7 ms·

When income grows, who gains?

32 points by anon1385 13y ago

joelrunyon 13y ago
Honest question: Almost no one here will question the effect of the 80/20 principle has on their business[1]. So why are people surprised when it rears its head in income statistics? [1] http://en.wikipedia.org/wiki/Pareto_principle http://en.wikipedia.org/wiki/Pareto_principle
- anonymfus 13y ago
  Because it's different in different countries and hints that USA is extraction economics like all the world before XIX century and modern dictatorships where elite is more interested in redistribution of existing wealth than creating new.
  - Glide 13y ago
    Wait. So we're not in a country that is purposefully moving backwards when it comes to distribution of wealth? /s. I think the more interesting part of these graphs is that economic mobility can regress in society and the USA has not hit a point in its development where that is not true. It's like the price of freedom being eternally vigilant thing except most of society is unaware or powerless.
snitko 13y ago
The question people should be asking is not whose income grows and who gains the most. To me, the only relevant question is: did this person stole the money or made it honestly? If he stole it, then he should be in jail. If he didn't, then it's none of anyone else's business how much he has and what he spends it for. And by honestly I mean he didn't force people to pay him and he didn't coerce anyone to pay him. If one can't convince a rich person who made his money honestly to share or help the poor or invest in a project that would supposedly create more jobs, then maybe it's that person's problem that he can't convince.
- jahaja 13y ago
  But is it fair?
  - snitko 13y ago
    And who's to say what's fair? People keep talking about fairness, but the problem is that it's always the other guy or some corporation who's being unfair. It's never me. I'd say it is completely unfair that a government takes a portion of my income away from me and spends for what it considers to be important, while not giving me the slightest chance to spend it on things I consider to be an ultimate good for the world. Are people in the government somehow know the ultimate truth? Are they the ones who only do good, while taxpayers are evil?
    - zrail 13y ago
      But you do have a huge opportunity to send your income to causes you deem worthy. If you're in the US you can generally donate up to 50% of your income to registered charities before paying federal taxes on it[1]. Society isn't free. You still have to contribute to the common good, but you do have a choice as to where a very large chunk of that contribution ends up. [1]: http://www.irs.gov/Charities-%26-Non-Profits/Charitable-Organizations/Charitable-Contribution-Deductions http://www.irs.gov/Charities-%26-Non-Profits/Charitable-Orga...
    - jahaja 13y ago
      Alright, clearly a libertarian or similar with that kind of nose-dive into the problems of taxes while seeing no problem with the privileges of the wealthy. Regarding assumptions; I hope you realise how many assumption you made in your first post. Who's to say what's stealing, honesty, force etc. Do you really want to remove all the social responsibilities (taxes, fair wages etc) but keep all the privileges of the wealthy (private-property)?
      - snitko 13y ago
        Fairness and force are concepts. Stealing is action. I hope you can see why the latter is much easier to define than the former.
Theodores 13y ago
Clever infographic, however, in the words of Leonard Cohen: Everybody knows that the dice are loaded Everybody rolls with their fingers crossed Everybody knows that the war is over Everybody knows the good guys lost Everybody knows the fight was fixed The poor stay poor, the rich get rich That's how it goes Everybody knows Everybody knows that the boat is leaking Everybody knows that the captain lied Everybody got this broken feeling Like their father or their dog just died Everybody talking to their pockets Everybody wants a box of chocolates And a long stem rose Everybody knows
Arun2009 13y ago
Does anyone know why this must be so? I.e., is there any fundamental reason that, provided no-one breaks any laws, in an increasingly globalized, interconnected, technology-centric world, the majority of economic gains must always go to those who own more capital than others in a free market?
- Qantourisc 13y ago
  Yes it's called capitalism. Or how my parents say it: "money makes money". To fix this you need to remove money makes money. Examples of money makes money that would need fixing: To save money (i.e. by insulating your house) you need money To get a better job, you need time/education, this also requires money up front. To create a new big profitable company, you need money. If your a bank you need money (unless your local law doesn't require this) to get money by the interest. If you wish to get interest of money you need money. To buy a house, you need money, after a 30 years, you get more money back then you invested.
tinco 13y ago
For me the chart loaded at a point the average income shrunk, and the richest actually got most of that shrinkage. Since that point there seems to have been no point at which the average income had shrunk. But, the graph goes until 2008, which was the start of the recession. Isn't the period after 2008 not the most interesting period? Didn't the average income drop? Who took the heaviest blow there? Not that the rich would feel much if they would lose 50% of their income, but it would at least mean that some of the theory is true, and the rich really do carry more risk, and in that way protect the stability of the overall economy.
mmcconnell1618 13y ago
I think the more interesting question is what changed around the 1980 time frame that caused such a dramatic increase in the share of wealth for the top 1 percent? There appears to be a slight ramp up from the early 1900's to 1970's but in 1980 the slope jumps up.
- kitsune_ 13y ago
  Reagan and Thatcher?
- lawtguy 13y ago
  It starts in the 1910's and 20's with Henry Ford: mass production of goods while paying your workers a high enough wage to buy your own products. This gets further codified in the 1930s with the New Deal: tax supported social safety nets, government support for unions and corporate regulation. The upshot of this is a new social consensus: the rich cannot get richer by taking a bigger slice of the pie, only by growing the pie. Then World War II has two more effects: it finally kicks the U.S. economy into gear through massive government spending but maybe more important the rest of the first world (Europe and Japan) has most of it's infrastructure heavily damaged. The only other potential competitor, the Soviet Union, disengages from the capitalist economies of the 1st world and builds it own 2nd world of communist countries. This leads to spectacular growth in 1950s and 1960s for the U.S. and with the New Deal consensus it mostly goes to the working class and the middle class. In the 1970s, the consensus starts to break down primarily due to two factors: automation and globalization. The rest of the world begins to recover and compete. And because thy haven't had the same sort of growth the U.S. did, their workers are much cheaper. Additional automation begins to create an ever-lowering ceiling on how much a low skill job is worth. Once the machinery to automate a job becomes cheaper than the worker, that worker is out of a job. In the 1980s, the business owners (who never really like the New Deal) use their newfound leverage to create a coalition with libertarians and social conservatives to essentially dismember the government portion of the New Deal. Once this is done, the pie continues to grow, but the rich have start to grow their portion of it.
Brakenshire 13y ago
At least over the past 25 years, the picture is fairly different for other developed countries; in the UK, over that time period, there have been significant inflation-adjusted pay increases across all wage categories: http://www.ons.gov.uk/ons/rel/lmac/earnings-in-the-uk-over-the-past-25-years/2012/rpt-earnings-in-the-uk-over-the-past-25-years.html#tab-Real-wages-up-62--on-average-over-the-past-25-years http://www.ons.gov.uk/ons/rel/lmac/earnings-in-the-uk-over-t... Inequality has increased, but the poor and the middle-income have also seen significant increases in their prosperity.
spindritf 13y ago
The richest and most leveraged always gain and lose the most. Pretty obvious but nice graph. And you can link to any period, like the dotcom bubble bursting http://www.stateofworkingamerica.org/who-gains/#/?start=2000&end=2002 http://www.stateofworkingamerica.org/who-gains/#/?start=2000...
benmmurphy 13y ago
one problem with this graph is it based on gross income before transfers. it is quite possibly that if we take the actions to make a more 'just' society by increasing taxes on the rich and making greater transfers to the poor that this graph will look even worse. i think after tax and after transfer income is what really matters so I think it would be better if the graph showed this. but possibly it doesn't because the story would not be as bad.
bsbechtel 13y ago
Maybe the title of this link should be "When Value is Created, Who Captures it?" That is the more relevant question. When someone invents something new that creates more value for society, it can go to 5 different parties - customers, the business founder, shareholders, employees, and the government. Right now, most value creation is shared between customers, founders, shareholders, and the government, with very little going to the employees. If the innovation that created more value was invented by an employee within a firm, why is it that the other four parties are the ones to receive the majority of the wealth created by the innovation? The Facebook 'like' button has arguably created billions of dollars in wealth for Mark Zuckerberg and Facebook's early shareholders. What percentage of that wealth went to the employees who came up with the idea? This is the question we should be asking.
seanalltogether 13y ago
I'm fascinated by the period between 1945 and 1970. People have such a rosy view of that time period. The graphs shows that is really the only time that the middle class made gains at around the same rate as the richest 10%
velodrome 13y ago
The graph is pretty consistent up until the 1970s (the last 40 years). What the graph does not tell you is that US dollar was no longer pegged to gold after 1971 (Bretton Woods). The currency devalued over time and the wealthy were in diverse asset classes that retained or grew in value over time (such as equities, forex, real estate, etc). The rest of society kept most of their money in cash.
- gizmo 13y ago
  > The rest of society kept most of their money in cash. Not true. Regular people have most of their wealth in their house and cars. That's if they have net wealth in the first place. (And 401ks and other mutual funds, which is also not cash money). According to the census bureau households(depending on income or asset quintile) have between $200 and $1800 in their checking account. (http://www.census.gov/people/wealth/ http://www.census.gov/people/wealth/)
  - velodrome 13y ago
    Sorry, I did generalize quite a bit. But your right, they did not keep their money in cash. Much worse, they converted their excess cash to illiquid and/or depreciating assets. Also, many people do not have access to a 401k: 50.6% of Americans work for an employer that sponsors a retirement savings plan. 40.4% of employees utilized a 401(k) or pension in 2008. http://www.ebri.org/pdf/briefspdf/EBRI_IB_11-2009_No336_Ret-Part.pdf http://www.ebri.org/pdf/briefspdf/EBRI_IB_11-2009_No336_Ret-... If they do have a 401k plan, it really depends what assets you can buy. If the plan offered only allows you to purchase mutual funds with high load and yearly fees, your wealth is being transferred to others. Over time, you will lose money vs the index. There are also penalties for early withdrawals. Also, people are not forced to put money in a 401k or to buy a house or car. They could save that money and do something productive with it. On that link you posted, the wealthy DID NOT have most of their wealth in a 401k, it was in equities, equity in their business, rental properties, and other assets. So, the point I was making was - the wealthy put the money to work for them rather than other way around. Imagine if you had excess money during the 2008 recession, you could have had many opportunities to make money. Most had their money (as you mentioned) tied up in their house or car. So, really it is about the wealthy being in a position to advantage of all available opportunities.

32 points by anon1385 13y ago

Honest question: Almost no one here will question the effect of the 80/20 principle has on their business[1]. So why are people surprised when it rears its head in income statistics? [1] http://en.wikipedia.org/wiki/Pareto_principle http://en.wikipedia.org/wiki/Pareto_principle

anonymfus 13y ago
Because it's different in different countries and hints that USA is extraction economics like all the world before XIX century and modern dictatorships where elite is more interested in redistribution of existing wealth than creating new.
- Glide 13y ago
  Wait. So we're not in a country that is purposefully moving backwards when it comes to distribution of wealth? /s. I think the more interesting part of these graphs is that economic mobility can regress in society and the USA has not hit a point in its development where that is not true. It's like the price of freedom being eternally vigilant thing except most of society is unaware or powerless.

snitko 13y ago

The question people should be asking is not whose income grows and who gains the most. To me, the only relevant question is: did this person stole the money or made it honestly? If he stole it, then he should be in jail. If he didn't, then it's none of anyone else's business how much he has and what he spends it for. And by honestly I mean he didn't force people to pay him and he didn't coerce anyone to pay him. If one can't convince a rich person who made his money honestly to share or help the poor or invest in a project that would supposedly create more jobs, then maybe it's that person's problem that he can't convince.

jahaja 13y ago
But is it fair?
- snitko 13y ago
  And who's to say what's fair? People keep talking about fairness, but the problem is that it's always the other guy or some corporation who's being unfair. It's never me. I'd say it is completely unfair that a government takes a portion of my income away from me and spends for what it considers to be important, while not giving me the slightest chance to spend it on things I consider to be an ultimate good for the world. Are people in the government somehow know the ultimate truth? Are they the ones who only do good, while taxpayers are evil?
  - zrail 13y ago
    But you do have a huge opportunity to send your income to causes you deem worthy. If you're in the US you can generally donate up to 50% of your income to registered charities before paying federal taxes on it[1]. Society isn't free. You still have to contribute to the common good, but you do have a choice as to where a very large chunk of that contribution ends up. [1]: http://www.irs.gov/Charities-%26-Non-Profits/Charitable-Organizations/Charitable-Contribution-Deductions http://www.irs.gov/Charities-%26-Non-Profits/Charitable-Orga...
  - jahaja 13y ago
    Alright, clearly a libertarian or similar with that kind of nose-dive into the problems of taxes while seeing no problem with the privileges of the wealthy. Regarding assumptions; I hope you realise how many assumption you made in your first post. Who's to say what's stealing, honesty, force etc. Do you really want to remove all the social responsibilities (taxes, fair wages etc) but keep all the privileges of the wealthy (private-property)?
    - snitko 13y ago
      Fairness and force are concepts. Stealing is action. I hope you can see why the latter is much easier to define than the former.

Theodores 13y ago

Clever infographic, however, in the words of Leonard Cohen: Everybody knows that the dice are loaded Everybody rolls with their fingers crossed Everybody knows that the war is over Everybody knows the good guys lost Everybody knows the fight was fixed The poor stay poor, the rich get rich That's how it goes Everybody knows Everybody knows that the boat is leaking Everybody knows that the captain lied Everybody got this broken feeling Like their father or their dog just died Everybody talking to their pockets Everybody wants a box of chocolates And a long stem rose Everybody knows

Arun2009 13y ago

Does anyone know why this must be so? I.e., is there any fundamental reason that, provided no-one breaks any laws, in an increasingly globalized, interconnected, technology-centric world, the majority of economic gains must always go to those who own more capital than others in a free market?

Qantourisc 13y ago
Yes it's called capitalism. Or how my parents say it: "money makes money". To fix this you need to remove money makes money. Examples of money makes money that would need fixing: To save money (i.e. by insulating your house) you need money To get a better job, you need time/education, this also requires money up front. To create a new big profitable company, you need money. If your a bank you need money (unless your local law doesn't require this) to get money by the interest. If you wish to get interest of money you need money. To buy a house, you need money, after a 30 years, you get more money back then you invested.

tinco 13y ago

For me the chart loaded at a point the average income shrunk, and the richest actually got most of that shrinkage. Since that point there seems to have been no point at which the average income had shrunk. But, the graph goes until 2008, which was the start of the recession. Isn't the period after 2008 not the most interesting period? Didn't the average income drop? Who took the heaviest blow there? Not that the rich would feel much if they would lose 50% of their income, but it would at least mean that some of the theory is true, and the rich really do carry more risk, and in that way protect the stability of the overall economy.

mmcconnell1618 13y ago

I think the more interesting question is what changed around the 1980 time frame that caused such a dramatic increase in the share of wealth for the top 1 percent? There appears to be a slight ramp up from the early 1900's to 1970's but in 1980 the slope jumps up.

kitsune_ 13y ago
Reagan and Thatcher?
lawtguy 13y ago
It starts in the 1910's and 20's with Henry Ford: mass production of goods while paying your workers a high enough wage to buy your own products. This gets further codified in the 1930s with the New Deal: tax supported social safety nets, government support for unions and corporate regulation. The upshot of this is a new social consensus: the rich cannot get richer by taking a bigger slice of the pie, only by growing the pie. Then World War II has two more effects: it finally kicks the U.S. economy into gear through massive government spending but maybe more important the rest of the first world (Europe and Japan) has most of it's infrastructure heavily damaged. The only other potential competitor, the Soviet Union, disengages from the capitalist economies of the 1st world and builds it own 2nd world of communist countries. This leads to spectacular growth in 1950s and 1960s for the U.S. and with the New Deal consensus it mostly goes to the working class and the middle class. In the 1970s, the consensus starts to break down primarily due to two factors: automation and globalization. The rest of the world begins to recover and compete. And because thy haven't had the same sort of growth the U.S. did, their workers are much cheaper. Additional automation begins to create an ever-lowering ceiling on how much a low skill job is worth. Once the machinery to automate a job becomes cheaper than the worker, that worker is out of a job. In the 1980s, the business owners (who never really like the New Deal) use their newfound leverage to create a coalition with libertarians and social conservatives to essentially dismember the government portion of the New Deal. Once this is done, the pie continues to grow, but the rich have start to grow their portion of it.

Brakenshire 13y ago

At least over the past 25 years, the picture is fairly different for other developed countries; in the UK, over that time period, there have been significant inflation-adjusted pay increases across all wage categories: http://www.ons.gov.uk/ons/rel/lmac/earnings-in-the-uk-over-the-past-25-years/2012/rpt-earnings-in-the-uk-over-the-past-25-years.html#tab-Real-wages-up-62--on-average-over-the-past-25-years http://www.ons.gov.uk/ons/rel/lmac/earnings-in-the-uk-over-t... Inequality has increased, but the poor and the middle-income have also seen significant increases in their prosperity.

spindritf 13y ago

The richest and most leveraged always gain and lose the most. Pretty obvious but nice graph. And you can link to any period, like the dotcom bubble bursting http://www.stateofworkingamerica.org/who-gains/#/?start=2000&end=2002 http://www.stateofworkingamerica.org/who-gains/#/?start=2000...

benmmurphy 13y ago

one problem with this graph is it based on gross income before transfers. it is quite possibly that if we take the actions to make a more 'just' society by increasing taxes on the rich and making greater transfers to the poor that this graph will look even worse. i think after tax and after transfer income is what really matters so I think it would be better if the graph showed this. but possibly it doesn't because the story would not be as bad.

bsbechtel 13y ago

Maybe the title of this link should be "When Value is Created, Who Captures it?" That is the more relevant question. When someone invents something new that creates more value for society, it can go to 5 different parties - customers, the business founder, shareholders, employees, and the government. Right now, most value creation is shared between customers, founders, shareholders, and the government, with very little going to the employees. If the innovation that created more value was invented by an employee within a firm, why is it that the other four parties are the ones to receive the majority of the wealth created by the innovation? The Facebook 'like' button has arguably created billions of dollars in wealth for Mark Zuckerberg and Facebook's early shareholders. What percentage of that wealth went to the employees who came up with the idea? This is the question we should be asking.

seanalltogether 13y ago

I'm fascinated by the period between 1945 and 1970. People have such a rosy view of that time period. The graphs shows that is really the only time that the middle class made gains at around the same rate as the richest 10%

velodrome 13y ago

The graph is pretty consistent up until the 1970s (the last 40 years). What the graph does not tell you is that US dollar was no longer pegged to gold after 1971 (Bretton Woods). The currency devalued over time and the wealthy were in diverse asset classes that retained or grew in value over time (such as equities, forex, real estate, etc). The rest of society kept most of their money in cash.

gizmo 13y ago
> The rest of society kept most of their money in cash. Not true. Regular people have most of their wealth in their house and cars. That's if they have net wealth in the first place. (And 401ks and other mutual funds, which is also not cash money). According to the census bureau households(depending on income or asset quintile) have between $200 and $1800 in their checking account. (http://www.census.gov/people/wealth/ http://www.census.gov/people/wealth/)
- velodrome 13y ago
  Sorry, I did generalize quite a bit. But your right, they did not keep their money in cash. Much worse, they converted their excess cash to illiquid and/or depreciating assets. Also, many people do not have access to a 401k: 50.6% of Americans work for an employer that sponsors a retirement savings plan. 40.4% of employees utilized a 401(k) or pension in 2008. http://www.ebri.org/pdf/briefspdf/EBRI_IB_11-2009_No336_Ret-Part.pdf http://www.ebri.org/pdf/briefspdf/EBRI_IB_11-2009_No336_Ret-... If they do have a 401k plan, it really depends what assets you can buy. If the plan offered only allows you to purchase mutual funds with high load and yearly fees, your wealth is being transferred to others. Over time, you will lose money vs the index. There are also penalties for early withdrawals. Also, people are not forced to put money in a 401k or to buy a house or car. They could save that money and do something productive with it. On that link you posted, the wealthy DID NOT have most of their wealth in a 401k, it was in equities, equity in their business, rental properties, and other assets. So, the point I was making was - the wealthy put the money to work for them rather than other way around. Imagine if you had excess money during the 2008 recession, you could have had many opportunities to make money. Most had their money (as you mentioned) tied up in their house or car. So, really it is about the wealthy being in a position to advantage of all available opportunities.