This is a nice demonstration that ‘raw’ inequality data is not very useful. “X% have Y% of the wealth!” really doesn’t tell you very much.
I’m actually only concerned about the consequences of inequality (which could be positive or negative), not about inequality itself. What do I care if 1% of the population have 99% of the wealth if there are no consequences to it? I certainly don’t want to reduce inequality out of spite.
Statistics that tell me, just as an example, how the wealth of parents corresponds with the success of their children in school are much more interesting and reducing inequality probably wouldn’t even be the best solution for such a problem. It’s not as though all that money in mommy’s and daddy’s bank account makes their kids magically more intelligent. (But it can pay for private schools or for private lessons and so on.)
It’s not as though all that money in mommy’s and daddy’s bank account makes their kids magically more intelligent. (But it can pay for private schools or for private lessons and so on.)
FWIW, numerous studies have found that the vast majority of correlation between parental income and the academic success of children can be explained by a third factor: Parental education. Educated parents both earn more and provide far more educational encouragement and assistance to their children.
Yeah, I knew that and should have written that in my comment. You are right.
I’m from Germany where this kind of inequality is particularly egregious. The explanation is probably that the fate of students is decided early on, in fourth grade. (You continue in one of three different types of schools after fourth grade, depending on your grades. Switching between schools is a hassle and only the highest school has a clear path to all universities.) Looking back at my own experience in elementary school, I would say that it was essential for me that my parents learned with me and helped me with my homework.
I feel that you are omitting genetics as a possible (probable) significant cause of academic success, which because of the corelation with the parents own academic success will be hard to disambiguate as a variable.
According to horizon (a main stream medium-high brow documentary series in the UK), separated twin studies show that as much as 50% of 'measured intelligence' can be attributed to genetics - which was fairly surprising (not the figure itself, because it agrees with my own suspicions) but because it was on a mainstream show. What is more earlier in the show they talked about a scientist in the 30's (nephew of Francis Galton, forget his name) who had faked a bunch of such studies and made up numbers. The figure he invented was 30%.
There has been many studies for a long time (several decades) which show that as far as environment matters, what matters is not so much money, but what is called in sociology "cultural capital" (not sure it is the right expression in English). For example, in France (but I guess in other countries as well), children from teachers succeed much better than children from workers, even though income is not so much different. The ability to speak well, to dress well, manners, etc... matters a lot for getting high social status (through work, etc...), and they are valuable because of the inequality. If everybody has a certain quality, its value is almost zero, it is the same as resources in economy.
As for the origin of measured intelligence, I would be surprised about 50 % of intelligence which could be attributed to genetics if you mean IQ (I don't see how it would be consistent with the Flynn effect, for once). But I would rather avoid a discussion on IQ (I don't think it is very relevant to the discussion, as its correlation with success in modern societies is pretty weak, once above a minimal threshold).
But I would rather avoid a discussion on IQ (I don't think it is very relevant to the discussion, as its correlation with success in modern societies is pretty weak, once above a minimal threshold).
No, it's predictive value for individual success is pretty weak. That's not the same thing. Here is a rather famous graph:
I suppose the counter point is that teachers are 'underpaid' for their intelligence, when compared to workers. There is probably an element of that since teaching is vocational and most people entering the profession do so in the knowledge that they will not earn as much. Hence we should not be surprised that their children do better - for both cultural and genetic reasons (50-50?).
The original point was about academic success, which is surely more corelated with IQ than economic success.
I think discussion about IQ, genetics and co are mostly meaningless for various reasons: the issue is extremely loaded politically, which means it is difficult to discuss about it with people who has a different opinion, and the science around it is inconclusive at best (the nature or even the reality of flynn effect is still debated, for example).
This is not to say it is not interesting, but I would put it in the same camp as discussion around religion: it is possible to discuss about it, but almost impossible to do it in a reasonable manner with random people in the internet. That's why I refuse to discuss it as a matter of principle in most cases with people I don't know personally.
From your recollection of that UK documentary series ... you haven't told what percent of the population has bad genetics.
My wife works in a kindergarten: lots of kids have problems assimilating concepts / participating in games. But for most of those kids, their ability to follow the rules and learn can be attributed to a problem at home: i.e. parents that lost control over them (think Dennis the Menace) or parents that don't provide harmony in their family (fighting a lot, getting separated, etc...).
And really, the difference between kids with parents that work/play with them and that provide a balanced home environment versus those with problems at home is striking.
Even if %50 of intelligence can be attributed to genetics, that doesn't say a lot.
Just want to point out that you are assuming that everyone has access to decent public schools. I'll bet genetics is far less important if that weren't the case.
Not at all. That would be part of the other 50% ... going with that number.
In fact your remark is quite confused. 50% is the variation in a 'typical' population. If everyone had access to public schools genetics would be more important. Since that would eliminate one of the major factors which accounts for the other 50% (again, going with that number).
He said genetics wouldn't be so important if everyone didn't have access to decent schools. In other words, he's saying genetics is more important if the school inequality is equalized. You're actually agreeing with him.
I had to reread both of these comments a couple of times, before it dawned on me why you disagreed - correctly.
Since I am from the UK public school reads 'posh elite school', not 'state school' so it had an opposite sense to my thinking.
As to the alleged assumption, I'm not entirely sure to what degree I am making it. I am assuming of course the same conditions as the experiments I mentioned - which were, I am fairly sure, western society in general in the last few decades. I won't pass judgement as to whether this meets the condition of decent state schools for all.
In all not too sure what the point of the original observation was, it could go in both directions. The figure of 50% only makes sense given some context.
I’m not really surprised that genetics influence intelligence. I always thought that to be a pretty standard view and the 50 percent figure you are citing doesn’t exactly startle me.
I’m not so sure how important those 50 percent are in this context, though. One question that I think is not answered by twin studies is how ‘hereditary’ intelligence is. (I’m certain that there exists a wealth of literature about just that topic, I’m too lazy to look for it right now.) Do two parents of average intelligence only have children with similarly average intelligence or is the range of intelligence of their children much wider? Then there is obviously the question how well wealth corresponds to intelligence in the first place.
What's your point? Because '50% of measured intelligence (whatever that is) can be attributed to genetics' nothing/little/less can/should be done about it? Or because only 50% is determined by genetics, we should do more about inequality in educational systems?
I don't get it.
I would agree and disagree with you. Looking at just wealth inequality is, as you say, asking the wrong question. The real issue is earned wealth versus inherited wealth. Even the founding fathers were particularly wary of the problem of allowing unearned wealth to aggregate over several generations, and how that can eventually allow incompetency to rule over competency.
And, this doesn't apply simply to the issue of taxing direct inheritances, so it's not so easy to solve with taxation alone. Someone could easily not give their children a dime in direct inheritance, and just stick them high up in one of their companies with a nice, cushy multi-million dollar salary.
> What do I care if 1% of the population have 99% of the
> wealth if there are no consequences to it? I certainly
> don’t want to reduce inequality out of spite.
You might want reduce it because the lowest x% don't have enough to eat. Share the cake.
The poor don't eat too much compared to the middle class and the wealthy. The poor eat the wrong kinds of foods, because the wrong kinds of food are inexpensive.
If you are fat, you eat too much food. You have more than enough to eat. The situation described by monos, "the lowest x% don't have enough to eat", does not apply. His advice to "share the cake" will only make the real problem (the bottom x% already eats too much cake) worse.
Also, price is not the controlling factor here. 3500 cals of crap might be the same price as 2250 cals of nutritious food, but so what? If you were optimizing for cost, you would eat 2250 cals of crap, not 3500. If you have the money to be fat while eating crap, you also have the money to maintain a healthy weight on nutritious food.
Sorry, but I respectfully disagree. You've oversimplifying the complex subject of nutrition.
It is now known that it's not as simple as "calories in - calories burned = weight gain or loss". The body burns more calories processing some kinds of foods compared to others. The body is less efficient or less encouraged to convert some kinds of excess calories into fat, depending on the source of the calories. It is becoming more clear that insulin plays an important role in a large percentage of cases of obesity, and it turns out most of the most cost effective foods encourage the body to produce the most insulin (and, almost paradoxically, also encourage hunger).
Your own example demonstrates my previous point. I would need to eat 18 (!) of those salads you suggested, every day, to merely maintain my weight. Or 5 Big Macs. It's obviously an extreme example, but which do you think poor people would choose? Buying cheap food can make the difference between paying the rent and living on the street.
With all due respect, it's ignorant and offensive to blame poor people for all their problems. Having an adequate amount of money makes an astonishing difference in your ability to achieve good nutrition, lower your stress, pursue advanced education, get enough exercise, etc.
I know it's popular to blame all poor obese people for their own predicament, but it's simply ignorant.
I agree with your first paragraph - there are significant corrections to the rule of "calories in - calories out = weight gain". That doesn't mean it's not a good first order approximation (in my experience, within about 15% [1]). It also doesn't mean that fat people aren't eating too much. If you are 40lbs overweight, eat less. If you are not overweight but don't have a 6 pack, that's the time to start worrying about exactly what you are eating.
Also, you are correct - the straw man you are arguing against is wrong. It would be cost inefficient to eat 18 salads and 0 big macs.
Now, lets say you are obese. That means you are eating 6 big macs. If you are constrained by cost, you could reduce consumption to 5 big macs (saving the cost of 1 big mac), and you will eventually be merely overweight rather than obese. Or you could change your consumption from 6 big macs to 4 big macs + 1 big salad, and you will approach a healthy weight (and save money). If you want a visible 6 pack, you might even need to play around with the exact composition of your 2250 calories.
You are also ignoring the fact that it isn't very expensive to cook healthy food at home. Last night I cooked about 6 meals from rice, lentils and frozen vegetables. Total cost: about $5. 6 big macs costs about $18.
Also, as for exercise, the lowest earners have the most free time and they exercise the least (I won't even get into the vast majority of poor who don't work at all). They spend the most time watching television. The highest earners have the least free leisure time and spend the most time on exercise (and the least on TV). I'm not sure why having more leisure time would make it harder to get exercise or cook a healthy meal.
[1] My personal experience: I was obese as a teenager. I got myself down to a reasonably healthy weight simply by reducing intake during a 1 year period when I was living well below the poverty line (this was during college and due to some unusual choices I made). I was hungry as all fuck. My rate of weight loss was within 15% of what calorie counting predicted.
The poor eat the wrong kinds of foods, because the wrong kinds of food are inexpensive.
Convenient dominates inexpensive. Frozen vegetables fried in a wok with butter and assorted spices is easy, fast and cheap, but not as easy as pizza goes in oven.
But what is the point of such a line of discussion? If there are no consequences then of course no one would care. The whole reason such a thing is discussed is because there are indeed very real consequences.
Not really. Here in the UK "the poor" have satellite TV, free healthcare, smoke 40 cigarettes a day, and pay someone else to cook their food.
What does it matter that "the rich" go to the opera and smoke cigars and eat at fancy restaurants instead of the kebab shop? How does any of the latter take anything away from the former?
We were talking in the context of the US where this is absolutely not the case. In the UK the wealth inequality would be less of a big deal than in the US precisely because the UK takes better care of it's poor (with the unfortunate abuse that comes with that).
pg's comments about wealth are correct: me going out and creating something that makes me a billion dollars doesn't take anything away from anyone. But this is provided I'm a one man show and have no team. As soon as it's not "me" but a company, then me having enormous compensation very much does take away from others. The more money I take out of the pot, the less there is for workers, new positions, etc. It wasn't so long ago that top CEO's were making 70k/yr. :)
According to Wikipedia, 87% of the wealth belongs to the wealthiest 20%. However over 80% of that wealth belongs to the top half of that group. The figures I am looking at do not break it down farther, but my understanding is that this same relative relationship holds for the top 5%, 2%, 1%, and so on.
Everyone agrees that some wealth disparity is a good and necessary part of a healthy economy. But there is a lot more going on here than the straightforward "some people are older, some people save".
The charts and tables at http://en.wikipedia.org/wiki/Wealth_in_the_United_States#Dis... are very interesting. Of interest to many in the HN crowd I direct you to "Current work status of head". Note the immense disparity between "self-employed" and all other categories.
Everyone agrees that some wealth disparity is a good and necessary part of a healthy economy. But there is a lot more going on here than the straightforward "some people are older, some people save".
Of course. And if you read to the bottom of my post, you'll see that I agree that there's too much inequality in the world.
The point of this post isn't to argue that the existing level of wealth inequality is appropriate -- rather, it's to point out that the appropriate level of wealth inequality is surprisingly high.
Absolutely not for me. Arguably, if all citizens had basic needs met (including "luxury" items that enable participating in society as equals – cell phones and internet connections, for example) and had equal opportunity to advance, that would be acceptable. Not what I consider to be a fair society, but acceptable.
Oh I agree, but for that you need everyone to be similarly educated, which I'd argue requires participation on the part of the citizen. Which might be impossible.
I think it's enough to provide all the basic needs so no one needs to spend extra money on survival. Given that, I get philosophical about work: I think people would contribute more to society if they had the choice of how to do so. My theory is people flourish pursuing goals when the pursuit defines their identity.
It's hard to make office work meaningful when you don't care about the business you're in. Most will settle there for needs met. The parallel is the poor farmer who loves her job but doesn't make enough money to survive.
I'd love to study how identity effects job satisfaction.
While I agree with you and disagree with the original poster, indeed, not everyone agrees that some wealth disparity is a good and necessary part of a healthy economy, I think the discussion merits more than a dismissive "Nope". Perhaps, if you are one of those that disagrees, you could lay out your position and argument.
It is difficult to see how to avoid wealth disparity. We can argue all day about whether that is good or evil, but it is a dangerous and destructive proxy for the complex question that, I believe, most of us actually want to answer: How do we get the most good to the most people while simultaneously preserving most or all of the autonomy, freedom, and privacy that Western cultures traditionally also value?
The original article said: Is there too much inequality in the world? Sure. And cperciva reiterated that opinion above.
That's what drunkpotato is disagreeing with. It is clearly an opinion that isn't purely a matter of facts and figures. (One with which, as I happen, I agree.)
I was acknowledging that not everyone agrees that wealth disparity is necessary. I did not state my opinion on the matter, merely that it is difficult to see how it could be avoided should we want to. I was trying to point out that a glib "Nope" doesn't bring anything new to the table.
Moving on to my personal opinion, I think it's more productive to think in terms of how much wealth disparity is part of a reasonably robust and functioning economy. We've all seen the numbers that show a steady trend upwards over the last 3 decades. That does not seem to be a good thing.
Whoops, yes, I got that backwards. Anyway, the point is that what he's agreeing and disagreeing with are opinions that aren't just a matter of unambiguous facts and figures.
I don't think that opinion of cperciva is relevant to the point btilly made, which is the subject of this subdiscussion. As such, there are no opinions to disagree with. I may be imagining things, but I've seen too many cases of people discarding facts because of some not directly relevant opinion the author/collector/presentor of the facts also happens to have.
That reductio ad absurdum, and most likely not what the OP meant. The idea that a fair society is one where inequalities are rather low is not exclusive to extreme left ideologies. How you articulate inequality and justice is one of the most pertinent way to describe right vs left ideologies, and economics do not preclude either view (up to a certain degree).
If you read serious works about how fairness and inequality relate in modern democracy (for example John Rawls), you will realize that the concept is certainly worth of consideration. Being of a normative nature, it is obviously a matter of personal judgement and opinion, but the idea that inequalities are mostly bad by nature cannot be dismissed as naive, stupid or both.
Finally, I have never seen any serious economic work which claim that inequality was necessary for an health economy. There is a lot of studies about policies which tried to decrease inequalities with disastrous consequences, of course, but that's different.
Low inequalities and no inequalities are very different.
Suppose that we start with equal wealth. And then I buy and consume a chocolate bar. Odds are that I'm now happier and poorer than you. Who would seriously argue that this wealth inequality is a bad thing?
I'm right there with people who complain about the amount of inequality that we have today. I don't think that it is healthy or productive. But if you believe in having private property and money, you have accepted that some level of inequality is acceptable.
Well, sure, it is impossible to have 0 inequality if you consider pure equality, but that's a trivial remark. The notion of equality almost always makes sense only in a statistical sense (are two values statistically different), unless you have a discrete observation.
Maybe that high school dropout is wasting his life away because he sees no means of being successful.
I think you'll find that most people who prefer to stay at home and mooch off the system do so because to make their life just slightly better would require them to seriously bust their asses. That means their effective compensation would be very low (maybe zero or even negative in some cases).
We have and have had societies in the past where everyone got equal compensation. Do you think those societies allowed loafers to goof off all day and contribute nothing?
We have and have had societies in the past where everyone got equal compensation. Do you think those societies allowed loafers to goof off all day and contribute nothing?
That's not better. If someone wants to be lazy, put in the minimum effort, and spend the rest of their time playing games that's their choice and they shouldn't be punished for it by forcing them to contribute to society to "earn" what they've been forced to receive. That cure is far, far worse than the disease.
I'm just saying loafers isn't a deal breaker. Past societies dealt with it by not allowing it. If we ever realize a future utopia we could probably live with a small percentage of the population spending their whole life doing nothing but gaming. But it is my strong (completely unprovable without actually trying it) suspicion that many people who game their lives away actually would rather be doing something else (e.g. working in a space station), they just don't feel they have the option.
Why? Do you think that success should also be uniformly distributed amongst the entire population?
I'd say reward people who are successful. The fact is the majority of people aren't successful or really very useful to society.
The top 1% of society do most of the work, so they get most of the reward. That's pretty fair IMHO.
Human motivation requires that success be rewarded. If there is no success, or "success equality" amongst everyone, then there's no motivation to do anything.
Good lord, how did a post like that get an upvote? It's ignorant well beyond the point of normally being considered a troll post.
>The fact is the majority of people aren't successful or really very useful to society.
That's an insanely arrogant thing to say, not to mention complete garbage. The only reason we even have a society at all is because of that majority you dismiss. They are the ones who spend the money, do the mundane jobs that the top 1% can't be bothered to and so on.
>The top 1% of society do most of the work, so they get most of the reward. That's pretty fair IMHO.
Wtf? Citations? Actually I'm not sure what kind of citation could possibly be provided to demonstrate such a statement was anything but full retard. How do you define "work"? Obviously not manual labor. I will venture a guess that you must be talking about CEO's, but there is no metric you could name that you can't find people lower on the food chain who outwork any CEO on.
>Human motivation requires that success be rewarded.
More Rush Limbaugh-esque nonsense. Rewards take many different forms. A college professor might take reward in the results of his research, even though he'll never be compensated like e.g. Larry Ellison who some would qualify as a blot on the IT industry.
Consumption isn't useful to society. Society is useful in that it makes consumption possible, but that's not the same thing.
How do you define "work"? Obviously not manual labor.
I imagine he meant production, rather than work. A developer (potentially earning $200k/year) who builds an application can be hundreds or thousands of times more productive than a secretary (potentially earning $20k/year). The same applies to a manager who streamlines a production process, a consultant who outsources labor to where it is cheaper, or any number of other similar jobs.
That seems absurd on it's face. If there is no one to consumer what exactly are the producers selling?
>A developer (potentially earning $200k/year) who builds an application can be hundreds or thousands of times more productive than a secretary (potentially earning $20k/year).
Exactly. Surely you're not under the impression that programmers are in the top 1%? Maybe one or two of them but the post I commented on contended that the most productive people are the most wealthy. Nothing could be further from the truth.
>The same applies to a manager who streamlines a production process
If you find a CEO who actually does this (has to be CEO to break the top 1% who are apparently so much more productive than anyone else). I've seen many CEOs ruin things in my career and I've seen many be nearly irrelevant but I can only think of a couple of CEOs who actually made a huge and obvious difference to their company (e.g. Steve Jobs).
That seems absurd on it's face. If there is no one to consumer what exactly are the producers selling?
So a loaf of bread is eaten just so that it can be produced?
Also, the developer I mentioned is in the top 3%, not the top 1%. Does that substantively change the nature of my assertion?
Lastly, when discussing CEOs who fail to turn a company around, you are comparing CEOs to other CEOs. Similarly, while most programmers are more productive than most secretaries, most programmers are not that much more productive than other programmers. (A few are, however, just as in the case of CEOs.)
Unless you believe that a company would be better off making the secretary into the CEO, it is ridiculous to assert that the CEO is less productive than the secretary. Less productive than the competition at his level != less productive than the janitor.
>So a loaf of bread is eaten just so that it can be produced?
Are you arguing in good faith here? Do you seriously believe that if we got rid of the "useless majority" in the US that the GDP would remain the same or even grow? Where would this extra wealth be coming from when the majority of the actors in the economy would be gone?
It's not that society exists to support people consuming, it's that the US' wealth is almost exclusively based on consumption. If you get rid of the consumers you get rid of... (fill in the blank).
>Also, the developer I mentioned is in the top 3%, not the top 1%. Does that substantively change the nature of my assertion?
Well, the conversation was about the top 1 or 2%, but even so. You mention a developer in the top 3%. Most developers, even most very good ones are not there. Is pg in the top 3%?
>Lastly, when discussing CEOs who fail to turn a company around, you are comparing CEOs to other CEOs.
No, I'm comparing what they accomplish to what they're paid. In my mind it would be pretty hard to do something worth a yearly compensation of e.g. 20+ million/yr.
For a founder it's pretty clear. He/she made something and received that level of compensation with a very small team so obviously what he/she did was worth that much to the market. But CEO's are generally shielded from market forces on salaries. Your "you are comparing CEOs to other CEOs" even seems to acknowledge this. If you aren't comparing them, how exactly are we arriving at the value they are providing?
>Unless you believe that a company would be better off making the secretary into the CEO, it is ridiculous to assert that the CEO is less productive than the secretary.
I never asserted that [1]. I concede that a CEO is very valuable and concede that he should be the highest paid person in the company. What I don't concede is that he should get hundreds or even thousands of times more compensation than any non-executive.
[1] I did assert that for a given task that a given CEO does I bet I could find someone paid a normal salary who works harder on that specific task but that's not the same thing and it was to address the patently ridiculous claim that the most wealthy people are also the hardest workers. Some are hard workers.
It looks like the OP doesn't like CEOs. Fair enough, what with CEOs raking in the moolah while the stock underperforms / short-sighted decisions that pander to the 'analysts' are taken etc.
But, the OP also seems to be making the mistake of implying CEOs == the rich. This is patently absurd. There are plenty of rich people who are not CEOs. How about Larry Page, Sergei Brin, Michael Jordan, Barack Obama, Senators of the United States?
Not at all, it's a needed and valuable position to be sure. And I have no problem with them being the highest paid person in the company, even by several times. I just think the vast majority are ridiculously over paid.
>But, the OP also seems to be making the mistake of implying CEOs == the rich.
No, I was singling this group out as a big source of inequality. Larry and Sergei are founders. Their wealth (initially) didn't negatively impact anyone else. Michael Jordan made his money directly from advertising which means he was paid what companies thought was fair [1]. Politicians get rich from corruption and gaming the system. The difference between them and overpaid CEO's is that what they do is obviously illegal or at least immoral. Lots of people herald overpaid CEO's as something to aspire to.
[1] This is different from a typical mid to large size company CEO who's pay is decided by a board (i.e. often totally shielded from any market forces). The board will mostly be composed of people who are themselves CEO's of companies for which this CEO is a board member...
Capitalism, and the income inequality it causes, has proven itself time and again as the most efficient organizing principle to create wealth. You may not like that but I don't think there is any way around that fact.
If you want to go to a less efficient organizing principle you will have to accept that there will be less wealth. If history is any guide the people who will suffer the most from there being less wealth will be the ones at the bottom, not those at the top. Be careful what you wish for.
I think a large amount of our monetary inequality is down to the way we've allowed our markets to become warped.
The numerous examples of CEOs who kill their company but still make out like a bandit. The traders who're supposedly part of price discovery mechanisms but who actually just seem to keep blowing bubbles. The musicians who're granted a government monopoly to sell something we already have too much of (pop music). These are alot of the top 10% and mostly they're doing so well because our capitalist systems are broken.
Even when you get to what you might think of as 'real' work. Advertising is generally not informative but emotive - thus these jobs mostly exist to distort markets. Lobbyists are in the same line of work but using government edict to achieve the same distortions.
Yes the EMH demonstrates that markets are efficient at distributing resources, but it assumes products are fungible, actors are rational and have perfect information.
Vast swaths of our economy are about stopping products being fungible (branding, copyright, patents, lobbying) and limiting how rational actors are (marketing, branding).
I agree. My position is not that capitalism is infallible, far from it, and the distortions of incentives you mention can and should be addressed. But you will find even worse excesses in nations organized around communism.
>Capitalism, and the income inequality it causes, has proven itself time and again as the most efficient organizing principle to create wealth.
Bizarre statement. Compared to what? Primitive cultures that didn't have money? At what do you mean by "wealth"? Fiat currency (in which case Mugabe has been the most successful)? Accumulated toys and gadgets?
Because if you're talking about anything else you're talking about capitalist countries. Sweden is capitalist, as in Denmark (despite both having over 50% tax rates). Hell, so is "communist" China.
The question is just how much regulation they use and where, but make no mistake: they are all capitalist systems.
I'm talking about capitalism as organizing principle: where people create wealth for society as a whole by pursuing their own interests. Wealth does not have to be money, I was talking about the economic definition of wealth. For groups of more than a few hundred people (some say 50) this turns out to work better than any of the alternatives such as communism. But it does cause income inequality as a necessary side effect.
Nations label themselves in various confusing ways, as you point out. China may label itself communist but it is quite far removed from using communism as an organizing principle to create wealth.
>For groups of more than a few hundred people (some say 50) this turns out to work better than any of the alternatives such as communism.
Citation please? Where has communism seriously been tried? Russia was trying a lot of things at the same time while simultaneously engaging in wars and dealing with their own in fighting. Communism didn't flourish in this environment, but what would? Capitalism itself depends on rule of law which was spotty at best.
>But it does cause income inequality as a necessary side effect.
Again, if you're talking about US levels of inequality I'm going to need another citation. I can't think of any developed country that isn't capitalist but I can think of a lot that don't have US levels of inequality.
>China may label itself communist but it is quite far removed from using communism as an organizing principle to create wealth.
Exactly. Granted, China does interfere in their markets a great deal (e.g. pinning their currency to the dollar artificially) but market interference isn't communism. It's a capitalist market their interfering with not a communist one.
> Citation please? Where has communism seriously been tried?
Actually communism works well on a small scale and even in the US it is practiced widely: the family. No one presents their kids with a bill at breakfast. There have been attempts of various success to scale this up in communities / kibuts / etc especially in the sixties. But everywhere it was tried on a nation wide level it failed, which was my point exactly.
> Again, if you're talking about US levels of inequality I'm going to need another citation.
I'm not claiming the US has the "right" level of inequality. They do have one of the highest inequalities and also one of the highest per capita incomes (discounting a countries with natural wealth like Norway). The OECD.org web site has all the numbers you are looking for. I'm not claiming that this is fair, I'm claiming the US has more wealth, albeit not equally divided. If you make things more equal there is a good chance you destroy wealth, and there is also a good chance less wealth hurts those at the bottom, although it can take a few years for the effects to show.
>But everywhere it was tried on a nation wide level it failed, which was my point exactly.
But I don't think it's been conclusively demonstrated to fail on it's own "merit" (so to speak) but rather due to "too many cooks in the kitchen" and/or outside interference. I don't know if this idea could every seriously work or not (I currently lean against), but I do know that people enjoying lots of power and wealth today don't even want to know due to the off chance that it might work.
>discounting a countries with natural wealth like Norway
Why are you discounting natural wealth? The US has natural wealth and a lot of size. We're either comparing it to other countries/regions or we're not.
>I'm claiming the US has more wealth, albeit not equally divided.
I would also question this. It's more or less true as a country but the US has 300 million people and 50 states, many of which being as large as European countries. So a better comparison might be US vs. the Euro zone in which case Europe has more wealth and it is more equally divided.
>there is a good chance you destroy wealth
There is some chance, but I think we're starting to see that it might not be the case and the opposite may even be true.
There's a difference between equality of wealth and equality of opportunity.
Genuine equality of opportunity is unequivocally something to be desired and should be the ultimate goal of any society.
Equality of wealth cannot and should not happen, because people are different. Enforcing equal wealth means limiting opportunity for those who want to take advantage of it. I would argue that this is a fundamental fact of human nature: even in a ideal communist or utopian system where there is no money, wealth would just take the form of respect and influence.
Inequality of outcomes dos not bother me. Injustice bothers me. Unequal treatment bothers me.
But not inequality of outcomes. There are simply too many variables between individuals that affect outcomes. Some are randomly assigned at birth. Others are the result of individual choice.
Even if you eliminated all injustice, however you define it, individual choice and different ability would still produce inequality of outcome.
The next step is to decompose the wealth inequality into two metrics: inequality within an age-band, and inequality due to different life stages. In Equalland, the former is zero, so all inequality is due to the latter.
So, when you hear that the top 20% have X% of the wealth, keep in mind that the bar isn't 20%. A better bar is the 64% from Equalland.
As soon as those wealth inequality posts started popping up I've been waiting for someone to point out the idiocy of lamenting the wealth inequality between 22 yearolds just entering the workforce and 65 yearolds about to retire.
I'd argue, as a 22 year old economist just entering the workforce, that the fact that people just entering their retirement hold the most wealth is quite a social problem.
For instance, the ability of the older wealth to influence politics.
Also, in real life, the generation nearing retirement has much better voter turnout than the generation exiting college. So not only do they have more money to influence elections, but they're a more desirable demographic to cater to due to their presence at the polls.
We see this play out clearly in their ability to influence politics. E.g. they can vote themselves unsustainable entitlement benefits at the expense of younger generations.
...which is why we probably never get to retire. The weirdly shaped population pyramid in the Western world can make "maybe Google will buy us" a more reasonable retirement strategy than retirement funds
Obviously, we should have a political system that gives higher weight to the votes of people who will participate (suffer?) in the system longer.
Therefore, everyone between 18 and 24 years of age gets 10 votes, between 24-30 9, etc, until people over 78 get zero votes (just like minor children under 18).
This would deal with the problem nicely. And yes, I am kidding.
Population growth would actually do that to a lesser extent (because there are more 25-30-year-olds than 55-60-year-olds) were it not for the fact that young people are less likely to vote.
> the fact is old people have more experience, more knowledge, and are just far more sensible.
No.
A randomly chosen old person has more experience than a randomly chosen young person, by definition. Due to neural plasticity, a young person has more knowledge in every field that changes significantly over the course of a generation. I cannot discern a meaningful definition of "sensible" in this context.
I doubt this is a valid model of economic reality (even as a rough approximation). I seriously doubt that the average American is saving anywhere near as much for their retirement as this simulation suggests.
"Nearly half of baby boomers born between 1948 and 1954 and now between the ages of 56 and 62 are at risk of not having enough money in retirement to pay for basic expenditures, EBRI reports." - http://www.washingtonpost.com/wp-dyn/content/article/2010/07...
Note that the "inequality" here is strictly age related -- in other words, if you live according to prescription, then you too will have that amount of wealth at a particular point in your life. In other words, everyone has the same opportunity for upward economic mobility. When most commentators talk about inequality they're really talking about the lack of upward economic mobility.
So to summarize, even in an ideal equal world, inequality exists. Just pointing out that the top 20% owns more than the bottom 20% means literally nothing, because even in a totally equal world, that is true.
If you introduce random variation into the performance of the stock market, then the ownership of the top 20% would increase even more!
Great post! It provides a good gedanken for sorting out how much inequality results from age and how much results from other factors.
If you made this scenario a little bit more complex, you could demonstrate how other forms of "inequality" are based, in part, on age:
1: Have everyone start with equal $50,000 salary at age 22, then get a raise of $3,000 per year until they hit 65. Everyone would still have equal lifetime earnings, but you would find significant income "inequality" when looking at the population as a whole.
2: Instead of a flat $3,000 per year raise, everyone gets a 3.5% raise each year until they hit 65. This is closer to real life than the scenario above, and would produce an even more "unequal" income distribution.
Imagine another country which has government-funded secondary education and pensions that cover the bulk of retirement expenses. Wouldn't the "necessary" inequality be noticeably lower in that case?
Actually, no. If the government of Equalland were to pay a $50k/year to each retired couple, they would need to save less and the entire graph would shrink vertically -- but the ratios would stay the same.
In fact, in the real world government pensions tend to increase apparent wealth inequality, since they are usually capped (e.g., in Canada the CPP pays out a proportion of your first ~$40k/year of pre-retirement income, but ignores any income beyond that point) -- in order to maintain the same standard of living post-retirement, the wealthy need to save a greater proportion of their income.
This is a good point if you make the assumption that people tend to accumulate wealth as they age as a rule. I think this is likely, but it has not been established as a general proposition.
The shapes of individual "wealth curves" will not necessarily be identical. Here are a few examples to consider:
- A person who is raised in a middle-class home, and has basically the life story in the blog post will have a curve similar to that one.
- A person who is raised in a poor home, is unable to afford college even with loans, and makes a few bad economic decisions early on, though not so bad that he cannot pay for them, will have a similar-looking debt event, followed by little change for the rest of his life.
- A person who is raised in a wealthy home, goes to college without needing loans, and is taught from an early age the value of savings and investment will have a much steeper exponential curve, and a much flatter "retirement decline".
- A person who is raised in a poor home, is unable to afford college even with loans, and makes catastrophic economic decisions will likely either declare bankruptcy or end up in prison. Either event resets wealth accumulation to an unspecified negative value (to account for the stigma and reduced access to various opportunities), yielding a significantly different curve.
- A person who is raised in a rich home, with a trust fund, but whose trust fund was invested in real estate and Bernie Madoff.
- A person living the Equalland scenario encounters a catastrophic financial event at some point (illness, crime, failure of an over-leveraged investment such as a home) and is driven considerably into debt. Servicing that debt will require either a significant portion of income thereafter or bankruptcy.
- A person living the Equalland scenario, except that his chosen field of education is overproduced in his generation, will have a similar curve to the fourth scenario above. The education debt does not necessarily produce benefits thereafter.
I do think the Equalland scenario is likely to be most common, but I recognize that my suspicions are likely influenced by the fact that it is the most common scenario amongst my peers. I don't think it's a foregone conclusion that it is the overwhelmingly most common scenario in general, especially with so many different scenarios resulting in a net wealth loss over the course of a person's life.
I would like to live in Equal-land, I could live there, slouch around, work the absolute minimum and avoid work, and enjoy exactly the same benefits as those working the hardest to maintain that utopia.
No you don't. Money is a terrible motivator. If the only thing that is keeping you from working hard is the prospect of making more money, might I suggest that you've chosen the wrong career?
I'm not saying that Equalland is desirable. I'm just saying that I think you're overestimating the effect money has on how productive people are.
When that money is used to fund something you love to do outside of work, it can be an extremely good motivator. Not everyone requires that their job be the most fulfilling aspect of their life. Plenty of people live for a hobby, a local sports team, travel, raising their children, etc.
"Can I hire you? Money doesn't motivate you right?"
You failed to provide any alternate motivation. Some people actually take conditions similar to ones you described but they work in the greatest labs on the most interesting problems of contemporary science. They also usually get a phd after a few years.
There is also no implication from "Money is a poor motivator for me" to "80 hr week is not a demotivator for me".
Oh, so we're playing the reductio ad absurdum game now? Ok, I'll bite. I'll pay you $1 million to jump off the Golden Gate Bridge. Wait, what was that? Money can't motivate you to do that?
Gladly. New meaning to the term golden parachute. Additionally I bet you'd find that there are people who would take that offer even if it meant their certain death.
Fyi, reductio ad absurdum is a valid method of argument.
I imagine I'd get a lot more applicants applying to my job post if I paid $1million vs. minimum wage. You may say money is a terrible motivator, but people will go through all sorts of horrible things for very small amounts of it.
Reductio ad absurdum is only valid if the proposition is a binary true or false proposition. This question involves a matter of degree, not a binary true or false.
Also, it's important to note that if you posted the job for $1 million you'd get a lot of applicants, but they wouldn't be happy or last very long. It turns out that there is such thing as paying someone too much. The reason being that money is a form of external motivation. Too much external motivation decreases intrinsic motivation: http://en.wikipedia.org/wiki/Motivation#Intrinsic_and_extrin...
You wouldn't get me to work 80hr weeks even if you offered me a lot of money. Money wouldn't be enough of a motivation to do that.But I did 80hr weeks for minimum wage already because of other benefits (keeping rights on the source-code which I wrote in that time).
I think we can all agree that your point was not well supported. By the way, how much do you get paid for participating in HN? Your average karma is 4.4; by the community's judgement, you put some good work into commenting.
Money is a terrible motivator? lol. What's this nonsense? Give me your name and address, I'll write you a check for $1500 free and clear to take back what you just said.
Did I say that money provided no motivation at all? People perform better when they're doing what they love. At a very minimum, money is a terrible motivator when it's the only form of motivation a person has as the person I was responding to seemed to suggest.
And for the record, nobody paid me to write that comment in the first place.
That depends on how much money you have. If you are well taken care of then yeah money is a poor motivator. If you are in real need then money becomes quite the motivator(If only as a proxy for those other needs.) Most of the crime around the world is solely driven by the need to acquire wealth by means easier, quicker than legally possible. Crime seems to be doing quite well for itself even with the serious consequences for breaking the law.
And we could threaten someone's family to show the counterpoint to that point.
Money's a great motivator until you're near your threshold earnings, and then other things start slipping in, like, for instance, the ability to make a point. Then, of course, is the discussion about why anyone wants money...and the fact that there's more direct ways to affect the value in someone's life. Hate to sound the sociopath, but money doesn't stack up against a family.
>And we could threaten someone's family to show the counterpoint to that point.
That's why a hell of a lot of people are working - if they don't work, their family would get to go live in a box on the sidewalk. That's another way of saying that workers are motivated by money, for a sizable fraction of workers.
After reading your post, I'm tempted to tell my boss to compensate me instead with hugs, rainbows, high fives and other family-like perks. Since family should motivate me more than money can. </s>
You're missing the point. The point is that even when everyone is actually equal, there is still some apparent wealth inequality because different people are at different stages of life.
I believe that was the promise of communism - which failed due to most people's inherent desire to be better than others or to excel. Also, people realized that they could/should do the absolute minimum, as there was no benefit for working harder.
They did end up adding incentives (in the USSR) which started looking more and more like capitalism.
Linux is not a good example, because many (most?) good programmers love their work and would do it without payment.
But this is not the case for many (most?) other workers - they would rather do something else and only work because they have to, or because their job pays better than other alternatives.
I think you're missing the point. That's only because other people aren't usually paid to do what they enjoy. However, most of them will have a passion like cooking, wood working, gardening, competitive video games, basketball, etc.
If money were such a strong motivator things like video games would be a lot less popular. Pickup basketball would be a lot less popular.
Linus really can't be used as an example of what normal behavior would be.
Noone's saying it's the only significant benefit, but for a lot of people, it is the overwhelming majority of the benefit of what they do. Programmers live in a privileged bubble compared to most.
I disagree. most people I know have some passion that they do for the love of it. Whether it's playing guitar, doing wood work, cooking, etc. Many of us here happen to have a passion for programming.
But in all cases, money is not the motivator. If money were such a strong motivator video games would be a lot less popular.
Weren't we talking about livelihoods? Of course people have hobbies... For a very large percentage of people, their livelihood and their passion are not the same thing, and it's mistaken to use programmers like Linus as representative of most people or what would happen in something like Communism.
Of course, when we're talking about the top of the income scale, we're very specifically talking about the group of people who live in that privileged bubble.
Ugh. The reasons Russia's communism failed is an incredibly complicated and still debated subject. Throwing it all to "people's inherent desire to be better than others or to excel" is completely wrong.
Lots of reasons. You could watch the movie "Reds" with Warren Beatty. It's just a movie, but it should be a good jumping off place to see what parts to investigate.
For example, I'm sure sanctions from the rest of the world [1] from the beginning didn't do them any favors. Having a wolf in with the hens (named Stalin) was also unfortunate.
[1] All terrified that revolution would kick off in their countries. Justified fear as well, it did just that in Spain.
That's pretty short term and pessimistic thinking. If you no longer had the burden of providing for yourself and your family would you seriously not do anything productive? Do you seriously not have any projects or things you would love to work on but never will because you can't easily get paid to do so?
Further, capitalism can't possibly be the solution to every problem. For example, capitalism will probably never take us "to the stars". There isn't enough money in it to cover such a massive expense. But yet, going to the stars is the only possible way to defend against the thread of a "planet killer" meteor/asteroid. The only time there would be money in it is when we knew such an event was imminent but by then it would be too late.
I made the wrong presumption that we should use government to funds these kind of projects.
But if life problems, accidents, aren't as urgent due to capitalism solving most of our problem, I am assuming we would be thinking of large aspiration beyond a nice house and 2 1/2 kids.
Except we've had capitalism for thousands of years now and the majority of people who seem to have those large aspirations are psychopaths who want to rule the world (or at least the ones who manage to achieve really large scale success of their goals).
I also think "due to capitalism solving most of our problem" is a bit of a stretch. It's solving most of the problems of the rich people of the west but I bet the world's hungry don't find it so grand. Especially since there is plenty of food to feed them. There's just no money in doing so.
I’m actually only concerned about the consequences of inequality (which could be positive or negative), not about inequality itself. What do I care if 1% of the population have 99% of the wealth if there are no consequences to it? I certainly don’t want to reduce inequality out of spite.
Statistics that tell me, just as an example, how the wealth of parents corresponds with the success of their children in school are much more interesting and reducing inequality probably wouldn’t even be the best solution for such a problem. It’s not as though all that money in mommy’s and daddy’s bank account makes their kids magically more intelligent. (But it can pay for private schools or for private lessons and so on.)