How to reduce wealth inequality?

[Hans de Vries]

Well...

 

It's certainly a sensitive topic and there may be as many answers as people, but notwithstanding that, it would make a fascinating discussion.

 

What I mean is not exactly economic equality but rather the economic standing of middle and lower classes. What I've heard, from people from both sides of the Atlantic Ocean, is that the standard of living has been decreasing since roughly 1970s, with golden age being from early 1950s to the beginning of 1970s. (I even heard the same from Eastern Europeans and ex-Yugo people...!) Back then a person living alone in the US could live a fairy comfortable life on a minimum wage. Now two people living together on (each earning a minimum wage) cannot save anything and they have to perform financial acrobatics just to stay afloat. Of course this is accompanied with a steadily declining middle class' share of wealth.

 

Sp - what went wrong and how to fix it? In Western Europe (Netherlands, Germany, France etc.) there is an advanced welfare system and as a consequence, all these trends are somewhat mitigated.

Edited January 8, 2015 by Hans de Vries

[fiveworlds]

The world isn't the same at one point in time the idea of one person destroying all hong kong would have been laughable now...

[iNow]

Deregulation and a decoupling of wage growth from productivity growth. Failure of supply side and trickle down economics and greater leverage to change laws in your favor when you're wealthy already.

 

http://www.ritholtz.com/blog/2013/07/economic-inequality-is-not-an-accident-it-was-created/

The recent past has seen greater economic inequality in America than at any time since the Great Depression.

 

In the three decades after World War II American incomes grew quickly and equally, but starting in the late 1970s things began to change.

 

Today, 1% of Americans are taking home nearly 20 percent of the countrys total income, and own more than 35% of Americas wealth.

 

And it didnt happen by accident. Its the result of policy decisions on taxes, education, trade, labor, macroeconomics, and financial regulation all of which shifted economic power away from low and moderate-income American families.

 

Economic inequality is real, its personal, its expensive. And it was created.

 

Since the 1960s, tax rates on very high incomes have been slashed dramatically, starving public investments in schools and roads and everything else needed to build our economy, and providing ever-greater incentives to rig the economys rules to send more money to the top

 

The laws weve created to govern globalization have protected corporate interests, but done nothing for American workers.

 

Instead, weve allowed workers rights to be systematically dismantled, both here and abroad.

http://www.washingtonpost.com/blogs/wonkblog/wp/2014/10/18/poor-kids-who-do-everything-right-dont-do-better-than-rich-kids-who-do-everything-wrong/

Poor kids who do everything right dont do better than rich kids who do everything wrong

 

Even poor kids who do everything right don't do much better than rich kids who do everything wrong. Advantages and disadvantages, in other words, tend to perpetuate themselves. Specifically, rich high school dropouts remain in the top about as much as poor college grads stay stuck in the bottom 14 versus 16 percent, respectively. Not only that, but these low-income strivers are just as likely to end up in the bottom as these wealthy ne'er-do-wells. Some meritocracy.

 

 

For those who haven't yet seen this:

 

 

This too:

 

 

This is also a story of tax cuts.

 

.

 

To address, we have lots of options but could start with the low hanging fruit here:

 

http://www.bloombergview.com/articles/2014-02-14/there-s-rich-then-there-s-the-0-01-

Taxes: The superwealthy pay lots of taxes in actual dollars. On a percentage basis, though, not so much. Indeed, the wealthier you are, the more likely the bulk of your income comes from capital gains. These are taxed at about half the rate of wages and salary for a comparable high earner. According to the Internal Revenue Service, the wealthiest 400 people derived half their income from capital gains. Those in the top 0.01 percent not only earn much more than the 1 percent but also get to keep much more of what they earn.

[Johnathanrs]

Eliminiate for profit corporations. Would solve most problems and cause a mitigation towards equality.

[iNow]

Eliminiate for profit corporations. Would solve most problems and cause a mitigation towards equality.

 

The math on this doesn't work out when you realize how many tens of millions of people from the middle class and below happen to work for those corporations. While an argument can be made to curb executive pay, corporations (in the US) account for at least 60% of all jobs and firing average employees in such massive numbers should generally be avoided IMO.

 

http://www.epi.org/publication/ceo-pay-continues-to-rise/

U.S. CEOs of major companies earned 20 times more than a typical worker in 1965; this ratio grew to 29.9-to-1 in 1978 and 58.7-to-1 by 1989 and then surged in the 1990s to hit 383.4-to-1 by the end of the 1990s recovery in 2000. The fall in the stock market after 2000 reduced CEO stock-related pay (e.g., options) and caused CEO compensation to tumble until 2002 and 2003. CEO compensation recovered to a level of 351.3 times worker pay by 2007, almost back to its 2000 level. The financial crisis in 2008 and accompanying stock market decline reduced CEO compensation after 20072008, as discussed above, and the CEO-to-worker compensation ratio fell in tandem. By 2013, the stock market had recouped all of the value it lost following the financial crisis. Similarly, CEO compensation has grown from its 2009 low, and the CEO-to-worker compensation ratio in 2013 had recovered to 295.9-to-1. Though the CEO-to-worker compensation ratio remains below its peak values achieved earlier in the 2000s, it is far higher than what prevailed through the 1960s, 1970s, 1980s, and 1990s. If Facebook were included in our sample, the CEO-to-worker compensation ratio in 2013 would have been 510.7-to-1.

 

2009 study on numbers employed in US by close corporations, a subset of all corporations: http://web-docs.stern.nyu.edu/salomon/docs/corporategovernance/S-CG-02-06.pdf

 

Note also that 2009 was a time of deep layoffs triggered by the failure at Lehman and subsequent financial crisis and that hiring among corporations has once again accelerated significantly so these numbers are likely much higher today.

 

Edit to add: In addition to executive pay issues, we could also do a better job of collecting tax off corporations and preventing Inversions: https://www.americanprogress.org/issues/tax-reform/report/2014/09/25/97827/the-skinny-on-corporate-inversions/

Edited January 9, 2015 by iNow

[Commander]

Make sure every Citizen is EQUALLY recognized as a RIGHTFUL SHARE HOLDER to the WEALTH OF THE NATION.

 

Invent a Universal Currency which can only be used by the Citizen's Electronic Device with Bio metric Security. Enable it to be seamlessly used and discard all other Instruments.

 

All Citizen's have a linked National Bank Account Active and online 247.

 

Every Financial transfer or transaction is recorded automatically. Allow even Person to Person money transfer instantly but only through the recorded and linked way. Implement inbuilt Scrutiny and Security.

 

Let any nation have any type of Taxation System and collect taxes. 50% of this collected taxes can be used by various Governments to meet their various Expenses , Projects for Development etc.

 

50 % of the collected taxes will be shared EQUALLY among all Citizens simultaneously as the tax collection happens seamlessly so that the Nation's Growth Benefits the Weaker Sections Steadily and proportionately as DIRECT TRANSFER.

 

If this is implemented let us see how this will work out :

 

A, B, C, D, E, F, G, H, I , J are the Citizens of this nation called DEMOCRACY and have current Bank Wealth of

 

100 , 150, 150, 160 , 160, 300, 700 ,2000, 10000, 100000 Uniques [ the World Currency ]

 

At present this Nation's wealth is 113720 Uniques.

 

The growth is steady and tax collected is say 10000 out of which 5000 is shared.

 

The next tally is 600 . 650, 650, 660, 660, 800, 1200, 10500, 100500

 

Easily in 10 years the minimum improvement will be :

 

5100, 5150, 5150, 5160, 5160, 5300, 5700, 7000, 105000

 

The Disparity has reduced from 1000 times to about 20 times a 5000 % improvement or cut to one fiftieth !

 

Easier Said than done I agree. But it is the most Christian attitude and value that can be implemented.

 

Of course there will be all the Naysayers, Selfishly Rich, Rulers-Kings-Dictators etc who won't yield Space for easy implementation !!

Edited January 9, 2015 by Commander

[iNow]

All Citizen's have a linked National Bank Account Active and online 247.

 

Every Financial transfer or transaction is recorded automatically. Allow even Person to Person money transfer instantly but only through the recorded and linked way.

I don't know about you, but I've engaged in more than a handful of transactions through my life that I really wouldn't want the government to know about or a potential future employer to be able to data mine and use against me. This idea should be approached with caution.

 

Interestingly, economist Ken Rogoff recently made a similar suggestion about doing away with cash be moving toward electronic currency. I happen to find myself agreeing more with economist John Cochrane here who did a fine job of pointing out the flaws (both practical and those pertaining to liberty itself) in such ideas: http://johnhcochrane.blogspot.com/2014/12/get-rid-of-currency.html

 

That's OT though. Fixing inequality will take a symphony of changes with different movements at different times from different instruments.

 

So much of this starts at the types of dysfunctions in government already being addressed in other threads (the need to remove money and lobbyists from the system and stop treating corporations as people, for example). We need a more progressive tax policy where increased revenues could be used to provide better education, healthcare, infrastructure and jobs.

 

We need policies that guarantee a basic minimum income, whether through higher minimum wage that scales with cost of living or through social security type checks for all citizens (even more important now as lower skilled workers continue losing jobs to overseas countries and robot automation).

 

There are many things that can and must be done to address the situation, but I don't believe implementing an electronic currency would have the desired impact here, nor would taxing the very poor at the exact same rate as the very rich.

[John Cuthber]

Perhaps we could all stop voting for parties that pledge to reduce taxes.

[Delta1212]

Perhaps we could all stop voting for parties that pledge to reduce taxes.

But the government is stealing my money and giving me back nothing in return! Edited January 9, 2015 by Delta1212

[Commander]

I don't know about you, but I've engaged in more than a handful of transactions through my life that I really wouldn't want the government to know about or a potential future employer to be able to data mine and use against me. This idea should be approached with caution.

 

Interestingly, economist Ken Rogoff recently made a similar suggestion about doing away with cash be moving toward electronic currency. I happen to find myself agreeing more with economist John Cochrane here who did a fine job of pointing out the flaws (both practical and those pertaining to liberty itself) in such ideas: http://johnhcochrane.blogspot.com/2014/12/get-rid-of-currency.html

 

That's OT though. Fixing inequality will take a symphony of changes with different movements at different times from different instruments.

 

So much of this starts at the types of dysfunctions in government already being addressed in other threads (the need to remove money and lobbyists from the system and stop treating corporations as people, for example). We need a more progressive tax policy where increased revenues could be used to provide better education, healthcare, infrastructure and jobs.

 

We need policies that guarantee a basic minimum income, whether through higher minimum wage that scales with cost of living or through social security type checks for all citizens (even more important now as lower skilled workers continue losing jobs to overseas countries and robot automation).

 

There are many things that can and must be done to address the situation, but I don't believe implementing an electronic currency would have the desired impact here, nor would taxing the very poor at the exact same rate as the very rich.

 

Hi,

 

Thanks.

 

I have been thinking about alternate Currency for sometime with a view to remove Black Money and Corruption.

 

Imagine doing away with Paper Currency and Coins etc. Other instruments like Credit Cards etc can all be reworked around this new form of Currency with embedded Identity.

 

Of course that will remove the Possibility of hiding transaction and soon all will get used to it

 

The tax structure need not be same to all and what was given was only a sample and also every Nation can have their own.

 

If Currency can be standardized for the whole World it will reap enormous benefits as well with ease of processing.

 

In equalizing People many poor Countries will face huge Numbers , Infrastructure Building and even counting and identifying qualified Citizens. It will be a huge first step.

[iNow]

I have been thinking about alternate Currency for sometime with a view to remove Black Money and Corruption.

 

Imagine doing away with Paper Currency and Coins etc. Other instruments like Credit Cards etc can all be reworked around this new form of Currency with embedded Identity.

 

Of course that will remove the Possibility of hiding transaction and soon all will get used to it

The black market is not always a bad thing. This is an interesting topic, for sure, but perhaps we could address it in it's own thread? (as it's a bit unrelated to reduction of inequality which seems to be the desired conversational intent of the OP)

[John Cuthber]

But the government is stealing my money and giving me back nothing in return!

Really?

No welfare, no public libraries, no police force etc?

 

That's interesting, where are you?

[iNow]

Really?

No welfare, no public libraries, no police force etc?

 

That's interesting, where are you?

I did a lookup on his IP address. He appears to be here:

 

[John Cuthber]

Oh, I almost forgot.

Delta,

Did you not realise that the government gave you the internet?

So, the fact that you are posting here shows that you are wrong.

[MigL]

I would weigh in that maybe we are looking at the wrong metrics.

Are the 'middle class' really worse off today than in the 50s ?

 

First, 'middle class' is fluid and loosely defined, but look at the amount of disposable income available today, in North America and Europe. We spoil ourselves with every new gadget that comes on the market ( iPhones ? ), buy a new car every 3 yrs where in the 50-60s it would have lasted 10 to 15 yrs, buy so much food ( and waste so much of it ) that we are are killing ourselves with diabetis and heart disease.

We want all this new useless crap, but then say we can't survive on minimum wage.

 

But that isn't really about wealth inequality, is it ?

 

As for taxation levels, 0 and 100% are obviously non-starters.

Someone HAS to take care of those who are disadvantaged and basic common needs ( defense, immigration, infrastructure upkeep, etc. ) and since the government is monopolistic, there are bound to be inefficiencies ( but competition leads to its own problems so we put up with it ).

Giving it all to the government to do as it sees fit, however, is a lot like Communism, and can only possibly work in idealized conditions. It tends to breed the 'lowest common denominator'. If you cannot get any farther ahead than someone else, why bother to try harder ?

So the happy medium is somewhere between 0 and 100% taxation, but where exactly is an opinion that's different to different people, depending on their individual priorities, and the reason we have elections, John.

 

But that isn't really about wealth inequality either, is it ?

 

The truth is I don't have an answer for reasons or solutions to the great disparity in wealth in our countries.

I consider myself middle class, and it seems like the middle class is the majority of people and holding steady.

Sure it could be improved, but comparing a 'wealthy' nation like China, where there are more billionaires than anywhere else, a relatively small middle class, and about 1 billion people living at or below what a poorer nation like Canada would consider poverty levels, I don't think we are doing that badly.

As for the top 1%, or at least the CEOs with 'obscene' salaries ( even when the companies they run are tanking ) maybe it is time the government got involved. But keep in mind that a lot of these politicians see CEO positions as 'parachutes' for when they leave office, and are reluctant to regulate them.

[Sensei]

Majority of wealthy people simply have stocks. Not money.

Money in bank account can be quickly wiped out if bank bankrupted (see what happened in Cyprus, Lehman Brothers etc).

From multi-million account there will be 100,000 euro/usd from government's guarantee.

 

How do you want to take them "money", when they don't have literally money but are owners, co-owners of companies, bought paper obligation of some country etc. etc. .. ?

 

If wealthy person wants to buy something expensive, they go to bank and take credit giving stocks as guarantee. Otherwise they would have to sell stocks.

Good companies are earning money by them self and giving each year, or quarter, dividend. It has automatically calculated and subtracted tax (at least here, once I had stocks of company which paid dividend (active stock market player is immediately selling stocks prior dividend and rebuying after it's been paid) ).

Wealthy person can have no work, no job. He/she pays only tax from dividend. It'll be used to pay credit installment.

 

Increasing tax from selling stocks, will affect fluidity of stock markets, and run away of money (and meltdown) to places where are lower capital taxes.

Edited January 9, 2015 by Sensei

[iNow]

Are the 'middle class' really worse off today than in the 50s ?

The trend really began in the mid to late 1970s, not the 1950s, and yes. The middle class is worse off in nearly every relevant measure when viewed in terms of real dollars.

 

http://www.forbes.com/sites/laurashin/2014/01/23/the-85-richest-people-in-the-world-have-as-much-wealth-as-the-3-5-billion-poorest/

The 85 Richest People In The World Have As Much Wealth As The 3.5 Billion Poorest

<...>

In the US, the wealthiest one percent captured 95 percent of post-financial crisis growth since 2009, while the bottom 90 percent became poorer.

http://www.usnews.com/news/articles/2014/08/27/wages-have-fallen-for-almost-everyone-this-year

 

Had wage inequality not risen between 1979 and 2007, middle class incomes would have been about $18,000 higher in 2007. <...> The rise in wages for those at the top also correlates with growth in the stock market, with stock options of executives included in their wages. The EPI report's release comes as the stock market enjoys a strong run, with the S&P 500 closing at a record high of 2000 Tuesday, and the Dow Jones Industrial Average also nearing an all-time high.

 

Had wealth been distributed more evenly throughout these time periods, the standard of living would be higher for Americans at the bottom-end of the pay scale for whom wages are the primary source of income, Gould says.

 

Between 1979 and 2013, productivity grew eight times faster than hourly wages of production and nonsupervisory workers, who make up over 80 percent of the private sector workforce.

http://www.economist.com/news/finance-and-economics/21631129-it-001-who-are-really-getting-ahead-america-forget-1

 

From the beginning of the Depression until the end of the second world war, the middle classs share of total wealth rose steadily, thanks largely to collapsing wealth among richer households. Thereafter the middle classs share grew along with national wealth thanks to broader equity ownership, middle-class income growth and rising rates of home-ownership. The expansion of tax breaks for retirement savings also helped. By the early 1980s the share of household wealth held by the middle class rose to 36%roughly four times the share controlled by the top 0.1%.

 

From the early 1980s, however, these trends have reversed. The ratio of household wealth to national income has risen back toward the level of the 1920s, but the share in the hands of middle-class families has tumbled (see chart)

 

 

http://www.sentierresearch.com/pressreleases/Sentier_PressRelease_PostRecessionaryHouseholdIncomeChange_June2009toJune2013_08_21_13.pdf

 

Based on new estimates derived from the monthly Current Population Survey (CPS), real median annual household income, while recovering somewhat from the low-point reached in August 2011, has fallen by 4.4 percent since the economic recovery began in June 2009. Adding this post-recession decline to the 1.8-percent drop that occurred during the recession leaves median annual household income now 6.1 percent below the December 2007 level.

<snip>

Compared to January 2000, the beginning point for our monthly statistical series, median annual household income is now lower by 7.2 percent. (All income amounts in this report are before-tax money income and are presented in terms of June 2013 dollars).

 

According to Gordon Green of Sentier Research: This latest report continues our efforts to help chronicle one important dimension of the economic hardships now being experienced by a large number of American households. Our findings complement data on the unemployment rate, GDP estimates, leading economic indictors, and other economic data series. In many ways, median household income provides a measure of the net effect of economic activity on the middle class and how well they are able to buy food, housing, and other necessities every month, especially now during this unprecedented period of economic stagnation. Based on our data, almost every group is worse off now than it was four years ago.

<snip>

Real median annual household income declined significantly for both family and nonfamily households. <...> Real median annual household income declined more significantly for younger households and those with a householder between 55 and 64 years of age than for other age groups. <...> Declines in real median annual household income are noted regardless of the level of educational attainment.

More here: http://www.nytimes.com/2014/04/23/upshot/the-american-middle-class-is-no-longer-the-worlds-richest.html?abt=0002&abg=1

Edited January 9, 2015 by iNow

[Sensei]

In the US, the wealthiest one percent captured 95 percent of post-financial crisis growth since 2009, while the bottom 90 percent became poorer.

 

Simply their stocks prices went up..

[iNow]

Simply their stocks prices went up..

That's certainly part of the equation when explaining some of the increase in wealth among the top 1%, but it completely fails to account for why the bottom 90% actually became poorer over this time period.

[Sensei]

That's certainly part of the equation when explaining some of the increase in wealth among the top 1%, but it completely fails to account for why the bottom 90% actually became poorer over this time period.

 

The poorest people lost their houses, because of greedy of banks..

And now f.e. half of Detroit is dead city without population, with quarters of houses owned by banks, ruined, and waiting to be demolished.

They could/should be resident by all these NY homeless people..

But it's AMERICA, so money and greedy always wins..

If I were Buffet or Gates, I would buy all these ruined houses for $1 each (bargain for banks), and give them to homeless people.

 

That reminds me couple my US clients who said (around 2008-2009) "year ago I had wife, I had house, I had work, I had family, now I am divorced, unemployed and homeless"..

Edited January 9, 2015 by Sensei

[John Cuthber]

I would weigh in that maybe we are looking at the wrong metrics.

Are the 'middle class' really worse off today than in the 50s ?

 

 

So the happy medium is somewhere between 0 and 100% taxation, but where exactly is an opinion that's different to different people, depending on their individual priorities, and the reason we have elections, John.

 

 

The truth is I don't have an answer for reasons or solutions to the great disparity in wealth in our countries.

 

As for the top 1%, or at least the CEOs with 'obscene' salaries ( even when the companies they run are tanking ) maybe it is time the government got involved. But keep in mind that a lot of these politicians see CEO positions as 'parachutes' for when they leave office, and are reluctant to regulate them.

"Are the 'middle class' really worse off today than in the 50s ?"

Who cares?

It's the wrong question.

The thread is about inequality between the rich + poor today.

The "poor" are better off today than they were 50 years ago, but that's not the point.

Why are the Poor twice as wealthy while the Rich are a hundred times as wealthy?

It's true that there are elections.

Please let me know which candidates are proposing to raise taxes?

The problem is that only the rich can afford the advertising etc needed to get elected.

Those who would- in even the slightest regard- seek to support the poor are libelled as "Communists" as Obama was.

So, sure you have a vote, but the voters have been extensively lied to by a group who use their influence to ensure that "critical thinking " is banned from the curriculum.

"As for the top 1%, or at least the CEOs with 'obscene' salaries ( even when the companies they run are tanking ) maybe it is time the government got involved. But keep in mind that a lot of these politicians see CEO positions as 'parachutes' for when they leave office, and are reluctant to regulate them."

Well, you have spotted the problem.

The rich exclusively run the government.

What we need is a system where the truth gets out from time to time.

Are you prepared to spread that truth?

[iNow]

It seems education may not, in fact, be the key we would all like it to be.

 

http://equitablegrowth.org/news/higher-education-answer-reducing-income-inequality/

Research by economists Paul Beaudry and David A. Green at the University of British Columbia and Benjamin M. Sand at York University finds that the demand for skills and cognitive tasks has been on the decline since 2000. David Autor of the Massachusetts Institute of Technology, one of the key developers of the theory of skill-biased technological change, finds a similar trend. In previous research, he found that job growth across the skill spectrum was U-shaped—lots of jobs at the low- and high-end. But in a paper presented at the Federal Reserve’s economic policy symposium in Jackson Hole, Wyoming this past August, Autor finds the pattern in the 2000s was more of a downward ramp: lots of growth at the bottom and not much elsewhere.

 

If the demand for skills is on the decline then the wage premium for college educated workers and income inequality should decline. This trend would accelerate if there were an increase in the supply of college-educated workers at the college level. But that reduction in inequality would result in declining wages for better educated workers. Not exactly the rising tide that policymakers and economists often envision when trumpeting the benefits of education. Either skill-biased technological change story only held true for a certain time or the hypothesis was flawed to begin at its conception.

 

Now this is not to say that education is irrelevant or undesirable. A more educated workforce is likely to be more productive, leading to faster economic growth. And, securing a college education has other economic and non-economic benefits. For example, a college degree may act as a shield against dropping out of the labor force as the economy becomes a “cruel game of musical chairs.” But the sad reality is that higher levels of college education, once thought of as the best tool to reduce inequality, may no longer live up to the hype.

 

To the core thread topic, this article suggests that implementing a rule at the SEC to put a ceiling on the ratio between executive and median worker pay would be a heck of a start: http://www.oregonbusiness.com/articles/167-january-powerbook-2015/14220-tackling-the-ceo-worker-pay-gap

[Delta1212]

It seems education may not, in fact, be the key we would all like it to be.

 

http://equitablegrowth.org/news/higher-education-answer-reducing-income-inequality/

 

 

To the core thread topic, this article suggests that implementing a rule at the SEC to put a ceiling on the ratio between executive and median worker pay would be a heck of a start: http://www.oregonbusiness.com/articles/167-january-powerbook-2015/14220-tackling-the-ceo-worker-pay-gap

But then how will the CEOs that do the work of 300 employees be justly compensated?

[iNow]

lol. I'm sure the magical invisible hand of the market will find a way.

[John Cuthber]

But then how will the CEOs that do the work of 300 employees be justly compensated?

The same way that it always was.