Income inequality hurts economic growth

[Cutlass]

Somehow this part always gets overlooked...

 

[timtofly]

It was in the hands of Wall St. That's why it crashed.

The lobbyist??

After JR wins the battle for separation of church and state, he can start on the separation of economy and state.

I think that the government was founded on a principle to get rid of "taxation without representation". Just because corps and the government have taking away the representation does not make it right.

The reason that trickle down does not work: There is no money to trickle. Stop taking/creating money out of thin air and leave the economy alone. Right now the Government is the biggest corp. messing things up. I realize that would put millions out of a job, but in corporations money never trickles down.

Privatization is not the key either. There are things that government should not have access to period, nor should it even exist. Limited government is limited for a reason. It is probably too late and there will be no solution, but the direction it is heading in is still the wrong one.

 

[Cutlass]

I really don't know what you're trying to say.......

 

[Archbob]

You know what else American's Decline in economic dominance is correlated with?

That's right, the rest of the world rebuilding back up from WWII and the Asian economies finally rising to power, which really has nothing to do with what the USA does.

 

[Crezth]

You know what else American's Decline in economic dominance is correlated with?

That's right, the rest of the world rebuilding back up from WWII and the Asian economies finally rising to power, which really has nothing to do with what the USA does.

Well that settles it.

 

[Cutlass]

You know what else American's Decline in economic dominance is correlated with?

That's right, the rest of the world rebuilding back up from WWII and the Asian economies finally rising to power, which really has nothing to do with what the USA does.

Actually, the rebuilding of the rest of the world reduced the US to about 20% of world GDP. Since then it went back up to around 22%.

 

[Whomp]

It seems to me that the income inequality impacts growth directly by reducing the marginal propensity to consume and indirectly by poor economic policymaking. The second one is really problematic to me since it has such potential to drive the first. Quite a conundrum.

 

[Tenochtitlan]

There's a good reason why income should not be forcefully equalized. Labor, work, and production of goods and services all have prices. Now what are prices? Prices are signals that transmit important information about the supply and demand of the good\service\unit labor. In most economies, supply and demand varies based on profession. For example, there is a smaller supply of physicians than there is janitors, partly because it takes more rigorous training to become a doctor. At the same time, we assume the demand for physicians to be higher than that for janitors. This is information about the availability is manifested in the price of hiring a physician. Therefore, hospitals are willing to pay higher wages for a physician than they are for a janitor.

When you look at it this way, it makes complete sense that people don't all earn the same wages. Income will also vary based on experience, talent, and other traits that help in producing higher quality\quantity goods, services and advancing technology.

Please read more about these two very important but often overlooked concepts:
http://en.wikipedia.org/wiki/Allocative_efficiency
http://en.wikipedia.org/wiki/Price_signal

 

[Archbob]

Actually, the rebuilding of the rest of the world reduced the US to about 20% of world GDP. Since then it went back up to around 22%.

Asia's catching up now and China will Pass the USA in GDP in the next few decades. The USA wasn't going to stay ahead forever, regardless if income distribution was equal or not.

 

[lovett]

When you look at it this way, it makes complete sense that people don't all earn the same wages.

When you look at it this way, perhaps. But 'looking at it this way' yields an incomplete and truncated view society. It views society as a means of running an efficient economic system, which is precisely the wrong way of looking at it. An efficient economic system is a means by which to engender a good or just society.

Inequality, possibly vast inequality, might make 'perfect sense' if we only viewed society from the perspective of efficient allocation of resources, where resources is understood in a rather circumscribed way. But this is the wrong way of viewing society.

We want our society to be just as well as efficient. We want to be good people as well as (more than!) maximizing economic agents. Your analysis completely misses any normative conception of society; it completely overlooks the socially arrangements which would be just or morally right in favour of those which are of economic efficiency. When we take these rather central normative considerations into account, the 'perfect sense' you see in inequality may begin to disintegrate.

 

[Janusi]

When you look at it this way, it makes complete sense that people don't all earn the same wages. Income will also vary based on experience, talent, and other traits that help in producing higher quality\quantity goods, services and advancing technology.

Your argument falters in real world conditions where incompetent people earn millions trashing both the economy at large as well as their own company.

Most of the people who actually produce high quality\quantity goods, services or advance technology don't get paid well.

 

[Cutlass]

There's a good reason why income should not be forcefully equalized. Labor, work, and production of goods and services all have prices. Now what are prices? Prices are signals that transmit important information about the supply and demand of the good\service\unit labor. In most economies, supply and demand varies based on profession. For example, there is a smaller supply of physicians than there is janitors, partly because it takes more rigorous training to become a doctor. At the same time, we assume the demand for physicians to be higher than that for janitors. This is information about the availability is manifested in the price of hiring a physician. Therefore, hospitals are willing to pay higher wages for a physician than they are for a janitor.

When you look at it this way, it makes complete sense that people don't all earn the same wages. Income will also vary based on experience, talent, and other traits that help in producing higher quality\quantity goods, services and advancing technology.

Please read more about these two very important but often overlooked concepts:
http://en.wikipedia.org/wiki/Allocative_efficiency
http://en.wikipedia.org/wiki/Price_signal

The problem with that argument is that it is a strawman. There aren't really more than a trivial number of people, communists, some socialists, that want income equalized. Most people who think income inequality is a problem do not want income "equalized". They just want it a little closer to equal.

A little closer to equal means that the whole of the economy will function better. Saying people want income equality fundamentally changes the subject in order to throw an objection at an argument that was not being made.

Asia's catching up now and China will Pass the USA in GDP in the next few decades. The USA wasn't going to stay ahead forever, regardless if income distribution was equal or not.

You are assuming that they will. 20-30 years, China has much bigger problems to overcome than the US has. Right now China's biggest asset is that the turn to Reaganomics means that the US has abandoned maximizing the strength of the American economy. That may change. But America's crap economic policy is actually a problem for China now as well. Because we can no longer drive Chinese exports as we used to. So a China that wants to overtake the US has to make some major changes. Can they?

 

[Tenochtitlan]

Your argument falters in real world conditions where incompetent people earn millions trashing both the economy at large as well as their own company.

Most of the people who actually produce high quality\quantity goods, services or advance technology don't get paid well.

This is exactly what happens when the government interferes. This is what happened with the bailouts. The government picked winners and losers. It used tax payer money, and newly generated inflation, to pay for the well-connected corporations that should have lost the money.

In a free market, you get to keep your profits, but you also need to take responsibility for your losses. When government interferes in the sort of corporatist manner we saw, it socialized and externalized the losses of these institutions to the tax payer, all the while paying millions in bonuses to its executives. This cannot happen if the government doesn't use the tax payer and inflation to expropriate the funds necessary to bail these corporations that should have taken the losses otherwise.

It was TARP, it was the bailout, it was government.

 

[Tenochtitlan]

When you look at it this way, perhaps. But 'looking at it this way' yields an incomplete and truncated view society. It views society as a means of running an efficient economic system, which is precisely the wrong way of looking at it. An efficient economic system is a means by which to engender a good or just society.

Inequality, possibly vast inequality, might make 'perfect sense' if we only viewed society from the perspective of efficient allocation of resources, where resources is understood in a rather circumscribed way. But this is the wrong way of viewing society.

We want our society to be just as well as efficient. We want to be good people as well as (more than!) maximizing economic agents. Your analysis completely misses any normative conception of society; it completely overlooks the socially arrangements which would be just or morally right in favour of those which are of economic efficiency. When we take these rather central normative considerations into account, the 'perfect sense' you see in inequality may begin to disintegrate.

My argument actually stems from a moral standpoint. It stems from the Non-aggression principle and the voluntary cooperation and exchange between people.

Now, given the non-aggression principle, the government's monopolistic use of force to expropriate funds from the tax payer is a form of aggression, since it threatens the use of force for those who do not comply and pay taxes or suffer inflation when new government fiat money is created. Now, the problem gets really bad when corporations lobby the government to pick winners and losers. The government should not have that ability to pick winners and losers.

It should be completely up to the free market to decide which corporations win and which ones lose. It is consumer demand, rather than government fiat, that should decide which corporations profit and which ones lose. This means that corporations need to compete to satisfy consumer taste, rather than compete in bribing lobbyists and members of the government to guarantee their profit at the expense of tax payers.

 

[lovett]

My argument actually stems from a moral standpoint. It stems from the Non-aggression principle and the voluntary cooperation and exchange between people.

Now, given the non-aggression principle, the government's monopolistic use of force to expropriate funds from the tax payer is a form of aggression, since it threatens the use of force for those who do not comply and pay taxes or suffer inflation when new government fiat money is created. Now, the problem gets really bad when corporations lobby the government to pick winners and losers. The government should not have that ability to pick winners and losers.

It should be completely up to the free market to decide which corporations win and which ones lose. It is consumer demand, rather than government fiat, that should decide which corporations profit and which ones lose. This means that corporations need to compete to satisfy consumer taste, rather than compete in bribing lobbyists and members of the government to guarantee their profit at the expense of tax payers.

Your argument is related to those viewpoints if and only if you think private property is some inalienable extension of personhood. And that, quite frankly, is the view of a moral dullard.

If we take people as individuals not intellectualism linked to the property they happen to own it becomes quite obvious that you cannot rely on condemnations of aggression and exultation of voluntary co-operation to support your point. That is because, by you terminology, the very nature of property (and thereby inequality) is 'aggressive'.

Owning something means having the right to commit violence on someone who 'free' uses that thing in a way I do not permit. It means having the ability to call upon the state to enforce this right (possibly in my stead). Owning a car means that, when someone else uses that car, I can ask agents of the state (the police) to violently attack and imprison that person. Ownership means exclusive ownership; it means the ability to deny to others the freedom to use what I own and the ability to enforce that denial through violence.

If taxation is thus a form of aggression, private property is more so. There is no special moral privilege that accrues to private property owners in their ownership which could not accrue to government.

The upshot of this is that you cannot appeal to moral injunction against aggression to justify a vastly unequal distribution of private property. A vastly unequal distribution of private property means a system in which there is an implicit threat of violence levied against the majority of the population. A threat that is often fulfilled.

If you want to justify your viewpoint you had better grasp at other normative straws. I doubt you will find any, As I said, it is senseless to treat the property one happens to own as an inalienable extension of one's own person, and thus one cannot possibly support unequal distribution of property on the grounds of 'self-ownership' or personal sanctity. To say your view relies on these moral grounds in simply false, and neither italicizing 'free' nor linking to Wikipedia will change that, I'm afraid.

 

[Cutlass]

This is exactly what happens when the government interferes. This is what happened with the bailouts. The government picked winners and losers. It used tax payer money, and newly generated inflation, to pay for the well-connected corporations that should have lost the money.

In a free market, you get to keep your profits, but you also need to take responsibility for your losses. When government interferes in the sort of corporatist manner we saw, it socialized and externalized the losses of these institutions to the tax payer, all the while paying millions in bonuses to its executives. This cannot happen if the government doesn't use the tax payer and inflation to expropriate the funds necessary to bail these corporations that should have taken the losses otherwise.

It was TARP, it was the bailout, it was government.

No, that is exactly what happens when the government does not interfere. There is a tendency among some of the people who claim to be libertarians to always believe that there is no circumstance by which people are responsible for their own actions. By following Ron Paul, you are falling into this trap.

It is the market that causes this extreme inequality. Now market participants spend vast fortunes to bribe lobby government officials to help. But that is icing on the cake, not the cake itself. If the rich managed to get the government to do nothing at all, then that would constitute absolute victory for very rich at the expense of the rest of us.

My argument actually stems from a moral standpoint. It stems from the Non-aggression principle and the voluntary cooperation and exchange between people.

Now, given the non-aggression principle, the government's monopolistic use of force to expropriate funds from the tax payer is a form of aggression, since it threatens the use of force for those who do not comply and pay taxes or suffer inflation when new government fiat money is created. Now, the problem gets really bad when corporations lobby the government to pick winners and losers. The government should not have that ability to pick winners and losers.

It should be completely up to the free market to decide which corporations win and which ones lose. It is consumer demand, rather than government fiat, that should decide which corporations profit and which ones lose. This means that corporations need to compete to satisfy consumer taste, rather than compete in bribing lobbyists and members of the government to guarantee their profit at the expense of tax payers.

Now this is where I have one of my biggest problems with the libertarian philosophy. We were headed this way on the thread about Ayn Rand (author) before that thread got locked.

Many libertarians claim that they support this so called Non-aggression principle. And yet at the same time they oppose TARP and stimulus spending and the actions of the Federal Reserve in response to the financial crisis that Wall St caused. In other words, the private sector of the economy committed massive aggression against the American people, aggression that they were only able to commit because government got out of the way, as libertarians called for them to do, and allowed private actors free reign to do as they pleased. Then, not satisfied with the results of the massive aggression that libertarian policies are responsible for allowing and the private sector committing, libertarians then demand even far more massive aggression against the general public by opposing TARP, stimulus, and Fed actions.

So which is it? Is it Non-aggression, and if so, how do you justify the massive aggressions you yourself demand?

Because if you believe that we should not have done TARP, stimulus, and Fed actions, then you are in fact demanding the most massive aggression against the American people that has happened in at least 70 years.

 

[Hygro]

No, it hasn't, actually. Feel free to provide evidence to the contrary, of course.

Forgive me for not saving lecture slides but this has been in three of my courses: Macroeconomics by Brad DeLong, Wealth & Poverty by Robert Reich, and World History by Alan Karras. All three presented data on ancient time wealth gaps and their trends through the modern era. Gaps between individuals, and gaps between countries has risen dramatically, both in proportion and in absolute. You can find small scale deviations but in aggregate this is true.

 

[Terxpahseyton]

I don't think that comparisons to ancient times are very useful for discussions on contemporary economic policy.
If you talk about some golden rule - like a law of nature - that growth must benefit equality - then Jeez of course it is nonsense. But - as said - also not really meaningful. In such instances we have to realize why social sciences can not possibly be handled like natural sciences.

 

[Cutlass]

We don't need growth to benefit equality. What we need is for growth to benefit everyone at roughly the same rate.