Income Inequality, the Rich, and the Poor

You might want to check out this column by Robert Samuelson in the Washington Post respecting myths about income inequality. His basic point is that the poor aren’t poor because the rich are rich.

I think that depends a bit on how you define “rich” and “poor”. If you define rich as anybody with a household income over $250,000, as the Obama administration seems to do, and poor as anybody who has a lower income than that, as many people seem to do (it’s the only way you could evoke sympathy for the financial plight of a married couple who are both Chicago Public School high school teachers, for example), I think there’s a case to be made.

As I’ve said any number of times before, I reserve the term “rich” for what’s called the “ultra-rich”—individuals in the top .1% of income earners and “poor” for those in the bottom quintile of income earners. I don’t honestly believe that using those definitions the poor are poor because the rich are rich. I think those rich are rich because they’re the few who are in the “long tail” of income earners and those poor are poor because they’re immigrants without working skills, black, disabled, and so on.

9 comments… add one

  • steve

    The actual facts about inequality are still hard to ascertain. Serlin, at the link, goes over some of it. We use household data, not individual incomes, for the most part which obscures some things. As he points out, how we live and spend has changed. Even using household data, families are more at risk for problems when one person loses a job.

    Given the way we define poverty, we will always have folks living in poverty. Add to that the fact that i dont think we know much about how to change it, I suspect the best we can do is decide what level of resources we are willing to commit to ameliorating the worst parts of being poor.

    What matters in the long run is this extreme concentration of income and wealth into the hands of very few people. We should correct the rents going to those at lower levels as a matter of good policy, but while the top 1% control 20% of income, the top 0.1% control 10%. I am skeptical that you can have a functional democracy with those levels of wealth in the hands of so few people. When you look at the votes of Congress, they parallel the interests of the wealthy constituents in their districts.

    I could be wrong. After all democracy is still, as Mao pointed out, fairly new. Still, socialism and collectivism are relatively new ideas and new threats that are already pretty weak. The long term governance model has always been some form of authoritarian/totalitarian govt. That is what we should fear, and money buys the kind of power to do that. If we are on the road to serfdom it is because we are developing new royalty.

    http://richardhserlin.blogspot.com/2014/02/important-points-that-are-rarely-made_2.html

    Steve

  • PD Shaw

    @steve, a lot of what Serlin is complaining about though is costs, not income. Perhaps two-income households are a response to income problems, but among the peers I grew up with, the women were planning to work anyway. And the story might be that they were going to spend their money on their children, their homes, their health and their education. If the demand for some of these items increased beyond their supply or if the goods were positional, then the increased cost may have not corresponded with an increase in value.

    If one starts with the idea of a “cost” problem, then some of the solutions to income inequality might exacerbate the problem.

  • steve

    PD- I think his first point is important. Individual wages have not advanced at the same rate as household income. For men it has decreased. You are correct that costs are probably his major focus. While costs like food, clothes and appliances have decreased (as some people like to note, everyone has a TV and air-conditioning), those decreases are far outweighed by the costs of child care, education and health care. And, if one of the earners in the household loses work, or gets downgraded to a lower paying job, those are the kinds of costs that are mostly fixed.
    Steve

  • PD Shaw

    But have real wages declined as a result of employer healthcare insurance costs? I’ve linked to a study before that found that the gini coefficient has not changed and may have improved over time if we consider healthcare compensation received by employees.(*) That still leads to the problem in his second point that the worker has less ability to save and less margins for serious problems in the event of unforeseen adversity.

    (*) I’ll admit that the study had to make certain judgment calls about how to value non-wage compensation, including the value of Medicaid; its easier to use a line on the tax returns for consistency. But I think employer healthcare benefits are paid for by the employee until their labor isn’t worth the benefit, and is dropped.

  • ...

    PD, there’s still a problem with adding in employer healthcare costs: If you’re healthy and your insurance gets more expensive, you’re not actually getting more of anything.

  • Red Barchetta

    I was musing over why a complete analysis of income equality always seems to stop short. Anyone can say “well, gee, that guy’s got money, that guy doesn’t, so let’s take it away from the guy with, and give it to the guy without”………..simple enough, right? Not simple.

    No one ever stops to ask about the effect of the money taken away, presumably through taxation, has on the general population, including both the poor and middle class.

    It predisposes consumption by “the rich” is less worthy than consumption by the middle class or really poor. And it dismisses the effect of “the rich’s” investment utilization of their dollars and the resulting effect on those two groups.

    The yacht tax example I previously made makes the point that there will be losers of employment in addition to recipients of government transfers. Further, the primary beneficiaries of investment are workers and consumers. (Its not capital; I’m literally looking at a FedBank of St Louis produced graph showing labor’s take of total income from 1950 to 2005 rock steady at 70% +/- 2% in any year) , Taking money from the rich backfires for all but the very poor. But we spend so little on the very poor vs. for the middle or upper middle and/or rent seeking classes we could that provide for them and just suffer the relatively small malinvestment as a cost of civil society. But politicians are too busy buying votes of middle/upper and rent seeking classes. More of them, you see.

    The standard argument of the left goes like this, if a rich man was on his way to frivolously buy a new Brioni suit but passes a poor child, shouldn’t we take the rich guys money to give to the child? But the real argument should be what if you are driving an ambulance filled with critical hospital supplies and you pass a child with a broken leg, but if you arrive at the hospital on time you will save many lives. Should you stop and give the child with a broken leg comfort, or get to the hospital fast to help many?

    We are very good at looking at those receiving benefits and feeling good about what we did for them, and very bad at seeing the full picture, those who are harmed by an activity like increasing minwage or draining taxation. They have no voice, because making that argument requires understanding of investment, organizational behavior and economics. Better a heart wrenching 30 second political sound bite and appealing to people’s Willie Horton instincts.

    Even if all the left claims is true and laudable, mechanically the point steve makes is inactionable. Corporations do tremendous amounts of regulatory capture, which he didn’t mention. And the very rich will always be so much more rich – even after redistribution schemes – that they will get their say with the politicians and regulatory bodies.

    This is why I always observe that the solutions are 1) smaller government with less scope and capability to award favors to the rich and powerful, not bigger government and, 2) economic and job growth that lifts the bottom quartiles………….and forget what someone else is making. Is the “solution” to the Seattle Seahawks winning another Super Bowl to take away their cleats, or let the other teams get better??

  • Red Barchetta

    Separately, I don’t know if Dave is planning a piece on the equity markets fall but…………

    While Michael has been crowing about the stock market as evidence of a great economy and Obama the Savior………. I’ve been telling you that pumping money into an economy that doesn’t know what to do with it will watch it flow into assets, inflating their price. It appears that the Great Monetary Experiment is reaching its limit, and tapering, whatever its final point is, has created a musical chairs mentality.

    The only other possible explanation is the fiscal drag of ObamaCare (larger than the payroll tax reinstatement !!) and the potential for recession.

    Neither reflect well on economic stewardship.

  • ...

    No one ever stops to ask about the effect of the money taken away, presumably through taxation, has on the general population, including both the poor and middle class.

    It doesn’t have to be money taken away. This is what is so goddamned aggravating about this “debate”. Both Republican Party faithful (Drew) and Democratic Party faithful (Michael, steve) cast it as some sort of confiscatory process, as though that were the only means of addressing the issues at hand. I’ll note that it is the rich people in both parties that do this, knowing full well that this will kill the debate and insure their own illustrious positions of grabbing more and more for themselves.

    And it’s not like Schuler hasn’t discussed this ad nauseum going back to the earliest days of his blog. Grrr.

    But please, keep presenting it as a case that you rich guys MUST get more and more and more and more and that everyone else should get less and less and less and less. Because otherwise the poor people will starve.

    Goddamn, but I don’t think there is an honest rich person alive in the world today….

  • Red Barchetta

    You completely and totally missed the point, ice. A total whiff.

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