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Wealth and Inequality in America

June 16, 2010

Everyone and their mother needs to go check out the post, “15 Mind-Blowing Facts About Wealth And Inequality In America” over at the Business Insider. 15 incredible charts and stats about the class war going on in America – that is the ruling class against everyone else. Guess who’s winning?

Here’s my favorite one:

Source: Professor G. William Domhoff

I think this chart needs very little explaining. How to explain the enormous level of inequality in the US and the fact it’s growing? Republicans? Neo-liberalism? Free market capitalist democracy? No matter your explanation – we can sure of one thing – inequality isn’t going anywhere anytime soon.

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8 Comments leave one →
  1. June 16, 2010 2:28 pm

    I guess my question is this: Why is “inequality” of income, when based on merit, a “bad” thing?

    Percentages such those depicted by your graph are misleading because they do not illustrate the fact that innovation by those at the top of the earnings scale CREATE NEW WEALTH. Sure, most of the wealth created will stay in the hands of he or she who created it (as it should), but some of it ALWAYS benefits those who did not contribute to it’s creation (externalities). So, if Warren Buffet creates $100 billion in new wealth and manages to keep $99 billion for himself, inequality has certainly increased, but all the people below Warren who didn’t have anything to do with the creation of that $100 billion now have an extra $1 billion to divide amongst themselves–in addition to any wealth they’ve created for themselves, and without any extra costs.

    Inequality is only important if you assume that everyone is “entitled” to a fair share. Why should one make such an assumption?

  2. June 16, 2010 2:30 pm

    So you’re arguing inequality is growing because the wealthy are working harder over the last thirty years?

    • June 16, 2010 2:41 pm

      If you want to use the word “work” in a economically-defined way, then, yes, that’s exactly my argument.

      I’m not contending that Bill Gates ever worked up a sweat, or woke up sore after a day in the fields. “Work” is simply effort X innovation = productivity. Bill Gates is actually a pretty good example. One would never say that Gates put forth the “effort” of a common coal-miner, but when you plug “innovation” into the equation, the product, “productivity” jumps exponentially. Even a top-earner from generations ago (i.e. Rockefeller or Carnegie, etc.) could only have dreamed of the productivity which Bill Gates has been responsible for. So, yes, the wealthy are working harder…

  3. June 16, 2010 2:54 pm

    1) What does the startling line look like in your “merit” based system? Were the opportunties available to the Rockefellers, Carnegies, and Gates of the world available to everyone else in society? One would only hope so in your meritocracy.
    2) So if you’re justifying inequality by the fact that the wealthy are more productive then the poor and this is a result of the decisions and/or gambes they’ve taken, whereas the poor have chosen “poorly” and thus deserve their place in society. And the system will self-correct by the wealthy redistributing the “new wealth” for all? But if the wealthy have been getting wealthier over the last 30 years how come that wealth isn’t being distributed widely? Should we just keep waiting for that happen? What good is this “new wealth” if we still keep seeing scissors on these income charts? How does a working class family over say the last two generations benefit from Buffet’s currency manipulations?
    3) Or more succinctly, how did the housing bubble create new wealth?
    4) I don’t everyone should be “entitled” to a fair share without stipulations – but I do think everyone in society should be entitled to the opportunity to succeed and prosper through their own labor. The data presented above – and there’s more where that came from tells me this isn’t the case. I’m curious whether you believe this as well.

    • June 16, 2010 3:20 pm

      1. The starting line is simple–zero. That’s where everyone is entitled to start from. They should also be entitled to start from zero in an environment unencumbered by false roadblocks such as crippling regulation, growth-inhibiting taxes, and a culture of altruism that rewards the weak with the products of the strong. Any advantages that a person may gain from their birth–i.e inheritance–is simply a stroke of luck. Luck, however, does not insure success. For every Paris Hilton you use as an argument for equality of birth-opportunity, I can show you a millionaire that came from nothing or a trust-fund baby that blew it all in a decade. Ultimately, merit strips the wheat from the chaffe and the talented find their way to the top–regardless of their starting point.

      2. There you go getting all hung up on your charts again. Who cares what direction the lines on the chart go? Think of it with some imaginary numbers for a second…Today, our entire economy consists of on hundred dollars. The top 1% of Americans hold 50% of that, or $50. The bottom 99% hold the other $50. Now, the top 1% are some pretty sharp fellas (and ladies), so through innovation, trade, and talent, they increase our TOTAL ECONOMY to $100,000. Now, however, the top 1% control 60% of the economy, or $60,000 dollars. Inequality has increased. The lines on the chart have veered farther apart. Yet…in the first scenario, the bottom 1% only had $50 to divide between them. In the second, they had $40,000. Inequality only matters if the overall pie isn’t increasing in size enough to compensate for the inequality–or, if you have a jealousy complex that causes you to hate anyone who has more than you, even when they’ve earned it.

      3. This is far to small a forum to explain to you why the housing bubble is a particularly bad example to make your point with. The fact is, without the government corrupting the profit-motive through misaligned incentives and penalties (see, Community Reinvestment Act), the housing bubble (and more specifically, the sub-prime mortgage collapse) would never have occurred.

      4. Everyone SHOULD be entitled to equal OPPORTUNITY. That does NOT mean, however, equal RESULTS. Opportunity is provided by a Constitution which recognizes limited government intervention, and a respect for personal risk and reward. The fact is, Americans of every socio-economic strata have a higher standard of living, more leisure time, and longer lives than Americans had 50 years ago. Those should be the benchmarks for determining the success of Capitalism, not some manufactured jealousy between the “haves” and the “have mores”.

  4. The Real John Gault permalink
    June 19, 2010 3:12 pm

    1. How can you say the starting line is zero when, within three sentences of your claim, you give examples of individuals who were given ridiculous advantages by virtue of being born to the right family?

    Isn’t the existence of Paris Hilton a bit problematic for your ‘starting at zero’ theory of how life works?

    Please explain the ‘luck’ factor. And then explain to me why I should accept that some people are just ‘luckier’ than others. Then explain to me why I wouldn’t want to change a system which has, as one of it’s bedrocks (according to you), luck.

    Explain this culture of altruism. And then please explain why you desire to live in a world where altruism is a bad thing.

    So you can name self-made millionaires and trust-fund babies who lost everything. So what? I can name the same for almost any system you can name…including some absolutist systems. What does that prove?

    How do you know that the talented find their way to the top regardless of starting position? How can you possibly know that?

    2. You understand that even if you’re looking at the population as a whole that there are still individuals who are not better off from your mythical examples? That there are actually individuals who are worse off, even if your pie is getting bigger? Do these people simply not count?

    3. You’re blaming the government for the housing bubble.

    Just what do you think would happen to the housing market if there were no regulations? I’m really curious as to what you have to say.

    4. Are you of the opinion that all Americans have equal opportunity? A child who goes to an underfunded public school in the worst parts of any major city has the same opportunitiy as a kid who goes to a suburban public school over-funded by property taxes? Would you like to explain how these two kids have the same opportunity?

    That’s just one example. There are an endless supply.

    And just to touch on regulation again. Here’s a question for ya—

    BP floods the Gulf of Mexico with oil. Without a government to force BP to deal with the mess…who cleans it up? How does it get cleaned up? People who have based their living off of the Gulf of Mexico…what are they supposed to do? Should there be a government to help them? Are they just ‘unlucky’…because an unregulated supra-national corporation happened to let an oil spill destroy their way of life?

    Seriously, where the hell does your utopian nonsense actually exist? I’m curious because I’d like to buy land there…and then turn it into a landfill.

    • June 19, 2010 3:58 pm

      That’s a lot of questions…most of which are easily answered, so I’ll try to address them one by one.

      Let’s start with the starting line of zero and the question of luck…If everyone in a room is entitled to $5 and YOU only get $2.50, then you have something to be pissed about. On the other hand, if everyone is entitled to $5 and the guy next to you finds a $10 bill on the ground, you have nothing to be upset about because you got what you had coming to you. Simply wish your lucky neighbor the best and concern yourself with your own life. Because of inheritance, some people will always start with more than others. That’s nothing for you to find unfair. We’re talking about “initial capital” here, and the only reason to fear it is because you have to compete against the individual who has it. There isn’t anything to fear, however, for two simple reasons. First, the inherited wealth is the product of some previous person’s talent and productivity. Had that individual not died, you would be competing against that capital anyway. Second, the person who has inherited said capital still has to have the talent and intelligence to convert that capital into productivity. If they have that intelligence, then they would have succeeded without the initial capital–as so many self-made millionaires have. They will just get there a little quicker. If they don’t have the merit, then the initial capital will only forestall their failure. Money has no power without the motive-power of a productive mind behind it.

      Second…The culture of altruism is a terrible, evil thing–and it’s dishonesty makes it all the more insidious. Altruism turns nature on it’s head. It creates a culture where need is a virtue and talent is a curse. If you are weak, stupid, lazy, incompetent, or reckless, altruism rewards you. If you are strong, courageous, motivated, intelligent, and competent, altruism penalizes you by redirecting the product of your efforts to those who did not have the ability to earn it themselves–sometimes by force through regulation, sometimes by programming otherwise intelligent people into thinking they are doing a “good” thing. The reality is, however, that altruism subjegates the product of one man’s labor to the needs of someone else. That’s the essence of slavery. Furthermore, the recipient of altruistic gestures does not gain anything from the transaction. Money, like I said before, is powerless unless you possess the ability to make it work for you. The recipient of charity has learned nothing about how to fix his position in life and has become dependant on theft from another for his survival. You have only succeeded in creating a slave and a junkie.

      How do I know that the talented find their way to the top? Simple. When government intervention is stripped away, then Libertarianism accomplishes what Liberalism claims to. It levels the playing field. When you play with no safety net, then the only difference between you and me in determining our success in life is talent (i.e. intelligence, ability, effort, etc.). All other factors are equal (again, with the minor exception of inheritance which I have already explained counts for very little over the long-run). So, unless you are contending that the talented would sink to the bottom and the useless would somehow rise to the top, there is no other possibility.

      Some people would be worse off…O.K, sure. So what? If you make a change to an existing system, that change is ALWAYS going to make some people worse off than they were under the old system. Convert to socialism and you’ll find that Steve Jobs is MUCH worse off than before. Libertarianism has the advantage of being better for THOSE WHO MATTER. Yes, some people matter more than others. I know that shocks your delicate sensibilities, but it’s true. The good news is, however, that YOU get to decide whether you want to be among those who matter or those who don’t by the amount of effort you are willing to put in to making yourself a success. If you are smart and you work hard–and you live for yourself instead of the needs of others, not only will YOU succeed, but you will make those around you prosperous as well. THAT’s REAL altruism.

      What would happen if the housing markets had no regulation? Simple…Home prices would stabilize at the point where supply and demand meet and banks would only loan money under terms and conditions that were acceptable to both themselves and their clients. There would be no sub-prime mortgage crisis because there would be no sub-prime mortgages. Banks didn’t loan money to people who had demonstrated that they were not trustworthy to pay it back until the government stepped in and incentivized such stupid behavior.

      Do all Americans have equal opportunity? Not now. Not yet. Not under this system. If there were no public education, then the inner-city family you mentioned would have more money on their paycheck and could afford to send their kid to a school that did a better job. Bad schools would close down and would be replaced by entrepreneurs who could fill that market better. Competition breeds quality. The problem you outlined is one of too much government involvement, not a lack of it.

      Finally, BP. I never said we shouldn’t have a government. We should. We should have a military, a police force, and courts of law to enforce contracts and assess damages when one entity hurts another. In the case of BP, they would be just as motivated to clean up their own mess in a Libertarian government as they are with the government breathing down their necks in our current system. This is because BP is in the business of producing oil and making money. They are doing very little of both right now. Once the spill was cleaned up, Libertarian courts would assess damages to those who have been injured and make sure that they were compensated.

  5. The Real John Gault permalink
    June 20, 2010 5:26 am

    “On the other hand, if everyone is entitled to $5 and the guy next to you finds a $10 bill on the ground, you have nothing to be upset about because you got what you had coming to you”

    If some people start at zero, and others start at something above zero by virtue of their birth, then the starting line is NOT EQUAL. This is self-evident.

    Why should I accept that some people are just luckier than others by virtue of being born to rich parents? I am NOT competing against these people on a level playing field. I’m sure to the people who start out with huge inheritances it’s a great deal, but for those who start with nothing it’s just not fair. Sorry.

    “the person who has inherited said capital still has to have the talent and intelligence to convert that capital into productivity”

    Ok…so you know about business. Since most of what you discuss seems to be about the business world, you know about economies of scale and monopoly pricing etc. What do you think that ‘lucky’ person who ‘finds’ 10 dollars can do to a market if he starts witih substantially more capital? Or let’s say he inherits a business and has far more capital to draw upon than his competitors. Doesn’t he have a significant advantage in the neverending quest to defeat all competition, especially if there’s no regulation of markets whatsoever? How smart or talented does he really have to be to pull this off? Take a microecon class and you have it figured it out. Nothing to it. In this scenario, talent and ingenuity mean NOTHING. The guy starting out with a lot of money could easily crush the smart, talented people who start at zero.

    “he inherited wealth is the product of some previous person’s talent and productivity. Had that individual not died, you would be competing against that capital anyway”

    No. That’s wrong. Let’s say I own a furniture store. One of the senior Rockefellers dies and leaves his grandson one hundred million dollars. The grandson has always wanted to own a chain of furniture stores where I live. Grandson decides to live out his dream, undercuts me, and I’m done. “Had that individual not died” I would NEVER have been competing against his capital.

    Short version—Old man dies, leaves children with money. Children use money to do business in whatever field I do business. Children run me out of business by virtue of being able to wield capital against me. Does this sound at all unrealistic to you?

    Altruism—What should happen to the mentally handicapped who can’t care for themselves? What should happen to those who get injured on the job? How about those who get injured during their private lives through no fault of their own? What if they can’t afford insurance? What should happen to children born to parents who can’t (or won’t) care for them?

    Tell me how Libertarianism provides for any of these people.

    “How do I know that the talented find their way to the top? Simple. When government intervention is stripped away, then Libertarianism accomplishes what Liberalism claims to. ”

    So in other words, you don’t know…because there has never been a libertarian society in the history of mankind. You’re espousing your beliefs on faith. Show a study which proves what you say.

    Also, in the past we have headed in the direction of little regulation. Remember the robber barons? Remember how miserable 99% of humanity was during the Industrial Revolution? This is what you’re advocating for? I mean—you realize why there was a massive outcry for extensive regulations during these periods, yes?

    With no government regulation there would be perfect supply=demand between lenders and lendees…gotcha. Perfect harmony. Care to show me an example of where this has ever happened before in any industry/sector.

    “If there were no public education, then the inner-city family you mentioned would have more money on their paycheck and could afford to send their kid to a school that did a better job.”

    What universe do you live in? You actually believe that an elimination of public education would result in inner-city families sending their children to BETTER schools? How about…they don’t get to send their kids to ANY schools AT ALL??? What entrepeneur is going to establish for-profit schools in areas where there is nobody who can pay tuition? Where is the money supposed to come from for this fantasy?

    Oh, and that more money on their paycheck part from cutting taxes—you realize that property taxes in inner city areas is usually extremely low, yes?…because…they don’t have a lot…of… MONEY.

    It would be a lot easier for BP to cut and run. If there’s no regulation they could still sell their oil in the United States regardless of what they do in the Gulf. If the United States boycotts BP oil then you’re practicing protectionism. Do Libertarians do that?

    On the other hand, if you establish Libertarian courts to police businesses who do harmful things…where’s the line?

    What’s most interesting about what you’re saying is that you seem to think that in your fantasy world everyone would play by the rules. What on earth makes you think so?

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