1. We're talking about literally 400 years between the height of Venetian power and the creation of the Libro d'Oro (1315) and its decline (17th to 18th century). Forgive me if I'm not quite ready to accept the author's core premise here.
2. This sentence made me LOL:
"Public schools are starved of funding... This is the new Serrata".
The premise of the statement, that public schools are starved of funding, is preposterous. NYC spends upwards of $20,000 per pupil per year. But even beyond that, comparing moderate variation in school funding levels to the creation of an ACTUAL OLIGARCHY is just, hack-city. That might be the kind of tortured analogy that gets you a favorable slot in the NY Times during election season, but it's sheer nonsense. Look, I can make any argument, on any part of the political spectrum, that way!
"High income taxes ... this is the new Serrata."
"Occupational licensing ... this is the new Serrata."
"Immigration limits ... this is the new Serrata."
"The Yankees spending $200m a year on their payroll ... this is the baseball Serrata."
That made me laugh, too. Somehow this has become received wisdom for the press, but not only is it false, it's very false. Here in CA we're spending twice what we spent per student in 1970 (in constant dollars), and if anything outcomes are worse.
I point that out to people and it annoys them. I ask how is it we've doubled the funding per student and our results are so bad, maybe funding isn't the issue.
It is a hard thing for folks to hear though. If the thing you are telling them means there isn't an "easy" (or even imaginable) solution to the problem they care deeply about, they really can't accept it. It feels like accepting defeat.
The problem isn't the amount we're spending, it's how it's being spent. Everyone I know who is a teacher has severe issues funding class activities and are usually told they have $0 for supplies for the entire year. That tells me the money is being used in largely unproductive ways.
Where is the extra money going? Probably to pay for a bureaucrat to enforce the new standardized testing and feedback crap that isn't really helping all that much. Probably to fund more sports because sports, amirite? Probably paying for iPads that, while useful, aren't being use the way they're supposed to because of untrained teachers.
Wherever it's going, it likely isn't going to fund classroom equipment that teachers actually need or quality textbooks for students.
Yup: UK we spent huge amounts of money on new school and college buildings which did not actually improve anything. Some College managements are so precious about their new buildings that they have regulations about putting things on walls. Yes, even art Colleges!
We've doubled the funding per student, but less of that funding ends up advancing education. More of it goes on administrators, metal detectors, security guards, textbook publishers, educational software vendors, and giant wall-mounted computer displays, which cost a lot [1] but don't really provide much day-to-day benefit over blackboards.
Oh but they employ more IT people, and require a CTO for the district, and all kinds of other spongers. Teachers should be getting paid at least double what they are now, and I have no problem with teachers starting at high five figures like a web developer can. I don't know if this means they're underfunded, funded enough but in the wrong places, or what, but for all that teachers have to work under, it is criminal what they are paid.
What if, like say corn subsidies, teachers are guaranteed to be paid enough to be able to buy an average price house within a mile of the school they work at? What if we had to stop bombing one country, let's say Yemen, in order to pay for it? Rhetorical.
These are the most trusted people in society, much more so than the police and politicians, and should be compensated commensurate with both their responsibilities and experience. You gonna leave your 5 year old at the police station or city hall all day?
One problem is that many of the teachers of today don't deserve to be paid double. They aren't the cream of the crop.
I'd be fine with dramatically raising teacher pay if you hired the good new people who would be attracted by the pay and ditched all the not-so-good people who are in the field now.
Where the problem comes in is that we all know that's not what would happen.
But if you don't raise the salary you're not going to attract better people. I bet if you doubled the pay you would have far better people to select from.
You get better people when you raise compensation. Big whoop, you get some freeloader problems. Why would that be a bigger problem than any other aspect of society? My main point is that teachers are held to some of the highest character standards in society, and should be compensated as such. By way of contrast, think of the character standards for CxOs of public companies and/or financial institutions. Feel free to list your own here, but I'll start:
Money is not the only motivator. Constantly having to deal with politics is a de-motivator for people who want to focus on educating students.
When the market raises salaries, it is based on ability. When government does it and unions are involved, warm bodies are brought in. Friends and family, people who are political allies, people who kiss ass.
As with so many things, you can't look at an effect and treat it as though it were the cause. For example, productive people are more likely to own real estate. Giving everyone a house won't make them more productive.
Higher salaries are the result of competition for skilled workers and workers responding to the market. You don't get the same results by arbitrarily raising salaries.
The private sector will raise its salaries to keep its workers. And the public sector will get workers that want what the private sector will never give them: freedom from having to compete.
When the market raises salaries, it is based on ability.
I don't believe this at all, and in fact for teachers I think salaries and compensation have been effectively lowered with respect to their increased responsibilities over the decades. Put simply, teachers are sandbagged. See also: the fundamental attribution error, where an interesting thought experiment can be had by imagining entire occupations subject to its whims.
well, its true. The most capable workers earn more than workers that are barely capable. And as someone's capabilities grow, their salary tends to go up.
And when an employer looks at someone that can do a lot and at someone that can do very little, they want to pay the former more.
>Teachers should be getting paid at least double what they are now
Why? Teachers everywhere have a very hard time getting a job because the supply vastly outstrips the demand. Why should teachers make more when it's clear supply is overpopulated?
Sometimes this is because of tenure / union issues. Which brings me to my point: teacher compensation shouldn't just be about attracting new people (what do we do with the old ones, ship em to Yemen?), it should also be about training, empowering, and incentivizing the existing cadre to perform to higher standards.
What is your definition of 'everywhere'? UK does rough supply management (well rough sometimes, we do get lags) and attempts to manage the number of training places.
A core tenant of the American ideology is that any problem can be solved and only solved with more money. Telling people that more money is not the only solution will simply not compute.
For a different take on this, some urban school districts are consistently underfunded compared to their more well-funded suburban counterparts simply for the reason that their property-tax base does not exist (for the main reason of people who live in subsidized housing don't really pay property tax - and if they do, it is a fraction of what is paid in more affluent suburbs).
> That made me laugh, too. Somehow this has become received wisdom for the press, but not only is it false, it's very false. Here in CA we're spending twice what we spent per student in 1970 (in constant dollars), and if anything outcomes are worse.
The issue in CA isn't that money is spent on eduction. The issue is that it isn't making it to the students.
After watching _Waiting for Superman_, it seems like one of the main problems with public schools in the US isn't not enough unions, but too much of them, creating a system where the teachers come first and children are a distant second.
In CA at least there is prop 13 so unless you also have many new home buyers you have a percentage of the population still paying at 1970's tax rates... Slightly f'ed if you are correct about the spending increase - more detail here - http://en.m.wikipedia.org/wiki/California_Proposition_13_(19...
There were a lot of new buyers. Those older owners had more incentive than ever to cash out during the housing bubble. There was enormous turnover in ownership.
And for all of the old owners, their taxes can be increased by 2% every year. So they do eventually go up, even as values are dropping, until they reach a ceiling of 1%.
Here's what the data looks like for the last 17 years:
This is not the generally accepted view of the cause of Venice's decline, to put it mildly. Venice owed its power in the medieval period largely to geography. When trade between Europe and the rest of the world was almost entirely something that happened via the Mediterranean, Venice was the most important port. After the Spanish and Portuguese discovered sea routes to the Americas, Africa, and the Far East, that was no longer true. It would have been surprising if Venice hadn't declined after that.
It didn't help, either, that at about the same time, the whole Italian peninsula became a prize fought over by the now very powerful kingdoms of France and Spain. City-states in general were becoming obsolete.
Maybe there is some sort of badness going on in the US, but almost any other failing empire would have made a better example than Venice. There have been few where the external causes of failure were clearer.
Christopher Columbus (Italian: Cristoforo Colombo; Spanish: Cristóbal Colón; before 31 October 1451 – 20 May 1506) was an explorer, navigator, and colonizer, born in the Republic of Genoa, in what is today northwestern Italy.[2][3][4][5]
-- Columbus was from a competing city-state in Italy
Also, as an artist I am sure you are familiar with the shift in financial and cultural power to the medici-backed city state of Florence during the quattrocento. While the art and culture of Venice stagnated, and largely just reflected its more medeival and eastward focus (still on byzanyium etc.)
So the legitimate question follows: why was innovation happening in close proximity to but outside the auspices of, Venice? When they had so many advantages (first mover, cash flow, ect). Classical Rome was also a city state, but with a more expansive and inclusive (citizenship, etc) worldview.
Still though, civilizations usually collapse for more than one reason. The discovery of alternative sea routes certainly contributed to Venice's fall. But the thing is, if it wasn't for the Serrata, perhaps they would have enough entrepreneurs to find other means of powering their economy. At the end of the day, if you want to be able to solve difficult problems and make progress, then you need risk-takers.
I already listed two. If you want a third, add the Ottoman Empire.
Venice was a trading empire. Its empire became worthless. To bounce back from that would have required a transformation unprecedented in history. In fact, even knowing the history that followed, if I had been summoned back by time machine to advise the council about what to do to repair Venice's fortunes, I probably would not have been able to give them advice that would have worked, short of telling them about all the scientific and engineering discoveries that had been made since, and sending them off on a Riverworld-like future.
I was going to mention the Ottoman Empire as well to support my argument that civilizations collapse for more than one reason. In the case of the Ottomans, the discovery of alternative trade routes definitely reduced the amount of gold going into the coffers. But there were also many other problems, such as growing income inequality and rampant corruption among the ruling class. These economic and social issues eventually led to the stagnation of the empire. Then competitors caught up and surpassed them technologically, which directly translated into defeats on the battlefield.
That said, you're right that Venice was a trading empire, so losing that competitive edge hurt them a lot more.
Liberty produces far more equality than the pursuit of equality could ever achieve, if I may borrow a line from Milton Friedman.
It really is the fault of us citizens that we've allowed our government to grow so large and unaccountable. More accurately, we've allowed it to grow far outside its constitutional limits. And we accept this and deem it necessary. In fact, some of us still think it needs to be bigger to protect us from calamities like the housing crisis! Yet we don't realize that it was precisely the largeness of the government and its influence on the market and money that caused the crisis.
All of this really does have its roots in the Great Depression. At the time, people blamed the crash on capitalism when the real causes were anything but, and as a result people were more than willing to let the government become bigger so it could 'protect' them. It's unfortunate that we the people were, and still are, so shortsighted.
On a side note, robber barons are largely a myth. As well, blaming the fall of the middle class on globalization and technology is simply absurd; how would we afford iPhones and all of the miracles of modern technology without globalization and.. technology? You can't look only at one side of the equation (jobs moving to China) without considering the other (much cheaper products). While it may hurt certain workers when some kinds of labor leaving the U.S., consumers as a whole benefit. Not to mention that people elsewhere on the globe benefit from these jobs.
>Yet we don't realize that it was precisely the largeness of the government and its influence on the market and money that caused the crisis.
2. Just how was overregulation responsible for a massive price bubble?
>At the time, people blamed the crash on capitalism when the real causes were anything but
3. What part about your definition of capitalism excludes massive price bubbles, followed up by the government of the time constraining monetary conditions?
>how would we afford iPhones and all of the miracles of modern technology without globalization and.. technology?
Well, I'm not going to argue against global trade. It's pretty great, and the growth it's generated in China absolutely benefits the Chinese. Mass exploitation of the labour force, hopefully, is a transitionary stage.
That said, we'd still have iphones. They would be a bit more expensive but not that much more expensive.
The limits imposed by the Constitution. It's really not that mysterious of a document. The interstate commerce clause might seem ambiguous, but it certainly was never intended to be as abused as it is today. The existence 10th Amendment makes this even more obvious.
> 2. Just how was overregulation responsible for a massive price bubble?
I'll be a bit more clear: we either need much less regulation, or a whole lot more. Given how badly more regulation generally goes, I'd prefer less. We were stuck in this awkward middle ground as a result of the Gramm-Leach-Bliley act. It didn't get rid of the FDIC, but it got rid of certain regulations preventing commercial banks from being investment banks (simplification). So it basically encouraged risk taking by banks. Remove the FDIC, and you'll see much less risk taking. So we really need to get rid of ALL of the Glass-Steagal act. As well, we need to get rid of the SEC. By this sort of deregulating, you discourage risk by making banks much more accountable to their investors.
> 3. What part about your definition of capitalism excludes massive price bubbles, followed up by the government of the time constraining monetary conditions?
My definition of capitalism, ideally, would not include the Fed.
> They would be a bit more expensive but not that much more expensive.
But would the lower/middle classes be able to afford them? Or as readily? Given wages here, probably not.
>But would the lower/middle classes be able to afford them? Or as readily?
I'm in favour of globalization. I agree with you that they'd be more expensive (it'd be interesting to determine what percentage of the iphone's cost is due to labour), I just don't think there's a moral argument to be made. Almost everyone could afford a car, in America, in 1968. In real terms of quality of life improvement in the grand scheme of things iPhones and computers are probably minor inventions next to plumbing, central heating and the first couple waves of mechanization.
>The limits imposed by the Constitution.
This assumes that a) the intent of the founding fathers was relevant to today's society and b) their intent was to have a limited size of government, both of which are pretty big assumptions. For more on the failings of constitutional originalism see here: http://www.economist.com/blogs/democracyinamerica/2011/09/eu...
>I'll be a bit more clear: we either need much less regulation, or a whole lot more.
Your conclusion does not follow from your premise. How would removing an unrelated insurance corporation promote healthier decision making amongst investment banks?
Poorly designed regulation does stifle innovation and thus growth. However, there are certain kinds of innovations that prove to be too dangerous to be handled without some safe guards.
It seems to me you possess a shaky understanding of 1) the events that led to the FDIC and SEC, and Glass-Steagal 2) the events that occurred from 2001-2007/08 and 3) the cognitive pitfalls and biases human beings suffer from when reasoning about risk.
> a) the intent of the founding fathers was relevant to today's society and b) their intent was to have a limited size of government, both of which are pretty big assumptions.
Their intent for a limited size of _federal_ government is almost certain. And I don't see how it's not relevant: our federal government is huge and almost entirely unaccountable, and clearly is not functioning as it was intended. From Federalist 45:
The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which last the power of taxation will, for the most part, be connected. The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the State.
The operations of the federal government will be most extensive and important in times of war and danger; those of the State governments, in times of peace and security. As the former periods will probably bear a small proportion to the latter, the State governments will here enjoy another advantage over the federal government. The more adequate, indeed, the federal powers may be rendered to the national defense, the less frequent will be those scenes of danger which might favor their ascendancy over the governments of the particular States.
> How would removing an unrelated insurance corporation promote healthier decision making amongst investment banks?
Not unrelated. Gramm-Leach-Bliley removed barriers allowing commercial banks to act as investment banks. That was my point: you can't remove these barriers without also removing the insurance. Having the FDIC encourages commercial banks to be much riskier.
> It seems to me you possess a shaky understanding of 1) the events that led to the FDIC and SEC, and Glass-Steagal 2) the events that occurred from 2001-2007/08 and 3) the cognitive pitfalls and biases human beings suffer from when reasoning about risk.
Feel free to correct me where I'm wrong. I think the housing bubble was entirely avoidable had the government taken different action. I'm not saying that it was ENTIRELY the fault of regulation. I do think that: deregulation (including removing the FDIC and SEC), much less Fed fiddling in attempts to 'fix' the dot com bubble, and no bailouts or any implicit guarantees of bailouts, and you wouldn't have seen the housing bubble.
You're still making an originalist argument. Who cares what Alexander Hamilton had to say about anything? He's dead.
To steal a quote from the Economist article I linked to above, suppose we fast forward this conversation fifty years. Do we really care what James Madison might have thought about which privately cloned human-animal hybrids could use viral DNA material drawn from public health databanks?
No, of course not. This is a conversation to have amongst the living. How big should the government be? Is a complex question with many stakeholders.
> Having the FDIC encourages commercial banks to be much riskier.
No, it doesn't - because when a commercial bank became an investment bank, that insurance only applied to deposited accounts. If we define the risk holders to be the people with deposits, then sure.
However, most people would define the bank investors to be the ones willing to take risks. The shareholders, accordingly, were not protected by the FDIC and got wiped out when these banks failed or merged into larger banks.
>I think the housing bubble was entirely avoidable had the government taken different action.
Yes, but that's a tautology for a lot of things in the economy.
The financial crash was far too complex for me to try to recount here. There is a wide range of incentives that could have been tweaked; but the bottom line is people took far too many risks across far too many levels of the economy. The end result was not caused by an industry forced into bad decisions due to poor regulation. Investment banks were allowed to borrow too much money relative to their capital holdings, and they were allowed to pour their money into financial instruments that are computationally impossible to accurately judge.
Removing the FDIC and the SEC would exacerbate the problem.
Here's some very accessible reading material, that I think you ought to brush up on:
The purpose of the Constitution was to give the federal government limited, enumerated powers that benefited the individual states. Would you say that the federal government still has limited, enumerated powers? The interstate commerce and general welfare clauses have been used to justify pretty much everything (except for banning guns manufactured entirely within a single state from school zones[1]). The current interpretations of the Constitution have made the act of enumerating powers worthless. The Ninth and Tenth Amendments now mean nothing. The federal government can do anything, and that wasn't the idea. Even independent of what the Founders may have desired, this is clearly a negative development if you believe in self-government. Governments should have limits that are defined by their citizens. Ours does not.
I'm not an American so I only have a passing knowledge of what you're referring to, BUT:
That depends on whether you believe in an originalist interpretation of the constitution. Like most legal theories, it's up for debate but I'm not in that camp.
My argument explicitly avoids a dependence on an originalist interpretation of the Constitution.
"Even independent of what the Founders may have desired, this is clearly a negative development if you believe in self-government. Governments should have limits that are defined by their citizens. Ours does not."
Fannie Mae and Freddie Mac buying 30 year mortgages for decades and decades almost certainly contributed some momentum to housing prices.
I haven't looked seriously for an analysis of it, but it would be interesting to see how quickly the greater affordability of homes (the lower monthly payment from the 30 year) started driving the prices.
>but it would be interesting to see how quickly the greater affordability of homes started driving the prices.
This was probably one of the leading causes of it.
However, you know what contributed the most? Greenspan lowering interest rates to historical lows in the early aughts and keeping it there for the rest of the decade.
Freddie and Fannie were drops in the bucket. As you said, they bought mortgages for decades and decades without the same problem occurring.
Look up some of this history of the financial crisis. This American Life has a couple good primers.
I don't think it is obvious that decades and decades of appreciating home values were unrelated to a housing bubble.
It certainly wasn't the immediate cause, but I think it probably helped set the stage (it would be really interesting to have an alternate Earth where we could look and see what happened without that particular government meddling).
I am really amazed anyone can take anything published there seriously, these guys always talk how mainstream economists always try to simplify human action in their models, such as when discussing the nature of money and how it came to exist, anthropologists are making the same points all the time.
But they certainly do love to forget this exact argument when they write their diatribes against ideas from people they disagree with them. Like you assuming what people in the past thought about an event without searching from some data to support your assertions.
Mind you I do not like the tone of the link and I thoroughly disagree with the premise of class struggle that those fond of Marx almost always take for granted.
I don't read Mises, but thanks for the assumption. The causes of the housing crisis are and were, for lack of a better word, obvious. You don't need to read this or that, or even subscribe to a certain form of political thought to see why things happened as they did.
> Like you assuming what people in the past thought about an event without searching from some data to support your assertions.
If it was obvious I would not see people discussing about causes of the crisis, right? Besides the fact that debt and the inability to pay for it was the main cause I do not saw something close to agreement in this area.
About Roosevelt, ok you're probably right about that, I am not American to say too much about that, but changes in office were not exclusive to the US, in some places some fringe parties got control of the government such as the Nazis.
For me this thread is over here but I would love if you can elucidate some points about your first paragraph.
You've swallowed the big lie of globalization -- that only by exporting labor to 3rd world serfs can we enjoy the standards of living that we enjoy.
The government is an enabler of bad economic activity, but the capitalists are always the catalysts. Government regulations did not force Countrywide Loans to give $1M mortgages to people who lacked the resources to repay. Government regulation did not force brokerages in 1929 to offer 50:1 margin loans.
Read some real history, not some cherry-picked analysis by economists. Travel to historical sites in places like Pennsylvania. Study the origins of the labor movement. Robber barons were/are very real.
> You've swallowed the big lie of globalization -- that only by exporting labor to 3rd world serfs can we enjoy the standards of living that we enjoy.
At the prices we pay today, this is absolutely true. We would be paying much more for iPhones if they were manufactured here.
> The government is an enabler of bad economic activity, but the capitalists are always the catalysts. Government regulations did not force Countrywide Loans to give $1M mortgages to people who lacked the resources to repay.
But that's exactly the point. They didn't 'force' banks to make bad decisions, but without the government's bad regulations, bad monetary policy, and bad fiscal policy, the housing crisis would have been much harder to come by.
I'm not saying the banks are not at fault for their poor decisions: I am saying that without the actions of the government, you would either have not seen the crisis at all or you would have seen a much smaller and less disastrous bubble and burst.
> Study the origins of the labor movement. Robber barons were/are very real.
It depends what you mean by robber barons.
Did certain businesses during the 19th century exploit workers and warrant the formation of certain labor unions in order to protect the workers? Yes. I'm not denying this.
Did the most successful capitalists in the 19th century make their money by exploiting workers, stealing from the poor, and adding nothing of value to society? Absolutely not. I'm not saying these men were angels, but these so-called 'robber barons' improved society by an incredible amount, far more than what unions have ever done, producing better and more goods at cheaper prices. The rising standards of living during the 19th and early 20th century were not a wholly a result of government intervention or labor unions, but instead _mostly_ because of technological progress and the ensuing gains in productivity.
And the labor movement is not without its fair share problems. Much of the violence in strikes during the 19th century was caused by the unions. As well, you had a great deal amount of racism.
You say you don't read Mises, but then you peddle literature from an organization that exists explicitly to spread his (and a handful of others') ideology.
Actually they have pretty different approaches to economics, yet they end up with similar conclusions (except for differences regarding the control of the supply).
And you say that like it's a bad thing, when in reality we could use a healthy dose of economic conservatism right now.
And you say that like it's a bad thing, when in reality we could use a healthy dose of economic conservatism right now.
Ah, I do love you right-wingers. At the very moment we're overdosing on your ideology, you insist that it has never been tried and is needed more than ever!
I don't think you understand what I mean by liberty. Try to not let your political goggles blind you here.
> "pursuit of equality" = giving medicine, schooling to the poor
I'm all for achieving the best results. I want to see more education and better healthcare for everyone. What we're doing, however, is not achieving the best results. Why is it that these areas with the most government involvement (education, healthcare, and banking) seem to have the most problems? We spend more on education than anywhere else in the world (http://mat.usc.edu/u-s-education-versus-the-world-infographi...) yet the results aren't there. Same with healthcare.
How about tax cuts for everyone? No more income tax, no more corporate tax, no more FICA? What about removing regulations that encourage the growth of monopolies and too-big-to-fail banks, removing subsidies, and removing tax breaks for everyone? How about no more bailouts?
> And where people's freedom is actually destroyed, down the rathole of militarism and corporatism, well that's just "patriotism".
Militarism / corporatism are products of big government. How about a much smaller federal government?
After spending quite a bit of time outside of America, articles like this seem strange to me. Not right or wrong in assessment, just... very American-centric and lacking a lot of perspective (Venetian anecdotes aside).
I mean... pretty much everyone in America is rich. Stupidly ridiculously rich. The working poor in America are fabulously fantastically stupendously ridiculously rich compared to most of the world. I mean, staggeringly so.
It's like, as time passes, luxuries become conveniences become necessities... and thus, there's always this keeping-up thing going on. But the majority of American "necessities" are truly luxuries in, like, 2/3rds of the world's eyes.
There are people in America who go to bed hungry, are homeless, or die because of lack of basic health care. These are the same problems that poor people in the rest of the world face and the fact that they stroll the streets of megacities like LA or NY doesn't make them any richer.
Maybe a significant majority of the low class US population (and for that matter of the developed side of the world) is better off than their counterparts in poorer countries but definitely not everybody.
"Why the downvote?" I think I can answer part of that. Some people think that if a person owns a TV, mobile phone, fridge, etc. then they must by definition not be poor. After all, 50 years these were considered luxury goods, or for the case of mobile phone, only available as operator assisted radio phones.
They don't know that poverty is defined by a different measure; the Orshansky poverty thresholds. This is a relatively absolute measure based not on what one owns but on access to food and housing. And as you say, there are many Americans who own a car, and a CD player, and a personal computer, yet do not know if they'll have enough money to be able to eat for the month.
Well if you really mention this you are likely to be badly admonished to keep this to yourself.
I can't even imagine how anybody in the US can even describe themselves as poor. I mean the definitions of poor so badly put down in this case, it makes the actual poor look like they don't exist at all.
Sometime back there was a post here about blacks(in the US) in some place not having good sanitation facilities. They were considered very poor. And they had cars, good enough homes, food, electricity, roads, park and ask what not. In my country they would qualify as very rich people(In India).
Its law of diminishing utility, a massive hedonic threadmill to describe at the best.
Its about social equity and respect. I remember a story where a redneck in Appalachia made about as much money as a highly regarded doctor in Africa, but the redneck was definitely worse off: he had no respect from the community, his social contribution was very low, and very low self esteem, while the doctor got to eat with the president of their country, had connections abroad, and so on. The war against poverty isn't finished once survival needs are met, people want meaningful lives, to thrive in society also and not just survive.
I very much admire Europe (or at least Switzerland) where the upper class treats the working class with a lot more respect. Everyone is important, you don't treat the guy at the fast food rudely, even if you have much more money than them. Everyone's life seems meaningful and people are happy. Now, compare this with China where I now live, where very little respect is given from the middle class to lower-working class that cleans their houses, makes their food, drives them around...
Edit: I didn't mean to use redneck here as a pejorative, it just seemed to get the point across more quickly.
Semi-tangent. In 1989, I did the summer of backpacking across Europe thing. Just before the fall of the Berlin wall, so there was still soviet control of eastern/central Europe.
Anyway, I went to Budapest on that trip, and at the time it was common to be met at the train station by people offering a place to sleep in their homes for cheap. Me and some guys I was with at the moment took one of them up on the offer and went with him to his apartment, $15 a night for the three of us. It was a cramped little place, but in the city, so it was cool. We stayed up late talking to the guy, and found out he was a doctor.
Which was a huge shock to me. A doctor living in a tiny little place and letting tourists sleep on his couch for very little money. That (and the flagship department store in Budapest being nearly barren by US standards) convinced me that the West had gotten some things right, at least.
The guy did have a lot of books though, and asked me to send him some science fiction books once I got home. I mailed him a bunch of cyberpunk. Wonder what he made of that. Wish I'd kept up with him.
I was just in Budapest in June, arrived via train, and there were at least a dozen people offering room for rent. Don't know if any of them were doctors, but the economy has been struggling there. We stayed in a really, really nice hotel for about $100/night.
I guess using the word "redneck" did carry the point quickly, just a wrong point maybe.
Regarding respect: cannot compare it with Switzerland first-hand, but in my experience Americans tend to treat each other with a lot of respect, compared with many other part of the world. Including cross-class encounters.
Perhaps we are seeing different America's? As someone who started out lower middle class and is now upper, I really see a country that isn't that much better than china and is very class based. Now Europe...has many problems also (aristocrats abound), but the day to day etiquette that is expected goes a long way into promoting at least social equality, if not economic.
Ugh, there is a reason that you would be admonished for this argument and it's not because you are speaking some sort of uncomfortable truth. It's because this is sloppy, lazy thinking, and it has traditionally been used as a bludgeon to retard progress for the many in favor of the few.
If you are going to talk about how rich even the poorest American currently is so as to intimate that they shouldn't complain about their circumstances you have to answer one question: Why now? Why is this standard of living reasonable, and an improved one not? Why was it fair of them to make it this far, but any better would be unreasonable. The entirety of human history has been one long story of progress, and at every time I am sure there have been people arguing that everyone has it good enough and working to allow more people to have "more" is wrong. Why don't we just stop after the establishment of agriculture? Hey, now people don't have to risk their lives hunting. Why not stop after we create homes and settlements. Now we don't have to live in caves. Isn't that good enough for everyone? Why didn't we stop when we developed basic medicine? Why not after modern agriculture alleviated periodic famines?
Unless you can say why certain people deserve the standard of living they have right now, and why they also don't deserve a better standard, points like the one you are talking about are counter-productive, and usually used by people looking to keep more for themselves, and damn everyone else. To accept otherwise would mean accepting that there is no argument for the standard of living in your country to increase either, and I am pretty sure you wouldn't agree with that.
Indeed! America has much to pride itself on! After becoming the strongest economy in the world, and its technological and cultural leader, her poor may be content to know that they are much, much better off than those of Bangladesh and sub-saharan Africa. A great society indeed!
the article is about how rich places start to decline. so it makes sense only as an article about somewhere that is rich.
or maybe you're not criticising the article at all, just keeping us informed about the rest of the world?
[rather than downvote, try clarifying how an article on the decline of rich communities should be written about somewhere that is not a rich community...]
The economists Emmanuel Saez and Thomas Piketty found that 93 percent of the income gains from the 2009-10 recovery went to the top 1 percent of taxpayers. The top 0.01 percent captured 37 percent of these additional earnings, gaining an average of $4.2 million per household.
Shocking that income gains during a stock market rally (typically a leading economic indicator) go to the investor class while employment income (a lagging indicator) continues to struggle.
This is agitprop. Isn't there anyone other than Saez folks like the author can cite? Saez could have put out a "study" to show that the rich took a real bloodbath during '07-'08 while the middle class barely felt a prick for just the same reason. But he didn't: he'd rather be a hack and win unending favorable references in Times thumb suckers.
Saez's contribution to economics was a novel way to measure income inequality of really small percentages (top 1%, 0.1% etc.) of the population. That's why it's hard to find other studies. He wasn't "being a hack" he was doing research in a topic that he found interesting. His work by the way, won him the prestigious John Bates Clark medal so we can infer that his work is respected in economic circles.
By the way, if you took the data from the census and measured wealth instead of income, you would get a far more extreme differences in inequality. This makes sense of course, since wealthier people have more money in the stock market.
You are correct that the rich lost a lot during the stock market crash in 2008, but it similarly recovers quickly as the market rallied. Again, this is a natural effect of wealthier people having more money in the stock market.
Yes, what Piketty and Saez did was a more sophisticated operation on IRS data to get a time series so that we can measure exactly how the top 0.01% etc. did.
I mean that as scary as things seemed in December of '08, most Americans' incomes hadn't actually declined that much. They would later, but that's the point. The wealthy had already seen a huge income hit. Based purely on choosing your window to match a market rally or a crash, you can create the kind of disparate income impact statistics that Saez trumpets.
You're the one choosing a window to make a point. 2008 was the worst year for the wealthy, but also the only bad bad year. 2007 they saw record gains and those were mostly recovered by 2010. Jobs and housing has yet to recover.
Yes, its like 3 days before his accident, the man was perfectly happy. Although, in this case, replace accident with losing his job/livlihood. And the handwriting was on the wall, for the executives, as of 9/08 and what happened to Lehman. And from there the shit flows downstream...
A lot of middle class people's portfolios lost a huge amount of their value and the overall tumult let to a lot of job loss. The economy still hasn't recovered to where it was then.
Remember Saez is talking about income. IRAs and 401(k)'s aren't reported as income until you take disbursements. So the phenomenon I'm discussing only affects those who truly make their annual income from investment.
If Saez used wealth rather than income, I suspect this stat would end up much less impressive for just the reason you mentioned. He's essentially just capturing the effects of the market rally.
"The Federal Reserve said the median net worth of families plunged by 39 percent in just three years, from $126,400 in 2007 to $77,300 in 2010. That puts Americans roughly on par with where they were in 1992."
Between 2007 and 2008, the median household income nominally increased, and inflation adjusted dropped $1900 out of $54,000.[1]
From December 1, 2007 to December 1, 2008, the value of the S&P 500 was cut in half. Somehow I suspect if you compared tax returns from 2007 and 2008, you'd see that high income taxpayers lost huge.[2] That's how it looks to me when I eyeball it. Look at taxpayers with more than $10,000,000 in income vs $50,000-$75,000, for example. The former dropped $160 billion in AGI, while the obviously much larger latter group dropped only $15 billion. That's the mirror image of the kind of data that allows Saez to claim that 90% of income gains in 2009-10 went to the top 1%.
I think you misunderstand the implication. Using 'agitprop' here implies that the views of Emmanuel Saez and Thomas Piketty are ideologically similar to the highly politicized arguments of leftists in support of Communism. I think it's a fancy equivalent for calling the authors 'pinkos.'
> The top 0.01 percent captured 37 percent of these additional earnings, gaining an average of $4.2 million per household.
I just want to thank the author for separating the 1% form the 0.01% The 1% is the upper middle class, the actual "American Dream" fulfillers, and they are getting a lot of heat that was deftly deflected away from the 0.1% and upper echelons of aristocracy, because most reporters are too lazy to think about logarithms.
Errr... how much income do you think makes you 1%? Hint: it's $150k/yr. That's not "upper middle class". I understand that there are a lot of people here that might make that, close to it, or more because software is very lucrative, but don't let that skew your perception of the world.
Where's your $150k coming from? The figure I usually hear cited is $350k, though that's for "household income". Adding to your main point though, it's also worth pointing out that $150k in, say, downtown New York is pretty different from $150k in, say, Cheyenne, Wyoming. But I'd still call both "upper-middle class." Maybe it's near the lower-fuzzy-boundary of "upper middle class", but I don't see how you think it's a classic "middle class" salary. It's certainly not an "upper class" salary.
$190K is the number for that I've always heard thrown around for individuals, which, if both parties in the household are earning that much, easily adds up to $350K and more.
The article seemed pretty cool until he started talking about the "$700 billion dollar rescue of Wall Street". Why do authors constantly love to throw out this number without any context? It just makes me think that the author is either stupid or full of crap.
"The TARP program originally authorized expenditures of $700 billion [...] reduced [...] to $475 billion. [...] total disbursements would be $431 billion. [...] $245 billion handed to U.S. and foreign banks. [...] $169 billion has been paid back."
"the latest update from the Congressional Budget Office projects the Troubled Asset Relief Program (TARP) will ultimately wrap up at a cost of $24 billion."
"The ultimate losses from TARP will not come from that first round of spending, as all of those initial bank investments have been repaid, but instead from the use of TARP funds to help smaller banks (minimally), as well as the extension of the program to pump $79 billion into automakers General Motors and Chrysler and contribute to the bailout of insurer American International Group."
If true (I want to investigate more), this kinda blows my mind. I haven't heard this from either side, and you would expect someone would bring it up at some point. I've always been against the bailout, partly due to the cost, but given how much we spend on the most ridiculous of endeavors, $24 billion hardly seems a drop in the bucket.
I still am not in favor of the bailout because of moral hazard, but that's a discussion for another time.
Having seen only bits of the information in the wild, I was also impressed to see the GP's summary there.
I had already known that many of the banks that received bailout funds had already repaid it, but (as the GP mentions) for many of the smaller banks, but I didn't know that the initial outlay came down to as little as $431 billion.
So, the article is saying that government giveaways and government rule-making is entrenching the rich even more, and it's the fault of the rich? Wow, what perverse thinking that is. It seems to me that if the government made less rules and gave away less of OUR money, there would be a more even playing field. That doesn't mean NO rules, just a minimum.
The title of the article should be "Government and it's role in causing wealth disparity".
This. The problem isn't that the government doesn't have enough rules to control business. The problem is the government is so involved in every aspect of life it's become far more efficient to co-opt the state than to compete with other companies in your sector.
For some reason people on the left think if only the government was more involved, this time it would work to rein in powerful people instead of making them more powerful like the last 97 times.
I once maintained that Senate Republicans on the Banking committee supported a complex regulatory regime because their influence and status derived from the value they provided helping banks navigate that regulatory apparatus. My left-wing friends regarded this as the most cynical thing they'd ever heard, but they didn't have much evidence or analysis against it.
Politicians want a powerful state because their power derives from their influence over that state. They want their power to grow because no one is ever satisfied with what they have.
If the US has a Serratta, it would be in the impossibility of doing business without managing political relations, and thus the exclusion of people with serious interests from any serious effort to reform the state. I'm not sure we're there yet, but if we aren't we're dangerously close.
Why do you consider "the rich" and "the government" as two separate entities? Now that we have made some advances in network theory, perhaps it would be better to think of the social relations of political economy as an intricate network, rather than simply two lumps -- the economy as separate from the state. At the height of laissez-faire, in Rockefeller and JP Morgan's days, the government was intervening to squash strikes, granting land to railroads, even invading other countries for the benefit of specific American companies.
There is no evidence that less regulation wouldn't careen us towards more massive wealth inequality even faster, as it did in the 1920s.
Pretty much every business sector demonstrates massive economics of scale, and once you get $10billion+ companies, you're kind of damned if you do and damned if you don't. If the government doesn't step in, those huge companies band together to screw regular people (see, e.g., tech companies colluding to keep engineer salaries down through). If the government does step in, those huge companies co-opt it through lobbying.
I think the solution may be a smaller government that is more aggressive about enforcement. Make it extremely difficult to grow companies larger than say $1 billion. Be much more aggressive about breaking up burgeoning monopolies instead of waiting until they get too powerful.
I think most liberals would agree with you. I want the absolute minimum amount of regulation that effectively manages the free market as well as minimal basic social safety nets.
The article only touches on lobbying, but that's the key mechanism by which wealthier people gain an unfair influence on government. As campaigns have gotten more expensive, the system selects for those politicians that raise enormous amounts of money – people who cater to the lobbyists. Lawrence Lessig did a phenomenal job breaking down the campaign finance / lobbying problem in his book Republic, Lost: http://www.amazon.com/Republic-Lost-Money-Corrupts-Congress/...
I also found the Lawrence Lessig / Jack Abramoff interview very illuminating in understanding the corrupting influence of money on government. It's long but worth watching: http://www.youtube.com/watch?v=pkvIS5pZ0eI
"the libertarian writer Charles Murray blames the hollowed-out middle for straying from the traditional family values and old-fashioned work ethic that he says prevail among the rich"
"Following the June Seventeenth uprising
the secretary of the Writers' League
had leaflets distributed on Stalin Allee
where one could read that the people
had forfeited the confidence of the government
and could regain it only through redoubled efforts.
Wouldn't it be simpler under these circumstances
for the government to dissolve the people
and elect another one?"
Exhibit A is the bipartisan, $700 billion rescue of Wall Street in 2008. Exhibit B is the crony recovery. The economists Emmanuel Saez and Thomas Piketty found that 93 percent of the income gains from the 2009-10 recovery went to the top 1 percent of taxpayers. The top 0.01 percent captured 37 percent of these additional earnings, gaining an average of $4.2 million per household.
-- The $8 Trillion "bridge loan" that finances this? Split pro-rata, of course, amongst the lower and middle class.
Yes. The main point is you need to follow both the asset base (how it is being financed), as well as the ancilliary revenue streams (coming from the assets). Its one thing to skew income to the group X. Its another thing to finance that with financial contracts, being paid for by another group Y. The latter is even more perverse from a perspective of social equity. Capitalism is (even for its most ardernt, free-market supporters) premised on ~proportional returns (ie, x% capital, pro-rata % share of earnings).[1] The liberal-left position is that this should skew somewhat[2].
The illustrated example is worse than both, it skews opposite, making a "sucker" class of the general group Y. If you are in group Y (no matter if you are on the right or the left), you should be thinking WTF, because it is not only contradictory to both principles, it's all self serving to X (incl. both left and right, etc).
I agree with the fact that most of the benefits are going to X, but I'm not at all sure that the cost is being borne by Y, where Y is defined by the poor and middle class. I say this because the reality is that the poor and a big chunk of the middle class in this country do not pay any Federal income tax, which is where the cost of this will be paid from. The lion's share of this will probably be borne in the end by Z, which are the upper middle class and wealthy with earned income who pay the highest marginal tax rates and a huge share of the tax revenue. In fact, the top 20% of households pay 94% of the Federal income tax [1]. They're the ones who are going to pay for this boondoggle, and while that does include hedge fund managers and Donald Trump, it also includes dentists and professors and small business owners.
Of course, this is all just debt right now, so who knows what will end up happening. But given the conversation happening in this country right now, I can't see a big change in the 20% / 94% number above.
Understood, but I'm simply defining Y as not X. Within y, the distribution may not itself be homogeneous. There is also the issue of the regressive (and pernitious) nature of inflation on the Y.
-- The $8 Trillion "bridge loan" that finances this? Split pro-rata, of course, amongst the lower and middle class.
I don't think it will be split amongst the lower and middle class at all really. Upper middle class will end up paying for this. Unless you count the potential for a long-term deleterious effect on our economy, in which case we all get to pay for it :)
The reality that "the tippy-top, of the economic pyramid who have been most effective at capturing government support" is canon in my opinion.
I'm not insanely liberal or anything, so I don't want to go too far down the road of "who does the government REALLY serve" - but the Constitution was built around building a state that could enforce contracts. And for good reason, but that reason was NOT that they were worried about serving the poor.
But essentially what really motivated those behind the Constitutional convention was the diminishing value of their assets under the Articles of Confederation. Contracts weren't enforceable because the federal government wasn't strong or effective enough, especially across state lines.
Man, this just reminds me of one of the truly amazing things about American history: virtually the same people who wrote the Constitution tried to form the country under a different set of documents, and it failed so thoroughly that they TOTALLY re-did it (arguably illegally) 6 years later.
That's very interesting. Thank you for the book reference!
If you have more time, would you philosophize on how all of this might relate to present-day circumstances? (In addition to the topic of the original motives for the constitution, it might be interesting to include some discussion of what those those "at the top" could/should infer from history.)
So the only thing I can say for certain is to remember that the rich always benefit from the existence and strength of government more than the poor unless that government is extremely hostile toward business. Despite some rhetoric that is out there, that is extremely far from the case in the case of the US government.
What the US government has almost always done a fantastic job at (not necessarily above and beyond other governments, just in a vacuum) is creating a system where financial transactions can occur without much risk (monetary policy, moving off the gold standard frictionlessly, etc.) and where contracts can be enforced. And that's business pretty much right?
The argument from there about taxes and regulation are details, and we can argue about that all day. But they are details that are minor compared to the ability to conduct business with confidence in a general since, not the slight variations we see these days.
I'm a liberal, but it's for the above reason I supported the financial bailout. If I fear for anything, it's either of those core securities being diminished.
There is a lot of very good insight here, in particular the focus on foundational economic institutions (ie, truth telling and promise keeping). Even so far as the taxes and regulations being details (a couple percent here or there, not a crisis).
The issue that we are facing though, is starting to become of another sort. It is evidenced by the shift of wealth from the commercial centers to the DC area. It is evidenced by 80% of government spending not being on running government or protecting the population or even enforcing laws, etc. It is evidenced by (what was quoted in the article) of goverment borrowing (and printing money) to support the oligarghical too-big to fail banks. It is evidenved by the nationalization of private sector debt via student loans and via housing loan guarantees. It is evidenced by the failure to regulate derivatives or split investment banks from commercial ones.
It is evidenced by "Economists" in the keynesian tradition who support uncritical borrow and spend (as the answer to everything), all of which provides stability but none of which provides actual earnings/power to the working classes...etc. It just provides benefits to the rich and debt/taxes to the poor. The "Liberal" current administration has underwritten the most perverse transfer of weatlth from the poor/middel to the top, its almost comical they pretend to be for anyone other than themselves. They make the Tea Party, in Contrast, look almost perversely rational. There is too much fear. In the Left. Of change.
Wow, that comment made no sense until I edited "unless that government is extremely hostile toward government" to "unless that government is extremely hostile toward business"
I'm always dismayed to read comments in HN when an article like this comes up because their is always such a complete backlash against it. Don't get me wrong, I saw problems with the article too, but I don't necessarily disagree with overall premise and I find it sad that there isn't even an inkling of an opinion of someone trying to defend it.
It's kind of funny. The article is pro entrepreneurship, pro capitalist and pro free market. So many here are taking it as an attack on success or the rich. Theres a huge misreading of the article and a lot of attacks on minor points and statements and nobody addressing the basic premise.
There's definitely a vocal faction of HN who will defend to the death against any threat to the beleaguered highly-educated upper-class white American male.
The one fundamental error in this article is the assumption that money solves everything. As many have pointed out, we spend lots of money on education - it has had little to no effect on the quality of that education.
Don't forget that the income gap in Venice was immeasurably worse then in the USA today. Contrast the doge with the sailer who had nothing but a life of indenture.
Although the income gap is fact, it is hard to say that America is become less inclusive and hence I find it hard to support this author's argument.
I think you mean inequality was higher, not worse. Executing all American billionaires would lower inequality in this country, but it wouldn't make it better.
Like the "education gap" explanations (and its solutions, like "more education is the answer"), this explanation is about the last battle, not the current one. It mentions briefly the role of automation (AKA "technological unemployment"), but that's it.
The chief driver of unemployment in the future is going to be labor automation, and that is that. The new battle lines are going to be over "how do we get taxes - _and a culture that supports levying them_ - to the level needed so we can supply a guaranteed income, universal healthcare, and free/low-cost housing to support the mass of permanently unemployed, zero marginal product (ZMP) workers that are going to be created over the next 20-30 years." Countries like Denmark have a real leg up on the US policy-wise here, as they already have some of these things in place along with what appears to be a populace that is fairly supportive of keeping them.
When you see someone under 10 from now on, ask yourself "what is the likelihood that this kid will have a job 25 years from now?" The answer is becoming "less likely every day." The world is only going to need so many politicians, managers, programmers, and robot designers.
Even the hard-to-automate jobs (as per Autor: http://economics.mit.edu/faculty/dautor/papers) are slowly getting automated,and there won't even be jobs in "food service, cleaning and gardening, health support, child care, personal appearance, security guards, recreation, and
miscellaneous services" for them to do. We should be thinking about the current and next battle, not the previous one(s), though that's (sadly) often the pattern when it comes to political economy.
There are some errors in this article. Or I rather must say the author might be unaware of the certain things that he is talking about.
>> Extractive states are controlled by ruling elites whose objective is to extract as much wealth as they can from the rest of society.
and
>> That was the future predicted by Karl Marx, who wrote that capitalism contained the seeds of its own destruction.
The world has changed drastically since Karl Marx, in fact so much that Marx wouldn't ever recognize the world if if he were to suddenly thrown here. The biggest change is the definition of wealth as a dynamic entity which can be created and expanded with work. Unfortunately this didn't exist in the time Marx, or even if it did- the access to such an activity was limited to only a certain set of individuals.
>> You can see America’s creeping Serrata in the growing social and, especially, educational chasm between those at the top and everyone else. At the bottom and in the middle, American society is fraying, and the children of these struggling families are lagging the rest of the world at school.
I laugh when people write things like these. I am an Indian, staying in Bangalore. If you say the US is struggling, I would say you have no clue about other parts of the world. You have no clue what struggling means, no clue what hunger means, no clue what poverty or lack of education or health care means. Think of it this way, even the poorest in the US would be like 10x better of than the poorest in the other parts of the world.
>> Economists point out that the woes of the middle class are in large part a consequence of globalization and technological change.
I would say these changes are good for the US and the world in general. A lot of co operation and competition means things will move quickly.
>> Tolerance for high executive compensation has increased, even as the legal powers of unions have been weakened and an intellectual case against them has been relentlessly advanced by plutocrat-financed think tanks.
Sorry, is the word Tolerance the right word? It makes it sound like some sort of a criminal scam is going around in those circles which every one needs to put up with.
Sorry but the author seems to point what we generally call as 'Socialist guilt'. The problem is people automatically label the ambitious, hardworking and people who look for big rewards as greedy. This problem is an unfortunate consequence of communism and to an extent socialism in general. Unless these people are made to believe that there is inherent evilness in money and desire for it, they really can't sell their philosophy. The direction in which a communist thinks is to visualize money and in general wealth as a minimal thing merely required for survival. And other things are also pushed, like for example glorifying poverty- Promoting rationing of things etc.
The author fails to understand why there are 1%'s anyway. Which is that a capitalist society believes the rewards are not fixed, but vary with effort applied towards the work done to achieve goals. Its not like somebody just called a person in the cabin and wrote them $1 million check. You are selling something and somebody is ready to pay a price for it. This of course requires working hard, taking risks and going through tough times to get there. Not everybody would like to do that, because some people are just happy with what they have now. But just because those people don't want a little extra, it doesn't mean those who want it and earn must share their rewards with others.
The fact is nearly everybody wants to be rich, some just convince themselves they don't want to after considering the effort they need to expend to get rich. But later when they look at somebody getting rich, they just happen to either proceed with all this drama.
Unless you are ill, or disabled or limited for another genuine reason can't work to get successful, you just can't blame somebody else for your problems.
The point is, the process which you describe above where pluck and hard work will get you everything is only possible in states whose ruling structure is inclusive and not extractive – i.e. you can open a business without having to belong to the aristocracy.
The analogy being drawn is that the oligarchic elite in western societies are increasingly seeking ways to patrimonialize the state and whether consciously or not move towards an extractive structure.
You require far less pluck and hard work to succeed if you belong to the contemporary 'landed nobility' and, on a vast institutional level state incentives are being redrawn to reward incumbent elites in one way or another.
And its not that very different in India either. To give you an example, being born into a rich family absolutely has some benefits and that is undeniable.
My point is how is that default advantage the rich have, a disadvantage to the poor? Unless the poor want it to be, it really can't be. And here is where things go wrong, agreed that no one gets a level playing field and game itself isn't fair to even begin with. The moment you enter the game the advantage is already favoring the rich.
But what the game does offer is a way forward to improve your chances of winning if you play well along.
Besides it will be nearly impossible in system of economic set up to create a level playing field at the very start and I don't even think that should be the aim of any economic system either.
>The moment you enter the game the advantage is already favoring the rich.
If you're progressive, the idea is to try to level the playing fields somewhat. We don't have to equalize them, just try to improve everyone's odds a little bit.
>My point is how is that default advantage the rich have, a disadvantage to the poor?
Because the more of the total percentage of economic activity gets captured by an oligarchy the less is available for everyone else.
Further more, the issue at hand is that across the west we're enacting policies that make tilt the balance even more towards elites.
>> If you're progressive, the idea is to try to level the playing fields somewhat. We don't have to equalize them, just try to improve everyone's odds a little bit.
Correct, but I believe that will come through opportunities. The poor will be given opportunities, but however remember using them and converting them to goodness is really their responsibility. And as a rule of thumb, opportunities always present themselves in the form for some work.
I would believe US is far better of at this than any other country I know of. Correct me if I'm wrong, but don't you people have county schools which are free? Don't you people now have some form national healthcare system? Don't you have social security? I would already consider these as very big advantages compared to many other countries. I mean the government can practically support you when you go broke, and then of course its up to you to take it from there.
>>Because the more of the total percentage of economic activity gets captured by an oligarchy the less is available for everyone else.
True only if the percentage of wealth created at any time static, which it is definitely not.
>>Further more, the issue at hand is that across the west we're enacting policies that make tilt the balance even more towards elites.
I think any economic system should reward getting wealthy, because that is good motivator to create more wealth.
>I would believe US is far better of at this than any other country I know of.
It's not a leader overall. It may have the most billionaires, but if you're looking at average outcomes you're probably best off in Norway.
>I think any economic system should reward getting wealthy
Absolutely. It doesn't work nearly as well otherwise.
>The poor will be given opportunities, but however remember using them and converting them to goodness is really their responsibility.
Responsibility and availability of opportunities. The more opportunities, the more people benefit. We're talking about increasing the pool of opportunities.
Don't use Norway as an example of a prosperous society. It's an extremely oil-rich country, and while it's doing much better than most other oil-rich countries are, it's not like a non-oil-rich country could emulate its policies.
Denmark, Sweeden and Switzerland are much more appropriate examples. However, both Sweeden and Switzerland enjoy plenty of cheap foreign labour (I don't know for Denmark).
I think any economic system should reward getting wealthy
Huh? Wealth IS the reward. I don't understand why you would reward someone for getting rewarded. Normally, one is rewarded for doing things that lead to desired outcomes.
A rational society would reward people for contributions to the environment, public safety, education, whatever society happens to need.
No rational society would reward spivs for being wealthy, especially if in the process of gaining said wealth the spivs damage society with undesired outcomes. Which is standard operating procedure.
Examples of this abound, including blowing up the housing market then asking for bailouts, corrupting politics through lobbying, polluting the environment or deceiving the public through misleading advertising and public relations, etc etc etc
My point is how is that default advantage the rich have, a disadvantage to the poor? Unless the poor want it to be, it really can't be.
That's true in a fully transparent society. But far less so when some players can rig things in their favor by bribes or benefits-in-kind. The article is not criticizing entrepreneurs, but rentiers, people who extract economic profits rather than normal profits. Normal profits are what you have when markets fulfill their function as price discovery mechanisms. Economic profits are what you get when the dominant market players erect barriers to entry of one sort or another in order to fleece consumers.
Although I am no Marxist, you are quite wrong to think that Marx's ideas are irrelevant because he would not understand how wealth functions in the modern world. The product of work has changed, but the fundamentals of capital and production have not altered all that much. If you want proof of this, simply read (or at least browse) Adam Smith's wealth of Nations, which was written long before Marx's birth and which remains an excellent, if extremely wordy, introduction to economics. From the factors of production in a variety of different contexts, basic monetary theory, capital structures of the firm and so on, it remains surprisingly relevant (and readable) today. Marx was certainly aware of this, and while his proposed alternative to capitalism was not really workable, his analysis of capitalism's weaknesses still have considerable merit.
People can and do abuse the market system for their own gain distressingly often; I like the capitalist system, but the notion that it operates without fault is distinctly Panglossian.
When the rich man has an advantage because he worked hard for his money, this is not a disadvantage to the poor - quite the contrary, the result is that society as a whole becomes wealthier.
When the rich man has an advantage because he bribed politicians into passing laws that make it illegal for the poor man to open a business without special permission from the government, or to take a better job without a college degree, that most certainly is a disadvantage for the poor - and in the long run for everyone.
That is what the article was talking about. It's not that it's wrong to be rich or powerful. It's that it's wrong to use that wealth and power to subvert the machinery of government and create artificial barriers. That is the problem that needs to be fixed.
> states whose ruling structure is inclusive and not extractive – i.e. you can open a business without having to belong to the aristocracy.
Which demonstrates just how much the original article gets the issue exactly backwards. It's not the "1%" of income-earners that threaten to transform our 'inclusive' society into an 'extractive' one; the threat comes from the growing regulatory state itself - which the author seems to imply is the solution rather than the problem.
The increasing politicization of every element of society - from economics to education to interpersonal relationships - is the danger; in many jurisdictions in the United States, you already need permits, zoning variances, professional licenses, etc. to initiate even the simplest economic venture. In most of the US, education is already firmly dominated by political institutions, and is increasingly rigid and uniform in structure and content. This situation will inevitably lead to the development of some kind of "extractive" elite - regardless of whether or not that elite ultimately corresponds to those the media currently label "the 1%" - if we can't find a way to reverse it.
It's this politicization of society that threatens to subjugate and exclude everyone who isn't a member of the dominant political class - it's the centralization of power, and not the distribution of wealth, that we need to be concerned about.
I almost caught the point you're trying to convey (ignoring the "you're missing the point").
Oligarchic elite in western societies converting the state from inclusive to extractive (consciously or not) is not the _analogy_ being drawn, it is the current state (according to the article).
Incentives are not "being redrawn," they already favor the elite.
Give the OP a little credit; his addition to the discussion is pretty good.
Sure it does. But the point is to become an elite you first need to do something to get there. Its not like a lottery selects a few people and just gives them money. Its their money and earn it.
Therefore even the distinction of elite. They earn it, so they get it. Just like everybody else can.
People from other classes can't easily acquire money, even through hard work and pluck, if enough artificial barriers are created to block their entry into the upper class.
Thanks for informing us that wealth is directly related to effort and taking risks, now that I know the 1% is doing 99% of the labor I guess their salaries are reasonable. They literally are doing the work of hundrededs of people, and their compensation is totally unrelated to the better education they had, or the wealthy contacts they've made during it.
Those relatively wealthy Americans should look at India and see how well-off they are in comparison, and then stop being so lazy, because it really is just that simple.
People tend to get paid depending on how much they can negotiate from the market, which is not exactly the same as how valuable their contributions are, and at the executive level is more related to how good their contacts are.
These comments aren't taking into account the deterioration of the quality of teachers. One reason for this is due to smart women leaving the field in the '70s when the rest of careers opened up to them. My sister quit teaching English and became a lawyer. She earned a lot more and got a lot more respect. And, yes, in order to attract those people back to teaching the country will have to pay a lot more. These women have options and they walked.
Further, there is a serious problem with the fact that classroom discipline is so compromised by unruly students that many competent teachers no longer want to be with these children. This is not just in the US. I was in Chile last year, taking an ESL teaching class, and watched a video of a Chilean teaching English to a class of 10 year olds. The whole room was in complete chaos.
An older man in the class with me who was my age (early
60s) had been a teacher and said that the video depicted why he would no longer go into the classroom. Curiously, the 2 younger students in the class, recent college grads, felt we didn't accept normal in students. Well, the new normal is devastating to learning. Parents are responsible for this mess.
The way we will mitigate this is expanding things like Teach for America. Basically, the gov't will start canceling student loan debt based on years of service. You can imagine a scale from 2-10 years. They already do this for the medical research field. That's the only way. It will be a "hidden" indirect cost.
In response to PG's article - I think most people would agree that wealth creation is a talent like any other. I think where people have a problem is that the particular talent of business and wealth creation buys so much more influence in society compared with being in the top 1% of teachers, policemen, academic researchers, or even programmers.
Furthermore, pg suggests that those who get rich innovate and drive society forward, which I agree with. Unfortunately this seems to be the case for only a minute portion of those who are rich. Most of the best and brightest are doctors, dentists, lawyers, and investment bankers. The smartest pursue these avenues not to push society forward, but to gain the influence that assured wealth provides.
Innovators (Peter Thiel's 0-1 innovators, not 1-n) absolutely deserve the highest possible influence in society - fame, status, and wealth - because they push society forward and raise the standard of living for all. On the other hand, the top 1% of doctors, lawyers, investment bankers, and non-innovative businessmen gain a disproportionate amount of wealth without contributing to society and in my opinion should not be valued tremendously more than the top 1% of programmers, teachers, or biologists.
Peter Thiel runs a hedge fund and most of his successful investments have been advertising-industry web startups. I'm not sure how much that really pushes society forward. At least Elon Musk is doing something truly socially useful with his money.
I suppose my brother and I are great examples of your point: I left engineering to become a lawyer, and he took his physics degree to an investment bank. More money in law and banking. But is engineering or programming really more socially valuable, as practiced? Like many engineers, I used to work in defense contracting--I feel someone more socially valuable as a lawyer, and that's saying a lot. Where does a talented programmer go these days? Silicon Valley? Where the big, world-changing work everyone seems engaged in is exploiting private information for advertising profit? I'm not sure if I believe that's any better for society.
You're dismissing paypal, which is the sin qua non and an actual 0,1 innovation. Thiel was also a lawyer by trade, who went into entreprenuership to do something useful. His investments in FB etc are also thru his vc fund, not his macro-hedge fund (clarium). These are details, but important.
Before the mid-1990s VC in fact were responsible for a lot of 0,1 type innovation. Intel, Apple et al. Wall street was not set up to provide asset lite companies debt. Nor was it set up to take public equity deals of early stage, cash bleeding, negative gaap earning early-stage companies. So they filled a market gap, and enabled new deals/businesses to get done.
Since then, the increasing sophistication of general market participants has commoditized everything about VC, except for perhaps certain elements of information flow. In that regard, you are right, that a stage agnostic hedge fund and/or a $NBillion VC funde start to look alike.
But Remember Thiel was in FB as an <Angel> in 2004. Clarium itself was a macro fund, taking positions on open public markets. They are actually quite disctinct lines of work. Its not like clarium was doing later stage VC or PE deals either (from my recollection).
Lastly, someone needs to write the contracts in a free market economy. So Legal and Finance guys are socially valuable. The underlying issue, however, is are they abusing or overleverageing their (privleged) position in the economy to extract opportunistic rents. See, eg.
That's an argument (perhaps for another day), because it is more an ethical/cultural/policy discussion and comes down to how people are educated/brought up, their values, etc. That kind of thing varies from decade to decade, from firm to firm, etc. Arguably, right now across all of what used to be the professions, we are losing the partner ethos, and replacing it with arguably a more a-moral, and mercenary one.
> Furthermore, pg suggests that those who get rich innovate and drive society forward
That's not quite what he said. He said that making money is a skill like any other, and that one way to make lots of money is to innovate and drive society forward. He didn't say that was the only way to make lots of money; of course it isn't, as you go on to note.
> I think most people would agree that wealth creation is a talent like any other.
Wealth creation is not the same as making money. Or, rather, it's only one way of making money. The talent pg was talking about was a talent at making money by whatever means are available.
> I think where people have a problem is that the particular talent of business and wealth creation buys so much more influence in society compared with being in the top 1% of teachers, policemen, academic researchers, or even programmers.
I would state this differently: I would say that where people have a problem is that the particular talent of making money buys so much more influence in society, even when it doesn't involve wealth creation. Which basically boils down to: money buys influence, regardless of how you got it.
I think the way to put it is: value/productivity inequality is an inevitable fact of life. We should support economic systems that maximize productivity/value by rewarding those who can produce the most of it. However, money income is a profoundly imperfect proxy for value/productivity, because it can only measure excludable property and services.
Which leaves us with the trouble of: what of people whose work-product is not excludable? This means precisely jobs like teacher, policeman, research scientist, programmer (if programs were so easily excludable, we would all still be running shrink-wrapped packages we bought at Software Etc).
I found Niall Fergusons last lectures to be quite eye opening in regards to possible reasons to the wests apparent decline and what is driving it. www.bbc.co.uk/programmes/b01jms03/episodes/guide
This New York Times Sunday review opinion essay, "The Self-Destruction of the 1 Percent," is an interesting read and has prompted a very interesting set of comments here on HN overnight in my time zone. As I turned in yesterday, the top comment was by kamaal, pointing out that India provides a useful reality check on some of the assertions about the United States in the article. As I woke up this morning, the top comment was (and is) by acslater, posted not long after kamaal's comment, pointing out that United States public schools are well funded by international standards. Can both comments be true? Yes they can.
I agree with the main claim of the submitted article that a society in which many people have opportunity to make it into the top earning echelon of the society is a better society all around. "Like all open economies, theirs was turbulent. Today, we think of social mobility as a good thing." And I still think of social mobility as a good thing, having lived in more than one country in my life. International rankings with annual revisions produced by nonprofit, nongovernmental organizations reveal that the United States enjoys huge advantages outside its government-operated school system. One of those advantages is an exceptionally high level of political and economic freedom for ordinary citizens and residents, as reported in The Freedom House rankings of countries by freedom (both political and economic):
Another advantage the United States has for progress and prosperity is low level of corruption in private business and government as reported by The Transparency International rankings of perceived public corruption:
Both of those societal advantages continue to draw into the United States bright, high-initiative persons from around the world who received their primary and secondary schooling in other countries.
It is simply a matter of fact that public spending on government-operated schools in the United States has long been high by world standards.
"'There are countries which don't get the bang for the bucks, and the U.S. is one of them,' said Barry McGaw, education director for the Paris-based Organization for Economic Cooperation and Development, which produced the annual review of industrialized nations."
"As you can see, the United States is exactly on the line of best fit [on a scatterplot of country GDP and country means on reading test scores]. American students scored about as well as you’d expect them to if all you knew about them was their average standard of living.
. . . .
"So if money doesn’t appear to have a strongly predictable impact on students’ test scores, what does?
"How educated their parents are seems to play a bigger role."
From "America's Assets" section of the OECD report "Strong Performers and Successful Reformers in Education: Lessons from PISA for the United States":
"One of the American assets is the amount of money American citizens are willing to invest in public education – more per student than any other country save one. This means that there is a lot of room to get better performance by reprogramming what is currently being spent."
Eric Hanushek, an astute economist who has many peer-reviewed publications in a variety of journals about education evaluation and education reform in the United States and other countries, has repeatedly examined the vexing issue of teacher quality and how to measure it. His latest publication on the issue, "The Distribution of Teacher Quality and Implications for Policy" Eric A. Hanushek, Steven G. Rivkin, September 2012, Annual Review of Economics, pp. 131-157,
points out that variance of teacher quality within each school is generally much greater than the mean quality of instruction differences between schools. The paper examines what data are necessary to fairly assess "value added" of individual teachers in classroom service.
Hanushek's article "The Economic Value of Higher Teacher Quality," Eric A. Hanushek, June 2011, Economics of Education Review, pp. 466-479
provides evidence supporting the proposition that simply encouraging the bottom 5 to 8 percent of teachers currently in service in the United States to change occupations, replacing them with teachers of average effectiveness, could move the United States, with its current diverse population, to near the top of international mathematics and science rankings and add trillions of dollars of economic growth to the United States economy.
So to the point of the submitted article, yes, let's make sure that ALL young people in the United States (and everywhere, for that matter) enjoy schoolteachers who are effective at teaching, societies that are free, governments that are not corrupt, and thus upper economic classes that are open to new participants. That will help all of us and all of our children and grandchildren prosper.
1. We're talking about literally 400 years between the height of Venetian power and the creation of the Libro d'Oro (1315) and its decline (17th to 18th century). Forgive me if I'm not quite ready to accept the author's core premise here.
2. This sentence made me LOL:
"Public schools are starved of funding... This is the new Serrata".
The premise of the statement, that public schools are starved of funding, is preposterous. NYC spends upwards of $20,000 per pupil per year. But even beyond that, comparing moderate variation in school funding levels to the creation of an ACTUAL OLIGARCHY is just, hack-city. That might be the kind of tortured analogy that gets you a favorable slot in the NY Times during election season, but it's sheer nonsense. Look, I can make any argument, on any part of the political spectrum, that way!
"High income taxes ... this is the new Serrata."
"Occupational licensing ... this is the new Serrata."
"Immigration limits ... this is the new Serrata."
"The Yankees spending $200m a year on their payroll ... this is the baseball Serrata."