Can there ever be too much income inequality?

[Soggy in NOLA]

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The question in the OP is the same as asking "would it be bad if the laws of economics were no longer in force?"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


?????????

Whatever... I don't care.

 

[Inthemiddle]

We would not have a dereivatives problem if WJC et al hadn't prevented the Commodities regulators from doing their job.

Clinton chose not to seek regulations on derivatives, and he has since said that he was wrong to do so. However, even if he had tried, Republicans would have twarted his attempts. And in fact, such a move might have not been wise after all. Clinton was very good at picking and choosing his battles with his Republican opposition. If he had chosen to do battle on derivatives, chances are he would have lost a power stroke at some other point.

Clinton chose not to pursue regulation on this matter, and he seems to now feel that was a mistake. But under the Bush administration, Bush chose to abandon practically all oversight of any kind. And THAT is the real problem.

 

[bripat9643]

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.

Sorry, but your post is pure horseshit. Perhaps it would make all your economic arguments worthless. They undoubtedly are. Socialists such as yourself are vast geysers of bogus economic arguments. Valid economic theories are not based on empirical evidence. Here's an example:

If a product requires two factors of production, say land and labor, there is some combination of the two that will result in the maximum output. How do we know this to be true? Obviously, if you have inputs of 0% land and 100% labor, you are going to have zero output. Likewise, if you have inputs of 0% labor and 100% land, you are going to get 0% output. The optimum ratio between land and labor for the maximum output obviously lies somewhere between 100% labor and 0% of labor.

Your understanding of economics if obviously bogus.

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

Really? How?

 

[bripat9643]

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

I explained how above.

I've searched through this thread and found no such explanation.

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.

The problem with your idiotic theory is that no one would ever pay anyone to do that. Do you think investors are so stupid that they would turn their money over to people who have a track record of losing it? All such claims depend on the premise that rich people are stupid. If it was so easy to trick people out of there money, then what's stopping you?

Another is to do what I call "economic strip mining": acquiring an unprofitable company and liquidating the assets.

If a company is unprofitable, then it should be liquidated. Losing money certainly isn't doing the stockholders any good. If the parts of the company are worth more than the company as whole, then dismantling it and selling off the parts is the most efficient use of those resources. As a result, the stock holders generally get to sell their shares for a higher price than they would otherwise.

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.

Such as?

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

You mean I don't swallow the kind of bullshit anti-capitalist propaganda that you are always spewing.

 

[Oldstyle]

We would not have a dereivatives problem if WJC et al hadn't prevented the Commodities regulators from doing their job.

Clinton chose not to seek regulations on derivatives, and he has since said that he was wrong to do so. However, even if he had tried, Republicans would have twarted his attempts. And in fact, such a move might have not been wise after all. Clinton was very good at picking and choosing his battles with his Republican opposition. If he had chosen to do battle on derivatives, chances are he would have lost a power stroke at some other point.

Clinton chose not to pursue regulation on this matter, and he seems to now feel that was a mistake. But under the Bush administration, Bush chose to abandon practically all oversight of any kind. And THAT is the real problem.

I believe you'll find that Bush proposed reforms to the very lending practices that ended up imploding and taking down the entire financial system and it was Barney Frank and Chris Dodd who said that we were "fine" just the way we were. It's an "interesting" take on your part that Bush is responsible for the resulting "problem".

 

[Dragon]

Sorry, but your post is pure horseshit.

No, it's perfectly logical. If economic statements can never be verified empirically, then we can never know if they have any relationship to reality, and they all become worthless. All of them, no exceptions -- socialist, capitalist, feudal, Keynesian, Austrian, Chicago school, freshwater, saltwater, doesn't matter. Empirical verifiability is the sine qua non of all objective claims about the real world. By insisting that such verification is impossible, you have torpedoed all claims to legitimacy by all economics, including your own.

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

Really? How?

I explained this in an earlier post.

 

[bripat9643]

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.

ROFL!

You are truly gullible. All your chart shows is that during times of high marginal tax rates, the rich find various means to reduce their reported income so they can lower their exposure to the tax man.

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.

What we see is that the beginning of the Great Depression coincided with high marginal tax rates. These rates remained high until Kennedy cut them back. Economic growth was "high" after 1932 only because output was so low at that point. Unemployment remained about 17% until 1941. That's your evidence of the benefit of high marginal tax rates? I doubt the unemployed would agree.

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.

I can posit all manner of explanations for various facts of history, and I have. So your claim is wrong on its face.

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.

They only "cancel out" in your mind, not in reality.

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.

You're putting the cart before the horse, nations have low GINI coefficients because they are industrialized, not the other way around. That's one more problem with your belief that economic theories can be proven empirically: you have no way of determining which is the dependent variable and which is the independent.

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.

Yes, there are numerous exceptions, and you have some weasel excuse for every one of them. Only the gullible are fooled by this brand of sophistry.

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.

"Empirical evidence" with dozens of exceptions is exactly what we should expect if the empirical evidence supports your theory?

ROFL! You're kidding, right?

 

[bripat9643]

Sorry, but your post is pure horseshit.

No, it's perfectly logical. If economic statements can never be verified empirically, then we can never know if they have any relationship to reality, and they all become worthless. All of them, no exceptions -- socialist, capitalist, feudal, Keynesian, Austrian, Chicago school, freshwater, saltwater, doesn't matter. Empirical verifiability is the sine qua non of all objective claims about the real world. By insisting that such verification is impossible, you have torpedoed all claims to legitimacy by all economics, including your own.

Wrong. I already provided an example of an economic theory that is proven true without empirical evidence. You provided horseshit.

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

Really? How?

I explained this in an earlier post.

No you didn't. You're delusional if you think that's an example of isolating the variable. There are hundreds of variables you didn't consider or simply dismissed with the wave of your hand.

 

[Inthemiddle]

Economic growth was "high" after 1932 only because output was so low at that point.

*facepalm*

 

[Dragon]

All your chart shows is that during times of high marginal tax rates, the rich find various means to reduce their reported income so they can lower their exposure to the tax man.

The chart does not deal with either tax rates or taxable income. It deals with income, period. Nor am I discussing "the benefits of high marginal tax rates." I'm discussing the benefits of narrow income gaps. If there is a benefit to high marginal tax rates, it's that they're a means to narrow income gaps, but that's jumping ahead of the game.

You're putting the cart before the horse, nations have low GINI coefficients because they are industrialized, not the other way around.

True, but that doesn't go against what I'm saying. Why does industrialization lead to narrow income gaps? In our own history, that didn't actually happen until several decades after industrialization. But over time, advanced nations find out through bitter experience that keeping income inequality fairly narrow is the best way to sustain prosperity. Remember, Europe, Canada, Japan, and Australia all went through the Great Depression at the same time we did.

It remains the case that there is an observable, regular correlation between narrow income gaps and high levels of prosperity.

Yes, there are numerous exceptions

No. Very few exceptions is what I said, and that's what I meant, and that's the fact.

 

[Dragon]

Bripat, I guess it's time once more to make my standard announcement: all empty rhetoric, verbal shrieks, pointless insults, and other content free waste of bandwidth will be snipped and not replied to, being unworthy of a reply. If you want to waste your time putting crap like that in your posts, feel free, but you will be doing nothing but mentally masturbating if you do.

I've searched through this thread and found no such explanation.

You responded to it after this post, so yes you did.

The problem with your theory is that no one would ever pay anyone to do that.

That isn't necessary. A recent example of what I'm talking about is mortgage-backed securities. The entire financial industry, or nearly so, consists of ways of making a profit by shuffling money around, producing nothing for sale.

Do you think investors are so stupid that they would turn their money over to people who have a track record of losing it?

Not as simple as that, of course. (And the plain answer, in many cases, is yes. Remember what P.T. Barnum said was born every minute.) Say you have a security or a commodity for investment. Say it's stock in a company. You buy up lots of the stock, driving up the price. You get others to buy in with you, driving it up further still, until it bubbles beyond the objective value of the company itself. You keep this up until you judge that the stock is about to fall, then you sell. Those who buy from you lose money. You make money off their loss. This happens all the time.

If a company is unprofitable, then it should be liquidated.

Arguably so, but beside the point. You presented a very simplistic model of how money is made that actually describes only one method among many. Liquidating a company does not constitute producing goods or services that people want to buy.

What's more, it isn't always true that a company that is unprofitable should be liquidated. WHY is it unprofitable? Is it just poorly run? Could it be made profitable with changes in management and direction? In many cases yes, but there are investors who PREFER to cannibalize and liquidate companies that could become profitable because they're after short-term rather than long-term returns -- which is of course encouraged by a low top marginal or capital gains tax rate.

 

[bripat9643]

And the idea of testing it by observation is not a good one. You can show a correlation between rape in Phoenix and the sale of ice cream in Phoenix. Never mind there is no relationship.

You could show such a coincidental relationship ONCE. But if it occurred repeatedly that increases or decreases in the sale of ice cream correlated with increases or decreases (or vice-versa) in the rate of rape, then that would mean there IS a relationship.

You can never show such a thing because every historical event is the culmination of countless unique historical trends and events. On top of the sale of ice-cream increasing, dozens of other trends are occurring. iPhone usage is increasing. illegal aliens are flooding into the area. Prices are going up. Who's to say which trends played a role and which didn't?

In the hard sciences, experiments are performed where all the extraneous variables are eliminated. You can't perform such experiments with society. You can't turn people into cogs in some experiment without violating their rights.

Let's say that in U.S. economic history since the country was industrialized (a process completed roughly in the 1890s),

There's your first error. There is no cutoff date for the process of industrialization. It's an ongoing continuous process. The USA is still industrializing. The only difference is that now different industries are growing than the ones that were growing in 1890.

we had some four decades when income gaps were high and increasing, then another four decades when income gaps were much narrower, and then another three decades in which they widened again, and economic growth accelerated during the middle decades and then slowed down again in the later three.

How would anyone know what "income gaps" were before the income tax required Americans to report their income to the federal government?

Let's further say that, among nations at the present time, a statistically overwhelming correlation can be shown between low GINI coefficients and the strongest economies, so that almost all countries with narrow income gaps are the richest countries and almost all countries with wide ones are the poorest countries.

Would that be enough of a correlation for you to show something beyond coincidence?

Short answer: no

 

[bripat9643]

Sorry, but your post is pure horseshit.

No, it's perfectly logical.

It's only logical for the intellectually impaired. The left is great at conjuring theories that seem plausible but turn out to be bogus on closer inspection.

If economic statements can never be verified empirically, then we can never know if they have any relationship to reality, and they all become worthless.

Even if that were true, it wouldn't justify empiricism. That's the kind of logic used to justify religious beliefs, not valid scientific theories. However, the fact is that economic theories are validated by the method of ratiocination, not with historical statistics, which are always the product of countless variables.

All of them, no exceptions -- socialist, capitalist, feudal, Keynesian, Austrian, Chicago school, freshwater, saltwater, doesn't matter. Empirical verifiability is the sine qua non of all objective claims about the real world. By insisting that such verification is impossible, you have torpedoed all claims to legitimacy by all economics, including your own.

Really? How about the claim that 2 + 2 = 4? How about the Pythagorean theorem? What is the empirical evidence for those claims?

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

Really? How?

I explained this in an earlier post.

Your claimed method didn't isolate the variable. You merely dismissed the other variables with the wave of your hand.

 

[bripat9643]

All your chart shows is that during times of high marginal tax rates, the rich find various means to reduce their reported income so they can lower their exposure to the tax man.

The chart does not deal with either tax rates or taxable income. It deals with income, period.

Uhmmm, yes it did. Where do you think economists get data about income if not from the IRS? The only data available is the adjusted gross income on your income tax return. That's income after all deductions have been taken. All figures on income are taken after all tax deductions have been taken into account. There is no such thing as unadjusted income or "income, period."

That claim really made me howl!

Nor am I discussing "the benefits of high marginal tax rates." I'm discussing the benefits of narrow income gaps.

Yes you are, because, much as you would like to deny it, marginal rates have a direct impact on reported income.

If there is a benefit to high marginal tax rates, it's that they're a means to narrow income gaps, but that's jumping ahead of the game.

They narrow it only because the rich find ways to lower the income they report to the IRS, or they simply earn less because it isn't worthwhile to work yourself to exhaustion for income the government is going to expropriate.

Here, again we see the problem with your belief in using empirical data to support economic theories. I use the exact same data and come to an entirely different conclusion.

You're putting the cart before the horse, nations have low GINI coefficients because they are industrialized, not the other way around.

True, but that doesn't go against what I'm saying. Why does industrialization lead to narrow income gaps? In our own history, that didn't actually happen until several decades after industrialization. But over time, advanced nations find out through bitter experience that keeping income inequality fairly narrow is the best way to sustain prosperity. Remember, Europe, Canada, Japan, and Australia all went through the Great Depression at the same time we did.

The great Depression is partially the result of attempts to reduce inequalities of income. It's directly attributable to the interventionist policies of Hoover and FDR. The Smoot-Hawley Tariffs and increases in the marginal rate of taxes on income are two of the primary offenders.

It remains the case that there is an observable, regular correlation between narrow income gaps and high levels of prosperity.

Even if that were the case, both phenomena are the result of economic freedom. One didn't cause the other, or visa-versa. Once again, empiricism leads you astray.

Yes, there are numerous exceptions

No. Very few exceptions is what I said, and that's what I meant, and that's the fact.

There are numerous exceptions.

countries-with-the-biggest-gaps-between-rich-and-poor: Personal Finance News from Yahoo! Finance

Top 11 Countries With the Biggest Gaps Between Rich and Poor

No. 1 Hong Kong
No. 2 Singapore
No. 3 U.S.
No. 4 Israel
No. 6 New Zealand
No. 7 (tie) Italy
No. 7 (tie) Britain
No. 9 Australia
No. 10 (tie) Ireland
No. 10 (tie) Greece

All the top 11 are what you would call "industrialized." Those exceptions aren't "few."

 

[bripat9643]

The problem with your theory is that no one would ever pay anyone to do that.

That isn't necessary. A recent example of what I'm talking about is mortgage-backed securities. The entire financial industry, or nearly so, consists of ways of making a profit by shuffling money around, producing nothing for sale.

That's an incredibly poor example. Mortgage backed securities were only possible because Fannie Mae and Freddie Mac were willing to buy the bulk of the mortgages in them. Furthermore, they were trading on the implicit guarantee of the federal government. You took a fiasco created almost entirely by government and tried to use it to indite the free market. That's typically the case with most left wing attacks on the free market.

Do you think investors are so stupid that they would turn their money over to people who have a track record of losing it?

Not as simple as that, of course. (And the plain answer, in many cases, is yes. Remember what P.T. Barnum said was born every minute.) Say you have a security or a commodity for investment. Say it's stock in a company. You buy up lots of the stock, driving up the price. You get others to buy in with you, driving it up further still, until it bubbles beyond the objective value of the company itself. You keep this up until you judge that the stock is about to fall, then you sell. Those who buy from you lose money. You make money off their loss. This happens all the time.

P.T. Barnum's customers were all poor or middle class people, not rich people. People don't become rich by being dumb financially. Furthermore, your example never happened. I know arbitragers like T.Boone Pickens bought up stock with the intent of taking over the company. He didn't do it just to drive up the price so he could sell at a higher price. If anyone attempted such a thing, they would find that the price declined all the way down to where it started as they sell their last share. Their net proceeds will be zero or even negative.

If a company is unprofitable, then it should be liquidated.

Arguably so, but beside the point. You presented a very simplistic model of how money is made that actually describes only one method among many. Liquidating a company does not constitute producing goods or services that people want to buy.

How is a description of what actually happens "simplistic?" Liquidating the company is a service. It provides value to the share holders.

What's more, it isn't always true that a company that is unprofitable should be liquidated. WHY is it unprofitable? Is it just poorly run? Could it be made profitable with changes in management and direction? In many cases yes, but there are investors who PREFER to cannibalize and liquidate companies that could become profitable because they're after short-term rather than long-term returns -- which is of course encouraged by a low top marginal or capital gains tax rate.

All such claims are unprovable. We can all sit around and speculate endlessly about what might have been. The only thing we know is what actually happened. If the pieces are worth more then the whole, then breaking up the company is a benefit to the shareholders and society.

As for the short term vs the long term, no politician has a time horizon longer than the next election. I hardly think we want to put them in charge of productive enterprises if we're concerned about the long term.

 

[Listening]

That's an incredibly poor example. Mortgage backed securities were only possible because Fannie Mae and Freddie Mac were willing to buy the bulk of the mortgages in them. Furthermore, they were trading on the implicit guarantee of the federal government. You took a fiasco created almost entirely by government and tried to use it to indite the free market. That's typically the case with most left wing attacks on the free market.

Amen.

I would throw in that this is the same garbage that we hear about in health care. Somehow it is a "market failure" when nobody who looks at it would even begin to call health insurance or health care provision a "free market".

I have always wondered why I have to go to a doctor to get a prescription ? My daughter, when she gets sick, now goes to nurse at Walgreens who has provided her with good advice and access to medicine she needs. Granted, she can't diagnose breast cancer....

But I would say that I have paid enough money out (including my employers costs) in the last five years to almost cover the cost of breast cancer treatment. My daughter has probably spent less than $500 total in the past five years taking care of herself.

Bring this up in a conversation and all you hear about is the quacks who will appear. That is right...they will appear. And non discriminating buyers will get screwed. So that is an excuse to force everyone into an overly expensive program ?

If the people who don't trust themselves want to guard against getting gyped or led down the wrong path...let them joine up to something the market will provide...and they will pay for it and that might mean giving up a cell phone.

The rest of us should neither have to pay for them or be forced into the same system.

But it is a market failure !!!!

Your point shines as a cornerstone in the defense of what the country was founded upon.

 

[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?

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

And under todays brand of cronny capitalism its been doing a damned fine job of doing just that, too.

 

[editec]

Sorry, but your post is pure horseshit.

No, it's perfectly logical. If economic statements can never be verified empirically, then we can never know if they have any relationship to reality, and they all become worthless.

I would NOT say "entirelly worthless".

But the problem described DOES make economics an ART rather than a science.

All of them, no exceptions -- socialist, capitalist, feudal, Keynesian, Austrian, Chicago school, freshwater, saltwater, doesn't matter. Empirical verifiability is the sine qua non of all objective claims about the real world. By insisting that such verification is impossible, you have torpedoed all claims to legitimacy by all economics, including your own.

Their LEGITAMACY is often highly overstated.

Not just for the economic theorists I DISLIKE, but for ALL economic theorists, INCLUDING the one's I agree with, too.

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

Really? How?

I explained this in an earlier post.[/quote]


Ecohnomics is NOT chemistry, it is not physics, it is NOT a PHYSICAL SCIENCE.

ECONOMICS IS A MODEL OF THE WORLD AS SEEN THROUGH THE LENS OF ECONOMIC ACTIVITY.

AS the economy is an ever changing state of affairs, and one where the players react to changes in the economy in ways that are obviously NOT always predicatable, ECONOMICS remains a SOCIAL SCIENCE and social science is always going to have the problem that we cannot ISOLATE specific elements of society to test our pet theories about what happens IF such and such an event occurs.

WE can intuit economic outcomes but we cannot predict them with anything like the precision of a physical science experiment

I am NOT saying EConomics is a fools science, but only fools think it is a SCIENCE.

 

[Listening]

[

I would NOT say "entirelly worthless".

But the problem described DOES make economics an ART rather than a science.

Macro vs. Micro has to be considered in the discussion. Micro does a pretty good job in places where you have a limited set of variables. I would say the world of gasoline and diesel is a good case. Sulfuric Acid is also a commodity that responds to supply and demand.

But Macro models of complex economy are very difficult to assemble. So far, it seems that nobody has created one that will give an answer that anyone trusts or have proven worthy of trust.

 

[grunt11b]

When the left collapse the upper class into the middle class through taxation and raise the lower class into the middle class through welfare redistribution, only then will they see things as being "Equal under social justice". Their goal is to collapse the system and make everyone "Equal". It's a farce that never succeeds once completed and only opens the door to tyranny.