The rich are hoarding economic growth

https://www.vox.com/policy-and-politics/2017/8/8/16112368/piketty-saez-zucman-income-growth-inequality-stagnation-chart

by rubicon33 • 9 years ago

135 146 9 years ago

gscott• 9 years ago

This is why I appreciate the $15 an hour minimum wage movement. Paying people more is better then taxing the rich more. The super-rich own congress but at the city and State level there is depending upon the state some room to grow wages. Higher wages equals fewer people on public subsidies which is good for cities and states.

sokoloff5• 9 years ago

Higher minimum wages means fewer employed people on public subsidies. It's less clear to me that it makes for fewer people overall on subsidies.

If the economic value of someone's labor is only $10/hr, they are less likely to be employed with a $15 minimum wage than a $9 minimum wage.

WaxProlix2• 9 years ago

What labor has value below the required amount to exist as a human? I think the reasoning is - if it's worth being done, it's worth paying someone a meager living wage to have it done.

gehwartzen3• 9 years ago

We need to just peg the minimum wage to inflation so we don't have to do this every decade or two.

helthanatos• 9 years ago

Minimum wage++ == Inflation++

matt_wulfeck• 9 years ago

Ugh yeah. I'm glad I'm not the only one that hates this generalized fight for a number that's ultimately irrelevant.

ams6110• 9 years ago

The problem is that if you set a minimum wage that is higher than the real value of the work performed, it means those jobs just simply won't exist anymore.

FLUX-YOU• 9 years ago

The real value of a lot of products and services is more adjustable than your statement would lead someone to believe. Reality is absolutely not an efficient marketplace that immediately culls jobs and workers the moment a certain price of labor threshold is reached.

enraged_camel• 9 years ago

As far as I'm aware, none of the studies on increasing minimum wage have shown this.

yen223• 9 years ago

In a world where CEOs can receive massive bonuses for driving a company to the ground, that's not easy to believe at all.

guelo• 9 years ago

Minimum wage costs are mostly passed on as increased prices paid by the middle class. The profits to the .01% class are barely affected.

AlexandrB4• 9 years ago

This is entirely a consequence of economic policy set the by the US government. Not some immutable property of our world. As such it can be changed through, for example, a more progressive tax policy.

derping69• 9 years ago

Why stop there? Just make it 100$ and hour and everyone will be rich!

Oh wait, arbitrary wage increases don't really work out in real life.

https://fivethirtyeight.com/features/seattles-minimum-wage-h...

Seattle's socialist member of the city council fired the Unversity of Washington team after the results came out and hired an anti-capitalist professor from berkeley to ensure the study finds the right results.

http://www.foxnews.com/politics/2017/06/29/seattle-commissio...

baobrain• 9 years ago

Note that your fivethirtyeight article even mentions a caveat to the study:

The paper’s findings are preliminary and have not yet been subjected to peer review. And the authors stressed that even if their results hold up, their research leaves important questions unanswered, particularly about how the minimum wage has affected individual workers and businesses.
Many economists, meanwhile, have acknowledged substantial uncertainty over the likely effects of the recent wage hikes. Most — though by no means all — past research has found that modest increases to the minimum wage have little impact on employment, and that if employers do eliminate jobs or cut back hours, those losses are dwarfed by the income gains enjoyed by the majority of workers who keep their jobs. But those studies were mostly based on minimum wages that were much lower than the ones beginning to take effect now. Even some liberal economists have expressed concern, often privately, that employers might respond differently to a minimum wage of $12 or $15, which would affect a far broader swath of workers than the part-time fast-food and retail employees who typically dominate the ranks of minimum-wage earners. Other economists said there simply wasn’t enough evidence to predict the impact of minimum wages that high. The new laws in Seattle and other cities, then, could provide an ideal testing ground.

Additionally, here is a post by Jared Bernstein related to the minimum wage hike[0]. Here is the book mentioned in the aforementioned post [1].

Another analysis[2] finding that "Once this publication selection is corrected, little or no evidence of a negative association between minimum wages and employment remains."

While I also do not know for certain the effects of a minimum wage, one of your sources fairly lists caveats and uncertainty for the study it mentions, and the other is fox news.

[0] http://jaredbernsteinblog.com/the-minimum-wage-increase-and-...

[1] http://www.upjohn.org/publications/upjohn-institute-press/wh...

[2] http://onlinelibrary.wiley.com/doi/10.1111/j.1467-8543.2009....

chipotle_coyote• 9 years ago

Why stop there? Just make it 100$ and hour and everyone will be rich!

This argument -- "well, if you think a little increase in the minimum wage is good, then you must think any increase in the minimum wage is good, or you're not being consistent!" -- gets trotted out by somebody on HN every time the subject comes up. And c'mon. If I believe that San Francisco's minimum wage hikes to $14 and $15 an hour are not going to cause undue economic collapse here, that does not somehow obligate me to believe "hey, if that works, we can raise the minimum wage to ELEVEN BILLIONTY DOLLARS AN HOUR with minimal impact, too!" Real life is full of examples, from salt in your soup to water behind a dam, where we understand that's good to increase the level to a point, but only to a point.

Oh wait, arbitrary wage increases don't really work out in real life.

"Most past research has found that modest increases to the minimum wage have little impact on employment, and that if employers do eliminate jobs or cut back hours, those losses are dwarfed by the income gains enjoyed by the majority of workers who keep their jobs." That quote is...from the FiveThirtyEight article that you linked to. The evidence so far seems to be that some of the time, for some levels, minimum wage increases do really work out in real life. The UW study criticizes the methodology of past studies, but it's at least worth acknowledging that there's criticisms of the UW study which are not, despite Fox's take, "this is not the result the socialists wanted." Notably, UW's study excludes businesses with multiple locations but only one account with Washington State's unemployment office, which eliminates 38% of the state's workforce from consideration, including all chain fast food and retail workers. They exclude them specifically because they can't get "location-based" data for workers in those cases; while that may be true, being inconvenient to UW's methodology doesn't render that data irrelevant.

chillwaves2• 9 years ago

This post is an insult to hacker news. You are not deploying any kind of rational logic. If $100 is good, then make it $1,000,000. That is your logic and it is dishonest at best.

kartan3• 9 years ago

Why stop there? Just make it 100$ and hour and everyone will be rich!

- People needs to drink 2 litres of water each day to stay healthy.

Oh! Why stop there? Just make people drink 20 litres and everyone will be more healthy!

You made an strawman argument. Yes, probably is not good to raise to 100$, but that doesn´t means that raising to 15$ is bad.

dang• 9 years ago

Please don't use HN primarily for political or ideological battle. We ban accounts that do that (regardless of which flavor they favor) because it's destructive of what HN is for.

https://news.ycombinator.com/newsguidelines.html

https://news.ycombinator.com/newswelcome.html

prostoalex6• 9 years ago

If the minimum wage is a universal solution works for everybody, why are there so many exemptions and carveouts? Family-owned businesses like restaurants are exempt, self-employed individuals are exempt, piecemeal farm labor is exempt, babysitters and other "occasional" labor have their own exemption, tipped workers have a carveout.

There's a special rate for minors because apparently nobody thinks high school kids will produce $15 of value per hour yet they still need to learn the ropes of the business and personal responsibility somehow.

aoeuasdf1• 9 years ago

Why not an earned income tax credit instead of an arbitrary cutoff at which point labor becomes worthless and illegal to sell?

sokoloff5• 9 years ago

1% real income growth per year is still fairly substantial IMO. Over a 41 year career, your purchasing power goes up by half, yet that's treated as "stagnating" which implies something far worse than 1% per year.

johngarrison• 9 years ago

Not if inflation is 3-4% per year.

sokoloff5• 9 years ago

Real income growth is, by definition, after accounting for inflation.

The opposing term is "nominal income growth" which does not account for inflation.

kevinnk• 9 years ago

"Real income growth" is the growth in income post inflation.

WaxProlix2• 9 years ago

He said 'real' income growth, which I take to mean adjusted for inflation and maybe also various cost of living increases/decreases.

Sophistifunk• 9 years ago

And even less so if "inflation" has been redefined specifically to be lower, in order to reduce the amount of real money that needs to go into social security.

mdorazio3• 9 years ago

I think the nuance here is that it's stagnating relative to overall income growth. I.e. 1% isn't terrible if everyone is getting roughly 1%. But that's not the situation - the economy is growing more rapidly than that, but only a tiny percentage of people are seeing big gains for their own incomes.

sokoloff5• 9 years ago

There's no reason to me to think that the vast majority of people should see substantial real income gains. Money is fundamentally a claim check on someone else's labor and/or resources. If you have more money (in real terms), you have a greater claim on others' resources. That can't stay true for an entire population over a long period of time. It's temporarily true for the US, because we're able to take advantage of labor from other, cheaper places in the world, in the process, making that other place better off as well.

Those of us in the broad swath from 10th to 99th percentile don't really compete for those things that are purchased by the top 0.01%, so I basically don't care how fast their incomes grow, nor how fast the prices of caviar, ski lodges in Jackson Hole, etc. grow.

I care about food, housing, transportation, and education. In competing for those resources, there's fairly broad equity in the charts in the vox article (realizing that people don't stay static on that chart).

shmerl• 9 years ago

It's nothing, if your expenses grow at higher rate.

Animats• 9 years ago

We know.

jkroso• 9 years ago

So what caused the change in 1973?

atlih2• 9 years ago

Financialization of the economy. The fall of Bretton-Woods. The fall of the gold standard. The repeal of Glass-Steagall.

viridian• 9 years ago

The fall of the gold standard.
The fall of Bretton-Woods.

1971, not 1973

The repeal of Glass-Steagall.

1999, not 1973

mac01021• 9 years ago

Here's an article which argues that wages have not been growing in line with productivity since 1973 because, since then, workers have been compensated with fringe benefits of increasing value, in lieu of greater wages.

[http://www.heritage.org/jobs-and-labor/report/productivity-a...]

I'm sure that this is not the whole story, but I bet it's a big part of it.

flatfilefan2• 9 years ago

Could it be an oversupply of labor that was caused by the availability of the pill and the following growing immigration asking for lower wages instead of incumbents https://tradingeconomics.com/united-states/labor-force-parti...

victor106• 9 years ago

This quote by the fed chairman during the Great Depression, Marriner S. Eccles, seems apt

"As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants.In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped."

sjg0072• 9 years ago

This is true even more so today.

WalterBright8• 9 years ago

The GD was caused in large part by the Fed's poor understanding of economics. I wouldn't take what the chairman of the time said too seriously.

ekiminmo• 9 years ago

Forgive my ignorance, but why wouldnt we expect to see exponential growth in wealth, and as a result a greater discepency between the top 1% and everyone else?

quickben• 9 years ago

Technically we would, but not at the cost of such discrepancy, as it usually had a violent ending in the past. Costing lives and entire countries social stabilities.

cs7022• 9 years ago

The title and the tone of the OP are a bit inflammatory for my taste, but the data and graphs from the research paper are eye-opening: most economic growth in the US over the past three decades has indeed gone to the top 1%, and particularly to the top 0.01%, leaving everyone else behind.[1]

Here's the money shot: https://cdn.vox-cdn.com/uploads/chorus_asset/file/9013427/Sc...

However, rather than debate the causes of this divergence, or accuse "the rich" of anything, we should instead be coming up with WORKABLE SOLUTIONS for increasing the income -- and therefore the spending power -- of the masses in a sustainable manner.

I imagine a tremendous amount of pent-up consumer demand would be unleashed, because THE MORE THE MASSES EARN, THE MORE THEY SPEND ON PRODUCTS AND SERVICES, including those created by entrepreneurs.

[1] Here's the paper: http://gabriel-zucman.eu/files/PSZ2017.pdf

Taek• 9 years ago

The core of the problem isn't any sort of tax setup, it's the foundation of our economy. The first employee of a startup usually gets less than 2% equity.

Apple made $700k per employee in a single quarter.

Our whole economy is set up to funnel money to the top. We need a new way of structuring corporations to change that.

deegles• 9 years ago

Or create a more widespread culture of stock ownership.

sjg0072• 9 years ago

Raise taxes on the 0.01%, it's the only way.

sysdyne• 9 years ago

But you cannot do that!! I'm part of those who will get to be the 0.01%!! How could you take away my money that I will purposely wrote in my check from the monopoly that I will own with my company.

prostoalex6• 9 years ago

Most of them derive annual income via capital gains, and it's pretty much a voluntary tax. One either borrows against the asset, so zero selling occurs, or harvests some tax losses from other assets before they execute a sale on an appreciated asset.

manicdee• 9 years ago

For every problem there is a solution which is simple, elegant, and completely wrong.

So here's my attempt:

1. Remove subsidies including tax writeoffs like depreciation. Either an asset brings value or it doesn't.

2. Tax revenue not profits. Either you make a profit selling a thing or you don't. Fancy tricks like buying an item from a fully owned subsidiary and selling it at a loss to compensate for profits from services is not realising the value your services and products bring to the economy

3. Change the paradigm from employees serve the company to companies serve the employees. Companies are a way to insulate participants from economic risk of a capital-intensive activity, not a way to structure tax affairs.

Edited for formatting

seanmcdirmid2• 9 years ago

Tax revenue not profits. Either you make a profit selling a thing or you don't. Fancy tricks like buying an item from a fully owned subsidiary and selling it at a loss to compensate for profits from services is not realising the value your services and products bring to the economy

You mean, make Apple a Chinese company because being an American one is no longer viable? A VAT would be more reasonable, as it taxes value actually added at each point in the system, rather than a flat tax on each point in the system as you are proposing.

loserboss3• 9 years ago

Meat industry would collapse due to 1. Daily foods like steak, bacon, eggs, milk would get extremely expensive leaving the population to lousy unsatisfying vegetables.

Might solve the obesity epidemic :) Might also cause riots because people are not used to eating yucky foods like vegetabables.

btown• 9 years ago

For a detailed counterpoint to your #2, see this analysis: https://www.cbpp.org/research/illinois-proposed-gross-receip...

One potential problem with a GRT is its impact on high-volume, low-profit margin businesses, for which the tax can represent a high percentage of potential profits. Another potential problem is that a GRT favors businesses that conduct most operations in-house over businesses that purchase intermediate goods and services from other firms, since the tax is imposed each time a business purchases inputs from an outside firm. (This latter problem is called “pyramiding.”) Illinois can address both of these problems, however, by allowing businesses to subtract the cost of goods purchased from other companies from the gross receipts subject to the tax.

Which, whether you call it a deduction or a simplification of the way corporate income tax is currently based on profits now, brings us back to square one.

SilasX• 9 years ago

Remove subsidies including tax writeoffs like depreciation. Either an asset brings value or it doesn't.

Are you familiar with the reason the concept of depreciation exists in tax law? Because profits are what the government is trying to tax. Contra your point 2, it makes no sense to tax revenue in a way that ignores expenses. You'd be taxing two businesses the same, whether or not those revenues were just eaten by expenses.

But once you're taxing profits, you need a sane model of what constitutes business profits, and which handles more than the (very atypical) case of "buy a block of stuff, then sell it for more". At any given moment, a business has inventory and capital equipment, which is not completely used up, nor sold. How should that affect profit?

When you say "don't allow depreciation writeoff", then you're saying one of two things, neither of which maps to a good model of "how much profit is this business making".

You're saying either:

1) Any capital good should be booked immediately as a pure expense. That would imply that businesses can forever defer taxable profits simply by spending all profits on such equipment. "Oops, don't owe taxes -- again -- because we bought another robot. Sorry!"

2) Any capital good should be completely non-deductible as an expense. This would mean that one class of expense somehow "doesn't count" merely because it happens over years rather than the moment you buy it (e.g. wear-down of a saw vs purchase of electricity).

Depreciation schedules do not exist as some giveaway-subsidy for capital good purchases, but to recognize the economic reality that the truth is somewhere in the middle; that a capital (durable) good does not immediately decrease profits, but does function as an expense over a longer span of time.

In an ideal world, we would have an auction to get the market value of each used capital good to know how much value the business lost as the capital good lost its value. But this would be horribly expensive and convoluted, so businesses are allowed to assume a certain schedule. The harm of such an approximation is minimal; any discrepancy between the schedule value vs the true market value is realized as income or loss when the good is sold.

tl;dr: Depreciation is not a subsidy, but a recognition of the true effect of capital good usage on a business's book value and therefore taxable quarterly profits.

Late edit: Disclaimer: not an accountant, just my understanding of the logic behind depreciation in tax law.

prostoalex6• 9 years ago

Current government policies penalize income (39.6% at the top bracket) and subsidize company-sponsored non-monetary benefits (health, dental, vision, meals, commuter benefits, ESPP, 401k matching, ISOs, NSOs), so not all that surprising that workers see less income and more of non-monetary benefits as a result.

The workable solution through a tax policy might include reducing the number of brackets for personal income tax, dropping personal income tax rates within those brackets, and removing deductibility of all aforementioned corporate benefits as a trade-off.

I don't see a wave of pent-up consumer demand though, as cheap and easy credit de-couples spending and earning. A lot of economists predicted boost in consumer spending as oil (and gas) prices fell over the past few years, but in reality all that spending had already taken place years before, and consumers simply used gas savings to deleverage their credit accounts. Household debt is peaking again https://www.nytimes.com/2017/05/17/business/dealbook/househo... so any additional savings or boosts in earnings will likely go towards deleveraging.

skybrian• 9 years ago

It seems likely that consumer confidence has a lot to do with willingness to take on debt? So the liming factor wouldn't be availability of credit, it's what payments you think you'll be able to afford later.

In the case of student loans, that amounts to confidence in being able to find a good job to pay them off.

AstralStorm3• 9 years ago

The thing is that the richest could easily have 90% income garnished without even moving this chart one bit.

tmnvix• 9 years ago

We should be taxing productive activity less and income earned through simply owning things more. The balance has moved too far in the opposite direction.

sooheon5• 9 years ago

I agree, and so do many economists:

https://en.wikipedia.org/wiki/Georgism

The distinction is that mere ownership of capital, especially common goods (such as land and natural resources) excludes other members of society from access to that resource. It does not create value, but merely holds claim to existing value, seeking rent for allowing others access to it. This should be taxed. OTOH, productive activity takes that capital, adds labor and ingenuity, and creates goods or services which benefit society--such activity should be taxed less, or not at all.

abhi3• 9 years ago

Allocating ones capital (simply owning things as you say) is a productive activity in itself. Without people competing to allocate capital for higher returns, a lot of things we all love wouldn't exist.

kamaal• 9 years ago

This is true if both are unrelated.

If you tax owning things a lot, then you tell people that there is no point being very productive as savings throughs higher income go all into taxes. Then people don't have much incentive to be productive.

Most of these ideas have been tried before and you eventually arrive to picking up lesser of many evils kind of situation.

WhitneyLand3• 9 years ago

Why should we be looking for solutions? To be clear I would agree it's intuitively disturbing and seems "not fair". But do you call for solutions because:

1) There might be a way to have higher productivity than we have now. This can't be why, it's always a goal regardless right?

2) Strategies should be considered than intentionally reduce productivity and/economic growth in order to increase worker compensation. Now things get tricky - productivity helps everyone, it makes the things we buy cheap, it boosts our standard of living. Is such a strategy even feasible?

3) There might exist some kind of goldilocks plan whereby growth and productivity are not affected, yet average compensation grows substantially. Again, kind of gets into uncharted economic waters no?

4) It wouldn't be about economics. It's just about fairness, morality, and maybe the self-interested prevention of civil unrest. It's policy not to change economics, but to change politics, who gets what, move things around, etc.

I don't doubt there are some all around good win-win ideas that could be implemented, but as a category it doesn't seem full enough to be game changing.

sooheon5• 9 years ago

Why not? If the state of affairs is disturbing and unjust, should the disenfranchised not seek to improve their lot?

It may be easy to sit on top of the busily productive pile and insinuate that those on the bottom be satisfied with the scraps ("...those at the bottom get bigger scraps than they otherwise would have", etc.). But it's much more palatable and interesting for me to seek out how to remedy injustices (as I perceive them, I can't claim to be objective about this), to "quantum tunnel" out of this extreme gravitational well of inequality, so to speak.

Frondo• 9 years ago

"Why should we be looking for solutions?"

At the end of the day, because I and the other not-ultra-wealthy want that money the ultra-wealth are capturing to be more equitably distributed.

The system didn't just end up this way as a quirk of chance--the ultra-wealthy have used their money to influence laws to arrange everything this way. They didn't need a reason to make it this way, except they wanted more.

Why even say "why should we be looking for solutions" as though that's what any of this is about?

WalterBright8• 9 years ago

would be unleashed

That's the theory that the rich hoard their money in Scrooge McDuck cash vaults, keeping it out of the economy.

That's false - all of it is in the economy, via investments. Even money kept in a checking account is invested in the economy (banks loan out that money).

The only cash kept in cash vaults is the reserve that the government requires banks to keep to provide a buffer against runs on the bank.

Various times in history people have "liberated" wealth from wealthy people, and it never stimulated the economy (quite the reverse), because the wealth was already in the economy.

WalterBright8• 9 years ago

There's a good explanation in the movie "It's A Wonderful Life" about what happens to the money deposited in a bank, and where it goes.

chrisgd• 9 years ago

Loans create deposits. Banks are not constrained to make loans based on how much is on deposit.

MrBingley• 9 years ago

What about the Panama Papers?

cs7022• 9 years ago

...the rich hoard their money in Scrooge McDuck cash vaults, keeping it out of the economy.

I did NOT say that. Please don't attack a straw man!

All of it is in the economy, via investments. Even money kept in a checking account is invested in the economy (banks loan out that money).

It's a little more complicated than that. Since the Global Financial Crisis, many central banks around the world, including the Federal Reserve, have been doing EVERYTHING and ANYTHING they can to get banks to lend more, and to get businesses and individuals to borrow more and invest more.

Yet no matter what central banks have tried, individuals and businesses are not yet investing at historical rates, as evidenced by historically high liquidity[1], historically low money velocity[2], and even negative nominal interest rates in some countries[3], which are historically unique.[4] Keynes's argument that depressionary depressions/recessions may be caused by increased 'preference' for liquidity and lack of aggregate demand could actually be right, for all I know.

Meanwhile, the evidence I've seen suggests that redistributionist policies don't seem to have an impact on economic growth. For example, see: http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf

So, why not try it, e.g., in the form of UBI or works programs, say, in controlled regional experiments? If it turns out that it works, great; if it doesn't work, then let's try something else.

NOTES:

[1] https://fred.stlouisfed.org/series/AMBNS -- look at that jump in 2008!

[2] https://fred.stlouisfed.org/series/M2V

[3] Example: https://www.reuters.com/article/us-snb-results-banks-idUSKBN...

[4] http://www.businessinsider.com/chart-5000-years-of-interest-...

mempko• 9 years ago

Banks don't loan deposits, this is a common myth.

JamesBarney2• 9 years ago

The cause matters because it tells us what the workable solutions are.

For instance say a company's CEO was the only person who got a raise for 30 years.

One possibility is the CEO was a real go getter who kept getting better and more valuable at his job and while everyone else stagnated.

The other possibility is that the CEO locked all of his employees into non-competes, keeping their salaries low, and freeing up budget to write himself large bonuses.

Obviously these two situations aren't going to be solved by the same solution.

AstralStorm3• 9 years ago

Both are solved with making marginal gains tax hyperregressive. Said CEO would gain little in either case on his salary. (Making it gains also closes loopholes like getting buildings, deals, land, expensive cars or such.)

Regardless of whether he bargained for it or squashed the employees, someone paid for this gain. With increased productivity they didn't benefit from or with plain old loss.

It probably really is the only way to prevent rich from getting much richer than everyone else and taking it all.

karimei• 9 years ago

This graphic is interesting, thought it might be instructive to calculate accumulated values:

  For the median (50% percentile): 1.005**36 = 1.2
  P99: 1.022**36 = 2.2
  P99.9: 1.032**36 = 3.1
  P99.99: 1.043**36 = 4.6
  P99.999: 1.06**36 = 8.1

It would be interesting to see absolute numbers. I remember vaguely that the productivty increased by a factor 8 since the eighties...

aiyodev• 9 years ago

People who buy this garbage have no perspective of how much the federal government taxes and spends. Everything discussed here is insignificant in the scope of the federal agencies spending $11 billion a day. Personal incomes are less than their rounding errors.

tamcap• 9 years ago

I'm curious, in what sense is it insignificant? Quoting from (likely faulty) memory, 30% of federal budget comes from income tax directly, and the another 20% or so is covered by employer associated employment taxes. So out of that $11bn a day, Americans pay in $6.5bn every day. If we were to adequately tax the 0.01%, the budget would feel the difference.

pg_bot2• 9 years ago

Why is there no talk about the dramatic increase in the supply of workers over the last 40 years? Globalization has brought millions out of poverty and those people are now competing with Americans when they wouldn't before. It makes sense from an economic standpoint that the price of labor would not rise when the supply is increased and is likely the cause of income inequality in the US.

gottam• 9 years ago

pretty much this. its why there was a lot of h1b visa abuse. top 0.01% doesnt want to pay a lot for tech workers but the demand is high, so increase the supply of tech workers.

DanielBMarkham• 9 years ago

And in response to the overload of cheap labor, the central banks have been printing currency -- which means that people who own lots of equity end up with more money than they had before. (more money with the same assets means suddenly your assets are worth much more money)

Also "hoarding" implies intent and capability. From all I can see, what's happening is the natural consequences of lifting billions of people out of poverty.

AlexandrB4• 9 years ago

From all I can see, what's happening is the natural consequences of lifting billions of people out of poverty.

Ah yes, billionaire CEOs and investors have lifted millions out of poverty and so the market has rewarded them with steadily increasing incomes. But wait! I thought the market only cared about profits!? Why would it reward them for lifting millions out of poverty?? Is it possible that the modern American political system has been bent to the exclusive benefit of the rich at the expense of everyone else? Nah.

AlexandrB4• 9 years ago

It makes sense from an economic standpoint that the price of labor would not rise when the supply is increased and is likely the cause of income inequality in the US.

So why are CEO salaries still going up? Is there not increased competition for C-level positions in companies from globalization? If not, why not?

eikenberry• 9 years ago

One explanation would be because of the cheaper labor and favorable legal frameworks the corporation can grow much larger today. Pushing the pay of the top level positions to rise even higher. You could look at C-level positions 50 years ago as a mid-level manager today in terms of managed organization size and economic impact.

pg_bot2• 9 years ago

There are likely a variety of factors that contribute to CEO salaries increasing.

The increase in the labor supply has mostly affected the low end of the spectrum. You don't usually go from subsistence farming directly to the board room. This will change but it takes a long time to percolate up.

Large corporations are usually conservative with their C level executives. Even if someone else could do a 10x better job you are not going to replace an executive if they are outperforming the market. The threshold for being removed is fairly high.

If you started your own company and own a controlling stake it is highly unlikely that you will be removed, even if you are terrible at your job.

The scale of some of the biggest companies is profoundly larger than in the past forty years. For example McDonalds has 375,000 employees worldwide. Their CEO makes around 15.5 million a year. If you were to distribute his salary to each worker in the company (assuming each works 40 hours a week) you could afford to give a 2 cent raise per hour to each employee.

prostoalex6• 9 years ago

Are they though? Most of executive compensation plans nowadays are strongly tied to stock performance with a generous options package but a nominal $1 salary. Brings its own set of problems and a tunnel vision that's focused on next quarterly results, but at least it's aligned with large shareholders.

steadicat• 9 years ago

Another factor I don't see talked about is the increase in women's participation in the workforce. When wages were higher it was common to only have one breadwinner in the family. Today women are more likely to get a job (or two), which is bound to depress wages. The perverse effect of lower wages is that families are forced to take on more jobs than they did before, which depresses wages further. Not sure if there is causation between women's participation and wage stagnation, but logically it seems possible that this would cause a downward spiral. The more wages suffer, the more jobs/hours/years people are forced to seek to work, the lower the wages.

Camillo• 9 years ago

Wealth concentration was the goal, globalization was the means. The rich saw a great arbitrage opportunity in the fact that the price of labor (and its legal rights) in the developing world was much lower than in the first world.

In the late 90s, there was a big political struggle over globalization. The pro-globalists (the economic establishment and the Clinton administration) argued that it would (A) grow the economy (based on comparative advantage), (B) enrich the developing world, and (C) push them towards liberal democracy, as a consequence of having a richer middle class. The anti-globalists (mainly left-wing opposition) argued that it would (D) destroy the working class in the first world, (E) shift the balance of power enormously in the favor of corporations, (F) destroy the developing world too.

The pro-globalization side won the fight completely: the WTO was established, China was brought into the global trade system, etc.

Twenty years on, it is clear that both sides were partially right. The pro-global side was right about A and B, and wrong about C. The anti-global side was right about D and E, and wrong about F.

Strangely, the anti-global side disappeared entirely from the public discussion; in fact, that entire period of history seems to have been memory-holed with incredible rapidity. Even as D (the destruction of the working class in the developed world) was brought into the 2016 presidential campaign as one of the main issues (by Sanders and, surprisingly, by Trump), nobody seemed to recall the anti-globalization protests of the 90s. None of the activists from back then came out of the woodwork to say "we were right!"; no journalists went to look for them.

This should give pause to those who put trust in the media, even (especially?) the self-proclaimed progressive ones, like Vox.

shadowtree• 9 years ago

Fox News, Breitbart et all are massively anti-globalists.

Breitbart marks Globalists in their article headlines with literal globes. Also a pure coincidence that all of those are Jewish of course.

Trump ran on abolishing NAFTA and TTIP.

How is this not a mainstream position now?

rubicon33• 9 years ago

Fascinating points you make, thank you for posting this.

Can you elaborate on what you mean when you say

"This should give pause to those who put trust in the media, even (especially?) the self-proclaimed progressive ones, like Vox"

Why does the media's lack of memory, and lack of pursuit of the anti-globalists, mean we should not have trust that what they report now is accurate? (Genuine question not trying to make a point with my question).

closeparen4• 9 years ago

Because those workers also buy things and contribute to demand?

zaptheimpaler4• 9 years ago

Because the rich are getting richer, and hoarded money is useless to the rest of society. Regardless of why they get richer, the economy exists to serve society. Large amounts of money lying in investments hoping to outpace inflation is not useful to society - there are practical limits on how much money can be invested usefully at all, determined by how many capital intensive tasks businesses take on as a whole.

Perhaps in older times when there were railways to build, factories and assembly lines to setup, power grids and communication networks to build, there was more room for investment in the sense of spending money now to gain rewards later.

Now that businesses have little trouble raising capital, we may be getting closer to the point where new technology/ideas are scarcer than capital. In that climate, money may be more useful to society in the hands of government or regular people than the beneficiaries of investments like entrepreneurs.

Concretely, when $1B is better used to build housing or improve healthcare, than invested into 10 "Uber for X" startups, it makes sense to tax more and let the government use the money for just that.

WalterBright8• 9 years ago

hoarded money is useless to the rest of society.

There is no hoarded money. It's all invested. Where do you think Gates' money is, for example?

kartan3• 9 years ago

Because the rich are getting richer, and hoarded money is useless to the rest of society.

That´s it. Once there is too much super-rich capitalism stops working, as decisions are not an average of million of small transactions, but it is a centralized economy decided by a few.

Also, the rich spend more money in luxury items that have no return value. A garage with 10 Ferraries doesn´t produces almost anything, it is wasteful. For the same cost you get 200 cars that allow workers to get to their jobs, go shoppping, etc. The same goes for an "iceber manssion" on London vs an apartment building.

And that wealth also creates corruption. So much money on so few hands creates an unchecked source of power. Why do you want to serve the public, that has no extra money to spend on you, when you can serve the elite that has more resources that they need and can share them with you?

kartan3• 9 years ago

Why is there no talk about the dramatic increase in the supply of workers over the last 40 years?

Because it is irrelevant. If you have 100 workers, they produce and consume as 100. If you get 100 million, they produce as 100 million, but also consume as 1000 million.

It makes sense from an economic standpoint that the price of labor would not rise when the supply is increased

The price of labor would not fall if the demand increases also. That´s why it´s a non problem to have more people, until you hit the ceiling of Earth resources.

The problem is the distribution of the wealth created, and that´s explained in the article.

Eridrus• 9 years ago

This discounts economies of scale. Capitalism's argument is that we will always want to consume more things so we'll just make more different things, but there's really only so much one can consume.

Temasik• 9 years ago

that's why a lot of people opt-out of working

people are not stupid if it's not worth their time they rather not do

ilaksh• 9 years ago

We know there are serious problems. I think the general direction we are going to try to solve them is a good start, but without severely improving the current plans, will be completely inadequate and repeat history in some ways.

Many people have looked at the US' economic situation and compared it to China or other areas and predicted that the relatively high wealth and consumption in the US just cannot continue due to things like math (large deficits, low production of real goods, retired workers) and political pressure. The expectation for many is that there will eventually start to be a much more equitable distribution of resources and power towards places like China and/or Africa or India. This will mean there is significantly less real wealth for Americans. This, combined with the pressure to increase sustainability, means that the real world economy in the US is either not growing or growing very sluggishly.

When the economy is not really growing, our current systems don't function well, people start looking to conserve and cooperate rather than compete so much. A general trend of increasing socialism is good for the US to some degree I believe, but won't solve the problems.

What we have now are very large technopolies like Amazon, Google and Uber controlling large segments of our economy. Because the power is so concentrated, it is actually almost as bad as having government agencies control these things. Now people are talking about technocracy, which is essentially high-tech communism.

I used to advocate for a Resource Based Economy and all of that stuff, and I still think RBE and technocratic-type ideas are a good starting point to think about solutions, but it seems like the thought process is stuck in the 50s. Having very large organizations controlling everything is not going to work out,no matter how much technology you add to it.

The real problem for America is going to be less fossil fuels being able to be imported. Just because there is a big imbalance now, and unless we actually start nuking countries, within a few decades the demands will be such that those countries are forced to fight the US for those resources. In order to avoid WWII there has to be a plan that allows the US and other high-consumption countries to significantly reduce real-world consumption and still have functioning economies.

The problem is that we are looking at these giant tech companies just becoming more official and entrenched. This does give us platforms for efficiency, but the fact that these are centralized organizations means big problems in terms of power distribution and freedom as well as the evolvability of systems.

The solution is going to be technical upgrades to our social frameworks. A concrete example: Amazon has a streamlined website and logistic network. Instead of leaving this in the hands of one company, we need to come up with equivalent decentralized distributed protocols and systems that accomplish the same things without making Bezos the unofficial Minister of Distribution. I'm not saying it's easy, because we need systems with almost the same level of holistic integration and analysis on some levels that Amazon has, but still flexible enough to evolve and allow freedom.

We are also going to need these advanced distributed but holistic on some level evolvable systems to be properly integrated into societal structures in order to properly measure and plan if we want to have something like universal basic income. Although I must also say that we need also to facilitate free competition more at the same time otherwise the technopolies strangleholds prevent most from rising past the basic level and participating.

the_cat_kittles• 9 years ago

if your rich as hell, give it away. if your voting, vote for people who want to tax the higher earners more and lower earners less. seems pretty reasonable to me

refurb• 9 years ago

It's important to note that the top 1% (pick whatever bracket you want) is not static. There is a lot of turnover.

According to research from Cornell University, over 50 percent of Americans find themselves among the top 10 percent of income-earners for at least one year during their working lives. Over 11 percent of Americans will be counted among the top 1 percent of income-earners (i.e., people making at minimum $332,000 per annum) for at least one year.

[1] https://www.cato.org/blog/high-turnover-among-americas-rich

gehwartzen3• 9 years ago

Nobody seems surprised when all wealth is accumulated by one player at the end of a game of Monopoly. The figures in the article should then also not surprise anyone. This is not some flow in our system, this is the natural progression of capitalism as designed.

tobessebot• 9 years ago

Right. The economy has a fixed amount of assets that generate money. Oh, wait.

Deadolus• 9 years ago

Monopoly was actually originally designed to demonstrate the "surprising" effect of accumulation of wealth by a single player (via rents). With the implied moral judgment that this is unfair/unjust: https://en.wikipedia.org/wiki/The_Landlord%27s_Game

edit: via rents, not property taxes

jgalt212• 9 years ago

I don't want obfuscate correlation and causality but over the same time period we have seen the greatest bond bull market in history.

The upshot is that the rich, more specifically the super rich, benefit disproportionately from lower/lowering interest rates.

flatfilefan2• 9 years ago

Can the stagnation be caused by the oversupply of the labor that has started about the 1965 (the pill?) https://tradingeconomics.com/united-states/labor-force-parti...

The rich are hoarding economic growth

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