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Percentiles

October 14th, 2011

One of the most striking successes of the Occupy Wall Street movement has been the “We are the 99 per cent” idea, and more specifically in the identification of the top 1 per cent as the primary source of economic problems.


Thanks to #OWS, the fact that households the top 1 per cent of the income distribution now receive around 25 per cent of all income (up from 12 per cent a few decades ago) has been widely disseminated. The empirical work on tax data that produced this evidence, done most notably by Piketty and Saez, has been slowly percolating into the mainstream consciousness, but “We are the 99 per cent” has hammered it home with surprising speed.

Even more surprisingly, the analysis as it relates to the 1 per cent has been almost unchallenged by the organized right. Having spent decades denying the obvious growth in inequality, and of the wealth and power of the super-rich, the right has implicitly conceded to reality on this point.

Their response to ‘We are the 99 per cent’ has been the snarky claim that ‘We are the 53 per cent’. This line is based on the lame and long-refuted  WSJ ‘lucky duckies’ talking point, that low-wage workers ‘pay no income tax’. It is, of course, true that many workers don’t pay the tax called the Federal Income Tax’ , but they do pay the Social Security payroll tax, which is a tax on wage incomes, not to mention sales taxes and many others. By contrast, capital gains, the preferred income source of the ultra-wealthy, are not subject to payroll tax and attract only half the standard rate of the Federal Income Tax.

What’s more interesting to me is the 53 per cent number, redolent of the Buchanan-Nixon plan to ‘tear the country in half and take the bigger half’. It stands in stark contrast to the hypocritical complaints of Republican politicians about class warfare and turning Americans against each other. The fact that anyone could see this slogan as clever politics is an indication of the costs that are eventually incurred in the creation of a hermetically sealed thought bubble like that of the US right.

Coming back to reality, I’d like to think a bit about the relationship between the 1 per cent and the remaining 19 per cent of the population in the top quintile (that is 20 per cent). Most if not all of the bloggers here at CT fall into the latter group. Given our lamentable lack of market research, I can’t say much about readers, but a reading of the comment section suggests that most of our readers also belong to this group.

 The top quintile as a whole commands the great majority of US income, and virtually all financial wealth – few households outside this group own much beyond their homes and perhaps some money in a pension fund. It follows that any significant improvement in public services, or in the position of the unemployed and poor, must be funded by higher taxes on the 1 per cent, the 19 per cent or both.

The 19 per cent also have a disproportionate political weight, since they are much more likely than Americans in general to register, vote and engage in political activity. So, it makes a big difference whether, as as implied by ‘We are the 99 per cent’ their interests are aligned with the mass of the population or with the top 1 per cent.

Until quite recently, I would have (and did) argued against this view. The top quintile as a whole has done very well over the past few decades, and (despite some silly claims to the contrary), high-income earners have mostly voted Republican, in line with their economic interests. Certainly there are plenty who don’t vote their interests, but that is also true of many people in the top 1 per cent, not to mention bona fide billionaires like Buffett and Soros.

There was always an argument in terms of enlightened self-interest or class-interest, that it was better to give up a bit of (pre-tax and post-tax) income to maintain a stable and relatively egalitarian society. But in an individualistic society like that of the US such arguments don’t go very far.

As far as policy is concerned, my implicit assumption, formed in a relatively egalitarian society, was that taxes imposed only on the very rich might be satisfying but couldn’t raise a lot of money. So, for example, I dismissed Obama’s focus on ending the Bush tax cuts for incomes above $250k (roughly, the top 2 per cent). In the ‘Trickle Down’ chapter of Zombie Economics, I looked mainly at the top 20 per cent (or sometimes 10 per cent) of the income distribution rather than the top 1 per cent.

I’m now much more sympathetic to the ‘99 per cent’ analysis. First, a closer look at income growth figures suggests that, while the 19 per cent have enjoyed rising incomes, they’ve only barely maintained their share of national income. The redistribution of the past three decades has gone from the bottom 80 per cent to the top 1 per cent.

That suggests the possibility of a policy response in which the main redistributive thrust would be to reverse this process.  This would almost certainly involve higher tax payments, but this would be offset by the restoration of public services, which are in economic terms a ‘superior good’, valued more as income rises. The top 1 per cent can buy their own services, and are largely unaffected by public sector cutbacks, but that’s not true of the 19 per cent.

Another important factor is the growth of economic insecurity. The myth of the US as a land of opportunity for upward mobility has been replaced by Barbara Ehrenreich’s Fear of Falling (another good source on this is High Wire by Peter Gosselin). Even if people in the top 19 per cent are doing well, they are less secure than at any time since the 1930s, and their children face even more uncertain prospects.

Finally, there is the alliance of the 1 per cent with the forces of rightwing cultural tribalism. The 1 per cent can only rule by persuading lots of people to vote against their interests, and that requires a reactionary and anti-intellectual agenda on social, cultural and scientific issues. As a result, educated voters have increasingly turned against the Republican Party.

I don’t want to make too much of this last point. As Allan Grayson said during his memorable takedown of PJ O’Rourke recently, the 1 per cent own the Republican Party outright, but they also own much of the Democratic Party, and can rule satisfactorily through either. Also, having a college degree isn’t the same as being educated – Tea Party supporters are more likely than the average American to have a degree, and college-graduate Republicans are even more prone to various delusional beliefs on issues such as climate change.

Nevertheless, taking account of all the factors listed above, even the most comfortably affluent members of the professional class, looking at the alliance of plutocrats and theocrats arrayed to defend Wall Street could reasonably conclude that it was in their own interests to support the 99 per cent and not the 1 per cent.

We are therefore (surprisingly to me) suddenly back in a situation where a progressive movement can reasonably claim to act in the interests of a group that is (I’m quoting Erik Olin Wright from memory on the Marxist conception of the working class0
(a) the overwhelming majority of the population
(b) responsible for nearly all the productive activity (as against the 1 per cent’s incomes drawn from a parasitic financial sector)
© economically desperate or at risk of becoming so.

Can all of this be sustained? I don’t know, any more than anyone else. But #OWS has already achieved things that most people would have regarded as impossible a month ago, and for the moment at least, the momentum is still growing.

(Hopefully links to come when I get a bit more time)

Posted via email from John’s posterous

Categories: Economics - General Tags:
  1. Peter Smith
    October 14th, 2011 at 11:30 | #1

    John, can you comment on how much this analysis applies to the current Australian society? ISTM that we are still a bit more egalitarian; and given the recent threats of shareholder resistance to ballooning executive payouts we have a reasonable chance of staying that way.

  2. John Quiggin
    October 14th, 2011 at 11:46 | #2

    I think that’s right, but we have tended to follow the US path with a lag, and need to resist that.

  3. October 14th, 2011 at 11:57 | #3

    Roubini has a piece on a related issue
    http://www.project-syndicate.org/commentary/roubini43/English

    Tapen

  4. shocked (just like Kylie)
    October 14th, 2011 at 12:01 | #4

    Is there an overall picture of Australia’s wealth distribution? It’d be interesting to compare Australian companies to US General Electric, which apparently paid $0 in federal US taxes in 2010:

    http://www.bnet.com/blog/financial-business/ges-scandalous-tax-breaks-are-rooted-in-politics/12187

    Mining companies that can bring down a Prime Minister probably need only a morning smoko break to work out how to get out of paying tax.

  5. Tom
    October 14th, 2011 at 12:28 | #5

    As much as capitalist deny it, the symbol of capitalism is falling apart. The future of America looking very grim unless the top 20 percentile willing to cooperate (which will be extremely unlikely).

    Professor Q, as much as I hate to be pessimistic, I don’t really think this soon-coming crash of Capitalism can be avoided simply because the top percentile have too much power right now and they have endless greed (you can see it from the case of arrests in Occupy Boston protest in a what they call it “democracy” country). America can only hope that when the future generation comes into power (America by that time would most possibly be in deep depression), they will see this mistake and attempt to put forward a better economic and political system to recover.

  6. gerard
  7. Dan
    October 14th, 2011 at 12:41 | #7

    I don’t think it’s greed per se, although that certainly worsens matters.

    The problem is that capitalism itself, in the aggregate, is a collective action problem – a prisoner’s dilemma and race to the bottom. In the words of Roubini, “cutting jobs weakens final demand… because it reduces labor income… Because a firm’s labor costs are someone else’s labor income and demand, what is individually rational for one firm is destructive in the aggregate.”

    Hyman Minsky, I think, knew how to deal with this, but governments seem to only feel they’re in a position to offer a fraction of a solution.

  8. Tom
    October 14th, 2011 at 12:57 | #8

    Dan :I don’t think it’s greed per se, although that certainly worsens matters.
    The problem is that capitalism itself, in the aggregate, is a collective action problem – a prisoner’s dilemma and race to the bottom. In the words of Roubini, “cutting jobs weakens final demand… because it reduces labor income… Because a firm’s labor costs are someone else’s labor income and demand, what is individually rational for one firm is destructive in the aggregate.”
    Hyman Minsky, I think, knew how to deal with this, but governments seem to only feel they’re in a position to offer a fraction of a solution.

    In theory, yes that is correct but you need to look at the reality of the system itself. People are proven to be less resistant when they get a wage cut in the way of limited wage rise when inflation exist compare to a direct wage cut when both ways are similar (only difference is you will have more current spending power before price rises). Now when you put it in the place of executives, more labour cost means less profit mean less bonus. Even if they understand that cutting job will mean less demand for the total economy (which I’m pretty sure a lot of them do). They will not do it simply because of greed for bonus and fear for losing the job due to not meeting shareholder demands. If the US government fails to act on this, it will only be time until America faces prolong recession/depression similar if not much worser than Japan.

    To be honest with you, with the current power the wealthy and the Murdoch media holds in US; the US government is pretty much a defenseless kid.

  9. Ikonoclast
    October 14th, 2011 at 13:25 | #9

    Well, we will have to see whether the 99% can gain traction. Or when the chips are down will the US plutocracts behave any better than Assad?

  10. Freelander
    October 14th, 2011 at 14:09 | #10

    Gee, once in a while the great unwashed wake up and reach for the pitch forks and torches!

    Not to worry, the cleverer monkeys, stake through their hearts, decapitated, having been consumed by flame or not, will soon resurrect themselves from their crypts once more, and pull the wool over their eyes all over again.

  11. Freelander
    October 14th, 2011 at 14:12 | #11

    Arab spring, British summer, US fall, no matter what, only a few of the one percent will lose, if any of them do; the rest will reinvent and recycle themselves and remain exactly where they are, at the top. Such is life.

  12. Donald Oats
    October 14th, 2011 at 16:24 | #12

    Capitalism in its current form (its only form?) presumably relies on consumers consuming, and surely in a globalised system those consumers are also the workers – unless, of course, a bunch of wealthy Martians or Venusians turn up. If workers’ income falls below that required for a meal and a bed, then where do consumers come from? It is all too confusing for this mind…

  13. Dan
    October 14th, 2011 at 16:54 | #13

    “If workers’ income falls below that required for a meal and a bed, then where do consumers come from? It is all too confusing for this mind…”

    Let me try to clear it up for you: they don’t.

  14. Dave
    October 14th, 2011 at 17:18 | #14

    Hi All the problems of over-accumulation don’t even necessitate a fall in wages below the level workers need to reproduce their conditions: just to a level that they can no longer consume enough commodities to realise a sufficiently attractive level of profits for capital invested. Since the general stagnation of wages since the mid 1970s ( I am not sure that Australia fits this pattern) demand has been increased through the expansion of credit. With the crisis of this architecture the crisis of over-accumulation has returned.

  15. Dan
    October 14th, 2011 at 17:24 | #15

    Yes, the growth in private debt was a panacea for stagnating real wages, with two rather unfortunate drawbacks: a) the fundamental value of assets became unpricable, b) the longer it lasted, the worse the crash had to be.

  16. TerjeP
    October 14th, 2011 at 18:02 | #16

    “Soak the rich” has always been a political message with some potency. One objection I have always had is that the notion is frequently marketed by pointing to the excesses of billionaires but the practical application has been imposed on people who are on good incomes but by no means super rich. If the left now want to redefine the world into two classes, the 99% and the 1% and they follow through on that division when it comes to their “soak the rich” policies then their message is likely to gain more political traction and will also probably do less economic damage.

    Tax cuts now for the 99%!!

  17. Dan
    October 14th, 2011 at 18:09 | #17

    Or better yet, jobs for the ~20% unemployed and underemployed. They tried the tax cuts thing, resounding success that.

  18. Greg
    October 14th, 2011 at 18:09 | #18

    So John, I guess my question has to be – what does the pareto population want?

    If you’re going to posit some sort of cohesive group that should be able to be either milked for more or be able to create more change in themselves, then I guess you’ve got to create some sort of a belief that they have anything in common – either within themselves as the top 20%, or within the bottom 80% that excludes them.

    My understanding of how our current western society is arranged is that these top 20% and bottom 80% groups have so much variability internally that no actionable change can be managed.

    I dunno, give me some sort of hope for change and I’ll be thrilled, but I just don’t see it.

    I think the 1%/99% split has more obvious differences.
    My reading is that one group is oblivious, and one group doesn’t understand.

  19. John Goss
    October 14th, 2011 at 18:17 | #19

    Oh no. TerjjeP and Quiggin are in agreement. The natural order has been overturned. Maybe the world really is going to end in 2012.

  20. Dan
    October 14th, 2011 at 18:33 | #20

    If memories of Saturday morning plot arcs serve well, there’ll now be a denouement where Terje is unmasked *as* John Q, playing the part of a resolute defender of the indefensible to get these threads really cooking.

    “And I would have got away with it too, if it wasn’t for you interfering kids…”

  21. Fran Barlow
    October 14th, 2011 at 18:44 | #21

    You get a scooby snack for that Dan

  22. Tom
    October 14th, 2011 at 18:56 | #22

    Greg :So John, I guess my question has to be – what does the pareto population want?
    If you’re going to posit some sort of cohesive group that should be able to be either milked for more or be able to create more change in themselves, then I guess you’ve got to create some sort of a belief that they have anything in common – either within themselves as the top 20%, or within the bottom 80% that excludes them.
    My understanding of how our current western society is arranged is that these top 20% and bottom 80% groups have so much variability internally that no actionable change can be managed.
    I dunno, give me some sort of hope for change and I’ll be thrilled, but I just don’t see it.
    I think the 1%/99% split has more obvious differences.My reading is that one group is oblivious, and one group doesn’t understand.

    The fundamental issue that caused this problem I suppose can only be solved through government regulations and the ideology of socialism; which creates economic growth at the sametime give fair share of the economic growth to the whole society (which capitalism fails to share the economic growth to the whole society and ultimately end up in extreme poverty of the lower/middle class; communism also fails to create noticable economic growth because it kills off any means of incentives for people to get extra reward for improving their quality of work). But I have yet to see a country that operates REAL socialism.

    It is an irony to see the comparison between monarchism and capitalism (democracy as they call it). People revolted against monarchism because the majority of the people lives in slump and hardly able to afford food; while we are seeing the samething happening in the symbolic country of Capitalism, the US of A.

  23. Freelander
    October 14th, 2011 at 19:11 | #23

    The reason you don’t hear “soak the poor” is because many of the rich are rich because they ensure many of the poor are pre-soaked. Given that, rather than “soak the rich” why not “rinse the rich” to clean them out of ill-gotten GFC precipitating gains. Sounds much better.

  24. Freelander
    October 14th, 2011 at 19:23 | #24


    It is an irony to see the comparison between monarchism and capitalism (democracy as they call it). People revolted against monarchism because the majority of the people lives in slump and hardly able to afford food; while we are seeing the samething happening in the symbolic country of Capitalism, the US of A.

    Not such an irony if you recognise that the US was founded with a faux revolution, rather than a real revolution. Those who did the taking over were already running the country, albeit as a subsidary of British Inc. In the case of the US it was, effectively, a management buyout sans payment for the buyout. The French revolution, and the British Civil War, were different. The pattern set in the US ‘revolution’ has been repeated many times since – management managing to walk away with what was shareholder value. Current affairs are simply keeping the tradition alive!

  25. TerjeP
    October 14th, 2011 at 19:24 | #25

    Oh no. TerjjeP and Quiggin are in agreement.

    Let’s not get carried away.

  26. Chris Warren
    October 14th, 2011 at 19:38 | #26

    John Goss :
    Oh no. TerjjeP and Quiggin are in agreement. The natural order has been overturned. Maybe the world really is going to end in 2012.

    Like Buffett and Carnegie, Terje will trim a few glutenous capitalists (the 1%) to permit the rest to carry-on much as before. Several shareholder activist groups are seeking the same from their own executives.

    But lets not get too sideswiped by this. The Commonwealth Bank, after this sacrificing ploy, still pays its new CEO, Ian Narev, $2.5 million base annual salary plus bonuses. His predecessor, Ralph Norris, received $3.2 million base salary.

    Whatever concerns the homeless and unemployed had over executive pay over $3 million, they are hardly alleviated by paying $2.5 million.

    Most executives of capitalist corporations are around the $1,000,000 per annum base pay, plus copious fat feed to them through bonus and share options etc.

  27. Monkey’s Uncle
    October 14th, 2011 at 19:55 | #27

    “Their response to ‘We are the 99 per cent’ has been the snarky claim that ‘We are the 53 per cent’. This line is based on the lame and long-refuted WSJ ‘lucky duckies’ talking point, that low-wage workers ‘pay no income tax’. It is, of course, true that many workers don’t pay the tax called the Federal Income Tax’ , but they do pay the Social Security payroll tax, which is a tax on wage incomes, not to mention sales taxes and many others. By contrast, capital gains, the preferred income source of the ultra-wealthy, are not subject to payroll tax and attract only half the standard rate of the Federal Income Tax.”

    Whether or not SS, Medicare and state unemployment payroll taxes should be included as taxes at all is debatable, insofar as these are largely contributory-based insurance programs that are essentially off-budget. Whereas taxes are normally considered to be the means by which governments raise general revenue for expenditures unrelated to the means through which it is collected.

    But even besides that, the fact remains that in the United States payroll taxes, sales taxes, and taxes on alcohol, tobacco and fuel (which tend to be less progressive than income taxes) are relatively low, particularly compared to European countries. Income tax is a larger share of government revenue, and the proportion of income tax paid by low and middle-income earners is very low. Moreover, investment income is often double taxed due to a lack of imputation credits for corporate dividends. So the broader point, that the US tax system is relatively progressive, remains. The OECD has confirmed in recent times that the US has the most progressive tax system of any developed nation.

    Moreover, it is a bit silly for leftist commentators to complain about the cost to struggling working Americans of funding programs like Social Security. Which side of politics created these programs in the first place? Which side has most stridently defended such programs for so long? Which side has fiercely resisted attempts to means-test, impose any cuts, or allow workers to opt out of such programs? Which side has made a perennial campaign theme out of scaring old folks about their entitlements being taken away? By your own reasoning, it is only the continued existence of New Deal and Great Society entitlement programs that prevent the US tax system from being even more progressive than it already is. That is a telling admission. Personally, I think it is absurd, obscene and unsustainable that struggling working families should be forced to subsidise wealthy retirees with a couple of yachts in Florida. But most American liberals are stridently opposed to means-testing.

  28. Dan
    October 14th, 2011 at 19:55 | #28

    Glutenous capitalists! Sounds like my vegetarianism won’t stand in the way of me eating the rich :P

    However, I agree with you. The notion that wealth needs to be distributed close to as unevenly as it is or… or… just doesn’t hold water. In fact the global economy would be a lot healthier were quasi-clever people not handsomely rewarded for finding ways to externalise risk via “financial innovation”.

  29. Mulga Mumblebrain
    October 14th, 2011 at 20:22 | #29

    Freelander, one of the signatories of the US Declaration of Independence, John Jay, the first Chief Justice of the Supreme Court, allegedly had a favourite aphorism, ‘Those people who own this country are going to run this country’. It’s never changed. It also explains the hideous savagery of US policy in the Middle East, and the continued sadistic brutalisation of the Palestinians.

  30. Freelander
    October 14th, 2011 at 20:45 | #30

    @Mulga Mumblebrain

    I agree. US foreign policy is hardly of any benefit for the majority of Americans. The manage to sell what they do under the banner “My country right or wrong”. Too many ordinary Americans have been willing to swallow the bull and waste their lives ‘defending their country’. Problem is, they haven’t been defending their country, rather they have been pursuing the interests of various small elites. The US has not had to defend itself, really since WWII. Even 911 was better treated as a crime, not an act of war. How can a rag tag bunch of ‘terrorists’ whose international operations have sometimes resembled the activities of keystone cops be a group capable of ‘declaring war’ on the country that spends as much on defense as the rest of the world combined. Rather than eliminating the threat from terrorism, alot of the US actions since 911 have been the greatest recruitment tool terrorist could hope for. But maybe that was the plan. After all, no cold war, the peasants might start to think that there is no need to spend up large on security. If 911 hadn’t happened they would have to have invented it.

  31. stockingrate
    October 14th, 2011 at 21:22 | #31

    Americans are not nearly as wealthy as they were. Redistribution will help but cannot fix this problem. Global competition is intense and oil has peaked while the American population still grows. It will be very difficult to adapt effectively to lower wealth if the 1% is thought of as the only problem.

  32. John Quiggin
    October 14th, 2011 at 21:53 | #32

    @stockingrate
    Care to justify this claim? US national income per person has risen substantially over the thirty years since 1979. That was the peak in oil consumption per person, and US consumption per person has fallen more than for the world as a whole.

    By contrast, median household income has barely moved – that’s all due to upward income redistribution.

  33. TerjeP
    October 14th, 2011 at 23:07 | #33

    Chris – you should read what I wrote not what you imagine I wrote. I offered analysis of a position not advocacy for it.

  34. Dan
    October 14th, 2011 at 23:17 | #34

    Terje: Cool. How much should we smash the rich? And who’s in the firing line?

  35. Chris Warren
    October 14th, 2011 at 23:22 | #35

    @John Quiggin

    What data are you using?

    Using current dollars may appear to show a “substantial” rise but not so in constant (2005) dollars.

    American personal disposable per capita income (constant dollars) was:

    $18,897 (1979) and $33,025 (2010)

    See: row 81, Table 673 at:

    census.gov/compendia/statab/cats/income_expenditures_poverty_wealth.html

    This is an annual growth of around a mere 1.8% pa. and of course if the distribution of this wealth becomes more adverse, it is possible that some Americans can in fact be worse off even over this huge timescale. 1.8% is not a substantial rise.

    You can easily see that all Americans were definitely worse off for the years: 2008-2009. This burden would have been disproportionately shared amongst Americans.

    It is not clear in all this how the impact of household debt is factored-out.

  36. Chris Warren
    October 14th, 2011 at 23:30 | #36

    TerjeP :
    Chris – you should read what I wrote not what you imagine I wrote. I offered analysis of a position not advocacy for it.

    You never make sense. But for clarity’s sake:

    Do you support the continuation of:

    the practical application has been imposed on people who are on good incomes but by no means super rich

    or moving some of the practical application onto the “super rich”?

  37. John Quiggin
    October 14th, 2011 at 23:35 | #37

    @Chris Warren
    Just a disagreement on terminology. Against a claim that Americans are “not nearly as wealthy as they were”, I’d say a 75 per cent increase is “substantial”, even if the rate of increase has been slower than in the post-1945 boom. YMMV.

    As I already said, the problem is distribution, not the absence of growth in income per person, let alone the decline claimed by stockingrate.

  38. John Quiggin
    October 14th, 2011 at 23:43 | #38

    @Monkey’s Uncle
    A lot of effort to respin an unsalvageable talking point. Fortunately Paul Krugman has already taken out the trash on this one

    http://krugman.blogs.nytimes.com/2011/10/13/buffetts-buffetts-everywhere/

  39. October 15th, 2011 at 00:56 | #39

    This may be somewhat off-topic.

    I notice Sinclair Davidson has a piece on the ABC Drum yesterday, talking up the Laffer curve. Sigh! I thought it was dead and buried by reality.

  40. Mulga Mumblebrain
    October 15th, 2011 at 05:44 | #40

    Davidson is not the only one peddling the Laffer-Bull Laffer Curve. I recall the fragrant Julie Bishop pushing it a few months ago, but, of course, she would not have any idea of the con’s history or its stupidity. Davidson, naturally, is another kettle of fish, a hardcore ideologue. It just goes to show that the Right has learned nothing, can learn nothing, from the comprehensive failure of market fundamentalism. They intend to continue ripping off the rest of humanity, including future generations, to feed the insatiable greed of the parasite caste, come what may.

  41. TerjeP
    October 15th, 2011 at 07:47 | #41

    Chris – leftwing policy would be made more consistent with leftwing propaganda if the tax burden was moved off the top 20% and focused more on the top 1%. However this is not what I personally advocate. I think we should be cutting tax rates for everybody. I think increasing the tax free threshold is a good place to focus the effort to start with but I also think the top income tax rate is too high. I think these tax cuts that I advocate should be funded by freezing the size of government rather than continuing to grow it in line with private sector growth. To do that in practice means economic reform.

  42. Chris Warren
    October 15th, 2011 at 08:24 | #42

    @John Quiggin

    It is preferable to always attach a baseline to statements like 75% increase. 75% is anemic over 75 years, hardly functional over 31 years but would be substantial over 10 years.

    It seems clear that this much vaunted “capitalism” only produced average annual growth in people’s disposable incomes of less than 2%. Presumably a redistribution of economic growth to capital, has warped society to create massive chasms between social strata and in levels of access to financial security, food and basic services. Given that so many working class jobs were exported this relative impoverishment has now reached such an extent, that the only option for the people who feel, but do not understand, their predicament, is to Occupy Wall Street to show their grief. They are a surplus population just wandering the streets all across America crying for social justice.

    Any economic system should be able to provide its population with at least 2% annual growth in disposable income. The only economic system that structurally could fail to do this, is capitalism. Presumably the amount of capital in America (in 2005) dollars has grown at higher rates. If so, this is the classic Marxist phenonema and the final outcome is unavoidable, irrespective of how much stimulus our Keynesians flood into their play-ground.

    The whole understanding of the Occupy Wall Street phenomena must be based on the long-run failure of capitalism to provide decent, equitable, disposable incomes to the bulk of the population in the long-run.

    75% over 31 years – aggravated by a redistribution from the poor to the rich – plus growing macroeconomic instability over 40 years, plus increasing per capita debt over 100 years, is teaching people a thing or two about the reality of capitalism.

  43. Sam
    October 15th, 2011 at 10:14 | #43

    @Chris Warren
    Others think the post 70′s slowdown was more about diminishing returns to technology than economic distribution. That sounds more credible to me.

  44. Dan
    October 15th, 2011 at 10:28 | #44

    @Chris Warren

    “Any economic system should be able to provide its population with at least 2% annual growth in disposable income.”

    I’m not sure about that claim at all – subsistence and nomadic societies can’t and don’t, old-school feudal societies can’t and don’t – and that’s Marx’s position. Heck, Marx saw the increase in production which capitalism resulted in as astonishing – he just saw that it was prone to structural instability. Which it is.

    As for Marxism per se – my view is that power imbalances would simply re-emerge in some other configuration.

    I believe that reformist and redistributive social democracy is the least worst option for organising our societies.

  45. Chris Warren
    October 15th, 2011 at 10:32 | #45

    @TerjeP

    Obviously such eccentric tax cuts would destroy society.

    There is no such thing as private enterprise, except for a few family businesses. All companies only survive by obtaining their market from the public arena. The word “private” is a misnomer. This only indicates where profits go.

    It is strange that those on $180,000 only pay 30% tax + GST. Those on twice this only pay 37.6% + GST, and if you get 10 times this – you only pay 43.5% + GST, although at this point you can usually divert most of your millions into trusts and family homes, or travel the world in fancy yachts, (tax free forever).

    On the other hand if you are earning less than 6,000 – you still have to give 10% to government through GST.

    So the key is to reduce the GST and insert several new tax brackets above the current top bracket of 180,000.

    It would probably increase retail employment, and improve the economy generally, if extra tax from those over 180,000 funded cuts in tax rates for those under 37,000, leaving them with more cash-in-hand.

    People in these lower brackets probably spend more of their cash in Australia.

    An additional mechanism would be to insert new tax brackets for company and trust incomes.

  46. Chris Warren
    October 15th, 2011 at 10:43 | #46

    @Dan

    Yea – a bit of further qualification would help.

    Any modern economic system should ……

    If everyone is free and equal, there is no reason why they should not choose to have a mere 1% growth and a lot more leisure time.

  47. Chris Warren
    October 15th, 2011 at 10:57 | #47

    @Sam

    Diminishing returns on investment (ie technology) may be implicated.

    Economic redistribution can be seen as a consequence, an excercise by which the wealthy maintained their profits – given diminishing returns on their investments.

    The fact that American capitalists have increased their profit share of national income from 7.2% in 1982 to 12.7% in 2010*, seems more an excercise in redistribution (after the slowdown you speak of), than anything else.

    Although the global economy (NAFTA and etc) and other factors (eg US union busting) may have complicated the picture.

    [* Table 673, at

    census.gov/compendia/statabcats/income_expenditures_poverty_wealth.html ]

  48. Chris Warren
    October 15th, 2011 at 11:09 | #48

    Try this… there was a missing backslash ….

    census.gov/compendia/statab/cats/income_expenditures_poverty_wealth.html

    or…

    census.gov/compendia/statab/2012/tables/12s0673.xls

  49. Sam
    October 15th, 2011 at 11:22 | #49

    @Chris Warren
    Fair enough. Going somewhat against my previous argument, it’s quite likely that financialisation of the economy led to a wastage of productive resources. For instance, laying transcontinental optic-fibre lines that shave 6 milliseconds of transit time, just to enable high frequency trading. Another example would be the best mathematicians and engineers going to work for Wall st, rather than inventing new technologies.

    These effects aren’t directly caused by an increase in inequality, but all these ideas come from the same wellspring of economic rationalism.

  50. Tom
    October 15th, 2011 at 13:07 | #50

    TerjeP :Chris – leftwing policy would be made more consistent with leftwing propaganda if the tax burden was moved off the top 20% and focused more on the top 1%. However this is not what I personally advocate. I think we should be cutting tax rates for everybody. I think increasing the tax free threshold is a good place to focus the effort to start with but I also think the top income tax rate is too high. I think these tax cuts that I advocate should be funded by freezing the size of government rather than continuing to grow it in line with private sector growth. To do that in practice means economic reform.

    This will not work. The US government is already having troubles paying public debt and is on budget constraint; further tax cut would simply means the government will have to significantly cut spending on roads, infrastrures etc. These spending creates jobs (whether if those jobs created can support rent or food is another story). Giving further tax cut will not fix the fundamental issue of low demand and spending power unless the majority of the population receives signifcant rise in income consistently which tax cuts will not provide because the proportion of their income taxed is very insignificant in the first place. Of course if the US government ignores the debt and deicide to go to war with the world when it becomes “impossible” to repay then be my guess and give out tax cuts.

  51. TerjeP
    October 15th, 2011 at 14:28 | #51

    I’m of the view that the US government will inevitable default on it’s public debts and it’s social security obligations. That which can’t be sustained won’t be. Whether the default is via traditional means or currency debasement isn’t clear.

  52. Fran Barlow
    October 15th, 2011 at 14:46 | #52

    @Sam

    It’s also unclear why Terje would want those who don’t need a tax cut and whose behaviour will not change in a positive way as a consequence of a tax cut to get one, even allowing that serious harm to public interest would not be a consequence of such a measure.

    It seems to me that unless one can show that the “greatest good for the greatest number” would be served by this measure or at the very least that the beneficiaries of the tax cut are obtaining relief from an unwarranted and unreasonable imposition there simply would be no case for doing so.

    The fact of the matter remains that wealth in the US has become progressively less equally distributed in the three decades since 1979 (even amongst super rich people there is more inequality), yet there’s very little evidence of any corresponding general benefit — quite the reverse. Worse yet, there’s good reason for thinking that this inequality has debauched US politics and the quality of governance.

    Even Teddy Roosevelt — no friend of soc|al|sm — thought great inequality subversive of democracy and community. Today, radical inequality is the key marker of US cultural life.

  53. TerjeP
    October 15th, 2011 at 15:07 | #53

    The fact of the matter remains that wealth in the US has become progressively less equally

    Why is this presumed to be a bad thing? It doesn’t matter if some people have more than other people. Equality of wealth and / or income is an issue that occupies far too much time in public policy debate and those on the left are typically to blame for this preoccupation. There are a whole array of far more meaningful metrics such as life expectancy, literacy, homelessness, health, unemployment, and any number of measures regarding freedom that ought to rate vastly higher in public policy discussions than “equality”. And even worse the word equality is often just a weasel word used when the real intent is “conformity”. It is those that want to enforce more equality that ought to be demonstrating some benefit.

  54. TerjeP
    October 15th, 2011 at 15:10 | #54

    p.s. Also it seems to me that if the rich get richer and the poor get poorer it does not follow that the former caused the later. There are many possible causes as to why groups of people might get poorer and it makes more sense to examine the specifics.

  55. Tom
    October 15th, 2011 at 15:50 | #55

    TerjeP :p.s. Also it seems to me that if the rich get richer and the poor get poorer it does not follow that the former caused the later. There are many possible causes as to why groups of people might get poorer and it makes more sense to examine the specifics.

    The fact that rich gets richer does not imply that the poor will always get poorer. The cause of the middle and lower class gets poorer because there is a thing called “inflation” exist and income of middle and lower class has been taking a pay cut for 3 decades via inflation. I can see that you have economic knowledge from your comments but you are deliberately ignoring inflation.

  56. Freelander
    October 15th, 2011 at 15:53 | #56

    TerjeP :p.s. Also it seems to me that if the rich get richer and the poor get poorer it does not follow that the former caused the later. There are many possible causes as to why groups of people might get poorer and it makes more sense to examine the specifics.

    True, why a person is rich and why a person is poor is a matter of detail rather than yielding to a single explanation. There is one thing thought that is increasingly true in the modern developed world and it is that we are all in this together. No one would manage to get rich in the developed world if it were not for the efforts of others. Once apon a time a person could go out in the woods knock down a few trees, build a house, farm some land and more reasonably claim everything was all down to themselves. (But even then that claim would hardly be completely true.) Nowadays, what we acheive is very much dependent on others. And that is without admitting that what we acheive is also highly dependent on all the things that have been left to us by previous generations – substantial knowledge and physical capital.

    Recognising that whatever our individual acheivements, we owe a lot to others ought to be the basis for a more public spirited attitude, as exemplified by Warren Buffet. The distribution of society’s wealth, always ought to be in part a collective decision. And those who think otherwise, ought to be pushed off the ice. (As the eskimos would have it.)

  57. Tom
    October 15th, 2011 at 16:07 | #57

    Freelander :

    TerjeP :p.s. Also it seems to me that if the rich get richer and the poor get poorer it does not follow that the former caused the later. There are many possible causes as to why groups of people might get poorer and it makes more sense to examine the specifics.

    True, why a person is rich and why a person is poor is a matter of detail rather than yielding to a single explanation. There is one thing thought that is increasingly true in the modern developed world and it is that we are all in this together. No one would manage to get rich in the developed world if it were not for the efforts of others. Once apon a time a person could go out in the woods knock down a few trees, build a house, farm some land and more reasonably claim everything was all down to themselves. (But even then that claim would hardly be completely true.) Nowadays, what we acheive is very much dependent on others. And that is without admitting that what we acheive is also highly dependent on all the things that have been left to us by previous generations – substantial knowledge and physical capital.
    Recognising that whatever our individual acheivements, we owe a lot to others ought to be the basis for a more public spirited attitude, as exemplified by Warren Buffet. The distribution of society’s wealth, always ought to be in part a collective decision. And those who think otherwise, ought to be pushed off the ice. (As the eskimos would have it.)

    I agree, in US the problem is that workers’ aren’t getting the reward they contributed to the economy. There is nothing wrong with rich gets richer and I am not extremist that believe executives are greedy and lazy. In fact I believe executives works really hard and have immense pressures but it doesn’t justify that they get pay hundreds/thousand times more than average worker that works fulltime. What TerjeP doesn’t get is that he thinks average workers’ contribution to economic growth should not be awarded with a pay rise that at least cover inflation.

  58. Sandy Ross
    October 15th, 2011 at 16:08 | #58

    Barbara Ehrenreich has just published some interesting commentary on the 99% worth looking at in The Progressive (http://www.commondreams.org/view/2011/10/13-3). Sorry I am too technologically challenged to embed a link properly.

    TerjeP – you seem to be engaging in the standard knee-jerk conservative reaction to critique of inequality that equates that critique with a utopian belief in perfect equality. Can you credit that in some (possibly many) circumstances high levels of inequality can be a bad thing – a social evil or contributing to a poorly functioning economy or both.

    You do not have to be a socialist or bleeding heart liberal to acknowledge there are some important policy issues around the impacts of inequality that should be considered (though it probably helps).

  59. Mel
    October 15th, 2011 at 16:21 | #59

    I think cockney-conservative types like Terje receive some sort of psychic benefit by identifying with their plutocratic superiors. It could just be a vicarious thing but I suspect it’s much more than that. The real reason probably has some affinity with Muslim women who would fight and die for their right to wear the burqa and be kept a de facto prisoner by related males.

    Maybe it’s false consciousness meets Stockholm Syndrome?

  60. Jill Rush
    October 15th, 2011 at 16:34 | #60

    Anthropogical studies show that high levels of inequality are detrimental in many ways. The real way that it is detrimental in the USA however is in the level of crime and desperation which leaves people homeless and hungry.
    The #OWS is significant because it is the first time in a long time when the mainstream media has not been able to massage the message to make the 99% think that there are no other options than have been offered.

  61. Dan
    October 15th, 2011 at 16:58 | #61

    Yeah, gross inequity leads to all sorts of lousy social, health and labour market outcomes that Terje mentions; this is well-known and you have to be an ideologue not to acknowledge it. Not to put too fine a point on it, people die unnecessarily early when societies are highly inequitable.

    Of course on the other hand under a market system in practical terms there needs to be some level of inequity – rewards innovation and effort, individual responsibility, blah blah blah, the usual stuff that libertarians bang on and on about like it was the *only* thing that was important.

    I guess the question is, what is the *optimum* level of inequity for achieving good outcomes and ye olde Equality of Opportunity? It’s not the US, Terje, I can tell you.

  62. Peter T
    October 15th, 2011 at 17:10 | #62

    Further to Chris Warren’s point and JQ’s answer, doesn’t JQ’s answer depend on the assumption that money is a good measure of welfare – ie that being “more wealthy” is the same as higher welfare? I would guess that previously it was, and increasingly it isn’t. One can point to lots of technological improvements, but surely a large part of the increase in monetary wealth of the last several decades has been the monetisation of social and environmental services previously outside the monetary economy (childcare, a considerable number of other personal services, access to open spaces, environmental reserves etc), together with the financialisation of hypothetical future monetary income streams? I don’t know how to measure it (the various tries I have seen are none completely convincing), nor even am sure it can be measured. But I think it worth bearing in mind.

  63. TerjeP
    October 15th, 2011 at 17:29 | #63

    Can you credit that in some (possibly many) circumstances high levels of inequality can be a bad thing – a social evil or contributing to a poorly functioning economy or both.

    No not really. By the way I’m not a conservative. I’m libertarian and relatively radical (although also an incrementalist).

  64. Chris Warren
    October 15th, 2011 at 17:37 | #64

    TerjeP :

    No not really. By the way I’m not a conservative. I’m libertarian and relatively radical (although also an incrementalist).

    False. You are a capitalist trying to spread capitalism against the interests of all.

  65. TerjeP
    October 15th, 2011 at 17:41 | #65

    You are a capitalist

    Am I your evil overlord?

  66. TerjeP
    October 15th, 2011 at 17:53 | #66

    Yeah, gross inequity leads to all sorts of lousy social, health and labour market outcomes that Terje mentions; this is well-known and you have to be an ideologue not to acknowledge it. Not to put too fine a point on it, people die unnecessarily early when societies are highly inequitable.

    This is not what the empiracle evidence shows. The evidence shows that inequality and the sorts of things we ought to care about (health, life expectancy, crime rates etc) do not correlate with income or wealth equity. I’m not saying that we should not measure or talk about inequality but I think it is completely crazy to devote so much energy to the topic. The only virtue of equity as a metric is that it can be used to justify socialist policies and that isn’t really a virtue.

  67. TerjeP
    October 15th, 2011 at 17:58 | #67

    Libertarians have done some work debunking the equity myth. See here:-

  68. TerjeP
    October 15th, 2011 at 18:00 | #68

    p.s. Sorry about mincing my grammar. Hopefully my meaning is still clear.

  69. Jill Rush
    October 15th, 2011 at 18:23 | #69

    The 1% will obviously agree with you TerjeP. However in the past inequqlity has led to revolution – French, Russian and Chinese and we could even include the two internal wars for the USA and recent uprisings in the Middle East. These have not always been positive outcomes. The inequality experienced in the Wiemar Republic wasn’t all wonderful either. To have an inequitable system which works you need to have a religious or other framework which means people accept their lot in life with a degree of fatalism. This is harder to maintain in a wired world.

  70. TerjeP
    October 15th, 2011 at 18:36 | #70

    None of those revolutions were much about inequity of income or wealth. And plenty of societies have endured without revolution for centuries. And relatively equal societies (eg Soviet Union at least in theory) have collapsed due to revolution. To make the argument that inequality causes revolutions you need to demonstrate some sort of correlation between the two. I don’t think the case can be readily made.

  71. Freelander
    October 15th, 2011 at 19:59 | #71

    @TerjeP

    There wasn’t a revolution in the Soviet Union. There was a coup which was ultimately unsuccessful. The dismantling happened at the top because they had lost faith and were not willing to kill the large numbers of people that would have been required to maintain the current order of things. As for inequality, considerable inequality can be maintained if those in control have the apparatus to meet out harsh treatment. However, without those tools and the willingness to use them the peasants will soon be revolting. Give those peasants half a chance and they will be over their overseers like flies over a pile of offal, and offal it will be too once they are done with them.

  72. Chris Warren
    October 15th, 2011 at 20:01 | #72

    @TerjeP

    This is just ignorance on a stick. Not even decent trolling.

  73. Mulga Mumblebrain
    October 15th, 2011 at 20:07 | #73

    The opposition to as great equality as possible is, in my opinion, motivated simply by hatred of others. The Right, the ‘libertarians’ at the extremity, follow Rand in holding others in contempt and seeing them as ‘moochers’. Greed, for them, is the highest virtue. Every philosophy and religion with which I am acquainted, save one, regards avarice as a great vice, and preaches some form of fraternity, in some cases of all humanity, in others merely of the in-group. The one exception is capitalism, a doctrine that, I believe it is irrefutable to say, displays an attitude towards existence that conforms more or less closely to the mentality of the human psychopath. The libertarian, following Rand, with her open admiration for a child murderer as some sort of ideal type, is the most grotesquely extreme example of the type.

  74. NickR
    October 15th, 2011 at 20:27 | #74

    @TerjeP
    “The evidence shows that inequality and the sorts of things we ought to care about (health, life expectancy, crime rates etc) do not correlate with income or wealth equity”

    Really Terje? I haven’t been able to watch your video yet, but it is unlikely to be much good as it conflicts with an enormous amount of empirical research.

    I can only assume you are ignorant of the vast literature on this topic. Relative (within group) inequality is highly correlated with a large number of social ills, and I believe in some cases it is shown to have a causal effect. By the way this research comes from people like probable future Nobel laureate Angus Deaton (Professor at Princeton) who specializes precisely in this area.

  75. TerjeP
    October 15th, 2011 at 20:55 | #75

    The opposition to as great equality as possible is, in my opinion, motivated simply by hatred of others.

    Damn you found me out. The truth is I hate humanity and so I spend my spare time trying to trick decent people into loathing equality. It’s all part of a cunning human hating plot that I hatched one evening whilst boiling babies alive. ;-)

  76. TerjeP
    October 15th, 2011 at 21:00 | #76

    Really Terje? I haven’t been able to watch your video yet, but it is unlikely to be much good as it conflicts with an enormous amount of empirical research.

    Well you should watch it if the topic is really important to you. Even if you don’t agree at least you will be in a position to strengthen your pro equality arguments.

  77. TerjeP
    October 15th, 2011 at 21:07 | #77

    As for inequality, considerable inequality can be maintained if those in control have the apparatus to meet out harsh treatment.

    You can’t say the downside of unequal societies is that they have revolutions at a higher rate then equal societies, and then also argue that inequality prevents revolutions. That kind of entails a suspension of logic.

  78. Jarrah
    October 15th, 2011 at 21:09 | #78

    “None of those revolutions were much about inequity of income or wealth.”

    I think that’s wrong. Of course, they were more more about power, but wealth is power. At a more abstract level, they were about justice, and inequality features greatly in people’s perception of justice.

    Perhaps you’re making the same mistake John Humphreys has made when I’ve discussed this topic with him – assuming there has to be a linear relationship between inequality and unrest. My contention then (and I think others on this thread are making the same point) is that there is a threshold of inequality above which people revolt. Not that steadily increasing inequality means steadily increasing social strife.

    “This is just ignorance on a stick. Not even decent trolling.”

    Terje doesn’t troll. You should know this by now.

    “an enormous amount of empirical research…the vast literature on this topic…Relative (within group) inequality is highly correlated with a large number of social ills, and I believe in some cases it is shown to have a causal effect.”

    Actually, the correlation (below certain tipping-point thresholds) is minimal if not non-existent after taking into account other factors, and no plausible causal mechanism has been identified.

    “By the way this research comes from people like probable future Nobel laureate Angus Deaton (Professor at Princeton) who specializes precisely in this area.”

    I’ve just read two papers by Deaton on this topic. His findings do not support your claims. Perhaps you are taking your information from third parties who may have distorted or misunderstood him?

  79. NickR
    October 15th, 2011 at 21:12 | #79

    @TerjeP
    Sure I will do that. Any you should read Deaton and the (quite possibly) hundreds of other pieces of peer reviewed literature appearing in top international journals (as opposed to youtube videos) that say just the opposite.

  80. Freelander
    October 15th, 2011 at 21:20 | #80

    @TerjeP

    Might be too you. But it is quite simple. If societies have considerable inequality the haves have to resort to strong measures to keep the have nots in their place and to maintain the status quo. Sometimes they are successful in doing that and sometimes not. I don’t know what equal societies you seem to be referring to as having revolutions. In fact, I wouldn’t know what equal society you could refer to full stop.

    You seem to be channelling Alf Garnnet or Archie Bunker or both, I suppose your support for the status quo could be called aspirational.

  81. NickR
    October 15th, 2011 at 21:21 | #81

    @Jarrah
    I don’t think so. Deaton talks about relative (within-group) inequality and the relationship that this has with health. People with high incomes that are relatively low (i.e. lower than their peers) have greater health problems than people with the same absoulute income whoe are relatively rich. There is plenty of other research along these lines.

    BTW I was exaggerating a little with my previous post – I suspect that the number of papers that support this argument is more like a hundred rather than several. It could be more (or less – I haven’t counted) although it is very substantial.

  82. NickR
    October 15th, 2011 at 21:57 | #82

    @Jarrah
    Apologies Jarrah and Terje – it does appear that Deaton’s position on this is not as strong as I thought it was. Although a great deal of other research on this does support this argument Deaton is not as persuaded as I thought.

  83. TerjeP
    October 15th, 2011 at 22:01 | #83

    I think that’s wrong. Of course, they were more more about power, but wealth is power. At a more abstract level, they were about justice, and inequality features greatly in people’s perception of justice.

    Generally speaking revolutions are where the regime is toppled. Revolutions can be violent and bloody or relatively peaceful. What defines a revolution is that the preceding regime is swept away.

    Revolutions happen either because a few people are trying to acquire power or because a lot of people feel that they have suffered an injustice and will continue to suffer injustices under the existing regime. Or it could be a complicated mix of the two and usually is. Those that want power through revolution always promise to impose a more just regime because that is how you get your interests aligned with the masses. Whether or not it works like that varies.

    I’m not saying that inequality of income and wealth will never be a factor in a revolution. I just don’t think it is ever likely to be a primary factor. If the people are poor because the King is stealing their land the key injustice is the theft of land not income disparity. Nobody much minds a rich King so long as he mostly respects the rights of the people.

    I do regard what happened in the Soviet Union following the fall of the Berlin Wall to have been a revolution even though it was relatively bloodless. The old regime is gone even if some of the old players are still playing.

    The numbers may be hard to tabulate but to make the case that inequality leads to revolution you would need to look at the timing of various revolutions and show that they were proceeded by periods of higher than usual inequality. However confounding any thesis in this regard is the thesis that rising prosperity causes democratic revolutions. We know that as societies become wealthier democracy becomes more prevalent however we also know that often prosperity arrives along with inequality. Untangling the mix wouldn’t be trivial.

  84. TerjeP
    October 15th, 2011 at 22:05 | #84

    NickR :
    @Jarrah
    Apologies Jarrah and Terje – it does appear that Deaton’s position on this is not as strong as I thought it was. Although a great deal of other research on this does support this argument Deaton is not as persuaded as I thought.

    Find what you think is a solid example and I’ll look at it. However please do check out the YouTube I linked.

  85. Tom
    October 15th, 2011 at 23:26 | #85

    TerjeP :

    I think that’s wrong. Of course, they were more more about power, but wealth is power. At a more abstract level, they were about justice, and inequality features greatly in people’s perception of justice.

    Generally speaking revolutions are where the regime is toppled. Revolutions can be violent and bloody or relatively peaceful. What defines a revolution is that the preceding regime is swept away.
    Revolutions happen either because a few people are trying to acquire power or because a lot of people feel that they have suffered an injustice and will continue to suffer injustices under the existing regime. Or it could be a complicated mix of the two and usually is. Those that want power through revolution always promise to impose a more just regime because that is how you get your interests aligned with the masses. Whether or not it works like that varies.
    I’m not saying that inequality of income and wealth will never be a factor in a revolution. I just don’t think it is ever likely to be a primary factor. If the people are poor because the King is stealing their land the key injustice is the theft of land not income disparity. Nobody much minds a rich King so long as he mostly respects the rights of the people.
    I do regard what happened in the Soviet Union following the fall of the Berlin Wall to have been a revolution even though it was relatively bloodless. The old regime is gone even if some of the old players are still playing.
    The numbers may be hard to tabulate but to make the case that inequality leads to revolution you would need to look at the timing of various revolutions and show that they were proceeded by periods of higher than usual inequality. However confounding any thesis in this regard is the thesis that rising prosperity causes democratic revolutions. We know that as societies become wealthier democracy becomes more prevalent however we also know that often prosperity arrives along with inequality. Untangling the mix wouldn’t be trivial.

    I would have to agree with inequality will not be the main factor of revolution, but inequality causes problems in which leads to revolution. Through studying much of the history of China as my personal interest, income itself have never been equal.

    However in times when people even just be able to afford food and shelter, they will not revolt against the king nor will they protest about income inequality. Whenever there is a fall of a dynasty the state of the society is so bad that people can’t afford food and shelter but when times like these happens; the government officials are so rich that some of them have bigger net worth as the government itself. The latter case does not happen when the time is in economic growth (i.e. the income is more equal in this case). In fact when the economy of ancient China shows good time, a “larger” proportion as comparing to economic downturn/revolutions, the top government officials are poorer (some to the extent that even they themselves can’t afford food).

    Now when people are eatting the thousand miles of forests to dead and are trading babies with other families to eat them to surive while the government officials have more wealth than the government itself; does that suggest income inequality? Yes, the cause of that usually comes from corruption of government assistance to natural disasters or high local tax both suggests greed.

    To conclude what I want to say (sorry for bad grammar) income inequality might not be the cause but income inequalty are larger during revolts in cases of Chinese history (I’m pretty sure revolts in a lot of other cultures’ history would be similar); and that this income inequality are generated through greed, corruption, exploiting on the general public but are not generated through improvements in work quality, technology advances, increase work time and quality outcomes like it should. This is exactly what the USA have been doing for the past 3 decades if not longer; do you genuinely think that the majority worker’s have contributed so little to economic growth that they shouldn’t be rewarded and the executives have contributed so much that their income are rewarded hundreds percents more than GDP growth of 3 decade while the middle/lower class receives nearly none (in this case not only that they are not receive a reward for their contribution, they are being punished because their income improvements for 3 decades are far less than inflation).

  86. Monkey’s Uncle
    October 15th, 2011 at 23:54 | #86

    John Quiggin :
    @Monkey’s Uncle
    A lot of effort to respin an unsalvageable talking point. Fortunately Paul Krugman has already taken out the trash on this one
    http://krugman.blogs.nytimes.com/2011/10/13/buffetts-buffetts-everywhere/

    I suppose Paul Krugman is considered the ultimate authority to appeal to around here. In the article you linked to, Krugman repeats the trite leftist populist talking point that large numbers of wealthy individuals are able to use various sneaky means of minimising their taxes. Again, few people seriously deny that significant numbers of wealthy individuals are able to use certain loopholes or financial planning to reduce their tax. But that doesn’t change the fact that, despite this, the overall percentage of taxes paid by high-income earners is still very high. Moreover, if 100% of all taxes were levied on the wealthy 100% of all tax evasion and tax minimisation would also occur among the wealthy, according to logic 101. That a lame partisan hack like Krugman is widely revered as some kind of economic genius says a lot about the general decline of what passes for sound economics today.

    Back to the main point though. Even if one conceded to you and Krugman that the US tax system is not particularly progressive if you factor in payroll taxes, where does that leave us? According to much of the US left, programs like Social Security and Medicare are vital features of the welfare state that they are proud of introducing and defending and which evil Republicans wish to cut or eliminate. But at the same time, they are also regressive, unfair burdens on the working poor! The fact that you can only stay remotely competitive in such a debate by bringing up Democratic Party entitlement programs should be a sure sign of the weakness of your side of the argument. Moreover, if one follows the logic of the argument through, the US tax system is apparently less progressive not due to the tax cuts of Reagan or Bush 2, but instead due to the continued existence of FDR’s social programs!

  87. John Quiggin
    October 16th, 2011 at 01:28 | #87

    I’m not appealing to authority, I’m linking to a refutation of your silly and contradictory talking points. Krugman is authoritative not because he has high professional status, but because he is so obviously right, and you are so obviously rambling from point to unrelated point.

    As I said in the original post, it says a lot for the effects of the rightwing parallel universe that you can imagine that anyone would be impressed by the desperate and self-contradictory line you are pushing here.

  88. Freelander
    October 16th, 2011 at 05:03 | #88

    And, also recent, Krugman has a nice opinion peice on the parallel universe that rightwing-nuts occupy:

    http://www.nytimes.com/2011/10/14/opinion/rabbit-hole-economics.html?partner=rssnyt&emc=rss
    “Rabbit-Hole Economics”

  89. BilB
    October 16th, 2011 at 07:47 | #89

    The 1%.

    In my opinion, the one percent view themselves as an arisitocracy and are therefore “entitiled” to their grip on economic power.

    The origins of this theme go back to Alexander Hamilton who argued the case for a British style aristocracy in the discussions, debates and conventions that took place prior to the forming of the US Constitution. He was soundly defeated in this aim but went on to be an important force in the building of the new government and its finances. But the US has ever since felt inadeqaute for not having an aristocracy and I believe they now have it in the form of the irremoveably wealthy elite. But most significantly this elite is one to which in the “American Dream” one can rise to join through their own enterprise. It is only now that most Americans are coming to terms with the reality that the “American Dream” is just that….a dream. Not a reality.

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

    Here is a link to Alexander Hamilton. Follow the links of scandal to uncover the “dark” side to American Society.

  90. Ernestine Gross
    October 16th, 2011 at 08:42 | #90

    @Jarrah

    Yes, I am one of those on this thread who concurs with your: “My contention then (and I think others on this thread are making the same point) is that there is a threshold of inequality above which people revolt. Not that steadily increasing inequality means steadily increasing social strife.”

    The phenomena is better represented by a system with catastrophic points (as illustrated by the example when a dog retreats and retreats into a corner when faced with a threat and then, suddenly, attacks).

    For what its worth, I don’t know of any theoretical model of a market economy where perfect wealth equality causes a problem but in all models I know, wealth inequality causes a severe problem for the logical consistency of the model unless the inequality is severely restricted (minimum wealth condition).

  91. Dan
    October 16th, 2011 at 09:19 | #91

    *Of course* revolutions arise out of chaotic rather than linear processes. Here is my very incomplete list of some of the factors that would feed in:

    -inequity and limited social mobility
    -the perception that inequity is morally illegitimate/not sufficiently philosophically justified
    -the perception (or reality) that regular political channels are moribund/unresponsive
    -armed forces that are ambivalent or friendly to the aims of the revolution
    -charismatic and well-resourced leadership
    -a window of opportunity

    That’s just a start, of course.

    The national mythology in the US for a while that they had social mobility, that “anyone could make it” (and therefore social as well as wealth inequity was nothing to be alarmed about), and that their political system was not bought and paid for by special interests. The sounds from OWS suggest to me that’s less convincing than it once was. Rightly so.

  92. BilB
    October 16th, 2011 at 09:25 | #92

    Monkey’s Uncle at 36

    That article talks only of the income amoungst the 1% that is actually assessed for tax. The real issue is the invisible trading that is not assessed for taxation, or is exempt from taxation. The best way to start to claw some of this back an identify who is benefiting is with transaction taxes. These should be National and International, with the international taxes being used to fund to operations of the United Nations.

  93. Chris Warren
    October 16th, 2011 at 09:30 | #93

    Rightwingers like to think that inequality does not cause revolutions and that we should not devote much energy to it. I suppose using this blindfold is the only way they can sleep at night. Anarco-capitalists stridently cry “who cares”, “that’s life” and “move on” when it comes to discussing equality and equity. Although there are other tricks:

    Trick 1 – “nobody minds a rich King if he respects the rights of the people”

    Unfortunately this is idiocy, because you cannot have a rich King if he respects the rights of the people to own their own production.

    Trick 2 – flood the arena with smoke and mirrors – “a whole array of far more meaningful metrics such as life expectancy, literacy, homelessness, health, unemployment, and any number of measures regarding freedom that ought to rate vastly higher in public policy discussions”

    Unfortunately this is idiocy because poor people suffer deprivation in all these compared to rich people.

    Trick 3 – misrepresent peoples views by claiming they – “argue that inequality prevents revolutions”.

    Unfortunately this is idiocy as no-one argues that “inequality prevents revolutions”. This misrepresentation is just perpetual trolling.

    Trick 4 – re-write others statements as; “unequal societies have revolutions at a higher rate than equal societies”.

    Unfortunately this is idiocy – no data exists and this statement was only constructed to facilitate trolling.

    Trick 5 – simply deny. “None of (French, Russian, Chinese) revolutions were much about inequity of income or wealth.”

    Unfortunately this is idiocy – The French, Russian, Chinese revolutions were based on and driven by savage, fuedal, inequity in property, rights, income and wealth.

    Trick 7 – simply contradict – “It doesn’t matter if some people have more than other people.”

    This is trolling, the past-time of rightwing idiots.

    Trick 6 – erect diversions. Assert some “need to demonstrate some sort of correlation between the two” (inequality and revolution).

    This is standard gun-lobby tactics. They also demand correlation between guns and homicide, knowing damn well that many homicides exist for other reasons and there are many guns that cause no deaths.

    This is also idiocy – it also creates the opposite obligation ie to demonstrate that either there is no correlation between guns and homicides, or in the case of our troll, to demonstrate that there is no correlation between inequality and revolution. But all they can do is spread the diversion and move on.

    Capitalism clearly breeds inequality, OECD nations have generally exported much of it to poorer nations with oppressed working conditions, and capitalism is now leading to a need to get rid of capitalism – the root cause, in modern circumstances.

  94. Dan
    October 16th, 2011 at 09:32 | #94

    Re: Terje’s objection to my largely uncontroversial, almost tautological point – I evaluate health policy for a day gig so I know how social disadvantage = lousy health outcomes = social disadvantage.

    I did say at the outset: you’d have to be an ideologue not to acknowledge it.

    Then he described himself as a radical libertarian.

    QED.

  95. Jill Rush
    October 16th, 2011 at 09:57 | #95

    I guess if Marie Antoinette had survived she would have agreed with the proposition that great inequality in wealth and power were unimportant. However she managed to flame a desperate situation with her remark that if the poor people were starving “Let them eat cake”. She propobably regretted that remark in her dying mments.
    There seems to be a little of that kind of attitude in the sorts of justifications that have been made by the 1 per centers.

  96. Chris Warren
    October 16th, 2011 at 10:00 | #96

    @Ernestine Gross

    So is there, specifically, a capitalist model where there is a minimum wealth condition. Is the condition a minimal share of output, or a fixed amount irrespective of output?

    While I am skeptical about all modelling as society is driven more by politics and games, presumably a model maintaining your minimum wealth condition in the long-run would need to be a market socialist mode?

    .

  97. Jarrah
    October 16th, 2011 at 10:11 | #97

    “Capitalism clearly breeds inequality”

    It depends. As capitalism replaced Europe’s feudal systems, inequality decreased. Where it replaces highly equal systems – like subsistence living, or China’s mid-century communism – it does increase inequality. But as Terje has pointed out, inequality isn’t always bad – if I’ve got $10 and you’ve got $15, increasing them to $20 and $30 doubles the inequality, but we are still better off.

    “OECD nations have generally exported much of it to poorer nations”

    Actually international inequality has been decreasing, thanks mostly to liberalisation in China and India.

  98. BilB
    October 16th, 2011 at 10:18 | #98

    five facts about the wealthiest 1 percent

    http://www.livescience.com/16518-5-facts-wealthiest-1-percent.html

  99. Chris Warren
    October 16th, 2011 at 10:20 | #99

    @Jill Rush

    Historians now think that Marie might not have actually said this, but then the honesty of historians is always suspect. Shakespeare made just as many valid points about inequality in his plays even though Julius Caesar and Kings Henry and Richard may not have actually said the words Shakespeare wrote.

    “There shall be in England seven
    halfpenny loaves sold for a penny: the three-hooped
    pot; shall have ten hoops and I will make it felony
    to drink small beer: all the realm shall be in
    common; ”

    Unfortunately the real-world Kings and Queens had other ideas.

    But the masses have long flocked to Shakespeares plays.

  100. Ernestine Gross
    October 16th, 2011 at 10:25 | #100

    @Chris Warren

    The models I have in mind are ‘competitive private ownership economies’ with various market structures (complete commodity markets, complete security markets, incomplete markets, sequence of commodity and security markets, partially segmented markets).

    IMHO, these models are very helpful in distinguishing theoretical knowledge from libertarian and other ideologies. There is no government in any of these models, there are no class structures, there is no Politbureau, there is no military or other dictator, there are no feudal lords.. Yes, these models are unrealistic in some sense but they are very helpful in identifying unrealistic policy objectives and policy measures (for example, the direction of financial and labour market deregulatons, new public sector management – roughly speaking the direction of policies marketed under the headings ‘globalisation’, ‘competition’, ‘economic rationalism’ and ‘new public sector management’).

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