Income and Wealth
Why to think more critically about this topic:
To the general public, the question of income distribution is an emotional black hole, one is either sucked into the notion that the
“rich are getting richer and the poor are getting poorer;”
even though this is not literally true.
We are reminded daily that income distribution is a key issue today, and one that is rarely looked at with critical reasoning. Although most want to simplify this issue, it is by its nature complex.
The cries of Occupy this or that leaves little more than an emotional attachment or rejection of the growing frustration on income disparity as it is labeled. Placards declaring "Eat the Rich" or "Occupy everything" seem to have become strong iconic statements of this movement.
A detailed look at the question of fairness, income and wealth distribution is the purpose of these pages. One must look upon this question and begin by asking what is the data and how good is it? What are the causes of whatever outcomes are real and what can be done about these? And what are the forces that are acting on us all and what is healthy for our society? All these are all pertinent questions. A summary of each chapter is below, or click on the link at right and delve deeper into each topic.
If one had to pick one political driving subject to understand more
critically, then this is
the one.
Outline
Chapter 1: Data Sources and Validity
Chapter 2: Income Distribution in Depth
Chapter 3: Define Terms like Poor
Chapter 4: Income mobility
Chapter 5: Critical forces acting on us
Chapter 6: The Occupy Movement
Chapter 7: Buffet Rule fair?
Chapter 8: Conclusions
The flow in the chapters is intended to first have the reader gain an appreciation for the data and the analysis (Chapter 1 and 2), followed by definitions of terms commonly used (Chapter 3), leading to how individuals have been impacted by all of this (Chapter 4). Perhaps the most important chapter is on the critical forces that are acting on all of us (Chapter 5). This can then lead the reader to a level of understanding while engaging with various theories on what to do (Chapter 6 and 7). This then leads us to some conclusions and finally to hearing your comments.
The conclusions on income and wealth distribution are not likely to be the same as those represented in much of the press. Krugman has been the most demonstrative in the NYT’s on the theme of unfairness of income distribution, and he would rather define it as the failure of capitalism, and that the declining impact of unions and government drove the unfairness.
However the impact of the market economy has
actually been to
increase wealth and income for all.
The disparate theories of how to achieve some status of fairness are examined as well.
So dive into the topic several times from whatever entry point, for this composite information will allow you to think more critically about the general subject of income distribution, topics you will be able to discuss with clarity, and well-founded insight. Such topics as the Buffet Rule and the purpose of the Occupy Wall Street, among other related topics are reviewed. The chapter headings will link to that section of the website. And please add your comments on the comments page, and trust that the audience is open to a well-formed discussion.
Most folks have seen a form of the graph at right. Where does it come from and how valid are the conclusions being drawn? In brief, the conclusions are not complete and therefore not correct. Delving into how it is to be interpreted due to the changing conditions and even definitions over a time line are critical to forming insightful conclusions.
What is the Gini coefficient, how good is it, and how well does it describe income distribution over time? It is a good index, but the complete analysis will be surprising to some. A spreadsheet calculating Gini is presented for review, and various cases compared.
IRS, Census Bureau, and even Forbes data are compared. CPI is defined and examined. It is a flawed concept in income trend analysis, but some qualitative conclusions can be drawn. Various graphs showing various distributions over time are presented.
Chapter 2:
What is the distribution of income and wealth and what range of
conclusions can be drawn?
Now that presumably you have seen the data section, you know that the data and conclusions are not, shall we say, obvious or black and white. Much however has been made of the "inequality" of income, and in many discussions this quickly becomes a very emotional issue. What is the validity of these claims? The answer lies in the comprehensive analysis of the data.
So much of the conclusions that are drawn never examine the mobility, which we will in Chapter 4. There is also the conundrum between having such a growing percentage of income in the top 1% and the wealth attributed to the top 1%. As you can see in the diagram at right, the percentage of wealth of the top 1% is determined to be fairly constant over time, despite the growing percentage (by the same author) of income in the top 1%. This can lead one to ask more questions as to why and what are the forces acting on the different quintiles.
What we do see in review of the data of Chapter 1 is that the rich do get richer and there are various reasons. As well the poor face daunting incentives to remain poor and without a quality education. Contrary to the somewhat popular belief, the rich are not getting richer at the expense of the middle class or even the poor. It is simply not a zero sum game, but a very dynamic one.
There are many parameters changing from the years in the mid-60's to the current day. Much has happened in key aspects of income generation or reporting: changes of the tax code, the money supply, the number and makeup of the households, etc. Even the variation of the divorce rate by quintile is entering into the equation of drivers or forces acting on us (see Chapter 5).
Even the characteristics of what is referred to as the rich is important to consider, and how this changes over time. Forbes tracks the richest 400 in the country and world, and seeing the data over time is worthy of closer examination. It also is quite dynamic.
And yet the bottom line is that in this period of a skill based economy, one can raise their standard of living.
It
is a bit surprising to see how much money has been spent in transfer
payments each year, all legislation justified on the basis of
helping the poor. And how do we define the "poor"?
Some might be surprised also at the level of consumption equality
that increasingly exists over time in our country.
Can we find poor people who are in need? Of course, but how best to help them and propel them forward? What real percentage of the populace are they? How does the public define poor in their minds and how does that compare with how the government administers programs?
What is the amount spent on assisting the poor and what per capita dollar amount does that add up to? This will surprise you and is a must read.
Clearly by any measure the amount of top end income heavy income is not fixed nor static. Nor are the individuals in each sector or quintile (amounting to 20% of the population in each quintile) fixed in any way.
The movement or dynamic nature between quintiles is quite high, as you will see if you follow this Link.
How long does it take for a millionaire to remain a millionaire?
How often is the list of the top 400 richest people changing?
What are the major factors in mobility between income quintiles?
The various forces or factors operating on the population since 1967 are identified and cataloged. As any complex problem they are numerous and the causal nature of each is clear. Realizing these forces and their causes can lead with clarity to a much better public policy and social institutions. The other various proposals for redistribution that are prevalent in the news (Chapters 6 and 7) are assessed in the coming chapters. One must also ask what dictates a just and fair distribution of income? Is there such a thing as the ideal distribution as some have suggested?
OWS began in New Your City and spread across the country. It was passionate and spirited. it changed shape and intent as it went. Lawless conduct was justified on the basis of the need for a revolution. Clearly the frustrations of many were on display every day in the news. What is the basis and the comments of this mostly left wing outburst? The sounds of the 99% versus the 1% are still ringing in our ears, and indeed will throughout the campaign in the 2012 elections. The bottom line here is that the Occupy movement stands for forced redistribution, the negation of property rights, and in making many things free.
This is the movement to tax the rich, well-aligned in general
philosophical tenants to the Occupy movement.
Buffet has lead the charge to ask Congress to raise taxes on the very rich. However much can be learned by looking deeper into the data behind his statement and intent. The concept of fairness is under question once again especially since he feels strongly that he can spend the money in pursuit of social causes better than the government.
What is the history of taxes and tax rates? How much do the top 1% pay and what has been the history?
Is raising the tax rate going to solve the current deficit issue or is it another aspect of the redistribution driver found in OWS?
These topics and more are covered here.
Having covered the forces pertinent to income generation over time, leaves us with the question what would should our society best do now?
Is the Occupy movement going in the right direction in conjunction with Obama's intent to increase taxes on the rich? If we are truly concerned about the poor, what is the best course of action to take? Does removing incentives for stagnation while improving innovation, educational opportunity, and therefore income mobility now make more sense?
The bottom line is that we should be promoting more economic growth and better educational approaches, rather than forced leveling and enhanced central control over education. For those promoting the latter case, it has not worked thus far, and will not likely work to improve the conditions of the poor. Another useful question to ask is why are the poor not getting richer? And the answer is some are, and some are not. The devil is in the details, as the data set and all of its parameters is complex.
"The worst form of inequality is to try to make unequal things equal." Aristotle