Globalization - wages, poverty

by truthbetold Sat May 31, 2014 7:34 am

http://upload.wikimedia.org/wikipedia/commons/4/45/Gdp_accumulated_change.png

The above link shows world gdp growth across countries over past two decades.

It shows that major growth occured in Asia, China, India, Taiwan, Korea, and singapore. It also includes ireland from europe.

The map shows improvements by large % GDP growth in constant prices.

Since this growth happened in Asia and in the most populous countries in the world (China and India), it also indicates the upliftment of large sections of people from poverty.

Economics 101 tells us that if a resource is priced too high, economic forces will fight to find a replacement.
example is Petrol. As it got expensive, solar and renewable energy sources got a boost. The past decade bought solar energy from a possible source to practical economic energy source.

Another item that came under pressure is the labor resource in the developed world. In the early part of 20th century, the capitalist in the developed world created wealth using developed world labor resources and shared the profits with those labor resources. Relative to the rest of the world, labor costs in developed world are very high for most of 20th century. The spread of technology and education resources made the human skill development possible in far corners of the world. Asian countries started to offer the labor skills at a lower cost. Hence the so called globalization took shape.

The walmarts of the world moved everything that can be made in lower labor cost areas of the world to those parts of the world,(china and bangladesh). IBMs of the world moved the intellectual labor to countries like India. malaysia and korea supplanted skilled electronic assemblies of the west. The western capitalist got cheaper manufacturing cost and higher profits. The western consumer got wider variety of products at a much lower cost. Inflation was beaten.

Asia became a simple and cheaper alternative to developed countries labor force. The pressure on developed world labor costs increased and wages stagnated. MNC profits increased but wages stagnated. At the same time poverty around the world went down. More wealth is generated in the formerly poor countries.

To sum up, The major contradiction in today's world is between globalization that helps the poor in most populous asia vs stagnant labor wages in developed world.

The liberals in the developed world try to paint the same contradiction as one between the huge profits of MNCs and labor wage stagnation.

So the profit hungry MNC CEOs are for a theory that helps the poor of the world. On the other hand, liberals and union activists are for a policy that will slow down globalization(seeking restrictions on imports of products and labor) or share a bigger part of the profit for themselves by force or through the benevolence of the rich people .

So who is fighting for the poor?

I will appreciate any one who can add data to this theory on what % of wealth is generated in developing world as part of world wide wealth growth in the past 2 or 3 decades.

by truthbetold Mon Jun 02, 2014 8:36 pm

http://en.wikipedia.org/wiki/File:Historical_top_10_nominal_GDP_proportion.svg

Here is another chart that shows how the world nominal GDP proportions have changed. Major contribution is by china.

To continue the line of argument from my earlier post,

Chinese worker is the real competition to US low wage earner. Both of them re working for US capital but at different wages. As US capital found different ways to globalize manufacturing and individualize profits, US worker is losing the leverage to ask for higher wages.

Another interesting issue is that the major fight in this battle is not between MCD and their workers. It is mom and pop shop owners lead the conservative attack on higher wage demands. This reminds me of the clash between middle farmer in India and farm labor for higher wages. Only difference is Indian agricultural labor still has leverage to demand higher wages.

by confuzzled dude Tue Jun 03, 2014 10:16 pm

How does globalization (e.g. offshoring of manufacturing jobs) result into wage stagnation, what does it got to do with flipping burgers at MCD or stocking in Walmart.

by confuzzled dude Tue Jun 03, 2014 10:21 pm

truthbetold wrote:http://en.wikipedia.org/wiki/File:Historical_top_10_nominal_GDP_proportion.svg

Here is another chart that shows how the world nominal GDP proportions have changed. Major contribution is by china.

To continue the line of argument from my earlier post,

Chinese worker is the real competition to US low wage earner. Both of them re working for US capital but at different wages. As US capital found different ways to globalize manufacturing and individualize profits, US worker is losing the leverage to ask for higher wages.

Another interesting issue is that the major fight in this battle is not between MCD and their workers. It is mom and pop shop owners lead the conservative attack on higher wage demands. This reminds me of the clash between middle farmer in India and farm labor for higher wages. Only difference is Indian agricultural labor still has leverage to demand higher wages.

Does big brother US give a hoot about human rights violations in China, B'desh et al? force them to eliminate sweatshop labor conditions.

by Idéfix Wed Jun 04, 2014 12:52 am

truthbetold wrote:To sum up, The major contradiction in today's world is between globalization that helps the poor in most populous asia vs stagnant labor wages in developed world.

Two issues with this. One, globalization helps the middle class and rich in Asia (and other developing parts of the world) much more than it helps the poor in those regions. Second, there is not necessarily a contradiction if the poor world's grows its income while the rich world stagnates; that is on the whole better for equality. The problem is that the inequality of income distribution in America has skewed to levels last seen before the Great Depression, while income inequality is ALSO on the rise in India, China, etc.

truthbetold wrote:On the other hand, liberals and union activists are for a policy that will slow down globalization(seeking restrictions on imports of products and labor) or share a bigger part of the profit for themselves by force or through the benevolence of the rich people .

Actually, neither. As a liberal, I am for policies that prevent the ultra-rich from paying less in taxes as a proportion of income than you and I do. I say, let them benefit from capitalism and earn what they can, but don't let them take over the government and write rules that let them given themselves huge tax breaks. I am for policies that invest the revenues from such tax increases in public education and infrastructure, that will benefit the overall economy (including future capitalists) and enable society to cope better with the pressures of technology and globalization.

by truthbetold Wed Jun 04, 2014 4:50 am

Idefix/cd
The metric is how is the poor in developing world doing in the last three decades. Other metrics such as middle class vs poor were important metrics but secondary.

Rich in all countries must pay more in taxes to support govt activities and social support systems. But the argument is not just income inequality but also who is benefiting from the vast infrastructure and security services provided by state.

by Kris Wed Jun 04, 2014 9:50 am

truthbetold wrote:Idefix/cd
The metric is how is the poor in developing world doing in the last three decades. Other metrics such as middle class vs poor were important metrics but secondary.

Rich in all countries must pay more in taxes to support govt activities and social support systems. But the argument is not just income inequality but also who is benefiting from the vast infrastructure and security services provided by state.

>>> I think as civilized societies we owe basic necessities to the common man. It is necessary that the government administer laws and programs to engender that much and there should be legal mechanisms in place to prevent/penalize malfeasance in financial matters. The goal to engineer away inequality is overkill and a top- down approach that hands over unearned power to the government.

by MaxEntropy_Man Wed Jun 04, 2014 9:54 am

Kris wrote:
truthbetold wrote:Idefix/cd
The metric is how is the poor in developing world doing in the last three decades. Other metrics such as middle class vs poor were important metrics but secondary.

Rich in all countries must pay more in taxes to support govt activities and social support systems. But the argument is not just income inequality but also who is benefiting from the vast infrastructure and security services provided by state.

>>> I think as civilized societies we owe basic necessities to the common man. It is necessary that the government administer laws and programs to engender that much and there should be legal mechanisms in place to prevent/penalize malfeasance in financial matters. The goal to engineer away inequality is overkill and a top- down approach that hands over unearned power to the government.

how about engineering in inequality through unfair tax policies that benefit the 0.1%?

by smArtha Wed Jun 04, 2014 12:01 pm

Idéfix wrote:Actually, neither. As a liberal, I am for policies that prevent the ultra-rich from paying less in taxes as a proportion of income than you and I do. I say, let them benefit from capitalism and earn what they can, but don't let them take over the government and write rules that let them given themselves huge tax breaks. I am for policies that invest the revenues from such tax increases in public education and infrastructure, that will benefit the overall economy (including future capitalists) and enable society to cope better with the pressures of technology and globalization.

Are you implying that if all the ultra-rich pay taxes according to the established brackets (by plugging the discount loop holes), such a tax revenue is enough to accomplish a minimum equitable distribution target?

Also, by investment in education are you talking of periodic short term skills training/upgrade initiatives or expanding the College courses - in scope and their reach?

by Idéfix Wed Jun 04, 2014 12:03 pm

Kris wrote:
truthbetold wrote:Idefix/cd
The metric is how is the poor in developing world doing in the last three decades. Other metrics such as middle class vs poor were important metrics but secondary.

Rich in all countries must pay more in taxes to support govt activities and social support systems. But the argument is not just income inequality but also who is benefiting from the vast infrastructure and security services provided by state.

>>> I think as civilized societies we owe basic necessities to the common man. It is necessary that the government administer laws and programs to engender that much and there should be legal mechanisms in place to prevent/penalize malfeasance in financial matters. The goal to engineer away inequality is overkill and a top- down approach that hands over unearned power to the government.

To add to what Max said above... the problem with inequality is not just that I have an aesthetic dislike for it. The problem with the level of inequality and the pace at which is it rising is that it actually makes things worse for the overall economy. It is the role of government to foster the right conditions for economic growth, full employment, and price stability.

About 70% of the US economy is consumer spending, and the vast majority of that spending is by the middle class. When the share of income captured by the middle class shrinks, that has a negative effect on economic growth. If someone who earns $50,000 a year gets an extra $5,000, (s)he is likely to spend a larger chunk of that additional income than someone who earns $50 million a year who gets an extra $5 million. If one thousand $50k earners get a 10% increase in income, the positive impact from that on economic growth will far outstrip the positive impact from the exact same amount of aggregate increase in income going to just one person who already makes $50 million a year. Therefore, governments would be justified in adopting polices that favor the former situation over the latter. In the long run, even the ultra-rich would be better off in a growing economy where they capture a smaller portion of a larger pie, than in an economy that stagnates or shrinks because of policies that favor the ultra-rich over the middle class.

by Idéfix Wed Jun 04, 2014 12:14 pm

truthbetold wrote:Idefix/cd
The metric is how is the poor in developing world doing in the last three decades. Other metrics such as middle class vs poor were important metrics but secondary.

Why are they secondary? Who made that so? People feel worse based on their relative performance to their peers, than about the absolute performance of the peer-set as a whole. People who live with almost nothing can be content if their neighbors all live the same way. It is when the poor see the rich getting richer while they stagnate that discontent breeds social instability.

truthbetold wrote:Rich in all countries must pay more in taxes to support govt activities and social support systems. But the argument is not just income inequality but also who is benefiting from the vast infrastructure and security services provided by state.

In general, the rich have far more to protect, and benefit more from infrastructure and security services provided by the state. For instance, a good eight-lane road in Hyderabad is useful to the rich both directly (i.e. they can drive their cars on it and get where they are going faster) and indirectly (i.e. cost of transportation of items they buy reduces, making the items cheaper), but it benefits the poor only indirectly if they cannot afford a motor vehicle. If the laws against stealing are not enforced well at all, those who have very little will stand to benefit more than those who have a lot to lose.

by MaxEntropy_Man Wed Jun 04, 2014 12:28 pm

Idéfix wrote:
Kris wrote:
truthbetold wrote:Idefix/cd
The metric is how is the poor in developing world doing in the last three decades. Other metrics such as middle class vs poor were important metrics but secondary.

Rich in all countries must pay more in taxes to support govt activities and social support systems. But the argument is not just income inequality but also who is benefiting from the vast infrastructure and security services provided by state.

>>> I think as civilized societies we owe basic necessities to the common man. It is necessary that the government administer laws and programs to engender that much and there should be legal mechanisms in place to prevent/penalize malfeasance in financial matters. The goal to engineer away inequality is overkill and a top- down approach that hands over unearned power to the government.
To add to what Max said above... the problem with inequality is not just that I have an aesthetic dislike for it. The problem with the level of inequality and the pace at which is it rising is that it actually makes things worse for the overall economy. It is the role of government to foster the right conditions for economic growth, full employment, and price stability.

About 70% of the US economy is consumer spending, and the vast majority of that spending is by the middle class. When the share of income captured by the middle class shrinks, that has a negative effect on economic growth. If someone who earns $50,000 a year gets an extra $5,000, (s)he is likely to spend a larger chunk of that additional income than someone who earns $50 million a year who gets an extra $5 million. If one thousand $50k earners get a 10% increase in income, the positive impact from that on economic growth will far outstrip the positive impact from the exact same amount of aggregate increase in income going to just one person who already makes $50 million a year. Therefore, governments would be justified in adopting polices that favor the former situation over the latter. In the long run, even the ultra-rich would be better off in a growing economy where they capture a smaller portion of a larger pie, than in an economy that stagnates or shrinks because of policies that favor the ultra-rich over the middle class.

very nicely put.

by Idéfix Wed Jun 04, 2014 12:28 pm

smArtha wrote:
Idéfix wrote:Actually, neither. As a liberal, I am for policies that prevent the ultra-rich from paying less in taxes as a proportion of income than you and I do. I say, let them benefit from capitalism and earn what they can, but don't let them take over the government and write rules that let them given themselves huge tax breaks. I am for policies that invest the revenues from such tax increases in public education and infrastructure, that will benefit the overall economy (including future capitalists) and enable society to cope better with the pressures of technology and globalization.

Are you implying that if all the ultra-rich pay taxes according to the established brackets (by plugging the discount loop holes), such a tax revenue is enough to accomplish a minimum equitable distribution target?

I am not even arguing for equitable distribution or redistribution. I am arguing for greater provision of social services that can help the society as a whole cope better with globalization and technology. Ending the Bush tax cuts for the wealthy and restoring Clinton-era marginal rates would bring in $150 billion in revenue a year. I am not even talking about other loopholes that benefit the rich more than the middle class, but are also used by the middle class (e.g. mortgage tax deduction). By comparison, total state funding for public research universities in the US is $25 billion.

smArtha wrote:Also, by investment in education are you talking of periodic short term skills training/upgrade initiatives or expanding the College courses - in scope and their reach?

I am talking about making college and technological training affordable. College now costs more than 10 times what it used to cost a generation ago -- after adjusting for inflation! The reason: drop in state funding. The University of California at Berkeley used to receive half of all its funds from the state; now the number is at 20%. Adjusted for inflation, tuition fees have tripled in 20 years. If you took a portion of the $150 billion from closing the tax cuts for the ultra-rich, you could restore state funding to public universities and make college affordable again.

If you look for countries that have adapted well to globalization and technological change, Germany shows up near the top of the list. University education in Germany is almost free, funded by the government.

by Kris Wed Jun 04, 2014 3:24 pm

Idéfix wrote:
Kris wrote:
truthbetold wrote:Idefix/cd
The metric is how is the poor in developing world doing in the last three decades. Other metrics such as middle class vs poor were important metrics but secondary.

Rich in all countries must pay more in taxes to support govt activities and social support systems. But the argument is not just income inequality but also who is benefiting from the vast infrastructure and security services provided by state.

>>> I think as civilized societies we owe basic necessities to the common man. It is necessary that the government administer laws and programs to engender that much and there should be legal mechanisms in place to prevent/penalize malfeasance in financial matters. The goal to engineer away inequality is overkill and a top- down approach that hands over unearned power to the government.
To add to what Max said above... the problem with inequality is not just that I have an aesthetic dislike for it. The problem with the level of inequality and the pace at which is it rising is that it actually makes things worse for the overall economy. It is the role of government to foster the right conditions for economic growth, full employment, and price stability.

About 70% of the US economy is consumer spending, and the vast majority of that spending is by the middle class. When the share of income captured by the middle class shrinks, that has a negative effect on economic growth. If someone who earns $50,000 a year gets an extra $5,000, (s)he is likely to spend a larger chunk of that additional income than someone who earns $50 million a year who gets an extra $5 million. If one thousand $50k earners get a 10% increase in income, the positive impact from that on economic growth will far outstrip the positive impact from the exact same amount of aggregate increase in income going to just one person who already makes $50 million a year. Therefore, governments would be justified in adopting polices that favor the former situation over the latter. In the long run, even the ultra-rich would be better off in a growing economy where they capture a smaller portion of a larger pie, than in an economy that stagnates or shrinks because of policies that favor the ultra-rich over the middle class.

>> I am somewhat pressed fro time, but here are my thoughts:

1) The bolded sections above also make the argument for leaving more after-tax dollars in the pockets of all citizens which in turn will create more societal income which will translate to more income tax revenues for the government.

2) The comparison that you have made on the income increases will require a lot more robbing of Peter to pay Paul to make that a better option than leaving the money with Peter. In other words, what are the relative multiplier effects of each option? Also, note that I am not talking about a situation where Peter has generated income by rigging the system and is therefore being punished, but rather just as a default option simply because he has it. Aside from the ethics of it, this also opens up the possibility of the government deciding who Peter is on any given day. Today it could be the 1 percenters, tomorrow the 10 percenters and the day after, the 50 percenters. This is a slippery slope when you are conceding more and more of this power to an entity which has no de facto bottom line responsibility to which it has to manage.

3) The market does not always work it is supposed to, since it is subject to manipulation by crooks which we witnessed not too long ago. The need to check that kind of malfeasance is definitely within the purview of the government, but giving it too much power is exchanging one fox for another to guard the chicken coop.

by Idéfix Wed Jun 04, 2014 3:32 pm

Kris wrote:1) The bolded sections above also make the argument for leaving more after-tax dollars in the pockets of all citizens which in turn will create more societal income which will translate to more income tax revenues for the government.

Almost, but not quite. It makes a strong argument for leaving proportionately more after-tax dollars in the pockets of citizens who make middle-class level money than in the pockets of those who make several million a year.

Kris wrote:2) The comparison that you have made on the income increases will require a lot more robbing of Peter to pay Paul to make that a better option than leaving the money with Peter. In other words, what are the relative multiplier effects of each option?

In the example I cited, I did not suggest taking money from Peter and giving it to a thousand Pauls. So it is a false choice. My argument is that between the two cases, one where the system gives 1,000 Pauls $5,000 each and two where the system gives one Peter $5 million, the better outcome for the economy is option one. So it makes sense for the government to put policies place that result in the first option rather than the second.

Kris wrote:Aside from the ethics of it, this also opens up the possibility of the government deciding who Peter is on any given day. Today it could be the 1 percenters, tomorrow the 10 percenters and the day after, the 50 percenters. This is a slippery slope when you are conceding more and more of this power to an entity which has no de facto bottom line responsibility to which it has to manage.

In a democracy, there is already a basic check on this power that takes care of the slippery slope concern. If a government attempts to "rob" the top 50% to "pay" the bottom 50%, it would not win elections. Even a 51-49 split would not work, because the top income earners have more resources and ability to influence democratic government than the bottom income earners.

by Kris Wed Jun 04, 2014 9:52 pm

Idéfix wrote:
Kris wrote:1) The bolded sections above also make the argument for leaving more after-tax dollars in the pockets of all citizens which in turn will create more societal income which will translate to more income tax revenues for the government.
Almost, but not quite. It makes a strong argument for leaving proportionately more after-tax dollars in the pockets of citizens who make middle-class level money than in the pockets of those who make several million a year.

>>>>> This is arguable. A guy who makes $50k is likely to hang on to an additional $5k more for security reasons than a $50 Mil. man with an add'l $5 mill, who didn't come by his wealth by being risk-averse, generally speaking of course.

Kris wrote:2) The comparison that you have made on the income increases will require a lot more robbing of Peter to pay Paul to make that a better option than leaving the money with Peter. In other words, what are the relative multiplier effects of each option?
In the example I cited, I did not suggest taking money from Peter and giving it to a thousand Pauls. So it is a false choice. My argument is that between the two cases, one where the system gives 1,000 Pauls $5,000 each and two where the system gives one Peter $5 million, the better outcome for the economy is option one. So it makes sense for the government to put policies place that result in the first option rather than the second.

>>> If what you are positing is not a zero-sum scenario, why would it be a matter of concern to Paul as to what Peter is making? If on the other hand, what we are discussing is a zero sum scenario (one gets taxed more and the other less or one gets paid less, so the other gets paid more), I am not sure of the multiplier effect is less in Peter's case for the same reason I cited above i.e. propensity vis a vis risk-taking. Add to that the aspect of how much Peter needs to forego to make a meaningful difference to Paul, assuming we get the past the aspect of simply telling Pete he has more, so we are going to just take it from him.

Kris wrote:Aside from the ethics of it, this also opens up the possibility of the government deciding who Peter is on any given day. Today it could be the 1 percenters, tomorrow the 10 percenters and the day after, the 50 percenters. This is a slippery slope when you are conceding more and more of this power to an entity which has no de facto bottom line responsibility to which it has to manage.
In a democracy, there is already a basic check on this power that takes care of the slippery slope concern. If a government attempts to "rob" the top 50% to "pay" the bottom 50%, it would not win elections. Even a 51-49 split would not work, because the top income earners have more resources and ability to influence democratic government than the bottom income earners.

>>>The problem is that the choice is not between a thief and a saint. You are at best talking about choosing the lesser of the evils. The camel's nose is already in the tent and we are sort of hoping he won't come in too much.

by Idéfix Thu Jun 05, 2014 6:49 am

Kris wrote:>>>>> This is arguable. A guy who makes $50k is likely to hang on to an additional $5k more for security reasons than a $50 Mil. man with an add'l $5 mill, who didn't come by his wealth by being risk-averse, generally speaking of course.

Here is a report on the Federal Reserve's website that says:

We find first, like previous researchers, a strong positive relationship between current income and saving rates across all income groups, including the very highest income categories. Second, and more important, we continue to find a positive correlation when we use proxies for permanent income such as education, lagged and future earnings, the value of vehicles purchased, and food consumption. Estimated saving rates range from less than 5 percent for the bottom quintile of the income distribution to more than 40 percent of income for the top 5 percent. The positive relationship is more pronounced when we include imputed Social Security saving and pension contributions.

http://www.federalreserve.gov/pubs/feds/2000/200052/200052pap.pdf

Kris wrote:>>> If what you are positing is not a zero-sum scenario, why would it be a matter of concern to Paul as to what Peter is making?

I am not saying that it is a matter of concern for Paul. I am saying that it ought to be a matter of concern for government, because Paul is much more likely spend the money than Peter.

Kris wrote:If on the other hand, what we are discussing is a zero sum scenario (one gets taxed more and the other less or one gets paid less, so the other gets paid more), I am not sure of the multiplier effect is less in Peter's case for the same reason I cited above i.e. propensity vis a vis risk-taking.

See the Fed publication quote above.

Kris wrote:Add to that the aspect of how much Peter needs to forego to make a meaningful difference to Paul, assuming we get the past the aspect of simply telling Pete he has more, so we are going to just take it from him.

Like I said, it is not about taking from Peter.

by Propagandhi711 Thu Jun 05, 2014 9:16 am

MaxEntropy_Man wrote:
Idéfix wrote:
Kris wrote:
truthbetold wrote:Idefix/cd
The metric is how is the poor in developing world doing in the last three decades. Other metrics such as middle class vs poor were important metrics but secondary.

Rich in all countries must pay more in taxes to support govt activities and social support systems. But the argument is not just income inequality but also who is benefiting from the vast infrastructure and security services provided by state.

>>> I think as civilized societies we owe basic necessities to the common man. It is necessary that the government administer laws and programs to engender that much and there should be legal mechanisms in place to prevent/penalize malfeasance in financial matters. The goal to engineer away inequality is overkill and a top- down approach that hands over unearned power to the government.
To add to what Max said above... the problem with inequality is not just that I have an aesthetic dislike for it. The problem with the level of inequality and the pace at which is it rising is that it actually makes things worse for the overall economy. It is the role of government to foster the right conditions for economic growth, full employment, and price stability.

About 70% of the US economy is consumer spending, and the vast majority of that spending is by the middle class. When the share of income captured by the middle class shrinks, that has a negative effect on economic growth. If someone who earns $50,000 a year gets an extra $5,000, (s)he is likely to spend a larger chunk of that additional income than someone who earns $50 million a year who gets an extra $5 million. If one thousand $50k earners get a 10% increase in income, the positive impact from that on economic growth will far outstrip the positive impact from the exact same amount of aggregate increase in income going to just one person who already makes $50 million a year. Therefore, governments would be justified in adopting polices that favor the former situation over the latter. In the long run, even the ultra-rich would be better off in a growing economy where they capture a smaller portion of a larger pie, than in an economy that stagnates or shrinks because of policies that favor the ultra-rich over the middle class.

very nicely put.

liberals are always putting it very nicely only. unfortunately that's where it usually stops. particularly true of current SIC community organizer.

by Kris Thu Jun 05, 2014 9:53 am

Idéfix wrote:
Kris wrote:>>>>> This is arguable. A guy who makes $50k is likely to hang on to an additional $5k more for security reasons than a $50 Mil. man with an add'l $5 mill, who didn't come by his wealth by being risk-averse, generally speaking of course.
Here is a report on the Federal Reserve's website that says:

We find first, like previous researchers, a strong positive relationship between current income and saving rates across all income groups, including the very highest income categories. Second, and more important, we continue to find a positive correlation when we use proxies for permanent income such as education, lagged and future earnings, the value of vehicles purchased, and food consumption. Estimated saving rates range from less than 5 percent for the bottom quintile of the income distribution to more than 40 percent of income for the top 5 percent.

>>>> So, where does the savings go? Are the banks not releasing that into the economy?
Kris wrote:>>> If what you are positing is not a zero-sum scenario, why would it be a matter of concern to Paul as to what Peter is making?
I am not saying that it is a matter of concern for Paul. I am saying that it ought to be a matter of concern for government, because Paul is much more likely spend the money than Peter.

>>>Here is the crux of the problem philosophically for me. Assuming this is desirable to the government, who is the government in this scenario? It is like saying we would prefer Uppili to not have his money because he is not likely to buy a 2014 Benz and therefore, take it from him and give it to Joe, his neighbor.

Kris wrote:Add to that the aspect of how much Peter needs to forego to make a meaningful difference to Paul, assuming we get the past the aspect of simply telling Pete he has more, so we are going to just take it from him.
Like I said, it is not about taking from Peter.

>>>Okay, I am not sure where the money is coming from then.

by Idéfix Thu Jun 05, 2014 11:38 am

Kris wrote:So, where does the savings go? Are the banks not releasing that into the economy?

The savings goes on the balance sheets of banks, investment funds, and inflates the prices of financial instruments tracking scarce commodities. When money is spent by consumers, it increases demand for the goods and services they spend the money on. Increasing demand leads businesses to hire and that increases consumer incomes, fostering a virtuous cycle. Savings do not have a similar effect on demand.

Kris wrote:Here is the crux of the problem philosophically for me. Assuming this is desirable to the government, who is the government in this scenario?

It is a set of constitutional bodies led by elected representatives of the people, operating within constitutional checks and balances.

Kris wrote:Okay, I am not sure where the money is coming from then.

The money comes from the capitalistic economic system. The way it is set up right now, post-Dubya, is not the only successful way to set it up. It was in fact a more successful capitalistic setup during the 1960s. For instance, a system that drastically reduces the cost of college tuition paid by students to the level of the 1960s would make for faster growth. And even the rich would be better off for it because of the attendant economic growth, even if their tax rates go up to Clinton-era levels to pay for it.

by MaxEntropy_Man Thu Jun 05, 2014 11:43 am

i support the economic arguments being made by idefix here, but there is also a fundamental question of fairness that i wouldn't like liberals to forget, i.e. the extreme inequality between taxes on ordinary income and taxes on investment income.

by Idéfix Thu Jun 05, 2014 11:51 am

MaxEntropy_Man wrote:i support the economic arguments being made by idefix here, but there is also a fundamental question of fairness that i wouldn't like liberals to forget, i.e. the extreme inequality between taxes on ordinary income and taxes on investment income.

Yes, the tax code as it is set up right now is fundamentally unfair and regressive. It can be fixed with a Buffett-rule of the sort that the Obama administration proposed. It can be done without driving capital away, even with modifications to the alternate minimum tax regime. It would not give government any more power than it has now, and it would allow narrowing the deficit and investing in priorities like education and infrastructure.

by truthbetold Thu Jun 05, 2014 2:30 pm

Why the sudden love for low wage workers?no secret. it is for the noble cause of 2014 mid term election voter motivation.
once the election.is over, it will join the ranks of such noble ideas as 1%ers, and gun control.

by MaxEntropy_Man Thu Jun 05, 2014 2:46 pm

what low wage workers? i was talking about myself. i would like romney to pay the same tax rate i do.

by Kris Thu Jun 05, 2014 3:39 pm

Kris wrote:Here is the crux of the problem philosophically for me. Assuming this is desirable to the government, who is the government in this scenario?
It is a set of constitutional bodies led by elected representatives of the people, operating within constitutional checks and balances.

>>>The government's power under the system is open to question philosophically in terms of how far it can go in managing societal wealth creation. It certainly cannot be open ended enough to allow 'let's soak the "rich" guy' in some form or the other or anyone else, every time it decides there is a problem. The potential for capriciousness is especially troubling with an entity with no bottom line accountability and one that seeks an increasing role for itself in a free enterprise system.

by Idéfix Thu Jun 05, 2014 5:18 pm

Kris wrote:The government's power under the system is open to question philosophically in terms of how far it can go in managing societal wealth creation. It certainly cannot be open ended enough to allow 'let's soak the "rich" guy' in some form or the other or anyone else, every time it decides there is a problem. The potential for capriciousness is especially troubling with an entity with no bottom line accountability and one that seeks an increasing role for itself in a free enterprise system.

Government used to play a larger role in the free enterprise system earlier than now. Airlines, banks, utilities, telcos, railroads, and several other industries were much more regulated 40 years ago than they are now. So the role of government has actually been decreasing, not increasing.

On the point of accountability: democratically elected governments have far more accountability for results than the management of most publicly-held companies. Public company boards are notoriously ill-equipped at corporate governance, packed as they usually are with friends of management. There are many, many examples out there of executives giving themselves millions in bonuses while destroying shareholder value. Most of them were not breaking any laws, and cannot be prosecuted for their actions.

by Idéfix Thu Jun 05, 2014 8:53 pm

This thread has been a discussion about abstractions. Let us talk now about a real example. Do you remember Transocean, the company that operated the rig that failed in Macondo Prospect? The media called it the BP or the Deepwater Horizons oil rig explosion. As a reminder, the explosion killed 11 people and injured 16 people. It was the largest oil spill in history. It was also the largest environmental disaster in American history, eclipsing both the Exxon Valdez spill and the Three Mile Island nuclear incident. Between 2008 and 2010, Transocean operated about 40% of the rigs in deepwater Gulf of Mexico, but accounted for 75% of the safety incidents.

For those who don't remember how it all went down, the explosion occurred in April 2010, and the well was finally declared sealed in September 2010, after spilling 210 million gallons of oil into the Gulf of Mexico. In the spring of 2011, Transocean filed its annual report where it declared that 2010 was its "best year in safety performance." The CEO gave himself over $6 million for his great performance that year -- a raise of over a $1 million from the previous year.

None of these actions were against the law. Note that this was not financial malfeasance of the Bernie Madoff or Raj Rajaratnam variety. This was business conducted well within the confines of the law of the land.

Here is an article regarding this story from that liberal rag, Forbes magazine:

http://www.forbes.com/sites/jeffmcmahon/2011/04/02/transocean-bonuses-deepwater-horizon-gulf-spill/

Transocean Ltd., owner of the Deepwater Horizon oil rig, awarded millions of dollars in bonuses to its executives after “the best year in safety performance in our company’s history,” according to an annual report and proxy statement released yesterday.

“Notwithstanding the tragic loss of life in the Gulf of Mexico, we achieved an exemplary statistical safety record as measured by our total recordable incident rate and total potential severity rate,” Transocean states in the filing. “As measured by these standards, we recorded the best year in safety performance in our Company’s history, which is a reflection on our commitment to achieving an incident free environment, all the time, everywhere.”

Transocean President and Chief Executive Officer Steven L. Newman received about $4.3 million in cash bonuses and stock and option awards. With other compensation—such as pension increases and cost of living, housing, and automobile allowances—Newman earned $6.6 million in 2010, almost $1 million more than in 2009.

His base salary, $900,000 in 2010, will increase 22 percent to $1.1 million in 2011.

by Kris Thu Jun 05, 2014 8:58 pm

Idéfix wrote:
Kris wrote:The government's power under the system is open to question philosophically in terms of how far it can go in managing societal wealth creation. It certainly cannot be open ended enough to allow 'let's soak the "rich" guy' in some form or the other or anyone else, every time it decides there is a problem. The potential for capriciousness is especially troubling with an entity with no bottom line accountability and one that seeks an increasing role for itself in a free enterprise system.
Government used to play a larger role in the free enterprise system earlier than now. Airlines, banks, utilities, telcos, railroads, and several other industries were much more regulated 40 years ago than they are now. So the role of government has actually been decreasing, not increasing.

>>>Yes, but this is a pendulum and also, sometimes characterized by a two- steps backward, one-step forward scenario. The current conditions- the excessive cynicism toward wealth-creation paradigms, the 'inequality' debate du jour etc.- are indeed manifestations of the gestalt of a leftward journey.

On the point of accountability: democratically elected governments have far more accountability for results than the management of most publicly-held companies.

>>>On the surface it would seem so, but governmental power grabs are more insidious. If I don't like the way Ellison runs his company, I can not invest in him or buy stocks in a multitude of companies. With the government, there is only governmental structure I can vote in. At best, we can talk about a liberal party versus a conservative party, but neither is really going to give up power once it is within its fold. When it comes to handing over power, we are treading on dangerous grounds.

by Idéfix Thu Jun 05, 2014 9:17 pm

Kris wrote:Yes, but this is a pendulum and also, sometimes characterized by a two- steps backward, one-step forward scenario. The current conditions- the excessive cynicism toward wealth-creation paradigms, the 'inequality' debate du jour etc.- are indeed manifestations of the gestalt of a leftward journey.

Indeed this is a pendulum swinging. The pendulum has swung too far to the right when the CEO of Transocean can proclaim the best safety performance and reward himself in a year when 11 people were killed on his watch. And it needs to swing back a little to the left.

Kris wrote:On the surface it would seem so, but governmental power grabs are more insidious. If I don't like the way Ellison runs his company, I can not invest in him or buy stocks in a multitude of companies. With the government, there is only governmental structure I can vote in. At best, we can talk about a liberal party versus a conservative party, but neither is really going to give up power once it is within its fold. When it comes to handing over power, we are treading on dangerous grounds.

Actually your comment about the pendulum swing aptly summarizes how the slippery slope is held in check in a democracy. If either party swings the system too far to its side, there is a tendency to correct it. America will never become a socialist system, and that is a relief. But the problem we have right now is not that America is veering towards socialism; it is that CEOs who destroy shareholder value can reward themselves at the expense of their workers and their middle-class investors.

by Kris Thu Jun 05, 2014 9:33 pm

Idéfix wrote:
Kris wrote:Yes, but this is a pendulum and also, sometimes characterized by a two- steps backward, one-step forward scenario. The current conditions- the excessive cynicism toward wealth-creation paradigms, the 'inequality' debate du jour etc.- are indeed manifestations of the gestalt of a leftward journey.
Indeed this is a pendulum swinging. The pendulum has swung too far to the right when the CEO of Transocean can proclaim the best safety performance and reward himself in a year when 11 people were killed on his watch. And it needs to swing back a little to the left.

>>>>I don't think this is a left/right issue as much as it is a matter of criminal culpability. As I said in my other post just now, this is entirely with the government's ambit.

Kris wrote:On the surface it would seem so, but governmental power grabs are more insidious. If I don't like the way Ellison runs his company, I can not invest in him or buy stocks in a multitude of companies. With the government, there is only governmental structure I can vote in. At best, we can talk about a liberal party versus a conservative party, but neither is really going to give up power once it is within its fold. When it comes to handing over power, we are treading on dangerous grounds.
Actually your comment about the pendulum swing aptly summarizes how the slippery slope is held in check in a democracy. If either party swings the system too far to its side, there is a tendency to correct it. America will never become a socialist system, and that is a relief. But the problem we have right now is not that America is veering towards socialism; it is that CEOs who destroy shareholder value can reward themselves at the expense of their workers and their middle-class investors.

>>>>Again, if there is malfeasance, it is and should be within the purview of the gov't to tackle this. If this is a free market exchange of labor/ investments for wages/ROI, the governmental role becomes problematic. I am not making a case for the business community being paragons of virtue, for obvious reasons. I am just leery of how much big brother should be allowed to "protect", since that is not a 'no strings' attached proposition.

by Kris Thu Jun 05, 2014 9:45 pm

Idéfix wrote:This thread has been a discussion about abstractions. Let us talk now about a real example. Do you remember Transocean, the company that operated the rig that failed in Macondo Prospect? The media called it the BP or the Deepwater Horizons oil rig explosion. As a reminder, the explosion killed 11 people and injured 16 people. It was the largest oil spill in history. It was also the largest environmental disaster in American history, eclipsing both the Exxon Valdez spill and the Three Mile Island nuclear incident. Between 2008 and 2010, Transocean operated about 40% of the rigs in deepwater Gulf of Mexico, but accounted for 75% of the safety incidents.

For those who don't remember how it all went down, the explosion occurred in April 2010, and the well was finally declared sealed in September 2010, after spilling 210 million gallons of oil into the Gulf of Mexico. In the spring of 2011, Transocean filed its annual report where it declared that 2010 was its "best year in safety performance." The CEO gave himself over $6 million for his great performance that year -- a raise of over a $1 million from the previous year.

None of these actions were against the law. Note that this was not financial malfeasance of the Bernie Madoff or Raj Rajaratnam variety. This was business conducted well within the confines of the law of the land.

Here is an article regarding this story from that liberal rag, Forbes magazine:

http://www.forbes.com/sites/jeffmcmahon/2011/04/02/transocean-bonuses-deepwater-horizon-gulf-spill/

Transocean Ltd., owner of the Deepwater Horizon oil rig, awarded millions of dollars in bonuses to its executives after “the best year in safety performance in our company’s history,” according to an annual report and proxy statement released yesterday.

“Notwithstanding the tragic loss of life in the Gulf of Mexico, we achieved an exemplary statistical safety record as measured by our total recordable incident rate and total potential severity rate,” Transocean states in the filing. “As measured by these standards, we recorded the best year in safety performance in our Company’s history, which is a reflection on our commitment to achieving an incident free environment, all the time, everywhere.”

Transocean President and Chief Executive Officer Steven L. Newman received about $4.3 million in cash bonuses and stock and option awards. With other compensation—such as pension increases and cost of living, housing, and automobile allowances—Newman earned $6.6 million in 2010, almost $1 million more than in 2009.

His base salary, $900,000 in 2010, will increase 22 percent to $1.1 million in 2011.

>>>Looks like my other post got lost. The gist of it was presumably there are lawsuits over the lost lives and as a minimum, there should be environmental regs the company should be answerable to. That definitely would be a valid governmental role. If the point is the execs paid themselves huge bonuses, that is in very poor taste, but that indecency by itself is not grounds for governmental interference.

by MaxEntropy_Man Thu Jun 05, 2014 9:55 pm

Kris wrote:
>>>>Again, if there is malfeasance, it is and should be within the purview of the gov't to tackle this. If this is a free market exchange of labor/ investments for wages/ROI, the governmental role becomes problematic. I am not making a case for the business community being paragons of virtue, for obvious reasons. I am just leery of how much big brother should be allowed to "protect", since that is not a 'no strings' attached proposition.

before the implosion of the stock market, before the era of enron and worldcom, the political right's position on this was zero regulation. i am not sure why you don't think this is as much a political issue as it is a criminal issue. the laws of a nation are not made in a vacuum. changes to them including how the financial results of a company are audited and reported are often the result of hard won political battles.

by MaxEntropy_Man Thu Jun 05, 2014 10:02 pm

Kris wrote:
>>>Looks like my other post got lost. The gist of it was presumably there are lawsuits over the lost lives and as a minimum, there should be environmental regs the company should be answerable to. That definitely would be a valid governmental role. If the point is the execs paid themselves huge bonuses, that is in very poor taste, but that indecency by itself is not grounds for governmental interference.

here is the problem i see if that's an absolutist position. it should also not be the role of govt to bail out failing corporations, but we already crossed that rubicon. on the one hand corporations want the taxpayer to bail them out, and on the other they wants a hands off policy on issues like exec compensation. how is that fair? privatizing profits and socializing risks is good for execs but not for the taxpaying public.

by Kris Thu Jun 05, 2014 10:19 pm

MaxEntropy_Man wrote:
Kris wrote:
>>>>Again, if there is malfeasance, it is and should be within the purview of the gov't to tackle this. If this is a free market exchange of labor/ investments for wages/ROI, the governmental role becomes problematic. I am not making a case for the business community being paragons of virtue, for obvious reasons. I am just leery of how much big brother should be allowed to "protect", since that is not a 'no strings' attached proposition.

before the implosion of the stock market, before the era of enron and worldcom, the political right's position on this was zero regulation. i am not sure why you don't think this is as much a political issue as it is a criminal issue. the laws of a nation are not made in a vacuum. changes to them including how the financial results of a company are audited and reported are often the result of hard won political battles.

>>> I don't see fraud, embezzlement, cooking the books, lying to the stakeholders etc. in the context of left/right politics. If anything, they seriously damage the underlying principles of free market exchanges and compromise the ability of the concerned parties to make rational decisions. As such, they need to be pursued to the fullest extent of the law. This is the rightful 'check/balance' role of the government. If that is compromised by a revolving door between the government and industry as we saw not too long ago or intense lobbying, the blame right fully falls on the regulators as well for malfeasance.

by MaxEntropy_Man Thu Jun 05, 2014 10:27 pm

Kris wrote:
MaxEntropy_Man wrote:
Kris wrote:
>>>>Again, if there is malfeasance, it is and should be within the purview of the gov't to tackle this. If this is a free market exchange of labor/ investments for wages/ROI, the governmental role becomes problematic. I am not making a case for the business community being paragons of virtue, for obvious reasons. I am just leery of how much big brother should be allowed to "protect", since that is not a 'no strings' attached proposition.

before the implosion of the stock market, before the era of enron and worldcom, the political right's position on this was zero regulation. i am not sure why you don't think this is as much a political issue as it is a criminal issue. the laws of a nation are not made in a vacuum. changes to them including how the financial results of a company are audited and reported are often the result of hard won political battles.

>>> I don't see fraud, embezzlement, cooking the books, lying to the stakeholders etc. in the context of left/right politics. If anything, they seriously damage the underlying principles of free market exchanges and compromise the ability of the concerned parties to make rational decisions. As such, they need to be pursued to the fullest extent of the law. This is the rightful 'check/balance' role of the government. If that is compromised by a revolving door between the government and industry as we saw not too long ago or intense lobbying, the blame right fully falls on the regulators as well for malfeasance.

your statements are valid after the fact, but the laws that determine how much of a role government can and should assume are themselves arrived at by hardball political negotiation. and it has always been the position of the political right in this country that less regulation and less of a role for government is better.

let me remind you that the names on the "wall street reform and consumer protection act" are both from the democratic party.

i am not saying democratic politicians are saints, but on the other hand it is difficult for me to imagine any republican politician in this country as having done anything to protect the interests of the taxpayer and the retail investor.

by Kris Thu Jun 05, 2014 10:33 pm

MaxEntropy_Man wrote:
Kris wrote:
>>>Looks like my other post got lost. The gist of it was presumably there are lawsuits over the lost lives and as a minimum, there should be environmental regs the company should be answerable to. That definitely would be a valid governmental role. If the point is the execs paid themselves huge bonuses, that is in very poor taste, but that indecency by itself is not grounds for governmental interference.

here is the problem i see if that's an absolutist position. it should also not be the role of govt to bail out failing corporations, but we already crossed that rubicon. on the one hand corporations want the taxpayer to bail them out, and on the other they wants a hands off policy on issues like exec compensation. how is that fair? privatizing profits and socializing risks is good for execs but not for the taxpaying public.

>>>That is a fair point. It should not have had to bail them out, but by that time the consequences would have been a disaster for the system as a whole. I have heard theories about how those could have been unwound , but honestly I don't see how considering how far pregnant we were. That is the price we paid for regulators being asleep at the wheel and letting blatant fraud occur right under their noses (or the revolving door between gov't and industry).

by MaxEntropy_Man Thu Jun 05, 2014 10:41 pm

posted to give kris some high quality nightmares:

http://www.salon.com/2014/06/05/thomas_piketty_and_elizabeth_warren_trickle_down_economics_are_magical_thinking_partner/

by Kris Thu Jun 05, 2014 10:48 pm

MaxEntropy_Man wrote:
Kris wrote:
MaxEntropy_Man wrote:
Kris wrote:
>>>>Again, if there is malfeasance, it is and should be within the purview of the gov't to tackle this. If this is a free market exchange of labor/ investments for wages/ROI, the governmental role becomes problematic. I am not making a case for the business community being paragons of virtue, for obvious reasons. I am just leery of how much big brother should be allowed to "protect", since that is not a 'no strings' attached proposition.

before the implosion of the stock market, before the era of enron and worldcom, the political right's position on this was zero regulation. i am not sure why you don't think this is as much a political issue as it is a criminal issue. the laws of a nation are not made in a vacuum. changes to them including how the financial results of a company are audited and reported are often the result of hard won political battles.

>>> I don't see fraud, embezzlement, cooking the books, lying to the stakeholders etc. in the context of left/right politics. If anything, they seriously damage the underlying principles of free market exchanges and compromise the ability of the concerned parties to make rational decisions. As such, they need to be pursued to the fullest extent of the law. This is the rightful 'check/balance' role of the government. If that is compromised by a revolving door between the government and industry as we saw not too long ago or intense lobbying, the blame right fully falls on the regulators as well for malfeasance.

your statements are valid after the fact, but the laws that determine how much of a role government can and should assume are themselves arrived at by hardball political negotiation. and it has always been the position of the political right in this country that less regulation and less of a role for government is better.

>>> There are multiple areas of wanting to head the gov't off at the pass, but being allowed to commit fraud should not be one of them. If the gov't got bamboozled into this, then it has been remiss in its role. Of course, if it was a case of 'you scratch my back, I scratch yours' we have a much bigger issue on our hands.

by Kris Thu Jun 05, 2014 10:51 pm

MaxEntropy_Man wrote:posted to give kris some high quality nightmares:

http://www.salon.com/2014/06/05/thomas_piketty_and_elizabeth_warren_trickle_down_economics_are_magical_thinking_partner/

>>> I have read mixed reviews on Piketty. I will come back and read this when I get a bit of time.

by MaxEntropy_Man Thu Jun 05, 2014 10:56 pm

Kris wrote:
MaxEntropy_Man wrote:posted to give kris some high quality nightmares:

http://www.salon.com/2014/06/05/thomas_piketty_and_elizabeth_warren_trickle_down_economics_are_magical_thinking_partner/

>>> I have read mixed reviews on Piketty. I will come back and read this when I get a bit of time.

i haven't read the book yet either, but the conversation is interesting and you get a glimpse of what's in the book.

by MaxEntropy_Man Thu Jun 05, 2014 11:22 pm

lots of different things discussed, but one point piketty made towards the end is that we already have a kind of wealth tax in this country -- property taxes and he thinks it's a good idea to collect property taxes based on the equity people have in their houses and not based on the property value. interesting idea.

by Kris Thu Jun 05, 2014 11:42 pm

MaxEntropy_Man wrote:lots of different things discussed, but one point piketty made towards the end is that we already have a kind of wealth tax in this country -- property taxes and he thinks it's a good idea to collect property taxes based on the equity people have in their houses and not based on the property value. interesting idea.

>>>Will try to read the linked item tonight if I get a chance. I thought I read a review by Summers.

by MaxEntropy_Man Thu Jun 05, 2014 11:53 pm

Kris wrote:
MaxEntropy_Man wrote:lots of different things discussed, but one point piketty made towards the end is that we already have a kind of wealth tax in this country -- property taxes and he thinks it's a good idea to collect property taxes based on the equity people have in their houses and not based on the property value. interesting idea.

>>>Will try to read the linked item tonight if I get a chance. I thought I read a review by Summers.

yes i posted a review by summers in another thread. this one is a public conversation that happened in boston yesterday between piketty and elizabeth warren.

by truthbetold Fri Jun 06, 2014 8:12 pm

MaxEntropy_Man wrote:what low wage workers? i was talking about myself. i would like romney to pay the same tax rate i do.

Max,
I did not read your comment yet.

by MaxEntropy_Man Sat Jun 07, 2014 7:29 am

Kris wrote:
truthbetold wrote:Idefix/cd
The metric is how is the poor in developing world doing in the last three decades. Other metrics such as middle class vs poor were important metrics but secondary.

Rich in all countries must pay more in taxes to support govt activities and social support systems. But the argument is not just income inequality but also who is benefiting from the vast infrastructure and security services provided by state.

>>> I think as civilized societies we owe basic necessities to the common man. It is necessary that the government administer laws and programs to engender that much and there should be legal mechanisms in place to prevent/penalize malfeasance in financial matters. The goal to engineer away inequality is overkill and a top- down approach that hands over unearned power to the government.

our differences in viewpoints are so far apart, that i wonder if we (and i am using we in a general sense) can even have a meaningful conversation about this! the concern of those of us on the other side is not handing over unearned power to the government, but of a vicious mutually enforcing cycle of the 0.1 percenters buying political influence and continuing to skew politics in a direction that further perpetuates and amplifies income inequality, which in turn allows them to buy even more political influence. at some point i am hoping even you'll agree this is a harmful cycle. stiglitz and others have pointed out that we have become that old ossified europe which we used to denigrate for not having sufficient socio-economic mobility, where the accident of one's birth, and not one's enterprise and initiative determines where one ends up in life. there is enough evidence that this is indeed happening if one chooses to look carefully at the data rather than be satisfied with political bromides.

http://www.brookings.edu/~/media/research/files/reports/2008/2/economic%20mobility%20sawhill/02_economic_mobility_sawhill_ch3.pdf

While cross-country comparisons
of relative mobility rely on data
and methodologies that are far
from perfect, a growing number
of economic studies have found
that the United States stands out as
having less, not more, intergenerational
mobility than do Canada and several
European countries. American
children are more likely than other
children to end up in the same place
on the income distribution as their
parents. Moreover, there is emerging
evidence that mobility is particularly
low for Americans born into families
at the bottom of the earnings or
income distribution.

by truthbetold Sat Jun 07, 2014 7:40 am

Idéfix wrote:
truthbetold wrote:Idefix/cd
The metric is how is the poor in developing world doing in the last three decades. Other metrics such as middle class vs poor were important metrics but secondary.

Why are they secondary? Who made that so? People feel worse based on their relative performance to their peers, than about the absolute performance of the peer-set as a whole. People who live with almost nothing can be content if their neighbors all live the same way. It is when the poor see the rich getting richer while they stagnate that discontent breeds social instability.

Idefix
The traditional leftist economics taught that wider inequality between economic classes lead deprivation of larger sections of masses and that leads to social instability I.e. rebellion against state. This theory was well supported when national economies are relatively insulated, communications were poor (communications cuts both ways), and deprivation is taking down known living standards down and economic upper strata gets completely seperated from rest of the nation.
read poverty in China wikipedia site.
china 's poverty declined from 85% in 1980 to 13% in 2009. In the same period inequality grew significantly in China.

by MaxEntropy_Man Sat Jun 07, 2014 7:47 am

Idéfix wrote:
Why are they secondary? Who made that so? People feel worse based on their relative performance to their peers, than about the absolute performance of the peer-set as a whole. People who live with almost nothing can be content if their neighbors all live the same way. It is when the poor see the rich getting richer while they stagnate that discontent breeds social instability.

i think there are harmful effects even before we get to social instability. there could be a sense of futility about it all, why bother to better oneself and try harder if economic mobility is non-existent. and that attitude is not good for anybody. the old europe that americans so love to denigrate have had this problem for a long time. and the progressive tax code that the US used to have back in the day was designed explicitly to avoid this outcome, but now we are becoming that which we used to mock.

by truthbetold Sat Jun 07, 2014 7:58 am

Idefix,
Cont from above post. Link to site mentioned above.
http://en.m.wikipedia.org/wiki/Poverty_in_China
China is a more stable, more satisfied nation today than in 1980.
This story was repeated in varying shades in south Korea, Malaysia and India.
It is likely to be reenacted in Indonesia and may be even Bangladesh in the coming years.
inequality statistics drive lefty economists. People look at their own reality. They do tolerate Albania wealth if the society continues to increase the opportunities to the wider sections of population.
Whether globalization is a permanent cure of world poverty or not, it has given the first chance in the world history to bring down poverty at unprecedented speed.

by truthbetold Sat Jun 07, 2014 8:15 am

Idefix
Is income inequality acceptable? Should we ignore inequality?
Capitalism ( for that matter all known socialist systems so far) breeds inequality. Greed is the driving force. However economic theory on all sides generally agree that extreme concentration of wealth are not good for any economy. I agree with that.
However the measurement method of inequality has to adjust to the globalization economics. Statistics from within a national borders will not tell the whole for very active participants in global economy.
In my opinion us wage stagnation is a result of us capital's ability to find labor sources outside Usa. Another is technology improving productivity and also replacing human labor. Lower inflation due to lower wages also reduced pressure on wage growth.

by truthbetold Sat Jun 07, 2014 8:29 am

Idefix
final post in this argument.
globalization, technological innovation, labor productivity and tax policy together caused income concentration.
Globalization - capital uses labor outside us borders but accrues wealth to us capital owners. This portion of wealth should be allocated to world wide wealth statistics.
Technological innovation - many more millionaires were created by these techies. However the jobs created in Usa and the ripple effect in Usa is not same as the railroad construction or steel industry expansion of the past.
No comment necessary tor the other two. So focusing only on tax policy is more of a political argument than economic discussion. It is easy to feel good by blaming the heartless Republicans than doing the work to prepare a us society for a changing economy.

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