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Inequality - Maybe not so bad?

  1. Nov 9, 2014 #1

    Vanadium 50

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    MIT's Technology Review ran an article on inequality, where they argue that a) it is bad, and b) it is technologically driven, in that it raises some people's income and wealth more than others.

    I see a tension in these. Suppose I could wave a magic wand, and double the income of everyone in the bottom half, and triple it for everyone in the top half. This would benefit everybody, at the cost of increasing inequality. Would this not be a good thing?
     
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  3. Nov 9, 2014 #2

    Danger

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    "Equality" is a term that is thrown around in a lot of ways without definition. Some ideas about it are totally valid, and some are totally stupid. (For instance, equal pay for equal work is proper; equal pay for vastly different skill levels is not.) What do you have in mind?
     
  4. Nov 9, 2014 #3

    SteamKing

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    This argument sounds similar to those made by people who suffer from terminal altruism: If we can't help everybody simultaneously, it's immoral to help only some.

    Ever since the Og figured out he could eat better using a bow and arrow to hunt prey, while his cousin Nog was still chasing down his prey to capture it, technology has produced some type of unequal result. Does this mean that we should renounce all technology and return to living in a state of nature?

    Regardless of various platitudes thrown about, humans suffer from unequal abilities as individuals, whether these are physical, mental, or social. Is there some sinister reason behind this? Or is it just a normal variation one would expect to find?

    Trying to mandate equal outcomes for everyone is doomed to failure, IMO. The best we can do is ensure that everyone receives an equal opportunity to prosper.

    IMO, MIT should stick to what its name says, 'Technology', and leave the social engineering to its brethren up the Charles River at Harvard. After all, Harvard has more money to play around with such ideas.
     
  5. Nov 9, 2014 #4

    russ_watters

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    This it?
    http://www.technologyreview.com/featuredstory/531726/technology-and-inequality/

    Frankly, I think that the data shows - relatively clearly - that inequality rises naturally with a rising economy. You can change the slope, you can artificially re-distribute, but you can't disconnect the two. And, more importantly, the economy rises faster than the inequality. Meaning that the scenario you outlined (though not necessarily the proportions themselves) is true: in a rising economy, everyone sees gains, it's just that the rich gain faster.

    That has nothing to do with whether it is "good" or "bad", but it is important for understanding how it works/why it exists.

    People tend to think inequality is "bad" because it is an affront to their sense of fairness. That's all it is -- and it is beaten-in to them by politicians and, perhaps, upbringing that drove-into them that mindset. I was brought-up well-off, but my parents were frugal. I didn't have the best toys and was the only guy on the junior high wrestling team who wore sneakers instead of wrestling shoes (I did get a quality new trumpet before any of my peers though, but that was only because the starter one I got initially was such a piece of crap it really held me back).

    What bothers me about the "debate" is that that it is being driven largely by dishonesty. We've been discussing that for years here:
    https://www.physicsforums.com/threads/income-wealth-and-statistics.545541/
    https://www.physicsforums.com/threads/we-should-give-free-money-to-the-homeless.730492/page-2

    [discussed in detail in the above threads] "The rich get richer while the poor get poorer" is a common refrain of politicians. It's false, at least in the way that most people intuitively understand what "richer" and "poorer" mean. But the clever, ambitious, dishonest politician doesn't need to accept that. All they need to do is re-define "poverty" to be tied to inequality. Then they can have their cake and eat it too: the poor make more money, can buy more stuff, have less food insecurity, but we can still say they are "poorer" because Bill Gates is getting richer faster. That's exactly what the OECD did for measuring poverty.

    Of course, while that is a useful lie, it is also one that its tough to keep going. When the economy does well, poverty goes up. When the economy goes poorly, poverty goes down. Even impressionable, jealous non-rich people won't buy something like that. So they had to add a correction to the re-definition to avoid that problem at certain times.

    From your article:
    It's very surprising to me how naive that is. Being able to take advantage of opportunities has nothing to do with "equality". That's mobility, not equality. It doesn't change the fact that a janitor is still a janitor and that's a low-paying job.

    Worse, mobility has nothing to do with technology -- if anything, they are inversely corellated. Computers are expensive and a poor kid might not have a computer at home, so that technology would work to separate kids by income. More important though is things like quality, government provided education. That is also independent of technology (and something we do poorly because of poor laws).

    Next sentences:
    Here, again, they mix together separate things. Yes, if you have talents and you acquire skills, training, and acumen you will prosper. The implication that you won't is totally nonsensical. There is nothing that corellates better to income than education. But again: still nothing to do with technology.

    The article is a little tough to read so I'll have to finish later. But my take on the issue:

    1. We allow politicians to frame issues, which often means the questions we care about are posed as lies. We need to stop accepting that. Issues need to be discussed with honesty in order to understand them. So, more specific:

    2. We need to stop accepting being lied to about poverty. Poverty barely exists in Western countries. Whether the "real" rate is 2% or 5% I'm not sure, but it isn't helpful for understanding the issue to define someone as "poor" because they make less money than 2/3 of their friends. Similarly

    3. We need to stop accepting being lied to about inequality. Inequality isn't poverty. If I give you $1,000 and give the person next to you $2,000, you just got richer, not poorer. If people start recognizing that a rich person getting richer does not mean they are going to have more trouble making ends meet.

    Sorta similar to (but backwards from) the politicians who are selling these lies, I think these issues are among the most important issues facing us right now. Much of the reason why our economic mobility isn't as good as it should be and we have perpetually under-achieving classes is that people are belieiving these lies. They believe that no matter how hard they try, they can't get ahead, so they don't try. If, instead, we convince them that they can get ahead (because it is true), more people will try and will succeed.

    Now, none of that addresses your question. That was all about the framing of the issue. In order to properly answer the question, we first have to ensure we're playing with an honest/full deck and analyzing the true reality. So:
    Well, mathematically that is a "positive" thing, but "good"? That's a matter of judgement/opinon.

    Let's start with the opposite: is it a bad thing? I would argue that an improving situation can't really be called "bad". Indeed, in a broader sense, I'd say that life overall in the west is spectacularly "good" by historical standards. That's not exactly what you were asking, but maybe that's the point...

    What if it could be better? What if a different set of laws were possible that enabled the bottom half's income to rise by 2.5x while the top half's increases by 3x? Mathematically, that would have to be considered "better". Do we have that choice?

    See, that's what is missing from the dialogue because so much of the debate is framed with lies. If we accept the fact that inequality rises with rising prosperity for everyone, then we can start exploring the difference between good, better and best options: how different options affect the slopes of all of those "good" options. Or, even, we can discuss the option of trading some of that prosperity for more equality if we feel like that would be a nice thing to do.

    But maybe I'm jumping ahead of what kind of dialogue is really possible. As long as people keep believing "the rich get richer while the poor get poorer" and political organizations screw with statistics and definitions to make that "true", it is tough to have a serious dialogue about what we can really do.
     
  6. Nov 9, 2014 #5

    russ_watters

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    Good point. In the US, there are two conflicting definitions:

    1. The Constitution prescribes that the country be set up with equality of opportunity under the law, to allow people to make of themselves what they will without fear that the government will treat them differently and force them down a different path.

    2. A popular definition in the US today is that the government should provide for equality of outcome, meaning that it should seek to forceably (if necessary) alter social structures to reduce the inequality of income/wealth that V50 discussed.

    More specifically, "equal pay for equal work" vs "equal pay for vastly different skill levels" is a difficult one. Underpinning some of the discussion for #2 is the idea that wages should rise when the economy rises -- even if the work is the same. If a company makes more money, should the employees make more? Even if they didn't contribute directly to the company's increasing success? That's a tough call.
     
  7. Nov 9, 2014 #6

    russ_watters

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    If the advocacy of equality of "outcome" were based on more solid factual ground, there could actually be a legitimate discussion to be had there.

    If I'm very rich and I give to charity, it makes me feel good and it helps someone not be as poor while making me less rich. My happiness actually goes up, so life has improved for both me and the person I helped. In rich countries, we may be able to change things for the better by re-distributing some of the wealth.

    What is tougher to know is the secondary effects of such trade-offs. If the rich have less money, perhaps they will invest less in new business and the economy won't grow as fast. If money is given to the poor without them having to work for it, will it negatively effect their work ethic?

    These are legitimate questions, but I don't think they can realistically be explored until people first accept that a person isn't a bad person just by virtue of being rich. Being rich is not inherrently "unfair" to people who are not rich. Otherwise, that's all you'll ever get in response to an attempt at a legitimate discussion: it's unfair, it's unfair, it's unfair, it's unfair.
     
  8. Nov 10, 2014 #7

    Danger

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    I'm far too tired right now to read any of the prior links, or even fully follow the complexities of your answers to other statements, but I saw that you quoted me and would like to clarify what I meant. My "equal pay for equal work" bit is that, although it happens, there should be no difference in pay, benefits, etc. between a straight caucasian male and a lesbian black woman if they are doing the same thing under the same conditions. The bit about "vastly different skill levels" is what I would use to distinguish you from me. I like to design machines, and have a reasonable understanding of how things work, and I've built a lot of really neat stuff. I never graduated high-school. I've gone on trial-and-error (although always starting with a guaranteed safety factor and working down). You can design something from knowledge and education and do it right the first time by calculation and scale testing. There is no way in the world that I should be paid anywhere near as much as you for a mechanical design job.
     
  9. Nov 10, 2014 #8
    I think a simple answer to that situation is that since you increase the total income more than a factor of 2 in total, the cost of living would go up more than a factor of 2 as well. Thus, the people who just got the incoming "only doubled" would effectively get poorer. Even poorer than they were before the increase actually.

    I agree with the statement that inequality is bad, it's just that you need some inequality to help growth. I think the best situation is when it can be kept to the bare minimum needed to stimulate that growth but not more.
     
  10. Nov 10, 2014 #9

    Vanadium 50

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    This model predicts that the standard of living is stagnant over time. This is not the case.

    I'm not sure why this got moved, because there's relatively little social science in this. This is largely about opinions and more specifically, value judgments. "Is achieving equality more or less important than eradicating poverty?", is an example of a question that cannot be answered scientifically. I'd hate for this thread to be moved to Social Sciences and then be closed because it's not scientific enough.
     
  11. Nov 10, 2014 #10

    russ_watters

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    That is exactly the fallacy we are referring to. In the data, that would manifest as zero per capita GDP growth or overall GDP growth exactly equal to population growth. As V50 said, that just isn't what happens.

    People have been sold the idea that wealth/poverty is a zero sum game (for one person to gain another must lose) and it simply isn't true.
     
  12. Nov 10, 2014 #11

    russ_watters

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    I didn't move it, but I see the logic:

    While the specific question requires an opinion-based answer, many people don't accept the premise and will give an opinion based on a different premise. That's what already happened: people don't believe that the rich and poor can both be getting richer at the same time, so they think income inequality is unfair as a result. So the reality is that you can't get people to answer the question you posed without first educating them that the premise is a true reflection of the reality. And that was my point: unfortunately, our society is current just not equipped to answer that question.
     
  13. Nov 11, 2014 #12

    Vanadium 50

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    Here's a historically based hypothetical. Pre-bankruptcy GM had two major branches (and some minor ones) - an automotive branch and a financial services branch. If one does well and the other does not, should employees on both sides of the company make more? And if the answer is "yes", where do you draw the line?
     
  14. Nov 11, 2014 #13

    Ryan_m_b

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    In Capital, a seminal work published this year on inequality, Thomas Picketty argues that inequality is primarily a problem when economies aren't growing. In your hypothetical everyone would be better off but if a small section of the population was accumulating greater wealth whilst everyone else stagnated or lost money then there is a problem. I'd recommend reading the book, I've not read it fully myself but intend to when time permits.

    Of course there are other perspectives, a Marxist argument would be that inequality exasperates class distinction which in turn can lead to other problems in society like disenfranchisement of those without the finances to sway political power.
     
  15. Nov 12, 2014 #14
    In recent years, it appears to me that the rich are getting richer and the poor are getting poorer. Cost of living is rising faster than the wages of all but the wealthiest people. I have no problem with some inequality because it's necessary for a healthy economy. What concerns me is that our country may have already hit the point where the inequality is high enough that it's creating more problems than solutions. It's hard to know for sure what the problem is in today's economy.
     
  16. Nov 12, 2014 #15

    Pythagorean

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    Wouldn't that cause inflation... everybody has more money so things just become more expensive? I think that currency does require some kind of gradient (i.e. inequality) but the total change over the gradient shouldn't be so big that it causes sever social tension (or so small that it's essentially a system at equilibirum).

    Just an intuitive thought though. Could be off-base.
     
  17. Nov 12, 2014 #16

    Vanadium 50

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    I don't think the evidence shows this - it better fits a flat line. (In real assets, not dollar-denominated). But even if this is true, why is this a problem of inequality? If this problem could be fixed at a cost of making the super-rich even richer, is that a reason not to do it? If we could make everyone equally worse off, would that be a solution?

    There certainly are economic problems and causes for concern. But inequality per se seems to me not to be one of them.
     
  18. Nov 12, 2014 #17

    Pythagorean

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    I think the implicit fear in a democrapitalist nation is that the super rich get more power with money and are able to influence policy in their favor, and not in favor of middle or lower class. I don't know how valid it is in terms of pervasiveness, but it does happen through campaign funding and lobbying. We get in a situation where politicians and policies that favor the rich have more financial power behind them.
     
  19. Nov 12, 2014 #18

    russ_watters

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    Yes, but the data we're talking about already includes inflation. The poor get richer even after taking inflation into account.

    Caveats
    1. Long term. Typically from one cycle peak to the next.
    2. The 2008 recession was worse than average and incomes haven't recovered yet for any group. We'll just have to wait and see (for the next peak or two) if that is the start of a new trend.
     
  20. Nov 12, 2014 #19

    russ_watters

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    No, it isn't a flat line either unless we're speculating on a new trend based on just one or two data points. I'm willing to concede that it may be starting to flatten out, but at least through the early 2000s it was definitely an upward slope for all brackets. But it is tough to speculate on due to the unique severity of the last recession.
     
  21. Nov 12, 2014 #20
    It looks like it depends on what time period you look at. I found some longer term graphs and it appears to be fairly flat for the last decade or so.

    If everyone were better off (short and long term) with increased inequality from where we are currently, them I'm all for increasing inequality. Like I said above, I believe there's a tipping point somewhere where inequality makes things worse, not better. To be fair, excessive income inequality, in some cases, could be a symptom of other problems, as opposed to the cause.
     
    Last edited: Nov 12, 2014
  22. Nov 12, 2014 #21

    russ_watters

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    So we may as well have a look at the data. My preferred data is here:
    https://www.census.gov/hhes/www/income/data/historical/household/2013/h03AR.xls [Broken]

    It is average income of each fifth of the population and the top 5%. The data is from 1967 to 2013. I've gone ahead and graphed it for us:

    Income1.jpg

    Now, the increase or decrease in the lower brackets is tough to see due to the inequality, so I've deleted the top two in the next graph and added trendlines to show the overall slope since 1967:

    Income2.jpg

    Caveats and observations:
    1. Clearly, the trend for all brackets is up over the entire timeframe, but for all brackets, the 1990s were exceptionally good, with every bracket above the trendline, while the 2007-9 recession was exceptionally bad, putting every bracket below the trendline today. You can't call the past 4 years a "trend" because it is mid-cycle and it is difficult to consider even the past 15 years a "trend" because of the 1-2 punch of unusually good followed by unusually bad.

    2. To be more specific about the recent data, since the start of the recession, there have been 2 years (2009 and 2011) when "the rich got richer while the poor got poorer". All other recent years, either both got richer or both got poorer. Things have been flat or a mixed bag the past two years: last year, the bottom 5th and the top 5% both saw small drops while the 2nd 5th saw a 1.3% rise, for example. Otherwise, though, this across the board stagnation came as a big surprise to me. Usually, recoveries are more aggressive.

    3. Due to #1&2, the inequality-comes-with-growth relationship has not been broken over the past few years. Inequality dropped during the recession due to the large and fast drop in the top tier incomes (which are more tied to the stock market than for others). It is back up in the past 4 years because top tier incomes have stabilized (they aren't rising much if at all yet) while bottom tier incomes continued dropping. I fully expect that all income brackets will see gains over the next few years (though it did take longer than I expected for them to stop dropping).

    4. Some stats for the bottom tier: Over the entire range of the data, the bottom tier saw a gain of 19.5%. I don't see that as anything to complain about. Now, you can manipulate the timeframe to get different results, but I think that range is actually pretty good because it appears to be a bottom-to-bottom comparison of cycles. For a top-to-top comparison, 1969-2000 saw a gain of 26.6% and 1969-2006 wasn't quite as good at 20.9%. That's actually the first time in the 45 years of data that a peak was lower than the last and for the bottom tier, the drop wiped-out most of those gains. We'll just have to wait and see how it and the other brackets recover.

    5. Note, this is income from all sources including government payments. So the burn-out of some of the recession prop-ups may have contributed to the recent stagnation (and reduced the depth of the recession).

    6. The main limitation I know of to this data actually causes it to understate the standard of living gains. And that is that as people marry later and less, household size has dropped substantially, from an average of 3.3 people in the late 1960s to 2.6 today, a 27% drop. I'm sure the relationship isn't linear, but that is a substantial reduction in cost of supporting a household and a boost to standard of living.

    7. Another limitation would be other demographic shifts, specifically the aging of the baby boomers. As they retire, their incomes will drop, which should have the effect of reducing inequality in the future since they will tend to drop from the upper brackets (your peak earning years are your last earning years) to the lower brackets. But their aging may have helped create the high income bubble in the 1990s. Now they are retiring whether they like it or not, which reduces inequality but also reduces incomes across the board.
     
    Last edited by a moderator: May 7, 2017
  23. Nov 12, 2014 #22

    Vanadium 50

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    I don't understand this. Are you saying that there is a point where raising everyone's standard of living makes things worse, if inequality gets too large?
     
  24. Nov 12, 2014 #23

    Vanadium 50

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    Russ, let me add one more caveat - those plots do not follow a cohort from 1965 to 2015. People naturally move through these bands over time - up as their careers progress and down when they retire.
     
  25. Nov 12, 2014 #24

    russ_watters

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    Yes, if an individual stagnates for more than a couple of years, they've probably done something really wrong in their life or been spectacularly unlucky. This data is best for the old "are you doing better than your father?" inter-generational comparison cliche.
     
  26. Nov 13, 2014 #25
    I'm talking about when rising inequality no longer raises everyone's standard of living, or when the gains are fleeting and followed by a bigger loss.

    https://www.american.edu/cas/economics/pdf/upload/2010-10.pdf
    High and rising inequality preceded the Great Depression and the Great Recession. In this paper, they argue that high inequality may have been partially to blame for both, due to increased influence in politics/culture and expansion of credit made possible by the increased disposable funds of the super-wealthy.
     
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