8 ms·

Billionaires’ Row and Welfare Lines

29 points by kareemm 13y ago

EGreg 13y ago
Automation and outsourcing
- codyb 13y ago
  Increasing population, automation, and globalization. That's what I've been thinking for a long time. Seems unsustainable. Despite that, the author is right. Something has to give.
  - dnautics 13y ago
    I happen to think that inflation and sovereign debt transfer wealth from the poor and middle class to the rich. https://docs.google.com/document/d/137cC3inVNcfof44Pq1nMiyz1iRPekBsGhSnhAW_GSLs/edit https://docs.google.com/document/d/137cC3inVNcfof44Pq1nMiyz1...
    - EGreg 13y ago
      They do, but sovereign debt in the USA is mitigated by automatic stabilizers in progressive taxes. On the other hand, the structural problems come from the increased ability for multinational corporations (like Amazon) with small margins to disrupt the comparative advantage of LOCAL businesses and thus lower demand for a lot of local human labor. All the working conditions we've been legilating for in the past 100-200 years make our population more expensive to hire, and when you are now able to hire people in areas with a lower cost of living, or automate the jobs, the problems are systemic. If you reqd Stiglitz, he points out how before the great depression 20% of Americans worked in farm related jobs. After -- 2%. Notice the similarity with manyfacturing? This time it's taken longer but it's steadily eroding demand for local labor. Programmers arent hit by this economic phenomenon yet, because we program the machines that "disrupt" industries.
      - dnautics 13y ago
        are you making the claim that progressive taxation schemes automatically adjust to mathematically compensate? Because, inflation is a compounding effect, and having first action on created money is so powerful that I doubt that taxing the banking classes at anything but 100% or greater would do much for that. Plus bailouts, contracting work, etc. etc. etc.
        EGreg 13y ago
        I read your essay, and I am not discounting the deleterious effects of inflation on the domestic economy. In fact the growth in the M0 money supply should have us expecting a 3x inflation in the near future: http://www.tradingeconomics.com/united-states/money-supply-m0 http://www.tradingeconomics.com/united-states/money-supply-m... So yes, this is very worrying. As Milton Friedman said, "inflation is always and everywhere a monetary phenomenon" and argued that it always follows an increase in the mouney supply. What I am saying is that there are ways to mitigate the transfer of wealth to the rich, which are in place. If you look at inflation as a flat tax on everyone, it can be offset by sufficiently progressive taxation and welfare assistance to the poor (I am a fan of Friedman's negative tax scheme or Basic Income schemes). Overall you are right, income inequality grows during inflations. But at least we can mitigate this with policy. On the other hand, I am saying that the structural changes are systemic and this is far worse for the population as we have very limited means to "bring manufacturing jobs back" as both presidential candidates promised in this last election. They ain't coming back - not to humans, anyway. The real big shift we are facing is how quickly we can grow our safety nets and redistribution schemes like Basic Income or Negative Tax so that our unemployed class can continue being consumers at some rate which we as a society think they "should afford to be" just by virtue of being human.
        dnautics 13y ago
        but inflation isn't a flat tax on everyone, it's regressive. In the case of the two families in the admittedly extreme inflation example, the poor family takes a 50% tax and the rich family takes a <2% tax. In your graph, I see a 25% inflation, not a 3x inflation. If prices increase too quickly, there will be a dragging effect from the multiplier effect as stressed consumers default on loans, so if M0 doesn't increase as much, that 25% inflation may be dragged out over a longer period of time... Not to understate my worry about it, however. But you're right, the technological displacement is a structural problem in our economy, if the populace has a sense of entitlement towards jobs, or "their job" in particular, or even if not - in the case that there are not enough social resources to effect retraining in the labor force, or those social resources are misdirected, for example towards useless college degrees. In the non-inflationary fantasy universe where I wish I lived, technological displacement wouldn't be such a problem, since it would effect deflation. Yes, people would lose jobs, but they could afford to lose jobs or often, just afford not to work for protracted periods of time if necessary or desired.
  - kenster07 13y ago
    Your argument is wrong or poorly articulated. What isn't sustainable is an economy where those whose labor has been displaced by technological or economic advances have no opportunity to meet their basic human needs. Automation and globalization are sustainable. An increasing population is sustainable so long as it is in lockstep with technology's ability to support it. Malthus would have never imagined in his wildest dreams that 7 billion people could live simultaneously. The reality is, none of us can predict the future, and what kind of advances we will see in the productivity of essential goods. To think otherwise is gross intellectual masturbation.
- toomuchtodo 13y ago
  When was the last time someone from a financial firm on Wall Street went to jail for unscrupulous/illegal actions? Why are financial service organizations allowed to rent seek against the rest of productive society with impunity?
  - EGreg 13y ago
    At that scale it is because of the moral hazard
  - MaysonL 13y ago
    Bernie Madoff, who got away with massive fraud for decades. And, oh yes, that former Goldman Sachs high-frequency-trading programmer (who may have only taken open source code).
    - mattmanser 13y ago
      The programmer got acquitted a year and a half ago: http://nypost.com/2012/02/17/ny-appeals-court-orders-acquittal-for-goldman-sachs-programmer/ http://nypost.com/2012/02/17/ny-appeals-court-orders-acquitt...
      - MaysonL 13y ago
        And was soon thereafter arrested on state charges (the first charges were federal) which he is currently fighting. One bright spot: Goldman was just ordered to pay legal fees for his first trial, as their by-laws say they are required to pay legal costs for officers charged for acts taken as part of their employment, and he was a vice-president.
ams6110 13y ago
What does a billionaire do after buying a $90M apartment in Manhattan? Remodel it of course. Lots for work for carpenters, electricians, plumbers, interior decorators, and all the people that support and supply them. I don't see this as a bad thing; it's a good thing.
- MarkPNeyer 13y ago
  If there's "lots of work" for all of those people to support and supply the newly wealthy, why are the wages and employment rates of people who aren't wealthy going down?
  - deleted 13y ago
    [deleted]
  - EGreg 13y ago
    Automation and outsourcing
- stephen 13y ago
  Exactly. The money these billionaires have doesn't magically disappear from circulation (perhaps they keep it under their bed?). They spend and invest it. And, give it a generation or three or four, and their kids will have blown it all, having grown up thinking $90M apartments are their expected standard of living, and be back to working at McDonalds.
  - EGreg 13y ago
    You can apply the same argument to redistributing wealth to the poor. They don't keep it under their bed but spend it. Except the money multiplier is way bigger in the case of the poor, because they: 1) Spend more of their money on what they really NEED, sending price signals into the economy for basics the majority of people need, vs say golden toilets 2) Spend faster and more of their money on themselves PERIOD because their basic needs take up a greater proportion of their money than for rich people But anyway we need to balance the wealth transfer one way of the other. This is accomplished with safety nets and progressive taxation.
mynameishere 13y ago
Just look at those comments. The readers of the NYTs place the blame for poverty squarely on two groups: The rich, and Republicans. The first are guilty of "not sharing"--which implies they (the readers) believe in a zero-sum economy. The latter are guilty for not wanting higher taxes, ie, for not forcing the rich to share. So, a single fallacy rules their world view.
- EGreg 13y ago
  The US GDP does grow but at 2% - 3% a year. Just because something is not totally a zero-sum game doesn't mean no one is losing money. As a simple example, if I sell you a stock and it goes up, that's money you made and I lost out on. And if vice versa, then it's money I made instead of you. Things can happen that transfer wealth way faster than the GDP grows. For example, repeal of Glass-Steagall caused much risky speculation by banks with funds that were backed by depositors at banks. So depositors and shareholders has to be bailed out by the taxpayer. Or the 1980s CORBA bill that says emergency rooms must treat everyone regardless of ability to pay. These things add up.
- deleted 13y ago
  [deleted]
- ImprovedSilence 13y ago
  >> Just look at those comments ugh, no thanks. I find the comments sections in news articles destroys my faith in humanity even more than youtube comments these days....
jgalt212 13y ago
Many of these billionaires are undeserved and unearned billionaires because of the carried interest tax dodge. That needs to go ASAP. Over five years into a Democrat presidency and all these tax issues (low taxes on dividends, double irish corp tax dodge, etc) that protect the uber wealthy persist. It's not about taxing the wealthy, it's about fairness. $85K earned by a teacher, $150K earned by a developer, $20M earned by Brad Pitt and $200M earned by Steve Schwarzman should all be taxed the same way. And the same goes for corp earnings. F Apple! Pay your taxes. Top 10 Private Equity Tax Loopholes http://dealbook.nytimes.com/2013/04/15/the-top-10-private-equity-loopholes/ http://dealbook.nytimes.com/2013/04/15/the-top-10-private-eq...
- danielamitay 13y ago
  Without addressing the issue of tax loopholes in general, there is a logical rationale for lower taxes on capital gains (for Schwarzman, Buffett & co): - It's a double tax, as money that was invested had already been previously taxed. - It does not account for inflation. If an investment grows only with inflation, capital gains taxes still need to be paid on that growth.
  - gamblor956 13y ago
    A capital gains tax is not double-taxation, as the tax applies only to "gains" on a capital investment, and these gains have not yet been subject to tax. Moreover, most capital investments are made using untaxed amounts (i.e., "reinvested" income), as part of transactions designed to avoid paying taxes. A capital gains tax is not intended to account for inflation--the persons that pay the capital gains tax (companies and wealthy individuals) are least subject to inflation. The lower rate was intended as an incentive to make capital investments in businesses. Unfortunately, due to the way capital assets are defined (or rather, is not defined) in the tax code, the lower rate has instead resulted in excessive investment in real properties, illusory assets (i.e., derivatives), and other passive investments rather than in businesses.
    - yummyfajitas 13y ago
omonra 13y ago
I'm curious if the author bothered to check what percent of most expensive NYC apartments are bought by Americans (unlike Russian or Middle East kleptocrats).
Bsharp 13y ago
Money from quantitative easing goes to the wealthy and connected first. The rest of the country doesn't see it until its value has been inflated away, which is why you'll see the wealthy benefit from the recovery and the poor stay exactly where they are.

29 points by kareemm 13y ago

EGreg 13y ago

Automation and outsourcing

codyb 13y ago
Increasing population, automation, and globalization. That's what I've been thinking for a long time. Seems unsustainable. Despite that, the author is right. Something has to give.
- dnautics 13y ago
  I happen to think that inflation and sovereign debt transfer wealth from the poor and middle class to the rich. https://docs.google.com/document/d/137cC3inVNcfof44Pq1nMiyz1iRPekBsGhSnhAW_GSLs/edit https://docs.google.com/document/d/137cC3inVNcfof44Pq1nMiyz1...
  - EGreg 13y ago
    They do, but sovereign debt in the USA is mitigated by automatic stabilizers in progressive taxes. On the other hand, the structural problems come from the increased ability for multinational corporations (like Amazon) with small margins to disrupt the comparative advantage of LOCAL businesses and thus lower demand for a lot of local human labor. All the working conditions we've been legilating for in the past 100-200 years make our population more expensive to hire, and when you are now able to hire people in areas with a lower cost of living, or automate the jobs, the problems are systemic. If you reqd Stiglitz, he points out how before the great depression 20% of Americans worked in farm related jobs. After -- 2%. Notice the similarity with manyfacturing? This time it's taken longer but it's steadily eroding demand for local labor. Programmers arent hit by this economic phenomenon yet, because we program the machines that "disrupt" industries.
    - dnautics 13y ago
      are you making the claim that progressive taxation schemes automatically adjust to mathematically compensate? Because, inflation is a compounding effect, and having first action on created money is so powerful that I doubt that taxing the banking classes at anything but 100% or greater would do much for that. Plus bailouts, contracting work, etc. etc. etc.
      - EGreg 13y ago
        I read your essay, and I am not discounting the deleterious effects of inflation on the domestic economy. In fact the growth in the M0 money supply should have us expecting a 3x inflation in the near future: http://www.tradingeconomics.com/united-states/money-supply-m0 http://www.tradingeconomics.com/united-states/money-supply-m... So yes, this is very worrying. As Milton Friedman said, "inflation is always and everywhere a monetary phenomenon" and argued that it always follows an increase in the mouney supply. What I am saying is that there are ways to mitigate the transfer of wealth to the rich, which are in place. If you look at inflation as a flat tax on everyone, it can be offset by sufficiently progressive taxation and welfare assistance to the poor (I am a fan of Friedman's negative tax scheme or Basic Income schemes). Overall you are right, income inequality grows during inflations. But at least we can mitigate this with policy. On the other hand, I am saying that the structural changes are systemic and this is far worse for the population as we have very limited means to "bring manufacturing jobs back" as both presidential candidates promised in this last election. They ain't coming back - not to humans, anyway. The real big shift we are facing is how quickly we can grow our safety nets and redistribution schemes like Basic Income or Negative Tax so that our unemployed class can continue being consumers at some rate which we as a society think they "should afford to be" just by virtue of being human.
        dnautics 13y ago
        but inflation isn't a flat tax on everyone, it's regressive. In the case of the two families in the admittedly extreme inflation example, the poor family takes a 50% tax and the rich family takes a <2% tax. In your graph, I see a 25% inflation, not a 3x inflation. If prices increase too quickly, there will be a dragging effect from the multiplier effect as stressed consumers default on loans, so if M0 doesn't increase as much, that 25% inflation may be dragged out over a longer period of time... Not to understate my worry about it, however. But you're right, the technological displacement is a structural problem in our economy, if the populace has a sense of entitlement towards jobs, or "their job" in particular, or even if not - in the case that there are not enough social resources to effect retraining in the labor force, or those social resources are misdirected, for example towards useless college degrees. In the non-inflationary fantasy universe where I wish I lived, technological displacement wouldn't be such a problem, since it would effect deflation. Yes, people would lose jobs, but they could afford to lose jobs or often, just afford not to work for protracted periods of time if necessary or desired.
- kenster07 13y ago
  Your argument is wrong or poorly articulated. What isn't sustainable is an economy where those whose labor has been displaced by technological or economic advances have no opportunity to meet their basic human needs. Automation and globalization are sustainable. An increasing population is sustainable so long as it is in lockstep with technology's ability to support it. Malthus would have never imagined in his wildest dreams that 7 billion people could live simultaneously. The reality is, none of us can predict the future, and what kind of advances we will see in the productivity of essential goods. To think otherwise is gross intellectual masturbation.
toomuchtodo 13y ago
When was the last time someone from a financial firm on Wall Street went to jail for unscrupulous/illegal actions? Why are financial service organizations allowed to rent seek against the rest of productive society with impunity?
- EGreg 13y ago
  At that scale it is because of the moral hazard
- MaysonL 13y ago
  Bernie Madoff, who got away with massive fraud for decades. And, oh yes, that former Goldman Sachs high-frequency-trading programmer (who may have only taken open source code).
  - mattmanser 13y ago
    The programmer got acquitted a year and a half ago: http://nypost.com/2012/02/17/ny-appeals-court-orders-acquittal-for-goldman-sachs-programmer/ http://nypost.com/2012/02/17/ny-appeals-court-orders-acquitt...
    - MaysonL 13y ago
      And was soon thereafter arrested on state charges (the first charges were federal) which he is currently fighting. One bright spot: Goldman was just ordered to pay legal fees for his first trial, as their by-laws say they are required to pay legal costs for officers charged for acts taken as part of their employment, and he was a vice-president.

ams6110 13y ago

What does a billionaire do after buying a $90M apartment in Manhattan? Remodel it of course. Lots for work for carpenters, electricians, plumbers, interior decorators, and all the people that support and supply them. I don't see this as a bad thing; it's a good thing.

MarkPNeyer 13y ago
If there's "lots of work" for all of those people to support and supply the newly wealthy, why are the wages and employment rates of people who aren't wealthy going down?
- deleted 13y ago
  [deleted]
- EGreg 13y ago
  Automation and outsourcing
stephen 13y ago
Exactly. The money these billionaires have doesn't magically disappear from circulation (perhaps they keep it under their bed?). They spend and invest it. And, give it a generation or three or four, and their kids will have blown it all, having grown up thinking $90M apartments are their expected standard of living, and be back to working at McDonalds.
- EGreg 13y ago
  You can apply the same argument to redistributing wealth to the poor. They don't keep it under their bed but spend it. Except the money multiplier is way bigger in the case of the poor, because they: 1) Spend more of their money on what they really NEED, sending price signals into the economy for basics the majority of people need, vs say golden toilets 2) Spend faster and more of their money on themselves PERIOD because their basic needs take up a greater proportion of their money than for rich people But anyway we need to balance the wealth transfer one way of the other. This is accomplished with safety nets and progressive taxation.

mynameishere 13y ago

Just look at those comments. The readers of the NYTs place the blame for poverty squarely on two groups: The rich, and Republicans. The first are guilty of "not sharing"--which implies they (the readers) believe in a zero-sum economy. The latter are guilty for not wanting higher taxes, ie, for not forcing the rich to share. So, a single fallacy rules their world view.

EGreg 13y ago
The US GDP does grow but at 2% - 3% a year. Just because something is not totally a zero-sum game doesn't mean no one is losing money. As a simple example, if I sell you a stock and it goes up, that's money you made and I lost out on. And if vice versa, then it's money I made instead of you. Things can happen that transfer wealth way faster than the GDP grows. For example, repeal of Glass-Steagall caused much risky speculation by banks with funds that were backed by depositors at banks. So depositors and shareholders has to be bailed out by the taxpayer. Or the 1980s CORBA bill that says emergency rooms must treat everyone regardless of ability to pay. These things add up.
deleted 13y ago
[deleted]
ImprovedSilence 13y ago
>> Just look at those comments ugh, no thanks. I find the comments sections in news articles destroys my faith in humanity even more than youtube comments these days....

jgalt212 13y ago

Many of these billionaires are undeserved and unearned billionaires because of the carried interest tax dodge. That needs to go ASAP. Over five years into a Democrat presidency and all these tax issues (low taxes on dividends, double irish corp tax dodge, etc) that protect the uber wealthy persist. It's not about taxing the wealthy, it's about fairness. $85K earned by a teacher, $150K earned by a developer, $20M earned by Brad Pitt and $200M earned by Steve Schwarzman should all be taxed the same way. And the same goes for corp earnings. F Apple! Pay your taxes. Top 10 Private Equity Tax Loopholes http://dealbook.nytimes.com/2013/04/15/the-top-10-private-equity-loopholes/ http://dealbook.nytimes.com/2013/04/15/the-top-10-private-eq...

danielamitay 13y ago
Without addressing the issue of tax loopholes in general, there is a logical rationale for lower taxes on capital gains (for Schwarzman, Buffett & co): - It's a double tax, as money that was invested had already been previously taxed. - It does not account for inflation. If an investment grows only with inflation, capital gains taxes still need to be paid on that growth.
- gamblor956 13y ago
  A capital gains tax is not double-taxation, as the tax applies only to "gains" on a capital investment, and these gains have not yet been subject to tax. Moreover, most capital investments are made using untaxed amounts (i.e., "reinvested" income), as part of transactions designed to avoid paying taxes. A capital gains tax is not intended to account for inflation--the persons that pay the capital gains tax (companies and wealthy individuals) are least subject to inflation. The lower rate was intended as an incentive to make capital investments in businesses. Unfortunately, due to the way capital assets are defined (or rather, is not defined) in the tax code, the lower rate has instead resulted in excessive investment in real properties, illusory assets (i.e., derivatives), and other passive investments rather than in businesses.
  - yummyfajitas 13y ago

omonra 13y ago

I'm curious if the author bothered to check what percent of most expensive NYC apartments are bought by Americans (unlike Russian or Middle East kleptocrats).

Bsharp 13y ago

Money from quantitative easing goes to the wealthy and connected first. The rest of the country doesn't see it until its value has been inflated away, which is why you'll see the wealthy benefit from the recovery and the poor stay exactly where they are.