What Causes The Growing Wealth Gap In America?

Xerographica said:

It's amazing how much nonsense you can produce. Imagine if I had to buy your nonsense? I'd go broke...and all I'd have to show for my sacrifice would be a pile of your nonsense. Good thing I have the freedom to say "get your head examined".

Each resource has more than one possible use. Some uses are more valuable than other uses. For example, using lemons to make lemonade is more valuable than throwing lemons at cars (unless you're a Keynesian). Shopping allows consumers to indicate exactly how much they value the various uses of society's limited resources. Take shopping out of the equation and there's no way to determine how much society values the various uses of its limited resources. Without shopping, it's impossible for society's limited resources to be efficiently allocated.

Therefore, the true economic engine consists of two parts...

1. people's freedom to come up with new and innovative uses for society's limited resources
2. people's freedom to decide for themselves exactly how much they value various uses of society's limited resources

Crushing the economic engine simply consists of preventing people from shopping for themselves. If you want to ensure that this engine runs smoothly...then taxpayers should be allowed to shop for themselves. If you want to ensure that massive amounts of resources are wasted...then allow government planners to determine how society's limited resources are allocated.

Also, there's a problem in your understanding of basic economics if you can't explain why you haven't sent me $100 via paypal. If you can't grasp the basics of exchange...then when it comes to economics...all you'll be able to produce is nonsense.

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Are you under the delusion that we have, or can have, anything remotely related to a free market?

CaptinSarcastic said:

As a representative constitutional democracy, we do choose where our taxes go, every time we go into the voting booth. If you mean that the minority should be able to choose, then you are missing the point of democracy.

We humans are not as rational as you seem to pretend we are. We would happily choose to fund nothing, expecting others to do it, until it all came crashing down.

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Again with the nonsense. Read up on the preference revelation problem and try again.

CaptinSarcastic said:

Are you under the delusion that we have, or can have, anything remotely related to a free market?

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Are you under the delusion that the preference revelation problem isn't a real problem? Eh, I already know the answer to this question.

CaptinSarcastic said:

Are you under the delusion that we have, or can have, anything remotely related to a free market?

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The same invisible hand of capitalism that Adam smith spoke of has the ability to strangle us as well as benifit us.

Unitedwestand13 said:

The same invisible hand of capitalism that Adam smith spoke of has the ability to strangle us as well as benifit us.

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How can the efficient allocation of resources strangle us?

ocean515 said:

You posted out of context, highly selective facts that exclude tax increases during the same period, and historical data realted to inflation,hyper interest rates and a multitude of other factors, both in the United States and across the globe that were affecting the ecomony.

This is the typical way the period is represented by those who cling to Reagan as the beginning of the end.

Please get down from your mighty perch, your three legged stool only has two legs, and your bound to hurt yourself.

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SOMETHING of moment happened circa mid-seventies in regards to how the "tide" was lifting the "boats" of the people of this country.

Every chart shows it.

Math proves that the lions share of new income is going into fewer and fewer pockets.

What, if anything, to DO about it is the question, not whether or not the phenomenon exists.

Reagan was simply at the helm when technology made it all possible.

He helped, but it wasn't "him".

It was an opportunity, presented by technology, that the greedy took full advantage of.

And continue to to this day.

While they pay think tanks to disperse memes like the one where those not seeing much of increased productivities' FISCAL benefits have nothing to complain about because they have indoor plumbing and real glass winders.

Rich people didn't have cool cellphones 20 years ago either, so their technological-progress-based standard of living has improved apace with that of those lower on the food chain. All based on the efforts of those who came before.

What if...? said:

SOMETHING of moment happened circa mid-seventies in regards to how the "tide" was lifting the "boats" of the people of this country.

Every chart shows it.

Math proves that the lions share of new income is going into fewer and fewer pockets.

What, if anything, to DO about it is the question, not whether or not the phenomenon exists.

Reagan was simply at the helm when technology made it all possible.

He helped, but it wasn't "him".

It was an opportunity, presented by technology, that the greedy took full advantage of.

And continue to to this day.

While they pay think tanks to disperse memes like the one where those not seeing much of increased productivities' FISCAL benefits have nothing to complain about because they have indoor plumbing and real glass winders.

Rich people didn't have cool cellphones 20 years ago either, so their technological-progress-based standard of living has improved apace with that of those lower on the food chain. All based on the efforts of those who came before.

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Not to split hairs, but I owned a portable cell phone 28 years ago. If it weren't for the rich, it's possible the technology may never have reached the place it is today.

The fact is, there were many issues a play with the US and global economy back in 1980. Investments, pension funds, imports, labor costs, and yes, technology, all contributed to the growing gapsince then.

For example, few people anticipated the impact of massive regulation on industries when at the same time, labor, and increased global competition, were impacting profits.

Another example, have you considered the impact on the drive for profits demanded by the largest institutional investors? Consider who those are. Names like CALPERS, and other similar public employee pension funds should become evident to you. What is a public company to do under such conditions? When 401K's took off, were profits less important, or was return on investment and portfolio profits critical objectives?

When people can make millions by clicking a mouse, or shoveling paper from one side of the desk to another, the gap is bound to increase. That is the problem today. A tech making a service call on a product another nation manufactured, is never going to make as much as the person working on an assembly line can, when his labor cost can be spread over hundreds of products.

Xerographica said:

Who am I? LCD Soundsystem? I've lived and worked in Panama, Afghanistan and China.



My opinion is based on numerous life experiences and copious amounts of reading.



You don't shop around for the best deals?



Because Hollywood sure knows a lot about economics. Maybe even more than you do.



Maybe it has something to do with minimum wages? Perhaps?

No group has a monopoly on utility maximization. We all want the most bang for our buck. Is this a good thing? Well yeah. The alternative is to waste our resources...and our lives.

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You're stuck on the union thing.

Outsourcing undercuts NON union wages, by a ridiculous margin. THAT was the draw to business.

Concentration of wealth begets LESS choice, FEWER options, as what we get is the most profitable thing, not the "best" thing by any other metric. So something MORE useful or MORE durable or whatever, that is intrinsically less profitable will not see the light of day.

So efficiency and utility get skewed when capjtal concentrates enough to put allocation of resources in the hands of those who ALREADY CONTROL most of the resources.

WE get what THEY want.

And we DON'T get what they DON'T want.

And what "we" get is whatever generates the most short term profit for owners of capital.

Because that's what generates bonuses for executives, and long term considerations are largely unimportant to them because they often have moved on before consequences arise.

I really think some of the "libertarian" economic theories COULD work, if we started over with a clean slate.

As it is, those currently enjoying the way things are already possess the capital to make sure it stays just like it is.

JP Hochbaum said:

Here is a piece I put together about how monetary policy grows the richest 1%:

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Oh no, in your own words yes, but not necessarily on topic or directed to me? Come on JP, can't you just wing it?

"Supply side economics suffers from what I am calling the “common sense fallacy”.

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And here it is. I have not mentioned supply side economics, and thus I cannot have committed what you are self-describing as "common sense fallacy".
Strawman.

The argument from supply siders is that if you decrease taxes on the rich they will start to hire people.

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Where are these supply side debaters you appear to be debating? Earth to JP, I'm really interested in what you have to write to me, not to this other non-present person.

Based on this entirely irrelevant rebuttal, that does nothing to refute my argument, and certainly does not back your original claim that wealth disparity is a big problem, I have to conclude you're just not able to back up what you're thinking.

CEO’s will not hire more people when they have more money, there needs to be demand for their products for them to do this."

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How is that the problem with wealth disparity?

Sadly not a bit of that tells us why specifically wealth disparity is specifically a problem. Worse, any proposed solution that I've seen even if you got past the "define why it's a problem", results in more problems that don't offset the positive changes such proposed fixes offer. I think you have something good to tell me JP, but I am always unable to get it out of you :/

Further, even though it's irrelevant, your ideas about CEOs and how a business comes into being seems academic and not realistic. As a CEO and founder of a company that I will likely either retire from as passive owner or sell, after 10 years of growing it starting with just me (and a customer willing to work with me) what you wrote makes no practical sense. The value an owner who later really is a chief executive of a company they created, might realize, is typically in their ownership of the company, not in their CEO income (whatever that mean). There are so few ultra-high salaried CEOs compared to the market size that even the notion that if it were an issue, that it's derailing our economy, is just absurd. Controlling the means to production is the only thing that makes that entire cycle possible in the first place. The extraordinary living standard and GDP we have in the U.S. is in large part a benefit of that. A few CEOs make more than you like? Worth it.

CaptinSarcastic said:

Clearly it is an indictment of the macroeconomic supply side theories and the Laffer curve and an argument that Keynesian policy would not have the depressing influence that Austrians claim. Macroeconomics is not just numbers, it is people, which is why macroeconomics is more art than science. If it were all empirical, we would never have any economic problems.

Sometimes economic policies are counter-intuitive, or short term versus long term.

Frankly, if we limited discussion to the nuts and bolts, we couldn't discuss the economic theory that has been enacted as overall policy for the last 30 years because supply-side theory seems to be more a theory built to fit a philsophy than an empirical model built from data.

I am no economist, and I really don't have the time and desire to dig into microeconomics, my interest is sustainable macroeconomic policy so I do my best to understand the macroeconomic theories and the math, science, logic, and philosophy behind them.

But the question is clearly macroeconomic, "What Causes The Growing Wealth Gap In America? "

So the answer is that capitalism is causing the growing wealth gap, but it doesn't have to, depending on the macroeconomic policies in place. Supply side policy, which is billed as a policy to increase capital to be invested which would in turn increase production, which would in turn increase employment and wages, creating something like a top down mulltiplier effect. But since supply side theory is really just a way to argue that if rich people have more money, everyone will have more money, and that has clearly failed, then we should focus on policies that increase demand, and I point to our economic history of VERY progressive tax policy which made wealth accumulation much more difficullt, and yet it still happened, because the income on the demand side was so strong.

From a policy perspective, what we SHOULD want is policy that creates a static relationship between wealth increases across the income spectrum. A good way to see how we are doing is a comparison between the wealth and income of the top 1% versus the other 99%, or even the middle quintile. If the policy in place is keeping this relationship static, we have a sustainable system, if wealth and income are being pushed away from one and to another, we are failing. If you look at the graph mbig posted, you can see the inverse relationship between tax rates at the top and incomes across the other 99%. Is it not an economic argument to say that if we taxed significantly more at the top, those at the top would not bother taking high incomes just to have them taxed away, and if they did not take that income, what would they do with it? I submit the effect would be to create a scenario similar to the 40's, 50's, and 60's, where income and weallth increases were evenly distributed across the income spectrum creating a sustainable system. If I said multiplier effect, would that make you happy?

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Yeah.

"Capitalism" is a construct, the one we have chosen for our economy.

A societies economy should serve all its PARTICIPATING members.

Not equal outcomes, but approximately equal progress.

A rising tide should lift all boats at aboit the same RATE.

If the richest get 10% richer, everybody else should get about 10% richer. On average, overall, etc.

If this isn't happening, and it hasn't for 30+ years, our construct isn't serving ALL of us, and is therefore in need of overhaul. Or at least an examination.

Instead, we get a barrage of think tank generated memes to the effect that there's no auch thing as wealth disparity, and even if there is, it's GREAT for EVERYBODY.

Xerographica said:

Nonsense, wages should reflect how much society values the activity. Anything else leads to the inefficient allocation of resources. Do you want resources to be inefficiently allocated? If so, then tell me about how you intentionally misallocate your own resources. Actually, don't just tell me about it...prove it. How? By sending me $100 via paypal. This would prove that you really want society's resources to be inefficiently allocated.

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How do you consider hurting our economic engine, the middle class consumers, to be efficient?

Xerographica said:

The obvious solution is to simply allow taxpayers to choose where their taxes go. Then you can spend your taxes on whichever public goods provide you with the most value. When you spend your own taxes on public welfare...then I'll believe that you truly value public welfare. Actions (willingness to pay) speak louder than words.

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Years ago I came up with a similar idea, except that I never considered it realistic.for taxpayers to allocate ALL of their taxes. There is no way in hell that everything that HAS to be done would receive necessary funding that way. Train wreck.

A significant percentage, however, say half, would have the same feedback effect without leaving critical systems unfunded.

Catawba said:

How do you consider hurting our economic engine, the middle class consumers, to be efficient?

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You're loading your question.

Two randomized kids. You provide both with adequate love, attention, and schooling.
Kid A you give everything material they want to them for free, and they do no chores. You clean, cook everything for them.
Kid B you don't give material things, they do chores and earn allowance, and purchase what they want (with guidance)

You believe that you are helping Kid A, and hurting Kid B?

If people need to work for money, and then they have to spend it for what they want, and can opt out of things they don't want, that's largely a healthy thing. To call that hurting, is absurd. To call that an inefficient system with regards to match individual wants with needs, is absurd.

The alternative of course being removing more of their individual freedoms...surely that's a negative thing right?

Xerographica said:

Again with the nonsense. Read up on the preference revelation problem and try again.

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You know, with the amount of data collected on all our consumption patterns, it probably IS possible to allocate resources efficiently.

There is no reason the computers that perform this function for businesses couldn't be used by some kind of central authority.

Xerographica said:

How can the efficient allocation of resources strangle us?

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When I own enough of a resource people can't live without that it is most efficient for me to gouge the crap out of everybody?

Mach said:

You're loading your question.

Two randomized kids. You provide both with adequate love, attention, and schooling.
Kid A you give everything material they want to them for free, and they do no chores. You clean, cook everything for them.
Kid B you don't give material things, they do chores and earn allowance, and purchase what they want (with guidance)

You believe that you are helping Kid A, and hurting Kid B?

If people need to work for money, and then they have to spend it for what they want, and can opt out of things they don't want, that's largely a healthy thing. To call that hurting, is absurd. To call that an inefficient system with regards to match individual wants with needs, is absurd.

The alternative of course being removing more of their individual freedoms...surely that's a negative thing right?

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Your analogy is based on a false premise. No one is proposing giving anything free to the middle class and no is proposing hurting the rich. What was being discussed above was paying a living wage to those qualified workers that work full-time.

A consumer based economy, as we have experienced, cannot prosper when most of the nation's wealth is concentrated at the top, out of reach of consumers that drive our economy.

ocean515 said:

Not to split hairs, but I owned a portable cell phone 28 years ago. If it weren't for the rich, it's possible the technology may never have reached the place it is today.

The fact is, there were many issues a play with the US and global economy back in 1980. Investments, pension funds, imports, labor costs, and yes, technology, all contributed to the growing gapsince then.

For example, few people anticipated the impact of massive regulation on industries when at the same time, labor, and increased global competition, were impacting profits.

Another example, have you considered the impact on the drive for profits demanded by the largest institutional investors? Consider who those are. Names like CALPERS, and other similar public employee pension funds should become evident to you. What is a public company to do under such conditions? When 401K's took off, were profits less important, or was return on investment and portfolio profits critical objectives?

When people can make millions by clicking a mouse, or shoveling paper from one side of the desk to another, the gap is bound to increase. That is the problem today. A tech making a service call on a product another nation manufactured, is never going to make as much as the person working on an assembly line can, when his labor cost can be spread over hundreds of products.

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An old boss of mine, 1981 or so, was a ham radio enthusiast.

They had installed equipment that allowed them to make calls from their radios.

I'm not rich, but I am an early adopter.

And I absolutely understand that its a complex issue.

I also think it was a change in focus to bonus generating short term profits.

It made capitalism parasitic. Encouraged extraction over production.

Catawba said:

What was being discussed above was paying a living wage to those qualified workers that work full-time.

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It's really no different Catawba, you're distorting the way it should work, and incentivizing the wrong thing. You are hurting the system, not helping.

Currently you are supposed to develop job skills, work to find a job, and continue to develop those work skills in whatever manner you see fit. Most of us plan for some contingency, backup jobs, backup careers, we dread having to think about it but we do it. We also save, in some cases, start small side-businesses in the hopes that it replaces our primary income, or at least is a fail-safe. Sometimes we ask our spouses to work to lower the risk, if they don't work already. We pass on the easy job and take on the harder one because long-term we feel it's best. And so on. IN ADDITION to all of that, you're supposed to show up for your job and do the work. Notice here that the actual labor is a fraction of the overall requirement in taking advantage of the free market.

What you propose is removing all those other necessary, valuable requirements, and simply paying their way on all of those issues. The only thing they then have to do is the fractional last part, the showing up for the job. You did all the rest. Just like the parents in the above analogy. So what's their incentive to do all that other tedious, scary, boring, time consuming things with their short life, when Catawba will just let you get your toys without doing chores? Sure, you would like to think that making the program require them to work means you're having them put in sufficient effort, but it's not.

Second, how will you pay for this misdeed? You will force someone else who DID do most of the that background work, the planning, the school, the long hours of studying, the putting customers first, the switch jobs when you saw that your job was going extinct.....you make those people pay for it. Are you still not seeing how that works?

Third, all that labor and money is now being directed into some centrally planned public works, it's not going to build on itself like similar private market expenditures would. There may be temporary gaps, sure, and if it's for a single mail trying to make a living at age 25-30, it may be critical for them. But they can be glad they didn't get drafted to fight in a war, or suffered the great depression. On balance, they might have it a hell of a lot better and deep down you must know this.

Fourth, how do you prevent all that money centralized, from leading to corruption of the system itself? Private markets are far more resilient to this. The worst culprits being private/public corruption combined...

Fifth, is it not a conflict of interest to have our very fragile, presumably limited government, responsible for hiring a lot of people? How will that change their voting habits, I mean, would they then be far more likely to vote for whoever promises them a better job and more pay, etc.? What a disaster.

A consumer based economy, as we have experienced, cannot prosper when most of the nation's wealth is concentrated at the top, out of reach of consumers that drive our economy.

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Nonsense, we prosper DESPITE people and machinations like you. The U.S. is so absurdly high on prosperity and living standards it's amazing that you could really try to pass it off as true that our economy is not overall, on balance, peak in terms of prosperity.

CaptinSarcastic said:

Clearly it is an indictment of the macroeconomic supply side theories and the Laffer curve and an argument that Keynesian policy would not have the depressing influence that Austrians claim. Macroeconomics is not just numbers, it is people, which is why macroeconomics is more art than science. If it were all empirical, we would never have any economic problems.

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It's not an indictment of supply side, laffer curve or even Austrian arguments against Keynesian policy. But rather an argument against Government manipulation.

CaptinSarcastic said:

I am no economist, and I really don't have the time and desire to dig into microeconomics, my interest is sustainable macroeconomic policy so I do my best to understand the macroeconomic theories and the math, science, logic, and philosophy behind them.

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I am an economist and I can tell you macroeconomics is based on assumptions and it doesn't matter if you are Keynesianist, Austrian, Supply-side or Socialist. Thus the math, science, logic and philosophy is subjective as every one of us have predisposition. For example Keynesian assume 3 things.. rigid prices, effective demand, and important savings and investment determinants other than the interest rate. These 3 assumptions are counter assumptions in classical economics which are flexible prices, Say's law, and savings-investment equality.

Keynesianism fell out of favor in the 1980s because it had a HUGE flaw. It couldn't explain high rates of unemployment and inflation that came to be known as stagflation.

CaptinSarcastic said:

But the question is clearly macroeconomic, "What Causes The Growing Wealth Gap In America? "

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Sure.

CaptinSarcastic said:

So the answer is that capitalism is causing the growing wealth gap, but it doesn't have to, depending on the macroeconomic policies in place. Supply side policy, which is billed as a policy to increase capital to be invested which would in turn increase production, which would in turn increase employment and wages, creating something like a top down mulltiplier effect. But since supply side theory is really just a way to argue that if rich people have more money, everyone will have more money, and that has clearly failed, then we should focus on policies that increase demand, and I point to our economic history of VERY progressive tax policy which made wealth accumulation much more difficullt, and yet it still happened, because the income on the demand side was so strong.

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No, the answer is not capitalism is the problem, but rather the close relationship between government and private capitalism... which has led to a situation of "crony socialism" (which I call it), "crony capitalism" (which Jane Jacobs called it) or Neo-corporatism. But we'll go with Neo-Corporatism since it was the policy of the Clinton admin, Bush admin, Obama admin and other politicians. Michael Dukakis argued for it, so did Gary Hart, Robert Reich beats the damn corporatism drum every time he speaks.

CaptinSarcastic said:

From a policy perspective, what we SHOULD want is policy that creates a static relationship between wealth increases across the income spectrum. A good way to see how we are doing is a comparison between the wealth and income of the top 1% versus the other 99%, or even the middle quintile. If the policy in place is keeping this relationship static, we have a sustainable system, if wealth and income are being pushed away from one and to another, we are failing. If you look at the graph mbig posted, you can see the inverse relationship between tax rates at the top and incomes across the other 99%. Is it not an economic argument to say that if we taxed significantly more at the top, those at the top would not bother taking high incomes just to have them taxed away, and if they did not take that income, what would they do with it? I submit the effect would be to create a scenario similar to the 40's, 50's, and 60's, where income and weallth increases were evenly distributed across the income spectrum creating a sustainable system. If I said multiplier effect, would that make you happy?

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LOL.. Tell Government to stop bailing out and giving favoritism to Corporations then. Btw, income in the 40's, 50's and 60's didn't rise or fall equally either. There will always be inequality.

Mach said:

It's really no different Catawba, you're distorting the way it should work, and incentivizing the wrong thing. You are hurting the system, not helping.

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How does paying adequate wages for full time qualified workers hurt our economy? Makes a hell of a lot more sense to me to than paying unemployment and welfare with taxpayer money.

Catawba said:

How does paying adequate wages for full time qualified workers hurt our economy? Makes a hell of a lot more sense to me to than paying unemployment and welfare with taxpayer money.

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Have you ever studied the law of supply and demand? There is currently a glut at one end of the value scale. Some choose to take those opportunities realizing that "it gets their foot in the door"...

AlabamaPaul said:

Have you ever studied the law of supply and demand? There is currently a glut at one end of the value scale. Some choose to take those opportunities realizing that "it gets their foot in the door"...

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Supply and demand is what I'm talking about. You need consumers with adequate wages to create a demand. A consumer based economy can simply not prosper without it, as we have seen first hand.

Catawba said:

Supply and demand is what I'm talking about. You need consumers with adequate wages to create a demand. A consumer based economy can simply not prosper without it, as we have seen first hand.

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Why are you content with a consumer based economy rather than one based on productive output that happens to consume? The entire model needs to be changed...

AlabamaPaul said:

Why are you content with a consumer based economy rather than one based on productive output that happens to consume? The entire model needs to be changed...

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What are you talking about producing that is not a consumer item?

Catawba said:

What are you talking about producing that is not a consumer item?

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I see the post flew right over your head. Is the UE level in North Dakota the result of a consumption first emphasis or a production emphasis?