Percentiles

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

340 thoughts on “Percentiles

  1. Jarrah:

    “W&P made definitive statements based on stark statistics. The problem is that the statistics don’t support their claims. You don’t have to be a political partisan to evaluate statistical validity.”

    As W&P and various others have pointed out, there are many hundreds of peer reviewed publications that confirm many of W&P’s findings. Even if it were true that W&P present a poor case (and I’m not conceding they have while acknowledging that a work of such scope is bound to contain numerous errors), you still need to deal with the arguments and data that exists in a vast body of peer reviewed literature.

    An analogous situation here is the vast army of rightwingers (not coincidentally including many if not a majority of libertarians) who run the line that MBH’s hockey stick is wrong/ a lie/ a hoax therefore AGW does not exist.

  2. @Mel

    no, the majority of Libertarians believe simply that no matter what the extent or cause of climate change it is not in the best interests of the people to have a government dictating what should be done about it

    on the other hand, if all were Libertarian AND the majority believed that something should be done about it there would be nothing to stop them pulling together to try and do so

    some people, Libertarian or otherwise, choose to believe that AGW is bogus

    i suspect that the majority of those are either emotionally pre-committed or stupid or lazy or dishonest

    with some percentage like me – no matter how much i read i do not profess to know what the “truth” is

    but i certainly don’t believe idiots in government can do anything useful about it

    If it was true and they could then the best thing to do would be to cease all coal extraction world wide until a truly clean energy solution could be found

    bottom line for Aus would then be to stop exporting the enormous amount of coal we export

    does anyone see that ever happening?

    pop

  3. @Mel

    which thread? “Equality” or “Libertarian”?

    i assume the first

    it is 100% on topic

    go back to the beginning

    my belief is that all the noise people make about which is the best way to go is just that – noise and ignores the bigger picture

    pop

  4. @Jarrah
    Jarrah I think you misunderstand me. My point is that linking to books, YouTube videos or blogs is not really a scientific way to peruse this. I didn’t mean to direct that comment at you (you haven’t really done this), just at the general principle.

    As I have indicated I am happy to accept that the Wilkinson hypothesis is not well supported. I am simply indicating that one does not need to buy into it to believe that inequality is harmful.

    This can be shown as follows. Utility, welfare, health, status etc are generally regarded as concave, monotonic functions of underlying variables such as income or wealth. If one assumes separable functional forms (which is typical) then whatever measure of social welfare must be a decreasing function of inequality, which is maximized when inequality is zero. This is a fundamental concept in economics and pretty uncontroversial.

    Now this is not an argument for complete inequality, as this represents a static optimization of welfare rather than a dynamic one. And like you, I would have serious problems with anyone who tried to advocate it. However it does show that the literal ‘inequality is not a problem’ argument is simply not correct, which is something you should acknowledge.

  5. The sort of sensible argument that can be made in ‘favor’ of inequality (as well as against) runs something like this. “Sure inequality is harmful, but attempts to reduce it beyond a certain point are likely to be counter-productive (in terms of diminished incentives and the general intrusiveness of government). While agnostic about where the optimal point is, I suspect it is somewhere like *here*” (insert your preferred distribution of income or rule for generating one).

    I have not seen this argument been made clearly by anybody who is trying to defend the concept.

  6. @NickR

    But there are two types of inequality – natural and artificial.

    You end up with different understandings and arguments for each one.

  7. @Chris Warren

    i’d say it was an accurate estimate of the truth and i assert that anyone who knows you personally would back me up

    care to provide a list of referees i could call who would swear to you not being as described?

    and a Freudian slip mate is is where you use the word your mind was thinking instead of the word your mind had intended when it first thought up what to say (but i assume you can’t follow that – it is a bit complicated)

    you’d be fun if you were physically available

    pop

  8. @Chris Warren

    actually, i was serious – you can drop a list of referees in the comments section of my blog – it’s moderated so only i will get it (and i promise not to publish it)

    i’ll happily phone each person and ask them if they think you have a mental problem or not

    and the i’ll post the summary results here

    how’d that be?

    seems fairly straightforward and honest

    and, if the bulk of them all tell me you are an angel that spends the bulk of his spare time helping the needy i’ll publicly apologise to you for truly misunderstanding your nature

    pop

  9. @Mel
    “As W&P and various others have pointed out, there are many hundreds of peer reviewed publications that confirm many of W&P’s findings.”

    Actually, that very claim has been discredited. See my previous link.

    A word about the scientific literature. W & P are fond of claiming that their work is backed up by 100s of peer-reviewed studies. In a recent letter to The Guardian, for example, they once again referred to “hundreds of other academic research papers which show similar patterns.”

    Do not be fooled. Very few of the studies referenced in The Spirit Level claim that health or social problems are caused by income inequality per se (as opposed to absolute income or other socio-economic factors). Of the few that do make such a case, many were written by Richard Wilkinson and/or Kate Pickett (they refer to no fewer than twelve of their own studies in The Spirit Level).

    The bulk of the references are to newspaper articles, opinion pieces, other people’s books, studies that discuss specific issues (eg. stress, violence, obesity) and the sources of the raw data (eg. UN, OECD). Often the studies referenced give equivocal support or contradict W & P (see Questions 4 & 7, for examples). The only area which has a significant body of scientific literature is health and inequality, and much of it disagrees with Wilkinson’s hypothesis. As Wilkinson admitted in a recent interview with the magazine International Socialism, there is virtually no evidence from other academics to support the bulk of the claims made in The Spirit Level.

    “you still need to deal with the arguments and data that exists in a vast body of peer reviewed literature.”

    The arguments and data do not unambiguously support W&P’s claim that “more equal societies almost always do better”. For example, Sargent noted in Nature that during 2009, four of the six academic analyses contradict their hypothesis.

    The facts of the matter are that W&P extensively cherry-picked their data (somewhat like AGW denialists), cherry-picked their metrics, and cherry-picked when to introduce other factors.

  10. Jarrah:

    Sorry mate, but you simply aren’t responding to what I believe to be a key argument in favour of redistribution. I’m really interested in whether you have any plan for addressing this at all, or why, if not, you believe the costs of doing so outweigh the benefits. If you can’t answer at all, my inclination is to believe that we have fundamentally different moral values, and we are doomed to talk past each other. I’ll also read it as vindicating my position both morally and in terms of the robustness of my argument.

    I think we agree that inequality itself is not distributed equally; that is, disenfranchised groups systematically are poorer – income-wise, health-wise, social-capital-wise. COAG’s Closing the Gap targets, whatever you think of the specifics, represent one recognition of this; even in our robust and dynamic economy, Indigenous Australians, on average, are having a dreadful time of it.

    According to Myrdal’s landmark work, there are systematic and self-reinforcing reasons for why people in these groups find it difficult to break out of economic and social ruts.

    What to do? The answer to me is clear. Yours is…?

  11. Jarrah @15:

    “Actually, that very claim has been discredited. See my previous link.”

    As my next argument would be that the debunking has itself been debunked I think I’ll leave it at that.

  12. @Dan

    Unfortunately even thou I agree with you that income should be redistributed, doing so would be extremely difficult. Say for example, if minimum wage and government transfer in the US is increased and tax become more progressive to redistrbute income; in a free market economy where the government have no control over prices, this will just cause hyper-inflation as the businesses would just put up their price to reduce the marginal labour cost and meeting net profit targets and bonus targets.

    When this happens, it will attract people to purchase imports as a much cheaper substitute, which will significantly harm local businesses and cause unemployment. So if businesses are forced to sell at competitive price and the sudden drop in profits would mean that investors will just pull their funds out the stockmarket causing it to crash and businesses go bankrupt. Another major problem that would cause that significant increase in general income level will cause large demand of housing, espeically mortgages which the investors will then again cause the housing price/rent to raise above equilibrium again.

    All these will cause the economy to become extremely unstable, but these problems can’t be fixed unless the government decides to regulate it which contradicts to what the Right’s view of “capitalism/free market”, and with the political/media system in US the government will be thrown out of power before these happens. Although I believe redistributing income is the only way to fix the problem in US, I don’t think it will ever happen.

  13. Huh? Income *is* redistributed – that’s what government education, healthcare, social insurance is.

    I’m arguing that it’s not happening enough.

  14. Tom :
    @Dan
    Unfortunately even thou I agree with you that income should be redistributed, doing so would be extremely difficult. Say for example, if minimum wage and government transfer in the US is increased and tax become more progressive to redistrbute income; in a free market economy where the government have no control over prices, this will just cause hyper-inflation as the businesses would just put up their price to reduce the marginal labour cost and meeting net profit targets and bonus targets.

    Aren’t you implying that Sweden should have had hyperinflation for the last 50 years?

  15. @Tom

    Tom there are better ways to do this. For example lower tax rates for low income households, higher tax rates for higher income households, increased spending on infrastructure (such as schools and hospitals) that benefit the poor, combined with means testing and other cuts to middle (and upper) class welfare. Sure they may be some distortions that would be created (and also removed) from this policy but in my view these would probably be outweighed by the benefits.

  16. @Dan

    I know what you mean by it is getting redistributed, but to redistribute it more equally than it currently is do cause problems, more so in a credit economy.

    @NickR

    I understand what you’re suggesting however the change won’t be enough, now assume that is the tax rate on lower/middle class is to be reduced or even eliminated. It would only provide a temporary boost in their income, overtime if inflation do exist and wage level stay at constant, the problem will come back overtime. By then how much more can you cut tax rate?

    Investments in infrastructure to create jobs do work I agree, but if the fundamental problem associating with income is not dealt with, having a job won’t do much good at all. There are people in OWS movement that have fulltime jobs and are working longer hours than Australian workers.

  17. “As my next argument would be that the debunking has itself been debunked I think I’ll leave it at that.”

    Assertion is not an argument, Mel. I’m not surprised you aren’t willing to engage, though – you’ve shown no sign of presenting anything resembling evidence or logical argument.

    “What to do? The answer to me is clear. Yours is…?”

    You want a political manifesto, Dan? Visit my blog. The short version: the ruts are multifactorial. Some welfare/redistribution is needed, but it’s clearly not enough. Changes in governance, emphasis, incentives, etc, are also necessary. Radically increasing the redistribution of wealth will endanger the creation of wealth.

    I thought we were talking about inequality and its desirability, but apparently you are content to keep moving the goalposts whenever I address your points. I’m not sure what your “key point” is, I thought I was responding to everything you brought up.

    “even in our robust and dynamic economy, Indigenous Australians, on average, are having a dreadful time of it.”

    Partly because they are excluded from participating fully in the economy!

  18. So essentially you are saying market liberalism will fix disadvantage, but in the interim, redistribution of wealth to redress disadvantage is antithetical to wealth creation so essentially counterproductive.

    That’s a strange thing to be arguing in the context of a thread on #OWS’s “We are the 99%”.

  19. @Jarrah

    I thought we were talking about inequality and its desirability

    But it is not possible to do this because you have not explained what is your “inequality from exploitation” that is “the genuine kind”?

    Do you accept there are two types of inequality – natural inequality, and inequality based on politics?

    The question on desirability is different for each.

  20. @Chris Warren
    I think Jean Jacques Rousseau would agree with you. His Discourse on Inequality distinguishes between ‘inequality from God’ (natural inequality) and ‘Inequality from man’. He seemed to believe that we should eliminate man made inequality, but not seek to alter natural inequality.

  21. Dan :So essentially you are saying market liberalism will fix disadvantage, but in the interim, redistribution of wealth to redress disadvantage is antithetical to wealth creation so essentially counterproductive.
    That’s a strange thing to be arguing in the context of a thread on #OWS’s “We are the 99%”.

    Sorry I don’t know who this is suppose to be addressed to, if it is addressed to me then I would have to disagree. I have never supported market liberalism, I’m actually very against it because I know that capitalism/market liberalism will inevitable fail. However the problem here is that the market is too free in America which makes any costs to the wealthy from reforms to be passed to consumers which will not fix the problem and it will make it worse. I personally believe that to fix the problem in US it will need heavily government regulation, but I don’t have any idea that would work; wage rise would just cause the cost to be passed on the consumers and price freeze would just drive away investment and cause the economy to crash. If it’s that easy to come up with a solution for this problem, won’t you think the problem is not a problem?

  22. “But it is not possible to do this because you have not explained what is your “inequality from exploitation” that is “the genuine kind”?”

    I would have thought it’s obvious. I’ve given several examples while discussing other things, eg CEOs exploiting stacked boards to set their own wages, or companies exploiting regulatory capture.

    “Do you accept there are two types of inequality – natural inequality, and inequality based on politics?”

    I think there’s dozens of types of inequality, including those two. Here’s an interesting one for you. There is a kind of inequality that isn’t earned, but inherited. It has no correlation with moral worth or social contribution. Being on the right side of this inequality means you’re more likely to have a better education, more likely to get a job, more likely to earn more over your lifetime (all after accounting for other factors). What is it? Height.

    It bears all the hallmarks of unjust inequality, except we can’t redistribute height, and raising the average does nothing because the effects are positional. So we just have to accept it, right? Similar reasoning applies to several other kinds, which I guess we can call ‘natural’ inequality.

    Wealth and income inequality generally arise from a mixture of natural and political causes. It is certainly possible to reduce wealth and income inequality through political means, but it’s impossible to eliminate it. Efforts to reduce it radically can have very strong negative effects – eg the Khmer Rouge.

    Regardless, 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.

  23. @Jarrah
    Jarrah nobody is disputing this, and you are more or less recycling Chris Warren’s point. Most egalitarians that I know of are ‘soft’ in the sense that they accept differences due to personal effort, but wish to minimize (as much as practical) inequality from other sources.

    “Some welfare/redistribution is needed, but it’s clearly not enough. Changes in governance, emphasis, incentives, etc, are also necessary. Radically increasing the redistribution of wealth will endanger the creation of wealth.”

    This sounds entirely reasonable. Do I take it then that you agree with my point that inequality is harmful (as welfare is concave in income/wealth) but this harm must be balanced against the harm that can be incurred from trying to drive it down too low (whatever too low is).

  24. NickR: nice. Very hard to pin down Jarrah on specifics. His position seems to be: one – there is some inequity that can’t be reasonably addressed (in general that point is trivial; the specifics are maybe subject to a bit of debate but no-one’s seriously disputing it); two – disadvantage and inequity aren’t related (wtf?); three – the best way of redressing disadvantage is economic growth, and we’ll ignore the political economic dimensions of growth (wtf? trickle-down idiocy); four – disadvantage, where preventable, is deplorable and something should be done about it; five – see point three on why we’re so limp on point four.

    Let me be clear on my views:

    1) We don’t live in anything like a market system – to a great extent, we live in a capitalist version of a planned economy (apols to Galbraith). So being precious about the free market, the benefits thereof, and the dangers of central planning, is not so much wrong as irrelevant.
    2) To the extent that we have had actual genuine economic growth in the past 30 years (as opposed to the depletion of non-renewable resources and creative accounting), it has not raised all ships. It has raised some ships, disproportionately those who least need raising. This represents market and social failure and should be addressed through government action.
    3) The emergence of a consumerist middle class in China and India is good news for the individuals concerned, although it presents problems too – but it’s not relevant to the US (which this thread is about) or Australia (which is where most of the posters here live).
    4) Because disadvantage is persistent, the response of governments to disadvantage needs to be more aggressive. That means redistribution, particularly given that we *do* have the economic resources to do something about this.
    5) I have a hunch that wealthy, equitable societies (Sweden, Norway, Australia kinda) are more resistant to macro shocks than less equitable ones (does anyone know of any research that bears this out? Full disclosure: I’m tentatively examining the links in part of my masters program at the moment).

  25. @Jarrah

    But over paid CEO’s represent inequality that is of the Marxist kind. Depending on the specifics of regulatory capture, this may also be of the Marxist kind.

    Simply having CEOs setting their own wages does not necessarily mean unnatural “inequality from exploitation”. Fair minded CEO’s (say running church non-profit charities) may well have their mates on boards and still set their wages fairly with no suggestion of exploitation.

    Maybe there is no “inequality from exploitation” that is not the Marxist kind. Maybe Jarrah made a mistake when he said there was inequality from exploitation that is of the genuine kind (not the Marxian kind) .

    This was Jarrah’s claim and just leads to confusion.

    It seems to me that all “inequality from exploitation” is Marxist, and all other inequality, with no exploitation is normal or natural.

    Whether there are differences in height or skin colour or accent or abilities do not necessarily mean there is any inequality. This only arises based on other circumstances.

  26. “…and therefore we should curtail our attempts to redress it…?”

    Some can’t be redressed. Some can, but the costs outweigh the benefits. Some can be alleviated by civil society. For the remainder, I advocate a small amount of evidence-based government intervention.

    “Do I take it then that you agree with my point that inequality is harmful (as welfare is concave in income/wealth) ”

    Low welfare is a harm. Inequality is not a harm.

    “Nice Khmer Rouge Godwin too.”

    Since when does that count as an example of Godwin’s Law? I simply took the most extreme example of radically equalising policies off the top of my head, which is the attempt to create a classless society by the fanatical Khmer Rouge. Obviously none here want to go that far, but you shouldn’t shy away from what trying to eliminate inequality means.

    “three – the best way of redressing disadvantage is economic growth, and we’ll ignore the political economic dimensions of growth”

    Who said ignore it?

  27. “But over paid CEO’s represent inequality that is of the Marxist kind.”

    Do you mean exploitation of the Marxist kind?

    “Simply having CEOs setting their own wages does not necessarily mean unnatural “inequality from exploitation”.”

    I didn’t mean to say all CEO exploit commercial mechanisms, only that some of the inequality between those on huge wages compared to their workers can be explained by exploitation. And I said “not the Marxian redefinition” so as not to confuse people in case they thought I meant his concept rather than the normal sense of the word. Obviously that backfired.

    “Whether there are differences in height or skin colour or accent or abilities do not necessarily mean there is any inequality.”

    Actually, that is precisely what it means. Different means not equal, which means there has to be inequality by definition.

  28. @Jarrah
    “Low welfare is a harm. Inequality is not a harm.”
    This is of course correct, but it seems to me to be the kind of pedantic point that somebody makes when they are trying find a basis for disagreement (presumably to avoid being seen to acquiesce on an argument ).

    I can equally say ‘heart disease is not a harm, lost utility is a harm ’, or ‘liberty is not good, welfare is good’. Both are true, but it seems strange to insist we speak only of welfare and not its direct determinants.

  29. Jarrah:

    “Assertion is not an argument, Mel. I’m not surprised you aren’t willing to engage, though – you’ve shown no sign of presenting anything resembling evidence or logical argument.”

    Actually it was your mention of cherry picking that did the trick. It made me too hungry to continue the debate 😉

    I could of course provide links to the many dozens of peer reviewed articles that support the inequality/health and the income/crime thesis but I rather doubt that would make any difference to attitude. Moreover, if you’ve studied the issue as thoroughly as you are intimating, you would have read them all by now anyway 🙂

    Dan:

    “To the extent that we have had actual genuine economic growth in the past 30 years (as opposed to the depletion of non-renewable resources and creative accounting), it has not raised all ships. ”

    Economic growth can actually *sink ships*, for example renters on fixed incomes being forced out of well serviced inner suburbs into poorly serviced outer suburbs subsequent to gentrification. This was a major problem in Perth when house prices skyrocketed there a few year back.

    Dan is also correct about our economy. We don’t really live in a capitalist country, instead we live in a mixed economy with very significant government and not-for-profit sectors. The market itself is seamlessly embedded both into both culture and state-legal structures.

    To give an example of cultural embedment, a CEO of company Y in America may well take home $10 million per year but the CEO of company Z in much of continental Europe could not possibly take home that much even if he is a much better performer because it would be culturally unacceptable for him to do so.

    Libertarians tend to forget that “the market” is as deeply embedded in culture as every other social institution. One of the tasks of #OWS and social democrats such as my self is to change the culture so that such gluttonous greed is no longer socially acceptable.

  30. Jarrah@36 – why a small amount? It could be that to give disadvantage the shove it needs, you need more than that; to use a small amount in that instance *really is wasteful*.

    Nick@38 – that’s what I was getting at with the stab wound/bleeding out metaphor before. But I actually think you’re slightly off the mark – inequality *in and off itself* is deleterious – but probably the key argument on this thread has been: disadvantage exists; the market ain’t going to fix it; redressing it will as a matter of course result in greater equality; therefore it makes sense to see inequality as a proxy for suboptimal aggregate outcomes.

    But also it’s truly awful that anyone could be so well-off in a world in which so many go without, for no reason better than the luck of the draw.

  31. @Jarrah

    If someone wants to claim that any difference means inequality, then they missed the point.

    Imagine trying to pay for $1 newspaper with two 50cent coins and being refused by Jarrah the shop keeper, who claimed that two 50 cents was not equal to $1 because one was bigger than the other.

    Imagine telling a white skinned person and a black skinned person – they are not equal.

    Imagine trying to claim people are unequal because one has a different accent than another, or different abilities.

    Obviously this is just deliberate confusion and word-play, and those who do not have the ability to abstract from such neutral differences and focus on relevant aspects disqualify themselves.

  32. Dan it’s just a definitional thing. If inequality is harmful, then harmful to what? The answer comes down to ‘welfare’, which is generally a catch-all term for the fundamental thing we want to maximize (note that we can define this how we like, however there are some widely accepted principles).

    The point is that Jarrah doesn’t care about inequality, only welfare and I agree. However the seems to be his way of avoiding admitting that inequality is a fundamental input into welfare, and therefore a concern for welfare implies a concern for inequality.

    All this is pretty unambiguously correct, but it does not imply that we all have to be hard (or even soft) egalitarians. As I have stated previously, the way to make a ‘pro-inequality’ argument is to acknowledge it is bad but argue that the costs of driving it down are greater than the benefits.

    BTW Jarrah there is a large amount of liteature on the measurement of inequality directly in terms of social welfare functions. In fact there are a number of SWF inequality measures, and Tony Atkinson’s work on this topic may well win him the Nobel. If you are interested in the topic let me know and can provide some references.

  33. @Jarrah

    Wealth and income inequality generally arise from a mixture of natural and political causes. It is certainly possible to reduce wealth and income inequality through political means, but it’s impossible to eliminate it. Efforts to reduce it radically can have very strong negative effects – eg the Khmer Rouge.

    There is only an inequality that is created by political causes, there is no significant natural inequality.
    Your ideas come from wrong assumption that jobs are created to fit available talented people, not that people fill available jobs. You seek to change people not to change available pay that come from needed job positions.
    If you are interested to find examples of political efforts to change of pay that come with available/needed jobs take a look at Sweden or even better, take a look at Titoism in Yugoslavia. You can Wikki Titoism. If somebody starts to argue that the collapse came from the lack of motivation to work harder, then they should explain why is the same condition present in USA, or lack of motivation to finish the college and get the better salary. Collapse of Titoism came from political causes. In US motivation was created by idea of American Dream and in Yugoslavia by Brotherhood and Singularity. Not keeping All equal under the law destroyed both ideas.
    You can keep believing that jobs are created to fit available people and that there is a natural inequality but that will only keep you from seeking the change for better.

  34. “it seems strange to insist we speak only of welfare and not its direct determinants. … inequality is a fundamental input into welfare”

    I’m yet to see anyone show how inequality *determines* welfare, rather than just being a relation between levels of welfare.

    “BTW Jarrah there is a large amount of liteature on the measurement of inequality directly in terms of social welfare functions. In fact there are a number of SWF inequality measures, and Tony Atkinson’s work on this topic may well win him the Nobel. If you are interested in the topic let me know and can provide some references.”

    Always interested, and I’m sure others are too. Let me just say that I appreciate you helping sustain this discussion from the typical blog fare of descent into flame wars.

  35. “Jarrah@36 – why a small amount? It could be that to give disadvantage the shove it needs, you need more than that; to use a small amount in that instance *really is wasteful*.”

    That’s a reasonable point. It boils down to what works empirically, as our hypotheticals cancel each other out. My understanding of the tangled web of human existence is that a small amount is preferable, but there’s certainly room for disagreement between gentlemen 🙂

  36. “I could of course provide links to the many dozens of peer reviewed articles that support the inequality/health and the income/crime thesis but I rather doubt that would make any difference to attitude.”

    You might be surprised. I’m not close-minded. I used to be very left-wing, well into my 20s, but over many years of looking at data and arguments, found I could not sustain that worldview without significant cognitive dissonance. So now I’m a liberal democrat… or as my right-wing interlocutors would have it, a wishy-washy lefty Greens-voting multi-culti pacifist. Luckily, those on the left see me as a selfish neoliberal poor-hating market fundamentalist. And my views are still in flux.

    So go ahead, if you are so confident. Unless you aren’t, in which case no skin off my nose.

  37. Jarrah@47: Well, given that there we know there is unmet demand for, say, disability services, or that Aboriginal people die so much younger than non-Aboriginal people at current levels of expenditure (which I would describe as “not inconsiderable”), that would suggest to me that current programs are inadequate.

    (I recognise that chucking money at things doesn’t necessarily fix them; but I’m yet to learn of a social policy response that saves governments $ in the short term. The long term is a different question, and is another argument supporting my position; eg. multiplier benefits of comprehensive early education).

  38. @Jarrah

    I don’t think that not being on any side is a bad thing, I consider myself as centre/left, although I am against right side’s ideology but I do not consider people on the right wing are all “evil” and such.

    However, I don’t think a society can operate well in the long run without significant government interference (you can use US as an example because it is a really compare to other countries). Market will not redistrbute wealth properly and the more deregulated the market, the more inequality from exploitation will occur and ultimately it will collapse. With that being said significant government interference do contradict to liberal/democratic idelogy.

    When you research and examine data, sometimes it might not show you things behind it. One example will be that although the US is the richest country in GDP statistics it’s citizens are by far not the happiest in the world. In fact the crime rate, mental illness and poverty are much more of a problem in US than in Australia (according to IMF 2010 statistics US is higher ranking than Australia in GDP per capita basis). I’m not sure if you would consider the happiness index as a reliable data but unfortunately most of the top ranking countries aren’t rich at all if you use economic statistics.

    One other thing is as much as US claims that it is a democratic country, people are more or less being “forced” to receive tertiary education to hope for a future where they don’t have to live in poverty. Also some tertiary education subjects will get you no where or only such a small proportion of graduate can actually find a career in an industry they dream of working in (e.g. creative writing, economics). Then you compare to Australia where the liberals believes that the government interferes too much; teenagers leave school from year 10 and take apprenticeship which ends up getting them a higher salary than accounting/finance graduates, people are not forced to not get sick because they can’t afford health insurance, as long as you got a full time job even in minimum wage you can afford a unit/apartment mortgage (compare to living in basements and “forced” to share rooms because they can’t afford to live with a full time job). It really doesn’t matter which name of the system they want to use, whether if it’s capitalism, democratic or liberalism. It’s market will inevitably fail and cause social problems without government regulations (which I believe non of these systems likes).

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