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Have there been any studies that purport to show what level of financial "inequality" is healthy? I mean, the phrase: "Between 1989 and 2016, the amount of

Have there been any studies that purport to show what level of financial "inequality" is healthy? I mean, the phrase: "Between 1989 and 2016, the amount of wealth held by the richest one per cent of Americans rose from just under 30 per cent to nearly 49 per cent" sounds like that's definitely in the wrong direction, but assuming something other than purely flat (the top 1% gets 1% the wealth), is there an actual distribution to shoot for other than "flatter than now"?

maxxxxx 9y ago
The first step would be stop the trend towards more inequality. This seems like a no-brainer to me.
IAmEveryone 9y ago
Inequality has one obvious and intuitive effect: the decreasing marginal utility of money causes a decrease in total wellbeing with ncreasing inequality. In easier terms: a wealthy CEO gets less use out of the $1000 they spend on a bottle of champagne than a poor person would get from spending the same money on food for the family. This is basically a truism as long as people do any meaningful prioritization (which they obviously do). There is a countering effect where inequality is a needed byproduct to incentivize people to, for example, start businesses. This is also obviously true in general. The question is where these two curves intersect, I. e. whee the benefits are no longer enough to compensate the loss from unequal distribution. It seems likely that the US is long past this point at least in gerade to the compensation of lawyers, top executives, or stock traders. After all, these professions also exist in more equal societies and there’s no reason to believe people cut out to be high-charging CEOs in those countries choose to become couch potatoes and leave the $15,000,000 job to lesser individuals because they require $150,000,000 to even bother. On the startup side it’s a little more murky. But keep in mind that almost all startup founders come from the financial security of an upper-middle class family, and even in the US, the success of a Silicon Valley is rather unique. It may be easier attributed to network effects, excellent universities, the status of the English language, or the availability of capital. Wikipedia has this summery with some empirical evidence: Effects of inequality researchers have found include higher rates of health and social problems, and lower rates of social goods,[112] a lower level of economic utility in society from resources devoted on high-end consumption,[113] and even a lower level of economic growth when human capital is neglected for high-end consumption.[114] For the top 21 industrialised countries, counting each person equally, life expectancy is lower in more unequal countries (r = -.907).[115] A similar relationship exists among US states (r = -.620).[116] 2013 Economics Nobel prize winner Robert J. Shiller said that rising inequality in the United States and elsewhere is the most important problem.[117] Increasing inequality harms economic growth.[118] The economic stratification of society into "elites" and "masses" played a central role in the collapse of other advanced civilizations such as the Roman, Han and Gupta empires.[119] https://en.wikipedia.org/wiki/Economic_inequality#Effects https://en.wikipedia.org/wiki/Economic_inequality#Effects
- pmoriarty 9y ago
  "It seems likely that the US is long past this point at least in gerade to the compensation of lawyers, top executives, or stock traders" Most lawyers actually don't make that much money compared to CEOs (median income of $118k vs $748k).[1][2] [1] - https://money.usnews.com/careers/best-jobs/lawyer/salary https://money.usnews.com/careers/best-jobs/lawyer/salary [2] - https://www1.salary.com/Chief-Executive-Officer-Salary.html https://www1.salary.com/Chief-Executive-Officer-Salary.html
tunesmith 9y ago
Googling around, all I find so far is that this is generally measured by the Gini coefficient, where 0 is everyone is equal, and 1 is the top dog gets everything. The US is around a 0.38, Denmark is 0.25. I'd rather visualize it as a line going from left to right, that curves upward as it goes to the right. A Gini-0 would be horizontal, a Gini-1 would basically be a hockey stick. So the US is generally going to be steeper on the right side than Denmark, but in reality each region's line is going to have a bunch of wiggles. So I wonder if there's an ideal "line". Either scored by some metric, like at what point does some measure of mobility or entrepreneurship increase or decrease... or some measure of system stability. For instance, I've seen a few references that the value of money is roughly logarithmic as it increases. If every wealth holder were taxed logarithmically (so that the tax bill "hurts" everyone equally), and the proceeds were then distributed to everyone equally, would that push the line to some sort of stable shape, no matter how unequal the system starts? If so, you could consider that a line of capitalism, with anything on either side being disproportionate in some way. The line should still curve since talent/skill/etc will always have an impact.

maxxxxx 9y ago

The first step would be stop the trend towards more inequality. This seems like a no-brainer to me.

IAmEveryone 9y ago

Inequality has one obvious and intuitive effect: the decreasing marginal utility of money causes a decrease in total wellbeing with ncreasing inequality. In easier terms: a wealthy CEO gets less use out of the $1000 they spend on a bottle of champagne than a poor person would get from spending the same money on food for the family. This is basically a truism as long as people do any meaningful prioritization (which they obviously do). There is a countering effect where inequality is a needed byproduct to incentivize people to, for example, start businesses. This is also obviously true in general. The question is where these two curves intersect, I. e. whee the benefits are no longer enough to compensate the loss from unequal distribution. It seems likely that the US is long past this point at least in gerade to the compensation of lawyers, top executives, or stock traders. After all, these professions also exist in more equal societies and there’s no reason to believe people cut out to be high-charging CEOs in those countries choose to become couch potatoes and leave the $15,000,000 job to lesser individuals because they require $150,000,000 to even bother. On the startup side it’s a little more murky. But keep in mind that almost all startup founders come from the financial security of an upper-middle class family, and even in the US, the success of a Silicon Valley is rather unique. It may be easier attributed to network effects, excellent universities, the status of the English language, or the availability of capital. Wikipedia has this summery with some empirical evidence: Effects of inequality researchers have found include higher rates of health and social problems, and lower rates of social goods,[112] a lower level of economic utility in society from resources devoted on high-end consumption,[113] and even a lower level of economic growth when human capital is neglected for high-end consumption.[114] For the top 21 industrialised countries, counting each person equally, life expectancy is lower in more unequal countries (r = -.907).[115] A similar relationship exists among US states (r = -.620).[116] 2013 Economics Nobel prize winner Robert J. Shiller said that rising inequality in the United States and elsewhere is the most important problem.[117] Increasing inequality harms economic growth.[118] The economic stratification of society into "elites" and "masses" played a central role in the collapse of other advanced civilizations such as the Roman, Han and Gupta empires.[119] https://en.wikipedia.org/wiki/Economic_inequality#Effects https://en.wikipedia.org/wiki/Economic_inequality#Effects

pmoriarty 9y ago
"It seems likely that the US is long past this point at least in gerade to the compensation of lawyers, top executives, or stock traders" Most lawyers actually don't make that much money compared to CEOs (median income of $118k vs $748k).[1][2] [1] - https://money.usnews.com/careers/best-jobs/lawyer/salary https://money.usnews.com/careers/best-jobs/lawyer/salary [2] - https://www1.salary.com/Chief-Executive-Officer-Salary.html https://www1.salary.com/Chief-Executive-Officer-Salary.html

tunesmith 9y ago

Googling around, all I find so far is that this is generally measured by the Gini coefficient, where 0 is everyone is equal, and 1 is the top dog gets everything. The US is around a 0.38, Denmark is 0.25. I'd rather visualize it as a line going from left to right, that curves upward as it goes to the right. A Gini-0 would be horizontal, a Gini-1 would basically be a hockey stick. So the US is generally going to be steeper on the right side than Denmark, but in reality each region's line is going to have a bunch of wiggles. So I wonder if there's an ideal "line". Either scored by some metric, like at what point does some measure of mobility or entrepreneurship increase or decrease... or some measure of system stability. For instance, I've seen a few references that the value of money is roughly logarithmic as it increases. If every wealth holder were taxed logarithmically (so that the tax bill "hurts" everyone equally), and the proceeds were then distributed to everyone equally, would that push the line to some sort of stable shape, no matter how unequal the system starts? If so, you could consider that a line of capitalism, with anything on either side being disproportionate in some way. The line should still curve since talent/skill/etc will always have an impact.