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.
Taxation = slavery! Poor rich people, working so hard just so that the government can take it all away. That, and so that they can buy really big yachts. Just like the slaves.
I always underestimate.
Is it too much to apply the term “fat, dumb, happy” to most Americans?
I think, Sean, that max’s comment is tongue in cheek – you set yourself up for that with your final paragraph. Does it count if one of the 5 comments is your own?
I am certain that max’s comment is tongue-in-cheek. Just like an observer affects what is being observed, the converse is also true.
I’m struck that the distribution of wealth almost perfectly corresponds with the Pareto Principle:
http://en.wikipedia.org/wiki/Pareto_principle
If that’s a useful principle to apply, then the problem (as the above wiki cites Paul Krugman as saying) if there’s a problem not with the top 20% but the top 1%. (And even if that IS the case, that merely implies that the top 1% is stealing from the next 19%, right?)
Since most americans are still able to afford new luxuries (TVs, cars, phones, etc.) despite their shrinking incomes thanks to (formerly?) cheap and abundant credit as well as Moore’s Law, they will continue to ignore the problem.
The other one to watch out for is something along the lines of “You can’t deny the existence of the Laffer curve!”, in extreme cases followed by ” /thread”.
I’ve noticed this being thrown into many, many tax discussions on the Internets recently. It can be read as a (possibly quite profound) comment on the existiential status of theories and models, or a hopelessly hollow argument for cutting taxes.
How many comments do you think we’ll get before someone claims that taxation = slavery? I’m guessing five.
Isn’t this really just a corollary to Godwin’s law? To cover all your bases, you really have to have “taxation = nazi slavery”.
On a slightly more serious note, why wouldn’t one expect to see net worth statistics follow a power law distribution? Has anybody done this analysis?
Sure, but what power?
Taxation only equates slavery if the taxers take away 100% of income from the taxees, and then gives them a shanty on federal land for a house in exchange.
So the point of worrying about how much wealth other people have is…what exactly? What are they doing to harm the bottom 80%, being wealthy?
My point is that even “total wealth” is a bad proxy of inequality when everyone’s quality of life is improving. Yes, millionaires can afford to drive Bentleys, while we proles are stuck with Kias; overall, life’s necessities are less expensive now than in the past.
The problem that these statistics try to probe in a pretty blunt way is that we do not believe that the top 1% are adding over 80% of the VALUE to America. Since we want money to be a reward metric for adding value to society (this is the theory behind why capitalism is good, right?), the fact that non-value-adders are somehow siphoning off all the rewards is disturbing. Taxation is a blunt instrument for correcting the real problem: that people who have access to large amounts (and flows) of money are shaving off small percentages of it without doing much of value to society.
A CEO has access to the budget of a multi-billion-dollar company. It’s trivial for him to give himself 0.1% of it to do what is maybe a 200k$/yr job. An investment bank has access to billions of dollars in other people’s pension funds. It’s trivial for them to give themselves 0.1% of it to shuffle money around with the acumen of somebody making 100k$/yr. Now, maybe you can say “nobody’s job is worth more than 500k$/yr” and then tax the hell out of anybody making more than that, but I think there must be a better way to target the problem.
>So the point of worrying about how much wealth other people have is…what exactly? What are they doing to harm the bottom 80%, being wealthy?
Because social and political power is roughly proportional to wealth. That has bad effects on its own, through loss of personal liberty, power over your own life, and privacy. Not in the imagination of libertarians, in the real world. That part is bad enough.
But it also creates a feedback loop, where as the wealthy gain more power, they can rig the system more in their favor. Eventually you get an economic-political singularity effect, and you live in a society that works along the lines of Russian gangster-capitalism.
“I am certain that max’s comment is tongue-in-cheek. Just like an observer affects what is being observed, the converse is also true.”
hmmm… an inverse Heisenberg Principle!? …has someone sent that in to arXiv???
@Bruce the Canuck
You are so right my fellow Canadian.
I wanted to upload a graph that shows the nation’s income gains going to the top one percent at the highest level since 1923 – 1929 (but I don’t know how to drop in here). The data is from CBPP calculations based on data from Piketty and Saez. It shows that from 2002 to 2007 the share going to the top one percent was virtually the same as in the 1923 – 1929 period. It was always less previously, and between 1960 and 1969 it was almost reversed. If anyone can tell me how to drop the graph in, I would appreciate it. Thanks.
A discussion that threatens to take money out of anyone’s pocket will always be controversial, but the growing gap between the rich and poor is an issue of patriotism. Yes, stratification is necessary to reward citizens who study and work harder than others. However, unchecked capitalism is accelerating a polarization of wealth that is unsustainable for any society. To keep the streets from evolving into a chaotic, dangerous commute each day it may be necessary to use tax incentives that keep the highest income brackets under control while propping up those who want an opportunity for the American dream, and are willing to work hard for it. Unfortunately many of the “haves” justify their excess, seeking everything they can get for themselves now. They do not believe America is sustainable anyway, so they don’t care what happens to this nation when they are gone. Is that a normal level of human greed, or an act of community betrayal that borders on traitorous behavior?
To keep the American flag waving is a simple solution; raise taxes on the most ridiculous income levels to deter excess, and provide more education opportunities for the poor and middle class. Duh!
>So the point of worrying about how much wealth other people have is…what exactly?
Another problem with disparate wealth distribution, is that it isn’t always earned – in many cases it’s simply inherited. In such a case, the wealth distribution directly conflicts with our nation’s stated goal of “equal opportunity for all”. (And please don’t accuse me of wanting to do away with inherited wealth, or redistributing all wealth – I’m simply pointing out a conflict between two of our value systems.)
It’s difficult to claim equality when an elite few are born with the resources it would take a thousand lifetimes for the average wage earner to accrue.
“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.”
Actually, it does clearly imply that most Americans are deeply innumerate, assuming that most of them honestly believe that a superflat wealth distribution where the top 20% owns only three times as much wealth as the bottom 20% could be even mathematically feasible in any society short of draconian taxation and equalization programs that would make even North Korea shudder.
For starters, maintaining such distribution logically entails somehow making sure that the retired people (who surely constitute more than 20% of adult population) who have three or four decades of working, paying off their mortgages and making their retirement savings under their belts, would somehow end up with essentially nothing to show for all that work and time.
Of course, I bet most of the people polled just didn’t think about this question, or misread it to be about income, not wealth. And in any case, the uninformed opinions of people about the way some distribution in a deeply complex feedback system “should be” are as irrelevant as polling them about what the value of some gauge inside a nuclear plant “should be”.
I would also like to see these same charts drawn for other countries that are supposedly better to America in this sense. After all, in every normally functioning Western society, the average middle class homeowner in his fifties who has simply paid off his mortgage in and made the rudimentary retirement investments pretty much automatically has the net worth of hundreds of young adults fresh out of college and in the start of their careers, many of who even have a negative net worth due to their student and other loans. Oh, the sheer unfairness of one person selfishly hoarding more wealth than a hundred others!
Wow. That’s pretty disgusting to see. I knew the discrepancy in the US was bad, but that’s pure Third World. It boggles my mind that US citizens continue to put up with this. The mantra “greed is good” seems deeper ingrained in the collective psychy than even the out-of-control religiousity.
My best wishes to friends across the Atlantic for a speedy recovery.
Perhaps if we reverse the many mergers which have allowed businesses, banks and investment firms to become “too big to fail”, we would no longer have multi-billion dollar a year companys from which one CEO can siphon of 0.1% and earn hundreds of millions of dollars. Wouldn’t that also increase competition, lower prices, decrease the disparity and eliminate any entity that must be saved or we all fail?
Well, for a start a good deal of the wealth was made off the poor. Not in terms of value added to work (or whatever the proper translation is), but by downright cheating and stealing. Is that harm enough?
@ Ilkka
Your age explanation doesn’t hold water – it’s not just wealth, it’s also income, and primarily the very tippy-top 1% and above. The change is recent, and stronger in english speaking countries, strongest in the USA. Couldn’t find all the links in the time I have, but these plots show most of the story:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2010/06/the-anglosphere-and-highincome-concentration.html
http://www.sott.net/image/image/s1/37494/full/the_gap_is_not_growing_in_othe.jpg
I am glad you are bringing attention to this dire issue. These charts represent a tremendous injustice: all these poor people are not producing nearly enough wealth.
Not only that, but since time immemorial they have been sponging off those at the top of the pyramid of ability, whose ideas and labor-saving devices have lifted them up from caves to ipods, while these same poor add roughly zero to the accumulation of intellectual capital that keeps this progress going. And then they have the nerve to elect politicians whose inflationary monetary policies have the effect of continuously diminishing the real value of whatever meager savings they do contribute to the capital stock.