9 ms·

Is There an Ideal Amount of Income Inequality?

32 points by Maro 9y ago

indubitable 9y ago
Something I always founds surprising is that so few people seem to consider effective tax rate on disposable income as an indicator of fairness. For instance many people think a flat tax would be, even if undesirable, fair. Everybody pays let's say 10% tax so it must be fair. But individuals aren't taxed like companies, they're [generally] taxed on their gross income. So let's say a person is spending $2k a month on their basic necessities - housing, healthcare, insurance, transportation, and a little bit of entertainment. And now consider two people who spend the exact same amount. One earns $30k and the other earns $90k. The person earning $90k has $66k left at the end of the year after accounting for 12 months * 2k of spending. The person earning $30k has $6k left. The $90k earner is left to pay $9k in taxes. That's 9/66 = 13.6% of his disposable income. Pretty close to the nominal 10% rate. But the person earning $30k has to pay $3k. That's 50% of his disposable income! That 10% for all isn't exactly fair, in effect. I think this disparity is a much easier way to consider tax brackets. And I think it's a politically easier sell to both sides of the aisle, than the more abstract notions of this article. Citizen A earns $x and citizen B earns $y. They both, on average, pay the exact same share of their disposable income in tax. I think it's pretty hard to argue against that, yet the tax brackets this implies would also help inherently tackle extreme levels of inequality.
- wallace_f 9y ago
  In general, a reasonable axiom of public policy is to focus on correcting negative externalities and unjust outcomes while minimizing interference in well-functioning free markets. Your idea is nice, but we already have mortgage tax credits and have seen the negative effect that has had on the economy. What's more, is who gets to decide what is a necessity. Once upon a time I flew to Australia, bought a commercial van, a surf board, and converted it into a camper and travelled a loop around the country. I was by definition poor and homeless, but I was in heaven. I don't think this would qualify for any tax breaks under your plan. In this way your plan creates a complex tax code that does not align with me maximizing my utility function. There are vast benefits to simplifying the tax code, and I would argue a better version of your idea is to guarantee a basic income to everyone. BI won't work for everyone, such as the truly disabled, but it's a more efficient way of reducing inequality for the truly poor, and more capable of maximizing individual utility functions. I know you will say "but who will produce useful goods and services," but at the moment I would wager far less than 30% of the population produces useful commerce. The labor participation rate is only about 60%, and many jobs don't produce anything useful. For example, police officers in Utah that settle for 0.5MM for unconstitutional injustices are draining taxpayer funds. Wall St is completely out-of-control. Bureaucracy, military-congressional-contractor-complex, healthcare insurance companies... There is an extroardinary amount of waste. BI would also benefit the economy by increasing aggregate demand. It would stimulate investment by providing a safety net for indivisuals deciding to retrain or invest in education.
  - alacombe 9y ago
    It could be argued that the whole concept of "basic income" is very much a "rent-seeking" behavior, as receivers are not technically producing anything of their own while relying on someone's else "surplus".
    - wallace_f 9y ago
      And nearly every living person on earth has been profiting from rent-seeking from the second they are born into a world with food, medicine, water, maths and science, etc that has been created and improved-upon by people long-dead now.
      - Aron 9y ago
        If all people benefit from something then it's hard to find a problem with it. That's presumably not the case for someone who is a high level producer comparing a UBI world to a non-UBI world and seeing only an outflow.
    - Aron 9y ago
      I'm curious how that's wrong.
  - WalterBright 9y ago
    > BI would also benefit the economy by increasing aggregate demand. That would require that taking something from A and giving it to B would increase aggregate demand. I don't see how that can be. > It would stimulate investment by providing a safety net for indivisuals deciding to retrain or invest in education. This safety net may encourage people to drive around Australia in a van who would otherwise work, reducing investment.
    - dragonwriter 9y ago
      > That would require that taking something from A and giving it to B would increase aggregate demand. I don't see how that can be. Differing marginal behavior between A and B.
- js8 9y ago
  You correctly point out that individuals are taxed on gross income, while corporations are taxed on profits. I think it's wrong and everybody should be taxed on gross income, it's simpler and harder to avoid through loopholes.
  - indubitable 9y ago
    Consider a simple supply chain of mining -> transport -> refining -> transport -> assembly -> transport -> retail The reason prices are able to stay relatively low is because players able to get by with very little profit made up for by enormous quantity. Tax on gross and suddenly you send the profit requirements at every link in that chain way up, and that's going to be reflected (strongly) in the price of the final products. Even take Amazon as an example as just one link in the chain - the retail. Their total revenue is $136 billion, but their net income is less than $3 billion. Even if they're playing fast and loose with operating expenses, their margins are not huge. Change to gross taxation and they'd have to be. Just to get into the black, you'd see prices raise dramatically from them. And of course the same would be true of all of their suppliers, producers, and so on - which means they'd be increasing not only to compensate for their own increase in costs, but for all the increases that go all the way up the development chain of every product you buy. It wouldn't be pretty. And corporations, unlike individuals, have another option. They can simply move. Citizens can't do this. Even if they move, they're unbelievably required to continue paying US tax - we're the only nation in the world that requires this of nonresidents. This idea would be devastating to the US.
- tzs 9y ago
  I don't think I've ever seen any "flat tax" advocate actually advocate a flat tax. They always seem to actually do a progressive tax with two brackets, with the lower bracket being wide and having a rate of 0%. For example, Ted Cruz's flat tax proposal a couple years ago had a $36k 0% bracket, and Rand Paul's had a $50k 0% bracket. NOTE: my referencing Cruz and Paul should in no way be taken as any endorsement or approval of their tax plans on my part. I just used them because they are fairly typical for recent flat tax proposals. For a lot of people the main selling point of a flat tax is its supposed simplicity. They have fantasies of spending two minutes a year doing their taxes. I say "supposed simplicity" because many of these proposals still include numerous deductions and exclusions, and THAT is where 99.99% of the complexity of the tax system resides. Once you have figured out your taxable income the actual computation of the tax is close to trivial under both the current system and the two bracket "flat" tax systems. All that changing from the former to the later does is shorten the Internal Revenue Code by about 5 lines. If a flat tax proposal does actually eliminate all the deductions and exclusions, so that your taxable income really is trivial to compute, then it would greatly simplify doing your taxes--but that has nothing whatsoever to do with it being flat. Such a simplification works just as well for a tax with several progressive brackets.
  - TheCoelacanth 9y ago
    > For a lot of people the main selling point of a flat tax is its supposed simplicity. They have fantasies of spending two minutes a year doing their taxes. I say "supposed simplicity" because many of these proposals still include numerous deductions and exclusions, and THAT is where 99.99% of the complexity of the tax system resides. Exactly, no matter how many tax brackets you have, without the miscellaneous deductions, calculating your total amount of tax to pay involves simply looking at a table of income ranges for a set of three numbers that applies to you and then doing the calculation top_marginal_tax_rate*(income - top_tax_bracket_lower_bound)+tax_on_income_in_lower_brackets. So the entire work to calculate your tax burden is one table lookup, one addition, one subtraction and one multiplication. The flat tax proposals simplify that by getting rid of the addition (by making tax_on_income_in_lower_brackets zero) and making the table lookup only contain two rows instead of many. So you have removed one arithmetic operation(or three if you are under the 0% bracket cutoff), and cut down on the number of rows you have to scan through by a single digit number. That is completely negligible to dozens of pages of reading you would have to do if you have even relatively simple deductions.
stretchwithme 9y ago
Income inequality is a function of how many technologies there are for multiplying one's efforts and how many of these people use. Web apps, manufacturing, broadcasting, e-commerce, etc. People who don't leverage any of them can't sell to the world. Those who leverage all of them make billions. Even people who use cars, trucks, ships, block and tackle, nail guns, etc., make more than those who do everything with their hands. If we want to reduce income inequality, we have to educate people to understand and take advantage of technology. It is the key to prosperity. And, since there will always be people who don't multiply their efforts with technology, income inequality will only keep increasing. But quality of life for even those at the bottom will keep on improving.
- tmnvix 9y ago
  I think you'll find that many seriously wealthy people tend to make more money from owning things than they do from producing things.
  - owlmirror 9y ago
    How can you make money from something without producing? I own things and would love to know this recipe for infinite wealth.
    - tmnvix 9y ago
      Buy land.
    - richardknop 9y ago
      Real estate / land. Buy a bunch of condos and rent them out. You have basically infinite passive income (yes those buildings won't be there forever but relative to your lifespan it is infinite, probably will provide income for your family for several generations) without having to produce or do any labour / work. There is maintenance / repairs to be done but that can be outsourced to a real estate / concierge service.
  - stretchwithme 9y ago
whatyoucantsay 9y ago
Some income inequality is due to rent-seeking behaviour and some is due to variance in productivity. In an ideal world the first source would be eliminated, but a question remains: Is there an ideal amount of productivity inequality? Even with 100% tax rates, the productive can find dimensions where it is possible to earn more, usually fame, status, non-taxable goods and political power.
- dredmorbius 9y ago
  You fail to mention labour negotiating leverage, or rather lack thereof. See Adam Smith, or Ricardo's Iron Law of Wages, or J.S. Mill. Productivity is a canard. Either labour is paid its living costs or not.
  - dwaltrip 9y ago
    > Productivity is a canard. Either labour is paid its living costs or not. Care to elaborate? You don't think there are large variations in productive capacity among all of labour, and that higher productivity usually results in compensation far beyond living wages? This may not apply to the majority of workers. I could see the Iron Law of Wages being true for them [1]. However, I don't think we should ignore the dynamics that we find as we move towards the edges of the spectrum. [1] Still, I would argue that a "living wage" means different things at different times. A living wage at time period 1 could result in a significantly better quality of life than that from time period 2.
    - dredmorbius 9y ago
      Productivity generates consumer surplus. "A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more; otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation." https://en.m.wikisource.org/wiki/The_Wealth_of_Nations/Book_I/Chapter_8 https://en.m.wikisource.org/wiki/The_Wealth_of_Nations/Book_...
thisisit 9y ago
Betteridge's law of headlines applies and mostly the answer is "No". I am not sure of the exact word but it's like a transaction with a used car salesman. The transaction can never happen at an "ideal" price. Car Salesman will always overvalue the utility while the buyer will always undervalue the utility.
- dredmorbius 9y ago
  "The Market for Lemons", Akerlof.
jhanschoo 9y ago
Whereas inequality is traditionally easy to measure, people are more interested in equalizing forces. I think that we are less concerned about inequality if there is an assurance that our lives should regress to a comfortable mean given that we invest reasonable time in socially-useful work.
- dwaltrip 9y ago
  How could such a thing happen? How do we prevent highly skilled individuals from producing great value for their societies and then receiving the benefits from that? 100% tax rate? That sounds incredibly draconian. I'm not arguing that our current situation is ideal, or that we can't do a lot more to provide greater opportunity for all and raise the floor for everyone. But complete "equality of outcome" seems to go against all of my understanding of the dynamics through which the universe actually unfolds over time. I can only imagine it as a very unstable state that is held in place through immense effort and force.
  - jhanschoo 9y ago
    I think I have miscommunicated. I'm saying that an ideal society should be one where mishaps and bad deeds are assured to result only in a temporary poor quality of life, and that good deeds result only in a temporary good quality of life. That is, there is negative feedback, or homeostasis. Poorly-regulated capitalism doesn't provide that. Capital begets capital as capitalists become more able to invest in high-risk high-reward projects, leading to a positive feedback loop that is an anti-equalizing force.
wallace_f 9y ago
From the article: >"How Much Inequality Is Fair? Mathematical Principles of a Moral, Optimal, and Stable Capitalist Society, [...] perfect inequality, which has a definite mathematical form." Income inequality does not have a "perfect mathematical form." Since the stoics, clever folks adept with maths have realized that 'math/stats is the best way to lie or convince people you are right.' Why? Because people trust in the intellectual rigor of maths. But while the language of maths is fundamental to our universe, formulating an argument with maths does not necessitate correctneas. even the hugely-influential economist Keynes, and others, believed that 'human behavior cannot be reduced to mathematics.' Economics is currently, and has been for a century, trying to formulate as much as possible in the language of math, but we're consistently in disagreement and wrong. That is because Economists are almost always without the virtue of being able to do controlled experiments. If you wanted to know the 'definite mathematically ideal' amount of inequality, you would first need to put forward a hypothesis which also defines ideal. "X is ideal for maximizing aggregate utility" is a reasonable hypothesis. Then for your experiment you would need many planet earths, and some way to to precisely measure people's utility. This is all impossible. And as such, we would be wise to treat the current state of economics like that of 19th century medicine: somewhere between interesting-possibly-helpful and hogwash.
- ZenoArrow 9y ago
  I couldn't agree more.
- dragonwriter 9y ago
  > Then for your experiment you would need many planet earths, and some way to to precisely measure people's utility. Only the latter; you don't need a whole planet to study, and statistical control is real control. OTOH, the missing bit is utterly intractable, so...
- sametmax 9y ago
  Or more convincingly, you may be able to use maths for that, but the number of variables would probably means you'd need to simulate each atom in the whole planet and their interactions perfectly.
- 9y ago
tanilama 9y ago
Ideal income inequality should shut up most people's mouth.
js8 9y ago
The theory looks interesting but overall, however it reminds me of things like NAIRU, which is basically a justification of unemployment. Maybe there is some idea there which can explain why people perceive fairness as they do (why we evolved that way), but that's perhaps about it. The problem is, the unemployed person doesn't care whether or not the NAIRU as a model is fair. They already have their one shot at life, going on right now. So, I think we shouldn't care what the curve is, and focus on the extremes on both sides, because both are bad. Poor people have it bad for obvious reasons, and that should be enough moral justification to not have them at all. Too wealthy people are bad because money translates to power, and this power can be misused. But I agree with the author that we should have progressive taxes, but also basic income (and I think Norway is close on both).
throw2016 9y ago
This is like asking is there an ideal amount of crime? The bigger question is what kind of society do you want to build? If you want a stable society you will work towards ensuring people have decent income, possibilities to grow and overall wider distribution of income. The alternative is oppression when people react to their conditions. There is no point having a few people capturing the wealth of and productivity of a society. Yet you are already born into a society with rent seekers and individuals who hold a huge amount of wealth. The top 1% already control the economy and assets. Discussion about inequality then is moot as it only perpetuates an illusion of control and freedom to decide the issue when there is none.

32 points by Maro 9y ago

Something I always founds surprising is that so few people seem to consider effective tax rate on disposable income as an indicator of fairness. For instance many people think a flat tax would be, even if undesirable, fair. Everybody pays let's say 10% tax so it must be fair. But individuals aren't taxed like companies, they're [generally] taxed on their gross income. So let's say a person is spending $2k a month on their basic necessities - housing, healthcare, insurance, transportation, and a little bit of entertainment. And now consider two people who spend the exact same amount. One earns $30k and the other earns $90k. The person earning $90k has $66k left at the end of the year after accounting for 12 months * 2k of spending. The person earning $30k has $6k left. The $90k earner is left to pay $9k in taxes. That's 9/66 = 13.6% of his disposable income. Pretty close to the nominal 10% rate. But the person earning $30k has to pay $3k. That's 50% of his disposable income! That 10% for all isn't exactly fair, in effect. I think this disparity is a much easier way to consider tax brackets. And I think it's a politically easier sell to both sides of the aisle, than the more abstract notions of this article. Citizen A earns $x and citizen B earns $y. They both, on average, pay the exact same share of their disposable income in tax. I think it's pretty hard to argue against that, yet the tax brackets this implies would also help inherently tackle extreme levels of inequality.

wallace_f 9y ago
In general, a reasonable axiom of public policy is to focus on correcting negative externalities and unjust outcomes while minimizing interference in well-functioning free markets. Your idea is nice, but we already have mortgage tax credits and have seen the negative effect that has had on the economy. What's more, is who gets to decide what is a necessity. Once upon a time I flew to Australia, bought a commercial van, a surf board, and converted it into a camper and travelled a loop around the country. I was by definition poor and homeless, but I was in heaven. I don't think this would qualify for any tax breaks under your plan. In this way your plan creates a complex tax code that does not align with me maximizing my utility function. There are vast benefits to simplifying the tax code, and I would argue a better version of your idea is to guarantee a basic income to everyone. BI won't work for everyone, such as the truly disabled, but it's a more efficient way of reducing inequality for the truly poor, and more capable of maximizing individual utility functions. I know you will say "but who will produce useful goods and services," but at the moment I would wager far less than 30% of the population produces useful commerce. The labor participation rate is only about 60%, and many jobs don't produce anything useful. For example, police officers in Utah that settle for 0.5MM for unconstitutional injustices are draining taxpayer funds. Wall St is completely out-of-control. Bureaucracy, military-congressional-contractor-complex, healthcare insurance companies... There is an extroardinary amount of waste. BI would also benefit the economy by increasing aggregate demand. It would stimulate investment by providing a safety net for indivisuals deciding to retrain or invest in education.
- alacombe 9y ago
  It could be argued that the whole concept of "basic income" is very much a "rent-seeking" behavior, as receivers are not technically producing anything of their own while relying on someone's else "surplus".
  - wallace_f 9y ago
    And nearly every living person on earth has been profiting from rent-seeking from the second they are born into a world with food, medicine, water, maths and science, etc that has been created and improved-upon by people long-dead now.
    - Aron 9y ago
      If all people benefit from something then it's hard to find a problem with it. That's presumably not the case for someone who is a high level producer comparing a UBI world to a non-UBI world and seeing only an outflow.
  - Aron 9y ago
    I'm curious how that's wrong.
- WalterBright 9y ago
  > BI would also benefit the economy by increasing aggregate demand. That would require that taking something from A and giving it to B would increase aggregate demand. I don't see how that can be. > It would stimulate investment by providing a safety net for indivisuals deciding to retrain or invest in education. This safety net may encourage people to drive around Australia in a van who would otherwise work, reducing investment.
  - dragonwriter 9y ago
    > That would require that taking something from A and giving it to B would increase aggregate demand. I don't see how that can be. Differing marginal behavior between A and B.
js8 9y ago
You correctly point out that individuals are taxed on gross income, while corporations are taxed on profits. I think it's wrong and everybody should be taxed on gross income, it's simpler and harder to avoid through loopholes.
- indubitable 9y ago
  Consider a simple supply chain of mining -> transport -> refining -> transport -> assembly -> transport -> retail The reason prices are able to stay relatively low is because players able to get by with very little profit made up for by enormous quantity. Tax on gross and suddenly you send the profit requirements at every link in that chain way up, and that's going to be reflected (strongly) in the price of the final products. Even take Amazon as an example as just one link in the chain - the retail. Their total revenue is $136 billion, but their net income is less than $3 billion. Even if they're playing fast and loose with operating expenses, their margins are not huge. Change to gross taxation and they'd have to be. Just to get into the black, you'd see prices raise dramatically from them. And of course the same would be true of all of their suppliers, producers, and so on - which means they'd be increasing not only to compensate for their own increase in costs, but for all the increases that go all the way up the development chain of every product you buy. It wouldn't be pretty. And corporations, unlike individuals, have another option. They can simply move. Citizens can't do this. Even if they move, they're unbelievably required to continue paying US tax - we're the only nation in the world that requires this of nonresidents. This idea would be devastating to the US.
tzs 9y ago
I don't think I've ever seen any "flat tax" advocate actually advocate a flat tax. They always seem to actually do a progressive tax with two brackets, with the lower bracket being wide and having a rate of 0%. For example, Ted Cruz's flat tax proposal a couple years ago had a $36k 0% bracket, and Rand Paul's had a $50k 0% bracket. NOTE: my referencing Cruz and Paul should in no way be taken as any endorsement or approval of their tax plans on my part. I just used them because they are fairly typical for recent flat tax proposals. For a lot of people the main selling point of a flat tax is its supposed simplicity. They have fantasies of spending two minutes a year doing their taxes. I say "supposed simplicity" because many of these proposals still include numerous deductions and exclusions, and THAT is where 99.99% of the complexity of the tax system resides. Once you have figured out your taxable income the actual computation of the tax is close to trivial under both the current system and the two bracket "flat" tax systems. All that changing from the former to the later does is shorten the Internal Revenue Code by about 5 lines. If a flat tax proposal does actually eliminate all the deductions and exclusions, so that your taxable income really is trivial to compute, then it would greatly simplify doing your taxes--but that has nothing whatsoever to do with it being flat. Such a simplification works just as well for a tax with several progressive brackets.
- TheCoelacanth 9y ago
  > For a lot of people the main selling point of a flat tax is its supposed simplicity. They have fantasies of spending two minutes a year doing their taxes. I say "supposed simplicity" because many of these proposals still include numerous deductions and exclusions, and THAT is where 99.99% of the complexity of the tax system resides. Exactly, no matter how many tax brackets you have, without the miscellaneous deductions, calculating your total amount of tax to pay involves simply looking at a table of income ranges for a set of three numbers that applies to you and then doing the calculation top_marginal_tax_rate*(income - top_tax_bracket_lower_bound)+tax_on_income_in_lower_brackets. So the entire work to calculate your tax burden is one table lookup, one addition, one subtraction and one multiplication. The flat tax proposals simplify that by getting rid of the addition (by making tax_on_income_in_lower_brackets zero) and making the table lookup only contain two rows instead of many. So you have removed one arithmetic operation(or three if you are under the 0% bracket cutoff), and cut down on the number of rows you have to scan through by a single digit number. That is completely negligible to dozens of pages of reading you would have to do if you have even relatively simple deductions.

stretchwithme 9y ago

Income inequality is a function of how many technologies there are for multiplying one's efforts and how many of these people use. Web apps, manufacturing, broadcasting, e-commerce, etc. People who don't leverage any of them can't sell to the world. Those who leverage all of them make billions. Even people who use cars, trucks, ships, block and tackle, nail guns, etc., make more than those who do everything with their hands. If we want to reduce income inequality, we have to educate people to understand and take advantage of technology. It is the key to prosperity. And, since there will always be people who don't multiply their efforts with technology, income inequality will only keep increasing. But quality of life for even those at the bottom will keep on improving.

tmnvix 9y ago
I think you'll find that many seriously wealthy people tend to make more money from owning things than they do from producing things.
- owlmirror 9y ago
  How can you make money from something without producing? I own things and would love to know this recipe for infinite wealth.
  - tmnvix 9y ago
    Buy land.
  - richardknop 9y ago
    Real estate / land. Buy a bunch of condos and rent them out. You have basically infinite passive income (yes those buildings won't be there forever but relative to your lifespan it is infinite, probably will provide income for your family for several generations) without having to produce or do any labour / work. There is maintenance / repairs to be done but that can be outsourced to a real estate / concierge service.
- stretchwithme 9y ago

whatyoucantsay 9y ago

Some income inequality is due to rent-seeking behaviour and some is due to variance in productivity. In an ideal world the first source would be eliminated, but a question remains: Is there an ideal amount of productivity inequality? Even with 100% tax rates, the productive can find dimensions where it is possible to earn more, usually fame, status, non-taxable goods and political power.

dredmorbius 9y ago
You fail to mention labour negotiating leverage, or rather lack thereof. See Adam Smith, or Ricardo's Iron Law of Wages, or J.S. Mill. Productivity is a canard. Either labour is paid its living costs or not.
- dwaltrip 9y ago
  > Productivity is a canard. Either labour is paid its living costs or not. Care to elaborate? You don't think there are large variations in productive capacity among all of labour, and that higher productivity usually results in compensation far beyond living wages? This may not apply to the majority of workers. I could see the Iron Law of Wages being true for them [1]. However, I don't think we should ignore the dynamics that we find as we move towards the edges of the spectrum. [1] Still, I would argue that a "living wage" means different things at different times. A living wage at time period 1 could result in a significantly better quality of life than that from time period 2.
  - dredmorbius 9y ago
    Productivity generates consumer surplus. "A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more; otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation." https://en.m.wikisource.org/wiki/The_Wealth_of_Nations/Book_I/Chapter_8 https://en.m.wikisource.org/wiki/The_Wealth_of_Nations/Book_...

thisisit 9y ago

Betteridge's law of headlines applies and mostly the answer is "No". I am not sure of the exact word but it's like a transaction with a used car salesman. The transaction can never happen at an "ideal" price. Car Salesman will always overvalue the utility while the buyer will always undervalue the utility.

dredmorbius 9y ago
"The Market for Lemons", Akerlof.

jhanschoo 9y ago

Whereas inequality is traditionally easy to measure, people are more interested in equalizing forces. I think that we are less concerned about inequality if there is an assurance that our lives should regress to a comfortable mean given that we invest reasonable time in socially-useful work.

dwaltrip 9y ago
How could such a thing happen? How do we prevent highly skilled individuals from producing great value for their societies and then receiving the benefits from that? 100% tax rate? That sounds incredibly draconian. I'm not arguing that our current situation is ideal, or that we can't do a lot more to provide greater opportunity for all and raise the floor for everyone. But complete "equality of outcome" seems to go against all of my understanding of the dynamics through which the universe actually unfolds over time. I can only imagine it as a very unstable state that is held in place through immense effort and force.
- jhanschoo 9y ago
  I think I have miscommunicated. I'm saying that an ideal society should be one where mishaps and bad deeds are assured to result only in a temporary poor quality of life, and that good deeds result only in a temporary good quality of life. That is, there is negative feedback, or homeostasis. Poorly-regulated capitalism doesn't provide that. Capital begets capital as capitalists become more able to invest in high-risk high-reward projects, leading to a positive feedback loop that is an anti-equalizing force.

wallace_f 9y ago

From the article: >"How Much Inequality Is Fair? Mathematical Principles of a Moral, Optimal, and Stable Capitalist Society, [...] perfect inequality, which has a definite mathematical form." Income inequality does not have a "perfect mathematical form." Since the stoics, clever folks adept with maths have realized that 'math/stats is the best way to lie or convince people you are right.' Why? Because people trust in the intellectual rigor of maths. But while the language of maths is fundamental to our universe, formulating an argument with maths does not necessitate correctneas. even the hugely-influential economist Keynes, and others, believed that 'human behavior cannot be reduced to mathematics.' Economics is currently, and has been for a century, trying to formulate as much as possible in the language of math, but we're consistently in disagreement and wrong. That is because Economists are almost always without the virtue of being able to do controlled experiments. If you wanted to know the 'definite mathematically ideal' amount of inequality, you would first need to put forward a hypothesis which also defines ideal. "X is ideal for maximizing aggregate utility" is a reasonable hypothesis. Then for your experiment you would need many planet earths, and some way to to precisely measure people's utility. This is all impossible. And as such, we would be wise to treat the current state of economics like that of 19th century medicine: somewhere between interesting-possibly-helpful and hogwash.

ZenoArrow 9y ago
I couldn't agree more.
dragonwriter 9y ago
> Then for your experiment you would need many planet earths, and some way to to precisely measure people's utility. Only the latter; you don't need a whole planet to study, and statistical control is real control. OTOH, the missing bit is utterly intractable, so...
sametmax 9y ago
Or more convincingly, you may be able to use maths for that, but the number of variables would probably means you'd need to simulate each atom in the whole planet and their interactions perfectly.
9y ago

tanilama 9y ago

Ideal income inequality should shut up most people's mouth.

js8 9y ago

The theory looks interesting but overall, however it reminds me of things like NAIRU, which is basically a justification of unemployment. Maybe there is some idea there which can explain why people perceive fairness as they do (why we evolved that way), but that's perhaps about it. The problem is, the unemployed person doesn't care whether or not the NAIRU as a model is fair. They already have their one shot at life, going on right now. So, I think we shouldn't care what the curve is, and focus on the extremes on both sides, because both are bad. Poor people have it bad for obvious reasons, and that should be enough moral justification to not have them at all. Too wealthy people are bad because money translates to power, and this power can be misused. But I agree with the author that we should have progressive taxes, but also basic income (and I think Norway is close on both).

throw2016 9y ago

This is like asking is there an ideal amount of crime? The bigger question is what kind of society do you want to build? If you want a stable society you will work towards ensuring people have decent income, possibilities to grow and overall wider distribution of income. The alternative is oppression when people react to their conditions. There is no point having a few people capturing the wealth of and productivity of a society. Yet you are already born into a society with rent seekers and individuals who hold a huge amount of wealth. The top 1% already control the economy and assets. Discussion about inequality then is moot as it only perpetuates an illusion of control and freedom to decide the issue when there is none.