Can there ever be too much income inequality?

[Dragon]

No.

Good grief.

The united states economy is a huge and highly complex animal. Trying to relate one variable to an observation is not possible. In economics, the one phrase you read in text books all the time is "...all else being constant". Some that is never the case in real life. During those four decades we have wars and shifts in social norms that need to be factored in as well as advances in technology and the impact of emerging markets (other countries).

So even repeated cycles (and in Phoenix....it happens every summer so it does happen time and time again) does not prove a thing.

If you're going to reject all empirical validation of your claims, then all you are doing is making doctrine-based statements similar to those of a religious believer with no factual basis whatsoever.

Are you prepared to admit this?

Also, the reason why the American experiment is useful here is because of the long time frames involved. As you say, over those four decades we have had (in every period) many changes, with the only significant constants being the widening and narrowing of income gaps (together with the government policies that brought this about). All of those other possible factors, therefore, cancel out.

In addition, I offered the international evidence from the present time as confirming evidence, so we are not dependent on what happened in U.S. economic history.

 

[Listening]

If you're going to reject all empirical validation of your claims, then all you are doing is making doctrine-based statements similar to those of a religious believer with no factual basis whatsoever.

Are you prepared to admit this?

I am prepared to examine any study that takes into account the many variables that could impact the economy.

I would much rather admit that you can't prove something than to try and prove it using a false relationship.

Which is what I percieve you are trying to do by claiming one variable is the only important thing in the equation.

 

[Listening]

All of those other possible factors, therefore, cancel out.

That is hardly the case.

But if you have a model that you want to put up that shows what you believe the sitatuion to be...by all means.

 

[Chris]

WASHINGTON, D.C.--The 400 highest-earning taxpayers in the U.S. reported a record $105 billion in total adjusted gross income in 2006, but they paid just $18 billion in tax, new Internal Revenue Service figures show. That works out to an average federal income tax bite of 17%--the lowest rate paid by the richest 400 during the 15-year period covered by the IRS statistics. The average federal tax bite on the top 400 was 30% in 1995 and 23% in 2002.

Richest 400 Earn More, Pay Lower Tax Rate - Forbes.com

 

[Dragon]

I am prepared to examine any study that takes into account the many variables that could impact the economy.

I would much rather admit that you can't prove something than to try and prove it using a false relationship.

Which is what I percieve you are trying to do by claiming one variable is the only important thing in the equation.

I modified my post after you quoted it. As noted above, that one variable is the only CONSTANT over the four-decade periods in question. For example, from 1900 to 1940, we had several periods of strong economic expansion and several periods of severe recession/depression; we had two significant wars (the Spanish-American War and World War I) and periods of peace.

In the second period, from 1940 to 1980, we had again periods of war (including World War II, Korea, and Vietnam) and periods of peace; we had times of strong expansion and times of recession, including the "stagflation" period of the 1970s.

In the third period, from 1980 to the present, we have again had periods of war (including the first Gulf War and the wars in Afghanistan and Iraq) and periods of peace, we have had times of strong expansion such as the late 1980s and 1990s and times of recession, including the Great Recession.

All other factors besides income gaps and the government policies causing them have varied enough to cancel each other out and rule them out as explanations for any significant differences in growth rate.

Also, we can use as confirming evidence the comparison among nations today based on strength of the economy and GINI coefficient.

The correlation is actually very, very strong. The rate of per capita income growth on the average during the middle four decades was about 4.25% per year. In both the earlier and later periods, it averaged just above 2%. So we are not talking about a small difference here; we are talking about one period outperforming the other two by more than two to one.

As for GINI coefficient and economic strength:

List of countries by income equality - Wikipedia, the free encyclopedia

(I can look up original sources if you want to dispute using Wiki here; I haven't found any errors in this table however and this is more convenient.)

You can sort this table various ways. I recommend sorting it by either UN GINI or CIA GINI, and looking at the countries with the lowest inequality and then those with the highest inequality. With very few exceptions, you will find that countries with low inequality tend to be those with modern, strong economies, while those with high inequality tend to be "third world" or "developing" countries with poor economies. There are only a few exceptions to this at the low-GINI end, and only two (Hong Kong and the U.S.) near the high-GINI end.

If that isn't sufficient, then all I can say is that you have a belief-system that is impervious to either argument or evidence, and of course that may be the case.

 

[Listening]

WASHINGTON, D.C.--The 400 highest-earning taxpayers in the U.S. reported a record $105 billion in total adjusted gross income in 2006, but they paid just $18 billion in tax, new Internal Revenue Service figures show. That works out to an average federal income tax bite of 17%--the lowest rate paid by the richest 400 during the 15-year period covered by the IRS statistics. The average federal tax bite on the top 400 was 30% in 1995 and 23% in 2002.

Richest 400 Earn More, Pay Lower Tax Rate - Forbes.com

How much of the total tax bill was that ?

You only post figures that you think somehow make it look like something is wrong but you provide no context.

If that is 25% of the total tax bill, then it would mean that 400 people are carrrying quite a load. If it is less than a proporational amount, that would mean that we have a serious problem.

How much of the total tax bill did they pay ?

Quit playing this game.

 

[Chris]

WASHINGTON, D.C.--The 400 highest-earning taxpayers in the U.S. reported a record $105 billion in total adjusted gross income in 2006, but they paid just $18 billion in tax, new Internal Revenue Service figures show. That works out to an average federal income tax bite of 17%--the lowest rate paid by the richest 400 during the 15-year period covered by the IRS statistics. The average federal tax bite on the top 400 was 30% in 1995 and 23% in 2002.

Richest 400 Earn More, Pay Lower Tax Rate - Forbes.com

How much of the total tax bill was that ?

You only post figures that you think somehow make it look like something is wrong but you provide no context.

If that is 25% of the total tax bill, then it would mean that 400 people are carrrying quite a load. If it is less than a proporational amount, that would mean that we have a serious problem.

How much of the total tax bill did they pay ?

Quit playing this game.

The rich are paying taxes at a lower rate than the rest of us.

Is that fair?

 

[Dragon]

But if you have a model that you want to put up that shows what you believe the sitatuion to be...by all means.

Very well.

1) Investment in production of goods and services is limited by consumer demand for those goods and services. Capital formed above and beyond what consumer demand would justify will not be productively invested (unless the government does it).

2) The more income a person has, on the average, the lower a percentage of that income is spent on consumption and the higher a percentage of it is saved/invested.

3) Therefore, the lower income equality is, the higher consumption spending will be, and the higher income equality is, the more capital will be formed.

4) If income inequality exceeds an unknown threshold X, then capital is formed which will not be productively invested, as consumer demand will be too low to justify doing so. This lowers economic performance. The higher above this threshold income inequality becomes, the worse the economy performs.

Exactly where X is, can't be said; it's very likely no historical economy has ever had an economy that was TOO equal. It could be, although I'm not prepared to say that it is, the case that there is no such thing as too much equality, and that the ideal balance between capital formation and demand would happen with all incomes being exactly equal. Or perhaps not, or perhaps some other factor would take over at some point to eliminate the gains from increased consumer demand.

In actual history, the U.S. economy has performed better when income gaps were substantially lower than they are today. So it's safe to say we are currently experiencing to much income inequality, and need to spread the wealth around and narrow the income gaps by one means or another.

 

[editec]

Can there ever be too much income inequality?

William the Conqueror laid claim to ALL of ENGLAND.

Every house and home, every person every animal, every pot to piss in and every window to throw it out of, too.

I'd say that's a fairly good example of income inequity, wouldn't you?

 

[bripat9643]

So what you're saying is that no concentration of wealth that can actually happen can ever be too much, is that right?

Again, we should test this by observation, so we should establish criteria for determining what would constitute "too much." Otherwise, all you're doing is begging the question.

Would you agree that, if increased concentration of wealth resulted in slower economic growth, that would mean the concentration was too high? Never mind whether you think this could ever actually happen; we'll find out whether it did or not by observation. IF it did, THEN would that be too much concentration of wealth?

By the way, it is certainly possible for too much rain to fall for a given purpose, such as growing a crop. So I'm not sure that was a very good analogy for you to use. But never mind that.

In a market economy no one can become "too rich" to damage economic growth. How would this occur? The only reason a person becomes rich under capitalism is that he produces services and products that consumers want to buy. If they no longer want to buy what he sells, then his wealth declines. Only government and Mafia criminals can force you to buy things you don't want.

 

[bripat9643]

Can there ever be too much income inequality?

William the Conqueror laid claim to ALL of ENGLAND.

Every house and home, every person every animal, every pot to piss in and every window to throw it out of, too.

I'd say that's a fairly good example of income inequity, wouldn't you?

Yep, it's income inequality at the point of a sword. Under capitalism, only the government is allowed to use force to acquire wealth.

 

[bripat9643]

If you're going to reject all empirical validation of your claims, then all you are doing is making doctrine-based statements similar to those of a religious believer with no factual basis whatsoever.

Are you prepared to admit this?

Also, the reason why the American experiment is useful here is because of the long time frames involved. As you say, over those four decades we have had (in every period) many changes, with the only significant constants being the widening and narrowing of income gaps (together with the government policies that brought this about). All of those other possible factors, therefore, cancel out.

In addition, I offered the international evidence from the present time as confirming evidence, so we are not dependent on what happened in U.S. economic history.

You can't prove economic arguments using empirical methods because you can't isolate the variable. That's a basic principle of science. Any theoretical claims based on statistic are suspect, at best. economic theories are the result of a logical process similar to that used in mathematics. They call it ratiocination.

If an economist claims some theory is true because he has statistical evidence to support it, then he is a quack.

 

[bripat9643]

WASHINGTON, D.C.--The 400 highest-earning taxpayers in the U.S. reported a record $105 billion in total adjusted gross income in 2006, but they paid just $18 billion in tax, new Internal Revenue Service figures show. That works out to an average federal income tax bite of 17%--the lowest rate paid by the richest 400 during the 15-year period covered by the IRS statistics. The average federal tax bite on the top 400 was 30% in 1995 and 23% in 2002.

Richest 400 Earn More, Pay Lower Tax Rate - Forbes.com

What do you think that proves, nitwit?

 

[Dragon]

In a market economy no one can become "too rich" to damage economic growth. How would this occur?

I explained how above.

he only reason a person becomes rich under capitalism is that he produces services and products that consumers want to buy.

That's not true. Another way is to play games with other people's money, using financial instruments, producing nothing that anyone wants to buy, merely shuffling money around from those who ultimately lose on the investments to those who bought in earlier. Another is to do what I call "economic strip mining": acquiring an unprofitable company and liquidating the assets. There are various sorts of rent-seeking that acquire money without producing any goods or services whatsoever. The more capital is accumulated above the threshold of consumer demand, the more that kind of investment will predominate.

You seem to make a lot of statements based on theory without any kind of empirical reality-check.

 

[Dragon]

You can't prove economic arguments using empirical methods because you can't isolate the variable.

In that case, all economic statements are worthless, and you can stop making such bold claims as you do, because you, like everyone else, know doodly-squat.

As it happens, though, you're wrong. There are ways to isolate variables in economics.

 

[Truthmatters]

Is there any point of wealth concentration that is too high to sustain our society?

It's a stupid question. It's like asking "is it possible to have too much rain?" Obviously, the answer is "yes." 1000 inches a year would be too much. However, the laws of nature preclude such a thing from happening. It would also be bad if one man had all the wealth and everyone else had none. However, the laws of economics preclude such an outcome.

The question in the OP is the same as asking "would it be bad if the laws of economics were no longer in force?"

OK then wehn is the tipping point.

80/20

50/50


99/1


?????????

 

[Listening]

You can't prove economic arguments using empirical methods because you can't isolate the variable.

In that case, all economic statements are worthless, and you can stop making such bold claims as you do, because you, like everyone else, know doodly-squat.

As it happens, though, you're wrong. There are ways to isolate variables in economics.

The kind of study and data manipulation you are talking about is huge. Surely, there has been a book or two written on the subject. It would be quite and involved process that is going to take a lot more sorting through than just saying that shorter term impacts "cancel out".

I have a hard time with the term "cancel out". Variables the cancel out are generally offsets from each other and they have to be shown to have that effect. What I think I hear you claiming is that they don't stay constant over the same time frame and you, therefore, believe there is treatment of them that removes them from the equation.

Like I said, there should be a book on this subject if it is really a economic consideration. And Robert Reich's books don't count. He preaches more politics than he does econcomics (in fact, his economic considerations are pretty minimal).

 

[Truthmatters]

Is there a tipping point and WHAT is the number?

 

[Dragon]

The kind of study and data manipulation you are talking about is huge. Surely, there has been a book or two written on the subject. It would be quite and involved process that is going to take a lot more sorting through than just saying that shorter term impacts "cancel out".

Let me explain what I mean. It's really not that complicated. Take a look at the first graph in this link.

Wealth And Inequality In America

The chart shows very high income inequality in the period before and during the Great Depression, then compressed income inequality (or to put it another way, a closer approach to equality) in the period from World War II until 1980, then a widening of the income gap again after 1981. Narrow income gaps during the war and postwar decades until 1980, wide income gaps before and after.

We also see, on the average, much higher (by more than two to one) rate of growth in per capita GDP during the decades when income gaps were narrow than in either the earlier or later period when they were wide. Per capita GDP growth was at just above 2% per year on the average when income inequality was high, then 4.25% on average when it was low, then back down to just above 2% when it became high again.

In order to posit any other cause, there would need to be some other variable that held steady throughout the first period, then changed in the second, and then changed back in the third, and there is not. For example, high government spending by itself can't be the reason, because we still have that; government spending did not drop in the 1980s or thereafter, but GDP growth did. America's superpower status, ditto; we still have that, too. Same with demographics, war and peace, increasing globalization, the computer revolution, or any other observable factor.

That's what I meant by saying these other variables "cancel out," and perhaps that was a poorly-chosen phrase. Hopefully the above will clarify what I mean.

The international comparison works the same way. Almost all advanced, high-wealth nations are also low-inequality; almost all third-world, dirt-poor countries are high-inequality. There are very few exceptions, and the exceptions are easily explained; for example, Cuba is a low-inequality nation but is also pre-industrial; the U.S. is a high-inequality nation but our economy is on the decline. Other than the U.S., ALL of the advanced nations (Western Europe, Canada, Japan, Australia, etc.) have low GINI coefficients. Again, there is no other common variable that can explain this.

This is of course exactly what should be expected based on a demand-side theoretical approach such as I described in an earlier post. The empirical data support that theory, and strongly refute the competing supply-side theory.

Here is a link to a study that goes into more detail than I've done and reaches the same conclusion.

Finance & Development, September 2011 - Equality and Efficiency

 

[Liability]

Is there any point of wealth concentration that is too high to sustain our society?

It's a stupid question. It's like asking "is it possible to have too much rain?" Obviously, the answer is "yes." 1000 inches a year would be too much. However, the laws of nature preclude such a thing from happening. It would also be bad if one man had all the wealth and everyone else had none. However, the laws of economics preclude such an outcome.

The question in the OP is the same as asking "would it be bad if the laws of economics were no longer in force?"

OK then wehn is the tipping point.

80/20

50/50


99/1


?????????

It's ENTIRELY for YOU and YOU ALONE to decide on behalf of everybody else for all time.

Yes. That must be it.