One of the main complaints of Occupy Wall Street is of income disparity in the US and the world. This is an idea rooted in economic misconceptions about capitalism which is endemic in our society. That is, there is a finite amount of wealth and the one percenters have most of it and that’s unfair. Therefore they can justify social policies which redistribute wealth. As we all know capitalism creates wealth and it is the one percenters who do most of that which is why they are one percenters.
On the other hand the whole idea of crony capitalism is not “capitalism” at all, rather it is a form of state facilitated enterprise that relies on government support to stay in business. This has gone under many names over the years: crony capitalism, national corporatism, mercantilism, oligarchy or plutocracy, dirigisme, and fascism. Crony “capitalism” in the form of bailouts is a form of wealth redistribution which is fair game for criticism. (I view quantitative easing as a form of crony capitalism in that fiat money printing favors the same companies that were bailed out.)
I just came across this data about income distribution in America (thanks to Cafe Hayek) from PoliticalCalculations.com. They poke some big holes in the inequality theory with The Gini Coefficient of wealth distribution:
Perhaps the most common measure of income inequality in a nation is the Gini Coefficient (aka the “Gini Ratio”), which ranks the amount of inequality there is in a country on a scale from 0, which represents perfect equality, where everyone would have an equal share of the nation’s income, to a value of 1, which represents perfect inequality, where one person would have all the income, but everyone else has none.
Their research shows that “there has been absolutely no significant change in the level of inequality among U.S. individual income earners from 1994 through 2010 …”:
This shows that so-called income distribution “disparity” has been remarkably stable for the past 16 years which is contrary to what the OWSers are claiming. Political Calculations has some other observations about the data that are an interesting read, “The Real Story Behind ‘Rising’ US Income Inequality“. For those of you who want to know more about the Gini Coefficient, there is an excellent article here that explains it quite well.
Gini coefficient is not the best at showing inequality and its effects.
There are several ways to measure income inequality.
One way (the 20:20 ratio) is to compare how much richer the top 20% of people are, compared to the bottom 20%. Among the rich developed countries the 20:20 ratio varies from as little as 3 or 4 to as much as 8 or 9. For example, in Japan and Sweden the income gap is fairly small: the richest 20% are less than 4 times as rich as the poorest 20%; but in Britain the richest 20% are over 7 times as rich as the poorest 20%, and in the USA they are over 8 times as rich.
Here’s some more:
The authors of the book “Spirit Level” did research by preparing an index consisting of life expectancy, math & literacy, infant mortality, homicides, imprisonments, teenage births, trust, obesity, mental illness (including drug and alcohol addiction) and social mobility: equally weighing all elements within the index and plotted it against income inequality (as measured by 20:20 ratio shown above) and USA was the worst. It was off the charts. Japan, Sweden, Norway were among the best.
More details here: http://www.ted.com/talks/lang/eng/richard_wilkinson.html
http://www.equalitytrust.org.uk/why/evidence/methods
Rather than cherry-picking data to just publish biased attacks agains OWS, I suggest you look deeper Jeff. A proper study before claiming “income inequality has no effect on social well-being” is in order.
I always wonder, when someone says income should be more equal or even capped, are they saying that someone’s productivity should be capped? Or just the incentive to produce…
Actually, they’re saying that the parasitic activity of the financiers or the nature of the finance industry to be even more parasitic, should be capped.
There’s more info here on the network of corporate control:
http://www.newscientist.com/article/mg21228354.500-revealed–the-capitalist-network-that-runs-the-world.html
If capitalism is practiced as a dogma, then the capitalists will fail repeatedly to see the weaknesses embedded within it.
“…it is the one percenters who do most of that [create wealth] which is why they are one percenters.”
That is some beautiful logic there, especially if one is fond of circles.
I guess the Hippies ought to release Madoff, since by definition he was a 1% wealth ‘Creator’.
Blah, Blah Blah.
Apparently, nobody has read Ayn Rand Atlas Shrugged or, if they have, think it could never come to pass that way. I can see Atlas Shrugged rising from the ground all around me these days.
Doctors (and many others in many other fields that I know personally) retire at age 52-60 because the risks (lawsuits, insurance costs, govt regulations) outweigh the benefits. They retire early, disallusioned that they would be able to just pursue their dream career and do well at it and not have to give back 50-75% in taxes, insurance, and litigation.
Who would dare question a world that works this way? Who would question that this world does not work this way? Yes, there are always those 0.5% of the population that will check out and live on a Northwest commune and make their own clothes. But, even they are balancing what they get out of life against the total costs (in this case very low) of stress and alarm clocks. I would claim that they have very low stress in life but very, very low results, and that their ratio of risk/benefit is much lower than a 12 hour per day MBA trying to get his first million or buy his first Porsche.
If they want to work long hours to drive a Porche, ok. That is what we call “personal freedom”. But, I guess personal freedom is only OK with some people if you use that freedom to do with your life what they think you should.
Most of this site is so spot on – interesting how wrong this one is.
Check out “Richard Wilkinson: How economic inequality harms societies” at TED – by many, many measures, we have a serious problem in the US.
http://www.ted.com/talks/richard_wilkinson.html
I would disagree strongly with Wilkinson. His solution is to end wealth disparity and create societal happiness by redistributing it. As Thatcher said, eventually you run out of other people’s money, and as Greece and other European welfare states are finding, that is the case. Many such states are now turning to free market solutions to bail themselves out. Sweden has done exactly that, and has greatly liberalized its economy. I think his analysis is mostly post hoc ergo propter hoc analysis that one would find from Fabian socialists who see problems but don’t understand causes. I think he fails to do any serious economic analysis of the true causes of societies’ problems. The bottom line is that only through free market capitalism can a society provide the greatest benefits to the greatest amount of people. Wilkinson fails to understand how societies create wealth. He has a static view of economics whereby there is a big pie that can be divvied up. Wealth is created not stolen. If he thinks we’ll all be happier by redistributing wealth, then he will have a shock when the money runs out as society plunges into socialist poverty. He clearly doesn’t understand the power of capitalism and free markets. I suggest you read Milton Friedman’s classic Freedom and Capitalism to understand history. It would be nice if Ted would do more than present the conventional wisdom and explore the positive benefits of free markets.
But thank you for the comment.
Wilkinson’s message is plain: “General social dysfunction is undeniably correlated to wealth inequality.”
Jeff, you are remarkably silent on the contents of the message in your haste to attack the messenger (a “fabian socialist”) who went out of his way to downplay the necessity of redistributive policies, “It doesn’t matter how you get there [greater equality]“.
So, your readers want to know: do you disagree with the message? Or do you just think it is completely irrelevant?
This is a pretty good strawman argument. Most people will likely fall for it.
But for anyone that actually reads any of the sites you link and look at the data you will see why this chart and the analysis from it is way off the mark.
In the first case… that no significant change from 1994-2010 shows only two years below .50. However if you go through your link to “The Gini Coefficient of wealth distribution:” you will see that the US had a Gini of .40. And while that data is somewhat out of date, it’s post 1990 data since Namibia is listed and only gained independence in 1990. So we should believe the Gini jumped 30% in the US between 1990 and 1994? I don’t think so.
So where did this flat line Gini chart come from if there was a Gini of .408 at some time in the last 20 years? Oh, following your link to “absolutely no significant change” and looking at the data sets used, you discover: Medians falling in the upper open-ended interval are plugged with “$250,000.” and the top bracket ever used is “$100,000 and Over”. So people falling in the $100,000 and over category are capped at $250,000 for the purposes of the Census. Since the top 1% have incomes starting around $380,000, this data seems woefully incomplete.
Ultimately, though the worst abuse of the truth here is that income is not the concern of the 99%/OWSers. It’s concentration of wealth. Sure the Gini is flat among “individual income earners” when you flatten and cap the top earners int $250,000 units. But the wealth concentration has little to do with income. As noted in one of those links, the Gini for Household wealth in the US is around .85
That is where the disparity is. And look, I’m not interested in redistributionist policies. But at the same time, I should never be taxed – through the IRS or the FED (via debasement) to bail out the psychopathic gamblers on Wall St. In 2008 we abandoned capitalism for bank-state fascism. That is what has the OWSers out on the streets… and they aren’t wrong about it.
Good points except that I didn’t show the other data that goes into the family structure sociology. Please review that article and tell me if you think the data is still out of date and perhaps misleading.
We all agree with you that the bailouts were crony capitalism which as you point out were wrong. I thought I made that clear.
What I don’t agree with you is that psychopathic gamblers “caused” the boom and bust. I have written extensively on that and strongly believe it is the Fed which causes these cycles. On the “Must Read” column, you will find articles on this.
Also, I agree that some of the concentration is due to government action as a result of QE. But let’s face it, the general thrust of the data is that the top tier of this economy are there because they create companies and thus wealth and are rewarded justifiably (e.g., S. Jobs). So, I don’t think that’s the issue. Rather I believe as stated in the article, that it is government and Fed policies that have made the other tiers less well off, mainly through price inflation.
Thanks for the thoughtful comment.
“What I don’t agree with you is that psychopathic gamblers “caused” the boom and bust. I have written extensively on that and strongly believe it is the Fed which causes these cycles.”
Hmmm, so you believe that some abstraction called “The Fed” instituted policies causing epic distortions in economies that impovershed millions worldwide, but that Fed Chairmen are not (of the highest order) psychopathic gamblers? That is rich.
I disagree with his conclusions. I think I said, post hoc ergo propter hoc. Believe what you want to believe.