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The Gilded Age

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Poll Question: How concerned are you about wealth disparity in the world?
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    Posted: 05 Oct 2014 at 08:02


The distribution of wealth in the US, and to a lesser extent other economies, has been increasing in recent years, and is now at a rather startling point. We are now effectively in a new "Gilded Age", with wealth concentrated in very few hands, while the majority see a stagnating, or even declining income. Huge increases in productivity have not been evenly distributed, but has virtually all gravitated to a new aristocracy. French economist Thomas Piketty writes about this at length in his book Capital in the 21st Century. How concerned should we be? How much faith do you have in "market forces", and how much should they be regulated, if at all?

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The rich define and enforce the rules, so they always win. 
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Al Jassas Quote  Post ReplyReply Direct Link To This Post Posted: 06 Oct 2014 at 06:09
As Good old Graham would say, it is all due to economic restructuring rather than preferable tax policies.

Until the 70s manufacturing was the main source of employment in the west. Now it is services industry. The difference in skill level equirements and density of skill qualities determines how much people will get.

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Post Options Post Options   Thanks (1) Thanks(1)   Quote Captain Vancouver Quote  Post ReplyReply Direct Link To This Post Posted: 06 Oct 2014 at 10:35
Originally posted by Al Jassas Al Jassas wrote:

As Good old Graham would say, it is all due to economic restructuring rather than preferable tax policies.

Until the 70s manufacturing was the main source of employment in the west. Now it is services industry. The difference in skill level equirements and density of skill qualities determines how much people will get.

Al-Jassas

It is quite true that manufacturing employment has declined in the older economies, and the service sector has grown in recent years. In fact I'd think it safe to say that many of those former middle class manufacturing jobs have migrated down the the lower paying ones at the bottom end of the service sector. However, this is far from the whole story. 

Overall, GDP has increased regularly, year over year, for the most part, and national wealth has increased. The fruits of this expanded production have gone though to a tiny minority at the top, and this trend seems to be accelerating. More are in lower paying categories, but even there, wages have not matched increased productivity, for the most part.

Labour has been devalued due to the increasing digitization of work, and also the new competition from the former third world, now full of eager applicants for factory work, at a fraction of what their first world counterparts make. Capital however, has been elevated to all new heights. It is now free to zip about the world in microseconds, and  often do so for the purpose of evading taxes or unwanted regulatory standards. Many ventures today are also highly capital intensive, but not labour intensive. The financial sector has expanded hugely in recent years, and fortunes have been made speculative ventures with no value to society at large, but high value to a few who stand to profit.

In short, those that have, or have access to substantial funds, now have more opportunity than ever to increase their wealth, while those that depend primarily on their own labour (the vast majority) are finding such offerings ever less valued. The result is a massive shift in society today, one with substantial social ramifications for the future.

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Post Options Post Options   Thanks (0) Thanks(0)   Quote Al Jassas Quote  Post ReplyReply Direct Link To This Post Posted: 06 Oct 2014 at 21:15
I never said it was the whole story but it is a large percentage of it. 

As for productivity increases and wages lagging it one has to take into account how much of that was due to modern technology as well as modern management techniques and how much of it is due to technical skill. 

Believe it or not there are still some highly qualified welders receiving annual income of well over $150k today and if you adjust it to inflation and compare it to the situation 30 years ago you will find that this particular job is valued more today than before even with demand/supply stable. The main reason in this case is because no current technology no matter how sophisticated it is can replace this man in his job even though he uses technology developed 70 years ago.

Finally I do not like using GDP in metrics regarding income and economy because it is so misleading. It does not take into account structural changes within an economy so you will end up with a growing economy and at the same time an increasing unemployment rate to to structural changes that GDP cannot account for because it is a cumulative measure that averages out all internal changes. In the 1980s unemployment increased in the US due to sharp manufacturing decline but the economy grew at a very high rate largely due to liquidation of industrial assets at the hand of foreign (Japanese scare) investors moving trillions into the US economy as well as growth in Banking as share of national economy at a higher rate than decline of industry. 

Is income inequality a bad thing? to a certain extent actually no from a government revenue PoV. In the long term it depends on consumption habits of the people, the price-wage levels and how severe actually this inequality is. 

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Post Options Post Options   Thanks (0) Thanks(0)   Quote Captain Vancouver Quote  Post ReplyReply Direct Link To This Post Posted: 07 Oct 2014 at 04:17
Originally posted by Al Jassas Al Jassas wrote:

I never said it was the whole story but it is a large percentage of it. 

As for productivity increases and wages lagging it one has to take into account how much of that was due to modern technology as well as modern management techniques and how much of it is due to technical skill. 

Believe it or not there are still some highly qualified welders receiving annual income of well over $150k today and if you adjust it to inflation and compare it to the situation 30 years ago you will find that this particular job is valued more today than before even with demand/supply stable. The main reason in this case is because no current technology no matter how sophisticated it is can replace this man in his job even though he uses technology developed 70 years ago.

Productivity increases are definitely due to modern technology, with the ongoing computer revolution a major factor. Row after row of desks in banks, insurance companies, and many other businesses have been eliminated by software programs. This is not a bad thing, but the question remains, how should these increases in wealth generation be divided? Increasing skills and education are of course de rigueur, and indeed we have a better educated workforce than ever before. This is only of so much value though, as jobs decline overall, and further subdivide into a few very well paid technical or managerial positions, or into the low end of the service economy, with consequently low pay. 

There will always be outliers to major trends, and sure some welders make $150,000 in a year. Highly paid construction jobs tend to flow from the needs of specific projects, or temporary shortages, and are less an indication of an average lifetime wage. But, fair enough, there are exceptions. Overall though, wages have been stagnant or declining for most workers, other that a few at the very top. The broader question is, who should benefit, and how much, from the advances in productivity and science? If it  is to be just a few who beat out the other 100 well trained applicants for that IT position, due to connections, good luck, or cosmic whimsy, then, is that the best way to do things, and more importantly, what will society look like in the future with such growing disparity?


Originally posted by Al Jassas Al Jassas wrote:

Finally I do not like using GDP in metrics regarding income and economy because it is so misleading. It does not take into account structural changes within an economy so you will end up with a growing economy and at the same time an increasing unemployment rate to to structural changes that GDP cannot account for because it is a cumulative measure that averages out all internal changes. In the 1980s unemployment increased in the US due to sharp manufacturing decline but the economy grew at a very high rate largely due to liquidation of industrial assets at the hand of foreign (Japanese scare) investors moving trillions into the US economy as well as growth in Banking as share of national economy at a higher rate than decline of industry. 

Is income inequality a bad thing? to a certain extent actually no from a government revenue PoV. In the long term it depends on consumption habits of the people, the price-wage levels and how severe actually this inequality is. 

Al-Jassas

True, GDP is but one measure of an economy. I don't think any economist today though would dispute that national wealth has increased, that wealth has become more polarized in recent years, with the middle class in decline, and a very few gaining an accelerating share of income.

I'd say this is a big problem, not just for government revenue, but for society at large. Lower wages, particularly middle class wages, suppress demand, and hence production. Those that are truly poor don't participate in the economy, and so have little effect. The wealth from the very top often goes to that which is of lesser value to the economy as a whole. More wealth means freedom to speculate in frivolous ways, and indeed we have seen consecutive bubbles in real estate, stock and bond markets, and in currency speculation in recent years. In the US, wealth also means political power, and today we are seeing legislation that, perhaps not too surprisingly, favors the interests of those at the top, over those in the lower ranks. National boundaries are not longer a great barrier for capital,and so the plight of workers in the US is not necessarily a problem for the most wealthy. If consumption drops at home, there are always greener fields somewhere in which to make money.

Joseph Stiglitz writes:

"....The problem of inequality is not so much a matter of technical economics. It’s really a problem of practical politics. Ensuring that those at the top pay their fair share of taxes — ending the special privileges of speculators, corporations and the rich — is both pragmatic and fair. We are not embracing a politics of envy if we reverse a politics of greed. Inequality is not just about the top marginal tax rate but also about our children’s access to food and the right to justice for all. If we spent more on education, health and infrastructure, we would strengthen our economy, now and in the future...."



Edited by Captain Vancouver - 07 Oct 2014 at 04:20
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