Initial Thoughts on Stiglitz’s The Price of Inequality

Note: This post is part of our League Symposium on inequality. You can read the introductory post for the Symposium here. To see a list of all posts in the Symposium so far, click here.

I am nearly finished with Joseph Stiglitz’s new book, The Price of Inequality, and plan to include a brief review in my contribution to the inequality symposium by early next week.  Something about the book grates on me, though, in the way Stiglitz can’t seem to be bothered to offer a complete defense for any of the ideas he advances.  Some of those ideas I nonetheless agree with, such as the problem of special interests.  (Though he wrongly lays all of the blame on Republicans.  Remember Harry Reed’s juicer bill that kicked off a flurry of hedge fund rent-seeking that never stopped?  Everyone needs to fundraise, and the letter after your name doesn’t change that.)

Even though I’m unpersuaded by Stiglitz’s polemical rhetoric, he is obviously a brilliant economist and I do not have satisfying answers at the ready for all of his points, roughly stated though they are.  For example, do we libertarians and conservatives really make too big a deal over inflation?  Does austerity really hurt an economy?  Are Sweden and Norway really succeeding because of their generous welfare programs?  Are deficit-reduction and tax-reduction really  “curious” notions?  Should we revisit Henry George’s idea of socializing the rents of all the nation’s real property? Does “trickle-up economics” really work?

(To this last one, I think, I have a ready answer: putting more dollars in the hands of those other than the poor via tax redistribution results in threshold earners spending money on things they were not otherwise willing to work for.  This sends false signals into the market that there is demand for goods and services, when in fact people would not work buy but for redistribution.  That artificial demand results in a bubble that the government must sustain through ever more tax redistribution–a one-way ratchet.)

One doozy Stiglitz puts out there is that  unemployment is a “market failure.”  He offers no explanation for this statement.  Indeed, earlier he states that “markets are supposed to be stable.”  I suppose “stable” lends itself to subjective interpretation, but markets necessarily involve “creative destruction,” which is anything but stable.  Stiglitz also repeatedly calls for “full employment.”  In my amateur studies of economics, I’ve learned that full employment is impossible and undesirable given the pressure it puts on inflation.  But again, Stiglitz urges (without much explanation) that printing money is no biggie, so, why not?

The big question all of these little ones lead me to ask is, why is Stiglitz not willing or able to offer a full-throated answer?  Why am I more confused about economics after reading 300 pages of a Nobel laureate economist than I was going in?  The answer to that question seems fairly obvious to me.  One theme I will develop in my essay is that we must choose one structure of government or another:  free and limited, or centralized and planned.  Although the free and limited government project is of relatively recent vintage, we do have more than 200 years of history in our very own backyard in this country from which to draw in understanding and defending it.

The centralized and planned model, on the other hand, has a very long and terrible history.  No one would say the failures of the communist and socialist experiments thus far were the result of an inadequate stimulus or not allowing a tax cut to expire.  They failed not because someone forgot to carry the one.  They failed because they were tragically and fundamentally immoral and wrong-headed.

It is only in the last 60-70 years that some European countries have begun experimenting with so-called social democracy, thus far with very mixed results.  At any rate, there are no truly settled conclusions either way to draw from European social democracy (though if we were to judge by recent headlines, I wouldn’t like its chances).  Thus, other than a very wonkish understandable only by theoretical economists, Stiglitz has precious little settled practical data from which to draw to make the case for the economic system suited to a centralized and planned economy.  I suspect this is why neither Stiglitz nor anyone else will be able to offer a much more persuasive argument for leftist economic policies.

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53 thoughts on “Initial Thoughts on Stiglitz’s The Price of Inequality

  1. You realize of course that the “problems” with the current EU, itself a neoliberal creation, are largely because of a combination of a lack of monetary stimulus from the ECB (Missouri would be bankrupt too if the federal government acted like the ECB has the past two years), gross mismanagement of a state (Greece), and bubbles bursting (construction in Spain and Ireland). All of these problems were “bipartisan” in creation, so if the current crisis in the EU is proof that social democracy can’t work, then I can guess neither can conservative deregulation either.

    On the other hand, while Greece and Spain fall apart, Iceland is recovering quite well, thanks to the ability to have it’s own currency (an idea championed by the Left, especially when the other idea is fiscal union without political union), letting the banks fail, debt forgiveness, and actually putting those on trial who ruined the economy, all without crippling levels of austerity.

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  2. putting more dollars in the hands of those other than the poor via tax redistribution

    If we’re talking about people who already pay no taxes and also receive subsidies, then your point is probably valid. But I think the idea isn’t to tax the rich and give to the poor; it’s to increase taxes on the rich and reduce taxes on people actually paying them (this might include reducing employment taxes) in order to increase purchasing power.

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    • +1.

      Increase taxes on the rich; affect lifestyles not at all. Slightly reduce the amount of money hidden in various sheltered accounts that might as well be underneath mattresses for all the valid economic activity they generate. (Shuffling money between “investment vehicles” and “mutual funds” and other wall street scams isn’t valid economic activity, it’s economic masturbation and the end result of it is a limp economy in recession after blowing its wad… er bursting its bubbles… ok, I’ll admit that analogy was just a bit puerile.)

      Decrease taxes on the middle class; affect lifestyle significantly, both in increased middle class savings (which affects long term purchasing power and long term economic health) and in the purchase of daily items.

      Decrease taxes on the poor, or even adjust to the point of subsidy; 99.9% of the subsidized money will flow immediately back into the economy. It’ll either end up in daily necessities like food, shelter, travel, or on lower-grade “luxury” or recreation items, but it’ll end up creating valid economic activity that employs people.

      The problem today is that TPoFYIGM is too hooked on economic masturbation to realize they’ve gone completely blind to economic reality.

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  3. I read Stiglitz’s Vanity Fair article a few weeks ago and felt he was intentionally misleading. He seems to be playing for the audience rather than academically sound.

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  4. It seems you’re conflating socialism with government social welfare programs, as I’ve found conservatives often do. It’s important to note that these are actually two different ideas. In a socialist political economic order, the government centrally plans the details of the economy. And as you suggest, this has a disastrous and ugly history, and I certainly hope Stigiltz, as an economist, wasn’t suggesting that the US move to such a system. (But I haven’t read the book so I could be wrong.) On the other hand, social welfare programs are often put in place because of the creative destruction inherent in a capitalist system. Inevitably some people are going to end up the “losers” in a more capitalist society from market forces, so social welfare exists to correct what some might call this “market failure”. (I wouldn’t call it that myself, it means markets are working if someone “loses”)

    With that in mind, I don’t think there’s necessarily anything inconsistent with having a social welfare state and a more decentralized and limited government in other realms. For example, consider the Heritage Foundation’s economic freedom index: http://www.heritage.org/index/ranking Many of the countries that are above or near the US on this index have more comprehensive social welfare programs (e.g. Canada, Australia, New Zealand, Denmark, Switzerland – but correct me if I’m wrong about the generosity of social programs in these countries) and none of these are Eurozone countries that you’ve been seeing in the headlines. (I think Denmark may peg its currency to the Euro, though.) Furthermore, it’s been pointed out before (can’t find the link unfortunately though) that while inequality within individual European countries is low, the region as a whole has *much* greater inequality than the US.

    Regardless, I don’t think redistribution is likely to do much to actually change the growing inequality since it has increased across developed nations regardless of the generosity of their social welfare programs or the progressiveness of their tax rates. Fixing the swiss cheese of tax deductions and credits that have made a mess of the federal tax code, decreasing the scope of regulation at all levels of government to justified public health, safety, and environmental regulation, and removing blatantly rent-seeking regulation such as unnecessary occupational licensing for interior designers (and the like) are all things as a liberal I’d gladly trade away for a more generous social safety net. With the added benefit that the former are much more likely to do something about inequality than increasing the top income tax rate from 35% to 39.5%.

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    • Aaron,

      I’m not conflating socialism and social welfare programs/social democracy. But I do think that a social democracy cannot be sustained without ultimately devolving into a centralized, planned economy. Actually, I’m not even asking to be granted that much. If one ideal is a free economy (i.e., classical liberalism) and the other ideal is a socialist economy, what ideal does one presume in defending social democracy? For my money, I do not see how the principles of classical liberalism can coexist with social democracy. It is not to say there is no defense for social democracy, it is just to say it is a completely different school of thought. And the outlines of that school of thought rarely seem to be openly advertised.

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    • Fixing the swiss cheese of tax deductions and credits that have made a mess of the federal tax code, decreasing the scope of regulation at all levels of government to justified public health, safety, and environmental regulation, and removing blatantly rent-seeking regulation such as unnecessary occupational licensing for interior designers (and the like) are all things as a liberal I’d gladly trade away for a more generous social safety net. With the added benefit that the former are much more likely to do something about inequality than increasing the top income tax rate from 35% to 39.5%.

      As a libertarian, I’d be happy to sign on to a compromise like that. Especially is we can move the welfare system to a Negative Income Tax while we’re at it.

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  5. To this last one, I think, I have a ready answer: putting more dollars in the hands of those other than the poor via tax redistribution results in threshold earners spending money on things they were not otherwise willing to work for. This sends false signals into the market that there is demand for goods and services, when in fact people would not work buy but for redistribution.

    This reasoning implies that a person’s vote for what to produce should be weighted based on his income. If you have a dollar, you get to decide what makes you happy. If I have the dollar, I get to decide what makes me happy. Either way, one of us gets a dollar’s worth of utility. Under what circumstances is one of us sending out “false” signals to the market? What if you earned the dollar digging ditches and I won it playing bingo? Or if we each worked for it, but I worked a lot harder?

    I’m all for measuring revealed preference, but I don’t see how this type of transfer distorts market signals in any meaningful sense. If I took your dollar and used it to fruitcake for somebody else rather than simply giving him your dollar, that would be a different matter. I am not in favor of causing a fruitcake bubble.

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    • Actually, that’s not even true. At higher incomes, the value of that dollar drops. A dollar buys a lot more happiness for someone on 20k a year income than 20 million.

      The old joke about it not being worth Bill Gates’ time to bend over and pick up a hundred dollar bill springs to mind.

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      • It’s not a joke: Wired Magazine once did the math. At the peak of the tech boom, in 1998, Bill Gates net worth was appreciating so fast that that it would not have been worth 8 seconds of his time to bend over and pick up a $10,000 bill if his alternative was to earn 8 seconds worth of income from his work (presuming a 60-hour work week).

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        • There’s an old insult about being able to buy and sell someone “several times over.” Usually meant to indicate the insulter is a member of the aristocracy, and the insultee a member of the hoi polloi, a serf or a slave.

          We’re rapidly approaching the point where corporate serfdom is the only reality.

          Deprived of his trade unions, collective bargaining and the right to strike,
          the [snipped] worker in the [snipped country] became an industrial serf, bound to his
          master, the employer, much as medieval peasants had been bound to the lord of the manor.
          – William Shirer.

          As true for today’s times as it was then. How many workers truly have trade unions, collective bargaining and the right to strike in an era of “at will employment” and “right to work” (that name is SO inaccurate) in so many states?

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            • No.

              Also, so-called “right to work” unduly depresses wages:

              There is a significant difference in median family incomes in states that are RTW versus those that are not. Using a three-years-average median family income for 2009 to 2009, RTW states have a median family income of $46,919, non RTW it is $53,418, a difference of $6,499 or 13.9 percent per year. Testing for the impact of RTW on median family incomes, the relationship is -0.4. This means there is statistical evidence that RTW is associated with lower incomes: RTW depresses wages.

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              • So finding your article somewhat uninspiring, I was inspired to do my own research.

                I looked up the states that had Right-To-Work laws on the Wikipedia and looked up the unemployment by state numbers at the BLS.

                For the record, the national unemployment rate is 8.2%.

                There are 6 RTW states with higher unemployment rates (7 if you want to count the single tie on there) than that of the country, there are 7 states higher unemployment rates of the non-RTW states (and 8 if you include DC).

                And I have no idea what that tells us.

                But I can’t help but feel that it tells us more than the Oklahoma article.

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                • The Oklahoma study is valid. It compares Oklahoma to all 6 states around it.

                  If Oklahoma’s RTW law implementation was going to increase employment, it should have had a measurably significant difference compared to the employment shifts around it.

                  Oklahoma’s bordered by 3 RTW states (Texas, Arkansas, Kansas) and 3 non-RTW states (New Mexico, Colorado, Missouri). It was a perfect case for analysis because it was in the middle of passing RTW legislation and so the before and after effects could be measured.

                  No measurable difference. In fact, Oklahoma’s unemployment gap grew MORE, by 0.1 percent, than the surrounding region’s aggregate.

                  “If state economic expansion includes targeting manufacturing growth,” argued one conservative thinktank policy brief widely circulated in the lead-up to the state’s vote, “addressing the problem of Right-to-Work is a prerequisite.”

                  Yet the facts show the exact opposite of what right-towork supporters predicted. Not only has manufacturing employment failed to rise in Oklahoma, but, after increasing
                  steadily the previous 10 years, it has fallen steadily in every year since right-to-work was adopted.

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                • It’s hard to actually say whether RTW makes any difference anyway. The MinnPost article that MA quotes from cites studies saying that RTW actually doesn’t affect union membership rates. Comparing wages between RTW states and non-RTW states doesn’t account for the differences in cost-of-living between the two, which could be an alternate explanation since with or without RTW California has to pay its people more than Texas. Correlation and causation aren’t clearly defined.

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    • Frog, I’ll stick with my real world example and build on it. A threshold earner who happens to like Fabergé eggs might not like them enough to take a part time job to indulge the habit. Assume a new tax policy is put in place that entitles our threshold earner to import more dollars than before, so that he suddenly is able to buy an egg every now and then. But this new demand for Fabergé eggs is artificial: if the tax policy were changed back, our threshold earner would be back to buying no eggs at all since, again, they were anything he was willing to expend any actual labor—not willing to exchange any actual value—to acquire. The increased demand is a fiction, and it would require a policy of permanent redistribution to sustain it.

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      • If your definition of “artificial” is that it specific to this particular set of temporary economic circumstances (including redistribution), then I’ll agree that it’s artificial. But I don’t think that the word has any useful descriptive power.

        Imagine the same threshold earner buys his egg with dollars he earned because he found a small vein of gold on his property. Or his company had a particularly good year and increased his bonus. Or he cashed in on a risky stock purchase that paid off. The “decorate more eggs with jewels” signal is still sent to the market, and that signal still only reflects a temporary change in market conditions. Is it still artificial? If so, what are the consequences of artificiality that make it worth noting? I just don’t see how we’re defining the “natural” state of demand here.

        You note that your example earner is not willing to work a part time job to pay for his egg habit. The implication seems to be that what we choose to do with money that is earned sends a more valuable market signal than money that comes for free. Please stop me if this is not right.

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  6. The term “full employment” does not mean everyone is employed, despite your implication. It usually means the lowest level of employment that does not result in accelerating inflation. Even an amateur economist can use wikipedia.

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    • Thank you for your gentle correction, Mr. Clawback. Now that you’ve taught the man to fish, let him note that “Others, such as James Tobin, vehemently disagree, considering full employment as 0% unemployment,” and that “Rates of unemployment substantially above 0% have also been attacked by John Maynard Keynes.” Stiglitz cites Keynes favorably, and otherwise hasn’t provided an indication which camp he falls in.

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      • And yet, if you follow the reference on the wikipedia page, you immediately discover the statement about Tobin to be incorrect, as he was referring to something called the “optimal” unemployment rate, as related by Stiglitz, not full employment. Of course 0% would be optimal.

        But full employment is not 0%. There are no “camps” regarding this issue.

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  7. This is an excellent post, Tim.

    When it comes to seeing a lack of full employment as a ‘market failure’ – I think one needs to look at the employment market as an imperfect one that fails to match employers and employees nearly as efficiently as it could in some perfect one where everyone
    Some of these inefficiencies are regulatory (minimum wage laws, immigration restrictions, poor tax policies, etc), others are cultural/social (signalling inefficiencies, waste from poor business decisions, personal biases on the part of hiring managers or job seekers), and some are logistical (ability to move, cultural barriers to relocation, inability to find out what jobs are out there or find qualified candidates). But they all have the result of slowing down the matching of employees with jobs and also meaning people end up with a lot of suboptimal employment.

    The idea of full employment with a level of unemployment is really just an acknowledgement of the limits of the real market, not an acceptance that a few million people without work is desirable. The notion, as I understand it, is that in our current situation, getting above that would indicate some kind of excess or bubble that would have negative long term consequences because there’s no way that the market inefficiencies have come down that far.

    Or, maybe I’m being too generous to Stiglitz, but what little of him I’ve read, he seems like a really sharp writer.

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  8. Would you say centralization is a problem regardless of whether directly via state? Or is it primarily the state provision that’s the issue?

    I’d personally say that more concentration than we realize is basically encouraged by government policy & favoritism, which we then scream about as the free market run wild. A business gets big and bureaucratic enough & the socialist calculation problem’ll hit ’em just the same.

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  9. In most homes in America, and for that matter, around the world, mothers and fathers tell their children to work hard, study hard, make the best grades, get the best job, make the most money, be successful, don’t be lazy, be excellent. How many parents tell their children to “be equal”? As a result, what happens? Some people study hard, work hard and make money and, surprise suprise, become unequal.

    What would be the unintended consequences of attempting to force people to become equal? We would have to punish success and hard work and excellence, and reward the opposite.

    Do we want all students to make a C no matter hard they did or didn’t study? If an A student could only make a C, and they saw the D or F student making a C, how hard would that A student subsequently study?

    And, how hard would athletes compete if all they could achieve was the same score or the same salary, or both?

    Equality of any human activity can only be achieved by forcing or preventing people of greater ability to do less, and the net effect (unintended, of course) is that the over level of that activity is reduced – whether it be studying, or competing, or working hard.

    Have a nice unintended consequence….

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    • Is anyone here arguing for perfect, complete equality? I don’t see anyone arguing it.

      I do see people – myself included – arguing that the disparity is large enough to be a major problem in need of remediation.

      We’re in no danger of a Harrison Bergeron society here, but we are in a position where corporate serfdom and “owning people” could become a reality. A few corporate mergers from now, maybe the corporate bank winds up owning your mortgage and demands you pay it off before you can look for work outside the company…

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            • My criteria are rather simple.

              – Is the disparity temporary in nature, or is it consistently growing over time in a manner that will necessarily approach totality if unchecked?

              – Is the disparity so great that the economic force exerted by a very few individuals is greater than the economic force that can be collectively exerted by the majority of the population?

              To both of these questions, the answer is an obvious yes. For more than 3 decades following the economic masturbatory cycle started under Reagan-era deregulations, the disparity has grown and shows no sign of stopping or receding. Over 50% of the total wealth in the USA is controlled by less than 400 people.

              Do you dispute that the answer to either of my two criteria is yes?

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              • I think your first criteria is lousy. Any growth rate will approach totality if unchecked. You need something more serious than that.

                And I’m not sure how you intend to prove your second measure, other than to just claim it’s so.

                By the way, if you actually want to be taken seriously in this discussion, you should avoid phrases like “economic masturbatory cycle,” unless you’re being clearly tongue-in-cheek. It makes you look frantically ideological, rather than intelligently thoughtful.

                . Over 50% of the total wealth in the USA is controlled by less than 400 people.
                Cite? According to Wikipedia, “In 2007 the richest 1% of the American population owned 34.6% of the country’s total wealth…” 1% of ~300 million people is 3 million people. If you can show me that we went from 3 million people owning just over a 1/3 of the country’s wealth to a mere 400 owning over 1/2 in only 5 years, I may be inclined to agree that we have a problem and not ask for any more stringent criteria.

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                • Hmmm. That statistic may be doubtful in and of itself. But it brings to mind an observation and question.

                  1. To own and asset is not necessarily the same thing as controlling and asset. I.e., corporate and financial managers control and direct a hell of a lot of assets that they don’t personally own.

                  2. Given (1), just how is the actual control of capital distributed in our society? How does that affect distributional outcomes in general?

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                  • Also a fair point.

                    Elsewhere, I have seen people make the claim that elderly retirees in the middle class “own” a large percentage (actually, far less than 50%) of the stocks/bonds and mutual funds.

                    But they don’t “control” them. They don’t have voting rights to the stock owned by “investment vehicles”, they don’t have direct control over the buy/sell of any stock that may be in a particular “investment vehicle”.

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                • The six Waltons control more wealth than the bottom 30% of Americans, period.

                  The median wealth in the USA shrank while the wealth of the upper 1% grew from 2007 to 2012. And I see you are quoting inaccurate numbers; per the actual study by William Domhoff rather than what got poorly quoted by a Forbes opinion columnist and then parroted through Wikipedia (which is why it’s important to fact-check Wikipedia), in 2007 the percentage of financial wealth owned by the top 1% was 42% and that was PRE-recession and pre-bailouts.

                  In 2007, the top 1% owned more than 50% of the stocks, bonds, and mutual funds. This number has only increased in the recession as a large percentage of the middle class were forced to cash in 401(k)s and raid other retirement accounts to make ends meet, and elderly retirees were forced to withdraw more equity from their retirement savings rather than being able to live on interest and returns.

                  In order to find a time when the top 1% have taken a larger share of yearly income in the USA, you have to go all the way back to the 1920s.

                  CEO pay is up 300%; corporate profits are up 100% despite the recession; the S&P 500 is up 140%; and yet worker pay and the minimum wage are flatlined.

                  400 people control more of the country’s wealth than the bottom 60% combined.

                  Can you tell me, without laughing, that you think this is not a problem?

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                  • “The six Waltons control more wealth than the bottom 30% of Americans, period.”
                    “400 people control more of the country’s wealth than the bottom 60% combined.”

                    I have no objections to the rest of the points you make in this comment, but whenever I see these two statistics thrown out, I confess to rolling my eyes. It’s not because these statistics are incorrect, but is instead because net worth is a terrible metric by which to judge inequality. I addressed this last year here:
                    https://ordinary-times.com/blog/2011/12/16/missing-the-forest-for-the-walton-trees/

                    Simply put, while the Waltons have a greater net worth than the bottom 30% of Americans combined (in fact, it’s actually closer to 40%, FWIW), so does a family of four on welfare, living in a rented apartment with no car and ancient furniture that is falling to pieces.

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                    • If you disagree with that as regards net worth – debt is force. The reason net worth for the bottom 30 or 40% is so low has a lot to do with predatory lending, and is also tied into the bubble cycles that have plagued us since the deregulatory insanity beginning in the 1980s.

                      If six people have more net worth than the bottom 40% of Americans, they have that much economic force concentrated in so few hands. Chew on that for a bit.

                      Now, net worth isn’t the best measure, I agree. That’s why I pointed out to James Hanley that the appropriate statistic from what he was cribbing badly off of a badly written, poorly sourced Wikipedia article is the financial wealth disparity. And Rod was kind enough to point out something that I had even forgotten about, which is that “owning” something by proxy – via mutual funds or other “investment vehicles” – means ownership without control, which shifts that much more coercive power to the one-percenters who run the “investment vehicle” market.

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                    • That’s why I pointed out to James Hanley that the appropriate statistic from what he was cribbing badly off of a badly written, poorly sourced Wikipedia article is the financial wealth disparity

                      Eh, no. You didn’t “point out that the appropriate statistic was…financial wealth.” You said my number was wrong (which it wasn’t), and you just shifted to the term “financial wealth” without ever making a point of distinguishing it from “wealth.”

                      And both the Wikipedia and Forbes article accurately reported Domhoff’s numbers, so your “poorly sourced” statement is bullshit. (“Badly written” is possibly correct, though; I didn’t bother reading for style.)

                      Finally, “financial wealth” is not the better statistic because it underplays the actual wealth of many Americans.

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                    • The reason net worth for the bottom 30 or 40% is so low has a lot to do with predatory lending, and is also tied into the bubble cycles that have plagued us since the deregulatory insanity beginning in the 1980s.

                      Maybe, maybe not – there is after all such a thing as “good” debt, and there are a number of remarkably wealthy people at any given moment in time who have a “negative net worth” (e.g., Donald Trump was forced to declare bankruptcy once even though he was already known as The Donald) . Additionally, because so much of “net worth” is tied into fairly volatile home ownership equity, and most home owners at any given time aren’t looking to sell their homes or dip into their equity, “net worth” is an almost entirely theoretical value.

                      If six people have more net worth than the bottom 40% of Americans, they have that much economic force concentrated in so few hands. Chew on that for a bit.

                      This is incorrect, or at least stretches the point to the absurd- if my hypothetical family on welfare has more net worth than the bottom 40% of Americans, then you’d also have to say that this hypothetical family “has that much economic force concentrated in so few hands.” Again, “net worth” is purely a theoretical value.

                      One other thing that is important, and which would dramatically change these figures is that they exclude defined benefit pension plans, Social Security, and Medicare. There are good reasons for this, but it further renders “net worth” a useless metric for inequality.

                      I appreciate that there are other metrics for inequality that are far more useful, and I’m increasingly sympathetic to the argument they present, but the use of the “net worth” metric does more harm than good to the argument and I would love to see it removed from the debate.

                      And Rod was kind enough to point out something that I had even forgotten about, which is that “owning” something by proxy – via mutual funds or other “investment vehicles” – means ownership without control, which shifts that much more coercive power to the one-percenters who run the “investment vehicle” market.

                      This is something that’s been on my mind the last few days. I think there’s potentially a lot to this line of argument and would like to see it explored in more depth.

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                    • The wealth at or towards the bottom really is a lousy metric. My wife and I were in “Negative wealth” territory until last year and we will be again as soon as we buy a house. Meanwhile, when I was 22, I had positive wealth because I had money in the bank and no debts. My situation is hardly unusual in this regard: Young people don’t have much. People who are buying a house pull the numbers down while people who rent pull the numbers up even though it’s not clear that the buyer is poorer in any real sense than the renter.

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                  • OK, so you can’t demonstrate that 400 people own over 50% of the wealth in the U.S? But you won’t just admit that, yes, that was an error? Instead you throw out a bunch of other statistics to paper over your error?

                    As to your fact checking of Wiki with reference to Domhoff… First, it’s pretty ballsy to throw out a false figure with no sourcing whatsoever, then criticize someone else for not fact checking their source carefully enough. I mean, just, wow.

                    Second, you’re sort of wrong about that. Domhoff’s own page says, “As of 2007, the top 1% of households (the upper class) owned 34.6% of all privately held wealth.” Aha, so I wasn’t wrong after all, and your jibes about Forbes and Wiki are just more substitution of pejoratives for actual substance.

                    Third, I see you moved the goalposts, changing the criteria from “wealth” to “financial wealth.” My reference was to wealth. Of course limiting that to financial wealth is going to come up with a different result. It doesn’t mean I was wrong, though–it means you chose a different criteria then falsely claimed I was wrong.

                    Wealth as a whole is more than only financial wealth. I have property that I own free and clear–it doesn’t show up in the financial wealth statistics, but it’s wealth nonetheless. That’s really important because for the lower middle class and poor, their biggest source of wealth tends to home ownership. You conveniently cut that out and it makes them look worse off, by discounting their most important item of wealth.

                    I might be inclined to address the substance of your post when you quit acting like a cable news show host.

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                    • If I provide one statistic that shows it one way, you’ll hunt up another that shows it another. Or you’ll insist that one category of control is really “controlled” by someone else. And I’m not going to get into games where you dodge the questions by being deliberately pedantic.

                      You insist that “home ownership” is control of wealth by the homeowners, but until all the liens on that home are paid off, that home’s owned by the bank and controlled by the 1% up top in the banking system.

                      Third, I see you moved the goalposts, changing the criteria from “wealth” to “financial wealth.” My reference was to wealth. Of course limiting that to financial wealth is going to come up with a different result.

                      So how do we define “wealth” now? Is it financial wealth? “Wealth” encumbered by liens? Other figures use Net Worth, but Mark disagrees with that as a good measure and while I disagree with his point regarding the coercive force exerted on the basis of Net Worth, he at least explained where he’s coming from on it which is more than I have yet to see you willing to do.

                      So I provided you a variety of very real examples of inequality, all current, and all related to the problem of entirely asymmetric and overwhelmingly broken economic coercive force concentrated into the hands of a very few. I asked you to answer a very simple question: do you, or do you not, agree that the coercive economic force concentrated in very few hands as demonstrated by those statistics is a problem?

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                  • pull me the numbers on the top 1% owning more than 50% of stocks etc.
                    I had 75% of money in stock market as dumb money, and the rest as being run by 200 Companies of smart money (hedges et alia)

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  10. I think a primary problem with this precis is that you’re arguing about government and economic models as if they’re interchangeable.

    Authoritarian, centralized states can have free market economies. Limited and decentralized governments can nonetheless restrict economic activity.

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  11. earlier he states that “markets are supposed to be stable.”

    Classic neoliberal economic theory. But totally wrong. Schumpeter and Hayek demonstrated that markets are dynamic processes, not equilibrium outcomes.

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      • Eh, maybe, but I don’t think so. Equilibrium analysis is tremendously useful for micro-economic analysis, but in the big picture economy a good innovation that upsets the EQ is always rewarded. There is a tendency toward equilibrium in that new innovations are always copied and the profits associated with it competed away, but because of the rewards of innovation (and the seeming human propensity to like novelty) I think the market chases disequilibrium just as much as equilibrium.

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  12. As far as I can determine there are seven elements of the human condition that lead to wealth:
    Education/intelligence
    Skill/training
    Determination
    Entrepreneurial ability
    Fortune/circumstance
    Exercise of power
    Criminal activity

    Some obvious and current examples:
    Education/intelligence – Bill Gates, Steve Jobs
    Skill/training – Kevin Durant, Lebron James – NBA basketball
    Determination – Oklahoma City Thunder, NBA Basketball
    Entrepreneurial ability – Donald Trump
    Fortune/circumstance – The Walton family
    Exercise of power – Most wars of conquest
    Criminal activity – Bernie Madoff

    Certainly, there are countless other examples. The first four we have some control over and for most people are reasonable and honest paths toward the accumulation of wealth. All four do not need to be present in ones life in order to create wealth, but some combination of the above appears necessary, given a lack of fortune/circumstance.

    These traits and conditions are not equally distributed in the population and as a result wealth is not equally distributed. This unequal distribution of wealth has been with us since the beginning of recorded history.

    And, historically speaking, when the inequality became intolerable, revolution followed. After revolution, there occurred a period of terror, economic collapse, and eventually, things became stable, and unequal again. This is one of the Lessons of History, as discussed by Will and Arial Durant in their classic book. The French and Bolshevik revolutions come to mind as recent examples.

    So, it appears as if inequality is a natural outcome of the human condition, and that there is an optimum level of inequality that leads to progress, social stability, and economic growth. The question remains, what IS the ideal level – how do we measure it, and what, if anything, should we do to change it?

    Perhaps the cure is worse than the disease – the “fix” worse than the problem. Back to the law of unintended consequences of good intentions…

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    • Good observations here. They’re along the lines of an argument I’m working into my larger forthcoming essay, to the effect that not all property is created equal: some kinds of property are infused with moral significance (e.g., that which I grow, catch, kill, gather, or find), while other kinds are not (e.g., rents from the state, property obtained fraudulently or unethically, including from certain kinds of information asymmetries, etc.). And in between these examples at opposite ends are all sorts of hard cases. Every state allows shareholders to collective into a single legal and economic unit, the corporation, which thereafter has an upper hand in negotiations with labor. If labor is less privileged in its ability to collectivize against the shareholders/corporation, does the shareholders’ property, i.e., in their dividends, enjoy moral status, or is it bare legal title?

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