In times of economic turmoil, nothing has a calming effect like a few colorful charts. Here are a couple of thought-provoking ones via E.D. Kain at Balloon Juice.
First, originally by Alex Knapp, we have the distribution of wealth in the U.S.:
If it looks like a more dramatic amount of inequality than you are used to seeing, it may be because this is plotting total wealth rather than yearly income. Knapp also points out that the tax system doesn’t really redistribute wealth very much; the top one percent pulls in 19% of the pre-tax income, which after taxes is whittle away to … 17%.
Of course their share is growing with time, courtesy of Mother Jones:
We can compare that reality to what people think it is, and what it should be:
What does it imply that most Americans think the distribution of wealth is much more even than it really is, and would like it to be more even still? By itself, nothing at all. These are just data — descriptions of the world — and science doesn’t imply morality. The data are just useful to keep in mind when we do think about how a just society should be ordered, and what strategies (“share the pain!”) might be most appropriate when thinking about how to recover from our recent economic pratfall.
How many comments do you think we’ll get before someone claims that taxation = slavery? I’m guessing five.
Eric, the charts show the *middle class* is losing ground. As in, that includes the scientists, engineers, and creative types that were the actual source of innovation and ability. If this keeps going, innovation will be chocked off.
The people getting richer now are not the producers of wealth. They are managers of capital, and those that inherited capital. They’re not even entrepreneurs.
I strongly believe in the liberal market-economy ideal, but the system is broken. And a primary mechanism of wealth concentration in recent decades has been the various bubbles – the bubbles are like a piston, and commissions are the one-way valve, making up a pump to move capital out of the hands of the middle class. How is that related to innovation? It isn’t. It’s corruption on a large scale.
If you are ever planning to win a Nobel in physics, please let me get your signature on your books first. Just saw a book signed by Richard Feynman, called “The Concept of Probability in Quantum Mechanics” go for 17,500 US dollars.. Just saying.
You know, I was reading this post in a text browser and actually thought I was reading the blog Marginal Revolution. But the author was making too much sense, so I scrolled up to the top and noticed that I was actually on the wrong blog. 😉
“What does it imply that most Americans think the distribution of wealth is much more even than it really is, and would like it to be more even still?”
It might imply that most Americans are in a vaguely uncomfortable stupor.
“By itself, nothing at all. These are just data — descriptions of the world — and science doesn’t imply morality.”
Nor do most scientists have any idea how nature could operate by some moral principle such as “a good path to take”. But nature appears to operate by exactly such a moral principle.
“The data are just useful to keep in mind when we do think about how a just society should be ordered, and what strategies (“share the pain!”) might be most appropriate when thinking about how to recover from our recent economic pratfall.”
When do Americans think about how a just society should be ordered? For five minutes every four years? And how would an American define a “just society”? As the one in the pledge of allegiance? And how comical is that recent economic pratfall? Just look at those darn economists falling over each other! Not to mention those hilarious people overseas rioting over the price of food. How do you put a headlock on an Ethiopian? Hold your thumb an inch away from your forefinger.
Judging by the response so far, the moral aspect of “value” is associated with the heroic efforts of people who add “value” to — what? Not surprisingly, there is no mention of any value other than monetary. No inkling that money is created out of thin air by the Federal Reserve. What “value” does that money represent? Hope for future pie in the sky, maybe?
“Value”, “a just society” — those concepts seem to require — how should I say it — moral purpose! But among the social Darwinists, there seems to be a selective collective blindness to — purpose. After all, they would say, there is no purpose to be found in evolution — how could there be any purpose to life?
So what is the purpose of a discussion about potentially chaotic income and wealth inequality? “Democratic capitalism” operates on the principle of lowest common human denominators: hunger, greed, scarcity and waste. Life is tough. So the toughest win. So life is brutal. So the most brutal (mentally and physically) win. That seems to be about it. Purposeless pain and suffering — nothing to do with evolution, right? I suppose pain sense would be just a result of random mutation? No moral lesson to see here, move along! If those pesky poor end up rioting here, there are non-lethal ways of keeping them at bay. But more likely they will just slowly become more stupid while the patriots stand guard over them.
Sean, you seem interested in the subject of amoral nature (as viewed by “science”) versus some other basis for morality. I have to tell you, there is none. If there is no natural basis for morality, there is no basis for morality, period. Do you have a hard time seeing that? No amount of searching will find a “moral sense” anywhere but in the physical systems of nature. “Religion” as a set of rules for living provides a historical basis for morality. But being a natural phenomenon, it cannot explain itself. You seem determined both to knock down the natural historical phenomenon, and to find morality somewhere else – but not in nature!
Or is the subject simply grist for the mill?
I think that there are a couple missing statistics in this story– how do exerted effort and actual productivity in work fit into this mix? I’m not convinced that people should just be entitled to wealth, as in taking wealth by taxation from someone who has worked really hard for it and arbitrarily feeding it as an incentive to some bottom end that is perfectly happy to sit on the couch, spend all their time baked or drunk and collect unemployment for no effort. Perhaps this is a straw man, but from these statistics is there any way to know that? I think not. I’ve read some stuff about Warren Buffet and the work ethic of that man is frightening. How many people in the bottom end would be willing to do what he has done to go where he is and how many are kidding themselves to think they have the ability… “if only…”? Admittedly, there are some ridiculously wealthy people who have surprisingly little worth aside from raking in money, but I feel that this set of spectra do not tell the whole truth.
It would be nice if the wealth were distributed a little more evenly, but I don’t think it should ever be arbitrary or independent of merit. These studies lack a “people deserving of wealth” plot and offer no means of understanding what “deserving” even is. Are there some people out there who are completely deserving of what they’ve got, but want more anyway? Surely there should be as many of those as there are that “have more than they deserve.”
The truth is that given the bottom 80% only account for 17-20% of the net financial wealth in the US, I can understand why many of them are anti-tax. And they’re right, in a way.
It’s just that (being generous) due to lack of evidence/knowledge/etc, it’s popular to support making big tax cuts, which ends up just being redirected into tax cuts for the rich. It would almost certainly help them more in the long run to instead increase taxes on the upper bracket to recirculate money into the economy for infrastructure, education, health and other research, and even defense. Maybe someone should play the “tax the rich to pay for the defense budget” angle.
I wish I could find it right now, but the big issue might not be the distribution of wealth, but the fact that while the wealth of the bottom 50% is decreasing w.r.t. inflation, the wealth of the top 1% is increasing.
This is a problem. The bottom 50% needs that money for survival rather more than the top 1% needs it for… whatever.
Here is another view to consider, especially when discussing the highly skewed distribution of wealth.
Just type in your current annual income and examine the data.
http://www.globalrichlist.com/
That Puritanism is so deeply ingrained it’s difficult to even admit it’s there. “Why should people who sit on the couch get anything from those of us who work hard!?” is the standard response. The implicit assumption is that working “hard” is of higher value than “sitting on the couch.” Is it? Did the investment bankers who worked 100 hour weeks to eviscerate the economy over the last 20 years “deserve” the billions they looted from the rest of us? I would gladly have paid them a stipend to sit quietly on the couch. There are much deeper questions here about what kind of “work” is valuable and what just compensation should be. If working long hours and making difficult sacrifices is what is valued, then the guys who hang out down at Home Depot and work 18 hour days to feed their family should be the ones that get paid billions. Warren Buffett has an intense work ethic!? Right. When was the last time he worked for 15 hours in the hot sun on a little rice and beans?
Bruce, I was mainly objecting to the chart that showed how Americans supposedly would like the wealth distribution to be, and the utter absurdity of even trying to create a society where the average person in the top 20% would have only three times as much wealth as the average person in the bottom 20%.
An even more curious feature of the same chart is that at least to my eye, its second and third quintiles are pretty near the exact same size. So I guess Americans would like to have a society where all these people to have exactly the same amount of wealth. Somehow, I doubt this.
Also, I would be curious to see these charts for the population of the entire world. I suspect that they would be even more drastically unbalanced as those for the United States. If the forced equalization of wealth is so very important, why should this need to stop at the national border, that anachronistic and artificial construct that reeks of belligerent nationalism? Since even the poorest Americans are in the top quintile of the entire world, how would they feel about the efforts to bring them closer to the true world average?
Speaking of which, one last note: if the bottom 20% losing ground is such a serious problem, maybe it would then be a good idea to stop exacerbating this process by importing millions of even poorer people to depress their wages and increase the geographical stratification and competition for decent real estate, jobs, schools etc. This especially for the SWPL liberals who think that their right to have a $5/hr servant who takes two buses to come scrub their toilets somehow trumps the right of the poor working class families to have a better shot to a decent life.
Ilkka, I agree the “what people think it should be” bar chart is crazy.
However, the crucial issue to be is the relationship of the top 1% to not just but bottom 20%, but the middle class. Even the upper middle class, the top 10%, is getting the short straw!
People can bleat about innovation all they like, but the real source of new wealth, innovators in science & technology, are by and large not in the top 1%. What is happening is pretty close to being a forced transfer of wealth to the top 1%, via gerrymandering the system via political influence, and financial and real-estate fraud on a massive scale.
For one example of how this has happened: local to me, Vancouver is still at the height of a RE bubble where speculation has been heavily promoted for a decade. Carnage is close at hand, and the middle class here is going to be underwater on a large scale. The stock market corrections did similar damage. Yet our less-than-independent media promoted the RE and stock bubbles relentlessly, even displaying Remax and mortage broker logos on their weather maps! Interviews include boosters, but never realists or independent analysts. Nary a negative word may be said to the rubes. You can blame individuals for being taken in – but the entire middle class here? At that statistical level, it’s corruption and manipulation on a mass scale. Should the perps involved in such a large transfer of wealth be called innovators?
In the states many seem to like to blame minorities, or fannie mae – but these trends are there in every english speaking country, yet not every EU country. Why? Why is germany different? Why is it possible to compete without outsourcing there, and not here? Why is it possible to have growth without CEO and fund managers being paid billions there, and not here?
I like how many who defend the existing wealth distribution, always frame their words so carefully. “It’s their money. We should not take it.” “We must not start class warfare.” “We must not redistribute wealth.” “We must reward industry.”
OK, but how is the status quo not a system of wealth redistribution? How is it not a form of undeclared class warfare? Are we sure that we are rewarding hard work and industry?
The bottom line, it seems to me, is whether our societies are working. Is there enough money going into infrastructure? Does the education system have adequate funding? Are there significant numbers of the poor who will never be recognized for their talents and industry, simply because of their poverty?
Your assessment of the health of society, it seems to me, should be your guide for adjustments to tax policy. And you must factor in whether those adjustments will help society (will you achieve value for the money).
The recent financial meltdown was instructive. Many of the worst actors in that were richly rewarded for the grossest misbehaviour, incompetence and destruction.
Bruce,
We have some common ground. I also take the liberal market economy as an ideal. And I also recognize the economic destruction wrought by the boom-bust cycle (on each man who earns his living, not just on the poor). But it’s not the market — the bankers, the derivative traders, the mortgage companies — that created this cycle. When the Federal Reserve printed money with abandon in the early/mid 2000s, driving real interest rates negative, it became profitable to buy up mortgages and finance it by rolling short-term loans. Smart guys knew how to make a lot of money doing this while watching for signals that the mortgage pyramid would collapse. Were they wrong for having done so? Or is it the money-printers — the guys who made this whole enterprise profitable by enacting laws to seize control of the currnecy, decouple it from gold, and debase it — who are culpable?
You claim to support the ideal of a free market, but then why do you package it up into a “system” with its antithesis — the populist, progressive holy grail of free money for all — when you look for culprits? This mangled system is the result of that whining 99% seduced by intellectual con-artists to first subtley and then egregiously undermine the freedom by which their betters created all that you see around you.
(If you’re curious what’s different about Germany, you might look into how the Weimar hyperinflation affected their views on money printing.)
@bruce, eh: last I checked the other 99% (or 80%) make up a far larger share of the voting public. Political power is controlled by those who vote. Politicians are corrupted and copted by those who give them money and favors. Not the same thing.
So… where are the companion chartrs which show the % of income taxes paid by the public? As well as what they think the distribution is? Or would it be too shocking to see that 50% of the population basically pays 0?
Finally, redistribution of wealth is just a fancy way of saying stealing.
Right now we’re in a period which reminds me of the early 70s, that is, unpopular land war in Asia, huge deficits, low interest rates, but not much inflation.
What interests me in this is the relatively “low interest rate and low inflation” part. The rich seem to do particularly well in this sort of environment. While the blue-collar classes do relatively well during the rising inflation years. So I’d have preferred you to have run your charts back another 20 years or so, so we’d catch another inflation / unemployment cycle or better, run it back to the post WW1 period.
I guess what I’m saying is that our culture is a very complicated thingy with a lot of degrees of freedom and it contains very long period components. These components have to do with changing attitudes of the people. For example, stocks were popular in the 1920s, but by the 1930s people swore they’d never invest in them again. This sort of thing impacts the percentage of the wealth owned by various groups. So I’d like to see charts that include more of the long period components; I don’t think we’ve seen the Reagan years since the 1920s, and the current territory (at least with the US off the gold standard) has never been traversed before.
Pingback: 24 February 2011 pm « blueollie
Love the post Sean, awesomeness (it’s a word!) all round!
SAA -Screwed in America Again
My most useful acronym.
In a Wisconsin union? -SAA
Iowa Leg. seeks to pass an antigay marrigage bill with proviso that the state Sup. Court can’t rule on it’s constitutionality. – SAA
Fermi Lab closes with out a real follow on. – SAA
And an oldie but goodie Bush 5 / Gore 4 – SAA
Anonymous_Snowboarder #39 —
“Finally, redistribution of wealth is just a fancy way of saying stealing.”
Exactly! The strong steal from the weak. Nowadays they call it “profit”, but it’s stealing the surplus “value” created by labor.
Maybe you could define wealth. Do you mean money? If so, try to think — where does new money come from? And who gets first crack at it? Maybe initial distribution of money-wealth is stealing, too — from the future.
Pingback: American Inequality « A Reluctant Apostate
So many people concentrate on the tax side side of the inequality argument. There are several hidden assumptions in equating taxes with government being overbearing. First, we all actually get things for our tax dollar. Government is a social contract with the people that a certain minimal level of services will be provided for each citizen. It also provides the laws and enforcement of those laws that bind people together in that social contract. Without government we return to the early days of the west where there is a frontier mentality. Outlaws ride in and steal all your horses and there is nothing you can do except go out and get your vengeance yourself. There are actually people now who would like to return to those days in the guise of deregulation of financial laws. I will let you in on a little secret – those are actually the same people who would like to steal your horses in the first place. It’s just that they couldn’t under previous laws.
Secondly, money equates to power. And not just power in your personal life but power as influence. Rupert Murdoch has it. So do the Koch brothers. With the removal of the progressive taxes for the wealthy the uber wealthy have become like a virus infecting everyone with the idea that taxes are an affront to our liberty. And they have the wealth to make a lot of fools in this country believe it. I would gladly pay a few more percentage points of my income in taxes to see the highest income tax brackets go back to where they were in the Eisenhower administration. That is, about 90% of gross income. It seems to me people were not doing to badly financially back in those days.
You see, one has to tax the rich more just to stop them from gaming the system by changing the laws for their own benefit. They have brainwashed people through media consolidation to think that deregulation and relaxed taxing policies will benefit everyone. It does not. It benefits the rich.
I’m curious what the power and wealth elite really thinks about this.
Here is a link:
http://www.cbpp.org/files/9-9-09pov.pdf
to a graph that shows the nation’s income gains going to the top one percent at the highest level since 1923 – 1929.
As I noted previously, the data is from CBPP calculations. It shows that from 2002 to 2007 the share going to the top one percent was close to the 1923 – 1929 period. Between 1960 and 1969 it was almost reversed.
It is of course difficult to identify policy prescriptions that are politically possible and that would result in moving our economy in the direction of greater income equality while not creating unintended or collateral negative consequences.
Nevertheless, it seems plausible, at least to me, that continuing to move in the current direction could well end in even greater social dislocation and perhaps societal upheavals reminiscent of the past.
#9, Radical says ” why wouldn’t one expect to see net worth statistics follow a power law distribution?”
Indeed it does, but not in the way you intend. Power enables the powerful to concentrate wealth in their hands. This is a self-sustaining system that increasingly aggregates wealth.
50% estate tax on all estates worth more than 5 million dollars; adjusted every 5 years for inflation. 75% on estates worth more than 100 million. 90% on estates worth more than 1 billion. That money goes to public schools, public universities and prisons. Exclusively.
Problem solved.