Is Capitalism the Root of Inequality?

[Czcibor]

Sure, Czibor. But which claim, precisely?
I had quoted E.O Wilson's famous "Great idea, wrong species."

"capitalism is really not much better"

And we may try to compare let's say North Korea with South Korea.

 

[lavinia]

One question concerning intellectual honesty of this topic. (I mean especially Lavinia)

Are we comparing RL capitalism with some idealised, hypothetical system? Because I may already solve your dillema. Any RL system would be worse than any hypothetical idealised system.

No I mean as fair idea - idealised capitalism vs. idealised alternative. But under such capitalism there are no market failures or market crash :D

Or we should talk about RL capitalism and compare its successes with RL "successes" of its contenders. Like the West vs. Communist countries. Or compare India vs. PRC from times of Deng Xiaoping, when communism was effectively started being jettisoned. Or compare India to Asian Tigers.

I am not sure why I am suspected of intellectual dishonesty. Let's dismiss it as an unfortunate choice of words.

Many of my post were originally in response to a challenge to document the problems with unregulated markets and to show their long term effects. This is not a criticism of capitalism in all of its forms but of completely free unregulated markets. I argued that deregulation of financial markets was a key component of the speculative difficulties of recent decades. The effect of these difficulties is not trivial and in Japan it led to the "lost decade" and the CEO of PIMCO in another article I cited, warned of the risk of a lost decade in the United States. That is my point and I look forward to discussing it with anyone who wishes to take a rigorous view.

Of course, speculative markets are only one problem. I intend to discuss others, and have started to talk about "austerity measures". Paul Krugman's article is worth reading. He is a Nobel Laureate in Economics and a regular contributor to the New York Times.

As far as what systems work or don't work and what systems are better than others, I have no rigorous opinion on that. Nor have I seen a rigorous opinion in this thread. For instance, to say that the Soviet System collapsed ergo it was an inferior system is at worst ideology and at best a hypothesis to be examined.

 

[Siv]

"capitalism is really not much better"

And we may try to compare let's say North Korea with South Korea.

When comparing with communism, it may be better, I agree.
But where is this (unwritten) rule that there should be no other options?

 

[Czcibor]

I am not sure why I am suspected of intellectual dishonesty. Let's dismiss it as an unfortunate choice of words.

Many of my post were originally in response to a challenge to document the problems with unregulated markets and to show their long term effects. This is not a criticism of capitalism in all of its forms but of completely free unregulated markets. I argued that deregulation of financial markets was a key component of the speculative difficulties of recent decades. The effect of these difficulties is not trivial and in Japan it led to the "lost decade" and the CEO of PIMCO in another article I cited, warned of the risk of a lost decade in the United States. That is my point and I look forward to discussing it with anyone who wishes to take a rigorous view.

Of course, speculative markets are only one problem. I intend to discuss others, and have started to talk about "austerity measures". Paul Krugman's article is worth reading. He is a Nobel Laureate in Economics and a regular contributor to the New York Times.

I'd say that claim that claim "unregulated market" is bit risky. You pointed for example housing bubbles. Anyway why housing happens to be so expensive on those free market? Shouldn't those greedy speculators build something out of bricks and mortar instead of just building up bubbles?

Let me quote Krugman, who grudgingly admitted one interesting thing:

It turns out, however, that wages in the places within the United States attracting the most migrants are typically lower than in the places those migrants come from, suggesting that the places Americans are leaving actually have higher productivity and more job opportunities than the places they’re going. The average job in greater Houston pays 12 percent less than the average job in greater New York; the average job in greater Atlanta pays 22 percent less.

So why are people moving to these relatively low-wage areas? Because living there is cheaper, basically because of housing. According to the Bureau of Economic Analysis, rents (including the equivalent rent involved in buying a house) in metropolitan New York are about 60 percent higher than in Houston, 70 percent higher than in Atlanta.

I have to wonder why Cuomo runs ads in CA on the favorability of NY as a business friendly state, with no taxes for ten years, if low taxes...

In other words, what the facts really suggest is that Americans are being pushed out of the Northeast (and, more recently, California) by high housing costs rather than pulled out by superior economic performance in the Sunbelt.

But why are housing prices in New York or California so high? Population density and geography are part of the answer. For example, Los Angeles, which pioneered the kind of sprawl now epitomized by Atlanta, has run out of room and become a surprisingly dense metropolis. However, http://www.hks.harvard.edu/var/ezp_site/storage/fckeditor/file/pdfs/centers-programs/centers/taubman/sunbelt.pdf and others have emphasized, high housing prices in slow-growing states also owe a lot to policies that sharply limit construction. Limits on building height in the cities, zoning that blocks denser development in the suburbs and other policies constrict housing on both coasts; meanwhile, looser regulation in the South has kept the supply of housing elastic and the cost of living low.

So conservative complaints about excess regulation and intrusive government aren’t entirely wrong, but the secret of Sunbelt growth isn’t being nice to corporations and the 1 percent; it’s not getting in the way of middle- and working-class housing supply.

http://www.nytimes.com/2014/08/25/opinion/paul-krugman-wrong-way-nation.html

I fully understand idea - risky behaving financial companies and gov that puts supervision on them to limit risk. However to such picture don't fit well ex. US gov that by allowing mortgage deduction is actually encouraging people to take excessive debt.

The problem is that markets are quite often already strongly regulated, just from time to time in the wrong direction.

As far as what systems work or don't work and what systems are better than others, I have no rigorous opinion on that. Nor have I seen a rigorous opinion in this thread. For instance, to say that the Soviet System collapsed ergo it was an inferior system is at worst ideology and at best a hypothesis to be examined

Who said that I use such claim?
Concerning SU collapse - the problem that's not one observation (that could have been caused by some random, unobserved factor.
So have you tried to compare GDP of countries on similar development level before and after testing this system you have no rigorous opinion? I mean North vs. South Korea (under Japanese rule north was actually more industrialized); China vs. Taiwan; West vs. East Germany; Spain vs. Poland (Roman Catholic countries, similar size: in 1950 Polish GDP per capita was a bit higher, in 1990 it had 30% of Spanish GDP)
How do you think, maybe a pattern emerge?

 

[WWGD]

I'd say that claim that claim "unregulated market" is bit risky. You pointed for example housing bubbles. Anyway why housing happens to be so expensive on those free market? Shouldn't those greedy speculators build something out of bricks and mortar instead of just building up bubbles?

Let me quote Krugman, who grudgingly admitted one interesting thing:http://www.nytimes.com/2014/08/25/opinion/paul-krugman-wrong-way-nation.html

I fully understand idea - risky behaving financial companies and gov that puts supervision on them to limit risk. However to such picture don't fit well ex. US gov that by allowing mortgage deduction is actually encouraging people to take excessive debt.

The problem is that markets are quite often already strongly regulated, just from time to time in the wrong direction.

Who said that I use such claim?
Concerning SU collapse - the problem that's not one observation (that could have been caused by some random, unobserved factor.
So have you tried to compare GDP of countries on similar development level before and after testing this system you have no rigorous opinion? I mean North vs. South Korea (under Japanese rule north was actually more industrialized); China vs. Taiwan; West vs. East Germany; Spain vs. Poland (Roman Catholic countries, similar size: in 1950 Polish GDP per capita was a bit higher, in 1990 it had 30% of Spanish GDP)
How do you think, maybe a pattern emerge?

I am not defending communism, Czcibor, but didn't people in the Eastern block have most daily needs paid for by the state? Maybe doing a PPP (Purchase Power Parity) do $5,000 buy you the same in Madrid than in Warsaw (back then and now )? So, comparing maybe a $3,000 GDP per capita in the East vs more than $10,000 in the west, but in the East you are provided with housing, stable job, medical care?

 

[Czcibor]

I am not defending communism, Czcibor, but didn't people in the Eastern block have most daily needs paid for by the state? Maybe doing a PPP (Purchase Power Parity) do $5,000 buy you the same in Madrid than in Warsaw (back then and now )? So, comparing maybe a $3,000 GDP per capita in the East vs more than $10,000 in the west, but in the East you are provided with housing, stable job, medical care?

A bit tricky comparison:
-$5000 for sure bought a lot in last days of Polish People Republic... according to black market exchange rate an average salary was about $15
-how do you want to calculate a basket with adjustment for ration stamps? (especially in cases when you had ration stamps for stuff that was NOT accessible, even with ration stamps)
-how do you adjust that in the last decade shops were mostly empty and one was standing in a queue to buy anything? (sometimes it worked, sometimes not) (A realistic approach would involve calculate value of wasting a few hours per day on such staying in queue/shopping)
-how do you adjust for transactions done on black market or through a net of friends?
-how do you adjust for stealing in your place of work? (awful pathology at that time)

I may try to find you some data if you want.

 

[Czcibor]

If data for 1990 (semi-free election was in late 1989), in PPP and adjusted 2005 dollars, are OK, then according to World Bank:
http://www.google.com/publicdata/ex...=region&tdim=true&hl=en_US&dl=en_US&ind=false

The data are a bit too optimistic for Polish consumer, as GDP was somewhat inflated by ineffective heavy and chemical industry, which was producing equipment for WW3.

But according to them we had 42% of Spanish GDP. (yes, there is a big dispersion in the data, pending on source)

 

[WWGD]

My point is that while capitalism may be overall preferable to communism (at least as commonly-practiced) , it may be a good idea
to try to incorporate o capitalism some positive aspects of communism.

 

[Czcibor]

My point is that while capitalism may be overall preferable to communism (at least as commonly-practiced) , it may be a good idea
to try to incorporate o capitalism some positive aspects of communism.

Which one do you mean?

 

[lavinia]

Some economists point to FDIC instance as a regulatory measure that led to the fall of the S&L's. This is a case of what they is call a Moral Hazard.Their point is that deregulation is not the problem per se.

It is true that FSLIC insurance remained after the S&L's were otherwise deregulated. But in this situation, FSLIC insurance became a free put option written by the US Government. So instead of functioning as a regulatory measure, it transmuted into a derivatives contract.

Before the deregulation of the S&L's FSLIC insurance worked fine in the context of a complete regulatory framework. From the 1930's until deregulation in the 1980's it worked fine. The same holds for Japan as I have described above.

On the other side of the coin, without a safety net such as FSLIC insurance there is risk of runs on financial institutions that lose investor confidence.

 

[Vanadium 50]

I think you mean FSLIC.

The moral hazard came about because FSLIC paid 100% of deposits, not 100% of insured deposits.

 

[lavinia]

I think you mean FSLIC.

The moral hazard came about because FSLIC paid 100% of deposits, not 100% of insured deposits.

right. thanks for the correction.

 

[lavinia]

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

This brief article discusses the"Shadow Banking System" and its risks.

 

[Digitalism]

While I'm aware that that's true, I'd really like to see research (I've looked but haven't had much luck) discussing whether mobility isn't great because of some external barrier or whether it is mostly a matter of personal choice.

http://www.equality-of-opportunity.org/images/mobility_geo.pdf

http://www.brookings.edu/blogs/soci...ain-development-social-mobility-reeves-howard

http://www.businessinsider.com/inequality-and-mobility-in-the-united-states-2013-7

http://www.economist.com/blogs/democracyinamerica/2011/11/inequality

High-income kids who don't graduate from college are 2.5 times more likely to end up rich than low-income kids who do.

http://www.theatlantic.com/business...its-so-hard-for-the-poor-to-get-ahead/276943/

http://www.brookings.edu/blogs/soci...14/07/29-wealth-gaps-mobility-policies-reeves

After examining the records of 18,869 people, and dividing them into three categories, the rich, the prosperous and the poor, Clark and Cummins agree. They suggest that the passing on of wealth is far more persistent over the generations than previously acknowledged, noting that there is a “significant correlation between the wealth of families five generations apart”. Put simply, the descendants of the wealthy of 1858 are still much wealthier than the average person in 2012.

http://www.theguardian.com/society/...ritain-wealthy-study-surnames-social-mobility

In Italy, Portugal, Turkey and the United States, young people from families with low levels of education have the least chance of attaining a higher level of education than their parents. In these countries, more than 40% of these young people have not completed upper secondary education, and fewer than 20% have made it to tertiary education.

http://www.theatlantic.com/business...in-almost-any-rich-country-but-the-us/262336/



http://www.businessinsider.com/tech...jobs-and-it-could-spur-a-global-crisis-2015-6

http://www.pewresearch.org/fact-tan...n-rise-for-decades-is-now-highest-since-1928/

http://www.brookings.edu/~/media/Research/Images/0/123/052015-Chart.jpg?la=en

http://www.brookings.edu/research/a...ality-wessel?cid=00900015020149101US0001-0521

White high school graduates have more wealth than black and hispanic college graduates

http://bigthink.com/experts-corner/...rove-economic-mobility-in-the-united-states-2

In reality, however, only 4% of Americans travel the rags-to-riches path, according to new research from the Economic Mobility Project of the Pew Charitable Trusts. And a great many who are born into the poorest segments of the population are stuck there for life, a finding that suggests the U.S. has much to do to improve social mobility.

Forty-three percent of Americans raised in the bottom quintile of household income remain there a generation later (with income of less than $28,900 in 2009 dollars, adjusted for family size). Twenty-seven percent rise up slightly into the second quintile, 17% land in the middle of the distribution, and 9% end up in the 4th quintile.

http://blogs.wsj.com/atwork/2013/11...der-in-america-whos-upwardly-mobile/?mod=e2fb

 

[russ_watters]

...

Yes, all of those stats document the inequality different ways and some look at causes (and I'm pretty much aware of all of them), but none examine the cause I asked about. That bothers me a lot (it isn't you: I don't think people who research the issue are examining my question). It seems political to me that researchers focus on external factors and don't even address the possibility that internal factors (choices) impact inequality/mobility.

 

[Digitalism]

You are incorrect. At the very least they show an implicit relationship between intergenerational mobility and education, though I don't think that is the only cause.

 

[russ_watters]

You are incorrect. At the very least they show an implicit relationship between intergenerational mobility and education, though I don't think that is the only cause.

Please explain in more detail. Recently we had a thread about a cartoon purporting to show how much harder it was to get an education if you are poor than rich. There were several factors, not all related to money, and none explored were internal.

It sounds like you are saying that because a rich person has more money, the money itself explains why they can go to college. Maybe that's your "implicit relationship". Well that isn't enough for me. I don't want to accept an implication, I want to know the facts.

The numbers are never going to be equal, nor should they be. But in order to know if they are good or bad and how to fix them if they are bad, we need to actually know the causes, not just guess.

 

[Tosh5457]

I think that we're discussing wrong subject: "inequality" instead "why the hell the USA experienced quite nice GDP growth but the median income stagnate and whether something can be done about it".
For sure there are:
-some problems with measuring it (smaller households, treating as personal income that what earlier would be classified as corporate income);
-cost of cool electronic toys accessible for masses vs. cost healthcare and education; (cherry pick the one that you prefer and get the answer that you want ;) )
-some dysfunction of US political system where too much money influence system;
-short term calculation (even if everyone would get a few times in his life a huge bonus then the inequality of annual income would go up);
-globalization which makes only some people to face very fierce competition (textile workers hit but not lawyers).

I personally also suspect that inequality to big extend is not the problem to be tackled, but a symptom of underlying problems (like low quality of education for some social groups; or problems with taxing the top incomes).

Maybe we should rather start discussing the other problem? Not as moral issue but as efficiency issue? (Because of my research subject I can say quite a lot about international taxation)

I would like to see data on which sectors the wages have stagnated, in which it has grew, and in those it has fallen; I think it's easier to make an analysis and find the culprit once we have it broken down by sector. I can find it for a given year, but not a timeseries of it, would someone be so kind to post something about it?

 

[russ_watters]

I would like to see data on which sectors the wages have stagnated, in which it has grew, and in those it has fallen; I think it's easier to make an analysis and find the culprit once we have it broken down by sector. I can find it for a given year, but not a timeseries of it, would someone be so kind to post something about it?

What are "sectors"? Do you mean for the different income levels across the population as a whole? I last posted that data here:
Inequality - Maybe not so bad?

Or do you mean by industry? Or something else?

 

[Tosh5457]

What are "sectors"? Do you mean for the different income levels across the population as a whole? I last posted that data here:
Inequality - Maybe not so bad?

Or do you mean by industry? Or something else?

Yes industry sectors I mean.

 

[russ_watters]

Try this:
http://www.bls.gov/bls/blswage.htm

 

[lavinia]

Another issue with the financial side of Capitalism is the imposition of fiscal austerity measures on countries that default or are at risk of defaulting on loans. I post these articles by Paul Krugman on the austerity imposed by the EuroZone on Greece and Italy.

http://www.nytimes.com/2013/02/25/opinion/krugman-austerity-italian-style.html?_r=1

http://www.nytimes.com/2015/06/29/opinion/paul-krugman-greece-over-the-brink.html?smid=fb-share&_r=0

 

[Czcibor]

Another issue with the financial side of Capitalism is the imposition of fiscal austerity measures on countries that default or are at risk of defaulting on loans. I post these articles by Paul Krugman on the austerity imposed by the EuroZone on Greece and Italy.

http://www.nytimes.com/2013/02/25/opinion/krugman-austerity-italian-style.html?_r=1

http://www.nytimes.com/2015/06/29/opinion/paul-krugman-greece-over-the-brink.html?smid=fb-share&_r=0

You raised an interesting subject - so what one should do if gov was running deficit year after (on very popular stuff like early retirement) and reach a point where creditors lose faith in gov ability to repay debts?

Because of such heavy spending I also don't understand why you classify that as bad "issue with the financial side of Capitalism", and not as an issue of an irresponsible version of socialism facing the day of reckoning?

 

[lavinia]

You raised an interesting subject - so what one should do if gov was running deficit year after (on very popular stuff like early retirement) and reach a point where creditors lose faith in gov ability to repay debts?

Because of such heavy spending I also don't understand why you classify that as bad "issue with the financial side of Capitalism", and not as an issue of an irresponsible version of socialism facing the day of reckoning?

Not sure what you mean about socialism. Can you explain?

I think Krugman clearly explains why he thinks it is bad.

 

[Czcibor]

Not sure what you mean about socialism. Can you explain?

I think Krugman clearly explains why he thinks it is bad.

Yes, I know Krugman point. He is absolutely right that austerity strangles economy in crisis. Just there is a problem here - what else to do, when country credit credibility is low? Especially now, when ECB monetary policy is a lose as possible (even negative interest rates) so default Krugman advice is already implemented. Greeks leaving Eurozone? Cool, even that time I'm in full agreement with him.

I mean Greek society was voting all the time nice socialistic parties, that were providing them with all nice features of socialism (early retirement, hiring plenty of civil servants, etc). As long as they could borrow that on markets everything was fine. Now when they run out of other's people money - that's a capitalism flaw?

 

[lavinia]

Yes, I know Krugman point. He is absolutely right that austerity strangles economy in crisis. Just there is a problem here - what else to do, when country credit credibility is low? Especially now, when ECB monetary policy is a lose as possible (even negative interest rates) so default Krugman advice is already implemented. Greeks leaving Eurozone? Cool, even that time I'm in full agreement with him.

I mean Greek society was voting all the time nice socialistic parties, that were providing them with all nice features of socialism (early retirement, hiring plenty of civil servants, etc). As long as they could borrow that on markets everything was fine. Now when they run out of other's people money - that's a capitalism flaw?

This is not an area that I feel competent to delve into in detail and would welcome information and the opportunity to learn.

Here are a couple of sentences from Krugman's article on Greece.

"
Yes, the Greek government was spending beyond its means in the late 2000s. But since then it has repeatedly slashed spending and raised taxes.Government employment has fallen more than 25 percent, and pensions (which were indeed much too generous) have been cut sharply. If you add up all the austerity measures, they have been more than enough to eliminate the original deficit and turn it into a large surplus.

So why didn’t this happen? Because the Greek economy collapsed, largely as a result of those very austerity measures, dragging revenues down with it."

 

[Czcibor]

This is not an area that I feel competent to delve into in detail and would welcome information and the opportunity to learn.

But you already diagnosed problem deep enough to claim that's a capitalism fault :D

This problem is being discussed:
https://www.physicsforums.com/threa...es-capital-control.821114/page-3#post-5157199
(quite a few nice stats are being quoted)

You selected quite unlucky subject for your ideological bent. ;)

The second challenge is that when you are showing that one solution don't work, to suggest an alternative one... and the tricky part starts...

 

[lavinia]

But you already diagnosed problem deep enough to claim that's a capitalism fault :D

This problem is being discussed:
https://www.physicsforums.com/threa...es-capital-control.821114/page-3#post-5157199
(quite a few nice stats are being quoted)

You selected quite unlucky subject for your ideological bent. ;)

The second challenge is that when you are showing that one solution don't work, to suggest an alternative one... and the tricky part starts...

You want to accuse me of ideology. That is not only unfair but also shows that you think ideologically rather than rigorously. Dialogue does not seem to be your preference. Your aggression has ended this thread,as far as I am concerned anyway Too bad. There is much to think about here.

 

[Czcibor]

You want to accuse me of ideology. That is not only unfair but also shows that you think ideologically rather than rigorously. Dialogue does not seem to be your preference. Your aggression has ended this thread. as far as I am concerned anyway Too bad. There is much to think about here.

You first reach a conclusion: "capitalism fault" (paraphrase), and later admit that's actually in that area, where you already reached a conclusion you do not "feel competent"? Really, I'm really more used to idea, that one first analyses a problem, before reaching conclusion, especially a far reaching one.

Yes, I accuse you of ideology. And of desperate search for data that you don't fully understand, which you cherry pick to confirm your beliefs. When you picked very poorly this time (Greece), you just feel offended that I pointed it out and started arguments ad persona.

 

[Czcibor]

Yes, all of those stats document the inequality different ways and some look at causes (and I'm pretty much aware of all of them), but none examine the cause I asked about. That bothers me a lot (it isn't you: I don't think people who research the issue are examining my question). It seems political to me that researchers focus on external factors and don't even address the possibility that internal factors (choices) impact inequality/mobility.

First - a technical question - how are you going to measure internal causes? I understand why you want to measure that, why you see a some flaw in measuring only external factors... but how to measure that?

Second - now, with Greece, you have a country, which didn't have especially adverse external conditions, but somehow it seriously underperformed. Something inside those people... but how to measure / pinpoint that...

(yes, human capital, but it assessment would be done mostly ex post)