How economic inequality harms societies?

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How economic inequality harms societies?

#1  Postby talkietoaster » Apr 09, 2013 12:13 pm

http://www.ted.com/talks/richard_wilkinson.html

I am a person that hates the income divide between poorest to richest, now every time I see the government make policy that increase this inequality I know they are hurting us due to greed.

I hope you find it as interesting as I do.

Why do you think people defending policies set by governments that create these problems when its evident that it harms them?
''Do not argue with an idiot. He will drag you down to his level and beat you with experience.'' - Smart Person at some time.
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Re: How economic inequality harms societies?

#2  Postby Loren Michael » Apr 11, 2013 5:38 am

1) Fuck videos. They take time, they're harder to quote, etc. Transcrpt that shit (and post said transcript) or GTFO.

2) "Economic inequality" needs to be defined.

Here are good observations, some of which I will agree with, on different kinds of inequality, and how people, economists and non-economists, perceive them:

http://www.themoneyillusion.com/?p=10259

Some non-economists suggest that economists care too much about maximizing utility, and don’t care enough about income inequality. Of course exactly the opposite is true. We pay little attention to utility, and focus way too much on income inequality. BTW, this criticism could also apply to me, as I have done posts discussing ways of reducing consumption inequality.

I probably care less about income inequality than the average progressive. I think that’s partly because I’ve known lots of lower income people, and I’ve almost never found it to be the case that their income was the central problem in their lives. (Although it certainly is a problem–which is why I favor some income redistribution.) On the other hand, the sample I’ve known is very biased, and unrepresentative of all poor people. I’ve never known a migrant farm worker. Another reason I put less weight on income inequality is that money has always mattered less to me than to the average person, even when I had very little (age 18-26). Again, my view is slightly biased, as being poor and young is quite different from being poor and middle-aged.


[...]

As far as money problems, there is also a huge gap between America and the rest of the world. I recently heard a progressive criticize Obama. He started his comments by saying something like “If progressivism stands for anything, it stands for helping the middle class.” What?!?! Those sentiments are truly disgusting, repulsive. The focus should be on hunger in America.

http://www.themoneyillusion.com/?p=7215

(Where the famous "perceptions of inequality in America, desired inequality of America, and actual inequality of America graphic is discussed):

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I’d like to discuss some [...] problems with the [inequality] data:

1. Life cycle effects: I dragged out my annual Social Security data that I get in the mail, and it shows how much I earned during each year. I tried to do a rough adjustment for cost of living changes, to make things fairer (otherwise my income looks extremely unequal.) I am pretty sure my five income “quintiles” are roughly as follows: 3%, 13%, 22%, 27%, and 35%. In other words during my worst 7 years I made 3% of my total real lifetime income, and during my best 5 years about 35%. Some people have a more equal profile, whereas others have a far more unequal profile. I think I’m probably not that atypical. The point is that if we had 100% lifetime equality in earnings, but wages that rose with age and experience, then that’s the sort of income inequality we might observe in America. The actual income inequality is greater, because inequality is not just due to life-cycle effects.

2. Inflation: Suppose you are the richest guy in the world, owning $100 billion in Microsoft stock. You cash out and decide to live off the interest. To avoid inflation risk, you put it all in 10-year indexed TIPS. You would earn $650,000,000 per year in interest. Unfortunately your tax liability would be more than $650,000,000. The government would report your income as about $2 billion. So the person who might well have the highest reported income in the entire country according to official data, might not have any real income at all. Now obviously most rich people don’t put all their money in TIPS. They take bigger risks and get positive rates of return. But risk implies the possibility of loss. Some do much worse than the hypothetical I gave you. Of course even with no income a person this rich has a fabulous lifestyle, which is what I would argue is exactly the point. Look at consumption inequality, not income inequality.

3. I am pretty sure that a lot of the wealth inequality data is incomplete. I recall reading that it often ignores structures (which is much of the wealth for average homeowners and shopkeepers.) It may ignore pensions. Many retired public employees have defined benefit pensions that would be hard to replicate with a 401k holding a million dollars. It ignores human capital, making it impossible to compare human capital-rich brain surgeons and lawyers, with physical capital-rich farmers and landlords.

4. Income inequality data is often collected at the household level, implying that a doctor making $250,000 with a stay at home spouse is no better off that a Boston cop making $150,000 (including lots of overtime) married to a nurse making $100,000 (including lots of overtime.) But the two income couple might have to spend money on child care, and have very stressful lives doing household chores on top of their paid jobs. This isn’t a major bias, but many people who naively think of the top quintile as being “rich” would be shocked at how many working class couples in their 40s or 50s who are dual income and live in high cost areas like NYC and Boston actually fall into that category. I’d guess two married people each making $55,000 would make it the top quintile, and I’d guess a couple who each make $75,000 would make the top decile. Those aren’t gaudy incomes around here...


http://www.themoneyillusion.com/?p=17809

(Regarding inequality in Singapore)

It turns out that about 80% of the population lives in those public housing projects that I mentioned. From a purely visual perspective, they look much nicer than the ones you see in China. The walls seem freshly painted with pastel colors, whereas in China the walls are stained with pollution, and the paint is often peeling. (Singapore has very little pollution by Asian standards.) But I think most middle class Americans would be disappointed by the home of a typical middle class Singaporean. It seems that Singapore is a place where the poor and rich do really well, but the middle class only so-so. I’m told that (from the outside) the home of someone making $30,000 per year looks almost the same as that of someone making $130,000/year. At best the richer family has a slightly bigger unit, and a nicer location. Both of my sources indicated that it wasn’t quite accurate to say Singapore has no poverty, but when I asked if they could show me some slums, both said that there aren’t any. I gather the situation is sort of like the Nordic countries or Switzerland; there are some poor people here and there, but no significant slums of the sort you see in America.

So why do leftists like Singapore so much? Consider that Keynes once said that poverty is ugly. Singapore is certainly not ugly (although it’s also not beautiful.) It has universal health care. It has very strong environmental laws such as congestion pricing and ultra high taxes on cars. As a result the middle class relies on the extensive system of mass transit. That doesn’t mean everything goes smoothly. The population has recently grown quite a bit (via immigration), putting some pressure on the housing stock and also increasing traffic. Even so, traffic is far lighter than other Asian cities. Things seem to work in Singapore.

Moderate leftists tend to be utilitarians. And Singapore seems like a place run by utilitarians. If you believe in diminishing marginal utility, then you’d be impressed by a place where almost everyone lives in the same type of place. In America we have beautiful upper middle class towns like my own Newton, Massachusetts, and lots of ugly low income towns. Singapore’s not like that, despite having slightly more income inequality. My theory is that leftists don’t really mind a place where income is unequal, they don’t like places where income looks unequal. In my town liberal millionaires typically drive Camrys.
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Re: How economic inequality harms societies?

#3  Postby zulumoose » Apr 11, 2013 7:23 am

Inequality of income is not a problem by itself.

The problem is when the lowest groups do not have the basics, through no fault of their own.

Would anyone have a problem with a system that rewarded the most talented and hard working (and even the luckiest or most in-demand) with fabulous wealth if at the same time even the poorest of the poor had a minimum standard of living that involved housing, healthy food, access to healthcare, and equality of education and opportunity?

It is not the gap that is the problem, it is the inability to provide the basics to the needy, and allow the talented but less privileged to earn fair reward, at the same time as massive resources are spent on things that should ideally be unnecessary or at least scaled back to a fraction of their current size, like the military, foreign aid, law enforcement, courts, prisons, subsidies, etc.
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Re: How economic inequality harms societies?

#4  Postby I'm With Stupid » Apr 11, 2013 7:44 am

zulumoose wrote:It is not the gap that is the problem, it is the inability to provide the basics to the needy, and allow the talented but less privileged to earn fair reward.

In poorer countries this is the case, but in richer countries, where the basics are generally provided to everyone, income inequality does become the major factor in all of the social problems mentioned.
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Re: How economic inequality harms societies?

#5  Postby Loren Michael » Apr 11, 2013 10:02 am

I'm With Stupid wrote:
zulumoose wrote:It is not the gap that is the problem, it is the inability to provide the basics to the needy, and allow the talented but less privileged to earn fair reward.

In poorer countries this is the case, but in richer countries, where the basics are generally provided to everyone, income inequality does become the major factor in all of the social problems mentioned.


With respect to at least what has been contributed to the thread so far, I'm in complete agreement with zulumoose.

It's not clear how income inequality is the major factor in things like the military, foreign aid, law enforcement, courts, prisons, subsidies, etc. With respect to prisons and the law enforcement that sends most criminals there, that seems more reflective of problems stemming from poverty, a justice system that doesn't address recidivism beyond locking more people up for longer, and things like bad drug policy.

Bad courts and subsidies may lead to inequality, but it's not clear that inequality has much of a reciprocal effect as much as insiders with problematic access tend to lock themselves in to their privileged position and others out.

Etcetera.

I think it's all poverty and cronyism. Regressive taxation and a poor welfare state (or an upwardly-re-distributive welfare state) may lead to inequality, but it's the individual facts of that inequality of cronyism at the top and impoverished people at the bottom that is the problem.

No poverty and a few ridiculously wealthy people at the top is still going to be non-equal, but it's not clear how that starts driving problems.
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Re: How economic inequality harms societies?

#6  Postby zulumoose » Apr 11, 2013 10:22 am

I'm With Stupid wrote:
zulumoose wrote:It is not the gap that is the problem, it is the inability to provide the basics to the needy, and allow the talented but less privileged to earn fair reward.

In poorer countries this is the case, but in richer countries, where the basics are generally provided to everyone, income inequality does become the major factor in all of the social problems mentioned.


I think unemployment is perhaps the biggest factor, when the basics are provided (through something like welfare programs).

I think welfare should be tied in to work programs, such that if your education or skill set is not in demand then you can join a work program to increase your welfare minimum according to what you can contribute. Otherwise you end up with a bunch of layabouts looking for trouble, and the public pays the price that could have gone into the work program through crime, policing, courts, and prisons.
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Re: How economic inequality harms societies?

#7  Postby Loren Michael » Apr 11, 2013 10:38 am

zulumoose wrote:
I'm With Stupid wrote:
zulumoose wrote:It is not the gap that is the problem, it is the inability to provide the basics to the needy, and allow the talented but less privileged to earn fair reward.

In poorer countries this is the case, but in richer countries, where the basics are generally provided to everyone, income inequality does become the major factor in all of the social problems mentioned.


I think unemployment is perhaps the biggest factor, when the basics are provided (through something like welfare programs).

I think welfare should be tied in to work programs, such that if your education or skill set is not in demand then you can join a work program to increase your welfare minimum according to what you can contribute. Otherwise you end up with a bunch of layabouts looking for trouble, and the public pays the price that could have gone into the work program through crime, policing, courts, and prisons.


If I recall correctly a lot of low income inequality places in Europe have relatively low crime and relatively high unemployment.

I think the trouble or whatever you want to call it, at least from the bottom, mostly comes from high-stress environments (like poverty) with lot of self-medicating with drugs (which includes alcohol). Lots and lots of vicious cycles in environments like that. Unemployment is probably a factor but I don't know that it's the biggest one. Unemployment with a good welfare state seems like much less of a problem.
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Re: How economic inequality harms societies?

#8  Postby zulumoose » Apr 11, 2013 10:57 am

Feeling useless and unappreciated is a high stress by itself, something that I would think common in a high unemployment situation, even with a strong welfare system.

I think any culture that tolerates high levels of unemployment without the youth becoming a problem should be studied very carefully, somewhere in there are important lessons that many countries would benefit from, factors that are obviously not understood. There must be a lot more to it than "we are all in this together, I don't see anyone getting rich".
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Re: How economic inequality harms societies?

#9  Postby Loren Michael » Apr 11, 2013 11:40 am

zulumoose wrote:Feeling useless and unappreciated is a high stress by itself, something that I would think common in a high unemployment situation, even with a strong welfare system.


Sure.

There is a vast difference between unemployment in a state with strong welfare, and unemployment in a state with little to no welfare though.

I think any culture that tolerates high levels of unemployment without the youth becoming a problem should be studied very carefully, somewhere in there are important lessons that many countries would benefit from, factors that are obviously not understood. There must be a lot more to it than "we are all in this together, I don't see anyone getting rich".


I think culture, as broad a word and concept as that is, plays extremely significant and under-appreciated roles in the economy.
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Re: How economic inequality harms societies?

#10  Postby I'm With Stupid » Apr 11, 2013 12:04 pm

Loren Michael wrote:With respect to prisons and the law enforcement that sends most criminals there, that seems more reflective of problems stemming from poverty, a justice system that doesn't address recidivism beyond locking more people up for longer, and things like bad drug policy.

So is it just a coincidence that highly unequal societies all happen to have these problems, but equal societies don't? There are several reasons why inequality might directly relate to prison population. The talk pointed to social status being far more important in less equal societies, which could conceivably be an incentive to commit crime. It also pointed out that people in less equal societies tend to demand harsher punishments for criminals. Criminal justice systems are a product of the society they operate in, after all.
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Re: How economic inequality harms societies?

#11  Postby Loren Michael » Apr 11, 2013 12:58 pm

I'm With Stupid wrote:
Loren Michael wrote:With respect to prisons and the law enforcement that sends most criminals there, that seems more reflective of problems stemming from poverty, a justice system that doesn't address recidivism beyond locking more people up for longer, and things like bad drug policy.


(1) So is it just a coincidence that highly unequal societies all happen to have these problems, but equal societies don't? (2) There are several reasons why inequality might directly relate to prison population. The talk pointed to social status being far more important in less equal societies, which could conceivably be an incentive to commit crime. (3) It also pointed out that people in less equal societies tend to demand harsher punishments for criminals. Criminal justice systems are a product of the society they operate in, after all.


(1)

http://nomadcapitalist.com/2013/03/31/t ... er-capita/
http://en.wikipedia.org/wiki/List_of_co ... e_equality

Singapore and Hong Kong are hilariously unequal, and yet they're also extremely safe:

http://en.wikipedia.org/wiki/List_of_co ... icide_rate

I'm not sure how to answer your first question because it seems to assume something that isn't true, at least by these measurements. I think this underwrites and undermines (2) - (3) as well.

(2)

Might. I think explanations that hinge on the effects of poverty are far more compelling. Status competition may have some effect on the margin, sure. I doubt its effects relative to the depths of problems caused by poverty though. Most violent crime is by poor people to poor people. If they're trying to take status from others by way of the gun or knife, they're mostly taking it from other low-relative-status people.

(3)

This seems like more of a product of culture than anything, and again, Singapore has famously harsh punishments, famously high inequality, famously low crime, famously low poverty.
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