5 ms·

Is vast inequality necessary?

27 points by the_duck 11y ago

xlm1717 11y ago
It's interesting that one of the articles in the header says "Why Spin Is Good For Democracy". Seems Krugman takes that hook, line, and stinker. I personally would reframe the luck argument into one based on scarcity of resources. It's not about whether inequality is "necessary". It's about whether it can even be avoided.
- h_r 11y ago
  Did you get to the end? He says explicitly that inequality is inevitable. He's asking whether the American kind of vast inequality is necessary.
richmarr 11y ago
Personally I think the '3 stylised models' that the author paints as being the possible sources of high inequality are somewhat wide of the mark. The majority of 1%ers are there because their parents were 1%ers, and western society is broadly set up to allow those with large amounts of capital to protect it and use it to gain advantage & accumulate more capital. It's not necessarily a bad thing, except where those with capital can use it to bias the system in their favour. An example is access to education. In the US, the lowest ability quartile of high earners now has a better chance of graduating collage than the highest ability quartile of low earners. From memory it was something like 31% to 29% respectively. The real shame there is the 71% of high-ability low-wealth kids who can't graduate college but really should. That value is being squandered. However... inequality itself is a trailing indicator of other indicators relating to social cohesion, so it's possible that addressing inequality alone won't have a lasting effect. Robert Putnam is an interesting source on this stuff if anyone is interested.
- bufordsharkley 11y ago
  Yes, I couldn't agree more. Generational passing-down of wealth (largely a result of rents that can extracted from resources kept within one's family) is completely elided in the article.
  - pc86 11y ago
    Intergenerational wealth transfer accounts for almost none of today's inequality. The vast majority of it is gone within a generation or two.[0] [0] http://time.com/money/3925308/rich-families-lose-wealth/ http://time.com/money/3925308/rich-families-lose-wealth/
    - richmarr 11y ago
      It's not contradictory for a majority of wealthy people to be wealthy because of their parents, and for 70% of wealth to be lost by the 2nd generation, even if both sets of stats were accurate and comparable. What is contradictory is your assertion that the 1st generation wealth, and the remaining 30% at the 2nd generation, translates to "almost none".
    - jhundal 11y ago
      I see this figure around a lot, does anyone have a pointer to the actual study? I got as far as a book called "Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values", no detail on the actual study.
bko 11y ago
> And power is surely a big factor, too. Reading someone like Mr. Graham, you might imagine that America’s wealthy are mainly entrepreneurs. In fact, the top 0.1 percent consists mainly of business executives, and while some of these executives may have made their fortunes by being associated with risky start-ups, most probably got where they are by climbing well-established corporate ladders. And the rise in incomes at the top largely reflects the soaring pay of top executives, not the rewards to innovation. Most probably got there by climbing well established corporate ladders? Is there a source for this? It seems "Executives, managers and supervisors (non-finance)" is rather broad and does not address whether these are corporate structures that can "set their own compensation".
- pc86 11y ago
  Who decides the classification? Is it the IRS, the taxpayer, or some third party? Mark Cuban would probably categorize himself as "Entrepreneur not otherwise classified." Someone else may very well put him in that "Executives, managers and supervisors (non-finance)" category.
- paulddraper 11y ago
  " most probably got where they are by climbing well-established corporate ladders. And the rise in incomes at the top largely reflects the soaring pay of top executives, not the rewards to innovation." Then why the heck are you here? If you want piles of money, shouldn't you be climbing the uncreative, guaranteed ladder to wealth? If being the 0.1% were really that easy, it wouldn't be the 0.1% anymore.
Mikeb85 11y ago
Krugman channelling his inner Piketty. They're not wrong though. The greatest growth did come when there was the least inequality, and the gilded age wasn't exactly a time of phenomenal economic growth...
- randyrand 11y ago
  There was equality but not mandatory equality. There is an important difference.
  - Mikeb85 11y ago
    Not actually true. Tax rates on high incomes were much, much higher in the 1950s and 1960s. http://www.businessinsider.com/history-of-tax-rates-2012-5 http://www.businessinsider.com/history-of-tax-rates-2012-5 http://s158.photobucket.com/user/OnlyObvious/media/Tax_Rates/TopTaxBracket_TaxRate.jpg.html http://s158.photobucket.com/user/OnlyObvious/media/Tax_Rates...
    - gozur88 11y ago
      That seems more relevant than it is. The US tax code used to be riddled with loopholes - nobody actually paid the top rates.
      - Mikeb85 11y ago
        The effective tax rates back then were still higher than today. You're right, they weren't 92%, but they were higher.
        gozur88 11y ago
        I wonder if that's actually true. It was far, far easier to hide income back then. This is before currency transaction reporting and "currency smuggling" laws. You could get on a flight to Zurich with a duffel bag full of cash and it wasn't something anyone had to report to the government.
blacksmith_tb 11y ago
I like Krugman, and agree with him on this; though it's quite an example of Betteridge's Law. Obviously vast inequality isn't necessary, there are plenty of historical examples of merely ordinary inequality (and even a few of almost-equality). To me the question his piece begs is "how do you legislate redistribution when your lawmakers are beholden to the vast amounts of money the super-rich happen to have?"

27 points by the_duck 11y ago

It's interesting that one of the articles in the header says "Why Spin Is Good For Democracy". Seems Krugman takes that hook, line, and stinker. I personally would reframe the luck argument into one based on scarcity of resources. It's not about whether inequality is "necessary". It's about whether it can even be avoided.

h_r 11y ago
Did you get to the end? He says explicitly that inequality is inevitable. He's asking whether the American kind of vast inequality is necessary.

richmarr 11y ago

Personally I think the '3 stylised models' that the author paints as being the possible sources of high inequality are somewhat wide of the mark. The majority of 1%ers are there because their parents were 1%ers, and western society is broadly set up to allow those with large amounts of capital to protect it and use it to gain advantage & accumulate more capital. It's not necessarily a bad thing, except where those with capital can use it to bias the system in their favour. An example is access to education. In the US, the lowest ability quartile of high earners now has a better chance of graduating collage than the highest ability quartile of low earners. From memory it was something like 31% to 29% respectively. The real shame there is the 71% of high-ability low-wealth kids who can't graduate college but really should. That value is being squandered. However... inequality itself is a trailing indicator of other indicators relating to social cohesion, so it's possible that addressing inequality alone won't have a lasting effect. Robert Putnam is an interesting source on this stuff if anyone is interested.

bufordsharkley 11y ago
Yes, I couldn't agree more. Generational passing-down of wealth (largely a result of rents that can extracted from resources kept within one's family) is completely elided in the article.
- pc86 11y ago
  Intergenerational wealth transfer accounts for almost none of today's inequality. The vast majority of it is gone within a generation or two.[0] [0] http://time.com/money/3925308/rich-families-lose-wealth/ http://time.com/money/3925308/rich-families-lose-wealth/
  - richmarr 11y ago
    It's not contradictory for a majority of wealthy people to be wealthy because of their parents, and for 70% of wealth to be lost by the 2nd generation, even if both sets of stats were accurate and comparable. What is contradictory is your assertion that the 1st generation wealth, and the remaining 30% at the 2nd generation, translates to "almost none".
  - jhundal 11y ago
    I see this figure around a lot, does anyone have a pointer to the actual study? I got as far as a book called "Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values", no detail on the actual study.

bko 11y ago

> And power is surely a big factor, too. Reading someone like Mr. Graham, you might imagine that America’s wealthy are mainly entrepreneurs. In fact, the top 0.1 percent consists mainly of business executives, and while some of these executives may have made their fortunes by being associated with risky start-ups, most probably got where they are by climbing well-established corporate ladders. And the rise in incomes at the top largely reflects the soaring pay of top executives, not the rewards to innovation. Most probably got there by climbing well established corporate ladders? Is there a source for this? It seems "Executives, managers and supervisors (non-finance)" is rather broad and does not address whether these are corporate structures that can "set their own compensation".

pc86 11y ago
Who decides the classification? Is it the IRS, the taxpayer, or some third party? Mark Cuban would probably categorize himself as "Entrepreneur not otherwise classified." Someone else may very well put him in that "Executives, managers and supervisors (non-finance)" category.
paulddraper 11y ago
" most probably got where they are by climbing well-established corporate ladders. And the rise in incomes at the top largely reflects the soaring pay of top executives, not the rewards to innovation." Then why the heck are you here? If you want piles of money, shouldn't you be climbing the uncreative, guaranteed ladder to wealth? If being the 0.1% were really that easy, it wouldn't be the 0.1% anymore.

Mikeb85 11y ago

Krugman channelling his inner Piketty. They're not wrong though. The greatest growth did come when there was the least inequality, and the gilded age wasn't exactly a time of phenomenal economic growth...

randyrand 11y ago
There was equality but not mandatory equality. There is an important difference.
- Mikeb85 11y ago
  Not actually true. Tax rates on high incomes were much, much higher in the 1950s and 1960s. http://www.businessinsider.com/history-of-tax-rates-2012-5 http://www.businessinsider.com/history-of-tax-rates-2012-5 http://s158.photobucket.com/user/OnlyObvious/media/Tax_Rates/TopTaxBracket_TaxRate.jpg.html http://s158.photobucket.com/user/OnlyObvious/media/Tax_Rates...
  - gozur88 11y ago
    That seems more relevant than it is. The US tax code used to be riddled with loopholes - nobody actually paid the top rates.
    - Mikeb85 11y ago
      The effective tax rates back then were still higher than today. You're right, they weren't 92%, but they were higher.
      - gozur88 11y ago
        I wonder if that's actually true. It was far, far easier to hide income back then. This is before currency transaction reporting and "currency smuggling" laws. You could get on a flight to Zurich with a duffel bag full of cash and it wasn't something anyone had to report to the government.

blacksmith_tb 11y ago

I like Krugman, and agree with him on this; though it's quite an example of Betteridge's Law. Obviously vast inequality isn't necessary, there are plenty of historical examples of merely ordinary inequality (and even a few of almost-equality). To me the question his piece begs is "how do you legislate redistribution when your lawmakers are beholden to the vast amounts of money the super-rich happen to have?"