"Wealth Inequality Is a Problem...

...but How Do You Even Begin to Solve It?"

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"Wealth Inequality Is a Problem...

#1  Postby Loren Michael » Mar 14, 2013 7:07 am

Two writers at The Atlantic talk about this. Derek Thompson:

Rich people have more money. More money tends to lead to bigger properties, fatter savings, and better access to capital markets. As a result, the top 1% of the country controls between 40 and 50 percent of the total wealth from stocks and bonds. What's more, the very very richest people tend to be lawyers, doctors, and executives, especially in finance, with equity in their firms and companies. And that, right there, represents the overwhelming source of high wealth (as opposed to high income) at the tippy top: It comes from stocks, from real estate, and from business equity.

Poorer people save much less, don't have much in the way of a stock portfolio, and (somewhat by definition) aren't owners or partners in rich private firms. Instead, they might own homes. But homes, as we've seen, aren't always the steadiest investment. All of that explains why the share of total household wealth, which has fallen at the bottom thanks to the housing bust, is accumulating at the top 1 percent.


[...]

The two easiest ways to think about reducing wealth inequality are (a) building up the bottom and (b) cutting down the top. These aren't equally sensible approaches, they're just the two most obvious. From the bottom, if we found ways to make poor and middle class families save more, they could invest that money in assets that got more valuable over time, and this would increase their wealth. From the top, one extreme solution beyond raising taxes would be to find ways to cap income and compensation...

Noah Smith says wealth inequality should be fixed by teaching Americans to be cheaper in their habits:

...A lot of that wealth inequality is actually age, not class. Young people tend to have a lot of debt and not much savings, meaning they have negative wealth (a prime example being yours truly). Also, these statistics don't include things like entitlements, or human capital (the value of your skills and education). So Americans aren't quite as unequal as the video makes out. But they are still very, very unequal.

[...]

...there are reasons to believe that redistribution can't fix all of the problem, or even most of it. If you do the math, you discover that in the long run, income levels and initial wealth (factors 1 and 2 from above) are not the main determinants of wealth. They are dwarfed by factors 3 and 4 -- savings rates and rates of return. The most potent way to get more wealth to the poor and middle-class is to get these people to save more of their income, and to invest in assets with higher average rates of return.

As I mentioned, income redistribution helps these things a bit, but it doesn't account for the whole difference. The rich probably save more than the poor for many more reasons besides the simple fact that they're rich. In fact, being willing to save more is probably a big part of how the rich got rich in the first place. "Cheap" is an insult, but being cheap is how you get rich. If you consume everything you earn, your consumption will be higher today, but lower twenty years down the road; in our consumption-focused society, a lot of people are caught in this trap. And government can and should help them get out.
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Re: "Wealth Inequality Is a Problem...

#2  Postby tuco » Mar 14, 2013 8:55 am

Would not the poor save more if more income was redistributed to them? Many people live from paycheck to paycheck with little to none room for savings.

Also, I am not sure that rich got rich by saving more. Any data? I could claim that rich got rich because they exploited someone - slavery, wars, colonialism, etc - for example.
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Re: "Wealth Inequality Is a Problem...

#3  Postby Loren Michael » Mar 14, 2013 9:21 am

Redistribution only helps if people's consumption patterns allow it to help, and/or the redistribution is such that people can't blow it all at the track, as it were, like going from private, buy-it-if-you-want healthcare to state-sponsored insurance. People can and do make (or take, lol) more and then end up spending even more, paycheck-to-paycheck.

As to how the rich got rich, it depends on the rich person. Two people starting with the same income, time, etc can wind up in extremely different places in very short order though, depending on consumption patterns. These effects build over generations. If I recall correctly, it's extremely rare for people to actually experience upward mobility outside of society-wide growth as in postwar Japan, Korea, US, etc. As such, my understanding is that most current wealth is inherited.
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Re: "Wealth Inequality Is a Problem...

#4  Postby ED209 » Mar 14, 2013 9:24 am

"The very very richest tend to be....doctors"

That's a pretty fucked up situation right there. Medical professionals are highly qualified, alleviate pain and save lives but if they are amassing as much personal wealth as any corporate parasite then healthcare is clearly too expensive, which has implications for access to it.
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Re:

#5  Postby Loren Michael » Mar 14, 2013 10:05 am

ED209 wrote:"The very very richest tend to be....doctors"

That's a pretty fucked up situation right there. Medical professionals are highly qualified, alleviate pain and save lives but if they are amassing as much personal wealth as any corporate parasite then healthcare is clearly too expensive, which has implications for access to it.


At least in America, doctors play a large role in the ballooning of costs. In many parts of the world, nurses are used to perform many routine procedures. In America, doctors regulate this practice out of existence to boost costs. If they do the work of, say, drawing blood, they charge a lot more.

Dentists do the same thing a lot of the time. It's common across many, many professions.
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Re: "Wealth Inequality Is a Problem...

#6  Postby tuco » Mar 14, 2013 10:06 am

Loren Michael wrote:Redistribution only helps if people's consumption patterns allow it to help, and/or the redistribution is such that people can't blow it all at the track, as it were, like going from private, buy-it-if-you-want healthcare to state-sponsored insurance. People can and do make (or take, lol) more and then end up spending even more, paycheck-to-paycheck.

As to how the rich got rich, it depends on the rich person. Two people starting with the same income, time, etc can wind up in extremely different places in very short order though, depending on consumption patterns. These effects build over generations. If I recall correctly, it's extremely rare for people to actually experience upward mobility outside of society-wide growth as in postwar Japan, Korea, US, etc. As such, my understanding is that most current wealth is inherited.


Yes, that is your opinion, that much I understand. You postulated thesis that if people want to get richer they should save more. Thats like saying if people do not want to be obese they should eat less. Fair enough. Granted, US, economy is driven by consumption, I am skeptical to the recommendation that saving more and spending less will become major factor in tackling inequality. Maybe the rich should save less and spend more, what do you say to such idea?

If majority of rich became rich by inheritance, its beyond me how thesis about savings stands. Money makes money. Once I tired it, by putting buch of coins to my locker at work and to my surprise month later there was still the same buch of coins. Made me wonder what makes money if not money? Perhaps some people work, spent time and energy, and some other people make money of such work. Nothing new again, Marx figured it out long time ago.
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Re: "Wealth Inequality Is a Problem...

#7  Postby mrjonno » Mar 14, 2013 11:36 am

If you can save anything you arent that poor, if you have stocks in anything you arent that poor, if you worry about taxes you arent that poor.

Telling poor people to save more is just taking the piss,
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Re: "Wealth Inequality Is a Problem...

#8  Postby Loren Michael » Mar 15, 2013 1:33 am

tuco wrote:
Loren Michael wrote:Redistribution only helps if people's consumption patterns allow it to help, and/or the redistribution is such that people can't blow it all at the track, as it were, like going from private, buy-it-if-you-want healthcare to state-sponsored insurance. People can and do make (or take, lol) more and then end up spending even more, paycheck-to-paycheck.

As to how the rich got rich, it depends on the rich person. Two people starting with the same income, time, etc can wind up in extremely different places in very short order though, depending on consumption patterns. These effects build over generations. If I recall correctly, it's extremely rare for people to actually experience upward mobility outside of society-wide growth as in postwar Japan, Korea, US, etc. As such, my understanding is that most current wealth is inherited.


Yes, that is your opinion, that much I understand. You postulated thesis that if people want to get richer they should save more. Thats like saying if people do not want to be obese they should eat less. Fair enough. Granted, US, economy is driven by consumption, I am skeptical to the recommendation that saving more and spending less will become major factor in tackling inequality. Maybe the rich should save less and spend more, what do you say to such idea?


Rich people spend quite a bit; a lot of their wealth is in relatively nonliquid assets though. But, yes, people sitting on massive piles of cash might spend more. It's not a one-or-the-other issue though.

If majority of rich became rich by inheritance, its beyond me how thesis about savings stands. Money makes money. Once I tired it, by putting buch of coins to my locker at work and to my surprise month later there was still the same buch of coins. Made me wonder what makes money if not money?


I noted this in another thread:

Two people each making the same amount of money over the same amount of time can end up in very different places depending on where they put their money. Their children reap the benefits.

Roughly true story with some boosted numbers and enhanced facts for clarity: My roommate and I make very different amounts of money. We haven't talked explicitly about how much we make, but given what he's revealed offhand he's making at least 50% more than I do.

He buys a lot of guilty pleasure items, and he hits the bars and clubs a lot more than I do. I save about half of what I make each month. He doesn't. If/when we're old and dead and I still have assets, I'll live and work and retire and die in relative spendthrift comfort. My kids will collect what I've saved, I can send them to better schools and maybe retire earlier, or age in such a way that I don't need to work all the time, spending more time with them. With his habits, he will have a less comfortable future and his kids will have less, even though there's income inequality in his favor.

My kids reap the benefits of my habits, his will reap the benefits of his habits, irrespective of initial income levels.

Other habits, like healthy/unhealthy living or good/bad parenting can also affect inequality in one's own life and over generations.

Your story about saving coins... that's savings. That's a reasonable way to use a marginal nuisance and turning it into a tiny nest egg. Increase that savings by a bit and it means fewer financial worries later in life, it means wealth later in life, even if your income hasn't grown by leaps and bounds.
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Re: "Wealth Inequality Is a Problem...

#9  Postby Loren Michael » Mar 15, 2013 1:36 am

mrjonno wrote:If you can save anything you arent that poor


"The poor" are not the only people in the wealth inequality picture. Middle class people can afford to save, and should. To the extent that your not-that-poor people can save but don't, it's good advice for building their future.
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Re: "Wealth Inequality Is a Problem...

#10  Postby AndreD » Mar 15, 2013 2:20 am

Isn't encouraging people to spend less just going to cause a recession?
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Re: "Wealth Inequality Is a Problem...

#11  Postby Loren Michael » Mar 15, 2013 2:25 am

AndreD wrote:Isn't encouraging people to spend less just going to cause a recession?


All wealth is spent eventually. It's bad in the short term just like individual savers have it worse off in the short-term.
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Re: "Wealth Inequality Is a Problem...

#12  Postby AndreD » Mar 15, 2013 2:28 am

Loren Michael wrote:
AndreD wrote:Isn't encouraging people to spend less just going to cause a recession?


All wealth is spent eventually. It's bad in the short term just like individual savers have it worse off in the short-term.


Wouldn't it cascade into job losses, thus leaving some of the poor/lower middle class with a little bit of savings but no job?
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Re: "Wealth Inequality Is a Problem...

#13  Postby Loren Michael » Mar 15, 2013 3:16 am

AndreD wrote:
Loren Michael wrote:
AndreD wrote:Isn't encouraging people to spend less just going to cause a recession?


All wealth is spent eventually. It's bad in the short term just like individual savers have it worse off in the short-term.


Wouldn't it cascade into job losses, thus leaving some of the poor/lower middle class with a little bit of savings but no job?


That's dependent on how the economy is doing. If demand shortfall is cratering the economy, then yes, people not putting money into the economy is going to make it worse.
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Re: "Wealth Inequality Is a Problem...

#14  Postby willhud9 » Mar 15, 2013 5:52 am

Also when those savings increase, you can start using excess money to invest in things such as stock. If you lose that excess money, well it was excess and not vital. But when you gain revenue from those investments, your personal wealth steadily increases. Thus allowing the person to live in a very comfortable state.

My family has for the most part lived paycheck by paycheck, and I have money left over for some luxuries (such as I have internet and netflix), AND I put some into savings. Currently I have 4000 in my savings, and that money is not to be touched unless we are homeless and dying on the streets. The reason is, my credit union generates interest in my savings. By placing income in my savings that income slowly increases while it remains in my account. The boon to this, is if in dire need, I have access to the funds.

But saving money won't save my family, mainly because prior to my father dying my parents acquired more debt than I shake a finger at. We are currently living on borrowed time. We are currently looking at bankruptcy, but the problem with the Chapter 13 is that I need 505 up front to file the case, and I need 360 every month as well as the need to pay utilities and the mortgage. That is an average $2000 a month and I simply do not make that much. The bank is unwilling to work with my mother again in remodifying the mortgage cost. If they could reduce it to 500 a month instead of 1000, that would be great. But as is, the bank is refusing to even listen to us.

Honestly my solution would be this:

Water, and electricity. Necessity in todays modern world. They should be provided via state in incremental limits. You go over the limit the state implements and you pay a small fee, but nothing expensive. As is, my family is paying anywhere from 150-200 a month for electricity and we did the electricity for my work. I have to cut tracks, and saw aluminum beams. Without power, well, that would make work a lot harder. Water is a necessity for life, and hygiene and a civilized society should definitely have free water running in the house.

Housing: I do not believe I have a right to live in a house, but wtf, I should have the right to live in a house that has been receiving full payments and thensome (my mother would put an extra 1500 every month when my father was employed) on it since December of 2004. The whole 3 months~ room for forclosure is a massive joke. And does a bank like Wells Fargo care? Not at all. They want money. If they cannot get the money from us, then they will try to sell the house. Our financial hardships be damned, if we don't meet their schedule, why we should kiss our ass good-bye. This is a problem that needs to change. The banks should be giving people who have hardships, a year, if not more, to get their finances in order before threatening to foreclose the estate. It seems criminal otherwise.

Healthcare: My god, hospital bills are fucking expensive and I cannot afford 150-200 a month for healthcare for myself. Let alone my mother has tried and tried and tried again to get medicaid. My school (I am dreading the student loans as well) has a hospital on campus which offers low income people free healthcare services, and so my family has been using that, but the services are indeed limited to emergency purposes. Meanwhile I have a disabled mother with Cerebral Palsy who has a deteriorating knee cap, not able to get the proper care she needs because we are too poor to afford the appropriate care.

Actual fucking charity: The biggest help to us has not been the government, which has done legit nothing but tell us to fill out forms, deny those forms, tell us to repeat process, ad nausem, but rather our community. When my father's car got repossessed last December because of missed payments, my old church bought us a new one. When I was struggling to pay for my last year of school, my church, plus my neighbors, got me the money I needed. I would love it, it some benevolent person with the money who could actually help, bought our house and just gave it too us. Or at the very least paid off our debts. But no one will ever here of my name, or of my families situation. To politicians I am but a statistic. To economists, I am but a statistic. To people on this forum, I am but a statistic. They use me as a focal point of discussion to create "change" but then they pass over me and my situation because they themselves do not want to directly help. Will a senator actually give me $15,000 if I were to ask nicely for it? Fat chance in hell.
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Re: "Wealth Inequality Is a Problem...

#15  Postby Sonoran Lion » Mar 15, 2013 8:29 am

willhud9 wrote: I would love it, it some benevolent person with the money who could actually help, bought our house and just gave it too us. Or at the very least paid off our debts. But no one will ever here of my name, or of my families situation. To politicians I am but a statistic. To economists, I am but a statistic. To people on this forum, I am but a statistic. They use me as a focal point of discussion to create "change" but then they pass over me and my situation because they themselves do not want to directly help. Will a senator actually give me $15,000 if I were to ask nicely for it? Fat chance in hell.


Sometimes people get too focused on the statistics and forget that they represent real people. Maybe it is easier to fall into that trap if you have had no experience with what that statistic represents. Maybe it is easier to talk about things like homicide rates or homeless statistics if someone you cared about has never been dead in the streets or asked for a place to sleep for a few weeks. Maybe it is easier to focus on the statistics to keep your mind off of off the more painful things at times. Maybe it is easier to talk about the statistics because you are tired of the way things are. I feel that I have fallen into all of those maybes at some point in all of my discussions that I have had with people in my life. Some people do not want to help, and I wouldn't expect the help of a stranger in terms of large amounts of money, but a lot of people cannot help much with money because they are working to just meet their expenses and put food on the table, too; however, I find that the kindness of a friend or family member is always welcome no matter how much it is they can do. It is their kindness that I have learned can be counted on when I am in need. But if we want to change the way the government works for the people and to try to improve the lives of those that are struggling in a large scale way, then I think we need to work to create awareness and to convince the unconvinced that a society that helps those that are struggling is a better society. We cannot help everyone in need directly ourselves, even in regard to helping friends and family at times, but I think we can always do what we can to raise awareness.

I apologize for sounding rather impersonal in the above paragraph. I know you are going through hard times right now and that it is frustrating and scary. It would be nice if someone with the means were kind enough to give you what you need in order to help you just keep your home and pay the necessities. It would be nice if these problems had easier solutions, or at least better ones. Banks can be very hard to work with, if they work with you at all and the system sometimes doesn't work like it needs to in order to help people that need it the most. I do hope that something starts to go your way so you don't lose your home and can pay your expenses easier.
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Re: "Wealth Inequality Is a Problem...

#16  Postby Panderos » Mar 15, 2013 3:45 pm

This article should be called 'Wealth Inequality Exists' since it doesn't make the case that wealth inequality is bad.

I'm thinking about Denmark here again of course..
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Re: "Wealth Inequality Is a Problem...

#17  Postby tuco » Mar 15, 2013 4:22 pm

Employee stock options. Employees not just executives. But who will give them away? The rich, willingly not.
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Re: "Wealth Inequality Is a Problem...

#18  Postby felltoearth » Mar 15, 2013 6:16 pm

Start with reasonable pension contributions and reasonable tuition for University that does not require a hefty debt to banks into ones 30s. I have always been confused by the attitude that it is good for the economy for a student to be paying back high debt to a bank when they could be actually contributing to the local economy by purchasing a house and investing in where they live.

When it comes to pensions my preference would be for mandatory pension contributions by employers to ensure a comfortable retirement, preferably with the option for self-directed contributions.
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Re: "Wealth Inequality Is a Problem...

#19  Postby felltoearth » Mar 15, 2013 6:22 pm

The other interesting thing is, as you get richer, things get cheaper. The banks give you free services unavailable to the average working person. You can also borrow at cheaper rates, credit card interest is decreased, etc.

When my business was failing way back when, the bank increased my interest rates and choked off credit, largely insuring the failure of my company.

Note: I'm not blaming them for the failure of the company but they certainly made things a hell of a lot more difficult and sealed the decision for filing for bankruptcy.
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Re: "Wealth Inequality Is a Problem...

#20  Postby Jacquitoo » Mar 16, 2013 1:28 am

The cheaper by the dozen principle only works once you get ahead, but bankers can be bastards and make it tough for many. Has anyone seen "Margin Call?"

Denmark is a bit of an exception to the rule. Only people who have not known privation would say that the current situation of wealth inequality is acceptable given the disastrous differences between the rich and poor in the world globally. The uneven distribution of wealth in the U.S. is a well known fact and not something they should be proud of. There are often hidden assumptions in their mainstream ideology that tend to blame the poor for not working hard enough in "getting ahead" or some such BS.

Glad to see an honest, if tough and uncomfortable personal anecdote from Will. I have known homelessness as a small child (5-6) and chose homelessness as an adolescent (16). Sitting on concrete seemed softer and easier than dealing with my family's irrationality. Though I loved them and had contributed to family income by selling cards in Sydney subways at 8, sewing PJs at 12 and working in shops etc from 13, did not know about child exploitation laws and as had tall genes always looked older. There were limits to what I could do. I have never taken much for granted. I learned a lot by traveling through 3rd world countries to stick to basics and not worry about what others in my western affluent country were in to. My old Indian maths teacher's "We must always go back to first principles" still echoes in my head and helped a lot more than the Ten Commandments ever did. Personal progress can be slow. Sometimes it takes a bloody long time for things to turn around. So dont give up (My dad died when I was 11.)

Secularism and government intervention and redistribution seems to be an answer for some and the debate still rages on. I worked in 2 federal government departments; Social Security and Tax and got a sense of the different issues on both sides of that fence.

Will's story touches on some of the reasons why people gather into churches: for that little bit extra; inclusion, camaraderie, or practical and material support. Church agencies were often foundational for social justice models in governmental contexts. I have also been the recipient of church charity and tried to give back in that arena. My life seems defined by sitting on the fence ... oh-oh.

The situation will never be "solved" because we are human, but we still have to grapple with it.
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