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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. October 21st, 2011 at 10:34 | #1

    “that would suggest to me that current programs are inadequate.”

    Or there are bigger, systematic problems that welfare isn’t well-suited to address.

  2. NickR
    October 21st, 2011 at 11:00 | #2

    Dan and Jarrah,

    Ok here are some references for the relationship between social welfare functions and inequality. I haven’t linked them as most of them can’t be accessed, you will have to go through a university library.

    The Atkinson paper is the most famous (probably the single most cited paper on inequality) but credit for the work is shared by Amartya Sen and Serge Christophe Kolm. There is a ton of other papers (mostly published in JET) on the topic but I will limit it to the most and most accessible and relevant examples. If you want any more I can send them through, although though I’d think that the first three in particular are sufficient for a general idea of the work in this area.

    “Let me just say that I appreciate you helping sustain this discussion from the typical blog fare of descent into flame wars.”

    Cheers. In response let me say that while I disagree with you in certain respects I do find your posts interesting and challenging (in a good way) and you have managed to shift my view of the issue somewhat in your direction.

    Atkinson, A.B. (1970). ‘On the Measurement of Inequality’ Journal of Economic Theory, 2, 244-236.
    Aigner, D. and Heins, A. (1967). ‘A Social Welfare View of the Measurement of Income Inequality’ Review of Income and Wealth, 13, 12-25.
    Sen, Amartya, (1974). ‘Informational bases of alternative welfare approaches : Aggregation and income distribution,” Journal of Public Economics, 387-403,.
    Kolm, S.-CH. (1969). ‘The Optimal Production of Social Justice’ In: J. Margolis and H. Guitton (eds) Public Economics 145-200 London, Macmillan.
    Kolm, S.-CH. (1976). ‘Unequal Inequalities I’ Journal of Economic Theory, 12, 416-442.
    Kolm, S.-CH. (1976a). ‘Unequal Inequalities II’ Journal of Economic Theory, 13, 82-111.
    Sen, A. (1973). ‘On Economic Inequality’ Oxford: Clarendon Press.

  3. Dan
    October 21st, 2011 at 11:20 | #3

    Thanks Nick!

    Jarrah: try telling someone in the disability sector that resourcing has undergone a ceiling effect and that any additional resourcing incurs more costs than benefits.

  4. Mel
    October 21st, 2011 at 21:03 | #4

    This Harvard Medical School study that was published last year in the American Journal of Public Health puts the death toll from a lack of health insurance in the US at 40,000 per year. Obviously, most of the dead folk are at the lower end of the social spectrum and many of them are the working poor who may’ve been able to afford insurance if income in America was distributed more evenly, as per major continental European countries.

    I haven’t had time to sift thru other studies yet but will do so altho I can’t give a timeframe.

  5. Mel
    October 21st, 2011 at 21:18 | #5

    Jarrah,

    Even better, take a look at this densely referenced CDCreport from this year.

    Once you’ve read the several hundred mostly peer reviewed publications cited in the report give us a hoy and I’ll find you some more.

  6. Jarrah
    October 21st, 2011 at 21:29 | #6

    “Obviously, most of the dead folk are at the lower end of the social spectrum and many of them are the working poor who may’ve been able to afford insurance if income in America was distributed more evenly”

    This is where you’re going wrong. They’re dead because they couldn’t afford proper healthcare. Not because someone else *can* afford proper healthcare. Inequality doesn’t enter into it, obviously. Lack of resources does, but I’ve never suggested that isn’t a problem. The mere fact that someone is twice (or a hundred times) as well off is simply irrelevant. Why aren’t you getting this?

  7. Jarrah
    October 21st, 2011 at 22:07 | #7

    OK, I’ve only just started reading the CDC report, and I find this:

    the nation is likely to continue experiencing substantial racial/ethnic and socioeconomic
    health disparities, even though overall health outcomes measured by Healthy People 2010 objectives are improving for the nation.

    They’re making my case for me. Are you sure YOU read the report? ;-)

  8. Mel
    October 21st, 2011 at 22:09 | #8

    Jarrah:

    “The mere fact that someone is twice (or a hundred times) as well off is simply irrelevant. Why aren’t you getting this?”

    I don’t get it because it is wrong. Incomes in US organisations are heavily skewed towards the top end. If instead incomes were more evenly distributed within organisations (both private and public) those at the bottom end WOULD NOT lack resources.

    You appear to have no idea as to how badly income is skewed towards the top end in America compared to most other western countries. This skewing even permeates the public sector. To give one example, NCOs and enlisted men in America are paid so little that many work extra jobs and charities exist on many military bases provide them with household furnishings etc.. In contrast, the higher ranks are paid handsomely. This skewing of military income is nowhere near as large in Oz. I’m well aware of this from my 20 years as a DoD employee as Oz troops became acutely aware of it in joint Us- Oz operations.

    Also note this:

    “Decades of peer-reviewed epidemiological research, funded by research councils have, he imagines, been torn to shreds by Christopher Snowdon—author of The Spirit Level Delusion. While Snowdon is described as a “public health researcher,” in actual fact he has no public health qualifications and appears never to have published research in a peer-reviewed journal. Instead, his main contribution to public health is a diatribe against tobacco control and a denial of the ill effects of second-hand smoke.”

    The man you cite to “debunk” W&P is a tobacco shill.

    Further:

    “Our critics also ignore the fact that these relationships have been widely demonstrated by other researchers. For example, as early as 1993 in the Criminal Justice Review, Hsieh and Pugh reviewed 34 studies of income inequality and violent crime and found a consistent correlation between the two—the authors estimated that it would need 58 new studies which found no effect in order to overturn this result. But studies since then have continued to confirm the link.

    Similarly, our review of research papers published in peer-reviewed journals found that the tendency for health to be worse in more unequal societies has been demonstrated well over 100 times (see Social Science and Medicine, 2006). Faced with research papers showing that this pattern is repeated among the regions of Russia, the provinces of China, the counties of Chile, or rich and poor countries together, we wonder what regions, provinces, counties or developing countries our critics would find excuses to exclude to deny a relationship?

    Again in contrast to our critics, we offer a coherent theory of why so many health and social problems are linked to greater inequality. Rather than being caused directly by material conditions or being simply a reflection of selective social mobility sorting the resilient from the vulnerable, the link with income inequality suggests that the problems associated with social status are responses to the stresses of social status differentiation itself.”

    While the right wing noise machine has tried to debunk TSL, the peer reviewed literature hasn’t battered so much as an eyelid.

  9. Mulga Mumblebrain
    October 22nd, 2011 at 09:36 | #9

    Good work Mel. The efforts of the Right to deny the ills of inequality are morally wicked and intellectually paltry, so no surprise there. Business-as-usual, I’d say. And being an apologist for inequality and its inherent injustice and the consequent human suffering is the stigma of the misanthropic psychopath, the Rightwing type par excrescence. Of course, they deny that as well.

  10. Dan
    October 22nd, 2011 at 10:58 | #10

    Nice, Mel. You’re spot on – inequality *itself* is a problem, but furthermore by redressing this problem, we redress related problems too (and vice versa).

  11. Mel
    October 22nd, 2011 at 12:31 | #11

    Mulga, I actually have a lot of respect for Jarrah as I have stoushed with him many times over the years. I don’t believe people are necessarily wicked just because they have ideas that defy the evidence and that produce harm. Us humans have an endless capacity for self delusion and all us, if we’re honest, have a few wacky beliefs!

  12. Mulga Mumblebrain
    October 22nd, 2011 at 14:31 | #12

    Yes Mel, I have no idea about Jarrah or anybody else’s inner workings. But ideas and opinions are fair game for attention, and some are simply odious, in my opinion. I have a rather high opinion of my opinions, but hold them tentatively, and endeavour to keep them flexible. My opinion, now, and for a long time, and which has not varied much over time, is that equality and justice and compassion for human beings are very high values, and any ideology that seeks to dismiss them and which is indifferent to inequality and injustice is what I call ‘wicked’. So there you have it. I think that those who preach indifference to injustice, acceptance of inequality and equanimity in the face of global imbalances of wealth and income are behaving badly. Some of these are, of course, merely deluded and may be expected to see the error of their ways. Others are simply expressing their inner character and psychology, the roots of which vary from individual to individual. These people I believe are evil, and that, too, is a matter of degree, and a state that individuals may, occasionally, escape, if a deeper understanding is achieved. This type, amongst whom psychopaths are common, clearly dominates the world at present and their dominance and that of their pseudo-religion, market capitalism, sufficiently explains (to my satisfaction, at least) why humanity is on the brink of destruction. I really think that this is a very big deal, the biggest deal ever, and if we remain unable to keep those unfit to hold power, economic, political or military, away from the sources of these powers, then we are gone a million. There doesn’t seem much progress in this regard, just ever darkening retreat into barbarity and excess.

  13. October 22nd, 2011 at 15:47 | #13

    @Mulga Mumblebrain

    my gosh! you sound just like every Libertarian i have ever known!

    And every Muslim.

    And every Buddhist.

    And every ….

    the only thing i will suggest that you deviate from my own feelings on is that i believe we are on the brink of destruction simply because we are in overshoot.

    Everything we experience from here on in is heavily influenced either by the effect of overshoot itself or the anticipation of it in some way

    and that amidst billions of people trying to get by day to day

    and a handful of opinionated nutters like us

    :-)

    pop

  14. Julie Thomas
    October 22nd, 2011 at 16:34 | #14

    I agree with you Mulga, I am just as disgusted, but not as pessimistic.

    I thought pop had gone away for the weekend.

    Jarrah back at #30 “social stratification remains in even the most economically equal of societies, because humans are status-seeking and will construct hierarchies out of the flimsiest material – high school cliques are a trivial example.”

    Do you think stratification is always social? I’m thinking that in the most economically equal societies and this would be the old hunter gatherer group, is ‘social’ or is the stratification based on ‘ability’, ie natural inequality?

    And re the anomalies in the correlation between inequality and health, might this be due to the ‘sterotype threat’.

    http://en.wikipedia.org/wiki/Stereotype_threat#Effects_on_performance

    In the example that you have referred to – that of second tier executives with a higher income having lower health outcomes than higher level execs who recieve a lower income – the mechanism would be that the second tier exec assess his worth and status as less than that of the boss.

    Garbled but it is Saturday.

  15. Mel
    October 22nd, 2011 at 16:43 | #15

    Sorry Mulga, but I find your simplistic Doomsday talk and your willingness to denounce so many of your fellow human beings as evil far more disturbing than anything Jarrah has said. What is possibly even more disturbing is the incessant and deranged comments that you make about Zionism on countless websites. For your sake, I do hope you seek professional help.

  16. October 22nd, 2011 at 17:16 | #16

    I recon we should all agree to be a little happy for a bit – even if it is only for today and tomorrow

    gosh, as bad as it is for so many on this planet are we ever lucky – i count my blessings every single day

    and yes i’m away for the weekend but there’s a computer here

    love to all

    pop

  17. Jarrah
    October 23rd, 2011 at 00:07 | #17

    @Mel
    ” If instead incomes were more evenly distributed within organisations (both private and public) those at the bottom end WOULD NOT lack resources.”

    You’ve got it backwards. If those at the bottom had more resources, inequality would lessen. Inequality is just a measurement, not a determinant! We’re just going around in circles here.

    “The man you cite to “debunk” W&P is a tobacco shill.”

    You don’t seem to be aware that you are employing a logical fallacy called ‘ad hominem’. Snowdon may be the devil incarnate, but that doesn’t mean he’s wrong about this topic.

    It’s rational to not bother engaging with those you think are going to waste your time, but his arguments aren’t complex, and makes a very strong argument. Do yourself a favour, and actually read his arguments, rather than relying on third parties.

    “the link with income inequality suggests that the problems associated with social status are responses to the stresses of social status differentiation itself.”

    This is, if anything the absolute weakest point of the thesis. Japan is among the most economically equal countries looked at by W&P, and its excellent social outcomes are frequently the outlier producing the simplistic trend line in their graphs (one of the main statistical problems of their work, but let’s leave that for now). Yet Japan is also one of the most status-conscious societies on Earth, with social stratification deeply embedded in the culture and even the language itself. This supposed sterling example of the correlation between equality and social outcomes goes directly against the inferred causal mechanism.

  18. Jarrah
    October 23rd, 2011 at 00:17 | #18

    @Julie Thomas
    “Do you think stratification is always social?”

    No, but when you remove one way of measuring status – eg income – humans always find other ways of doing so. In communist countries, there was greater income equality, but in its place you got greater political inequality. Being a member of the party got you a better life. Being higher up the party hierarchy got you a better life.

    You can’t get rid of status-seeking behaviour, because it’s part of our pre-human inheritance in the competition for sexual mates.

    Some inequality is good. Too much is bad, because it causes underclasses to form and then seek to change society in their favour – revolutions, in other words. We need enough redistribution in the short term to alleviate suffering, and enough in the long term to prevent revolutions.

  19. Dan
    October 23rd, 2011 at 08:01 | #19

    “We need enough redistribution in the short term to alleviate suffering” – Yep. Exactly. If you’re going to continue to claim that this is the situation at present, or in fact we’re already being too generous, you just have no idea what it’s like out there.

  20. Julie Thomas
    October 23rd, 2011 at 08:53 | #20

    Jarrah, I think, in our endeavour to understand why we behave as we do now, and what systems will work in the future, the information from evolutionary biology/psychology, is useful, not as a model for how to organise ourselves now, but as one way of understanding our unconscious motivations. Speculating wildly here, but perhaps the unconscious bias we have toward tall people – or is it only tall men? – is based on the benefits that tallness would have provided for hunters?

    I don’t think the male/female thing is the key to the development of stratification. It is an important discussion to have but I’m not willing to talk about it while there are people like Bolt who would use the debate to inflict more damage on women just as he inflicted more damage on indigenous people’s self-esteem.

    You are focusing on the dichotomy between communism and free enterprise and are motivated to defend the system you have already decided is the ‘best’ one. I think both of these ideologies are just ways of organising the distribution of resources and income, and as John Ralston Saul says, neither is a proper ideology; they do not tell us how to live our lives well and how to look after each other.

    Both of the ideas flounder on the fact that human nature is not rationally predictable and it seems clear that we need something like the social mores that Confucious developed to underpin any economic and political system; Adam Smith knew this and for him the Christian values were the only way that capitalism could be ‘tamed’.

    I think that you can get rid of status seeking behaviour and traditional indigenous society is an example of a society in which status seeking behaviour is not the primary motivation for living.

    Buddhist philosophy also offers ways of reducing desire and status seeking behaviour. Japanese society is socially stratified but the difference between their stratification and ours is that those at the bottom are not denigrated and stereotyped as welfare bludgers, as stupid and lazy, the ‘no-hoper class’; that was how Bob Katter referred to ‘them’ a few days ago.

  21. Chris Warren
    October 23rd, 2011 at 08:59 | #21

    @Julie Thomas

    Unfortunately Buddhists erected the most savage form of feudalism in Tibet until overthrown.

    They simply take the desire for status seeking behaviour and divert it into alternative forms.

    Modern society can do better with football and cycling teams.

  22. Julie Thomas
    October 23rd, 2011 at 09:21 | #22

    The IQ data is interesting in Japan also. In European countries, it seems that there is an IQ difference between rural and urban populations, in the obvious direction, but this difference is not found in East Asian populations, including Korea.

    But, a group of Korean workers in Japan, imported back in the days of Japanese Imperialism, who are stereotyped in the usual way that out-groups are sterotyped – lazy dirty stupid – have been found to score lower than their counterparts back in Korea. So is it being part of a less valued group that ’causes’ lowered IQ scores?

    Perhaps the Jewish people have done so well, despite all the negative stereotyping and abuse they have been subjected to over the centuries, because their belief in themselves as the chosen people is ‘positive sterotyping’ and it works to increase IQ. Through their strong family system they have been able to maintain this self created positive stereotype.

    But it is also seems obvious that it is the solidarity they show toward the members of their particular society that maximises their success.

  23. Julie Thomas
    October 23rd, 2011 at 09:25 | #23

    Chris – some Buddhists do bad things but the philosophy itself is very adaptable and football and cycling teams could benefit from it. The helping kind of psychology is successfully using some of the principles – such as mindfullness to good effect.

    It’s not a panacea at all just an alternative that offers possiblities.

  24. Chris Warren
    October 23rd, 2011 at 10:10 | #24

    @Julie Thomas

    Yes I suppose, but we need to have useful moral principles in humanity separate to religious constraints and without invoking splits in citizenry.

    If moral principles arise only through religion they are not properly based. If they are already represented in social life, they are properly misrepresented and exploited in religion.

    It is very hard to see “mindfulness to good effect” in the Bhuddist story of the Maiden Rohini who had to spend her 10 thousand pieces of money and jewels to build a two storey assembly hall, and then work sweeping it constantly, preparing seats, and keeping water vessels full of water.

    After being summoned (againts her will) she was told she needed to “perform works of merit” by the Venerable Anuruddha and his retinue of 500 monks.

    See Ch 23 of “Buddhist Stories from the Dhammapada Commentary “

  25. Chris Warren
    October 23rd, 2011 at 10:26 | #25
  26. Julie Thomas
    October 23rd, 2011 at 15:28 | #26

    Chris I didn’t mean to suggest that we adopt buddhism as a religion! Those stories sound awful but they belong to the religion of buddhism. The philosophy is different; http://plato.stanford.edu/entries/comparphil-chiwes/

    We could look at some of the knowledge that the buddhist tradition and some of the other Chinese philosophies developed about keeping governments benign. I think they had long periods of stable governments so they might have something to offer but I am in no way knowledgable about Chinese history or the philosophy. It is a huge area but I was intrigued to find, in my mind anyway, some interesting similarities between Spinoza and aspects of Chinese buddhism.

    And sure ‘mindfullness’ is the therapy of choice of the worried wealthy well, but the practice, silly as it is, parts of it work for youngest son, a hands on youth worker who cares too much; not about alleviating suffering in the no-hoper disabled class he knows and loves, but about how much suffering there is and that there really is nothing available that does alleviate it.

  27. John Quiggin
    October 23rd, 2011 at 19:54 | #27

    Mulga Mumblebrain is pemanently banned. I’m deleting all his recent comments and replies to those comments.

  28. Tom
    October 24th, 2011 at 08:51 | #28

    @Jarrah

    “You’ve got it backwards. If those at the bottom had more resources, inequality would lessen. Inequality is just a measurement, not a determinant! We’re just going around in circles here.”

    Agreed, however that just implies the market has not been allocating resource effectively for the past 30 years, because the government has not intervene with the market in relation to income redistribution such as raising minimum wage, changing tax rate to more progressive tax rate etc. This by itself already proves that market is ineffective at resource allocation without government interventions (hence liberalism/capitalism does not work).

    If you take the case in Australia, minimum wage has improved, progressive tax, and transfers,welfare increases over time, and public healthcare etc are all government intervention with the market. The result? Well is Australia facing the same problem as the US? It is fair to say Australia is not a capitalist society, it is combined with a major right (liberals), center-right (labour), and a minority left (green, independent).

    Inequality is a measurement however, if it is not natural generated inequality such as difference in work duties, pressures, responsibilities and performance etc. It is harmful to the long run economic stability of the economy; and a deregulated market generates more abnormal inequality than a more regulated market (US:Australia).

  29. Jarrah
    October 24th, 2011 at 10:17 | #29

    “This by itself already proves that market is ineffective at resource allocation without government interventions (hence liberalism/capitalism does not work)…and a deregulated market generates more abnormal inequality than a more regulated market (US:Australia).”

    I disagree strongly with your premises, but we are straying far from the original topic, so I’ll leave that for another time unless you want to continue in the Sandpit.

    I’m glad we are in agreement on inequality being just a measurement, not a determinant. One or two others have agreed with this basic point as well. Overall, I consider this to be a very successful foray into the blog jungle.

    Peace out.

  30. Dan
    October 24th, 2011 at 10:21 | #30

    I’d appreciate your response to 19, but no probs if you want to move on. Cheers.

  31. Tom
    October 24th, 2011 at 10:33 | #31

    @Jarrah

    Sure, I’d love to discuss with you on the topic “Is the market more efficient in allocating resources relating to income in a more deregulated economy than a regulated economy”; that is if you are willing to spend time on discussing it with me in the Sandpit.

    To point out, I have always agreed that natural inequality should exist.

  32. Chris Warren
    October 24th, 2011 at 10:45 | #32

    @Tom

    Surely a regulated monopoly where the price = average total cost is the most efficient of all.

    How can you get more efficient than this.

    I suppose you can always fiddle with the concept of efficiency.

  33. Tom
    October 24th, 2011 at 11:04 | #33

    @Chris Warren

    I’m not suggestings regulated monopoly, competition will have to exists as a mean to control inflation and improve efficiency. However market liberalism/capitalism generally implies the government should have as little regulations on the market as possible, even if some regulations benefits the economy.

    Now, for example a lot of countries around the world is trying to get China to float the RMB. Why because local business are having trouble competing with Chinese exports, and low labour cost due to manuiplated currency. Now assume that if the Chinese government did float it’s currency and it rose to the estimate that it should worth 40% more than it current is. A lot of the manufacturing plants imported from other countries will move to somewhere else with cheaper labour, further more the demand for Chinese export will decrease which will significantly increase it’s unemployment rate. You have to know that a lot of rural population of China lives on the imported manufacturing plants on $1 per hour. This is a classic example how Chinese government used regulations that benefits the economy.

    No doubt, heavy regulations harms the economy however I believe there should be a equilibrium between regulations/deregulations; which means that an economy should not be heavily regulated nor it should be purely free.

  34. Tom
    October 24th, 2011 at 11:09 | #34

    Apologies for correction, “should be a equilibrium between regulations/deregulations” should be level of regulation/macroeconomic stability.

  35. Freelander
    October 24th, 2011 at 11:41 | #35

    The market allocates resources to their highest value use. The poor don’t have any resources simply because they don’t value them highly enough as indicated by their unwillingness to purchase them at market prices. No injustice; any resulting inequality is entirely fair and choice driven. We are all free to choose. All is well in the world.

    See, simple as that; economics explains all.

  36. Chris Warren
    October 24th, 2011 at 12:45 | #36

    @Tom

    Personally, I think regulation does more good than harm, once you understand the huge damage being wrought through deregulation, or at least, the gaming strategies people adopt in a deregulated environment.

    However regulation tends to smother innovation which is the main source of real growth.

    Maybe it is best to avoid the “market liberalism/capitalism” couplet unless you want to restrict market liberalism to just capitalism. In this case the role for regulation is even stronger.

    Normal market liberalism can exist outside capitalism.

  37. Dan
    October 24th, 2011 at 23:34 | #37

    Here’s Joe Stiglitz on the topic, making an argument in favour of my position that inequity itself is deleterious:

    http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105

  38. Tom
    October 25th, 2011 at 06:05 | #38

    @Chris Warren

    Thanks for the advice, I agree wtih your point. I’ll avoid market liberalism/capitalism now and stick with capitalism.

    Also agreeing that regulation do more good than harm; however in what I meant by heavy regulation though is something like price controls and wage controls. These can be really effective if it is use properly; but it is hard to measure the quality/cost of good or productivity/performance of a particular worker. Which if not measured properly it will create disincentives for businesses to differentiate their product via quality; same goes to worker.

  39. Julie Thomas
    October 25th, 2011 at 08:21 | #39

    Dan I enjoyed the article, thanks.

    This quote:
    “Whenever we diminish equality of opportunity, it means that we are not using some of our most valuable assets—our people—in the most productive way possible”
    is particularly relevant from my perspective. When we abuse people for being dole bludgers, stupid, lazy, luvies, whatever the term of abuse is, we diminish their ability to contribute whatever it is that they have to contribute.

    And this quote makes it clear that the idea of equality is a desirable goal, for self-interested people, and not just for the luvies.

    “ Alexis de Tocqueville once described what he saw as a chief part of the peculiar genius of American society—something he called “self-interest properly understood.” The last two words were the key. Everyone possesses self-interest in a narrow sense: I want what’s good for me right now! Self-interest “properly understood” is different. It means appreciating that paying attention to everyone else’s self-interest—in other words, the common welfare—is in fact a precondition for one’s own ultimate well-being. Tocqueville was not suggesting that there was anything noble or idealistic about this outlook—in fact, he was suggesting the opposite.”

    Spinoza :) , I think was making the same argument and that a government was the only way to ensure that everyone’s self-interest could be achieved.

    Also, if one is interested in self-organisation and believes that this process can achieve a good society, the idea of the common welfare as a precondition for one’s own well-being, is the mutual goal that they need.

  40. October 27th, 2011 at 07:36 | #40

    this is a cross post because i suspect my original post will be deleted from the site i posted on

    here is the original post

    http://blog.mises.org/18826/the-obession-with-equality/comment-page-1/#comment-806741

    here is what my comment said (ps, feel free to jump onto the mises site and have a go at them – but keep the flaming down else they’ll for sure lock out comments)

    ————————————————————————————————– post start —
    My question is this

    exactly what is wrong with equality? Not that i believe that either equality or inequality will matter much in the big picture – in the end we are all dead and i do not mean in Keynes’ way.

    What is clear to me is that when there’s lots of fat to go around the fact that some scum bags make and hoard a lot more than the average Joe is something everyone can live with – simply because they can live

    but when the pie to be shared starts to shrink things get a little more dramatic – no matter whether or not those with most of the pie are losing their share to a shrinking pie or to those who’s shrinking portion drives them to try and get more of anybody else’s share of the pie, they are going to try and hold on to their share – rationality will never come into it

    in the dim dark ages past when there were so few of us that to lose any of us was a threat to all of us it was normal to pull together

    but when there are so many of us that risk seems to no longer exist and with it has gone the care for others exemplified by by the attitudes of some who post to this blog – whatever huff and puff reactions they might make to my assertion (and yes i do know them all – being as well schooled in Libertarianism as any)

    you might think that you are a survivor and that that survival is all because of something about you that makes you superior – and heck it aint hard to feel superior to many of the countless no-hopers and low-lifes out there

    but the fact is that when it all turns to poo it will be the animal in us all that determines the outcome and not the godliness – by forever walling off those with little pie from those of us who have been lucky enough to have more of it all that happens is the wall gets more and more expensive and eventually it falls and leaves us to deal with reality tooth and nail

    that is our future buddies and no amount of ideology is ever going to keep it at bay for long

    so as you see and hear more and more calls for equality – instead of looking for the flaws in the rationality or ethics of the messengers you’d better step back and think about how we all might survive – as a species – as a civilisation

    because as Friedman conceded on his death bed – if we had true democracy there would be no inequality (and your sneaky side-step use of 50-50 hides the truth) – the masses we deny any share of the shrinking pie to would legally vote themselves more of the pie

    so you better either figure out how to make a bigger pie (which seems to be physically impossible) or to ensure there are far far fewer of us to have to share it

    and to do so without resorting to where your ideology must logically lead – pogroms and “demographic cleansing”

    pop

    i’ve often wondered if the peak of population looms
    and our time is bright but short just like a fleeting flower blooms
    and maybe there’s no going back the tipping point’s been crossed
    ’cause we’re all of us the most we’ll be – peak people

    http://thepeakoilpoet.blogspot.com/2011/08/peak-people.html

    http://thepeakoilpoet.blogspot.com/2011/10/equality.html

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