Income Inequality

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Cosima___J
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Income Inequality

Post by Cosima___J » Wed Jan 29, 2014 11:28 am

Facts are interesting things. They can be manipulated and massaged to prove just about anything you want to prove.

Take Income Inequality. I've read so many articles about how that inequality has been increasing. But here's an article that presents the subject in a new light:



Debunking the top three myths about income inequality

Published: Tuesday, 28 Jan 2014 | 12:11 PM ET
Robert FrankBy: Robert Frank | CNBC Reporter and Editor

Upward mobility in the US
Tuesday, 28 Jan 2014 | 2:50 PM ET

Inequality right now is at the same level as it was in 2000 and 2007, reports CNBC's Robert Frank, but people are hearing about it more because people are facing worse times.

In his State of the Union Address on Tuesday night, President Barack Obama is expected to take sharp aim at wealth inequality.

He'll propose a hike in the minimum wage, extended unemployment benefits, and more funding for education and skills improvement.

He is also likely to contribute to several persistent myths about the increasing gap between the rich and everyone else.

There is no question that income inequality in America is high compared with other countries as well as with the three decades in the U.S. after World War II. And a consensus is growing among business leaders, politicians and even conservatives that more must be done to help those at the bottom better adapt to a more global, technology-driven world.

But as the country wrestles with one of the most fundamental issues of our time, three key myths beg to be corrected.

MYTH 1—Inequality is rising to the highest levels ever. The most common argument used is that the top 1 percent is taking more of the national income pie than ever before. In fact, the group's share of income (including their capital gains) is lower than it was in 2007, when it hit 23.5 percent. In 2012, the most recent period measured, it was 22.46 percent.

The share of income going to the top is also less than 1 percent above where it was in 2000 (21.52 percent). The years 2000 and 2007 were good economically, but few people were complaining about inequality then because overall employment was higher.

That doesn't mean this level of income inequality is low or acceptable—over the past three decades, the share of income going to the top 1 percent has more than tripled. But that it's at levels similar to those in 2000 and 2007 means that the attention given is not consistent with the actual income gap.


MYTH 2—Helping the poor will solve inequality. There are plenty of reasons to provide more help to America's poor and marginalized, underemployed, undereducated or underpaid. But even if all the president's efforts are successful, they won't substantially change inequality as measured by income or wealth statistics.


Statistical inequality has been driven almost entirely by the soaring fortunes of a small number of winners at the top of the economy, rather than by the declining fortunes of those at the bottom. According to the Congressional Budget Office, real after-tax incomes for the bottom 20 percent grew 49 percent between 1979 and 2010, while incomes for the top 1 percent grew by 201 percent over the same period.

Further, the growth at the top actually was driven by the top .01 percent, which saw their average annual income grow more than six times, to $17.1 million from $2.7 million. More importantly, the vast majority of that increase was driven by stock market gains—and most were one-time events such as a stock sale or grant. That leads to our third myth.


MYTH 3—The rich are a permanent club choking off opportunity for the rest. Of those who made $1 million or more, half were millionaire earners for only one year between 1999 and 2007. Only 6 percent were millionaire earners for the whole period.

Among the top 400 earners in America, 73 percent made the 400 list for only one year between 1992 and 2009. Only 15 percent made it more than two years.

As the IRS said in a June 2012 analysis of the dynamics of high earners, "The data reveal a mostly changing group of taxpayers over time."

One of the most comprehensive studies on upward mobility—the odds of moving up or down the income ladder—shows that mobility hasn't appreciably changed over the past 20 years even as inequality grew and fluctuated.

The study, by Raj Chetty, points out that mobility in the U.S. is still a fundamental problem. But mobility has not gotten worse among children in the middle fifth of the income scale—about 20 percent reached the top fifth.

So yes, the president and Congress should do more to improve inequality of opportunity in the U.S. But inequality of incomes and wealth are unlikely to drop unless there's a major stock market crash. And that won't make anyone richer.

—By CNBC's Robert Frank.

John F
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Re: Income Inequality

Post by John F » Wed Jan 29, 2014 12:53 pm

I don't think this addresses the real concern, which is that incomes for the middle class (not to mention the poor) have stagnated or even fallen for many years while the incomes of the top x% have increased sharply over that period. Crunching the numbers from one year to the next doesn't compute, any more than measuring the temperature in your home town gives you a handle on global warming. And by the way, the argument isn't about income inequality per se - nobody claims that every one of us should have exactly the same income as everybody else. It's about gross disproportion which not only feels unfair, but chokes our consumer economy when the mass of people don't have enough disposable income to spend on anything beyond housing, food, clothing, transportation, and health care. At least that's how I see it and how I understand the real argument, as opposed to Robert Frank's piece.
John Francis

Cosima___J
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Re: Income Inequality

Post by Cosima___J » Wed Jan 29, 2014 1:09 pm

John, I agree with you completely. That's why I started the post noting that facts can be manipulated and massaged to support any kind of argument.

John F
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Re: Income Inequality

Post by John F » Wed Jan 29, 2014 2:16 pm

When I worked for Norton, we published a cool little paperback titled "How to Lie with Statistics." Every trick is in the book. :)
John Francis

jbuck919
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Re: Income Inequality

Post by jbuck919 » Wed Jan 29, 2014 2:45 pm

John F wrote:When I worked for Norton, we published a cool little paperback titled "How to Lie with Statistics." Every trick is in the book. :)
An old friend.

I was interested to see that at the recent economic meeting in Davos, Switzerland, where the main topic was income inequality, the House of Representatives (which like everyone else was invited to participate) chose to send an all-Republican delegation headed by Paul Ryan. In other words, people who will never be convinced that income inequality is a problem (or is less of one that anything the government might do to reduce it) and are doing their legislative mightiest to make it worse. No offense to Cosima, who it seems is among those Republicans who understand that it is a problem if only on the non-ideological grounds laid out in John F's post.

There's nothing remarkable about it. All one has to do is hit the right keys at the right time and the instrument plays itself.
-- Johann Sebastian Bach

barney
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Re: Income Inequality

Post by barney » Wed Jan 29, 2014 4:37 pm

Well, I too agree with John F, yet found Frank's article fascinating. Thanks for posting it - he makes some points that I didn't know, especially the impermanence of the weathy. One would expect some variation, of course - but only 15% on the list more than two years!

lennygoran
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Re: Income Inequality

Post by lennygoran » Wed Jan 29, 2014 8:06 pm

Cosima___J wrote:
Take Income Inequality. I've read so many articles about how that inequality has been increasing. But here's an article that presents the subject in a new light:
Cosi for me the important thing is this--the top 1% are getting richer and they are buying the Congress with their wealth and the Supreme Court has allowed it. Regards, Len :(

rwetmore
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Re: Income Inequality

Post by rwetmore » Wed Jan 29, 2014 8:53 pm

Income inequality is at the very essence of capitalism, and is the primary reason capitalism works so well. The inequality is actually what allows the those on the bottom to live at a fairly high standard compared to the rest of the world. It's also what gives them the best chance to improve their income and move up from the bottom. We would be far better served with an environment that generates more rich people than fewer 'poor' people, and this includes the 'poor' themselves since many are using social programs designed to help the poor - programs that are mostly funded by the wealthier citizens. However, this is (and has long been) 'forbidden knowledge', especially by the political establishment that wants the masses to think otherwise.

Imposing high taxes on 'the rich' as means of raising up the bottom is a big fallacy (one of the biggest out there actually). This is for two simple reasons: The first is that by raising taxes on the top bracket, your mostly raising taxes on those who are trying get rich, i.e. the small business owner that employs most people, including especially those more toward the bottom. This serves to deincentivize small business ventures, thus reducing the number of those who even try (or are successful/profitable), thus reducing employment opportunities for those more toward the bottom trying to raise themselves up by finding better and higher paying jobs. The second reason is often the most overlooked, but it is that the only way those more toward the bottom are going to truly raise themselves up is if they do it themselves. Anyone near the bottom waiting around for some politician to raise them up or increase their income, will wait their entire life and likely die poor or at the bottom.
"Most human beings have an almost infinite capacity for taking things for granted. That men do not learn very much from the lessons of history is the most important of all the lessons of history."
- Aldous Huxley

"Men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing has happened."
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lennygoran
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Re: Income Inequality

Post by lennygoran » Thu Jan 30, 2014 6:52 am

rwetmore wrote:Income inequality is at the very essence of capitalism, and is the primary reason capitalism works so well.
Have to disagree--I'd have to say you've been terribly brainwashed--those rich capitalists have created a plutocracy here in the US as they buy off our legislators--again thank you Supreme Court and Citizens United. Regards, Len :(

piston
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Re: Income Inequality

Post by piston » Thu Jan 30, 2014 8:05 pm

I just heard on the news that the US GNP grew this year to 3.2 percent because of American consumption. Some of this consumption is because Americans have more purchasing power. Some more is because they trust the economy will grow and consume on credit.

One thing is absolutely certain: when this income and this wealth is increasingly appropriated by one percent of the population, this GNP growth, based on mass consumption, is a no go. The one percent use this capital to invest in more stock and in luxury goods and consequently, there's little to no consumer demand from the masses. How many Porshes does it take to grow the GNP?!!!

Pump priming is a good idea. And this year's GNP growth demonstrates it.
In the eyes of those lovers of perfection, a work is never finished—a word that for them has no sense—but abandoned....(Paul Valéry)

piston
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Re: Income Inequality

Post by piston » Sat Feb 01, 2014 10:25 pm

You can "drop" 40 million dollars on a real estate investment or you can have 40,000 people spend one thousand dollars on the consumer market buying food, diapers, furniture, tools, clothing, and a variety of services. Which of these two scenarios do you think will most benefit the GNP?
http://www.realtytoday.com/articles/500 ... -house.htm
In the eyes of those lovers of perfection, a work is never finished—a word that for them has no sense—but abandoned....(Paul Valéry)

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