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All About Wealth Disparity


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2007 Apr 21, 8:43am   30,248 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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    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

    158   Jimbo   2007 Apr 22, 5:17pm  

    Overall even the poorest in our country live in safety, with clean water, and the most abundant food supply in history.

    This is false. The poorest certainly do not live in safety, they live in the most dangerous neighborhoods. The actual murder rates in poor neighborhoods are very high, approaching Baghdad levels.

    The food supply statement is false as well. There are certainly many Americans going to bed hungry tonight. I know I often did not get enough to eat growing up, especially during the years that my Mom was single. Things have not changed much since then, they have actually gotten worse.

    I will grant you the water part though.

    159   SP   2007 Apr 22, 5:17pm  

    Nothing new for Patricker's, but good to see coverage of this in the MSM.
    (found at Ben's)
    SP

    http://www.dailybulletin.com/search/ci_5725309
    Calculation flaw may hide market decline
    Why is it that the market can feel like it's dropping - with homes for sale for longer stretches and the number of sold homes down significantly - yet published prices either remain the same or continue climbing?

    At least one veteran observer says it might be a fatal flaw in the way we measure housing prices.

    160   SP   2007 Apr 22, 5:26pm  

    More MSM coverage of the bust.
    SP

    This time from SFGate.Com
    http://tinyurl.com/32kwh2
    Why we shouldn't be bailing out subprime lenders or borrowers
    Dumb: Buying a house you can't afford with no down payment and a loan whose monthly payments will explode in a few years.

    Dumber: Lending money to people who can't afford a traditional mortgage, especially when they have lousy credit ratings and don't substantiate their income.

    Dumbest: Bailing out dumb and dumber, especially with taxpayer money.

    161   FormerAptBroker   2007 Apr 22, 6:15pm  

    Someone wrote:

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

    Then Brand Says:

    > Actually, that’s because poor people tend to binge
    > on cheap foods filled with carbohydrates, fat and
    > corn syrup.

    The main reason that “poorer kids are fatter” is that poorer "parents" are fatter. If a rich fit trial attorney marries a tall thin ex model their kids will never get as fat as the kids of a poor fat truck driver who marries big fat chubbo (even if the rich kids eat twice as much junk food)…

    162   ozajh   2007 Apr 22, 9:08pm  

    Do you wonder why many programmers are fat?

    Hey, I resemble that remark. (Altogether too closely, in fact.) :(

    163   astrid   2007 Apr 22, 9:11pm  

    Very few genetic makeups can weather a continual barrage of Twinkies without ill effects. And since the effects take place about reproduction has already occurred, I fear humanity will not adapt properly...not that it matters, I think we'll be doomed/saved/changed a lot sooner than that.

    I'm lucky that I find all don't like soda and find Hostess products to be absolutely disgusting. But can't resist the siren calls of fresh bread dipped in olive oil...

    164   ozajh   2007 Apr 22, 9:13pm  

    Brand,

    Corn syrup is also the result of a ridiculous market distortion. It is only used in the US by the large food manufacturers because of the artificially high price of US sugar.

    165   astrid   2007 Apr 22, 10:53pm  

    Wow, I'm incredibly incoherent this morning

    166   Malcolm   2007 Apr 22, 11:12pm  

    SP, you can email any solar questions to me at Malcolm.Shaw@cox.net. My system is a 4.5KW system comprised of 27 Kyocera panels.

    167   Malcolm   2007 Apr 22, 11:27pm  

    Jimbo, overall our crime rate is very low. You are referring to the worst of the worst neighborhoods, and calculating gang targeted murders to the general population. People that mind their business even in the worst areas are relatively safe in this country. It is nothing like Iraq. There are no roving gangs stopping buses and killing people, you have areas which drug infestations with high crime, and even factored in the stats for violent crimes are down to less than 5 per thousand. The city of Tijuana Mexico had over 300 murders last year. That's an unsafe city, picking out the projects of Compton to try to draw a parallel is intellectually dishonest.

    Also, to just say something is false doesn't make it so. It is an absolutely undisputable fact that the food supply in this country is higher than it has ever been. There is absolutely no shortage of low cost food in this country. How many cases can you cite of someone in this country actually starving to death?

    168   Malcolm   2007 Apr 22, 11:29pm  

    with drug infestation and high crime....

    sorry, changed my thought midstream.

    169   Malcolm   2007 Apr 22, 11:36pm  

    Jimbo, to be clear we are talking about current times. I don't mean to discount your prior hardships. The past 10 years have seen changes, and the 25 years before that would have been different. You can see Robert Kennedy walking around Louisiana in film from the 60s. Those people literally were starving.

    170   Different Sean   2007 Apr 23, 1:09am  

    Jimbo Says:
    Overall even the poorest in our country live in safety, with clean water, and the most abundant food supply in history.

    This is false. The poorest certainly do not live in safety, they live in the most dangerous neighborhoods. The actual murder rates in poor neighborhoods are very high, approaching Baghdad levels.

    People in poor areas are disproportinately the victims of criminals who live there, in crimes against the person and property.

    171   speedingpullet   2007 Apr 23, 1:16am  

    Malcolm - don't kid yourself, its worse now that it was 10 years ago. I've just found the article that bruceb paraphrased above, and it doesn't give a rosy picture.

    link: http://tinyurl.com/2dyor9

    There are further links at the bottom of the article.

    172   FormerAptBroker   2007 Apr 23, 2:27am  

    Muggy Says:

    > I have a new thread suggestion…
    > post ridiculous realtor quotes…

    We had a great realtor quote in this thread from Big Brother:

    “Any banker, consultant, lawyer, doctor with 10-15 years experience (i.e 30s to late 30’s) can purchase a 2-3 million dollar home. Think about how many of those guys there are…. and these are just the simple workers, not the Venture Capitalists, Internet millionaires etc… but the normal man.”

    McKinsey and Bain must be paying a lot more than they did when many of my friends from Business school worked there and I be SF Woman’s husband’s firm is the only one in SF not paying guys with 10 years experience enough to buy a $2.5mm home and my friends must be the only MDs getting screwed by HMOs…

    174   skibum   2007 Apr 23, 3:27am  

    We had a great realtor quote in this thread from Big Brother:

    “Any banker, consultant, lawyer, doctor with 10-15 years experience (i.e 30s to late 30’s) can purchase a 2-3 million dollar home. Think about how many of those guys there are…. and these are just the simple workers, not the Venture Capitalists, Internet millionaires etc… but the normal man.”

    FAB, I can say with certainty that this is categorically false for lawyers and doctors. Unless this person was talking about using a crazy mortgage product. Who is this blowhard you read about?

    175   HARM   2007 Apr 23, 5:04am  

    - if you redistributed that money it’s tough to say what would happen to securities, credit, and capital investment. Also, what would happen to the motivations of the rich? If wealthy people stop doing what they do would our economy continue to work as well as it does? What is the true value of ‘leadership’?

    Honestly, I have enough things to be worried about (health, job, spouse, rent, housing bubble, peak oil, global warming/whining, etc.) without having to worry about how to "motivate" the rich. Based on their astounding success at concentrating even more of the national wealth over the past 35 years, is this really something anyone should be concerned about? And please don't tell me how a greedbag Boomer CEO is really "worth" 268X his least paid employee thanks to his superior "leadership" ability (i.e, inside connections and family legacy) --I'm just not buying it.

    As far as redistribution goes, if you were to forcibly redistribute all the wealth among everyone equally (Communist ideal - not mine), you would see a lot of it misspent by drunks, drug addicts & idiots on stupid things, this is true. However, a lot of the money would also go to the working poor and "middle-middle" class and get spent on staples, like better quality housing, healthcare, food and education. Compare this to the "staples" of the super-rich, like mostly empty vacation homes, luxury cars, Learjets, mega-yachts, horses, jewelry, high-stakes gambling, and other various ways for them to try to "out-do" each other.

    Obviously, I'm well aware (as we all are) that a lot of people have been recklessly tapping the house ATM to try to achieve a lifestyle they cannot really afford. However, this group does not include 100% of the working and "middle" classes, however you choose to define them. And which group is really more "wasteful" and extravagant overall in their spending habits --the rich or everyone else?

    176   HARM   2007 Apr 23, 5:18am  

    Brand, Malcolm,

    I had work to do yesterday (getting those granite countertops & Brazilian cherry floors installed --ha, just kidding), so I missed the exchange here. However, I see two recurring themes common to both of you:

    1) When faced with demonstrably rising wealth inequality in our society, you both resort to the "well, we're all better off than: (Sudan, Iraq, Haiti, name your third-world hell-hole), so stop your complaining" fall-back argument.

    I don't deny that we are all lucky to be born Americans (or Aussies, Kiwis, W. Europeans, Canadians, for our non-U.S. bloggers). That's beside the point here. The point is that wealth inequality is rising here, and the trend appears to be accelerating --not a good thing for any society, if you happen to favor rule of law and political stability.

    2) If that doesn't work, you switch to "Look at all those gluttonous FBs borrowing to buy all this luxury stuff --these people are 'middle class', so all middle class people are spoiled gluttons" canard.

    I would never define any of the people with the stuff you describe as "middle class". Maybe upper-upper middle class, or wanna-be upper-class, but these are not people I would have any sympathy for. I am "middle class" by any metric, and yet I have none of those things, nor do I want or "need" them to be happy.

    My definition of middle class would be to have a decent job, reliable healthcare and a paid-off modest house sometime before I hit retirement age. Something that USED TO BE easily attainable if you were willing to WORK hard for it. And something that's becoming increasingly UNATTAINABLE for members of my generation, whose names don't end with "Kennedy, Bush, Hilton or Baldwin".

    177   Malcolm   2007 Apr 23, 5:45am  

    SpeedingBullet, I looked at the article and it seems to just be saying the same thing. The poor seem to be really uneducated about proper nutrition, no one that I have seen questions this. No one seems to be saying that there ever is a stopping point where you say OK it's good enough. My only observations, and more from a probing point because I was really interested in discussing this not winning a point, is that when you look at the levels of disease, hunger, homelessness, fear of violence it historically is a great time to be alive in the United States. With that being said, like everyone else I have my own concerns about bringing people up to the next level where economics/finance is taught in high school, universal health care. Please don't get me wrong there is a lot of room for improvement.

    178   Malcolm   2007 Apr 23, 6:07am  

    HARM, to be fair it seemed logical in discussing the growing gap between rich and poor to establish what is poor in America. So far most everyone has been fair about not trying to politicize the homeless or others who by choice fall out of society so we are left trying to define a class of people as poor who often times have more tangible crap in their lives than I do, and I'm not poor.

    We've also had the, even though they are fat they are still starving argument. Well, that may be, and like I said that is an education issue, or some tweaking of social policy.

    One solution is for the government to actually grow some balls and not worry about the food lobby or defaming food industries by pointing out that certain food is crap. That's where I would start.

    179   HARM   2007 Apr 23, 6:24am  

    Malcolm,

    I'll grant you that the American or European definition of "poor" is a far cry from "poor" just about everywhere else. To some extent, the rising tide of technological and economic progress has lifted all boats --and that's a very good thing, and one of the main benefits of capitalism, especially when well regulated in democratic societies.

    I don't think we can (or should try to) idiot-proof the world. I don't think we can (or should) prevent people from making bad decisions in their personal lives, or insulate them from the consequences of those bad decisions --quite the contrary. But at the very least, we should seek to better align risk with reward when we design our "free market", so that it tends to favor socially desirable outcomes. Things like safe, propserous neighborhoods for people who are willing to work.

    In other words, I would prefer that we NOT rig our banking/mortgage system to be a casino that rewards reckless spendthrifts and speculators, while punishing responsible savers and working class families. Problem is, that's how it's mostly been since I've been an adult, and it looks like the 'rising tide' has only been lifting the yachts.

    PS: I agree that government (and AMA) cowtowing to the fast food lobby is a big part of the problem with obesity/poor nutrition. Your average consumer is getting some very poor information, and the results speak for themselves.

    180   Malcolm   2007 Apr 23, 6:37am  

    HARM, as usual in the end I find that the difference in point of view is quite narrow. I absolutely agree with 99% of what you just said. Since you seem to have given a little ground in conceeding that economic and technical progress has shifted even the bottom a little bit, now we can actually talk about the super rich verses the mediocre, and honestly I have mixed feelings about it.

    Do you conceptually have a problem with someone being able to earn unlimited wealth? Do you think society is healthy when you have a situation where many people are barely getting by, and many people have by all accounts an imense amount of wealth? What do you see happening if I have summed up the current situation accurately? If you would be kind enough to share your thoughts I'd ask also to bear in mind standards of living going from 1900 1920 1930 1950 1970 1980 2000 and beyond.

    181   Malcolm   2007 Apr 23, 6:40am  

    I'm still having a little trouble profiling our poorest.

    Is it a minority in a bad area who is obese yet starving, but has a prepaid cell phone? Is it a white single mother? Is it just someone or a family living below the government's definition of poor? All of the above?

    182   HARM   2007 Apr 23, 7:00am  

    Do you conceptually have a problem with someone being able to earn unlimited wealth?

    A: "It depends".

    If by "able to earn unlimited wealth", you mean there should be no arbitrary limits on what a person can earn in a lifetime by good, productive works, then sure, no problem. If you have the brains and ability to invent a cure for cancer or invent warp drive technology, then you should be --and will be-- handsomely rewarded for that by Mr. Marketplace. As long as you pay your share of taxes like everyone else, the government should keep its mitts off your profits.

    However, if by "able to earn unlimited wealth", you mean there should be no limits on what a person can earn through institutional fraud, anti-competitive cartels/monopolies, cronyism, corruption, insider trading, taxpayer pork, subsidies, etc., I take a very dim view of this form of "success".

    Do you think society is healthy when you have a situation where many people are barely getting by, and many people have by all accounts an immense amount of wealth?

    No I do not, and I believe history shows us what eventually becomes of societies that allows such a situation to continue indefinitely. Whether they have democratic forms of government or not, the people in extremely unequal societies have a habit of "voting" against the ruling class when they're unhappy. And the results are usually not pretty, and ironically usually FAR worse than whatever modest forms of regulation or economic reforms that were proposed prior to the coup d'État/revolution.

    183   HARM   2007 Apr 23, 7:08am  

    @DS,

    Re: images. Usually I just use Google Images search engine, and keep trying out different word/phrase combos until I hit something good.

    184   anniecoyote   2007 Apr 23, 7:16am  

    Harm...
    most of the news stories are BS, or the only story that ever gets out is one about a bomb that happened to explode somewhere. During the re-elections for Uribe, I was out in Parque Tayrona near Santa Marta. Going into town one day for supplies, we saw 3 burned out buses. The news story that made it to CNN was that guerillas had stepped out into the road, gotten all the people off, robbed them and burned the buses. The truth? The owner of the buses burned them for insurance because they were old and paid everyone off to be witnesses to say it was guerillas who burned them so he could collect his money! So much for the news media. It's kinda like the CPI reporting.

    185   HARM   2007 Apr 23, 7:30am  

    annie,

    Just curious, how long have you lived in Colombia? Are you in Bogota? I don't doubt the reporting here is flawed and biased. Part of the problem may be that the media is still reporting on the basis of Colombia's past (vivid memories of the bombings & kidnappings by FARC, ELN and M-19, and violence by Medellin & Cali drug cartels) and they've simply missed the fact that life and the political situation there has begun to improve in recent years.

    186   HARM   2007 Apr 23, 7:42am  

    AMERICANS BECOME WEALTHY BY WORKING. It is our ingenuity, cooperation, and work ethic that traditionally built this country. Nowadays we rely more and more on the hard work of others. In a sense, the US has become CEO to the world and currently benefits by taking excess profits of labor from poor countries, just as a CEO ‘takes’ the excess profits of labor from his employees.

    An excellent point, skellington. I think this concept deserves its own thread.

    187   HARM   2007 Apr 23, 7:51am  

    skellington,

    I don't think that reinstituting a 1950's era top tax rate of 91% on the rich (yes, it once went that high) will solve all our problems. Personally, as time goes on, I lean more and more towards a simple flat tax, no loopholes/deductions, and strictly enforcing it on everyone. Should save everyone tons of time and money and result in a much "fairer" system than the Byzantine, lawyered-up, loophole-ridden, over-engineered mess have today.

    Main thing is, we need to go back to system that rewards productive, socially beneficial work. People who push toxic loans, overborrow, commit fraud, and recklessly speculate should not be rewarded or bailed out. Exactly HOW we get back there is the big "if".

    188   Malcolm   2007 Apr 23, 9:02am  

    HARM,
    OK, now I can see some differences to throw around. You have to understand that I see wealth as a good thing. Yes, it is not a good thing when people suffer because of unethical ways of earning it, but in general I like real wealth. I believe it does create opportunities, and I think overall the free market is a great place to redistribute it. Having lots of wealthy and super wealthy people creates opportunities because the wealthy do buy nice houses, cars, boats, and planes. The wealthy hire all sorts of service providers. The wealthy are demanding on their surroundings so areas of concentration of wealth are nicer. It may be a sore topic here, but the wealthy do put money in financial institutions which then lend and that creates many more opportunitites.

    189   Malcolm   2007 Apr 23, 9:05am  

    I further believe that setting minimalist goals for a society ~everyone should have food, clothing, shelter~ gets minimalist results. It can be government driven, or privately driven, you still get a large group of really poor people. On the otherhand in our society, people are considered poor even when they have the basics, I think that is a good thing.

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