Technology and wealth inequality

http://blog.samaltman.com/technology-and-wealth-inequality

by gatsby • 12 years ago

86 158 12 years ago

blog.samaltman.com

The problem of inequality is mostly a local thing where gentrification is taking progress, or on a wider scale, a media debate. No one seriously feels inadequate because of how the people on Forbes 500 live. They are so far out of the average person sphere that it has no significance on anyone.

Likewise, I doubt a person from Mississippi genuinely feels a disparty with his investment banking brethren in NYC.

In short, I don't think inequality is something people feel unless there's an ongoing public debate. People judge themselves by their immediate environment, which I believe follows a normal distribution nearly anywhere (there are always some more successful than others; business owners, entrepreneurs, paid workers and homeless. It's like that nearly anywhere).

It's should be also noted that while nationwide inequality among western world countries is rising (all across the board), it's shrinking on a global level [1].

[1] http://i.imgur.com/B4vI8Y8.png

bdcs2• 12 years ago

Wealth is almost always Pareto distributed -- not normally (Gaussian) distributed as you claim: http://en.wikipedia.org/wiki/Pareto_distribution

flyinglizard3• 12 years ago

I meant normal as in "common", not Gaussian - sorry!

rwl• 12 years ago

Sadly, the big problem with inequality is not "feelings of inadequacy". The problem is that wealth buys power and influence, both socially and politically. Thus increasing inequality means political power is increasingly concentrated in the hands of a few; and that usually leads to policies that will enhance and protect the lives of those few at the expense of everyone else.

pdonis14• 12 years ago

One key point that is missed in this article: why do people making minimum wage have trouble making ends meet? Because all this advance of technology has not made the necessities of life cheaper in the same way it's made, say, computers cheaper. For a few hundred dollars today, you can buy orders of magnitude more computing power than existed in the entire world when I was a child. Yet it's still difficult for people working low wage jobs to afford food, housing (meaning housing in an area that's reasonably safe to live in), and transportation (again, that's reasonably safe to use).

Why is that? Why has all this enormous improvement in productivity not made the necessities of life so cheap that even someone making minimum wage can easily afford them? It seems to me that fixing that would go a long way towards fixing the problems Altman is talking about, yet nobody talks about it.

bdcs2• 12 years ago

People currently spend about 9% of disposable income on food as compared to 24% in the 60's -- so what you suggest is happening to some degree: http://3.bp.blogspot.com/-Uz4mKJv2dWQ/T_B-DGnY34I/AAAAAAAATt...

gress2• 12 years ago

If 'disposable income' includes those at the top of the wealth scale, this chart indicates no such thing.

gerbal• 12 years ago

It's closer to 16% for the lowest quintile.

sama2• 12 years ago

Partially because real wages for people making minimum wage are down (I touched on some of the reasons why in the post). It's worse in concentrated rich areas like San Francisco.

However, I do think costs have come down in a lot of areas.

verteu• 12 years ago

One reason is that as technology improves, the value of a person's time ("productivity") also increases. Thus although manufactured goods get cheaper, services get more expensive (due to opportunity cost).

flyinglizard3• 12 years ago

Most of the day to day innovations you use are owned by minimum wage earners. Cellular phones, TVs, cars and internet are nearly ubiquitous items. It's not that innovation did not reach the needy, it's just that there are some problems that are outside the influence of technology. For example, making neighborhoods safer or promoting better family planning.

Aren't unsafe neighborhoods so because of, first and foremost, their inhabitants?

pdonis14• 12 years ago

Aren't unsafe neighborhoods so because of, first and foremost, their inhabitants?

Because of some inhabitants, yes. But there have always been a small percentage of people that are going to try to prey on others. Whether or not they succeed depends on how the rest of society deals with such activities--not just the people living in the same neighborhood, but society as a whole.

thesash• 12 years ago

I think the answer is more or less that transportation costs aren't going down. We produce more than enough food to feed the entire world population, but the poor can't afford to buy it because of the cost of transporting it to them.

pdonis14• 12 years ago

This doesn't seem right to me. Transportation costs are negligible for all sorts of products. It costs more in gasoline for you to drive to your local Best Buy and bring home a DVD player than it does to ship that DVD player from the factory in East Asia somewhere halfway across the planet to the store. Huge economies of scale have been realized in transportation.

If, on the other hand, we include under "transportation costs" the costs of dealing with corrupt governments in many countries who enrich themselves at the expense of their people, then yes, there are significant transportation costs in getting food to poor people in many countries.

ye• 12 years ago

Yet it's still difficult for people working low wage jobs to afford food,

Food is dirt cheap compared to housing, especially if you shop smart.

gress2• 12 years ago

Food is not dirt cheap for someone on minimum wage.

nmodu• 12 years ago

Food is dirt cheap compared to housing, especially if you shop smart.

Don't be ridiculous. Have you ever tried to buy food on a minimum wage budget? If you want to eat anything that has even a modicum of nutritional value, minimum wage won't get you much.

I'm not suggesting that expensive/organic food is worth it's price. Nor am I suggesting that minimum wage should be raised to the point where everyone could afford to shop at Whole Foods. But if you honestly believe that the author is wrong when he writes "it's still difficult for people working low wage jobs to afford food", then you need a reality check.

md224• 12 years ago

On a related note, I found this online game to be somewhat enlightening in terms of pointing out various costs and difficulties faced by those at the bottom end of the socioeconomic scale:

http://playspent.org/playspent.html

patio112• 12 years ago

Do you agree with the statement "Food is at least as expensive in America in 2014 as it was in 1974"? If so I have some really great news for you, but I don't want to put words in your mouth.

dllthomas21• 12 years ago

Do you agree with the statement "For a few hundred dollars today, you can buy orders of magnitude more [food] than existed in the entire world [in 1974]"?

I kid, of course - and I'm actually interested in hearing the parent poster's response - but clearly food hasn't fallen in the same way that electronics have.

pdonis14• 12 years ago

Do you agree with the statement "Food is at least as expensive in America in 2014 as it was in 1974"?

No; that wasn't the point I was making. The point I was making was that, as a responder to you noted, food has not fallen in price the way other things like electronics have. Granted, there isn't a Moore's Law for food the way there is for computers, as someone noted downthread; but still, it doesn't seem like food has fallen in price as much as it should have given the increases in productivity that have taken place. I think a key reason for this is that the government messes with food prices in ways that it does not mess with prices in other sectors of the economy.

But another point that could be made is that, if food has fallen significantly in price (which, as several posters now have quoted numbers to show, it has), why do we still hear so much about people having trouble making ends meet at the low end of the income scale? In other words, is the problem Altman is talking about a real problem, or just a perceived problem?

beloch• 12 years ago

It probably has to do with how some technologies scale. For example, processing power advances exponentially with time (see Moore's law). Few other things do. The things you would consider a "necessity of life" have scaled linearly, if at all.

Food production has certainly advanced with GM crops that are resistant to insects, droughts, etc. and produce more edible material per acre, but not that much more. Fertilizers and insecticides have also improved yields, but just a bit. Farm machinery has advanced tremendously but, as discussed in the article, it lets fewer farmers work more land rather than making the land itself more productive. Food is still pretty expensive to produce. Most nations do produce more food than they can consume though, even some that experience famine. Distribution is still a big problem and a huge part of the cost of food.

The average person now has access to a huge variety of foods from distant places. Transporting food costs a tremendous amount, both in terms of money and environmental impact. This is why you often hear about local foods being better for the environment. However, a rather large portion of the world's population has only seasonal access to locally produced fresh produce, which we now consider necessity for good health. If, like a large portion of the world's population, you live in a place where fresh produce is seasonal, consider what your diet would have looked like before canning came along. Technology has performed wonders for the average person's winter diet!

Of course, technology has a funny way of turning on itself. The triumph of spinach, oranges, and bananas in January has been followed by potato chips and cola. We turned food from a necessity into an addiction. Brilliant minds toil away in corporate labs, trying to find some new way to increase the "mouth share" of their product lines. The goal is not to satiate, but to arouse never-ending hunger for your product!

One simple, practical thing that could be done would be to rework farm subsidies. Corn is one of the most heavily subsidized crops in the U.S.. Corn farmers are paid well to produce a crop that has often not been in demand. One root of the anti-globalization movement is the Zapatista revolt in Mexico, which was, in part, sparked by NAFTA flooding the Mexican market with super-cheap subsidized Iowa corn and putting marginal, non-mechanized unsubsidized corn-farmers out of business en masse. Domestically, it's not a huge surprise that high-fructose corn-syrup found its way into most processed foods. High-fructose corn syrup is cheap because corn is cheap, and corn is cheap because our taxes pay farmers to grow it. If you look at the other top subsidized crops in the U.S., you'll not a common theme. After feed-crops (mostly corn), there's cotton, wheat, rice, soy, dairy, peanuts, sugar, wool tobacco[1]... It's mostly high-calorie crops rather than high-nutrient. How Tobacco snuck in there, I have no idea.

Why not change subsidies to be aware of crop destination and emphasize dietary health? Slap a big-ol subsidy on spinach and broccoli sold fresh to market and obliterate the subsidy on corn used for high-fructose corn-syrup. Healthy foods get cheaper, unhealthy foods get more expensive.

[1]http://en.wikipedia.org/wiki/Agricultural_subsidy#United_Sta...

ahomescu17• 12 years ago

Yet it's still difficult for people working low wage jobs to afford food, housing (meaning housing in an area that's reasonably safe to live in), and transportation (again, that's reasonably safe to use).

I think one thing ties these together (as a common denominator): land. There's a limited supply of land in any city/county/state/country/planet, so people must compete for it. Agriculture also requires land, and you can't even scale it vertically as well as you can scale housing (you may build taller buildings, but not taller farms).

pdonis14• 12 years ago

Yes, there's a finite supply of land, but much of it is not currently being used for either housing (or more generally, housing, offices, factories, and all the infrastructure that goes with them, such as roads) or agriculture. In fact, IIRC, the fraction of land on the Earth that is used for all such purposes has been decreasing in recent years.

ojbyrne2• 12 years ago

This seems to be lacking some historical perspective ("Those who forget history are condemned to repeat it"). This happened before:

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

spikels2• 12 years ago

Funny how the Gilded Age, a pejorative term BTW, gets a bad rap because a few people got extremely rich. It was actually one on the most economically successful periods in US history. As pointed out by Wikipedia real wages were up 60% in 30 years despite a doubling in population including around 8 million very poor new immigrants.

For comparison we have had around 5% real wage growth over the past 40 years and are having difficulty absorbing a similar number of poor immigrants despite being almost 10 time more populous.

To paraphrase Santayana: "Those who cannot remember the past are condemned to be UNABLE to repeat it."

calbear81• 12 years ago

I think the San Francisco average price of $5MM is quite a bit inflated. It's closer to $850K (http://www.trulia.com/real_estate/San_Francisco-California/m...).

sama2• 12 years ago

oops--fixed. i changed from an extreme specific example to averages, but forgot to update the text. thanks!

baddox9• 12 years ago

The thesis of the article seems to be that wealth inequality, even if accompanied by a total wealth increase (and perhaps even if accompanied by a wealth increase for every single person, although that's not made explicit), is still "unfair" and therefore worth combating.

But I'm confused when the article shifts between talking about what "is really unfair" and what "feels really unfair" (i.e. normative vs. descriptive fairness). I would have preferred a more consistent foundation for the thesis. Either argue why the normative view is valid, or demonstrate that a large portion of people do think wealth inequality is unfair. I think the latter is a more potent argument, especially paired with the claim that "the traditional endings to extreme wealth inequality in a society are never good."

jedmeyers• 12 years ago

Let's say a large portion of people do think that it is unfair that they do not have the same amount of wealth as other, smaller group of people. Would you consider it to be acceptable for the larger group to appropriate smaller group's wealth using that premise?

scarmig10• 12 years ago

False frame. Wealth--meaning a state-granted monopoly to some amount of capital, and a government promise to perform violence on anyone who disregards that monopoly--is a social contract. People are only talking about renegotiating the exact terms of that contract.

baddox9• 12 years ago

Would you consider it to be acceptable for the larger group to appropriate smaller group's wealth using that premise?

Personally, I don't like it, although I don't claim to be privy to any objective notion of morality.

nhaehnle• 12 years ago

The article is vague on the "is" versus "feels", but keep in mind that there is no objective notion of fairness.

Every discussion of fairness or - on this topic - distributive justice must acknowledge the different starting points / moral axioms that people might bring to the table. There are the egalitarians, often of a Rawls-type background, there are the procedural justice people (most internet libertarians, though usually not consistently so), there are just deserts (also typically applied inconsistently) and probably more that I am missing right now.

baddox9• 12 years ago

but keep in mind that there is no objective notion of fairness.

That's the main reason I think the descriptive argument has more potential. I think that goes for any argument involving morality or ethics.

natural219• 12 years ago

Another great post. I love this guy.

I think a lot of our discussion about this topic is limited because we're still a capitalist society that largely views social trends through the lens of economics. At some point in time, things like "GDP" and income distribution where fairly good proxies for notions like "overall well being" and "aspirational stability" (more thought is required on this second term).

I think as technology progresses, we're going to see the use of money as a proxy for social measurement drift further and further away from actual reality. Any new social paradigm is going to have to start with fundamentals of human nature -- human competitiveness, equal opportunity, etc.

In short, I think our failure to respond to these changes is mostly a failure of us to think clearly about what actually going on in the day-to-day lives of actors in this new technological world. I don't know where we start, but existential philosophy seems like a good jumping board.

My thoughts are jumbled. I'd flush them out, but I need to get back to work.

seiji• 12 years ago

In the Types Of Economies That Work wars of the early 1900s, Marx kept pointing out the end result of capitalism will be the rich few controlling most of the wealth. It's only natural after all, the profit flows to the owners, not the workers: http://en.wikipedia.org/wiki/Social_stratification#Karl_Marx

We do the same thing today. Everybody knows you're a rube if you're just working—that's why there's Founder Mania around here. Get your fake 60% ownership, hire people to create value under you, capture most of the profit/exit yourself.

Congrats on including actual charts (and some infographics too). Much nicer than just another "X is happening. Oh noes!" perspective.

allthatglitters• 12 years ago

This article supports many of the common fallacies that accompany most discussions of "wealth inequality" - and as usual believes it should be rectified... (by whom?) For a refreshing point of view on this topic, read http://cafehayek.com/2014/01/wealth-is-not-a-glob-of-homogen... . It may not change your mind but it is certainly another way to think about the issue.

benched3• 12 years ago

And where in that conception of things is the relief for the bottom 50-60% of the population? The main audience for this type of drivel seems to be wannabe entrepreneurs who want to believe they're on that straight and narrow to fortune, and deserve to be.

jamiequint2• 12 years ago

Most implementations of basic income actually taper off as your income increases so the cost doesn't have to be adults_in_us*basic_income, but actually significantly less.

It would probably be possible to support a basic income system just by getting rid of existing entitlements (although that is a big 'just')

scarmig10• 12 years ago

No. Basic incomes, by definition, do not taper off. That's what makes them so compelling to economists: schemes that do taper off create steep marginal disincentives to work. Tapering off is the type of thing that sounds appealing--why give multimillionaires a regular check?--but it's a bad idea.

(The name for the policies that do include that tapering off is a guaranteed minimum income, not a basic income.)

jamiequint2• 12 years ago

Thanks for the clarification, I did not realize the two were different.

Schemes that do taper off create steep marginal disincentives to work

There is no reason the marginal disincentives need to be steep. You could otherwise make the same argument about progressive income taxes. Those don't seem to disincentivize people from making more money, neither does guaranteed minimum income need to.

johnrob2• 12 years ago

I think health care and education should absorb the misplaced workers. The demand for those services is infinite and there should (in theory) always be incremental value created by additional workers (assume their salaries were 0; they would be paid for by the government instead of the employing institution).

andrewfong4• 12 years ago

I'm not sure that's true. By the same argument, you might say that free vaccines would encourage overpopulation, but (according to Bill Gates at least) the data shows the opposite:

"In society after society, he saw, when the mortality rate falls—specifically, below 10 deaths per 1,000 people—the birth rate follows, and population growth stabilizes." (http://www.forbes.com/sites/matthewherper/2011/11/02/the-sec...)

johnrob2• 12 years ago

You may have somehow responded to a comment that I deleted?

argumentum3• 12 years ago

Why not more painters, musicians, dancers, authors, athletes etc? I think the demand for those is far more elastic than for health care & education, esp. in the face of technology.

How great would the world be if every 10th person was a comedian, a juggler, a jester or a magician. We could really have performers livening up every street, and they would be well fed and housed.

Imagine more time for recreation, more time for bonding with our fellow man, for playing with our children and our grandparents, more time to travel the world, and one day the universe. I think that is the great promise of technology, that it will give us humans more time to enjoy being human.

invalidOrTaken2• 12 years ago

It's important to note that over time, wealth always gathers itself into a few hands. Money will flow to the rich because they're good at getting it to flow to them. That's why they're rich, duh. As they grow rich, any sensible person looking to sell something will try and sell it to the rich, because they have discretionary income. The problem is that the rich are good at making money flow to them (remember---that's why they're rich), and so most of what they buy are investments of some kind. Which means they make more money, etc.

In the past this has been mitigated by crazy amounts of philanthropy a la Carnegie or Rockefeller. I get the impression this is less so now, for two reasons. The first is that we're a more global culture, so philanthropy efforts go toward the third world rather than the third precinct. The second is that I suspect some of the rich feel persecuted by all this talk about the rich, and aren't kindly disposed towards donating their money to people who hate them. I'd love to hear recordings of Bill Gates's phone calls gone bad.

As for solutions: I don't know. One that I've been working on is better financial software for the common man (to run on a phone, rather than a PC); perhaps that will at least stop him from being suckered by predatory lending.

ojbyrne2• 12 years ago

I don't see how you can reconcile "always" with the fact that the US had a top marginal tax rate of 92% in 1952.

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

You're leaving out the role of social upheaval.

invalidOrTaken2• 12 years ago

You're right, I am.

But what does that tell you about where we're headed?

strlen6• 12 years ago

Basic income or negative income tax are great ideas: they're cheaper to administer than the current welfare state, are more humane (people are treated as adults and allowed to spend the basic income on whatever they wish), and avoid perverse incentives. With the current system, getting a job easily has the same impact as a 100% tax -- all benefits go away, all income goes goes to deal with lost benefits (and free time goes to -- given this is an entry-level and menial/service job -- an activity that's not intrinsically rewarding).

Yet, people have (initially surprising to me) visceral reactions against these proposals -- despite these proposals coming from all over the political map -- as unfair.

Jonathan Haidt has an excellent article on morality of fairness:

http://www.democracyjournal.org/28/of-freedom-and-fairness.p...

In short, individuals see fairness on a scale -- from "what people receive should be proportional to what they contribute" to "from each according to his ability, to each according their means".

It also makes sense to add a slightly more nuanced pole to this, namely "just desserts": "people should be able to keep everything that they earn, with the exception of fees for services they use and externalities they impose on others"; in other words, fairness concerns should also be balanced against negative liberty.

This could explain why there's such strong opposition to a basic income: significant chunk of the population people see it as less fair as opposed to more fair, another chunk views it as just another form of theft. It's also why many aren't easily bothered by supposed excesses of idleness of the rich, as long as the wealth was acquired legitimately. This isn't to endorse these views, but to acknowledge that these positions are sincerely held by individuals of all races, genders, and incomes.

This is also why many of the wealthy vote for politicians that (on paper) promise to reduce wealth inequality and one of the reasons why many of the poor vote for candidates that don't think inequality is a problem. In short, these are moral views as opposed to matters of rational self-interest.

Contrary to Marx not everyone is fighting for their class interests, contrary to popular view of economics (which is different from how economists actually see it) not everyone is trying to maximize their own net worth by any means possible. Economists say individuals try to maximize their utility, which to nearly all means -- to some extent -- wanting to see good in the world, but with their own definition of what is good.

So here's a proposal: when speaking on inequality and social justice, let's identify who the audience is, and justify policy proposals according to their values. If someone is a libertarian, address the negative effect concentration of wealth (which often begets political power) has on liberty (e.g., politicians buying their way into office to push Nanny state policies, wealthy funding campaigns that lead to criminalization of vice, etc...)

Likewise, if someone cares about proportionality, point out that labour theory of value is false: law of supply and demand means it's inevitable that people will get rich as result of sheer luck or doing something that seems trivial. That's not to mention that many of the wealthy are wealthy as result of rent-seeking -- and fight both rent-seeking and the inequality it leads to.

Otherwise, quite frankly, these ideas will remain dead in the water politically.

Edit: one thing that should be noted is that it's unlikely that in a free market (which is generally a good thing) wealth distribution will be anything other than power law (which isn't to say we can't smooth it out, but we can't turn it to a normal probability distribution). However, wealth isn't everything: why not divorce wealth from status (to the extent, we already do this)? For example, Silicon Valley (it's getting hard to use that term non-ironically, unfortunately) does tend to praise the value of individual contributors as well as that of entrepreneurs and managers, yet there's disconnect in mainstream culture -- where remaining an individual contributor (or even a mid-tier manager) is _not_ considered a successful outcome. This change will have to happen organically, of course.

baddox9• 12 years ago

There is a good Milton Friedman video wherein he explains why tax reform won't happen in the United States. The key is that the ideal goals of a tax system (e.g. generate lots of revenue with little inefficiency and little impact on taxpayers' personal financial situation and few unequally distributed loopholes like corporate tax avoidance) are not the goals of lawmakers who define the tax system.

In the video, he focuses on a theoretical tax system just like our current progressive income tax, but with all brackets >25% limited to 25%, and argues that it would be an improvement (according to ideal goals). But I think the argument could be extended to basic income or negative income tax, the latter of which Friedman also advocated.

https://www.youtube.com/watch?v=TruCIPy79w8

strlen6• 12 years ago

Friedman did have some role in pushing EITC forward, although it still falls short of his negative income tax idea.

dragonwriter8• 12 years ago

The key is that the ideal goals of a tax system (e.g. generate lots of revenue with little inefficiency and little impact on taxpayers' personal financial situation and few unequally distributed loopholes like corporate tax avoidance) are not the goals of lawmakers who define the tax system.

There are actually lots of viewpoints from which that set of "ideal goals" are not ideal.

And, of course, tax reform can happen with a different set of goals than Milton Friedman's ideals.

In the video, he focuses on a theoretical tax system just like our current progressive income tax, but with all brackets >25% limited to 25%, and argues that it would be an improvement (according to ideal goals).

Well, if its just like our current system but for that change, the main difference will be a tax cut for high income earners and reduced revenue. That doesn't seem consistent with the so-called "ideal goals" set out earlier.

BlackDeath3• 12 years ago

"just deserts" -> "just desserts"?

"ss" for super sweet!

strlen6• 12 years ago

Oops, fixed! "Just desserts" would be a great cafe to have in an econ department building :-)

swah2• 12 years ago

I understand from Milton Friedman that if there was no basic income, unemployment should approach zero. What is the catch?

strlen6• 12 years ago

The catch is we already have several terrible systems of poorly and expensively providing basic income: abuse of SSDI and using food-stamps to buy goods to use as a de-facto currency (in West Virginia, it happens to be soda bottles, for example)

dllthomas21• 12 years ago

http://en.wikipedia.org/wiki/NAIRU

argumentum3• 12 years ago

I think you mean "no minimum wage", not "no basic income". Friedman was especially supportive of a basic income (negative income tax to be precise).

ahomescu17• 12 years ago

In short, individuals see fairness on a scale -- from "what people receive should be proportional to what they contribute" to "from each according to his ability, to each according their means".

Exactly, and fairness keeps getting shifted along this scale. Here's an example that comes to mind when I think of taxation: let's say you have a country of 1 million people, and with total government expenses of $1 billion/year. The first taxation idea that comes to mind (and perhaps the fairest) is that every citizen pays exactly $1000 each in taxes. Now some people are going to scream "that's no fair, some people don't make that much per year, you want them to starve?" So then the next idea is "how about everyone pays 10% instead, so rich people pay more in raw dollars, but everyone still pays the same percentage?" The reply becomes "but that's still not right, rich people can afford to pay much more". Eventually, you wind up with a progressive tax that tops at around 90%, and nobody thinks this is fair (all in the name of fairness).

Retric• 12 years ago

Actually, I don't have a problem with top tax rates that high on say income over 10 million a year. People don't make 50 million a year living in a hut in the middle of nowhere. It's not as obvious as welfare, but without things like IP law and roads you just don't get that kind of concentrated wealth accumulation outside of warlords which are really just another form of government. People argue that it's bad for the economy, but the US has actually had significantly slower economic growth when the top tax rate was below 70% (1982 to now) than when it's above 70% (1936-1981).

http://www.multpl.com/us-gdp-growth-rate/table/by-year

http://www.ntu.org/tax-basics/history-of-federal-individual-...

paulbaumgart• 12 years ago

http://thelastpsychiatrist.com/2012/11/hipsters_on_food_stam... and http://thelastpsychiatrist.com/2012/11/hipsters_on_food_stam... are a pretty entertaining take on the "just deserts" aspect

RivieraKid4• 12 years ago

Would basic income make the society really more equal? I find it quite difficult to estimate how would it turn out in practice. Wouldn't a more nuanced system give better results?

strlen6• 12 years ago

First, it's a form of redistribution of wealth: assuming it's used with a progressive system of taxation.

I completely agree that we can't know how it will turn out in the long term (but why not try it and scrape it if it doesn't?), but the idea is that individuals could use the income to retrain when forced out of work, and to be able to provide an environment for their kids that give their them at least a chance at upwards mobility.

Again, I don't think it will lead to perfect equality. Nor is it a magic bullet: one pet-peeve is that everyone seems to be concerned with income, but less so with wealth per-se. Some people have proposed a tax on land itself but not improvements to land: I am not trained in economics so I can't speak to its efficacy (perhaps it's an outmoded idea today), but from a moral standpoint such a tax (with perhaps a "homestead exemption" for one's primary residence up to a certain value) seems a lot more fair than an income or property tax (which also taxes improvements to property that benefit the community).

andrewfong4• 12 years ago

One way to make basic income work politically is make it conditional upon providing something other than the actual market value of said something, at least initially.

For example, the Earned Income Tax Credit in the U.S. already effectively creates negative taxes for certain people, but only if they have "earned" income. While this isn't as efficient as a pure negative income tax or basic income, it's a good start.

You could also try paying people a basic income for community service, voting, registering for the draft, etc.

dllthomas21• 12 years ago

Hah, I like "pay it for voting"

scarmig10• 12 years ago

Unfortunately once you start doing that it loses its appeal because its foundation has been ripped out from beneath it.

First you start with basic civic duties. Then there are the things that are a bit more problematic in principle but'd still have a broad base of support--denying it to murderers and pedophiles and then all of a sudden anyone who's been convicted of a felony. Then, whoah, anyone who's committed a misdemeanor, and then you've got to start pre-emptively giving drug tests to anyone who might want to claim it. And then you add in ideas like "well, if you're disabled or a civil servant you should get more" and "obviously if you're a billionaire you shouldn't get any," and then if you make seven figures, then six, then five. And then "well, people shouldn't be spending money on Obamaphones, let's make it so that only food and housing can be purchased with it." And then only certain kinds of food and certain kinds of housing, TBD by policymakers and the helpful white papers that corporations specializing in those areas are happy to provide for free.

And then at the end of it all you end up with the deeply broken welfare system we have now, one that encourages dependency, dehumanizes recipients, and incentivizes against work, while simultaneously throwing away huge gobs of social value through administrative costs and corruption.

prostoalex2• 12 years ago

Dan Ariely has written extensively on psychological research that involves paying people for various activity.

Paying immediately removes intrinsic benefit and self-motivation. If before you were (and considered yourself) a great sport for coaching a local kids' baseball league and volunteering at a library over the weekend, once the money enters the equation, you're just another chump trying to pull money out of the system, grinding at it before you can go home and relax.

dragonwriter8• 12 years ago

One way to make basic income work politically is make it conditional upon providing something other than the actual market value of said something, at least initially.

That's called a "behaviorally conditioned social welfare program", and along with means-tested social welfare programs, its exactly the efficiency and administrative problem that unconditional basic income sets out to solve. That's not making basic income work politically, that's the exact thing that basic income is proposed in opposition to.

haberman5• 12 years ago

The discourse around inequality in this article and elsewhere is frustrating to me, because it advances the idea that inequality is fundamentally unjust, using the lives of the poor as the example.

To me this misses the point. The problem is not inequality, the problem is poverty. If everyone had enough that their basic needs were met and they were not struggling to survive, the fact that some people can afford Lamborghinis and some cannot would not be unjust in my opinion.

Without inequality, there are no Elon Musks. Bootstrapping SpaceX and Tesla required more than 1/6,000,000,000'th of the world's resources. Big results require investment, and it's not practical to crowdfund a multi-million dollar investment. So who should we entrust to make big bets? Doesn't it only make sense that the people who have already been the most successful in creating wealth should have the freedom to take that wealth to try out new ideas?

Inequality is not the problem. Poverty is the problem. Lack of access to education is the problem. We should strive to see that everyone can focus on improving their life and doing interesting things without struggling to survive. And if the most successful people take their spoils and build a 150-foot yacht, or take a ride into space, or invest in the next big company, more power to them.

blah32497• 12 years ago

Yep yep. The John Rawls's theory of justice should be a required topic in school.

What matters is how well the poorest in society are doing, not the income distribution. If a system creates a mega rich class but ends up with the poorest in society being better off - then that's a better system.

I'd also qualify that "poverty" is flexible and always changing. I live on 10K/yr in college (2 years ago). I had to share a room with a roommate, ate a lot of rice and beans. I was a pain in the ass - though not nearly as bad as I thought it would be. However not being able to afford a cellphone or a car, having an ancient computer and not being able to afford a lot of social activities (movies, restaurants, etc.) had a noticeable negative affect on my life. If I had grown up my whole life on 10K/yr it probably would have had a major impact.

20 years ago, a car and a phone and internet were a luxury, in Africa or South America it's still a luxury. In modern america, it's poverty.

glomph2• 12 years ago

We are so far from a distribution that even a Rawls based system would support that it seems pretty crass to even talk about it in my mind.

dragonwriter8• 12 years ago

The problem is not inequality, the problem is poverty.

In terms of experienced disutility, the two are largely the same; relative deprivation is a very significant source of disutility.

ahomescu17• 12 years ago

Arguable. Being hungry, homeless or sick is an actual problem that causes people great suffering. Driving a Honda while one's neighbor drives a Ferrari shouldn't cause anyone any suffering (if it does, it's self-inflicted). The former is poverty, the latter is inequality.

baddox9• 12 years ago

Inequality is not the problem. Poverty is the problem.

Not necessarily. The article doesn't develop the argument, but hints at the fact that if the perception of unfairness (due to observed wealth inequality irrespective of the poverty rate) in a society becomes sufficiently widespread, there could be negative consequences. The most extreme example is probably a violent revolution of the less wealth against the extremely wealthy.

pyoung• 12 years ago

I think you are taking these arguments too literally. The issue isn't inequality in itself, it is the degree to which inequality exists. Wealth inequality in the US is at all time highs. Part of this is due to globalization and technology, but a good part of it is also attributable to record low tax rates and business friendly government policy. Meanwhile, tuition at the public university I attended has increased by 400% in the past 10 years.

I don't think anyone cares about rich people driving fancy cars. They can spend their money how they like. Additionally, I don't think we will ever get rid of poverty entirely. The implicit agreement that we have reached as a society is that as long as the government ensures equal opportunity and social mobility, we will tolerate a certain degree of wealth inequality. Unfortunately, that inequality is so extreme that it is negatively impacting opportunity and mobility.

haberman5• 12 years ago

Your comment does exactly what I am describing. Your advocacy assumes all of the following are true without actually offering any evidence for them:

  - "too much" wealth inequality is an a priori problem
  - "extreme" inequality negatively impacts opportunity and mobility
  - the increase in school tuition is somehow a symptom of this

You also said I'm taking things too literally, but is Elon Musk not an example of the "extreme" wealth inequality you are describing?

avmich• 12 years ago

Poverty is a relative term. The article mentions that people compare their lives not to kings of the past, but to riches of the present.

JDulin• 12 years ago

Inequality not being fundamentally unjust does not imply it isn't a huge problem for society.

First of all, it makes it easy for the wealthy to lock the poor (and the rich) into their locations on the income graphs. The systems the wealthy can set in place are an impediment to a meritocracy by ensuring the rich stay rich and the poor stay poor, whether that is through boarding schools and trust funds or the Drug War and a toothless minimum wage. If the resulting massive disparity in wages implies one thing, it's that our civilization is wasting a lot of untapped human productivity on the low end of the wealth graph.

Secondly, it creates social resentment, fragmentation, and stratification. These are just emotions and Sociology Major words, yes, but that doesn't mean they aren't real. If the people at the bottom of the ladder feel like they don't have the power to climb, a society can end very badly as its political process becomes more polarized and communities are segregated.

Finally, it creates large gaps not just in material wealth, but political. Whether you're a liberal or a conservative, you think either the Koch Brothers or George Soros are destroying America. Either way, it can be agreed that democracies are undermined by a few unelected individuals wielding huge amounts of power. Less income inequality means less political inequality.

Nothing you said is wrong, but it's unhelpful. It distracts from how important dealing with growing income inequality will be in the future by saying "The discourse... is frustrating to me, because it's not pedantically right." It might be necessary if sama was arguing against large wealth disparities in a post-poverty civilization, but that is not what we have. Like you said: Poverty is the problem. And while we have poverty, poverty and inequality are closely linked.

haberman5• 12 years ago

It might be necessary if sama was arguing against large wealth disparities in a post-poverty civilization, but that is not what we have. Like you said: Poverty is the problem. And while we have poverty, poverty and inequality are closely linked.

This is where you lose me. Solving the problem of poverty is a matter of making sure that the poorest people have enough. Solving the "problem" of inequality is a matter of making sure that nobody has "too much."

ahomescu17• 12 years ago

whether that is through boarding schools and trust funds or the Drug War and a toothless minimum wage.

Maybe I'm wrong, but I have a feeling that the Drug War comes as much from conservatives in the middle class as from rich people (in a "think of the children" way, they want to keep their communities clean and healthy). (Not saying I agree with the Drug War, it's been a disaster so far).

RivieraKid4• 12 years ago

Inequality has couple of negative side effects like less cohesive society or power inequality.

joelrunyon• 12 years ago

Honest question: are people surprised at the wealth distribution?

It seems quite a few HNers are familiar with Pareto's principle & 80/20 and the current wealth distribution reflects that almost perfectly (Top 20% = 84% of wealth).[1]

I'm not saying that being in that top 20% doesn't bear certain responsibilities, but it shouldn't necessarily be surprising.

[1] http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/06/t...

scarmig10• 12 years ago

Even if wealth and income will roughly fall along a Pareto distribution (plausible, but needs some argument), that doesn't mean the 80/20 is universal. Only some Pareto distributions (characterized by certain parameters) display the 80/20 principle.

e.g. the Gini coefficient for an idealized Pareto distribution displaying the 80/20 principle is by definition 0.60. But Gini coefficients can obviously vary a lot from that, so societies definitely can exhibit either more or less wealth inequality.

firstOrder• 12 years ago

Technology makes wealth inequality worse by giving people leverage and compounding differences in ability and amount of work. It also often replaces human jobs with machines. A long time ago, differences in ability and work ethic had a linear effect on wealth; now its exponential.

This is a factor, but not much of one.

Let's see who is wealthy. The top ten of the Forbes 400 wealthiest Americans.

#1 Gates - grandfather ran a bank, and had a million dollar trust fund for him. #2 Buffett - father a Congressman, grandparents owned a chain of stores #3 Ellison - grew up middle class, self-made #4 Koch - inherited oil company #5 Koch - inherited oil company #6 Walton - inherited Walmart #7 Walton - inherited Walmart #8 Walton - inherited Walmart #9 Walton - inherited Walmart #10 Bloomberg - grew up middle class, self-made

The incubi hovering over Silicon Valley are the limited partners whom VCs raise money from. Like the Forbes 400 list, or like the Federal Reserve Survey of Consumer Finances, most of the wealth is inherited.

I've sat next to too many Chinese and Indian guys, running the whole show for some Fortune 500 company in terms of their databases, storage, or some programming group, who were on H1-B visas and making a pittance and living in a small apartment in some crappy neighborhood to think that "work ethic" and "ability" is what is making all the money. These people not only have a work ethic (like many in society), they also have the technical ability. They have the ability and they're using the ability. And making nothing.

Those who get wealthy expropriating the surplus labor time profits of we workers who work and create wealth - they are the ones who are benefiting, not the "hard working" or "able". Watch the documentary "Born Rich" by one of their tribe. How many of the people interviewed their have the ability to know which data structure is proper for a certain project? Or how to set up BGP connections on a Cisco router? And so forth. They are benefiting due to the new technology, but it is they who benefit, the hard working able people building and implementing these things are getting scraps from the table.

While GDP per capita has risen over the past decades, inflation-adjusted wages per hour have fallen. Things have gotten better for those who do not work, and worse for those who do work and create wealth.

The only answer from those who parasitically expropriate profits from the surplus time of those of us who work and create wealth is this - "spend more of your time studying math. Go into debt to pay for college and spend four years paying for your own job training. Then you might live as well as your parents did, who did not have to do these things (or who would live better than you ever will by doing these things."

Ultimately an economic system built on this has too many self-contradictions. Once you drain all the spare money from the average worker, no one has any money to buy the things these companies make. They can go into debt, but that just kicks the can down the road and makes the ultimate crash work.

In fact Sam Altman's business, Green Dot, is predicated on this new reality. Poor people don't have the credit to get credit cards, so they go to Green Dot and get charged exorbinant amounts of money. His business is one of the heaviest into the transfer of wealth from the poor to the rich.

jessaustin2• 12 years ago

Poor people don't have the credit to get credit cards, so they go to Green Dot and get charged exorbinant [sic] amounts of money. His business is one of the heaviest into the transfer of wealth from the poor to the rich.

This is a bit unfair to Green Dot. First of all I don't think their fees are that high. Secondly it's not their fault that most merchants and services expect everyone to have a bank account and nineteen credit cards. That didn't used to be the case, and eliminating credit cards would do much more to help the poor than eliminating Green Dot.

FD3SA• 12 years ago

Precisely. Most intelligent people understand very quickly that it isn't their technical ability that will make them wealthy, but the ability to commandeer the technical ability of others at the lowest possible price. Hence, the H1-B, or voluntary indentured servitude with the carrot of a green card.

Why does this perpetuate? Informational asymmetry aided by naive hope, marketing, and desperation. The "American Dream" is the most viral marketing campaign in the history of mankind, spread by Hollywood around the globe. As such, there's a never-ending lineup of suckers waiting to take the plunge.

pchristensen• 12 years ago

I generally agree with this, my only input would be to this:

"Technology makes wealth inequality worse by giving people leverage and compounding differences in ability and amount of work."

to "differences in ability, amount of work, and utilizing existing wealth and assets."

Technology helps the rich get richer, so it's naive to chalk its benefits up to only hard work and ability.

tn13• 12 years ago

When it comes to debating ideas the supporters of big-government/Communism/Socialism has lost the battle long back.

In modern times I see that these people have changed skins and they are not talking about "inequality" and "environment" as tools to counter mostly free market enterprise and small government arguments.

Eventually it all boils down to which policy would fetch more votes. Number of unproductive freeloaders in American society is probably increasing, there is tendency to look down upon the legal temporary job seekers in USA as job thieves depriving Americans of their jobs and we are told to be compassionate about the illegal migrants.

The vote bank in favor of taxing the productive and paying the unproductive is increasing at a rapid pace. Yes, it will bring equality where everyone will be poorer and no hope for future. (Note: Big ships take longer to sink, I have no doubt USA will continue to be a leader over next 20 years or so but the decline after that will be catastrophic).

callmeed• 12 years ago

Random thoughts ...

We are becoming a nation of haves and have-nots—of prosperous San Francisco vs. bankrupt Detroit.

Based on the people protesting/blocking the shuttles, San Francisco has plenty of have-nots.

and we’d presumably cut a ton of government bureaucracy.

LOL. A $3.5T govt program is going to cut bureaucracy? Even if it swallowed up other existing entitlement spending, I don't see this happening.

iambateman2• 12 years ago

It's easy to talk about inequality from a macro perspective, but imagine this...

Imagine Bill Gates is sitting next to a McDonalds employee. Bill is millions of times wealthier than this guy. He could afford to hire 100,000 minimum wage employees for life.

By all accounts Bill is lucky. He's smart and works hard too, but he's basically lucky.

And increasingly, society suggests that we deserve some slice of his luck, because we have less. But why? Our government guarantees your right to private property. Once you own something, it's yours. When we choose to believe in a threshold at which the rules of private property cease, we erode Bill's incentive to participate in the market. If that doesn't feel like a big deal now, wait until the disincentive slides down to your level of income.

I'm not saying that civic society shouldn't do anything for marginalized people. Education can have a meaningful effect on their wages and technology is going to shake the markets and people need help to smooth their individual outcomes, but to say that they deserve Bill's money simply because he's rich is a nasty nasty attitude.

We need to seek an environment that allows everyone to grow through profitable employment, not artificially rebalance the top-end.

benched3• 12 years ago

This (rather Randian) model of things is so contrived. Focus on the individual, their achievements, and personal wealth as untouchable property are half-truths, mythology, and contrivances.

The economy is a collective thing. It's a network of people with money, goods, and services flowing between them. Serious wealth is and has always been primarily about one's positioning in the system, and only indirectly about their abilities or value delivered. Yes, presumably ability and achievement often have some influence on that positioning, but it's that mechanical fact of sitting in the thick part of the flow that matters when it comes to making a lot of money. (E.g. I get paid the same pretty much no matter what I do, while my blue-collar friends have to log hours and really work. Yeah, eventually I could potentially lose my job if I really do nothing, but in reality I can get away with doing very little - direct deposit still happens, because that's the system. I am so positioned with respect to the company's payroll system.)

I don't see the problem with making changes at the systemic level to how the flow works (taxes, basic income), as well as making it easier for people to move around (which you addressed, re: education. e.g. returning college to affordability would be truly great).

ahomescu17• 12 years ago

This (rather Randian) model of things is so contrived. Focus on the individual, their achievements, and personal wealth as untouchable property are half-truths, mythology, and contrivances.
The economy is a collective thing.

The economy is a collective of individuals, all of which must put in effort into making things work; people generally don't put in effort unless rewarded. For real-world examples of societies that put the collective above the individual, take a look at communist countries. Most of them failed, whereas the individualistic West still stands (I say this coming from Eastern Europe and seeing how much damage collectivism can do).

iambateman2• 12 years ago

At 100% tax, no one takes any risks.

Big players contribute to the economy as a whole through capital investment and get a return on their investment's growth. To the extent that we tax them into a corner, we reduce their incentive to make capital investment.

In the long term, we do not increase opportunity by reducing capital investment.

pdonis14• 12 years ago

He could afford to hire 100,000 minimum wage employees for life.

But he doesn't, does he? In other words, Bill Gates is not using his wealth very efficiently; it would be more efficiently used if it were spread around. It's not his fault, exactly: no single person can be expected to make efficient use of $30 billion, or whatever his current net worth is. But the fact remains that it seems likely that there is some maximum level of wealth that a single person can make reasonably efficient use of, simply because a single person doesn't scale. If that's true, then that's an argument for altering the rules of private property if a single person accumulates wealth above that level.

As for incentives, I find it very difficult to believe that if, for example, we set a threshold net worth of $100 million and said that anything above that gets taxed away (of course it would be more complicated than that in practice, but let's keep it simple for this discussion), Bill Gates wouldn't have started Microsoft because, oh, well, he's only going to get $100 million from it.

natmaster• 12 years ago

Your ideal wealth distribution is that everyone has the exact same amount of wealth? Next you're going to be telling me some animals are more equal than others...

nostromo• 12 years ago

Here's an idea a friend and I have been throwing around. It's probably terrible to be honest, so I'd love to hear why it's dumb.

Implement basic income, which HN is well aware of. But, instead of funding it entirely through income taxes, fund it primarily with what the Fed would call "Quantitative Easing" but what I will call "printing money."

Right now, I believe the Fed has actually made inequality much worse by printing a metric ton of money and pumping it into government and the financial sector. The hope is that this will, to use a loaded term, "trickle down" to everyday Americans. Instead, it seems there isn't much trickling.

So, why print money? Because it's a wealth tax. It's also the easiest tax to implement: you don't have to collect anything! No IRS. A huge amount of the US government would be gone: no more means testing government expenditures (benefits), no more tax collecting for revenue.

dllthomas21• 12 years ago

Printing money isn't a tax on wealth, it's a tax on dollar denominated wealth. If I have a $5 million dollar home and a $20 million dollar stock portfolio, and the dollar falls 2% tonight, tomorrow I probably have a (roughly) $5.1 million dollar home and $20.4 million dollar stock portfolio.

That said, I'm not convinced it's a terrible idea. What it would likely do is get businesses to stop sitting on cash reserves... if they do that by increasing production, that might lead good places. If they do it by fleeing into other assets, we'll just see the dollar crater. Increased demand expressed by those whose increase from the money they've been handed is less than their loss from inflation might mean that increasing production is the better move for them. I'm not sure I'd want to bet on it, though. Printing a portion of what is handed out (particularly in down times) seems less crazy.

maxerickson• 12 years ago

QE carries the implicit promise that they will eventually stop it and destroy some of the money. This keeps a lid on inflation. Start printing money without that implicit promise and away we go with the inflation.

benched3• 12 years ago

Meta, but I cannot believe this excellently written post has already dropped from the front page, while some bullshit about "suhvuhbtle" and medium is still sitting in the top spots for hours. Like ever more hip ways for echo-chamber attention-seekers to share their amazing epiphanies about productivity with each other, is so much more interesting than poverty.

argumentum3• 12 years ago

These ideas (negative income tax/minimum income) have been proposed for decades by classical liberals / libertarians as a replacement to the welfare state, and (less often) as a supplement by progressives.

This distinction is critical. But, I'd wager that many libertarians (like myself) would happily match the total welfare spend + proposed minimum income on a per person basis as long as we cut out the middle-class bureaucrats and administrators.

It will be hard to reach consensus for the reasons Sam mentioned, but not impossible, since some elements are supported by otherwise diametrically opposed politics. I much prefer the debate be between libertarians & progressives (or even anarchists & socialists) than the center-left and center-right.

But this still doesn’t address the fundamental issue—I believe most people want to be productive.

I'm not too worried about that people will be lazy or feel alienated due to not being productive. Science and Technology are not the only outlets for human creativity: my prediction is that we will see a flowering of the Arts and Recreation: more music, more writing, more painting, more sculpture, more sports & games etc. This will enhance all of our lives ..

As an aside, I think its a mistake to measure the delta in wealth distribution primarily in terms of assets. Technology, while increasing wealth disparity in measurable ways, often decreases it in immeasurable (and more important) ones: for example, wikipedia vs encyclopedia britannica.

Technology and wealth inequality

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