7 ms·

> Different policies could produce a different outcome. My list would start with a tax code that does less to favor the affluent, a better-functioning education

> Different policies could produce a different outcome. My list would start with a tax code that does less to favor the affluent, a better-functioning education system, more bargaining power for workers and less tolerance for corporate consolidation. It floors me how anyone, especially anyone with even a basic STEM background, could look at a growth curve that approaches infinity that rapidly, then turn around and say 'gee, I wonder if tinkering around the periphery of the system would solve the problem'. No! Clearly some central mechanism has gone horribly awry. The only explanation I've ever seen that adequately accounts for those curves is inflation. Inflation drives up prices, both of goods and of assets. A higher cost of goods narrows the margins for wage-earners (i.e. the poor and middle class), and higher asset prices inflate the net worth of people who earn income from assets (i.e. rich people) — this effect compounds over time. If I'm wrong, please, convince me. Article & book recommendations gladly accepted.

albertsun 9y ago
They're not really growth curves, the curves show relative growth rates. Not quite the same thing. And if you think some central mechanism has gone horribly awry, what central mechanisms changed around 1980?
- dhimes 9y ago
  IIRC, one of the things that changed back then was a movement away from workers having retirement plans with the companies they worked for (pensions) and toward managing their retirement individually (IRAs). This could have conceivably led to a new, steady source of investment in the stock market through mutual funds and whatnot (and perhaps even more aggressive investments presumably), which, if the changes shown on that graph could be thought to be generously helped by investment income, may explain some of this. Disclaimer: I don't know enough about this stuff to make a definitive argument.
- pantalaimon 9y ago
  > what central mechanisms changed around 1980? https://en.wikipedia.org/wiki/Reaganomics https://en.wikipedia.org/wiki/Reaganomics ?
- frandroid 9y ago
  Massive shift of the taxation burden from corporations to citizens.
  - nateabele 9y ago
    Charts / sources?
- nateabele 9y ago
  > They're not really growth curves, the curves show relative growth rates. Not quite the same thing. An exponential growth curve is an exponential growth curve, irrespective of what it measures. Thanks anyway for the pedantry. > And if you think some central mechanism has gone horribly awry, what central mechanisms changed around 1980? In 1974, the US dollar switched from being a store of value to a store of debt: https://www.amazon.com/Creature-Jekyll-Island-Federal-Reserve/dp/091298645X https://www.amazon.com/Creature-Jekyll-Island-Federal-Reserv...
  - JamesBarney 9y ago
    I know people without valid credential sometimes have very insightful ideas. And sometimes it's hard to have a discussion with someone when they don't understand the fundamentals of a field. However it would be nice if you went into detail as opposed to just linking to that book. It's not part of the standard economic body of knowledge so I don't think it would be appropriate to expect your would be arguers to read it, especially when the author's wikipedia page is G. Edward Griffin (born November 7, 1931) is an American far-right conspiracy theorist, author, lecturer, and filmmaker. He is the author of The Creature from Jekyll Island (1994), which promotes theories about the motives behind the creation of the Federal Reserve System.[1][2] Griffin's writings include a number of views regarding various political, defense and health care interests. In his book World Without Cancer, he argues that cancer is a nutritional deficiency that can be cured by consuming amygdalin, a view regarded as quackery by the medical community.[1][3][4] He is an HIV/AIDS denialist, supports the 9/11 Truth movement, and supports a specific John F. Kennedy assassination conspiracy theory.[1] Also, he believes the actual geographical location of the biblical Noah's Ark is located at the Durupınar site in Turkey.[5]
    - nateabele 9y ago
      And James Watson has some pretty wacky ideas about biology, but he still discovered the structure of DNA. I'm not sure how not to take most of this, other than as ad hominem. Other people have cited links elsewhere in the thread [0], and I don't feel especially compelled to be redundant. Not sure what to suggest other than googling some Austrian economists and their views on inflation. [0] https://news.ycombinator.com/item?id=14960011 https://news.ycombinator.com/item?id=14960011
- randomdata 9y ago
  > what central mechanisms changed around 1980? The Copyright Act of 1976, perhaps? If we look at the list of wealthiest Americans, most of them are there because they provide something to the world that nobody else is able to directly copy. Without competition, there is no mechanism to spread the money around.
  - nateabele 9y ago
    This would certainly disproportionately impact authors, entertainers, and anyone else who makes royalties from media, but I don't know that they represent a large enough swath of the economy to account for the broad trends we see here. To my original point, though, making money off of a copyrighted work represents income from an asset, the value of which compounds over time, due to inflation.
    - randomdata 9y ago
      > I don't know that they represent a large enough swath of the economy to account for the broad trends we see here. I'm not sure it is that broad to begin with. The 99.999 percentile of adults with these near-infinite income gains represents only ~2,000 people. While wealth and income aren't the same thing, I expect there is a lot of overlap with this list[1] that outlines 400 of the potential names. If you look at how they made their fortunes, many are directly attributable to copyright. Bill Gates certainly wouldn't have topped the list if anyone was free to copy/resell Windows. > To my original point, though, making money off of a copyrighted work represents income from an asset, the value of which compounds over time, due to inflation. Increased value of an asset does not necessarily translate to increased income. A primary residence, for instance, is a good example. The value of your home may be increasing, but nobody is paying you to live there. Many people are quite happy to pay top dollar for an asset that generates no revenue on the hope that capital gains alone make the purchase provide returns. But you do rightfully point out that those who have entire control over a certain asset have complete control over the streams of money directed at that asset. That is not exclusively limited to copyright, but changes to copyright opened up a whole new set of wide-ranging assets to hold that were previously not there. Anyone holding hard assets was presumably already milking it for everything it was worth, thus, while incredibly profitable, not increasingly profitable. [1] https://www.forbes.com/sites/chasewithorn/2016/10/04/forbes-400-the-full-list-of-the-richest-people-in-america-2016/#6239af4022f4 https://www.forbes.com/sites/chasewithorn/2016/10/04/forbes-...
msluyter 9y ago
Except that inflation was worse in the 70s-80s when the lower/middle classes were apparently reaping greater income gains vs the subsequent decades, when they weren't: https://inflationdata.com/Inflation/Inflation/DecadeInflation.asp https://inflationdata.com/Inflation/Inflation/DecadeInflatio... (Note that the graph on the parent article is inflation adjusted. "Note: Inflation-adjusted annual average growth using income after taxes, transfers and non-cash benefits.")
- runT1ME 9y ago
  Don't confuse CPI with inflation.
- timerol 9y ago
  To add some more specific data to my parent, from http://www.usinflationcalculator.com/ http://www.usinflationcalculator.com/: Inflation from 1946-1980 (34 year period): 322.6% Inflation from 1983-2017 (34 year period): 145.9%
- chiph 9y ago
  I recall Dad getting phone calls from his mortgage company back in the 70's. They had bought their house in the 60's and had a rate around 3.5% and the caller wanted him to refinance. "What's the rate?" "Its a low-low 17%!" "No thank you." The idea of a 17% mortgage is frightening.
  - candiodari 9y ago
    And yet, buying a house back then at 17% mortgage would probably have been the best investment decision of your life.
frandroid 9y ago
> The only explanation I've ever seen that adequately explains those curves is inflation. Inflation drives up prices, both of goods and of assets. Actually, this disparity growth has been driven by the extremist anti-inflationary policies of the Federal Reserve Bank under Alan Greenspan and his successors. Reduced of inflation allows accumulated wealth to mean more over time, whereas higher inflation puts pressure on workers to demand (and obtain) wage increases and keeps the inequality in check.
- nateabele 9y ago
  But wages are sticky and tend to increase slowly, especially in blue-collar sectors where labor demand has been held at bay by automation.
- runT1ME 9y ago
  >Reduced of inflation allows accumulated wealth to mean more over time, whereas higher inflation puts pressure on workers to demand (and obtain) wage increases and keeps the inequality in check. You have this backwards. Inflation allows those with debt (leverage) to disproportionately capture a larger percentage of wealth. Those with more debt make out better... who do you think has more debt? Inflation is wealth transfer from the lower and middle class to the upper class.
  - frandroid 9y ago
    Except that when interest is 2%, you can borrow a fuckton of money with no consequences, but at 15% you're pretty limited by your ability to repay FAST. That's one of the reasons there have been so many corporate mergers, leading to massive centralization of wealth... when the interest rate is lower than the profit rate of the company you're buying, there's plenty of incentive to buy your competitors rather than trying to outdo them.
    - runT1ME 9y ago
      It sounds like we're agreeing? Low interest rates == more monetary supply == inflation.
jcfrei 9y ago
Inflation has been trending lower for decades, so this is an unlikely cause. Also inflation benefits debtors and punishes savers. Many middle-class households have debt in the form of mortgages and have therefore benefited from high inflation. There's got to be another explanation.
drabiega 9y ago
I don't think inflation by itself is an adequate explanation. If inflation was happening in isolation, you would expect labor prices (wages) to increase as well, which they have not been for the most part.
- nateabele 9y ago
  That's a fair point. My guess would be the other compounding exponent, increased productivity through technology, has held down demand.
nostrademons 9y ago
I think you're partially right. The other half of the puzzle is negotiating leverage. One of Warren Buffett's annual reports (I forget which year, but I think it was the late 1990s) had an interesting observation: inflation doesn't affect all firms equally. Instead, it pools where there is a competition bottleneck. If you are the monopoly provider in a market, you have complete and total ability to raise prices in response to your customers having more money available to pay. If you are in a very competitive market, then every time you try to raise prices, some other entrant undercuts you and your customers and suppliers capture the surplus instead. The Fed, however, measures inflation based on a basket of goods bought by the "average" consumer. Most of these goods are in competitive markets: groceries and gas and consumer electronics. And so the measured inflation rate that the Fed uses to control the money supply significantly undercounts the true inflation rate, with much of the money injected into the economy pooling in differentiated industries like high finance, elite universities, health care, Google & Facebook, etc. From there, it doesn't circulate the way it should, because people in those industries need few goods that the average American produces. Instead, it goes into asset prices, as they try to buy up more future earning potential. I've suspected that maybe a simple way to fix this would be with "helicopter" Bernanke's crazy idea: drop money out of helicopters. Maybe not literally (imagine the fights on the ground!), but perhaps the Fed could inject money into the economy at the bottom, through direct deposit into consumer's bank accounts or tax refunds, and then collect it from the top, through fees on banks. That way, the money is immediately spent, and so the true effect of the money injected is more easily measurable in the CPI.
- JamesBarney 9y ago
  How would you describe the "true" inflation rate if not by the what the average person buys? It seems like you have a lot of different prices in the economy, and if all prices stay the same, except milk goes up 20% and yachts fall 20%. How much has inflation changed? You have to pick some way to weigh the prices. And it seems to me that the best way to do this is weigh them by how much the average consumer is spending on them.
  - Retric 9y ago
RamshackleJ 9y ago
I think the writing done on cost disease might better explain the gap rather than inflation (http://slatestarcodex.com/2017/02/09/considerations-on-cost-disease/ http://slatestarcodex.com/2017/02/09/considerations-on-cost-...) Inflation would imply that everything is increasing in cost at about the same rate. Instead we have ballooning costs for a few critical expenses(housing, eductation, healthcare).
- nateabele 9y ago
  That's an interesting point, and it's notable that every affected industry suffers from a high degree of government intervention, either in the form of regulation, or the artificial injection of cheap money. As inflation is also a form of government intervention (insert hand-waving gestures re: the Fed not really being a government agency), I think the principle still holds, but generalizes to something I can't articulate succinctly off the top of my head.
  - eregorn 9y ago
    I'd like to note that in that article he wrote, he was careful to point out that he did not think government intervention was the primary factor. Specifically, he pointed out to veterinary care as an industry that has very little intervention but has the same cost disease problem as people care. Its kind of difficult to find the similar strand in all of them to be honest. That's the reason the article ends on such a sour note: he never really figures out what's causing this.
elmar 9y ago
> The only explanation I've ever seen that adequately explains those curves is inflation. Inflation the hidden Tax " Although inflation causes generally rising prices, it should not be understood as detrimental to all parties involved. It is highly lucrative for the government and the banking industry. When new money is printed (today, created electronically), it greatly benefits the first recipient because assimilating the new money into the economic organism takes time. Those first recipients (government and banks) can purchase goods and services at the old prices. As the money slowly works its way through the economy prices are bid up. Eventually when it reaches the salaried workers, prices have mostly adjusted. This process is a hidden tax on salaried workers, or anyone who receives the money late in the cycle. It is especially detrimental to those on fixed incomes, such as pensioners. Not only does the government understate the effects of inflation in its official numbers, any price decrease that would have occurred as a result of productivity gains are denied to the consumer as well. Inflation is nothing but wealth transfer. The government prints money and buys stuff with it. Prices rise and the salaried worker can buy less stuff. All the stuff the salaried worker could have otherwise bought has accrued to the government. Simple. Politically, it is far more palatable than raising taxes because the process is badly understood and well obfuscated. " http://austrianeco.blogspot.pt/2008/02/inflation-part-22.html http://austrianeco.blogspot.pt/2008/02/inflation-part-22.htm...
redy 9y ago
Inflation lowers inequality. Specifically, inflation is good for labor who often carry large debts in the form of mortgages and education loans and whose income is entirely dependent upon aggregate demand. This is why you'll often see labor economists advocating for a higher inflation target then the Fed's measely 2% target. The answer is taxes. Taxes were cut drastically in the 1980s, across the board, at the state and federal levels. It's a good idea to compare the US to Europe. These nosebleed levels of inequality are actually unique to the US. Europe has experienced rising inequality since 1980 but nothing compared to the US. Compare, say, the US and France [1]. The reality is Americans like massive inequality and they have voted for it again and again. [1] https://www.theatlantic.com/business/archive/2013/08/why-is-inequality-so-much-higher-in-the-us-than-in-france/278660/ https://www.theatlantic.com/business/archive/2013/08/why-is-...
mikeash 9y ago
I thought that (reasonably slow) inflation would help the middle class and be more or less neutral to the poor. Inflation doesn't affect your day to day purchases much. Prices go up, but wages go up too (wages are just prices on labor) so it cancels out. What it affects is savings and investments. Your typical middle class person has some savings and a big mortgage. Their net worth is positive but their net cash is negative. Inflation effectively shrinks their debt over time, making them better off. Poorer people living paycheck-to-paycheck without significant assets or debts aren't much affected either way. Wealthy people probably hold equities and bonds rather than cash, so they're not much affected either. The people who are hurt are people with large cash hoards, in excess of any debt they may hold. Which I think is not a particularly significant proportion of the population.
untilHellbanned 9y ago
They gave a solution. You pointed out what's wrong. Can you point out a solution?
- nateabele 9y ago
  End the Fed? Let the market set the price of money? Allow competing currencies? Stop bailing out losers? The possible solutions are innumerable.
aidenn0 9y ago
http://www.taxpolicycenter.org/statistics/historical-highest-marginal-income-tax-rates http://www.taxpolicycenter.org/statistics/historical-highest... It seems plausible that over a long term, the top marginal tax rate can have a non-linear affect on growth. If safe returns on investments outpace inflaction+taxes, then you have exponential runaway of inequality. Between 1980 and 1982 the top marginal tax rate dropped from 70% to 50%. This is a large change in a short period of time, and the tax rate drops continued until 1989 when 28% was the top rate. [edit] There is a similar, but less drastic pattern for capital gains: https://www.fool.com/retirement/2017/02/11/a-95-year-history-of-maximum-capital-gains-tax-rat.aspx https://www.fool.com/retirement/2017/02/11/a-95-year-history...
InclinedPlane 9y ago
Central mechanism? Yes, the weakening of labor and the rise of anti-labor business practices. The minimum wage stagnated starting in the 1970s and fell to a lower level (adjusted for inflation) from the '80s onward. The federal minimum wage adjusted for inflation around 1970 would be around $9-10/hr now. As a share of per capita GDP, which the minimum wage used to roughly track, the minimum wage has fallen much more. If we were at the equivalent levels to the 1960s it would be near $20/hr right now. That combined with a shift in the balance of power from labor (unions, etc.) to employers has translated into depressed wages for the working and middle classes for the last 40 years or so. And from that everything else follows.
maxerickson 9y ago
Inflation doesn't necessarily impact wage earners all that much. If the economy is doing well, their wages get inflated along with everything else. I wonder about the long period of low inflation we have being the problem. The Fed puts the brakes on the economy all the time, to prevent inflation.
Mc_Big_G 9y ago
The root cause is corporate influence in politics. How is that not obvious?
pdog 9y ago
Book recommendation: Piketty's Capital[1] is still the single best resource for understanding why income inequality and the concentration of wealth have been so pronounced over the past several decades. There are ample citations, footnotes, and references to meticulously researched data sets. [1]: https://www.amazon.com/Capital-Twenty-First-Century-Thomas-Piketty/dp/1491591617 https://www.amazon.com/Capital-Twenty-First-Century-Thomas-P...
- rcarrigan87 9y ago
  Is there a good summary of his arguments you can recommend?
  - pdog 9y ago
    Sure. Robert M. Solow's review in the New Republic: https://newrepublic.com/article/117429/capital-twenty-first-century-thomas-piketty-reviewed https://newrepublic.com/article/117429/capital-twenty-first-...
specialist 9y ago
"Clearly some central mechanism has gone horribly awry." Pretty straightforward. #1 Labor glut. #2 "Surplus" (profits) of increased productivity not shared with stackholders. #3 Transfer of tax burden from corporations onto the people. -- Prof Sonia Marciano has an interesting theory for the why and how and when #2 happened. "Bigger Isn't Always Better" Jul 26, 2017 https://www.youtube.com/watch?v=7Q5u4yNs_w8 https://www.youtube.com/watch?v=7Q5u4yNs_w8 "In recent years, there has been a palpable shift in the nature of the US economy. Corporations are getting bigger at an unprecedented rate. The share of US corporate income earned by the 100 largest firms is at a staggering 85 percent. Facebook has 77 percent of mobile social traffic, Amazon controls 45 percent of US e-commerce, and Google has an 88 percent market share in search advertising. We can connect the shift in the business landscape to the observation that Americans today are highly divided economically, socially, and philosophically. The L2 Digital Leadership Academy, led by faculty from NYU Stern, Kellogg School of Management, Harvard Business School, and L2 researchers, is a two-day conference rooted in business fundamentals coupled with tactical sessions on digital topics. Sonia Marciano has been a Clinical Professor at the Stern School of Management since July, 2007. She is currently the Stern academic director for TRIUM – a joint executive MBA program that includes Stern, LSE and HEC. Prior to Stern, she was at the Columbia Business School and prior to Columbia, she spent 2.5 years at Harvard’s Institute for Strategy and Competitiveness (ISC), where she developed content for the Institute’s Microeconomics of Competitiveness course which she co-taught with Professor Michael E. Porter. Before HBS, Professor Marciano spent eight years as a Clinical Professor of Management and Strategy at the Kellogg School of Management, while also lecturing at the University of Chicago. She has also taught in both executive and full time programs for the Wharton School and Yale SOM. Currently, Sonia teaches core strategy as well as electives in advanced strategy and global competition. In addition, she teaches strategy and economics for corporate executive education programs in the U.S., Canada and Europe. Sonia has won several teaching awards for distinction in teaching, most recently for best professor Yale’s, Kellogg’s as well as in Stern’s Executive MBA programs in 2010, 2011 and 2012. She was among the highest rated management professors at Stern, Columbia, Harvard, Kellogg and the University of Chicago. She received her BA with honors from the University of Chicago. She worked in consulting, banking and the insurance industries before returning to the University of Chicago to receive her MBA in 1994, and her PhD in Business Economics and Industrial Organization in 2000."

albertsun 9y ago

They're not really growth curves, the curves show relative growth rates. Not quite the same thing. And if you think some central mechanism has gone horribly awry, what central mechanisms changed around 1980?

dhimes 9y ago
IIRC, one of the things that changed back then was a movement away from workers having retirement plans with the companies they worked for (pensions) and toward managing their retirement individually (IRAs). This could have conceivably led to a new, steady source of investment in the stock market through mutual funds and whatnot (and perhaps even more aggressive investments presumably), which, if the changes shown on that graph could be thought to be generously helped by investment income, may explain some of this. Disclaimer: I don't know enough about this stuff to make a definitive argument.
pantalaimon 9y ago
> what central mechanisms changed around 1980? https://en.wikipedia.org/wiki/Reaganomics https://en.wikipedia.org/wiki/Reaganomics ?
frandroid 9y ago
Massive shift of the taxation burden from corporations to citizens.
- nateabele 9y ago
  Charts / sources?
nateabele 9y ago
> They're not really growth curves, the curves show relative growth rates. Not quite the same thing. An exponential growth curve is an exponential growth curve, irrespective of what it measures. Thanks anyway for the pedantry. > And if you think some central mechanism has gone horribly awry, what central mechanisms changed around 1980? In 1974, the US dollar switched from being a store of value to a store of debt: https://www.amazon.com/Creature-Jekyll-Island-Federal-Reserve/dp/091298645X https://www.amazon.com/Creature-Jekyll-Island-Federal-Reserv...
- JamesBarney 9y ago
  I know people without valid credential sometimes have very insightful ideas. And sometimes it's hard to have a discussion with someone when they don't understand the fundamentals of a field. However it would be nice if you went into detail as opposed to just linking to that book. It's not part of the standard economic body of knowledge so I don't think it would be appropriate to expect your would be arguers to read it, especially when the author's wikipedia page is G. Edward Griffin (born November 7, 1931) is an American far-right conspiracy theorist, author, lecturer, and filmmaker. He is the author of The Creature from Jekyll Island (1994), which promotes theories about the motives behind the creation of the Federal Reserve System.[1][2] Griffin's writings include a number of views regarding various political, defense and health care interests. In his book World Without Cancer, he argues that cancer is a nutritional deficiency that can be cured by consuming amygdalin, a view regarded as quackery by the medical community.[1][3][4] He is an HIV/AIDS denialist, supports the 9/11 Truth movement, and supports a specific John F. Kennedy assassination conspiracy theory.[1] Also, he believes the actual geographical location of the biblical Noah's Ark is located at the Durupınar site in Turkey.[5]
  - nateabele 9y ago
    And James Watson has some pretty wacky ideas about biology, but he still discovered the structure of DNA. I'm not sure how not to take most of this, other than as ad hominem. Other people have cited links elsewhere in the thread [0], and I don't feel especially compelled to be redundant. Not sure what to suggest other than googling some Austrian economists and their views on inflation. [0] https://news.ycombinator.com/item?id=14960011 https://news.ycombinator.com/item?id=14960011
randomdata 9y ago
> what central mechanisms changed around 1980? The Copyright Act of 1976, perhaps? If we look at the list of wealthiest Americans, most of them are there because they provide something to the world that nobody else is able to directly copy. Without competition, there is no mechanism to spread the money around.
- nateabele 9y ago
  This would certainly disproportionately impact authors, entertainers, and anyone else who makes royalties from media, but I don't know that they represent a large enough swath of the economy to account for the broad trends we see here. To my original point, though, making money off of a copyrighted work represents income from an asset, the value of which compounds over time, due to inflation.
  - randomdata 9y ago
    > I don't know that they represent a large enough swath of the economy to account for the broad trends we see here. I'm not sure it is that broad to begin with. The 99.999 percentile of adults with these near-infinite income gains represents only ~2,000 people. While wealth and income aren't the same thing, I expect there is a lot of overlap with this list[1] that outlines 400 of the potential names. If you look at how they made their fortunes, many are directly attributable to copyright. Bill Gates certainly wouldn't have topped the list if anyone was free to copy/resell Windows. > To my original point, though, making money off of a copyrighted work represents income from an asset, the value of which compounds over time, due to inflation. Increased value of an asset does not necessarily translate to increased income. A primary residence, for instance, is a good example. The value of your home may be increasing, but nobody is paying you to live there. Many people are quite happy to pay top dollar for an asset that generates no revenue on the hope that capital gains alone make the purchase provide returns. But you do rightfully point out that those who have entire control over a certain asset have complete control over the streams of money directed at that asset. That is not exclusively limited to copyright, but changes to copyright opened up a whole new set of wide-ranging assets to hold that were previously not there. Anyone holding hard assets was presumably already milking it for everything it was worth, thus, while incredibly profitable, not increasingly profitable. [1] https://www.forbes.com/sites/chasewithorn/2016/10/04/forbes-400-the-full-list-of-the-richest-people-in-america-2016/#6239af4022f4 https://www.forbes.com/sites/chasewithorn/2016/10/04/forbes-...

msluyter 9y ago

Except that inflation was worse in the 70s-80s when the lower/middle classes were apparently reaping greater income gains vs the subsequent decades, when they weren't: https://inflationdata.com/Inflation/Inflation/DecadeInflation.asp https://inflationdata.com/Inflation/Inflation/DecadeInflatio... (Note that the graph on the parent article is inflation adjusted. "Note: Inflation-adjusted annual average growth using income after taxes, transfers and non-cash benefits.")

runT1ME 9y ago
Don't confuse CPI with inflation.
timerol 9y ago
To add some more specific data to my parent, from http://www.usinflationcalculator.com/ http://www.usinflationcalculator.com/: Inflation from 1946-1980 (34 year period): 322.6% Inflation from 1983-2017 (34 year period): 145.9%
chiph 9y ago
I recall Dad getting phone calls from his mortgage company back in the 70's. They had bought their house in the 60's and had a rate around 3.5% and the caller wanted him to refinance. "What's the rate?" "Its a low-low 17%!" "No thank you." The idea of a 17% mortgage is frightening.
- candiodari 9y ago
  And yet, buying a house back then at 17% mortgage would probably have been the best investment decision of your life.

frandroid 9y ago

> The only explanation I've ever seen that adequately explains those curves is inflation. Inflation drives up prices, both of goods and of assets. Actually, this disparity growth has been driven by the extremist anti-inflationary policies of the Federal Reserve Bank under Alan Greenspan and his successors. Reduced of inflation allows accumulated wealth to mean more over time, whereas higher inflation puts pressure on workers to demand (and obtain) wage increases and keeps the inequality in check.

nateabele 9y ago
But wages are sticky and tend to increase slowly, especially in blue-collar sectors where labor demand has been held at bay by automation.
runT1ME 9y ago
>Reduced of inflation allows accumulated wealth to mean more over time, whereas higher inflation puts pressure on workers to demand (and obtain) wage increases and keeps the inequality in check. You have this backwards. Inflation allows those with debt (leverage) to disproportionately capture a larger percentage of wealth. Those with more debt make out better... who do you think has more debt? Inflation is wealth transfer from the lower and middle class to the upper class.
- frandroid 9y ago
  Except that when interest is 2%, you can borrow a fuckton of money with no consequences, but at 15% you're pretty limited by your ability to repay FAST. That's one of the reasons there have been so many corporate mergers, leading to massive centralization of wealth... when the interest rate is lower than the profit rate of the company you're buying, there's plenty of incentive to buy your competitors rather than trying to outdo them.
  - runT1ME 9y ago
    It sounds like we're agreeing? Low interest rates == more monetary supply == inflation.

jcfrei 9y ago

Inflation has been trending lower for decades, so this is an unlikely cause. Also inflation benefits debtors and punishes savers. Many middle-class households have debt in the form of mortgages and have therefore benefited from high inflation. There's got to be another explanation.

drabiega 9y ago

I don't think inflation by itself is an adequate explanation. If inflation was happening in isolation, you would expect labor prices (wages) to increase as well, which they have not been for the most part.

nateabele 9y ago
That's a fair point. My guess would be the other compounding exponent, increased productivity through technology, has held down demand.

nostrademons 9y ago

I think you're partially right. The other half of the puzzle is negotiating leverage. One of Warren Buffett's annual reports (I forget which year, but I think it was the late 1990s) had an interesting observation: inflation doesn't affect all firms equally. Instead, it pools where there is a competition bottleneck. If you are the monopoly provider in a market, you have complete and total ability to raise prices in response to your customers having more money available to pay. If you are in a very competitive market, then every time you try to raise prices, some other entrant undercuts you and your customers and suppliers capture the surplus instead. The Fed, however, measures inflation based on a basket of goods bought by the "average" consumer. Most of these goods are in competitive markets: groceries and gas and consumer electronics. And so the measured inflation rate that the Fed uses to control the money supply significantly undercounts the true inflation rate, with much of the money injected into the economy pooling in differentiated industries like high finance, elite universities, health care, Google & Facebook, etc. From there, it doesn't circulate the way it should, because people in those industries need few goods that the average American produces. Instead, it goes into asset prices, as they try to buy up more future earning potential. I've suspected that maybe a simple way to fix this would be with "helicopter" Bernanke's crazy idea: drop money out of helicopters. Maybe not literally (imagine the fights on the ground!), but perhaps the Fed could inject money into the economy at the bottom, through direct deposit into consumer's bank accounts or tax refunds, and then collect it from the top, through fees on banks. That way, the money is immediately spent, and so the true effect of the money injected is more easily measurable in the CPI.

JamesBarney 9y ago
How would you describe the "true" inflation rate if not by the what the average person buys? It seems like you have a lot of different prices in the economy, and if all prices stay the same, except milk goes up 20% and yachts fall 20%. How much has inflation changed? You have to pick some way to weigh the prices. And it seems to me that the best way to do this is weigh them by how much the average consumer is spending on them.
- Retric 9y ago

RamshackleJ 9y ago

I think the writing done on cost disease might better explain the gap rather than inflation (http://slatestarcodex.com/2017/02/09/considerations-on-cost-disease/ http://slatestarcodex.com/2017/02/09/considerations-on-cost-...) Inflation would imply that everything is increasing in cost at about the same rate. Instead we have ballooning costs for a few critical expenses(housing, eductation, healthcare).

nateabele 9y ago
That's an interesting point, and it's notable that every affected industry suffers from a high degree of government intervention, either in the form of regulation, or the artificial injection of cheap money. As inflation is also a form of government intervention (insert hand-waving gestures re: the Fed not really being a government agency), I think the principle still holds, but generalizes to something I can't articulate succinctly off the top of my head.
- eregorn 9y ago
  I'd like to note that in that article he wrote, he was careful to point out that he did not think government intervention was the primary factor. Specifically, he pointed out to veterinary care as an industry that has very little intervention but has the same cost disease problem as people care. Its kind of difficult to find the similar strand in all of them to be honest. That's the reason the article ends on such a sour note: he never really figures out what's causing this.

elmar 9y ago

> The only explanation I've ever seen that adequately explains those curves is inflation. Inflation the hidden Tax " Although inflation causes generally rising prices, it should not be understood as detrimental to all parties involved. It is highly lucrative for the government and the banking industry. When new money is printed (today, created electronically), it greatly benefits the first recipient because assimilating the new money into the economic organism takes time. Those first recipients (government and banks) can purchase goods and services at the old prices. As the money slowly works its way through the economy prices are bid up. Eventually when it reaches the salaried workers, prices have mostly adjusted. This process is a hidden tax on salaried workers, or anyone who receives the money late in the cycle. It is especially detrimental to those on fixed incomes, such as pensioners. Not only does the government understate the effects of inflation in its official numbers, any price decrease that would have occurred as a result of productivity gains are denied to the consumer as well. Inflation is nothing but wealth transfer. The government prints money and buys stuff with it. Prices rise and the salaried worker can buy less stuff. All the stuff the salaried worker could have otherwise bought has accrued to the government. Simple. Politically, it is far more palatable than raising taxes because the process is badly understood and well obfuscated. " http://austrianeco.blogspot.pt/2008/02/inflation-part-22.html http://austrianeco.blogspot.pt/2008/02/inflation-part-22.htm...

redy 9y ago

Inflation lowers inequality. Specifically, inflation is good for labor who often carry large debts in the form of mortgages and education loans and whose income is entirely dependent upon aggregate demand. This is why you'll often see labor economists advocating for a higher inflation target then the Fed's measely 2% target. The answer is taxes. Taxes were cut drastically in the 1980s, across the board, at the state and federal levels. It's a good idea to compare the US to Europe. These nosebleed levels of inequality are actually unique to the US. Europe has experienced rising inequality since 1980 but nothing compared to the US. Compare, say, the US and France [1]. The reality is Americans like massive inequality and they have voted for it again and again. [1] https://www.theatlantic.com/business/archive/2013/08/why-is-inequality-so-much-higher-in-the-us-than-in-france/278660/ https://www.theatlantic.com/business/archive/2013/08/why-is-...

mikeash 9y ago

I thought that (reasonably slow) inflation would help the middle class and be more or less neutral to the poor. Inflation doesn't affect your day to day purchases much. Prices go up, but wages go up too (wages are just prices on labor) so it cancels out. What it affects is savings and investments. Your typical middle class person has some savings and a big mortgage. Their net worth is positive but their net cash is negative. Inflation effectively shrinks their debt over time, making them better off. Poorer people living paycheck-to-paycheck without significant assets or debts aren't much affected either way. Wealthy people probably hold equities and bonds rather than cash, so they're not much affected either. The people who are hurt are people with large cash hoards, in excess of any debt they may hold. Which I think is not a particularly significant proportion of the population.

untilHellbanned 9y ago

They gave a solution. You pointed out what's wrong. Can you point out a solution?

nateabele 9y ago
End the Fed? Let the market set the price of money? Allow competing currencies? Stop bailing out losers? The possible solutions are innumerable.

aidenn0 9y ago

http://www.taxpolicycenter.org/statistics/historical-highest-marginal-income-tax-rates http://www.taxpolicycenter.org/statistics/historical-highest... It seems plausible that over a long term, the top marginal tax rate can have a non-linear affect on growth. If safe returns on investments outpace inflaction+taxes, then you have exponential runaway of inequality. Between 1980 and 1982 the top marginal tax rate dropped from 70% to 50%. This is a large change in a short period of time, and the tax rate drops continued until 1989 when 28% was the top rate. [edit] There is a similar, but less drastic pattern for capital gains: https://www.fool.com/retirement/2017/02/11/a-95-year-history-of-maximum-capital-gains-tax-rat.aspx https://www.fool.com/retirement/2017/02/11/a-95-year-history...

InclinedPlane 9y ago

Central mechanism? Yes, the weakening of labor and the rise of anti-labor business practices. The minimum wage stagnated starting in the 1970s and fell to a lower level (adjusted for inflation) from the '80s onward. The federal minimum wage adjusted for inflation around 1970 would be around $9-10/hr now. As a share of per capita GDP, which the minimum wage used to roughly track, the minimum wage has fallen much more. If we were at the equivalent levels to the 1960s it would be near $20/hr right now. That combined with a shift in the balance of power from labor (unions, etc.) to employers has translated into depressed wages for the working and middle classes for the last 40 years or so. And from that everything else follows.

maxerickson 9y ago

Inflation doesn't necessarily impact wage earners all that much. If the economy is doing well, their wages get inflated along with everything else. I wonder about the long period of low inflation we have being the problem. The Fed puts the brakes on the economy all the time, to prevent inflation.

Mc_Big_G 9y ago

The root cause is corporate influence in politics. How is that not obvious?

pdog 9y ago

Book recommendation: Piketty's Capital[1] is still the single best resource for understanding why income inequality and the concentration of wealth have been so pronounced over the past several decades. There are ample citations, footnotes, and references to meticulously researched data sets. [1]: https://www.amazon.com/Capital-Twenty-First-Century-Thomas-Piketty/dp/1491591617 https://www.amazon.com/Capital-Twenty-First-Century-Thomas-P...

rcarrigan87 9y ago
Is there a good summary of his arguments you can recommend?
- pdog 9y ago
  Sure. Robert M. Solow's review in the New Republic: https://newrepublic.com/article/117429/capital-twenty-first-century-thomas-piketty-reviewed https://newrepublic.com/article/117429/capital-twenty-first-...

specialist 9y ago

"Clearly some central mechanism has gone horribly awry." Pretty straightforward. #1 Labor glut. #2 "Surplus" (profits) of increased productivity not shared with stackholders. #3 Transfer of tax burden from corporations onto the people. -- Prof Sonia Marciano has an interesting theory for the why and how and when #2 happened. "Bigger Isn't Always Better" Jul 26, 2017 https://www.youtube.com/watch?v=7Q5u4yNs_w8 https://www.youtube.com/watch?v=7Q5u4yNs_w8 "In recent years, there has been a palpable shift in the nature of the US economy. Corporations are getting bigger at an unprecedented rate. The share of US corporate income earned by the 100 largest firms is at a staggering 85 percent. Facebook has 77 percent of mobile social traffic, Amazon controls 45 percent of US e-commerce, and Google has an 88 percent market share in search advertising. We can connect the shift in the business landscape to the observation that Americans today are highly divided economically, socially, and philosophically. The L2 Digital Leadership Academy, led by faculty from NYU Stern, Kellogg School of Management, Harvard Business School, and L2 researchers, is a two-day conference rooted in business fundamentals coupled with tactical sessions on digital topics. Sonia Marciano has been a Clinical Professor at the Stern School of Management since July, 2007. She is currently the Stern academic director for TRIUM – a joint executive MBA program that includes Stern, LSE and HEC. Prior to Stern, she was at the Columbia Business School and prior to Columbia, she spent 2.5 years at Harvard’s Institute for Strategy and Competitiveness (ISC), where she developed content for the Institute’s Microeconomics of Competitiveness course which she co-taught with Professor Michael E. Porter. Before HBS, Professor Marciano spent eight years as a Clinical Professor of Management and Strategy at the Kellogg School of Management, while also lecturing at the University of Chicago. She has also taught in both executive and full time programs for the Wharton School and Yale SOM. Currently, Sonia teaches core strategy as well as electives in advanced strategy and global competition. In addition, she teaches strategy and economics for corporate executive education programs in the U.S., Canada and Europe. Sonia has won several teaching awards for distinction in teaching, most recently for best professor Yale’s, Kellogg’s as well as in Stern’s Executive MBA programs in 2010, 2011 and 2012. She was among the highest rated management professors at Stern, Columbia, Harvard, Kellogg and the University of Chicago. She received her BA with honors from the University of Chicago. She worked in consulting, banking and the insurance industries before returning to the University of Chicago to receive her MBA in 1994, and her PhD in Business Economics and Industrial Organization in 2000."