The Top 1% is Stalling the Economy

[cybercoma]

I watched the whole video, it's interesting and I'd like to believe it, but it's still just a video with a Powerpoint presentation. It's not peer-reviewed published research. Some of the graphs don't even have values on either axis. For all your talk about research/stats methods, there's not enough hard data to chew on in the video. I need to see Wilkinson "show his work", I need to see his study, his stats, and his research methods laid out on the table, just like TimG does. Maybe Wilkinson is bang-on, maybe he's cherry-picking a lot, the point is we do know because we lack info.

The video is a presentation of a peer-reviewed article. You can find his peer-reviewed materials pretty easily. Edited January 9, 2014 by cybercoma

[TimG]

That's probably the #1 fallacy that many conservatives/libertarians etc. make. That last statement is completely ideological rather than pragmatic.

Context is important. That statement was in response to the statement that our problems could be solved if only government redistributed more income. Why is it any more ideological? At some point in time policy choices come down to a question of trust. I simply do not trust government and that means I would rather live with the problems we have today than risk making them worse by expanding the power of government. Edited January 9, 2014 by TimG

[TimG]

The video is a presentation of a peer-reviewed article. You can find his peer-reviewed materials pretty easily.

I can find a book but no peer reviewed material. Can you provide?

[bush_cheney2004]

Indirectly, they do in that they want more for themselves. It's got nothing to do with fairness, just with 'more for me' which is as it always has been.

Agreed, they want more under the guise of "income equality". They really just want more despite being part of the Top 1% or Top 10% already. That's why we laughed at Occupy protesters with iPads and iPhones.

[Michael Hardner]

I agree with Moonlight Graham. I think it would be better for us to link to the studies, including the peer responses. I found some issues with what was discussed as well.

But... even with those issues... isn't GINI something governments do need to monitor since we acknowledge generally that too high and too low a coefficient are problems. And the movement of a GINI coefficient says something too.

[TimG]

isn't GINI something governments do need to monitor since we acknowledge generally that too high and too low a coefficient are problems.

This is like saying we have to monitor tree ring widths today to monitor climate changes when we have thermometers that measure temperatures directly and are more reliable. If there are metrics that GINI is correlated to then we should be looking at those metrics - not the GINI.

And the movement of a GINI coefficient says something too.

No it does not. GINI rising could be good or bad depending on what else is going on.

[Michael Hardner]

This is like saying we have to monitor tree ring widths today to monitor climate changes when we have thermometers that measure temperatures directly and are more reliable. If there are metrics that GINI is correlated to then we should be looking at those metrics - not the GINI.

Well, sure... GINI is just an aggregate number. You could just look at a graph showing real income gains for percentages of the population over time. The point is that the rules of the economic game are not benefiting everyone.

There's no right or wrong about that, just a question of whether people will put up with that.

No it does not. GINI rising could be good or bad depending on what else is going on.

I suppose it's possible, and I don't have a problem with inequality - to a limit. I also agree that the GINI on its own doesn't give enough information.

[Moonlight Graham]

Context is important. That statement was in response to the statement that our problems could be solved if only government redistributed more income. Why is it any more ideological?

You still made the statement. Next time don't say the word "never" if you don't mean it.

At some point in time policy choices come down to a question of trust. I simply do not trust government and that means I would rather live with the problems we have today than risk making them worse by expanding the power of government.

You're re-stating your previous claim. So if we were building a new country, and the option to add a government-run police or military force come up, you'd reject those ideas because you "simply do not trust government and that means I would rather live with the problems we have today than risk making them worse by expanding the power of government"? Or maybe you're making an exception because this case deals with making a more equal society, a premise you reject on philosophical/ideological grounds?

In every case, you have to look at the costs vs benefits of government intervention. Sometimes the benefits of adding more government/bureaucracy/taxes etc. outweigh the costs (and vice versa).

I guess the argument in this thread is if the costs of government intervention to create a more economically equal society is outweighed by the possibly resulting benefits (and if these benefits would even be likely to occur, or have occurred in other countries)? And if so, what form of gov intervention should take place?

[TimG]

So if we were building a new country, and the option to add a government-run police or military force come up, you'd reject those ideas because you "simply do not trust government and that means I would rather live with the problems we have today than risk making them worse by expanding the power of government"?

We are not building a new country and a dislike of big government is not a rejection of the need for government. Just a statement that government already has all the resources it needs to do and there is no need for incrementally increasing its power.

In every case, you have to look at the costs vs benefits of government intervention. Sometimes the benefits of adding more government/bureaucracy/taxes etc. outweigh the costs (and vice versa).

Or the government could simply reallocate existing funding to meet the new priorities.

I guess the argument in this thread is if the costs of government intervention to create a more economically equal society is outweighed by the possibly resulting benefits (and if these benefits would even be likely to occur, or have occurred in other countries)? And if so, what form of gov intervention should take place? If government is going to do something it needs specific objectives.

The call to reduce inequality is an example of an ill-defined objective that leads to bad policy and bad interventions. Edited January 9, 2014 by TimG

[dre]

But the way to make the economy more egalitarian is not necessarily to give politicians more of our tax money to squander.

It depends on what your fundamental view of what money is. You say that money is squandered but the government does not SAVE any money so all that money ends up back in the economy swirling around and being part of millions of transactions. Dollars are not extinguished when they are spent. They can only be extinguished by debt, or they can be effectively extinguished by being sequestered in savings or other non productive synchs of wealth.

Now it IS important for money to travel in paths that reward productive activity, but its not a panacea. Even spending zillions of dollars exploding stuff in other countries helped grow the economy after the great depression.

And the thing is as bad as some government spending is, at least all that money goes back into the greater economy. Parts of the private sector are a lot worse. We have a huge percentage of money tied up by the bloated financial services industry swirling around in a gigantic rigged casino that the wealthy created for themselves, that does not produce a single useful widget, and intentionally creates economic bubbles so they can profit on the way up, and then they divest and leave the rest of us to pick up the pieces. Thats where wealth concentration has gotten us.

From a macro economic standpoint in a consumption based economy the best way for money to be distributed is where it cycle back into the economy quickly and will be spent on consumption, and the best way to do that is to have a relatively egalitarian distribution between consumers. NOT to have a small percentage of people hoarding it.

So yes... the people that manage the economy should make rules and take steps to prevent concentration of wealth. This will help the economy not harm it, and breaking up the modern aristocracy with taxation will be no more harmfull than breaking up the english aristocracy or the robber barons, or the railroad tycoons.

We SAW what happens

[cybercoma]

I agree with Moonlight Graham. I think it would be better for us to link to the studies, including the peer responses. I found some issues with what was discussed as well.

But... even with those issues... isn't GINI something governments do need to monitor since we acknowledge generally that too high and too low a coefficient are problems. And the movement of a GINI coefficient says something too.

It's a bit unrealistic to expect anyone to do a full literature review for the purposes of posting on a discussion forum. More to the point, most people wouldn't have access to the journals since they're behind paywalls. A presentation of research findings from the researcher himself is a hell of a lot more than others provide on a day-to-day basis. Edited January 10, 2014 by cybercoma

[TimG]

It's a bit unrealistic to expect anyone to do a full literature review for the purposes of posting on a discussion forum.

I can find no evidence that the author's ideas in his TED talk even appeared in the peer reviewed literature. I have no issue with people posting stuff that is not peer reviewed but it is dishonest to claim something is peer reviewed when it is not. Edited January 10, 2014 by TimG

[Michael Hardner]

It's a bit unrealistic to expect anyone to do a full literature review for the purposes of posting on a discussion forum. More to the point, most people wouldn't have access to the journals since they're behind paywalls. A presentation of research findings from the researcher himself is a hell of a lot more than others provide on a day-to-day basis.

Sure - but we had this happen with the Climate Change threads at one point, wherein we had to link to the prevalent studies and responses - do our research offline and come back. You can usually get an exec summary, or synopsis of the studies in those cases.

[bush_cheney2004]

Sure - but we had this happen with the Climate Change threads at one point, wherein we had to link to the prevalent studies and responses - do our research offline and come back. You can usually get an exec summary, or synopsis of the studies in those cases.

Bingo....In God We Trust...all others bring data.

Edited January 10, 2014 by bush_cheney2004

[Moonlight Graham]

From a macro economic standpoint in a consumption based economy the best way for money to be distributed is where it cycle back into the economy quickly and will be spent on consumption, and the best way to do that is to have a relatively egalitarian distribution between consumers. NOT to have a small percentage of people hoarding it.

I agree with this. A small percentage of people having a large % of the money/wealth will almost inevitably not be able or willing to consume at the rate that a larger % of people having that money in a more egalitarian economy would be able to consume. Plus, the more money you have the more likely you are to save or invest it, not spend it on consumption (which creates wealth). To create wealth, goods must be produced and sold...and to create that demand there needs to be consumption (and the money to do so).

[Moonlight Graham]

You can usually get an exec summary, or synopsis of the studies in those cases.

Agreed.

I'll accept non-peer-reviewed sources too, but it has to show adequate evidence. In the case of the video you really have to give Wilkinson the benefit of the doubt on what he's throwing up there, and I can't believe any claim on faith, I need a bit more substance explaining the graphs and whatnot. ie: Even Wikipedia entries footnote to outside sources. This is coming from someone who is eager to believe Wilkinson's argument because it would point to a fairly easy way to improve many societal problems.

Edited January 10, 2014 by Moonlight Graham

[Bonam]

It depends on what your fundamental view of what money is. You say that money is squandered but the government does not SAVE any money so all that money ends up back in the economy swirling around and being part of millions of transactions. Dollars are not extinguished when they are spent. They can only be extinguished by debt, or they can be effectively extinguished by being sequestered in savings or other non productive synchs of wealth.

Governments can (and in my opinion should) save money. Many governments do do this. Just not generally western federal governments. Many provincial and state governments, as well as governments of some Asian countries, do save considerable amounts of money in sovereign wealth funds.

And the thing is as bad as some government spending is, at least all that money goes back into the greater economy. Parts of the private sector are a lot worse. We have a huge percentage of money tied up by the bloated financial services industry swirling around in a gigantic rigged casino that the wealthy created for themselves, that does not produce a single useful widget, and intentionally creates economic bubbles so they can profit on the way up, and then they divest and leave the rest of us to pick up the pieces. Thats where wealth concentration has gotten us.

Yes, the bloated financial sector is a problem. But taxing companies/billionaires more is not necessarily the answer. Rather, sensible rules to prevent the financial industry from causing as much havoc as it has would be the place to start. I.e., actually implementing separation of investment and commercial banking, for example.

From a macro economic standpoint in a consumption based economy the best way for money to be distributed is where it cycle back into the economy quickly and will be spent on consumption, and the best way to do that is to have a relatively egalitarian distribution between consumers. NOT to have a small percentage of people hoarding it.

I disagree with the idea that a "consumption based economy" is necessarily the goal, anyway. That, in my opinion, is part of the problem with western economies right now, is that the government wants to incentivize consumption as much as possible to prop up prices of goods, real estate, services, etc. But is that much consumption really necessary? There are other productive uses for the work and resources rather than creating an excessive amount of unnecessary consumer products.

So yes... the people that manage the economy should make rules and take steps to prevent concentration of wealth. This will help the economy not harm it, and breaking up the modern aristocracy with taxation will be no more harmfull than breaking up the english aristocracy or the robber barons, or the railroad tycoons.

If the goal is to break up the "modern aristocracy", then again, the typical tax raising proposals are not the right way to go. Remember, the politicians (like Obama, etc) are trying to raise taxes because they want to increase revenues, not because they want to reduce the wealth of the top 0.01%. Tim's point is that the government already takes in a huge amount of revenues, and already spends much of it sub-optimally. There is no need to increase revenues. Your goal of breaking up the aristocracy can be done by re-targetting taxes (that is, lowering some taxes while raising others), while keeping net revenues about equal. Personally, I would have a lot less opposition to that, compared to the usual proposals of simply raising taxes to inexorably grow the government beast. Governments already have billions of dollars to spend on destructive and potentially illegal programs to destroy the privacy of their people, they don't need even more money, period! That's one kind of waste/squander I'm talking about, not merely a sub-optimal allocation of money, but spending money to further the power and control of government while limiting the freedom of the population.

It's one thing to re-target taxes to try to optimize societal conditions as per some well-defined and well-supported equality metric (though I'm sure many would still disagree with that too and some healthy debate could be had there). But it's a whole other thing to raise revenues higher and higher as government grows and grows and takes up an ever larger share of the economy and gains more and more power.

Edited January 10, 2014 by Bonam

[dre]

Rather, sensible rules to prevent the financial industry from causing as much havoc as it has would be the place to start. I.e., actually implementing separation of investment and commercial banking, for example.

Commercial banking should actually go away all together. Its a gigantic scam, and these banks take a huge ammount of profit yet provide no service that could not be done by a relatively simple piece of IT infrastucture. And 90% of the money they loan is provided by the government and people so they have no business collecting interest on it anyways.

I disagree with the idea that a "consumption based economy" is necessarily the goal, anyway. That, in my opinion, is part of the problem with western economies right now, is that the government wants to incentivize consumption as much as possible to prop up prices of goods, real estate, services, etc. But is that much consumption really necessary? There are other productive uses for the work and resources rather than creating an excessive amount of unnecessary consumer products.

Yeah dont get me started on that. I agree with you completely that we need to rethink a lot of stuff, and eventually change to a completely different kind of economic and monetary system. But my comments were meant in the context of how the economy works today.

Tim's point is that the government already takes in a huge amount of revenues, and already spends much of it sub-optimally. There is no need to increase revenues. Your goal of breaking up the aristocracy can be done by re-targetting taxes (that is, lowering some taxes while raising others), while keeping net revenues about equal. Personally, I would have a lot less opposition to that, compared to the usual proposals of simply raising taxes to inexorably grow the government beast.

Like I said theres no real link between the size of government and tax revenues in fact anything there seems to be an inverse effect. As tax rates have gone down over the last few decades the federal budget has doubled as a percentage of GDP.

It's one thing to re-target taxes to try to optimize societal conditions as per some well-defined and well-supported equality metric (though I'm sure many would still disagree with that too and some healthy debate could be had there). But it's a whole other thing to raise revenues higher and higher as government grows and grows and takes up an ever larger share of the economy and gains more and more power.

There could be some debate there, but not by anyone with a basic grasp of macro economics. Anybody who claims that extreme concentration of wealth or conditions that allow it is a healthy thing in an economy is an idiot that should be summarily dismissed. As for your other point I agree completely. The goal isnt to raise revenues, its to break up the modern aristocracy. The whole thing could be revenue neutral and could be offset by reducing the burden on everyone else. Like I said, this isnt a new thing... We have been in this situation and had to fix it a few times before. Property and estate taxation and steps to reduce concentrated political power, and the influence of aristocrats on the government... for example one of the important components in disolving the english aristocracy was stripping the house of lords of their veto. This was just as important as property taxation.

Anyone thats really concerned with the size of government should be concerned with concentration of wealth. A more egalitarian distribution would mean way less people depending on government services. You could shut a lot of the government down. If you follow the trends the size of government has increased right along with wealth concentration and the deliberate reconfiguring of the system to reward investment instead of labor.

Edited January 10, 2014 by dre

[Bonam]

Commercial banking should actually go away all together. Its a gigantic scam, and these banks take a huge ammount of profit yet provide no service that could not be done by a relatively simple piece of IT infrastucture. And 90% of the money they loan is provided by the government and people so they have no business collecting interest on it anyways.

We've had this discussion before and there is no reason to revisit this piece of it here in this thread

Yeah dont get me started on that. I agree with you completely that we need to rethink a lot of stuff, and eventually change to a completely different kind of economic and monetary system. But my comments were meant in the context of how the economy works today.

Ok.

Like I said theres no real link between the size of government and tax revenues in fact anything there seems to be an inverse effect. As tax rates have gone down over the last few decades the federal budget has doubled as a percentage of GDP.

In the long run, the size of government is bounded by its revenues. For some years, perhaps decades, the government can borrow money to keep growing, even if its expenses are larger than its revenues. But there is a limit to how much governments can borrow before it leads to instability. Over the course of many decades, a government that takes in x dollars will have to spend only about x dollars, or at least some value scaled off of x. The larger x is, the more the government can do, and the greater its power is.

There could be some debate there, but not by anyone with a basic grasp of macro economics. Anybody who claims that extreme concentration of wealth or conditions that allow it is a healthy thing in an economy is an idiot that should be summarily dismissed. As for your other point I agree completely. The goal isnt to raise revenues, its to break up the modern aristocracy. The whole thing could be revenue neutral and could be offset by reducing the burden on everyone else. Like I said, this isnt a new thing... We have been in this situation and had to fix it a few times before. Property and estate taxation and steps to reduce concentrated political power, and the influence of aristocrats on the government... for example one of the important components in disolving the english aristocracy was stripping the house of lords of their veto. This was just as important as property taxation.

That's all fine, but those who support tax increase proposals should realize that the proposals they are supporting aren't designed to break up any aristocracy, but to increase government revenues and thereby grow its size and power. And it is the growth of government that many who oppose tax increases are opposed to. Perhaps tax proposals that increase taxation on capital gains and dividends for people with AGI in the tens of millions (the "aristocracy") while lowering taxes elsewhere would meet with more support than revenue grabs that raise income taxes on the upper-middle class.

All that being said, I like the idea of the occasional founder of a highly successful company being able to become a multi-billionaire. One reason being that such individuals are often the ones with the greatest vision, initiative, and motivation, and the things they might choose to spend their billions on might be more beneficial to the world than anything a soulless government bureaucrat might dream up. Consider space exploration... NASA is dying a slow painful death from lack of vision and direction, while Elon Musk is taking us to the cosmos. Consider helping the developing world, governments waste billions on ineffectual programs and approaches, while the Gates foundation eradicates diseases. Even if only a small fraction of billionaires have the vision and initiative to do such things, the effect is incalculable, and may be worth retaining the possibility for individuals to amass such fortunes.

Anyone thats really concerned with the size of government should be concerned with concentration of wealth. A more egalitarian distribution would mean way less people depending on government services. You could shut a lot of the government down. If you follow the trends the size of government has increased right along with wealth concentration and the deliberate reconfiguring of the system to reward investment instead of labor.

I'm not sure how much of a causal relationship there is. The size of government is also plenty large in much more egalitarian nations, like the Scandinavian ones.

You can't get away from the fact that, in the long run, money in = money out. Give the government more money, and it will spend more money (Western governments don't save). If it's not social programs, then it'll be something else, like surveillance and censorship. More spending power = more power. And many people oppose the government having more power, and with good reason.

Edited January 11, 2014 by Bonam

[Moonlight Graham]

We are not building a new country and a dislike of big government is not a rejection of the need for government. Just a statement that government already has all the resources it needs to do and there is no need for incrementally increasing its power.

How big is "big government"? By what criteria would you know the point where government is too small, too big, or "just right" in terms of amount of size, power, spending/taxation etc.? How do you know that "government already has all the resources it needs to do and there is no need for incrementally increasing its power"? Your statements seem vague and arbitrary.

Again, any re-budgeting of gov funds, decrease in taxes/goverment, or increase in taxes/goverment etc. would need to go through a cost/benefit analysis.

Countries like Denmark and Sweden have some of the highest tax rates and gov't spending rates in the world, yet they seem to be doing very well. But I think it's desirable to keep government as small, efficient, & accountable as possible to attain desired outcomes.

Or the government could simply reallocate existing funding to meet the new priorities.

Yes that would be an option certainly, I missed that one.

[TimG]

By what criteria would you know the point where government is too small, too big, or "just right" in terms of amount of size, power, spending/taxation etc.?

A tough question:

Studies of the relationship between government size and economic growth have come up with a wide range of estimates of the “optimal” or growth-maximizing size of government, ranging anywhere between 15 and 30 percent of gross domestic product (GDP).

...

The evidence shows that governments are generally larger than optimal, but because the available data include primarily countries whose governments are too large, it cannot plausibly say what the ideal size of government is. The data can realistically only say that smaller governments are better, and suggest that the optimal size of government is smaller than what we observe today.

http://www.cato.org/publications/development-briefing-paper/can-we-determine-optimal-size-government

Countries like Denmark and Sweden have some of the highest tax rates and gov't spending rates in the world, yet they seem to be doing very well. But I think it's desirable to keep government as small, efficient, & accountable as possible to attain desired outcomes.

High tax rates require a high degree of social trust and cohesion. i.e. you cannot have the population divided into multiple groups - some of whom pay the taxes while others benefit because this leads to resentments and the collapse of the political consensus required to maintain high taxation levels. The Nordic countries have this social cohesion but Canada and the US do not so their example is not meaningful. Edited January 11, 2014 by TimG

[dre]

By what criteria would you know the point where government is too small, too big, or "just right" in terms of amount of size, power, spending/taxation etc.?

It doesnt really matter because thats decided in the ballot booth anyways. Parties put programs into their programs, and people will vote for them or against them.

[ReeferMadness]

If you really believe in democracy, then larger governments shouldn't be a problem. People have allowed themselves to be talked into the idea that government is the opposite of choice. But in fact, collective choice allows possibilities that markets never will.

The trouble is that people have been conditioned over the years to see the worst in governments. As the saying goes, right wingers believe governments can't do anything right and then they elect governments who prove it.

[Moonlight Graham]

If the goal is to break up the "modern aristocracy", then again, the typical tax raising proposals are not the right way to go. Remember, the politicians (like Obama, etc) are trying to raise taxes because they want to increase revenues, not because they want to reduce the wealth of the top 0.01%. Tim's point is that the government already takes in a huge amount of revenues, and already spends much of it sub-optimally. There is no need to increase revenues. Your goal of breaking up the aristocracy can be done by re-targetting taxes (that is, lowering some taxes while raising others), while keeping net revenues about equal. Personally, I would have a lot less opposition to that, compared to the usual proposals of simply raising taxes to inexorably grow the government beast. Governments already have billions of dollars to spend on destructive and potentially illegal programs to destroy the privacy of their people, they don't need even more money, period! That's one kind of waste/squander I'm talking about, not merely a sub-optimal allocation of money, but spending money to further the power and control of government while limiting the freedom of the population.

If the goal is more economic equality within countries (not between), that's actually a really good idea, better than raising taxes overall as you say. Keep net taxes the same, but raise taxes on those with higher income/wealth and lower them for lower income/wealth.

All that being said, I like the idea of the occasional founder of a highly successful company being able to become a multi-billionaire. One reason being that such individuals are often the ones with the greatest vision, initiative, and motivation, and the things they might choose to spend their billions on might be more beneficial to the world than anything a soulless government bureaucrat might dream up. Consider space exploration... NASA is dying a slow painful death from lack of vision and direction, while Elon Musk is taking us to the cosmos. Consider helping the developing world, governments waste billions on ineffectual programs and approaches, while the Gates foundation eradicates diseases. Even if only a small fraction of billionaires have the vision and initiative to do such things, the effect is incalculable, and may be worth retaining the possibility for individuals to amass such fortunes.

I see your point, but people don't need to be billionaires to do great work on a large scale. All they need is access and control of that money/resources, not necessarily own it themselves. For example, many CEO's are hired long after the company they work for was founded, and they make millions in salary for a big corp., but they don't own the corp or its assets/resources (the shareholders do), they just control its assets/resources in order to do productive things, make profit and innovation etc. When starting a company, what an innovator needs is a bit of money to present the idea and then can get investors to invest or other stakeholders to provide the money needed.

Bill Gates also doesn't need to be a billionaire to do great foreign aid work, he can be president of an NGO and use outside investments and/or donations he can raise in order to get the money needed to do what he does. Similar to what this guy did.

[TimG]

If the goal is more economic equality within countries (not between), that's actually a really good idea, better than raising taxes overall as you say. Keep net taxes the same, but raise taxes on those with higher income/wealth and lower them for lower income/wealth.

You run into other constraints. For example, a stable system requires that everyone expecting services contribute to the cost of maintaining these services. Democracy will produce perverse results if a majority of the people pay nothing for the services they demand. In the high tax European countries they achieve this goal with high VATs. Edited January 14, 2014 by TimG