Is Increasing Inequality Acceptable If Everyone Benefits?

[russ_watters]

Saw this on the 6 o'clock news tonight, a new report by the OECD concluded that:

Key findings:

http://www.oecd.org/social/Focus-Inequality-and-Growth-2014.pdf (4 page overview, The full report and source data are linked on 4th page)

Could you be more specific about where the "full report", is, because I'm not seeing it. And this summary does not address how they made their key finding (!?).

 

[OmCheeto]

Just skimmed the comments in this thread, as some were longwinded, and void of much substance.
My opinions, regarding this thread, and the topic:

This thread:
Economics, is apparently not a "Social Science", as I learned 8 years ago, but requires a new "Antisocial Science" field, all by itself.

The topic:
The premise of the original article seems to have been twisted from the start of the OP. Even as a left-winger, the notion that "inequality is bad", is ludicrous. What is bad, is hyper-inequality. Whitewashing hyper-inequality, with doctor vs potato picker salary, is just a waste of time.

In all of these economic debates, I always find, although calling someone stupid is verboten, so many rich and varied alternatives, are available: Liar! Clueless! etc. etc. etc.

 

[russ_watters]

Even as a left-winger, the notion that "inequality is bad", is ludicrous. What is bad, is hyper-inequality.

What is "hyper-inequality" and why is it bad? Or was that a joke?

 

[OmCheeto]

What is "hyper-inequality" and why is it bad? Or was that a joke?

After half an hour of googling, I can't find where I once told you, something to the effect; "I'll put a smiley in my post, when I'm joking"

Here's an example of past PF, Om researched, "hyper-inequality".

hmmm... How is John doing now? I really can't fault the man. Like that Texas family, who won the, "mer-cans are doin' a Palinesque drunken fight fest! Thayr distractud! let's kill the 'DEATH TAX'"!

Cha-Ching!

John Paulson, the man who made his first billions shorting the housing market, had a terrific 2013 after several years of malaise but is having a mixed 2014. He made a $1 billion bet on Botox-maker Allergen and supports Valeant Pharmaceuticals' proposal to buy the company. He's also bullish on Puerto Rico, which he called the Singapore of the Caribbean. The son of an Ecuadorian immigrant, Paulson once[...] more

Uh oh. This was a good thread too:

How to...:

Yeah, that's why I stopped talking politics at work...there just aren't enough dope slaps in the world for every deserving person to get theirs.​

34.

 

[Vanadium 50]

I find the argument that inequality is bad because it leads to politically active rich people kind of hard to swallow. What's the difference between Tom Steyer and the Koch brothers - all billionaires who are politically active? And, in a democracy, isn't the purpose of money in politics to try and convince people of your opinion? I say "try" because there plenty of examples of elections where one side poured a whole lot of money into it, and still lost. NY-19 is an example: Eldridge outspent Gibson 2:1, and lost by 30 points.

 

[Pythagorean]

I find the argument that inequality is bad because it leads to politically active rich people kind of hard to swallow. What's the difference between Tom Steyer and the Koch brothers - all billionaires who are politically active? And, in a democracy, isn't the purpose of money in politics to try and convince people of your opinion? I say "try" because there plenty of examples of elections where one side poured a whole lot of money into it, and still lost. NY-19 is an example: Eldridge outspent Gibson 2:1, and lost by 30 points.

Of course that's the purpose, but shouldn't public interest take precedence? Income inequality doesn't lead to politically active rich people - they were always there. But because money facilitates power, the interests of the non-rich become under-represented. Anyway, there's two separate issues here: money in politics and inequality. If there's no money in politics, then inequality isn't an issue. To me, money in politics is the more pressing (and solvable) issue. Inequality is more of an emergent phenomena, we can try and patch it up, but we can never have complete control over the forces that lead to inequality.

 

[mheslep]

I find the argument that inequality is bad because it leads to politically active rich people kind of hard to swallow...

I suspect inequality is a minor driver of these rich players, and that a government with large revenues and an inscrutable set of laws is a major one. Why? Because, as the bank robber said, that's where the money is. With a relatively small government (8% of GDP circa 1900) an Andrew Carnegie uses his fortune to build hundreds of libraries and tours his native Scotland; with a large one I suspect he instead applies himself to become Senator Carnegie and to work a deal to get his enterprise an ACA waiver.
.

 

[billy_joule]

Could you be more specific about where the "full report", is, because I'm not seeing it. And this summary does not address how they made their key finding (!?).

The link in the "source" section leads you to the full report here:
http://www.oecd-ilibrary.org/social...its-impact-on-economic-growth_5jxrjncwxv6j-en

 

[Chronos]

How bad would poverty be without the wealthy? The 'poor' are not fed and housed by the 'poor'. There are people all over the world who would [and do] kill for the opportunity to be 'poor' in the USA, or most any other 'evil capitalist' nation.

 

[Vanadium 50]

Several people have made the point that income inequality causes a loss of income mobility. Here is a study of that (behind a paywall, I am afraid) - "
Income Inequality and Intergenerational Income Mobility in the United States (Social Forces,doi: 10.1093/sf/sou092), by Dierdre Bloome of the University of Michigan. Figure (1) in her text shows the rise of inequality since about 1968 and the dramatic uptick since about 1980. Figure (2) shows income mobility (which is defined so that a low value indicates high mobility) which is consistent with flat or, if anything, decreasing (i.e.towards more mobility) over time.

Comments: The absolute intergenerational mobility in the US is about 0.47. My understanding of the way this is defined is that if you take a group of 30 year olds, 47% of the difference in their incomes can be explained by their parents' income when they were 30 year olds. Unlike many other measures, this follows a cohort, so you are looking at less inequality per group than you are with the US as a whole, where income inequality is driven largely by where you are in your career (the difference between two 20-year olds or two 70-year olds is smaller than the difference between a 20-year old and a 50-year old)

Bloome seems to expect a positive correlation between income inequality and income mobility. I would too. I would have thought that if one had relatively stagnant income mobility, that this would reflect in a higher inequality. (i.e. inequality is the effect, not the cause) That's not what the data show.

Bloome tosses out some possible reasons for this. I can play the same game, and I think we're seeing two factors moving in opposite direction. One is that there is a very strong correlation with intergenerational educational attainment. If you can afford to pay full freight, you can send your kid to any college that will take him. However, at the same time, college has gotten less rigorous. The price of college has gone up, but the value has dropped, and as such, the advantage is evaporating. I can't prove this is the reason, but it would explain this somewhat counter-intuitive result.

 

[JPBenowitz]

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.

The economy grows exponentially and those that fuel this growth are the ones that reap most of its benefits. Income distribution follows a power-law, one of the most ubiquitous patterns in nature.

 

[OmCheeto]

Of course that's the purpose, but shouldn't public interest take precedence? Income inequality doesn't lead to politically active rich people - they were always there. But because money facilitates power, the interests of the non-rich become under-represented. Anyway, there's two separate issues here: money in politics and inequality. If there's no money in politics, then inequality isn't an issue. To me, money in politics is the more pressing (and solvable) issue. Inequality is more of an emergent phenomena, we can try and patch it up, but we can never have complete control over the forces that lead to inequality.

My apologies for agreeing with you, but I think you pegged it. (see my bolding)
Money in politics has caused, IMHO, a plethora of "emergent phenomena", leading up to, what we are now arguing about.

For example, money in media:

I heard the other day, that Dish Network had dropped Fox News.
I was somewhat happy about that, as I told myself, about 7 years ago, that I would subscribe to no media source, which carried such a program.
But then I saw that it was just temporary, pending a legal dispute, and resigned myself to the fact that my TV would remain simply an anachronistic ornament, sitting about 12 feet away from me. (believe it or not, it's of the particle accelerator design.)

Anyways, I only mention "The Fox News Channel", as they are owned by "Fox Entertainment Group", which is owned by "21st Century Fox", who's CEO is Rupert Murdoch, and is co-chaired by Lachlan Murdoch, his son, which kind of reminded me of Kim Jong-un, and his dad. And, I thought that was kind of funny, in a Joe Pesci kind of way.

 

[Czcibor]

Comments: The absolute intergenerational mobility in the US is about 0.47. My understanding of the way this is defined is that if you take a group of 30 year olds, 47% of the difference in their incomes can be explained by their parents' income when they were 30 year olds. Unlike many other measures, this follows a cohort, so you are looking at less inequality per group than you are with the US as a whole, where income inequality is driven largely by where you are in your career (the difference between two 20-year olds or two 70-year olds is smaller than the difference between a 20-year old and a 50-year old)

May I be malicious? Shouldn't there be an adjustment for genetic part of inheriting success/failure in life?

 

[Vanadium 50]

May I be malicious? Shouldn't there be an adjustment for genetic part of inheriting success/failure in life?

Malice? I can't stop you. I can only think less of you.

 

[Phaselock Ohmes]

In principle, a world without inequality would be sooo boring...ultimately it would grind to a halt in a state of maximum entropy. There inherently needs to be some inequality, like for aexample a thermal gradient, to drive any dynamic processes, including economies. It is a motivator, if you like; it does not mean that any individual or group stays permanently in a disadvantaged state. Participants in the processes can move among states - some rich folks may become bankrupt while some poor folks may work up to more prosperous states, at different times. The hope is, in case of economies, that everyone strives to improve their state and so on the average, everyone's state improves over the long run, if the economy is at all productive. I will agree with equality as in equal opportunity, and equality before the law, but not enforced equalitie of the outcomes.

 

[thankz]

I remember watching a documentary on pbs on equality vs freedom, wish I could remember the name of the guy hosting, it was very enlightening. basically it stated that you could only have one of the two, I put my vote in for freedom. the truth is that some people are born 'better' than others so their will never be true equality anyway.fyi, I didn't read the whole thread.

 

[Vanadium 50]

Stephen Rose has an article http://www2.itif.org/2014-rising-productivity-middle-class.pdf

where he addresses the claim of growing inequality. As he writes

Their [Pikkety and Saez] claims are stark and widely cited to the point where they have become the received wisdom: between 1979 and 2007 (the last year before the onset of the GreatRecession), over 91 percent of income gains due to productivity growth since 1979 has been captured by the wealthiest 10 percent of the population. This left just 9 percent of the economy’s expanded output for the bottom 90 percent of the population who only managed a meager real income growth of 5 percent while GDP per person for all Americans, including the top 10 percent, was rising 74 percent.

Why does this matter? Because if it’s actually true that productivity no longer benefits most workers, then why should elected officials do the hard work of advancing pro-productivity policies like corporate tax reform, investment in science and technology, and the development of sector-based productivity strategies. Better to concentrate their efforts on policies to redistribute gains to the bottom 90 percent.

He argues that comparing the people in a given percentile in Year X with the people in the same percentile in Year Y compares different people, and it is more enlightening to look at cohorts of people as they move through time: i.e. compare the incomes of the people in a given percentile in Year X with the same people in Year Y. He argues that the bottom 90% received about half the gains, and the quintile that received the largest gains was the fourth. He also discusses the difficulty in calculating living standard (even in the lowest quintile, the average housing space has increased - how do you account for that?) and in calculating wealth (which I didn't realize is inferred from capital gains taxes, which means the inference is complicated).

 

[Muti]

I have never studied economics, but it has a big influence on my everyday life so as a layman if such thing happen like Vanadium 50 said then in my understanding reply given by some peoples that poor will become more poorer may result. If some limitation as said by vanadium 50 like no increased inflation allowed then I think peoples mostly borrowed answers from other sciences and not from economics. In my understanding (please remember I have never attended an economics course, so I may be wrong) economics is science/ mathematics when it is calculating things like interest rate etc but it has theories of how peoples may behave under some circumstances. If economics is like that then I think that economics basics theory (capitalism) in vogue around world tells you to invest your money and make a profit (mostly by interest) before your money has depreciated and your buying power from that money reduces. So to answer whether peoples will become rich or poor will depends on society/ country peoples thinking, that they want more money for satisfaction or spend the extra buck (not alms but increased wages, bonuses, social work etc) on poor peoples for satisfaction. I don't think economics has answers to this question or if it has can someone tell me how??

 

[HuskyNamedNala]

If we are talking about the same article, then yeah inequality is pretty bad.

The article discusses the convergence of the US economy into a dumbbell shape; there is a significant population that are highly skilled and super rich, and there is a much larger population which is in the service industry..they "serve" them. And then there area few small group of people who are in the middle class.

How can you not see a problem with this. I am guessing you don't live on your own or don't pay your bills.

 

[bhobba]

I am not a fan of Margaret Thatcher - this head banging overly tough medicine to fix problems leaves me cold. There is simply no reason for it IMHO - its ideologically driven which in itself raises issues for me.

That said there was a famous scene with her in Parliament where in response to something or another she said the opposition wants a system where she had her hands low with a small gap rather than where she had her hands high with a large gap. That resulted in a lot of debate both pro and con - but it shows this issue has been around for yonks.

I don't really have a strong view one way or the other (I come down a bit on the side of hands high with a large gap - but am flexible about the issue), except the discussions on both sides were largely ideologically driven which for me is a red flag. I much prefer simply facing issues in a common-sense way.

Thanks
Bill

 

[bhobba]

How can you not see a problem with this. I am guessing you don't live on your own or don't pay your bills.

That's not ideal - and I don't think anyone says otherwise.

The issue though is balancing it against other things like standard of living. If you have a system like that but everyone's standard of living is higher is that ;preferable to doing something about the inequality but everyone has a lower standard of living?

I know which I prefer (the second one) but that's me - its really up to, via the democratic process, for society to decide. I think most people don't particularly worry about it - what concerns them is day to day issues rather than ideology of the type of society you want. I believe if you simply take a common-sense approach to that stuff the overall structure will take care of itself.

IMHO some people get caught up too much in ideology.

Thanks
Bill

 

[mheslep]

Paper from Horwitz in Social Philosophy and Policy. The points drawing attention to the difference between statistical groups, consisting of different people over time, and cohorts, consisting of the same people, have often been referenced here on PF wrt to economic outcomes. Abstract:

The conventional narrative that the last generation has seen the rich get richer and the poor get poorer while the middle class gets hollowed out has serious flaws. First, the claims of growing inequality overlook data on income mobility. It is not the same households who are rich and poor each year, and many poor households become richer over time. Second, the claim of middle class stagnation is largely a statistical deception based on an incomplete interpretation of median household income. The middle class has shrunk but so has the percentage of poor households as the percentage of rich households has grown significantly in the last few decades. Third, looking at consumption rather than income enables us to see both the absolute gains of poor US households and the narrowing of the gap with the wealthy. Poor US households are more likely to have basic appliances than the average household of the 1970s, and those appliances are of much higher quality. Together these three points offer a much more optimistic view of the degree of inequality and the ability of the poor to become rich. The picture is not all rosy and a final section discusses the relevance of housing, health care, and education costs to this argument

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2559403

 

[Nikitin]

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?

Is increasing inequality + a doubling in wages preferable to no inequality and no increase in wages? SURE. But what does this have to do with anything? Why would an increase in inequality result in an increase in general wages? Here is how real-life inequality works:

Better technology, not better management, is driving productivity up. So why should management take all of the profit? Don't you think developments like these would cause social tensions?

 

[OmCheeto]

Paper from Horwitz in Social Philosophy and Policy. The points drawing attention to the difference between statistical groups, consisting of different people over time, and cohorts, consisting of the same people, have often been referenced here on PF wrt to economic outcomes. Abstract:

The conventional narrative that the last generation has seen the rich get richer and the poor get poorer while the middle class gets hollowed out has serious flaws. First, the claims of growing inequality overlook data on income mobility. It is not the same households who are rich and poor each year, and many poor households become richer over time. Second, the claim of middle class stagnation is largely a statistical deception based on an incomplete interpretation of median household income. The middle class has shrunk but so has the percentage of poor households as the percentage of rich households has grown significantly in the last few decades. Third, looking at consumption rather than income enables us to see both the absolute gains of poor US households and the narrowing of the gap with the wealthy. Poor US households are more likely to have basic appliances than the average household of the 1970s, and those appliances are of much higher quality. Together these three points offer a much more optimistic view of the degree of inequality and the ability of the poor to become rich. The picture is not all rosy and a final section discusses the relevance of housing, health care, and education costs to this argument

alter-bolding, mine

This reminds me of an image I saw many years ago.

​

All the poor people, living in cardboard boxes, have laptops and I-phones, so they must be doing well. Pfft!

Anyways. I've never heard of this Horowitz fellow, so I googled him. I found an interesting, finger pointy, "it's not our fault!", type of letter he wrote a few years back. I always compared economists to phrenologists in the past, but this guy seems more like a politician. I only state this, as he goes on and on, telling me what I already know, but doesn't come to the point, until the very last paragraph:

An Open Letter to my Friends on the Left
September 28, 2008
... (ad absurdum)
Those of us who support free markets are not your enemies right now. The real problem here is the marriage of corporate and state power.
...

IMHO, yes.

ps. Re-reading the Horowitz abstract, I do believe he missed his calling, as a politician.

 

[mheslep]

...All the poor people, living in cardboard boxes, have laptops and I-phones, so they must be doing well. Pfft!

If that was what the abstract said or implied one might well mock it. It did not. The author made comparisons, e.g. "more likely", "higher quality", "more optimistic", not absolute statements.

"I always compared economists to phrenologists in the past, but this guy seems more like a politician."

Yes, here's the author's CV and 15 page list of papers in the Phrenology journals and books on same, similar to the CV of most politicians.

 

[bhobba]

Re-reading the Horowitz abstract, I do believe he missed his calling, as a politician.

Well said.

Thanks
Bill

 

[Vanadium 50]

Here is how real-life inequality works:

You might want to look at this: http://www.heritage.org/research/reports/2013/07/productivity-and-compensation-growing-together

Heritage is a right-wing site, to be sure, but what I draw from this is that there is enough data out there taken under enough different conditions and methodologies that one can draw many different conclusions. I started this thread with the MIT article; it gives the methodology it used. If you want to argue that the methodology is wrong, have at it. If you want to argue that it must be wrong because it draws conclusions different from "real life" - i.e. a different study with a different methodology - I don't think people will find that very convincing.

Stipulating that your plot is the correct one, though, I think Rose has a very good point: if increases in productivity do not benefit most workers, why should we have government programs to support higher productivity? Someone who believes that plot represents "real life" should be opposed to government programs intended to raise productivity, n'est pas?

 

[russ_watters]

But what does this have to do with anything? Why would an increase in inequality result in an increase in general wages? Here is how real-life inequality works:

Uh, no, that graph doesn't show inequality, it just shows one set group's wages. We've posted data previously that does show inequality and wages do tend to rise along with inequality.

Where did you get that graph, by the way? I know it says BLS data is the source, but it doesn't say what data and the BLS didn't produce that graph.

Better technology, not better management, is driving productivity up. So why should management take all of the profit?

Who is more responsible for the technology, the managers or the workers? Or, flip the question over: why should a worker get paid more to do an easier job?

Don't you think developments like these would cause social tensions?

I see no evidence of that. It appears to me that prosperity reduces social tensions and economic downturns increase them. The Occupy Wall Streat protests, for example, happened toward the end of an economic downturn, after inequality dropped.

We live in quite the remarkable time. Never in human history before about 1900 has it been normal to expect continuously improving living conditions, for everyone. That people get upset that the living conditions of others is improving faster than theirs is a bit annoying to me (seems ungrateful), but it is, nevertheless, better than the alternative of having an actual problem - like decreasing living conditions - to complain about. I only hope that the complaints about the one thing don't cause the other to actually happen!

 

[russ_watters]

This reminds me of an image I saw many years ago.

​

All the poor people, living in cardboard boxes, have laptops and I-phones, so they must be doing well. Pfft!

Well, let's see -- one image is drawn with statistics and the other is a cartoon. One is real, the other is a joke.

 

[Vanadium 50]

To add to my last message (and to Russ'), one of the assumptions that goes into the #113 plot is that only wages are included - not benefits like medical, retirement, etc. If you want to argue that is the right metric to be used, you have to be consistent, and that means that's the metric you want to use to calculate inequality. Since much of the income for the very wealthy is not from wages, this will also cause measured inequality to move down.