Correction: The Fed's policies have taken $50T of wealth from the Bottom 90%.
When you bail out irresponsibly over-leveraged and nearly bankrupted banks and corporations, and pay for those bailouts with tax-payer money, you steal from the poor and give to the rich.
Most importantly, when the Fed decides to print money ad nauseam, they create massive asset inflation, which steals from the poor and gives to the rich. This is because those dollars that are printed go directly into bonds, equities, and assets that only a small amount of the population owns a significant amount of. When money is "printed" the Fed actually injects money into financial markets through buying assets. This asset inflation caused by money printing gives more money to the rich to buy more assets, thus driving up the prices of financial products, real estate, and all other valued assets in society. Thus, cost of living skyrockets, but only the rich are actually increasing their net worth (which is increasing exponentially). All of this happens while minimum wage, and most wages, are stagnant.
Wealth inequality and social unrest in America is DIRECTLY related to corrupt and/or incompetent (you choose) Fed policies. It amazes me why most people do not grasp this. I think it is lack of education.
Yep. The fed is an engine, whose purpose is to move wealth silently from the masses to the powerful monied few, via time-asymmetric inflation. (Mostly Inflation of assets presently)
The resulting data looks like corporations have used their power to directly disenfranchise/disempower workers, and so the mass clamber for protective laws. More laws will be enacted by those in power. The time is certainly right for it. The laws will be constructed such that they will entrench the existing power structures, and meanwhile the fed will motor on, unaffected. Nothing changes for the good while this engine continues to run. And it will run at ever increasing rates, because it has to, in order to continue to do its work of supercharging the economy from the top down. Get on the train (Ride the coat-tails of the great and powerful as best you can by investing) or be left behind in a wake of generally stagnant wages (stagnant for lots of reasons), and mildly rising prices. Meanwhile housing prices (housing costs to you) and stocks are off on a rocket-ship to the stars.
The Fed is stabilizing the price of the USD because of the coronavirus pandemic. If it were not printing money, then there would likely be a deflationary spiral that would cause a depression.
That's one of the reasons why the Great Depression was so bad: the US was on the gold standard at the beginning. The US can't create gold out of thin air, so the USD started deflating, people stopped spending, and capital stopped flowing. Companies went bankrupt, people lost jobs — all because much needed dollars were stuffed in people's mattresses instead of being spent.
The Fed is increasing the money supply by purchasing bonds because corporations need cheaper capital to pay their workers and their bills. When the pandemic is over, it will sell back these bonds the banks it bought them from. Without the Fed's intervention, this recession and pandemic would have been far, far worse.
Of course, helping corporations also helps the people who own the corporations: the rich. That's a distributional issue, and the main solution is tax policy. We need to raise income and estate taxes on the rich, increase the tax on capital gains, and institute a wealth tax.
The Fed is like an engine. But engines are a tool. Tools can cause good things and bad things. Right now, the Fed is causing good things by providing liquidity, which has the side effect of causing bad things because it lets the rich accumulate wealth.
If the Fed is like an engine, then it serves to move a train — the economy. If the train is runaway — if the economy benefits the rich far more than normal people — that doesn't mean engines are bad. It means we need to stop the train, fix it, and start the engine again.
If we restructure our economy, the Fed will still continue to do good things, with fewer negative side effects. That would be, on net, good. So the problem isn't with the Fed, it's with the economy. And claiming that the Fed is the root of all our problems misses the bigger picture.
> The Fed is stabilizing the price of the USD because of the coronavirus pandemic. If it were not printing money, then there would likely be a deflationary spiral that would cause a depression.
And by doing that, we have the Cantillon Effect [0].
> The Cantillon Effect refers to the change in relative prices resulting from a change in money supply. The change in relative prices occurs because the change in money supply has a specific injection point and therefore a specific flow path through the economy. *The first recipient of the new supply of money is in the convenient position of being able to spend extra dollars before prices have increased. But whoever is last in line receives his share of new dollars after prices have increased*. This is why when the Treasury’s deficit is monetized, inflation is referred to as a non-legislated tax. In these cases, the government has seized purchasing power (rather than physical bills) from its citizens without congressional approval.
My own personal favorite notion of a hedge for this is wages. Boost wages to match the money supply, and most of those wages will get spent across the economy as well as providing for the wage earners. Of course, this is what many more economically-educated people than I warn against.
Employees can't control their own wage increases though..but it explains why job hopping is prevalent and understandable nowadays as the only realistic way to keep up.
Increasing minimum wage would definitely increase money spent throughout the economy, but I think business owners would offset that cost by creatively reducing/stagnating pay and benefits for middle-class type roles. And the resulting extra demand (without extra supply) would prob lead to higher prices for common goods/services (even more inflation), therefore compounding the issue we are discussing now. On top of that, a big chunk of the extra minimum-wage money spent (by the employees) will end up in the pockets of the richest as they "reinvest profits back into the business". IMO this is essentially transferring wealth from the middle-class to the upper-class via extra money paid to the lower-class.
My personal favorite way for boosting wages would be a job guarantee. Hand-wavy explanation: Having the government hire people who can't find work elsewhere puts a floor on both unemployment and on the minimum that other entities have to provide in a job. More detail in this interview [0] of Pavlina Tcherneva, author of 'The Case for a Job Guarantee' by Mark Blyth (the most entertaining political economist, IMO.)
IMO the way to decide that follows from questions like: What does the Fed buy? Second question: What do the sellers to the Fed buy (where do they spend the proceeds?), and wherever the spending chain goes from there. To my eye, stocks and real estate, at least right now.
There are differences of opinion on what is the cause and the effect [1]. There were deeper reasons for the deflation and by cutting production and preventing deflation, it made it much more difficult for small businesses and individuals to buy food or continue business. That benefited large corporations at the expense of the smaller ones. The government taxed the poor, then subsidized farmers to stop producing, which made the food more expensive which further hobbled the poor.
The Fed benefits banks and the wealthy. Inflation and increasing money supply makes labor cheaper for businesses and hurts those on fixed salary or wage by decreasing the real value of wages over time.
> When the pandemic is over, it will sell back these bonds the banks it bought them from.
This remains to be seen, the market had an absolute fit when they said QE was tapering in 2013, and also had an absolute fit when Powell was raising rates in 2018, particularly in December.
The Fed may have painted themselves into a corner here, nothing is certain with regards to unwinding QE or raising rates.
I've heard (from finance professionals) that big elephant in the room is corporate debt. Corporations need to roll over their debt when it comes due, and a fair amount of it is short-term paper. If interest rates rise, that debt will become a lot more expensive, which will make many of the more marginal companies insolvent. Not software companies, which are sitting on hoards of cash, but all of the ordinary manufacturing/retail/service/financial companies that employ millions of Americans. If they go bankrupt we'll see unemployment worse than the COVID lockdown, but moving up the income ladder into what's left of the middle class. This was why the Fed flinched in 2018.
To me (and this is a minority viewpoint - my finance industry friends disagreed), the way this plays out is both obvious and terrible. The Fed knows that if they raise interest rates, very large American institutions are going to go bankrupt and millions of Americans will be thrown out of work. The Fed's primary mandate is full employment (adjusted last year from a dual mandate of "full employment and low inflation"). Therefore, the Fed is not going to raise interest rates. We'll see this first as a massive asset bubble during the early 2020s, and then as rising inflation in the later 2020s, and then finally as hyperinflation. When it gets to the hyperinflation stage the Fed will take notice and raise rates, but it's too late by then. Hyperinflation is characterized as a sharp increase in the velocity of money, which makes traditional monetary policy tools ineffective for curbing it. You have to ditch the currency and start over with a new one.
large institutions going bankrupt doesn't mean millions of americans will be thrown out of work. that's a boogeyman used by economists to short-circuit that line of thinking because it threatens moneyed interests. the value of those businesses remains and they'll be quickly bought up and revitalized by excess capital looking for returns (part of the problem is concentrated wealth that doesn’t know what to do with itself). let that excess capital be unleashed rather than sitting sidelined. we need more bankruptcies at the unproductive top-heavy end of the economy.
So true. The Fed is essentially a dam built to stop the existing machinations of capitalism from flowing as they were intended. The longer it remains in place, the harder it will be to prevent these forces from occurring until eventually (like now) the economy no longer resembles a capitalist system.
which is highly dangerous to the general stability of society.
When economic policy results in massive finanicial instability for the common worker (thanks to hyperinflation and insane asset prices) it creates a power vacuum which can be filled by those promising to fix the problem quickly and swiftly.
Yes. But hyperinflation and insane asset prices aren't required. You simply need a highly dissatisfied and highly motivated "fringe group" to set off a chain reaction. We're flirting with that now. The next POTUS election is the one to watch. 2020 was overrated in terms of significance. The next vacuum filler(s) will have intent and focus. They've seen what's possible without out really trying. The market hasn't improved; the "competition" remains blind and/or in denial. There's still plenty of opportunity.
Yeah, interest rate risk and increased debt service costs bankrupting companies is a bigger issue than slowing or stopping QE. I hope the Fed can figure a way out of this without hyperinflation, but it’s a distinct possibility. I agree that they’ll wait to raise rates until inflation really starts cooking above 3%.
I don't like loan-forgiveness for all the reasons brobdingnagians mentioned. Also, it introduces moral hazard into the economy: companies assume further loan-forgiveness is coming, so they think nothing about taking on unsustainable levels of debt. (To a large extent, this is what's happening now: after the 2009 bailouts companies figured they were too big to fail.)
The root cause of this is that our economy has become hyper-optimized around monetary policy that's unsustainable. With markets trending toward efficiency, all major companies that exist today build in the assumption of 0% interest rates into the cost & capital structures of the business. Many activities they engage in would probably become unprofitable at higher interest rates, which means mass layoffs, restructurings, different business processes, possibly adoption of different technologies, products & services going away, etc. Change the monetary environment and you get different companies, different technologies, different supply chains. But the current monetary environment means that whenever there's a demand shock, the Fed has nowhere to drop rates, and whenever there's a supply shock, there's a potential inflationary price spiral.
The Fed, to their credit, recognizes this predicament. That's why they're targeting > 2% inflation, so there's room to raise rates. They've also said that any increase in rates will be well-telegraphed, to give companies time to adjust.
But I have doubts that this'll work. Simply because this isn't a tweak now, this is an existential change to how companies structure their operations. And any company that prepares for it before the Fed actually raises rates will be outcompeted by companies that do nothing, so no company is going to take the mere warning seriously.
It occurs to me that post-Volcker monetary & government policy has basically served to weld the economy & government together so that it's impossible for one part to fail without it all failing. We used to have recessions every 5-10 years; these would clear away uncompetitive businesses so the capital could be recycled into new ones. In trying to "smooth over" these recessions, and then outright bailing them out in 2009, and then failing to raise rates in 2013/2015/2018, we've coupled the whole economy's fortunes together, and then coupled it to the government. As a result, we can't sweep away companies that are doing the wrong thing without widespread civil unrest.
The issue with loan forgiveness is that it is a massive wealth transfer from creditors to debtors. People who made bad bets by getting deeply in debt are rewarded, while people who saved and loaned money get shafted. That unbalances the economy and misallocates resources. Which could do even more damage. There isn't really a clean way out. If businesses started preparing & managed their money better while paying off their debts, that would probably be the safest way out.
Why would you prepare and manage your money better when you can always just get another loan at a great rate? It makes no sense to save when borrowing is more profitable.
I'm starting to think that it's time to let the unproductive businesses that have blossomed over the last 12 years go bankrupt and be removed from the system. Unfortunately a lot of productive businesses that are temporarily unproductive had been using their cash for stock buybacks and using easy corp debt to run operations, and so with the pandemic, those wold get washed out too. Maybe the laws banning stock buybacks prior to Reagan weren't such a bad idea?
On the other hand how can the fed buy bonds from the "good" companies worth saving, and not from the "bad" companies that can freeride until "eventual" profitability?
I suppose you let the market decide - let the bonds float, and anything worth saving should be bought back up by the people enriched by the buybacks, right? Isn't that what efficient markets and capitalism are all about?
Save the people (using unemployment) and ditch the hollow husks of marginal companies that have rotted from within?
Dumb idea: maybe if you had a published interest rate schedule that planned out 10 years, 15 years, whatever. So everyone knew what the bond/loan base interest rates would look like for the next 15 years.
years 0 - 7: base interest rate ramps up from 3% now to 10%
years 8 - 15: base interest rate ramps down from 10% to 3%
years 16-21: repeat
years 22-28: repeat
Downside I'm sure is that people who come of age during high-interest-rate periods can't get car loans or education loans that don't eat them alive...
This seems sort of like what the Fed intends to do now, only with maybe lower rates overall - 0 for a few years, ramping to a target of 2 or 3, but I guess no real guidance after that. Unfortunately the Fed has pretty blunt tools, even after their upgrade back in March 2020. Using some of the surplus wealth from the asset holding class (top half of the K) to implement UBI, healthcare education, for the class that has most of it's wealth tied up in future wages (bottom half of the K). This would take congress though, and I'm not confident that we'll see anything recurring after the next round of stimulus.
There is risk here though - bottom up stimulus comes with it's own moral hazard issues, but then again I don't know what the net drag / benefit is compared to zombie companies getting infinite credit moral hazard we have now. I suspect UBI for individuals leads to fewer systemic risk sorts of issues, but I really don't know, it's very hard to envision what actually ends up happening due to lack of having ever experienced anything like that in my lifetime.
It would be nice if we could try it out - but there's probably a momentum term hidden in there somewhere - give an inch take a mile sort of thinking. Is UBI like corporate debt backstopping? Once you get a taste you can never go back?
I really don't see any good answers here other than "try to be on the top half of the K, and also try not to get eaten".
The 30 year rate has been dropping at 2% every decade for the last 5 decades at a steady rate[0]. If the fed attempts to taper inflation by increasing the interest rate above the 30 year, we will hit a yield curve inversion and trigger another recession, just like every previous recession in the past 50 years. So no, we can't go back to 2 or 3. And by 2030, we can't even stay at 0.
The big problem with bottom up is that you need a lot of it to continue the money supply expansion, and money created that is given to spenders as opposed to savers triggers inflation at drastically higher rates.
Yeah, that's sort of the conclusion I keep coming to. If I understand correctly, I'm assuming that when you say that bottom up triggers inflation, you're referring to price inflation / core CPI / any of the other 20 measures of inflation in physical consumable goods required for survival. Whereas top down (as we have been doing because fed and treasury can't seem to work together) tends to keep price levels for core CPI constant, but does lead to monetary expansion, or the multiplier between higher M's like M3 M4 and total assets over base money to grow, putting most of the price inflation into financial assets instead (My house is up 30% compared to bread this year from pre-pandemic prices, my 401(k) is up 80% investing in "low risk equities" compared to the same).
What are other alternatives? More of the same and hope technological multipliers for productivity continue to outpace CPI inflation so that there aren't bread lines? Charity? I suppose you can keep doing monetary stimulus without fiscal, and then increase taxes, and spend it on infrastructure that improves everyones lives?
You don't just have to watch out for CPI inflation to be outpaced by productivity. The money supply needs to also outpace productivity if you want the same status quo.
I've built up an intuition that the money supply should match changes in productivity, and that if it doesn't it will eventually lead to problems. But it's also notable that the trend is extremely important. If you do match, everything should be fine and this can last forever. If the money supply rises faster than productivity, you see what we've seen these past 50 years since we've been off the gold standard, a huge surge in asset prices. And if productivity rises faster than the money supply, people flee assets and into money. This is called a Deflationary Spiral. But the opposite state is basically an Inflationary Spiral, with people unwilling to spend their assets.
Dalio in his "Explaining the Economic Machine" video talks about a "Beautiful Deleveraging". My thought currently is that such a thing isn't possible. If you wait for the debt to get so bad that you have to do something, you can't match productivity anymore. Therefore the only thing you are left to do is grow the money supply less than productivity. And that changes everything. Suddenly the trend is to money. And once the money managers work that out, they all rush out of assets and into cash. This triggers a crash. So it's the trend that dominates, and there is no way to balance the deleveraging.
So the way I see this going is in any of these scenarios
1. Negative rates. All pretext is lost.
2. Repeat of Japan. Government ends up owning half of the stock market.
3. Mild to extreme bottom-up during a planned crash of assets. In this path you will see the stock market crash at the same time inflation soars.
Number three is the hardest but also the one that will end up with the best productivity. When you see stories like Bill Gates being the largest private farmowner[0], you might see it as an ominous warning that the rich are hedging this possibility and are making sure they end up okay.
> The Fed is stabilizing the price of the USD because of the coronavirus pandemic.
The pandemic is a case of exactly when the gov. should step in. Unfortunately the gov. is slow and takes so much time to do anything.
> That's a distributional issue, and the main solution is tax policy.
Exactly. I think a better argument could have been made by looking at the tax cuts a couple of years ago. Companies didn't go on hiring sprees or even keep any money in the bank. They did stock buy backs, paid bonuses, etc...so that when the pandemic did hit they had nothing to fall back on (see the airlines).
CEO bonuses, not always a good thing. Buybacks are not always good (because stock-compensated corporate managers sometimes abuse them to increase the stock price), but for airlines, buying stock was the right choice. You can read Matt Levine's argument, but basically:
If airlines didn't spend money on buying back stock, they could have:
1. Invested it in growth. But if they had invested it in all the normal things an airline might invest in, they would still suffering because of the pandemic.
2. Saved it for a rainy day.
You're arguing (2) should have happened. But an important thing to remember is that companies' savings are not like your savings — companies have far more reliable future cash flow, which means that they can borrow at much lower rates than you can through the equity markets.
If airlines had saved their earnings, maybe they would have grown at bond rates (investing the company's savings in the stock market is too risky and unorthodox for corporate finance officers). That's not good for investors who are looking for 1) return on capital and 2) higher exposure to travel. By returning the capital to investors, airlines increased their exposure to airline-adjacent things and their return on capital. That's a good thing for investors because it gives them more choice! If an investor wants a safer investment, they can create their own basket of bonds and airline stonks.
Similarly, now that the coronavirus has hit, investors know that airlines' fundamentals haven't changed — they're just hitting temporary turbulence. So, to raise capital, airlines can issue stocks and bonds to temporarily get them through 12-24 months. And that's exactly what they did last May: https://www.wsj.com/articles/aviation-industry-races-for-cas...
Basically: corporate finance is not like personal finance, and it's a mistake to think that companies need "rainy day funds." They don't: that's what the equity markets are for.
Not exactly, because share buybacks are optional. A shareholder can decline to participate, increasing their stake in the company (meaning the investor believes that the net present value of the shares is higher than the price offered under the buyback).
It’s not common, though (and for the purposes of the comment you responded to, the distinction isn’t relevant). If management are saying “we can’t think of anything to do with this money”, most investors won’t disagree with them.
Only if the company allows them to (or is simultaneously raising capital). Also I believe (though not 100% sure, depending on where you are) that income tax is paid on dividends, irrespective of whether you subsequently reinvest.
Basic financial planning. Unstable cash flow (for example the cyclical airline industry) requires cash reserves and ideally a cost structure that emphasizes variable costs tied to actual units (passengers) to lessen impact of up/down cycles. Bailouts short-circuit this type of healthy planning.
I appreciate your counter argument and am familiar with it. I disagree about the Great Depression and pretty much everything else you’ve said, but I mean no disrespect, only contend that there is a whole body of economic thought that agrees with me, and that mainstream Econ (recognizing the plurality of schools of thought here) has swept under the rug, because it’s inconvenient. I know “my side” is unpopular and “discredited”. I think it happens to mainly be right, simpler, and generally disabling to the status quo, which I’d characterize as built to enable active interventions. I’ve said nothing about what to Actually do to fix this all, because that is more complex, and not addressed properly, in the main, by anybody. I think one has to recognize the pain that unwinding all of this must cause, and not just “switch it all out”. Heck of a mess!
I’ll be happy to get my (Of course discredited) books out and recite the counter case about the Great Depression if anybody really wants me to later. Basically the fed and various policies caused what should have been a short sharp correction/stock-crash (at the end of a runaway fed built stock market streak) to extend into a long drawn out mess. Forgetting innumerable details I am sure. But yeah, I know you don’t agree. I do not find your case compelling.
While I have a chance, here is a good book on the Austrian case against the status quo narrative on the great depression:
This is, in the main, what I allude to on that one point (caveat, I am not a gold bug and of course Rothbard is. I think focusing on specific instances of "the way to implement an idea" allows people to laugh at the specific to forget/discredit the greater idea itself. Similar issues arise with Austrian rejection of stats and involved mathematical analysis.). I do not subscribe to those ideas, but find the bulk of the economic analysis itself compelling.
If you're talking Austrian economists, who are the primary proponent of the "fed is the bad buy, bring back the gold standard" argument, they explicitly reject any attempt at modeling or mathematical analysis. They are only interested in arguments based on "self evident" axioms.
I've read many of the books you're talking about, and there's a reason they are "unpopular" and “discredited".
There is no need to throw out the baby with the bathwater here.
Who cares about gold? Who cares about avoiding math? Not me. I guess I am no Austrian for those reasons. I do care, however, about restraining the inflationary tendencies of governments because I believe they are an engine of wealth redistribution from the poor to the rich and powerful. And sure, I suppose I do care about avoiding mathematical naval gazing, or statistical hackery. But those are side-issues.
But where's your evidence? For any economic school of thought to be a good approximation of truth, it needs to be able to make models that both describe what has happened, and predict what will happen. Any economist that can't do that is ultimately a quack.
Where are the Austrian models that describe and predict accurately?
I think local predictions are hard for any school to make accurately in economics, but broad swath stuff is doable. So, to have a decent shot at a good theory, you need to figure out what the most important drivers are in your situation of interest. In business cycle theory, I think it is the action of the interest rate over time which is the most important thing that gets short shrift in the main, and which drives the dynamics I speak about above.
I can make a regression say anything, but I predict the fed continues to operate, and the status quo of wealth flow from poor to rich continues. Now it can be modified by laws, and certainly will change with time, but the dynamics are there. You can superimpose other things on top and the results will vary. You can then make a model that focuses on one thing or another, and evaluate it statistically, and again, results will vary. This is some of how we ended up with a pluralist economics today.
I wrote up some other stuff about my anecdotal experience with modeling and searching for "good governance" in grad school, and how I disagreed with methodology of the papers I was reading, before abandoning the enterprise for a return to physical engineering, but I guess this is my chief point. Methodology designs in what you want to see. Economics is not a controlled science (I mean mostly the studies can have no actual control group), and therein festers a great rub. Good fun learning the statistical analysis methods though.
>Who cares about gold? Who cares about avoiding math? Not me. I guess I am no Austrian for those reasons.
The people who wrote those books that you said would support your argument certainly do.
>I’ll be happy to get my (Of course discredited) books out and recite the counter case about the Great Depression if anybody really wants me to later
>I do care, however, about restraining the inflationary tendencies of governments because I believe they are an engine of wealth redistribution from the poor to the rich and powerful.
Are you basing this belief on anything other than gut feelings and the work of Austrian economists who's books you've read? von Mises is an absolute crackpot, but he does a very good job of making you "feel" that his arguments are valid.
>And sure, I suppose I do care about avoiding mathematical naval gazing, or statistical hackery.
That's different than the Austrian position that mathematical analysis is impossible and harmful. Without accepting the basic premise of Austrian economics that "no measurement is possible" and everything can be derived from the first principle of "humans acting with purpose", the rest of their "proofs" are worthless. You can't just accept (and cite) their arguments while also acknowledging the fundamental flaws with the axioms they use to reach their conclusions.
I think their main point is that mathematical models, without connection to reality and logically tracing out the fundamentals of how and why people act, are dangerous in isolation. Statistics is useful, but statistics can lie. Having a conceptual framework of why people do things is valuable. Then add the mathematical models on top.
Sure, but having a conceptual framework of why people do things, with models on top [theoretical and empirical] is how mainstream economics works. Pointing out conceptual flaws in each others' models and how that leads to prediction error is how economists debate.
The Austrian School on the other hand, is centred on Mises, whose magnum opus insisted that all his conclusions were logically deduced from the premise "humans act with purpose" and therefore unfalsifiable, stated that "no measurement is possible" in the field of economic activity (!) and who later described econometrics as "childish play with figures". That's a very different position from the many other mainstream and non-mainstream economists who simply think other economists' models are insufficiently connected to reality .
The problem is that mainstream economics fails to accept that the choice of metric to perform their analyses encodes biases. Ivory tower economists don't really grok what affects the working class. (I can't say I totally do myself, but at least I drove for Lyft full time for a year and a half).
Mainstream economics says that monetary intervention is necessary to "stabilize" the economy, as measured by metric X Y or Z. Who benefits from that stability?
I would say mostly the upper echelon status quo. And what is the social cost of the stability? Mainstream economics also measures the widening wealth gap but it's incredibly infuriating that they can't fucking put two and two together and understand that the gap is the social cost of their stability measures. Especially so since there is a clear straight line mechanism for that to be the case.
> Mainstream economics also measures the widening wealth gap but it's incredibly infuriating that they can't fucking put two and two together and understand that the gap is the social cost of their stability measures.
Because it's not. It's the cost of fiscal policy decisions made overtly to aid “job creators” in the supposed hope that the wealth they drink in will trickle down as a golden shower for the rest of society.
And yet [ceteris paribus] a wage rise for a proportion of workers literally is inflation.
It is difficult to paint the alternative of artificially restricting the money supply to a level where the private sector [as a whole] must reduce some employees' nominal wages or fire them every time it offers pay rises to its most in-demand staff as more pro-labour. It doesn't sound any more pro-labour when people preferring that arrangement argue that recessions are a more appropriate mechanism to hold down wages, and acknowledge the purpose of zero inflation [and acceptance of economic downturns] is to allow wealth to be preserved for years or even generations without the need for it to be used in job creation.
Yes, it makes real wage cuts instead of catastrophic job cuts more practical when particular forms of work lose market value, which also reduces the degree to which future risk of decline needs to be built in up-front to wages.
But it's a blunt instrument. Providing tools to aid those workers adversely affected by those market shifts, whether by declining real wages or lost jobs, is the role of fiscal, not monetary policy.
It's really presumptuous to say that it's better to cheat the labor class out of its earnings than have them deal with job losses (which you don't even know would happen).
> Mainstream economics says that monetary intervention is necessary to "stabilize" the economy, as measured by metric X Y or Z. Who benefits from that stability?
The people who lose absolutely everything they've ever worked for in the event of a sustained recession. They tend not to be rich, nor comfortable with the rival Austrian solution of waiting it out because if wages drop low enough the rich might eventually deign to act by unburying their gold and investing in capital formation and job creation again.
> it's incredibly infuriating that they can't fucking put two and two together and understand that the gap is the social cost of their stability measures
It's incredibly frustrating when the school of economics most founded by a man who stormed out of a meeting of the right wing Mont Pelerin society screaming "you're all a bunch of socialists" for discussing possible solutions to income equality masquerades as egalitarian. Other economists can and do discuss causes of and solutions to inequality, including establishing the fact "the rich get richer" was a truism when gold standards were everywhere. Austrian economics doesn't even acknowledge the possibility of "social cost", rejects the possibility of making meaningful claims about some people needing a dollar more than others and wants to set a floor on how much of the future economy the 1% control by ensuring their 'sound money' is still good for that share of future economic growth even if they impede that growth by withdrawing it from circulation.
But yes, it's very good at scapegoating the Fed as the root of all evil as its oil baron funded adherents join often successful lobbying efforts against every single policy that might make working class people's lives less uncomfortable.
You don't have to be an austrian to acknowledge that some of what they say is sensible. Discarding a theory in toto because it's adherents are odious is exactly the sort of hubristic political bullshit that results in you fucking everyone over.
Sure, but you don't have to take any notice whatsoever of Austrian economics to critique the biases encoded in an economic model (indeed not being overtly hostile to the concept of economic modelling per se leads to much more parsimonious critiques of models and explicit identification of second order effects). I'm not really sure that Austrian economics has much to say that is sensible beyond illustrating basic microeconomic concepts and noting that inflation can [sometimes] be bad, business cycles are a thing and the predictive power of equilibrium models is limited, and you get all that in a mainstream undergrad textbook.
Not being an Austrian helps you conclude that their arguments that economics isn't quantitative, positivism isn't useful and reducing income inequality is actually a goal a government might wish to consider wrong though. :)
I'm not austrian (for example, I believe that the velocity theory of monetary value is partially true). You're the one that boxed me into that category. Only about 20% of what they say is any good, but those parts are definitely not being said by anyone else.
I didn't say you were an Austrian, though I must admit I'm intrigued by what you think they are saying that is useful and nobody else says (even arguments favouring gold standards are not unique to Austrians; a priori praxeology, perhaps, but I would have difficulty concluding their a priori praxeology was "any good"). At a stretch, maybe Hayek's free banking, but then others have described natural experiments with free banking but just reached somewhat different conclusions...
This is an inaccurate narrative. The more wealth inequality there is in a nation, the less that increases in the money supply effect the economy. This is why we have no inflation with trillions injected. The rich simply store the money in assets like stocks and houses and it never touches consumption.
The only thing that needed to happen to keep the economy afloat was the Congress passing their bills.
> The rich simply store the money in assets like stocks and houses and it never touches consumption.
But these do affect consumption.
1) Stonks going up means that companies have more capital (through stock issuances and equity raises). Companies use this capital to buy things and pay workers, so the dollars end up recirculating through the economy just like if a regular person spent it.
2) Buying houses is consumption. And increases in housing prices causes more building of houses. Which leads to people getting paid for building houses and creating materials which leads to money circulating.
Wealth inequality is bad, and Congress should have done more to help the American people. But the populist "rich people hoard money in stonks and houses so it doesn't recirculate" is also a complete misunderstanding.
1. When the money supply is increasing at a rate faster than stuff, the best use of capital is to hoard it. Can you show me examples of major companies issuing stock right now? Looks to me like they are all buying back their stock, which has the opposite effect.
2. Buying houses is an investment and is specifically carved out in the CPI. Consumption is Owner's Equivalent Rent, buying is not.
Housing is an investment in the CPI because most people don’t buy houses as consumption. The CPI aims to create a basket of consumption for normal people. Rich people do consume houses, and their consumption leads to money circulating.
Should rich people be rich enough to buy houses willy-nilly? That’s a different question. Maybe they shouldn’t, to the current degree.
> highest-profile recent example of borrowing for buybacks: > Apple (ticker: AAPL). The tech giant sold $14 billion in bonds this month, and said it would use at least part of the proceeds on buybacks and dividends.[0]
Kinda problematic when one large company doing buybacks dominates over thousands doing issuing reversing your entire narrative. Taking out bonds to give to shareholders is not something that helps main street.
Within ten years a film will come out about the next economic disaster and everyone will be saying "how could we be so stupid to allow firms to buy their own stock with debt?" much like the housing crisis.
why not? What's wrong with altering a company's capital structure to be more efficient?
Stocks have a cost (aka, cost of equity), just like debt. Sometimes, cost of equity is higher than cost of debt (aka, the interest rate). Sometimes, the cost of debt is higher than cost of equity. This is determined by the general market conditions and economic environment.
A company may find itself in a situation where the cost of equity is very high, and cost of debt is very low. In this case, it makes a lot of sense for the company to borrow to reduce the amount of outstanding equity on the market. There is an equalizing point, where the total cost of capital is lowest, and that is where the company's money source is most efficient.
There is absolutely nothing wrong with company buying back stocks, if this is the case. The only problem, really, is that buybacks gives capital gains for stockholders, and this is taxed lower than normal income. This is a question of taxation policy, not stock buybacks. Is it fair that capital gains are taxed less than earned income?
If the firm instead took out loans to pay out dividends would you feel differently? Now what if they did it every year at a increasing pace to the point where it's expected that firms take on debt to support ever larger dividends? That bubble pops eventually and is what I see happening with buybacks.
taking out debt to pay out dividends does not make any change to the capital structure of a company (i.e., the debt load increased, but the equity structure stayed the same). This basically means the company is losing that money paid out, and thus, the equity's price would drop by that equivelent amount, and then added a debt obligation (so an even more loss).
This, no shareholder controlled board would ever authorize taking out debt to pay dividends, unless there's some special circumstances for which this makes sense (i can't think of any atm).
The difference with buybacks using debt is that buybacks changes the capital structure. I suppose if the debt is artificially cheap (say, the gov't is forcing interest rates down to lower than what the market rate _would_ be), then it makes sense from a financial perspective, to borrow money, and pay (to the shareholders) the difference between the "real" market rate and the artificial rate. But this predicates that the real rate is much higher (transactional costs, and other overheads might easily dwarf this difference in rate).
> This, no shareholder controlled board would ever authorize taking out debt to pay dividends, unless there's some special circumstances
Energy (oil & gas) companies certainly did last year. Those stocks are a little different than the broader market, in that investors in them generally aren't looking for appreciation in share price, they want consistently high dividends. Exxon is a good example of this.
“... taking out debt to pay out dividends does not make any change to the capital structure of a company (i.e., the debt load increased, but the equity structure stayed the same)”
Sorry, but this is nonsense. Increasing debt and giving the proceeds away to shareholders definitely alters the debt ratio of a company ... basic financial accounting concept.
I am pretty sophisticated in terms of my acceptance of modern finance but I am a heels-dug-in naysayer when it comes to buybacks. I hate them and I think they are evil. But what can you do
You're right: even though $2 trillion of bonds have been issued by US companies, one $14 billion ($0.014 trillion) issue to buyback stocks completely reverses my entire narrative.
The pandemic has not hit Apple as hard as other industries, and they're taking advantage of low interest rates by issuing debt.
And there's nothing wrong with buying back stock. It's bad when managers use it to boost their personal compensation. That's not happening in Apple's case; they are just returning capital to investors because Apple is doing well and is sitting on a huge balance sheet.
One company(like Apple) negates thousands of small companies. There are many large companies like Apple. The Market Cap of the S&P 500 is up $4 trillion. All of those bonds went straight into the market.
Why not just show me the increased consumption? Show me these increased workers. Show me the raises.
CPI is up 1.5%, due directly to Congress, not the Fed. Unemployment is at 10%. The money supply is up 25%. The velocity of the M2 is down 21%. Straight into assets.
There's nothing wrong with using debt to buyback stock because the environment is corrupted. That's the problem. Fix the environment.
Apple is kind of a poor example here because they're borrowing money at extremely low interest rates and the collateral is all the money they have overseas. They took advantage of that one time 15.5 percent rate after the TCJA passed but they didn't stop earning gobs of money overseas. They're not taking on actual debt to finance buybacks, they're just creatively getting around tax laws.
Stock prices only directly impact companies when they actually sell stock. So, propping up the market has zero long term impact as the value of future cash flows is unchanged. It’s simple a handoff of money from the government to people selling stocks over a short period.
It’s popular because it keeps highly leveraged investments viable.
It has a huge long term impact. There's been hundreds of near dead companies that have had their stock prices pumped and have raised loads of money through an at the market offering or secondary offering which would've been impossible a year ago.
AMC is the most public example, where they dumped their at the market offering into retail investors. But there's hundreds of other examples.
Big caps: CCL, TSLA both with multi billion at the markets with little dilution thanks to stock price being propped.
Small caps: Literally hundreds of names, check DilutionTracker on Twitter.
The parent post is correct in that an increase in the stock price in the secondary market has a material impact on the prospects of the company, especially if it's struggling. Raising money isn't the only mechanism, employee retention is another. In this sense, Soros' positive reflexivity has some merit.
They get the same amount of money from issuing bonds independent of the interest rates they pay. Injecting money into the bond market reduces their costs, but doesn’t directly hand them more money any more than a home loan at a lower interest rate does.
In terms of stock issuances that’s surprisingly nuanced. Delta Airlines for example has 2.7% fewer outstanding shares in Dec 31 2020 vs Dec 31 2019.
> And claiming that the Fed is the root of all our problems misses the bigger picture.
I think you are missing the bigger picture here, When Fed steps in to bail out failed companies, it increases the moral hazard, there is no reason to be responsible when you know the Fed will bail you out.
How about proportionally? Stock trading apps now make it easy enough for Joe 6 pack to invest in the market at any income level. I could see a x% higher tax if you're buying 10,000 shares of Amazon, but it seems to me like putting < $1,000 in the market a month should be somewhat painless.
Capital gains is still a percentage of earnings and currently caps out at 26%. Hold your stock for a year, and it drops to 13%. Increasing cap gains could be as simple as taxing it the same as regular income.
Agreed. The problem is that the Fed only has the power to inject dollars at the top of the economy, yet sales taxes and the IRS drain dollars from a broad base of the economy.
I think an MMO designer would suggest two options:
A. Nerf the Fed, which would have the problems you note.
B. A balancing mechanic -- Some more universally-accessable way to inject income at the base of the economy.
B. I've been contemplating a mechanism based on mandatory minimum paid vacation days per year - fed provides free access to the money, corps borrow it or whatever to earn some interest -- but corps must pay employees a minimum days off per year (a large amount -- like 1-2 months per year)
The value of currency and debt has diverged too far from quality of life concerns -- days off seem a direct way to inject quality of life capital into the system and, I think, could prove an investment able to unearth very new and effective social transformation capabilities ... as well as a new shared basis from which to renegotiate and rebalance our social contracts.
5.3 Trillion in stimulus divided by 150 million people who pay income tax in the US is actually $35.3k USD. The final stimulus toll may be higher and taxes come from a variety of places so that may be high for the final burden per person, but I think it will be close by the time all is said and done.
The stimulus checks, unemployment benefits, at least 85% of PPP money, and education funding all solely benefit regular taxpayers. Large corporations got the equivalent to subsidized loans. Let's say that random pork projects benefit both groups equally. I don't see how regular taxpayers are losing out here.
This is risky, because if the fed accidentally injects too much money by buying back too many bonds, they can always un-inject it by selling the bonds back (and banks are compelled to buy). This lets the fed be more aggressive because it knows that if it goes too far and starts seeing more inflation than it intended, it can always walk back its decision. But there's no realistic way to do that after having given $1000 to every adult.
The Fed printing money isn't the engine, it's the throttle. The engine is powered by a treadmill that requires everyone to run, i.e. being consummate consumers. Throttling up requires running faster, thereby increasingly consuming more.
This is one of the worst takes I've read in awhile.
First off, there is no general consensus about the exact cause of the Great Depression and the cause of the recovery. If you're going to make an attempt at a history lesson, at least get it right. We know that the stock market crash and banking panics played a large role in the contraction of economic activity, but there is absolutely no general consensus for the exact causes. Your theory, that was portrayed as a fact, is solely an opinion that is disputed by many economists and historians. Academics are split as to the exact cause of the great depression and stopping deflation made possible by the gold standard is not an accepted fact in any economics or history debate. [1]
Secondly, the Fed providing liquidity is not "stabilizing the price of the USD", as you say. Printing money out of thin air at extreme rates (22% of all dollars were printed in 2020) is massively devaluing the USD and is borrowing against the future of the country, thus ultimately destabilizing the USD. Just like how many things that feel good in the short term are unhealthy for us, providing artificial short term liquidity that ends up destabilizing society long-term is not healthy or intelligent. As we add trillions of dollars of debt to the US balance sheet, we will soon get to a point where the vast majority of federal expenditure will be on interest payments (it is currently less than 10% but increasing exponentially). At that point, the US will either be forced to hike taxes to ridiculous levels to pay down the debt, or will essentially be bankrupted, and the country's assets will be taken over and dissolved to pay back its lenders by some supranational organization.
The only thing you said with a hint of truth was that the Fed is like an engine that serves to move a train. However, the train is off the tracks, not moving the economy forward. The fed is actively destroying the economy by devaluing the USD and destroying the future of this country. Look around you - companies have already started hedging against the dollar and moving into anything that won't surely be devalued at dangerous levels like the USD in the next decade (i.e. Bitcoin). The Fed is being disrupted, similarly to how Amazon disrupted Barnes and Noble, Netflix disrupted BlockBuster, Uber disrupted Taxis, AirBnB disrupted hotels, and so on. The Fed is NOT a not a net positive on society and people are waking up to it. Hence crypto (deflationary in nature) being the highest returning asset in the last decade, appreciating at 200% each year against the dollar, which people are flocking to. The economy will surely be destructured, but it will be away from centralization and the Fed, because it only serves to enrich the monied interests, while putting on a facade that it exists to 'lower unemployment' and 'stabilize the USD'.
I didn’t say the gold standard caused the Depression; I said it exacerbated it. This is well supported by your link and other historical sources.
The point is, without control of the money supply, a government cannot prevent deflationary spirals. Since Fed can print money temporarily, that makes recessions much milder.
You're right, in a sense, that money printing is inflationary. But when money printing happens, it's to avoid a far greater evil: severe deflation.
I disagree with your take, I think its wrong and misleading.
Perhaps the causes of the Great Depression are unknown, but there is consencus that had the Fed stepped in to prevent monetary deflation, the Depression would have been much less severe and ended much earlier.[1]
As for your second point, I would like to point out two things: first, it is indeed possible for the Fed to greatly increase the money supply without causing inflation if the velocity of money decreases, as tends to happen during a pandemic when people cannot go out and buy things in person. Secondly, the US dollar exchange rates have not deviated in a radical manner compared to other currencies, which would imply that things are relatively stable. (besides bitcoin, which I will get to later)
As for the US debt, there is no arguing that it is not a problem, however should the Fed not have acted, it is likely that a Depression would have happened, and the resulting doom loop would have made it impossible to ever pay our current debts, since without stimulus you would never leave the recession.
Now comes the elephant in the room: bitcoin. The only non hedge fund company I know of that actually bought bitcoin is Tesla, which is certainly not a figurehead for other corporations considering how its valuation is larger than the largest carmakers in the world put together despite having a small percent in the market.
Now Im going to be a bit more speculative from here on but I think its an important point.
Bitcoin only proves the supremacy of the dollar, since all people care about is how many dollars they can get from their bitcoin. And indeed, there are no signs bitcoin will actually be used for anything other than speculation, especially since I doubt anyone can tell me how much bitcoin my sandwich would cost.
You're right though about bitcoin being deflationary in nature. Imagine if everyone finally bought into bitcoins incredible returns, and billions of people put their savings into the coin, watching as their wealth grew and grew... except wait a moment, what's this the financial system is hollowed out! Theres no money to make loans with, no money to invest with, not even the most profitable of opportunities? Perhaps people should be lending out bitcoin? But wait we can make more money just sitting on it cant we? After all the less we spend the more money we have?
> but there is absolutely no general consensus for the exact causes
Yeah, in such a complicated system there are so many parties involved that trying to break down one cause seems like an impossibility. All one can do is look at effects and try to speculate backwards from there to see whose incentives may have aligned and who might benefit from the outcomes we got. Maybe nobody, since accidents happen, but in the case of the Great Depression I think it's very interesting to learn how the 1929 stock market crash stemmed the tide of people leaving the south for better-paying industrial jobs in the northeast cities: https://en.wikipedia.org/wiki/Great_Migration_(African_Ameri...
"Between 1910 and 1930, the African-American population increased by about forty percent in Northern states as a result of the migration, mostly in the major cities. The cities of Philadelphia, Detroit, Chicago, Cleveland, Baltimore, and New York City had some of the biggest increases in the early part of the twentieth century. Tens of thousands of blacks were recruited for industrial jobs, such as positions related to the expansion of the Pennsylvania Railroad."
There IS a consensus understanding to what caused the Great Depression, they only folks who disagree tend to be charlatans pushing Gold or other deflationary bubbles such as Bitcoin.
The world is not going to adopt deflationary currency away from central banks - that would be suicidal.
Perhaps, but printing money is effectively a tax. And it's not going to be the ones who are benefitting the most who are going to be paying that tax proportionally. There's no honest and justifiable reason The Feds efforts should be so top heavy.
The Fed doesn't the power to enact a wealth tax. It's powers were delegated to it by Congress. Congress does have the power to enact a wealth tax. But it chooses not to. The way to change that is by voting.
Every indicators point to precisely that. Tax rates are too low. It's extremely unpopular but we have to say it and repeat it. They are far too low for the highest earning quantiles but they are also too low for the rest of the population. They are at their lowest for the last 70 years in most western countries. We need to increase tax.
housing is in a gigantic bubble now, I have owned my house for a few months, I had to go 15% over asking just to get it(against 15 other bidders), and I checked its value recently and it jumped another 8% in the few months I have owned it. (socal location). Another house in my neighborhood sold for a similar amount as the new value so its spot on. With '08 you had housing in a bubble, this time I feel like cars, housing, medical, college, stocks etc are all way overvalued. I don't know how this will end but I think it will be alot worse than the 2008 crash.
It feels like the several times that I have been going very quickly on my bike, then crashed. It feels amazing and thrilling for a few seconds while you are soaring, then there is a moment when you realize that there is only pavement underneath you and there's no way to avoid the pain, but in the moment you are just magically floating.
The Fed only has a certain set of levers it can pull and boosting wages isn't one of them. During the 2007 recession and now the Fed chairs have begged Congress to take the necessary actions that they can't. Now that Yellen runs Treasury we'll see how things work out.
Except this wasn't the federal bailouts. Those are an entirely different beast. It's talking strictly about income stagnation.
The study shows that if wages kept up with productivity (as was the case in the immediate post-WW2 era) the bottom 90% would earn $2.5 trillion per year more.
> We document the cumulative effect of four decades of income growth below the growth of per capita gross national income and estimate that aggregate income for the population below the 90th percentile over this time period would have been $2.5 trillion (67 percent) higher in 2018 had income growth since 1975 remained as equitable as it was in the first two post-War decades. From 1975 to 2018, the difference between the aggregate taxable income for those below the 90th percentile and the equitable growth counterfactual totals $47 trillion.
Why do you think wages haven't kept up with productivity?
The decoupling of wages from productivity started around 1971-1973, which is suspiciously close to the Nixon Shock and beginning of the 1970s inflation. In periods of inflation, firms with high bargaining power (notably monopolistic corporations, corporate executives, and right now, software engineers & quants) can extract the excess money floating around. Firms in highly competitive industries (notably restaurants, family farms, and ordinary workers) get undercut every time they try to raise prices. Therefore all the gains go to the rich.
I’d say it probably has something to do with the collapse in union membership, deregulation and growth of the finance sector, and capture of the political system by those who can afford billions of dollars worth of advertising, but it’s a complicated story. Are you suggesting that wages haven’t kept up with productivity because inflation has been consistently high since the US abolished the gold standard?
Also, the massive rise in economic power of the rest of (western) world around that time.
the US was the only major world power left standing after world war 2 without colossal damage, and rebuilding (western) europe took the better part of 25 years to fully complete.
Yes, mostly. I'd say that high inflation, declining union membership, and growth of the financial system are all consequences of the U.S. dollar's status as a fiat reserve currency.
The causality for the decline in union membership runs [collapse of Bretton Woods system] -> [U.S. dollar becomes global reserve currency] -> [U.S. manufacturing becomes uncompetitive abroad] -> [American manufacturing firms go bankrupt, allowing them to renegotiate or renege on union contracts] -> [decline in union membership]. Step 3 had a lot of help, between poor corporate governance and quality control at American corporations, the rest of the world rebuilding from the ashes of WW2, the collapse of communist systems in China and the eastern bloc, and globalist policies from Washington. But probably the most significant factor is that the dollar is overvalued, which makes American exports overpriced, which makes all but our highest-productivity industries uncompetitive.
The causality for inflation-lowered wages is [U.S. dollar is global reserve currency] -> [U.S. must "print" an excess amount of dollars to satisfy foreign demand - here really referring to interest rates, since physical currency is a minority of foreign trade] -> [excess dollars flood financial markets, causing asset inflation] -> [ordinary workers lack the bargaining power to divert some of these excess dollars to themselves, falling behind in purchasing power]. Note that when ordinary workers do have this bargaining power - like when they work for Goldman Sachs, or when they're paid in Google/Apple/Facebook stock - they actually have shared in this inflated prosperity.
The causality for growth of the financial industry is [U.S. dollar is global reserve currency] -> [a significant number of foreign transactions require trade in dollar-denominated assets] -> [more jobs are needed to manage these money flows] + [manufacturing careers in the U.S. suck, per second paragraph] -> [smart, ambitious people go into finance because it's where the money is, literally].
There is no mathematically sound explanation for that.
It was plain to see Nixon's purpose was to destroy unions at the time.
And it had to be an overwhelming salvo, or there could be no guarantee it would outlast his crooked regime.
Turns out it has lasted longer than anyone would have wanted, so you get nothing but finger-pointing after a few decades, mainly by people who were not even there or into financial math at the time.
It shouldn't be surprising that regular people wages haven't kept up with productivity because they aren't what's driving it. A quant in 2020 is doing completely different work from a quant (or equivalent) in the 70s. The same can't be said for most ordinary workers.
> The study shows that if wages kept up with productivity (as was the case in the immediate post-WW2 era) the bottom 90% would earn $2.5 trillion per year more.
The productivity growth is not a constant number. The productivity of a Machine Learning engineer has increased much more than the productivity of a gas station attendant.
1. The pay line is for the bottom ~80% of workers, while the productivity line is for all workers. If you graph all workers wages vs all workers productivity, then the gap shrinks quite a bit. (Of course, maybe we should redistribute wealth from top workers to all workers, but that's another discussion.)
2. Average hourly wages doesn't take into account workers' increase in benefits.
3. The lines aren't adjusted for inflation in the same way, which makes the gap look worse.
> Average hourly wages doesn't take into account workers' increase in benefits.
There is a pretty good reason for that. Most of the increase in benefits has been in the form of increased healthcare costs, which only somewhat reflect increased value, as much of that value is unrealized due to high deductibles incentivizing people to not use medical services if they can avoid doing so (which preserves an odd form of household rainy day fund dedicated to medical catastrophes).
Meanwhile, the segment of workers that are (precariously, so with litle to no leverage even in aggregate) holding one or more part-time jobs instead of a full time job with benefits has grown as well.
> Average hourly wages doesn't take into account workers' increase in benefits.
I can't help but feel /r/badecon's rebuttal is dishonest. For many people benefits haven't increased, so the fact that it is excluded is a non-issue. E.g. The growing number of workers who are kept below full time hours to avoid being given fulltime benefits as one of many examples I could list.
Regardless, if it is accurate I'm very curious what the growing employer benefits has been.
I guess it's pretty obvious that it's just a collection of graphs from different sources which all basically indicate that something did happen (decouple) in the early to mid 70s.
"Growth in productivity and hourly compensation since 1948"
"Real GDP, Real Wages and Trade Policies in the U.S. (1947-2014)"
"Real family income between 1947 and 2016, as a percentage of 1973 level"
As for the remaining graphs, for a number of them;
>The lines aren't adjusted for inflation in the same way, which makes the gap look worse.
In spite of this discrepancy, the outlooks experienced over these decades are still even worse than they look.
Nixon was quite bent on the effort to remove the potential for building middle-class wealth any more for unionized workers. His people didn't like the way it had already occurred to a good extent before he got there. The objective was to not only stop but reverse the trend.
And unionized workers were paid much more than average plus had some excellent benefits which were so essential to an upward class move that non-union companies had to mostly have similar benefits even while lower average wages prevailed.
So it took them and all average-paid-or-lower workers down by removing cash buying power directly from their earned income & savings. Not just a notch like levying income taxes & instituting the Fed to remove gold from circulation as legal tender, then prohibit its possesion, and the subsequent currency devaluations had done much earlier in the century. Instead was the most devastating thing they could come up with at the time since income tax and central bank had already been done, and they had all the gold in the US under their control. Generations after the safety net of silver had been a lost memory after the Founding Fathers' wise reliance on both silver & gold as the standards when designing US currency to begin with had been compromised leaving only gold.
By 1976 average people had lost half their wealth and with hindsight much more than half their wealth potential, just like it seemed was going to happen back in 1971. While the truly wealthy mostly lost half their dollar-denominated wealth too, but they were still rich and their outlook has done nothing but improve in spite of the devaluation of the dollar.
Everyone else was set back decades and here we are.
Never did it seem like there was any objective other than inequality being preferred over prosperity, even for the top Wall Streeters who numerically lost more millions than any working person to the market crash [0], and inflation which had to be accepted as never-ending at the time, from that point forward until a major reckoning.
Still overdue but the wealth removal from the general population needed to continue without more inflation after a certain point or the graphs would have gotten really revealing much too early for those who had yet to cash out.
Even with income remaining stagnant, the prices for goods and services should have been continually going down due to technology and outsourcing. Price optimization is the fundamental mechanic of any market! For example, when most manufacturing was moving to China the promise was that it would benefit consumers via lower prices. However the Fed's overt policy is to erase these gains by printing money via low interest rates, and injecting it into the nonproductive financial sector. This made sure that the cost of living continued to march upwards, while all those manufacturing jobs still went away.
> Even with income remaining stagnant, the prices for goods and services should have been continually going down due to technology and outsourcing.
The price for goods did go down. Everything from food to toys to tools got much cheaper than it was before.
However, the price for cornerstone needs that govern access to opportunity - i.e. healthcare, housing, education, physical security -
and the percentage of income and average net worth that these consume went up dramatically.
Furthermore, these things became ever more correlated with each other, meaning that if you have bad access to one, you are likely to have bad access to the others, and if you have great access to one, you likely have great access to the others.
But sure, it's never been cheaper to buy random widget X at a big box store.
> The price for some cornerstone needs that govern access to opportunity - i.e. healthcare, housing, education
First, I wholeheartedly agree that this is the major stakes. I mentioned consumer goods prices because they're immediately tangible. The differences in the others are all too easy to handwave away as improvements.
> Everything from food to toys to tools got much cheaper than it was before
I don't know about toys, and they seem hard to compare. Food has gone up over the past few decades (groceries that used to cost $2 now cost $3, $3->$4, etc). From one of the first hits for historical milk price (https://www.in2013dollars.com/Milk/price-inflation): "Between 1997 and 2020: Milk experienced an average inflation rate of 1.73% per year". Note that I'm talking about sticker prices here, not any "but they actually went down with inflation", as the original argument was referencing stationary wages.
Tools are being made much more flimsy and disposable - eg real high speed steel has been replaced by inferior foreign steel with gimmicky coatings to "prolong" its poor wear characteristics. If you look at good quality tool brands today, the prices are higher than what tools cost several decades ago. This goes for appliances as well - take a look at "commercial" offerings that are built to be maintained.
You mention healthcare, housing, education needing governing and those have been "governed" to outrageous prices. Our governing parties have destroyed wealth for the bottom 80% unless those of us with kush tech jobs or anyone who bought a house between 2010 and 2016.
Maybe the reason the price of those cornerstone services is that people had more money left over, thus were willing to pay more? This effect seems to be happening with housing and education.
The price for goods is dramatically down. You can buy a 70" flat panel display for $500 today.
And there's a lot of pseudo-productivity here that is mostly just rising healthcare spending (without commensurate changes in outcomes) and land value. This sort of makes sense since these sectors have massive capture problems.
Because the people who figured that out also figured out the divide-and-conquer strategy. So first you quietly take X% out of everyone's pocket, and then you do massive PR campaign splitting them into identity groups and forcing them to fight over who should be more entitled to a 0.1X% bonus in the name of equity and justice. And you turn a blind eye, and even somewhat encourage people burning each other's businesses and getting each other fired over made-up differences.
And it works, it just works. All the recent equity activism is about raiding the upper middle class and giving to those who openly oppose economic independence and self-reliance. Completely ignoring the fact that it's the corporations and the people controlling them, who are actually behind the economic degradation of the rank-and-file stratum. And calling it out publicly can now cost you your job [0].
So, endless equity fights for the bottom 99% and an unprecedented increase of power for the top 1%. Congratulations, people.
> When you bail out irresponsibly over-leveraged and nearly bankrupted banks and corporations, and pay for those bailouts with tax-payer money, you steal from the poor and give to the rich.
Or, you know, the Fed is not authorized to deal directly with individuals via the Federal Reserve Act. The Fed's job is monetary and financial stability through credit markets. That's the tools that it has, and it uses them when needed.
If you want to help individuals through taxes/redistribution, social programs, etc, then that's government spending which is controlled by Congress.
It's not the Fed's fault that politicians in the House of Representatives and/or Senate do not wish to pass legislation that authorizes these types of things.
> Or, you know, the Fed is not authorized to deal directly with individuals via the Federal Reserve Act. The Fed's job is monetary and financial stability through credit markets. That's the tools that it has, and it uses them when needed.
Is this really true anymore? At least the past year, the Fed has taken an unprecedented powers to counter the effects of the pandemic. We've all heard of quantitative easing but there's a handful of programs such as SMCCF that allows the Fed to buy debt directly from large corporations.
Corporations aren't people but they're owned by shareholders and controlled largely by the 1%. The amount of money the Fed has directly or indirectly injected into global economy is absurd and surely, if there's a reckoning, the blunt will be taken on by the bottom 90%.
> We've all heard of quantitative easing but there's a handful of programs such as SMCCF that allows the Fed to buy debt directly from large corporations.
I agree that this was questionable. The problem is that elected politicians are becoming increasingly dependent on the Fed to solve mistakes that they caused themselves. It's like a morbidly obese patient giving a surgeon to permission to do more and more invasive surgery. The surgery itself will only ensure that their body will stabilize, but it's up to the patient to actually get healthier.
A lot of magic is happening in your second paragraph.
Inflation reduces debt and wealth at the same time. Wages at the low end rise with the cost of living. Debt and wealth are denominated nominally. The cost of a new car may go up, but the cost of the car you're currently driving (and haven't paid off) is going down.
Printing money doesn't steal from the poor. Printing money and giving it to the rich steals from the poor. Speculation on assets comes with low inflation, not high inflation, because with low inflation comes low interest rates. The only reason this is bad is because when this speculation crashes the economy, the rich will be saved by direct payments from the government.
Nominal asset appreciation due to a rise in the money supply isn't a rise in value, and the poor aren't competing with the rich for assets. It seems like that in housing because it is an extraordinarily safe asset to drive up in value (when interest rates are low) based of the history of the US government bailing out losses in real estate.
Wealth inequality in America is due to direct payments to the wealthy, and the government consistently stepping in as the silent guarantor of last resort behind every asset bubble. If the government were instead the asset buyer of last resort (not at par like after the mortgage crisis, but at market value), crashes of asset bubbles would be a boon for the public, not a boon for the people who participated most in the bubble.
edit: The problem with the Fed is that it focuses on a goal of holding down inflation while not considering employment in enough detail. The quality of jobs, whether jobs are in bubble (or fragile) industries, rate of rise in wages, and the quit rate are ignored in favor of a simple percentage of unemployed, and administrations even narrow that down to the proportion of people currently collecting unemployment instead of the prime-age (25-54) employment rate as would make sense.
> Printing money and giving it to the rich steals from the poor.
Exactly. The participants in our tumor-like financial sector collect a risk premium, without actual risk. They have responded accordingly. It's Moral Hazard 101.
> consistently stepping in as the silent guarantor of last resort
Right again. GP's claims about buying are nonsense, and they're clearly projecting about lack of education. Not counting the exceptional last year, the big issue has not been buying but paying off loans (either their own or bailout beneficiaries') with made-up money. Giving made-up money to regular people is comparatively a lot better, either in itself or as a way to avoid worse kinds of collapses, but still not something to make a habit of.
Yeah I agree with this more, but let's ignore the US for a moment and observe that inflation has been steady and low for decades now in most wealthy countries. And then we observe the same is true in the US.
So whatever the causes of the (I certainly agree) massive transfer of relative wealth to the 1%, I don't see much evidence that it's US government financial institutions that are to blame. As for fixing the problem, in the simplest, most effective way: highly progressive real income and wealth taxation and whatever Picketty thinks the fraction the inheritance tax should be.
The US Government effectively made all currencies fiat by ending gold convertibility of the Bretton Woods agreement. Severing the last remaining link to gold allowed all governments to pursue the same inflationary policy for political gain.
So, all governments are doing the same wealth transfer because they are run by humans with similar incentives and the US Government destroyed the leash.
The fix isn't to add more bandages over the wound. It is to repair the wound by putting government spending back on a leash.
Great points! I disagree with you on this: Wages at the low end rise with the cost of living.
I think this is really an elasticity issue and that we have far too much low skill labor available in the USA (in part because we can import it easily). This means that low end wages have no reason to rise.
> It amazes me why most people do not grasp this. I think it is lack of education.
We should be careful about wording here. The lack of education is a direct consequence of the top "1%" politics and very well thought decisions. They have everything to gain from us plebeians not thinking about these issues.
> (you choose)
It's much more complex than that, especially in America. If you can choose between A and B but the right answer is C you have everything but a choice. Even worse than that, if the entire culture and education of your country is built on making you think only A and B exists, C being the right answer will never even materialise.
We're past the time of blaming "the people", when the entire system is corrupt to the bone we should stop blaming eachother and look up, when all the parties converge to the same point you know you're being played
Pedantic - but QE does not "print money" - which is why we didn't see significant inflation (as measured by CPI) for most of the QE timeline.
If the Federal Government isn't putting out massive amounts of debt (like it is now) then The Federal Reserve buys bonds from banks & pension funds to lower yields.
This is what happened in QE2 & 3 and why we didn't see inflation then (as measured by CPI).
This time, though, the Federal Reserve is almost literally printing money. The Federal Government's massive debt is mostly because it's giving helicopter money to the bottom 50%. This is only possible because the Federal Reserve is "buying" that debt from the Federal Government. The money is coming from nowhere and being handed directly to people. This IS printing money. But it wasn't the case in the past.
That being said - it's hard to argue this is a massive handout for the .1% at the expense or the bottom 90%. The bottom 50% are getting free money! In percentage terms - they're doing the best.
If we must treat this as a zero sum game and go with the pie analogy - then the people with incomes too high to get free money and no assets to get inflated are the ones who got less pie.
It's not a zero sum game, though! We all MASSIVELY benefited by not going through a 2nd great depression.
It's interesting to me, though, that the vast majority of Americans think the way it's working out is fair - that people with high incomes who could keep their jobs should be the ones footing the bill - not people with massive amounts of wealth (especially massive since it was pumped up by The Federal Reserve).
It takes $500 to build a well-diversified portfolio with a roboadvisor, and that portfolio will behave comparably to a larger one (it'll be a bit worse, but also taxed at a lower rate). So, if everyone invested their savings rationally, then when the Fed propped up stock prices, it wouldn't change the distribution of savings across the population.
The real issue is that a larger percentage of the poor's assets are in items that depreciate.
In the '08 crash, a the percentage of people in the US that owned a home dropped from 69% to 63.5%, and is only starting to recover:
The Fed has been keeping mortgage rates low, and that has certainly helped home ownership rebound. So, it's more nuanced than "the fed steals poor people's money".
(Don't get me wrong; the system is rigged to transfer wealth to the rich. I'm just saying there is more than one mechanism at play.)
Except high income earners can choose to invest a much higher percentage of their income.
I can invest 80% or more of my take home pay if I choose to live frugally. Somebody close to minimum wage can probably get somewhere closer to 10%, which would come at greater personal sacrifice.
Agreed that more people should participate in investing and there's an educational/behavioral component, but recent government interventions have been excessive and basically amount to inflation of asset prices.
Dropping interest rates helps people purchase a home "today", but home prices quickly appreciate such that the carrying cost of the home is exactly the same as before, just priced higher and weighted more towards principal payments.
This entire narrative falls apart when you consider credit and why rents exist.
There are people living in London that have been paying rent on the dot for 20 years and still can't get a mortgage because they are not deemed credit worthy. Each month they pay £1,500, they landlord pockets £200 and uses the rest to pay the bank. 30 years later, landlords owns a home worth £300,000 + £72,000 of recurring income, and the family owns nothing. Being self employed or on zero hour contract can do that to you.
But even if you are an upper-middle class homeowner, you still loose against someone who own real assets. They can borrow ridiculous sums against existing assets at near-zero interest rates and invest with leverage, making millions of capital gains while you squirrel away whatever pennies you can spare into your pension and mortgage.
Most Americans don't have disposable income to invest in the stock market.... there is no amount of investing that will turn their "barely making ends meet" wages into a living wage.
The median US household has ~$1000/month in investable cash left over after all ordinary expenses. Per the Bureau of Labor and Statistics (BLS) which tracks in detail how much people actually spend on myriad things in each income decile.
Americans are notoriously poor at actually saving or investing that money compared to their counterparts in other developed countries, but $12,000/year is quite a lot to invest in the stock market. If you saved even half of that you'd have a comfortable retirement.
"You'd have a comfortable retirement" implies stock returns are knowable, which they are not. And the people assuming forward returns will be like past returns seem to be the least knowledgeable on evaluating assets.
12,000 a year is a lot less per year if you are saving for your child's college education.
Who do you think appoints the people who run fed Fed?
If you're looking to cast blame on bad policies, then blame those ultimately responsible: the politicians and the voters who put them there.
Ideally, the United States would have a mechanism that would allow voters to choose politicians with the best policies. What we have instead is a system where voters have to chose between the least worst of two possible options. Both parties are beholden to the top 1%, but the are not equally so.
What I find amazing is the lengths people will go to to blame government bureaucrats while reelecting the people who appointed them in the first place.
> What we have instead is a system where voters have to chose between the least worst of two possible options.
Its worse than that. We have a system where people vote for their team color regardless of changes to the team's positions.
2020 seemed to be a year that more people realized that the party they had been faithful to no longer represented them. The number of "why I'm leaving (republican|democrat) party" posts and videos last year was something I had never seen before. I'm hoping this is a trend that continues. Red or Blue, they don't work for you.
At this point it's really future generations who are being stolen from.
I'm older, own a house, and paid for multiple degrees years ago. Inflation is good for me personally, but destroys young people. Salaries just can't keep up with how fast housing and education (and healthcare) costs have risen.
> I do not think the fed is solely to blame though.
This doesn't get repeated often enough.
People like to blame the fed for everything, but much of the inflation in categories like tuition has been driven by misguided efforts to increase college loans to young people and encourage everyone to attend the most prestigious college they can get into. Colleges have been more than happy to soak up the increased demand with ever-rising tuition costs.
The fastest way to reduce college tuition would be to put an upper limit on federal subsidies and bankruptcy protection for college loans. College tuition would magically drop to match that amount, almost overnight.
Likewise, we need to stop going to such lengths to incentivize everyone to own a home. It started with good intentions, but it turned into an unsustainable arms race. Slow down the federal backing of home loans and let the market sort it out. Renting isn't nearly as bad of a financial choice as many young people think.
To add a bit more to this, from [1]:
“economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence.”
And "The bigger spender wins congressional races 91 percent of the time" [2].
Talking about policies without even mentioning who makes them, kind of misses the point. Big money controls everything. It's no wonder that people come out to defend them, when they control much of mass media and shape the narratives to such an extent.
Well, considering how the comment literally says "Wealth inequality and social unrest in America is DIRECTLY related to corrupt and/or incompetent (you choose) Fed policies," you'll forgive me for disagreeing.
You are arguing a minor, irrelevant, and largely incorrect point of semantics.
> Who owns the Federal Reserve?
> The Federal Reserve System is not "owned" by anyone. The Federal Reserve was created in 1913 by the Federal Reserve Act to serve as the nation's central bank. The Board of Governors in Washington, D.C., is an agency of the federal government and reports to and is directly accountable to the Congress.
All they do is regulate the flow of new money, they aren't responsible for tax codes that ensure a widening gap of wealth via the return on capital vs the return on labor.
They affect the inflation rate and inflation should be thought of as a tax. And its a tax that primarily affects middle class people that keep their wealth in cash rather than assets.
They also implicitly affect asset prices which is probably one of the primary causes of wealth inequality.
The Romans literally debased their currency into lead as they hit hyper inflation-- then instituted price controls which led to a booming black market. The particular tricks have changed a little over time, it is just more efficient with digital money now. Ruling classes had the basics figured out millenia ago. And it never works.
The comment implies no such thing. It says that post Alan Greenspan, who started printing money in an unprecedented manner, the Fed saw that it could get away with it and continued the bubble.
Ironically Greenspan also spoke about irrational enthusiasm. Words are cheap.
This narrative is completely contrary to what any economics course or textbook teaches.
It is a popular Internet narrative, but it is also completely false. The Fed’s policies have directly helped the US at being one of the least impacted countries from the Great Recession.
> The Fed's policies have taken $50T of wealth from the Bottom 90%.
When you bail out irresponsibly over-leveraged and nearly bankrupted banks and corporations, and pay for those bailouts with tax-payer money, you steal from the poor and give to the rich.
But...the Fed doesn't do that.
Taxpayer funded [0] bailouts come from Congress’ executed by the Treasury, not the Fed.
Fed operations don't come out of tax funds except in the sense that anyone holding government securities is spending taxpayer money when they spend the proceeds.
[0] to the extent fiscal spending is accurately describes that way, which is less than one might think.
I think he means that the Fed can directly and indirectly increase the money supply, which disproportionately benefits people and corporations leveraged into assets. Hence, increasing the money supply makes the rich even richer.
I agree that the FED is a major contributor, but the SEC and FTC have failed us in the 21st century. Also, given the way PACs and lobbying work, people don't truly grasp that we live in an ever increasing plutocracy. The greatest trick the elite have pulled is to convince the common man that the enemy is your neighbor who isn't red/blue like you. They rob us blind while we stream Netflix and chill. However, our life is still way too good to care. Only people with nothing to lose rise up.
You're trying to convict a gun for the murder, instead of the person who pulled the trigger. The Fed is just a tool in the hands of the <1% who control the economy. If it was against their interests, the Fed would not even exist in the first place. The Fed policies are directed at stealing from the poor/middle class and syphoning the profits to the very upper echelons of capital owners.
In David Graeber's book on money, one detail that I always remember when I read a comment like this is how coinage was created so many times throughout history as a way to support an Army.
King makes money -> gives it to the army -> collects money as a tax from all citizens.
It creates a system where all the people in the kingdom have to contribute to the army in some way.
Now The Fed creates money -> gives it to bankers -> gov't collects taxes in that coin.
So we've created a system where your ability to buy things is a derivative of how much you support banking. It's no wonder why everyone is overleveraged and fragile and needs bailouts all the time.
The Federal Reserve is just one tool used to achieve this. One of the most important ones sure, but to put too much emphasis on it is missing the forest for the trees.
>It amazes me why most people do not grasp this. I think it is lack of education.
I dont think that is the case at all. The concept is simple and easy enough to understand. Most people just dont care and want a single target to blame. And someone decide that target will not be government or Feds.
Not to mention the low interest rates that caused the housing prices to sky-rocket.
Also not to mention this new trend where younger generations prefer to spend their paychecks on vacations, smartphones, fashion as opposed to long-terms investments like a home.
A home isn’t an investment, at best it’s a low interest savings account. That people consider it to be one is part of the reason house prices continue to outpace inflation.
Buy a home to live in it, but don’t expect that you’ll make money from it.
I wouldn't say that the Fed is corrupt or incompetent by intention, rather it is part of a set of policies giving lenience to the financial system written by a generation that doesn't understand the need for strong regulation. Such generations come and go, usually in 50-year cycles as the older policymakers with memories of financial crises like the Great Depression die off.
This lack of regulation is part of the inequality issue. Other factors include a potentially flooded labor market driving down wages, allowing people in control of economic resources to reap more work for the same price. However, some skilled people in labor also use this as an opportunity to move up the ladder. It's complex, ever-changing system with multiple variables and outputs. Read more here:
> Wealth inequality and social unrest in America is DIRECTLY related to corrupt and/or incompetent (you choose) Fed policies. It amazes me why most people do not grasp this. I think it is lack of education.
Who do you think is behind this. Jerome ain't going to lunch with you or me.
The bailouts are tragic as it undermines the natural garbage collection in democracy - bankruptcy. Bankruptcy is an incredible positive because it allows for the safe and sane dismantling of bad organizations.
The question is - how do we apply a mechanism like bankruptcy to government organizations?
>> The question is - how do we apply a mechanism like bankruptcy to government organizations?
Not sure if this is an answer for every government org, but hundreds of municipalities and possibly even states are going to go bankrupt due to obscene pension liabilities. The very difficult "solution" is to let them to bankrupt, and allow them to re-negotiate liabilities.
Unfortunately many municipalities have promised the world to retirees, often with inflation adjustments and often starting at 20yrs of service (that is, age 41 until death). Add in tricks like matching final year salary (which is often packed with overtime) and you have unbearable pension obligations. It isnt the worker's fault. But the local leaders and pension managers are at fault, and citizens are on the hook. Unfortunately the decisions were made by leaders 10 or 20yrs ago, so it may not even be the current leadership.
If the municipalities are bailed out, then it gives a signal to every other municipality to overpay massively because either the state or uncle sam or PBGC will come in and bail everyone out. It is going to be a mess.
What seems that way to you has turned out to not even be as much prosperity as it should have been for those having the most effective inflation-calibrated plans.
There was no other way to even come close to what employers had intended for their people when they granted these benefits in lieu of full market pay. That's how destructive inflation was.
And of course for the vast majority of retirees it has always fallen far short of what could have been since inflation has been calibrated over the years to continually bring the buying power of gains downward the more that accrue regardless.
Exactly. Bankruptcy and insolvency is an immune response to financial illness in markets. However, instead of removing cancerous growths, we bail them out and thus they metastasize and become much larger and more lethal. This inevitably leads to the death of the host.
The host is already beyond recovery for the US dollar to ever again function as designed.
Thos. Jefferson's quote continues:
> I believe that banking institutions are more dangerous to our liberties than standing armies... The issuing power should be taken from the banks and restored to the people to whom it properly belongs.”
Remember the purpose of the US Mint was to convert the silver & gold of any citizen into legal tender for a reasonable fee and return it to them as coins. Printing of bank notes was not on the agenda until politicians having a more predatory agenda got their way.
I don't wish it on you, but imagine that the fed stops propping up the financial markets though QE.
"Irresponsibly over-leveraged and nearly bankrupted banks and corporations", allowed to crash and burn.
If this happens, everybody will be worse off - rich & poor alike, but the poor will pay the brunt of the cost. Except this time it won't be just "taxpayer money" that is on the line.
Consider it is possible for the fed's policy to be unfair AND the right thing to do at the same time.
There is no doubt that financial collapse leads to economic collapse. I find it difficult to claim both to be in favour of the common people, and to argue for a course of action that would set the whole world aflame.
Especially when coupled with the excessive fiscal stimulus.
We should absolutely help those most impacted by the pandemic, but the amount of money being injected amounts to gross negligence.
Why were people who made 6 figures and still employed being given checks, for example? The stock market is on fire, and many businesses are smashing earnings expectations, yet we inject another $2 trillion?
I've got a sizable portfolio, but the government response frankly saddens me. The green we see every day just represents inflation (of assets). Big gains in stonks, but now we have to pay 2 million dollars for a house in a nice part of town.
Really unfortunate for those without significant assets that ever hoped to own a home.
> Why were people who made 6 figures and still employed being given checks, for example?
Because it's easier to do this than to gauge need, and with the paltry amounts handed out it doesn't add up to much compared to the big picture. The real question is why this has become a political talking point, and the answer is to distract from that much larger rapidly-implemented scam of bailing out the bond market that you rightly point out is "Really unfortunate for those without significant assets that ever hoped to own a home". Hiding the large scale theft is much easier when you can distract people into bickering about their financial neighbors.
100% agreed that fed action via bond buying has been excessive as well. In a healthy economic system, there need to be "down" cycles where overleveraged or poorly run businesses fail.
If the government will backstop all investments, then why not leverage up as much as possible and take on excessive risk? Those that have been financially prudent have been punished consistently. I wonder how much of the fiscal/monetary response is really driven by personal bias towards protecting their own portfolios.
Helicopter money is certainly good optics in the short-term, but terrible governance on a longer timescale.
Because it’s impossible to tell who lost their job this year even though they made six figures in 2019. If we don’t like accidentally giving people who don’t need it money, claw it back at tax time.
edit: the stock market is on fire while small businesses collapse. The market isn’t attached to reality.
Exactly, send the money out today, claw it back from those who earned too much in 2020.
Small businesses collapse, but government efforts haven't been towards helping them, largely more towards sending out helicopter money to the people.
Handing money to people will help all businesses of course, but I'd venture to guess it helped large corporations and brokerages the most.
The loan forgiveness program for small businesses was a good step, but it seemed that a lot of smaller businesses chose not to make use of it.
I'd guess that in the long run, the traditional small business (retail) will become non-viable anyway though. There are too many economies of scale to be gained by operating under the umbrella of a larger corporation. e.g. Amazon can only justify its massive distribution network and same day delivery due to its size.
The small business assistance was a pittance compared to what was sent to big business. It was mostly administered by large banks that have "economies of scale" yet were unable to get the money out to small companies. There were also lots of hoops and requirements for the PPP loans, while large corporations got free money without strings.
Much better than that actually, those massive investments of money in the stock market is benefitting people outside the US as well. A lot of foreign interests are heavily invested in the US market because it shows stronger growth than domestic stocks.
I am Canadian with a strong exposure to the US market and all these injection of moneys to keep the market high made for nice returns in 2020.
I've begun to wonder whether short-term economic depression in '08 and maybe '20 would have been preferable to the slow march to endemic corruption and aristocracy that the US is on. If the trend continues one would eventually expect long-term disruption to the US's ability to maintain cohesion.
Do you think the Fed should have not done this and allowed inflation to run below their 2% target (perhaps negative)? Or do you have an alternative suggestion for how to keep inflation steady without printing money?
The fed should use a more comprehensive bundle of goods to measure inflation. Home prices, is a good example.
Once they do that, inflation numbers will read much higher. By some accounts, home prices have increased by over 10% since this time last year.
A healthy society needs room for social/fiscal mobility, which becomes increasingly difficult when asset prices are inflated relative to median income.
The challenge is that the fed isn't the only factor that determines inflation. It also varies based on supply and demand factors, among other things.
Housing prices, college tuition, and medical care dominate inflation measures. All three of those categories have significant government influence well beyond the fed. If we stopped using federal funds to subsidize college and home loans, tuition prices and housing costs would magically stabilize in no time.
Trying to tame tuition or housing inflation from the fed won't work if the other parts of the government are going to great lengths to subsidize those areas.
The reason for the bailouts was to avoid mass unemployment and mass foreclosures. These would have happened had major automakers or major banks went bankrupt.
I think it is due to effective marketing techniques employed by big money interests who benefit from mass acceptance of libertarian narratives, and those like the social media who benefit from volatility / uncertainty in the information network.
>big money interests who benefit from mass acceptance of libertarian narratives
I would say it's every interest who benefits from mass acceptance of completely stupid & misguided narratives from almost all Democrats & Republicans.
Libertarians, especially non-Party members, are the least of my worries.
Besides the fact that what now passes for leadership ability can not even rise high enough to polish the shoes of Dwight Eisenhower or JFK and they weren't good enough either compared to the Founding Fathers.
Corporations worldwide have modeled themselves on this American trend of precipitiously declining competence at or near the top, plenty of money can always be made by Bozos after true leaders have built the money-making machines.
By the time Reagan & Clinton came along it was far too late.
Clinton knew it so well that's why one of his earliest (naturally unfulfilled) campaign promises in 1991 was to give every citizen $5000 if they wanted to start their own business. At the time nothing else could be seen that would allow wage-earners to escape to the prosperity their forefathers had worked for and truly earned up to that point in the 20th century.
Correction: The 1% have manipulated the government to have obviously unfair political policies. They control advertising, media, and the government. I do blaim the rich, and it's from first principles. The only thing that ever puts a dent in it is grass roots efforts like BLM, unions, etc. We tried the gold standard, it is also a failure.
BLM was far from grassroots, Mueller investigation revealed us how it was propped up by Russian trolls. Heck they ran their biggest social media pages.
From what I’ve seen over various parts of the Internet, BLM’s pretty complicated. I’ve come to the conclusion that it’s a combination of actual people fed up with their neighborhood’s policing and wrecking shit up, along with some progressives who wanted the protest to be peaceful and instead hoped for policy-wide changes (through electorialism) from this, along with neoliberal shills (corporations and mainstream politicians) who wanted to co-opt it as a peaceful liberal protest and gain social prestige/status/clout without doing anything substantial. And maybe some Russians thought this was quite hilarious and tried to make the tensions a bit higher (by the way, can you provide a reliable link/source for the BLM Russian involvement thing, since it seems a bit dubious and the liberal establishment has developed a bad habit of blaming everything at Russia?)
Yeah, Ctrl+F shows that there were some investigations of IRA creating activist accounts among the left/rights spectrum, although the details are still censored. But my point is, the Russians are just the cherry on top of the cake for this event, and aren't nearly as substantial as the internal politics going on in the US.
If you believe that Russian interference had a material effect on the amount of support for BLM[0], then presumably you would agree that Russian interference was also enough to change the 2016 election results by 80,000 votes.[1]
> Most importantly, when the Fed decides to print money ad nauseam, they create massive asset inflation, which steals from the poor and gives to the rich
Presumably debtors benefit from inflation since they can pay off their debts with inflated dollars.
Presumably people with cash savings are harmed by inflation since cash loses value.
Blaming the fed is a common libertarian tactic to avoid blaming the capitalists. Oh yes, in a pure anarchocapitalist Austrian utopia, you'd never have capitalists paying workers shit wages, employing child labor, forcing workers into unsafe firetrap buildings, etc
It's a way of averting ye eyes from the real problems with the negative externalities and market failures, and the hard work to come up with policy solutions that patch the holes in capitalism.
The analysis of the OP also ignores the decreasing returns to labor investment and increasing returns to capex because of automation which almost guarantee that the bulk of ROI will accrue to capitalists in the future.
Hire some (temporary) middle class workers to build your robot factory or automated logistics warehouse, fire most of the workers in your old factories/warehouses, and watch as more net income is transferred.
As opposed to having the government do what? Have a great COVID response? Have a coherent industrial policy? Have great fiscal management? Have financial integrity? Grant monopolies to service provides (ahem Comcast) instead of building proper infrastructure? Not building sufficient electrical infrastructure? Enticing poor young people to make terrible money decisions relative to school and then saddling them with non-dischargable loans? Spending money to fight endless wars? In the middle of a pandemic pass a bill that sends millions overseas while Americans can't pay their medical, food or housing bills?
I will take the capitalist over these government clowns any day of the week.
Moderna created a vaccine in less than a day. Even with a year to think about it, my state and county still can't decide where the mass vaccination site should be located.
Our government has coasted for too long and is incompetent. When the world decides to quit paying the dollar tax imposed via Fed printing, it will be a rude awaking for all Americans.
Moderna benefited immensely from decades of publicly funded research as does most of Pharma, as well as direct aid from Emory University, NIAID, etc
Look, if you believe the market works as the best mechanism for allocating goods and services, then you've also got to believe it won't work properly if prices are distorted, otherwise Garbage In, Garbage Out.
If a firm is able to pass off costs onto others, it is a hidden subsidy, a form of market distortion. For example, if I just throw all of my trash and waste into the local lake and hope no one notices, I don't pay the costs for my waste, ergo, my prices and my profits do not reflect the true marginal cost.
"But but but...tort! You can sue if injured by dumping!" Get real, this is a libertarian fantasy and not at all how diffuse stochastic waste works. The same people who tell me that what makes a poison, poison, is the dosage, not the molecule. Well, if you dump an insignificant fraction of pollutant, by itself, it is not harmful, but if 1000 firms dump the same amount, then it can be harmful. Who do you sue?
Property rights only work if you can draw a border around something. There are no property rights to the atmosphere or oceans and hence civil lawsuits can't really be a solution to tracking down and punishing individual violators after they've done the damage, the government must force firms to PRICE IN the costs of pollution, either via an upfront regulation, or an upfront tax.
The same is true for negative social externalities. If a firm, or a new technology, is having a large scale negative effect on society, making people less unhappy, more depressed, more prone to crime or violence, more impoverished, it becomes a cost that is passed off on everyone else.
Who pays the costs? We all do. We pay it at the hospital. We pay for it to the tune of $44,000/yr to house prison inmates. We pay for it in more police and criminal justice, more fear, more suicides.
If your company movies into a small town, puts all of the local shops out of business, and then refuses to raise wages or benefits, what ends up happening is, the other citizens end up paying for the healthcare, retirement, or other benefits that the Walmart, et al, aren't paying.
Acting like we don't live in an interconnected system where negative costs get transferred, or that every deal is win-win-win, is a fantasy. If you don't pay for your neighbor's kids nutrition, early education, or healthcare, you'll pay for police to lock up their kids when they try to rob you.
I'd much rather live in a society where I am "forced" to pay for educated, civilized, happy people to be around, then to live inside of a Fortress, "forced" paying for a bunch of private prisons in a police state, just so I can view the misery of the world from my tower windows.
So if you really believe capitalism is the best system for allocating resources, you should be in favor of correcting market distortions where firms can cost-shift their damages onto others, especially when it comes to diffuse-in-time-and-space mechanisms where there is no easily visible negative feedback mechanism to correct the firm's behavior.
Great post! Thanks for taking the time to write it. It's a shame its so far down the page!
I do believe in capitalism, and I _am_ in favor of strongly policing the system so that it's fair for everybody. Some call it "big government"
a bit off topic, but it really bugs me when people talk about government like its some big external hostile force. It's our collective power, we should take ownership of it. If its not working that's our problem.
Part of libertarian marketing is that if you don’t enjoy the system or see opportunities in destroying it, that is ok. Bitcoin fits into a larger fantasy narrative which is that instead of working together inside the actually closed system in which we all exist, you can endlessly fragment the social space and opt out into smaller and smaller volitional communities. The idea seems intuitive until you start to hit limits, or when collective action is needed in the form of governance. Or when your crypto nationalism runs into the same problems we have been dealing with since the dark ages ended.
I love good government and am not afraid of big government one bit. However, I HATE incompetent government that coasts on the work of others and whenever a problem comes up points fingers at everyone but themselves.
Add to my list above supplying safe drinking water and having an effective hurricane evacuation plan (I am looking at you New Orleans).
Agreed. It was a great post. I tend to think of my self as a "liberal-tarian." With the tenet being to set a goal for a standard of living and social / environment targets that benefits as many as possible, but anything beyond that get out of the way.
In this way I am for socialized health care, significantly stricter regulations or punitive measures regarding the environment. However for most other issues I would rather have a competitive market.
In the end I think some form of UBI may help us get there most efficiently. Ensure the environmental and health sustainability and give people a minimum amount of money to ensure they can reasonably sustain themselves, then let the market consider the rest.
Not really. You could invest in real estate or stocks or gold or just about anything other than cash and also dodge the effects of currency inflation. Remember: Inflation is defined as rising price. If you hold cash, that's a problem. If you hold inflating assets, then it's largely neutral. If you have taken out cash-denominated loans to purchase inflating assets (e.g. a mortgage for a house), you actually benefit from inflation as your assets increase in value relative to your loan amount. (Over-simplified version)
Bitcoin is explicitly deflationary by design, which is different than 0% inflation. If you have the same fixed supply and an ever-increasing demand (new population, new Bitcoin owners) then the currency is deflationary. If your economy is deflationary, you will enter a deflationary spiral which discourages anyone from doing anything other than hoarding the currency. It's no coincidence that HODL is the unofficial motto of Bitcoin proponents.
This creates a different set of problems. If you thought wealth inequality is bad now, just imagine how bad wealth inequality would be if everyone had to buy into Bitcoin, making early adopters orders of magnitude richer. The inequality between early and late adopters would be insane. Early adopters love this idea, of course, because they're at the top of the pyramid. Doesn't work out so well for the late arrivals, though.
If you only spend when it's absolutely necessary because you want to keep as much currency as possible, that's the definition of hoarding.
What would you define as hoarding? Spending so little that you starve to death?
Keep in mind that spending includes things like investing in businesses. If currency itself provides the highest return because it's a race to hoard more than anyone else, investing in businesses becomes less attractive.
Currency should facilitate the economy, not be the economy.
It's somewhat subjective of course. I think there's a healthy balance where you buy things that provide value to you at the moment. I think hoarding means something unhealthy, when you suffer just to keep the money. The money wouldn't provide the highest return - it would grow with the economy, i.e. provide average return.
People don't hoard stocks, index funds or gold. They spend the profits when they want something for themselves. Why not have money that works like that.
I do not think you mean education as in formal education but rather people have not systematically thought about these things. And, I think people will never be educated enough on this topic. Inflation and Climate change in some sense are pretty much alike. Both are some serious market externalities as a consequence of which they do not benefit from market signals (the biggest teacher of them all).
For issues like this the biggest teacher is the market and not books. A lot of climate change deniers have invested in Tesla and Solar companies and a lot of climate change maniacs have purchased Bitcoins and oil stocks. Some of the biggest proponents of climate change hysteria own private jets and ocean front properties. A lot of people call this hypocrisy and assign motives of fraud to these people but I do not think so. When it comes to climate change the market signals are clear that we need to look for an alternatives to our current energy sources and these sources will be more popular while completely rejecting alarmist claims. One might argue that market signals are not correct. But that is irrelevant. The point is people react to market signals FAR FAR better than anything that gets pushed by intellectuals, even those intellectuals who share their own political biases.
Markets signals around bailouts or inflation are missing. As someone like Milton Friedman pointed out, there is simply nothing that an average American can do to prevent government from printing money. If nothing you do will have an impact people wont do anything. The market signals are missing because there is no competition where you can see what works and what does not.
Instead of taking strong ideological positions I think we should work on making market forces operate more freely in this space. Bitcoin is already challenging the dollar in this space. It is a David (USD) vs Goliath right now but at some point people will figure out that a constant inflation for USD would mean higher price for Bitcoin over time.
For bailouts I think we need ot come up with solution that is more market like. Perhaps increase of creating ad-hoc bailouts for large corporations, pass a clear law that describes the terms of bailout well in advance and provide different options to chose from for the corporations and then stick to it.
You will be surprised how quickly people will vote in favor of better bailout policies.
>Wealth inequality and social unrest in America is DIRECTLY related to corrupt and/or incompetent (you choose) Fed policies. It amazes me why most people do not grasp this. I think it is lack of education.
I'd say it is the intended result of education. Why would you expect a school named after a billionaire to teach you how she is stealing from you any more than a school named after Karl Marx to talk about the problems of socialism.
I have been thinking what is the best way to solve inequality. There are two problems one is wealth creation and other is wealth distribution.
- Communism doesn't do a good job of wealth creation.
- Capitalism doesn't do a good job of wealth distribution and causes inequality.
-Increasing the taxes, only gives money to the government and my impression is they are not efficient in using money so overall the wealth of the society doesn't increase.
If we limit how much a rich person can hold in large companies as stock, will it force the rich people to invest in small companies? Now we will have a mechanism of spreading the wealth by the rich person who knows how to use money efficiently. However the rich person will still become richer, not sure yet how to solve it completely. Maybe inheritance law should be changed so that once the person dies all his wealth goes to the employees in some fashion.
Lack of education is the #1 issue here. America's education system emphasizes nationalism and obedience. It doesn't encourage critical thinking or alternative worldviews.
We're so deeply entrenched in the "American Dream" (Capitalism & Trickle Down Economics) that we're unable to challenge the current status quo.
Worse yet, this is driving us towards the defunding of public education, and the further worsening of our problems.
Our collective ignorance manifests itself in a number of ways, from wealthy mainstream journalists blaming economic problems on the poor to their audience of middle-class Americans, to mass-delusions regarding conspiracy theories intended to divide people.
I agree with your assessment of our education system. I would go further and say we intentionally do not teach money management skills as it makes people harder to fleece. We have indoctrinated a whole country that debt is good, rampant consumerism is good, all of which leads to really bad money management.
I am of the opinion that these habits and the ideology that supports it is the biggest reason people who are in the lower income brackets continually stay there. The best path to wealth is to convert your work into capital. If you spend everything you make and more there is no excess to re-invest.
>intentionally do not teach money management skills as it makes people harder to fleece.
Yeah, this is a perfect example of "don't attribute to malice what is equally explainable by incompetence."
I'm not talking about the incompetence of teachers. I'm talking about the incompetence of the system, and it's inflexibility towards change. This is not caused by malice. It's caused by is being completely unable to effectively handle the millions of different perspectives of "what education should be."
You talk about indoctrination of a country, but I don't think it's indoctrination at all. It's people clinging to their views and being completely hostile to the idea that they might not understand important parts of the system. It's people turning to ideology instead of engaging with the actual complexity of the world.
> It's people turning to ideology instead of engaging with the actual complexity of the world.
As predicted in 1970:
'the accelerated rate of technological and social change leaves people disconnected and suffering from "shattering stress and disorientation"—future shocked.'
Most of the time the argument is "if we spend less on military and more on education it would solve X". So I disagree. The people I get into a discussion with on education funding always seems to think the USA spends less than other first world countries.
In general, yes, but the parent poster makes a different claim than usual.
> America's education system emphasizes nationalism and obedience. It doesn't encourage critical thinking or alternative worldviews.
They're not complaining that we're not teaching enough, they're complaining that we're teaching the wrong things; that the same resources could be used for better teaching.
The Fed just implements the monetary policy of the Government in power. The board of governors are appointed by the president. The problem lies with Government and the failed economic policies they stick with through thick and thin i.e. Neo-liberalism.
This entire take is predicated on the idea that the people in power have something to gain from doing this, since it requires the ruling class to do all of these things. It falls completely flat if you think about the logic beyond trying to make it fit your ideological narrative.
Why would the ruling class (which his tweet presupposes is corrupt), who benefit from this status quo, purposefully destroy the systems that make them rich? It just doesn't make sense, the logic implies that a corrupt ruling class would purposefully destroy the systems that allow them to be corrupt in order to achieve "socialism" (which Naval clearly implies is somehow innately corrupt here). Why would they destroy what they benefit from on purpose?
Ruling classes benefit from stability, if people are not starving and live generally decent/free lives they won't search above for answers or be inclined to upheaval.
> destroy savers, and force them into inflated assets.
I don't understand this part, isn't it a broad consensus in the US that savings should not be in cash but instead in a diverse set of assets and bonds? How does inflating assets destroy savers in this case? Every time I hear advice on saving in the US it's basically (take anything above emergency fund savings and invest it in ETFs/index funds/bonds)
Somehow most of the time when there is something bad systematically happening in the US it is almost always associated with government legislation. In my opinion it is largely because of intention based policies as opposed to outcome based policies. We rarely investigate what was the outcome of a policy and just doubling down on failed ones.
"But poor people have iphones now" when people can't afford food, healthcare, or any leisure time is the 2021 equivalent of "Let them eat cake".
The balance of wealth is insulting when we have so many basic needs not being met for those at the bottom
"Stealing" is a word that gets knee jerk reactions. But the more polite way to phrase it is that the rich benefit from societal structure 1000x more than the poor and are able to acquire wealth at an accelerated pace because of these structures. Asking the wealthy to pay a greater share to improve society is perfectly reasonable. The fallacy in complaining against taxes for the rich that are already higher than their proportional of wealth is ignoring the fact that so much of taxes goes towards systems that just increase the rate of wealth accumulation. The wealthy reap the benefits of power in compounding ways.
The situation is more nuanced in my reading in wealth, income and inequality.
In particular, people don’t actually care about absolute inequality. They care about progress and opportunity. As you stated, the inability to provide for basic needs trumps the fact that you have an iPhone.
But the inability to provide for basic needs is not necessarily caused by wealth divergence. Medical care costs today have little to do with wealth, and more to do with the cost disease, regulatory morass/capture and transferring costs from the young to old.
Housing costs, another huge personal expenditure, are driven by local NIMBY restrictions and city zoning planners.
Education costs are clearly not driven by the wealthy, unless you believe Bryan Caplan’s signaling theory (which I personally do). But in that case, tax transfers don’t help either.
And so here is part of the nuance. Some of the wealthy are ‘stealing’ the money via power/regulatory capture etc. Others are not, they are growing real wealth. Yet others are destroying jobs via automation whole making products cheaper.
I’m personally less well off because my Dr. can charge 3x his value and my local city vigorously defends single family zoning at the expense of non property owners. But I’m not really worse off that Elon Musk is selling cars at a competitive price or Tim Cook is selling headphones at 550 a pop.
And that nuance is important. Equally punishing the growth with ‘theft’ hurts the economy and doesn’t fix any of the underlying problems.
All of these excess costs, make it very hard for people to stay afloat let alone build capital/wealth.
And those problems persist regardless if we transfer via taxes; housing markets are artificially constrained and tax transfers will just get sucked up to bid the price up. The medical system will find ways to suck up as much money as it possibly can. Giving people more money just to have it siphoned off isn’t a great fix.
So I, as a 1%er wouldn’t mind higher taxes. But we have to fix the underlying problems first. Otherwise your just taking my money to hand off to my Dr’s Porsche fund while the less well off get nothing in return.
Extreme income inequality is unfair. Jeff Bezos is not 1,000,000,000% "more worthy" of wealth than Richard Feynman—and everyone knows it. Very little about financial capitalism is fair.
People care about where they sit in their local monkey pile, not global. That is, they care about their position relative to their neighbor. If they feel their prospects for the future are good and they are doing as well or better than their neighbor, they are generally happy.
John Q. public could care less about Jeff Bezos unless they feel he is part of the 'theft' group listed in my original comment. People like winners that win fairly.
I doubt Feynman would have cared either. He was playing a different game.
I don't agree with the argument FEE is trying to make: "Consider each product or service shown. College is heavily subsidized, regulated, and exclusionary, and the costs are soaring. The textbook industry is hobbled by extreme copyright regulation, and can depend on captive buyers. Childcare is one of the most regulated industries in the country. Not just anyone can enter. Every aspect of childcare provision is controlled by the state."
To me, the point is the things that people truly need have risen steeply whilst things that are luxuries have decreased greatly in cost and I believe that's a failing of government to not correct where the market would not. If you're surprised that things like healthcare and childcare are regulated, you've likely never been anywhere they were not, but that doesn't mean the costs to end users have to be so exponentially exorbitant as time marches on.
The things that have seen large price increases are things that aren't scalable i.e. they still require the same amount of human input labor to produce
Childcare is constrained by the fact that each childcare worker by law (for better or worse) can only look after so many children at once. This ratio varies by state but it's usually around 4 children per childcare worker. The result is that it has to be expensive because (short of having robot caretakers) it always takes 1/4 of a person's labor.
Education is similar, but has gotten worse in the past few decades w.r.t. labor requirements. While class sizes have remained relatively constant, there are more administrators, special needs educators, counselors, etc. servicing the same group of students.
This isn't to say they shouldn't be regulated, or that there isn't room for improvement. College tuition and textbooks could certainly use some downward pressure.
Textbooks are now distributable by e-books, easily scalable. Yet somehow capitalism has utterly failed to deliver it's supposed benefits.
College tuition is now distributable by remote learning, theoretically massively reducing costs. Again, capitalism has utterly failed to deliver it's supposed benefits.
Housing has massively advanced, with cheaper construction, high rises, etc. but laws have been crafted to ensure that doesn't happen to protect rentiers. No taxes on unoccupied land, restrictions on where you can build, massive consolidation of available land without any desire to actually build anything but expensive condos. Again, capitalism has utterly failed to deliver it's supposed benefits.
The cost of textbooks is not primarily in the distribution method, it's the labor of content creation.
The cost of tuition is not primarily in where or how people attend classes, it's the labor of developing curriculum, mentorship, and research.
The cost of housing is not primarily in construction, it's the scarcity of land. High density construction does address this, but you even mention that laws are obstructing this. How is this capitalism's fault when democratic governments enact laws that are literally stopping it from functioning freely?
"Capitalism" completely solved the textbook problem, it simply ignored universities and degrees and whatnot altogether. (How come coding bootcamps don't have expensive textbooks?)
I put the quotes there because (arguably obviously) it's also thanks to capitalism that intellectual property is extended so obscenely.
Anyway, no university (or higher-ed institution) is forced to use textbooks. They do it because they can. Because there's no market force pushing prices down, because captive audience, because the signaling value of degrees is still high (because nobody got fired for hiring the candidate with more degrees - that also happens to have a wealthier background, and maybe even also happens to be white). But it's changing (due to market forces).
Similarly, housing is not a market problem. It's about "preserving the character of the neighborhood", and most neighborhoods happen to be favoring those who happen to be wealthy and against building.
I find it difficult to believe that the increase in university costs is significantly driven by increases in labor cost for the jobs actually related to delivering a university education. If anything I suspect there have been a significant decrease in the number of university employee-hours per student-credit-hour.
I'm not sure why it's difficult to believe. Universities are more than just faculty. In the past few decades, universities have become full service institutions that provide more than just education and have added an army of counselors and administrators.
This is explored in detail in "Why Are the Prices So Damn High?" [1]
"Education and healthcare are notable examples of sectors seemingly stricken by constantly rising prices ... At the same time, home appliances and telecommunications have become much cheaper. Why?"
Heathcare costs for workers spiraling out of control makes them expensive, so fields where you can't outsource the labor become disproportionately expensive.
What makes that especially awesome is that Apple and the telecoms have gotten into the business of supplying credit to consumers who would otherwise have no business (literally and figuratively) owning a $1,500 phone when a $250 phone would do.
Given that the thread is about how $50T has been appropriated from the poor it seems odd to say that the poor should use $250 phones, and they have no business owning anything which costs more.
But not everybody can be in the top 1% by definition. So either a category of people exists that do not need/cannot afford $1500 phones, or $1500 phones are a basic necessity that every human needs alongside food and shelter.
I would argue that yes, in the first world a smartphone is almost required, but there are plenty of great <$200 Android phones that do everything one would deem essential. $1500 smartphones are now simply a status symbol alongside Nike's and Rolex's, and have been for some time.
I have an iPhone because it is (for my needs) a better machine. I wear Nike running shoes because they fit me well and that gets me a safer workout.
Some things have functional advantages even if they also signal status. The working class has at least as much need for functionality as anyone else. A $400 phone vs a $200 one could easily be more useful to a poorer person than a richer one. Same with $100 vs $25 shoes.
My Seiko tells time as well as a Rolex (though not as well as an even cheaper quartz watch would). But even here, where status is definitely a factor, it’s not like the Rolex has no additional value: it has resale value, and aesthetic value.
> But not everybody can be in the top 1% by definition.
Sure - but what should the wealth ratio between the top 1% and everyone else be? Perhaps if the ratio were lower, everyone would be able to afford great phones.
I think it's perfectly valid to point out that improvements in technology are beneficial to the poor. Technology is the reason why most people would likely prefer to be poor in 2021 than rich in 1547.
It's not just iPhones. Even access to food is dramatically better thanks to technology. We no longer have wide-scale famines that we used to have in the past that would kill thousands. Even in the US, to my knowledge, food insecurity is much less of a problem today than it was in 1960.
So I don't see the point in implying that technological progress is worthless.
I do think it's correct that the rich benefit from societal structures more, but I'd rephrase: the rich are more capable of leveraging societal structures. Which in and of itself isn't a bad thing, so long as others are allowed a shot at utilizing those structures, too.
In other words, the fact that more money gives you more benefits isn't something to be sneered at. It's kind of the whole point of money. It should make your life better. Otherwise it fails as an incentive. What shouldn't be the case, however, is that people are unfairly barred from being able to make more money in the first place.
I think we focus too much on equality of outcomes, and not enough on the three important questions:
- It doesn't matter who can leverage societal structures the most. Kudos to the people who can. What matters tax-wise is, who is stressing societal structures the most? An example for illustration's sake: if Amazon is placing an insane burden on the road system and causing more maintenance work, theoretically they should pay more for that than the rest of society does.
- Why don't people have more opportunity to make money? Is our educational system failing them? Are there laws and regulations that are keeping people down? Is rent-seeking behavior edging people out? Etc. This idea that people can't make money because rich people are "taking it all" is silly and not the real problem.
- How can we raise the floor? How do we make it so being poor in America isn't so terrible, and ideally, is okay? We have so many problems with rising healthcare and educational and housing costs, segregation, crime, etc. Collecting more taxes doesn't seem to solve this. Look at SF. One of the most tax-rich cities in America. But do we even know how to deploy that budget effectively to curb homelessness? It doesn't seem so.
The question is, based on standard of living, would you rather be poor now or some time in the past? I don't think there's anyone who would choose the past.
Poor is a loose word, but there are quite a few people I grew up with who do basically the same job as their parents yet can't afford as much of a house as their parents did at the same age and have less future financial security (retirement savings, pensions, whatever) as their parents did at the same age.
Their TV is bigger, but they're also much more stressed about their security...
>would you rather be poor now or some time in the past? I don't think there's anyone who would choose the past.
Sheesh, I know what you mean.
It was such a drag in the 1960's having to save every penny you could working minimum wage, and it still took a year or two before you could afford to pay cash for a new Ford Mustang or F-150.
By the 70's gasoline had skyrocketed to 50c per gallon too, so then you could only afford to drive across the country once or twice a year.
Motel 6's had already gone up to $8, that's just how bleak it was.
While those with trust funds never had to worry about these types of limitations.
A second hand or refurbished iPhone SE is probably the best deal out there. It replaces a land line, especially for lower income folks who move a little more, has built-in internet access (a gateway to accessing government services, jobs, healthcare and knowledge) and built-in navigation, making navigating confusing public transit easier. And Apple supporting hardware forever means that it won't be left out without updates after two years like most lower-priced handsets.
I’ve spent so much money on cheap or inexpensive phones the past few years. They end up breaking or they lose functionality and become unusable.
I have the new SE and knowing that it will likely be supported (and repairs, if needed, are accessible) I until the next SE comes out. I’m very excited the next SE will probably be the form factor of the 12 mini or very close to that.
It's actually interesting to look at the history of the income tax in the United States. The highest marginal income tax rate was at a crazy amount (> 70% !!!!!) during wartime in the 1910s and 1940s, corresponding with the strong-regulation Progressive era, and then New Deal policies. These were times of rapidly falling income inequality and rising standards of living, eventually leading to 1950s prosperity. Always good remembering the context in which we live in, and it can help us figure out what we can do to face our problems today.
> "But poor people have iphones now" when people can't afford food, healthcare, or any leisure time is the 2021 equivalent of "Let them eat cake".
The iPhone is a luxury product within a category of luxury products. No one needs a smart phone to be successful in life - you don't need it to educate yourself, to find jobs, to do work, to entertained, etc. It could be used for all those things, but it isn't a prerequisite or the only way. But the fact that the vast majority of adults in the US can afford the disposable income to acquire such a luxury, a device that we could scarcely envision 15 years ago, is a sign of how healthy capitalism is. But leaving America aside - consider as well that globally, extreme poverty has plummeted under capitalism (https://fee.org/articles/extreme-poverty-rates-plummet-under...).
People today have greater purchasing power, standards of living, and life expectancy than ever before, at every income level. To claim that people somehow cannot afford the basics in a country where immigrants regularly show up, live frugally, grind, save, and find a way to thrive, seems disconnected from reality. Instead of blaming the system fully, some blame must also be apportioned for those who don't show the personal responsibility required to manage their life well. That's not insulting, it's just common sense in my opinion.
> Asking the wealthy to pay a greater share to improve society is perfectly reasonable.
How is this not explicitly unfair and discriminatory?
I think people definitely need a phone. Maybe not an iPhone or even a computer, but access to email and internet is a must for applying to jobs, paying taxes or... finding out where to get Covid jabs.
It's the same way you don't need a car either, but you're going to struggle.
"But the fact that the vast majority of adults in the US can afford the disposable income to acquire such a luxury, a device that we could scarcely envision 15 years ago, is a sign of how healthy capitalism is."
I take it as a sign of the deflationary nature of technology and economies of scale.
Capitalism is a very fuzzy word. I'd say markets and the price mechanism clearly work better than barter. Poorly regulated capitalism is unhealthy.
The framing in the article is ahistorical. The post-WW2 period was a period of exceptionally _low_ inequality. If you look back to just the 1800s there were swings in inequality comparable to the present day. We're now moving back to the historical baseline.
There are some contributing factors to the shift in inequality, a major one being that labor is now oversupplied compared to the post-war period, and the competition is driving wages lower. The U.S. has much higher immigration rates now, which contributes to the oversupply of labor. The late 1800s and early 1900s had similarly high immigration and high inequality. [1]
Whether the historical baseline for inequality is the best amount of inequality is a different question though. It's clear that as redistribution flattens the income curve there is dead-weight loss as highly productive people stop wasting their time doing taxable work. It's also clear that investing in children who would otherwise be malnourished or lack education or healthcare is a net positive for society. It's not clear to me that the current level of inequality is the wrong one - we're admitting a lot of immigrants who are vastly improving their life prospects as a result, the economy is growing, and technology is amazing. Spending more money on health care would have limited benefits [2]. I don't really have a strong opinion on whether inequality should be higher or lower (it's hard to find a good-faith analysis in these terms), but the Time article uses an arbitrary timeframe and doesn't shed any light on the question.
The concept of a 'historical baseline' is nonsensical. As you extend your timeline, inequality is going to decrease because most human societies have not had the kinds of disparity we measure today. Moreover, we're not beholden to historical norms of any sort. Collective action can change things. It's happened quite a lot historically.
If you insist on a specific citation, check out Ten Thousand Years of Inequality. The editors (whose detailed reasoning I ultimately disagree with) have spent years doing papers on this subject.
I think it's worth considering the post WW2 period as possibly exceptional in the planet's history, and understanding why that may have been, and what can be done policy wise to extend the best parts of it.
It was exceptional for the US because the infrastructure wasn't bombed out and were very well poised to supply goods to a rebuilding Europe. International shipping wasn't efficient enough to outsource the jobs to countries with low wages so there was actual opportunity for the middle class to grow and get ahead.
A Farewell to Alms & Capital in the 21st Century give a lot of insight into this as well.
More importantly - the _low_ inequality was really only in the US. Ever since the beginning of agriculture, the world has grown steadily more unequal. It peaked in the Belle Epoch in France (leading up to WW1), and we've recently sky-rocketed past that level.
Yeah well the 1800s were also a time where people barely traveled 50kms outwards in their whole life and slaves existed so why on earth would we take that as a barometer for anything.
Slaves don't have income. It'd be like asking if monks in a monastery are experiencing "income inequality"—and how much? The question itself is nonsense.
Surely we can agree that zero is not equal to any number greater than zero? On that basis we can easily factor slavery into our inequality calculations.
I think the issue with inequality that bothers many people includes an extra feature, how difficult it is for someone to move between percentiles of wealth. If it were easy to join the top 10% in wealth via intelligence, grit, and hard-work, I doubt many would be bothered by even deeper inequality than the USA currently has. However, if it is both difficult to move up the wealth ladder and highly unequal, it is a recipe for social unrest.
One of the things that ruffles my feathers about this genre of made-for-mass-consumption clap-trap is this sort of proclamation:
> Other nations are suffering less from COVID-19 because they made better choices
Which other nations? As someone who regularly reads francophone european news, I can assure you it isn't any nation in Europe. OP goes on to cite minimum wage, overtime pay, state-funded healthcare/childcare/education, and more powerful unions as choices Americans could make to improve their economic standing.
But broader economic outcomes such as wealth inequality in Europe has followed a similar trajectory to that of the US over the past 40 years, and since the start of the COVID crisis, civil liberties have been decimated by the technocracy's crisis response, medical outcomes even with their much-vaunted state healthcare systems are not significantly better than in the US, and small businesses are failing and people are falling into poverty at astounding rates. The ECB prints euros in lock-step with the Fed's dollars.
My intent isn't to make an argument for or against Euro-style social security features, but merely to remind that even with those features, Europe is not presently faring better than the US. Arguably coronavirus-related economic and social outcomes (medical outcomes notwithstanding, depending on the nation/state) in Europe are even more onerous than in the US at present.
Furthermore, this whole episode could sweep far-right parties into power in Europe. It's essentially a given, for example, that Marine Le Pen will run against Macron again in 2022, and not at all certain that she will lose…
Sort by "Total Cases/1M Pop, ascending". USA is 215 out of 221.
Sort by "Total Deaths/1M Pop, ascending". USA is 213 out of 221.
Sort by "Active Cases, ascending". USA is 221 out of 221.
Sort by "Total Deaths, ascending". USA is 221 out of 221.
So, uhm, most other nations? Every time this gets discussed we hear how the USA couldn't do what other countries did because the USA is: Bigger/Smaller/Not an island/Testing too much/Not testing enough, etc etc.
Presumably the "other nations" are the tiny island nations (New Zealand, Singapore) who implemented extremely strict measures to re-open sooner.
An extremely unfair comparison, in my opinion, considering the population difference, physical location, and trade obligations of the US and other countries in the EU.
After having lived through the lockdown in Melbourne myself, I think it's pretty unfair to the people here to suggest that the reason the cases are so low is because it's just "a big empty island", and not the result of the fairly hard lockdown that the people here had to endure.
The GP didn't say it was because Australia is geographically large, it said it was because Australia is geographically isolated and population-wise comparatively “tiny”.
what does a country's population size have to do with it? if you mean density is a factor, that's surely only true at a local scale (cities with lots of people mixing every day, crowding into subways, elevators, and cramped factories), and not averaged over a vast area such as a country? Australia has cities as dense and populated as US cities, and with a few exceptions (eg SF) the American ones suffered much worse outbreaks.
One small point, medical system of the US is only vaunted for the rich. For average citizens, who are very unhealthy due to a crappy American diet, healthcare is worse than European nations for the unhealthy here.
IMO, a lot of this had to do with the federal response and cohesive messaging they provided. It wasn't perfect, but they at least took action with things like CERB payments, enforced travel quarantines, etc.
On the other hand, the US is way ahead on vaccinations (due to, I would guess, them being developed in country). It does seem like a very US outcome to solve problems with technology and private enterprise in the face of government ineptitude.
90% of the Canadian population lives within 100 miles of the US border. Most of Canada is very cold and uninhabited. So a straight up population density comparison doesn't make much sense. The meaningful measure is something like population density in inhabited areas, and that is pretty close to Euro/US density.
Comparing population densities does not seem to be very straightforward, since I'm finding contradictory information to your own. Your statcan link gives Toronto 945.4/km^2, but Wikipedia says 4334.4/km^2[0]. I'm more inclined to believe Wikipedia, since Toronto is supposed to be the 4th most populous city in North America. Wikipedia itself cites a different statcan link[1].
This would leave Toronto at #4 in your Wikipedia list if we only count the bold cities (non-bold cities are those that are part of the metropolitan area of another city). If we count by Metropolitan Area, it would be around #11 by my quick count. Otherwise it would be #74, but for comparison Boston is #51 and Chicago is #75, so I'd say it definitely registers.
> Wikipedia says 4334.4/km^2[0]. I'm more inclined to believe Wikipedia, since Toronto is supposed to be the 4th most populous city in North America. Wikipedia itself cites a different statcan link[1].
Wealth is not a zero-sum game. If I take two lines of code and put them together, I've created something of value that I might be able to sell.
Wealth is created all the time out of thin air. It might take the form of an innovative new technology, open source code, or even art. It might be because you bought raw materials and built a house, and the subsequent value of the house is greater than the costs that went into it.
Scale that up, and you can create vast amounts of wealth without ever taking it from anyone else. The local coffee shop didn't steal $5 (well, $10, but who's counting) from my wallet; I pay it willingly.
This very common idea that if one person has wealth then they must have taken it from someone else is simply not true.
There are just as many fair and honorable ways (perhaps more) to make wealth as there are the opposite.
The issue is the distribution of the wealth. Can one thousand people build the same amount as one million people? No. They can’t even build 1/1000th as much. So then why is a disproportionate amount of wealth given to people who are not the movers and shakers? Society doesn’t cease to be pump blood when leeches are peeled off.
> Can one thousand people build the same amount as one million people? No. They can’t even build 1/1000th as much.
Except that is one of the root causes for wealth/income disparity. A few thousand software developers can and did obviate maybe million+ secretaries, travel agents, book sellers, retail middlemen, map makers, camera manufacturers, advertisers etc.
The reason tech companies have such high profits per employee is because they deliver even more value per employee, far more than previous companies have ever delivered on a per employee measure at their scale. That’s the power of the infinitely scalable solutions and near zero marginal costs of software.
>A few thousand software developers can and did obviate maybe million+ secretaries, travel agents, book sellers, retail middlemen, map makers, camera manufacturers, advertisers etc.
Imagine what it would have been like if the million+ were uplifted instead by the same amount of developer effort.
Now I expect most tech creatives will never know how much more you can get done when you have an above-average secretary compared to just another average engineer.
Apple and their kind have such high profits per employee because all the outsourced workers don't count as Apple employees.
> A few thousand software developers can and did obviate maybe million+ secretaries, travel agents, book sellers, retail middlemen, map makers, camera manufacturers, advertisers etc.
Your point isn't necessarily wrong, but it's worth pointing out how that came to be. Said software developers did not appear out of thin air, they were raised and educated by society and have inherited technology unprecedented in scale and influence. And this is only a development of the last 80 years or so. This probably calls for a reframing of how we think about individual economic value, at least in a distributive sense.
> they were raised and educated by society and have inherited technology unprecedented in scale and influence.
any this opportunity was available to "everyone" in society. its just that only some chose to take it early on, and reaped the proportionate reward to having taken it on early (not knowing that it would lead to this end result). Now that it is known that tech is high pay, people now naively claim that it's unfair, and that the tech jobs should "pay" for this inequality of outcome.
i meant by "everyone" as in there's no special privileged class of people that were allowed to become techies. Of course, not everyone can afford a college education, but in general, back in 2004, right after the big crash, the openings were available, the opportunities existed then. It just looks risky back then, because tech just crashed. However, if you weren't willing to take on risk, you cannot blame that the outcome for those who take on risk gets more.
> Said software developers did not appear out of thin air, they were raised and educated by society and have inherited technology unprecedented in scale and influence. And this is only a development of the last 80 years or so
I’m not really sure how this fits with the discussion. Literally everything builds on something that came before, software isn’t particularly unique that regard. This also doesn’t change the fact that one person can provide far more value than another.
I half agree with this. It is about scaling, scaling exploitation of workers. You think Bezos actually made his money fairly? Or does it matter to anyone since the winners just pull wool over everyones eyes?
How this privileged viewpoint came to prevail is most likely from decades of brainwash. Wealth has power to keep that message strong and alive.
This keeps coming up in almost every thread because of so many blinded by acquiring capital. The Myth of the Temporarily Embarassed Millionaire. Shine on
This is almost a natural law of wealth. When you have significant capital, you can do things like loan it out with interest, leverage it into getting loans to build more capital, etc.
If one assumes that the wealthy are using their money to buy commodities and selling those commodities with the expectation of getting their initial money back plus some delta, then it becomes fairly trivial to demonstrate that the more money you start with the more money gets concentrated around you.
For example, I could leverage my current house to purchase a rental property in my city and rent it at a profit. Over time I'd pay down my loans and the value of my two homes would increase. I could then leverage two properties to purchase more or larger rental properties. My wealth would increase because I had sufficient wealth to begin with.
The article is about how the post-1975 period differs from the pre-1975 period. So it's demonstrably not a natural law. Natural laws don't change over time.
From 1960 to 1985 the top marginal tax rate crashed from 90% to 30%. And then of course there's the demise of private sector unions, the effects of computerization, etc.
Arguably, it was always a natural law, but the 1970s were an inflection point after which capital was allowed to accrue advantages at a much faster rate.
It's mostly a myth that there was a 90% marginal tax rate. It's technically true, but when the top tax rate was removed they also removed all the loopholes and deductions that were being used to reduce the effect tax rate on top earners to below 45%. All the while the proportion of tax receipts as a percentage of GDP has remained constant.
Meanwhile, the proportion of taxes paid by the top quintile earners has increased from 55% in 1980 to 70% by 2013.
In 2017 the top 1% of income earners paid 38.5% of all taxes, vs the bottom 90% who paid 29.9% of all taxes. The top 50% of taxpayers paid 97% of all taxes in 2017.
But all this ignores the main fact, which is that actual rich people make most of their money not as income, but as unrealized capital gains. High marginal rates on income taxes affects high-earning professionals. Not the private jet crowd.
> Meanwhile, the proportion of taxes paid by the top quintile earners has increased from 55% in 1980 to 70% by 2013.
Citing the amount collected from the top quintile is moving the goalposts a bit. A typical 20%er is someone like a successful dentist. Sure, they probably have a stock portfolio, but that's for funding their retirement.
It doesn't help that the statistics are always presented in misleading ways. We really need the stats to be stated in terms of tranches that exclude the higher ones (eg. top 0.01%, 0.01-0.1%, 0.1-0.5%, 0.5-1%, 1-5%, 5-10%, 10-20%, 20-40%, 40-60%, etc.). Instead, lumping the 1% in with the 1-20% just co-opts the upper-middle class into defending the interests of the 1% and above.
> But all this ignores the main fact, which is that actual rich people make most of their money not as income, but as unrealized capital gains. High marginal rates on income taxes affects high-earning professionals. Not the private jet crowd.
Of course. That's where discussion of wealth inequality (and the estate tax) takes over from income inequality.
Successful dentists are not much different than fast-food workers compared to multi-billionaires already.
Only taxing commerce can be sustained over the long term, and there need to be tariffs calibrated to insure any currency leaving the land of its fully-backed legal tender is replaced with incoming amounts of the same in a timely way.
Of course nationals need to be taking fair profits in both directions, and everything will eventually work out just fine.
I wouldn't call it a myth. High income earners both then and now have a lot of ways to avoid paying tax, so they don't pay nearly as much as the top marginal rate. It's also true that the top marginal rate used to be much higher.
> Meanwhile, the proportion of taxes paid by the top quintile earners has increased from 55% in 1980 to 70% by 2013.
Isn't this exactly what you would expect with growing income & wealth inequality, so long as your tax system maintains some aspect of progressive taxation.
I'm not claiming I know what is actually happening in the US, it's complicated and I haven't spent enough time looking at it to be confident.
However, it's true that if there is a) an increase in total income that b) is entirely captured by a small percentage of people, then naturally their share of the total income tax paid will increase and everyone else's will decrease as a fraction unless the system is regressive in some way.
"Progressive" here doesn't mean higher earners pay more in aggregate, it means (by definition) that their marginal rates are higher that people with lower income.
Even if you taxed them to the bone it wouldn't be enough so you're going to need to tax the bulk of the commerce instead of just the residuals after it falls into their relatively idle hands.
> actual rich people make most of their money not as income, but as unrealized capital gains.
Technically, they make most of their wealth as as unrealized capital gains. It doesn't become money until they realize the gains, at which point it is taxable income.
What's the average effective tax rate for high-net-worth+ individuals if unrealized capital gains are included as income? It seems like people get an increasing level of control over their taxes as their networth increases. Choosing when to exercise options means you have some control over AMT. If you invest in indices, it looks like direct indexing has a lot of tax benefits over an index fund. You can get variable and fixed rate loans against your investment accounts.
It's not a good idea for tax minimization to be the main goal of your investment strategy, but it seems like people can get access to a large portion of their investments without actually realizing capital gains.
> What's the average effective tax rate for high-net-worth+ individuals if unrealized capital gains are included as income?
That's a completely pointless question. If I own 50% of GameStop, my net worth will have gone from $650 million to $12.2 billion to $1.8 billion in like 45 days. Sure, this is an extreme example, but it happens over longer stretches of time to a ton of the richest people.
How exactly do you expect to tax that movement of those unrealized gains?
> You can get variable and fixed rate loans against your investment accounts.
That you eventually have to pay off. The money you pay it off with will be taxed.
That is just the base Federal rate. After NIIT, State, etc it can be >35%, which is actually quite high for a country where the cost basis is not inflation-adjusted. That is higher than most countries in Europe.
> From 1960 to 1985 the top marginal tax rate crashed from 90% to 30%
Nobody paid 90%. The tax rate reduction was countered with the closing of loopholes. (There are still a lot.)
Evidence for this is the nearly constant fraction of GDP collected in taxes. The other points are correct. Also, real incomes have both increased at the top end and shifted up for the population.
Don't forget things like the Panama Papers and how companies/super-rich figured out how to create thousands of shell companies to hide wealth, and that the journalist who revealed all of this was then murdered.
Marginal rate is not effective rate. In fact, when Reagan cut the top marginal rate multiple times while also changing loopholes the effective tax rate on the top increased after some of those changes [1].
The law might be the same, but the environment can change around the law. From tax rates and economic conditions to the power of labor can all shift how we respond to that natural law.
Wealth can continue to generate wealth, which we can then tax and redistribute. The natural law hasn't changed, but how we work around it has.
The natural law is there, but there was counterbalance from the government taxation and unions. That balance has been lost so the natural law is taking over.
You wouldn't say that gravity doesn't exist because someone is holding up a ball and that it suddenly appears when the person lets go of the ball. This is what happened to monetary policy in the 20th century. The government abdicated its role in the name of unfettered corporate growth and now we have billionaires.
I interpret Pfhreak's comment to mean un-checked capitalism will naturally result in wealth consolidation. The article describes how we loosened our management of this natural law and witnessed a more rapid wealth shift as a result.
Your intuition here is basically what's formalized by Piketty in "Capital in the 21st Century": that the rate of growth of capital exceeds the rate of economic growth.
What's interesting is that while intuitively this makes sense (for the reasons you gave), the implication (that the rich get richer and inequality grows) is the opposite of what was hypothized by Kuznets (https://en.wikipedia.org/wiki/Kuznets_curve); the latter hypothesis, to my limited understanding (as a non-economist), is fairly mainstream, and has influenced plenty of politics and public policy.
IMO understanding the arguments is useless without understanding how they were built, and what their caveats and assumptions are. Otherwise you end up parroting talking points without actually having thought about it. I’d rather people not hold an opinion on something than hold an unfounded one. A doc is not a good format for grounded understanding.
That would be absolutely terrifying. The economy we have now is due to experts tinkering. Allowing the masses, who can't organize their own lives, to attempt to organize the economy will lead to more deaths and misery than the current system.
Would you want a democratically elected airplane pilot with no training?
Not even sure where to start with this level of elitism, but Elon Musk is certainly an expert in batteries, automotive production, rocketry and telemetry, and financial services all at once and not just a brand.
The kind of sentiment you are expressing is directly antithetical to having any kind of real democracy.
If you've ever met the people in power, many of them are quite dumb. It's easy to listen to experts (or not) and give commands. How often do you hear that executives don't know what's happening in their companies but the people on the line know exactly what to do but were not consulted seriously?
To answer your question about airline pilots, I would probably accept (and in fact do, the FAA) a system designed by what is allegedly a democracy. Usually people don't have direct popular elections for technical positions, but design rules in consultation with people familiar with the field. If the voters were in fact other airline personnel, a direct election could be viable though I would require some qualifying criteria (e.g. people with XXXX hours of flight time).
sure, but i think the focus is on the magnitude and speed at which the wealth gap is widening. And its impact might be something we haven't encountered before
This proposition, discussed and shown by Piketty in his 2013 book, was not at all obvious before that and even today many people would argue (wrongly) that it isn't true. So if it's a natural law of wealth, it is a very recently proven one.
Marx presented this idea back in the 1860s. He phrased it a little differently and built the idea up from the idea of exchanging commodities.
In Marx's text, he discusses the history of commodity exchange, how people usually exchanged Commodities for Money which they exchanged back into other Commodities they needed. (E.g. I'll sell you my wool for coin, which I can use to buy food.) He called this CMC exchange. (Commodity-Money-Commodity).
This gave rise to people who had hoards of money, and could invert the exchange -- Money into Commodities into Money + delta Money. He called this MCM exchange (Money-Commodity-Money), and posited that it could only exist if the second M was larger than the first -- why turn your money into commodities and back into money if you weren't going to get more money as a result? So it must be that if MCM exchange exists, then it must be MC(M+∆M). Once sufficient hoards are accumulated, they will continue to accumulate.
Marx, of course, carries on with his own opinions about what to do with this and how society should be structured. He also bases his ideas not on data like Piketty, but on building up a model of a Capitalist economy from principles.
I think it's interesting to see this line of argument presented historically and compare/contrast that with the more data driven analysis we see in Piketty. (No matter how you feel about the rest of Marx's work.)
Edit: Downvotes? I feel like I'm presenting a factual response to the parent poster. I know it contains the word 'Marx', but I'm not diving into socialism/communism elements of his work, but rather the analytical dialectic of his critique of capitalism as a system.
> why turn your money into commodities and back into money if you weren't going to get more money as a result
I'm guessing this is oversimplified, but I haven't read the book. Otherwise, the simple fact is no trade in business is guaranteed, there will be plenty of such exchanges that lose money due to speculation. At the very least your buyer could pull out or go bankrupt before finalising the sale resulting in a fire sale and a loss.
Of course, by sheer probability if not talent, some people will win more than they lose and get ahead. The real danger is the plays that an excessive force of money can enable, like predatory and monopolistic practices in buying up a market (or legislators), or driving a competitor out of business. That's where money really makes money.
Marx tended to focus on roles more than persons or transactions. Buyers and sellers, capitalists and workers, etc. Any individual might play any particular role at any given time. (For instance, I personally fill the role of worker with my day job and capitalist with my 401k.)
The reason I mention that is because his thesis was that, in aggregate, the role of capitalist must expect a positive return on MCM transactions, or they wouldn't occur. Individuals may suffer losses, but as a role it just be positive.
He's less data driven than Piketty, and he builds this notion on top of the idea that there is a desire to hold wealth. Or, put another way, it is natural in an economy of commodities and money to prefer holding money over any given commodity. Eg, having a hoard of money is more useful than having a hoard of wool, as it is generally easier to convert money into a commodity you need than to convert between two commodities.
So the natural inclination is to try and increase wealth, and MCM exists commonly, so therefore MCM must be a net engine for increasing wealth. (Even if individual cases are losses.)
I'm less confident in answering your first question. It hasn't come up in my reading, but I'm not a scholar. It could be in there. (One of the things Marx often does is open windows to look at something and then move on without diving deep on them. For instance he acknowledges inflation, and moves on rather quickly.)
No problem! Again, I'm just some internet person who happened to listen to some lectures and did some reading, so my take might be a bit off. But I find this stuff fascinating. Doubly so for something like Marx who everyone has an opinion on, but I feel very few folks have actually spent much time diving into.
The return on capital is always greater than the return on labor. Piketty does a great data driven analysis on this in his book Capital in the 21st century. This phenomenon was occurring long before the US was even a glimmer.
I've never understood why the capital gains tax is lower than the labor tax. The labor tax is theoretically adding value to the economy while capital gains is basically money you made because you had money. It seems to me it should be the opposite if you want a productive economy, encourage more people to put their money to work instead of playing games in the market.
> The labor tax is theoretically adding value to the economy while capital gains is basically money you made because you had money.
Capital adds value to the economy too, thats why people will pay to rent it.
> I've never understood why the capital gains tax is lower than the labor tax.
One good reason is that if the capital gains tax is higher than the marginal profit, then that business doesn’t exist. If we taxed capital at the rate that we tax labor, there would be one or two ultra-hyper-wealthy people who employed everyone, and the rest of us would be serfs working for bezos or the government, or on public assistance.
> It seems to me it should be the opposite if you want a productive economy, encourage more people to put their money to work instead of playing games in the market.
Investing your money is putting it to work, that is precisely why it earns a return.
It's not because "you had money" simply having money results in 0 taxes. The capital gain comes when you lend your money to some other entity and they use the money to do work: produce a good, provide a service. Although there is a sect in the US government that wants to tax your money simply because you have it.
Your example is contrived. Assets don't have to go up in value. You could also end up holding the bag in a place like Detroit. You may not end up being able to rent out your second property at a profit. You may end up with a deadbeat tenant, unforeseen expenses, or simply falling rents. These decisions involve risk and they have accordingly, an associated reward. Claiming that there's a "natural law of wealth" doesn't seem as obvious as you're making it out to be.
My example is not contrived, it represents an understanding of the market over the long term. Are there bubbles? Yes. Are there dips? Yes.
You are making the inverse mistake of someone who looks at a large jackpot win in Vegas and thinks it's a good investment, when in reality the expected value of a bet is negative.
The rate of return on capital has held relatively steady at ~4% for hundreds of years. Stop thinking about individual winners and losers, and look at the broader picture. If you have sufficient capital, you can expect to return capital + n% over time, where n is approximately 4%.
No it hasn't remained "steady". You're quoting an average and claiming it is steady but there are periods where your savings would have not seen that growth and even seen negative return. Example analysis: http://archive.nytimes.com/www.nytimes.com/interactive/2011/...
I'm also not sure what you mean by "sufficient capital". You can by shares one at a time. You don't have to be wealthy to have access to growth in assets.
> You don't have to be wealthy to have access to growth in assets
You have to be wealthy to see an appreciable growth in assets. Both the absolute and percentage amounts matter. Yes, anyone can get a 3% return on their investments over time, but that doesn't really matter when you can only invest $1.
Living has a certain minimum set of fixed costs, those with sufficient capital can pay for those fixed costs through the growth of their capital and still see a net increase in wealth . Someone making $30k a year in wages will never achieve that, even if they see some growth in assets.
> You're quoting an average and claiming it is steady but there are periods where your savings would have not seen that growth and even seen negative return.
You are making a pedantic semantic argument. I acknowledged the presence of dips and bubbles. But on "average" you will see a return on capital, especially a diversified market.
That analysis only looked at the S&P 500, which is a tiny share of the economy and not at all representative of the growth of capital over time. What about housing, bonds, precious metals, commodities, short positions, international funds, etc.
Move up one level of abstraction and look at the forest, not the trees.
> You have to be wealthy to see an appreciable growth in assets. Both the absolute and percentage amounts matter. Yes, anyone can get a 3% return on their investments over time, but that doesn't really matter when you can only invest $1.
This is an excellent example of how low interest rates prevent anyone but the wealthy from making money on investments.
Ah yes, the famous cabal of 1 percenters sitting around and committing grand larceny as they raid the bank accounts of poor people. At least that's what this headline would have you believe.
The reality is much more boring. Thanks to "math," they've determined that if the ratio of incomes from 1945-1974 held steady, the bottom 90% would have "more" than they do now. Of course the bottom 90% itself is a fantasy and you can find yourself in or out of it many times in the course of a career.
But is it possible that maybe, just maybe, wealth distribution isn't a 0 sum game? And maybe being in the bottom 90% is better now than it was 40 years ago, because of, I don't know, iPhones, next-day delivery for anything you want, telehealth, instant access to the world's information, electric cars, and many other things that 1 percenters have made for us?
It's of little consolation having the price of your phone decline when the price of education, healthcare and a roof over your head have skyrocketed.
Even if that were not the case, it's abundantly clear that geometrically increasing consolidated economic power is being translated into consolidated raw political power (which is zero sum). The events of the last few months and history in general have proved that this is very, very dangerous.
We couldn't play flappy birds on a mini computer in our pockets in 1970, though, so I guess that makes all that r>g and compound interest accumulating in 0.1% pockets worthwhile.
It's interesting that the 3 things you give as an example have sky rocketed in cost not because of the 1%, but mostly due to government interference in the free market. Government backed loans have driven up the cost of education and housing. Local governments limiting housing construction have further driven up the cost in many areas. Government created monopolies like the AMA have driven up the cost of healthcare.
> Government backed loans have driven up the cost of education and housing
Yes, housing would be cheaper if 40% of the population were living on the street because they couldn't afford a mortgage. Lots more supply to go around.
Blaming the AMA for healthcare costs is a unique take. While I can't say they are completely innocent, they are absolutely not a major factor in your insurance quote.
Most healthcare expenditure goes to paying wages; doctors and nurses' wages make up a very large proportion of insurance expenditures, and their respective associations have successfully restricted supply to drive up their wages. The AMA is doing a very good job of making doctor's salaries in the USA much higher than in most of the developed world.
When the government created undischargeable-in-bankruptcy loans for 17 year olds to get them into debt for life so they would need to be pliant, obedient workers for businesses owned by the 1%, on whose behalf did you think they were doing it?
Exactly this. As a college student looking at the outside world, I'm truly seeing how fortunate I am to have a family with the means to support me through my education. Pre-scholarship, my tuition bill comes out to > $10k per year (and that's not counting things like housing, and freshmen need to live in the dorms with a dining plan... that's another $10k that doesn't include the summer or winter breaks). The total estimated cost for an on-campus student is $25,000 per year.
Looking at the value of my family's house, it's increased almost 40% in three years which seems like it's an insane amount of growth for any asset. Education and houses just seem like they're unreasonably expensive at this point and I honestly don't know how you're expected to break into this market without already owning a house or something along those lines.
> and many other things that 1 percenters have made for us?
Jesus christ, this has to be satire. The people "making" these things are not in the 1 percent. We don't have to look up to the elites in gratitude because they deigned to give us their magical gifts.
A professional trains nearly 20 years under the guidance of other dedicated professionals to develop the potential to advance technology. The can't get the capital on their own to create technology, and instead sell their labor to ownership class
They go on to develop revolutionary technology. The owner class claims the IP, massively profits, and maybe gives the professional a bonus if they're lucky before being told to get back to work
The rest of us are told to be thankful for the gracious gifts of the owner class, which we buy with undervalued labor we sold to them in the first place
Wealth is obviously not a zero sum game. And of course the comforts of even the poorest have increased over the past half century.
But don't discount out of hand the concern that the relative distribution is a problem. Money, and especially money that is capital, almost algorithmically and naturally captures more money.
The trend line then becomes one where more and more wealth is concentrated at the top, even if the total amount of wealth increases.
Wealth, at some level, is the ability to direct labor. As wealth becomes more concentrated, you have fewer people organizing the world's labor power. It becomes harder for the poorest to engage in self determination.
Let's get something out of the way, it's not the 1 percenters that make things for us, it's the engineers, the programmers, the developers, the physicists, the biologists, the chemists, the grad students and every other poor soul grinding for progress on a computer screen in exchange for basic decency.
Why is it that nearly every company that puts first the shareholders ends up pooping the bed? Because the shareholders don't know jack except what the other people in the 1% want.
>But is it possible that maybe, just maybe, wealth distribution isn't a 0 sum game? And maybe being in the bottom 90% is better now than it was 40 years ago, because of, I don't know, iPhones
Telling homeless people that they are better off than the middle-class 40 years ago because they have a smartphone is basically the 21st century equivalent of "Let them eat cake".
The problem of inequality in general needs to be framed as one of power asymmetry. There are a handful of people that have managed to garner, through their wealth, similar power to states with millions of people. The solutions to this involve either making money less able to purchase power, or taking some of this money away. I suspect the latter is more likely to happen but I'll happily support either method.
I'm not sure this is possible without breaking the entire concept of money. So long as money is a thing humans trade their time for to pay for living expenses and beyond, it can be used to bribe, coerce, etc.
You may be misinterpreting what brandonr is saying. It's about increasing transparency for influencing elections and restricting (overtly) how much influence money has in elections.
Reducing the powers of money is tough (and kind of a game of whack a mole) but that doesn't mean we shouldn't try.
Well it’s not possible to do it 100%, but I think the problem is less the illegal trade of money for power and more the legal one. Campaign finance laws (which at this point probably require an amendment to the constitution) could help a lot.
This is exactly how I take it. We thought it was Capitalism vs Communism, but what we learned is you can have Centralized Communism(Cold War Russia) and Decentralized Capitalism(Cold War USA) but it is just as much possible to have Decentralized Communism(Any examples?) and Centralized Capitalism(Current USA).
As it turns out it's the Decentralized that's the important part. You need many people making decisions for productivity to flourish. Rich and powerful making few large decisions simply loses every time.
There's not much to point to other than short lived revolutions and communes, or ongoing struggles, such as:
* Aaragon/Catalonia in the Spanish Civil War
* Ukrainian Free Territories in the Russian Civil War
* The ongoing rebellion in the Chiapas, Mexico
* Rojava
* Paris Commune
* Shinmin Prefecture in Korea
And likely some others I am struggling to remember. All of these communities were/are attacked by competing states with enough force that it's hard to get a sense of what decentralized communism would look like outside of an active conflict scenario.
In my lifetime some sort of switch has flipped, where the people advocating for more taxes no longer do so with an explicit intention to pay for something greater or something new, but simply on the assumption that the act of taxing people will inherently make them more equal. Is there a coherent philosophical basis for this train of thought? Is there any historical precedent that increased taxes is what we need to become equal?
"...people advocating for more taxes no longer do so with an explicit intention to pay for something..."
You should perhaps listen more closely. There are a wide array of programs proposed by people who are advocating for greater taxes on the wealthy. Universal healthcare, free education, a larger social safety net and investments in green energy are a few of the big line items being constantly and loudly discussed. Those programs are intended to improve the majority of people's lives. You can interpret that as "more equal" if you want.
> Those programs are intended to improve the majority of people's lives. You can interpret that as "more equal" if you want.
If tomorrow everyone was given all of those programs, but the income distribution stayed the same as it were today, would everyone go home satisfied or would they discover new things that needed providing?
It's hard to be sure 100%, but I feel like whatever the outcome, this thought experiment doesn't really yield useful information unless you're hoping for the outcome be "they don't really want healthcare, they're just faking their desire for healthcare because they want to take things away from wealthy people". I'm pretty sure the desire for healthcare isn't just a ruse.
After everyone has healthcare, will there be people who desire a more-flattened society? Possibly. There are a lot of different people in the world with a lot of different ideas. But that's a separate conversation.
The theory behind it has always been that taxes serve as a transfer of wealth. You tax the wealthy more and reduce taxes on the less wealthy, and/or spend that money on programs and projects that benefit the poor disproportionately.
Don’t confuse how politicians sell something with the mechanism. The rhetoric changed with the rise of celebrity through wealth. ‘Soak the rich’ is a sales slogan since it’s easy to punch up, and no one has any sympathy for a guy like Bezos. The same sort of rhetoric is going on right now with lines like ‘billionaires made $2t during the pandemic’, or the headline for this article. the implication is that they actively made moves that increased the amount of dollars in their bank account by literally taking money from the poor. The reality is that they continued running their businesses according to the rules of the game and the value of their business holdings is up.
In that context ‘soak the rich’ should really just be seen as a proposed rule change to the game.
I'd say the current biggest problem is that the highest earners simply do not pay much in taxes through loopholes and avoidance, not that taxes need to be increased across the board.
EDIT: the_gastropod's comment also under this parent is a great short summary of this issue. I second their recommendation of "Capital in the 21st Century"
Are you talking about on a percentage of their income or as a percentage of the total amount of taxes paid? I believe the top 10% pay essentially 90% of all non sales taxes in US.
The "loopholes" are there for a reason. They allow the government to indirectly further their policy goals without much effort e.g. tax avoidance programs for real estate investors to encourage the building of more housing, tax credits for parents to encourage people to have more children, credits for electric vehicles to encourage the development of renewables, etc.
What does that have to do with taxing the wealthy though? Do you think the $3.5 trillion spent on covid relief has any relationship whatsoever with tax revenue?
Total billionaire net-worth in the USA is $4 trillion so 1 covid relief would fully tap them out. People are horrible at reasoning about large numbers they think these people have real money compared to the government.
Politicians are cheap to bribe with campaign contributions and political adds and that money is enough to ensure the government will do a poor job of serving the people.
It would cost approximately $216 million to do full lead remediation in Flint, Michigan.
That's about 1.1% of the net worth of Jeff Bezos.
I indicate this not to imply that Jeff Bezos should be solely responsible for fixing the Flint water supply, but rather to indicate that the resources are there, the problems are there, and what we lack is the will to move resources to fix public problems (be that via taxation or charity). Even problems we know will carry a larger cost moving forward... Flint is a town with a population of nearly 100,000, and a high-lead environment can basically guarantee higher costs in education, health problem remediation, and possibly crime.
It also points out how little money Bezos really has compared to the cost of running the country. Assuming he could get the current market price for all his Amazon shares (impossible) he could fix 100 decently sized problems in the country and be completely broke after. There are way more than 100 decently sized problem.
Equality is a myth. There are good and shitty people across all races, genders, sexualities, etc. What we need to be focused on is equality of opportunity. Taxes are just not enough. We need far more actual health and education resources allocated to those systemically under-represented in social power. That needs to be represented in a transparent manner to all citizens. Then it's a matter of letting the chips fall where they may.
Yeah somewhat sloppy. Honestly that was mostly flamebait from me. Wondered if such a statement could provoke a conversation on those issues. Beliefs I hold but always trying to challenge them.
I think it's just a corrolary of Congress's extreme slowdown in passing bills. When new programs are always part of a massive omnibus touching a thousand things, it becomes pretty hard to draw links between specific programs and specific tax increases.
Well, historically when people were most equal in the US the taxes were very high for the upper class, something like 90%. Look at post world war taxes.
Highly recommend reading Pikkety's "Capital in the 21st Century". The gist is this:
- Historically, capital grows faster than the economy at large (generally around 5% annually)
- Steep marginal tax rates help disincentivize high pay (e.g., if the top marginal rate was 90% like it was during the Eisenhower administration, a corporation would see much more of its money go to employees if it gave its lower income workers raises vs giving its exec team bonuses. The purpose of raising taxes on the über-rich isn't necessarily to generate revenue, it's to set up incentives to narrow income disparity, by forcing corporations to distribute money efficiently.
- High top marginal income taxes coupled with a steeply progressive wealth tax would also disincentivize hoarding of capital, and would further "squeeze" the wealth distribution to less problematic levels.
Another key takeaway I think is that we're just returning to the norm. The middle to late 20th century was an outlier thanks to the World Wars and all the destruction in Europe that happened because of them.
The top 1% changes a lot. Most people don't stay in the top 1% for many years in a row. Many people below the 90th percentile benefit from the growth of the top levels when they have their brief time in the top 1%.
1% is a colloquial way of saying "those who own capital for a living, instead of working for a living". The high income of athletes and highly trained professionals has little to do with our situation. However, most capital and expenditure is controlled by a small group of people that have asymmetric power in employment agreements and political process, and that is concerning
According to BLS, median physician salary doesn't quite make your list, at 208k. Median lawyer is more like 120k. And you are assuming there are two such wage earners per family here, which is probably the minority case. I know a few two doctor couples, by I know far more where the other career either doesn't exist or is much less lucrative.
Any way you cut it, top 1% of income, let alone wealth, doesn't look anything like a typical job and it doesn't do anyone (other than the very wealthy) favors to pretend otherwise.
I'm not arguing all doctors and lawyers are in the top 1%, just a significant percentage of them. Your average specialist salary will get you very close to that threshold and being a specialist is not exactly a "capital owner who doesn't have to work".
To say that all top 1% are "capital owners who don't need to work" isn't accurate. There are plenty of wage earners in the top 1%.
The whole point of medians is that half of them are below that. So half of physicians don’t get there even if they double up (2 physician incomes per family)
I’m certainly not arguing that all of the 1% are living off capital only, but it’s worth noting that the people in there that primarily do it off a wage are unusual even amongst high wage earners.
Absolutely the top 0.01% is different than the top 1%. But that doesn’t make the top 1% just folks.
There you go, someone did the analysis. For top 1%, salary makes up the same fraction of income as capital gains.
” This fraction declines and for the top 1 percent (those making $783,000 or more), their income is about equally split between capital and labor income.”
I’d bet if you looked at those in the top 1% but under $1M range the vast majority of income is salary.
I'm having trouble parsing what you wrote, but I assume you mean that the paper specifically looked at top 1% as defined by earnings or net worth?
My point is that while we frequently use the 1% as a reference for discussions on inequality, the driving force of wealth accumulation isn't that some people make 350k+, and people understandably get caught up in those semantics.
Most people are unlikely to reach top 1% for income in any one year of their lifetime.
The top 1% for wealth is even a much higher bar to reach: you need to hold over $10 million. People ain't moving in and out of that bracket very often.
This is my understanding of wealth. I'm not sure where the original commenter you replied to got that notion. If anything it is known that wealth is squandered over generations.
As a Sheikh once said 'My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Lamborghini, his son will drive a Lamborghini, but his son will ride a camel'.
In Venezuela the rich were never destroyed, I'd argue that Chavez and his supporters rose into a new class of elites. They control the oil company, drug smuggling, etc. I'd argue that wealth as a zero sum game is a part of the premise - there is the whole pie (economy) and then there are slices (who reaps the benefits).
By growing the size of the pie you grow the economy, but then the task becomes dividing the pie reasonably to ensure stability and reduce societal problems. In Venezuela, the economy is shafted for numerous reasons - huge concentration of the whole pie into a small elite does no good for the rest of the country, and was worsened by sanctions punishing these actions.
But if there's an alternative tax/regulation structure that can make distribution more equitable without affecting production too much, then the game can be zero sum, or close to zero sum.
We don't have to choose between America and Venezuela. That's a false dichotomy.
I did not intend to draw any comparisons. My point was that the narrative about "Taking" wealth is false, and that it has been used for evil political purposes.
Some wealth is not zero-sum. But a lot of wealth is resource based which is by definition zero-sum.
But that aside: the top 1% got their by exploiting the surplus value of the 99% regardless of whether wealth was being created or moved, it definitely wasn’t that 1% creating or moving it.
I’m talking about workers. Machines even if they were used are also managed by workers.
The actual value generation occurred there. Not at the capital allocation point.
Church of capitalism might have convinced to otherwise. But if I pay you to carry 10kgs up a mountain I can’t then say: “I carried 10kg up a mountain” ...
> I’m talking about workers. Machines even if they were used are also managed by workers.
There are workers who operate the machines and there are workers who makes sure the factory exists for other people to work at.
> The actual value generation occurred there. Not at the capital allocation point.
Value is generated when a capitalist arranges capital so that he can hire people.
> But if I pay you to carry 10kgs up a mountain I can’t then say: “I carried 10kg up a mountain” ...
If you pay me and my worker’s comp insurance then you can say “we carried 10kg up the mountain” because I wouldn’t have done it for free or without insurance.
At the fundamental level I don’t agree with this position.
A simple measure: if you remove all the capital value CAN still be generated. If you remove all the workers value CANNOT be generated any longer.
(Regardless of incentive schemes)
> A simple measure: if you remove all the capital value CAN still be generated. If you remove all the workers value CANNOT be generated any longer. (Regardless of incentive schemes)
I’m aware that if you remove all the workers, value cannot be generated anymore. This includes the worker whose work is allocating capital. Hence all workers are entitled to the pay that they can negotiate with other market participants, including the capitalist who negotiates a rent (or other arrangement) for his capital.
However the level of productivity of workers without any sort of tools is very likely to be below survival.
Are you holding the view that productive society can’t exist without allocation of capital? Cause the 1000s of years of evidence to the contrary disagrees with you.
Value generation doesn’t require capital, or capitalist. Someone doesn’t need to OWN the results of other people’s work. Crazy I know.
> Are you holding the view that productive society can’t exist without allocation of capital? Cause the 1000s of years of evidence to the contrary disagrees with you.
Why do you believe that capital was not allocated for 1000s of years? This seems absurd, and I’m not sure how to charitably interpret this. Do you think that humans were unthinking automatons until recently? When the Egyptians built the pyramids, that was capital allocation.
> Value generation doesn’t require capital, or capitalist.
This is generally speaking, false. Value generation does indeed require capital allocation. Otherwise there would be no tools or raw materials with which to generate value.
> Someone doesn’t need to OWN the results of other people’s work.
Ownership is a social construct that determines who is entitled to use of a thing. Without that social arrangement, then people will just fight over stuff. This is why animals evolved territoriality.
> Crazy I know.
Then join us over here on the side of sanity where we do understand how ownership works.
> No capital, no ownership (no words to even express the concept).
My understanding is that the Australian government is continuing to expropriate their land (capital). So it seems to be a basic fact that they did own it before, and that is no longer the case.
I don’t understand what you mean. Did Aborigines own the land in what is now called “Australia” before the colonialists invaded and appropriated the territory?
No. They didn’t own the land. They shared the land (it’s really interesting history). Ownership was a concept introduced in the 1700s. The Native title reference you made occurred in the 1980s as a defence not because they wanted ownership, but because they were being denied access to their spiritual home. Also capital has become important to survival now... which wasn’t the case prior.
Like I said, your position ignores a lot of history. Tools are not capital, as they pre-existed the concept of capital/ownership.
This isn’t like a scientific concept that was discovered. This is a human made dichotomy, there are a myriad of other ways to view the resources and how we consume/share/allocate things.
Yes you can put everything in terms of capital (which is what you’re attempting) but there is nothing “more valid” about your concept than any other competing concept. These aren’t laws of physics.
> No. They didn’t own the land. They shared the land (it’s really interesting history).
Thats a distinction without a difference. If you say it was wrong for the settlers to take the land, I ask you why? Either the Aborigines had the right to determine its disposition, or they did not. The right to determine its disposition is ownership rights. Therefore you’re not able to criticize the expropriation of the Aborigines without acknowledging that they held property rights in the land.
> Ownership was a concept introduced in the 1700s.
This is not true, Aborigines have (and had) ownership. When the Europeans got here, the Aborigines had things they owned and territories they excluded other Aborigines from.
> Tools are not capital, as they pre-existed the concept of capital/ownership.
This is nonsense, the concept of capital is the same as the concept of a tool. Means of production.
> This isn’t like a scientific concept that was discovered. This is a human made dichotomy,
Thats correct, ownership is a social construct. Its a social construct that has existed for thousands of years [0] and is not something that you can change unilaterally on the basis of some dogma you prefer.
> there are a myriad of other ways to view the resources and how we consume/share/allocate things.
Yes and you are well within your rights to propose any of those ways, and then other people can choose whether to adopt those ways or not. However taking a different way and forcing it on people is not the way to go, as it amounts to you claiming the right to dispose of other people’s property. Furthermore just because you can posit a concept does not make that concept logical, sensical, or coherent; and you should be prepared to justify your proposition.
> Yes you can put everything in terms of capital (which is what you’re attempting) but there is nothing “more valid” about your concept than any other competing concept. These aren’t laws of physics.
The validity is the correspondence between concept and real world behavior. Tools are capital because they are literally capital according to the basic definition of the word and we have no reason to say otherwise.
Okay, so to rewind the discussion as I see you can't be convinced away from Capital as the only way to view this. I'll reframe in terms of capital to point out the problem with how you describe "Efficient Capital Allocation".
Capitalist A hires Worker X to generate some value (P) for them and they pay X: W (wage) - M (margin) (the difference being the surplus value SV). (So W+M = P, and P - W = SV) --
(Edit: Sorry to make that so confusing I could have done that better)
That is how capitalism works. I don't think you'd disagree.
Now A takes SV and hires worker Y and repeats the process and generates another lot of SV.
Why does A have rights to SV at all? The thing you are referring to as "Capital" is really just the "Right to collect others SV" -- where does that right come from?
> That is how capitalism works. I don't think you'd disagree.
I don’t disagree with the formula as presented.
> Why does A have rights to SV at all?
It is the wage he earned for arranging the components (factory, raw materials, worker who has agreed to work, salesman, etc.) in a way that generated SV. Many capitalists are competing to do this, and some of them are better at generating SV than others. Those capitalists make more money, and they invest in more businesses that generate SV. Some capitalists spend all their investment arranging to produce SV and they don’t make any, they lose money and lose their investment; however the worker still gets paid. The worker trades his labor for a guaranteed wage and the capitalist takes the risk of loss along with the possibility of profit.
Thats the long story, the short version is that he has a right to it because he has a right to the payment he received from the customer. It was a voluntary exchange.
> The thing you are referring to as "Capital" is really just the "Right to collect others SV" -- where does that right come from?
I disagree with this framing because “others’ SV” implies that the SV belongs to someone else. Thats something you should support if you believe it is so.
You frame “capital” as “ Right to collect others SV" but the SV came because the laborer was able to use tools that made him more productive. The only reason the capitalist got some of the SV is that he chose to buy a tool and then agreed to let a worker use the tool. This is a valuable activity and thats why it earns a reward.
I don't get this obsession with the movement or whatever that gets behind these articles.
6% of the worlds population of (Aus, NZ, Canada, UK, US) owns over 50% of its wealth. The argument is always about why a fraction of that 6% that takes money from whats remaining of that 6%.
The actual problem is not really anywhere near the fractions of that 6% that grabs headlines. I would also look at anyone who is in that 6% complain about wealth inequality with a confused look on my face. It is such a divisive topic that can get anyone riled up and it completely misses reality.
Zero-sum thinking perceives situations as zero-sum games, where one person's gain would be another's loss. The term is derived from game theory. However, unlike the game theory concept, zero-sum thinking refers to a psychological construct—a person's subjective interpretation of a situation. Zero-sum thinking is captured by the saying "your gain is my loss" (or conversely, "your loss is my gain"). Rozycka-Tran et al. (2015) defined zero-sum thinking as:
> A general belief system about the antagonistic nature of social relations, shared by people in a society or culture and based on the implicit assumption that a finite amount of goods exists in the world, in which one person's winning makes others the losers, and vice versa ... a relatively permanent and general conviction that social relations are like a zero-sum game. People who share this conviction believe that success, especially economic success, is possible only at the expense of other people's failures.
Zero-sum bias is a cognitive bias towards zero-sum thinking; it is people's tendency to intuitively judge that a situation is zero-sum, even when this is not the case. This bias promotes zero-sum fallacies, false beliefs that situations are zero-sum. Such fallacies can cause other false judgements and poor decisions. In economics, "zero-sum fallacy" generally refers to the fixed-pie fallacy.
So what if it's not a zero-sum game? You're missing the point. Most people don't care if billionaires make more money. However the REAL problem is the fact that the bottom 90% are struggling to fulfill their basic needs, with prices of rent and water[1] skyrocketing.
No doubt the rich have been getting richer, at the expense of the rest of society, and this is getting worse as they accrue ever more power to control the government decisions that really count.
But you can't really calculate this transfer of wealth in the way they do it in this article. You can't simply change one parameter and pretend that the only thing that would have happened is that wages would be radically higher, for example.
Radically higher wages would have numerous effects. Many companies wouldn't have been able to remain profitable. Other would have been more profitable because they would have more customers. It's impossible to say exactly what the net effect would be.
Inequality seems to be a completely pointless buzzword to me. The only thing that matters is if there are more or less poor people, and how poor are those people compared to similar percentiles in the past.
It shouldn't matter how rich the richest people on earth are. I really love seeing people on the Internet try to convince themselves that because Bezos or Musk are worth $100B, they must be stealing it from poor people.
>The only thing that matters is if there are more or less poor people, and how poor are those people compared to similar percentiles in the past.
People who are beating the drum about inequality are arguing this; isn't this what the elephant chart shows? For the American middle and working class they are as poor, if not poorer than their contemporaries in the 60s.
The plain argument is that productivity growth has exploded since the 70s, but wage growth has stagnated. People are producing more but being paid less; that might not be outright theft but I think people are beginning to understand that something isn't right.
Poverty is not the only metric we should care about when it comes to inequality. For instance there's also financial resilience, what percentage of people will be strongly affected if they suffer an adverse event i.e. a surprise medical bill or an appliance breaking. Another one is the distribution of wealth between people that spend most of their income vs income that is held in investment accounts or savings. Having sufficient spending is essential to a healthy economy.
A third, though this is much more an ideological standpoint and I don't expect everyone to agree with it, is the marginal value of money. If an increase in income has a greater marginal effect on the health/wellbeing/happiness of people who have less of it, isn't it better to prioritize growing their incomes rather than people who already have their entire hierarchy of needs met?
If Bezos continues paying people at minimum wage, hires union busting lawyers, and hires more lawyers to actively lobby to keep minimum wage low for 20+ years while he makes more money. Is he stealing from poor people or is that just people on the Internet trying to convince themselves he is stealing from poor people?
Oh good, a few years will rebalance everything. Honestly the point I was making was that the wealthy will continue to pursue ways to maintain a larger and larger wealth gap as a matter of self-interest.
If significantly raising the pay of Amazon's low-paid workers would negatively impact it's value then part of Bezo's wealth comes from keeping Amazon's cost of labor low.
Significantly raising the pay of Amazon workers would hurt Bezos because it translates to less reinvestment to the company. This would also hurt the million new employees that Amazon hired last year as well as the consumers who increasingly relied on Amazon for goods during quarantine.
I think this would be a valid argument if significant money wouldn't also come with significant power in the modern day and age. As soon as there is significant wealth inequality, there is also a significant power inequality, with a small number of people determining the fate of the rest of the world. Surely this isn't good?
Certainly not. We're semi-returning to fiefdom where the wealthy make the decisions for the masses, who they also happen to employ and market their goods to.
Sure, some good things can come of this, look at what Bill Gates has done for vaccines in the past decade or so, which is now making an actual difference when it comes to covid vaccination development and deployment.
You also have questionable things though, look at the Nevada bill would allow tech companies to create governments. We've seen company towns before, it generlaly didn't work out very well for the masses... I mean, look at the Battle of Blair Mountain where mining interests went as far as to hire private planes and drop bombs on miners in the United States in retalliatin to a labor uprising https://www.wikiwand.com/en/Battle_of_Blair_Mountain
I love what extreme wealth can do for a given cause, but do I really want a handful of individuals making the decisions? Ehhhh probably not.
Gates has still not done the full 1 percent of what he would have been capable of if he was really dedicated and started philanthropy as soon as it was within reach.
And if he could have held Microsoft to making money through engineering more so than anti-recycling it would have been massively better for the environment rather than relatively destructive too.
> The only thing that matters is if there are more or less poor people
Up to a point I definitely agree with this, but the issue with some people being billionaires is not that they can drive around in Cadillacs made of gold, it's that they can and do control government policies, and use that power to the detriment of common people.
> Adjusted for inflation using the CPI, the numbers are even worse: half of all full-time workers (those at or below the median income of $50,000 a year) now earn less than half what they would have had incomes across the distribution continued to keep pace with economic growth.
Another aspect is the power that comes with money. People aren’t focusing on inequality in a pure “that’s unfair” view, there are also issues on how these ultra-rich people are completely outside of the reach of most rules and can sway whole economies basically at will.
Bezos’ fortune is equivalent to whole PIBs, that’s a lot of power concentrated in a single man.
> now earn less than half what they would have had incomes across the distribution continued to keep pace with economic growth.
but did those workers' productivity grew in line with the same economic growth? If said workers were _still_ doing the same jobs as they did before, and had the same output, does it make sense that their wage growth should keep pace with the economic growth?
Therein lies the rub - The United States seems happy that Bezos, spending capital on whatever he likes, is a better resource allocator than the government itself.
But isn't wealth to a large degree relative? Like, if I'm richer than I value my time higher, meaning it's more expensive to buy my time (human services). Same with other resources such as land, gold or bitcoin. There's only so much of it thus the value rises.
Of course the world can become more productive and thus make everyone (in average) more "wealthy", but only for certain things.
Yes it is, but a few hundred billionaires with mansions and yachts don't really matter in the context of the broader economy.
It's the upper middle class yuppies with substantial amounts of discretionary income driving up the prices on things that makes people poorer in the relative sense. There simply aren't enough billionaires to move the needle on the goods and services people living paycheck to paycheck spend on.
We didn't have a toilet paper shortage because Warren Buffet stocked up. The used car market isn't all jacked because of Bill Gate's insatiable desire for compact pickup trucks.
The gulf between the "I can afford to care about what school district a house is in" class and everyone below them is the important one.
>Yes it is, but a few hundred billionares don't really matter in the context of the broader economy.
Billionaires buying up "stores of wealth" housing in the city I live in has driven up the price of property inordinately and almost priced me out. What you are saying here is not "they don't matter" but "I don't matter".
Then they tell people who grew up in these cities to just leave if they can't afford it.
Political power is also zero sum and they're buying up that too. This is the most terrifying part. I don't particularly want my country to become like Ukraine with two sets of oligarchs battling it out with their propaganda arms. That is what is happening.
They are not buying up toilet paper but then again toilet paper shortages only happened for about a week, didnt it?
> Billionaires buying up "stores of wealth" housing in the city I live in has driven up the price of property inordinately and almost priced me out. What you are saying here is not "they don't matter" but "I don't matter".
Are you sure they are billionaires and not just millionaires? There are millions of people in USA with millions of wealth, they are what matters, and they can each buy up a large chunk of real estate in mid cost neighbourhoods.
It's a ripple effect. Billionaires end up pricing out hundred-millionaires, who price out millionaires and so on.
All of the above also buy up rental property. And wealthy foreign criminals andtax evaders get in on the act by buying up property sight unseen as a foreign bolthole.
This is how we end up with cleaners and baristas having to share a room and commute 1 hour each wayway and property prices that are, like, 17x the average wage.
It's weird how so many people are apparently in denial about this.
The USA has 630 billionaires and the world has 2,825. I think you are vastly overestimating the impact they have on any housing market. The poster above is 100% correct it is the millionaires that inflates prices of normal goods. There simply isn't enough people at the top end to matter.
I don't mind that at all. (Well OK I wish that rich people today would have more taste, and build Sistine Chapels instead of Mar-a-lagos) The problem is that when some people control more assets than entire countries, they will end up controlling government policies.
> Inequality seems to be a completely pointless buzzword to me.
It seems pointless right up to the moment that those on the losing side of the equation start baying for blood. High inequality is often correlated with violent revolution[1].
You are absolutely right! Everyone, from the most hardcore Marxist-Leninist leftists, to "don't tread on me"-style libertarians, would agree there is absolutely no difference how rich rich people are if there is less poverty.
This is precisely the reason why Dengist reforms happened in China -- to foster getting a billion people out of poverty by market reforms that yes, would make a few hundred billionaires.
The thing is, America is getting poorer. And as poor America gets poorer, rich America gets richer -- and, coincidentally, everywhere in the world, rising inequality means higher societal instability, less cohesion, less happiness and, absolutely, more poverty for poor people.
So the question we need to ask ourselves -- is it a coincidence that rich people getting richer and poor people getting poorer go hand in hand? Or is it a law of nature? I'm not sure either way. But you shouldn't so quickly dismiss people that actually do think these are correlated.
The poor in America are getting poorer. The poor in much of the world are getting richer. This seems to be the consequence of globalization. So, no, it's not a law of nature that rich people getting richer and poor people getting poorer go together.
"It shouldn't matter how rich the richest people on earth are."
It does. Bezos and Musk can influence Policy. They can influence for their own ends. Also, it depends on HOW they make their money too. Do they create things? or do they buy up everything such as Real Estate and then jack up the price. There's different kinds of "Capitalism". Rent-seeking is the worst kind. Producing goods that people can use is much better.
Why are most people using Windows computers? Is it because it was so much better than other operating systems?
Did Bill Gates make his $Billions because his operating system was so good? or did he use other "techniques?
Do Bezos and Musk have significant investments outside of Amazon/Muskinc?
If Amazon suddenly was nationalised with no compensation for shareholders, what would Bezos' assets be? I'm sure he wouldn't be destitute, but it's not like someone who's become wealthy by shuffling money around (like wall street billionaires).
The fact that "proles" even exists in the modern vocabulary should indicate something. Bin the population into wealth centiles and observe the curves. The Gini coefficient is not a magic arbiter of inequality. See the Great Gatsby curve for a better example: https://en.wikipedia.org/wiki/Social_mobility#Housing
People read this article and love to bitch, but what is the solution?
Flat tax? Raise income taxes ? Inheritance tax?
The fact of the matter is poverty is really what is sad an unacceptable. People you should access to free health care and their basic needs met if they cant meet them, but I do not see what is fundamentally wrong with Bill Gates earning 100000X more than someone that is making a good living wage, with healthcare, and a 401K in SV.
If anyone is interested, this book has some interesting ideas on how to tackle the current disaster:
What is fundamentally wrong with Bill Gates earning and having that much more than others is that he has, in reality, proportionally more power. That isn't democracy in the end.
> in reality, proportionally more power. That isn't democracy in the end.
someone who is a very well versed orator and public speaker, can also have a disporportionate power, by convicing people of his point of view.
But in a democracy, everyone still only have one vote, and bill gates' vote is just as valid as yours. Compared that to the old days, where if you weren't born nobility, you do not get a say in affairs that affects you.
I think people here commenting or lamenting, does not appreciate what the _actual_ natural state of things are, and how much worse it could be.
My unpopular opinion is that as long as everyone has a universal basic quality of life and isn't living paycheck to paycheck, then wealth inequality is not bad. What's bad right now is that we have some people who wouldn't bother picking up Benjamins and other people who are scrounging the streets for pennies and leftovers. That sort of inequality is baffling. At the same time, there are some folks who could be given a winning lottery ticket and be homeless the next month.
I think of UBI and wonder about all of the people who do not know how to spend their money properly, and if they'll just end up homeless anyway. Maybe UBI is not the answer, but UBS -- universal basic services. UBI is the wrong metric. The best metric is how many people are living in unfathomable poverty. I bet that UBI will not be able to solve homelessness in and of itself.
How is this different from any random conspiracy theory? The term "counterfactual" is used instead of "I made a strawman?"
Edit: the reliance on "taxable income" instead of gross is interesting. Wouldn't a progressive tax policy look similar to the paper's stats since more income would be taxable for folks with lower income?
> the reliance on "taxable income" instead of gross is interesting
Taxable income is gross income when you're pulling a wage. Even in a progressive tax system where, for example, your first $10,000 untaxed, it's still taxable income because even if you make $12,000 then the full amount is used to determine your tax bill.
> Wouldn't a progressive tax policy look similar to the paper's stats since more income would be taxable for folks with lower income?
I'm not even sure what you're trying to say here. Be specific.
I think the usage of taxable income _might_ skew the numbers in a way that looks more income inequitable than in the past but reflects better accounting of income tax-wise. An example is the alternative minimum tax which makes more non-wage income such as options to purchase stock below market value count as taxable income.
I lost my place in the PDF but it looks like they calculated based on wages etc. and not a specific tax form line item. The source data is "Integrated Public Use Microdata Series, Current Population Survey"
A progressive tax policy might count more and additional income sources for high wage earners and reduce taxable income for low wage earners. The authors are more sophisticated than that though.
This is a huge collection of charted data which shows that there may indeed be something going on that is a little harder to explain away than the average conspiracy theory.
The study of how wealth accumulates to capital holders has been reinvigorated by Thomas Piketty's "Capital in the Twenty-First Century".
What exactly have "the rich" done to "take from the bottom"?
Let's say "the rich" would have done nothing.
Would Ford's Factories in Detroit still exist, churning out the same cars they built in the 60s, only employing more people doing so?
I don't think so. To keep "the bottom" employed at the same level as in the past, somebody had to create new industries and businesses. Why is it the responsibility of the 1% to somehow magically do that?
This sort of keeps inflation in check. What you really want is to break above the 50%. The extreme case of it being evenly distributed is likely hyper inflation.
Indeed. FED money printing works by keeping the money in the top 1%. By design the rich get richer and the poor get poorer. It is the only way for the system to continue to function.
Eventually something not-so-pretty is going to happen and it's going to happen quickly. Just look at what and how fast things happened around George Floyd. The anger and mistrust just continues to grow.
Usury, which is to say lending at interest, will inevitably in aggregate lead to a tiny minority owning virtually everything. This is obvious to anyone who has basic high school math and understands that interest compounds geometrically and wages grow linearly at best.
Labor share of GDP went from 64% in 1950 to 58% today. That means wages grew slightly slower than GDP per capita, that’s certainly not enough to mean wages grew sub-exponentially.
For wages to grow linearly, labor share of GDP would have to fall exponentially towards zero.
not really. the key mistake here is treating gdp is a proxy for wages when there is no direct connection between the two. in a pathological case, you could have a $1T GDP and have zero wages paid. the question of whether mean or median figures are more appropriate when talking about wages (what I assume you are alluding to with your statistics quip) is a side issue. no amount of statistics knowledge will help someone who insists on comparing apples to oranges.
I have strong doubts given the amount of churn among both the ultra rich and our biggest companies. No one seems to stay in the top 10 for more than a few decades.
Lending at interest only leads to unlimited aggregation if the risk of lending is zero. Zero interest rate policy and government backed securities is indeed as close to zero risk as possible in the real world.
it may be true, but it's not obvious without making some unstated assumptions. inflation-adjusted returns on loans are not necessarily positive (though they usually are). interest compounds geometrically by definition, but subexponential wage growth is an observation that may depend on how you calculate inflation.
I've read some non-mainstream theories that economies based on cash accounts and equity-only investments are possible. Some would argue that equity-only investment arrangements are better for society, as they align interests between capital and production in a way that recourse interest lending cannot.
You can already see some fintech startups attempting equity-based home "loans", in which the "lender"'s lien is on a percentage of the future sale value of the home, not a fixed dollar amount. It will be interesting to see how this develops.
I'm not sure how financing on consumer debt like credit cards and non-commercial vehicles would work, though. Perhaps discouraging consumer profligacy would be a feature, however, not necessarily a bug.
In real reality, Danish banks are charging 0% interest for mortgages and making their money off of closing fees[1]. Also the natural rate of interest is zero[2].
Just because you've been raised from birth to believe usury is necessary for the payment system (not the economy!) to function doesn't make it so.
Any story about income equality that neglects the distribution of income and wealth within the top 1%, isn't providing the whole picture. If you segment that group by ~.1%, you'll see a graph that reveals more about the fundamentals of the problem.
I'm definitely not 1%, and sympathize with/understand somewhat some of these claims. Bail-outs and unchecked government spending or borrowing from future generations worry me. However I'm also pretty aggressive at investing. I feel like in general my retirement and taxable investing has benefitted me financially, though I'm solidly middle class. I feel (with data to back me up) like I'm upwardly mobile, though still not "financially independent". I have had limited success in "side projects" and feel like it's been pretty easy to start a side business.
In general, my attitude has been "yes, we should work to better help those in poverty move up, but I don't begrudge the Musks, Gates and Bezos of the world as long as I am free to start my own businesses and cheaply invest in index funds to share in the profit." In other words, I am not rich, but see a path available to me and don't see the barriers as being significant. The main barriers to me personally are not billionares, but myself and my goals.
I understand those below the poverty line may not have the luxury of opening a IRA, stock account, etc. or immediately starting their own online business. Certain people may feel additional barriers based on culture, education, etc. and those situations should be addressed. But for the majority of middle-class Americans, isn't greater access to markets and small/online business creation a big factor missing from this conversation? At no time in history has it been easier or cheaper for an "average joe" to start or invest in a business. For that matter, while getting a degree is expensive, self-education has never been easier.
I guess what I'm curious from the HN crowd: Make this article relevant to a middle-class person on track to retire in their 60s, who tinkers on weekends with a few startup ideas, and generally thinks their kids will be better off if they continue to have the same access to education, business and investing. Why should that person be personally concerned about income inequality? I'm genuinely asking here. (Again, assume some level of care for poor/underprivileged- we can agree some baseline should be assisted more.)
Your freedom is pretty narrow in scope though. Amazon has so much market power, and regulators are so weakened that instead of the government setting the boundaries, billionaires and PE are with financial weapons. Yeah, you can go pop a Shopify store open whenever you want, but if you want to succeed you are going to see a lot of Bezos-built barriers to climb.
Further, do we have "greater access to markets" and is that desirable, when those markets are largely selling the same things, and what variety exists usually also comes with questionable reliability/quality? How does that greater market access affect the ability of average Americans to start and successfully operate a small business when products are so easily copied and drop shipped from Asia?
The best chance at a reliable retirement and an equal or better life for your kids goes through a stable, broadly wealthy country. Inequality and corruption have toppled more ancient regimes than the US Republic, and all of your money exists in the form of "the full faith and credit" of the Republic. Your interests are aligned with the article.
Lots of ways. Directly, such as - https://www.wsj.com/articles/amazon-scooped-up-data-from-its.... It's a marketplace for laundering counterfeit and knockoff goods, harming the interests of legitimate businesses. Also indirectly by creating market pressures around logistics, pricing, SEO, and paid advertising that make it very difficult for a small operator to succeed against. A small business can struggle against a vertically integrated giant like Amazon, but only a very small portion will succeed to any degree.
Moreover, it's incredibly frustrating, as a merchant, dealing with an unregulated private bureaucracy like Amazon's. I know plenty of merchants who have had their inventory mixed with counterfeit competitors, received arbitrary account bans (including having funds frozen), and had to spend large amount of cash to comply with new policies that they invent with little warning.
None of those are barriers. If you want to live on the amazon platform, you end up being a serf on their platform. That's a given.
If you want to start a small business to compete with amazon, then of course their logistics, pricing and SEO is better than you. That's like saying that you want to start a garage car manufacturing plant, but you are out-competed by automanufacturer's investment in robotization and automation, and streamlined inventory management.
That's not a 'barrier' per se - it's the point of amazon. As a small operator, if you do not have a value proposition, you don't have the right to exist.
So are the barriers to entry obvious or nonexistent? Because you described both. Not only are they barriers, but vertically integrated monopolies have been illegal for a century. If erecting economic moats is the entire point of Amazon like you said, then it’s obvious they need to be broken up.
You really don’t think small, independent merchants are affected by Amazon’s 2 day delivery or taking back any return? That’s naive.
>The main barriers to me personally are not billionares, but myself and my goals.
I believe this feeling is misguided and here is why. You would be richer today if there was more equality. But instead you are held back by the same forces that those at the bottom 50% are.
Even the rich managerial and technocratic class that you and I are part of (upper middle class) are poorer than we would be if it was more equal.
So in other words, you have been screwed too by the system. But because you don't feel screwed (despite evidence that you have been) is why it continues to keep going.
The lack of insulin, food, and housing is the problem. That really has nothing to do with how much money somebody else has. You could give everybody fee insulin, food and housing and not take anything away from the 1%. We the 99% simply choose not to.
I'm more or less in the same situation as you, although relatively early in my career. I would urge you to try and look a little broader at what situations people even just below "middle class" are facing nowadays.
From a personal finance perspective, I'm aligned with you. I shovel my money into my 401k and index funds, and still have plenty left over to survive and buy things I want and need. By doing so, I can participate just a tiny bit on the finance side of capital and take in a bit of the upside.
>I understand those below the poverty line may not have the luxury of opening a IRA, stock account, etc. or immediately starting their own online business.
It's not just people below the poverty line. The vast majority of Americans, especially younger ones, are not making enough to substantially invest or feel secure financially. If someone does start their own business (an incredibly difficult venture), it will be at their own risk, with much to lose. Dabbling in side projects is a luxury, and I don't think it's reasonable to expect people who are more overworked and less financially stable than you or I to realistically use that as a way to lift themselves up. It's also not really a solution that scales, in my opinion. You can't expect everyone to start their own side hustle. Most businesses fail. Some lose money for years until eventually breaking even. Obviously, more opportunity is good, and I want to see people succeeding in starting their own businesses and innovating, but isn't having financial and social safety the biggest factor in encouraging that?
>Make this article relevant to a middle-class person on track to retire in their 60s, who tinkers on weekends with a few startup ideas, and generally thinks their kids will be better off if they continue to have the same access to education, business and investing. Why should that person be personally concerned about income inequality?
I'll take a stab at this from a couple angles. First off, you either care or you don't. Like you said, you're doing fine. I'm doing fine. I don't think anyone really owes you an explanation to make you care, because you don't have to. But I have friends who graduated at the same time as me who aren't doing great. They're working way harder at whatever blue collar job they could find than I ever did, for less money. Mental health isn't great. I'm not particularly different from them, other than I happened to like computer science as a kid, and my brain is sufficiently configured to churn out some code for an employer for 8 hours a day. I don't think I could look them in the eye and suggest that they just invest more, or consider starting their own business, or try online learning, when they're already down. I never did any of that.
The other side of it is that the middle class is still significantly more aligned politically and financially in their interests with the rest of the population than the 1%. I'm making a lot of money, but one bad trip to the hospital would still bankrupt me. I still worry about rent. How about everyone else who is worse off than me? The truly wealthy are playing a fundamentally different game than the rest of us, however you feel about that. One interesting aspect of the recent push for more progressive policies is that much of it is being driven by middle class white collar workers, and not blue collar. I see it as a sign of the increasing income/wealth inequality trending over the last several decades. The middle class has typically been 'placated' by being able to live a decent living, but even they're feeling the squeeze now.
I hope that was somewhat coherent and didn't come off as too combative. I really just want to convey my personal experience and how it's different from yours.
Thanks - I do think that's coherent and not combative at all, and appreciate hearing a similar, but different experience. I think the crux of where I would disagree is on how hard it is to start a business and/or invest. Growing up, I saw my dad go from lower middle class house painter to upper middle class IT work by taking night classes and self-teaching, so that informs my experience. I could see less fortunate middle class stories having a less optimistic view. I see that's subjective somewhat. But I think I'm on solid ground to say it's never been easier or cheaper, especially for a definition of "business" that includes 10-50k/year side projects to supplement a day job.
Similar with investing. Robinhood, et al have huge issues for sure (as we recently learned), but anybody can dollar-cost-average into some index funds and do better on average than sticking cash in the bank.
It's not so much that I don't _care_ about others less fortunate (I really do, and put my money where my mouth is on that). But I also genuinely think that one big way to help people is to help them have successful small businesses and invest, and encourage a mentality of self-education. I have definitely had that conversation with less financially stable peers. I don't push it on them, but if they are interested, we do brainstorm business ideas and talk about next steps, investing philosophy, interesting books and sites, etc.
Before modern fiscal policies did their work, indentured servitude and downright slavery ensured that the rich could get years of decades of cheap labor out of owning other's labor and oppress them to remove hope of liberty and escape. This is the precursor to 1860 and civil war, which did free millions but destroyed the south and 600k lives lost.
Can we right the ship without devastating processes, or is our system doomed to slow incremental change whereby the generations slowly grind away at societal problems? Or are those problems growing worse faster than the slow grind?
In the near term, we need to find a way to raise rates without causing a depression, before inflation gets out of control.
In the long term, more and more of the federal budget is being paid for by the Fed. While this isn't necessarily unsustainable, it is fraught with danger. The main reason is that there is very little democratic control over Fed policy. Vesting Congress with taxing power places taxation under democratic purview.
I shudder to think of the corruption that will occur when the Fed funds most of the federal budget. There will be no democratic control over most of the government.
The title assumes that this wealth was created by the bottom 90% and not by the top 1%.
I’d argue a better formulation is “the bottom 90% failed to force the top 1% to hand over $50T to them.”
The majority of people in any society just do not create wealth, just as the majority of people in society do not create beautiful art or useful science.
The idea that wealth created by some is owed to everyone in the country is a morally bankrupt relic of nationalism. And thankfully the structure of the global digital economy is finally starting to reflect that fact. This is just the beginning.
This analysis chooses to ignore the cost of employer benefits, which is unfortunate because it explains a large portion of income inequality as measured by this analysis.
Basically, because health insurance costs have exploded and it costs the same to insure a cashier as it does a corporate Vice President, health insurance cost increases has eaten away a lot more income gains at the low end than the high end. In numbers let’s say a cashier cost a total of $10k in 1970 with costs of $8k in pay and $2k in health care and a VP cost $50k with $48k in pay and $2k in health insurance. Now let’s say GDP per capita grows 3x but healthcare costs grew 6x between 1970 and 2020. Now the cashiers health care is $12k and base pay is $18k. The VP is $12k in healthcare and $138k in pay.
Now the cost of both employees rose proportionally, but the income portion of the cashier only grew by 2.25x while the vps income grew by 2.85x.
These aren't real numbers (I couldn't quickly find the paper I first saw with this analysis) but it is illustrative.
Fixing the health care cost issue and dissocating it from employment ties directly to fixing income inequality (although it is not the only issue.)
The Government doesn't build the economy, it constrains it (ideally in helpful ways and not harmful ways). You can't lego yourself an economy - or at least nobody has successfully done so yet.
People need food to survive, especially during war. That’s the reason for the subsidies. Without the subsidies, they wouldn’t allocate the capital, and you’d starve when your neighbor state attacked you instead of exporting their food to you.
I think this populist “Don't tax you, don't tax me, tax that fellow behind the tree!” sentiment is probably the wrong focus. I hope people will eventually support broader policies to promote equality (https://www.niskanencenter.org/faster_fairer/agenda.html), antimonopoly policies, and broader tax increases (such as land value taxes and closing capital gains tax loopholes) instead of singularly focusing on bogeymen.
The irony of framing this as some kind of intentional class war from the right(which 1%s are generally implied to be), while the left equally aggressively pushes for the policies that hand the "1%" the money is pretty intense.
I'm so lucky to live in a country with no super-rich people so I don't have to suffer from the inequality that Americans do.
Isn't it strange that that's true? Why does jealousy stop at national borders? Why not more local borders? Why not people you personally know? Why not the whole world?
Every government has taxes. Running the government isn’t free. The cost of living in a given society are the taxes and abiding by the system of laws it has. In the U.S. you have the option of leaving if you find the cost too high. You willingly stay here and as such you ought to willingly pay the cost for doing so. Besides, are you certain the amount you pay in tax really ought to be considered yours? It’s strange perspective from my point of view. You appear to want all the benefits of living in the U.S. while not acknowledging that perhaps not all of your income ought to really be considered your money. This is the system we have developed for people to pay for the privilege of earning in this society.
There is an alternative. Go somewhere else if the cost of living in this society is too high.
Earning a tax free living clearly isn’t a right according to the U.S. Constitution. Go elsewhere if the cost is too high or advocate for lowering the cost. It’s a strange position to take that the benefits of the society you live in ought to be free to you when those benefits have costs.
If the cost of living in a different country is too high then I suppose you are destined to feel oppressed for the rest of your life. It’s a strange position to take. Given that very few people feel your way perhaps it is worthwhile to consider that your position is an extreme one and causing you unnecessary distress.
The Constitution gives government the power to tax. Therefore in this society earning a tax free income is not a right as far as this society is concerned. I apologize for not making that clearer.
The person I responded to did not claim there was unnecessary waste and thus taxes ought to be lower. Their position appears to be that the act of taxation is theft (since it’s done through violent means). Then you chimed in without stating that your position differs. You didn’t give any indication to having a different position to the person I responded to.
Thank you for the discussion. I will read and contemplate your response but will not respond further. It appears to me that we have irreconcilable differences of opinion on the matter.
There's a difference between pointing out government waste, wanting to lower taxes, wanting a smaller government, etc. and claiming that taxes are inherently violence, as the original post did.
> Some people believe that the freedom to earn a living is a right, not a privilege.
There is also freedom in the security of living in a content and happy society that isn't setting up guillotines because massive underclasses have been pushed to their breaking points. The price you pay for civilization, and so on.
The existence of rights does not obviate the possibility that they will be infringed upon.
> There is also freedom in the security of living in a content and happy society that isn't setting up guillotines because massive underclasses have been pushed to their breaking points. The price you pay for civilization, and so on.
So I’d really like these leaders to quit pushing us to the breaking point but they keep doing things that benefit themselves and their cronies and telling me its for my own good. So I’m not really sympathetic to the idea that civilization requires central banks run by oligarchs or tax laws (written for the benefit of oligarchs) that punish productivity and reward sloth.
It does not require endorsement of the current leaders nor their system to recognize the very basic and banal fact that taxation is a valid mechanism that a society uses to sustain itself. This doesn't even require one to be in favor of specific current taxes, it's simply acknowledging that taxation as a principle is not some sort of ludicrously unjust abomination. Taxation predates central banks.
> very basic and banal fact that taxation is a valid mechanism that a society uses to sustain itself.
Validity in this case is not a fact it is an opinion or value judgment that implies that it is moral/ethical to use coercion to extract money from citizens.
You may agree with this. You may not claim it as a fact.
> taxation as a principle is not some sort of ludicrously unjust abomination
Thats your opinion and the oligarchs who decide how tax money is spent appreciate your conformity.
> it is an opinion or value judgment that implies that it is moral/ethical to use coercion to extract money from citizens.
Sure, and it is an opinion or value judgment supported by millennia of social contract even before Enlightenment era thinkers came up with the concept of the social contract. If you're going against one of the basic mechanisms or tools for how society works, you might as well label yourself an anarchist. Which is fine, plenty of mutualist ideologies exist, but you should at least identify yourself so people will understand the very different ideological framework you're arguing from.
> Thats your opinion and the oligarchs who decide how tax money is spent appreciate your conformity.
And the puritans who dictate popular morality appreciate your conformity in wearing clothing. Again, people can oppose oppressive taxes and unjust tax systems, but to argue that taxes are unnecessary is seemingly arguing against all of human society since the development of agriculture. Unless you are a believer in Modern Monetary Theory? Good of you to realize the possibilities of fiat currency.
> Sure, and it is an opinion or value judgment supported by millennia of social contract even before Enlightenment era thinkers came up with the concept of the social contract.
Yeah, so is slavery. So is monarchism. So is marital rape.
> If you're going against one of the basic mechanisms or tools for how society works, you might as well label yourself an anarchist. Which is fine, plenty of mutualist ideologies exist, but you should at least identify yourself so people will understand the very different ideological framework you're arguing from.
I’ll identify myself as an anarchist for being opposed to violent coercion of resources if you will identify yourself as a criminal for being in support. Sound fair?
> And the puritans who dictate popular morality appreciate your conformity in wearing clothing.
Norms of wearing clothing are not dictated by puritans but arise and are maintained by repeated intentional participation.
> Again, people can oppose oppressive taxes and unjust tax systems,
We do. In fact we invite you to explain how any tax is just.
> but to argue that taxes are unnecessary is seemingly arguing against all of human society since the development of agriculture.
Not at all, one may as well say that arguing that slavery is immoral is arguing against all of human society since agriculture.
> Yeah, so is slavery. So is monarchism. So is marital rape.
So is property. So is language. So is symbolic thought.
> I’ll identify myself as an anarchist for being opposed to violent coercion of resources if you will identify yourself as a criminal for being in support. Sound fair?
Anarchism is an existing ideology with many school of thoughts within it. You seem to be an anarcho-capitalist, to be precise. I, of course proudly admit to being a criminal (https://www.youtube.com/watch?v=EEXTt9OmJis&t=1m18s) insofar living in modern society makes criminals of us all, yourself included, even under duress.
> Norms of wearing clothing are not dictated by puritans but arise and are maintained by repeated intentional participation.
As is tax law.
> In fact we invite you to explain how any tax is just.
Because it's cheaper to provide social programs than to deal with rolling peasant revolts.
> Not at all, one may as well say that arguing that slavery is immoral is arguing against all of human society since agriculture.
And indeed so. So are you then an anarcho-primitivist? Or anti-propertarian?
I’m not convinced that it is meaningful to make that assertion. But this is fine, I’m an anarchist because I oppose coercion and you’re a criminal for supporting it.
> Because it's cheaper to provide social programs than to deal with rolling peasant revolts.
And so that makes it moral to suppress peasants with unjust taxation regimes?
> And indeed so. So are you then an anarcho-primitivist? Or anti-propertarian?
I decline to identify as a proponent of any belief system because of the harmful epistemological consequences of group identity.
> Language and symbolic thought are not opinions or value judgments.
They are according to John Zerzan.
> But this is fine, I’m an anarchist because I oppose coercion and you’re a criminal for supporting it.
Anarchism, fwiw, is not meant to be a pejorative, but a reference to an actual ideological framework, albeit a radical one. One that has both left and right variants, including the aforementioned ancaps.
> And so that makes it moral to suppress peasants with unjust taxation regimes?
No, it's moral to provide people with food and shelter, health care and education, opportunities for social advancement, funded by surplus wealth generated by a society, in a manner deemed agreeable by societal consensus, so as to create a stable social order. A just tax regime would not be taxing peasants more than nobles nor burghers.
> I decline to identify as a proponent of any belief system because of the harmful epistemological consequences of group identity.
But by crowing "taxation is theft", you have clearly virtue-signalled yourself to be a libertarian.
>> Language and symbolic thought are not opinions or value judgments.
> They are according to John Zerzan.
Thanks for this.
>> If agriculture was the original sin of History, the Fall was our descent into Symbolic forms which created a psychological removal best expressed by the use of artillery. With the epoch of History proper, beginning with the Neolithic, internal abstractions are projected outwards onto a terra nullius, a void now dedicated to the manufacture of first commodities, the domestication of animals and conflict management, in terror of the silences of a world made ancient by representation and signs. The great farming apparatus of this era mirrored institutionalized ritual and the codes of orthodox magic, which are the ancestors of surveillance technology and remote control. Division of labor lead to the great land enclosures and the dawn of the money form, nascent surplus-value with its classes of guardians, warriors, magistrates, clerics. Greek books were read in boustrophedon, which means ‘after the action of an oxen plowing a field’, each line progressing and then reversing back in a bi-directional motion, equating the patterns of informational technology with the golden gizmo of sedentary humanity. The subsequent Bronze Age saw pottery, the production of rich varieties of armaments, the complexities of credit and written script, and the formation of the great elites – and naturally, slavery. Early statecraft was far more ‘modern’ than is commonly acknowledged: banking, proto-welfare, heated toilet seats, the wide application of credit and debt enslavement (we have conveniently lost the custom of the Jubilee write-down), micro-breweries, were all part of the ancient world.
> No, it's moral to provide people with food and shelter
Then it must be immoral to take food and shelter from people. How do you then justify taxation?
> funded by surplus wealth generated by a society, in a manner deemed agreeable by societal consensus, so as to create a stable social order.
And in order to maintain consensus, and order, anyone who doesn’t agree is subject to violence. No, thats not moral.
> But by crowing "taxation is theft", you have clearly virtue-signalled yourself to be a libertarian.
> you might as well label yourself an anarchist. Which is fine, plenty of mutualist ideologies exist, but you should at least identify yourself so people will understand the very different ideological framework you're arguing from.
So you continue to insist on labeling me, but the point is that the ideas exist independently of labels and must be dealt with on their own merits.
Presumably society comes with concepts of fairness, and that it is more fair to take someone's surplus means to share with those who are running a deficit. This need not be coercive either, as there are always incentives such as tax credits and deductions so forth to spur voluntary giving. I'm sure there are moral philosophers better suited to explain it than me.
> And in order to maintain consensus, and order, anyone who doesn’t agree is subject to violence. No, thats not moral.
We live in a society, as they say.
> the ideas exist independently of labels and must be dealt with on their own merits
But pattern recognition is a form of optimization, and labels are but filters created from reoccurring ideological patterns.
> Presumably society comes with concepts of fairness, and that it is more fair to take someone's surplus means to share with those who are running a deficit.
So your concept of fairness involves a person who has the power to assign and remove property from other people according to his judgments.
> This need not be coercive either, as there are always incentives such as tax credits and deductions so forth to spur voluntary giving.
Taxation is coercive, so offering relief from coercion as an incentive is coercion.
> I'm sure there are moral philosophers better suited to explain it than me.
There are moral philosophers in favor and opposed. You must take responsibility for your own moral judgments.
> We live in a society, as they say.
And marriage means that its not possible for a husband to rape his wife.
> But pattern recognition is a form of optimization, and labels are but filters created from reoccurring ideological patterns.
Its a lossy form of optimization and the labels have connotations that may not be justified.
> So your concept of fairness involves a person who has the power to assign and remove property from other people according to his judgments.
Yes, and that person is Uncle Sam, Marianne, the Goddess of Democracy, it is me and you, because it is be formed from societal consensus and the republican process.
> Taxation is coercive, so offering relief from coercion as an incentive is coercion.
Coercion schmoercion.
> You must take responsibility for your own moral judgments.
Certainly, in the same way a fish takes responsibility for the water it lives and breathes in.
> And marriage means that its not possible for a husband to rape his wife.
Your entire stance is that marriage is unjust because it can be abused. While I'm arguing that abusive marriages do not necessarily form the majority, nor does it invalidate the concept.
> Its a lossy form of optimization and the labels have connotations that may not be justified.
> Yes, and that person is Uncle Sam, Marianne, the Goddess of Democracy, it is me and you, because it is be formed from societal consensus and the republican process.
Good, then you’ll have no objection to me helping myself to your surplus. For “the good of society.”
> Coercion schmoercion.
Its interesting how people are often quite concerned with someone else’s perceived lack of things, but references to someone being a victim of violence are dismissed.
> Certainly, in the same way a fish takes responsibility for the water it lives and breathes in.
The fish didn’t try to justify his aquatic lifestyle by reference to moral philosophers.
> Your entire stance is that marriage is unjust because it can be abused. While I'm arguing that abusive marriages do not necessarily form the majority, nor does it invalidate the concept.
My entire stance is that a moral wrong doesn’t become acceptable on the basis of someone asserting it as an integral component of some other thing. Theft/robbery doesn’t become ok because you believe it to be necessary or good for society, and rape doesn’ become ok because the victim is married to the perpetrator.
> I'm no audiophile.
Just deal with the arguments as presented rather than trying to link them back to some ideology as a convenient means of dismissal.
> Good, then you’ll have no objection to me helping myself to your surplus. For “the good of society.”
I don't evade taxes, so you're welcome to my surplus.
> Its interesting how people are often quite concerned with someone else’s perceived lack of things, but references to someone being a victim of violence are dismissed.
By all means, please expound upon the victims of violence caused by taxpaying in modern day America. Are you referring to those flag fringe-watching sovereign citizens and tax protesters still up in arms over the 16th amendment? Freemen of the land unjustly persecuted for courtroom creativity? Wesley Snipes?
> The fish didn’t try to justify his aquatic lifestyle by reference to moral philosophers.
Indeed, for the fish is far more wiser for not getting sucked into fruitless interminable debates with unyielding ideologues.
> a moral wrong doesn’t become acceptable on the basis of someone asserting it as an integral component of some other thing
Then you'll have to provide your alternative to taxation, and indeed your alternative to governments or societies, as those can't really exist beyond taxes, at least until we achieve a post-scarcity society.
Incidentally, I should note that being against the principle of taxation not only precludes income taxes, but sales taxes and other consumption taxes, property taxes, estate taxes, tariffs, public tolls. Even if I was to suggest a revolutionarily different society- say a maximal Georgist world where the land value tax literally was the single tax levied to fund government and alleviate inequality- you would call it theft and thus NASA would continue to go unfunded.
> Just deal with the arguments as presented rather than trying to link them back to some ideology as a convenient means of dismissal.
"Taxation is theft" is a meme well-known to the internet, and this conversation we are having has been repeated over and over uncountable times. Neither of us represent original ideas. We are just rehashing the same unanswerable debate many men have had before us.
To bring up technology into this discussion- memoization can be a way to expedite a solution.
> I don't evade taxes, so you're welcome to my surplus.
The taxes were already accounted for, my claim is on top of what you already contributed.
> By all means, please expound upon the victims of violence caused by taxpaying in modern day America.
Its all very simple, if you don’t give them what they want, they threaten you at first and then they come take what they want.
> Are you referring to
This isn’t helpful.
> Then you'll have to provide your alternative to taxation,
Its the same as my alternative to rape. Namely, abolition.
> and indeed your alternative to governments or societies, as those can't really exist beyond taxes, at least until we achieve a post-scarcity society.
I thought you were familiar with alternative viewpoints? When you put out a fire, what do you replace it with? If your society is dependent on violence and coercion, then perhaps your society shouldn’t exist.
> Incidentally, I should note that being against the principle of taxation not only precludes income taxes, but sales taxes and other consumption taxes, property taxes, estate taxes, tariffs, public tolls.
Don’t stop there, I’m also opposed to bank robbery, grand theft auto, petty theft, burglary, larceny, fraud, theft by conversion, and rapine. You get a lot for your trouble when you give up aggressive violence.
> you would call it theft and thus NASA would continue to go unfunded.
I’m fine with NASA relying on voluntary sources of funding and ceasing to extort the working class.
> "Taxation is theft" is a meme well-known to the internet, and this conversation we are having has been repeated over and over uncountable times. Neither of us represent original ideas. We are just rehashing the same unanswerable debate many men have had before us.
If you think the debate is unanswerable then perhaps you would enjoy something else more. For my part, the only way to find an answer is to have the debate. Furthermore in my experience these debates tend to get derailed by people pattern-matching their interlocutor’s response to something they feel more comfortable responding to and in the process eliding nuanced arguments in favor of rehashing things that haven’t even been mentioned. Either “taxation is theft” or “taxation is not theft” (or some more compicated relation between ‘taxation’ and ‘theft’), but in no case does “‘taxation is theft’ is a libertarian idea” get use closer to a resolution.
> memoization can be a way to expedite a solution.
> The taxes were already accounted for, my claim is on top of what you already contributed.
Not according to you, as you view taxes as inherently illegitimate. Though if you have a Patreon or GoFundMe to validate your claim then by all means.
> Its all very simple, if you don’t give them what they want, they threaten you at first and then they come take what they want.
If you don't wear clothes, you'd be arrested for public indecency.
> You get a lot for your trouble when you give up aggressive violence.
Tell it to the Iroquois, sadly.
> If your society is dependent on violence and coercion, then perhaps your society shouldn’t exist.
Then say you don't believe in society.
> You get a lot for your trouble when you give up aggressive violence.
Then why not give away property, as well? There are arguments to be made that private property violates the NAP.
> For my part, the only way to find an answer is to have the debate.
There really isn't an answer to be had in a debate, because fundamentally both sides are operating from stances so alien from one another to essentially be in different languages. "Taxation is theft" and "taxation is not theft" is not really meaningful in this context, as there is no agreed upon definition of what theft is. Despite its unanswerable nature, it is still quite enjoyable.
> Not according to you, as you view taxes as inherently illegitimate. Though if you have a Patreon or GoFundMe to validate your claim then by all means.
I’m responding to taxes the way you responded to my request for some of your surplus. You’re asserting you already paid taxes, you don’t get to decide how much tax you pay.
> If you don't wear clothes, you'd be arrested for public indecency.
I concede that laws requiring clothing are akin to taxation in that one group of people imposes their values on another group without their consent.
> Then say you don't believe in society.
I’m fine with society, I disagree with you that taxation is necessary for society.
> Then why not give away property, as well? There are arguments to be made that private property violates the NAP.
Property is a consequence of animalian territorial instincts and human tool-using instincts. If someone can articulate a coherent vision of a property-less society, others are welcome to join them.
Mostly the problem is that the people who challenge notions of property rights seem to be motivated by the prospect of obtaining the property of others who would prefer to retain it. In essence, they don’t have a problem with property, but with certain people’s ownership of certain things because they would rather that other people own those same things.
> Despite its unanswerable nature, it is still quite enjoyable.
It’s absurd, in my opinion, to think that the society that created the opportunities you have to earn money ought to be enjoyed by you at no cost. We can’t all be free loaders and leeches. Acting as if taxes are immoral is nonsensical.
It came at such a great cost in fact. The vast majority of your taxes are simply wasted. If the US Government were on Charity Navigator they would have a 0-star rating.
It'a absurd to defend such a position, especially one rooted in a traditional of violence via arguments that were used to justify the enslavement of entire races.
We aren’t talking about whether the tax rate should be lower or better spent. We are talking about whether or not they ought to exist at all. Bringing in, now, the fact that some are wasted is not relevant to the discussion. The arguments for taxation have nothing to do with the arguments for slavery. This is a false equivalence.
If you could do the math, there are millions of Americans whose ancestors accomplished so much over so many generations, both before and after income taxes were first levied, that if one year's worth of collected income taxes would have been invested wisely right there on Wall Street as early as possible there would be no income taxes necessary at all by now.
The premise is "had growth rates among the quintiles remained as they were post-war, then..."
That is nothing like "one quintile has taken from the others".
Growth rates change all the time, and the transition from a labour economy to a knowledge economy has the effect of reducing the pool of "winners" as the returns to knowledge form a greater share of total returns.
This same transition is visible in most developed countries. Some have welfare systems designed to prevent it, and their overall growth is lower for it. They contribute less of the global groundbreaking progress (like new cancer treatments, Covid vaccines, etc) commensurate to that fact.
This is a false premise. Do not fall for it.
Just because you are in a group whose growth rate has been higher than the other group, doesn't mean you "took" something from them.
> It amazes me why most people do not grasp this. I think it is lack of education.
Huh? Literally everybody grasps this. This is the most widely parroted mainstream narrative about the economy right now on the internet.
Hell, you can't throw a rock at the Wall Street Journal (conservative) or the New York Times (liberal) without hitting a sentence that mentions wealth inequality brought on by fed policy. For further evidence, your comment has been upvoted to the top because everybody on HN believes the same thing as you.
Have you ever examined the idea that it could be you who lacks education? Have you thought about what the economy would look like right now if there had been no accommodative monetary policy from the Federal Reserve for the last 10 years?
You're angry because it feels like everybody is getting rich and you aren't. What you don't understand is that bull markets are always temporary. This stuff moves in cycles.
Sky high valuations on financial assets might be making rich people SEEM ridiculously rich right now, but this is not a permanent state of being. The companies and assets they own all exist in the real world and will eventually have to back up their valuations with real earnings.
The minute inflation starts creeping up, the federal reserve will have to increase interest rates and cut off the money printer. In an instant, wealth inequality will start shifting the other direction, and valuations will fall.
Duly noted, I regret bringing OPs education into question. Looks like I got emotionally swept up in fancying myself as defending the “common man.” I would remove the personally addressed portions if I could.
Except the situation we're in is unprecedented. Never before has the government stepped in with this much force in response to an economic crisis.
The March crash was the event that was going to normalize asset prices, but really just became a blip due to the pump.
Should the government have done nothing? Absolutely not, but aid should have been better targeted. Overleveraged and poorly run businesses should fail. People who made excessively risky and speculative bets should have had them go belly up. The business cycle is no longer a cycle at all, things just go up.
Was the virus a predictable event? Not at all, but pretty much every bust in the business cycle is due to a new unforeseen tail risk that materializes. That's why it's prudent not to excessively leverage yourself in the good times, because bad times will come.
Certainly businesses such as restaurants, that were forced by the government to close, or travel, where it truly was an apocalyptic scenario, should have received the bulk of the aid.
> The March crash was the event that was going to normalize asset prices, but really just became a blip due to the pump.
The main reason it was a blip, is because earnings have returned almost to pre-COVID levels for large public companies. Just as everyone expected. Did fiscal and monetary policy help smooth things out? Sure. But again, earnings are normalizing, like we knew they would. Markets discount the entire future, not just what's going to happen next month.
> Overleveraged and poorly run businesses should fail. People who made excessively risky and speculative bets should have had them go belly up.
Most companies pre-COVID were nowhere near "excessively leveraged." I think you (as well as OP) are conflating 2009 with COVID. These are two distinctly separate things. As are monetary (The Fed) and fiscal policy (Congress).
> The business cycle is no longer a cycle at all, things just go up.
So you're saying "this time is different." Let's see how that plays out.
> So you're saying "this time is different." Let's see how that plays out.
Main difference from the past recessions is that today the main way to store money is index funds. In recessions people pump money into savings, ie into index funds, ie into the stock market making stocks value increase rather than fall. As long as people believe that index funds are a more stable currency than the dollar this will continue to be true in future recessions.
this is a very insightful look at how people have changed their belief in what safe money is. In a lot of ways, money is a story of trust -- it's what you believe that other people will believe is true, is true. And when that fundamental belief of 'safe asset' moves from cash under the mattress, to cash in a savings account, to cash in an index fund, to cash in a cryptocurrency -- well, the ramifications are massive.
> Did fiscal and monetary policy help smooth things out?
We're assuming the crash in March was due to COVID - though there's no proof this was the case. This very much could have been a correction to more realistic valuation.
> So you're saying "this time is different." Let's see how that plays out.
Agree here - I think we're in for an interesting year. We may have amplified the upswing dynamics with Fed action, but I'm pretty sure we'll see amplified downswings, as a result.
I get what you are saying but cmon. We very well may have had a recession without covid but covid has certainly majorly shaped what our current economic situation looks like.
>The main reason it was a blip, is because earnings have returned almost to pre-COVID levels for large public companies.
Those earning are structurally very different from an accounting perspective than normal earnings (one example being ppp loans). I'm not saying your wrong that these earnings are justifying PE based valuations but I don't think anyone is arguing that propping up earnings won't work in the short term. I think a lot of people are arguing that propping up earnings will backfire in the longer term.
Exactly. Mainstream actually educated economists are right, not people hyperventilating about money printing.
On top of what you said about the effect of printing making valuations high, only temporarily and only on paper, the opposite lack of printing, is actual redistribution towards the rich in a much more real and persistent way.
Insufficiently inflationary money can be used as a way for the rich to withdraw from the private economy when things are getting too turbulent and park their wealth in government paper having greater than market rates of returns (on a risk adjusted, liquidity adjusted basis). If government money didn't exist, these people would have to stay in the turbulence when the economy hits a storm.
In a private economy, it's normal for returns on assets to occasionally turn negative. Wealth is sometimes difficult to keep constantly growing year after year. With low inflation, the rich can divest from private assets at the first sign of trouble, shrink or close businesses, kick employees to the curb and they get to park their wealth in government guaranteed paper. A deflationary government currency is basically a subsidy for causing unemployment and destroying careers, a subsidy that often gets indirectly paid by the poor. Money printer keep going brrr please.
I note that the Nobel Prize in Economics was created by funding from a banker. 'Mainstream economists' have certainly not 'conferred the greatest benefit on mankind' nor has 'trickle-down' lifted all boats ... only the boats in the marina. As ye sow ...
Because I am fairly pro market but read enough mainstream economics to know that government paper retaining value more than private assets is much more of a distortion than said paper gradually losing value towards its intrinsic value of nothing.
The thing is, stable money that predictably loses value is a great thing to have for the economy as it allows people to negotiate contracts and conduct business in a predictable manner. Medium of account, medium of exchange etc. Money being a store of value is an unfortunate consequence of it being a medium of exchange that often has to be mitigated. Fiat should never be widely used for saving. Money is just an IOU. When everyone's savings are IOUs, on average everybody indirectly owes everybody else their savings. Instead, savings should be tied to real stuff such as businesses, inventory, production capacity etc. not just all be pure promises. When too many people hoard pure promises and all believe that it's true wealth, bad things happens.
Hard currencies while not good for conducting business since they are too unstable might be better as stores of value as they fluctuate and have negative returns when they should so tend to not crowd out other asset markets as much as government stabilized currencies do when inflation is not high enough. Just make sure the government does not try to stabilize hard currencies. That caused the great depression.
If people just create their own new currency (lets call them index funds) doesn't that defeat the whole point? Because that is exactly what happened. The dollar deflated but the real currency kept its value, meaning that everyone's salaries were cut in comparison to the people who stored their money in the real currency. That is how you see "growth" in a recession like we just did and how printing money hurts the poor.
Def made me think alot. Seems you can replace your entire argument with crypto. Money printer goes brrr, money gets locked in crypto, does nothing for the economy, leading to massive inequality. Crypto can be though of as "Savings" in your analogy. BTC might cause a economic meltdown if $10T gets locked in'Savings'.
Even without a money printer and everyone mass adopted bitcoin, massive inequality would still ensue. This is because Bitcoin is inherently deflationary. Both inflation and deflation are natural drivers of inequality... they just work in different directions.
Bitcoin is inherently deflationary...if the entire world moves to bitcoin, and somehow we prevented the extension of credit based on bitcoin collateral by financial intermediaries...
Which is already happening.
Financial institutions are already extending credit (aka 'printing money') based on bitcoin and other cryptocoin collateral.
>we prevented the extension of credit based on bitcoin collateral...
>Which is already happening.
Is in direct contradiction to:
>Financial institutions are already extending credit...
Regardless, the amount of bitcoin is set to be capped and finite - therefore unless this changes it is inherently deflationary. Aside from mining out the remaining unmined bitcoin, no institution is "extending credit" (aka 'printing') bitcoin, they're extending credit via (as you mentioned): other collateral.
Bitcoin is EVENTUALLY deflationary. Right now, about 900 coins are created every day leading to inflation of ~$45M a day that buying pressure needs to eat up. Every four years that inflation is cut in half, but it's still inflationary.
I've been wondering about that. I'm not sure if crypto coins without being stabilized by central banks are a powerful enough force to cause the type of havoc that gold did during the great depression.
Then again, the potentially stronger network/memetic effects of cryptocoins, along with the amplification factor from markets being synchronized through instant all-encompassing global communications nowadays might make them dangerous to the economy without government involvement. We saw how much people can get hypnotized by these things during the Gamestop episode. I don't think unsophisticated investors' hoarding is enough to cause big problems but it is a bit unsettling that Tesla jumped on the cryptocoin train. If enough businesses follow suit, you get into scary territory. Last time it lead to Hitler and WWII. It makes me second guess my cybertruck reservation. I was on board partly because of Musk's audacious and epic attempts to bring humanity forward. This is a non negligible risk of going in the opposite direction of creating economic carnage that leads to new Hitlers (but with nukes).
I understand that I kinda Godwin'd myself but if you read the wikipedia page on the Weimar Republic:
"The Great Depression, exacerbated by Brüning's policy of deflation, led to a surge in unemployment.[8] On 30 January 1933, Hindenburg appointed Adolf Hitler as Chancellor at the head of a coalition government. "
or
"In 1933, the American economist Irving Fisher developed the theory of debt deflation. He explained that a deflation causes a decline of profits, asset prices and a still greater decline in the net worth of businesses. Even healthy companies, therefore, may appear over-indebted and facing bankruptcy.[59] The consensus today is that Brüning's policies exacerbated the German economic crisis and the population's growing frustration with democracy, contributing enormously to the increase in support for Hitler's NSDAP."
Now the above paragraph puts emphasis on businesses with debt but even non-indebted businesses can get caught in these currents if they are put in a position where it's more advantageous to hoard currency than to invest in maintaining or growing production.
It's a fairly low probability that cryptocoins could create this kind of disastrous Nash equilibrium without the involvement of a powerful central bank. However, when I see the fervor in parts of the cryptocurrency movement and the fact that businesses are starting to hoard large amounts, I wonder...
Stocks are also IOUs on a certain level but they are not far removed from a real productive assets creating real value (the company that the stock gives you ownership of). Things can get speculative with stocks too, though usually far less than in the cryptocoin realm.
If you add up all the IOUs in the economy, financial assets are cancelled by financial liabilities and what remains is real stuff which in economics is called "investment". The nomenclature can be a bit confusing because in finance they use the same word to mean the contract, the claim or the IOU not the physical asset.
The equation for GDP is Consumption plus Investment (sometimes government consumption and investment and exports are broken out). Investment is not financial assets or money or bonds which all cancel out at the global level. Investment means factories built, equipment built, less tangible things like knowledge and intellectual property count too in theory but are sometimes hard to measure. It's important to have a good level of investment. Promise hoarding can crowd it out when things get too speculative. The economy can get into a bad Nash equilibrium where people are chasing IOUs instead of producing real value.
You are only permitted to own real stuff to the extent that other people can be somehow dissuaded from taking it, and instead of working against you, can be convinced to work together and to trade instead of taking things by force. It’s all trust or the lack of it, just agreements to keep moving society forward instead of reverting to more competitive models of subsistence
> Mainstream actually educated economists are right, not people hyperventilating about money printing.
This statement is so vague, I don't know what it means. Are you implying that all "mainstream actually educated economists" (whatever those are) are all in agreement about something? What exactly are they "right" about here?
That's rather extreme. If he always predicts gloom and doom sometimes he will be right. Especially within the last 15 years. Wasn't he predicting the last financial crash for a couple years before it happened?
The boy who cried wolf was eventually correct too. A broken clock is right twice a day. Etc.
Peter Schiff currently believes Bitcoin is going to collapse, that anyone who buys it is a fool and charlatan, that hyperinflation is around the corner, and the only solution is a return to the gold standard. Do you agree with this?
I don’t like Bitcoin (too many grifters) but even I can admit it has value as a hedge asset against systemic shocks. He just doesn’t like that it may supplant Gold.
I don't see that at all. He's basically saying that the way our governments and banking systems interact with the economy is fundamentally flawed and causes issues.
Getting the timing right is not easy, sure. He was right about 2008.
You may choose to believe that 2008 was an isolated event or it was just another systematic failure.
I think we'll see another one soon, following the way governments treated covid.
I wish Bitcoin would succeed and bring us a step closer to anarchy - but Bitcoin doesn't have any backing and it's not a physical asset which can be used, worst case scenario, as jewellery. Its technology can be replicated entirely by a different coin (and it has, already). Its intrinsic value is null.
The reason the price is so high is because people hope to speculate on it and make money (which they have!) and because people expect the market and currencies to do badly, given the high point they reached. Also, governments' stimuli brought a lot of money in the hands of rich people; this money needs to go somewhere given the risk of inflation, so rich people are investing in growth stocks (eg. tech) and cryptocurrencies.
I'll be honest, I was expecting governments to destroy cryptocurrencies by now, but even without government intervention, I don't see Bitcoin ever holding any value or being stable, without backing. Maybe stable-coins will solve this.
I agree that going back to the gold standard would be an improvement, even better, I'd prefer if private companies could just print and back their own currencies.
Instead of backing currencies with gold, you could back them with different commodities (eg: wood, iron, oil, etc).
The machinery of freedom has an interesting chapter about how such a system may work.
He was not right about 2008. Saying that “US stocks will crash because of [WRONG REASON]” doesn’t make you right. Anyone that listened to Schiff or invested with him wound up losing a LOT of money.
Going back to the gold standard would not be an improvement. I highly recommend reading Karl Polanyi’s The Great Transformation for an analysis of the problems of the gold standard.
He has been consistently wrong for 15 years, if he was right, it was a half truth by accident. Let’s look harder at his theses since 2007 or so:
1. US Equity Markets Crash.
Okay, that happened in 2008. But, did it he get the reason why?
He claims it is all about Debt and easy money. That interest rates should be up and ultimately we should be tethered to hard currency. That’s a really, really simplistic and ahistorical take. It’s like saying, let’s cause issues with the financial economy to completely wipe out the real economy because it is “healthier that way”. Seems to be a big price to pay for a very nebulous benefit. Thoughts like that led to World War 1. (I highly suggest “Lords of Finance” from Liaquat Ahmad and “The Great Transformation” by Polanyi).
As opposed to what we ARE doing loosening the liquidity strings to allow the real economy to continue to function, albeit damaged by the lack of regulations + greed in the financial economy causing it to make terrible risk exposure decisions.
Yes there was plenty of bad behaviour in the housing market and in the whole Lon trading and mortgage trading market (which I was a part of in the past, as a wall st software dev). The interaction of mortgage backed securities and collatorized debt obligations propped up too many balance sheets and weren’t properly valued for systemic risk, and amassing credit default swaps as a hedge quickly unravelled the institutional insurers like AIG .... requiring a massive liquidity injection by the Fed and Congress so that everyone from Wall St to Main St didn’t wind up completely broke. Ultimately it was the only practical solution available given the political will.
2. US Dollar will crash (Hyperinflation)
Completely false and made him and his investors lose their shirts
3. Decoupling of foreign economies from the US slowdown
Also false, the US rebounded far quicker due to a variety of Obama era policies, the world still is not really decoupled as Eurozone troubles and Trump’s trade wars showed.
4. Foreign equities and commodities (gold) will grow and are where you should invest.
Except foreign equities crashed worse than US equities back in 2008! And austerity policies prolonged their suffering.
My criticism isn’t “overboard”, this is public record. If you are an investor and listened to Peter Schiff, you’ve lost a lot of money.
You mean because his reasoning is Austrian and not Keynesian it is wrong even when the crash happens which he predicted would happen? That's convenient.
Gold has also done pretty well hasn't it?
You can list wrong predictions all day, but if the guy is occasionally right you need to give credit.
There's still no reason for anyone to carry around a broken watch and no reason to listen to wolf criers who are more wrong than not. Pete Schiff as an anachronistic goldbug is a curious oddity to point out every now and then for amusement. He isn't someone worth listening to though.
There’s an old saying that Austrians claim a lot of things, but ultimately become Keynesians in a foxhole.
There is no “there” in Austrian economic reasoning or modeling: the fundamental premise is to reject empirical evidence in favour of Praxeology. This is useless for forming economic policy.
"Mainstream actually educated economists are right, not people hyperventilating about money printing."
The thesis of your post is literally a fallacious argument - the argument from authority. The textbook definition.
Yes, the "experts" are always right, like the experts that ran LTCM, the hedge fund run by rocket scientists that crashed the economy (until being bailed out by the Fed) /s
I would go on with more examples of fallacious "argument from authority" logic gone wrong, but I don't have the time.
I didn't make an argument about education. I made a comment referencing mass financial and economic illiteracy in America.
An economic theory is not right or wrong, good or bad, or otherwise based what the "educated, mainstream experts" believe. The history of human knowledge is essentially a history of paradigms (sometimes temporarily useful) being proven completely wrong, with some non-mainstream ideas being proven right. QE and mainstream economics, in my opinion, will turn out the same way, and end up causing the destruction of arguably the wealthiest nation in human history.
It's only a "burn" if you actually think it's a legit argument. I was just pointing out that it is not.
"One of the great commandments of science is, "Mistrust arguments from authority." ... Too many such arguments have proved too painfully wrong. Authorities must prove their contentions like everybody else." - Carl Sagan
> You're angry because it feels like everybody is getting rich and you aren't. What you don't understand is that bull markets are always temporary. This stuff moves in cycles.
I've benefited massively in financial terms during the pandemic and resulting fed action and I still think it's dangerous and misguided. You are painting with very broad, simple strokes here.
Regardless of the fact that there is press coverage, the average American could not in any meaningful terms describe what the fed is or what it does, while maybe a quarter might know that it has something to do with "printing money" (obviously anecdotal). The idea that the complex consequences of fed policy are well understood by the average American is preposterous. The "experts" can't even agree on basic facts about what the consequences will be or have been.
Case in point, go ask financial twitter if we should be expecting inflation or deflation and watch that aisles divide.
The article that this thread is based off of is literally the opposite take from my original post. The article claims that America's 1% is responsible for the wealth inequality. That is why I posted my comment. My opinion, and the "majority" opinion according to you, is that wealth inequality is because of Fed policies, not the 1% boogey-man.
The people protesting are not protesting the Fed. No institution (i.e. media, grassroots, journalists) criticizes the Fed - it's always the 1%.
But, I guess you wouldn't understand, since you make baseless assumptions about internet strangers. How would you know my net worth - do you think there aren't billionaires that share my "mainstream" opinion?
Your fallacious logic and personal attacks against me do not diminish my argument. In fact, since you cannot attack the substance of my argument, you have already admitted defeat.
I have nothing against you personally. I'm just refuting your idea that Fed actions from the 2010s are responsible for wealth inequality that has been rising since the 1970s.
So how do you explain everything that happened on the wealth inequality front from the 1970s up to the financial crisis of 2009?
I don't agree with everything in the original article either, but many of the points it made are correct.
> how do you explain everything that happened on the wealth inequality front from the 1970s up to the financial crisis of 2009?
In one word: computers. In tsunami after tsunami from 1975 to the present, computers have revolutionized everything we do. I remember one tsunami in 1975, when slide rules in September were $125 and by December they were $5 and in January they disappeared. The calculator had arrived. In 1980 at Boeing you could hear the roar of the tsunami coming in the form of CAD. Then spreadsheets, word processing, on and on.
It's no coincidence that the biggest companies in the world are all American, and all computer companies.
The big increase in wealth was created by the computer companies, and accrued to the people working in them and those smart enough to have invested in them.
BTW, according to Google: "The top 1 percent of taxpayers paid roughly $616 billion, or 38.5 percent of all income taxes, while the bottom 90 percent paid about $479 billion, or 29.9 percent of all income taxes."
> The top 1 percent of taxpayers paid roughly $616 billion, or 38.5 percent of all income taxes
What's that as a percentage of their annual increase in wealth? By my calculation, with a wealth increase of "$2.5 trillion a year" (from the article), that income tax amount works out as a flat 25% rate.
I think the headline is misleading. Only 12 percent flatly said they couldn't pay for the expense. The 40 percent includes everyone who would take on debt and pay it off over time (i.e. not immediately in the next cc statement), or else sell something. People who choose to live right at their level of income would included, regardless how high that income is, and even when it is possible for them to make adjustments when surprises come along.
The survey also found 75 percent of people responded they were living comfortably or "doing ok".
The thing is there are were a lot of dot coms back then and no one really knew which one would have been the next Amazon. The entire push behind diversifying one's income is to ensure that people who don't have lots of $1000's to spare don't lose $1000s investing it behind few stocks.
If you know the future. Tells us a few stocks where investing $1000 today would give you a million in 2 decades.
I feel as if this opportunity is past us. Any company with the potential for that amount of growth is going to get bought out by multi-billion $ corps to further increase their already out of reach stock prices.
Robinhood has conclusively shown in the last month that ordinary Americans, even poor ones, have access to investing in stocks. This includes access to margin and sophisticated options trading.
I didn't say they should invest in GME. I said it was proved they could invest in stocks.
> new money speculating in the equities market often doesn't go well.
It goes better than lottery tickets, which target the poor and the mathematically challenged. Stocks at least have an upward bias, while lottery tickets have a strong downward bias.
BTW, wealthy people lose money in the stock market, too. Stocks do not come with guarantees for anybody.
> So how do you explain everything that happened on the wealth inequality front from the 1970s up to the financial crisis of 2009?
Of course there's never a single thing that explains a complex issue, but the root of the current Fed's monetary policy goes back to Greenspan, so the poster's argument could easily be extended to that iteration of the Fed.
Also, the 1980s is when (modern) wealth inequality really started to take off. And it's much worse today.
Fed/government actions from the 1970s are responsible for the inequality that has been rising since the 1970s...unpegging the USD from the gold standard in 1971, and the creation of the derivative market at the same time. Money used to have gravity, but now it is created magically at will -- especially in terms of derivatives. The world's money supply now doubles faster than Moore's law.
No, the oil shocks of the 1970s were short term disruptions which unsettled things, but the big durable change was the major tax burden shift under Reagan.
> The people protesting are not protesting the Fed
The Fed is not the problem. Congress is the problem. The Fed seems like the problem sometimes because Congressional nonfeasance leaves the Fed, which has a narrow role and a narrow set of controls, the only player doing anything to deal with adverse economic conditions. But Congress’ nonfeasance is the problem.
This narrative also has the effect of deflecting attention from other policies which contribute towards inequality an awful lot more.
It's not like the majority of recorded history on the Gold Standard was noted for the bottom 90% enjoying relatively large shares of national wealth and income security.
It might be related to the gold standard, but I'd argue that WW2 was a bigger factor. The US was already the strongest economy and the competition was devastated by war. Add on to that the development of the intermodal shipping container and it was suddenly possible for the US to transport their goods cheaply. The reason this golden age ended is that other countries had finally recovered from the devastation of war.
This view totally ignores the domestic policies US took in the 60s which was bloated deficits from the new deal and Vietnam war which has been attributed to collapsing the Bretton Woods dollar system.
>How do other countries devastated by war have to do with US economic equality?
Because there was less competition on the international stage for the goods produced in the US. This meant that production companies could pay their workers more since they were earning more. Relatively low skilled labor would earn a lot more money. This lifted up the poor. Eventually those jobs started moving away from the US, because other countries could produce the same goods at lower cost since they could pay workers less.
>Shipping technology has only gotten better since than too but that just hurts mom&pops and helps online retailers.
None of it has been as revolutionary as the intermodal shipping container. Before that it took days and sometimes weeks to load cargo onto a ship. The main point with the shipping container is that it made international trade significantly cheaper.
The US could not have won the war without the wealth that still remained within the "fully backed" dollar even after all the shenanigans that had been pulled on the general citizens devaluing the dollar up to that point.
> Huh? Literally everybody grasps this. This the most widely accepted mainstream narrative about the economy right now on the internet.
> Hell, you can't throw a rock at the Wall Street Journal (conservative) or the New York Times (liberal) without hitting a sentence that mentions wealth inequality brought on by fed policy. For further evidence, your comment has been upvoted to the top because everybody on HN believes the same thing as you.
You just named three institutions that cater to highly educated people. I don’t think much of this is understood by a huge portion of the general population. I’m not talking down about people who didn’t get a higher education (I didn’t finish mine). I’m just pointing out that this is a pretty weak argument for “everybody”.
No, 100% for sure everyone does not know or understand this.
Most of my family are clueless about this stuff; do you think Fox News - their and many peoples only news source - are sharing that bit of insight with their audience?
Why bring politics into this? Most of my economically clueless friends are liberals who only watch CNN and read NYT. Economic Ignorance is widespread and bipartisan.
I've seen clips of Tucker Carlson talking about this sort of thing before. Not saying he's a righteous source of unbiased truth, but he's better than he often gets credit for imho.
Almost noone in my highly educated and successful social circle grasps this. We are talking MBAs and PhDs. They all think that the bailouts in 2008 and in 2020 were necessary because otherwise "the economy would collapse".
The biggest problem is the large disparity between income and capital gains tax. This has resulted in stock market appreciation growing the economy instead of a growing economy resulting in stock market appreciation.
I was replying to OP's claims that the Federal Reserve is the "evil puppet master" behind wealth inequality.
This is patently false. Inequality has been expanding since the 1970s, long before the "evil bank bailouts" and accommodative monetary policy of the 2010s Federal Reserve.
I'm confused about the nitpicking in this thread about who the boogie-men are -- the Fed, Congress, the rich, etc.
We do know these are all the same group of people, right? Same social strata, same schools, same manners, same wealth, same worldview, etc. Party makes little difference here -- R's and D's are just two right-wing parties who mainly serve special interests (industry). Clinton gutted working people as much as Reagan did -- wages continue to stagnate under allegedly liberal presidential administrations, too.
For all this to be true I don't even have to appeal to the fact that since the 70s the institutions we're talking about are all revolving doors facing each other -- work in government, then work in private industry, then back to government, then I'm Janet Yellen charging Goldman six figures for speeches but pretending they don't influence me.
It's a bit reductionist, maybe -- but by and large they're all the same people and they serve the same interests.
That’s the point. The Fed essentially gained complete control over the value of the dollar once Nixon severed it from gold in the early 70s. Easy monetary policy has been the norm since the 1990s.
Business cycles and asset inflation are different. Business cycles are natural to capital markets, asset inflation is caused by massive artificial injections of money (a la quantitative easing).
I never characterized the Fed as an "evil puppet master" - that is an exaggeration. However, the Fed is certainly responsible for wealth inequality. It's a simple concept that is 100% backed by the financial and socioeconomic data:
- Rich people (small percent of population, i.e. "the 1%") own the vast majority of assets
- Fed is pumping massive amount of money into financial markets, which pumps up asset prices artificially
- Cost of living sky-rockets since the rich use their increased net worth to buy more assets, causing housing prices and other assets to skyrocket
- Purchasing power of the dollar to buy assets is severely decreased. Wages are stagnant but assets have skyrocketed. This causes feedback loops where the poor / middle-class don't have money to buy assets and the rich keep getting more money to buy more assets, hence runaway wealth inequality and social unrest.
No reason to have so much contempt against this argument. It's based on the evidence.
>Have you ever examined the idea that it could be you who lacks education?
>You're angry because it feels like everybody is getting rich and you aren't.
You could have made your point without these personal attacks.
Also, I don't understand what the parent comment said that you think was wrong. Inflation is basically a flat percentage tax on everyone with USD (and subsidy to debtors as percentage of your debt). If the government is printing money to pay back its own debts through bonds and such, it's taking money from everyone and then giving it back to only the wealthy.
You responded with, paraphrasing, "have you though about if the fed had no accommodative monetary policy?" But the parent didn't say the fed should have done nothing, (s)he said what they did do exacerbated wealth inequality. The monetary policy we got could have been one that bailed out the people whose houses were about to be foreclosed instead. Or a stimulus check to anyone who earned under a certain threshold of income. Or a more conservative approach of letting the banks fail, become liquidated, buy the bank's assets and then auction them off. There are tons of outcomes besides the false dichotomy of "no accommodative policy for the last 10 years" vs the ones we got.
> But the parent didn't say the fed should have done nothing, (s)he said what they did do exacerbated wealth inequality. The monetary policy we got could have been one that bailed out the people whose houses were about to be foreclosed instead. Or a stimulus check to anyone who earned under a certain threshold of income.
These are fiscal policies, not monetary policies. The fed cannot do these things. The fed can only buy and sell securities, including its infinite supply of Treasury bonds, and raise and lower interest rates. It lacks the capacity to actually help individuals.
Thank you for this correction. I wrote this thinking "Fed" as federal government, not federal reserve, which was not smart of me. I was mostly criticising the parent's ad hominem attacks
> you can't throw a rock at the Wall Street Journal (conservative) or the New York Times (liberal) without hitting a sentence that mentions wealth inequality brought on by fed policy.
I dont feel that's a mass read category. But go to the mass right news you wont see much on inequality at all (obviously you do on the left). Right news like Fox tends to be more about taxes taking your hard work away type rhetoric. And the 'bigger pie' arguement which sounds great but lacks practical application.
> The minute inflation starts creeping up, the federal reserve will have to increase interest rates and cut off the money printer. In an instant, wealth inequality will start shifting the other direction, and valuations will fall.
Really? My understanding is inflation tends to bring wealth inequality on the other end. People who own assets see these protected from value erosion while wages tend to get eroded.
I believe if you want to reduce wealth inequality you need many things but the core is around 1) strong progressive taxation, 2) market regulation to stop monopolistic and similar behaviour and 3) employee protection/regulation to allow workers to have some teeth in the wage negotiations.
> You're angry because it feels like everybody is getting rich and you aren't.
This is uncharitable. In fact most middle class folks who sign on to this frame are motivated by basic ideas like justice and fairness. Realistically policies designed to address wealth inequality are going to make very little difference to anyone here making a typical engineering salary.
It's easy to sign on to "a rising tide lifts all boats" when you hear it the first time. But after decades of waiting, the dinghies are just plain sunk at this point as the yachts are pulling out of the harbor. It's time to try something else.
The problem is that more people are middle class+ than ever... so while you complain of "decades of waiting" the fact remains that all boats ARE rising.
The only difference is that you now have a direct connection to the few that have risen faster - there have always been those people. But you now see them. They are still the 1% but they are in your face like never before.
"it's time to try something else" What else is there? Socialism? Tried, failed worse. Communism? Even worse. In all systems man has created, there's inequality. "equity" (equal outcome) has been proven an unmitigated disaster time and time and time again.
Over the past half century, the middle third of the income distribution has dropped from 62% of aggregate income to 43%, mostly at the expense of the upper third (the bottom third is mostly flat, but certainly not "rising").
> "it's time to try something else" What else is there?
The New Deal seems to have done pretty well. Minimum wage laws used to be vastly more effective due to inflation, and we grew just fine in the 60's. Some of it is just fairness: Upper incomes and short term capital gains used to bear a much larger share of the tax burden, and those cuts seem to have done nothing but make rich people richer.
This canard is so tiresome. Someone does the peasant "I think we should improve society somewhat" thing and inevitably they get accused of being a (pause for breah) COMMUNIST. Every time.
Plenty of info out there that wealth is getting distributed globally. The absolute poor are decreasing and the middle class globally is increasing - absolute numbers and by the %'ages.
> inevitably get accused
If you use the ideas and thoughts of it... then of course you're going to get accused of it.
And your "why you gotta call me a communist" doesn't answer the question... what other options are there?
Those numbers are global. I don't see how they're relevant to the subject at hand. "America" is literally in the title of the linked article, and the discussion is primarily about US tax and entitlement policy.
Not sure how "democrat" is an option... it's an American political party.
Unless you mean DS: "democratic socialism" - which is still socialism. Look at the Green New Deal where DS wants to go - control of industry "for the people" by massive expansion of government into various industries.
While you may have a point about the article being American focused, the fact remains that the middle class is expanding and the lower/peasant class is shrinking globally - all boats are rising due to "evil capitalism" and that horrible capitalism, despite being the worst idea ever... is still better than the alternatives that have presented. It's global success compared to the global failure of other "better" ideas is self evident at this point.
Socialism is the perfect theory... until it meets reality... and other setups are in the same boat: Better than capitalism until you look at real world results.
Need to fight cronyism? corporatism? Monopolies with reasonable government controls? Sure... I'm not a PURE capitalism person - My thoughts are based on reality where restrictions keep things reasonable (like restrictions on free speech and owning guns).
Well, honest question... what's the alternative? because all the other options have proven to be worse by magnitudes of order.
Calls that it's not sustainable are like cries of impending starvation and privation... yet "famines" haven't happened because advances created by... capitalism. Better crop yields, better farm results, etc. Driven by "greedy capitalists".
can we do better? Sure... fight crony capitalism? coporatism? absolutely...
But end of day... the alternatives? have proven worse - unless you have proof otherwise and history isn't with you on that...
> Literally everybody grasps this. This the most widely accepted mainstream narrative about the economy right now on the internet.
Heck, much of it (the parts that aren't confusing the Fed with other repairs of government) has been echoed by Fed board members and other (in the minority, at the time) government decision makers. Overreliance on the Fed and top-down monetary policy to do the economic job for which fiscal policy is better suited has been a recurring, mainstream criticism for years.
> Have you thought about what the economy would look like right now if there had been no accommodative monetary policy from the Federal Reserve for the last 10 years?
Is this not a bit of a false dichotomy though: "accommodative monetary policy" (as it is done), or nothing? There are numerous different ways we could achieve "accommodative monetary policy", each of which would have different outcomes.
Inflation is the idea of prices accross the board going up. If you've experienced prices going up that does not indicate inflation. The second statement can only be true if your expereince is unrepresentative of the wider population for which you are discussing inflation. That wider population is usually considered to be people paid in the same currency.
Well I guess wages usually go up for the same kind of job with the same experience when there's considered to be "inflation" and that really hasn't happened. Prices. Yes, they've gone up consistently, haven't we all seen the hard reality of that? And they show no signs of doing anything else. Price indexes used as a proxy measure of inflation may not be capturing that reality. Is it deliberate that the measure is failing to capture the reality? Or is it just poor baskets of goods and services in the index and a lack of will and talent to correct the issue? Anyone arguing about index values and what they mean still has to have a roof over their head quite literally at the end of the day. That has a cost. I haven't noticed the cost going down over any 5 year period. Then look at the cost of eating. Then the captial equipment you need for your job and to be able to pay required bills (some of clothes, vehicle, computing devices). Then look at essential consumables (some of fuel, food, electricity, telecomunications).
I can't see anything other than high inflation and a decrease in disposable income. Note that if you get promoted and get a raise for a new position the reference is how much /that position/ was paid previously not what you were paid fresh out of $whatever.
I don't ever see a measurement that reflects the reality we all see, experience and have to budget in inflation discussions in finance nor do I see a justification of why it's just plain wrong and in so far as these numbers represent anything they represent something else entirely other than the purchasing power of a dollar in your pocket this year as opposed some time in the past.
Rent and food prices have increased dramatically in the last 10 years, at least in urban / suburban areas. For consumer goods, shrinkflation has led to a huge decrease in product longevity, meaning I need to replace items more frequently. If the price for e.g. a toaster or blender has stayed the same but I need to replace it twice as often, then I'm really paying twice as much.
They're meant to reflect the monetary phenomenon of inflation, not all worries about all prices. We need to address the rise of rent and healthcare prices, but dragging the prices down through monetary policy won't work if monetary policy isn't what's causing the problem.
Also, food is not included and is a significant portion of my perception of prices. Food prices went up significantly last year and it's not something you can decide not to buy.
It may be pandemic influence, but that's the world we live in now.
In 2020, food-at-home prices increased 3.5 percent and food-away-from-home prices increased 3.4 percent. The CPI for all food increased 3.4 percent over this same period. In general, food price inflation in 2020 was much higher than in 2018 (0.4 percent), 2019 (0.9 percent), and the 20-year average (2.0 percent).
The PCE fraction for "food and beverages" (home, away, alcohol) ranges from 13.8% to 17.0%.
That Wiki page also has a nice comparison to the consumer price index (CPI), which was previously used by the US Fed. US Social Security still uses CPI to adjust national pension payments.
Also, you wrote that food prices had more inflation in 2020 compared to other recent years. During the COVID-19 pandemic, many people had cheaper transportation costs, which would offset some or all of this food price inflation.
In particular: education, insurance, and housing really is accurately reflected in the CPI, but the true price of non-shit consumer goods are consistently under-estimated in the CPI.
Yes. When Apple comes out with a new iPhone, and last year's model is discounted by $100, that is counted as deflation in the CPI. When an appliance costs the same as it did 20 years ago, but lasts 5 years instead of 20 because it's made more cheaply, that's generally not factored in.
Housing is not included in CPI, only "rents". If home prices go up 10% this year, but interest rates drop such that the carrying cost is the same, the effect on CPI is net 0% inflation.
Obviously the purchase price matters, because the higher prices are, the more money you need to even get in the door with homeownership.
This reads like an oxymoron to anyone who's not a property owner, which is about half the country -- all of whom are in the bottom 90% referred to in the headline.
> Should renters not have the opportunity to buy a home?
there should not be societal subsidies for people wanting to buy their home.
If rents are not growing at a rate that's higher than wage growth, then it is stable and thus acceptable. Owning a home is a privilege, not a right. Thus, the CPI calculations correctly only includes rental costs, and not ownership.
>If rents are not growing at a rate that's higher than wage growth, then it is stable and thus acceptable
Nonsense. Theoretically if wages and rents grew 5% in step together yoy, but most other goods increased at >100% (say houses), your statement implies things would always remain stable. I'd think not...
The real reason CPI is garbage (for measuring total inflation) is because it doesn't track everything, and hence misses the inflation in things that the CPI doesn't track (such as houses). More specifically, it's a measure that only tracks what urban people CAN & typically spend money on. It doesn't track the things which some people have been entirely priced out of and hence don't spend money on (such as home ownership, as well as other assets).
> Huh? Literally everybody grasps this. This is the most widely parroted mainstream narrative about the economy right now on the internet.
I find this hard to believe. The narrative of the doves, the current administration, and most of the Democratic Party is that these bailouts are necessary. That’s the entire reason they are doing this.
Your post reflects current mainstream thinking in neoliberalism. There is nothing special here and it’s just a disagreement on whether near term depression is worse than supporting the inequality.
We're entering a potentially deflationary period. An aging demographic and technology create deflarionary pressure as people leave the workforce and technology improved efficiency. The Fed wants to create inflation. We know what's going to happen over time by observing germany and japan.
We need more immigration it will have at least a temporary salutary effect on our underlying demographic issues. It’s weird to me that no arguments ever seem to reach the mainstream these days that population growth achieved by mass immigration worked for the Americas before ( and by worked I mean in a narrow economic sense it was attended by many bad problems )
What data are you basing this statement off of? The generally reported inflation figures for the US economy tell a markedly different story than you are.
Germany is an example of where their monetary policy has allowed them to keep inflation at the rate it's at. Japan is an example of where they have failed. Both are still good examples.
We should just reset everyones 401k to what their 2008 values would be after GM, airlines and their suppliers were sent to bankruptcy court. Smash the last unions, wipe out pension funds... quite the libertarian utopia we could all be living in today.
> Huh? Literally everybody grasps this. This is the most widely parroted mainstream narrative about the economy right now on the internet.
That may be the case but traction on this narrative was near zero if not negative even say two months ago. "Inflation? The poor are in debt, so it's good for them right? Lel"
More importantly the professional pundit class (neoliberal economists like krugman) and even the socialist-adjacent MMT theorists do NOT see things this way and push hard for policies that while well meaning will likely result in stealing even more from the working class. The media of course feeds off of this class so it may (finally) be part of the "internet discourse", it's not part of the "mainstream discourse".
> In an instant, wealth inequality will start shifting the other direction, and valuations will fall
No, if you understand the mechanism of how inflation steals from the labor class, you would know that "it doesn't work that way". It is not an "instant reversal" of wealth inequality, except for if the crashes brought out by the interest rate hikes are accompanied by not bailing out the wealthy, and we all know how the track record on that has been going.
Around the same time this was shared to HN I Tweeted/FB/LinkedIn variations of the following
>If I earned $10,000 a day it would take me 273.97 years to have earned 1 billion dollars. Meanwhile, Elon was worth about 20 billion a year ago, last month he was worth an estimated $185bn. Oof. In reality, I make a little over $17 an hour
His net worth increased an estimated 4.66 million times my annual gross income in the past year. I've been at my job 15 years.
When you stop and think about it, it can quickly approach the territory of crippling. I'll probably have to work until the day I die, or until I physically can't, whichever comes first.
My wife does a little bit better than me as a public school teacher, but she also probably logs 70-80 hours a week of work once you factor in grading/lesson plan/meetings/coaching track for an extra $1500 a year/Friday detention/etc.
If someone gave me 100,000 USD, my stress level would freefall. My quality of life would drastically improve. My financial security would be able to weather any realistic event sans aggressive cancer treatment. Mr. Musk had his net worth increase 1.6 million times that amount last year. (Edit: This is an example, I'm not begging for money, so stop using it as a means of attacking my entire post)
Some days I just "can't even". With my faith, my wife, my friends, I try to be upbeat and positive when it comes to the future but when I see people like Musk, Bezos, even Gates and then I start worrying about replacing the roof/well pump/affording a mower come spring/why does one spot of the kitchen floor dip a bit when I stand on it and how much is that going to cost me/how long is my wife's car going to last/how long is my car going to last/is it going to warm up anytime soon because we've already filled the propane tank twice since November/etc and I just start to want to fully disconnect from reality and wish catatonia upon myself to escape it.
Then if I think about how fortunate I actually do have it, then I start getting depressed that there are people out there making 2.5x less than me in my own state, that there are homeless populations here in the U.S., and then I think but what about the people in 'third world countries', our minimum wage and homeless have it even better than many of them, then that catatonia starts sounding really nice again. If I can't even seem to improve my own situation to have even a fraction of a percent of the financial security that even some people I personally know have (people that have posted on this very forum) then how the heck am I ever going to be able to help enough even less fortunate than me to not feel like crap when I remember they exist and have it worse than me?
By the same token, Elon Musk is someone who succeeded, while thousands upon thousands of entrepreneurs fail, end up with debt, and don't have much to show for their work.
So using survivorship bias to compare yourself to Elon Musk which is an atypical result when it comes to business formation doesn't make sense.
You should probably compare yourself to the average business creator and see how you fare compared to them.
It's like saying I'm not that great at Basketball, but let me compare myself to Michael Jordan.
It's like pointing out the absurdity of 1 man, over the past year, having his net worth increase 2.32 million times the annual median household income (of the U.S.) of $68,703 (2019, per census.gov).
While something like 20% of the planet doesn't even have access to reliably safe drinking water and something like 800 million lack the amount of food require for an active life.
Well the original post was someone who had access to reliable safe drinking water, so I'm not sure where that is coming from.
Also if you look historically over the past 100 years overall rates of poverty have declined everywhere.
If you look even further back in time the amount of rights that global citizens enjoy today is fundamentally a million times better than it was 100, 200, 300, 400 years ago.
Humans were ruled by kings and queens, where land was inherited, there was no upward social mobility, slavery of peoples was much more rampant than it is today.
Humanity was never equal, in it's history, but today if you ignore the top 1% we as a people actually enjoy fundamentally more equality than our predecessors who weren't part of the 1%.
Also, while the inequality exists between the 1% and the 99% today, today actually have upward social mobility to become part of the 1%, where 400 years ago that wasn't really all that possible.
I'm not saying the world is perfect, but if you look at it has actually gotten better overall.
I'm also pretty sure that the implied worth of Rockefeller and some of those old guard monopolists on a inflation adjusted and power adjusted basis was probably many times higher than even Elon Musk's net worth today.
>Well the original post was someone who had access to reliable safe drinking water
That someone was me, in the same text I also mentioned homeless persons and individuals living in "third world" nations.
And I only have access to reasonably safe drinking water because I added filtration equipment totaling about 2.5% of my annual gross to reduce the nearly 'unacceptable' lead levels in my well for my drinking water and have to, with some regularity, test that water on an ongoing basis to make sure the well hasn't been contaminated by any number of natural and man-made pollutants (chemical spills, chemical fertilizers from neighboring farms, etc). I don't have the luxury of turning on the tap and knowing that an entire industry is testing and chemically treating my water on a daily basis but I still have it a lot better than at least 1/5 of the world.
Just yesterday I was reading a book called "Stones to Schools" about a small NGO that builds schools in remote regions of Afghanistan and Pakistan. I found it very uplifting.
It breaks my heart (out of its cold iron shell) to read about regular people busting out the checkbook for schools for kids halfway around the world (and typically of a different religion!) who have pretty much nothing.
My man, do what you can to improve your situation and if/when you can help out, do so. You will help the less fortunate by relentlessly improving your life. When you catch a breathe and life becomes fun, then spread some joy to others, but until then you are not in a position to feel guilty about it.
The language you use here is concerning and not empowering. Why would someone 'give' you $100k? Despite some arguable edge cases (hft, etc.) money is only earned by creating value.
> Some days I just "can't even". With my faith, my wife, my friends, I try to be upbeat and positive when it comes to the future but when I see people like Musk, Bezos, even Gates ...
Comparison is the thief of joy. My (unsolicited) advise is to narrow your focus to doing whatever you can to make you and your family's life better. Leave Reddit/Twitter/whatever, stop consuming media and focus exclusively on what is right in front of you.
"The language you use here is concerning and not empowering. Why would someone 'give' you $100k? Despite some arguable edge cases (hft, etc.) money is only earned by creating value."
Where are you looking away each time they pour another few trillion into the stock market?
The language you use here is concerning and not empowering. Why would someone 'give' you $100k? Despite some arguable edge cases (hft, etc.) money is only earned by creating value.
> Some days I just "can't even". With my faith, my wife, my friends, I try to be upbeat and positive when it comes to the future but when I see people like Musk, Bezos, even Gates ...
Comparison is the thief of joy. My (unsolicited) advise is to narrow your focus to doing whatever you can to make you and your family's life better.
She had me with the history of income inequality and then she lost me with “wage gap” talk. Why is a plea for bipartisanship always followed by throwing shade at white men? It’s wearing on me.
It's the poison pill that Amazon/Walmart/et cetra have injected into the conversation to make sure they keep on top. Unless you think that all the top 1% have adopted identity politics out of the goodness of their hearts? It's just classic divide and conquer strategy. It's no coincidence that identity politics is so popular with the relatively affluent tech community who dont want to take a good hard look at themselves.
I remember seeing a meme the other day about two justice systems in America, one black kid getting held for 3 months in jail, while a white kid with a more serious charge got out on bail immediately. Of course the meme framed it as a racial issue. The actual root cause was ya know, the white kid has a family who could pay or put up the bail while the black kid didn't, which means it was income inequality issue. But it sure seems there's a dedicated group that really really wants you to think its a racial issue.
And that you should spend your precious time, political capital, and energy fighting that racial issue over the wealth inequality one. And that you shouldn't ever ever ally with someone who would work with you on the inequality issue but disagrees with you about it being a racial one, because they are an icky nazi.
I wonder what exact group of people benefits from this perfectly engineered storm of division?
Trump got elected due to ultimately populist anger over wealth inequality. But telling a poor struggling white family that they are privileged is a great recipe for them to ignore actually prescriptive solutions to their problems and turn to people like Trump.
Ultimately, it's wearing on you. Because it's supposed to wear on you. It's supposed to remind you what happened to the kulaks last time income inequality was addressed. And not so subtly remind you that white men are the kulaks of the modern age.
Kulak is on Wikipedia
""During the Russian Revolution, the label of kulak was used to chastise peasants who withheld grain from the Bolsheviks. According to Marxist–Leninist political theories of the early 20th century, the kulaks were class enemies of the poorer peasants""
I think the oxford definition conveys it better
"a peasant in Russia wealthy enough to own a farm and hire labor. Emerging after the emancipation of serfs in the 19th century the kulaks resisted Stalin's forced collectivization, but millions were arrested, exiled, or killed."
IOW. The middle class. Small business owners. People who have acquired a tiny amount of capital.
It's a view that I once held and it's easy to agree with reflexively because it appears correct at a surface level.
Poor white people hearing about "white privilege" does alienate them, it implies they've failed even with a kind of starting advantage and can be taken as an invalidation of the hardships they face. Rather than inviting them to be empathetic to the additional issues faced by others it instead prompts them to be defensive of their own difficulties.
When GP frames the issue as one of income inequality and not racial inequality, he's partially correct. On the surface it is an income inequality problem, but for the black community that income inequality is the result of wealth inequality that is itself a product of historic racism.
The same goes for the wage gap which he's dismissive of. The usual argument here is that women simply choose lower paid work. But if we look past that surface level analysis there are still issues with employers not wanting to hire women because they think they might get pregnant, underpaying them because they're less likely to complain, or whether the types of work performed by women should be lower paid in the first place.
And the bottom 90% are told by the reps of the 1% that it will trickle down. This is like urinating on their heads and saying it is raining.
I remember to be in the global 1% an annual income of 45k usd would be the qualifier. However, this is an US centric article so the following applies...
"To be among the top 1 percent of U.S. earners, a family needs an income of $421,926, a new report from the Economic Policy Institute finds."
On the bailouts, every time I hear a passionate right winger saying the bail outs are necessary, I know they would turn into fully fledged communists if it would be the trendy thing to do and if that kinda government were in place.
It was never left center or right , people do not care beyond maybe closest family. They care about money, net worth, assets , power and status. How they get hold of that was always secondary.
Everybody in here looking for an answer to inequality that doesn't exist I'm just sitting here waiting for Star trek replicators to eradicate our current monetary system
The Federal Reserve has a mission which can be very simply understood [1]
The reasons for specific actions can be read and understood by the majority of people on HN, assuming they are willing to devote the time required to read through the research which guides the Fed's actions.
Stating that it is the Fed's policies which have taken $50T of wealth from the bottom 90% is, in my not so humble opinion, an extremely naive and shallow assessment of the situation.
There is very little debate that the Quantitative Easing and ZIRP of the Fed and other central banks generally hurt savers, it also likely prevented significant harm to any equity holdings they had, which would account for the vast majority of the volatility in their portfolios.
To place the blame at the feet of an institution which is controlled by congress is silly. The tax policies of the last fifty years get a pass? The protectionism that helped usher in the demise of the american steel industry? The excessive power of unions to push wages well above the global market, without the support of politicians to penalize offshoring of jobs? The general trends of automation of repetitive, moderately skilled work? The explosion in software which has a marginal cost of production approaching zero? The willingness of the populace to ignore where and who made their trinkets, so long as they can buy a dozen for the cost of one locally made? The willingness of state and local politicians to hand out tax incentives to mega-corps at the expense of small businesses? The shift toward knowledge work, which study after study has shown has significant network effects, pushing people into more densely populated cities, harming small towns and the tax bases of rural communities? I could go on. None of these things matter? It's all the Federal Reserve?
"Taken" is a misleading and false. They aren't taking wealth. Others are giving them money in return for something they value. If I am selling a product, or my services, or a share of stock, I'm not "taking" anything from anyone. It's incredible to me that these casual editorialized titles are acceptable so broadly in the journalism industry, and yet labels like "fake news" are reserved for only right-leaning news media.
If you want to get into the nitty gritty, the 1% rich generally don't sell products or services. They own companies who employ workers who do these tasks. Some surplus portion of the value generated by those workers is then captured by the organization (and its owners) as profit. Whether you want to call that "taking" or not is a question of ideology, not of fact. Arguably, omitting the word "taken" from the headline would be editorializing as well.
If you want to get into the nitty gritty, consider that the 1% generally don't "own companies". That is a vague trope from the Occupy Wall Street types. A significant portion of the 1% are skilled professionals (programmers, doctors, lawyers, etc.) or rare talents (actors, musicians, athletes). Many are small business owners who are taking significant risks and typically work incredibly hard to be successful (and most fail). Many may be "owners" of companies in the sense that they are shareholders, but that fractional ownership is also available to you or I. Very few are in a position of outright ownership or even majority ownership of a company that is bigger than a small business. If your intention was to claim that the 1% get income passively, I think you may be drawing your percentiles at the wrong threshold.
But I still disagree with your framing of the definition of "taking" as an ideological question and not a factual one. People have choice on where they live, what work they do, what they spend their money on, how they manage their free time, and so forth. If one person saves up, takes a risk, starts a small business, and offers employment at a certain exchange of money for time, that's not "taking" because "taking" implies an involuntary action or theft. The employer is offering a trade, and the employee is accepting it voluntarily, giving their time and labor in exchange for pay. That simply doesn't fit the definition of "taking".
Not decidedly false at all. This is the one part of the LVT that I actually agree with. Wealth is a zero sum game. The only ultimate source of real value in the world is from labor applied to material of the world. Time spent laboring towards one thing trades off with time spent laboring for another. Seems zero-sum to me given that financial capital does nothing to increase real value or real wealth.
capital allows the labour specialization to exist. After all, capital is 'saved up labour', available for expenditure for future purposes.
Imagine if you wanted to manufacture a car, which takes a long time to make. If you didn't have capital, you'd have to find/forage for food, and have very little spare resources left to actually do the car manufacturing. If another person, with a large storage of food, gave you said food, but ask in return, for the car, it would work (it's just a matter of negotiating an exchange rate between the food and the car).
When you bail out irresponsibly over-leveraged and nearly bankrupted banks and corporations, and pay for those bailouts with tax-payer money, you steal from the poor and give to the rich.
Most importantly, when the Fed decides to print money ad nauseam, they create massive asset inflation, which steals from the poor and gives to the rich. This is because those dollars that are printed go directly into bonds, equities, and assets that only a small amount of the population owns a significant amount of. When money is "printed" the Fed actually injects money into financial markets through buying assets. This asset inflation caused by money printing gives more money to the rich to buy more assets, thus driving up the prices of financial products, real estate, and all other valued assets in society. Thus, cost of living skyrockets, but only the rich are actually increasing their net worth (which is increasing exponentially). All of this happens while minimum wage, and most wages, are stagnant.
Wealth inequality and social unrest in America is DIRECTLY related to corrupt and/or incompetent (you choose) Fed policies. It amazes me why most people do not grasp this. I think it is lack of education.