AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (22 comments)

  1. Tino Sanandaji

    Excellent and important article, but I would quibble with one point:

    “Yet once you add back transfer and taxes, as the Congressional Budget Office does in its analysis, you find that government policy — including the tax code — has already been restraining the rise inequality.”

    That is not the only difference between Pickety& Saez and CBO. The CBO also makes a number of adjustments (household size, broader definitions of income, health care benefits etc.). Even before taking taxes into account, Pickety& Saez find that the top one percent earned 18.1% of income in 2009 while the CBO estimates 13.4%.

    http://www.cbo.gov/publication/43373
    http://elsa.berkeley.edu/~saez/TabFig2011prel.xls

    Inequality has been rising as Picket and Saez first demonstrated, but Pickety& Saez rely on a questionable methodology to exaggerate the magnitude.

    This is most important when estimating the income growth of the middle class. The CBO adjust for household size, employer provided health care etc. and finds middle class income rising by 35-50% since 1979, while Pickety and Saez data shows almost zero growth.

  2. the banksters and wall street gamblers are getting so rich ($100 million salaries) by gaming the system and NOT through education (unless you consider being taught how to game the system is “education”)

  3. Seattle Sam

    To quote from another context, WHAT DIFFERENCE DOES IT MAKE?

    If you’re one of those who think that taking down (or from) the successful will benefit you in some way, then why would you care how they became successful?

    Obama isn’t trying to punish the sinful; he’s exploiting one of the oldest motivations in history:

    They’ve got it. I want it.

  4. So the argument being made to justify the unprecedented wealth gap we now have in the US is that the top 1% are 500 times more educated and/or work 500 times harder than everyone else? And this at a time when the population as a whole is the most educated it has ever been and working longer hours with fewer vacations than it ever has.

    You truly have to be uneducated to believe the premises made by the 1% in their spin of things. Yea, right, survival of the fittest! Hooray for social Darwinism!

    1. Stuart Young

      Sadly Asies this is exactly true and easy to see. The majority of all the students in every city public school are functionally illiterate. Moreover even for kids who go to college the vast majority learn very little and don’t have the required intelligence to learn true college level work. Once you get past the top 50 colleges all the rest are mostly non-selective with low graduation rates and very little studying. Meanwhile the workload at the elite colleges has increased and the top 1% which is really the top 3-5% almost exclusively attend these top colleges because they are the students with IQ’s over 120. It is IQ that has created the income inequality because in today’s world there is no substitute for creative intelligence in boosting overall productivity.

      1. It depends on the major. You go into engineering and the sciences and you can expect not to be attending any pep rallies. Go into sociology or marketing and you can party down. And this is regardless of the school.

      2. nick werle

        bullshit

    2. “So the argument being made to justify the unprecedented wealth gap we now have in the US is that the top 1% are 500 times more educated and/or work 500 times harder than everyone else?”

      You’re trying to miss the point, aren’t you?

      First of all, “education” is relative. There is, after all, an enormous qualitative difference between a computer science degree and liberal arts mush. The push for everyone to get 4 year degrees of questionable value has resulted in a huge portion of the population with tens of thousands in student debt and a dilution of the relative value of being college educated. More supply of college grads, and a simultaneous drop in the quality of information they’ve acquired. This is hardly a guarantee that this “education” will necessarily raise incomes.

      Two, it isn’t generically “education” and the number of hours work the study’s authors are citing as the rise in equality, it’s the scarcity and value of their skill.

    3. I’d like to know what you base these ridiculous statements on. Just because we have kids with BS degrees waiting tables DOES NOT MAKE THEM EDUCATED. Spending $50,000 to get a degree in “women’s studies” or some other dumb degree DOES NOT MAKE YOU EDUCATED. I would, in fact, argue (and successfully) that you are clearly UNEDUCATED if you are too stupid to realize that some things have value and SOME DO NOT. I can mine dirt all day long, working my butt off………..BUT IT’S NOT WORTH MUCH. Welcome to the real world.

  5. One sarcastically says, “Hooray for social Darwinism,” a philosophy of the political Left, while another comments about “banksters,” without noting that the Fed as a government instrument is made up of such men while the Fed is essentially cash poor and undercapitalized. Yet another cites “middle class income rising” in the face of a record drop in labor participation rates. Let us not forget the massive national debt, which must be re-figured by adding in municipal, county, state and school systems’ public debt. The nation is not unequal. It is deeply mired in the corruption of paying for today’s “noble” causes on the back’s of tomorrow’s taxpayers. The element missing in all the politics of today is simple freedom. The concept requires a preposition, and that preposition is “from.” Freedom from debt is freedom from the kind of government the nation has grown to tolerate. It will come in the same manner that the implosion of the USSR surprised many, notably the federal government’s brightest and best who reported that failing economy as bigger and stronger than it proved to be. What is being seen in municipal bankruptcies is a microcosm of Obama’s inequality argument, for human and financial capital is fungible and moves in flight from the “1% versus 99%” sorts of redistribution arguments. In reality, one only need look at many in Obama’s circle, wealthy far beyond most of Americans and most certainly in the upper two or three percentile of all Americans. These are the manipulative people using redistribution politics, for only one purpose. To acquire more for themselves by keeping “inequality” arguments alive and loud. One considers Robert Reich’s recent piece in HuffPo about such inequality, all the while his income from public funds places him within the 95th percentile. Similarly, Rattner and Gore and the Clintons all are in that top bracket, courtesy of crony capitalism, a lingo which is anything but capitalism. Most of Congress is wealthy, as are most public university presidents, as examples of the “superstar” game reliant wholly on public funds and public debt to keep such funds flowing. The “1%” argument has always been spurious and envy-based, as one learns demagogues like Moore are in this economic class through disparaging it. Without government picking winners and losers as has been the politics of the last decades, true prosperity would b growing. With government picking “winners” one gets Solyndra and Detroit — examples of the temporary survival of the unfit — and the NSA’s enormous costs — one among many levels of gathering government — heaped onto the rising tide of public insolvency. One needs no study to dismantle anything; one only needs greater freedom from government and greater clarity from people who would trot out “social Darwinism” and lingo like “the 1%” and “banksters” in place of factual information. The facts are plain: freedom diminishes as government demands it tribute — a re-dis-tribute scheme in which those who produce are requiring to give up as tribute the results of productivity to those who do not produce. The story is centuries old, while its modern dress obscures this truth. Our “betters” seek their rents, once by the divine right of kings and now be the wisdom of social welfare government. In all cases, coercion is in force.

    1. This is the most “pedantic” bunch of garbage I have EVER read. I would recommend that you learn to write…not to impress, but to actually make sense. You take ten different sides hoping to appear to know what you are saying, when in reality, you do not. It would be helpful if you were to get all the facts, and then learn how to write for the purpose of “communicating” which is what solves problems. The Earth belongs to EVERY human being, not just the sociopaths who are hoarding its supplies at the expense of the less fortunate.

  6. Great blog! Add to it that median household income is $51,000 and household liability for Federal debt and entitlements is $752k. and the 1% will get stuck with the tab of the socialist party. http://confoundedinterest.wordpress.com/2013/08/17/whats-in-your-safe-declining-household-income-share-of-entitlements-at-607k/

  7. In Table 2 the “share” is given in fractions, not percentages. So 1.000 would represent the entire Forbes 400. According to the authors Finance has grown by about 16% (.160) since 1982. According to Ferguson in “Inside Job” and “Predator Nation” that’s less than half of what really happened. It’s precisely in this area that one would look for criminal activity, for rewards unjustified by increased productivity. So I would say that this study is crap and the AEI should by renamed the American Criminal Institute for publishing it.

  8. http://www.the-american-interest.com/article.cfm?piece=907
    This story is well-known. The criminality of the financial sector, its players ability to steal by corrupting the political and academic processes is undeniable. So why are you publishing such crappy justifications and obfuscations?

  9. What both sides gloss over is that Obama is partly responsible for the current and growing wealth inequality. Natures mechanism for redressing wealth inequality is bank failure and the massive deflation that results from it. When banks fail, the assets of the richest are wiped out more, because they have bigger accounts and no deposit insurance for most of their money. In our bailout driven economy, the assets of the richest have been artificially preserved. QE also helps preserve and expand wealth inequality be squeezing the middle class from both ends. Ultimately, a system reset is necessary, and it eventually will happen. The longer one waits, the more Epic it will be.

  10. http://www.the-american-interest.com/article.cfm?piece=907

    Take your lumps like men. Don’t erase this because it makes you look bad.

  11. Sambo Caesar (@Sambo_Caesar)

    A class that is reared in an environment, where nothing is little Johnnie’s fault, and his work ethic is quashed as something to be disdained. Undesirable. Creates a class of people perfectly happy in their laziness. Perfectly happy to play the system for minimal gain. Just fine with sitting on their asses mastering a TV remote control. Their will always be a growing divide when one part of society is content being low info, and lazy.

  12. The ONLY sub-set of the 1% that Barry needs to clip are his own cronies.

    The bizarre move to hyper-concentration is highly correlated with ACCESS TO LEVERAGE — and closeness to the Fedsury teat.

    That’s where all of the recent super fortunes have been made. They’re sort of a Daddy Warbucks — without the war.

    Big Media, Big Medicine, Big Pharma, Wall Street, Silicon Valley, Mega Banks and hangers on to such crowds intended to do good — but did very well, instead.

    Often they are the first to touch the newly minted monies spewed forth by the Fedsury.

    Thus, we have Mugabe on the Potomac.

    In a fiat financial system debasement of the currency equals a WEALTH TAX. It is untrue that the government is borrowing money. It’s PRINTING IT.

    Consequently, spending = taxation.

    They are mathematical identities in a fiat regime.

    It’s not as if todays ‘borrowed dollars’ will have any relation to their redeemed value.

    The Fedsury is going to have to ‘buy the duration’ so as to thwart a total collapse in the banking sector. Twist doesn’t go far enough.

  13. If Mr. Obama was more concerned about why upward mobility among the lower 99% is stuck and how to fix that then we would have a useful president.

    It’s not a fixed sized pie. It can grow. Work on that instead of punishing the successful and everyone will have a better chance at the American dream.

  14. This is an interesting article with good discussion. If you look back through history, you will always find the “Haves” and the “Have Nots”. Why? Several reasons; first, if you divided all the world’s wealth equally today, it would only be a short time until it was way out of balance again, because some people simply can’t make good decisions when it comes to money. They waste it. We have seen lottery winners go broke in a short time. Second, there will always be contributors to society, there will be those who work at a steady pace, and there will be slackers. These groups will eventually become the top 1%, the middle, and the poor working classes. Third, then you have folks who thirst for knowledge and make it a life long goal to learn everything they can, they become the highly educated. You have those who go into fields that require mediocre effort and those who just want to earn an easy degree with little to no effort. They will eventually “reap what they sowed.” I for one, would just like society to quit making excuses and accept that we generally get out of life what we put into it based on choices ( free will) that we have made. Now, there are extraordinary events that may occur ( i.e. illness, loss of job, loss of family members), which knock us off balance at times. It may even result in kicking us in a lower class, but with all the social programs in this country, we can get back to where we were if we really want to. It all comes down to personal choice, and the amount of effort you’re willing to give (see Vroom’s Expectancy Theory of Motivation). Bottom line, quit blaming the system, the big bad corporations, the college you went to, the school system, Mom and Dad, society and so forth and just make better choices!

    1. You neglected to mention a most important category; powerful thieves. For most of human history they were called aristocrats. Today they are called financiers in the English speaking world.

  15. nick werle

    extortion and exploitation

    Buffet, Facebook, Amazon did none of that,

    while others did. meaning the flawed study, can suggest anything, but can prove nothing

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