New Data Shows Income of Top 1% Has Grown 100x Faster Than Bottom 50% Since 1970(commondreams.org)
commondreams.org
New Data Shows Income of Top 1% Has Grown 100x Faster Than Bottom 50% Since 1970
https://www.commondreams.org/news/2019/12/09/staggering-new-data-shows-income-top-1-has-grown-100-times-faster-bottom-50-1970
10 comments
Not to sound defeatist, but we've now an endless amount of charts pointing to the significant changes that came as a result of political and economic decisions made in the 70s, including their effect on income and wealth inequality, and what has come from it?
We've had revelation after revelation in not only this regard, but also the exposure of the gaming of tax/visa/migration/residency/etc. laws to shelter the gains from those changes in an untouchable manner, and what has come from those?
What do we, as a society, want to do about this? What can we do about it? What are the side effects possible from any actions taken on it? Therefore, what will we do about it?
The answer is likely not much. We might elect someone Sanders-esque, but the result will be the middle earner taking a further pummeling. Eat the rich? Revolt? They're untouchable. There's a reason many have been building or acquiring elaborate "fall out" shelters in remote areas of New Zealand and elsewhere. It'd also probably be met with economic and societal collapse, and all that hidden money would come back to scoop up the deals in the remains.
I'm not saying something shouldn't be done, but good luck designing something that will continue our mutual relative safety, security and prosperity. Not to mention the high likelihood that if actions were taken and the shit did hit the fan, the likely candidates to have the finger pointed at them will be those of us in tech and those in finance, and when you can't access the CEO for a battering then the cronies who built their systems will probably do.
We've had revelation after revelation in not only this regard, but also the exposure of the gaming of tax/visa/migration/residency/etc. laws to shelter the gains from those changes in an untouchable manner, and what has come from those?
What do we, as a society, want to do about this? What can we do about it? What are the side effects possible from any actions taken on it? Therefore, what will we do about it?
The answer is likely not much. We might elect someone Sanders-esque, but the result will be the middle earner taking a further pummeling. Eat the rich? Revolt? They're untouchable. There's a reason many have been building or acquiring elaborate "fall out" shelters in remote areas of New Zealand and elsewhere. It'd also probably be met with economic and societal collapse, and all that hidden money would come back to scoop up the deals in the remains.
I'm not saying something shouldn't be done, but good luck designing something that will continue our mutual relative safety, security and prosperity. Not to mention the high likelihood that if actions were taken and the shit did hit the fan, the likely candidates to have the finger pointed at them will be those of us in tech and those in finance, and when you can't access the CEO for a battering then the cronies who built their systems will probably do.
This is not a historically unsolved problem. It just has to get to the point where enough poor people are starving, and then the rich plus a lot of random bystanders just get killed in a mass event.
Some of these problems feel larger than life because they are.
I think our generation (I'm early 30s) is spoiled because we receive the benefits of great problem solving all the time in the form of continually progressive improvement in all aspects of society. We've come to expect that things should always improve, because so many things improve tremendously year over year.
But what we don't see is how they improve. For instance, the amount and quality of work that goes into making our phone better and better amounts to thousands of years of research and expertise every year, and we (by and large) take it for granted.
You can use the market to approximate the amount of investment. 2.2 billion iphones sold in it's history, at around 1000$ each = 2 trillion in revenue. Assume about 5-10% goes into research, and your iphone has about 10-20 billion dollars of investment into it. That's 7000 years of a 300k salary amount of effort. This is back of napkin and can be off by an order of magnitude, but I'm trying to put into perspective how much effort is needed to create really meaningful, great solutions / products. Not just lifetimes, generations of generations of lifetimes.
> What do we, as a society, want to do about this? What can we do about it? What are the side effects possible from any actions taken on it? Therefore, what will we do about it?
The honest truth is that if you don't have talent or money, you can't do anything but play your role. Welcome to the 21st century. You're not the R&D engineer in the iPhone ecosystem; you're the consumer. You're one of 2.2 billion.
Now, consumers do have power in the market - they can refuse to buy goods and services. They can leave the ecosystem. They can complain. They can boycott. But in the consumer model, this only serves to provide awareness of the problems so that the real engineers can fix them.
Similarly, the economic changes that the US is going through is not something that normal people can make positive change. We need talent and hard work applied to the problem to create, test, and deploy real solutions.
If you think this is not true, imagine replacing the head of R&D at Apple for the next generation iPhone with an average American (or just yourself).
A lot of people feel helpless because they see a problem but are unable to solve it. But actually, if you just play your role, things will likely be solved. The consumer market actually works pretty well - it just takes time and some systems are more competent than others. Just playing your role as a consumer that can complain, can speak out, and can demand solutions, is usually good enough.
The other option is not something most Americans want to hear. Work on yourself to become a lot better than you are. Think a lot harder than you currently do. Become a better manager of resources, become a better strategic thinker, become addicted to solving harder and harder problems. Eventually (give or take 10-20 years), you'll become someone who is talented and capable enough to be given the harder problems of the world to solve.
I think our generation (I'm early 30s) is spoiled because we receive the benefits of great problem solving all the time in the form of continually progressive improvement in all aspects of society. We've come to expect that things should always improve, because so many things improve tremendously year over year.
But what we don't see is how they improve. For instance, the amount and quality of work that goes into making our phone better and better amounts to thousands of years of research and expertise every year, and we (by and large) take it for granted.
You can use the market to approximate the amount of investment. 2.2 billion iphones sold in it's history, at around 1000$ each = 2 trillion in revenue. Assume about 5-10% goes into research, and your iphone has about 10-20 billion dollars of investment into it. That's 7000 years of a 300k salary amount of effort. This is back of napkin and can be off by an order of magnitude, but I'm trying to put into perspective how much effort is needed to create really meaningful, great solutions / products. Not just lifetimes, generations of generations of lifetimes.
> What do we, as a society, want to do about this? What can we do about it? What are the side effects possible from any actions taken on it? Therefore, what will we do about it?
The honest truth is that if you don't have talent or money, you can't do anything but play your role. Welcome to the 21st century. You're not the R&D engineer in the iPhone ecosystem; you're the consumer. You're one of 2.2 billion.
Now, consumers do have power in the market - they can refuse to buy goods and services. They can leave the ecosystem. They can complain. They can boycott. But in the consumer model, this only serves to provide awareness of the problems so that the real engineers can fix them.
Similarly, the economic changes that the US is going through is not something that normal people can make positive change. We need talent and hard work applied to the problem to create, test, and deploy real solutions.
If you think this is not true, imagine replacing the head of R&D at Apple for the next generation iPhone with an average American (or just yourself).
A lot of people feel helpless because they see a problem but are unable to solve it. But actually, if you just play your role, things will likely be solved. The consumer market actually works pretty well - it just takes time and some systems are more competent than others. Just playing your role as a consumer that can complain, can speak out, and can demand solutions, is usually good enough.
The other option is not something most Americans want to hear. Work on yourself to become a lot better than you are. Think a lot harder than you currently do. Become a better manager of resources, become a better strategic thinker, become addicted to solving harder and harder problems. Eventually (give or take 10-20 years), you'll become someone who is talented and capable enough to be given the harder problems of the world to solve.
How do you feel about individuals that have money, but arguably lack talent themselves. That is, people who have acquired resources through inheritance / luck, then grown them through investment strategy executed by those with talent and the simple nature of exponential growth?
I feel like this type of wealth in particular is commonly used for personal empire building and doesn't benefit society much at all as it ends up being hoarded for future generations of the same family (or passed back and forth between wealthy families) and not circulated amongst the general population. I see no reason to think that these empires will not be increasingly strengthened by time without outside intervention.
If you happen to work in a growth area then you may catch some relatively minor benefits of cash infusion, but the overwhelming trend seems to be using money to buy more money to insulate and protect oneself rather than using money to improve the quality of all human existence. Money currently flows to where the biggest ROI is and not necessarily where the biggest impact in standards of living can be made. To me, this seems tantamount to running up the score at the expense of everyone else when you've already won.
I think this is just normal human behavior that won't change without incorruptible regulation.
I feel like this type of wealth in particular is commonly used for personal empire building and doesn't benefit society much at all as it ends up being hoarded for future generations of the same family (or passed back and forth between wealthy families) and not circulated amongst the general population. I see no reason to think that these empires will not be increasingly strengthened by time without outside intervention.
If you happen to work in a growth area then you may catch some relatively minor benefits of cash infusion, but the overwhelming trend seems to be using money to buy more money to insulate and protect oneself rather than using money to improve the quality of all human existence. Money currently flows to where the biggest ROI is and not necessarily where the biggest impact in standards of living can be made. To me, this seems tantamount to running up the score at the expense of everyone else when you've already won.
I think this is just normal human behavior that won't change without incorruptible regulation.
The underlying issue that a unit of capital is intrinsically more valuable than a unit of labor in the current shape of our economy. From the perspective of what's broken, it's not who has the capital that is broken. It's that between capital and labor, capital is too powerful and over time most ROI will end up being earned from capital.
In my view, people who have money should not be separated between those who have talent and those who don't because for the vast majority, money is stronger than talent at ROI, and therefore carries more weight (in our current economy). Talent, sadly, is both the outlier and the rounding error.
Also, when talking about the economy, it's not really about improvement of standard of living - that's the side effect. The key issue is actually distribution.
If you look at Amazon, it's lowering the cost of goods and making it faster / more convenient to get them - arguably, that's a higher quality of life for its consumers. The only issue with Amazon is that it's doing the job so well that many of the very same consumers lose their job and can't consume anymore.
Rich people who create personal empires have their money stored somewhere. They probably bought some companies stock that are making improvements to people's lives, so indirectly their money is being used to improve standard of living globally. The issue is not improvements, it's who gets the money.
The plain fact is that in our current economy there's just not enough value that labor can provide to get enough share of our global monetary supply. Capital is eating it up, no matter if it comes from inheritance, from financial institutions, or rich tech conglomerates.
You can try to solve by either reducing the return on capital as a whole to match labor, or increasing labor's ability to get returns equal to capital. The first can be done by a tax on wealth that can't be loop-holed out of - unsurprisingly, quite hard to do. The second can be done by improving labor's value through making people work harder, take less wages, or become more skilled - also very hard to do.
But even if you manage to equalize capital and labor return temporarily, capital is always getting more efficient over time, while labor will be largely stagnant (unless we modify our genes on a societal level to increase our ability to work). So while we can level the playing field temporarily, eventually we need to explore how labor can exit the economy altogether.
2 reasons - first, the only winning strategy of labor right now is to become capital. That doesn't sound sustainable. Second, it just doesn't make sense for (certain parts of) labor to be in the economy anymore.
For instance, we have the technology and systems to fully automate our cashiers in restaurants. Why keep someone there? I understand the need for fulfillment, social life, and something to do, but can't we as a society come up with something better than working an assembly line at a McDonald's?
We grow up with the assumption that we should work for our existence and our value is based on the work that we do. If we don't work, we don't eat. If we don't work hard, then we deserve everything bad that comes to us. Conversely, if we work hard, then we deserve the money that comes.
But the reality is that rich people don't have to work hard. If you inherit a couple million, you can just throw it in an index fund and not have to do anything for the rest of your life, and "earn" substantially more than the 99% of the population.
Capital > Labor is not just an economic crisis, it's a values crisis. It calls into question almost everything we believe about our self worth. In many ways, it's our belief in the value of our hard work, not the system of capitalism, that is preventing us from making good solutions.
From a pure systems point of view, economics does not need to be fair to work. The economy is just how resources get distributed, so we could yearly collect and throw the world's money into a pot and roll a dice to see who gets what, and that's an economic system. It's not fair but it is a distribution. We have strong opinions of what is fair because much of our self worth is tied up in what we do.
Currently, the capitalist economy says the people who can generate the highest ROI deserves most of the resources. This… is not wholly bad, it generally means that people who know what they're doing get to manage most of the resources of the world. But with the emergence of tech and winner-take-most companies, it creates a larger and larger group of people who, based on the distribution rules of the current economy, don't get anything, and this is bad because it creates a situation where slavery or starvation is the typical livelihood of the 21st century.
One solution is universal basic income. UBI is basically the admittance that labor will never become competitive in our economy again, and that we should look for other ways to distribute resources to them because market forces ain't going to give anything to them.
I actually think UBI is one of the only solutions. But it only scratches the surface of the issue. Beyond income, there's structure, affirmation, goals, promotion, social status, social interaction, belonging on a team, and more built into the social fabric of work. Even if we give income to people who are forced out of the workforce, there's still a lot missing.
But I don't think capitalism should be completely thrown out. The very same tools that you use to build a successful ROI generator can also be used to solve hard problems that don't give ROI. One positive example I think about is the goal to reduce cases of malaria to zero. This is tough! But it's an activity that can potentially create a lot of value - just that you don't capture it directly yourself. And you don't fund it based on your profits, you fund it based on people who align to the cause, want to invest in the cause, and believe you capable to use the money well to actually tackle the problem instead of wasting it.
At the highest level, the truly scarce resource is never the lack of money; it's the lack of ability (talent). So, even though from an ROI perspective, talent isn't as good as money, if we expand our values beyond ROI, talent becomes paramount.
In my view, people who have money should not be separated between those who have talent and those who don't because for the vast majority, money is stronger than talent at ROI, and therefore carries more weight (in our current economy). Talent, sadly, is both the outlier and the rounding error.
Also, when talking about the economy, it's not really about improvement of standard of living - that's the side effect. The key issue is actually distribution.
If you look at Amazon, it's lowering the cost of goods and making it faster / more convenient to get them - arguably, that's a higher quality of life for its consumers. The only issue with Amazon is that it's doing the job so well that many of the very same consumers lose their job and can't consume anymore.
Rich people who create personal empires have their money stored somewhere. They probably bought some companies stock that are making improvements to people's lives, so indirectly their money is being used to improve standard of living globally. The issue is not improvements, it's who gets the money.
The plain fact is that in our current economy there's just not enough value that labor can provide to get enough share of our global monetary supply. Capital is eating it up, no matter if it comes from inheritance, from financial institutions, or rich tech conglomerates.
You can try to solve by either reducing the return on capital as a whole to match labor, or increasing labor's ability to get returns equal to capital. The first can be done by a tax on wealth that can't be loop-holed out of - unsurprisingly, quite hard to do. The second can be done by improving labor's value through making people work harder, take less wages, or become more skilled - also very hard to do.
But even if you manage to equalize capital and labor return temporarily, capital is always getting more efficient over time, while labor will be largely stagnant (unless we modify our genes on a societal level to increase our ability to work). So while we can level the playing field temporarily, eventually we need to explore how labor can exit the economy altogether.
2 reasons - first, the only winning strategy of labor right now is to become capital. That doesn't sound sustainable. Second, it just doesn't make sense for (certain parts of) labor to be in the economy anymore.
For instance, we have the technology and systems to fully automate our cashiers in restaurants. Why keep someone there? I understand the need for fulfillment, social life, and something to do, but can't we as a society come up with something better than working an assembly line at a McDonald's?
We grow up with the assumption that we should work for our existence and our value is based on the work that we do. If we don't work, we don't eat. If we don't work hard, then we deserve everything bad that comes to us. Conversely, if we work hard, then we deserve the money that comes.
But the reality is that rich people don't have to work hard. If you inherit a couple million, you can just throw it in an index fund and not have to do anything for the rest of your life, and "earn" substantially more than the 99% of the population.
Capital > Labor is not just an economic crisis, it's a values crisis. It calls into question almost everything we believe about our self worth. In many ways, it's our belief in the value of our hard work, not the system of capitalism, that is preventing us from making good solutions.
From a pure systems point of view, economics does not need to be fair to work. The economy is just how resources get distributed, so we could yearly collect and throw the world's money into a pot and roll a dice to see who gets what, and that's an economic system. It's not fair but it is a distribution. We have strong opinions of what is fair because much of our self worth is tied up in what we do.
Currently, the capitalist economy says the people who can generate the highest ROI deserves most of the resources. This… is not wholly bad, it generally means that people who know what they're doing get to manage most of the resources of the world. But with the emergence of tech and winner-take-most companies, it creates a larger and larger group of people who, based on the distribution rules of the current economy, don't get anything, and this is bad because it creates a situation where slavery or starvation is the typical livelihood of the 21st century.
One solution is universal basic income. UBI is basically the admittance that labor will never become competitive in our economy again, and that we should look for other ways to distribute resources to them because market forces ain't going to give anything to them.
I actually think UBI is one of the only solutions. But it only scratches the surface of the issue. Beyond income, there's structure, affirmation, goals, promotion, social status, social interaction, belonging on a team, and more built into the social fabric of work. Even if we give income to people who are forced out of the workforce, there's still a lot missing.
But I don't think capitalism should be completely thrown out. The very same tools that you use to build a successful ROI generator can also be used to solve hard problems that don't give ROI. One positive example I think about is the goal to reduce cases of malaria to zero. This is tough! But it's an activity that can potentially create a lot of value - just that you don't capture it directly yourself. And you don't fund it based on your profits, you fund it based on people who align to the cause, want to invest in the cause, and believe you capable to use the money well to actually tackle the problem instead of wasting it.
At the highest level, the truly scarce resource is never the lack of money; it's the lack of ability (talent). So, even though from an ROI perspective, talent isn't as good as money, if we expand our values beyond ROI, talent becomes paramount.
Thanks for taking the time to write that. It's clearly stated and helped me recognize some more of the nuance of our current situation.
While I haven't thought it through entirely, nor am I qualified to assert that I can; I wonder what a universal max income and / or placing a maximum on the value of an individual's asset holdings (in addition to a UBI) would do to combat the disparity between the strength of capital and labor. I wonder if such a system could support itself without a traditional tax structure and instead impose a 0% tax rate on income below the max and a 100% rate on income in excess of the max.
While I haven't thought it through entirely, nor am I qualified to assert that I can; I wonder what a universal max income and / or placing a maximum on the value of an individual's asset holdings (in addition to a UBI) would do to combat the disparity between the strength of capital and labor. I wonder if such a system could support itself without a traditional tax structure and instead impose a 0% tax rate on income below the max and a 100% rate on income in excess of the max.
The short answer is it won't help much and it might hurt a lot.
90% of working Americans make less than 100k / yr. The tax structure is already skewed so that the richer you are, the more you pay, and you can make it more extreme... but it does nothing to help the 90% of people who make less than 100k / yr.
When thinking about distribution, it's not about reduction, it's about transfer. So you need to think in terms of transfers, not in terms of earnings amounts.
But, putting a max income ceiling is an interesting systemic exercise. What do you want to happen and what will actually happen?
It seems sensible, maybe we can put a cap of say $5m a year on income. But the problem is that we have no clue how people who make more than $5m a year feel about it and how they will respond.
One way to get insight it is to put it in income levels that you can understand. Lets say you put the max at 30k / year. This would vastly disincentive people who are working really tough jobs that pay well because there is an equivalent easier job that pays just as well, so it would devastate certain industries. If collecting garbage paid the same as petting kittens, the garbage collection industry would face a huge worker shortage and they would not have the levers (raising salary) to attract people.
At what point does the max salary cap stop hamstringing certain industries? I'm not sure. But the NBA / NFL max salary is like $50m a year I think? So at least at that level.
Bleeding down asset holdings over time to a certain level is also interesting but also not likely to help - the economy holds the stability of our assets as the basis for trust. If assets slowly shrink over time to a fixed number OR just disappear overnight (via taxes or other things) there would be a massive scramble to find the asset that is the safest to hold - basically, people will scramble to find that one investment / place in the economy where your assets are secure. Most optimistically, it would create a giant "hunt for the tax loophole" system, but it's likely to destabilize the entire economy.
The hard part of the solution to inequality is that we have to think about how to get poor people more money BUT no one wants to just give them money because they have to "earn it". This is where many people get stuck in the old way of thinking. 90% of American people can't do much of anything to earn more money for themselves.
There's this naive thought that rich people are siphoning it away from poor people, if we just hamstring the rich then the poor people will get more of it. The sad truth is that poor people are not worth much in today's market economy, not valued by the market, so no matter what you do to rich people, it won't help.
It's not that poor people are worthless to society though. People are people, poor or rich, and together we create a dynamic, diverse, robust and enriching society in many ways other than wealth. But the economy doesn't care about that - it just cares about one number going up.
You need to have a clear sense of the available options you have (levers) and what they do in order to understand how to affect change in a good way.
Especially when fixing inequality, you'll have to think about levers outside of the economic system because all the economic levers affect things within the constraints of market forces, but its the market forces themselves that you need to offset.
90% of working Americans make less than 100k / yr. The tax structure is already skewed so that the richer you are, the more you pay, and you can make it more extreme... but it does nothing to help the 90% of people who make less than 100k / yr.
When thinking about distribution, it's not about reduction, it's about transfer. So you need to think in terms of transfers, not in terms of earnings amounts.
But, putting a max income ceiling is an interesting systemic exercise. What do you want to happen and what will actually happen?
It seems sensible, maybe we can put a cap of say $5m a year on income. But the problem is that we have no clue how people who make more than $5m a year feel about it and how they will respond.
One way to get insight it is to put it in income levels that you can understand. Lets say you put the max at 30k / year. This would vastly disincentive people who are working really tough jobs that pay well because there is an equivalent easier job that pays just as well, so it would devastate certain industries. If collecting garbage paid the same as petting kittens, the garbage collection industry would face a huge worker shortage and they would not have the levers (raising salary) to attract people.
At what point does the max salary cap stop hamstringing certain industries? I'm not sure. But the NBA / NFL max salary is like $50m a year I think? So at least at that level.
Bleeding down asset holdings over time to a certain level is also interesting but also not likely to help - the economy holds the stability of our assets as the basis for trust. If assets slowly shrink over time to a fixed number OR just disappear overnight (via taxes or other things) there would be a massive scramble to find the asset that is the safest to hold - basically, people will scramble to find that one investment / place in the economy where your assets are secure. Most optimistically, it would create a giant "hunt for the tax loophole" system, but it's likely to destabilize the entire economy.
The hard part of the solution to inequality is that we have to think about how to get poor people more money BUT no one wants to just give them money because they have to "earn it". This is where many people get stuck in the old way of thinking. 90% of American people can't do much of anything to earn more money for themselves.
There's this naive thought that rich people are siphoning it away from poor people, if we just hamstring the rich then the poor people will get more of it. The sad truth is that poor people are not worth much in today's market economy, not valued by the market, so no matter what you do to rich people, it won't help.
It's not that poor people are worthless to society though. People are people, poor or rich, and together we create a dynamic, diverse, robust and enriching society in many ways other than wealth. But the economy doesn't care about that - it just cares about one number going up.
You need to have a clear sense of the available options you have (levers) and what they do in order to understand how to affect change in a good way.
Especially when fixing inequality, you'll have to think about levers outside of the economic system because all the economic levers affect things within the constraints of market forces, but its the market forces themselves that you need to offset.
If we graph out how companies has scaled out (Measured in different ways) I don't think it'd be as suprising.
Is there merit to analyzing these numbers on an absolute vs. relative scale, and/or is that beside the point? Does it miss the point if analysis like this doesn't also look at the cost/standard of living in those time periods too? E.g. if a particular standard of living that cost $19k in 1970 (manageable in the bottom 50%) now costs $21k, that's a great boon, but if it now costs $30k, that's probably a bad sign.