OECD report: Inequality highest in 30 years, trickle-down has failed

[Nessus]

I don't reject social science purely for being social science, it's possible that you have me confused with Nessus.

I conflate Loki with women's studies just to irritate him, I don't really have an informed opinion on the soft sciences. The divide is cultural, and I follow Ohm's law just as much as every other lazy person...

[wiggin]

The key point here is that the inequalities have grown faster than the economical growth. I don't want to redistribute wealth, I am (if you don't judge like our Cain) not a socialist. But in the end I agree, it is improvable if we could establish the same growth with a different distribution of incomes.

I'm not sure I agree on your metric (inequalities growing faster than GDP growth), but I think we agree in principle. If people are better off compared to the counterfactual, it doesn't matter how wealthy the richest are.

I don't agree with that. This sounds to much like the American dream to me. The European dream is not to become a superstar, billionaire (of course some do dream about such things here too) but to live a good quality life.

Well, I'm American. If you look at the list of billionaires in America, almost all of them are entrepreneurs who came from relatively humble beginnings; they also generally do not come from rent-seeking industries but from real innovation, from Wal-Mart to Microsoft. I think this should be celebrated, not denigrated; they have immeasurably improved our lives while employing hundreds of thousands of people. It's not just that I don't begrudge them their billions - I'm happy they have them. (Obviously this is only true if they haven't had a net negative effect on growth/etc., but for the most part that's true.) Ditto with big businesses. They thrive on economies of scale and levels of investment that small businesses can't possibly hope to achieve, and this is a good thing. There is quite a bit of churn with big companies, of course, and we shouldn't ignore or penalize small businesses for being small. But the reason they're valuable isn't because they're quaint mom-and-pop establishments. They're valuable because they're incubators for new ideas that might become the next multi-billion dollar firm.

[Nessus]

Sure it is. If all of the extra-cake goes to those with the biggest parts already you may have a point, but if that's not true then more cake for all is a Good Thing.

Well, I suppose, I mean you and I agree on the idea that kids should start out on a level playing field (so to say). But there's all sorts of structural problems with cake division, and apparently they don't evaporate even when we've made a record-sized cake. To pick some random examples from the report (or the whole issue in general), if it is only possible to get the minimum-required-slice of cake for, uh, cake-based living, one has to work 3 different jobs, none of which offering "automatic" benefits such as health care etc., existence becomes such a perilous proposal that it seems to me some mandated cake redistribution could solve a whole bunch of endemic issues with little harm done to any single party.

I mean, if your entire budget can crash and burn if your kid breaks their glasses or you get pneumonia, well. I guess these people are dumb and lazy, but assuming that they got laid despite being dumb and lazy (you'd be surprised), there is that little Johnny Q down there living in a high-stress home with single-lensed glasses. How's he gonna do in school? (Of course in the theology of Wealth he has just been presented with a challenge to overcome, and so on ad nauseam)

Then we have the other end of the Johnny Q, as anecdotally evidenced by our Illusions there. He's a skilled worker who took the time to go to school and work hard and all that jazz. He's of an age where he should be starting out his own household, but there's little chance of that happening any time soon. He is stuck living with his (seemingly) non-plussed parents, which is slowly eating away at his self-esteem and personality. Where's Illusions Jr gonna come from? (I am not implying there's some inherent right to breed here) Meanwhile, Kim Kardashian could buy a small island and become Dr Moreau, or whatever else. Ostensibly there are more people in Illusions' shoes than in Kim's, and I'm not convinced that's a net positive for society.

[earthJoker]

Sure it is. If all of the extra-cake goes to those with the biggest parts already you may have a point, but if that's not true then more cake for all is a Good Thing.

I totally agree. I disagree with those who want to redistribute the current shares of the cake. But I think we should be open minded about the extra cake.

I'm not sure I agree on your metric (inequalities growing faster than GDP growth), but I think we agree in principle. If people are better off compared to the counterfactual, it doesn't matter how wealthy the richest are.

It matters because there are limits on the annual growth rate. I don't think a economy can handle a continuous growth rate that is a lot over 5% per capita. It's not the cake that is limited, but the extra cake per year is limited.

Well, I'm American. If you look at the list of billionaires in America, almost all of them are entrepreneurs who came from relatively humble beginnings; they also generally do not come from rent-seeking industries but from real innovation, from Wal-Mart to Microsoft. I think this should be celebrated, not denigrated; they have immeasurably improved our lives while employing hundreds of thousands of people. It's not just that I don't begrudge them their billions - I'm happy they have them. (Obviously this is only true if they haven't had a net negative effect on growth/etc., but for the most part that's true.) Ditto with big businesses. They thrive on economies of scale and levels of investment that small businesses can't possibly hope to achieve, and this is a good thing. There is quite a bit of churn with big companies, of course, and we shouldn't ignore or penalize small businesses for being small. But the reason they're valuable isn't because they're quaint mom-and-pop establishments. They're valuable because they're incubators for new ideas that might become the next multi-billion dollar firm.

I don't want to convince you of my ideals, I just don't share this approach. I think that small and middle sized business (we have a very popular acronym here "KMU") can add a substantial output for the economy that goes beyond new ideas for the big. Same for middle class households on the costumer side.

[LittleFuzzy]

Is that so? I don't think so. Is a scenario where the extra amount of cake is shared equally not possible?

What extra cake? Where is the extra cake coming from? In the trickle-down model, the person with a surplus above what he needs to live comfortably reinvests it and the extra cake is the growth made possible by that reinvestment. In the redistributionist counter-model the trickle-downers provide *and yes I'm aware it's something of a straw man* that surplus is given to the guy who doesn't have the means to live comfortably where it is used to meet/improve on all his basic needs so that he can live comfortably too. Where is the extra cake coming from then, if the materials for it just got eaten?

[earthJoker]

I don't believe in the tickle down model. I don't think that the person with a surplus above what he needs to live will reinvest all that extra money. A big amount will be spent on luxury, or simply said, an above average way of living.

I also doubt that all R&D would stop if the top earners would not get any more surplus (they already have a surplus as I don't take any cake away from them) they still can invest that big piece of cake they already have. Also companies can reinvest a part of their earnings directly into R&D without making the detour through a person who reinvests. And R&D will finally lead to higher productivity, and there is you extra cake.

[Loki]

Why would anyone work once they make the income above which they would lose almost everything? Why would most people get the skills and/or education to work in professions that pay above this level? Why would corporations invest in R&D when there would be no way to reward shareholders beyond some minimal level?

[earthJoker]

Because the cake as whole gets bigger, they still get more, just not as much more (relative) as those that have less now.

Why does some one work more if all he can do with the money is reinvest it and he actually doesn't get a better life from it as he has met his needs?

[Loki]

Because the cake as whole gets bigger, they still get more, just not as much more (relative) as those that have less now.

Why does some one work more if all he can do with the money is reinvest it and he actually doesn't get a better life from it as he has met his needs?

Like before, you're not thinking about the counter-factual. The opportunity cost of an extra work of work is one fewer hours of leisure. Do you think most people would be giving up leisure to earn 1% of their normal hourly income?

Furthermore, you're totally ignoring the collective action problem. If everyone works more, then the pie gets bigger, and everyone gets more money (if we're going for equality). But there's no individual incentive to work more, because your extra work is going to change the national income by a tiny amount. Here's an example for you. You have a class of 100 people and every person in that class will receive the mean grade from the class. Let's say after the first exam the mean grade is a C. Why would any individual student try to get an A when one A isn't going to significantly change the mean grade for the class? In fact, why should any individual study at all, knowing that they're going to get a C even if they get an F. In the end, no one does any work, and the mean grade becomes an F. That's not very far from what happened in societies where income was only loosely connected to one's work.

[earthJoker]

Like before, you're not thinking about the counter-factual. The opportunity cost of an extra work of work is one fewer hours of leisure. Do you think most people would be giving up leisure to earn 1% of their normal hourly income?

Were do you get that number from?
And honestly I personally can't explain you why someone would work more than he needs for living. At least not for the money. Probably some people like their work. Why would some people give up their entire time and don't can enjoy the new diamonds they bought for their wife.

Furthermore, you're totally ignoring the collective action problem. If everyone works more, then the pie gets bigger, and everyone gets more money (if we're going for equality).

The economy doesn't grow because we work more, but because we output more in the same hours.

But there's no individual incentive to work more, because your extra work is going to change the national income by a tiny amount. Here's an example for you. You have a class of 100 people and every person in that class will receive the mean grade from the class. Let's say after the first exam the mean grade is a C. Why would any individual student try to get an A when one A isn't going to significantly change the mean grade for the class? In fact, why should any individual study at all, knowing that they're going to get a C even if they get an F. In the end, no one does any work, and the mean grade becomes an F. That's not very far from what happened in societies where income was only loosely connected to one's work.

No your example fails, I never said you can't get an F, I said it would be a lot harder to get anything above an A: A+ AA, AA+,... would not or only hardly be possible. And this is not a problem because A's are ok, at least in a society that doesn't need to be exceptional.

[Ziggy Stardust]

What extra cake? Where is the extra cake coming from? In the trickle-down model, the person with a surplus above what he needs to live comfortably reinvests it and the extra cake is the growth made possible by that reinvestment. In the redistributionist counter-model the trickle-downers provide *and yes I'm aware it's something of a straw man* that surplus is given to the guy who doesn't have the means to live comfortably where it is used to meet/improve on all his basic needs so that he can live comfortably too. Where is the extra cake coming from then, if the materials for it just got eaten?

Isn't the extra cake supposed to be extra revenue for the material provider?

[Lewkowski]

Quite, wealth (like employment) is not a zero sum game.

Liberals don't understand this basic premise. If you have more that means I must have less. So the liberal logic goes...

[Nessus]

And therefore jealousy, and therefore...

Thanks, Wiggin. Thanks.

[LittleFuzzy]

Isn't the extra cake supposed to be extra revenue for the material provider?

The extra cake is economic growth, which can be distributed different ways. Some of it but by no means all will presumably be expressed as additional revenue for the provider. Of course inasmuch as we're talking about reality there's a fair amount of variability in outcomes wrt reinvesting. Everything from economic loss to new technology which doesn't pay off directly to any investor to windfall profits with no effect on anyone or anything else in the economy.

[wiggin]

And therefore jealousy, and therefore...

Thanks, Wiggin. Thanks.

...?

[Nessus]

I'm not sure it was a safe assumption that I'm dim enough to think that an expanding system makes for a zero-sum game. I'm definitely not the brightest bulb in the shed, but still...And then that was fuel for Lewkowski's eternal flame. So, you know, good job!

[wiggin]

Well, what annoys me is that people often ignore this reality regardless of their political orientation. All of the panic in the US about immigrants stealing 'our' jobs is hardly limited to the right wing, nor is the panic about losses in manufacturing jobs. Ditto for upset over other people getting richer.

Gains can be gotten at the expense of others, but they don't need to be. It frustrates me when so much about our world is described as zero-sum. People are worried about China's economy growing, right? I'm worried about it from a perspective of global macroeconomic policy, perhaps, but I'm delighted that China's economy is growing. Literally hundreds of millions of people are being lifted out of poverty - how can that be bad? And growth is not one-sided. More money in China means more markets for American goods.

It doesn't matter if you're right wing or left wing; plenty of people ignore reality for their pet cause.

[Nessus]

Literally hundreds of millions of people are being lifted out of poverty - how can that be bad?

Ostensibly they consume more energy, pollute more and tie up more precious resources such as rare-earths.

It doesn't matter if you're right wing or left wing; plenty of people ignore reality for their pet cause.

Fair enough.

[wiggin]

Ostensibly they consume more energy, pollute more and tie up more precious resources such as rare-earths.

A complete aside, of course, but I think that the environmental damage from an economy going through energy- and resource-intensive development is acceptable if the alternative is to have a billion people languishing in grinding poverty. Just my opinion, though. Obviously the negative externalities should be limited as much as possible, but I'd still take that bargain in a heartbeat.

(BTW, rare earths are anything but rare and are not a limiting factor here. Much bigger resource issues are oil, copper, steel, and arable land, which is lost due to increasing meat consumption.)

[Nessus]

A complete aside, of course, but I think that the environmental damage from an economy going through energy- and resource-intensive development is acceptable if the alternative is to have a billion people languishing in grinding poverty. Just my opinion, though. Obviously the negative externalities should be limited as much as possible, but I'd still take that bargain in a heartbeat.

I obviously disagree, but I don't know if other people still want to talk about equality. A new thread? Do you care enough?

(BTW, rare earths are anything but rare and are not a limiting factor here. Much bigger resource issues are oil, copper, steel, and arable land, which is lost due to increasing meat consumption.)

Eh. With rare earths (and other similar elements) the trouble is that we're shipping them into the third world constantly in the form of electronics waste etc. Once they start buying fresh electronics in addition to that, well. And the whole meat thing, that's a thread in and of itself! Did you ever read the Omnivore's Dilemma?

[wiggin]

I obviously disagree, but I don't know if other people still want to talk about equality. A new thread? Do you care enough?

If you want. Obviously the environmental issues of rapid growth in the third world (notably China and India) are not to be ignored. If you're interested we can discuss this in another thread.

Eh. With rare earths (and other similar elements) the trouble is that we're shipping them into the third world constantly in the form of electronics waste etc. Once they start buying fresh electronics in addition to that, well. And the whole meat thing, that's a thread in and of itself! Did you ever read the Omnivore's Dilemma?

Electronics waste is an issue, yes, but already it's being addressed. I'm really not very concerned about this - demand is increasing for rare earths, yes, but there's vast amounts out there, plenty of it in economically extractable concentration. As prices rise, recycling and new mining will pick up.

I haven't read Omnivore's Dilemma, but I imagine I'm aware of the gist of what he says. It's not really a question that meat is an incredibly wasteful use of land, and it's going to be a real challenge to feed the world once we reach peak population in a few decades. As people become more affluent, meat consumption increases dramatically, which will exacerbate the problem (along with climate change, diminishing returns on maximal yields from technological improvements, etc.). I think we can do it, but there will probably be some very scary periods for the world's poor and hungry while we figure it out.

[Nessus]

If you want. Obviously the environmental issues of rapid growth in the third world (notably China and India) are not to be ignored. If you're interested we can discuss this in another thread.

I'm not sure how to word what I'd like to discuss I might give it a go later if my thoughts clear up. (Or you can start it from your own POV if you're inclined)

Electronics waste is an issue, yes, but already it's being addressed. I'm really not very concerned about this - demand is increasing for rare earths, yes, but there's vast amounts out there, plenty of it in economically extractable concentration. As prices rise, recycling and new mining will pick up.

I haven't read Omnivore's Dilemma, but I imagine I'm aware of the gist of what he says. It's not really a question that meat is an incredibly wasteful use of land, and it's going to be a real challenge to feed the world once we reach peak population in a few decades. As people become more affluent, meat consumption increases dramatically, which will exacerbate the problem (along with climate change, diminishing returns on maximal yields from technological improvements, etc.). I think we can do it, but there will probably be some very scary periods for the world's poor and hungry while we figure it out.

The problem is so huge and multifaceted that I have a hard time thinking about it!

I wonder if we can turns the oceans into farms...I suppose farming in space would be way too expensive.

The Moon?