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Posts Tagged ‘income

“There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning”*…

In the past few decades, the Gini coefficient—a standard measure of income distribution across population segments—increased within most high-income economies. The United States remains the most unequal high-income economy in the world. The disparity reflects a surge in incomes for the richest population segments, along with sluggish or even falling incomes for the poorest, especially during bad economic times.

At the same time, the middle class is shrinking. The percent of Americans in the middle class has dropped since the 1970s, from 61 percent in 1971 to 51 percent in 2019. Some have moved up the income ladder, but an increasing number are also moving down. The middle class has also shrunk considerably in countries like Germany, Canada, and Sweden, but other advanced economies have generally experienced more modest declines.

From the introduction to the Petersen Institute for International Economics report “How to Fix Economic Inequality?

Founded by Pete Petersen (Lehman Brothers Chair, Nixon’s Secretary of Commerce, and co-founder, with Trump supporter Stephen Scharzman, of investment giant Blackstone), and overseen by trustees who include Larry Summers, Alan Greenspan, and George Schultz, PIIE is hardly a “progressive” think tank. But they are worried: quite apart from its obvious humanitarian toll, inequality at the scales that have emerged is highly unlikely to be sustainable (even at the human cost that we’ve so far been willing to pay). Put more bluntly, it is ever more likely to torpedo the domestic (and large hunks of the global) economy and indeed to threaten the stability of democratic society.

Other sources suggest that they have very good reason for concern:

• Even as the stock market hits new highs, 26 million Americans are suffering food insecurity (See also: “The boom in US GDP does not match what’s happening to Americans’ wallets.”

• The distribution of assets in the US (and other developed economies, but most egregiously in the U.S.) is even more skewed than income: see data in the PIIE report and “The Asset Economy.”

• And lest we think that this issue is confined to the U.S., social democracies throughout the developed world are feeling the same pressures (albeit mostly less dramatically).

FWIW, your correspondent doesn’t have terrifically strong confidence in the remedies mooted in the PIIE report. Even as the authors recognize that the issues are deeply structural, they confine themselves to recommending (what seem to your correspondent) relatively timid and incremental steps– which, even if taken (and most require legislative or regulatory action) are more likely to slow the polarization underway than to reverse it.

But they are worth contemplating, if only to provoke us to more fundamental measures (e.g., here). And in any case, it’s telling– and one can only hope, encouraging– that determined champions of the very neoliberal economics that have gotten us here recognize, at least, that unless we change course, we’re speeding into a dead end.

* Warren Buffett

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As we agree that fair’s fair, we might recall that it was on this date in 2001 that Enron, once #7 in the Fortune 500, declared bankruptcy. Six months earlier, it’s stock had traded as high as $90; it closed November 30th at 26 cents, wiping out billions in wealth (a appreciable part of it disappearing from employees’ pension plans). At the time, Enron had $63.4 billion in assets, earning it the honor of being the nation’s largest bankruptcy to that date. (It would be surpassed by the WorldCom bankruptcy a year later.)

Jeff Skilling, Enron’s CEO served 11 years in prison on several counts of fraud; Andy Fastow, Enron’s CFO, would served about 5 years. Chairman Ken Lay was also found guilty, but died before his sentencing. Enron’s accounting firm, Arthur Andersen (at the time a leader among the “Big 5”), which at least “missed” the egregious fraudulent practices in their audits of Enron, was effectively forced to dissolve after the scandal.

Published a year before the scandal broke

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“Oh, I am fortune’s fool!”*…

 

The distribution of wealth follows a well-known pattern sometimes called an 80:20 rule: 80 percent of the wealth is owned by 20 percent of the people. Indeed, a report last year concluded that just eight men had a total wealth equivalent to that of the world’s poorest 3.8 billion people.

This seems to occur in all societies at all scales. It is a well-studied pattern called a power law that crops up in a wide range of social phenomena. But the distribution of wealth is among the most controversial because of the issues it raises about fairness and merit. Why should so few people have so much wealth?

The conventional answer is that we live in a meritocracy in which people are rewarded for their talent, intelligence, effort, and so on. Over time, many people think, this translates into the wealth distribution that we observe, although a healthy dose of luck can play a role.

But there is a problem with this idea: while wealth distribution follows a power law, the distribution of human skills generally follows a normal distribution that is symmetric about an average value. For example, intelligence, as measured by IQ tests, follows this pattern. Average IQ is 100, but nobody has an IQ of 1,000 or 10,000.

The same is true of effort, as measured by hours worked. Some people work more hours than average and some work less, but nobody works a billion times more hours than anybody else.

And yet when it comes to the rewards for this work, some people do have billions of times more wealth than other people. What’s more, numerous studies have shown that the wealthiest people are generally not the most talented by other measures.

What factors, then, determine how individuals become wealthy? Could it be that chance plays a bigger role than anybody expected? And how can these factors, whatever they are, be exploited to make the world a better and fairer place?…

A new computer model of wealth creation confirms that the most successful people are not the most talented, just the luckiest. Learn more at: “If you’re so smart, why aren’t you rich? Turns out it’s just chance.

* Shakespeare, Romeo and Juliet

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As we muse on merit, we might send carefully-calculated birthday greetings to a forbearer of the researchers who did the work recounted above, Sir Roy George Douglas Allen; he was born on this date in 1906.  A mathematician and statistician turned economist, he was a leader in the field of mathematical economics, writing a number of influential texts including  Mathematical Analysis for EconomistsStatistics for Economists, and Mathematical Economics.

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Written by LW

June 3, 2018 at 1:01 am

“To be wealthy and honored in an unjust society is a disgrace”*…

 

What does having money mean for us and for our neighbors? When the art critic John Ruskin took up this question in 1860, he started from the assertion that more money for us means less money for them, and he didn’t have to go much further to conclude that disparity, after all, might be the whole point of the enterprise…

Suppose any person to be put in possession of a large estate of fruitful land, with rich beds of gold in its gravel; countless herds of cattle in its pastures; houses, and gardens, and storehouses full of useful stores; but suppose, after all, that he could get no servants?

In order that he may be able to have servants, someone in his neighbourhood must be poor and in want of his gold—or his corn. Assume that no one is in want of either, and that no servants are to be had. He must, therefore, bake his own bread, make his own clothes, plough his own ground, and shepherd his own flocks. His gold will be as useful to him as any other yellow pebbles on his estate. His stores must rot, for he cannot consume them. He can eat no more than another man could eat, and wear no more than another man could wear. He must lead a life of severe and common labour to procure even ordinary comforts; he will be ultimately unable to keep either houses in repair, or fields in cultivation; and forced to content himself with a poor man’s portion of cottage and garden, in the midst of a desert of wasteland, trampled by wild cattle, and encumbered by ruins of palaces, which he will hardly mock at himself by calling “his own.”

The most covetous of mankind would, with small exultation, I presume, accept riches of this kind on these terms. What is really desired under the name of riches is, essentially, power over men; in its simplest sense, the power of obtaining for our own advantage the labour of servant, tradesman, and artist; in wider sense, authority of directing large masses of the nation to various ends (good, trivial, or hurtful, according to the mind of the rich person).

Via Lapham’s Quarterly, John Ruskin on the Master/Slave paradox: “Blessed are the Poor.” (From Ruskin’s “The Veins of Wealth.”)

[Image above, from here.]

* Confucius, The Analects

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As we wonder about wealth, we might recall that it was on this date in 1940 that Woody Guthrie wrote (the first version, he varied the lyrics over time) of “This Land is Your Land.”; he didn’t record the song until 1944, nor publish it until 1954.

Guthrie wrote the lyrics (to an extant tune) in response to to Irving Berlin’s “God Bless America”, which Guthrie considered unrealistic and complacent. Tired of hearing Kate Smith sing it on the radio, he lifted his pen…as he’d considered writing a retort, he’d thought to name it “God Blessed America for Me”; happily, it surfaced with the title we know.

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Written by LW

February 23, 2017 at 1:01 am

“The rich get richer and the poor get poorer”*…

 

The richest families in Florence, Italy have had it good for a while—600 years to be precise.

That’s according to a recent study by two Italian economists, Guglielmo Barone and Sauro Mocetti, who after analyzing compared Florentine taxpayers way back in 1427 to those in 2011. Comparing the family wealth to those with the same surname today, they suggest the richest families in Florence 600 years ago remain the same now.

“The top earners among the current taxpayers were found to have already been at the top of the socioeconomic ladder six centuries ago,” Barone and Mocetti note on VoxEU. The study was able to exploit a unique data set—taxpayers data in 1427 was digitized and made available online—to show long-term trends of economic mobility…

More on the research and it’s import at “The richest families in Florence in 1427 are still the richest families in Florence.”  More on the underlying mechanisms of capital accumulation, the persistence of wealth and income, and their polarization here.

* widely-used aphorism, probably dating back to the Bible verse, “For whosoever hath, to him shall be given, and he shall have more abundance: but whosoever hath not, from him shall be taken away even that he hath” (Matthew 13:12, King James edition); it’s use was reinvigorated by the popular 1921 song “Ain’t We Got Fun.”

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As we dream the American dream, we might spare a rugged thought for Louis Dearborn L’Amour; he died on this date in 1988.  While L’Amour wrote mysteries, science fiction, historical fiction, and non-fiction, he is surely best remembered as the author of westerns (or as he preferred, “frontier stories”) like Hondo and Sackett.  At the time of his death he was one of the world’s most popular writers; dozens of his stories had been made into films, and 105 of his works were in print (89 novels, 14 short-story collections, and two full-length works of nonfiction); as of 2010, over 320 million copies of his work had been sold.

L’Amour was interred in the Forest Lawn Memorial Park Cemetery near Los Angeles.  His grave is marked in a way that acknowledges that death was able to contain him in a way that he successfully resisted throughout his life: while his body is underground, his site is fenced in.

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Written by LW

June 11, 2016 at 1:01 am

“Poverty is an anomaly to rich people. It is very difficult to make out why people who want dinner do not ring the bell”*…

 

 

It’s easy to be pessimistic about the state of the world; but it does pay to stand back, look at the big picture, and check that pessimism against long term data… which is what our old friend Hans Rosling helps people do. A statistician who specializes in data visualization, here he uses snowballs and toys to explain (to the BBC) the state of income inequality:

Special bonus:  watch Dr. Rosling disabuse WEF-Davos attendees of their misimpressions about sustainable development.

* Walter Bagehot, English economist (1826-1877)

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As we remind ourselves that regression can be a useful thing, we might recall that it was on this date in 1908 that Ernest Shackleton’s Nimrod expedition unloaded the first automobile in Antarctica (an air-cooled Arrol-Johnston two-seater).  Shackleton had hoped that the car would speed his progress to the South Pole; in the event, it didn’t perform in the extreme cold.

The expedition’s engineer, Bernard Day, testing the Arrol-Johnston on the Ross Sea Ice Shelf

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Written by LW

February 1, 2015 at 1:01 am

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