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All About Wealth Disparity


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2007 Apr 21, 8:43am   30,347 views  234 comments

by HARM   ➕follow (0)   💰tip   ignore  

One of the topics that has kept coming up over the 2 years of this blog's existence is wealth and income disparity. It's pretty obvious from a number of different sources and metrics that --after heading down for several generations-- it's been going up over the past 35 years or so in the U.S. In fact the U.S. is now closer to China or Iran in terms of wealth distribution (as measured by the Gini Coefficient) than Canada or Western Europe.

Some of the regulars here (myself included) view this as an alarming trend, with some disturbing implications, such as:
  • A gradually shrinking middle class (however one chooses to define that), and increasingly bifurcated economy/society.

  • Less overall economic/social mobility (fewer opportunities for ambitious, intelligent poor people to join the ranks of the middle class, or move from middle to wealthy class).

  • Potential for greater social/political unrest, as wealth disparity approaches Third-world levels (What good is it to be "middle class" or wealthy, if it means having to live in a heavily fortified compound that you cannot leave without bringing along a small private army to protect you, a-la Mexico or Colombia?).

  • The devolution of our economy, from "free market" capitalism, based (at least somewhat) on the concepts of rule-of-law, meritocracy, competition and personal responsibility, to one based more on kleptocracy, plutocracy, corruption, and political connections.

  • The growing phenomenon of "Privatize Profits, Socialize Risks", where politically well connected big businesses and de-facto cartels attempt to insulate themselves from competition, and seek to transfer the consequences of their own bad financial decisions to taxpayers, via federal laws, subsidies and bailouts.


  • Some of our Patrick.net regulars appear to think this may be a symptom of an inevitable mega-trend that no amount of social engineering or tax redistribution can stop. Some even consider the emergence of a large, prosperous middle class as a historical aberration, that we are now in the process of "correcting". Peter P has often commented that, "no matter how you redistribute wealth, it always ends up in the same hands". And there may be validity to this view: consider the spectacular rise and fall of Communism in the Twentieth Century. There is also the notion that our economy has progressed to the point where wealth disparity is unlikely to lead to the kinds of social/political unrest it has in the past (French, Russian Revolutions, etc.), because for the most part, citizens' basic physical needs are still being met. A.k.a., the "bread and circuses" argument (see Maslow's hierarchy of needs).

    The big questions for me are:

    1) Is the decline of the middle class and bifurcation of the U.S. economy an inevitable result of macro-economic and historical forces beyond our ability to influence (such as global wage arbitrage and the transition from being an industrial power to a primarily service-based economy)?

    2) Is it theoretically possible to reverse this trend through social/economic policies, and if so, how? Is Different Sean-style socialism the only way? (see "How does one regulate 'well'?")

    3) If such reforms are theoretically possible, are they practically feasible? (i.e., is it realistic to assume political opposition from entrenched special interests can ever be overcome?)

    Discuss, enjoy...

    HARM

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    118   DinOR   2007 Apr 22, 3:14am  

    Holliday,

    Great (and scary) post! Very revealing.

    119   DaBoss   2007 Apr 22, 3:16am  

    Exportation of all manufacturing to Chindia

    Actually mfg exporting began in mid 80s and completed by early 90s in SV.
    Today its Engineering. Overall if you dont export the companies and all jobs
    would vanish from SV.

    Its more of survive or die, very little to do with bonus.

    120   DinOR   2007 Apr 22, 3:17am  

    FAB,

    It's the tip of the iceberg. Most of those "public servants" also are contractors and wannabe flippers during their 4 days off. And bitch about the taxes they have to pay! Most cheat. Yeah I said MOST. Talk about a kick in the teeth.

    121   DaBoss   2007 Apr 22, 3:23am  

    BigBrother

    News papers are advertising whores. Do anyone for money.

    We had that in SJ for years. Once the advertising vanished SJM started
    to publish stories about Mortgage and Appraisal fraud. All of sudden
    they started to mention unsustainable bubble talk.

    122   Michael Holliday   2007 Apr 22, 3:32am  

    More proof that surfer-x's GBF theory is correct:

    DENVER -- Joseph Nacchio , former CEO of Qwest Communications International Inc., was found guilty on Thursday of 19 counts of insider trading, capping the last major trial in a spate of scandals that tarnished corporate America over the last decade.

    Nacchio , 57 (garden-variety GBF), was acquitted of 23 of the 42 insider trading charges (leaving only 19 GBF guilty charges...ha, ha!). Federal prosecutors had accused him of selling $101 million of Qwest shares after company insiders warned him that the phone carrier could not meet its financial forecasts.

    The 19 guilty charges corresponded to stock sales worth more than $50 million in April and May of 2001.

    "This is an overwhelming determination of guilty," U.S. Attorney Troy Eid told reporters outside Denver's federal courthouse.
    ___

    I rest my case.

    --MH

    123   astrid   2007 Apr 22, 4:08am  

    justme,

    Undue influence of US Attorney is a big deal, just ask that Wisconsin woman who spent months in jail being prosecuted for "less than thin" evidence or the Guantanamo detainees.

    But as to why the Republicans care. My guess is that like that page molester Mark Foley, he just became too embarrassing to be saddled with.

    124   Michael Holliday   2007 Apr 22, 4:13am  

    justme Says:

    Off topic, but I think someone here is going to know he answer:

    Why are the republicans joining in on the Gonzales witch-hunt?
    _____

    Gonzales is an ex-member of the brown racist/supremacist group La Raza (which means "The Race" in Spanish).

    That's grounds enough, in my book, for termination.

    Oh, that's right, I forgot. Brown racism is good racism. That's why the DF libs never made it an issue...

    125   Malcolm   2007 Apr 22, 5:01am  

    I really got a kick out of Brand's rant. Here is a fun first hand observation. I went to the Kint Tut exhibition a couple of years ago in LA. I have to say it was impressive for the historical significance. Everything was artful and interesting, but it crossed my mind that this represented the ultimate in wealth back then. Apart from the gold coffin which wasn't at the show everything I saw seemed easily attainable in our society. Some people's garages have about the same amount of clutter as King Tut's tomb.

    Harm, a lot of posts so far seem to really question how one measures wealth. People seem to miss some of the little things which was why people in the old days really wanted wealth. Overall even the poorest in our country live in safety, with clean water, and the most abundant food supply in history. The poorer kids are fatter than the richer kids in this country. At the basic level history has to view this period with some praise.

    126   Malcolm   2007 Apr 22, 5:09am  

    Does anyone know if Newt Gingrich ever repaid the $300,000 'loan' from Bob Dole for his ethics fines, or is this just another gift that won't be taxed properly because of who was involved?

    127   Malcolm   2007 Apr 22, 5:18am  

    Brand, I totally with you conceptually but I also like the trend I'm seeing of demanding quality in things. I believe if you are going to invest in a new kitchen you should use stone, and quality materials. I don't have a problem with those sorts of luxuries. It's the people that you describe to a tee that really disgust me. The ones who would actually go into debt making themselves truly poor to try to appear to be living the high life. I also don't understand why they choose their purchases the way they do. I'm telling you, you get much more admiration for putting a nice solar electric system on your house than adding another RV to the local congested street parking problem.

    128   Peter P   2007 Apr 22, 5:21am  

    The ones who would actually go into debt making themselves truly poor to try to appear to be living the high life.

    Worse yet, they have poor taste. And many of them do not even renovate their bathrooms.

    129   Peter P   2007 Apr 22, 5:23am  

    I’m telling you, you get much more admiration for putting a nice solar electric system on your house than adding another RV to the local congested street parking problem.

    Solar is cool. Still too expensive per kW though.

    130   Malcolm   2007 Apr 22, 5:24am  

    If you want to drive an RV across the country; I don't get it personally but I don't judge either, then rent one, but for God sakes don't buy one and park it on the street. I had a neighbor across the street from me in a previous house that did that and it was literally all you could see out the front window.

    131   Malcolm   2007 Apr 22, 5:27am  

    Very expesnsive, but I bit the bullet, and I think it was a good decision. There is an intangible pride factor to consider in the ROI. My strategy has always been to put money where it does something, anything verses buying toys. Even if my ROI is 6-8% on a solar system, it is much better than the ROI on a boat.

    132   danville woman   2007 Apr 22, 5:54am  

    Speedingpullet

    In my work life, the class system is alive and well. I am a nurse practitioner and through our previous real estate deals am probably worth more financially than many of the docs I work with.
    However, if you don't have an M.D. behind your name, you can never join the top of the very stratified hierarchy. I guess it is a human failing to need to pretend to be better than others.

    133   speedingpullet   2007 Apr 22, 6:50am  

    Danville woman - I hear you about the doctor thing.

    I had the misfortune to be made to train 'baby doctors' in the arcane use of medical statistics, back in the day, when I worked at St Thomas' Hospital in London .

    Talk about entitled. Maybe it was something to do with them being young....no...I'm being generous.
    They were a bunch of snotty teenagers with chips on their shoulders. And, couldn't undersatnd the link between medical practice and researching medical practice, as it wasn't glamourous, like, say, surgery was. I mean, who needs to learn useless stufff like how to take a survey, when you could be saving lives?

    Not to say that there aren't nice doctors everywhere- and I'm sure that a few of the ones I taught grew up to be nice people. But as a group, at that age, they were elitist and generally crappy to anyone they considered to be 'beneath' them. Which happened to be me at the time, despite already having my degree and a couple of years work experience, in a field that few of them would be able to do proficiently. Meh.

    Interestingly enough, going back to class as it is percived in the UK - all the snotty gits were the sons and daughters of either other doctors, or from well-heeled famlies in the Home Counties - in other words the Upper Middle Class. The very few who seemed to be interested in medical stats (even if they never intended to use it beyond the class), and were polite and considerate to the staff were, to a person, from the Working Class. I guess if you actually have to graft for the opporunity to do what you want to do, you're a lot more sympathetic to the working stiffs around you.

    134   Brand165   2007 Apr 22, 7:10am  

    Malcom says: I really got a kick out of Brand’s rant.

    Glad to be of use. :)

    Here is a fun first hand observation. I went to the Kint Tut exhibition a couple of years ago in LA. I have to say it was impressive for the historical significance. Everything was artful and interesting, but it crossed my mind that this represented the ultimate in wealth back then. Apart from the gold coffin which wasn’t at the show everything I saw seemed easily attainable in our society. Some people’s garages have about the same amount of clutter as King Tut’s tomb.

    I think ancient wealth is generally an expression of how many people you had working for you. King Tut's tomb was basically stating that he had tens of thousands of workers at his disposal. In the Egyptian case, they often killed the workers afterwards to serve their king in the afterlife---talk about extravagant spending of resources!

    But isn't that what a granite countertop or exotic hardwood floors represent? Laborers quarried the stone from the earth, ships transported it, artisans shaped it. There's no such thing as a beautiful household material that isn't expensive. Peacock feathers, as astrid says.

    Harm, a lot of posts so far seem to really question how one measures wealth. People seem to miss some of the little things which was why people in the old days really wanted wealth. Overall even the poorest in our country live in safety, with clean water, and the most abundant food supply in history. ... At the basic level history has to view this period with some praise.

    I tend to agree. Technology and industry have made the essentials of life uniquely abundant in the modern United States.

    The poorer kids are fatter than the richer kids in this country.

    Actually, that's because poor people tend to binge on cheap foods filled with carbohydrates, fat and corn syrup. Cheap food in the U.S. is nothing more than starch and sugar with some flavoring. It's amazing that you can have a 200 lb. fourteen year old who suffers from malnutrition, but that happens very often.

    Does anyone remember when we had mandatory government athletic tests back in the 1980s? I think that was a good idea. All kids should be held to a minimum level of fitness, except if they truly have physical problems. Soda and snacks should be banned from school vending machines; parents should have the option to make their kids eat a healthy school lunch instead of the usual starch-laden garbage.

    135   Brand165   2007 Apr 22, 7:12am  

    TOS: I genuinely believe that Americans are in debt up to their eyeballs because they can't understand the math. If it were up to me, frugality would be taught in every school. Students would be taught to value knowledge and happiness over possessions.

    136   Randy H   2007 Apr 22, 7:48am  

    TOS

    Even smart people who can understand math quite well get inflation wrong. Practical economics should be taught in every US high school. In fact, I think they should bring back home economics in the strictest sense of the word. HomEc always had a shade of budgeting, checkbook balancing and such in it, but it was overshadowed by cooking, cleaning and baby raising (not that those things aren't important).

    I'd foresee an entire, mandatory class dedicated to the following rough curriculum:

    * Basics: how to balance your checkbook, etc.

    * Modern basics: how to balance your checkbook using online banking, etc.

    * Credit cards: how they work; how they can bite you; how they can help you.

    * Credit scores: what they are; why you care; how to build and maintain one.

    * Debt: how much does debt cost you; when and how to pay it off.

    * Budgeting: running your life and a household; figuring out how to plan through various scenarios like buying a new home, having a baby, losing a job.
    - *Inflation* introduced naturally here, not as theory, but how much you have to plan now to pay for things later.

    * Insurance: how it works; how much minimum should you buy.

    * Scams: how to spot, smell, and avoid financial scams.

    * Advanced Topics (only to be taught if time, and to those requiring extra challenges):
    - Buying a home: how, when, why.
    - Investing for retirement: how, when (always now), why.
    - Non-retirement investing: saving for kids college, other stuff.

    137   Randy H   2007 Apr 22, 7:53am  

    NOTE:

    I would _not_ allow nerds, eggheads, and AP track overachievers to "test out" or skip this course. A big part of the problem is *smart* people who make *dumb* personal financial decisions.

    138   e   2007 Apr 22, 8:07am  

    Actually, that’s because poor people tend to binge on cheap foods filled with carbohydrates, fat and corn syrup. Cheap food in the U.S. is nothing more than starch and sugar with some flavoring. It’s amazing that you can have a 200 lb. fourteen year old who suffers from malnutrition, but that happens very often.

    The NYTimes has a great piece on this problem today.

    http://www.nytimes.com/2007/04/22/magazine/22wwlnlede.t.html?ei=5070&em=&en=aff0b2f4c26eec6c&ex=1177387200&pagewanted=all

    Basically, poor people are fat because of the way your tax dollars are spent. Woot!

    139   e   2007 Apr 22, 8:19am  

    If you want to drive an RV across the country; I don’t get it personally but I don’t judge either, then rent one, but for God sakes don’t buy one and park it on the street. I had a neighbor across the street from me in a previous house that did that and it was literally all you could see out the front window.

    Aren't there laws here that no vehicle can be parked on the street for more than 48 hours without moving or something?

    Of course, that's how NeighborWars(TM) start.

    140   Brand165   2007 Apr 22, 8:34am  

    Corn syrup is one of the worst modern inventions. The same with processed soy and bleached wheat. It's just empty calories. No vitamins, no beneficial acids, no nothing. In the name of supporting farmers, we have turned the lower class into a blubbery hunk of voluntary foie gras.

    But if that author thinks the U.S. is going to overturn any part of the farm bill, he is grossly optimistic. The lobby of companies like Coke and Procter & Gamble is massively more powerful than a bunch of "hippies" who want cheap fresh produce.

    141   astrid   2007 Apr 22, 8:48am  

    TOS,

    No, I wish!

    Oh wait, I don't wish!

    :)

    Very humbly yours,

    astrid

    142   astrid   2007 Apr 22, 8:49am  

    Brand says:

    "we have turned the lower class into a blubbery hunk of voluntary foie gras."

    You've seen through Peter P's diabolical scheme! Be careful and don't fly on small planes.

    143   Allah   2007 Apr 22, 10:47am  

    Hurry and buy this one now, its value is going to go up tomorrow april 23rd!

    144   Malcolm   2007 Apr 22, 12:00pm  

    Man this could really be a fun topic, but I'm not seeing a consensus on what a poor person in this country is. Could it be that rather than polarizing, it is in fact the middle class which is growing to encompass different levels of wealth? I know in my life I don't see everyone else's lifestyle but I don't really see a clear have and have not barrier dividing two specific groups. I see the very bottom of society (homeless kids, drug addicts, single parents) as being a very small group of have nots. Then I see pretty much a pareto distribution of different levels of wealth, and faux wealth.

    I think the comments from some of our midwest friends are telling. It is really hard to call a millionaire struggling to pay the bills in Laguna, CA poor when there is a poor family in the mountains in N Carolina who have nothing but have a higher net worth than the CA guy.

    145   Malcolm   2007 Apr 22, 12:04pm  

    I recently helped a charity build a house for a homeless family outside of Tijuana, Mexico. Even that shanty town had satelite dishes on many structures. They had water trucks driving around filling individual home water tubs, but you saw people walking around with cell phones. If it had been a town with sanitation on a beach one could almost relish the simplicity of the lifestyle.

    146   Randy H   2007 Apr 22, 12:05pm  

    TOS

    I think you'll find that most people refinance "incorrectly" for the purposes of your theory. Most people refinance at the mercy of their broker/bank. They say "lower my payment". The broker/bank does this to the debtor's expectations by reamortizing their loan. Every single elder member of my family at some point in the past 20 years has refinanced at least once only to push out their payments/reduce their equity.

    Sorry. You're not going to be able to back into rational behavior with your house-inflation-hedging theory.

    Houses are good hedges of inflation, historically -- if by "historically" you mean the period 1960s to present. Historically meaning historically, housing is not a particularly spectacular hedge of inflation.

    147   Malcolm   2007 Apr 22, 12:07pm  

    Great quote just on some CNBC infomercial. It's not a buyers' market, it's not a sellers' market, now it's an in between market. Now is the time to buy (big applause). OMG!

    148   e   2007 Apr 22, 1:39pm  

    - perhaps CREDIT is actually the root of all evil because it allows people to trade their futures in order to have stuff today, which in the case of real estate is artificially inflating prices where most of the gain is actually going to the credit companies.

    FWIW, there are places where you can't get credit: muslim countries.

    Because Islam forbids interesting payments - both on the paying and receiving side, they don't really lend money in a few of the muslim countries. Needless to say, starting a business or buying a house is pretty darn hard without it. They've come up with some interesting solutions to sidestep this though...

    149   mr beezer   2007 Apr 22, 2:05pm  

    My observations on probable causes of mess we are in today

    joint filing tax enacted in 1948--to try and keep single wage earners working while putting mom,who had left home during the war effort, back in the home to be a homemaker.

    The government I believe liked the idea of a "Leave it to Beaver" household in those days, only 59 years ago with Dad going to work paying taxes and Mom staying inside the home raising the kids while cleaning and cooking waiting patiently for pop to come home. Honey I'm Home !!

    If mom went out and took a 30k yr job 50% of what she made went to taxes,soc.sec,and medicaid.
    another 5k went to day care , transportation ,clothes to work in, drycleaning , outside meals etc. resulting in mom busting her arse for only a 2k bottem line annual additional income for the home.
    Would the family benefit if mom stayed home while Dad either got a raise or an additional job for 2k a year ?

    WTF happened to where we are now with over 80% of moms with children at home working outside the home ?
    Are today's Dad's the problem not providing the bacon nor spiritual back bone to keep mom home satisfied to where she can be content raising the children while cooking and cleaning ?

    I don't know I am asking a question .

    American Express and Bankamericard (visa) are only 59 years old and that I believe is when buying things, other than gas, you couldn't afford started.

    Television was only in 1 million homes in 1948 do you think that most things people want is where they happened to see them ? think commercials

    1-women leaving the home to work
    2-television as an advertising medium
    3-credit cards to buy what you can't afford today(life takes visa)

    what about the kids of parents from that era ?
    I will call them FK's

    150   Peter P   2007 Apr 22, 2:17pm  

    Be careful and don’t fly on small planes.

    Astrid, what is wrong with small planes?

    151   e   2007 Apr 22, 2:59pm  

    WTF happened to where we are now with over 80% of moms with children at home working outside the home ?
    Are today’s Dad’s the problem not providing the bacon nor spiritual back bone to keep mom home satisfied to where she can be content raising the children while cooking and cleaning ?

    Actually it's pretty easy to answer - this is a classic Tipping Point problem. Like standing ovations, traffic, self segregation and etc, it's all a matter of critical mass.

    152   OO   2007 Apr 22, 3:06pm  

    Actually I am reading a few books on 1920-40s to get some investment ideas when the hard time hits. What I found out was, 1920s was an era with abundant credit advances. You'd see newspaper ads for buying sewing machines, ovens, radios, etc. at a certain monthly payment. The "only $9.99 a month" slogan had been popular since back then. Although there was no credit card, and no FICO scores, credit was readily available for all sorts of consumption items, including mail-order houses.

    The rest was history.

    153   SP   2007 Apr 22, 4:18pm  

    Malcolm Says:
    [re: solar electric panels]
    Very expesnsive, but I bit the bullet, and I think it was a good decision.

    Malcolm, congratulations. I am researching the same myself for my home, and would appreciate any details you could share about your experience and contacts.

    BTW, my employer is putting up solar panels over one of the parking lots. I got some info from that project, but it is on a huge scale and isn't quite applicable to a 3KW home-installation.

    Since this is way off-topic, we can discuss off-line (unless others are interested as well).

    SP

    154   Peter P   2007 Apr 22, 4:23pm  

    Since this is way off-topic, we can discuss off-line (unless others are interested as well).

    Is there such a concept as "way off-topic" here?

    155   OO   2007 Apr 22, 4:26pm  

    SP,

    actually I am interested in sharing the solar panel info as well.

    My understanding is, you cannot store the excess on site (understandably for safety reason). So the current solution is to hook up to the grid and sell the excess to PG&E, get net supply from PG&E at night to negate out the credit you accumulate during the day.

    The big downside is, when PG&E is down, although you have solar panels installed at your own home, you are shut down as well. Anyone who knows otherwise please comment.

    156   SP   2007 Apr 22, 4:38pm  

    skellington Says:
    This is a fun topic, just thought I’d try to add some information without intentionally representing a specific political ideology.
    [rest of post deleted for brevity]

    I think Mr. Skellington's ("May I call you Jack?") most excellent post should be required reading for every American, to be read daily until they can demonstrate that they understood it. :-)

    SP

    157   SP   2007 Apr 22, 5:07pm  

    eburbed Says:
    FWIW, there are places where you can’t get credit: muslim countries. Because Islam forbids interesting payments - both on the paying and receiving side, they don’t really lend money in a few of the muslim countries.

    In fundamental theory, both usury and trading in financial risk are verboten in Islam because they are equated with exploitation and gambling respectively. However, having lived for a short time in a couple of islamic nations, I can assure you that even under the sharia, credit is abundantly available in "other" forms.

    The most common pattern is that if a product costs $100, the seller agrees to sell it to the buyer for a 'profit' of $20, with the buyer paying back in 12 installments of $10 each. This is effectively the same as paying $20 in interest. There are many variations of this basic theme, where the $20 is either treated as 'profit' to the lender, or a 'gift' from the borrower - thereby skirting the koranic prohibition of riba i.e. interest. I actually used to get hibbah or a 'gift' from the bank where I kept my money.

    The other interesting thing was that my friends who earned thousands of USD in interest from their accounts in foreign banks, used to make a biennial trip to their local maulvi (priest), who would instruct them what percentage of this unislamic earnings they should donate as zakkahto the poor in order to absolve themselves of guilt.

    (Not any kind of advice, and my apologies if I have oversimplified or misrepresented some of these concepts.)

    SP

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