Money Changes Everything
Specifically, the money gap between the richest and poorest in society — income inequality, in other words. And according to a new book called The Spirit Level, income inequality is a leading explanation for why the United States ranks at or near the bottom on a number of social indicators, compared with other developed nations in the world.
If you like to think of America as The Greatest Country on Earth, and you’d rather not examine its claim to that title too closely, “The Spirit Level” will not be your favorite new book. On nearly every one of its 250-plus pages, a stark, unflattering graph shows the USA topping the charts among developed countries for some social ailment: drug use, obesity, violence, mental illness, teenage pregnancy, illiteracy. But authors Kate Pickett and Richard Wilkinson, a pair of British social scientists, have another, more enlightening point to make. With striking consistency, they say, the severity of social decay in different countries reflects a key difference among them: not the number of poor people or the depth of their poverty, but the size of the gap between the poorest and the richest.
It is economic inequality, not overall wealth or cultural differences, that fosters societal breakdown, they argue, by boosting insecurity and anxiety, which leads to divisive prejudice between the classes, rampant consumerism, and all manner of mental and physical suffering. Though Sweden and Japan have low levels of economic inequality for different reasons – the former redistributes wealth, while in the latter case, the playing field is more level from the start, with a smaller range of incomes – both have relatively low crime rates and happier, healthier citizens.
The idea at the heart of the book is not new; human beings through the ages have intuitively understood as much. What is groundbreaking is Pickett and Wilkinson’s compilation of data, much of it only recently available, allowing sweeping comparisons across dozens of nations and areas of well-being, and showing, for the first time, the breadth and strength of the statistical link.
It’s interesting, in this context, to recall the word that’s missing from The Mount Vernon Statement recently touted by a group of leading conservatives.
68 Responses to “Money Changes Everything”
Green, I totally agree with those graphs but you are looking at the absolute change in percentage points to arrive at your point of view.
So let's say that Person A has an initial tax rate of 40 percent and person B has an initial tax rate of 10 percent. Now let's say that Person A's rate declines by 10 percentage points and person B's declines by 5 percentage points. Who got the bigger tax cut? You are saying A and I am saying B. A's tax liability declined by 25 percent and B's declined by 50 percent therefore B got the larger tax cuts regardless of decline in pure percentage points.
This example (not those numbers) is the situation that has been occurring in the last 20 years.
I'm not saying I wasn't influenced. I've never said that. I've simply said that if you want to blame TV for the existence of consumer based envy, I think you are blaming the stimulus and not the response. Would the response be different with a different (or no) stimulus? Sure would. Are many responses possible from the same stimulus? Sure are.
Are many responses possible from the same stimulus?'
Sorry, your arguments don't stimulate me enough to refrain me from buying that new 3D TV.
So, now that we have finished this argument, I will kick back with a Bud and get stimulated watching reruns of the Beverly Hillbillies.
“Tax policy has not redistributed wealth upwards. The private marketplace has done that.”
Well, some would object about inheritances as well.
In any case, I see a wealth tax becoming a possibility someday in the 2020s-2030s. (This would be in addition to greater progressive income taxes than we have now, and in addition to new federal VAT or retail sales taxes as well as energy taxes and others.) The entitlements alone will crush the federal government in the future.
What do others have to say? Two examples from New Press (lefty source like South End or Common Courage, Pluto, Verso):
1. Wolff still has the best known work on wealth taxes.
http://www.thenewpress.com/index.php?option=com…
2. Our buddy Gar (USA was evil imperialistic nuclear racist in 1945) and a colleague have a new way to view (more expansively) the
http://www.thenewpress.com/index.php?option=com…
More here for those who like an “alternative” view of the world. (includes other books on inequality)
http://www.thenewpress.com/index.php?option=com…
The payroll tax favors the wealthy as they do not pay it on their entire income the way most Americans do.
Well as a source of taxation, that is true for social security since it cuts off at about $110,000. Not true for Medicare which is already uncapped.
Having said that, the data I posted includes all forms of Federal taxation, not just the income tax. The points are valid even when the all taxes are looked at. This is in part because FICA and Medicare have become more progressive over time as the caps have been raised (in the case of FICA) or eliminated in the case of Medicare.
Raising the FICA cap further is a challenge for the SS admin because it would force higher earners into a clearly negative rate of return for the FICA contributions over their lifetime. As a matter of reality, this shouldn't matter but it erodes the perception that the SSA has tried to create over time.
It's also the case for SS, that the payout is steeply progressive. In other words, low earners receive a lot more per dollar paid in than do high earners.
Enjoy : )
I'm watching Chuck without a TV at all. The magic of the PC.
Striking it Richer:The Evolution of Top Incomes in the United States -(Update using 2006 preliminary estimates)
The real money in the US is not in the top 20% or even the top 10% or even the top 5%, it's in the top tenth of 1%… That very tiny group of people have captured damn near all the income growth of the last 40 years…
People in the top two quintile are slightly better off today than their equivalent were forty years ago, people in the middle quintile have seen no substantial changes and the people in the bottom two quintiles are worse off than they were 40 years ago.
Economic Growth Across the Income Distribution
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Don,
Incomes are not the result of government policy. I agree that income is skewed. I've said that any number of times. What I dispute is that the government is causing this to happen. Nothing you are posting says much about that at least as I read it.
Unless you want to make the government the arbiter of how much people should be paid and extend the role of the pay czar (what a stupid concept by the way) across the entire economy, it's entirely unclear to me what you are proposing.
“what a stupid concept by the way”
Comparable worth! There's no end to how elaborate such controls might be.
This is “amusing” enough: [old, but still good, and no going away -- maybe not so old, to some]
http://www.amazon.com/Maximum-Wage-Common-Sense…
http://toomuchonline.org/the-most-promising-pus…
http://www.nytimes.com/1996/06/16/weekinreview/…
etc.
“The payroll tax favors the wealthy as they do not pay it on their entire income the way most Americans do.”
Z5, note that I believe the Social Security cap is arbitrary and illogical, and should be removed.
(I believe that the people affected by removing the cap should have their benefits raised, of course; I suspect in the years to come that the benefit schedule will be reworked to make the schedule more regressive to lower total payments and reduce the program's future costs.)
If the cap is removed, and benefits are adjusted, start of deficits is changed from 2016 to around 2023.
If the cap is removed, and benefits don't change, start of deficits is changed from 2016 to around 2024.
Removing the cap should be done, but will not make Social Security solvent, i.e., won't itself rescue it.
OK, interesting discussion. Wow, even DLS was relatively civil
Steve, the point is that government policies HAVE increased the wealth gap and concentrated too much wealth at the very top. First, I think you favor that redistribution, hence the argument, and perhaps you're in that lofty group or aspire to be.
Cutting the top tax rate from 90% to 30% obviously allows that group to keep more money, and it obviously reduces tax revenue. I don't see how you can dispute that. But that's just one of many policies driving wealth inequities. You and DLS don't see a problem with the massive wealth gap in this country, largest ever for us, largest in the world. But it has not boded well for any culture in history, and the current economy is an unheeded warning sign.
I think DLS is an older guy like me, probably affluent too, and I gather you are younger. It is you and your generation who needs to figure out that a consumer economy cannot survive the death of the middle class, because that's what is happening.
For most of my life, America was on top. Top quality, top innovators, scientists and engineers, top manufacturing, strongest middle class, world's biggest creditor. Now in 30 short years, we've sacrificed our entire manufacturing sector, stifled upward mobility, become the worlds biggest debtor, and lavishly rewarded those who manipulate digits instead of those who built this nation. We have elevated and revered wealth over work. You seem fine with it, but it's not healthy for us. You will see.
Green,
I don't think uneven wealth distribution is a good thing. But I'm here to tell you that cutting the top rate from 90 to 30 did not distort the tax system in favor of the wealthy. I know you find that counterintuitive and so do I but the facts say that's what happened. If you choose not to believe the data, that's up to you.
I don't actually revere wealth at all, particularly many of the careers (IBanking, PE) that produce wealth without producing anything in particular. One of the low points in my professional career was hearing a very senior private equity partner tell me that the industry was facing challenges because they no longer could make great returns off of financing and they were actually *shudder* going to have to improve the performance of the companies they purchased.
Just because I don't believe government has caused the imbalance (and I do not) does not mean I like it or that I am OK with revering wealth over work. I am not. I grew up the first son of a Catholic family in New England and that shapes my view of the world.
I agree there is much figuring out to do and it falls to my generation and those that follow to do the figuring. I simply believe that the solution has a lot more to do with creating people who have the skills to create and providing a structure that gives them the incentives to create.
To me, a redistributionist structure, much of what the US has become through the leadership of your generation, is the antithesis of an opportunity-based structure.
You claim the middle class has disappeared because government has favored the rich. I claim it has disappeared because of failing eduction and a declining emphasis on eduction, a social structure that, as you point out, no longer values work and has become more other referential than self referential, and a regulatory and tax structure that places more emphasis on preventing wrong than on creating right. Creating requires risk and risk will create failure and harm. If you don't allow failure or harm, you throttle risk-taking and innovation.
I have worked in a number of environments with companies who struggle to innovate. The biggest barrier is incentives. Far easier to take the safe route and perform marginally in most companies than to take a big risk and fail. That is the true issue that we must face in to and it has very little, in the end, to do with government.
No doubt we'll continue to agree to disagree at the philosophical level. On the data, I understand your point of view but the stats simply do not bear out any argument that says the tax structure has increasingly favored the rich over the last 30 years, regardless of changes in marginal rates.
Like you, I hope to see America on top again. Unlike you perhaps, I see the solution as a cultural and business driven one as opposed to a government driven one.
“Wow, even DLS was relatively civil”
GD, I don't hesitate to strike back hard on this, a political forum, as well as be demonically creative at times. There's a difference between the on-line persona that eventuates from that and how we are ordinarily.
Plus I take true advice on behavior to heart, as well as learn from examples like Axel's.
You can hit back yourself, or do as I've done actually with Axel before, the simple “ignore” decision.
“I think DLS is an older guy like me, probably affluent too.”
Well, I dress down and live loosely, but not too affluent. Not independently wealthy yet means there's always room for improvement. I've been learned on investments and such since the 1980s, but also have had a pre-existing medical condition, reorienting my “investment” program toward medical care-related expenses. My condition, given what the numbers say, may just have “solved” how I'll deal with the future…
* * *
“You and DLS don't see a problem with the massive wealth gap in this country”
Actually, I've tried to explain that I'm ambivalent and view it as a paradox. The costs of trying to enforce rigid or radical egalitarianism are worse than any hoped-for benefits. But more importantly, we'll always have inequality so long as we have freedom, because people are different and will achieve more or less rather than be clones. (Biodiversity, you know!) That's aside from enviromental effects and what we see with not only other things in the sciences, as the authors on this site emphasize, but in economics, with home prices or incomes (where the median, you already know, is needed because the mean is all but useless). “Life is log-normal” — the effects of various elements of our environment are synergistic, which is to say more precisely that they are true factors, not merely additive, but multiplicative:
http://www.inf.ethz.ch/personal/gut/lognormal/b…
yet as I've said, we also identify the worst, most retarded states of development in this world with features that include gross inequality of wealth and income(!) — and the degree of it is how we view how bad those nations are.
We need freedom, and thus we accept inequality — yet the worst nations on earth are terribly inequitable. That's the paradox.
(The ability to reconcile these two things would give a big boost to leftist criticism of inequality in the USA and the rest of the OECD. I would believe this might lie in a Gini coefficient adjusted for a log-normal income or wealth distribution, with corresponding identification of and adjustments for “unjust” factors affecting the distributions everywhere. Adjust by purchasing-power parity for a world standard. Adjust by PPP $15,000 when beginning revised global poverty research, and so on.)
* * *
“Far easier to take the safe route and perform marginally”
That is our future the more monstrous the federal government becomes. Were we to proceed to what we see in some cases in the states, imagine widespread federal employment with most people's career objective “to retire at full pension,” which may be much less impressive than one would hope for (if one would still be hoping for or thinking of better things). In practice, we'll still retain our traditional more-private system but it will be ceaselessly drained of energy (like being in the humid East in summer) by inhibiting incentives and higher taxes. That will be the plight of individual taxpayers, too, as the retirement programs grow (along with everything else). I suspect we'll be somewhere much closer to how Europe is today, economically and incentive-wise, by the 2020s-2030s.
good comment
Obviously we're at an impasse. The vast majority of people in the US cannot save the million or two it takes to retire. This whole debate is over a dead on arrival fantasy that we're going to keep people working til they physically cant, which the electorate will not allow and you know it. Look at the disparity, the unsustainable concentration of wealth at the top http://www.lewrockwell.com/alston/five-year-inc…
We can return the distribution to something more equitable, and that is what a democracy should do. Obviously the top 1% doesn't have the votes in an honest system to tweak the rules in their favor.
As for the folly of “let em work til they drop” there are huge problems with that. Voters now say jobs is the number one issue in America. But you guys want to increase the job deficit by another 10 million. It's like you just let 10 million immigrants come in to take the jobs.
Except it's worse, because you say in such a cavalier fashion that there's no problem with people working longer. 70 is the new 60 and all that. But it's not true. Look at current statistics on on the job injuries, in which those over 65 are around 10 times more likely to be hurt or miss days from illness than younger employees.
http://www.tdi.state.tx.us/news/artwork/blschar…
So not only do you rob the elderly of a dignified retirement, which we CAN afford, you hit employers with higher accident rates and sick days.
Those arguing for this, DLS and steveinch, maybe zzzz, are all alone in this. Neither party will ever do what you propose. It's just a selfish “you're on your own” fantasy. “Let grandma eat cat food” if she didn't have the foresight to save a couple million. And all because she had to have that damn cell phone. Well, now she should sell the family farm that's been in the family for generations, and all her savings, which she had hoped would help her grandkids with a college education, etc.
Not trying to spin a sad story here, but imagine your party campaigning with that kind of a platform.
As I said, DLS is an old fart. Doesn't matter what he or I think in terms of long term solutions. But the younger ones here, better season your fantasies with a little reality or you're just pissing in the wind.
LOL Green.
I've said several times on this and other threads that I DO NOT believe that raising the retirement age is the right solution to the problems that face social security. I believe means testing is a more efficient and more effective solution. I know you don't like that idea either but please do not argue that I'm for seniors working until they drop. I'm actually for seniors spending their own money rather than taking the money of others so they can leave money to their heirs. I still don't understand why you find that idea objectionable but of well.
As to your points on income distribution, we are at an impasse. It's sad that we won't agree on this and I suspect that if we were in a room with a chalkboard, we could work it through; but, the limitations of website posting are that it's hard to keep a conversation on a consistent plane and I think we are suffering from that here. On the contention that government could fix it, I don't see how but that's just me.