Greedy Capitalists Hogging Wealth Are Not Causing Income Inequality

[Ajax]

Very thought-provoking.  Faye or some other economist out there might be able to shed more light on the Gini coefficient. 

I couldn't figure out how to imbed the chart, but if you'll click on the link, it's there. 

http://reason.com/blog/2011/11/01/the-capitalist-economt-does-no

For all those interested in finding out the other half of the income inequality story that last week’s CBO study does not tell, here is some fascinating stuff from Political Calculation, a wonkish blog.

It produces three charts, displaying the Gini Coefficients of individuals, families and households in America from 1994 and 2010 that show that we can safely dial down the CBO-triggered gloom-and-doom that the capitalist system is generating vast disparities of wealth. (This data is superior to the CBO’s in at least one major respect: It is more current because it goes up to 2010. The CBO’s ends in 2007 which means that it does not take into account the post-recessionary losses that the much-reviled top 1 percent experienced.)

The charts show that although there is a slight increase in income inequality for U.S. families and households, there is absolutely no significant change in the inequality among U.S. individual income earners from 1994 through 2010. (A Gini Coefficient of 0 indicates perfect equalityâ€"everyone has the same incomeâ€"and a value of 1 indicates perfect inequalityâ€"one person has all the income, while everyone else has none.)



The CBO study's findingâ€"being shouted from roof tops by the leftâ€"that the top 1 percent of Americans have pulled ahead from everyone else was based entirely on household income. But the better metric to indict capitalism would be rising individual income inequality. Why? Explains the blog: “If income inequality in the U.S. was really driven by economic factors, this is where we would see it, because paychecks (or dividend checks, or checks for capital gains, etc.) are made out to individuals, not to families and not to households.”

So the real complaint of the left isn't about rising income inequality produced by markets, but rather, income inequality produced by how people choose to group together into families and households.

Says Political Calculation:

With a near rock-steady level of income inequality among individual income earners over time, it is only possible for income inequality to rise among families and households if the most successful income earners group themselves into families and households and if the least successful income earners likewise group themselves together into families and households as well.

Think about it. The reason that the income inequality levels recorded for families and households are lower than those for individuals are because most families and households may have one high income earner, who is balanced out by individuals within the families or households who have low or no incomes.

But, if people with very high income earning potential join together to form families and households, and increasingly do so over time, perhaps because such people might have things in common that make forming themselves into families and households an attractive proposition, then income inequality among families and households will increase.

The same holds true for the opposite end of the income-earning spectrum. If people with really low income earning potential join together to form families and households, or perhaps if they choose to split apart, and increasingly do so over time, then the resulting low income family and household will also make income inequality among families and households rise, even though there has been no real change in the amount of actual income inequality among individuals.

In other words, if rising inequality is limited to households and families and does not extend to individuals then the causes might have less to do with greedy capitalists in the American economy and more to do with other factors in the American society. These include: diminished social contact between the rich and the poor; rising divorce rates and the breakdown of families; fewer income earners in a household because of a lack of education, death or incarceration and so on.

If the left seriously wants to address inequality, these are the issues it'll have to focus on rather than fleecing poor rich people.

[buckethead]

[Ajax]

Thank you. 

[Tacachale]

^It's the title of the article, Stephen.

At any rate, I'm not buy this on their sayso. Speaking as someone with a wife, our individual incomes are less important than our joint income.

[finehoe]

it comes from reason magazine, which has a deep history of fake studies being published

How stupid do they think their readers are?  The CBO study looks at last three decades (starting in 1979), while this article says "no significant change in the inequality among U.S. individual income earners from 1994 through 2010."  The CBO report goes on to say that the Gini index for household market income rose from 0.479 in 1979 to 0.590 by 2007, an increase of 23 percent.  The index increased almost continuously during that span except for declines during the recessions in 1990â€"1991 and 2001.

[Ajax]

it comes from reason magazine, which has a deep history of fake studies being published, but i personally think the whole thing is a strawman.

Do people really believe that the current crisis is caused by a collection of evil montebanques coordinating a campaign to gleefully steal candy from babies and dentures from old women?

Ive never heard any of that nonsense from anyone except the strawmen arguments of the Right.

I think most people would agree that the current inequalities come instead from a system of economic laws that favor the ultra rich because they can influence policies better than the ultra poor.

I further would posit that most people think that the lopsided state of our broken economy can be fixed by changing those regulations and policies back to a position where everyone has a reasonably equal opportunity.

So Im wondering where Ajax came up with this idea about the 'greedy capitalists' rather than greedy capitalism?

Yes, there are people who believe there’s a collection of rich evil scoundrels at the top who are out to screw everyone else.  That’s part of what I’m hearing within the 1% vs. 99% argument.  I’m not sure how many of the OWS protesters believe that, but I believe that is at least part of their argument.   

Does Harry Reid believe that Republicans want to kill old people?  Or does Sarah Palin really believe that Obama wants to have death panels?  Probably not, but that doesn’t stop the rhetoric, and it doesn’t stop gullible people from believing it. 

I would agree that a huge problem is that the ultra rich have so much influence, but that argument is not mutually exclusive from the idea that there’s a rich 1% (or less) out to screw everyone else.     

In response to your question â€" I didn’t come up with the idea.  I cut & pasted the article and the title.  I thought the title of the article and the final paragraph were a bit over the top.  But wouldn’t “greedy capitalism” require “greedy capitalists”? 

Honestly, the more thought-provoking part of the post (for me) was the part at the end where the author discussed the effects of individuals pooling together their income into family income and the breakdown of the family unit.  As we see an increase in single parents â€" especially in lower-income communities â€" we should recognize that these trends will continue to increase income disparity, and will cause these single parents to rely even more on government assistance.  Are the social reforms of the last 30-40 years encouraging the breakdown of the family unit?  Does this dependence on the government (and the easy-out that it provides for deadbeat fathers) put people in “a position where everyone has a reasonably equal opportunity”? 

[Ajax]

Who?

Surely you can name a person in public life who believes this.

I'll skip over people like Cornell West and Michael Moore, and go to Joseph Stiglitz:

http://www.dailykos.com/story/2011/04/04/963212/-Joseph-Stiglitz-Unpretentious-Must-Read-On-Income-Inequality:-Of-the-1,-by-the-1,-for-the-1

[Ajax]

Speaking as someone with a wife, our individual incomes are less important than our joint income.

I think that's one of the points the author is trying to make. 

[Ajax]

The index increased almost continuously during that span except for declines during the recessions in 1990â€"1991 and 2001.

So it's possible that the coefficient has dropped since the CBO's last report in 2007? 

[Ajax]

But even if you don't believe in the concept of 'whores' you can certainly believe in moderation, intelligent choices, minimul planning to prevent catastrophes (like 99 children with 78 women) and a few rules of engagement, right?

Agreed.  And thanks for the sex talk. 

[bill]

Who?

Surely you can name a person in public life who believes this.

I'll skip over people like Cornell West and Michael Moore, and go to Joseph Stiglitz:

http://www.dailykos.com/story/2011/04/04/963212/-Joseph-Stiglitz-Unpretentious-Must-Read-On-Income-Inequality:-Of-the-1,-by-the-1,-for-the-1

Well then you must be reading something in the meta tags that I cannot see, because Stiglitz isnt saying that at all.  In fact, here is what he claims: 

He points out that tax policy is, traditionally, where we'll find the most obvious example of inequality. And, Americans now are "...doing inequality on a world-class level. And it looks as if we’ll be building on this achievement for years to come, because what made it possible is self-reinforcing. Wealth begets power, which begets more wealthg

seems like hes blaming tax policy, not the character flaws of the 'greedy capitalists'.

The top 5% pay well more than 50% of all income tax paid. That is world class inequality.

[JeffreyS]

I am sure the bottom 95% would like to earn enough to pay a higher percentage of the taxes.

[JeffreyS]

In the end the government has cleared corporations to try and get American workers to be competitive with China and India.  Rather than protecting American work as we did with Hamiltonian economics from the beginning of this country through to Regan. 

[Ajax]

Who?

Surely you can name a person in public life who believes this.

I'll skip over people like Cornell West and Michael Moore, and go to Joseph Stiglitz:

http://www.dailykos.com/story/2011/04/04/963212/-Joseph-Stiglitz-Unpretentious-Must-Read-On-Income-Inequality:-Of-the-1,-by-the-1,-for-the-1

Well then you must be reading something in the meta tags that I cannot see, because Stiglitz isnt saying that at all.  In fact, here is what he claims: 

He points out that tax policy is, traditionally, where we'll find the most obvious example of inequality. And, Americans now are "...doing inequality on a world-class level. And it looks as if we’ll be building on this achievement for years to come, because what made it possible is self-reinforcing. Wealth begets power, which begets more wealthg

seems like hes blaming tax policy, not the character flaws of the 'greedy capitalists'.

He is criticizing tax policy, but it's also a rebuke of the 1%. 

But one big part of the reason we have so much inequality is that the top 1 percent want it that way. The most obvious example involves tax policy. Lowering tax rates on capital gains, which is how the rich receive a large portion of their income, has given the wealthiest Americans close to a free ride. Monopolies and near monopolies have always been a source of economic powerâ€"from John D. Rockefeller at the beginning of the last century to Bill Gates at the end. Lax enforcement of anti-trust laws, especially during Republican administrations, has been a godsend to the top 1 percent. Much of today’s inequality is due to manipulation of the financial system, enabled by changes in the rules that have been bought and paid for by the financial industry itselfâ€"one of its best investments ever. The government lent money to financial institutions at close to 0 percent interest and provided generous bailouts on favorable terms when all else failed. Regulators turned a blind eye to a lack of transparency and to conflicts of interest.

The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this is something that the top 1 percent eventually do learn. Too late.

Edited to add the link to the Stiglitz article: http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105

[finehoe]

So it's possible that the coefficient has dropped since the CBO's last report in 2007?

It's quite possible, but the idea that that drop is significant is farfetched.

BTW, the report is not from 2007, it is from Oct. 2011:  http://www.cbo.gov/ftpdocs/124xx/doc12485/10-25-HouseholdIncome.pdf