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Rising US Inequality: How We Got Here, Where We're Going

maxxxxx 7y ago
Other than "We’ve also had a combination of tax and regulatory policy that has encouraged capital formation and increasing returns to capital, so labor’s share of returns has decreased. The last round of tax policy out of Washington made this worse." it seems they have nothing concrete to say. I definitely agree that capital should be taxed at the same rates as labor. Maybe there was a time when it made sense to tax capital lower but right now we don't seem to lack investment money but we lack demand.
claydavisss 7y ago
Globalization. And it will get worse. As long as neoliberal technocats continue to foist globalization on us, polarization will continue. Techies have been spared because round one pitted the US against India, but in reality Indian firms were happy to capture low-hanging fruit and never bothered trying to go head-to-head with US firms. China will be different. They don't want to do our menial work, they want to own markets. You are not ready to compete with China, unless you are going to do "996" for $50k a year.
sokoloff 7y ago
“But the last 50 years have been terrible for people with lower skills. Adjusted for inflation, the average earnings of a man who didn’t go to college is lower now than it was 50 years ago. That’s unheard of.” How much of this effect is the vastly higher percentage of people who now go to college? If you line up 100 people by vague estimation of their likely earning potential in 1970 and do the same today, but now 2.5 times as many people attend college, the population remaining with "no college" in 2020 isn't really the same population as it was in 1970.
- kazen44 7y ago
  Also, how much of this effect is basically the rest of the world playing catch up in terms of economic production? China and the rest of Asia are magnitudes more competitive compared to 50 years ago. And prior to that US industry was unmatched thanks to the massive effects world war 2 had on the other, western industrialized nations.
  - deogeo 7y ago
    > Also, how much of this effect is basically the rest of the world playing catch up in terms of economic production? If the rest of the world becoming more productive results in US workers being worse off, then something is severely wrong with US trade policy. For one, it contradicts the dogma that more trade is strictly beneficial.
    - bilbo0s 7y ago
      I think that dogma though was meant to address the situation in a global context. ie - More trade is strictly beneficial for the global population in aggregate. But yeah, it's still trade, so there will be lows and highs, and ebbs and flows.
    - asark 7y ago
      > For one, it contradicts the dogma that more trade is strictly beneficial. Ricardo's original idea was applicable with a narrow set of assumptions/conditions and didn't have much to say about who'd end up with the greater net wealth. I'm not sure how/why it was turned into a magical improve-any-economy law of nature.
      - astazangasta 7y ago
        Ricardo's mistake is not thinking about development; comparative advantage is optimal now, but a society that just makes coffee beans is going to lose in the end to the one that makes microchips because of the difference in how the economy and society develop over time.
        0815test 7y ago
        This may have been a mistake by Ricardo, but not one that points towards less trade as optimal. Indeed, export-led development (implying more trade openness) is the one reliable way we know about of going from the "coffee beans" to the "microchips" stage of development.
- bilbo0s 7y ago
  Yep. And even the people with college will necessarily compare less favorably with that older cohort over time. In a world where everyone has a college degree, well, some people with college degrees will have to be the ditch diggers so to speak. I don't know how you solve that problem? It's just math.
  - chillwaves 7y ago
    Use your educated populace to design robots to dig ditches. It's not "math" that humans have to engage in undesirable labor, under brutal conditions. We have thousands of years of developing tools that are contrary to that statement. It is a collective social decision to say that an hour of someone's time is worth less than building a robot. That's the only reason why cashiers still exist.
    - bilbo0s 7y ago
      It's still math. If you go that route, then the people who build and program the robots will necessarily be paid less. Today that is likely a top 10% job. (More likely a top 5% job if we're being honest.) In a world where everyone has a college degree and there are 30 times the number of people who can program those things because the tools have gotten just that easy... well, you do the math. At the extreme, you can't just pay 100% of the labor market more money because they have a college degree. It just doesn't work like that. Put in more base terms, there is only room for 1% of the people, in the top 1%. You may be able to, through the magic of increased production, decrease the price of everything in your economy. So that the other 99% of people can afford access to everything to which people in the top 1% have access. But even that is difficult in the extreme. It'd just be easier, over time, than is paying everyone in your economy more over time.
      - jayd16 7y ago
        This is a real misunderstanding of economics. If you increase productivity through technology, it's possible for everyone to earn more real dollars (as a product of cost of living). It's not a zero sum game. Imagine it this way. Everyone today is making more than hunt from a cave money. Why is that? Because a single human can produce more than the bare minimum for survival.
- shados 7y ago
  It's like playing an MMORPG-style videogame where the developers keep raising the level cap. The higher the cap, the worse off people who are just starting are (and why in those games developers keep having to provide a "catch up mechanics", like a scroll to rush you to level cap, or making stuff easier to obtain. In the real world that's a lot harder to do though). Probably made worse by the vastly higher amount of dual income household, so someone with just 1 income is proportionally worse off. A single unskilled worker vs a couple of high skill workers, competing for supply & demand against each other...yeah, the former's not gonna have fun.
  - luckydata 7y ago
    In the real world those are called "redistributive policies" and work quite well, especially for the economy as a whole. http://www.levyinstitute.org/publications/can-redistribution-help-build-a-more-stable-economy http://www.levyinstitute.org/publications/can-redistribution...
    - dsfyu404ed 7y ago
      They work well... until they don't. Anyone from Eastern Europe over the age of about 40 can tell you about it. Like anything else redistribution falls on it's face if you go too crazy with it.
      - jdietrich 7y ago
        There is a world of difference between redistribution and central planning.
      - FranzFerdiNaN 7y ago
        A lot of people over 40 in Eastern Europe would rather go back to the Soviet Union than stay in their new capitalist dreamworld. Things weren't great, but at least they had a job, a roof, food and healthcare.
        nec4b 7y ago
- JMTQp8lwXL 7y ago
  This suggests that everyone going to college is doing well. That isn't the case. There are people who have master's degrees, but are earning $15/hour. I agree with your point that populations can change over time. Fifty years ago, many people didn't get degrees and made good money. Today, people without degrees (and some with) don't make good money. So instead of trying to segment in groups (the college educated vs. everyone else), let's just look at everyone. This removes the concern of our shifting populations. One metric to look at is median income. Adjusted for inflation, it hasn't budged much in decades. In the past 42 years, it's increased about 32 percent. https://fred.stlouisfed.org/series/MEPAINUSA672N https://fred.stlouisfed.org/series/MEPAINUSA672N
  - sokoloff 7y ago
    In a consumer driven economy, with a savings rate of around 7%, most people are spending the vast majority of their income on consumption [competing with other consumers for some scarce goods], why would we think that median real income should increase significantly faster than inflation?
    - JMTQp8lwXL 7y ago
      Because of the huge productivity gains over the past 42 years. The profits from those gains all collect at the top.
      - sokoloff 7y ago
        That seems to be a reason to think that the median (real) income will not increase.
- imtringued 7y ago
  It's basic supply and demand. Globalization puts high downward pressure on wages because people in Asia can live on far less money than Americans. If you have to raise prices because of higher cost of living then your customers simply buy from somewhere else. Then there are certain degrees with too many graduates which flood the market which results in lower wages. Others have a shortage of graduates which means the companies have to hire from a labor pool where everyone is employed and therefore have to outbid their competitor to hire anyone at all. Add double income households which compete for rivalrous (if I have it, you don't have it) goods like housing and the end result is the US economy.
- rayiner 7y ago
  Income inequality comparisons are full of problems like this. Reflecting your intuition, I’d imagine most people would conceive of increasing income inequality to mean increasing gaps between people in the same station in life across two time periods. But demographics have changed dramatically since 1970. For example, immigrants make up almost 3x as large a fraction of the population (from 5% to almost 15%) than in 1970. Obviously, if you add a large number of (typically) economically disadvantaged people to the population, income inequality is going to go up, even if there is no change in incomes for everyone else: https://www.migrationpolicy.org/sites/default/files/source_images/FRS-SPT-2019_Figure_1_UPDATED.png https://www.migrationpolicy.org/sites/default/files/source_i.... Likewise, peoples’ incomes increase with age. The population overall has grayed significantly. Again, even if wealth inequality wasn’t increasing for people of any given age, changing the age distribution of the population will affect income inequality. Finally, a larger fraction of the population now comprises historically disadvantaged minorities. While the income gap between races in the US is a huge problem, it’s a different problem than “income inequality” genetically, deserving more targeted solutions. (And even that income gap is hard to analyze, because the ages of people of different races in the US differ quite dramatically). The median age of non-Hispanic whites is 42. The median age of Hispanic people is 28. The median age of African Americans is 33: https://www.pewresearch.org/fact-tank/2016/07/07/biggest-share-of-whites-in-u-s-are-boomers-but-for-minority-groups-its-millennials-or-younger/ https://www.pewresearch.org/fact-tank/2016/07/07/biggest-sha...). Income inequality probably is going up. But I’ve never seen a study that actually holds demographic changes constant so the result reflects peoples’ perception of what income inequality means.
  - sokoloff 7y ago
    I also suspect that some of these "oversights" aren't mistakes at all, but rather intentional obfuscation of facts. Take note of how often you hear/read something like "incomes haven't risen in 30 years, but prices have gone up over 50% over that period". [Almost?] Inevitably, the income will be real income [inflation adjusted] and the prices nominal prices.
    - frankbreetz 7y ago
- tolstoshev 7y ago
  College is just a proxy for IQ. Shoving more people into college isn't going to make them smarter, if they don't have the mental horsepower. Basically you've got two levers, genetics and environment, and practically you can only change the latter by early intervention. Nutrition, enriching environment, and good education.
lilsoso 7y ago
The credibility of the article is undermined by hyperbolic statements such as, "For a lot of children, when they’re 8 years old, it’s too late. If your parents aren’t engaged in the education system, in 10 years you’ll be competing in the labor market against people whose parents sent them to violin lessons and summer programs in the Dominican Republic. There’s inequality of opportunity." It's too late for "a lot of children" by age 8? And you're underprivileged if you didn't attend a summer program in the Caribbean?
- hn_throwaway_99 7y ago
  I think that's an un-generous interpretation of the quote. Yes, I think there is good evidence that if you are in a poverty-stricken family and you don't get very early intervention, that by mid-elementary school it is too late for your average poor kid. The reason being that the rest of your environment of poverty is going to be pretty much pulling against you the rest of your childhood, so intervention while your hopes and goals are not yet formed is your best bet. And come on, the author wasn't saying if you didn't attend a Caribbean summer program that you're underprivileged. I believe he was just using that to highlight the pretty extreme lengths that middle class and above parents go to provide their children with educational enrichment (including music lessons, sports programs, summer camps, etc.) that put poor kids at a lifelong disadvantage.
  - lilsoso 7y ago
    I largely agree with you. But the following line from the article is devastating, "For a lot of children, when they’re 8 years old, it’s too late." And this mawkish line is published under the banner of Stanford, an arbiter of the truth. I expect better. edit: My comments seem to have sparked a nerve. I simply wanted to point out bad rhetoric that undermines the cause and weakens an institution of trust. The situation is bad, so there's no need to exaggerate or lie to deliver the point. And this isn't a partisan issue. A conservative like Thiel would deliver a similar message. There is, however, a pernicious insinuation in that quote. The notion that if you haven't achieved x by y age you're done. That's a debilitating notion. And we have it in the tech community, if you can't code by z age give up. Or if you haven't achieved some startup success or some corporate title at an early age you're a failure.
car12 7y ago
I wonder how much effect immigration has had on the matter of inequality. I'm going off these assumptions: -> Lesser immigration would've led to a higher GDP/capita figure for US. -> More resources to subsidize college and lesser cut-throat competition for jobs. -> Employers would be forced to pay higher wages and people would be more easily to retrain for different jobs. -> Bonus points: We can help Africa and South american countries with a much higher monetary amount and resources to help them catch up to a developed world status.
- shdh 7y ago
  > Employers would be forced to pay higher wages and people would be more easily to retrain for different jobs. Labor has long been subject to outsourcing as a result of entities trying to reduce costs and increase profits.
  - car12 7y ago
    That is true but we're talking about the still remaining low skilled jobs that simply could not be outsourced. Now with a high number of low skilled immigrants competing with natives for those same remaining low skilled jobs that couldn't be outsourced, the outcome is worse for existing population.
    - downrightmike 7y ago
      There is also a trend where as much is outsourced as possible and what isn't outsourced is over tasked. I've seen outsourcing going from a direct replacement 1 to 1 to 3X the staff and the remaining non outsourced people have to basically be human databases and regurgitate info and critically think for this other group. Adding in constant instant message rooms that are mandatory to be logged into and constantly pinged is just insane. No employees win in this situation.
- partha42 7y ago
  > -> Lesser immigration would've led to a higher GDP/capita figure for US. How?
turk73 7y ago
Just look to the 3rd World if you want to know what the US will be like in the future. No middle class, lots of shanty/homeless camps, walls around properties, loss of pretty much all public spaces due to crime and violence. Sounds like a really great place to be, can't wait. Democrats and Establishment Republicans did this to us. It didn't have to be like this.
dnautics 7y ago
Of course, no mention of inflation, the policy choice which robs from the poor and gives to the rich. How does it rob from the poor? https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi... "when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts." In other words, inflation is a policy choice to combat sticky wages, which (if you think that's a problem), the solution is to, apparently, screw labor by devaluing their wages from under them. How does it give to the rich? The eroding value of the currency all but forces individuals and, e.g. pension funds, to dump resources into the stock market, venture investments, etc, which are largely playgrounds of the economically advantaged. It also has unfortunate side effects like consumerism and environmental destruction, but that's outside of the scope of the OP. The timing lines up, too. What happened 50 years ago that caused the divergence? With the ending of Bretton Woods, Nixon closed the gold window which was the last thing holding back policy from rampant inflation.
- RobertoG 7y ago
  The article tell us: "You had the same thing with the Industrial Revolution that concentrated more and more wealth into the hands of capital. " So, your identification of causation with the end of the gold standard it's not at all clear. In a way, inflation can be re-distributive because is good for the debtor and bad for the lender. Maybe, is time to accept that wealth accumulates, money call money, and the leveler are wars and disasters or some kind of political action. In other words, the system is not stable.
  - dnautics 7y ago
    > is good for the debtor and bad for the lender. This is a huge myth propagated by economic planners who have never been poor. Typically, the poor don't have debt at all due to no access to banking services, and when they do have access to debt it's a double digit interest rates on short-term revolving basis. Inflation does not help that situation at all. The idea that the rich have no debt is total nonsense. Most of the wealthy make money off of debt-based instruments. For example, trading on margin, shorting, options calls and puts, forex trading, all depend on low interest rates/expanding money supply to make long-term speculative adventures worthwhile. It is, indeed, low interest loans, over the long term, which are the most helped by inflation.
naveen99 7y ago
their are natural limits to inequality. As successful people sell out their will to compete. Good news is it opens up opportunities for not yet successful people.
baybal2 7y ago
Very simple — Dollar is a global reserve currency, and T-bills are of equal prominence in the debt market. Foreign holding of US debt increased by few times since year 2000. The more US government borrows, the more TBills are there for purchase for foreign institutional buyers at attractive prices. Those are of course the real movers of the current account deficit: rates and tbill market US exports and labour will never be competitive until US can radically rethinks its view on government spendings and debt policy.
astazangasta 7y ago
>Because the low-wage jobs that left here are considered really good jobs in China. We’ve lifted a billion, two billion people out of poverty over the past 30 years. This sort of shit is the worst. People in China doing well is not our problem, just like people in Germany doing well is not our problem, and there is something deeply racist at the root of this suggestion, as if poor people in China are stealing wealth that rightly belongs to Americans. This is not how productivity works. The people stealing from Americans are rich Americans.
cleandreams 7y ago
Living standards have gone down and life has become much more economically insecure for most working people as a result of the policies that economists recommend. This includes globalization, free trade, low taxes, destruction of labor unions, and the like. The authors support these policies. These changes have been accompanied by a political system that no longer represents the left behind. So of course the losers are not compensated; that is by design, not accident. I think we have the choice to either become more equal or face increasing political instability and viciousness - and the latter is more likely, witness Trump, Brexit, etc. I have lost respect for economic analysis because it has been so out of touch with political and social consequences as to be hugely destructive to the fabric of society. Much more of this and I hate to see what will become of our society.
- devonkim 7y ago
  Economists have not necessarily been blind to social needs - policy makers and politicians benefiting from a revolving door of oligarchs enabled by various institutions culturally stationed to manipulate a larger population into working under these few for smaller and smaller pieces of power. Milton Friedman made it quite clear that a free market doesn’t provide a social safety net in any way and that a population that doesn’t succeed in the market should need some basic way to survive or we’s face huge social unrest. While America had social security and Medicare early on, we’ve dismantled their efficacy with a toothless, captured government while private sector has gained in power enormously in the form of multinational corporations the Founding Fathers all distrusted (they were no fans of the British East India Company). I think we’ll have one or two more larger scale revolutions before people around the globe learn that consolidated power of any sort whether it comes from religions, the public masses (populism), government, corporations, or perhaps even science is dangerous.
DoreenMichele 7y ago
A large portion of what reduced inequality was the destruction of wealth during World War II and the fact that the U.S. benefited afterward from being the last standing industrial economy. I seriously doubt that. We shipped essentially all able-bodied men off to war, so much so that we filled a lot of jobs with women. Birth rates were low because the men were physically absent. People were encouraged to grow Victory Gardens so farm food could feed soldiers. Tobacco, sugar etc were all rationed. We stopped making cars and converted car factories to keep factories. A lot of families had two incomes, no children and couldn't spend their money on luxury goods because they simply weren't available. Savings rates during the war were extremely high, above 50 percent some years. The boys came home, bringing veterans benefits with them. This included help buying a house and going to college. Unlike with modern lottery winners, this formula did not encourage people to just blow their money frivolously. They began buying houses at such high rates we invented new ways to throw them up quickly, giving rise to the modern suburb. Celibacy, low birth rates, frugal living, hard work and high savings rates helped reduce inequality. A lot of that could be replicated. We just don't typically have the self discipline to do so individually.
- ahaferburg 7y ago
  I'm not sure what you mean by that last sentence. Are you saying if only the poor were better with money they'd stop being poor?
  - DoreenMichele 7y ago
    I'm saying there were large-scale forces at work during WW2 that forced many people into that pattern. It's much harder to do on an individual basis without those forces, but can be done sometimes. Among other things, I paid down debt while homeless. My last student loan payment was made in July 2017. I was back in housing in September the same year. Of course, your framing sounds like I'm being accused of blaming the poor. I'm not. I'm just questioning the assertion of the article because it honestly doesn't fit with what I have read of history. The Baby Boomer generation is the children of the WW2 veterans. It was a very widespread phenomenon. There are factors at play now that are definitely different from then. Most new houses in the 1950s were about 1200 sqft. Now they are nearly 2500 sqft. We desperately need to do something about our housing supply. But most people don't want to.
twright 7y ago
> Q: A much steeper income tax has gotten attention — some pitching even 70%. Is that possible? > Oyer: I can’t imagine a 70% tax rate. And I don’t think we’ll see a universal basic income for a long time. These are hugely expensive ideas. Then Oyer is experiencing a failure of the imagination as well as historical recollection. Tax rates have been that high before. Today a marginal tax income over what, 100 million at 70%--even 50%-- and there's suddenly a lot more money to build a social safety net with.
gleb 7y ago
Most of perceived rise in inequality is actually growing healthcare costs. http://www.econtalk.org/mark-warshawsky-on-compensation-health-care-costs-and-inequality/ http://www.econtalk.org/mark-warshawsky-on-compensation-heal... "Using data from the Bureau of Labor Statistics, Warshawsky shows that because health care benefits are a larger share of compensation for lower-paid than higher-paid workers, measures of inequality and even measures of economic progress can be misleading or distorted. "
xwdv 7y ago
I wonder if multiple people of low incomes may someday pool income together and use it to buy housing and food that they can all use to live comfortably. I feel this may be the only way to solve the inequality crisis.
- ikeyany 7y ago
  You are describing roommates/co-ops.
roenxi 7y ago
The article is a lot more substantive than the headline, but the frame that inequality is the problem will lead to 'solutions' that do not solve the real problems. The root problem here is clearly that living standards are at risk of dropping. That is not necessarily linked to inequality - inequality can rise in tandem with living standards. The policy tools that raise living standards are not the same policies that promote equality (the experiences in the 20th and 21st centuries suggest quite the opposite). If people became rich relative to their ability to raise living standards - which is the main line of defense for capitalism as a system, by the way - then we expect higher inequality because the people who figure out how to raise mass living standards by small amounts should become disgustingly wealthy. The problem is that current policies are making people rich who aren't productive members of society. They are making idiot bankers rich who set us up for things like the '07-'08 financial crisis, then bailing them out when it looks like the market might call their bluffs.
la6470 7y ago
I read through to the end of TFA and they gave no FSolution. The only solution is to guarantee everyone a basic social security net for life that cover all the basics ie food shelter clothing healthcare and education. Anything more than that will need individuals to figure it out. As human civilization progresses our basic guarantees to human life also need to keep up and elevate.

Other than "We’ve also had a combination of tax and regulatory policy that has encouraged capital formation and increasing returns to capital, so labor’s share of returns has decreased. The last round of tax policy out of Washington made this worse." it seems they have nothing concrete to say. I definitely agree that capital should be taxed at the same rates as labor. Maybe there was a time when it made sense to tax capital lower but right now we don't seem to lack investment money but we lack demand.

claydavisss 7y ago

Globalization. And it will get worse. As long as neoliberal technocats continue to foist globalization on us, polarization will continue. Techies have been spared because round one pitted the US against India, but in reality Indian firms were happy to capture low-hanging fruit and never bothered trying to go head-to-head with US firms. China will be different. They don't want to do our menial work, they want to own markets. You are not ready to compete with China, unless you are going to do "996" for $50k a year.

sokoloff 7y ago

“But the last 50 years have been terrible for people with lower skills. Adjusted for inflation, the average earnings of a man who didn’t go to college is lower now than it was 50 years ago. That’s unheard of.” How much of this effect is the vastly higher percentage of people who now go to college? If you line up 100 people by vague estimation of their likely earning potential in 1970 and do the same today, but now 2.5 times as many people attend college, the population remaining with "no college" in 2020 isn't really the same population as it was in 1970.

kazen44 7y ago
Also, how much of this effect is basically the rest of the world playing catch up in terms of economic production? China and the rest of Asia are magnitudes more competitive compared to 50 years ago. And prior to that US industry was unmatched thanks to the massive effects world war 2 had on the other, western industrialized nations.
- deogeo 7y ago
  > Also, how much of this effect is basically the rest of the world playing catch up in terms of economic production? If the rest of the world becoming more productive results in US workers being worse off, then something is severely wrong with US trade policy. For one, it contradicts the dogma that more trade is strictly beneficial.
  - bilbo0s 7y ago
    I think that dogma though was meant to address the situation in a global context. ie - More trade is strictly beneficial for the global population in aggregate. But yeah, it's still trade, so there will be lows and highs, and ebbs and flows.
  - asark 7y ago
    > For one, it contradicts the dogma that more trade is strictly beneficial. Ricardo's original idea was applicable with a narrow set of assumptions/conditions and didn't have much to say about who'd end up with the greater net wealth. I'm not sure how/why it was turned into a magical improve-any-economy law of nature.
    - astazangasta 7y ago
      Ricardo's mistake is not thinking about development; comparative advantage is optimal now, but a society that just makes coffee beans is going to lose in the end to the one that makes microchips because of the difference in how the economy and society develop over time.
      - 0815test 7y ago
        This may have been a mistake by Ricardo, but not one that points towards less trade as optimal. Indeed, export-led development (implying more trade openness) is the one reliable way we know about of going from the "coffee beans" to the "microchips" stage of development.
bilbo0s 7y ago
Yep. And even the people with college will necessarily compare less favorably with that older cohort over time. In a world where everyone has a college degree, well, some people with college degrees will have to be the ditch diggers so to speak. I don't know how you solve that problem? It's just math.
- chillwaves 7y ago
  Use your educated populace to design robots to dig ditches. It's not "math" that humans have to engage in undesirable labor, under brutal conditions. We have thousands of years of developing tools that are contrary to that statement. It is a collective social decision to say that an hour of someone's time is worth less than building a robot. That's the only reason why cashiers still exist.
  - bilbo0s 7y ago
    It's still math. If you go that route, then the people who build and program the robots will necessarily be paid less. Today that is likely a top 10% job. (More likely a top 5% job if we're being honest.) In a world where everyone has a college degree and there are 30 times the number of people who can program those things because the tools have gotten just that easy... well, you do the math. At the extreme, you can't just pay 100% of the labor market more money because they have a college degree. It just doesn't work like that. Put in more base terms, there is only room for 1% of the people, in the top 1%. You may be able to, through the magic of increased production, decrease the price of everything in your economy. So that the other 99% of people can afford access to everything to which people in the top 1% have access. But even that is difficult in the extreme. It'd just be easier, over time, than is paying everyone in your economy more over time.
    - jayd16 7y ago
      This is a real misunderstanding of economics. If you increase productivity through technology, it's possible for everyone to earn more real dollars (as a product of cost of living). It's not a zero sum game. Imagine it this way. Everyone today is making more than hunt from a cave money. Why is that? Because a single human can produce more than the bare minimum for survival.
shados 7y ago
It's like playing an MMORPG-style videogame where the developers keep raising the level cap. The higher the cap, the worse off people who are just starting are (and why in those games developers keep having to provide a "catch up mechanics", like a scroll to rush you to level cap, or making stuff easier to obtain. In the real world that's a lot harder to do though). Probably made worse by the vastly higher amount of dual income household, so someone with just 1 income is proportionally worse off. A single unskilled worker vs a couple of high skill workers, competing for supply & demand against each other...yeah, the former's not gonna have fun.
- luckydata 7y ago
  In the real world those are called "redistributive policies" and work quite well, especially for the economy as a whole. http://www.levyinstitute.org/publications/can-redistribution-help-build-a-more-stable-economy http://www.levyinstitute.org/publications/can-redistribution...
  - dsfyu404ed 7y ago
    They work well... until they don't. Anyone from Eastern Europe over the age of about 40 can tell you about it. Like anything else redistribution falls on it's face if you go too crazy with it.
    - jdietrich 7y ago
      There is a world of difference between redistribution and central planning.
    - FranzFerdiNaN 7y ago
      A lot of people over 40 in Eastern Europe would rather go back to the Soviet Union than stay in their new capitalist dreamworld. Things weren't great, but at least they had a job, a roof, food and healthcare.
      - nec4b 7y ago
JMTQp8lwXL 7y ago
This suggests that everyone going to college is doing well. That isn't the case. There are people who have master's degrees, but are earning $15/hour. I agree with your point that populations can change over time. Fifty years ago, many people didn't get degrees and made good money. Today, people without degrees (and some with) don't make good money. So instead of trying to segment in groups (the college educated vs. everyone else), let's just look at everyone. This removes the concern of our shifting populations. One metric to look at is median income. Adjusted for inflation, it hasn't budged much in decades. In the past 42 years, it's increased about 32 percent. https://fred.stlouisfed.org/series/MEPAINUSA672N https://fred.stlouisfed.org/series/MEPAINUSA672N
- sokoloff 7y ago
  In a consumer driven economy, with a savings rate of around 7%, most people are spending the vast majority of their income on consumption [competing with other consumers for some scarce goods], why would we think that median real income should increase significantly faster than inflation?
  - JMTQp8lwXL 7y ago
    Because of the huge productivity gains over the past 42 years. The profits from those gains all collect at the top.
    - sokoloff 7y ago
      That seems to be a reason to think that the median (real) income will not increase.
imtringued 7y ago
It's basic supply and demand. Globalization puts high downward pressure on wages because people in Asia can live on far less money than Americans. If you have to raise prices because of higher cost of living then your customers simply buy from somewhere else. Then there are certain degrees with too many graduates which flood the market which results in lower wages. Others have a shortage of graduates which means the companies have to hire from a labor pool where everyone is employed and therefore have to outbid their competitor to hire anyone at all. Add double income households which compete for rivalrous (if I have it, you don't have it) goods like housing and the end result is the US economy.
rayiner 7y ago
Income inequality comparisons are full of problems like this. Reflecting your intuition, I’d imagine most people would conceive of increasing income inequality to mean increasing gaps between people in the same station in life across two time periods. But demographics have changed dramatically since 1970. For example, immigrants make up almost 3x as large a fraction of the population (from 5% to almost 15%) than in 1970. Obviously, if you add a large number of (typically) economically disadvantaged people to the population, income inequality is going to go up, even if there is no change in incomes for everyone else: https://www.migrationpolicy.org/sites/default/files/source_images/FRS-SPT-2019_Figure_1_UPDATED.png https://www.migrationpolicy.org/sites/default/files/source_i.... Likewise, peoples’ incomes increase with age. The population overall has grayed significantly. Again, even if wealth inequality wasn’t increasing for people of any given age, changing the age distribution of the population will affect income inequality. Finally, a larger fraction of the population now comprises historically disadvantaged minorities. While the income gap between races in the US is a huge problem, it’s a different problem than “income inequality” genetically, deserving more targeted solutions. (And even that income gap is hard to analyze, because the ages of people of different races in the US differ quite dramatically). The median age of non-Hispanic whites is 42. The median age of Hispanic people is 28. The median age of African Americans is 33: https://www.pewresearch.org/fact-tank/2016/07/07/biggest-share-of-whites-in-u-s-are-boomers-but-for-minority-groups-its-millennials-or-younger/ https://www.pewresearch.org/fact-tank/2016/07/07/biggest-sha...). Income inequality probably is going up. But I’ve never seen a study that actually holds demographic changes constant so the result reflects peoples’ perception of what income inequality means.
- sokoloff 7y ago
  I also suspect that some of these "oversights" aren't mistakes at all, but rather intentional obfuscation of facts. Take note of how often you hear/read something like "incomes haven't risen in 30 years, but prices have gone up over 50% over that period". [Almost?] Inevitably, the income will be real income [inflation adjusted] and the prices nominal prices.
  - frankbreetz 7y ago
tolstoshev 7y ago
College is just a proxy for IQ. Shoving more people into college isn't going to make them smarter, if they don't have the mental horsepower. Basically you've got two levers, genetics and environment, and practically you can only change the latter by early intervention. Nutrition, enriching environment, and good education.

lilsoso 7y ago

The credibility of the article is undermined by hyperbolic statements such as, "For a lot of children, when they’re 8 years old, it’s too late. If your parents aren’t engaged in the education system, in 10 years you’ll be competing in the labor market against people whose parents sent them to violin lessons and summer programs in the Dominican Republic. There’s inequality of opportunity." It's too late for "a lot of children" by age 8? And you're underprivileged if you didn't attend a summer program in the Caribbean?

hn_throwaway_99 7y ago
I think that's an un-generous interpretation of the quote. Yes, I think there is good evidence that if you are in a poverty-stricken family and you don't get very early intervention, that by mid-elementary school it is too late for your average poor kid. The reason being that the rest of your environment of poverty is going to be pretty much pulling against you the rest of your childhood, so intervention while your hopes and goals are not yet formed is your best bet. And come on, the author wasn't saying if you didn't attend a Caribbean summer program that you're underprivileged. I believe he was just using that to highlight the pretty extreme lengths that middle class and above parents go to provide their children with educational enrichment (including music lessons, sports programs, summer camps, etc.) that put poor kids at a lifelong disadvantage.
- lilsoso 7y ago
  I largely agree with you. But the following line from the article is devastating, "For a lot of children, when they’re 8 years old, it’s too late." And this mawkish line is published under the banner of Stanford, an arbiter of the truth. I expect better. edit: My comments seem to have sparked a nerve. I simply wanted to point out bad rhetoric that undermines the cause and weakens an institution of trust. The situation is bad, so there's no need to exaggerate or lie to deliver the point. And this isn't a partisan issue. A conservative like Thiel would deliver a similar message. There is, however, a pernicious insinuation in that quote. The notion that if you haven't achieved x by y age you're done. That's a debilitating notion. And we have it in the tech community, if you can't code by z age give up. Or if you haven't achieved some startup success or some corporate title at an early age you're a failure.

car12 7y ago

I wonder how much effect immigration has had on the matter of inequality. I'm going off these assumptions: -> Lesser immigration would've led to a higher GDP/capita figure for US. -> More resources to subsidize college and lesser cut-throat competition for jobs. -> Employers would be forced to pay higher wages and people would be more easily to retrain for different jobs. -> Bonus points: We can help Africa and South american countries with a much higher monetary amount and resources to help them catch up to a developed world status.

shdh 7y ago
> Employers would be forced to pay higher wages and people would be more easily to retrain for different jobs. Labor has long been subject to outsourcing as a result of entities trying to reduce costs and increase profits.
- car12 7y ago
  That is true but we're talking about the still remaining low skilled jobs that simply could not be outsourced. Now with a high number of low skilled immigrants competing with natives for those same remaining low skilled jobs that couldn't be outsourced, the outcome is worse for existing population.
  - downrightmike 7y ago
    There is also a trend where as much is outsourced as possible and what isn't outsourced is over tasked. I've seen outsourcing going from a direct replacement 1 to 1 to 3X the staff and the remaining non outsourced people have to basically be human databases and regurgitate info and critically think for this other group. Adding in constant instant message rooms that are mandatory to be logged into and constantly pinged is just insane. No employees win in this situation.
partha42 7y ago
> -> Lesser immigration would've led to a higher GDP/capita figure for US. How?

turk73 7y ago

Just look to the 3rd World if you want to know what the US will be like in the future. No middle class, lots of shanty/homeless camps, walls around properties, loss of pretty much all public spaces due to crime and violence. Sounds like a really great place to be, can't wait. Democrats and Establishment Republicans did this to us. It didn't have to be like this.

dnautics 7y ago

Of course, no mention of inflation, the policy choice which robs from the poor and gives to the rich. How does it rob from the poor? https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi... "when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts." In other words, inflation is a policy choice to combat sticky wages, which (if you think that's a problem), the solution is to, apparently, screw labor by devaluing their wages from under them. How does it give to the rich? The eroding value of the currency all but forces individuals and, e.g. pension funds, to dump resources into the stock market, venture investments, etc, which are largely playgrounds of the economically advantaged. It also has unfortunate side effects like consumerism and environmental destruction, but that's outside of the scope of the OP. The timing lines up, too. What happened 50 years ago that caused the divergence? With the ending of Bretton Woods, Nixon closed the gold window which was the last thing holding back policy from rampant inflation.

RobertoG 7y ago
The article tell us: "You had the same thing with the Industrial Revolution that concentrated more and more wealth into the hands of capital. " So, your identification of causation with the end of the gold standard it's not at all clear. In a way, inflation can be re-distributive because is good for the debtor and bad for the lender. Maybe, is time to accept that wealth accumulates, money call money, and the leveler are wars and disasters or some kind of political action. In other words, the system is not stable.
- dnautics 7y ago
  > is good for the debtor and bad for the lender. This is a huge myth propagated by economic planners who have never been poor. Typically, the poor don't have debt at all due to no access to banking services, and when they do have access to debt it's a double digit interest rates on short-term revolving basis. Inflation does not help that situation at all. The idea that the rich have no debt is total nonsense. Most of the wealthy make money off of debt-based instruments. For example, trading on margin, shorting, options calls and puts, forex trading, all depend on low interest rates/expanding money supply to make long-term speculative adventures worthwhile. It is, indeed, low interest loans, over the long term, which are the most helped by inflation.

naveen99 7y ago

their are natural limits to inequality. As successful people sell out their will to compete. Good news is it opens up opportunities for not yet successful people.

baybal2 7y ago

Very simple — Dollar is a global reserve currency, and T-bills are of equal prominence in the debt market. Foreign holding of US debt increased by few times since year 2000. The more US government borrows, the more TBills are there for purchase for foreign institutional buyers at attractive prices. Those are of course the real movers of the current account deficit: rates and tbill market US exports and labour will never be competitive until US can radically rethinks its view on government spendings and debt policy.

astazangasta 7y ago

>Because the low-wage jobs that left here are considered really good jobs in China. We’ve lifted a billion, two billion people out of poverty over the past 30 years. This sort of shit is the worst. People in China doing well is not our problem, just like people in Germany doing well is not our problem, and there is something deeply racist at the root of this suggestion, as if poor people in China are stealing wealth that rightly belongs to Americans. This is not how productivity works. The people stealing from Americans are rich Americans.

cleandreams 7y ago

Living standards have gone down and life has become much more economically insecure for most working people as a result of the policies that economists recommend. This includes globalization, free trade, low taxes, destruction of labor unions, and the like. The authors support these policies. These changes have been accompanied by a political system that no longer represents the left behind. So of course the losers are not compensated; that is by design, not accident. I think we have the choice to either become more equal or face increasing political instability and viciousness - and the latter is more likely, witness Trump, Brexit, etc. I have lost respect for economic analysis because it has been so out of touch with political and social consequences as to be hugely destructive to the fabric of society. Much more of this and I hate to see what will become of our society.

devonkim 7y ago
Economists have not necessarily been blind to social needs - policy makers and politicians benefiting from a revolving door of oligarchs enabled by various institutions culturally stationed to manipulate a larger population into working under these few for smaller and smaller pieces of power. Milton Friedman made it quite clear that a free market doesn’t provide a social safety net in any way and that a population that doesn’t succeed in the market should need some basic way to survive or we’s face huge social unrest. While America had social security and Medicare early on, we’ve dismantled their efficacy with a toothless, captured government while private sector has gained in power enormously in the form of multinational corporations the Founding Fathers all distrusted (they were no fans of the British East India Company). I think we’ll have one or two more larger scale revolutions before people around the globe learn that consolidated power of any sort whether it comes from religions, the public masses (populism), government, corporations, or perhaps even science is dangerous.

DoreenMichele 7y ago

A large portion of what reduced inequality was the destruction of wealth during World War II and the fact that the U.S. benefited afterward from being the last standing industrial economy. I seriously doubt that. We shipped essentially all able-bodied men off to war, so much so that we filled a lot of jobs with women. Birth rates were low because the men were physically absent. People were encouraged to grow Victory Gardens so farm food could feed soldiers. Tobacco, sugar etc were all rationed. We stopped making cars and converted car factories to keep factories. A lot of families had two incomes, no children and couldn't spend their money on luxury goods because they simply weren't available. Savings rates during the war were extremely high, above 50 percent some years. The boys came home, bringing veterans benefits with them. This included help buying a house and going to college. Unlike with modern lottery winners, this formula did not encourage people to just blow their money frivolously. They began buying houses at such high rates we invented new ways to throw them up quickly, giving rise to the modern suburb. Celibacy, low birth rates, frugal living, hard work and high savings rates helped reduce inequality. A lot of that could be replicated. We just don't typically have the self discipline to do so individually.

ahaferburg 7y ago
I'm not sure what you mean by that last sentence. Are you saying if only the poor were better with money they'd stop being poor?
- DoreenMichele 7y ago
  I'm saying there were large-scale forces at work during WW2 that forced many people into that pattern. It's much harder to do on an individual basis without those forces, but can be done sometimes. Among other things, I paid down debt while homeless. My last student loan payment was made in July 2017. I was back in housing in September the same year. Of course, your framing sounds like I'm being accused of blaming the poor. I'm not. I'm just questioning the assertion of the article because it honestly doesn't fit with what I have read of history. The Baby Boomer generation is the children of the WW2 veterans. It was a very widespread phenomenon. There are factors at play now that are definitely different from then. Most new houses in the 1950s were about 1200 sqft. Now they are nearly 2500 sqft. We desperately need to do something about our housing supply. But most people don't want to.

twright 7y ago

> Q: A much steeper income tax has gotten attention — some pitching even 70%. Is that possible? > Oyer: I can’t imagine a 70% tax rate. And I don’t think we’ll see a universal basic income for a long time. These are hugely expensive ideas. Then Oyer is experiencing a failure of the imagination as well as historical recollection. Tax rates have been that high before. Today a marginal tax income over what, 100 million at 70%--even 50%-- and there's suddenly a lot more money to build a social safety net with.

gleb 7y ago

Most of perceived rise in inequality is actually growing healthcare costs. http://www.econtalk.org/mark-warshawsky-on-compensation-health-care-costs-and-inequality/ http://www.econtalk.org/mark-warshawsky-on-compensation-heal... "Using data from the Bureau of Labor Statistics, Warshawsky shows that because health care benefits are a larger share of compensation for lower-paid than higher-paid workers, measures of inequality and even measures of economic progress can be misleading or distorted. "

xwdv 7y ago

I wonder if multiple people of low incomes may someday pool income together and use it to buy housing and food that they can all use to live comfortably. I feel this may be the only way to solve the inequality crisis.

ikeyany 7y ago
You are describing roommates/co-ops.

roenxi 7y ago

The article is a lot more substantive than the headline, but the frame that inequality is the problem will lead to 'solutions' that do not solve the real problems. The root problem here is clearly that living standards are at risk of dropping. That is not necessarily linked to inequality - inequality can rise in tandem with living standards. The policy tools that raise living standards are not the same policies that promote equality (the experiences in the 20th and 21st centuries suggest quite the opposite). If people became rich relative to their ability to raise living standards - which is the main line of defense for capitalism as a system, by the way - then we expect higher inequality because the people who figure out how to raise mass living standards by small amounts should become disgustingly wealthy. The problem is that current policies are making people rich who aren't productive members of society. They are making idiot bankers rich who set us up for things like the '07-'08 financial crisis, then bailing them out when it looks like the market might call their bluffs.

la6470 7y ago

I read through to the end of TFA and they gave no FSolution. The only solution is to guarantee everyone a basic social security net for life that cover all the basics ie food shelter clothing healthcare and education. Anything more than that will need individuals to figure it out. As human civilization progresses our basic guarantees to human life also need to keep up and elevate.