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Income Inequality


Xavy

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It's been bothering me for a while. I keep hearing income inequality being politicized. To me, the term refers to the gap between the rich and everyone else, in terms of accumulated wealth and income, and it is a very useful term in economic discussions. However, when the term crosses into the political arena, I worry that it becomes misleading because policies such as raising taxes in the rich, increasing the minimum wage, unionizing workers, increasing social welfare programs, etc will never eliminate income and wealth inequality. In fact, I doubt whether such policies would have any impact at all on income inequality. I would take it further and say that there is almost nothing that politicians can do to have any material impact on wealth and income inequality, even if the politicians have good, genuine intentions which I doubt anyway.

So, why are politicians selling income inequality as something they can fix without direct state intervention in people's lives ? That is socialism which has led to many failed states. It's a false narrative. Income inequality is a fact of life that will be with us forever, and we need to learn to live with that.

Don't get me wrong, I am not against policies such as increasing taxes on the rich and raising the minimum wage, however I am saying that in the context of curing income inequality, these policies will never work, and the politicians ought to know that, and should stop saying it.

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Uhm.. yeah, sure, there will always be an "income inequality" due to supply and demand of certain skills. But that's not really the main source of income inequality in western society.

It's really rather complex, so don't take this as a full explanation, but the basic thought experiment is this:

We have a small country with two people. The two people equally distribute all the country's farmland between themselves. They consider this arrangement fair and democratic, as it's only the two of them in the country.

Now a third person comes into the country. As the people already in the country have already established the distribution and property, the third person owns nothing. In theory, there's enough land for all three to do enough farming to sustain themselves. But the third person doesn't own any farmland. Now the other two give him a deal: If the third person also does the other two's share of work, he may grow food for himself as well (but he doesn't get any share of the land).

This now is a stable system, based on "fair" and "democratic" decisions, which results in the third person essentially becoming a slave with no options other than to obey or to starve.

That's of course an overly simple scenario, but in principle, fighting "income inequality" is primarily concerned with that kind of issue. If there is a significant bias in who owns the country's resources (land, fuel, machinery, buildings, etc.) then those people will get an indefinite "boost" to their power without having to continuously put in a "fair" amount of effort and work to maintain that power. Meanwhile, those who own none of the resources are completely helpless to sustain themselves without relying on someone who does own resources, which essentially gives them little more freedom than slaves.

Income inequality that comes down to someone working harder than others, someone having unique skillsets, etc. are no problem and would not lead to social unrest. But income inequality that comes down to being born without wealthy parents and thus having to play slave to others just to get food on the table will of course make the people affected unsatisfied.

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It's simple. More people earn below the median income in most countries than above it. Politicians mainly want to stay elected remain in power enjoy the prestige whilst earning well above median wage paid for by the electorate. So they have to appeal to the majority. By appearing interested in increasing income equality on the one hand and proclaiming that they can't do anything with the other they manage to appeal to enough people on both sides. So they get reelected, their snouts remain in the gravy train so,as far as they are concerned,all is well for another five years

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.Income inequality that comes down to someone working harder than others, someone having unique skillsets, etc. are no problem and would not lead to social unrest. But income inequality that comes down to being born without wealthy parents and thus having to play slave to others just to get food on the table will of course make the people affected unsatisfied.

Hi Tarfeather, I mostly agree with your post, your simplified example was well put.

I just want to comment on the paragraph I quoted above, and, again, while I mostly agree, my issue is that this is an economic and social problem that politicians cannot fix unless the directly intervene in citizens lives. Basically, socialism. For a politician to talk about "curing" income inequality without using socialism is disingenuous. But, worse, even socialism does not work, because clearly there is still income inequality in socialist countries, so that too is disingenuous. So, my argument is that politicians need to be honest, stop pretending they can cure income inequality, and instead concerntrate on implementing sensible policies that would help people cope with the economic challenges of their lives in spite of income inequality.

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.Income inequality that comes down to someone working harder than others, someone having unique skillsets, etc. are no problem and would not lead to social unrest. But income inequality that comes down to being born without wealthy parents and thus having to play slave to others just to get food on the table will of course make the people affected unsatisfied.

Hi Tarfeather, I mostly agree with your post, your simplified example was well put.

I just want to comment on the paragraph I quoted above, and, again, while I mostly agree, my issue is that this is an economic and social problem that politicians cannot fix unless the directly intervene in citizens lives. Basically, socialism. For a politician to talk about "curing" income inequality without using socialism is disingenuous. But, worse, even socialism does not work, because clearly there is still income inequality in socialist countries, so that too is disingenuous. So, my argument is that politicians need to be honest, stop pretending they can cure income inequality, and instead concerntrate on implementing sensible policies that would help people cope with the economic challenges of their lives in spite of income inequality.

First, I'm a little confused by your definition of socialism. If you're saying that socialism is the abolition of private property/etc, then how could a socialist state have income inequality? That would be impossible by definition. If you're not using to mean that, then what are you using it to mean? In what way is socialism distinct from taxation generally? It feels like you're making some sweeping claims there, and I just don't really know what to make of them.

Second, just because you can't completely solve a problem doesn't mean you can't try to make it less bad, right? It sounds like your argument is that since income inequality can't be completely eliminated, we shouldn't try to make the gap smaller. That doesn't make a lot of sense to me.

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I doubt most politicians are trying to "cure" income inequality. The goal is to reduce it to a more manageable level and to make it more possible for those in poverty to improve their lives.

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SorryNotSorry

The goal in the US is to identify as many people as possible who might devise a better mousetrap and prevent them from connecting with each other and accomplishing anything real.

It's why we have networks of domestic spies, snitches, and for the tougher cases, assassins.

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That's hardly the goal in the US. The biggest source of innovation in the world is the US tech industry, which is constantly building better mousetraps and selling them and then inventing even better ones.

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I notice that discussions of income inequality tend to focus on the situation within a single country. I'm much more interested in the global situation. The difference between the richest 2.5% and the poorest 2.5% in the world was a factor of 2 million in 2005, and increasing. I think this is outrageous. Especially since it isn't even difficult to address this: if the richest 10% (those who earn more than $8550/year) gave 1% to the poorest 50%, the ratio would be decrease to a factor of 4000. Surely 1% is not too much to ask?

http://www.soschildrensvillages.org.uk/

Xavy, please read The Spirit Level by Wilkinson and Pickett. That will make it obvious that policies have exactly the influence on income equality they are meant to have and that people choose to vote for, and these different choices make an enormous difference in everything from the number of teenage pregnancies to whether you can go out at night without having to fear that you're going to be mugged.

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If you have no direct state intervention in people's lives, you effectively have no government. What you have is, more or less, anarchy. As much as I believe this is the ideal state of things, it's pretty well proven that it won't work with the way humans actually act (see: the internet at large, if more proof is needed), so a total lack of interference from the government is not going to happen.

The purpose of a government (at least in my opinion) is to govern a country and make the lives of its citizens better than they would be without the government. To that end, the government is paid taxes so that they are able to pay for the projects that will better the lives of the people living in that country -- infrastructure of all kinds most especially. The government passes laws because most people apparently can't just live by common sense and decent morals, so they need punishments to keep them from running rampant. Increasing the quality of life for people all across the board in a country is what the government should be doing, and if they're not at least working hard at that, things need to change. This is not the same thing as communism or socialism; although indeed, most of what people tend to reference with regards to both communism and socialism refer exclusively to communist or socialist dictatorships, the main negatives of which arose primarily from fascism. Capitalist and fascist countries suck too.

Raising taxes on the rich won't eliminate income inequality. It won't have much of an impact on it, in fact, although presumably the rich are concerned that it will, or they would have no good reason to oppose it (sheer greed not being, in my opinion, a good reason). What it would do is give the government more money to use to increase the average quality of life in the country, thus making the low income of some people less of a problem. The social welfare programs make it less of a burden to have a low income. Unionising workers makes it harder for the leaders of the companies they work for to compensate them unjustly. Introducing a law that you can't pay your top employees more than X times what you pay the employees at the bottom rung might help, but I doubt anybody's going to do it. Making it illegal to pay certain groups of people less for the same job as you would pay other groups of identically qualified people would help.

The inequality won't be eliminated. It can be somewhat reduced, and the effects of income inequality on those with lower income can be mitigated (largely by the social welfare programs and things such as better healthcare availability), and I see no reason why that shouldn't be done. All or nothing isn't very practical when you can't do all. I also certainly agree that looking at the problem world wide is something that should be done more often. Looking at it only within the boundaries of any one country doesn't give the whole picture.

Of course, the way things are going, the capitalist model isn't going to continue working anyhow, so it would be nice if people gave some thought to that. Requiring everybody to have a job in order to live decently, but actually reducing the number of available jobs while the population continues to increase, is by no means sustainable. Something's going to give at some point.

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  • 2 weeks later...

the richest 10% (those who earn more than $8550/year)

Wow, that's a lot less than I expected it to be. Still can't say that I'm part of that crowd at the moment, though, but I think an unemployed person would earn almost that much in this welfare state. :mellow:

Are you sure it's really that much? Less than 10k per year?

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policies have exactly the influence on income equality they are meant to have and that people choose to vote for, and these different choices make an enormous difference in everything from the number of teenage pregnancies to whether you can go out at night without having to fear that you're going to be mugged.

I agree policies can influence things, but I don't believe it is possible to legislate away poverty and income inequality.

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Are you sure it's really that much? Less than 10k per year?

Quite likely, I think top 1% is about $34000.

Measuring that in dollars is a really blunt instrument though; there's quite some difference in the kind of life you'll life on a yearly income of $34K in the US compared to if you earn the same in a low cost country. $8550 in a place like India will buy you about the same as $34K in the US.

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All people are born equal. Some are more equal than others. I am selfish and totally materialistic, so, so long as I am more equal that's all that matters

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I notice that discussions of income inequality tend to focus on the situation within a single country.

That's natural, because people usually go on to quote high and low incomes in their country, and those figures (as we see in previous posts) don't translate to other countries.

In the US, the top 1% now earn near $1 billion/year, because of their investments which produce capital gains. That isn't considered to be "earned income", because it's not from a specific job.

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So, even the Pope is getting in on this

http://www.washingtonpost.com/business/economy/pope-francis-denounces-trickle-down-economic-theories-in-critique-of-inequality/2013/11/26/e17ffe4e-56b6-11e3-8304-caf30787c0a9_story.html

In his most authoritative writings as pontiff, Francis decried an idolatry of money in secular culture and warned that it would lead to a new tyranny. But he reserved a large part of his critique for what he sees as an excessively top-down Catholic Church hierarchy, calling for more local governance and greater inclusiveness including broader opportunities for a more incisive female presence in the Church.

The 50,000-word statement is the latest sign that Francis intends to push the church in a new direction. On some issues such as income inequality and poverty he is echoing concerns long pursued by his predecessors. On others, such as the management of the church, he is embarking on a new path marked by less central authority.

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So, even the Pope is getting in on this

http://www.washingtonpost.com/business/economy/pope-francis-denounces-trickle-down-economic-theories-in-critique-of-inequality/2013/11/26/e17ffe4e-56b6-11e3-8304-caf30787c0a9_story.html

In his most authoritative writings as pontiff, Francis decried an idolatry of money in secular culture and warned that it would lead to a new tyranny. But he reserved a large part of his critique for what he sees as an excessively top-down Catholic Church hierarchy, calling for more local governance and greater inclusiveness including broader opportunities for a more incisive female presence in the Church.

The 50,000-word statement is the latest sign that Francis intends to push the church in a new direction. On some issues such as income inequality and poverty he is echoing concerns long pursued by his predecessors. On others, such as the management of the church, he is embarking on a new path marked by less central authority.

I think he's an adherent of Liberation Theology, which was big in the 70s before previous popes clamped down on it. No change of actual Church doctrine, but more warm and fuzzy regarding actual people.

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because by definition there are always more poor people than rich ones, so if you wanna get more votes then say you want to fight income inequality

But then there are those people who believe hard work will win out financially, so you appeal to them by saying that we should cut taxes so people can keep more of what they earn rather than distribute wealth evenly

and there's no right answer, which is why it's an issue in the first place. In a two party system you just divide and conquer

I'm sure what I wrote up there made sense in my head but I just downloaded a movie I wanna watch and I already checked out of this reply like halfway through it.

I'm not one of those hard working people... which means I make less money, which means I pay less in taxes. WINNER

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I don't think anyone believes that it is possible to eliminate income inequality, but there are policies that can reduce it. Rightly or wrongly, increasing levels of income inequality are probably destabilizing for society. To start, the gov't should just guarantee everyone a minimum income of say $30,000 a year and if you want to earn more then you can earn more.

I haven't read the latest from the Pope, but I didn't like his anti free market stance.

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allrightalready

the richest 10% (those who earn more than $8550/year)

Wow, that's a lot less than I expected it to be. Still can't say that I'm part of that crowd at the moment, though, but I think an unemployed person would earn almost that much in this welfare state. :mellow:

Are you sure it's really that much? Less than 10k per year?

lowest 50%

WASHINGTON, D.C. -- The median annual household income worldwide is $9,733, and the median per-capita household income is $2,920, according to new Gallup metrics. Vast differences between more economically developed countries and those with developing or transitional economies illustrate how dramatically spending power varies worldwide. Median per-capita incomes in the top 10 wealthiest populations are more than 50 times those in the 10 poorest populations, all of which are in sub-Saharan Africa.

http://www.gallup.com/poll/166211/worldwide-median-household-income-000.aspx

i am above this but not by much and i give far more than 1% of what i have helping those less fortunate than i

Are you sure it's really that much? Less than 10k per year?

Quite likely, I think top 1% is about $34000.

Measuring that in dollars is a really blunt instrument though; there's quite some difference in the kind of life you'll life on a yearly income of $34K in the US compared to if you earn the same in a low cost country. $8550 in a place like India will buy you about the same as $34K in the US.

Nearly half of the world's richest one per cent of people live in the U.S., according to a top economist.

But the threshold required to make it in to that elite group is lower than you might think - just $34,000 per person.

While the Occupy Wall Street movement has focussed on the top one per cent of earners in the U.S., Branko Milanovic, a World Bank economist, has suggested that anti-inequality protesters should be more concerned with wealth disparity across the globe.

http://www.dailymail.co.uk/news/article-2082385/We-1--You-need-34k-income-global-elite--half-worlds-richest-live-U-S.html

one thing not factored in any of these numbers is relative cost of living. i live in a slum where i am not safe leaving my apartment after dark and have even been attacked in my apartment by a man who broke in, yet my rent is $5,940 a year which is enough for a FAMILY to survive on for an entire year in places but i have to add to that in order to eat and everything else.

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There is just no point in looking at the global average income and then comparing it to your personal income. There are too many country-specific (and very local-specific) factors involved.

I think this Pope is great compared to the last Pope, but when he talks about greed, I think of the insane wealth of the holdings of the Vatican.

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Looking at per capita income at purchasing power parity will probably give you a pretty good idea about global income inequality.

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Introducing a law that you can't pay your top employees more than X times what you pay the employees at the bottom rung might help, but I doubt anybody's going to do it.

Just for the record, Switzerland got an initiative for this passed a few years back, but it didn't stand a chance in the public vote and was utterly destroyed with a majority of somewhere between 70% and 75% of votes. I can't say what each person's reasoning was, but the general talking points of the opponents can be reduced to 1) governement interference with private businesses is always and inherently bad for everyone, and 2) if you vote for this, you might very likely lose your job.

Oh, and funny story; in the booklet that explains the questions voted on and that accompanies every voting sheet, the commitee behind the initiative [called 1:12, by the way] made an example of income difference using the publicly available income of a semi-prominent entrepreneur who is also a politician. They were forced to change it or remove the name because using it in the context of the initiative [i.e. 'this discrepancy is a bad thing we want to see gone'] was uncomfortably close to diffamation of character, or something like that. Ironic, how that process itself reveals that people are very aware that this is not a 'clean' issue, while at the same time advocating against it on economical grounds.

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Introducing a law that you can't pay your top employees more than X times what you pay the employees at the bottom rung might help, but I doubt anybody's going to do it.

Just for the record, Switzerland got an initiative for this passed a few years back, but it didn't stand a chance in the public vote and was utterly destroyed with a majority of somewhere between 70% and 75% of votes. I can't say what each person's reasoning was, but the general talking points of the opponents can be reduced to 1) governement interference with private businesses is always and inherently bad for everyone, and 2) if you vote for this, you might very likely lose your job.

Oh, and funny story; in the booklet that explains the questions voted on and that accompanies every voting sheet, the commitee behind the initiative [called 1:12, by the way] made an example of income difference using the publicly available income of a semi-prominent entrepreneur who is also a politician. They were forced to change it or remove the name because using it in the context of the initiative [i.e. 'this discrepancy is a bad thing we want to see gone'] was uncomfortably close to diffamation of character, or something like that. Ironic, how that process itself reveals that people are very aware that this is not a 'clean' issue, while at the same time advocating against it on economical grounds.

I have a suspicion that most people understand the exploitative nature of the system, yet for some reason they think it's "good" to keep it in place. Better not upset the masters, or else they won't be merciful to you anymore or something like that.

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Calligraphette_Coe

One famous investor once said something profound about capitalism and investing:

"Bulls make money, bears make money and pigs get slaughtered."

Only the pigs have changed the rules using corporatism, crony capitalism and bankruptcy laws to create moral hazard, where they minimize their risk while maximizing their profits while skating away scot free when their houses of cards get blown away.

Another famous investor said "You can always tell who has been swimming naked when the tide goes out."

And that's how we got to where we are today-- the pigs have been swimming naked while clothing their naked villainy in political fiat they bought and paid for, getting their mouthpieces to scream "SOCIALISM! SOCIALISM! Lions! And Tigers! And Bears! Oh my!"

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You should apologize to the pigs for comparing them to corporate parasites. Oh ****, now I need to apologize to the parasites.

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the richest 10% (those who earn more than $8550/year)

Wow, that's a lot less than I expected it to be. Still can't say that I'm part of that crowd at the moment, though, but I think an unemployed person would earn almost that much in this welfare state. :mellow:

Are you sure it's really that much? Less than 10k per year?

Frac, it's world bank data (by Milanovic, so also see his remark quoted by allrightalready), so I'm reasonably sure it's well researched and presumably accurate.

Measuring that in dollars is a really blunt instrument though; there's quite some difference in the kind of life you'll life on a yearly income of $34K in the US compared to if you earn the same in a low cost country. $8550 in a place like India will buy you about the same as $34K in the US.

I don't remember whether it was purchasing parity dollars or not, but I've looked at PPP data as well, and that doesn't really change the fact that even people that we internet-users might think of as poor are actually rich by both global and historical standards.

lowest 50%

WASHINGTON, D.C. -- The median annual household income worldwide is $9,733, and the median per-capita household income is $2,920, according to new Gallup metrics. Vast differences between more economically developed countries and those with developing or transitional economies illustrate how dramatically spending power varies worldwide. Median per-capita incomes in the top 10 wealthiest populations are more than 50 times those in the 10 poorest populations, all of which are in sub-Saharan Africa.

http://www.gallup.com/poll/166211/worldwide-median-household-income-000.aspx

No, it was definitely the lowest 90%. Given your data it was probably per capita, which I think is more informative anyway. Also, it was 2005 data.

Looking at per capita income at purchasing power parity will probably give you a pretty good idea about global income inequality.

Exactly.

You should apologize to the pigs for comparing them to corporate parasites. Oh ****, now I need to apologize to the parasites.

Hilarious. Unfortunately also too true.

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