For the sake of one who probably doesn’t share your priors, could you please elaborate on what this comment means?
My understanding of inequality in a market context is that profits and wages are roughly set by supply and demand and how well we network together to solve each others problems. When one worker spends 15 hours a week doing a …
For the sake of one who probably doesn’t share your priors, could you please elaborate on what this comment means?
My understanding of inequality in a market context is that profits and wages are roughly set by supply and demand and how well we network together to solve each others problems. When one worker spends 15 hours a week doing a sloppy job at something others could do more efficiently, the demand for that wage goes down to that worker contribution — in other words it can and should approach zero. When another worker invests twenty years of dedicated education preparing themselves to create something of vast value for other humans, that their rewards (profit or wage) are vast. Hence huge inequality. A good doctor working 60 hour weeks makes a ton more than a lazy part time lawn clipper.
I certainly don’t think markets are perfect, but they act as imperfect rewards and signals for us to stop wasting time and start doing more of things in high demand and lower supply. IOW, more or less inequality isn’t necessarily a better or worse thing. The important thing in a reasonably well functioning market is that we signal and reward adjusting what we do to be more productive.
Historically, inequality has gone up and down. After the New Deal, with high marginal tax rates and high union membership, inequality was lowered. After the 70s, it started to rise.
Presumably, human nature did not change. What did change was workers' bargaining power and that more money was available for, say, the GI bill and mortgage guarantees among other tools for citizens to increase their earning potential. As unionization decreased, wages have stagnated. Did workers get lazier or less worthy? No, but their bargaining power decreased.
As inequality increases, the 0.1%'s ability to game the system to further increase their take also grows. The Carried Interest loophole only exists because beneficiaries (hedge-fund managers etc) contribute to campaigns so much that legislators are terrified of touching it lest they get primaried. This reduces the very very rich's tax burden, reducing funds available for tools to increase citizen's earning potential, such as scholarships, school lunch programs, early childhood education and so on.
Privately funded campaigns (see $$$=speech) thus contribute to inequality, without any change to who is lazy or industrious.
Not even dealing here with the related issue of social mobility, where Scandinavian countries surpass the USA.
As it should. When a price or wage changes it is sending a message. This is how markets work.
"After the New Deal, with high marginal tax rates and high union membership, inequality was lowered."
Pretty sure it plummeted in great part due to the depression and the war and automation and globalism too. Millions of reasons all mixing together to change supply and demand and marginal productivity. Kind of amazing how markets do that.
"After the 70s, it started to rise. Presumably, human nature did not change. What did change was workers' bargaining power and that more money was available for, say, the GI bill and mortgage guarantees among other tools for citizens to increase their earning potential. As unionization decreased, wages have stagnated. Did workers get lazier or less worthy? No, but their bargaining power decreased."
The differential rewards and risks for capital, entrepreneurship, skilled labor and unskilled labor constantly adjusted. This doesn’t require a change in human nature. Certainly education can increase productivity. And certainly higher demand compared to supply increases the bargaining power for any factor, including lower skilled labor. Some people got lazier, some didn’t. Some stayed in areas without jobs rather than move to new areas with better opportunities. Some dropped out of the labor force altogether. Some invested more in their education. Women increasingly entered the workforce. Wages have not stagnated since the 70s. They are up significantly and have grown faster in the US than just about any developed country for past twenty or thirty years. But when inequality goes up that also often means the rewards got bigger for education and skills and entrepreneurial genius and productive investments. These are good things right?
I agree that unions will increase wages short term by about ten or twenty percent. That is what cartels do. That is their point. To extract excess rents over what people will voluntarily pay by restricting free access to jobs. Those with privileged cartel jobs can exploit those looking for a job (and willing to do it as well or better for less). Long term of course, this drives producers to move production facilities to non union locations or overseas or to mechanize the work. Usually all three. Eventually you end up with Detroit or some other rust belt city where everyone wonders who drove off the good jobs? (Answer is the union cartel). It sure helped with rising standards of living in developing nations though. Over a billion lifted out of poverty (global inequality has also decreased for that matter, and done so at a pace faster than we expected).
I am not arguing for tax loopholes for the rich, though even a casual look at the stats reveals that over the past 40 years actual income taxes paid have gone down for everyone except the top quintile, and that the US currently has one of the most progressive tax systems in the developed world. Seems fair to me that the majority of income taxes are paid by the top five percent. I salute them.
Back on point though, I fail to see any fundamental goodness or badness to a changing statistic of inequality. Inequality can go down and we can all be worse off, and it can go way up and still be a good thing. MA is correct that the people in the US (and other developed countries) are better off financially than at any time since the advent of agriculture over 10000 years ago. By a mile! The point of his tirade is in part that they could be even higher without all the pessimism and obstacles to growth and entrepreneurial activity
For the sake of one who probably doesn’t share your priors, could you please elaborate on what this comment means?
My understanding of inequality in a market context is that profits and wages are roughly set by supply and demand and how well we network together to solve each others problems. When one worker spends 15 hours a week doing a sloppy job at something others could do more efficiently, the demand for that wage goes down to that worker contribution — in other words it can and should approach zero. When another worker invests twenty years of dedicated education preparing themselves to create something of vast value for other humans, that their rewards (profit or wage) are vast. Hence huge inequality. A good doctor working 60 hour weeks makes a ton more than a lazy part time lawn clipper.
I certainly don’t think markets are perfect, but they act as imperfect rewards and signals for us to stop wasting time and start doing more of things in high demand and lower supply. IOW, more or less inequality isn’t necessarily a better or worse thing. The important thing in a reasonably well functioning market is that we signal and reward adjusting what we do to be more productive.
So why is it we want to reduce market inequality?
Historically, inequality has gone up and down. After the New Deal, with high marginal tax rates and high union membership, inequality was lowered. After the 70s, it started to rise.
Presumably, human nature did not change. What did change was workers' bargaining power and that more money was available for, say, the GI bill and mortgage guarantees among other tools for citizens to increase their earning potential. As unionization decreased, wages have stagnated. Did workers get lazier or less worthy? No, but their bargaining power decreased.
As inequality increases, the 0.1%'s ability to game the system to further increase their take also grows. The Carried Interest loophole only exists because beneficiaries (hedge-fund managers etc) contribute to campaigns so much that legislators are terrified of touching it lest they get primaried. This reduces the very very rich's tax burden, reducing funds available for tools to increase citizen's earning potential, such as scholarships, school lunch programs, early childhood education and so on.
Privately funded campaigns (see $$$=speech) thus contribute to inequality, without any change to who is lazy or industrious.
Not even dealing here with the related issue of social mobility, where Scandinavian countries surpass the USA.
"Historically, inequality has gone up and down. "
As it should. When a price or wage changes it is sending a message. This is how markets work.
"After the New Deal, with high marginal tax rates and high union membership, inequality was lowered."
Pretty sure it plummeted in great part due to the depression and the war and automation and globalism too. Millions of reasons all mixing together to change supply and demand and marginal productivity. Kind of amazing how markets do that.
"After the 70s, it started to rise. Presumably, human nature did not change. What did change was workers' bargaining power and that more money was available for, say, the GI bill and mortgage guarantees among other tools for citizens to increase their earning potential. As unionization decreased, wages have stagnated. Did workers get lazier or less worthy? No, but their bargaining power decreased."
The differential rewards and risks for capital, entrepreneurship, skilled labor and unskilled labor constantly adjusted. This doesn’t require a change in human nature. Certainly education can increase productivity. And certainly higher demand compared to supply increases the bargaining power for any factor, including lower skilled labor. Some people got lazier, some didn’t. Some stayed in areas without jobs rather than move to new areas with better opportunities. Some dropped out of the labor force altogether. Some invested more in their education. Women increasingly entered the workforce. Wages have not stagnated since the 70s. They are up significantly and have grown faster in the US than just about any developed country for past twenty or thirty years. But when inequality goes up that also often means the rewards got bigger for education and skills and entrepreneurial genius and productive investments. These are good things right?
I agree that unions will increase wages short term by about ten or twenty percent. That is what cartels do. That is their point. To extract excess rents over what people will voluntarily pay by restricting free access to jobs. Those with privileged cartel jobs can exploit those looking for a job (and willing to do it as well or better for less). Long term of course, this drives producers to move production facilities to non union locations or overseas or to mechanize the work. Usually all three. Eventually you end up with Detroit or some other rust belt city where everyone wonders who drove off the good jobs? (Answer is the union cartel). It sure helped with rising standards of living in developing nations though. Over a billion lifted out of poverty (global inequality has also decreased for that matter, and done so at a pace faster than we expected).
I am not arguing for tax loopholes for the rich, though even a casual look at the stats reveals that over the past 40 years actual income taxes paid have gone down for everyone except the top quintile, and that the US currently has one of the most progressive tax systems in the developed world. Seems fair to me that the majority of income taxes are paid by the top five percent. I salute them.
Back on point though, I fail to see any fundamental goodness or badness to a changing statistic of inequality. Inequality can go down and we can all be worse off, and it can go way up and still be a good thing. MA is correct that the people in the US (and other developed countries) are better off financially than at any time since the advent of agriculture over 10000 years ago. By a mile! The point of his tirade is in part that they could be even higher without all the pessimism and obstacles to growth and entrepreneurial activity