Wealth Inequality in the US

[SD Transplant]

Since this is a hot video, I want to make sure it is posted

Source:
http://news.yahoo.com/wait–wealth-inequality-the-new-harlem-shake—214735978.html

[EconProf]

This is an ingeniously effective video, and will mislead many people. It’s major flaw is to misunderstand stocks and flows. Income is a flow measured over time and wealth is a stock. Income statements vs. balance sheets, annual salary vs. personal net worth, etc.
Two ways (among many) to measure personal financial well-being are one’s income and one’s net worth–assets minus liabilities.
Naturally America’s poor look worse off when considering their wealth compared to that of the top tiers. But if we compared their level of income to that of the rich, they would be far closer together.
Government measures of income always ignor “in-kind” income, such as food stamps (possibly $500/month for some families), free medical care, free or nearly free housing, free child care, subsidized utilities, free phones, etc. Add those in and their income doesn’t look as bad. Furthermore, the earned-income tax credit ADDS to their income at tax time, such that if they earn, say $15,000 per year in a job, the IRS sends them a check for $5,000 per year at tax time. (In truth, I am not sure if this is considered part of their income by the statisticians).
Furthermore, income comparisons conveniently look at pre-tax, not after-tax income. The rich in the high tax brackets obviously don’t get to spend all that high income. In addition, they save a good share of that after-tax income, which feeds investment, new plant and equipment, hiring, etc.
A final consideration should take into account consumption per hour worked. Higher income people work more hours than poor people. Yes, I know, the poor often can’t work, or want to but can’t get hired for many reasons. But the fact remains that in going from the poor tier to the middle tiers to the highest tiers, hours worked increases.
The video in two places confused income with wealth, a fatal flaw if they are expecting credibility. A better measure of well-being is the consumption level of the different tiers while taking work hours into effect.
That would be a more accurate measure of “fairness” than personal net worth.

[spdrun]

I’m not sure if the poor work less — if you’re being paid $8/hr, you need to work a lot MORE (often two jobs) to make ends meet than if you’re making $50/hr.

[The-Shoveler]

Just my two cents, but if you made minimum wage 15.00 an hour you would not need near as much Tax money to subsidize Wal-Mart and McD’s workers.

[moneymaker]

Just reinforcees my theory that being rich makes one feel smart.

[Jazzman]

Econprof if you read the commentary, the film maker had to edit down to three minutes, and the video does reference income. One would hope it is a teaser to sequels that flesh out who these super rich are, how they accumulated their wealth, and how a more even distribution is achieved. I think what is unsettling is the notion that concentrations of wealth and its corollary power, are reminiscent of an era we associate with a less evolved society, where access to the political process, education, and opportunity is discriminatory. I don’t think we are devolving in that sense, but the wealth concentration phenomenon needs to be examined in the context of the overall health of a society. Ironically, you might find similarly huge disparities in China and Russia, and if comparing rich and poor countries the divide is very apparent again. Time magazine recently did a study of the Nordic model where societal mores are in lockstep with a consensual process. A hybrid Freidman socialism. It works, but the question of adapting it on a large scale presents challenges.

[EconProf]

We all agree that wealth disparity is too great in America, and has been getting worse. My argument with the video is that it erred in confusing income with wealth in several places.
It is when liberals and conservatives debate the causes of this sad trend that we most disagree. I would argue that many seemingly popular policies create or foster ongoing poverty, such as minimum wage laws (and proposed hikes therein), overly generous entitlements that discourage work and encourage family breakup, and awful inner-city schools with unionized teachers and monopoly power as opposed to charter schools or vouchers. The poor, especially the young poor, need to get on the first rung of that employment ladder so they can work their way up, and too often well-intentioned policies actually thwart them.

[livinincali]

How do you propose to reduce wealth inequality when consumer choices drive the wealth inequality in the first place. Every day a consumer goes to Walmart to buy groceries instead of the local grocery it increases the wealth inequality. Every time a consumer goes out and buys the latest and greatest iPhone rather than keeping the one they have increases the wealth inequality. Consumers making choice to consume and to go in debt to consume rather than save increases the wealth inequality. Every time you put more money into your 401K it makes Wall Street a little more wealthy.

What is wealthy? Taking a little bit from a lot of people. There’s plenty of stupid consumers that voluntarily give away a little bit of their productivity everyday.

[Jazzman]

“[C]onsumer choices drive the wealth inequality.” I don’t think it is so much the choices, as the beast needs to feed to grow. I’m not clear where growth ends, and I don’t believe meaningful change is possible, until a monumental event changes it, such as a depression, or a war or both. Taxes will redistribute the wealth, but that won’t happen until industrial leaders are weaned on a more socially responsible teat, and politicians are brave enough to make sacrifices.

[bearishgurl]

[quote=livinincali]How do you propose to reduce wealth inequality when consumer choices drive the wealth inequality in the first place. Every day a consumer goes to Walmart to buy groceries instead of the local grocery it increases the wealth inequality. Every time a consumer goes out and buys the latest and greatest iPhone rather than keeping the one they have increases the wealth inequality. Consumers making choice to consume and to go in debt to consume rather than save increases the wealth inequality. Every time you put more money into your 401K it makes Wall Street a little more wealthy.

What is wealthy? Taking a little bit from a lot of people. There’s plenty of stupid consumers that voluntarily give away a little bit of their productivity everyday.[/quote]

livinincali, I agree that it is often people who make themselves “poor” by their personal decisions on consumption.

I have commissary privileges so don’t shop at WalMart but I DO know that what food it carries is quite a bit cheaper than the Big 3 in SoCal, that is … Vons, Ralphs and Albertsons.

I can also see why a lot of people from all walks of life shop at 99 cent stores.

I prefer certain brands of food and household items and these brands can’t usually be found at 99 cent stores.

I think a lot of people who are considered “poor” or “near poor” make the consumption decisions they do because they have entitlements to help pay for necessities. If they didn’t, they likely wouldn’t be such heavy consumers.

[The-Shoveler]

[quote=bearishgurl][quote=livinincali]How do you propose to reduce wealth inequality when consumer choices drive the wealth inequality in the first place. Every day a consumer goes to Walmart to buy groceries instead of the local grocery it increases the wealth inequality. Every time a consumer goes out and buys the latest and greatest iPhone rather than keeping the one they have increases the wealth inequality. Consumers making choice to consume and to go in debt to consume rather than save increases the wealth inequality. Every time you put more money into your 401K it makes Wall Street a little more wealthy.

What is wealthy? Taking a little bit from a lot of people. There’s plenty of stupid consumers that voluntarily give away a little bit of their productivity everyday.[/quote]

livinincali, I agree that it is often people who make themselves “poor” by their personal decisions on consumption.

I have commissary privileges so don’t shop at WalMart but I DO know that what food it carries is quite a bit cheaper than the Big 3 in SoCal, that is … Vons, Ralphs and Albertsons.

I can also see why a lot of people from all walks of life shop at 99 cent stores.

I prefer certain brands of food and household items and these brands can’t usually be found at 99 cent stores.

I think a lot of people who are considered “poor” or “near poor” make the consumption decisions they do because they have entitlements to help pay for necessities. If they didn’t, they likely wouldn’t be such heavy consumers.[/quote]

Well we could remove minimum wage completely then Wal-Mart could get away with paying them maybe 3 dollars and hour, or maybe only 20 dollars a day, then they could get even more profit and still sell stuff cheaper, all the while getting the taxpayer to supplement them even more, such a deal…

[SK in CV]

[quote=livinincali]How do you propose to reduce wealth inequality when consumer choices drive the wealth inequality in the first place. Every day a consumer goes to Walmart to buy groceries instead of the local grocery it increases the wealth inequality. Every time a consumer goes out and buys the latest and greatest iPhone rather than keeping the one they have increases the wealth inequality. Consumers making choice to consume and to go in debt to consume rather than save increases the wealth inequality. Every time you put more money into your 401K it makes Wall Street a little more wealthy.

What is wealthy? Taking a little bit from a lot of people. There’s plenty of stupid consumers that voluntarily give away a little bit of their productivity everyday.[/quote]

Consumer choices drive inequality? I don’t think so. What’s happened over the last few decades, and magnfied over the last decade is that the share of corporate revenues that end up in the hands of the workers who actually produce that revenue has declined dramatically.

See charts here: http://dispatches.us/post/11571145361/workers-wages-fall-corporate-profits-soar

Corporate profits are at record levels, measured both in real dollars and as a share of GDP. The delta in that income has remained in the hands of business owners, while wages have shrunk. The result is that the wealth built by those record profits remain in the hands of those who own the stock. That has always been the case, except that prior to the last few decades, workers have shared in that growth. That’s not the case now.

It has almost nothing to do with irresponsible consumption.

[bearishgurl]

[quote=SK in CV]Consumer choices drive inequality? I don’t think so. What’s happened over the last few decades, and magnfied over the last decade is that the share of corporate revenues that end up in the hands of the workers who actually produce that revenue has declined dramatically.

See charts here: http://dispatches.us/post/11571145361/workers-wages-fall-corporate-profits-soar

Corporate profits are at record levels, measured both in real dollars and as a share of GDP. The delta in that income has remained in the hands of business owners, while wages have shrunk. The result is that the wealth built by those record profits remain in the hands of those who own the stock. That has always been the case, except that prior to the last few decades, workers have shared in that growth. That’s not the case now.

It has almost nothing to do with irresponsible consumption.[/quote]

The OP’s video states that CEO’s are paid on avg 380 times the pay of the average worker in their organization so I agree with SK, also.

Here’s a recent chart naming names and showing the CEO and avg worker pay at each company.

http://www.payscale.com/ceo-income

We all know “low income” people who use newer cell phones and appear to live in a nice rental unit. What we don’t see is that most of them qualify for “Lifeline” cell phone service which costs only about $16 per month for unlimited local calling. And we don’t see the amount of their Section 8 or other program housing voucher. Most of these vouchers are worth $1200-1800 per month. These are just two examples of “extra compensation” to the lowest wage earners which are hidden from the general public.

[CA renter]

[quote=SK in CV][quote=livinincali]How do you propose to reduce wealth inequality when consumer choices drive the wealth inequality in the first place. Every day a consumer goes to Walmart to buy groceries instead of the local grocery it increases the wealth inequality. Every time a consumer goes out and buys the latest and greatest iPhone rather than keeping the one they have increases the wealth inequality. Consumers making choice to consume and to go in debt to consume rather than save increases the wealth inequality. Every time you put more money into your 401K it makes Wall Street a little more wealthy.

What is wealthy? Taking a little bit from a lot of people. There’s plenty of stupid consumers that voluntarily give away a little bit of their productivity everyday.[/quote]

Consumer choices drive inequality? I don’t think so. What’s happened over the last few decades, and magnfied over the last decade is that the share of corporate revenues that end up in the hands of the workers who actually produce that revenue has declined dramatically.

See charts here: http://dispatches.us/post/11571145361/workers-wages-fall-corporate-profits-soar

Corporate profits are at record levels, measured both in real dollars and as a share of GDP. The delta in that income has remained in the hands of business owners, while wages have shrunk. The result is that the wealth built by those record profits remain in the hands of those who own the stock. That has always been the case, except that prior to the last few decades, workers have shared in that growth. That’s not the case now.

It has almost nothing to do with irresponsible consumption.[/quote]

+1, SK.

Add to that the different tax rates for earned income vs. passive income — so the wealthy accumulate and compound their earnings at a much faster and higher rate than workers — and it’s easy to see why wealth and income inequality has become so great over the past few decades.

———-

Wealth inequality has very little to do with consumption, especially when people are *minimizing* their consumption when spending their money at Walmart (though their decision to shop at places with the lowest prices/lowest wages do compound the problem).

Wealth/income inequality is not strongly correlated with “social programs,” either. If that were the case, then Mexico and other poor nations without social safety nets would have very little wealth/income inequality; while Sweden, Norway, etc. would have very high wealth/income inequalities. This is not the case at all.

[CA renter]

[quote=EconProf]We all agree that wealth disparity is too great in America, and has been getting worse. My argument with the video is that it erred in confusing income with wealth in several places.
It is when liberals and conservatives debate the causes of this sad trend that we most disagree. I would argue that many seemingly popular policies create or foster ongoing poverty, such as minimum wage laws (and proposed hikes therein), overly generous entitlements that discourage work and encourage family breakup, and awful inner-city schools with unionized teachers and monopoly power as opposed to charter schools or vouchers. The poor, especially the young poor, need to get on the first rung of that employment ladder so they can work their way up, and too often well-intentioned policies actually thwart them.[/quote]

Where is your data showing that vouchers and charter schools result in better outcomes **for students with the same profiles as those in public schools,** and that they can do so at a lower cost?

Saying that teachers and teachers’ unions are responsible for the poor performance in urban schools is totally ridiculous and ignorant of the facts. EVERY study ever done shows that the family of origin is the #1 determining factor for student performance, by far. Nothing else comes close.

[Author]

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