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The United States of Income Inequality

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Started 1 year ago by jeff_r
Latest reply from TomOver

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jeff_r

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Slate recently launched a series on income inequality called "The Great Divergence". I expect it to be an interesting read. Here's how writer Timothy Noah sums up the project:

But income inequality is a topic of huge importance to American society and therefore a subject of large and growing interest to a host of economists, political scientists, and other wonky types. Except for a few Libertarian outliers (whose views we'll examine later), these experts agree that the country's growing income inequality is deeply worrying. Even Alan Greenspan, the former Federal Reserve Board chairman and onetime Ayn Rand acolyte, has registered concern. "This is not the type of thing which a democratic societyÃ¢â‚¬â€a capitalist democratic societyÃ¢â‚¬â€can really accept without addressing," Greenspan said in 2005. Greenspan's Republican-appointed successor, Ben Bernanke, has also fretted about income inequality.

Yet few of these experts have much idea how to reverse the trend. That's because almost no one can agree about what's causing it. This week and next, I will detail and weigh the strengths and weaknesses of various prominent theories as to what has brought about the income inequality boom of the last three decades. At the same time, I'll try to convey the magnitude of its effects on American life. The Great Divergence may represent the most significant change in American society in your lifetimeÃ¢â‚¬â€and it's not a change for the better. Let's see if we can figure out what got us here.

Part One: Introducing the Great Divergence

Part Two: The Usual Suspects are Innocent

Posted 1 year ago #
JonMyers
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I dunno Jeff, these type of articles seem to assume that people are somehow entitled to a high wage job, irregardless of the economic realities and playing field that the job exists in.

A large majority of millionaires are self made and own their own businesses.

The beauty of living in America is that you can do something about it if you want to make more money.

Posted 1 year ago #
jeff_r

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JonMyers wrote >>
A large majority of millionaires are self made and own their own businesses.
The beauty of living in America is that you can do something about it if you want to make more money.

Noah briefly addresses social mobility in the first article. He points out that while people in the U.S. certainly believe they have a high level of social mobility, the truth is we're less socially mobile than many countries that we typically view as much more class rigid:

Economic inequality is less troubling if you live in a country where any child, no matter how humble his or her origins, can grow up to be president. In a survey of 27 nations conducted from 1998 to 2001, the country where the highest proportion agreed with the statement "people are rewarded for intelligence and skill" was, of course, the United States. (69 percent). But when it comes to real as opposed to imagined social mobility, surveys find less in the United States than in much of (what we consider) the class-bound Old World. France, Germany, Sweden, Denmark, SpainÃ¢â‚¬â€not to mention some newer nations like Canada and AustraliaÃ¢â‚¬â€are all places where your chances of rising from the bottom are better than they are in the land of Horatio Alger's Ragged Dick.

Similar sentiments were echoed in a recent Economist article,

Compared with people in other rich countries, Americans tend to accept relatively high levels of income inequality because they believe they may move up over time. The evidence is that America does offer opportunity; but not nearly as much as its citizens believe.

Parental income is a better predictor of a child's future in America than in much of Europe, implying that social mobility is less powerful. Different groups of Americans have different levels of opportunity. Those born to the middle class have about an equal chance of moving up or down the income ladder, according to the Economic Mobility Project. But those born to black middle-class families are much more likely than their white counterparts to fall in rank. The children of the rich and poor, meanwhile, are less mobile than the middle class's. More than 40% of those Americans born in the bottom quintile remain stuck there as adults.

Posted 1 year ago #
coolbuckeye
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Meritocracy is as real as Santa. I still want to believe in Meritocracy...

Posted 1 year ago #
TaraK
probably at the coffee shop
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coolbuckeye wrote >>
Meritocracy is as real as Santa. I still want to believe in Meritocracy...

A-men.

Posted 1 year ago #
JonMyers
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Yeah, I read those parts, but there's a big difference in believing one may move up over time and actually doing something about it.

Most people don't take advantage of the opportunity to move up, they'd rather just talk about it.

If it's true that the class bound old world described in the article has higher levels of upward social mobility why do you think that is?

Posted 1 year ago #
Tigertree
771 N. High St.
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So far I would +1 everything Jon has said.

Posted 1 year ago #
hugh59
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I wonder how much of the income inequality is because of profits earned in industries that create luxury items or handle money. The plutocrats of the 19th century amassed fortunes manufacturing steel, railroads, coal mines, and oil wells. I wonder who the top 1% of income earners are today (and I wonder about who the wealthiest 1% are in relation to the top 1% of income earners).

If you make a lot of money providing necessary goods or services for people then you are doing well for yourself and for the community. If you are making a lot of money by making it easier for others to provide necessary goods or services for people, then you are also doing well for yourself and for the community. But if you are making a lot of money providing goods and services that are not necessary (or that are harmful), then maybe you may be doing well for yourself at the expense of the community.

I wonder how much of the vast wealth today is on account of goods and services that are far removed from necessary goods and services?

Posted 1 year ago #
JonMyers
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Hugh, I would propose another kind of industry or company, I don't even know what you would call it, but it's one that I see often. I'll use Apple as an example.

They have excellent product designers and they're world class marketers. They also outsource all of their manufacturing to companies like Flextronics.

I know most people would call Apple a product company, and I would as well, but only to a certain extent. How Apple and many American companies operate is not really what we would think of as a traditional product company.

If I had to guess, I would say that this hybrid approach of being research and product design driven, rather than being driven by manufacturing is responsible for a large amount of the wealth you're describing.

Posted 1 year ago #
rus

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coolbuckeye wrote >>
Meritocracy is as real as Santa. I still want to believe in Meritocracy...

There's a big difference between saying "I want to be rich" and "I want to do what it takes to be rich".

For instance, if someone goes in to library science or social work to get rich, I'd suggest an error in logic.

Not that both of those don't have their place, but they're not professions with high incomes.

Posted 1 year ago #
gramarye
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Tigertree wrote >>
So far I would +1 everything Jon has said.

As would I.

I don't like the article's choice of language when it talks about your "chances" of moving up, as if it's somehow just a lottery pick.

We have competing values or cultural memes or whatever you want to call them in America. On the one hand, we have that strong culturally ingrained belief in upward social mobility. On the other hand, we also probably have a stronger belief in "doing what you love"--whether or not that's in a high-paying field with high advancement potential--than most other countries. There are those who refuse to acknowledge that those could possibly be incompatible, and I've had to shake my head at times at those who think that it's unfair that opening an antique store or making wicker chairs or being a whitewater rafting guide in West Virginia isn't likely to put you in a $600k house. Sadly, though, how much you love doing a particular activity is not a guide to that activity's market value.

Posted 1 year ago #
ChrisSunami
King-Lincoln District
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jeff_r wrote >>
Noah briefly addresses social mobility in the first article. He points out that while people in the U.S. certainly believe they have a high level of social mobility, the truth is we're less socially mobile than many countries that we typically view as much more class rigid:

This isn't as much of a paradox as it seems. In a system with no legal barriers to social mobility, other methods of preserving the status quo naturally arise. These can often be even more effective at preventing social mobility because they are largely invisible.

In the United States, this chiefly manifests in our dysfunctional education system. I would go so far as to claim that the reason educational reforms always seem to fail is that there are powerful social forces --which are not necessarily under the conscious control of any individual or group --that both support and benefit from systemic educational inequities.

The false meritocracies that emerge from this kind of systemic inequity are highly effective as systems of social control because both those on the top and those on the bottom believe that they "deserve" what they have.

Posted 1 year ago #
JonMyers
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Chris, is it safe to say that these "powerful social forces" you describe are simply culture?

Posted 1 year ago #
hugh59
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Lots of good observations and thinking on this page.

Posted 1 year ago #
gramarye
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ChrisSunami wrote >>

In the United States, this chiefly manifests in our dysfunctional education system. I would go so far as to claim that the reason educational reforms always seem to fail is that there are powerful social forces --which are not necessarily under the conscious control of any individual or group --that both support and benefit from systemic educational inequities.

How can a "social force ... not ... under the conscious control of any individual or group" benefit from anything? That sounds to me like saying that "fire" benefits from something (wood?) or that "gravity" benefits from something (matter?).

I agree with you that our education system is not enviable, though we would likely differ radically on what exactly the nature and cause of the dysfunctionality is and what should be done about it. However, I hesitate to ascribe that dysfunction to broad "social forces," any more than I ascribe schizophrenia to something as broad "biological forces."

Posted 1 year ago #
JonMyers
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Gram, oddly I was reading an article earlier on the biology that conspires to keep us down. :)

Ambition: Why Some People Are Most Likely to Succeed

Not only do we struggle to understand why some people seem to have more ambition than others, but we can't even agree on just what ambition is. "Ambition is an evolutionary product," says anthropologist Edward Lowe at Soka University of America, in Aliso Viejo, Calif. "No matter how social status is defined, there are certain people in every community who aggressively pursue it and others who aren't so aggressive."
.
Dean Simonton, a psychologist at the University of California, Davis, who studies genius, creativity and eccentricity, believes it's more complicated than that. "Ambition is energy and determination," he says. "But it calls for goals too. People with goals but no energy are the ones who wind up sitting on the couch saying 'One day I'm going to build a better mousetrap.' People with energy but no clear goals just dissipate themselves in one desultory project after the next."

.

Posted 1 year ago #
GW_Justice
Grandview Hts.
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It is true that ambition or gumption or whatever you call the force that keeps you plugging away is needed to succeed, but having relatives with money is a big part of it too.

How many young people do you know who have a restaurant or other small business that was financed by relatives? The WSJ pointed this out as a recent fad, but it has been common for as long as I have taken note of who has a business and why.

Posted 1 year ago #
ChrisSunami
King-Lincoln District
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Q: What are these vague and imaginary sounding "social forces" of which you speak?

A: I'll give two concrete examples. The first is from a case study I read when I was taking a class called "The Role of the School in the Social Order" at OSU.

We need to start with the concept of "tracking" which is where students are placed in different "tracks" of classes, some leading to higher education, some leading to technical schools or trades. Tracking is almost universal in American schools with mixed income students, and almost universally correlates more strongly with income than with intelligence or ability.

This particular study concerned an untracked school where a uniformly high quality of education was given to a mixed income group of students. Although everyone agreed the quality of education was high, the school was soon pressured to institute a tracked system. The reason was that the more wealthy, and thus more politically powerful parents, wanted their children to have an education that was not only excellent, but that also was visibly better than the education received by other students.

This is a natural parental instinct. We all want the best for our own children, and if we have the ability, we secure for them not only an equal start, but a head start over those they will compete against as adults.

Interestingly enough, there was no huge outcry from the parents of the poorer students when tracking was instituted. Many of them had been uncomfortable with the fact that their children had been encouraged to question authority and to make their own decisions --a social lesson that is typically given to wealthier students, and not to less wealthy students. The result had been conflicts at home with authoritarian parenting styles.

I think most people would agree that both sets of parents were making natural and perhaps even justifiable decisions. Neither group was looking to make a larger political statement. However, when you multiply one school like this times millions of schools, you end up with a larger social trend of unequal education.

I'll write up the other example when I have a chance. It deals with standardized testing.

Posted 1 year ago #
JonMyers
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GW_Justice wrote >>
It is true that ambition or gumption or whatever you call the force that keeps you plugging away is needed to succeed, but having relatives with money is a big part of it too.
How many young people do you know who have a restaurant or other small business that was financed by relatives? The WSJ pointed this out as a recent fad, but it has been common for as long as I have taken note of who has a business and why.

Sure it happens. There is lots of dumb money splashed around everyday.

That said, most entrepreneurs I know raise their startup capital by receiving a bank loan, jacking up debt on their credit cards or depleting their savings. 1 to 2% of those entrepreneurs are lucky enough to raise private investment money.

These entrepreneurs then pray for cash flow to finance the business for the next month.

Have a conversation with Liz Lessner sometime about how she got started and her struggle to get a bank loan to purchase Bettys.

I've never had a dime of family money to start a business because there was none. It never occurred to me over the years that family money was even an option.

In my experience most people point to these examples of "rich kids" as excuses not to do something.

If only people would stop making excuses and do something about it.

Posted 1 year ago #
ChrisSunami
King-Lincoln District
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Re: My immediate previous post (end of page 1)

I almost forgot to mention --in places where there is a more formalized or legally sanctioned system of inequity, wealthy or powerful parents can ensure their children a head start without the support of things such as inequitable education. So the paradox is that poor kids in such places may actually be better educated than poor kids here.

That's why you see a huge jump in social mobility for an oppressed group immediately after a legal barrier is eliminated, and also why it typically doesn't last.

Posted 1 year ago #