"Let me take a step back for a sec and consider this--in 2011, the top 20% of Americans owned 93% of the country's wealth and the bottom 80% of the population owned 7%. So in light of those numbers let's re-examine this statement:To which replied with a few questions of my own.
"They say that the rich aren't paying their fair share, even though that minority is paying the majority of this country's bills. And instead of being thankful, they would incite people to hate them and demand even more."
Exactly how much more do you think the bottom 80% can generate?
Who, in this scenario, is the looter who thinks they're entitled to the value of others' work?
Imagine you read this figure in a financial news report for another nation. I don't know--maybe Cambodia or Bolivia or Algeria or Belarus or Finland. As an outsider, would you look at this and think the 80% would be "thankful" for their most basic needs being met, given the overall inequality? Would you think the nation's citizens should have great sympathy for those wealthy golden geese? Or would they be justified in wanting to see the nation's wealth shared among more of its citizens.
Would you look at that number and thin--yes, that's a great nation; others should emulate them. That country is doing good things, it has a strong future, their citizens are in fine shape?
Is this how a nation becomes or remains economically strong and socially secure? " Annie"
"Hi Annie,Thoughts?
You posed this so well that I think your comments will be my next post.
Food for thought though for now. Is wealth distribution important? As long as they use it to keep funding our American businesses that provide our American jobs?
If you turned all that "wealth" into "cash" and spent it, would that be better or worse for us?
I have accumulated significant wealth and enjoy the fact that my investments are working just as hard as I am to earn me additional wealth and cash. They do this by funding companies and enabling them to hire and pay people.
If the government were to seize and redistribute half my "wealth" would that help or hurt America businesses and employment. Would that encourage or discourage me from saving and investing in American companies and jobs?" G2A
Gallup: Redistribution
Big Picture: Distribution
Perception vs Reality
UCSC Wealth
Klein: Distributions
Klein: Revenue
29 comments:
It seems to me that you should quit whining about how much you pay in taxes. Also, business would do better, hire more people, if consumers had more money to spend. Wasn't it Ford who had the genius idea of paying his workers enough to buy one of the cars they were manufacturing.
So I should stop whining, and pay my higher tax rate so that I can help pay for other people's food, housing, healthcare, education, etc. Even while I am working very hard to support a family of five, one dog and one very annoying cat. And after I worked very hard to gain a BS, MS and MBA so that I could earn a higher income.... And after I saved very very hard to build my investments so they could help me earn more at this point in my life. Does that sum it up?
Now let's imagine if we gave the typical American more money to spend... Based on the current state, most of it would land in Germany, South Korea, Japan, China, Italy, Sweden, etc... You are correct, Honda, Toyota, Subaru, VW, Hyundai, Kia, Samsung, LG, BMW, etc, etc, etc would probably love it... And their government would probably love the extra tax base also.
Until American's decide to buy domestic when possible and pay more, giving out money is somewhat pointless. The only upside is that the folks overseas will have more money to buy our products. That is unless we are paid too much so the product becomes too expensive...
See Ford lived in a time where there was little or no global competition, things were much easier then...
Who do think funded these incredible cities?
Shanghai
Seoul
Tokyo
Berlin
Beijing
The Asian countries saved us a huge amount of expense by being low cost providers, and we helped them to grow and improve. As I always say... Choices, choices...
I didn't mean to scare you all away... Is progressively taxing the wealth and high income folks into "equality" the best answer?
Are there other options?
I'm not going to say that there's an "optimal" wealth distribution, but I would say that the way the wealth distribution is going in this country shows that something has gone off the rails.
For the first 30 or so years after WWII, workers shared equitably in the productivity gains that they produced for their employers. Since the mid-1970s, that relationship has essentially ended. Median household incomes have remained essentially flat while productivity gains have gone on.
There are lots and lots of reasons why this has happened. Some of them can't be effectively addressed by policy, but some of them can. A few areas that can be addressed include:
* Structure of the tax code that favors wealth over work
* Regulations regarding executive compensation so that CEOs are incented properly
* Tackling health care costs
* Ensuring retirement security for the elderly
I have no problem taxing investment income as regular income, however I seem to be in the minority. It seems many economists and politicians think that would be a very bad idea.
I guess my question is how do we convince more people to value saving (ie wealth) more than consumption? That would help people with your retirement bullet.
And it why our code is set up the way it is... To motivate people to save and invest for the future... G2A Recession
And do you really want the government regulating the compensation of private citizens that work for private businesses?
The tackling health care costs sounds interesting. Unfortunately it seems we all disagree with how to do that. G2A HC Factors Did we miss any factors in the list? If you aren't addressing them, you are just moving the cost.
And remember... Which do you want Cost, Quality or Productivity? You can only have 2 in most cases...
It does seem to be the case that as the wealth gap has become wider, the country has become poorer.
--Hiram
I tend to subscribe to the "a dollar of income is a dollar of income" philosophy. That said, most economists do think there should be some tax benefit for saving and investing. So, there should be a way to split the difference. The "carried interest" provision, for instance, is obscene. You could narrow the difference between the rates, or phase out the difference at higher rates of investment-based income. The point being a person who lives off of investment income should pay a dramatically lower rate than someone who works for a living.
Do I want government regulating it? I'm not a believer in a "maximum wage" per se, but there are steps that can and should be taken to limit excesses in executive compensation. The rights of shareholders can be strengthened. For instance, "say on pay" could be made binding (as Switzerland is going to do). It could also be make easier for shareholders to get board member candidates on the ballot.
We could encourage adoption of "bonus-malus" systems in which some or all of executive's annual bonuses are held in escrow and are able to be clawed back for future poor performance. This would encourage executives to take a longer-term view.
I don't think the modern investor is interested in delayed gratification. (Ie long term gains) We seem to want profits now...
Simple solution for you-- the FAIR tax treats everybody the same based solely on consumption and disposable income (not total income, and source doesn't matter). We would save some $300B/year just in compliance costs, investment and economic growth would spike, trade balance would go way down, and Social Security would automatically be reformed.
And it's FAIR. One reason wages haven't kept up is that the government taxes investment and returns, so companies are loath to increase capital investment to gain productivity. The workers then cannot be more productive and gain higher pay. Unions have a similar effect, taking a bigger slice of pay with no increase (and sometimes a decrease) in productivity, using up the money that might otherwise go to capital investment.
To Sean's point on "maximum compensation" it is not a worry of mine. Anybody willing to take those jobs is nuts (or will be) and it takes a lot of money to lure somebody into it. Check out Robert Townsend's "Up the Organization" for his description of proper CEO compensation-- limited but with future stock options. If the CEO does the company good long term he/she gets greatly rich. Short term thinking doesn't pay very well by the time those options vest.
Finally, this whole "inequality thing" just grinds my gizzard. Everybody is entitled to exactly as much money as their time, talent and hard work can make, and NOBODY has a right to tell them to take less unless they are the employer/customer. The FAIR tax is all government should do, and it has NOTHING to do with redistribution. Redistribution is only considered a proper function of government if the government consists of gangsters or corrupt dictators or Democrats.
Hiram,
Good point regarding correlation... Bad point regarding causation...
Trade Deficit History Try lining this up against the wealth gap.
See as a global investor, I make money who ever American citizens choose to buy from. Where as American labor loses when consumers choose to send their money abroad for development, product and services...
We give them wealth for the product they give us, so investors win and the workers lose. G2A Balloon
Good point regarding correlation... Bad point regarding causation...
Causation always shows up in correlation. It's interesting to me how so many people underestimate what correlation tells us about causation. We use one to illuminate the other all the time. For example, we don't know how cigarette causes cancer. We just know there is a correlation between the two such that your doctor tells you not to smoke.
--Hiram
Oh, so the fact that rum smuggling in Massachusetts way back when correlated almost perfectly with the number of ministers in the state proves that the ministers were the smugglers? Correlation is NOT causation. Causation SHOULD be correlation, but it often is not. For example, the amount spent per pupil on MN K-12 education is INVERSELY correlated with student achievement. Is it reasonable, under your premise, to CUT K-12 funding to improve education?
Remedial C/C Training Link
Seems the Cancer Society disagrees with you.
about "how do we convince more people to value saving (ie wealth) more than consumption"
as a nonsaver for me it would take a stronger push from my employer to set up a deduction from my checks into a retirement investment. It has been several jobs/years ago since I saved anything.
There are a lot of folks like you out there. 401K Participation
Oh, so the fact that rum smuggling in Massachusetts way back when correlated almost perfectly with the number of ministers in the state proves that the ministers were the smugglers?
Do you think there is no relationship between ministers and rum smuggling or more broadly alcoholism?
In a complex and even chaotic world, causation is always difficult to identify. As with the link between cancer and smoking correlation is generally enough.
==Hiram
Well, we agree on one thing. Finding causation is challenging, especially when there are multiple causes at play...
That is why we don't leave notions of causation to journalists and politicians. We do things like multiple regression analysis and identify "confidence levels" for the conclusions of same. Then, of course, the politicians and journalists throw those conclusions aside if they don't agree with their pre-conceived notions.
Anybody want to bet that the IPCC's political summary report, which says that they are "95% confident" that human CO2 causes catastrophic warmiing, is NOT based on a rigorous statistical analysis of actual data?
Closer to topic, does anybody believe they know the "cause" of income inequality in the US? For me it has always been basically a math problem. Since nobody, we must assume, makes LESS than zero in any given year, while the maximum income someone can have unlimited and continues to increase, the "inequality" between the top and the bottom will continue to get larger just as a matter of the numbers. The second reason is probably government taxation and regulation, which stifles capital formation and economic growth, thus keeping the lower and middle class down.
One more thing: We need to be clear that there is a difference between wealth distribution and income distribution. Since we have a very high income tax, especially at high incomes, we're not affecting wealth distribution at all. That's a good thing because only Socialists, Communists and brutal dictators redistribute wealth and the misery that accompanies such stupidity.
"Closer to topic, does anybody believe they know the "cause" of income inequality in the US?"
Well, yes. CEO and executive pay has skyrocketed and middle class incomes are stagnant. Between 1978 - 2011, the average worker's pay increased 5.7% while the average CEO compensation increased 726.7%. Expressed another way, here's the the median worker's pay vs CEO pay in:
Japan--1:67
France--1:104
Canada--1:206
USA--1:354
For historical context, in 1967, the US ratio was 1:20.
Source: http://www.washingtonpost.com/blogs/on-leadership/wp/2013/08/22/what-if-we-knew-how-much-ceos-made-vs-their-workers/
The conversation here has turned from how the middle class has less money than they've had in generations, to how those same folks should really be saving more for retirement. If those paychecks just barely cover expenses when you're 45, you're not going to be in a position to be saving for when you're 80.
--Annie
does anybody believe they know the "cause" of income inequality in the US?
As opposed to the correlation? I think it has a lot to do with the decline in the bargaining power of working people. I date it to 1981 when Ronald Reagan crushed PATCO. Also changes in tax laws made it easier for the merely rich to become vastly wealthy which increased their political power.
--Hiram
Annie, the fact that CEOs make more money than the average worker is the symptom, not the cause of the income inequality. I'm rather firmly convinced it is a matter of supply and demand, though. Just like pro football players make more than high school football coaches. Now, I think the incentives involved in a lot of CEO pay are perverse. That is, there should be more pay in the form of deferred stock options that reward solid long-term management. Too much of it now is "golden parachute" or not related to performance. But again, that's not the cause of the problem, and government diktat is not the solution. Heck, around here we don't even require performance pay for teachers, who does the DFL think they are to tell companies how to pay their executives?
As for bargaining power, and if you are talking about unions, I would say that you may have identified the cause but not in the way you think. Unions have expanded wages beyond productivity gains and engaged in crippling strikes. So when the business that employs them goes out of business, or bankrupt, or overseas, their pay goes DOWN to zero, instead of up, as a result of "collective bargaining." Get to full employment and the competition for workers will increase wages more certainly and more fairly than heavy-handed government or union force.
Let me rephrase the issue, if I may? What is the "ideal" distribution of wealth and income in our society? Is it essential that we all be exactly the same, or is that difference-- the OPPORTUNITY to get wealthier-- what drives our economy? Shouldn't we be more concerned with barriers to our own opportunity than with tearing down those who have already achieved?
WP CEO comp vs Workers
Annie: I think we all agree that CEO comp and the focus on short term profits are a problem in some cases. How would you advise fixing it?
I don't think I like the MinnPost Liberal guy idea that we make laws to cap the compensation for Private citizens who work for Private companies.......
This will probably become a stand alone post...
" Is it essential that we all be exactly the same"
No, no at all. But I think a middle class job should support a family. When a Bill McGuire banks 9 figures a year, and the person processing the paperwork 50 hours a week in his claims department makes $26k with a maximum $4k raise down the road--I just don't accept that as good for ANYONE, except for Bill McGuire (retired now, not surprisingly). And I don't think there's a person in our country (except CEOs) who would take issue with the 1:20 ratio of the past generations.
Social mobility is not a reality for most Americans. If you're born poor here, you will probably die poor (middle class is slipping, and wealthy is stable in number and growing in net worth). Our society has a "glass floor" where wealthy people very rarely lose that wealth.
"Shouldn't we be more concerned with barriers to our own opportunity than with tearing down those who have already achieved?"
What are those barriers?
--Annie
"Annie: I think we all agree that CEO comp and the focus on short term profits are a problem in some cases. How would you advise fixing it?"
I wish I knew. Those who have acquired the money and power won't give it up gladly. I don't solely blame CEOs--they're the beneficiaries but not the only culprits.
I'd love to know how to culturally help businesses refocus so there are more balanced, healthy priorities on profits AND employees AND social responsibility. Some companies do it--Costco comes to mind, seems like some of the silicon valley tech giants do a good job.
Any ideas?
--Annie
General Electric is supposedly one of these "socially responsible" companies. They get that mantle by grabbing every dollar of alternative energy funding that Obama will give them. They're crony capitalists, and profit drives them far more than ideology. Take away the ideology of windmills and GE would cease to be in that business; just that simple.
And corporations exist because of and exclusively for profit. Run by human beings, as they are, they endeavor to produce a product people want, pay their employees what they are worth, while losing a great deal of their profit to federal taxes and excessive regulation.
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