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An important takeaway from the wealth inequality chart: every time that wealth inequality has substantially decreased in recent history was during a recession.

An important takeaway from the wealth inequality chart: every time that wealth inequality has substantially decreased in recent history was during a recession. Staving off recessions at all costs for political reasons is a horrible policy. Market cycles are natural; we don't live in a perfect world. Market forces clearing out the inefficiencies/rebalancing power in the economy is better for long term capital allocation in society than socializing losses or printing money to rescue stock indices.

whimsicalism 5y ago
Is inequality the base thing we care about? Or is it only an instrumental way of accessing overall welfare, which is the thing we actually care about? If the latter is true, it seems like causing recessions in order to reduce inequality is at least somewhat akin to to cutting off the nose to spite the face.
TAForObvReasons 5y ago
It's analogous to the forest fires. Recessions, like smaller forest fires, help clear out the dead weight. New entities are able to grow in the wake. By aggressively staving off recessions, the smaller fires are suppressed but it leaves an ever-increasing mass of dead weight ("zombie companies"), eventually leading to an uncontrollable fire
creato 5y ago
I agree that maybe allowing market downturns to occur is probably a good thing. That said, an equally reasonable interpretation of your observation is that maybe inequality is not itself a problem. More inequality doesn't necessarily mean that the poor are worse off than they would be with less inequality. I wonder if we are collectively making a mistake to treat stock ownership as wealth. Stock prices going down reduces wealth inequality, but does that actually help anyone?
- whimsicalism 5y ago
  Regardless of what you treat it is, inequality of ownership of the major enterprises in the US is worth addressing. I do think the US needs substantial reform of how ownership and corporate governance currently works in our system.
- lend000 5y ago
  The problem is that people who became temporarily wealthy but would have lost wealth through misallocation of capital are allowed to keep their wealth and repeat their misallocations instead of allowing new, potentially better capital allocators access to large opportunity (low asset prices).
Ericson2314 5y ago
It's massively taken off during the lost previous 10 years horrible recovery. Read https://www.employamerica.org/ https://www.employamerica.org/ or Roosevelt interest stuff for why it's essential to have tight labor markets solve these problems --- more essential than ending all speculation. The fact that the last 10 years were exceptionally weak labor markets and yet lots of speculation shows that the two are less coupled than people might think. There it was bad, but that doesn't mean the decoupling can't also work for good. The solution is: 1. Bboost demand enough so labor markets are tight -- and today "inflation" is not a problem but rather the result of trying to run a shitty poor-repair material economy that has gotten too use to low demand and cheap later. Whenever there is a recession, boot UBI, or run a job guarantee doing all that feel good low-intensity stuff. It's not like we are low on work to be done with global warming! 2. With the business cycle now constrained to merely be a speculation cycle (real people get fed regardless), think of new creative ways to go after that. For example, when there is too much speculation, limit financial assets as collatoral for loans. No more bitcoins as collateral for loans to pay for the the mining electricity in times like this. But maybe shit like that is OK in other times.
AnimalMuppet 5y ago
Well... the people who have a job and lose it in a recession (and many do) really don't care whether overall wealth inequality is going down. They're being destroyed financially; they don't care that the rich are also taking damage.
- notahacker 5y ago
  This. The 20% haircut to the value of the companies' equity is a paper difference to their wealthy majority shareholders. But the 10% of staff they lay off have no income at all, and the remaining staff don't exactly feel better off because their bosses are poorer either. Levelling down isn't any sort of solution to wealth inequality.
  - lend000 5y ago
    If there were no other options besides asset stimulus and doing nothing, I may agree with you. But we can do other things (like UBI) that improve equality of opportunity, provide a safety net, and are probably net positive to the overall value of the economy in the long run (compared to the modern bailout/asset inflation economy, anyway).
  - wallacoloo 5y ago
    But during a labor shortage, that’s largely moot. Whatever staff gets fired, if they’re remotely competent, can walk down the street and get a job at a better performing company with ease.
    - notahacker 5y ago
      Sure, but you're replying to a comment about policy for recessions, not for when the job market's looking great for everyone, so it's bringing up labor shortages that's moot. People weren't walking down the street to get jobs at any sort of company with ease in 2008, or in the middle of lockdown.
jimbokun 5y ago
I thought this chart captured the modern economic angst really well: https://www.lynalden.com/wp-content/uploads/dollar-crisis-income-vs-expenses.png https://www.lynalden.com/wp-content/uploads/dollar-crisis-in... Concretely shows how one income used to be able to easily cover a family's expenses. And how today a one income family is worse off today than 40 years ago in absolute terms. And how the biggest family cost increase is healthcare, followed by college. Things that have all been discussed in depth, but clarifying to see them on one simple chart.
- ceedan 5y ago
  That chart shows median male income and includes the cost of college. Median male income is weighed down by non-college educated men, who are very likely not paying for college. https://www.bls.gov/emp/images/ep_chart_001.png https://www.bls.gov/emp/images/ep_chart_001.png Men with a bachelor's degree make a median of 68k/year Yearly income drops to 52k for men with an associate's degree. Drops to 47k with some college education. Drops to 41k with just high school education. https://en.m.wikipedia.org/wiki/Educational_attainment_in_the_United_States https://en.m.wikipedia.org/wiki/Educational_attainment_in_th...
boringg 5y ago
Very Joseph Schumpeter of you [creative destruction]. He seems to have lost his influence over the controllers of the various central banks since 2008 financial crises.

whimsicalism 5y ago

Is inequality the base thing we care about? Or is it only an instrumental way of accessing overall welfare, which is the thing we actually care about? If the latter is true, it seems like causing recessions in order to reduce inequality is at least somewhat akin to to cutting off the nose to spite the face.

TAForObvReasons 5y ago

It's analogous to the forest fires. Recessions, like smaller forest fires, help clear out the dead weight. New entities are able to grow in the wake. By aggressively staving off recessions, the smaller fires are suppressed but it leaves an ever-increasing mass of dead weight ("zombie companies"), eventually leading to an uncontrollable fire

creato 5y ago

I agree that maybe allowing market downturns to occur is probably a good thing. That said, an equally reasonable interpretation of your observation is that maybe inequality is not itself a problem. More inequality doesn't necessarily mean that the poor are worse off than they would be with less inequality. I wonder if we are collectively making a mistake to treat stock ownership as wealth. Stock prices going down reduces wealth inequality, but does that actually help anyone?

whimsicalism 5y ago
Regardless of what you treat it is, inequality of ownership of the major enterprises in the US is worth addressing. I do think the US needs substantial reform of how ownership and corporate governance currently works in our system.
lend000 5y ago
The problem is that people who became temporarily wealthy but would have lost wealth through misallocation of capital are allowed to keep their wealth and repeat their misallocations instead of allowing new, potentially better capital allocators access to large opportunity (low asset prices).

Ericson2314 5y ago

It's massively taken off during the lost previous 10 years horrible recovery. Read https://www.employamerica.org/ https://www.employamerica.org/ or Roosevelt interest stuff for why it's essential to have tight labor markets solve these problems --- more essential than ending all speculation. The fact that the last 10 years were exceptionally weak labor markets and yet lots of speculation shows that the two are less coupled than people might think. There it was bad, but that doesn't mean the decoupling can't also work for good. The solution is: 1. Bboost demand enough so labor markets are tight -- and today "inflation" is not a problem but rather the result of trying to run a shitty poor-repair material economy that has gotten too use to low demand and cheap later. Whenever there is a recession, boot UBI, or run a job guarantee doing all that feel good low-intensity stuff. It's not like we are low on work to be done with global warming! 2. With the business cycle now constrained to merely be a speculation cycle (real people get fed regardless), think of new creative ways to go after that. For example, when there is too much speculation, limit financial assets as collatoral for loans. No more bitcoins as collateral for loans to pay for the the mining electricity in times like this. But maybe shit like that is OK in other times.

AnimalMuppet 5y ago

Well... the people who have a job and lose it in a recession (and many do) really don't care whether overall wealth inequality is going down. They're being destroyed financially; they don't care that the rich are also taking damage.

notahacker 5y ago
This. The 20% haircut to the value of the companies' equity is a paper difference to their wealthy majority shareholders. But the 10% of staff they lay off have no income at all, and the remaining staff don't exactly feel better off because their bosses are poorer either. Levelling down isn't any sort of solution to wealth inequality.
- lend000 5y ago
  If there were no other options besides asset stimulus and doing nothing, I may agree with you. But we can do other things (like UBI) that improve equality of opportunity, provide a safety net, and are probably net positive to the overall value of the economy in the long run (compared to the modern bailout/asset inflation economy, anyway).
- wallacoloo 5y ago
  But during a labor shortage, that’s largely moot. Whatever staff gets fired, if they’re remotely competent, can walk down the street and get a job at a better performing company with ease.
  - notahacker 5y ago
    Sure, but you're replying to a comment about policy for recessions, not for when the job market's looking great for everyone, so it's bringing up labor shortages that's moot. People weren't walking down the street to get jobs at any sort of company with ease in 2008, or in the middle of lockdown.

jimbokun 5y ago

I thought this chart captured the modern economic angst really well: https://www.lynalden.com/wp-content/uploads/dollar-crisis-income-vs-expenses.png https://www.lynalden.com/wp-content/uploads/dollar-crisis-in... Concretely shows how one income used to be able to easily cover a family's expenses. And how today a one income family is worse off today than 40 years ago in absolute terms. And how the biggest family cost increase is healthcare, followed by college. Things that have all been discussed in depth, but clarifying to see them on one simple chart.

ceedan 5y ago
That chart shows median male income and includes the cost of college. Median male income is weighed down by non-college educated men, who are very likely not paying for college. https://www.bls.gov/emp/images/ep_chart_001.png https://www.bls.gov/emp/images/ep_chart_001.png Men with a bachelor's degree make a median of 68k/year Yearly income drops to 52k for men with an associate's degree. Drops to 47k with some college education. Drops to 41k with just high school education. https://en.m.wikipedia.org/wiki/Educational_attainment_in_the_United_States https://en.m.wikipedia.org/wiki/Educational_attainment_in_th...

boringg 5y ago

Very Joseph Schumpeter of you [creative destruction]. He seems to have lost his influence over the controllers of the various central banks since 2008 financial crises.