Fixing Income Equality is Easy (Unless You Actually Want to Fix It)
It's simple: We just have to define the problem and then solve it.
Tim Harford ostensibly proposes “Four steps to fixing inequality,” but actually offers five or six musings about the topic. Ultimately, they all boil down to the notion that the way we structure our public policy largely determines the distribution of wealth.
The first step is to be precise. Are we using the Gini coefficient or the share of the top 1 per cent to measure inequality? Wealth, consumption or income? Before taxes and benefits or after?
This last question is often ignored but it makes a big difference. Consider Finland, France and Japan. Looking at pre-tax household incomes, Finland is the most unequal of the lot. But after the tax system has done its work, Finland is the least unequal. (My source here is a database compiled by the political scientist Frederick Solt.)
Finland’s market economy delivers outcomes roughly as unequal as those of the UK and the US but the tax system is far more redistributive. In contrast, Japan is more equal than the UK and US despite a tax system that redistributes less than theirs, because the country’s economy delivers more egalitarian outcomes.
This isn’t a “step” at all, merely a recognition that there are multiple ways to measure “inequality” followed by the blinding flash of the obvious that redistribution redistributes. But, yes, not letting those who earn more keep as much of their income makes them less unequal–especially if we take that money and distribute it to those who earn less. But note that Harford doesn’t propose an actual policy; he merely notes that tax policy is a tool for leveling.
The second step is to look at underlying causes rather than symptoms. As the philosopher Robert Nozick forcefully observed, there is something strange in worrying about income distribution without considering what processes, just or unjust, produced that distribution.
This isn’t just a philosophical argument – there are practical implications. Consider JK Rowling who is extremely rich because every time someone buys a Harry Potter book, she gets a cut – and a very large number of people have bought Harry Potter books. Unless Bill Gates is out shopping, every time a Potter book is purchased income inequality increases.
Rowling’s wealth is underpinned not only by Harry Potter’s commercial success but by copyright laws which ensure she reaps the benefits of that success. Rowling is not yet 50, so with luck she will still be with us in 2050, and her books will continue to generate inequality-increasing copyright revenue for the rights holders until 2120. A different set of rules might have produced a result that was more equitable yet perfectly efficient. Rowling did not need several hundred million pounds to persuade her to tell us what happens to Hermione in the end.
My point is not to single out Rowling for any criticism but to point out that fortunes do not accumulate through skill and luck alone – there is always a particular underpinning of laws and regulations that could, if we wish, be changed. Carlos Slim’s América Móvil and Gates’s Microsoft could have been broken up by antitrust authorities.
Chief executives enjoy inexplicably large – and often opaque – remuneration packages. Oversight could be tightened, shareholders given teeth.
When we look directly at the sources of high incomes we will sometimes discover policies that would be a good idea in their own right and might reduce inequality only as a side effect.
This, too, is neither a “step” nor an actual policy proposal. But he’s right that granting intellectual property rights—and monopoly rights at that—to those who create intellectual work can allow those granted such rights to get fantastically wealthy. Or that, if companies are allowed to pay their employees a lot of money, some will do so and said employees will make a lot of money. But these are just more blinding flashes of the obvious.
Do I think it makes sense for Rowling’s heirs to have monopoly rights on the Harry Potter franchise for the next century? No. But nor do I begrudge Rowling’s getting filthy, stinking rich for creating the most significant literary franchise of the last half century or so. Nor do I think it’s time for Rowling to have to compete with others who would like to write Harry Potter books, make Harry Potter movies, or sell Harry Potter merchandise. I don’t have a strong opinion on when those rights should transfer to the public domain; 25 years after the rightsholder has quit producing new works seems about right to me, but that’s just spitballing.
The third step is to reform redistribution. As the example of Finland makes clear, it is possible for a rich and successful nation to change its income distribution dramatically through the tax system. (A recent and celebrated research paper from the International Monetary Fund adds some more careful empirical backing to this intuitive idea – although there are too many imponderables in such an analysis for it to clinch any argument.)
Not only must we ask how much to redistribute – largely a political question – we must also ask how to do it. Tax codes are riddled with loopholes and special cases, and under the pressure of the deep recession, such tangles appear to be proliferating. The British system has two nationally levied income taxes and in recent years has introduced a new (and gyrating) tax band for high earners; a separate band over which allowances are withdrawn arbitrarily; and a third band over which child benefit payments are withdrawn. Further crenellations are promised if the Labour party is elected.
However much redistribution we might feel is just, it’s certainly clear that we could redistribute for less trouble if our politicians paid more attention to sensible tax design and less attention to crowd-pleasers.
This “step” seems an awful lot like the first one. (For that matter, the second is just another way to redistribute.)
Step four is to remember the small stuff. Inequality is a consequence of countless policy choices too trivial to trouble finance ministers: whether there are good teachers in most classrooms; whether poorer areas of town are safe at night and have access to affordable public transport; whether toddlers are receiving stimulating childcare; whether the pension system encourages savers without making millionaires out of slick middlemen. We should gather better evidence on such questions and act on that evidence.
Well, yes. This is the only “step” thus far that’s a step. Actually, it’s several steps. But he’s outsourcing coming up with said steps to unspecified others.
A final, fifth piece of counsel: don’t for a moment think this is a problem that can be solved in four easy steps.
Well, apparently, it can: Redistribute income in some fashion and have someone else figure out how to do it. That’s just two easy steps!
I couldn’t help but think of Monty Python’s “How to do it” sketch …
To emulate Finland all we need to do is become ethnically homogeneous, 90% Lutherans, and all speak a language that nobody else in the world speaks*. Sounds reasonable enough.
There are two fundamentally different approaches to addressing income inequality: raise the floor or lower the ceiling. What we are doing now is taxing the rich (lowering the ceiling) a little and redistributing the money to people who are just a little less rich.
I have no problem with taxing the rich and even the merely well-off and redistributing the proceeds to the poor. I’m not as convinced by our present strategy.
Pat Moynihan said it forty years ago: if you took the money that’s being spent on behalf of the poor and gave it to the poor there would be no more poor.
* Rather than measuring income inequality among the Finns, generally, it might be a worthwhile exercise to compare the income inequality between ethnic Finns and the Sami. The Sami are much, much poorer.
I agree, but the problem is that method of redistribution has been vilified to hell and back. When you have people lobbying for welfare recipients to be drug-tested to make certain they’re spending taxpayer money the way taxpayers want them to, you can’t change the welfare regime into one without any hooks to it.
Speaking of Finland, how many of Finland’s superbly-taxed rich have threatened to move somewhere else?
I think we should dump most of the myriad of current assistance programs and just institute a basic income and redistribute into it. It would be a lot more efficient. Milton Friedman, who was certainly no liberal, proposed a negative income tax, which is basically the same thing.
Years ago I remember a president who came up with an idea of giving a guaranteed monthly income. This would take the place of other government assistance, such as food stamps, housing assistance, and other federal programs; reducing red tape and costs. This president was hit from pillar to post from people in his own party and a lot of Democrats on his proposal. To be a Republican, Richard had some good ideas (EPA, ending the draft, visiting and talking to Chinese and Russian leaders, government reform).
Also a tool for unleveling. I keep reading about all the millions of dollars of taxpayer money spent luring companies to various localities. Just this morning I was reading about how the state of Kansas offered AMC Theaters $47 million in incentives to relocate their corporate HQ to Leawood, KS.
My city and state governments have cobbled together $300 million in tax incentives, land grants, and other giveaways to fund Gaylord Entertainment’s big non-capitalist dream of building a huge hotel on the eastern outskirts of Denver.
Cabela’s just opened two new stores…thanks to taxpayer funding.
Magpul Industries, the gun accessories maker, just squeezed $13 million out of Wyoming’s taxpayers to move their operations.
Tax policy as the great leveler? Yeah, don’t think so…..
Obviously if welfare recipients want to get their hands on strings-free taxpayer money, what they should do is promise to create jobs.
I scan fairly well but didn’t see the word “value” anywhere in this screed. We apparently value a basketball player at many millions of dollars per annum but only value a janitor at $20K per year.
The trap is identifying the value of the worker. It is the job that brings the value. Hence, automation if it is of low value.
Joyner breezes through the right of inheritance (let’s confiscate his kids’ college fund, they have no right to it) Edmund Burke noted that there are rights accrued to the unborn.
As for a guaranteed income without working, Pope Francis notes:
It is necessary to reaffirm that employment is necessary for society, for families and for individuals”, said the Pope. “Its primary value is the good of the human person, as it allows the individual to be fully realized as such, with his or her attitudes and intellectual, creative and manual capacities. Therefore, it follows that work has not only the economic objective of profit, but above all a purpose that regards man and his dignity. And if there is no work, this dignity is wounded! Indeed, the unemployed and underemployed risk being relegated to the margins of society, becoming victims of social exclusion”.
@John425: Harford doesn’t propose any actual policy changes; he merely points to areas where policies matter. I don’t know what it is he’s suggesting we do about any of this; he merely points out that we could do something.
@Mikey: As I have stated more than once, this idea was proposed by President Nixon but got nowhere. So we have all of these agencies, departments, overhead, red tape, and procedures. A monthly amount would give the freedom to budget spending based on individual needs: food, housing, car, cell phone, education, medical, clothing, movies, even investing etc. It gives people freedom to make their own choices.
A well-paying job is better at providing that freedom than a “minimum income.”
but how much lower do you want the work force participation rate do go. If people get a certain income level just by sitting at home, how much more would an employer have to pay them to do entry-level, no skill level work? And by corollary, how much more would people be willing to pay for a burrito to ensure a proper wage level?
One thing that the US consistently does export in enormous quantities and earn a large positive balances of trade on is intellectual property. Your friends in Europe, and especially China and the Russian Federation, will love this anti-American piece. When we have people like you looking after our national security we are in really big trouble.
@ Let’s Be Free
What exactly is “anti-American” about it? Be specific.
Well, one thing we could do is go back to the old copyright laws, where you had two chunks of 28 years, and that was it.
This present 75 years after death of author does no one any good except the descendants of the author and encourages them to sit around on their asses.
I also wouldn’t mind having something like trademarks, where you renew every ten years. I’d make the fees for renewal exponentially larger each time. Which would mean at SOME point Disney would stop maintaining copyright over that dratted mouse!
@Let’s Be Free: Dear Sir: think of progressive taxes as insurance against the rich being hanged from lampposts. It’s much cheaper than the effects of a revolution.
A couple things:
A) Very few people will be content with “just sitting at home” and enjoying their “minimum income.” Having a wide open schedule and a bankroll, I wouldn’t sit on my couch all day, that’s for sure. I may not spend the bulk of my time making my company’s investors a lot of money, as I did as a working man, but I’m not becoming a couch potato.
B) Employers only pay skilled workers based on their skill levels. Right now, employers can offer a low wage for unskilled work because those workers have a choice of taking a low wage…or no wage. In a “minimum income” scheme, those workers will be able to scoff at the low wages offered.
If employers have to pay more to attract those workers, that’s only because the demand for the work remains unchanged and the supply of workers decreased.
Easy answer: Zero dollars. They may, however, pay extra to have it smothered.
Human nature and economics….not your biggest strong suit, is it?
Income is not distributed, by definition, it is money earned through work or investment. Why should someone who cannot or will not work for an income get a share of someone else’s income? Too often the term “unfortunate” is applied to the poor as if being poor has nothing to do with choices, but that success and failure are simple matters of “luck”. I dare say, no one here that is comfortable in life got there by luck. While there are the Paris Hiltons of the world, there number has dwindled compared to those that actually grew a business or sold an idea that earned them their wealth. But success does not equal luck, my friends. It’s choice.
That bum sitting on a heating grate, smelling like a wharf rat? He’s there by choice. He is there because of the sum total of the choices he has made in his life. This truism is absolutely the hardest thing for some people to accept, especially those who consider themselves to be victims of something or other – victims of discrimination, bad luck, the system, capitalism, whatever. After all, nobody really wants to accept the blame for his or her position in life. Not when it is so much easier to point and say, “Look! He did this to me!” than it is to look into a mirror and say, “You S.O.B.! You did this to me!”
People want to rail against the rich, but isn’t that everyone’s goal, to become rich? The rich do serve a purpose in this country. First, they provide the investments, the investment capital, and the brains for the formation of new businesses. Businesses that hire people. Businesses that send millions of paychecks home each week to the un-rich. I don’t know anyone that ever got a job from a poor person.
In fact, there is about a 50% chance he is mentally ill. Do you understand what that means?
To expand of the understanding of economics, let’s take the case of a janitor, a low-skill job that virtually anyone can do. If a person can sit at home (or some other form of non-work all day), then what incentive would anyone have to be a janitor. I understand that no matter what a business does, it has to keep the business clean and thus needs a janitor and that such work cannot be totally automated or off-shored.
If people can stay at home and live a certain lifestyle, then every business is going to have to pay their janitors enough so that the standard of living of the janitor will be well above the people sitting at home and spending their negative income tax have. It also means that everyone else has to paid more because all skilled labor would need to be paid more than the janitor. Thus, a minimum income will do little to raise people’s incomes, will lead to a reduced workforce, will result in higher taxes, and will be inflationary.
At least some people know enough to understand that there are winners and losers in every government policy and a guaranteed income would make the middle class the biggest losers but would make winners of the underclass. No more having to work for the underclass but inflation, higher taxes, and being mocked for the middle class.
So what do we do with those who can’t work? Look for ice floes to put them on? Or do we just let them die then step over their bodies on the sidewalk?
Let me ask you something. Let’s say – God forbid – that an uninsured drunk driver t-bones your car tomorrow while you are sitting at a stop light, going about your lawful business. You wake up in the hospital, a quadriplegic.
Do you have a few million in liquid assets? Unless you, or someone who is willing to support you does, you are now a charity case. You may need full time nursing. Your house needs a retrofit. Even if you have insurance, the medical bills will probably overwhelm you. You have lost the ability to work, and the income that goes with it. If you have children, they probably depended on that income for food, shelter, and clothing.
So what do you do now? Reread Atlas Shrugged and wait for magic conservative ponies to save you?
I have a kid who is mentally ill. We have spent about 150K on his care since he got really sick. It is nowhere near enough, without government help he would almost certainly be dead. At least we have been able to find the money, a lot of families in this country could never have come up with that much $$ for care. Probably most.
So Jack, if you or someone you love has medical & care expenses far beyond your means, what will you do? And please don’t say “private charity”. I can promise you from personal experience that that won’t come close to getting the job done.
These are both wrong, because the fundamental problems are not a matter of taxation or wages. The inequality which has been worsening over the last thirty years has emerged almost exclusively among the executives of large corporations, operating in a legal environment which allows them to use those structures as weapons for personal enrichment.
Their compensation is not determined by developing products, satisfying customers and gaining market share, but by pleasing capital markets via the now much lamented “short-termism” pervading corporate management. In previous decades CEOs largely identified with their companies and their technical staffs, their fates linked to the success of the institution as a whole. Today’s shareholder cult has effectively severed this relationship; as Wall Street rose to dominance over productive firms it has rewarded executives for generating more income to the financial sector, offering vast sums for just a few more points on the stock ticker.
Has this change in the nature of American industrialism resulted in equally greater productivity and real wealth for society? The answer is certainly no. There has been no identifiable gain for the country as CEO pay has skyrocketed and Wall Street has absorbed ever greater financial flows from the real economy. Even conservatives are aware of this, given the lame objections to “redistribution” provided in the post (as though inequality does not result from redistribution of incomes upward. Apparently it’s only redistribution when the flow is downward).
The primary response to income inequality must be restructuring of corporate governance rather than tax blah blah blah. This problem will only begin to change when CEOs are again company men rather than a tiny class of financial all-stars looting their own corporations.
Dr. Joyner you really, really need a strong dose of Galbraith.
@anjin-san: Those who cannot work must obviously be cared for. No conservative is asking for the ice-floe answer. Be serious. Way back when, Barry Goldwater remarked that : (sic) “if the average income was $100K there would still be a percentage of the population who could only earn $10K.”
Sometimes bad things happen to good people, but even a government program of assistance is “charity” from the general populace.
In his budget proposal for fiscal 2015, which starts October 1, Obama called for all charitable deductions to be capped at 28 percent, saying the limit would only affect people whose incomes are in the top 3 percent. The change would affect individuals who earn more than $200,000 and couples who earn more than $250,000.
Nothing like cutting off the hand that feeds those in need of charity, eh?
@John425: There are effectively two types of conservatives in the U.S. today: real conservatives who support a strong welfare state out of compassion, and the fake conservatives (composed entirely of lobbyists and their pet politicians) who overwhelmingly dominate the Republican Party (which therefore isn’t actually a political party).
The latter group are openly suggesting we let more people die. You can read a half-dozen new statements to that effect on a daily basis.
I will also take this opportunity to state the content of this post and the accompanying thread are prima facie evidence the blog would benefit from an unorthodox perspective. There are other critiques and analyses than the rather binary perspectives of Hayek on the one hand and Marx on the other.
I am quite serious. Do you think no one has died as a result of cuts to the social safety net? That no one will die from inadequate medical care in states with conservative governments that have worked hard to block Obamacare? That the “Ryan Plan”, if enacted, will not result in people dying?
Jack sounds like a conservative, is this
not a call for ice floes? Well, it lacks the courage to be clear about what he is proposing, actually coming out and clearly calling for policy that will result in deaths among the poor and mentally ill and stating the consequences of those policies would take a type of courage. Today’s conservatives are happy to make the cuts and let they dying take place in the shadows, while most American’s are focused on important things like American Idol and celebrity gossip.
Good job. You have demonstrated for all to see that you literally have no understanding of supply and demand. I have nothing more to say to you than: Wrong, again.
No, Jack, everyone’s goal is not to accumulate lots of money. Most of us have goals of a different nature.
The solution to inequality is not all that difficult. Economists may not be great at prediction, but they are good at measuring things that are past. There is a consensus on when inequality began to soar. Most are agreed it began around 1980, with the election of you know how. At that point, a conservative ideology became ascendant, based on the voodoo notion that one could solve all economic problems by sharply cutting taxes on the rich, slashing the social safety net, and deregulating business in wholesale fashion. Thirty years on, rampant inequality is a problem, and the USA has the lowest social mobility among the developed economies.
The solution to me seems simple. Get rid of the voodoo economics, based on the ideas that never worked( No Virginia, cutting taxes DID NOT increase revenue) and return to a modified and updated version of the Keynesian model that worked so well 1940-75. Not only did the economy grow rapidly, but the benefits were spread broadly through more and more of the population and whole classes of the population were uplifted as never before.
The liberals have been (mostly) right, and the conservatives (mostly) wrong about inequality, social mobility, and the ability of markets to self regulate, and it’s really time for liberals to be blunt and unapologetic about this, instead of conceding that some conservatives have “good ideas” and the truth is “somewhere in the middle.” That’s bullsh!t. There are policies that work and policies that don’t., and conservative policies have mostly failed.
The 2008 financial crisis was the culmination of conservative failure, and the problem there is that the liberals pussyfooted around and responded to the crisis in inadequate fashion, thus allowing conservatives to get away with blaming them for not doing enough to fix a problem that CONSERVATIVE ideology caused.
Bottom-line: bad policy results in increased inequality and good policy fixes. I’ll also reject that idea the ethnicity is somehow determinative. The Finns have less inequality because their policies are good, not because of language, religion, skin color or whatever.
I would encourage you to be serious. A while back, Republicans in Sacramento wanted to cut state medical benefits for things like durable medical supplies.
I had a relative, since deceased, who needed a wheelchair. She lived in an all disabled apartment complex. All the apartments are equipped for chairs, ramps, wheel in showers, etc. These poor people were in terror of having their benefits, which paid for some or all of their wheelchairs, cut. A wheelchair is a “durable medical supply” and they were on the chopping block. (BTW, if conservatives have their way, the tax-subsidized all handicapped apartment complex will go away)
I remember bringing it up at the time and James insisted “no one is talking about cutting wheelchair benefits”. It took me about 10 seconds on Google to provide ample evidence that proved otherwise.
Let me ask you something John, how much time in an average week do you spend around people who are honest-to-goodness poor? How many of their names do you know? Do you ever spend time with poor people in their homes and see how they really live?
Income inequality and poverty are very difficult problems to tackle and “fix” when we actually have the collective will to strive to do that, let alone today when we do not have the political will to use our government to solve any important problem.
There are many advanced countries in the world where public resources support a vast strong middle class. We used to be a country that supported the used of public resources to buttress the lives of all Americans – we’ve lost our way, we no longer believe in that.
Mark Zuckenberg is a very wealthy local guy who is a serious philanthropist. Please explain to me how lowering the tax deduction for charitable giving of someone who is worth 30 billion dollars equates to “cutting off the hand”.
Do any of the conservatives in here even know any 1%ers? Do you know what a tax increase means to someone who just entry level rich by todays standards? It means three beautiful homes instead of four. It means settling for a Ferarri, a Masarati, a Benz, and a Range Rover or two and not getting a MacLaren.
If you raise the price of labor, the demand for labor will go down. If you raise the price of unskilled labor, the price of skilled labor will also go up, otherwise, what is the point of gain skills. If you raise the price of labor without raising productivity, you get nothing but inflation as employers pass on the cost of higher labor costs.
If you pay people not to work by taxing people who do work, there is less reason to work. What is shameful is that the people on the dole will more protected from inflation due to COLA than private sector workers. Paying people not to work works out badly for virtually every who does work and would actually harm the economy overall.
So the solution is to go back to the double digit unemployment, double digit inflation malaise of the 1970’s. The world has changed to much since then and unless you want to bomb the rest of the industrial world out of existence, there is no going back.
The demand for labor is primarily determined by demand for their output and by price only marginally.
@Ben Wolf: Thanks for this anitdote to the howling monkeys screaming about how if we pay janitors a decent wage, America will die.
I do think that part of this problem is fixable through taxation, though. If we had a top marginal rate of, say, 90% on every dollar over ten million or so, the incentives to loot a company would plummet, as would investors desperation for cash now rather than steady long term growth.
Who told you that?
You think because the price of janitorial labor goes up that the demand for clean toilets and empty trash cans will go down? That’s obviously not how it works, man.
Not necessarily. These things are not so cleanly correlated. Yes, it makes sense that a janitor will make less than a surgeon.
But it does not follow that once you give a janitor a raise, the surgeon gets one too.
This goes to the human nature part you don’t seem to understand. What is the point of gaining skills?
Ask Napoleon Dynamite.
You seem to be confused about what a “minimum income” scheme is. You are not “paying people not to work.” You are providing everyone a minimum income. Will some people not work? Sure.
They will make less money than all the folks who do. You wish for a more robust punishment?
I have come increasingly to value and respect your opinion. I feel I should apologize for not catching on earlier.
The cap only affects the amount people can deduct from their taxes — it doesn’t cap the amount people can give. If you’re arguing that people won’t contribute to charity unless they can get a tax deduction for it, then you’re admitting that they aren’t all that charitable.
@Ben Wolf: @Rafer Janders: Well . . . only if the labor isn’t exportable to other countries or replaceable by machinery.
Whether a basic income or negative income tax is a disincentive to work is beside the point. Pretty much any public assistance program is. The real question is this: since we are going to provide some form of social “safety net” anyway, shouldn’t we use the most efficient, equitable, and minimally-distorting methods we can? Clear out the myriad of state and federal programs, the administration of which equals a sizable percentage of the aid provided?
As an ethnic Scandinavian, let me say that few US commentators understand us. (Just Garrison Keillor.)
It is a duty culture, but a happy one, going way back. And is not something that came automatically to other homogeneous (or white!) peoples. Perhaps it was a lucky history that made it happen, but I see no reason that others cannot learn from it.
I think when (white) Americans hand wave the culture it says more more about America than Scandinavia.
“Oh no, we are too black and brown.”
What a terrible thing to think in 2014.
Re. Harford’s “missing conclusion,” I think it was hiding in plain sight. Either you have low inequality in wages, or you fix it redistributive taxes. Your choice, but there are no other choices.
@john personna: Uff-da
@James Joyner: What’s happening in China as demand has increased over the last decade? Incomes have risen quite rapidly, because China doesn’t have policies encouraging manufacturing to leave. So pay rises, the Chinese peoples’ standard of living has increased and jobs aren’t being sent overseas.
Offshoring is government policy in the U.S., it is not a result of American workers being too expensive.
@anjin-san: If I am T-boned tomorrow, leaving me a quadriplegic, insurance and civil collections will cover my needs for life. That other person caused this and is responsible, morally and legally.
@James Pearce: You are lying to yourself.
“If you raise the price of labor without raising productivity, you get nothing but inflation as employers pass on the cost of higher labor costs.”
On the other hand, if you cut the price of labor without lowering productivity, you have the last 35 years of American economic history.
Really? What if the person who hit you is uninsured and has no assets? What if the insurance company successfully screws you?
Are you really as simple as you sound?
@anjin-san: Grew up tenement-district poor in Boston. Been there, done that. Lived near TX/Mex border and have seen poverty up close and first hand. It sucks.
I remember a sitcom where the man opined that “being poor is way down on the bottom of the list of what people wanted to be…just above dead.”
Being incapacitated isn’t germane to the thread–it is income/job inequality. Elsewhere you bemoan the rich for Range Rovers and mansions. All products built by honest labor, mostly skilled and semi-skilled. Most of the toys enjoyed by the fabulously wealthy are made by skilled
craftsmencraftpersons. Who will employ them if no one buys luxury goods? Are we all doomed to IKEA in your world? Will we all have to wear Mao jackets?
Where did I “bemoan” wealth exactly? I grew up in Marin County, in very comfortable circumstances. I liked it. My wife and I both make a good living working for 1%ers (directly for them, not in a cubicle) and enjoy a lot of extra perks as a result. I have nothing against wealth, I like sports cars, Italian suits, vintage deco furniture, audiophile stereo gear, and I have some decent artwork hanging on the walls.
By a lot of people’s standards, we are wealthy. The last two guys I’ve worked for have toy collections that far exceed my net worth. So what? They are both great guys, they are good bosses, and they worked hard for it.
What I do have a problem with is the concept that rich folks paying more taxes puts us one step removed from Nazi Germany. What was the top tax bracket under that noted commie President Eisenhower – 90%? It’s worth noting that the Eisenhower years are remembered as a golden age in America.
Sure it is. Someone commented that the homeless are that way by choice. I pointed out that in many cases, that is simply nonsense. So the scope of the thread broadens a bit. Stop trying to be the hall monitor. If I wander too far afield, I am sure James will let me know.
@michael reynolds: Yeah. I don’t always agree with @Ben Wolf: But he’s doing God’s work in this thread.
Krugman had a very relevant post on Republican tax policy yesterday. There are arguments about whether our inequality is due to taxes, education, globalization, or whatever. But it’s difficult to believe that 30 years of concerted Republican efforts to enrich the rich haven’t done exactly that.
@Tillman: true, the “poor” have become quite an industry in this country. of course our definition of who’s actually “poor” can’t be measured against the worlds “poor”- we don’t even come close.
Congratulations, Jack. That’s got to be the single most stupid and ignorant statement I’ve yet seen on this blog, which has had its share of doozies. (I distinguish stupidity from ignorance here because you display both to such good effect.)
I’m comfortable. Quite comfortable, in fact. Do I imagine that this has nothing at all to do with me being born the child of college-educated Americans during one of the greatest economic booms the world has ever seen? Hardly. Do I imagine that this has nothing to do with my father managing to change careers three times, successfully, while keeping his family fed and housed and clothed and educated? No.
I guess you haven’t internalized the old saw about the man who was “born on third base, but thought he’d hit a triple”.
Go to Somalia and explain to the nice folk there that their situation has nothing to do with luck. I’d be curious to hear their responses.
Thanks, Ben — you saved me the trouble of having to make the same point.
The one thing the original article got right is that income distribution* is a product of the society as a whole, not of tax policy and/or welfare policy in isolation. If your society’s income distribution is broken, it’s because your society is broken. Chances are you’ll need to treat the disease, not the symptoms.
(*)”Income” is of course the wrong measure, in much the same way “the deficit” is the wrong measure for budgetary matters. Wealth distribution is much more relevant — and much more skewed — than income distribution. Income matters in its own way, but not nearly as much as wealth, as any trust baby getting by on his $300k per year of interest will tell you.
I’m comfortable, and I was a born a white male American to an upper middle-class family and grew up with household staff, tutors, and private schools.
You don’t think that that start in life helped me immeasurably? You don’t think I got lucky with my parents?
When I look at the people I grew up with today, I see a lot, and I mean a lot, of doctors. A lot of corporate executives. Successful creative professionals. Senior (very) officers in the US Armed Forces. An astronaut. Investors. Entrepreneurs. Former White House staffers. College professors. And so on. A lot of successful folks. A lot of them went to Ivy League schools. Stanford and Cal were also popular choices.
Was this group of people somehow more special than alumni from a bad high school in Oakland during the 70’s? I don’t think so. I think it has more to do with the fact that there was a very high proportion of successful professionals where I grew up. We grew up with a lot of advantages and lots of role models and templates for success.
Here’s the main problem the GOP is always trying to solve: the rich aren’t rich enough and the poor aren’t poor enough. Conservatives do really despise the poor, and I think it’s important to understand the religious, historical and psychological roots of this phenomenon.
The core belief of Republicanism is that the rich are virtuous and the poor are lazy (as GWB reportedly said). And as someone else once famously said: “Let us remember there is not a poor person in the United States who was not made poor by his own shortcomings.”
This disdain for the poor is rooted in Calvinism, and we’ve seen it in remarks by Gingrich (“really poor children … in really poor neighborhoods, have no habits of working”), and we also heard it recently from Ryan (“generations of men not even thinking about working”).
Consider why a person would adopt these beliefs. When I adopt this philosophy, it’s in order to feel good about myself. What if I’m insecure? What if I have a nagging sense that certain privileges and luxuries came to me by luck? Then I’ll find comfort by hiding inside this belief: that the poor deserve to be poor and the rich deserve to be rich, and that’s that. Once I’ve adopted this belief, it’s natural to feel offended when government hands benefits to poor people. Such a thing is evil, because it is man overturning a certain divine and moral order.
Mitt is a perfect illustration. He lives in the shadow of his dad, and suffers from a sense of inadequacy:
The above is an instance of a filmmaker capturing Mitt in a candid and revealing moment. Now consider this other instance of a filmmaker capturing Mitt in a candid and revealing moment:
These two Mitts are deeply connected. The Mitt who thinks Dad is “the real deal” is telling us that he thinks he’s not “the real deal.” I already explained why a person carrying that burden of insecurity would find comfort in this belief: that the poor are poor because of their failure to “take personal responsibility and care for their lives.” When I adopt that belief, it’s easier to tell myself that I’m rich because I did “take personal responsibility.” And I have a deep need to tell myself that because all my life I haven’t really been sure that it’s true.
There are a lot of people (including lots of non-rich people) who have a problem like Mitt’s problem. They are the people who fill forums like this with righteous yammering about takers and makers. I think it’s a good idea to try to understand what makes them tick:
(For links, see another version of this comment here.)
How ironic, since Mitt candidly admitted the importance of “luck.”
You described an important problem, and there has been a related change. Business used to be patriotic, but it isn’t anymore. This problem is related to another key problem: a society with a strong middle class is not the natural state of mankind.
CEOs used to care about more than just maximizing profits (link). That important and overlooked article talks about “the robust public-spiritedness and patriotism that helped define corporate America in the mid 20th century,” and how maybe it would be a good idea “for corporate America to recover its former patriotism.” And this is related to something else you can read at National Review:
The destruction of the middle class and the rise of extreme income inequality are essentially two different names for the same phenomenon. The many conservatives who argue that ‘inequality does not matter’ (which happens to be the exact title of a recent article by Kevin Williamson) are essentially defending the executive who said the “hollowing out of the American middle class didn’t really matter.”
And this process of destroying the middle class, which has been underway for about thirty years and which is accelerating, is simply a reversion to the natural state. The natural state of humankind is a two-class society, where there are rich and poor, and no one in between. That is what most human societies have looked like, through history.
A middle class does not arise spontaneously. It needs to be created deliberately, via government policies (which is why people like Adam Smith and Thomas Jefferson advocated progressive taxation). And there is no democracy without a middle class, which is why Greenspan once said that extreme income inequality “is not the type of thing which a democratic society—a capitalist democratic society—can really accept without addressing.” Which is similar to what Louis Brandeis said: “We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.”
The GOP call for ‘small government’ is an effort to undo the government policies that gave us the strong middle class we used to have. Thirty years of Reaganism have returned us to the Gilded Age. The difference is that now we have globalization, which means that this time the Gilded Ones are a “global superclass” with no national identity or loyalty. The American middle class is an inconvenience to them, and they will continue to crush it. Government is also an inconvenience to them, because government is the only force powerful enough to constrain them. It’s true that they buy government and then take advantage of government power, but they prefer government to be powerless.
By the way, Republicans used to understand this. Remember that great Marxist Teddy Roosevelt? He is known for “arguing that the rise of industrial capitalism had rendered limited government obsolete.”
If you are outside the 1% and calling for ‘small government’ you are cutting your own throat.
@Jack: “People want to rail against the rich, but isn’t that everyone’s goal, to become rich? ”
For part of his term the top rate under Ike was 92%. He was also the last GOP president to ever run a surplus. Not a coincidence. 100% of the current deficit would be eliminated if the top 1% resumed paying the effective tax rate they used to pay in the period 1942-1981. Link.
Ike also said this:
@superdestroyer: “If you raise the price of labor, the demand for labor will go down. If you raise the price of unskilled labor, the price of skilled labor will also go up, otherwise, what is the point of gain skills. If you raise the price of labor without raising productivity, you get nothing but inflation as employers pass on the cost of higher labor costs.”
And if I pee in Lake Michigan, the lake level goes up. Statements like yours are meaningless without a discussion of quantitative effects. If the national minimum wage is increased to $10, how much will the price of a quarter pounder increase? How many Walmart employees will be fired? How much money does Pizza Hut lose? You’d be a lot more convincing if you could answer questions like these.
Eisenhower was a remarkable man. It is also remarkable how completely conservatives (so called) have rejected him.
Of course that does not stop them from slobbering when they think about the US Army fighting its way across western Europe, or about the life white folks with money had in this country in the 50’s. But they have completely disconnected those events from the single largest American figure of those times.
I think I see John’s point: Rich people cause all the accidents.
Notable baby boomers – where did they come from?
First of all let’s admit to each other that the working definition of “rich” is anyone Who has 91 more than I do in their pocket.
Secondly, at what point does the word “freedom” and to this discussion, particularly the freedom of the individual. Of that, particularly the freedom to keep that which he earns for himself. Clearly, there are some to home the redistribution of wealth is of greater importance than individual freedom. On that basis, Cuba must make an interesting concept, and being a mere 90 miles off our southern shore difficult to resist its allure for those folks.
One would wish theyd give into such.
SPeaking of the Communists, there’s an old Russian saying which would seem to apply, here… that being that “everyone wants to be equal…. with the rich.”
There will always be among us those who simply cannot, orrefuse to produce. On what basis do I then have any mandate whatsoever at least insofar as government is concerned to provide for them with my income and what I’ve earned with the sweat of my brow?
Further, there is the issue that everything government sets its hands to its crews up. Even assuming that an economy managed by government for the purpose of redistribution of wealth would actually have the desired effect when managed perfectly , the recent history of governments crew OPS particularly of the like we’ve seen with the current administration leaves the entire concept in question. The left given their choice would have the Federal government picking the winners and losers in business setting a strict industrial policy including pay scales and they would call it a managed economy . And what they’re really talking about the was amiss managed economy, because in reality it would never rise above that level. Does anyone think that the government doesn’t already have enough on its plate?
I submit to you the government as a concept and I mean by that to say regardless of which party is in charge is not up to the task of micromanaging every two single dollar. They’re just not. Central planning doesn’t work, it never has, and never will. And central planning is the only way you will ever even approach the idea of equality of income. It’ll never work,Given that it’s run by leftists, and government hacks, but at least you’ll be able to approach it.
what we’re talking about here is the punishment of achievement. History shows is clearly that when you punish achievement particularly a cheap meant by individuals with a high tax rates and discourage self improvement used Eiffel economic growth when you did turn can I make growth you heard everybody and all economic levels . ANd guess what? The poor are the hardest hit when that happens.
Individual freedom is what we should be aiming at, not government forced redistribution. Because that’s the only way the economy’s going to grow, and that’s the only way that everybody will come out a winner.
Government intervention always fails including in economic matters. So why is the left Promoting it ?
The issue of author Rowling making revenues off of her books and her children also getting the benefits well into the future is not much different from other forms of property ownership. Let’s say I buy land and build a house. Over time it increases in value and equity. I pass it on to our children. They sell it and put the money into property or some other investment . Then they continue to receive the benefit of that investment. Certainly no one advocates a property becoming “public domain” after 25 years.
One idea that has fallen by the wayside is tax reform. In a few weeks the American working people will go before the judgement thrown of the IRS, one of the most powerful government agencies there is. The forms have become so complicated that millions of dollars are spent every year to pay someone to decipher, translate, traverse, and try to squeeze out a few dollars for the middle class people. Why not go to a flat tax? Get everyone over 18 pays, no exceptions or loopholes for the rich. The tax base would increase so much that the rate could be low, like 6%. Imagine a tax form the size of a post card that can be filled out by a fifth grader ! That is the what we need. Why don’t we hear anything about tax reform? I dread just thinking about April 15.
For anyone arguing that luck has nothing to do with it. Or that the rich have earned their station in life, check out this website of what kids of the super wealthy do with their time and spend their parents money on. They are truly job creators.
Mikey, wouldn’t we have to address things like costs of goods and services, their production, and distribution? I have to admit that I’m just on the good side of ignorant when it comes to macroeconomic matters, but it seems to me that simply addressing a basic income wouldn’t necessarily “fix” the problem of “not having enough” for basic living. I do agree that our tax system needs to be restructured to provide a more equitable outcome of living standard, or at least bring up people to such a standard. I also realize that this country is rich enough and the economy strong enough to execute such a redistribution without causing the wealthy to lose much, if anything.
I’m not being critical, though; I’m just curious about how such a thing could be accomplished.
After reading this little opening gem, I knew I wouldn’t have to bother with the rest to know you have absolutely NO CLUE what you’re talking about.
sd, I understand your reasoning; however, is it possible that you are projecting your personal biases on people’s choices and motivations? I grant you, there are those among us who are willing to collect an income without doing anything for it. I also grant the general probability that people are motivated by self-interests other than sitting on their asses all day collecting a “free” check.
Why is that necessarily so? Are you saying that a data entry clerk who currently may make more than a janitor will make the calculation to quit data entry to become a janitor if a basic income or higher minimum wage is instituted? Or, maybe just quit working altogether? Again, I think you are incorrectly projecting and predicting other people’s motivations, something which you could not possibly know.
Again, you’re assuming peoples choices and motivations. And I think this comes from dearly-held biases that you have. Which pretty much makes most of your argument suspect.
Oh, and “want” and “be” work pretty well to fill in and clarify your statements. Just sayin’…
AAAAAAAAAAAAAAAAAHAHAHAHAHAHAHAHAHAHAHA!!!!! You said that, huh?
@dennis: Yeah, those things complicate the picture, no doubt. I can imagine the political battles that would revolve around how the numbers were set and how they phased out as other income rose.
Again, let’s harken back to the Eisenhower years, which most people agree were the best of times for America. Certainly most conservatives (so called) seem to want desperately to return to them.
92% top tax bracket. So, bit, easy question for you. Were the Eisenhower years:
A. A wonderful time in America, possibly the best.
B. A communist hell when no one achieved anything because of the theft that is taxation.
@Dave D: so you’re not a member of the lucky sperm club? jealousy is no reason to hate on rich folks, when they spend they create jobs- and they seem to be spending quite a bit.
but back to reality- life is fair if you work on it and stop trying to wear/drive your money in public.
Interesting. Because, OTB (and for that matter, America) is just chock-full of people who have achieved far, far more than you, yet they think income inequity is one of the most serious problems our society faces. A lot of them are saying they can live with a tax increase to address it. For that matter, a lot of them are saying “please raise my taxes, they are not high enough”…
It seems to be working out for fabulously wealth corporations that get billions in corporate welfare. And for “small government” types like Michelle Bachmann and her husband, gorging at the public trough.
Funny how you don’t have a problem with any of that…
L O L !
@bill: I don’t hate the rich, I just find the assertion that the bum is a bum because of his life choices and the captain of industry is where he is for the same reason. The genetic lottery seems to have more and more to do with who ends up where as social mobility continues to decline. It was mostly Jack talking out of his ass earlier in the thread, but I wonder which life decision I could make to have a billionaire father?
@anjin-san: You have to remember there were significant differences in the tax structure besides the high percentage top bracket.
Back then there were 26 brackets and the top 91% rate only applied to income over what would be $2.3 million in 2011 dollars.
Today there are seven brackets and the top 39.6% bracket applies to income over $400K.
So the top rate is much lower today, but it captures a great deal more income. Interestingly, federal tax receipts now are about the same percentage of GDP they were in Ike’s day (although they were a couple percentage points lower during the recent Great Recession).
You cannot be parodied.
24, but it hardly matters.
In 1952 the top rate was 92%, and it applied to income over $1,719,805 in 2013 dollars.
The correct number is $440,876 (married, filing jointly).
You don’t really know that “it captures a great deal more income,” because aggregate income over $1.7 million probably greatly exceeds aggregate income in the range $441 thousand to $1.7 million.
And the top rate is relatively meaningless. What matters a lot more is the effective rate. The effective rate paid by the rich used to be much higher. 100% of the current deficit would be eliminated if the top 1% resumed paying the effective tax rate they used to pay in the period 1942-1981. Link. As I mentioned earlier.
Ike’s average revenue was 17.4%. Clinton’s average: 19.3%. Reagan’s: 18%. GWB’s: 17.1%. And here are the numbers for Obama:
FY14 17.5% (CBO forecast)
FY15 18.2% (CBO forecast)
So we are just now barely reaching Ike’s level.
Average federal spending under Ike was 17.8% of GDP. The current number is 20.5%. The main reason for the difference is Medicare (enacted by LBJ), which is more than 3% of GDP. So adjusted for Medicare, we are now spending less than Ike did.
Ike-era revenue isn’t enough because Ike didn’t have to pay for Medicare. If we are serious about cutting the deficit we need to see Clinton-era revenue.
The problem is there are no more liberals.
Personally, I have no problem with you keeping 100% of everything you have earned without any help from public education (of you or your employees), police protection, enforceable contracts, a liquid equities market, intellectual property protections, public transportation infrastructure, public sanitation infrastructure, public communications infrastructure, etc.
Buy yourself a cup of coffee with it.
I know that Republicans have been preaching this lately, and doing everything in their power to make it true, but it simply is not so. It was not private enterprise that won WW2, or put a man on the moon, or made our food safe, or dragged us alive through the Depression that private enterprise caused, or built the highway system we now enjoy, or (for a while) turned us into a nation of educated farmers.
The difference between the United States and the rest of the world, that led to us becoming the dominant world power, was the very effectiveness of our government at governing. Not its absence — that gives you Somalia, not America. The vision of Libertarian America ended at about the time of the Whiskey Rebellion, if indeed it ever existed.
Florack earns his living driving, but apparently he does not see the disconnect between that fact and his political views.
Maybe “captures” isn’t the right word. “Holds eligible,” maybe? I’m trying to say the base it covers is broader.
As far as my numbers on rates and top brackets, I got them here (should have put that in the original comment).
creating the most significant literary franchise of the last half century or so.
I’m assuming in your mind, significant = bestselling, which is rather amusing considering the topic of the post.
I think I’ll go watch the most significant film of the last half century or so, Avatar.
I don’t know what this means. Yes, the current top rate covers a large group, but it’s historically a low rate. It’s low compared to what people at the top used to pay, and it’s also low compared to what people at the $400K level used to pay.
Wikipedia is helpful, but it’s a good idea to follow their links and look at their sources. If you do this you’ll see where your numbers are wrong.
@Tyrell: Tyrell–there is one main difference between intellectual property and physical property: when I go off and make a copy of your book, you still have the original. Ditto for practicing a patent. I can practice a patent the very same time you practice a patent.
This is MUCH different from physical property. If I am using a knife, it is impossible for you to use the knife at the same time.
This is why we have limits on IP. Please don’t use arguments from the possession of physical property to deal with IP. They are totally different things and you’re just going to piss off those of us who have a background in IP law.
@jukeboxgrad: So what do we do, then? Go back to 24 or 26 brackets? That just seems to add more complexity to an already well-nigh incomprehensible system. Perhaps a big surtax on very high incomes?
Taxing dividends as regular income instead of as a capital gain (as was done prior to GWB’s reform) would probably help, although I don’t have anything handy to figure out how much additional revenue it would generate.
Also, this seems relevant: Wealth Over Work – NY Times
@Eric Florack: My dear sir–what history shows us is that if your country doesn’t have a large and happy middle class you are likely to have a) a stagnant economy, and b) revolutions. Unless you can figure out how to have a large and happy middle class WITHOUT government actively trying to support the creation of such (progressive taxes, education, etc.), you are condemning your society to be dead meat in the Darwinian competition with other countries that DO support their middle class.
And no, I don’t think that treating carried interest income as capital gains as opposed to ordinary income is “rewarding capital investment.” It’s rewarding the rich bastards who have written the tax rules in their favor.
Three words. Say em with me:
Negative. Income. Tax.
Arg, post eaten. So annoying.
Shorter me: tax code complexity has nothing to do with the # of marginal rates. We have far too few, in fact. Figuring out the % your owe couldn’t be easier: the IRS prints up a table. Complexity comes from the other side: figuring out what your taxable income is. Deductions, credits, etc. The idea that the # of marginal rates creates complexity was invented by people with a vested interest in lowering the top rates.
I largely agree with Ben about root causes, though I think tax reform is still quite important. Positive changes could be made, and – perhaps even more importantly – negative ones will be made by the Right if the rest of us roll over.
As for the UBI/Negative income tax…, as a last resort maybe. It has the virtue of great simplicity (you could use the existing SSA to send out the money. No new bureacracy is required. Much existing bureacracy could be wiped out), I’ll give it that. Some days I think it’s the answer. But I have a nagging sense that it’s essentially an admission of defeat. I can’t articulate that well right now, so I’ll leave it for another time.
By the way, I for one could stomach lower taxes on income if we were harsh on inheritance.
But when we have this sort of blindness in abundance…
This is utterly laughable. The best decision I ever made was the choice of my parents. 😉
All I had to do in order to live an extremely comfortable life was not screw up beyond all repair. Oh, I had my relatively minor screwups, but I could absorb those bumps without real harm. I was fortunate in: parentage (I include in this not only their parenting ability/style, but our family’s wealth, educational attainment/attitude, and our phyiscal location in a wealthy community), raw intelligence/test-taking ability, race & gender, not getting caught for some stuff I did in highschool, love, and timing my graduation from college perfectly (1998!). At a mimimum!
I was unfortunate in a few ways, too. Physical stuff – size/strength, bad (malformed, even) back, bad eyes. In another time & place, my physical limitations might have been serious barriers to success.
The idea that I could take stock of my life and actually say that I’m where I’m at solely due to my own virtue is preposterous.
I suspect that most people as fortunate as I or more actually do know they were born on 1st, 2nd or 3rd base (see Romney, Mitt), whether they really accept the political implications of it or not. I suspect the “the world is basically fair” narrative is actually most seductive to those who were not particularly privileged but managed to rise nonetheless. If they could do it, so could anyone, see. Those who did not, well, they just didn’t try hard enough. I could be all wrong about this, but I see that attitude in relatively self-made people a lot.
Actually, I think that — for the moment at least — James is largely right if we attempt to define significant as having a broad lasting impact on the culture writ large.
When one looks at the reach of Rowling’s creations across media (and arguably how they helped usher in a mainstreaming of Young Adult Genre Fiction… not to mention arguably helped pave the way for other cross-over media successes), I don’t think the application of the term is incorrect.
Now it entirely remains to be seen if they will have any lasting significance. And, typically speaking, lasting significance is inexorably tied to lapsing into the public domain.
Driving on socialist-funded state and federal highways? If he was truly principled he would be driving off-road and paying property-owners a right-of-way fee.
@Rob in CT: It’s the old Horatio Alger myth all over again and segues into Protestant Calvinism. Obviously, if you are poor, it’s Your Own Fault and We Don’t Have To Do Anything About It.
The fact that if enough peasants get miffed at you that they will come and drag you out of your nice house and string you up somehow never occurs to these people. The protection against peasants revolting is to be provided (free) by Teh Gummint somewhat along the lines of how the roads and interstates get provided by the Infrastructure Fairy.
Libertarians are idiots.
I suggest that you all go to Bitheads website…and search the “n-word”.
At that point you will be able to understand why he is so concerned about that big ol’ Government taking away his money and giving it to “those other people”.
Please don’t feed the trolls.
I would suggest that everyone read this book.
Inequality is a problem that can be addressed…but as with most everything today…the first step would be to stop listening to Republican propaganda, obfuscation, and lies.
So explain the GOP food stamp cuts, which obviously affected quite a few children.
There is a joke in the movie The Blues Bros. when Jake gets out of jail and Elwood takes him back to his flop house. The L-train is roaring by and Jake says, “How often does the train come by?”. Elwood says, “So often you will hardly notice it”. The luck we experience in life is kind of like that. Luck comes into play in so often and in so many important ways ways for all of us that we can scarcely see it.
For instance, when I think of how awe strikingly lucky I was in not getting thrown in jail for 20 + years for some of the crap I did in my early 20’s I astonish myself. Now I could say that the reason I escaped prosecution is because I was somehow smarter or more cautious, but I would be fooling myself. I was a white middle class kid from the suburbs who, in a few key situations ran into a cop in a good mood and the fact that I wasn’t poor and black was all that keep me out of jail and a life is very limited choices. Ditto on my current employment, I was breathtakingly lucky to be in the right place, at the right time, in the right decade.
None of this isn’t to say I didn’t do the work, I spent long hours studying for degrees at a time when collage was a fraction of what it is today (Grand and post grad). As well as industry certs and active involvement in community groups, but all of that would mean nothing if I had to check off the box that asked about felony convictions. And I wasn’t even involved in things that were unusual among my peers. In fact I have done better in life then my sibling who was never in trouble a day in her life mostly due to an affable personality and my avoidance of reproducing (lucky in the extreme on that score).
So yes I would submit that while hard work is necessary for a middle class lifestyle and beyond, luck figures in the higher you go. I know a lot of my friends who are more successful then I am and every single one of them can tell you about some huge stroke of luck that helped them along the way. Sure you may have build your business on the sweet of your brow and hard work, but for every one of you there are 10 more who worked just as hard, made all the right moves and were crushed by some existential force, bad timing, or freak occurrence and if you don’t think so your just delusional.
More piling on to Jack’s comment:
The two richest men in the USA today-Bill Gates and Warren Buffett- are quite clear that they were fortunate s well as hard working. They have no illusions that they were “self made”.
Ms. Rowling is a fine writer, but she wrote the first Harry Potter book when she was a single mother on “welfare”- the very kind of person excoriated by conservatives like Jack and bithead as one of the lazy ” takers” . That book was turned down by at least eight publishers, so its clear that luck did play a role in the eventual success of Ms. Rowlings-something that she is quite clear about ( politically, she is very liberal and big supporter of the Labour Party).
Rowlings on poverty:
Stephen King is a prolific, hard working and successful novelist-who came from poor beginnings and was raised by his mother after the father abandoned the family. King on taxes:
Seems to me that successful people understand that luck does play a role in suiccess.and that those to whom much is given should give much.
@Rob in CT:
You don’t even need that, because (ta dah!) we already have a nascent negative income tax. It’s called the Earned Income Tax Credit (EITC), and it is administered by the IRS even though it is not a tax at all, but a transfer payment (or “handout”, depending on your politics) that Congress pretended was a tax so that they could say they’d never voted for a welfare increase. (The giveaway is that you can qualify for a credit even if you had no income and paid no tax.)
@Rick DeMent: I’ve also worked and studied hard to get where I am, but I can still quite clearly remember my massive stroke of luck.
When I was 18, before I signed up with the USAF, some friends and I went to the drive-in (now I’m dating myself, haha) with a significant stash of alcoholic beverages hidden in the vehicle. We proceeded to get absolutely crocked, so drunk we passed out through the second feature. We woke up when the place was clearing out, and somehow I ended up behind the wheel.
I remember very little except I had tunnel vision and had to really work to maintain control, but somehow I did, and somehow I didn’t run into anything, and somehow the cops either didn’t see me or I wasn’t obviously weaving.
30 years later I still shudder. It was, by far, the single stupidest act of my life (although the competition is fierce…). A DUI and underage drinking would have killed my Air Force career before it started, and the Air Force is where I learned my skills and developed my work ethic. Without that, I’d be in a very different place today.
I’ve mentioned this in another thread, but I’ll repeat it here. I am not Malcolm Gladwell’s biggest fan, but his book Outliers should be required reading for anyone with an opinion on the degree to which success is earned. If you can still believe that “anyone else could have done the same” after reading about what happens to Canadian hockey players who stupidly chose to be born in November or December (and dozens of analogous situations), you can be safely ignored.
Mr. Florack, meet Ms. Warren. Speaking on the social compact:
Conservatives today reject that social contract on the fantasy that they earn their money,without regard to privilege, fortune, or the country they are born into. The sad reality is that the ideology that Eisenhower once dismissed as the property of a splinter group has now become the governing ideology of the Republican Party. He must be turning in his grave at the thought that Ted Cruiz and Rand Paul are the public face of the Republican Party.
I think the number of brackets is relatively immaterial. We need a higher effective rate on the rich, and this can be done without adding too many new brackets.
Yes, that article is important and relevant, thank you.
@bill: SO when the vastly larger number of poor people spend on daily needed items and services they aren’t creating demand which results in jobs? Really we’re going to go down that road? Know what a poor person does when they get money? THey spend it on food and other items/services they need. Know what the rich do with it? They stash it away or spend it on a few big ticket items on top of the usual expenditure. There’s a reason the top 10% have accumulated about 70% of the total deposits in this country. That’s money sitting in a bank doing very little to help the economy. If that money was in the hands of poor people it would be doing SO much more for the economy. It would be floating through the hands of many people including businesses.
So which do you think might be more productive economically? $10 million spent on one relatively small business or $1000 spent at 10,000 businesses?
Since when is a monopoly a good thing? Why is it fine for a few to monopolize the vast majority of wealth but suddenly bad when a business is the one monopolizing?
Matt, I’ve been searching for a while for a reference that will show me spending patterns (amounts and ideally sectors, both absolute and as a percentage of income) by income quantile. It’s amazingly hard to find; do you know of one?
The underlying problem with the economy is lack of demand. When rich people find a few extra bucks in their wallet, they hoard it. When everyone else finds a few extra bucks in their wallet, they spend it. What we’ve been doing for thirty years is redistributing wealth from the latter group to the former group (link). So much money has been redistributed upward that the rich have run out of things to do with it. Once you have your dancing horse and your car elevator, you’re getting to the point where your extra money is having a hard time finding something useful and important to do (with regard to either consumption or investment).
The result is a lot of idle cash and a stalled economy. There is a ton of cash being hoarded, doing nothing (link).
This is why stimulus is needed. The idea of using government spending to boost the economy was uncontroversial until the GOP was taken over by radicals. The GOP was for Keynesian stimulus before it was against Keynesian stimulus (link).
And then people wonder why they have a hard time finding investments with a decent ROI…
To be fair, stimulus is just step 1. Running a persistent trade deficit of ~5% of GDP ain’t healthy, and stimulus won’t solve that.
So you’re thinking those folks taught themselves? They didn’t go to public schools…where we have been slashing jobs in exchange for historically low tax rates?
I’d love to see more about this study…but there is no additional information available from the bank that did it. Gee, wonder why????
One more thing … there was a time in this country where we were in a real fight with totalitarian governments trying to forcible impose some sad, pathetic version of socialism (which was still highly stratified and hardly “fair” to anyone other than the ruling elites). They would showcase what their version of “socialism” could deliver to their people by basically lying (Potemkin villages, evacuation of the poor to gulags, ect). And even though this nightmare was clearly a mirage, for some reason it scared the living daylights out of the American ruling elite from the onset of the depression throughout the 50’s. During this era, when it was still possible to actually be a socialist and not get tarred and feathered as being in favor of some kind of dictatorial nightmare, we were constantly being told that capitalism was better at delivering social goods to the people. That by working hard for a corporation you would be taken care of as part of the family of that organization. Wages and benefits were held up as a model of how capitalism was far better at delivering social goods to an industrious people then socialism. Pensions, wages, healthcare were all held up as a beacon of what could be done when private industry, not government, was calling the shots.
But something happened along the way, our economy moved from a growth economy to a mature economy. Off-shoring became a verb, free trade put pressure on wages and there seems now to be an all-out race to get to the bottom of a barrel that delivers nothing except an opportunity to make a few people rich in the hope that you can catch a few table scraps. Companies stopped caring about their “family” and attitudes changed, you are now just a replaceable cog kicking a scratching your co-workers to try and get a slightly bigger sliver of a very small pie. Companies still demand loyalty but return none. The implicit contract that free enterprise should return benefits to the people was forgotten and now the people are told that they exist merely to support free enterprise and the so called “job creators” (an ironic term if there ever was one).
In other words, a classic bait and switch. And the suckers are swallowing it hook line and sinker.
@Rob in CT:
That’s part and parcel with the entire share-holder vs. stake-holder mentality we have been operating under for the last 3 decades. Used to be that businesses cared about their workers and the town they lived in. See; Ford, Henry. Republicans are big on pining for the days of yore when everything was so terrific you could hardly stand it. 90% tax rates and giving back to workers and the community…not so much.
@Dave D: A bunch of people in this thread might benefit from reading “Outliers.” Right parents, right school… right place, right TIME.
He said this:
Ford understood that ‘spreading the wealth’ around is actually a good idea. If any modern business leader sounded like Ford he would be mocked by Republicans as a Marxist.
@DrDaveT: There is no such data other than surveys. America Express Publishing released the results of a survey last year that put the savings rate of the top one percent at 34-37%, though I don’t have a link off-hand.
@Ben Wolf: Here’s the closest thing I’ve found so far — the Bureau of Labor Statistics publishes the results of a Consumer Expenditures Survey, including a breakout by pre-tax income quintiles. The top 20% is of course wildly heterogeneous, with a average annual income of about $170,000 and a median well below that.
Here’s the link, with both PDF and spreadsheet formats.
I note that the bottom quintile spends, on average, $12,000 more per year than they make after taxes. That’s presumably driven by retirees sucking down their savings.
The top quintile saves, on average, more than a third of their after-tax income. I suspect that, at the high end, that number is much higher, but I don’t have data with finer quantiles. (Besides, the wealthy don’t respond to surveys.)
That’s about in line with what I know from my friends, colleagues and clients. 30% to 40% gets saved / invested.
Hell, my wife and I save ~15% of gross income via our 401(k)s alone. Plus other stuff… say 5% more total. It was and will be higher once we’re no longer paying so much for childcare*. In 4 years, when our 2nd daughter hits kindergarden, we’ll probably be at 30-35% without all that much trouble. Another 5 years after that and the mortage will be paid off, and up it goes again (40% is doable a that point). Of course, staring down putting 2 kids through college is a good motivator.
And we’re not in the top 1%… we’re not even particularly close (top 5%, maybe). Last I checked, the cutoff for the top 1% of household income was a bit north of $500k/yr, and as I understand it, that’s AGI(!), not gross income. Gross would be higher.
* – since I have an employee, I’m a Job Creator. Bow before me! [biggest eye roll ever]
It ought to be added that Horatio Alger was a pedophile and believed in an economic system that created a lot of waifs of both sexes for the powerful to prey on.
And have you noticed that you can’t get good help these days?
Mt immediate reaction, as a dozen or so preposterously important and famous works of the past 50 years flashed through my mind, was “Nonsense! Of course it’s not the most significant!” But a bit of reflection along the lines of “broad lasting impact on the culture writ large” make it much less clear cut.
easy enoughnot too hard to come up with a variety of works/authors from the last 50 years with greater scope, longer reach, more impact on literature, or more impact on popular culture than JKR – but all four together? Hrm…
Dr Seuss comes to mind, but most of his best work is too old. Tolkien and Orwell? Also too old. Most of the popular names from counterculture – Kesey, Wolfe, Hoffman – fall short in one way or another. Leary would be a winner in my mind, except my impression is that the majority of his significance was not really all that closely tied to his popular writings (I could be WAY wrong about that, before my time).
Martin Luther King Jr., definitely places above JKR; Alex Haley and Malcolm X, maybe not so much. I imagine others can list additional names from other recent civil rights movement.
As odious and stupid as his work is, L Ron Hubbard certainly had a “broad lasting impact on the culture writ large”, and while its direct influence is largely limited to a single subculture, The Late Great Planet Earth and, more recently, the Left Behind series are enormously influential. Also, that subculture comprises a surprisingly large plurality of the US population, as well as a fairly strong political voting bloc. Salman Rushdie might well be on some peoples’ lists, but his influence in the US is pretty minimal.
Stephen King seems like a possibility, though it may be that he is just very prolific and very popular, without much else going for him. Anne Rice strikes me as very much the JK Rowling of her day. Vonnegut is one of my favorites, but I’m not sure i could point to his huge influence on the culture at large.
My perspective is pretty much US centric, but what can I say? my exposure to literature has been very parochial
I’m curious what some of the regulars think
@Ken: Rowling got kids to read books without school assigning them for homework. (Now I love reading, but I was the oddball in my peer group.)
I’d say her reach has yet to be felt. I also think we’re conflating two different kinds of cultural reach, the high- and lowbrow.