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  1. #71
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    Quote Originally Posted by uumlau View Post

  2. #72
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    Weird dude, but a hell of a musician and performer.

  3. #73
    Senior Member danseen's Avatar
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    why should they give it away? to satisfy the envious?

  4. #74
    ^He pronks, too! Magic Poriferan's Avatar
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    Quote Originally Posted by uumlau View Post
    I'm not finding much in the way of Gini data based on the modified incomes (based on tax). However, you don't comment about the Gini based on consumption, which is a bit easier to measure, and in my opinion reflects real after-tax, after-benefits income the best. There is good data on that:

    http://www.share-project.org/uploads...ons/CH_6.5.pdf

    According to this paper, Denmark has an income Gini of 32 and a consumption Gini of 28. This paper doesn't have US data, but the hoover paper I linked has that, from BLS: US income Gini is 46.9 and the consumption Gini is ... wait for it ... 28.

    There may be some issues with methods of measurement being different in these cases, but certainly none large enough to account for the income Gini being so disparate but the consumption Gini about the same.



    Read the European data in full. It's also interesting how it compares age ranges by region, since simply things like age distribution can skew the Gini by a lot: lots of young and poor (possibly immigrants), very few old and rich.

    Here is a quick summary. I'll list it as pairs, with the income Gini first, and then the consumption Gini.

    33/24 Northern Europe
    46/35 Central Europe
    47/41 Southern Europe

    Compare with the US 46.9/28.0 result.

    Northern Europe is dominated by Sweden in this study, hence its expected very low Gini.
    First note, I'm a little wary of these figures because I don't know where they got
    an income gini of 32 for Denmark from. Both the CIA and WB put it at 24, and it has hovered within around a 1 point range of that for a long time. So that is, in fact, a big difference.

    But it's also not like a consumption based gini is any more interchangeable than an income based one than a consumption tax is interchangeable with an income tax. And I feel I may be losing sight of what your point was. I mean, redistributive policies are largely what should allow such
    disparities between the two in the first place, which is to say, without the government taking from the rich and giving
    to programs that assist the poor, it wouldn't be so equal. So, are you trying to make a point about the value of redistributive policies, or a point
    about the correlation I was citing?

    And on that note, why do you think there is a correlation between income inequality (as far as the normal gini goes) and
    GDP PC (plus so many other things)? What does it mean? Even with your points about adjusting the gini, the fact remains,
    and it seems significant. It appears to be a predictor.

    Quote Originally Posted by uumlau View Post
    Indeed. There is such a thing as malinvestment. Keynesian theory mostly discounts the effect of malinvestments, that any investment, any spending, is necessarily good, because all of it is evidence of the economy working. Those who believe differently, such as I, believe that malinvestments are encouraged by the typical Keynesian remedies of lower interest rates and increased government spending.

    That said, malinvestments occur even without Keynesian policies in place, but their failure is more immediately obvious, discouraging future investors from making the same mistakes.

    Remember back when I said that the economy comprises both wealth creation and wealth destruction? Lots of simple things destroy wealth to some degree. For example, when we consume food, that food is gone, and we can only make more, later. If we build a house, that house is usually around for years, and its value typically (but not always) increases over time. With these examples, it should be clear that both wealth creation and wealth destruction are essential processes. There is no "optimal" arrangement to eliminate all wealth destruction. Also, wealth is sometimes destroyed because of wealth creation elsewhere. Kodak is out of business because nearly every cell phone in the world takes pictures. For several decades, investing in Kodak was a sound investment, but in the last decade or so, it was a malinvestment.

    The trick is to keep the wealth creation rate higher than the wealth destruction rate. When wealth is destroyed faster than created (e.g., the housing bubble burst), GDP goes negative, jobs are lost, and those of the lowest income levels are hurt the most.
    To revise, there is something like an optimal point then, at least in so far as one intends to have higher creation than
    destruction. At any rate, if possible, there seems to be no reason to not try to maximize the ratio.

    But I don't feel satisfied with this response. You seem to be saying the situations I put forward exist and are malinvestment,
    but you wave them off confidently with something vague assurance that failure is obvious and investors will be discouraged.
    This assumes that the signals are clear, the investors have a good idea of what they are doing, and that there is no way to turn
    out a personal profit out of malinvestment. I question all three premises.

    Quote Originally Posted by uumlau View Post
    It is possible for too much of the economy to be tied up in malinvestments. Virtually all of the wealth of the economy is investments, of one sort or another.


    Yes, that is called a malinvestment.

    Yes. Normal people doing their usual jobs is wealth creation. Your employer (or clients, if self-employed) need something of value from you, and pay you for your time and effort of doing it. It creates wealth, because it is impossible for everyone to know how to do everything, so when we need something done faster and cheaper than we can do it for ourselves, we pay someone else to do it. It's much easier to buy food from the grocery store than to farm/ranch it for yourself.

    Which also brings up this interesting fact, as mentioned in the hoover paper:

    Finally, we note that consumption inequality may be even lower than reported by any of the studies cited above. This is because current methodologies measure only market consumption rather than total consumption, which is the sum of both market (purchased) and nonmarket (home-produced) goods. This is important because lower-income households consume a disproportionate amount of goods produced in the home (what economists call “home production”), including home-cooked meals, household-provided child care, and household home improvements and maintenance. Economists have estimated that home production is around one-third of gdp, yet this form of consumption is not counted in the total when measuring consumption inequality.

    Every day, people make the choice between cooking their own meals, buying a frozen meal, or going out. Moms everywhere have to wrestle with the question of whether their time is better spent on a job and paying for day care, or staying home and taking care of the kids. If they do these things themselves, they create wealth. That wealth is shared with others via lower demand for the products in question: things like eating out and daycare aren't as pricey as they otherwise would be.
    Now, see, some are of the opinion that we need to emphasize this area of wealth creation and claim that it needs more focus, while that investments, particularly investments in terms of large earners taking shares in corporations, etc (that's what we're really talking about).. need to be seriously de-emphasized. That is, more should be done to spur the economy from a production and consumption standpoint, and the power of most people, in general, as economic agents, less on high level investment. I don't want to misrepresent him, but I think Paul Krugman is somewhere ballpark. The Hoover paper quotes him and I think interprets him somewhat incorrectly. I don't believe Krugman thinks that literally no wealth is created, I think he asserts
    that the rate just dramatically diminishes and it is far from the best choice.

    But also, what about government spending? If I have a progressive income tax, or a progressive estate tax, things like that, and I have public goods like roads and education, or even welfare like food stamps, disability, unemployment, etc.. then I am quite directly taking money that would be accrued by the wealthy and redirecting it in some many to the poor and even the middle class. What do you think of those policies? Do you think they are an economic burden? A waste? Do you think the economy would fair better, for Americans in general, if we ceased such policies and allowed all the income to make it to the "earners"?

    Quote Originally Posted by uumlau View Post
    Here is where it gets kind of interesting: Adam Smith, author of the Wealth of Nations, who believed in the "invisible hand", really did not like businessmen. He knew the businessmen collude, try to cheat people, and in general get money for nothing. His main argument was that this "invisible hand" took all of that avarice and forced such people to do something real, anyway. There is much more money to be made by making your customer happy than otherwise, as long as there is some competition, because customers will go to those businesses that please them, rejecting the businesses that don't. So, in general, the "investing power" tends to end up in the hands of those who please their customers. Exceptions include the few oligarchic and monopolistic companies that exist. People like doing business with Walmart and Target, which have plenty of other competition and offer good prices on quality goods. People hate doing business with their local cable company.

    I think the necessary conditions of sufficient competition, sufficiently informed and rational consumers, and sufficient constraints on exploitative behavior (which would include the ever so popular Walmart) are extremely rare. At least too rare to rely upon.

    Also, I just have to say that having read The Wealth Nations, I was surprised at what a passing comment the invisible hand was. People have stretched it out into some vast, fundamental concept that I don't think Smith ever intended it to be.

    Quote Originally Posted by uumlau View Post
    Investment, in aggregate, manages risk. The actual investors, depending on their understanding of investments and investing, may very well be unaware that they are purchasing risk, and think of it just as a way of making money, as kind of a legal gambling. That doesn't change the fact that they're doing a service to the economy as a whole by assuming risk.

    It is also possible for an "investor" who is closely tied to a company to do very risky (and obviously bad) things and reap a reward from the investment. I know of one case personally where a person who was hired as CEO, and had the usual stock options, forced the company to overinvest in new projects and employees. It thus looked to investors as if the company was growing very quickly, but the company didn't actually have the resources to meet its contracts. The CEO skipped out after about 18 months, cashed in his stock options, and the company's stock crashed as the disaster the CEO intentionally created unfolded. This isn't typical, though. And in general while this might occasionally crater a company that would otherwise have been a world leader, usually there are other competitors who step up and do well instead. (And the CEO who does that sort of thing gets a reputation that makes it hard to get hired again.)
    Using investment as gambling is important to consider, particularly in the cases of those business that really don't need it, those ones that are monopolies or oligopolies. The investment and the management play a dangerous game with each other (but more importantly all the employees and consumers) attempting to seek
    escalating profits. I'm not as confident as you are (as appears to be the theme) that people who do wrong will suffer, and those who suffer will be avoided.

    Quote Originally Posted by uumlau View Post
    I'm familiar with that theory. I don't believe that it is true, in general. I believe that marketing has more influence in terms of getting a product out in front of the public faster, before the other guy. So the other guy's product might be "better" by some standard, but as long as the product that "wins" is good enough, the consumer is happy. And if the product that "wins" isn't good enough, no amount of marketing will sell it.
    What is winning and what is good enough? I don't know what you are confident about all of this. It is apparent, even from experimentation, that people
    will buy shit if the marketing is dominant enough. The power of marketing is only going to get stronger, too, as it has over the past 100 years.
    People can't make good choices without proper information, and marketing is a great deal of where their information is going to come from.

    Quote Originally Posted by uumlau View Post
    I'm also familiar with this theory. I don't believe the oligopolies are as common as you do. Yes, they're big and obvious, so it's easy to point to them, but there are millions of other businesses out there, competing in terms of products that you probably haven't even heard of.

    Also note that the real power of oligopolies and monopolies is that they only last to the degree that the government helps keep other businesses from competing with them. For instance, while the FDA is necessary for letting consumers know that pharmaceuticals are safe and effective, the huge regulatory costs this imposes prevents smaller businesses from competing. It's a trade-off, though: the more economically efficient course imposes possible health risks. In the case of Cable TV, local municipalities ended up working deals with cable companies for monopolies in their area. The municipality thinks in terms of making sure they get the absolute best company, not realizing that they leave no competitive mechanism in place to keep that company the best. And of course the cable companies all insist on having their monopoly or near-monopoly. And no local businessman can say, "hey, I can do better," set up his own cable company and get it hooked up to the community: the municipality wouldn't allow it without jumping through a lot of hoops.
    Where the matter of wealth inequality is the worst is also where the monopolies and oligopolies are most involved, and the same amount of wealth goes a much longer way in the hands of one entity than in the hands of a cloud of many entities. I find from time to time that there are monopolies I've never heard of in business I'd never bothered to think about.

    And I see that you are one of those people who thinks monopolies and oligopolies only exist because of the government. I've never believed that. It's just a matter of simple power dynamics. If a certain power differential is achieved, no matter how meritoriously it is achieved, it grants the capacity to start manipulating the rules of the game, and competition falters. And while global monopolies are relatively rare, that they exist at all casts some doubt on the notion that they only survived by tugging on some government's sleeve.

    Quote Originally Posted by uumlau View Post
    And that's why there is a market for other cell phone providers. If you really dislike what Apple does with its iPhone, an Android or Windows phone is an easy alternative. And if you don't care for a smart phone, but just need a simple cell phone, there are even more alternatives.
    It was an example. Apple does have some competition (though not a lot if you think about it) and their products are still more conformed than is really warranted.


    Quote Originally Posted by uumlau View Post
    These are indeed trade-offs. This isn't so much companies colluding to be anticompetitive, as it is the presence of a global marketplace. It's actually more competition, not less. And just as businesses would prefer to have less competition, so does the labor force.
    That was not supposed to be an example of anti-competition, it was just additional problem in expecting companies to provide quality to consumers or laborers.

    Quote Originally Posted by uumlau View Post
    I'm unfamiliar with these "exactly the same" laptops. Every single laptop I have ever owned or had access to has been different. Only in the case of company laptops do I see "the same laptop", and that is because the company needs to standardize so that it is easier for IT to support.
    I think in these circumstances people are complacent and lack a frame of reference, and so they see little differences as big without realizing how big the differences actually could, and possibly should, be. But I don't feel like turning this into a product analysis thread.

    Quote Originally Posted by uumlau View Post
    Most all companies would like to be as anticompetitive as you describe. Check my cable TV example to see how I view it: the environment in a particular municipality, city, state or country has laws that keep things anticompetitive to whatever degree. I suspect a lot of the ones that you view as anticompetitive (e.g., Apple) are actually in an extremely competitive environment, and have much less influence than you might think.
    I know all companies want to be that anti-competitive. Therein lies the problem.

    Quote Originally Posted by uumlau View Post
    I don't believe I said it was impossible to redirect wealth. There is a trade off. The more you redirect, the lower the rate of wealth creation. At some level of redirection, wealth is destroyed faster than it is created. This hasn't happened to a significant degree in the US, but in various African countries (e.g. Uganda), where wealth was taken from "rich foreigners" and handed to local citizens, the wealth was quickly lost and all that remained was a very weak economy.
    I think those examples in Africa are poor, as they had essentially everything else about what they did and where they were going against them. There is a wrong way to redistribute wealth, and redistributing wealth is not an answer to all problems, but not bothering to redistribute wealth at all will never be the right way and never solve any problems. In the case of the USA, we do some, but do we do it enough?

    Now, while I was first looking over your post, I was getting bugged by this feeling that we were veering way too far off the actual issue of whether or not inequality causes problems. I know I had written about this somewhere, so I went and dug it up. It's not short, and it's not written with anyone other than myself in mind to see. You can ignore at least one of the points as being written off by the conversation we've had thus far. The benefit and the cost of inequality ought to be examined as too separate things, so this list posits costs. Even if the benefits you propose (which I do not so far accept in entirety) were true, how much would they be worth these costs?

    This should link to it. Hopefully it can be viewed.

    It is a lot to respond to. No need to respond in full detail. Summarize your opinion. How much can the price of inequality be tolerated?
    Go to sleep, iguana.


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  5. #75
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    ^ The vague assurance of failure is obvious to anyone with more than a passing understanding of finance and economics.

  6. #76
    Senior Member Jaguar's Avatar
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    Quote Originally Posted by Magic Poriferan View Post
    How much can the price of inequality be tolerated?
    I won 300 bucks on scratch-off lotto tickets. I'll send you 150. No inequality allowed around here, folks.

  7. #77
    Senior Member King sns's Avatar
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    "needs" increase with your income.. it's just easier to justify keeping the money when you can say that you're working hard and others aren't.... I think that if you have that much money it's just easier to grasp at straws finding reasons to keep it.
    06/13 10:51:03 five sounds: you!!!
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  8. #78
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    Caveat: I know jack about economics, but I do know a thing or two about human nature.


    If they're going to give it, they should give it to those who aren't going to squander it.

    My in-laws and siblings-in-law live in a developing country. Lots of stuff sucks over there, for sure, more so than here in the good ol' US. Half of our family over there is pretty responsible and dedicated, and they use money/resources well; and half piss it away either due to laziness or mismanagement. Guess which half we actually help out?

    I'm all for creating opportunities for those who have the capacity to seize them. Redistribute wealth in a way that actually makes us all better off. Give me a grant request over simple random chance any day.


    go go anecdotes
    Last edited by garbage; 12-29-2013 at 01:27 PM. Reason: butchered

  9. #79
    ^He pronks, too! Magic Poriferan's Avatar
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    Quote Originally Posted by DiscoBiscuit View Post
    ^ The vague assurance of failure is obvious to anyone with more than a passing understanding of finance and economics.
    What are you even talking about?
    Go to sleep, iguana.


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  10. #80
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    Quote Originally Posted by Magic Poriferan View Post
    What are you even talking about?
    .

    You seem to be saying the situations I put forward exist and are malinvestment,
    but you wave them off confidently with something vague assurance that failure is obvious and investors will be discouraged.

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