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 2)
on Mar 04, 2013

I don't consider taxes as stealing.

 

Fundamentally, the rich benefit more from taxes than the poor.  The taxes fund the mechanisms that keep the poor from outright robbing and killing the rich, for starters.   If you took away all social benefits and slashed the police force and military- government spending would drop hard, but good luck keeping it from the masses with pitchfork (and since it's the US, assault rifles and probably military training to boot)

 

Also, the infrastructure investments make businesses work more efficiently, and the increased money going to the poor gets spent, which reinvigorates the economy.   If the poor have more discretionary income, they tend to do things like buy say, TBS games or desktop application software, which is revenue that goes to Stardock, which covers a good bit of those extra taxes Brad would have to pay.   I believe that the money velocity theorem generates real growth, though it can only go so far.  It wouldn't cover a 60-70% tax rate.

 

I would take a hard look at federal spending that does not generate much for the economy, nor serves to compensate for public goods.  There are examples of such things, but they often are sacred cows or are protected by powerful lobbying interests.  The prison industry, certain tax breaks, and Medicare would be high on my list.

 

You have to strike a balance between incentivizing success, and making sure the poor are content enough and feel they have a chance to advance.    Tax too high, and fewer folks take chances, tax too low, and the system becomes inefficient.

 

You have to aim for that sweet spot that maximizes efficiency and results in the freest market (and deregulation leads to monopolies more often than it does free markets due to market power inequality)

 

This is why I tend to side with the US Left on economic issues.  I feel that what the Republicans want will result in more unfree markets.  I wouldn't agree with hardline socialists- I think someone like Bernie Sanders is pushing it a bit too far on the left.

 

That said, I have real skin in the game right now, this whole government shutdown/sequestration garbage is really threatening my job.  So I am mega-worried right now.   This worry would impact Stardock's business- I don't have a job, eventually I run out of money to give Stardock for their stuff.   .  

 

 

To me at least, the real driving issue behind inequality is globalization, and we can't stop that.  It has also weakened the regulatory power of governments on large multinationals.   If I was dictator, I'd probably be watching the multinationals and their CEOs like a hawk, and I'd have them arrested quickly if they messed up- with great power comes great responsibility, and I wouldn't be afraid to punish those who fell short.   I'd also try to make policies that generated jobs, even if they were government jobs, and encouraged the consumption of money by the higher classes over saving.

 

 

on Mar 04, 2013

DsRaider

Exceptions aside they have that money because they earned it, if that wasn't true then they would lose it in bad investments.

Unless you're "too big to fail"! Then you just get bailed out by the people with a gentle slap on the wrist.

on Mar 04, 2013

It's not really my money after I pay taxes.  When I buy a hotdog, once I pay, I have no ownership of what the vendor does with that money. I think people bitch too much about taxes and government.  I think we Americans have grown very, very privileged living in a land that hasn't had the struggled and difficulties of the rest of the world.  Maybe I am far too patriotic, but I find the stability, freedoms, and general living condition provided by our government over the last two centuries to be worth paying taxes for.  Today, I am a pretty average American when it comes to income.  But, I grew up in government housing, with a single mother who worked minimum wage jobs.  There was a time when I resented being so poor, being ridiculed by peers or being harassed by cops simply for where I lived or family reputation.  But, I have since recognized the privilege in which I grew up.  I had a place to live growing up due to the government helping out my mother and I.  I was able to attend college due to government loans and scholarships of which I have mostly repaid.  I feel very grateful that I have been provided with so much by the nation I was born into.  At other times and places in history, I would have perished.  

 

I really don't like these conversations, as they become so polarized that you have one side who sees the other as trying to redistribute the wealth and make everyone equal regardless of what they put into the system and the other side who sees the other group as being unscrupulous capitalist  bent on striping people and the world of it's resources to acquire a mass of wealth that benefits no one but themselves. 

 

I guess I tend toward the left, I think a society has an obligation to all of it's people to provide the basics of life, protection from harm, and ensuring liberty.  But I also believe that those people who create, innovate  take chances and succeed deserve the higher status they've earned.  But those are ideals that tend to fall apart in the reality of limited resources and logistics.  And how much do we hurt people by giving them too much?  I think it has been argued by better people than myself that providing too much for people in need can cause them to never strive for more, to linger in a level of sustained poverty.  How do we provide support for people in need, while at the same time preventing dependence?  If we only help those who are willing to work and have something of substance to add to society, what about those incapable of working? I work with a population of people who are shunned, outcast and stigmatized.  I work with people with severe mental illness, they struggle with holding down jobs, getting treatment and paying for anything they need?  What do we do with this group?  If they can't  work, are they to starve and freeze on the streets?  Are they to go unmedicated?   What about the poor?  They should find a job and work?  There are more people than jobs in most places.  Or the only jobs available can't produce the income needed in paying for a place to live, so what good is it?  

 

Hard questions and no easy answers in my eyes.

 

 

on Mar 04, 2013

How can there be this mathematical "wealth equality" when there isn't and never can or will be equality among individuals? 

Look at all the people of the world. We are all different. There are differences, inequalities, if you will,  in intelligence, talent, mentality, temperament, and so forth.  Some people are comely, while others are plain, some tall, short, healthy, and sickly and so forth and so on. All of these result in a diversity of natural aptitudes, skills, or abilities.

Now, these inequalities among individuals give rise to inequalities in social life and conditions. And that's normal for not everyone can be a doctor, a lawyer, a professor otherwise who would plant the wheat and plow the fields for the food we need to eat? Or if we were all farmers, who would defend society? If all were in the military, who would look after commerce or build our homes and offices?   

We can't get away from the fact that Society is formed by unequal individuals and yes, some people are more wealthy than others.

And that is fine insofar as whatever we do, whatever our station in life, that we attain our own good, by working together for the common good of all.

 

 

 

on Mar 04, 2013

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.

I'm not saying this is what you mean to project, but we could easily cast this sentiment as "Meh, in theory I do not like this inequality thing, but its not negatively affecting me, so we should not do anything about it, because we might make things worse in trying".

I totally agree that automation is one of the driving forces in concentrating wealth in those who already own capital. But like it or not this system is not sustainable. Eventually something must be done about this or else our and perhaps the world's society will become more of a plutocracy than it is already. And like it or not, clearly the government will be getting more involved, unless you think those who benefit most from automation and growth policies will voluntarily support initiatives aimed at helping the country as a whole.

We indeed must be careful to avoid the pitfalls of government doing or taxing so much so as to discourage the desire to work and invest, but if the government can come up with "rational" (I realize some will argue the government does not do anything rational) uses for tax dollars that reduce inequality and helps the well being and productivity of the population as a whole (say encouraging technical skills or health), I do not see why we should not support such programs.

on Mar 04, 2013

lulapilgrim
Look at all the people of the world. We are all different. There are differences, inequalities, if you will,  in intelligence, talent, mentality, temperament, and so forth.  Some people are comely, while others are plain, some tall, short, healthy, and sickly and so forth and so on. All of these result in a diversity of natural aptitudes, skills, or abilities.

 

That's not the point. The point is that one guy who earns as much as 100.000 people is really more intelligent, smart or talented than all of them together. Another question is, whether system like that can survive, or as the history proves, a situation will get worse to the point were revolution will happen. Another point is, whether the general trend and movement of money can be reversed at all, or if money will always flow in one direction up to the point where 99% are starving and 1% owns all. Do you think people will accept it? 

And finally, some inequality is actually not at all related to any inner talents, but pure luck. If you are born into family that owns billions, you have way more chance to be rich all your life than someone who is born totally poor. As our market is more and more satiated there are less and less fields were you can break through with just idea or your brilliancy. Right now you have no chance, right off the bat, to compete with lots of industries since they demand billions just to take off. You can be most talented man on Earth and you will get nowhere, or you can work your entire life like a horse and still fell behind a lazy idiot who did nothing all his life apart from squandering what he inherited. 

To sum up, question is whether you can create a political system that will prevent the rich just getting too rich without depriving them of the incentive to be more productive/get better at their business.

on Mar 04, 2013

Here is a nice article on automation and robots. It even mentions Baxter, the world's cutest human replacement...

http://www.wired.com/gadgetlab/2012/12/ff-robots-will-take-our-jobs/all/

Oh ya and here is an article by the economist that discusses income equality in today's global world. They think the answer is what they call True Progressivism, which would free up markets and remove monopolies created by entrenched interests.

http://www.economist.com/node/21564556

on Mar 04, 2013

I'm interested in this 'revolution' business.  What would the 'revolution' do to make things better for the average guy?  Destroying, or seriously hampering, the mechanism of rising living standards for all seems short-sighted to me.  Wonder what 'system' would work better.

on Mar 04, 2013

I always get bothered when people throw out the "this person gets paid x times more than the average worker, but do they really work x times harder?"

Your salary is not a reflection of how hard you work, but rather your value to society (at least economically)...even if you did nothing but inherit one billion dollars and simply invest it (while spending your days on a beach in the Caribbean), the fact is that your one billion dollars had an immense value to society (primarily in whatever you invested it in)...

It may not seem fair, but it does make sense...and it works....

Personally, wealth inequality has always been irrelevant to me....what concerns me is what the living standards of the very bottom are like...even if wealth is far more concentrated today than it was in the past, the living standards of the poor (and those above) have improved...it is boggling how many "poor" people have cell phones and computers, items one might consider luxuries...

In short, I'd rather live at the bottom of society today than live at the bottom of society many years ago....

on Mar 04, 2013

Seleuceia

I always get bothered when people throw out the "this person gets paid x times more than the average worker, but do they really work x times harder?"

Your salary is not a reflection of how hard you work, but rather your value to society (at least economically)...even if you did nothing but inherit one billion dollars and simply invest it (while spending your days on a beach in the Caribbean), the fact is that your one billion dollars had an immense value to society (primarily in whatever you invested it in)...

It may not seem fair, but it does make sense...and it works....

Personally, wealth inequality has always been irrelevant to me....what concerns me is what the living standards of the very bottom are like...even if wealth is far more concentrated today than it was in the past, the living standards of the poor (and those above) have improved...it is boggling how many "poor" people have cell phones and computers, items one might consider luxuries...

In short, I'd rather live at the bottom of society today than live at the bottom of society many years ago....

 

It used to be that running water was a luxury, or electricity.   Eventually luxuries become utilities/necessities.  That whole "poor people have it better than they used to argument" is one that I think is overdredged and needs to be retired.

 

 

 

 

on Mar 04, 2013

This is a subject I wander back to occasionally. Ultimately, everything that people get paid to do today will be done automatically. Traditionally, the increase in stuff generated by fewer people meant that more people were available to move to the next innovation. Fewer people and land needed to grow food meant more people to run the textile factories and more land to grow cotton. 

The question is, what is our next innovation that requires manpower to get it off the ground? 

All this improvements in efficiency means more stuff to go around, so even the poorest of people could have more than rich people have had in the past. If we can build a system where people have a good baseline of stuff, but are incentivized for being productive past that, then we should continue to have more innovation and more new things produced. One place our system currently falls down is that sometimes when you start making money and being productive, you lose the benefits you get for being poor. If these things either persisted, or slowly phased out instead, then it'd be closer to optimal. (No magic numbers where you make this amount, and suddenly you lose this other large amount. Instead, you make a dollar extra, you lose a quarter in benefits... You still end up better off.)

Some european countries give their people vouchers for an apartment regardless of how much they make. I'm not sure if this is really the best idea, but it's one way to make sure that you aren't getting incentives to be unproductive.

The posts to this are actually very interesting and have quite a few good points though. 

on Mar 04, 2013

I am not sure if our system works.

Let's say poor people own 20% of 1 trillion of all money today. If after 50 years they own 10% the standard of living is maintained only if wealth of a country grew to 2 trillions. If they have 5% it requires a country to produce 4 trillions etc.

Thus, if the richest of the country grow rich faster than overall country's wealth is growing, then everyone's life standard ultimately is going down.

 

And, in my opinion, before declaring any economical system stable i would like to see it working for couple centuries

 

on Mar 04, 2013

lulapilgrim
Look at all the people of the world. We are all different. There are differences, inequalities, if you will, in intelligence, talent, mentality, temperament, and so forth. Some people are comely, while others are plain, some tall, short, healthy, and sickly and so forth and so on. All of these result in a diversity of natural aptitudes, skills, or abilities.

Now, these inequalities among individuals give rise to inequalities in social life and conditions. And that's normal for not everyone can be a doctor, a lawyer, a professor otherwise who would plant the wheat and plow the fields for the food we need to eat? Or if we were all farmers, who would defend society? If all were in the military, who would look after commerce or build our homes and offices?

We can't get away from the fact that Society is formed by unequal individuals and yes, some people are more wealthy than others.

bpalczewski
That's not the point. The point is that one guy who earns as much as 100.000 people is really more intelligent, smart or talented than all of them together......

And finally, some inequality is actually not at all related to any inner talents, but pure luck. If you are born into family that owns billions, you have way more chance to be rich all your life than someone who is born totally poor.

Ya, I could have listed these instances of inequality that you mention, but I tried to cover all of them by writing "and so forth" and then sum up by saying, yes, some people are more wealthy than others. 

bpalczewski
Another point is, whether the general trend and movement of money can be reversed at all, or if money will always flow in one direction up to the point where 99% are starving and 1% owns all.

This describes Communist North Korea does it not? 

Draginol writes:

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.

 

This is the fallacy of Egalitarianism. It's the revolutionary Socialist solution to establish equality and for it to be successful the social scale would have to be abolished. People at this point become digits on statistical charts. 

 

 

 

 

 

on Mar 04, 2013

Seleuceia
.it is boggling how many "poor" people have cell phones and computers, items one might consider luxuries...

In short, I'd rather live at the bottom of society today than live at the bottom of society many years ago....

 

The "poor" in America are "wealthy" in comparison to the poor people in some other countries.

 

on Mar 04, 2013

Alstein
That whole "poor people have it better than they used to argument" is one that I think is overdredged and needs to be retired.

I don't see how you can pretend that reality is irrelevant.  When you get to any social stratum above the homeless, the standard of living (as traditionally defined) is in-arguably far better for all, poor or rich, in capitalist societies.  Some people define the 'standard' differently, however, and that may be what you mean.  It's a different discussion, though.