7 ms·

It should be self-evident that the accelerating inequality we’re witnessing is not the natural inequality of competition and the power law, easily explained by

by Empact 7y ago

It should be self-evident that the accelerating inequality we’re witnessing is not the natural inequality of competition and the power law, easily explained by simple arithmetic. An accelerating and historically high broad societal effect is naturally a product of broad and unique properties of the current regime, rather than fundamentally consistent properties, which would naturally be seen across all time. What is more broad and far-reaching than manipulation of the money supply itself? “We have found that inflation (1) worsens income distribution; (2) increases the income share of the rich; (3) has a negative but insignificant effect on the income shares of the poor and the middle class; and (4) reduces the rate of economic growth” http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.295.848&rep=rep1&type=pdf http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.295... It’s not difficult to see why - under an inflationary regime, those holding currency lose out relative to those holding assets, because the former’s wealth is not preserved; and low income wages are facing a constant headwind that their earners are less equipped to navigate. We in the US have been engaging in an experiment since 1971, which has resulted in a marked discontinuity and a shift in to whom productivity growth accrued: https://wtfhappenedin1971.com/ https://wtfhappenedin1971.com/ This is not necessarily the true or only explanation of our accelerating and historically high inequality, but it has the properties of a realistic explanation, in that it identifies a broad, historically distinct cause.

specialist 7y ago
In the USA, inflation went down as inequity increased. https://en.wikipedia.org/wiki/File:US_Historical_Inflation.svg https://en.wikipedia.org/wiki/File:US_Historical_Inflation.s... I don't doubt that inflation is a factor. Duh. It's just a tax by another name. But it takes extreme incredulity to ignore the biggest policy change (pink elephant): shifting the tax burden from capital (assets) to labor (income). PS- Your cites note Bretton Woods. What's your position on the gold standard?
snagglegaggle 7y ago
Very good links, thank you. Unlike a lot of people I never really saw the inherent utility in an inflationary currency system (but admit it could have existed: just that I never saw it in practice). But criticize the fed or offshoring and you're a bigoted racist who just can't grasp the bigger picture.
jonfw 7y ago
Can you show me the simple arithmetic, please?
JumpCrisscross 7y ago
> We have found that inflation (1) worsens income distribution This is an interesting question, but that's [1] a terrible study. It compares "data averaged over 5-year periods" across different countries. It's effectively a scatter plot of income inequality versus inflation. The study's findings are better stated as "countries with high inflation have worse income distributions." Which makes sense. High-inflation countries tend to have low-quality institutions and low economic growth, factors which make being middle class difficult and poor miserable. The right way to do this is longitudinally, studying populations over time. Even that's hard, given the number of interceding factors. At a minimum, an input must be the distribution of credit and debt, given inflation transfers wealth from the former to the latter. [1] http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.295.848&rep=rep1&type=pdf http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.295...
- roenxi 7y ago
  If someone were interested in the link between inequality and inflation a scatter plot would be a perfectly reasonable place to start. The issue is that the scatter plot shows there are something like 30 countries with an inflation rate of 0-15% and no correlation between inflation+gini/inflation+growth and then 8 countries where there is.
  - deleted 7y ago
    [deleted]
notahacker 7y ago
A _lot_ of US public policy changes and economic structural changes which favour the rich have happened since 1971. The problem with trying to pin everything on inflation is that inflation has been more stable and lower in recent years than much of the Bretton Woods era...
- __max__ 7y ago
  > inflation has been more stable and lower in recent years than much of the Bretton Woods era... That depends how you measure inflation. The government-published inflation rates use all kinds of creative accounting to make the number seem artificially low. It's in the government's interest to make it seem like that's the case. The reality is that housing prices (and rents) are increasing at a very high rate, and this is probably the biggest expense that we all have to pay. It's also a fundamental need.
  - imtringued 7y ago
    The crazy part about inflation isn't that the governments are focusing on a narrow definition of inflation. The crazy part is the idea that inflation is global. If you pump in money into the financial sector it will immediately propagate to consumer prices. The outcome is obvious.
  - jonfw 7y ago
    Housing prices aren't a measure of inflation. The average size of a house has gone up, the average quality of a home has gone up. Houses have more appliances, air/cooling, and electronics which increases pricing. They aren't making any more land, and our population is increasing, so naturally land prices will rise. If you were able track housing prices of equivalent homes and adjust for land scarcity from population- you'd have a much stronger metric. Without that context it's hardly relevant.
  - throwaway2048 7y ago
    Also healthcare and education, which are also not measured
  - lifty 7y ago
dre54673 7y ago
I've noticed an increasing trend in people using phrases such as "it is trivial", "it is obvious", "it is self evident" to defend their arguments. I have yet to encounter a case where it made their argument better. This might be off topic but it has become a pet peeve because I've even started to encounter it in real life. It is similar to starting a discussion with "if you disagree with me, you are stupid".
- wuliwong 7y ago
  I agree and I also probably am an offender.
- Empact 7y ago
  IMO it's incoherent to say that a locally extreme and accelerating quality of society is a consequence of broad and fundamental forces that have been in place for millenia. Fair enough that "self-evident" is inappropriate because it presumes perspective of the reader, but it's the coherence that I'm referring to.
  - tathougies 7y ago
    > IMO it's incoherent to say that a locally extreme and accelerating quality of society is a consequence of broad and fundamental forces that have been in place for millenia. Um, why would it be incoherent? By all observations of perfectly coherent physics, the universe itself is currently the largest it has ever been and is growing at an ever faster pace. While perhaps your opinion is that such things should not be possible, it is clearly non-sensical to say that such a thing is incoherent when it actually seems to be the basis of the entire universe.
    - Empact 7y ago
      Fair enough, it’s possible, but I maintain: the model proposed would have been operative always and everywhere, so would we not expect this to be occurring all of the time? Would history not be very different, with no middle class (our middle class has only recently declined)? Wouldn’t extended periods of broad prosperity would be an aberration, rather than the broad stroke of history?
WalterBright 7y ago
Note that the effect of steeply progressive income taxes is making it much more difficult for people to move up the economic ladder.
- learc83 7y ago
  Income taxes are much less progressive than they were half a century ago.
  - WalterBright 7y ago
    I don't know what the statistic for this was 50 years ago, but today 38% of federal income tax revenues come from the 1%.
    - learc83 7y ago
      And the top 1% earn 2x as much of the income as they did 50 years ago, but don't pay 2x more of the share of income tax. Meaning that income tax is less progressive now. Also the 38% number that right wing groups like to throw around is very carefully crafted to avoid FICA taxes, which account for a much larger percentage of the tax burden for lower income earners. And the social security component goes away after the first $130k in income.
      - WalterBright 7y ago
        If you express FICA in terms of benefits received / contributions paid, it is quite progressive.
        learc83 7y ago
        If you're only considering direct first order benefits then nearly all taxes are quite progressive. Even a flat 10% income tax would be progressive using that model because people's direct consumption of government services doesn't scale linearly with income. The only way to have a non-progressive tax was to charge everyone a flat rate. "Why should I have have to pay a penny more in taxes than that teacher over there. It's not like I'm consuming more units of military protection than they are." Hopefully you can see the problem with that.
ameister14 7y ago
>An accelerating and historically high broad societal effect is naturally a product of broad and unique properties of the current regime, rather than fundamentally consistent properties, which would naturally be seen across all time. You're completely correct here. Unfortunately, neither the current levels of income inequality nor the acceleration of said inequality is unique or historically high. It's not even unique in the last hundred years.
- Supermancho 7y ago
  > neither the current levels of income inequality nor the acceleration of said inequality is unique or historically high I'm not sure what you're saying, as these statements are unqualified: "current levels of income inequality"? "acceleration of said inequality"? "historically high"?
  - ameister14 7y ago
    I'm saying that by most measurements income inequality is roughly the same as it was in the early twentieth century and the rate at which the inequality increased and the acceleration of that rate is less than it was in the early part of the 20th century. Are you saying that I need to break down what measurements I'm talking about? I can agree with that but we're on a forum and I was responding to a person who I assume, based on how they wrote, shares a general knowledge base upon which we can have a conversation.
- Empact 7y ago
  I'm talking about measures like these, which granted, are only recorded back 100 years or so: https://www.census.gov/library/visualizations/2015/demo/gini-index-of-money-income-and-equivalence-adjusted-income--1967.html https://www.census.gov/library/visualizations/2015/demo/gini... https://economistsview.typepad.com/.a/6a00d83451b33869e201a5115729b5970c-popup https://economistsview.typepad.com/.a/6a00d83451b33869e201a5... https://www.getrevue.co/profile/mark-abdelnour/issues/abd-s-angle-income-inequality-a-discussion-140094 https://www.getrevue.co/profile/mark-abdelnour/issues/abd-s-...
  - 7y ago
lifty 7y ago
Ray Dalio's recent post agrees and is complementary to your comment: https://www.linkedin.com/pulse/world-has-gone-mad-system-broken-ray-dalio/ https://www.linkedin.com/pulse/world-has-gone-mad-system-bro...
w1nst0nsm1th 7y ago
It cames to my mind that that constant 2% inflation, and the constent effort to limit it to such level said to be good for economy, was indeed slowly impovishering the working class by the fact than increase rate of salary was not as high as increase in price. In short the price of good increase constantly, but we stop the inflation before it reach also salary, leading to inequal raise of cost of work (null) and cost of good (2%).
- fuzzfactor 7y ago
  This is by design since the early 1970's.
wuliwong 7y ago
I was going to reference a similar point. There are economists out there that have predicted this and are not surprised. This isn't necessarily an "open question" but it is one that there is not the precious "consensus" that we see in other popular issues.
tropo 7y ago
That graph shows productivity and compensation growing together, then diverging right in the 1970s. This would be expected if we suddenly got a large supply of labor. You can see exactly that on this other graph: https://en.wikipedia.org/wiki/File:Chart_of_foreign_born_in_the_US_labor_force_1900_to_2007.png https://en.wikipedia.org/wiki/File:Chart_of_foreign_born_in_...
Bostonian 7y ago
Inflation has been pretty low for the last two decades, so by your logic inequality would be falling.

by Empact 7y ago

specialist 7y ago

In the USA, inflation went down as inequity increased. https://en.wikipedia.org/wiki/File:US_Historical_Inflation.svg https://en.wikipedia.org/wiki/File:US_Historical_Inflation.s... I don't doubt that inflation is a factor. Duh. It's just a tax by another name. But it takes extreme incredulity to ignore the biggest policy change (pink elephant): shifting the tax burden from capital (assets) to labor (income). PS- Your cites note Bretton Woods. What's your position on the gold standard?

snagglegaggle 7y ago

Very good links, thank you. Unlike a lot of people I never really saw the inherent utility in an inflationary currency system (but admit it could have existed: just that I never saw it in practice). But criticize the fed or offshoring and you're a bigoted racist who just can't grasp the bigger picture.

jonfw 7y ago

Can you show me the simple arithmetic, please?

JumpCrisscross 7y ago

> We have found that inflation (1) worsens income distribution This is an interesting question, but that's [1] a terrible study. It compares "data averaged over 5-year periods" across different countries. It's effectively a scatter plot of income inequality versus inflation. The study's findings are better stated as "countries with high inflation have worse income distributions." Which makes sense. High-inflation countries tend to have low-quality institutions and low economic growth, factors which make being middle class difficult and poor miserable. The right way to do this is longitudinally, studying populations over time. Even that's hard, given the number of interceding factors. At a minimum, an input must be the distribution of credit and debt, given inflation transfers wealth from the former to the latter. [1] http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.295.848&rep=rep1&type=pdf http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.295...

roenxi 7y ago
If someone were interested in the link between inequality and inflation a scatter plot would be a perfectly reasonable place to start. The issue is that the scatter plot shows there are something like 30 countries with an inflation rate of 0-15% and no correlation between inflation+gini/inflation+growth and then 8 countries where there is.
- deleted 7y ago
  [deleted]

notahacker 7y ago

A _lot_ of US public policy changes and economic structural changes which favour the rich have happened since 1971. The problem with trying to pin everything on inflation is that inflation has been more stable and lower in recent years than much of the Bretton Woods era...

__max__ 7y ago
> inflation has been more stable and lower in recent years than much of the Bretton Woods era... That depends how you measure inflation. The government-published inflation rates use all kinds of creative accounting to make the number seem artificially low. It's in the government's interest to make it seem like that's the case. The reality is that housing prices (and rents) are increasing at a very high rate, and this is probably the biggest expense that we all have to pay. It's also a fundamental need.
- imtringued 7y ago
  The crazy part about inflation isn't that the governments are focusing on a narrow definition of inflation. The crazy part is the idea that inflation is global. If you pump in money into the financial sector it will immediately propagate to consumer prices. The outcome is obvious.
- jonfw 7y ago
  Housing prices aren't a measure of inflation. The average size of a house has gone up, the average quality of a home has gone up. Houses have more appliances, air/cooling, and electronics which increases pricing. They aren't making any more land, and our population is increasing, so naturally land prices will rise. If you were able track housing prices of equivalent homes and adjust for land scarcity from population- you'd have a much stronger metric. Without that context it's hardly relevant.
- throwaway2048 7y ago
  Also healthcare and education, which are also not measured
- lifty 7y ago

dre54673 7y ago

I've noticed an increasing trend in people using phrases such as "it is trivial", "it is obvious", "it is self evident" to defend their arguments. I have yet to encounter a case where it made their argument better. This might be off topic but it has become a pet peeve because I've even started to encounter it in real life. It is similar to starting a discussion with "if you disagree with me, you are stupid".

wuliwong 7y ago
I agree and I also probably am an offender.
Empact 7y ago
IMO it's incoherent to say that a locally extreme and accelerating quality of society is a consequence of broad and fundamental forces that have been in place for millenia. Fair enough that "self-evident" is inappropriate because it presumes perspective of the reader, but it's the coherence that I'm referring to.
- tathougies 7y ago
  > IMO it's incoherent to say that a locally extreme and accelerating quality of society is a consequence of broad and fundamental forces that have been in place for millenia. Um, why would it be incoherent? By all observations of perfectly coherent physics, the universe itself is currently the largest it has ever been and is growing at an ever faster pace. While perhaps your opinion is that such things should not be possible, it is clearly non-sensical to say that such a thing is incoherent when it actually seems to be the basis of the entire universe.
  - Empact 7y ago
    Fair enough, it’s possible, but I maintain: the model proposed would have been operative always and everywhere, so would we not expect this to be occurring all of the time? Would history not be very different, with no middle class (our middle class has only recently declined)? Wouldn’t extended periods of broad prosperity would be an aberration, rather than the broad stroke of history?

WalterBright 7y ago

Note that the effect of steeply progressive income taxes is making it much more difficult for people to move up the economic ladder.

learc83 7y ago
Income taxes are much less progressive than they were half a century ago.
- WalterBright 7y ago
  I don't know what the statistic for this was 50 years ago, but today 38% of federal income tax revenues come from the 1%.
  - learc83 7y ago
    And the top 1% earn 2x as much of the income as they did 50 years ago, but don't pay 2x more of the share of income tax. Meaning that income tax is less progressive now. Also the 38% number that right wing groups like to throw around is very carefully crafted to avoid FICA taxes, which account for a much larger percentage of the tax burden for lower income earners. And the social security component goes away after the first $130k in income.
    - WalterBright 7y ago
      If you express FICA in terms of benefits received / contributions paid, it is quite progressive.
      - learc83 7y ago
        If you're only considering direct first order benefits then nearly all taxes are quite progressive. Even a flat 10% income tax would be progressive using that model because people's direct consumption of government services doesn't scale linearly with income. The only way to have a non-progressive tax was to charge everyone a flat rate. "Why should I have have to pay a penny more in taxes than that teacher over there. It's not like I'm consuming more units of military protection than they are." Hopefully you can see the problem with that.

ameister14 7y ago

>An accelerating and historically high broad societal effect is naturally a product of broad and unique properties of the current regime, rather than fundamentally consistent properties, which would naturally be seen across all time. You're completely correct here. Unfortunately, neither the current levels of income inequality nor the acceleration of said inequality is unique or historically high. It's not even unique in the last hundred years.

Supermancho 7y ago
> neither the current levels of income inequality nor the acceleration of said inequality is unique or historically high I'm not sure what you're saying, as these statements are unqualified: "current levels of income inequality"? "acceleration of said inequality"? "historically high"?
- ameister14 7y ago
  I'm saying that by most measurements income inequality is roughly the same as it was in the early twentieth century and the rate at which the inequality increased and the acceleration of that rate is less than it was in the early part of the 20th century. Are you saying that I need to break down what measurements I'm talking about? I can agree with that but we're on a forum and I was responding to a person who I assume, based on how they wrote, shares a general knowledge base upon which we can have a conversation.
Empact 7y ago
I'm talking about measures like these, which granted, are only recorded back 100 years or so: https://www.census.gov/library/visualizations/2015/demo/gini-index-of-money-income-and-equivalence-adjusted-income--1967.html https://www.census.gov/library/visualizations/2015/demo/gini... https://economistsview.typepad.com/.a/6a00d83451b33869e201a5115729b5970c-popup https://economistsview.typepad.com/.a/6a00d83451b33869e201a5... https://www.getrevue.co/profile/mark-abdelnour/issues/abd-s-angle-income-inequality-a-discussion-140094 https://www.getrevue.co/profile/mark-abdelnour/issues/abd-s-...
- 7y ago

lifty 7y ago

Ray Dalio's recent post agrees and is complementary to your comment: https://www.linkedin.com/pulse/world-has-gone-mad-system-broken-ray-dalio/ https://www.linkedin.com/pulse/world-has-gone-mad-system-bro...

w1nst0nsm1th 7y ago

It cames to my mind that that constant 2% inflation, and the constent effort to limit it to such level said to be good for economy, was indeed slowly impovishering the working class by the fact than increase rate of salary was not as high as increase in price. In short the price of good increase constantly, but we stop the inflation before it reach also salary, leading to inequal raise of cost of work (null) and cost of good (2%).

fuzzfactor 7y ago
This is by design since the early 1970's.

wuliwong 7y ago

I was going to reference a similar point. There are economists out there that have predicted this and are not surprised. This isn't necessarily an "open question" but it is one that there is not the precious "consensus" that we see in other popular issues.

tropo 7y ago

That graph shows productivity and compensation growing together, then diverging right in the 1970s. This would be expected if we suddenly got a large supply of labor. You can see exactly that on this other graph: https://en.wikipedia.org/wiki/File:Chart_of_foreign_born_in_the_US_labor_force_1900_to_2007.png https://en.wikipedia.org/wiki/File:Chart_of_foreign_born_in_...

Bostonian 7y ago

Inflation has been pretty low for the last two decades, so by your logic inequality would be falling.