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 5)
on Mar 07, 2013

Frogboy
Their standard of livings are far below that of the United States. But they have less wealth inequality.

Not necessarily true. Look at the Nordic Countries for instance. There are several countries with lower inequality and comparable or even higher standards of living then the US. However the success of these countries largely depends on other factors that are very hard for other countries to copy. You can't just make direct comparisons between countries, the US is very different from say Sweden. Interestingly enough the European powerhouse Germany has no minimum wage.

Of course you can also look at Greece and France, which are falling apart and face high unemployment due to super high minimum wages and taxes, which make them horribly uncompetitive. While debt was cheap they could make up for horrible productivity through subsidies but that is obviously biting them now.

Alstein
The standard of living isn't that much lower in Western Europe compared to the US, and you also have to look at the value of the safety nets.

It is now. Spain, Greece, France, and Italy all face unemployment problems ans austerity has cut into their benefits.

on Mar 07, 2013

Island Dog
Using the word "adjusting" instead of "raising" doesn't change a thing.  Business owners have been very vocal that a forced wage raise will hurt their businesses, which are already hurting in this abysmal economy.

And on the other side of the argument there are business that are very vocally in support of wage increases.

The CEO of Costco is a good example of this.

The company I work for wanted me to hire a Janitor to help the cleaning crew with cleaning the building. They wanted us to look for someone to be hired at minimum wage. In CT that's $8.25 an hour. As you can imagine most of the applicants were temporary workers and/or workers who struggled as being recent immigrants. One of the applicants was from Honduras, he hadn't worked in a few years, and quite frankly he looked like hell. Against my better judgement I hired him. He worked harder than all the lazy college students we had working here. I knew however no matter how hard he worked he would never make ends meet at certainly would never leave this job due to his age (38). I helped him get into a local community college and I've managed to have some of the staff here chip in to help his family out. In about a year and some change he will be able to work at least as a technician. Just as a reference i'm a R.R.A.

And if you can't tell the difference between raising and adjusting a number against inflation, I'd suggest giving it a while to sink in.

@Frogboy You should probably look at the Germanic/ Nordic nations.

on Mar 07, 2013

Of course the CEO of Costco wants higher minimum wages.  Costco pays their employees more than any of their competitors do to avoid strikes and further unionization.  The faster they jack up the minimum wage, the longer that company can stay afloat as they continually pay their employees more and more of the revenue each year.

 

There are plenty of valid, self serving reasons for various entities to want to force other companies to pay their employees more.  No one at Costco is making minimum wage, so the change would only help them.  They have one of the slimmest profit margins in the industry, and it will only get slimmer over time.  I give them ten years till they've gone the way of GMC and started losing money on their employees.

on Mar 07, 2013

klaxton499

Dr. Guy,

You bring up an interesting point for discussion.  However, with all due respect, I think the presentation doesn't assume a static pie.  He speaks in percentages.  Thus, enlarging the pie doesn't necessarily elevate the bottom quarter of the population.  This is the argument the presenter is trying to make.  Growth alone can't solve this issue.

Klaxton - I understand the percentages, but it masks my point.   Clearly if everyone is living fine, but some are just super rich, what is the problem?  The poor in this country are richer than 75% of the world's population.  They have cars, TVs, Cell phones and everything that is needed to live a comfortable life.  So why would anyone care if Bill Gates has billions?  He cannot eat more than you. In other words, why care?  The reason is simple.  The politics of envy.  I do not own a yacht.  Can everyone?  no.  But the chart wants you to think that since the super rich do, you should too.  And that is my problem with it.  it does not address the fact that we can have super rich, and it does not affect any of the rest of us.

on Mar 07, 2013

Even better, some schmuck gets paid way more than he should to drive a yatch around and take care of it instead of having a real job.

on Mar 07, 2013

psychoak

Even better, some schmuck gets paid way more than he should to drive a yatch around and take care of it instead of having a real job.

now, now, do not bust on the owners nephew.

on Mar 07, 2013

psychoak
Even better, some schmuck gets paid way more than he should to drive a yatch around and take care of it instead of having a real job.

What's a 'yatch'? ....

on Mar 07, 2013



Quoting psychoak, reply 65Even better, some schmuck gets paid way more than he should to drive a yatch around and take care of it instead of having a real job.

What's a 'yatch'? ....

 

I think it's a primitive boat used by people living in hatched thuts.

on Mar 07, 2013

I blame whoever the asshole is that came up with that batshit crazy spelling in the first place.

on Mar 07, 2013

psychoak
I blame whoever the asshole is that came up with that batshit crazy spelling in the first place.

OK...blame the Dutch...

on Mar 07, 2013

Exactly, why do they have to put ch in everything!

 

on Mar 07, 2013

pucht*

on Mar 07, 2013

Alstein


 

The standard of living isn't that much lower in Western Europe compared to the US, and you also have to look at the value of the safety nets.

 

At a certain point, money does become less valuable.

Having traveled to Western Europe considerably over the years, the difference in day to day life is pretty significant. It's like going back in time.  I don't mean this as a criticism of Europe, I greatly appreciate the cultural elements of the UK, Germany, Belgium, etc.  However, to suggest that the middle class standard of living there is similar to that in the United States is akin to saying that not much has changed for people living in the US in the last 20 years.  

There are trade-offs to any system. If you don't like wealth inequality, it's important to recognize what causes it in the first place. Too often the topic gets politicized and used as a blunt instrument to try to advocate some new policy.  

Inequality in result ultimately comes from how much interference there is from the state in the economic lives of its citizens. Too little interference by the state and one mega corporation controls it all while we live in our own sewage.  Too much interference leads to North Korean type result.  Finding the happy medium is a real challenge and one each society has to find on their own.

Personally, I think we have allowed corrupt politicians to manipulate the gullible into demanding regulation that, in effect, creates a windfall for the connected. It perverts the concept of equal opportunity when the state gets to effectively pick winners and losers.  I am a great admirer of Bill Gates but one should seriously look at how Microsoft came into existence and the insane advantages that he had that most people would only dream of.

 

on Mar 08, 2013

I don't think there is such a thing as too much automation. When software/hardware development gets its act together like the grocery store systems, where efficiency is ratcheted up to the point all the parts fit together and the practices fine-tuned such that human effort waste is minimized, the progress will build on itself to such a rate that there will not be enough jobs for the population. This is especially true if some profound innovation in machine learning occurs. 

This won't be bad at all, more wealth will exist than ever before. But we will have to change mindsets which once guarded against people not pulling their weight in society and distribute the technological abundance. This is a ways off, but that is the way the winds are blowing. 

Software development is in my opinion the place which looks the least like the grocery store system. The problems are as complex as the human mind can handle and not enough is known about how to organize effort to minimize wasted effort. It will just take time to evolve. The problem is it takes smart people to even do the clerk work, nobody can figure out yet how to mogul the entire process to buzz with assembly line efficiency. Software is used to solve problems everywhere else too, so if the productivity here explodes, it will explode everywhere else too.

I haven't said much except I believe the time will come when the people who don't like the idea of "stealing from one group to hand to another" will see it as a wonderful necessity because there is so much to go around. Maybe this is the singularity

on Mar 09, 2013

Frogboy

 

Quoting Lord Xia, reply 53
Well, what other modern nations in the world have a high minimum wage and high taxes for the top earners?  What is their economy like? Level of unemployment?  Are the people in those nations suffering?  

Their standard of livings are far below that of the United States. But they have less wealth inequality. 

If getting rid of wealth inequality is the goal, there are ways to do that- you can literally just take from one group to give to another to give the illusion of equality. But in the long-run, you simply equalize the misery.

I prefer taxes to regulation because regulation leads to gamification. [/quote]

 

And taxes don't lead to gamification?  Look at all the massive loopholes pols and businesses use.  Look at the corporate welfare governments get shaken down for by corporations looking to move into an area.

 

I would support a stripped-down tax code that eliminated almost all deductions , and regulations should make sense.   That said, a political process is going to have politics.  No way around that.

 

 

 

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