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Inequality is not inherently a bad thing. People should be compensated for the value they produce. Profits are a signal of how much people value what is produce

Inequality is not inherently a bad thing. People should be compensated for the value they produce. Profits are a signal of how much people value what is produced. For example, people love iPhones, it no surprise that Apple is the most valuable company in the world. What causes resentment between classes is lack of mobility. This, IMO, is caused by government regulations and a banking system that hurts the middle class and below and benefits the people at the top. We have a banking system where the federal reserve can make money out of thin air and inject it into banks. This shifts purchasing power to people in finance. Regulations like minimum wage and higher taxes on larger income make it hard to hire the next marginal employee. Minimum wage prices out low skilled workers, who would like to work and obtain on the job experience needed to climb the ladder. High taxes makes it more expensive for business owners to hire someone. I'm not talking about large businesses like Walmart (they actually support minimum wage). Small businesses are going out of business, or are just not able to start with increased costs of doing business. This is a vicious cycle where government intervention leads to rich getting richer, and the poor being more dependent on government programs and finding it harder to move up the ladder. So to fix this people beg for more government intervention, which worsens the problem...and on and on it goes.

neap24 10y ago
The mobility discussion is distressingly absent from the inequality debates.
- dsfyu404ed 10y ago
  Agreed.
sshumaker 10y ago
While it's certainly true that there are some interaction effects between government regulation and the market that cause inequality, its naive to draw the conclusion that this is true for all or even a majority of regulation. If you read the OP, a primary counterexample is mass mobilization (e.g. government efforts to support WW2) which are a great leveler. Any engineer who has built systems should understand how complexity increases non-linearly with scale and that interaction effects are complicated to reason about. Debugging the performance of a large system is often really unintuitive. So it is surprising when these same people think there is a simple black and white diagnosis that explains away our socioeconomic challenges, which is a more complicated system than anything we've engineered.
jungturk 10y ago
Were you proposing an alternative to using governance to solve problems or just lamenting that poor governance can have poor outcomes? How are you proposing that we encourage powerful concerns to not externalize their costs to others in their drive to increase private profits?
skadamou 10y ago
>“People should be compensated for the value they produce. Profits are a signal of how much people value what is produced." I’m hoping you might expand on this a little. I’ve never quite understood this line of reasoning mostly because it seems like there is a lot of money to be made in finance and yet I’m not sure how hedge funds “produce” anything. I really do mean this earnestly, I don’t know a whole lot about economics so from my laymen’s perspective it is unclear how fund managers are compensated for the value they produce if they are just buying a selling stocks.
- jpttsn 10y ago
  From an economist's perspective, bankers can create value. If you want to lend money and I want to borrow, but we don't know/trust each other, a banker can "produce" a big help to match us together and price the risk. Those are two examples; there are tons of other services bankers provide their customers. I believe bankers add value this way. To my eyes "bankers don't produce" is just as unfair as "coaches don't score any goals."
- Kalium 10y ago
  It's not buying and selling stocks that's producing value, as you think of it. It's that the money they produce funds, for instance, someone's retirement.
digi_owl 10y ago
There is inequality and then there is inequality. This is not a binary issue, but a matter of proportions. When the top is say 5 times that of the bottom, society tends to be calmer than when the top is 500 times that of the bottom.
croon 10y ago
> Regulations like minimum wage and higher taxes on larger income make it hard to hire the next marginal employee. Minimum wage prices out low skilled workers, who would like to work and obtain on the job experience needed to climb the ladder. High taxes makes it more expensive for business owners to hire someone. I'm not talking about large businesses like Walmart (they actually support minimum wage). Small businesses are going out of business, or are just not able to start with increased costs of doing business. Minimum wage creates a much larger purchasing force, which creates more rotation on the market, thus making everyone richer. First you mention higher taxes on larger income, but then talk about small businesses? So which is it? Are you arguing that we should tax the rich less, or that we should subsidize small businesses with lower taxes? But if you have looked at curves over tax rates and curves over income inequality, I think it'd be hard to argue that "trickle down" has every worked or ever will. Tax rates per income over year since 1913: https://qz.com/74271/income-tax-rates-since-1913/ https://qz.com/74271/income-tax-rates-since-1913/ What's happened since the 80s: http://www.npr.org/sections/money/2015/02/11/384988128/the-fall-and-rise-of-u-s-inequality-in-2-graphs http://www.npr.org/sections/money/2015/02/11/384988128/the-f...
- snappyTertle 10y ago
  Higher wages drive prices up, and price out less productive workers. Sure, the people who remain employed are better off. But what about everyone who has to pay higher prices, and workers who are now unable to find a job? Why is it ok to tax profitable businesses/people for the sake of equality? I get it if they don't earn their profits fairly. Why should we steal from top producers and redistribute? Taxes should not be a means to redistribute wealth. It should be directly tied to whatever they are funding. More importantly, people should be free to chose what to spend their earnings on. Does the government own the people it governs? Does it have a claim in what people chose to produce? Having income tax forces everyone to pay for things they might not want (like a wall).
  - colefichter 10y ago
    > Taxes should not be a means to redistribute wealth. Isn't that more or less impossible? The whole point of a tax is that you take money from the broader population and spend it on something (a war, a road, libraries, public transit, food stamps, etc) that benefits only a subset of that population. Taxation is, by definition, wealth redistribution. Furthermore, > Why is it ok to tax profitable businesses/people for the sake of equality? This is a common misconception. Businesses don't pay taxes, people do. I don't mean " Apple doesn't pay it's fair share". I mean that the burden of the tax falls on the shareholders/owners of a business, even if the business is remitting the money. So, at the end of the day the question is not do we tax business versus individuals but rather a class issue: do we tax shareholders (who earn income from capital) versus labour (that is, people who earn their income through wages/salary).
badsock 10y ago
If this were true then social mobility would be very low in countries like Germany where the government is more involved, compared to the USA. Yet the opposite is true. The government improving the lives of children through subsidies and high-quality universal education is the most direct means of breaking the link between your own fortunes and those of the family you were (through no fault or efforts of your own) born into. Also, I would argue that inequality (beyond a certain point, which the US is far past) /is/ inherently bad. The super-wealthy can have their mega yachts, it's their unfair political influence, which is in proportion to their wealth, that's the issue.
- MrBuddyCasino 10y ago
  Germany is one of the countries with the lowest social mobility. Although being poor sucks less than in the US, poor people are likely to stay poor.
  - badsock 10y ago
    Why do you believe that? It's quite clear that it's not true: http://www.epi.org/publication/usa-lags-peer-countries-mobility/ http://www.epi.org/publication/usa-lags-peer-countries-mobil...
    - explainthisth 10y ago
      That's not great evidence on where poor people are more likely to stay poor. You'd want to pick a level of purchasing power that counts as poor, a level that counts as not poor, and measure how many people moved between those levels.
njharman 10y ago
> People should be compensated for the value they produce. Why? That is an opinion, not a fact. My opinion is that people unconditionally deserve shelter, food, healthcare, education, and liberty. As efficiency increased we could have made everyone work less. Instead those gains were funneled to owners, to capitalists. Who actually don't produce anything and live off of the labor of others.
- snappyTertle 10y ago
  I agree that it is an opinion. It's a choice between liberty or equality, we can't have both. In order to make things equal, people are forced to give up their income.
lubesGordi 10y ago
Not sure about the last part of your comment, but I agree that inequality probably isn't a bad thing per se. I'm guessing crime isn't increasing as a result of increasing inequality because the quality of life for the "99%" is actually increasing as well, even if their incomes are not drastically increasing. Supposedly the super rich are so much richer than the non-rich. But are they? In the US at least, rich people basically only have more expensive versions of everything middle class people can have. Is that really such a huge wealth gap? I guess I would say that the wealth gap between middle class people in developed countries and poor in undeveloped countries is much greater than the top 1% and the middle class. Really this is a subjective assessment, but I think it helps to put the quantitative assessment into perspective, and also put in check the notion that inequality itself is somehow bad.
wfo 10y ago
No, extreme inequality is inherently a bad thing, assuming there is no reasonable safety net provided primarily by the rich (a fairly good assumption if you're talking about the US). It always leads to unrest. Wealth is power and power is wealth in capitalism; the wealthy exert their influence to increase their wealth and inequality, once established, always increases. It is never stable. Having a huge class of people begging and sleeping in the streets and another small class of people with extreme wealth is just begging for violence to occur. Then you get enormous private security firms, walled private communities with hired cops to keep the riff raff out and prevent theft/kidnapping for ransom. What happens when the unwashed masses decide to vote to take some of the wealth society has generated back? Or, more's to the point, what happens once they do this and realize their vote doesn't matter because the political power structure is rigged to only cater to the interests of the wealthy by, e.g., doing nothing but banning physical force, the kind of force that's exclusive to the poor? Mobility is a ridiculous red herring; who cares if a poor person here or there wins some sort of lottery and ascends to the elite class of super-rulers every so often, or an elite drops into brutal poverty and abuse? The more things change, the more they stay the same. Government regulations providing a safety net for the poorest and helping to protect the weak from the powerful is the only thing that makes inequality tenable for any amount of time. Minimum wage and taxes which go to pay for healthcare and infrastructure are the only thing keeping society civilized and livable for the poor. Without it, well, we'd see that violence is a very cheap solution that people turn to if they think they have very little to lose, or if they are hungry. And profits do not represent value at all, profit is simply the difference between how much something is worth and how much you can force/trick someone else into paying for it.

neap24 10y ago

The mobility discussion is distressingly absent from the inequality debates.

dsfyu404ed 10y ago
Agreed.

sshumaker 10y ago

While it's certainly true that there are some interaction effects between government regulation and the market that cause inequality, its naive to draw the conclusion that this is true for all or even a majority of regulation. If you read the OP, a primary counterexample is mass mobilization (e.g. government efforts to support WW2) which are a great leveler. Any engineer who has built systems should understand how complexity increases non-linearly with scale and that interaction effects are complicated to reason about. Debugging the performance of a large system is often really unintuitive. So it is surprising when these same people think there is a simple black and white diagnosis that explains away our socioeconomic challenges, which is a more complicated system than anything we've engineered.

jungturk 10y ago

Were you proposing an alternative to using governance to solve problems or just lamenting that poor governance can have poor outcomes? How are you proposing that we encourage powerful concerns to not externalize their costs to others in their drive to increase private profits?

skadamou 10y ago

>“People should be compensated for the value they produce. Profits are a signal of how much people value what is produced." I’m hoping you might expand on this a little. I’ve never quite understood this line of reasoning mostly because it seems like there is a lot of money to be made in finance and yet I’m not sure how hedge funds “produce” anything. I really do mean this earnestly, I don’t know a whole lot about economics so from my laymen’s perspective it is unclear how fund managers are compensated for the value they produce if they are just buying a selling stocks.

jpttsn 10y ago
From an economist's perspective, bankers can create value. If you want to lend money and I want to borrow, but we don't know/trust each other, a banker can "produce" a big help to match us together and price the risk. Those are two examples; there are tons of other services bankers provide their customers. I believe bankers add value this way. To my eyes "bankers don't produce" is just as unfair as "coaches don't score any goals."
Kalium 10y ago
It's not buying and selling stocks that's producing value, as you think of it. It's that the money they produce funds, for instance, someone's retirement.

digi_owl 10y ago

There is inequality and then there is inequality. This is not a binary issue, but a matter of proportions. When the top is say 5 times that of the bottom, society tends to be calmer than when the top is 500 times that of the bottom.

croon 10y ago

> Regulations like minimum wage and higher taxes on larger income make it hard to hire the next marginal employee. Minimum wage prices out low skilled workers, who would like to work and obtain on the job experience needed to climb the ladder. High taxes makes it more expensive for business owners to hire someone. I'm not talking about large businesses like Walmart (they actually support minimum wage). Small businesses are going out of business, or are just not able to start with increased costs of doing business. Minimum wage creates a much larger purchasing force, which creates more rotation on the market, thus making everyone richer. First you mention higher taxes on larger income, but then talk about small businesses? So which is it? Are you arguing that we should tax the rich less, or that we should subsidize small businesses with lower taxes? But if you have looked at curves over tax rates and curves over income inequality, I think it'd be hard to argue that "trickle down" has every worked or ever will. Tax rates per income over year since 1913: https://qz.com/74271/income-tax-rates-since-1913/ https://qz.com/74271/income-tax-rates-since-1913/ What's happened since the 80s: http://www.npr.org/sections/money/2015/02/11/384988128/the-fall-and-rise-of-u-s-inequality-in-2-graphs http://www.npr.org/sections/money/2015/02/11/384988128/the-f...

snappyTertle 10y ago
Higher wages drive prices up, and price out less productive workers. Sure, the people who remain employed are better off. But what about everyone who has to pay higher prices, and workers who are now unable to find a job? Why is it ok to tax profitable businesses/people for the sake of equality? I get it if they don't earn their profits fairly. Why should we steal from top producers and redistribute? Taxes should not be a means to redistribute wealth. It should be directly tied to whatever they are funding. More importantly, people should be free to chose what to spend their earnings on. Does the government own the people it governs? Does it have a claim in what people chose to produce? Having income tax forces everyone to pay for things they might not want (like a wall).
- colefichter 10y ago
  > Taxes should not be a means to redistribute wealth. Isn't that more or less impossible? The whole point of a tax is that you take money from the broader population and spend it on something (a war, a road, libraries, public transit, food stamps, etc) that benefits only a subset of that population. Taxation is, by definition, wealth redistribution. Furthermore, > Why is it ok to tax profitable businesses/people for the sake of equality? This is a common misconception. Businesses don't pay taxes, people do. I don't mean " Apple doesn't pay it's fair share". I mean that the burden of the tax falls on the shareholders/owners of a business, even if the business is remitting the money. So, at the end of the day the question is not do we tax business versus individuals but rather a class issue: do we tax shareholders (who earn income from capital) versus labour (that is, people who earn their income through wages/salary).

badsock 10y ago

If this were true then social mobility would be very low in countries like Germany where the government is more involved, compared to the USA. Yet the opposite is true. The government improving the lives of children through subsidies and high-quality universal education is the most direct means of breaking the link between your own fortunes and those of the family you were (through no fault or efforts of your own) born into. Also, I would argue that inequality (beyond a certain point, which the US is far past) /is/ inherently bad. The super-wealthy can have their mega yachts, it's their unfair political influence, which is in proportion to their wealth, that's the issue.

MrBuddyCasino 10y ago
Germany is one of the countries with the lowest social mobility. Although being poor sucks less than in the US, poor people are likely to stay poor.
- badsock 10y ago
  Why do you believe that? It's quite clear that it's not true: http://www.epi.org/publication/usa-lags-peer-countries-mobility/ http://www.epi.org/publication/usa-lags-peer-countries-mobil...
  - explainthisth 10y ago
    That's not great evidence on where poor people are more likely to stay poor. You'd want to pick a level of purchasing power that counts as poor, a level that counts as not poor, and measure how many people moved between those levels.

njharman 10y ago

> People should be compensated for the value they produce. Why? That is an opinion, not a fact. My opinion is that people unconditionally deserve shelter, food, healthcare, education, and liberty. As efficiency increased we could have made everyone work less. Instead those gains were funneled to owners, to capitalists. Who actually don't produce anything and live off of the labor of others.

snappyTertle 10y ago
I agree that it is an opinion. It's a choice between liberty or equality, we can't have both. In order to make things equal, people are forced to give up their income.

lubesGordi 10y ago

Not sure about the last part of your comment, but I agree that inequality probably isn't a bad thing per se. I'm guessing crime isn't increasing as a result of increasing inequality because the quality of life for the "99%" is actually increasing as well, even if their incomes are not drastically increasing. Supposedly the super rich are so much richer than the non-rich. But are they? In the US at least, rich people basically only have more expensive versions of everything middle class people can have. Is that really such a huge wealth gap? I guess I would say that the wealth gap between middle class people in developed countries and poor in undeveloped countries is much greater than the top 1% and the middle class. Really this is a subjective assessment, but I think it helps to put the quantitative assessment into perspective, and also put in check the notion that inequality itself is somehow bad.

wfo 10y ago

No, extreme inequality is inherently a bad thing, assuming there is no reasonable safety net provided primarily by the rich (a fairly good assumption if you're talking about the US). It always leads to unrest. Wealth is power and power is wealth in capitalism; the wealthy exert their influence to increase their wealth and inequality, once established, always increases. It is never stable. Having a huge class of people begging and sleeping in the streets and another small class of people with extreme wealth is just begging for violence to occur. Then you get enormous private security firms, walled private communities with hired cops to keep the riff raff out and prevent theft/kidnapping for ransom. What happens when the unwashed masses decide to vote to take some of the wealth society has generated back? Or, more's to the point, what happens once they do this and realize their vote doesn't matter because the political power structure is rigged to only cater to the interests of the wealthy by, e.g., doing nothing but banning physical force, the kind of force that's exclusive to the poor? Mobility is a ridiculous red herring; who cares if a poor person here or there wins some sort of lottery and ascends to the elite class of super-rulers every so often, or an elite drops into brutal poverty and abuse? The more things change, the more they stay the same. Government regulations providing a safety net for the poorest and helping to protect the weak from the powerful is the only thing that makes inequality tenable for any amount of time. Minimum wage and taxes which go to pay for healthcare and infrastructure are the only thing keeping society civilized and livable for the poor. Without it, well, we'd see that violence is a very cheap solution that people turn to if they think they have very little to lose, or if they are hungry. And profits do not represent value at all, profit is simply the difference between how much something is worth and how much you can force/trick someone else into paying for it.