Senate Income Inequality in the U.S.: Causes, Effects, Solutions

Just to add my own critique of the TED video link (I highly recommend the TED app on the iPad).

Why is it that we get so little social bang for our GDP? Why are we so rich with such poor healthcare outcomes, less social mobility than much of the developed world, high crime rates, high rates of imprisonment, high rates of mental illness?

If it's just high income inequality, what is causing the income inequality? Why have we leaned so heavily in that direction?

When you look at the difference between the rich high-value societies like Japan, Norway, Sweden and the rich low-value societies like the U.S. maybe in our case cultural heterogeneity plays an important role in predisposing people against broader wealth sharing. The video does not take this into account at all.

We live in one of the most culturally diverse nations on earth. And the consequence is that we have a very high sense of "the other" within our own boundaries. And we have a rich tradition of being much less interested in broadly sharing wealth with "the other."

And as we've argued elsewhere, the United States is well on the path to the end of the western European caucasian Ureinwanderer as the dominant cultural meme. As the demographic shift becomes more inevitable, the cries against "social engineering" become increasingly shrill. The old America is going to isolate itself behind a wall of rural poverty and urban social elites for a few more decades, but that will pass, and about the time I'm on my deathbed if I live a statistical lifespan we'll have the opportunity to really remake the social contract for a more egalitarian future. At least I hope that's what happens.

Wealth improves happiness on an absolute level. We're happier than Mexicans and Russians, sure, but we really should be comparing ourselves only to the top of the developed world in terms of our achievements. The bottom line is that as a culture, we get a very low return on our GDP investment as measured on a broad scale of social outcomes, and income inequality seems to be highly correlated with this poor rate of return.

 

The answer is unfortunately fairly easy. The good, true, kind hard working, God-fearing, flag-waving majority of unemployed Americans are at home looking for work, and only the shifty unwashed hippy flag burning liberal minority is protesting. And it's not that they're unemployed, it's that they don't want to be employed. They want to sit around eating organic tofu and smoking weed and reading Jack Kerouac and listening to terrible Indy folk-dubstep bands and wearing plaid and growing beards in an unwashed ironic metrosexual hipster way and take all the money that rightfully belongs to the Koch brothers.

More or less.

 

Top Earners Doubled Share of Nation?s Income, Study Finds

The top 1 percent of earners more than doubled their share of the nation?s income over the last three decades, the Congressional Budget Office said Tuesday, in a new report likely to figure prominently in the escalating political fight over how to revive the economy, create jobs and lower the federal debt.

from 1979 to 2007, average inflation-adjusted after-tax income grew by 275 percent for the 1 percent of the population with the highest income. For others in the top 20 percent of the population, average real after-tax household income grew by 65 percent.

By contrast, the budget office said, for the poorest fifth of the population, average real after-tax household income rose 18 percent.

This article supports my narrative about the long-term damage done to our country by the Reagan revolution. Many of the most successful nations on earth use tax policy to support a broad sharing of wealth. We have taken the opposite approach - using tax policy to socially engineer a widening income gap and a more stratified, less socially mobile society.

 

Here's my full wish list, starting with the most doable and ending with the least likely to be implemented.

On the large scale:

1. Put people back to work
2. Make America more competitive in the global economy
3. Support the foundations of a working middle class
4. Support upward social mobility by improving access to education and vocational training
5. Limit healthcare spending as a proportion of family budgets and the economy as a whole and improve access
6. Limit the influence of the financial sector on our economy, downsize it relative to other sectors

More specifically

-Rebuild America's infrastructure including our energy infrastructure

-Support stronger organized labor and government commitment to its existence

-Spend heavily on adult education and retraining programs

-Commit to progressive taxation, starting with repeal of the Bush era tax cuts

-Develop policies to promote export and encourage domestic savings

-Return to more and better regulation of Wall Street, in particular reduce systemic risk by repealing the Financial Services Modernization Act of 1999

-Work to reduce the difference between the pay of a company's lowest paid employees and its executives. We can compete in the world without trying to make billionaires of all our CEOs.

-Socialize healthcare

-Bring back full throttle affirmative action and commit to it for a full generation, including of course quotas at universities and in the workplace.

-Socialize education

-put quotas in place for female executives in corporations and partners in law and accounting firms, etc.

 

To do that the attacks on how those companies are evil because then. A company that makes a profit is a good thing. It means they can give people jobs and make new things. But attacking them for it and other Americans such as Fred DeLuca and Peter Buck. They have there billions because they had any idea and it worked.

So what's the problem? It's a company started buy two people from the good old US of A.

Richard M. Schulze
Henry Ford
Steve Jobs
Michael Ilitch
Marian Ilitch

and the list goes on all had ideas and ran with them. Oh sure if it was not them it would be some one else. But may god you want to have America be more competitive in the global economy then let's stop with this we need to tax companies more. Why should any one start up a company if all it leads to is there company and hard earned in come to be taxed more and more. That does not make the USA more competitive it makes us less competitive because it's saying we don't really care what happens to are own American run, owned, and started companies.

 

There's still plenty of incentive to innovate in countries like Britain and Germany, you know. It's not like having a more effective social safety net and socialized healthcare suddenly means we're living under the shadow of Soviet tyranny and Karl Marx, as Republicans would have us believe. You also have to be somewhat naive if you think that richer companies always give us better products and services. When was the last time Coca Cola gave us something new and worthwhile? In fact this company thrives not on innovation, but on the opposite: doing the same thing over and over and over. Even when corporations do contribute something worthwhile to society, there's often a dark side. Take Amazon and Walmart, they may give us good products and service at low prices, but they also drive out the competition, give out low wages. Apple gave us the iPhone, but these things are being assembled in Asia by child workers who earn next to nothing.

Competitiveness also depends on having a well-educated workforce, as well as government investing in certain areas like renewable energy or high-speed rail. China is beating us to energy independence because they're investing in stuff like solar panels while we're choosing to defund them.

 

Where did I even bring that up? Where in that post did I talk about that?

The last time the tried something new it was new coke. How did that work out for them? But if they do want to they will have the money. And you know what they did make new drinks Coca-Cola Cherry, Coca-Cola Zero, Coca-Cola Vanilla, etc. If it worked they kept it if not then they moved on or do you think they did not take a risk with Cola Lemon Lime and Coca-Cola Vanilla. Heck Pepsi even tried the clear Pepsi. It did not work the way they wanted it to. But they still tried. But it's also not like Coca-Cola did not come up with other brands. Sprite ring any bells? If they come up with something new again and it works they will go with it. If not then they will move on from it. That's kind of how you run a company.

but if you don't think coming up with new tastes for there Soda is not having innovation then I really don't know what to tell you there.

You do not need the government for that. You don't even need them to have a well-educated workforce. In fact you don't even need to go to college for half the jobs. You can go to a good two year school and be done with it.

Because are government investing in Solyndra was such a great idea? How did that work out? Are government should not be picking winners and losers that is not there job. It is not there job to work on renewable energy. It is not there job to do any thing but keep the people of the USA safe. That's it that was the only power they were given.

 

People will be very sad and unhappy if, twenty years from now, rolling blackouts are the new normal. Industry will find it difficult to produce anything. Consumers of all sorts will be unable to consume a lot of things. Ensuring the long term stability of the US power grid is a far more important thing than I think that you realize.

Oil and gas are growing more and more expensive; while technology is allowing us to gain more from existing sources and while other untapped sources exist, there's still going to be rising costs. As well as rising need to provide profit to shareholders, but that's another argument. I firmly believe that nuclear is the most viable way forward, but China's kitchen sink approach has strong merits.

In any case: America's energy future is in my mind the absolute crisis looming over it, dwarfing the financial crisis. I think that Obama isn't doing enough to try to support people looking for ways to avert or at least reduce the impact of the pending crisis. Yes, some bad investments will be made. It happens. It sucks, but that's the real world, if everyone knew a good investment at a glance, Tom Brady wouldn't have been a sixth round pick, and no one would have made money in late August betting that the Cardinals would win the World Series.

 

I agree the government should not be picking winners and losers. They should be instituting a carbon tax so the market has the proper price signals to innovate on its own.

 

Oh so let's not just pick who companies will stay around let's tell them how to run how much of something they can make.

Then all the government has to do is get out of the way and let companies update there power grids. It's not really that hard.

Yeah I agree nuclear is a viable form to bad the government has made it really really hard to make more of those. To bad that also keep throwing one rule after another on gas and oil companies who want to do more to come up with better fuels ideas. No let's just keep taxing them all out of the market and let China run ever thing or the government can just get out of there way and let companies do what they know how to do.

And what's you're answer? More government spending and taxing? More taking from the people that came up with the new ideas and gave people jobs. More attacks on the so called evil rich. Sure there are some people that have a lot of money that are bad eggs. But really at ever turn it's become about class warfare of taxing the people who started a company out of the USA. I enjoy my job I don't care the that COO of the company I work for makes more then me. He should make more it's his company he started. He put the money into it and took the risk.

The government should not be doing that.

 

A tax doesn't tell the company how much to produce.

 

Not to sound mean, but you're discussing taxes with ani. Holding the water for these corporatists is the MO he usually employs. So any taxes at all will sound like theft or the government trying to control things. I also agree with Merk about Matt Taibbi, except his Rick Perry: Best Little Whore In Texas article is a bit novel-esque.

 

1. You people really need to give up the Solyndra trump line.
2. Yes, the loan went bad, but it doesn't imply all government loans are worthless. If we went by that standard, then who would have faith in the private market after 2007-2008? It was roughly 1.3% of their loan portfolio, and other investments have prospered and remain strong.

3. Due to the risk of renewable energy investments, and relative little profit for innovation, private companies outside of some venture capitalists won't invest in renewable energy. Because of the positive externalities of it, though, it makes complete sense of the government to bear the risk, as the profit motive isn't enough here comparable to the payoffs. Ezra Klein explains the economics behind this case perfectly.

The anti-intellectual claims of the right on issues such as this amazes me. The whole "Solyndra loan went bad, therefore government loans are worthless" line is disingenuous at best.

And, as for their "only job", you're a little on your own there. The whole "general welfare" clause is ambiguous enough that we don't need to get into it.

 

I'm not sure you're aware how companies work.

Basically, they say "What's best for the company?" They don't say "What's best for America?" Have you heard of the prisoner's dilemma? It's a pretty good way to illustrate how companies work. Basically, even though it would be in everyone's long term best interests if companies acted in a way that would achieve the greatest long term prosperity and stability for everyone, they're going to take the option to maximize their immediate profit.

You can point to the bank crisis as an example.

A corporation will do everything it can to legally (usually) maximize profits. That doesn't mean that they'll succeed. That doesn't mean that we'll get the best possible product. And it doesn't mean that we're going to get sustainable power by just leaving to the CEOs of the world to figure out.

I'm curious: what rules do you feel Obama throwing at the major oil and gas companies to prevent them from researching sustainable power?

My answer is that the US military budget needs to be scaled back, and funds reallocated. For example, 20% of the US military budget for a year would build about 60 AP1000 reactors.

 

You don't need to see their identification.

 

It isn't that the executive board of a company makes more than the average employee, even by a substantial sum. They should - they worked for it, took the risk, and are talented enough they deserve just compensation. When people complain about "income inequality" it isn't that the CEO makes more than them, it's that their wages have been stagnant since the '70s while the CEO's compensation has skyrocketed. It's not that the CEO of Wal-Mart makes more than a cashier; you'd be insane (or an actual Communist, not a Republican labeled one) to think that their pay should be similar. It's the fact that the CEO of Wal-Mart makes more in an hour than the average employee does in a year that makes income inequality a big deal. There is a huge, fundamental difference between "he makes more" and "his income has skyrocketed while mine has stagnated, and he makes more in an hour than I do in a year." If you don't see the problem here, then, well, go back to Econ 101.

 

So Shinjo, if that's true, why isn't the movement focused even more on the entertainment industry, sports franchises, and the "Hollywood elite?" (which is even more puzzling that Hollywood is traditionally left leaning, and ignored by all these various "income inequality" groups.)

Why should Derek Jeter get 25 million per year just to play a game that I play in my backyard for free? Why should Matt Damon earn more salary for working 4 months on a movie than all of us combined make in a year? You get the idea. The disparity here should be even more evident because Jeter, Damon, etc... don't actually produce anything or directly employ other people to any great extent. (setting aside managers, "personal assistants," celebrity dog walkers, etc..) Even if one recognizes that a disparity does exist, at least an argument could be made that a CEO runs a company that provides for hundreds/thousands of workers. Should someone like Eddie Murphy be held up for scorn because he may about to be getting millions of dollars for Beverly Hills Cop IV? Is it his "fault?" If not, how does that inequity factor in? Matt Damon, and all such figures like him should be the strongest evidence around that personal worth and financial compensation are not the same, and are only marginally linked to one and another in the first place.

If your concern is truly economic disparity, then why are the worst offenders of such disparity outright ignored, and even embraced as part of?

 

I wouldn't label athletes and movie stars as the "worst offenders" of income inequality, but it certainly a concern. I think it should be addressed, as they are ridiculously overpaid. They aren't addressed by the government, though, because going after the Koch brothers and the Wal-Mart and GE executive boards is much more politically friendly than going after everyone's favorite athletes. Also, I would argue they employ people. A good sports teams generates millions of dollars and utility for a city - a successful and beloved sports teams can generate a ton of revenue for a city (fully booked hotels and restaurants, packed bars, shirts and towels sold on the street, parking, etc). If a team is a bad, because they can't attract the big players, then they aren't going to bring in the fans to the city during games. I believe in a salary cap, and not paying athletes millions, just as I do major companies.

And, on a side note, we are partly to blame for their high salaries. Athletes and movie stars are paid so much because we are willing to pay for them to entertain us. I have to pay my electricity bill to get by on a daily basis, and GE raises the cost for my electricity so they can pay $0 in taxes and pay their executive board hundreds of times what they play a typical electrician. I don't have much influence over my electricity bill, other than to conserve where I can. Buying a ticket to see the Steelers play, or purchasing a terrible towel, is a completely free choice and one that I gain utility from; and I think that is why we justify paying our entertainers so much. Just a thought.

 

There was a guest article by Christopher Helman on Forbes recently regarding CEO paychecks. The previous article he wrote was also good, and has two of my favorite thoughts regarding the 99% movement.

The first takes solid aim at the 99%ers:

An amusing and (previous to me) noted irony is with all the railing and carping over corporate evils, it was hard to miss the Apple I-phones and I-pads. Certainly present were also phones powered by Google?s android system. The Nike swoosh was prevalent. I can only guess the number of these corporation bashers who own Microsoft products. I even saw that elitist Ralph Lauren logo. Hard to know which nefarious corporation makes the cardboard for all those signs, but it is most certainly a big bad one that probably employs a whole lot of people. If they buy ?green? electricity, (assuming they purchase any at all), which any demonstrator with an ounce of self-righteousness would, there?s a real good chance they are supporting one of the biggest and ?baddest? of them all, wind turbine manufacturer General Electric. Carefully ignored by these do-gooders is the confluence of grand creativity, greed, and billions in profits and millions of jobs these profits and cupidity have created.

The second is, in my opinion, the most accurate summation of the problem of CEO pay right now:

?Many corporate executives continue to make deca-millions of dollars annually. This is entrepreneurial pay for managerial behavior. They show up to work with no risk whatsoever and get paid like they patented a cure for cancer. Campaign for shareholders rights via proxy votes to elect directors that represent owners NOT management, and set limits on executive compensation.

 

I wouldn't label athletes and movie stars as the "worst offenders" of income inequality, but it certainly a concern.

Why not then? See, this is where perception comes into play. I think one of the observations that was provided in a link around here before was that the average salary survey of a CEO for a large company was something like $950,000, with a range down to $300,000+. Really, 950,000 dollars is a lot. But that's certainly more reasonable than 40 million dollars, and the fact that most CEO's probably make a range that's a lot less than that. But there is a perception that because Steve Jobs made hundreds of millions of dollars, every CEO makes that much. It's also the case that not every major league athlete makes Derek Jeter's salary, so there's a perception there too, but if your concern is disparity vs productivity, movie stars, etc...should be the greatest cause for your concern. Because it's not like Matt Damon gets paid 12 million dollars to play Jason Borne, but voluntarily gives back 11.8 million dollars because he could still live comfortably on $200,000 and besides, it makes everyone feel more fair.

Also, I would argue they employ people. A good sports teams generates millions of dollars and utility for a city - a successful and beloved sports teams can generate a ton of revenue for a city (fully booked hotels and restaurants, packed bars, shirts and towels sold on the street, parking, etc).

Ah, but now this is basic "management vs employees" 101 here. As you said, a successful sports team generates millions of dollars. Any individual player contributes next to nothing in this regard. Should management be allowed to cap salaries, and then good players will still stand out if they want to play the game without huge payouts? Or, should teams be allowed to woo players with huge contracts, precisely for the reasons you outlined, even if it adds to the salary disparity? As you mentioned, if Derek Jeter was capped out at $250,000 for playing baseball (still a good salary, right?) ticket prices would probably drop 2 dollars for every fan. If all of baseball was capped, ticket prices would probably be $10 instead of $30 each. But the reality is that if you're ok with capping salaries of entertainment personalities, shouldn't you support efforts like Wisconsin who capped raises for public sector employees as well? It should be even more cut and dried because Wisconsin public employees get paid from a set pool of resources (ie tax money) you can't just raise ticket prices to make up the difference. On the same token, if it's understood that the best athletes get the biggest contracts, why would this not pertain to the business world as well?

Again, you addressed the "wow" factor of celebrities, and on this point I completely agree with you. But that's why the income inequality movement is so muddled. If the goal is to highlight "unfairness," the collective can't ignore a personality like Angelina Jolie who makes 20 million dollars for one movie because "OMG, she's famous!" but then turn around and conclude that the head of Walmart is evil because he gets paid the same amount but was never Lara Croft.