The real problem: Income inequality

[Mindflayer]

http://money.cnn.com/2010/11/24/pf/raja ... /index.htm

From a year ago. Prescient, echoes my economics beliefs, and still just as acutely relevant a year later.

[gunderwood]

But he argues that this income gap inspired politicians on both sides of the aisle to push low-income housing loans as a palliative for the poor, which helped to send the housing sector into overdrive.

Just because something existed that "inspired" idiots to do something stupid doesn't make it a valid argument and definitely not causal. Income inequality is no more responsible for the economic bust than YouTube is for teens doing stupid stuff (that was going on long before YouTube)...or Wikileaks for spys.

The more accurate statement is that the belief by certain politicians that income inequality is a problem and that they are socially responsible for fixing it is what caused them to push those loans. Income inequality did nothing. The belief that income inequality is a problem and someone should fix it is causal (as the mostly Democrats were fond of taking credit for pushing homes for the poor; Republicans are mostly responsible for various housing tax incentives).

Rajan is still pushing government solving the income distribution "problem," he just doesn't agree with direct redistribution. He has no problems using taxes to give "poor" people more government services:

What can government do to reduce inequality?

In the long run, redistribution doesn't work. Focusing on improving the quality of the workforce -- through education and skill building -- is probably the only answer.

Perhaps a simpler explanation makes more sense? Where ever income inequalities exists (and they do in every society even communes), the nature of human beings is to be jealous and covet what their neighbor has. Government, having legalized use of force, becomes the battleground for those who want to forcibly take what their neighbor has. Yes, then the politics get ugly and societies collapse...no one gets anything in the end.

Perhaps the real solution is to repent and quit coveting?

[Kreutz]

Income inequality will be the de facto for the forseeable future. Back in the day before globalization, you had to pay your workers decently, they lived near your plant, because you needed them to live near your plant, and from time to time they revolted, which can keep things in line.

Nowdays Mr. Plutocrat has a few essential slaves working for pennies halfway around the world, and they re happy to do it to a point.

The western workers are increasingly useless (don't be surprised if unemployment never goes back below 9%) as they cannot compete.

Even service sector jobs are being done foreigners flown in for less. Race to the bottom for 95% of us, and only gets cushier for the other 5%.

However, the housing bubble is hat happens when you deregulate, they always want MORE. In a sane society those bankers would have been hung by their necks along the streetlights of Wall Street...instead they get billions in free money which they then used to buy T bonds to collect interest from the government. Classic stuff.

[gunderwood]

Income inequality will be the de facto for the forseeable future. Back in the day before globalization, you had to pay your workers decently, they lived near your plant, because you needed them to live near your plant, and from time to time they revolted, which can keep things in line.

Please provide a reference for when there wasn't income inequality. It has been a fact of human existence from the beginning. I.e. human beings make decisions and those decisions have varying outcomes. Those who tend to make good decisions tend to be wealthier than those that don't. Nothing new here.

Nowdays Mr. Plutocrat has a few essential slaves working for pennies halfway around the world, and they re happy to do it to a point.

Absolutely! While pennies a day means nothing to you, it is a substantial amount of money compared to their alternatives. As the living standards of China have risen, they are now beginning to demand better pay and some manufacturing is already beginning to move out of country to cheaper markets.

The western workers are increasingly useless (don't be surprised if unemployment never goes back below 9%) as they cannot compete.

Not useless, just not competitive in some labor markets. Competition in labor markets is a natural thing. If you need your PC fixed (assuming you can't do it yourself) and person A offers to do it for $100 and person B wants $200 you have to evaluate if person B is better than person A for your problem. If not, the solution is simple, choose A because it is cheaper and better. If B is better than A, you must evaluate if B is $100 better than A. Everyone has a different answer and there is nothing wrong with that.

If you have the funds to pay for it, buy whatever floats your boat.

Even service sector jobs are being done foreigners flown in for less. Race to the bottom for 95% of us, and only gets cushier for the other 5%.

Everyone is always looking for cheaper or better ways to do things. In the PC example, if A equals B than you should choose A because you get your PC fixed and have $100 more to spend than if you choose B. There is no shame or anything wrong with that calculation. Optimizing for your personal requirements is the wise thing to do.

Yes, in some markets foreign competition is vastly cheaper. If that makes the product cheaper and that is what the consumer wants it is a good thing. It means we get the same product for less of our limited resources. If Dell can sell a standard PC for $1500 using US labor, but can sell the exact same thing for $1000 using foreign labor, most people will choose the $1000 PC. Some people will value US manufacturing more than the $500 savings. There is nothing wrong with either PC choice. Choose the one that offers the most value for your money, $1000 or $1500.

If the average US consumer demanded US made goods, the companies would provide them. In fact there are some companies who market that "Made in the USA" aspect of their product. For some consumers that matters, for others it doesn't. It is your money, spend it how you wish. However, for most consumers lower cost is vastly more important than where a product is made.

However, the housing bubble is hat happens when you deregulate, they always want MORE. In a sane society those bankers would have been hung by their necks along the streetlights of Wall Street...instead they get billions in free money which they then used to buy T bonds to collect interest from the government. Classic stuff.

Sub-prime loans were not deregulated. On the contrary, they were heavily regulated and pushed by politicians for votes. Without the regulation and access to practically free government money, no bank would ever make a sub-prime loan. It would be crazy to make a loan where you loose money because it costs more to barrow it than what you lend it out as!

Despite the government involvement, the banks should not have been bailed out...no one should have been. All we have accomplished is we kept inefficient manufacturers in business and guaranteed we will pay higher prices for their goods.

[ZeSpectre]

I keep feeling like I'm hearing echoes of the French Revolution.
http://en.wikipedia.org/wiki/French_Revolution

[gunderwood]

I keep feeling like I'm hearing echoes of the French Revolution.
http://en.wikipedia.org/wiki/French_Revolution

Care to expound on that any?

[ZeSpectre]

I keep feeling like I'm hearing echoes of the French Revolution.
<!-- m --><a class="postlink" href="http://en.wikipedia.org/wiki/French_Rev ... on</a><!-- m -->

Care to expound on that any?

No offense but I'm astounded that I need to.

Just before the French revolution the rich were so insulated that they simply had no concept that the poor/the common couldn't "make it" (Marie Antoinette's famous "well if they have no bread let them eat cake").

The poor/the common were rapidly approaching the point where they couldn't even obtain their "daily bread".

And the overwhelming tide that happened as a result. Politics may have had it's part, but missing meals was what brought most of the common man into action during the French revolution.

I'm not for some set of socialist laws mandating "wealth redistribution" but I do think that if the uber-wealthy don't wake up soon and realize that to some degree society thinks that "with great wealth comes social responsibility" they're going to have the floundering middle class at their doors with pitchforks and torches (or legal writs of some sort).

[skeeterss0]

Here's my 2 cents worth on the subject.
We all make choices in our life, some good, some bad. The people that make good choices and do the right things are being chastised and made to reward the people that made the bad choices.
I go to work and do a good job so that my employer wants to keep my skills at his place of work. He rewards me with higher pay and more responsibility. Another guy goofs off at work and ends up getting fired. My tax dollars that could be improving the roads and schools or doing something constructive are then diverted to this goof off to pay for his unemployment, his welfare and medicare. He can sit home and play his xbox collecting all this free (for him) money while im busting my ass making the right decisions.
The whole welfare system needs reworked. Make it so that the people that are doing the right thing and trying to do good, find work, and get back into society get rewarded and those that don't get cut off. I feel we are just trying to keep the criminals at bay by paying them with our tax dollars. Thats called extorsion.

[Kreutz]

Have no loathing of the wealthy per se. I have a few millionaires in my family (none earned it), and they are the most miserly miserable people I know. Give them tax cuts and they will just spend it on dumb rich people crap (foreign vacations, illegal vicodin, crappy artwork, etc.).

[SELFDEFENSE]

Disparity has 2 relevant interpretative concepts.
At what absolute level of income is the disparity?
And did the disparity come from: people dropping down to the lower level or the lower level losing members due to upward mobility (thus, leaving more of the unemployable/unhelpable in the lower class).

[gunderwood]

I keep feeling like I'm hearing echoes of the French Revolution.
<!-- m --><a class="postlink" href="http://en.wikipedia.org/wiki/French_Rev ... on</a><!-- m -->

Care to expound on that any?

No offense but I'm astounded that I need to.

Just before the French revolution the rich were so insulated that they simply had no concept that the poor/the common couldn't "make it" (Marie Antoinette's famous "well if they have no bread let them eat cake").

The poor/the common were rapidly approaching the point where they couldn't even obtain their "daily bread".

And the overwhelming tide that happened as a result. Politics may have had it's part, but missing meals was what brought most of the common man into action during the French revolution.

I'm not for some set of socialist laws mandating "wealth redistribution" but I do think that if the uber-wealthy don't wake up soon and realize that to some degree society thinks that "with great wealth comes social responsibility" they're going to have the floundering middle class at their doors with pitchforks and torches (or legal writs of some sort).

I didn't want to put words in your mouth.

[OakRidgeStars]

[zephyp]

Here's my 2 cents worth on the subject.
We all make choices in our life, some good, some bad. The people that make good choices and do the right things are being chastised and made to reward the people that made the bad choices.
I go to work and do a good job so that my employer wants to keep my skills at his place of work. He rewards me with higher pay and more responsibility. Another guy goofs off at work and ends up getting fired. My tax dollars that could be improving the roads and schools or doing something constructive are then diverted to this goof off to pay for his unemployment, his welfare and medicare. He can sit home and play his xbox collecting all this free (for him) money while im busting my ass making the right decisions.
The whole welfare system needs reworked. Make it so that the people that are doing the right thing and trying to do good, find work, and get back into society get rewarded and those that don't get cut off. I feel we are just trying to keep the criminals at bay by paying them with our tax dollars. Thats called extorsion.

+1

[gunderwood]

The whole welfare system needs reworked. Make it so that the people that are doing the right thing and trying to do good, find work, and get back into society get rewarded and those that don't get cut off.

This is a widely held view, but how do you accomplish it? Many have tried and failed. What ever standards you use, people adapt to them.

[Snazuolu]

this is a highly sensitive topic, and unfortunately...i'm sure my viewpoints wont be liked, nor are they reasonable according to society in general. and this is where the disconnect exists...how do we fix the current system of giving money to those without? the issue is the answers are not what ppl want to hear. I personally dont see anything changing over the course of my life either. prior to the original tea party, whenever teh King would starta new tax, the ppl woudl get mad, demonstrate, and the tax would just go away. in today's time, we just gripe about a new tax and do nothing about it but pay it. now i'm not advocating demonstrating against the govt, but i am saying that we as the governed have become lazy at holding our politicians responsible.

enter in the second half of this problem...those who believe that we have to take care of the poor. they believe its better to feed the poor than to build up our military. combine this fact with roughly half of all Americans dont pay taxes, its easy to see why these types of leaders get elected. i'm not speaking ill of the poor, but in the current way of dealing with the poor, we are bringing everyone down with them. unfortunately i dont have any GOOD ideas on how to fix this problem. The Bible says there will always be poor in the world. i think given that, its naieve to think we can rid our country of the poor, but, i do see the realization that we should all learn to become farmers again. who knows? maybe this is why Jefferson thought we should remain an agriculturally based society.

[LFS]

The whole welfare system needs reworked. Make it so that the people that are doing the right thing and trying to do good, find work, and get back into society get rewarded and those that don't get cut off.

This is a widely held view, but how do you accomplish it? Many have tried and failed. What ever standards you use, people adapt to them.

Is this even applicable since the welfare reform of the 90's? And nobody who had a standard of living on work income is gonna maintain that same standard of living on unemployment for long as unemployment is usually less than half of what the work income was.

The redistribution of the wealth these days isn't about welfare, unemployment and allowing people to comfortably avoid working. These days it is about retirement savings and health care for the well-intentioned progressives and mere theft from the treasury for special interests by Dem party operatives (and perhaps Repubs as well, we'll see RSN).

[Palladin]

Walter Williams has been ringing this bell for years, and it still rings true.

Slaves, all of us...

So if you can't legislate morality, and the majority of the people don't have moral and scruples and ethics and all that good stuff - read NO SELF DISCIPLINE - the whadda ya got?! A failing nation. Bah Humbug

http://townhall.com/columnists/WalterEW ... government

a portion of the above

"Immorality in government lies at the heart of our nation's problems. Deficits, debt and runaway government are merely symptoms. What's moral and immoral conduct can be complicated, but needlessly so. I keep things simple and you tell me where I go wrong.

My initial assumption is that we each own ourselves. I am my private property and you are yours. If we accept the notion that people own themselves, then it's easy to discover what forms of conduct are moral and immoral. Immoral acts are those that violate self-ownership. Murder, rape, assault and slavery are immoral because those acts violate private property. So is theft, broadly defined as taking the rightful property of one person and giving it to another.

If it is your belief that people do not belong to themselves, they are in whole or in part the property of the U.S. Congress, or people are owned by God, who has placed the U.S. Congress in charge of managing them, then all of my observations are simply nonsense."

Read more at the townhall linky

[gunderwood]

The whole welfare system needs reworked. Make it so that the people that are doing the right thing and trying to do good, find work, and get back into society get rewarded and those that don't get cut off.

This is a widely held view, but how do you accomplish it? Many have tried and failed. What ever standards you use, people adapt to them.

Is this even applicable since the welfare reform of the 90's? And nobody who had a standard of living on work income is gonna maintain that same standard of living on unemployment for long as unemployment is usually less than half of what the work income was.

The redistribution of the wealth these days isn't about welfare, unemployment and allowing people to comfortably avoid working. These days it is about retirement savings and health care for the well-intentioned progressives and mere theft from the treasury for special interests by Dem party operatives (and perhaps Repubs as well, we'll see RSN).

Yes.

My definition of welfare is extremely broad. It includes extending unemployment for 2 years (if this bill passes it will be 3+), it includes corporate welfare in all forms, etc. In short, if the government is handing out monies rather than purchasing goods and services for its Constitutional mandated missions, then it is welfare to someone.