changed to "wealth inequality"

[JohnRoberts]

I’m starting to think the that the ACA was designed to blow up the system.  Now Pandora’s box is open and the only way is single payer like the rest of the world.  There is just no way to think big  hospitals, insurance, Pharma is going to do anything but gouge .  Gov bureaucrats are a problem but not being to bulk buy with Medicare is a complete farce for Americans.

I'd like to give them the benefit of doubt that they were well intentioned about passing the ACA (without a single republican vote), but the infamous Jonathan Gruber (MIT professor and architect of ACA) admitted after the fact that deceiving the public was necessary to get it passed.  A hint about major legislation is to look at the name, it is often opposite the reality so someone was getting a chuckle when they named it "Affordable" Care act.

Experience suggests that once the government gets involved in something, they rarely (ever?) give it up. So we are a little pregnant with this conversion of 1/6th our economy from private to government control and must now figure out how to raise the kid from this unholy union to not be a monster, who kills its parents.

I’m also ready for USPS to handle consumer banking and separate investment banking or at least reinstate Glass Stegal.

Fractional reserve banking is already somewhat like a utility that supports the entire economy. The problem is I wouldn't trust banking to be run like the post office. The trend is away from smothering regulation, but the big bank business is dramatically changed since the 2008 melt down, that we are still trying to withdraw from the extraordinary liquidity accommodations. 

JR

PS: For another example of government help run amok, starting in the late 80s they subsidized tree/grass planting to take farm land out of active production. Now decades later those trees have matured and now the market for selling those trees has pretty much saturated. This program was popular in the SE (pine trees), no doubt buying farm votes an old political quid pro quo (like ethanol more recently for corn farmers in the midwest). Less government meddling in the private economy is best IMO.

 

[dmp]

Research the government regulation of utilities (gas and electric).  It has been very successful for consumers. Less successful for Capital owners / investers arguably.

The problem with competition in things people need (education, health care) is it makes it more expensive and difficult for people to obtain. We are seeing a failed experiment in privatization in the USA right now when it comes to health care and education.

 

[JohnRoberts]

Today's market headline is the dynamic duo of Senators Schumer and Sanders blaming income inequality on corporate stock buy-backs.  This almost doesn't deserve a response... looks like a case of legislative "see money try to capture money to redistribute".
====
For something of more substance an interesting new physics theory suggests that income disparity is inevitable.

Many would like to see that gap closed, and a totally equal society created. According to Bejan, that’s impossible, from a physics perspective.

This is controversial and not obvious but pretty interesting, and based on actual physics theory not some softer economic or social scientific musings.

JR
 

https://qz.com/957711/everything-including-the-growing-income-disparity-can-be-explained-by-physics/

 

[dmp]

Today's market headline is the dynamic duo of Senators Schumer and Sanders blaming income inequality on corporate stock buy-backs.  This almost doesn't deserve a response... looks like a case of legislative "see money try to capture money to redistribute".
====
For something of more substance an interesting new physics theory suggests that income disparity is inevitable.

This is controversial and not obvious but pretty interesting, and based on actual physics theory not some softer economic or social scientific musings.

JR
 

https://qz.com/957711/everything-including-the-growing-income-disparity-can-be-explained-by-physics/

This has been talked over before.
Compare the tax rates of dividend income vs. capital gains. Companies prefer to flow earnings to owners though buybacks since capital gains tax rates (15-20%) allow more money to be retained.  In effect they are contributing to the consolidation of wealth - as much as other gov policies - since it facilitates the flow of more money to the very wealthy.

It's no new discovery that high inequality exists in unregulated human systems. Pareto discovered the famous 80/20 relationship with regard to land ownership in the early 1900s. He found that 80% of the land was owned by 20% of the people.
Recently I read that someone studied meta data from Tinder (a dating app) and found that 20% of people had the majority of the 'likes'. The inequality of Tinder 'likes' was greater than the economic inequality of the USA.
It's also no secret that high wealth inequality leads to the downfall of nations, as the have-nots get fed up.

Recently, authentic voices on the Democratic side have been talking intelligently about policies to reduce the consolidation of wealth that have been so oppressive to the working population over the last 30 years. Things like a wealth tax and higher tax rates on very high income levels. Policies that are extremely popular with nearly everybody, except the extremely wealthy.
The response has been interesting - flat out lies (or stunning ignorance) about how taxes work from Republicans like Scott Walker. A response from Michael Dell made news recently when he asked what country has ever been successful with high income tax rates on very high income levels, and another panelist reminded him that the USA had very high tax rates up until the 1980s.    It's no secret that fixing the mess will be difficult since most in Congress and the Trump admin are extremely wealthy.

 

[JohnRoberts]

I don't expect even democrats to be able to overcome a law of physics with any long term success (while I appreciate this is new and not immediately obvious as a rigid physical law).
====
The reason raising taxes on the very wealthy is popular, because there are so few of the very wealthy, and so many who are not.

Political class warfare is not new, but keeps getting recycled, to inflame the low information voters. :

JR 

PS:  Sanders and Schumer are perhaps speaking authentically for their side, but not so intelligently IMO. Of course opinions vary.  We have explored the pros and cons of corporate stock buybacks here multiple times.

 

[dmp]

Progressive taxes is the easiest to understand and communicate to the populous.
It's really a shame the last thirty years were squandered on the Reagonomics, with the trickle down lie that nobody really believed.
Taxation is a blunt tool and difficult to make effective, since people are always looking to game the system (with loopholes) and everyone hates taxes.

Policy that raises competition would be better, if possible. More competition between businesses, and competition for labor to raise wages.

The profit margins of corporations indicate the scope of the problem now. Profit margin is 13% for the SP500, when in the '80-'90s a  6% profit was considered great. Warren Buffett said a few decades ago that it would be impossible for corporate profits to exceed 6% for any period of time. Why? Because high profits should attract competition. But the current landscape of gatekeeping, near-monopolies, and an illusion of competition keeps corporate profits safe.

Why do high profits contribute to wealth inequality? Because most of the money flows to the very rich through the Cap gains low tax rate. 

 

[JohnRoberts]

Progressive taxes is the easiest to understand and communicate to the populous.
It's really a shame the last thirty years were squandered on the Reagonomics, with the trickle down lie that nobody really believed.
Taxation is a blunt tool and difficult to make effective, since people are always looking to game the system (with loopholes) and everyone hates taxes.

Again an old topic but where do these tax loopholes come from (rhetorical)? The swamp trying to buy political favor by bribing us with our own money.  :  We already have progressive tax rates how about rolling back/limiting some obvious deductions? There is still great angst over the limitations on deducting high state taxes. While in the long term this is probably good for them too, but in the short term it is uncomfortably partisan because we know how those high tax states vote.  I do not believe using political force against any fraction of the population even indirectly (and legally) like this.

Policy that raises competition would be better, if possible. More competition between businesses, and competition for labor to raise wages.

There is already upward pressure on wages caused by labor shortages and low unemployment. This will improve pay without the government distorting private sector business management any more than they already are with elevated minimum wages, that only speed up automation. Another unexpected trend is expanding workforce participation beyond what economists expected, even with more disabled being absorbed into the workforce. (A good thing IMO).

The profit margins of corporations indicate the scope of the problem now. Profit margin is 13% for the SP500, when in the '80-'90s a  6% profit was considered great. Warren Buffett said a few decades ago that it would be impossible for corporate profits to exceed 6% for any period of time. Why? Because high profits should attract competition. But the current landscape of gatekeeping, near-monopolies, and an illusion of competition keeps corporate profits safe.

:

Why do high profits contribute to wealth inequality? Because most of the money flows to the very rich through the Cap gains low tax rate.

Now you are repeating yourself...  so I will repeat myself too...  Many tax brackets are indexed for inflation but the basis for calculating capital gains is not indexed for inflation.  Somewhat reduced long term capital gains rates is perhaps acknowledgment of that, but proper indexing for inflation would be "fair". 

I still worry about crony capitalism and the nature of the swamp to try to buy votes with any opportunity.

JR

PS: Perhaps not obvious but pulling troops out of the middle east (like from Syria and Afghanistan) will result in major spending reductions. Keeping a fast strike force in Iraq can "whack-a-mole" new eruptions of ISIS or terrorist du jour in the region without all the expense of nation building. IIRC no less than senator Biden made a similar proposal many years ago (I think he called it an "over the horizon force") when he was large and in charge of senate foreign relations committee. Of course the Iraqi government does not want to officially acknowledge their complicity in any strategy like this that appears too friendly to the US. 

 

[Matador]

I mentioned in the other thread that a certain level of inequality is certainly expected, but it's the magnitude that is the problem.

We can make an argument that there is a continuum: on one end, one person could own $280 trillion of wealth, with $1 left to the other 9 billion people, and it might not be a tractable situation. (neither for that one person nor anyone else).  On the other end, every person has exactly the same amount (approximately $30k).

So obviously the debate is where an acceptable line can be drawn.  And I think we are a lot closer to the first example than we are towards the last:  with approximately 2,200 billionaires (or 0.00000245%) owning nearly 7% of all the wealth on the planet, and 65% of adults having less than $10k (equivalent in US dollars).

 

[dmp]

We already have progressive tax rates how about rolling back/limiting some obvious deductions?

Isn't that what the Republicans did with the tax reform? Or claimed they would do? At one point they were talking about making it so taxes could be filed on a postcard.

Many tax brackets are indexed for inflation but the basis for calculating capital gains is not indexed for inflation.  Somewhat reduced long term capital gains rates is perhaps acknowledgment of that, but proper indexing for inflation would be "fair". 

This would be a huge tax reduction for anyone that has held stocks for many years. It indexes up the purchase price to put the original purchase price into today's dollars, reducing the capital gains dramatically.  Now, I think this could be fine up to a certain limit of cap gains, even $100k-$200k, but unlimited it would exacerbate the problem.

There is already upward pressure on wages caused by labor shortages and low unemployment.

Yes, the old trickle down argument. Wage increases have broken 3% this year. Increases typically increase near the end of expansions when labor slack is low. In the big picture, however, wage increases have been tepid for decades.  Wages are driven by supply and demand. Supply is not very limited, especially in a global economy. 

I mentioned in the other thread that a certain level of inequality is certainly expected, but it's the magnitude that is the problem.

Exactly - the extremes at either end are really bad (equal outcomes vs peasants and lords)

 

[JohnRoberts]

Isn't that what the Republicans did with the tax reform? Or claimed they would do? At one point they were talking about making it so taxes could be filed on a postcard.

Lobbyists will never let that happen...  (drain the swamp).

This would be a huge tax reduction for anyone that has held stocks for many years. It indexes up the purchase price to put the original purchase price into today's dollars, reducing the capital gains dramatically.  Now, I think this could be fine up to a certain limit of cap gains, even $100k-$200k, but unlimited it would exacerbate the problem.

The problem... ? I think being taxed for inflation is a problem.   I only brought it up in response to other old screed.

Yes, the old trickle down argument. Wage increases have broken 3% this year. Increases typically increase near the end of expansions when labor slack is low. In the big picture, however, wage increases have been tepid for decades.  Wages are driven by supply and demand. Supply is not very limited, especially in a global economy. 

Hard to ignore record low US unemployment, at least hard for me to ignore.  :

Exactly - the extremes at either end are really bad (equal outcomes vs peasants and lords)

"Peasants and lords", give me a break. 

With this much partisan rhetoric this early, it will be a long slog through the political mud to 2020. 

For the record I tried to raise the level of this discussion about a topic that attracts a lot of interest.  This appears to be novel scientific application of physical law that may explain economic outcomes.  We can debate the physics if you like, but this focus instead on divisive partisan talking points is a waste of your time and mine (I've heard them before). 

Unfortunately low information voters eat that stuff up, so we should expect more of the same from popular media. Whatever happened to the quiet periods between elections?  8)

JR

 

[john12ax7]

Citing unemployment numbers is very misleading.  The percentage of people employed is more telling of the actual strength of the overall job market and economy.  And those numbers are terrible.

Certainly taxing inflation is bad,  but the inflation itself is a bigger problem and a regressive hidden tax.  There are no safe stores of value.

Taxes on the whole are not actually progressive, quite the opposite.  Only a very small percentage of high earners get their money  from higher tax bracket labor rates.

Also why is labor penalized? It's another problem  and the exact opposite of what you want for a society.

 

[Script]

[...]minimum wages, that only speed up automation [...]

I don't seem to like the 'only' in that sentence. Japanese minimum wagers, for example, when working 8/5/12 earn just slightly above the poverty line. They are not really tax payers, but the national social security system doesn't kick in to their rescue either -- for good or bad.

Higher minimum wages are in effect in very specific areas only, such as for nursing as well as child and old-age daycare staff -- all areas that are notoriously badly paid (not only in Japan) and where automation simply doesn't cut the chase. Japan introduced a higher minimum wage here to secure and attract more workers.

We already have progressive tax rates how about rolling back/limiting some obvious deductions?

Like which ones?

 

[JohnRoberts]

I don't seem to like the 'only' in that sentence. Japanese minimum wagers, for example, when working 8/5/12 earn just slightly above the poverty line. They are not really tax payers, but the national social security system doesn't kick in to their rescue either -- for good or bad.

Japan is working to bring in more immigrant workers, but real full time permanent jobs should pay them enough to live, or why work there?

Burger flippers (in US) OTOH are entry level jobs to learn how to work and move up the ladder to higher paying jobs later.  If laws force employers to pay more than entry level jobs are worth those jobs will go away. Reducing kid's opportunity to enter the workforce, albeit on the bottom rung.

Higher minimum wages are in effect in very specific areas only, such as for nursing as well as child and old-age daycare staff -- all areas that are notoriously badly paid (not only in Japan) and where automation simply doesn't cut the chase. Japan introduced a higher minimum wage here to secure and attract more workers.

Like which ones?

Interest deductions for home mortgages, pretty much most tax deductions... These distort market prices for stuff... The home interest rate deduction just increases house prices people can afford a like amount for the easier it makes mortgage borrowing. Many people buy homes based on the monthly payment they can afford. Without this house price distortion the house prices would fall to equilibrium at a lower price. So it is zero sum game to the home buyers (after prices equalize), but denies the government tax revenue (the legislators like the wealth effect of rising house prices but have been guilty of throwing too much fuel on that fire before.) 
===
My brother who has far more money than me, gets a juicy multi-thousand dollar tax deduction for buying his wife a tesla... wealthy people done't need tax breaks to buy expensive electric vehicles. In fact my brother's wife bought it mainly to get the carpool lane pass for EVs in Socal, to make her commute less annoying .

Tesla dropped car prices thousands of dollars after the tax break started tapering off reflecting the removal of the market price distortion. Tax dollars that could be better used to help poor people, not Elon Musk's bank account (or reduce my brothers tax bill).

JR

 

[john12ax7]

I would agree about most deductions.  It distorts the market and is unfair to those who don't get the deduction.  I don't see the justification in having renters subsidize homeowners,  which is essentially what happens.

If anything renters are typically more in need of financial help,  it's just another regressive taxation policy.

 

[JohnRoberts]

Citing unemployment numbers is very misleading.  The percentage of people employed is more telling of the actual strength of the overall job market and economy.  And those numbers are terrible.

Unemployment and labor force participation are both moving in ways that will put upward pressure on wages.

Certainly taxing inflation is bad,  but the inflation itself is a bigger problem and a regressive hidden tax.  There are no safe stores of value.

Inflation is double edged sword. It helps people (governments) with a lot of debt, pay that back with cheaper currency. The central banks target a modest amount of inflation (2% I think) and have trouble hitting it lately.

Taxes on the whole are not actually progressive, quite the opposite.  Only a very small percentage of high earners get their money  from higher tax bracket labor rates.

?  Not those rich people again?

Also why is labor penalized? It's another problem  and the exact opposite of what you want for a society.

I would prefer society to not pick winners and losers.

JR

 

[john12ax7]

Unemployment and labor force participation are both moving in ways that will put upward pressure on wages.

Wages (real inflation adjusted) have been stagnant for a long time when looking at the broad economy. Labor participation has not recovered from 2008 and is basically at pre 1980 levels.

Inflation is double edged sword. It helps people (governments) with a lot of debt, pay that back with cheaper currency. The central banks target a modest amount of inflation (2% I think) and have trouble hitting it lately.

Inflation hurts the most responsible people in society, the savers. And rewards the irresponsible who over-borrow.

?  Not those rich people again?

Again? When things are constantly done to benefit a small specific group it seems worth talking about. Addressing something like inflation for capital gains is yet another gift for the wealthy. Why not also address inflation for minimum wage? If you are going to have a minimum wage it is only logical that it is tied to inflation.

I would prefer society to not pick winners and losers.

So would I.  Moving closer to actual free market capitalism would be a huge step in a positive direction. But it must be complete. Tax law would be reduced to what you could fit on an index card.

 

[JohnRoberts]

Wages (real inflation adjusted) have been stagnant for a long time when looking at the broad economy. Labor participation has not recovered from 2008 and is basically at pre 1980 levels.

On that scale indeed participation is as low as 1980, numerous moving parts in any one number.

Inflation hurts the most responsible people in society, the savers. And rewards the irresponsible who over-borrow.

amen brother...

Again? When things are constantly done to benefit a small specific group it seems worth talking about.

who voters?

Addressing something like inflation for capital gains is yet another gift for the wealthy.

Inflation is a distortion to valuation. They already ignore inflation in primary residence transactions, another gift for the wealthy? 

Why not also address inflation for minimum wage? If you are going to have a minimum wage it is only logical that it is tied to inflation.

Yes, if I agreed with minimum wages, but I consider minimum wage counter productive, and harmful to helping new workers join the job market. Minimum wage is not rational but a "feels good" legislation using government force to transfer wealth.  The insidious unintended consequence is that higher minimum wages price humans out of entry level jobs.

So would I.  Moving closer to actual free market capitalism would be a huge step in a positive direction. But it must be complete. Tax law would be reduced to what you could fit on an index card.

I suspect we will eventually end up with a consumption tax, but I worry we will end up with"both" income tax and consumption tax.  The swamp stays up at night trying to think of ways to extract more tax revenue (for them to spend). Unfortunately the wealthy do not have enough money even if they take all of it, so the actual working people have to pay the lion's share of taxes, because that is where the money is. 

JR

 

[john12ax7]

Inflation is a distortion to valuation. They already ignore inflation in primary residence transactions, another gift for the wealthy? 

Not just for the wealthy, but yes a gift for some at the expense of the those that can't afford to buy. It's wrong not to account for inflation, but the mortgage deduction probably makes up for it.

So yes, tie it to inflation, but you must also eliminate deductions at the same time.

With capital gains, yes tie it to inflation, but you must also then treat the gains as income. No more games of whack a mole in choosing how to distribute money.

Yes, if I agreed with minimum wages, but I consider minimum wage counter productive, and harmful to helping new workers join the job market. Minimum wage is not rational but a "feels good" legislation using government force to transfer wealth.  The insidious unintended consequence is that higher minimum wages price humans out of entry level jobs.

I tend to agree and in general support eliminating the minimum wage. But it must be done last or at least simultaneously. You don't get rid of it before addressing the bigger problem of rampant corporatism and corporate welfare.

 

[Script]

I decided to move this here -- an aside from another thread.

Only a few years back, fully automated production processes using only robots almost broke Toyota's neck. It resulted in too many callbacks and severe damage to their image.

For now, with Toyota, it's not 'Humans versus Robots'. Instead they employ humans to oversee and continuously optimize what their robots do (overall,  basically the same number of staff). Said differently: robots handle many screws etc, albeit not all, and then humans check on it, even though a lot of that might be fine if only robots did it. But robots can often do it faster and it reduces tediousness. For now they use robots-only for the most simplest and repetitive processes (also in factory-internal navigation). Basically, they view robots as 'tools' to assist humans. The best of both worlds, so to speak. That being said, they still handle quite a few things manually to assure quality. Building a car is a complex process after all and staff at Toyota absolutely has to know how to build a car manually to be able to do their job. A robot does not necessarily know how to improve processes -- both in the tiniest of details and on a very large scale. But humans do or can because we are creative. AI might change the game in the long run, but we are not there yet, and once we are we still need quite a lot of staff to programm, adjust, monitor, improve.

It's kind of the opposite approach to the vision of a Tesla factory, which ultimately operates in the dark. However, this is not to say that T's factories won't one day do that to. But not for now.

I don't think that robots necessarily make humans obsolete. Instead it was motor-driven vehicles that made horses and oxes obsolete. As for humans, we have to adjust to an ever-changing work environment, which makes continuous learning and education indispensible. (And exactly for that reason, education should be free and openly accessible to everyone. The Internet is a great place, but it doesn's replace a good teacher.)

----
BTW, Japan had just opened its very first robot-only operated hotel and then quickly closed it again. There were too many complaints from customers.

 

[Script]

Burger flippers (in US) OTOH are entry level jobs to learn how to work and move up the ladder to higher paying jobs later.  If laws force employers to pay more than entry level jobs are worth those jobs will go away.

Burger flippers are not a good example, I think. A minimum wage sure drives automation and raplacing the human burger flipper, but the next-generation entry-level job then consists of carrying and handing over the 'tools' to the guys who maintain, repair and replace the flipping automat. Or assisting the guys who programm them.

----
The reason Japan introduced minimum wage was because so-called 'entry-level jobs' had turned into life-long careers for more and more people, forcing for example 40-year-olds to still live with their parents -- which comes with a range of larger scale social, demographic and economic problems.