I actually found the first comment in the thread on Doug Mataconis’s post on the politics of income inequality more interesting than the post so I’ll comment on the comment. In the comment the commenter, well known hereabouts, points to a broad consensus on three tactics for improving income inequality:
- Increasing the minimum wage.
- Higher taxes on “the rich”.
- Limits on CEO compensation.
Those are interesting proposals but it’s not entirely clear to me how they solve the problem of income inequality. I don’t see any way of implementing the last one that will meet constitutional muster. Somehow, miraculously, regardless of the highest marginal rate “the rich” never actually pay it (or at least don’t pay it on a great deal of their income). And the third could decrease income inequality a tiny bit (do a pencil and paper exercise—you’ll see what I mean), do nothing, or even increase income inequality a little. Besides, only about a million people earn the minimum wage. You can’t do much about income inequality by raising the wages of that small a number of people by just a couple of thou a year.
My list of remedies would be somewhat different. I’d
- Reduce the number of unskilled or low-skilled workers coming into the country.
- Reduce our dependence on imported goods.
- Break up the big banks.
- Stop subsidizing the top 3% of income earners as highly as we do.
There might be a few other steps but that would be a start. For the sake of argument assume that income inequality presents a problem we should solve. How do we solve it in the most economically efficient way that doesn’t risk a collapse in our currency?
All these solutions assume that a dollar is a store of value, but it is not. Dollars have a face value and a nominal value, and the nominal value drops as you go down the chain.
The way that the economy is structured makes it difficult to keep the rich from getting richer. The credit supply has an ongoing service charge, and as the credit supply increases, the service charge increases. The rich own the credit supply, and they receive the service charge.
If you begin confiscating the money from the rich, they will not invest it into the credit supply, and the economy will not grow. Because of the increasing service charge, GDP needs to grow increasingly to be able to absorb this additional cost.
I could go with Dave’s plan, which is a more modest version of my own. (I’d cut back pretty much all immigration to zero.)
Failing that, how’s about we just kill all the rich people? That would past muster with that certain individual, I’m certain of it.
Communism sucks, but I’d really go for a communist revolution right about now, just to see the looks on the faces of certain people as they and their families were put up against the wall. “Me? But I meant those other rich people! I was always all for you little people!” BLAM! So long, asshole.
First, as I have said before, it is too late to do much about inequality. The wealthy, in the form of the finance people, crashed the world’s economy, and suffered no real penalties and there was a minimal response, unlike what happened after the Great Depression. The wealthy now own the media, have think tanks telling the media what to say, and they own the politicians.
The problem is at the top. The top 0.1% own 90% of our wealth. The top 0.1% control 10% of our income. With that kind of disparity they can control our politics and those who influence what we think. Even if we increase the minimum wage, we can be sure that we will see the same thing as we saw over the last few years. No increases, and it gradually becomes pretty meaningless. Accompanied by tons of think tank papers, and from captive academic departments, showing it cost jobs and hurt the economy.
This is an international phenomenon. Those who say inequality is not a problem claim that it is ok because everyone is actually better off (rising tide). I think it is fairly apparent that is not the case. I don’t see anything happening until it gets a lot worse.
Steve
The problem with the minimum wage may be the number of people who are trying to support a family on it. Maybe, somebody should think about changing that instead. Unless, you would rather a country full of ignorant minimum wage workers who will obediently vote the way they are instructed, but I am sure that is not the case.
The financial industry does not operate in a vacuum. In the US, the financial institution operates according to the rules set out by the politicians. If the politicians do not have the will to create rules to force them to operate soundly, blame the politicians.
The financial system is a leveraged system, and in that type of system, the people at the top of the pyramid always get the most money (multi-level marketing). As the economy grows, the problem increases. There is no solution, or the solution is for the pyramid to eventually collapse.
These solutions are too brute force to get far. Policies which incentive a shift of national income from profits to wages are much more easily adjusted to.
Ben, there’s a thematic unity to the full range of policy proposals I encourage that goes beyond “brute force”. Here’s a rough outline of the strategy:
Taken together those might fit your “shift of national income from profits to wages” suggestion.
I don’t think Michael wants to commit suicide, ice. But you may recall he self described as a math dummy. It shows.
I would note. A billion people have been lifted out of poverty by international trade. They just aren’t as visible, or the “right people,” from the perspective of some, especially here in the US. Beggar thy neighbor by tightening labor markets through trade and immigrant restriction may be a debatable and desirable policy stance, but it should be acknowledged for the inherent tradeoffs it contemplates. I wonder just how different the picture might be by tempering the mercantilist strategies of our trading partners. It’s not clear to me we wouldn’t be having the same discussion. I’m not impressed that workers in the steel, auto and public sector haven’t used competitive restriction and regulatory/political capture to line their own pockets and screw their neighbors. Anyway, I’m surprised it hasn’t been embraced as policy by the Obama administration for its value in explaining away jihadism by jobless ME youths.
GE will be announcing a major investment in plant and people (employment) based upon an emerging technology for parts production that has similarities to the technology Dave cited recently in “building up layers” of engineering materials to create composite structures. The market potential is measured in billions. Confidentiality precludes me from saying more now (there will be a public announcement in the future) other than to say the investment will be in the US but, uh, not in the nutmeg state, or IL, CA or MI for that matter. Imagine that. Call me crazy but that’s the type of stuff I’d focus on.
Where are the jobs for the workers? When the classic economists discussed increased productivity, they meant increased units of output per worker with the total output increasing. Productivity was a function of work and workers. Today productivity means decreasing the cost per unit of output. Productivity is a function of cost.
While in the classical economist theory productivity and cost were related, the way you reduced costs was by increasing output by investing in machinery and/or automation. In many instances, this would require additional workers.
Without fiat money, very few people can make money leveraging money. Most people will need to invest in actual real things to get a return on their investment. Money invested overseas would be money not invested in the US, and this would result in fewer US jobs. Importing goods from those overseas investments would be self-limiting because those investments resulted in fewer jobs. The fewer jobs resulted in few real dollars available to purchase the imported goods, and the imported goods businesses would not be able to sustain a high return.
Fiat money short circuits the system by injecting money into the process. The importers obtain a return on investment higher than they should because consumers have fiat dollars to spend, and consumers have fiat dollars to spend because they can borrow from various outlets. Many also have jobs that are related to the financial system because of the fiat dollars.
The fiat dollars cause jobs related to fiat dollars to be created, and they cause jobs related to the importing of goods from overseas investments to be created. Fiat dollars cause distortions in the market, and they seek new and fascinating ways to be used. These new and fascinating ways require related job creation – housing and higher education. Fiat dollars are also invested to create more fiat dollars, and some of these newly minted fiat dollars are used to create more fiat dollars.
You can confiscate any amount from the rich, and you can make the minimum wage any number you like. It will never work. The financial and monetary system is a ponzi scheme, and in order to keep it from collapsing, it must be fed. This also means that those at the top will always be getting richer. Trying to replace the rich at the top with the government will not work because people pack up and move.
Quite a bit. Germany, China, and Japan need to consume more. They need to use the dollars they accumulate in trade to buy goods and services other than Treasury bills from us. That could induce a dramatic restructuring of the U. S. economy in favor of producing goods and services that can be bought in other ways than financialization. None of them have an excuse any longer and, in the case of China, I think their dependence on exports for economic growth is actually restraining their growth rather than promoting it.
The U. S. trade deficit with China in 2014 was almost $350 billion. If China were to cut that in half by buying $175 billion more worth of goods and services from us, that would mean hundreds of thousands of jobs here. Based on the first four months of 2015 it’s on track to be 10% higher this year. And China’s just one country. The only way China manages that balancing act is engineering.
I don’t think Michael wants to commit suicide, ice. But you may recall he self described as a math dummy. It shows.
In my “up against the wall” scenario I’m counting on people like him NOT wanting to commit suicide. It makes it funnier that way.
You may first want to pour yourself a stiff one, ice, should you decide to read this link.
http://www.zerohedge.com/news/2015-06-06/illegal-immigrant-recovery-presenting-most-stunning-number-may-jobs-report
I have no reason to doubt the statistics.
Thanks for the warning, but that’s actually old hat, and is part of a trend that predates the recession. I mean the recession before last.
Besides, at the moment my hard stuff of choice is pisco, and I don’t have any. Have to see if I can find some, or if I’ll need to arrange something with my main Peruvian connection. (As opposed to my secondary Peruvian connection, who unfortunately does not exist.)
After sifting through some of the older posts, I added Zero Hedge to my RSS reader, but I may have to drop them because of the volume of posts. From the posts I have seen, there is nothing I have written that would be out of place over there.
I could not post a sample of links without the spam filter sending out a hitman. I did like the takedown of Jamie Dimon from a few days ago. Amazingly, I did not see any links to that article. Here it is:
How Jamie Dimon Became A Billionaire
If one is going to link to a site, I would suggest understanding the context of the links. For everybody else, you can read the link and decide for yourself if Zero Hedge supports Republican and conservative nonsense or if they think Republicans and conservatives are part of the problem.
The fact that the chief blogger at ZH chose the moniker Tyler Durden pretty much sums up the point of view.
I’m late to this party, but here’s some ideas that are likely to be pretty unpopular but might make a difference:
1) One comment was on the “0.1%” which actually in the area where people start having massive gobs of money (more than can be consumed in a lifetime). Even the 1% can’t afford a high-ends sports car (a $500k car costs more than they make in a year). Who gets in the 0.1% (or about 300k people in the US) CEOs, “Long-tail” people in entertainment/sports, the born rich, very lucky investors, people who found successful start ups and sell them.
Arguably, the groups easiest to target are those in the financial industries (break up the banks, tax financial transactions, etc), and the start up people. One thing that’s interesting is laws on ownership of corporations before they go public; this can greatly reduce the pool of investors who get a payday from start ups to only the very rich and those willing to quit their jobs, risk everything to start a business.
2) If you think of the problem as not being “the 1%” vs “the 99%” or “the 1%” vs. say, the bottom 20%, but instead ask the more reasonable question of “what keeps someone from moving up one rung on the ladder?” The problem changes. The concentration of wealth in the hands of the super-wealthy is a real problem, but another is the “floor” the government puts on the middle class. Government transfers to the middle class are HUGE and varied: The middle class benefits from mortgage interest deductions and from the government deciding to not tax significant expenses of the middle class (education including savings plans for education; health insurance, tax deductions for just having a kid under 18, allowing people to sell residences tax-free; retirement savings). If you accept the logic of the “1% is the problem” people, then the 1% don’t pay “their fair share” so those subsidies have to come from somewhere, and they tend to come from the poor. Cutting these middle-class subsidies will then free resources to help those who can’t afford a down payment on a home, etc.