The Income Distribution Hoax, Part 1

Chaos2Order's picture
Rank: Baboon | 103

Apparently being a masochist, I'm sitting in front of my TV listening to the evening news once again, when suddenly I'm told that, according to the latest data, the income distribution (much like my waistline) has widened. Over the three decades ending in 2007 the share of annual real after-tax income obtained by the top 1% of income earning households doubled, reaching 23.5%. Shock! Horror! Anger!

Oh, the inhumanity of man to man! Who can I vote for who will use the government to take the money from those filthy evil rich, give it to the poor oppressed people and end this obvious injustice?

I soon find out. The network is actually quoting a New York Times article that cited data from a Congressional Budget Office report analyzing changes in the distribution of household income from 1979 to 2007...

The study had been requested several years back by Senators Max Baucus and Chuck Grassley of the Senate Finance committee: a democrat and a Republican, but both of them welfare liberals. The political game is afoot.

Aside from the doubling of the disposable real income share of the top 1%
of income earners, the basic facts reported by the CBO were these:
(a) From 1979 to 2007 the average real (i.e. inflation adjusted) disposable
income obtained by the top fifth (or 5th quintile) of all households
increased by 65%.
(b) The average disposable (i.e. after tax) real income obtained by those in
the middle three quintiles of households increased by about 40%, and

(c) The average real disposable income of those in the bottom quintile (the
poor) increased by 18 percent.

Wait a minute. Second thoughts come creeping into my mind like careful
firefighters to throw cooling water on my burning indignation. Did I see
that right? The average, real disposable income of every quintile went up?
Yup. The poor got richer, the middle class got richer, and the upper class
(or rather, classification) got richer. The gains were simply progressively
larger for the upper quintiles.

Since this is not a story of the rich getting richer and the poor getting
poorer, what justification for anguish is there over a widening income
distribution beyond simple envy and resentment by many of the greater
success of others? Is stimulating that to get votes and power what
Grassley and Baucus and so many other people like them really want?

Isn't it possible that most in the top quintile, and even the 1%, earned their
high incomes? Is it not possible that they did productive things that helped
raise the average real incomes of everyone else?

Didn't entrepreneurial decisions made by Bill Gates result in the cost of
computer memory falling by tens of thousands of percent, so that even the
poor can now afford computers (yes, the poor in America have computers,
and cars, and color TVs, and video games)? Why, beyond malicious envy,
should we punish people who make us better off?

And what about family size? Didn't I read somewhere . . ? Oh yes. Family
size is positively related to position in the quintiles. Wealthy top quintile
households are significantly larger on average than the poor bottom
quintile households. The top quintile may by definition have 20% of the
households, but it contains more than 20% of the population.

The bottom quintile also has 20% of the households, but less than that
proportion of the population. Consequently, the income difference per
person between top and bottom quintile households is exaggerated by the
quintile distribution data.

Top quintile households also have far more income earners on average -
at least three times as many - as bottom quintile households have. That
by itself accounts for a significant fraction of the income disparity between
them.

The average age of people in top quintile families is also higher, and is not
age, at least up to that of retirement, positively associated with income? Is
there injustice in that?

Aha. All this begins to make another mitigating possibility appear through
the diminishing smoke and heat of perceived injustice at an uneven and
widening income distribution. What if not everyone stays in their initial
place?

What if many of those who are in the bottom quintile at a point in time move
up over time, and what if many of those in the top quintile at a point in time
move down? What if many people in the middle three quintiles also move
up or down from year to year?

What real information is conveyed by a quintile income distribution study
comparing the shares of total real income each quintile possesses or the
average real income in the quintiles over time, if many of the people in
those quintiles are swapping places over time, and also being replaced by
deaths and births?

Is talk about rich, poor, middle class, and changes in the income
distribution even meaningful? Or are the quintiles merely empty arithmetic abstractions? Stay tuned for part 2.

Comments (45)

Jun 1, 2012

Terrible post.

    • 1
Jun 1, 2012
JeremyLinMVP:

Terrible post.

Please elaborate...

WSO's COO (Chief Operating Orangutan) | My Linkedin

Jun 1, 2012

Good post. I think some of the income distribution can be explained by the fact that more women are being educated too. There are many more women with advanced degrees (doctor, lawyer, accountants, and other high paying jobs) than there was in the past. When you figure that probably marry a guy that is educated and earning a decent income then those families will probably earn a lot more than 1% families of the past. Also divorce rates are lower among people with more education and that get married later in life compared to less educated people who get married earlier. These forces I think can explain a lot of the reason why the top whatever percent you look at has more of the income than the top percent had before. Just don't expect facts and reasoning like this to enter the political discussion anytime soon.

Jun 1, 2012

Good analysis

yellow t-shirt

Jun 1, 2012

Garbage Post.

Go back to masturbating to Blankfein.

    • 2
Jun 1, 2012

Do post I think you hit the nail on the head. It is not good enough for the top 1% to create jobs for and cheaper items for the normal American consumer so now the Washington wants to tax the top 1% even more. This drives down the for some of America's smartest people to create innovative products because the government is lurking and waiting to take a huge chunk of the income the product produces.

Jun 1, 2012
Warren_Graham:

Do post I think you hit the nail on the head. It is not good enough for the top 1% to create jobs for and cheaper items for the normal American consumer so now the Washington wants to tax the top 1% even more. This drives down the for some of America's smartest people to create innovative products because the government is lurking and waiting to take a huge chunk of the income the product produces.

The top 1% are not the job creators. The pozi scheme that is American consumerism and cheap credit are the true job creators.

Jun 1, 2012

Tax laws that tax earned income at 50% and dividend income/capital gains/carried interest/corporate profits at lower rates will skew the data. Get rid of the different income classifications, bring in one flat tax on all income of 10% with no loop holes or deductions, exclude those below the poverty line and bob's your uncle

Jun 1, 2012

I want you to try holding a complex thought in your head: parse out wealth vs absolute wealth. The bottom line isn't the material goods themselves so much as the fact that power/freedom is enjoyed in increasing disproportion...

    • 1
Jun 1, 2012

double post

Best Response
Jun 1, 2012

Well, the real problem here is that rich people don't spend their incomes. And if the middle class don't have incomes, they don't have money to spend.

I'm starting to turn into a disciple of Keynes now that I am seeing the beginning of a glut of raw materials/commodities, huge demand for the dollar, and the ability to be Keynesian without driving hyperinflation.

We need to find ways to print dollars and get them into the hands of middle-class consumers.

The income distribution may not be a problem in and of itself, but if there aren't people in the middle of the distribution to go out and buy cars, homes, appliances, electricity, gasoline, etc, the economy shuts down and the rich ultimately go bankrupt too.

OR we could just print some money and give it to people who will spend it on manufactured goods.

Good conservative posts, as well as liberal posts, tend to have nuance and analysis in them. I really don't see it in the OP's post. I see the same anti-socialist angst. I used to feel that way too, then I realized that we're in a different economy than we were in the late '70s.

    • 2
Jun 1, 2012

It goes way beyond that. The economic schools of thought that sprang up circa 1880 - 1940 were merely the mechanics of something that has gotten lost and has recently been returned to its rightful place, front and center: AMERICA IS ABOUT FREEDOM. It's not about money, power, control, ideologies or all the other crap that's been pumped into the public's mind for the last generation or so.

The whole point of coming to America is to be free to live your life as you please. Market mechanics, social movements, and all the rest are to be subordinated to this idea. If using the government's power in an area produces more freedom for more people, then do it. If letting markets run a certain area has a better net contribution, then let them. The ideologies, including Austrian, Keynesian, conservative/liberal, and all the rest are merely subsets of the larger set of principles laid out in the Constitution, and should serve that end. When a myopic understanding of the world causes people to treat them as dogma, then everything starts to go wrong.

Jun 1, 2012

^^^^ True, but the US takes a more deontological than utilitarian approach to freedom. We would not, for instance, kill Bill Gates to save 100,000 US citizens being held hostage in Iran.

But if we can argue that taxing the rich increases their own freedom, suddenly we have justification. The argument in the '30s was that if we don't tax the rich, we are going to face a socialist revolution like Russia. The argument today is that if we don't tax the rich, we will wind up like Greece (where only 15-20 millionaires paid taxes last year).

    • 1
Jun 1, 2012
IlliniProgrammer:

^^^^ True, but the US takes a more deontological than utilitarian approach to freedom. We would not, for instance, kill Bill Gates to save 100,000 US citizens being held hostage in Iran.

But if we can argue that taxing the rich increases their own freedom, suddenly we have justification. The argument in the '30s was that if we don't tax the rich, we are going to face a socialist revolution like Russia. The argument today is that if we don't tax the rich, we will wind up like Greece (where only 15-20 millionaires paid taxes last year).

I'll defer to your knowledge of Greece, but yes, very well stated. The "American Dream" has many variations depending on time period, demographic, etc... but I'd like to point this out: In the broadest possible sense, people go to Singapore to avoid taxes. They go to Europe for the social programs. They go to the Islands to party.

But they come here for the opportunity to chase their dreams, to live their life as they see fit.

Freedom here isn't just some abstract "do whatever you want" but a real way of life where effort, opportunity, and personal decisions really can overcome the momentum of history. Inequality in and of itself isn't really that bad. The problem is when it's used to enslave everyone else, either in prison, by working them to death (regardless of the material payoff), or in the case of the last few decades: intellectual slavery to political religions. The cool part is that there are a lot of solutions, and graduated taxes are one small part of running things effectively.

Jun 1, 2012

Inequality in and of itself isn't really that bad. The problem is when it's used to enslave everyone else, either in prison, by working them to death (regardless of the material payoff), or in the case of the last few decades: intellectual slavery to political religions. The cool part is that there are a lot of solutions, and graduated taxes are one small part of running things effectively...

The "American Dream" has many variations depending on time period, demographic, etc... but I'd like to point this out: In the broadest possible sense, people go to Singapore to avoid taxes. They go to Europe for the social programs. They go to the Islands to party.

But they come here for the opportunity to chase their dreams, to live their life as they see fit.

Good post, but then the Malthusian in me doesn't necessarily want more people coming here. Freedom tends to be inverse to population. You see that in the rules and regulations of NYC (bracketed air conditioners, motorcycles getting stopped and inspected for their exhaust noise, $110 parking tickets, etc. etc.) vs. rural New Hampshire.

I agree that America is a more free and stable country when we have a "reasonable" income distribution, and sometimes the feds need to step in and work stuff out.

Soon the US will be a net exporter of oil. We are already net exporters of natgas.
We have always been a net exporter of grain.
We control 70% of the world's non-arctic freshwater. (The Great Lakes)

The rich have to do business here if they want our resources. They have no alternative. You cannot make plastic out of air; you cannot power a manufacturing plant on innovation. You cannot feed people on ideas. Europe may very well be turning into Easter Island, Asia has people but can barely feed them let alone provide the resources for factories, and their rule of law is a little sketchy; the US, Australia and Canada are the only real places to invest, and we have the lowest tax rates. So if we want to raise taxes, we can. We just also need to enforce some control over the export of our resources.

Jun 1, 2012

I learned nothing by reading this post. A tip to the author, analysis that is to be taken seriously should not be openly partisan. The pretentious tone of faux surprise at your own rhetorical questions ruins the post.

    • 1
Jun 1, 2012

Okay so the only things you proved are:

  1. in three decades, real disposable income in the bottom quintile increased 18 percent
  2. In the same period, the top fifth increased real disposable income increased by 65 percent.

Which leads me to two question: How does this not prove the point that wealth distributions are widening and that "the political game is afoot?"

Jun 1, 2012

Thanks to everyone who commented, including my critics. Good point, MiddleofNowhere. Women getting more education, staying in the job market, and marrying men is similar education and skill levels might stretch the income share in the upper quintile, and even 1%. This is compatible with different demographic explanation I will offer in part 3 of this series.
Warren Graham is right that raising marginal tax rates for upper income innovators ends up being counterproductive. In the long-run it hurts even the poor by suppressing the sort of productive acts he mentions. Going even further, Ovechkin08 is exactly right, I think, that we need a flat tax of no more than 10%, with no exemptions or deductions. Milton Friedman once estimated that such a tax would raise as much revenue as the government was getting from all its distortionary, progressive taxes at the time. Besides, as late as 1900, all federal expenditure totaled only 5% of GDP, and it had been much lower before that. By 1929 (after reaching high levels during WWI) it had actually declined to about 2.5% of GDP. Nowdays it is about 23% or more.
I can't agree at all with IlliniProgrammer's assertion that the rich don't spend their incomes (yes, they save higher percents of their income, and invest more, but investing is a form of spending, the most productive form), or that printing lots of money will do any good in our current situation (we've been trying that, and it has done no discernable good). He and UFOinsider have an interesting side discussion that I will just leave to them. As for wall12345s second question, I believe parts 2 and 3 will provide surprising answers.

Chaos2Order = JRE, Ph.D.

View my WSO Blog

    • 1
Jun 1, 2012

can't agree at all with IlliniProgrammer's assertion that the rich don't spend their incomes (yes, they save higher percents of their income, and invest more, but investing is a form of spending, the most productive form), or that printing lots of money will do any good in our current situation (we've been trying that, and it has done no discernable good). He and UFOinsider have an interesting side discussion that I will just leave to them. As for wall12345s second question, I believe parts 2 and 3 will provide surprising answers.

Maybe, but where are they investing it? For the past several years, it hasn't been the US, and much of those investments that have been in the US have been involved in replacing labor with capital. This may help make US workers more competitive in the very long run, but it is time for us to cash some of our chips in and change focuses.

I think there are a lot of deflation concerns in the market right now. Equities aren't performing all that well, and commodities are getting awfully cheap, with WTI approaching $80/barrel- a good signal for ~$2.50-3.00/gallon gasoline in the future. The low CCI and high USDX support this view on a fundamental level. I think the view that we're facing deflation- and that deflation is going to cut into the income of the wealthy- is more than just an assertion; it's born out in some of the market metrics. Like it or not, everyone agrees that Monetary Keynesianism helps fight deflation if you literally print fiat currency and spend it. I think a moderate printing route is a bit safer because you don't contribute to the risk of a debt crisis and the market gives you negative feedback signals via inflation sooner than with debt.

If you want to create demand for consumer goods, give consumers money to spend. Given the strong dollar and weak commodities situation right now, we have some room to do this.

Jun 1, 2012

Income redistribution through taxation- The U.S. didn't even have an income tax until 1916 and the ratification of the 16th Amendment. We existed and thrived as a country for 140 years without one... consider that for a second.

Wealth and the attainment of Absolute wealth is a function of several contributing factors and not limited to the idea that the only means of preventing the latter is through confiscation and subsequent redistribution. Fiat monetary systems (implemented 1934 through 1974) and ultimately anti-competition legislation and regulation all contributed to a scenario that allows for the possibility of absolute wealth. The manipulation of preventative measures result in barriers to entry and impede upward mobility for those whom benefit for the redistribution who by nature of their status lack disposable income and thus feed the formerly distributed income back into the hands of those from whom it was taken.

Not an expert on Keynes. But, I will say, to call current economic policy Keynesian is an insult to Keynes. Keynes policy is to spend through economic lulls and maintain during economic expansions. Not expand during both.

Jun 1, 2012

^^^ Yes, and not coincidentally, for 140 years, the US also had a frontier. Then that ended. The frontier created opportunities and freedom. Without the ability to head off to Illinois or Iowa or Kansas or Wyoming and claim 40 acres of land (which now costs $8000/acre, btw), there's fewer opportunities for the poor and middle-class to get ahead.

The $64,000 question (actually, now I guess the term is $1 million due to inflation) of the past 100 years is how do we balance maintaining a strong semblance of capitalism while helping to maximize aggregate freedom?

I think there's four things we need to do:

1.) Use incentives to try and limit population growth among the welfare class and those who pay in less than they receive. CC: Singapore in the '60s and '70s.
2.) Have a heavy estate tax, while exempting charitable giving.
3.) Make it harder to export raw materials and commodities to help reduce the opportunity for tax arbitrage and make American exports cheaper.
4.) Keep the moderate but progressive tax system that we have had from 1981-2008 of 30%-50% top marginal tax rates.

Capitalism is a fundamentally important component of freedom, but I'm with UFO on the idea that America stands for freedom first. A country where people are working for pennies per hour and barely able to feed themselves and their families is not really a free country. IMHO, MADD, seat belt laws, the war on terror, and government paternalism are still much bigger threats to libertarianism than moderate Bill Clinton-style liberalism.

Jun 2, 2012

Illini - the simple answer to your question is to make the emphasis in the legal system favorable to smaller businesses as opposed to letting the big guys buy out the mob's, er, government's, protection. Very few industries lend themselves to being highly centralized, and such a state is maintained by the legal framework created by the prevailing political will.

Capitalism is very simple: save money and reinvest. The perfect example of the political system is propping up the banks...such a state would not be possible without government backing. It's an issue of vision, the mechanics exist for a broad spectrum of possibilities.

Jun 2, 2012
UFOinsider:

Illini - the simple answer to your question is to make the emphasis in the legal system favorable to smaller businesses as opposed to letting the big guys buy out the government's protection. Very few industries naturally lend themselves to being highly centralized, and such a state is maintained by the legal framework created by the prevailing political will.

Capitalism is very simple: save money and reinvest. The perfect example of the political system is propping up the banks...such a state would not be possible without government backing. It's an issue of vision, the mechanics exist for a broad spectrum of possibilities.

Jun 3, 2012

The US is the richest country in the world.

Yes, america has a high amount of "rich." The top 1% hold 44% of the worlds Assets. America has the 27% of the worlds top 1% of wealth holders, with 12 Million people in America being the top 1% of wealth holders worldwide. America has 34% of the "Dollar Millionaires" Worldwide.

But, to count in the wealthiest half of the world, an adult only needs $4,200 in Net wealth (assets - debts). The top 10% holds 84% of the worlds assets, and to qualify, you need $82,000 net wealth.

The average american's median net wealth is $52,752, (considering debts of USD $59,000 per adult, conservative with the rest of the world).

Compared to the wealth distribution in the rest of the world, the US distribution has a high proportion of the population with wealth above USD 100,000, at 36.3% of the country (and 21% of the total worldwide proportion). Only 9% of the world hold this amount of wealth worldwide.

A further 34.4% US citizens have wealth between 10 000-100 000. Only 13.9% of american adults have a net worth of less than 1,000, and 29% total hold less than 10,000, compared to about 60% of the worlds population.

Yes, Americans do have a large level of wealthy individuals, as they have by far the greatest number of members of the top 1% global wealth group, accounting for 41% of those with wealth exceeding USD 10 million and 32% of the world's billionaires.

But as someone mentioned, there is a relationship between wealth and age, with a hump shape (rising wealth until retirement), and often age is not factored into these models. The thing that irritates me is that a 21 year old kid fresh graduated from college shouldn't expect to be part of the 1%, and have same net worth as everyone else in america, yet he goes and protests like he does. And someone who spends all their money on drugs and cigarettes and fashion and heaven knows what else, and doesn't invest or save anything, also receives little sympathy from me.

Yes, I support government health care, and pensions, and think that aspect of America needs to be looked at. But honestly, very few people in the US have any reason to complain, perhaps 13%, compared to others. But they would do better to do something about it, use it as motivation to go makes something of themselves, then sit back and winge. The current standard of living in the US higher than most throughout history.

Oh, and in america there is a high degree of wealth mobility. I remember the Wall Street Journal did a study on it a few years back, there's lots of people are swapping from upper, middle and lower classes.
It's not perfect and I can't remember everything, but I think about 80% of people swapped "classes" between 40 years or so (1960 compared to now?). The 1% is often less then a generation away for most.

https://infocus.credit-suisse.com/data/_product_do... Nt: All figures for adults.

Jun 4, 2012

To IlliniProgrammer: we are way off topic, but I guess that is okay. First, I don't think it makes much difference whether American investors invest here or overseas. Investment here, in new capital that employs people or in R&D generating new or improved products or more efficient processes of production benefits Americans, but so does investment by Americans overseas. We are the primary market for the inexpensive products generated by such overseas investments, and our investors and stockholders gain from the repatriated incomes generated. Plus, for the sort of reasons I explained in my very first post on WSO (the Sawyer Syndrome) overseas investments, generating income for the foreigners employed, do not alter overall employment here (though it may alter the pattern).

As for the deflationary pressures we are currently experiencing, you are right that they exist (why they came to exist is too long a story to tell here). The solution is not Federal Reserve money creation, however, but deflation itself. All the Fed has to do is keep the nominal money stock from declining, and falling prices will increase the purchasing power of each dollar until the purchasing power in everyone's cash balances - the real money stock - rises enough to reestablish demand for goods and services. This is known as the real balance effect. Even more important is that wage rates also be allowed to fall. The reason we have abnormally high unemployment is precisely that in too many labor markets the real wage - the ratio of wages to prices - is too high (above the marginal product of labor). Nominal wage rates need to fall in those labor markets by more than product prices, so that the real wage can fall to employable (market clearing) levels, at which point they would stop falling. You should consider the fact that for 35 years following the Civil War prices fell, yet this was a long period of extremely rapid economic growth, both gross and per-capita (there was also deflation over much of the 19th century before the Civil War, but that is another long story).

Thanks to the rest for your comments. Particularly ragnar danneskjold (isn't that a name of a historical figure? I've heard it somewhere), good comment. I agree with most of it. You are off by three years on when the 16th (income tax) amendment passed. It was in 1913, but most people would not even know the decade. Can you imagine that for that great a portion of U.S. history Americans did not have to pay an income tax? No wonder people could reinvest at the rates they did and the economy could grow so fast and make even poor Americans better off, along with the rest.

Also, Mr. aimez has some interesting data, and is right about income mobility. Number 2 and 3 in this series focus on that, so read on, monkeys!

Chaos2Order = JRE, Ph.D.

View my WSO Blog

Jun 4, 2012

To IlliniProgrammer: we are way off topic, but I guess that is okay. First, I don't think it makes much difference whether American investors invest here or overseas. Investment here, in new capital that employs people or in R&D generating new or improved products or more efficient processes of production benefits Americans, but so does investment by Americans overseas. We are the primary market for the inexpensive products generated by such overseas investments, and our investors and stockholders gain from the repatriated incomes generated. Plus, for the sort of reasons I explained in my very first post on WSO (the Sawyer Syndrome) overseas investments, generating income for the foreigners employed, do not alter overall employment here (though it may alter the pattern).

Well, again, said primary market can't consume all of the goods produced as it currently stands, hence why we need Keynesianism.

The real problem is that the planet cannot sustain six billion people on the US's standard of living. There is not enough oil, freshwater, grain production, etc. However, there is enough food, oil, grain, etc. in the US to sustain 300 million AMERICANS on that lifestyle. So we can either let the middle-class starve, or we can focus on keeping the US's resources in the US and fully utilizing those resources here.

You should consider the fact that for 35 years following the Civil War prices fell, yet this was a long period of extremely rapid economic growth, both gross and per-capita (there was also deflation over much of the 19th century before the Civil War, but that is another long story).

Actually the thirty five years after the Civil War were a terrible time for investors and investments.

Jun 4, 2012
IlliniProgrammer:

You should consider the fact that for 35 years following the Civil War prices fell, yet this was a long period of extremely rapid economic growth, both gross and per-capita (there was also deflation over much of the 19th century before the Civil War, but that is another long story).

Actually the thirty five years after the Civil War were a terrible time for investors and investments.

...add to that, massive drug addiction.

Jun 4, 2012
IlliniProgrammer:

The real problem is that the planet cannot sustain six billion people on the US's standard of living.

I look at this as "cannot sustain six billion people on the US's level of resource consumption". The standard of living need not be tied to resources. This is where technological innovation and efficiency improvements can really make a difference.

Jun 4, 2012
UFOinsider:

I look at this as "cannot sustain six billion people on the US's level of resource consumption". The standard of living need not be tied to resources. This is where technological innovation and efficiency improvements can really make a difference.

With global warming coming, there's no way to feed everyone on this planet. Massive doughts and crop failures are coming, particularly to Asia and Africa, but they won't be hitting the US because we have the Great Lakes.

Besides, our job as a country is to look out for the best interests of our citizens. Freedom is maximized when supply, demand, and technology levels are generally predictable to folks so they're not losing sleep over rapid changes.

Jun 4, 2012

Sit in on a poly sci 101 course if you can. Also, cool it on the doomsday stuff. If we're here after December of this year, we're going to need real solutions...

It's hardly doomsday stuff- there's no doom for the US in it; it's just malthusianism, and we've been right in our predictions for the past ~10 years about the economy.

In a resource-constrained world like the one we live in today, resources are ultimately what creates jobs. Control the resources, and you control where the jobs go. For the past ~40 years, our resources have been going overseas, so that is where the jobs have been following. But if we limit the export of resources, we keep jobs here, we raise the cost of doing business abroad, and we give the middle-class a much-needed boost.

Why is it that the world's largest agricultural countries- the UK, Australia, Canada, and the US are also some of the world's wealthiest? All of them have fairly different political systems with some being social democracies while others are laissez-faire capitalist. As long as property rights are generally respected, (AKA not Russia or Argentina) wealth comes down to resources, and the control of their export, not political systems.

Jun 5, 2012

Well, IlliniProgrammer, we're still way off topic, but you are an interesting and intelligent guy, so here goes.
(1) In saying that the primary market can't consume all of the goods as things stand, and hence we need Keynesian monetary expansion, it is clear that you understood nothing I said about deflation and the real balance effect. I won't repeat myself. You can go back and read it again.

(2) Your Malthusian assumption that the planet could not sustain six billion people at the American standard of living is almost certainly wrong, for a number of reasons. What is relevant for supplying a given population at a given living standard is not the total amount of atoms of various natural resources in existence. That is huge beyond imagining. What is relevant is the amount that can be found and extracted economically (at a profit), and that amount expands with knowledge and technology. It is the very nature of economic growth that it involves (among other things) improvements in that knowledge and technology. Malthusians have been predicting that we would soon run out of this or that resource since before the 20th century, and they have always turned out to be wrong when the run-out date is reached. Just see how wrong the Government's Global 2000 report was, for example. Since OPEC was formed around 1969, they have been pumping about 34 million barrels per day out. Yet known, extractable reserves in OPEC nations are now twice what they were when OPEC started, due to improved technology and discovery of new fields. As China and India grow, and their technology improves (or they let U.S. or British firms come look) they too will discover natural resources (perhaps like our Bakken Field).
(3) As for the 35 years after the Civil War being a bad time for investors, I doubt that was true for more than certain subperiods, and even if it were true for the whole 35 years, it wouldn't touch my argument. Every index of American well-being improved at a rapid rate. Real income per capita rose rapidly, life expectancy rose rapidly, the average number of hours per day and per year people worked fell so that their free time rose along with their real incomes. It is always the case that in times of economic growth, some sectors may be having problems while others exceed the average. None of that denies the trend.

To UFO Insider, who adds that there was widespread drug addiction in the post-Civil War period, so what? We have lots of that now, with lots of Keynesianism. And don't get me started on Global Warming. You don't want to go there.

Chaos2Order = JRE, Ph.D.

View my WSO Blog

Jun 5, 2012
Chaos2Order:

To UFO Insider, who adds that there was widespread drug addiction in the post-Civil War period, so what?

Simple...the country was a total mess at that time, so a large part of the 'growth' that people like to chat up was not much more than post war reconstruction. Technically, yes growth, but realistically just moving back to par. The policies in place that made the reconstruction possible were heavy oversight and funding from the northern government...southerners tend to leave that part out of their narrative.

Jun 5, 2012

quote=Chaos2Order In saying that the primary market can't consume all of the goods as things stand, and hence we need Keynesian monetary expansion, it is clear that you understood nothing I said about deflation and the real balance effect. I won't repeat myself. You can go back and read it again.[/quote]
I ignored it because the facts of the situation say otherwise. We're not running anywhere close to full employment or our industrial capacity with the current deflation. One day in 15 or 20 years, based on your view, the handful of rich people with money may crawl out of the woodwork and decide that they want to buy 100,000 silverware sets, each, just for the heck of it because they cost $0.10 each. Or, we could just figure out ways to get money into the hands of 100,000 middle-class people and get the factories reopened and speed the process of finding outlets for these goods.

quote Your Malthusian assumption that the planet could not sustain six billion people at the American standard of living is almost certainly wrong, for a number of reasons. What is relevant for supplying a given population at a given living standard is not the total amount of atoms of various natural resources in existence. That is huge beyond imagining. What is relevant is the amount that can be found and extracted economically (at a profit), and that amount expands with knowledge and technology. It is the very nature of economic growth that it involves (among other things) improvements in that knowledge and technology.[/quote]
M. King Hubbert says otherwise. We are very likely close to peak oil production already trying to give ~1 billion people a US middle-class standard of living. I don't see how we are going to get from 80 mmbpd oil production to 160 mmbpd, and if we do, I don't see how the environment will be able to handle all of that even assuming away global warming.

Malthusians have been predicting that we would soon run out of this or that resource since before the 20th century, and they have always turned out to be wrong when the run-out date is reached. Just see how wrong the Government's Global 2000 report was, for example. Since OPEC was formed around 1969, they have been pumping about 34 million barrels per day out. Yet known, extractable reserves in OPEC nations are now twice what they were when OPEC started, due to improved technology and discovery of new fields. As China and India grow, and their technology improves (or they let U.S. or British firms come look) they too will discover natural resources (perhaps like our Bakken Field).

And the Malthusians were wrong due to advances in technology for the first ~150 years. Then the 60s 70s hit and the world was hit with terrible famines in China and sub-saharan Africa, helping to bend down population growth from a J curve to an S-curve. But tariffs and a much less global world helped protect the US market from much of that. There will be many more bends to come as the S curve approaches the top.

Jun 5, 2012

Dude, offshore drilling has just started to delve into uncharted territory and the finds are HUGE. Planning for scarce resources, and maximizing efficient and reasonable usage are definitely priorities, but they should stand on their own merits as ends and not be subject to abritrary and fictional theories on the limits of growth. I definitely think that lifestyles should and will be scaled back as competition for resources intensifies, but I'm pretty optimistic about technology will continue to contribute to improvements.

As for the original subject, income disparity is widening and if the saying 'voting with your dollars' is to be a practical implementation, well then, the people getting richer faster kind of have more power, wouldn't you say? How long before that becomes a problem? A quick look at history makes abuse of power and negligent leadership a hop skip and a jump away...and the ensuing chaos is usually a bummer.

Personally, I can retreat to a remote wildnerness hideout stocked with guns and food, but I like civilization and would prefer to see it maintained well.

Jun 5, 2012
UFOinsider:

Dude, offshore drilling has just started to delve into uncharted territory and the finds are HUGE. Planning for scarce resources, and maximizing efficient and reasonable usage are definitely priorities, but they should stand on their own merits as ends and not be subject to abritrary and fictional theories on the limits of growth. I definitely think that lifestyles should and will be scaled back as competition for resources intensifies, but I'm pretty optimistic about technology will continue to contribute to improvements.

UFO, between shallow water and land we've had access to about 40% of the world's oil for the past 100 years, and we've already burnt through half of it. Deepwater might add another 2.5 times that amount. Might (In reality, the oldest rocks on the ocean floor are 200 million years old while a lot of terrestrial oil deposits are much older). In the meantime, we have 7 times the people on this planet who want middle-class western lifestyles than we can actually sustain using terrestrial, shallow-water, and even deepwater sources. And that is with cars getting 50% better fuel economy than they got 10 years ago, and starting to approach their natural limits (~70 mpg largely based on the limits of drag). And to say nothing of the environment if we try to produce 7x the oil we currently consume, even assuming away issues like global warming or issues with breathing high concentrations of CO2 (~3000 ppm, but could hit it in our lifetimes with 7x the CO2 emissions we currently experience).

Frankly, there is no way we will be able to feed all of these people, get them to work, keep them warm, etc. So what we need to do instead is focus on keeping folks in the US clothed, fed, and warm.

Jun 5, 2012

Looking at the US's history, I'd say that's about what we've done. Honestly, I think you're looking at things through the lens of one author as opposed to many. I don't think it's possible to have everyone to live the American lifestyle, but I think there's more than enough to keep most people happy in this world.

Jun 5, 2012
UFOinsider:

Looking at the US's history, I'd say that's about what we've done. Honestly, I think you're looking at things through the lens of one author as opposed to many. I don't think it's possible to have everyone to live the American lifestyle, but I think there's more than enough to keep most people happy in this world.

In the world of Malthus, there are resources and there are people. Technology can give us access to more resources, and the ability to use them more efficiently, but for the past 50 years, technology has struggled to keep up with population growth. As a result, we get famines in sub-saharan Africa (1960s-today), bread riots in the developing world (CC: "Arab Spring"), and income stratification in the developed world.

Wouldn't it just be much easier if we used the US's resources in the US? The abundance of resources relative to population created by the frontier in the 19th century helped drive America's incredible growth during that period. If we make it harder to export resources and take some basic non-coercive steps to help limit population growth among the welfare class in the US, we can bring some of that growth back.

Jun 5, 2012
IlliniProgrammer:
UFOinsider:

Looking at the US's history, I'd say that's about what we've done. Honestly, I think you're looking at things through the lens of one author as opposed to many. I don't think it's possible to have everyone to live the American lifestyle, but I think there's more than enough to keep most people happy in this world.

In the world of Malthus, there are resources and there are people. Technology can give us access to more resources, and the ability to use them more efficiently, but for the past 50 years, technology has struggled to keep up with population growth. As a result, we get famines in sub-saharan Africa (1960s-today), bread riots in the developing world (CC: "Arab Spring"), and income stratification in the developed world.

Wouldn't it just be much easier if we used the US's resources in the US? The abundance of resources relative to population created by the frontier in the 19th century helped drive America's incredible growth during that period. If we make it harder to export resources and take some basic non-coercive steps to help limit population growth among the welfare class in the US, we can bring some of that growth back.

Malthus was a pessimistic political conservative whose theory raises a valid concern but hasn't panned out. The Arab spring weren't bread riots. Population control for poor people? This will lead to growth? Seriously, read some different authors and broaden your perspective.

Jun 5, 2012

IP is going to start using more of them fancy words when he gets to Princeton and I ain't gonna have no idea what he's talking about.

If I had asked people what they wanted, they would have said faster horses - Henry Ford

Jun 5, 2012

We invaded a country and occupied it for 10 years because it has large untapped reserves. Canadian oil sands are probably a net loss when it comes to energy production, not to mention the disgusting amount of oil used. We are now going far offshore with out oil drilling which is logistically and economically much harder than shallow water.

All this and we don't even have billions of Chinese and Indians driving yet. Give them 20 years. This also doesn't factor in the damage to the Saudi fields from over pumping, etc.

Oil will never be completely gone, but prices are not coming down any time soon.

Jun 5, 2012

Malthus was a pessimistic political conservative whose theory raises a valid concern but hasn't panned out. The Arab spring weren't bread riots. Population control for poor people? This will lead to growth? Seriously, read some different authors and broaden your perspective, your thinking is ever complicating permutations of the same narrow view.

I've read Julian Simon, too. The problem is that Simon has been wrong for the past 50 years.

The difference between a malthusian and a cornucopian is how sober you are in your analysis of technology's ability to keep up with population growth. I just don't see the catalysts that are going to be there to feed, clothe, house, transport and warm 10 billion people so they can enjoy a middle-class American lifestyle. But we do have the resources here in the US to do that for 300 million people.

Population control won't lead to growth, but it will lead to affluence.

Affluence= Technology * Environment/Population. Want to increase affluence? Increase technology or increase resources per capita.

Jun 5, 2012
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