Brad Wardell's views about technology, politics, religion, world affairs, and all sorts of politically incorrect topics.
Published on March 3, 2013 By Draginol In Economics

Found this video here:

Even being familiar with the stats, it was a really fascinating and well put together illustration of the massive level of inequality in wealth we have in the United States.

I have two fundamental criticisms with it.

First, knowledge isn’t understanding. That is, the author gives me the impression that he thinks wealth is “distributed” by some..entity. That somehow wealth is being divied up by some sort of directed intelligence and that we, as a society (presumably through our government) could somehow alter this inequality.

Second, it doesn’t even try to explain how this inequality happened in the first place. At best, it sets up strawmen such as “does the CEO work 318X harder than the average person in their company?”  While working “hard” is often the difference between poverty and middle class, it has relatively little to do with why 1% of the population controls so much of the nation’s wealth. 

Wealth distribution is a macro-system. If it is to be understood, it needs to be looked at from a macro-level. Emotionally driven anecdotes of individuals or even generalizations of individual groups is worthless.

Your local grocery store

To understand what is happening at the macro level let’s look at something that is so basic to our day to day lives that has also transformed right in front of our eyes. Your local grocery store.

In 1983 the store owner would need to employ many cashiers. When checking someone out, they looked at individual price tags and rang them up on the cash register. Those price tags were placed on every product by employees with a price “gun”. You usually had a bagger. You also needed a lot of these people because checking out was a relatively slow process.  People paid by cash or (burrrrr) more often a personal check.   The goods being purchased had been stocked on the shelves by a small army of stockboys who practically lived in the warehouse in back trying to manually sort out all the goods that had come in from a vast array of different suppliers.

As a result of the above, the owner of the store’s relative wealth was limited because the wealth the store generated was distributed out to a small army of employees.

Fast-forward to today.

That same store owner now owns a much much larger store.  In fact, that store owner is actually a principle at a consolidated franchise company that owns many many stores.

Goods come in with a bar code so no price tagging is needed, eliminating those jobs and the associated expenses. The goods also come him from a tiny number of suppliers who have undergone the same automation and subsequent consolidation as the stores have.  The number of stock boys is far fewer because it’s so much quicker to put things up. Goods arrive in the store already organized by a just-in-time warehouse at a franchise distribution center.

Most of the cash registers are gone having been replaced by automated ones. What few human-run checkout lanes are now operated by people who simply move the bar-coded item through a scanner and the customer does their own bagging. The customer pays by simply sliding their credit card through. 

It would not be an exaggeration to say that the equivalent store generates more than 318X more wealth for the owners than for each employee.

Automation is nothing new. However, the rate and pervasiveness of automation continues to increase exponentially. As a result, the inequality we see is likely to continue to grow.  In fact, the rate is likely to increase.

Our government has actually set in policies that hasten this trend. Minimum wage laws, while well intended, result in these business owners eliminating positions and making cutting edge automation more attractive.  Getting rid of minimum wage laws wouldn’t eliminate this trend, it would merely slow it down. 

We also have increasing regulations and costs associated with hiring humans which create an incentive for the store owner to invest in more machines faster and his suppliers to outsource more overseas where regulations aren’t as tight.  Decreasing regulations, however, would only slow this trend, it wouldn’t stop it.

In another several years, the store owner will likely have machines that can automatically stock goods onto shelves via their RFID tag. Even fewer cashiers will be needed because the customer will be able to simply walk out of the store with their items in the cart and have all their items charged to their credit/debit account as they pass through an automated RFID scanner. Your favorite fast food joint won’t need people to take your order. You’ll simply tell it to a Siri-like order taker (or input it on a keyboard).

Thus, the “store owner”, that 1%-er (and again, at this point, the “store owner” of 1983 is long gone) will have an even greater share of the wealth than they do today.

What can be done?

I don’t really have an answer.  I don’t think anything can be done even though I often feel the same distaste for wealth inequality as most people do.

Overall, the lives of nearly all Americans are vastly better than they were 30 years ago.  And before someone points out a statistic on “purchasing power” I think you’d be hard pressed to find any sane person who would want to go back and live in 1983.  Life is far better now than it was 30 years ago for virtually everyone in the United States.

But the wealth inequality strikes most people as being fundamentally unfair. Having had some success myself I am no stranger to that tingle of envy at the advantages others got – especially when they are given kudos by a society that is oblivious that the biggest difference between those people and the hundreds, if not thousands, of others who had the same idea/ability/drive was that those people started out with massive massive advantages.

While I spent much of my childhood growing up in a 2 bedroom apartment with my single mother eating “shit on a shingle” a few times a week because that’s what we could afford to eat and saving and scraping from an early age so that I could work 3-jobs to afford to attend a minor state-school that wouldn’t even get me an interview at a major tech company,  I’ve watched people become more “successful” largely in thanks to them starting out with connections from Harvard or MIT or some other place their parents sent them.  My point is, I can relate to that unspoken feeling of unfairness.

However, someone less successful than I am can point out that I was raised by a mother who instilled responsibility and economic common sense from an early age and that I’m a white male thus I too have many advantages over many others. There’s always someone more disadvantaged than you.

Hence, envy or resentment is a futile path to take. You just have to let it go or it’ll poison you.

As a society, should we really care about this growing wealth inequality? And if we should care, we should have take a hard look as to why we care. Because if that reason boils down to envy or resentment then any solutions that spring up are likely to take us down a very dark path.

I personally don’t like the level of wealth inequality. It offends my sense of fairness. But I can’t think of any solutions to it that don’t essentially involve stealing from one group and handing it to another “just because”.  It’s one of the reasons why I don’t like a strong federal government, it just creates more opportunity for the gamification of our economic system (talk to a successful hedge fund manager – federal regulations make the hyper-wealthy financial managers of the world possible).

Besides, in another 30 years, we should reach the singularity and at which point, who will give a crap? Winking smile


Comments (Page 1)
on Mar 04, 2013

I read your article with interest.

Equality is a myth that's become legend. To explain it I'll offer this:

http://nobility.org/2012/01/26/equality-myth-founding-legend/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NobilityAndAnalogousTraditionalElites+%28Nobility+and+A

 

The Equality Myth, a Founding Legend

JANUARY 26, 2012

by Plinio Corrêa de Oliveira

All epochs have a founding legend, a myth that reflects the underlying zeitgeist [spirit of the times]. Those, who like us, live in the contemporary West, are living in the shadow of the Equality Myth. Our political and social institutions operate on the premise that all human beings are fundamentally equal and that any inequalities in the real world are aberrant as such and require coercive correction. Hiring and firing, admissions into [scholarly] Academies, even our language patterns and everything else are dictated by egalitarian principles. The champions of equality are divinized as saints of rationality and their opponents demonized as ignorant provincial hicks or rowdy troublemakers. Some, however, are always more equal than others.

 

 

on Mar 04, 2013

I read your article with interest.

Equality is a myth that's become legend. To explain it I'll offer this:

No. No that's really not useful. Instead of making a bold pronouncement and then asking everyone to read some other person's writing, a person who isn't here to defend their pronouncement you should tell us in your own words what point you're trying to make.

on Mar 04, 2013

I personally don’t like the level of wealth inequality. It offends my sense of fairness. But I can’t think of any solutions to it that don’t essentially involve stealing from one group and handing it to another “just because”. It’s one of the reasons why I don’t like a strong federal government, it just creates more opportunity for the gamification of our economic system (talk to a successful hedge fund manager – federal regulations make the hyper-wealthy financial managers of the world possible).

Besides, in another 30 years, we should reach the singularity and at which point, who will give a crap?

 

Finally a common sense perspective that can logically be followed through to a conclusion! It is, refreshing to see that it still exists in this world. '

on Mar 04, 2013

There will never be equality but what we can do is continue investing in markets that produce high skill jobs and continue pushing kids through college. Even if this means allowing kids use government funds to ensure they receive that education.

on Mar 04, 2013

Okay, one little misconception that folks seem to always have, the concept of government funds.  

on Mar 04, 2013

Philly0381

Okay, one little misconception that folks seem to always have, the concept of government funds.  

Would you prefer the term tax dollars?

on Mar 04, 2013

Arzon,

No. No that's really not useful. Instead of making a bold pronouncement and then asking everyone to read some other person's writing, a person who isn't here to defend their pronouncement you should tell us in your own words what point you're trying to make.

What I offered to this discussion by way of quoting Oliveira was not only useful but also profound. You of course, are free to disagree.

 

 

on Mar 04, 2013

Grocery stores don't make more money now than they did in the 80's, they make less.  It's a more competitive market than it was thirty years ago, margins are lower.  The only reason anyone gets filthy stinking rich off a grocery store is because they have hundreds of them.  The machines that replaced people were also designed and built by higher paid professionals.

 

The increase in wealth inequality is primarily a function of our reserve banking system, where the state essentially inflates money into the banking sector to lend out.  When everything goes tits up, the wealth that's primarily on paper goes poof, the banks stop lending money that doesn't exist, and people at the bottom stop paying twice as much for something they can't afford to begin with.  It's a debt bubble.

 

There's also the tax issue, when the Bush tax cuts went through and knocked a bunch of people off the tax roles, the market adjusted.  They got paid less.  These idiots complaining about wealth inequality are always looking at pre-tax income.

 

Wealth is created, not parceled out.  It's the goods and services you provide the population.  Bill gates is at the top of the dog pile because he laid the foundation for decades of software development.  He changed computing for the better, and hundreds of millions of people have repeatedly sent him money to partake in it.  The same was true of Rockefeller, his business practices(however unscrupulous some aspects were) drastically reduced energy prices and fueled an industrial revolution.

 

As a wealth creator who provides luxury goods, you shouldn't be worrying over fairness.  If it wasn't fair, you wouldn't get paid.  No one needs to skin their operating system or play games, they only pay for it because they think it's worth it.

on Mar 04, 2013

There are entities in the world that secretely steal from poor and give to the rich. They are called: central banks. Get rid of them. Inequality will be lower.

Edit: I see psychoak nailed it first.

on Mar 04, 2013

Nichtganz

Quoting Philly0381, reply 5
Okay, one little misconception that folks seem to always have, the concept of government funds.  

Would you prefer the term tax dollars?

Which is really just yours, mine and other folks money.

on Mar 04, 2013

There will never be equality

Exactly.

But "Equality" is a good sounding catch phrase that the revolutionary Liberals, Progressives and Socialists are demanding in all phases of life. It's nuts.

 

on Mar 04, 2013

One of your best posts, Brad.  Pretty much nailed it.

on Mar 04, 2013

 No one distributes wealth. It is created naturally in an economy, unless of course government intervenes using violence. This video doesn't really shock me. While I don't like income inequality I know why it exists. If you make billions of dollars it's because you have the skills necessary to do so and few people have those skills. Not that life is fair and connections and politics don't matter. In a sense investing and financing is what those billionaires do for a job. Society benefits from their ability to manage and create those insanely vast fortunes. That money isn't sitting around doing nothing, it is constantly moving around in the economy, going where those billionaires think it will make them the most money. Exceptions aside they have that money because they earned it, if that wasn't true then they would lose it in bad investments. If we redistributed that money then much of it would be lost in bad investments or simply be underutilized and the total rate of growth would decline. Money flows to where it will be used best as people who make money can use it to make even more.

on Mar 04, 2013

We as a society are coming to a point where money will go the way of the black plague and the geo-centric view of the universe.

We as a society are starting to look at problems not from a monetary cost point of view but from a 'do we have the resources to solve the problem' kind of view. The monetary system is dying, in fact it's already dead, what will come after will solely depend on the people's effort to exert control on the building of the future.

It basically boils down like this, we are coming to a event, call it 'X Day' for lack of a better term. On that day, events will begin to go one of two way, either the future will be built by the power brokers and manipulators and the planet along with all of humanity will head into the dark frontiers of global tyranny, genocide, war, police states, endless surveillance, etc.

OR

humanity will wage a global revolutionary war the likes of which the planet had never seen and the people will take their lands, their governments, their very lives back from those that would seek to control them.

 

The choices are Liberty or Tyranny.

on Mar 04, 2013

Automation is simply the latest in a long trend of productivity gains. The whole robots are taking our jobs and increasing inequality thing is a myth. To understand what is really happening you have to understand several economic forces.

No matter how many computers or robots you put in a factory you are not eliminating jobs you are increasing worker productivity. That factory will still employee people like technicians and line supervisors. Technology simply allows people to do more work with less effort. This allows companies to produce goods at cheaper prices because they pay less wages. This does not equal more profit for capital owners and CEOs in the long run. Competition within the market forces sellers to undercut each other until there is no economic profit left, a situation where firms make just enough profit to continue doing what they are doing and not switch industries. This in turn is a huge benefit to consumers as it decreases the cost of everything they buy. Effectively increasing the real purchasing power of their wages and standard of living. Imagine how much we would be paying for laptops if they had to be hand crafted. Imagine what you will be able to afford as automation increases and prices on manufactured goods plummet.

The higher productivity and skill requirements on workers also boost worker wages. Companies must pay workers more because wages are set by supply and demand for labor. The labor supply for skilled technicians is much smaller then unskilled laborers, as it requires education and specific training.  This allows technicians to hold out for higher wages or move to companies that pay them more. Thus wages in factories should rise and get closer to management not further away. Of course there will be fewer workers employed in each factory and in manufacturing as a total of portion of the economy. This will mainly be because of higher skill and education levels required to work there.

In one interesting article I read the author pointed out the comparisons with the introduction of heavy farm machinery. Over 90% of the population used to work in agriculture, but they were replaced by machines. They then moved to cities were they worked in factories instead. As a result of this shift did farmers dominate our economy and become super rich? No, agriculture has shrunk to a tiny portion of GDP. Food prices have plummeted and everyone is better off. I predict the same thing will happen to manufacturing. Instead of a bunch of robot owners taking over society and becoming filthy rich manufacturing will decentralize and drastically shrink in importance and as a portion of the economy. 3D printing is a great example of what I said above. What is does is basically eliminate labor all together, yet it won't increase income inequality. Rather it cuts out the middleman altogether and allows every garage to become a small factory.

First we were slaves to food then manufactured goods. Now we are moving on and in an economy where making things is dirt cheap what will everyone be doing for jobs? That is the question but make no mistake in the long run economies will find some way to make use of human labor like any other form of resource. Perhaps art and creative jobs will take over, maybe software development and online gaming will explode. Of course there will be a painful transition. All those displaced workers have to be re-trained and this takes time, but the economy will adjust eventually. Personally I would make sure my job has a creative aspect that can't be done by software or robots though.