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Couple things here. First, corporate profits are aberrantly high for a number of reasons, none of which are likely to be permanent. John Hussman, an analyst wh
by acslater00 14y ago
Couple things here.
First, corporate profits are aberrantly high for a number of reasons, none of which are likely to be permanent. John Hussman, an analyst whom I respect deeply, has a good discussion of this from the perspective of stock valuations, but the basic point is relevant here. [http://www.hussmanfunds.com/wmc/wmc130408.htm http://www.hussmanfunds.com/wmc/wmc130408.htm]
Second, while I agree that this is "the story" in a purely journalistic sense, it's important not to get too carried in discussions about relative income distributions and miss the forest for the trees, as it were.
Income inequality is not an informationally useful statistic on its own. Income inequality can be thought of as a measure of the strength of incentives in a system. Those incentives can be good or bad on their own. In 3rd world nations, income inequality is a reflection of the strong incentive to be corrupt and steal. In the closed system of Goldman Sachs, income inequality (among employees) is a measure of the incentive to achieve annual performance targets. In the context of the public education system, it is a measure of the incentive to achieve seniority and bureaucratic promotions. In startups it reflects the incentive to get acquired or IPO. Et cetera.
In the United States, when people say that income inequality is too high, what they're usually thinking is that the wrong things are being incentivized and rewarded. That's a fine discussion to have, and I would agree that certain industries [health care jumps immediately to mind] suffer from deep and severe incentive problems that are reflected when you look at income distributions within those sectors.
But the problem is not the income distribution; it's the fact that income is being distributed unequally for the wrong reasons. That is the conversion people should be having.
- jbooth 14y agoI think the biggest problem of incentives can be summed up as: It's much more profitable to do a mediocre job in banking than to do a world-changing job of actually building things. Proximity to money is worth more than actual ingenuity.
- platz 14y agoThe job of actually building things belongs to the lower and middle classes. It has most always been a point of distinction for the upper class that they aren't concerned with utility. Part of the point of being upper class is freeing yourself from having to do utilitarian work.
- twoodfin 14y agoThen why doesn't every income-motivated mediocre person try to get a job in banking? The banks would have their pick of candidates, and they'd save on employment costs.
- jbooth 14y agoHave you ever met people who work on Wall St? :) I'm not saying they're not smart, I'm saying that the proximity to money has a lot more to do with their earnings than the value they're creating for the economy.
- CapitalistCartr 14y ago"Proximity to money" Imagine a city on the confluence of two rivers, with a series of locks making it a major trade center. The leaders of the lock operators union come to the city fathers requesting they be paid a percentage of the trade passing through the locks rather than a regular wage. The city leaders ask why, since they didn't build the locks or create any of the system that makes it all happen, they should share in the wealth above others, and above the work they do. The Union leaders reply that the small percentage they're asking for will pay total about the same as they're getting now, and it better aligns the interests of both sides. Of course the city leaders eventually agree. And of course, the "modest percentage" steadily grows over time, with a multitude of clever, more complex shipping arrangements. That's the financial system we have. They didn't build it; their brain power goes to make it more opaque, and siphon more to them. And with regulatory capture, the federal gov't abets it all.
- bicknergseng 14y agoYou also described the situation in Sudan/South Sudan. But without the genocide.
- bjhoops1 14y agoIncome inequality is a useful statistic for more purposes than just describing the strength of incentives in a system. Surely it is also one measure (amongst many) of the fairness of a system; a measure of how truly egalitarian a society really is.
- yummyfajitas 14y agoHow so?
- bjhoops1 14y agoSuppose a society in which a few families owned and controlled essentially all wealth. I don't imagine that society could be said to be egalitarian or equitable no matter what laws or "rights" its citizens had, do you?
- trhtrsh 14y agoyummyfajitas certainly does. Check his extensive posting history on this topic.
- methodover 14y agoI disagree. The sheer magnitude of income inequality is a social problem in its own right. It doesn't matter all that much if the inequality happened with or without corruption. What matters is that some people work hard and are rewarded with quite little, and have unnecessarily difficult lives as a result -- and furthermore, that the system appears to be trending towards _more_ of that, not less.
- kgmpers 14y agoSeconded. I think this TED talk does a good job correlating income inequality to a lot of disagreeable outcomes. http://www.ted.com/talks/richard_wilkinson.html http://www.ted.com/talks/richard_wilkinson.html
- jbester 14y agoHistorically, spikes in income inequality have been a harbinger of a recession - the theory is it can indicate misapplication of capital. In that investment income is outpacing growth in the underlying economy (using worker's income as a proxy). Not sure how true it is in the era of multi-national conglomerates and outsourcing.
- tdaltonc 14y agoRight now there's a strong incentive to be born in to the right family. http://blogs.wsj.com/wealth/2011/09/22/are-we-entering-the-age-of-inherited-wealth/ http://blogs.wsj.com/wealth/2011/09/22/are-we-entering-the-a...