $209K

 

[John Creighto]

We commonly see PF posts stating the opposite is mostly the case, that except for the higher income groups most people are stuck where they start. Long term data demonstrates instead what you state here, individual incomes are mobile in all groups, especially at the bottom. Caveat: for those that are unemployed, and at the moment in the US there are many, the usual methods for increasing income are blocked.

I think people are saying their is less social mobility. For instance while a University Graduate may get a higher salary they will have to pay off their student debt, wait until their are older to start earning money and will be later owning a house.

Now as for trying to be scientific about it, what statistics do you think best measure social mobility.

 

[John Creighto]

In 2006, these are the figures:

Age Median Income
15-24 $31K
25-34 $50K
35-44 $60K
45-54 $65K
55-64 $55K
65+ $28K

Age Median Net Worth
20-29 $8K
30-39 $44K
40-49 $118K
50-59 $182K
60-69 $209K

Do you have a source that gives this over several years? How would you suggest adjusting this for inflation. Shouldn't each demographic see a different rate of inflation?

 

[mege]

Do you have a source that gives this over several years? How would you suggest adjusting this for inflation. Shouldn't each demographic see a different rate of inflation?

Why would each group see a different rate of inflation?

I would like to think that $.79 buys a candy bar now (or $.59 15 years ago) if I'm 29 or 59. Age shouldn't matter.

 

[chiro]

I've read a lot of posts, and think it might be helpful to point out some facts that I think would help clarify people's arguments.

1. Income is not wealth. Using one as a proxy for the other is like using velocity as a proxy for position. A small disparity in income, acting over time, becomes a much larger disparity in wealth.

Absolutely agree, but in saying this what is your definition of wealth?

To me a definition of wealth means real ownership of resources. It could be a house, a factory, a business, an IP portfolio or some other resource (even land for example).

Of course one would have to clearly define the kinds of resources explicitly, but I think a rule of thumb would be assets that generate some kind of income or something similar.

3. Accounting is important. Perhaps this is best illustrated by example. Bob taught in the public school system and has just retired. He has a $40,000 a year pension. Joe taught at a private school system and has just retired. His 401(K) is returning $40,000 a year to him. Otherwise they have the same assets. Who is richer?

In most studies, Joe would be considered about a million dollars richer than Bob, even though their standards of living are identical. This is solely due to how we usually calculate wealth - we include defined contribution plans and exclude defined benefit plans. As the fraction of people with defined contributions plans instead of defined benefits plans rises, the calculated wealth disparity will rise, even if the standard of living disparity stays the same.

I hope people will take this into account, and will use this to make arguments like scientists, and not like cheerleaders for their favorite team.

Wealth does have a correlation to living standards but they aren't completely correlated.

Also value is a very weird thing. It depends on who is doing the valuation since one group could overvalue (making some people happy) and some could undervalue. The idea of some equilibrium being met in a supply-demand free market situation can sound nice, but this isn't always the situation (i.e. there can be interference in the market that causes things to be undervalued or overvalued), so you need to be careful about using some valuation statistics.

Again with the definition of wealth above, if you wanted to talk about standards of living you would need to incorporate purchasing power in addition to objects of wealth (i.e. resources that are owned and generate real income).

But yeah I do agree with your sentiments about the arguments, but the whole point of these arguments (in my view anyway) should be for everyone to learn a thing or two about something that they don't really know anyway, and even people that do try to be scientific about it as much as they can, still have a thing to learn from people who may not consider themselves scientific, but none-the-less have some solid experience and good points to bring to the table.

Not everything is a controlled experiment especially in something like economics and quite frankly I want to hear people with a lot of different backgrounds whether they are business people, employees, or otherwise because these people have a lot to bring to the table despite not considering themselves as a "scientist".

 

[LaurieAG]

Those are issues with the stats themselves. Of equal concern to me is the common implication that wealth inequality is a measure of/proxy for poverty."

The attached international statistics are from a NYT article.

 

[russ_watters]

How would you suggest adjusting this for inflation. Shouldn't each demographic see a different rate of inflation?

You wouldn't adjust it for inflation: it is a single snapshot in time.

 

[russ_watters]

The attached international statistics are from a NYT article.

Ok...what is your reason for posting them?

[edit] Meh...

I'm going to go out on a limb and assume you posted that to show a positive corellation between income inequality and poverty, contradicting my post. I'm going to go further out on that limb and assume that you weren't aware that the OECD measures poverty using income inequality. So the data you posted is an example of, not a rebuttal of, the problem I was describing.

The thing is, it has been my perception that gun to their heads, most people will acknowledge an acceptance of the dictionary definition of "poverty", which is a lack of basic needs. From the OECD website:

"Poverty line: An income level that is considered minimally sufficient to sustain a family in terms of food, housing, clothing, medical needs, and so on."

But (again, in my perception) this definition conflicts with the ideological desire for fairness through equality of outcome that we've discussed in multiple threads on PF lately and is common in Western society today: Because wealth and income are not zero sum games, you can have both high income inequality and low poverty (or vice versa). This causes some people to stray from the definition of "poverty" that nearly everyone accepts and instead utilize a measure of poverty that attempts to anchor the definition to their ideology.

I've seen a lot from the OECD that bothers me, where it appears the organization allows an ideology to influence them to try to force the data to connect their favored ideology to their stated goal.

 

[AlephZero]

Why would each group see a different rate of inflation?

I would like to think that $.79 buys a candy bar now (or $.59 15 years ago) if I'm 29 or 59. Age shouldn't matter.

Sure, the candy bars cost the same for everybody, but your total purchases over a year will show a very different pattern for a 30 year old and a 60 year old. Obvious exaamples: Many 30 years olds will be spending a lot of money on raising their kids. Most 60 year olds will not (except perhaps buying the occasional candy bar for their grandkids). A 30 year old commuting long distances to work will spend much more on fuel and transport than 70 year old retirees. Etc, etc...

 

[John Creighto]

You wouldn't adjust it for inflation: it is a single snapshot in time.

You missed my point. I was saying that if we are going to break down wealth inequality per demographic then we should break down inflation per demographic so the inflation rate used for each demographic represents on average the inflation rate they actually see.

I discussed the fact that not everyone sees the same rate of inflation in a previous thread:
https://www.physicsforums.com/showthread.php?t=544676

Older people will already own a house so to them housing inflation is not as much of an issue as it is to younger people. Poor people spend a much greater percentage of their income on food and housing so changes in housing prices will have a much large impact on lower income earners then higher income earners.

Ok...what is your reason for posting them?
"Poverty line: An income level that is considered minimally sufficient to sustain a family in terms of food, housing, clothing, medical needs, and so on."

Most people will agree on this but the question is should it be sufficient income to sustain a family or a single individual. If people are dependent on others to live, individuals will have considerably less freedom, dignity and there will be much greater rates of abuse. If only enough income is provided to sustain a family then what size of family should we try to make sustainable? To what extent should the government subsidize peoples choices to have families and how does this affect people that wait until they can afford to have a family.

As for food, should they be happy with a high carb/fat diet, or should they be allowed meet which is better for you like say grass fed beef and be able to afford vegetables high in nutrients that is pesticide free? To what extent should they be able to buy pre packaged meals or should they have to make everything from scratch?

 

[D H]

You wouldn't adjust it for inflation: it is a single snapshot in time.

Sure you could/would. That inflation is a part of the wealth picture (inflation is a cancer that eats into the wealth picture) is one of the justifications for taxing capital gains at a lesser rate than ordinary income.

 

[ParticleGrl]

I'm going to go further out on that limb and assume that you weren't aware that the OECD measures poverty using income inequality.

The OECD measures poverty using INCOME, not income inequality. Its logically possible to have a high-income gini coefficient society with everyone is above a poverty line.

The thing is, it has been my perception that gun to their heads, most people will acknowledge an acceptance of the dictionary definition of "poverty", which is a lack of basic needs. From the OECD website:

"Poverty line: An income level that is considered minimally sufficient to sustain a family in terms of food, housing, clothing, medical needs, and so on."

I'm not sure the OECD definition is very different from your definition. Certainly I consider food, shelter, clothing and medical 'basic needs'?

Obviously, using an income level is a proxy for counting those families who cannot afford food,housing,clothing,etc, but I don't see a cheap way to collect that sort of data without using income as a proxy.

But (again, in my perception) this definition conflicts with the ideological desire for fairness through equality of outcome...

This statement is the real reason I've responded to this post. I think the phrase "equality of outcome" (and its bastard brother "equality of opportunity") is a straw-man that no one thinks is desirable.

I have no real intuition for this either way- but do the more conservative members of this forum TRULY believe that liberals/progressives/more leftish people truly want everyone to have the same outcome? Because if this is the case, we have serious and fundamental miscommunications.

 

[russ_watters]

Sure you could/would. That inflation is a part of the wealth picture (inflation is a cancer that eats into the wealth picture) is one of the justifications for taxing capital gains at a lesser rate than ordinary income.

I'm aware that inflation is a problem in general, but I'm still not even seeing where one would put an inflation adjustment in a single-point-in-time snapshot. The income data, as it was posted, says something very important to me:

Age Median Income
15-24 $31K
25-34 $50K
35-44 $60K
45-54 $65K
55-64 $55K
65+ $28K

This says that if I were a typical 22-year old, and the US economy held status quo (flat unemployment rate, just enough growth to counter population growth, etc.) I should expect to see annual 5% over inflation raises for the next 10 years or so, which will increase my annual before tax earnings by a net 61%.

Could you tell me, specifically, where you would apply an inflation adjustment and what it might tell us?

 

[russ_watters]

You missed my point. I was saying that if we are going to break down wealth inequality per demographic then we should break down inflation per demographic so the inflation rate used for each demographic represents on average the inflation rate they actually see.

I'm just not clear on why that matters or how you could apply that to the numbers given. If the first bracket makes $31k now and the second bracket makes $50k now, it should not be seen to imply that in 10 years the second bracket (those formerly in the first bracket) will still be making $50k.

I discussed the fact that not everyone sees the same rate of inflation in a previous thread:
https://www.physicsforums.com/showthread.php?t=544676

I think that's the wrong thread...

Older people will already own a house so to them housing inflation is not as much of an issue as it is to younger people. Poor people spend a much greater percentage of their income on food and housing so changes in housing prices will have a much large impact on lower income earners then higher income earners.

That's fine, but I really don't see how it applies to the age-dependent income data.

 

[WhoWee]

I have no real intuition for this either way- but do the more conservative members of this forum TRULY believe that liberals/progressives/more leftish people truly want everyone to have the same outcome? Because if this is the case, we have serious and fundamental miscommunications.

I think the outcome desired by the progressives is permanent political power. Accordingly, they're willing to spend whatever it takes to achieve control.

As an unrepresented independent conservative small businessperson - I favor the checks and balances of a two party system but would like to see the emergence of a third party. I hoped at one point the TEA Party would evolve into a Party of small business owners, managers, and professionals - but the media (IMO) made certain that did not happen.

 

[russ_watters]

The OECD measures poverty using INCOME, not income inequality. Its logically possible to have a high-income gini coefficient society with everyone is above a poverty line.

Could you source that please? When I noticed the poverty rate provided for the US in Laurie's link was much higher than the US gov't reports, I googled and found this:

The main poverty line used in the OECD and the European Union is based on "economic distance", a level of income set at 60% of the median household income.[21]

http://en.wikipedia.org/wiki/Poverty

That may also be some sloppy wording on my part, as that isn't gini per se, but something related --- still, that doesn't seem to match what you said.

I'm not sure the OECD definition is very different from your definition. Certainly I consider food, shelter, clothing and medical 'basic needs'?

You misread: I'm saying their definition doesn't match their measurement. But until we get the measurement clarified, that might be moot...

Obviously, using an income level is a proxy for counting those families who cannot afford food,housing,clothing,etc, but I don't see a cheap way to collect that sort of data without using income as a proxy.

Clearly, but I also don't think it would be all that difficult to use surveys of those actual quality of life items. But then, if we did a survey for lack of food, lack of housing and lack of clothing, we'd get virtually zero poverty in every developed nation and I don't think that that's a desirable result.

This statement is the real reason I've responded to this post. I think the phrase "equality of outcome" (and its bastard brother "equality of opportunity") is a straw-man that no one thinks is desirable.

I strongly disagree. I think that while there is often some obfuscation, there is no other reasonable way to characterize forced redistribution of resources than "equality of outcome".

I have no real intuition for this either way- but do the more conservative members of this forum TRULY believe that liberals/progressives/more leftish people truly want everyone to have the same outcome? Because if this is the case, we have serious and fundamental miscommunications.

Not exactly equal, no, just more equal (with rarely a definition of how equal). If you thought I meant that "equality of outcome" was intended to be complete, that's not what I intended to convey.

 

[mheslep]

From the source referenced in the Wiki article on poverty measurement. Russ is correct:

Within the EU poverty is normally measured by using relative income poverty lines. This involves working out average or median equivalised household incomes in a country. A poverty line is then set which is a percentage of that average income. Commonly these poverty lines range from 40-70% of household income.

http://www.poverty.org.uk/summary/eapn.shtml

To my mind such a measurement would be better defined as the "social engineering line", or the "envy line", with only a vague correlation with poverty.

 

[Vanadium 50]

Now as for trying to be scientific about it, what statistics do you think best measure social mobility.

I don't know the right answer; just that an uncorrected income or wealth percentile is not it.

The attached international statistics are from a NYT article.

Interestingly, they use dollars spent as a proxy for educational quality. Since we have statistics for educational outcomes, wouldn't that have made more sense? (Not that the US does particularly well there either, but at least that directly measures what they want to know)

 

[mheslep]

The correlation is worse yet: the NY Times table uses percent of GDP dollars spent.

 

[Vanadium 50]

"Economic distance" seems like an interesting statistic, but it seems odd to equate it with poverty:

In the Republic of Upper Slobovia, 20% of the people make 59,000 euros a year, 60% make 100,000, and 20% make 125,000. The median is therefore 100,000 euros and 20% are "below the poverty line".

In the People's Democratic Republic of Lower Slobovia, the 1% party elite make 1,000,000 euros a year, and the other 99% make 1000 euros a year. According to this metric, nobody is "below the poverty line."

This metric is interesting, but seems not really related to its name.

 

[russ_watters]

From the source referenced in the Wiki article on poverty measurement. Russ is correct:http://www.poverty.org.uk/summary/eapn.shtml

To my mind such a measurement would be better defined as the "social engineering line", or the "envy line", with only a vague correlation with poverty.

Please note: I think it is perfectly fine to have a desired minimum standard of living in a country and to name it and have statistics measuring and tracking it (I'd call it "minimum acceptable standard of living"). But to reiterate: it is just a misuse of the word "poverty" to use that name to describe it if neither the goal nor the measure bear any resemblance to the definition of "poverty". Heck, the EU measure isn't even tied to standard of living at all!

 

[John Creighto]

I'm aware that inflation is a problem in general, but I'm still not even seeing where one would put an inflation adjustment in a single-point-in-time snapshot. The income data, as it was posted, says something very important to me:

Age Median Income
15-24 $31K
25-34 $50K
35-44 $60K
45-54 $65K
55-64 $55K
65+ $28K

This says that if I were a typical 22-year old, and the US economy held status quo (flat unemployment rate, just enough growth to counter population growth, etc.) I should expect to see annual 5% over inflation raises for the next 10 years or so, which will increase my annual before tax earnings by a net 61%.

Could you tell me, specifically, where you would apply an inflation adjustment and what it might tell us?

I guess I missed the point you were trying to make. If we are trying to answer if things are better or worse then they were in the past then we do need to include other points in time and thus would have to account for inflation somehow.

You can argue that you can conclude from a single snapshot in time of the income or wealth averages that there is an economic progression with age. However, for this to tell the complete picture, you would need to establish some constraints. An example of such a constraint would if both of the following conditions hold:
1)The income ratio differences between age groups remains relatively constant with time. 2)For some age group the income/wealth remains relatively constant with time when adjusting for inflation.

One might alternatively look at second order statistics like the average percentage income gain someone made over 10 years in each age group and see how this changes with time.

Now with regards to social mobility perhaps some kind of measure similar to diffusion could be used.What is the probability of an individual making a given percentile change in their income or wealth in a given period of time. This would sort of be analogous to thermodynamic mixing. In cases were very few people hold most of the wealth the distance measure could be based on the integration of wealth/income share instead of population share.

 

[apeiron]

I strongly disagree. I think that while there is often some obfuscation, there is no other reasonable way to characterize forced redistribution of resources than "equality of outcome".

Like ParticleGrl says, the strawman of "equality of outcome" is one you frequently use. But can you point to a single post about inequality measures where that has been the actual stated goal of a poster?

Many may like to see more equality. But they would still accept that there has to be a balance between incentivising people and promoting social cohesion.

 

[russ_watters]

Like ParticleGrl says, the strawman of "equality of outcome" is one you frequently use. But can you point to a single post about inequality measures where that has been the actual stated goal of a poster?

Many may like to see more equality. But they would still accept that there has to be a balance between incentivising people and promoting social cohesion.

Your second paragraph contradicts your first, probably because you didn't read my post properly and are assuming I must be seeing people argue for absolute equality, which I just said I'm not. I'm seeing people argue for - as you just said - more equality. And they want that equality to be created by force of government. And they want that equality to be in the form of living conditions, financial resources, etc: the outcomes of our efforts in life. Put those words in bold together and you get forced [more] equality of outcome.

This is just too basic for me to readily believe you guys are misunderstanding that badly.

[Edit] What is difficult to pin down for you guys is exactly how much equality you want to force. But we have some hints:

-In one recent thread, the OP advocated a 95% top marginal tax rate.
-In another, based on a botched survey, the OP advocated a wealth distribution that equalled Sweden's income distribution(see V50's #1...) and argued that most Americans want that.
-Not hot lately, but we've also discussed affirmative action, whic is forced complete equality.

Now income is a proxy for virtually every standard of living issue, from food and clothes to what kind of car you drive. As I said, it is tough to pin down, but it seems a number of people in your camp want income or wealth inequality forced down by half or even much more.

But in other specific areas - expanding areas - people do actually argue for forced complete equality. Recent discussions have included healthcare and college education.

But again, the question of how much outcome equality you and others like you advocate forcing is something you will have to clarify.

 

[mheslep]

The $20/hour minimum wage demand floated by some in the Occupy Whatever protests is another example of complete equality of outcome, as distributing that wage across the US labor force would eat up the entire $7.8 trillion in US annual income.

 

[John Creighto]

The $20/hour minimum wage demand floated by some in the Occupy Whatever protests is another example of complete equality of outcome, as distributing that wage across the US labor force would eat up the entire $7.8 trillion in US annual income.

Might be doable without much tax changes if you cut a lot of government administration costs. That is do it with a negative income tax. Of course I’m only speculating but I’ll try to work out the numbers later.

 

[mheslep]

Might be doable without much tax changes if you cut a lot of government administration costs. That is do it with a negative income tax. Of course I’m only speculating but I’ll try to work out the numbers later.

The point is at that level of minimum wage nearly everyone must be paid the same, from the late Steve Jobs to the 16 year old on the first job: the $7.8 trillion national income distributed at $20/hour=$40k per year is 195 million people in a country with 205 million working age adults.

 

[LaurieAG]

Ok...what is your reason for posting them?
...
I've seen a lot from the OECD that bothers me, where it appears the organization allows an ideology to influence them to try to force the data to connect their favored ideology to their stated goal.

The Australian old age poverty rate was 39% and second last behind South Korea.

 

[Vanadium 50]

The Australian old age poverty rate was 39% and second last behind South Korea.

Which is maybe a good example of the points I was making.

OECD measures poverty by income, not wealth. A person who has a comfortable retirement nest egg and is drawing it down will appear poor. A person who has the same standard of living from a pension will not.

The fraction of people in poverty in old age, according to OECD's metric, is a function of the number of people in old age. Imagine I have two countries: one with 20% of the people in old age (however it is defined) and one with 10%. Assume that the income distribution of old people is the same in the two countries, as is the income distribution of non-old people. Because retirees have less income than workers, the median income is lower in the group with the 20%. Therefore, the fraction defined as poor in the 20% is smaller.

I think most of us would agree this is not a desirable feature in the definition of poverty.

 

[apeiron]

Inequality still trending. Pew reports...

The wealth gap between younger and older Americans has stretched to the widest on record, worsened by a prolonged economic downturn that has wiped out job opportunities for young adults and saddled them with housing and college debt.

The typical U.S. household headed by a person age 65 or older has a net worth 47 times greater than a household headed by someone under 35, according to an analysis of census data released Monday.

While people typically accumulate assets as they age, this wealth gap is now more than double what it was in 2005 and nearly five times the 10-to-1 disparity a quarter-century ago, after adjusting for inflation.

http://www.aim.org/newswire/us-wealth-gap-between-young-and-old-is-widest-ever/

Of course, what this actually means is that today's young can expect to be super-rich when they get old as by then the going disparity should be 470 to 1 or sumpthing.

Another sharp observation is the old get the lion's share of welfare too. Result!

“It makes us wonder whether the extraordinary amount of resources we spend on retirees and their health care should be at least partially reallocated to those who are hurting worse than them,” said Harry Holzer, a labor economist and public policy professor at Georgetown University who called the magnitude of the wealth gap “striking.”

Paul Taylor, director of Pew Social & Demographic Trends and co-author of the analysis, said the report shows that today’s young adults are starting out in life in a very tough economic position. “If this pattern continues, it will call into question one of the most basic tenets of the American Dream — the idea that each generation does better than the one that came before,” he said.

 

[Vanadium 50]

That is what I would expect to happen as people move from defined benefits plans (pensions) and into defined contributions plans (401K's and similar).

It is also what I would expect during a housing price slump. A 35-year old with the typical low US savings rate has essentially all his wealth tied up in one asset: the home.

The more interesting statistics is that when this 35-year old becomes 65, under what assumptions does his standard of living exceed, lag or equal the present day 65-year-old.

 

[Jimmy Snyder]

While people typically accumulate assets as they age, this wealth gap is now more than double what it was in 2005 and nearly five times the 10-to-1 disparity a quarter-century ago, after adjusting for inflation.

Actually, apeiron didn't say that, it was a quotation from another source. How do you adjust a ratio for inflation?

 

[John Creighto]

Inequality still trending. Pew reports...



Of course, what this actually means is that today's young can expect to be super-rich when they get old as by then the going disparity should be 470 to 1 or sumpthing.

Another sharp observation is the old get the lion's share of welfare too. Result!

Well, what has happened. Is it that older people got richer or young people got poorer?

 

[LaurieAG]

Which is maybe a good example of the points I was making.

Hi Vanadium 50,

I don't think its because they are sitting on nest eggs as many have been forced back into the workforce due to the GFC and the destruction of their hard earned wealth.

The following is a letter to the editor in todays Australian newspaper.

Without wishing to comment adversely on pay rises for social and community workers, I am sure that there are many self funded retirees living on half the wage of $40,000 a year who would love a job earning that much instead of sitting at home checking their spreadsheet to see their savings dwindle down to nothing.

 

[Vanadium 50]

I don't find a letter to the editor a good counter-argument that differences in the way accounting for retirement plans is done need to be corrected for when drawing conclusions about how things have changed in 30 years.

 

[russ_watters]

Well, what has happened. Is it that older people got richer or young people got poorer?

Both, with the caveat that (as is part of the purpose of this thread), you need to be careful characterizing "rich" and "poor" based on net worth. Particularly when it comes to variation by age, net worth doesn't have a good correlation to the dictionary definition or the US measure of poverty. In other words, young people are taking on more debt, but that doesn't necessarily mean they are living poorer lifestyles.

 

[LaurieAG]

I don't find a letter to the editor a good counter-argument that differences in the way accounting for retirement plans is done need to be corrected for when drawing conclusions about how things have changed in 30 years.

At least it wasn't an editorial or a feature.
This was in the Australian context where we had universal pensions and they are now being phased out and substituted with mandatory superannuation that is currently 12% of an employees wage. The rate had gone from 3% to 9% over the past 15 years so most of the people around the changeover have not only contributed less than they would have liked but have lost a fair portion on the stockmarket because that's where the Super funds invest.

 

[John Creighto]

In other words, young people are taking on more debt, but that doesn't necessarily mean they are living poorer lifestyles.

Can you substantiate this with a source? I guess for people under 35 wealth isn't the best measure of prosperity but I can't expect the youth now to be significantly more prosperous given the large payments they must make on student debt. The fact that so many are forced to live at home could be a sign of not having the money to independently have a decent standard of living.


I'll concede that wealth statistics could be somewhat misleading now because when the Baby boomers start drawing down their retirement savings asset valuations will likely fall.

 

[russ_watters]

Can you substantiate this with a source?

Sure. While the wealth gap has doubled since 2005, the average incomes of the young have only dropped somewhere on the order of 8% in 10 years: http://www.usatoday.com/news/nation/census/2009-09-17-young-people_N.htm

Note that both of these are uselessly short time periods, though.

I guess for people under 35 wealth isn't the best measure of prosperity but I can't expect the youth now to be significantly more prosperous given the large payments they must make on student debt.

I didn't say they were any more prosperous, much less significantly. Particularly in a recession, the young get hit harder, with higher unemployment and underemployment (due to not getting hired after college).

 

[Vanadium 50]

I suspect that the wealth gap since 2005 is a consequence of the drop in home prices. Younger people are more highly leveraged and tend to have a higher fraction of their assets in their homes.

During the slide in prices, even though I lost more in absolute terms than my neighbor, I lost less relatively than her: I had more equity so less leveraging, and I had a more diverse asset allocation.

 

[Astronuc]

Some numbers -

http://www2.ucsc.edu/whorulesamerica/power/wealth.html

 

[SixNein]

Some numbers -

http://www2.ucsc.edu/whorulesamerica/power/wealth.html

nice

 

[Garth]

I found this diagram from xkcd fascinating: money.

Especially relevant to changing relative wealth and the present resentment with big bonuses etc. is under the 'dollars' section 'Worker/CEO pay comparison' comparing 1965 rates with 2007 (adjusted for inflation).Garth

 

[MarcoD]

Meanwhile, in Europe:

Banks are benefiting from a European Central Bank subsidy that could reach 120 billion euros ($158 billion), enough to pay every bonus at financial firms in London for the next 24 years at today’s levels. -- Bloomberg

Uhm... Okay?

 

[nitsuj]

Those are issues with the stats themselves. Of equal concern to me is the common implication that wealth inequality is a measure of/proxy for poverty. This comes largely from the fallacy that wealth is a zero sum game: "the rich get richer while the poor get poorer."

You're saying the deffinition of poverty is floating? I get that a $$ value is assigned, but the standard of living assigned for "poverty" hasn't change has it?

The rich do get richer, the poor grow in population. (i.e. population "get poorer")

I'd say nearly by definition it's not a fallacy, rich people don't put the money back into the system, and in the important areas. There is only so much a single person can consume, the rest is literally keeping the monies out the other people's pockets.

Upto about 60k annual or so it's a standard of living issue, after that value, it's fun and games. It's no wonder the dicotamy between ideals of poor people & rich people in this context is what it is.

The fallacy is in rich people's greed for wealth; specifically the line "I've earned it.". It's a meaningless objective/argument to someone who is hungy, in need of healthcare or to poor to become sufficiently employed (educated).

I want to point out, in case it's not transparent, that I'm comparing those in poverty to those with say wealth in the 10's of millions & up, where the gap is blatant. Like I said, after a relatively low level of income, it's fun & games, trully. So a simular comparison could be made between those in poverty and those of mediocre income.

Said different, I see no moral issue with "I have to take the bus", and someone who happened to get in on an "sure win" IPO drives a ferrari as a result.