Income inequality has been spreading in a lot of countries, where a small elite group makes an enormous percentage of the nations income.

Unless you think it is coincidence that nations with a relatively equitable distribution of wealth — the Nordic countries, Denmark, Poland, France — fared better in the 2008-09 recession than those with largest disparities — the United States, Britain, Ireland, Spain, Russia — you have a reason to worry about an unbridgeable gap between the executive class and everyone else.

Every society in which a tiny elite has amassed a vastly disproportionate share of the wealth — from 16-century Spain to America in the 1920s — has lost its footing, leading to a either traumatic collapse or an attenuated decline.

Economists make arguments about the damage large income inequality causes.
From A Speech by the IMF's "Strauss Kahn"
Like the Great Depression before it, the Great Recession was preceded by an increase in the income share of the rich, a growing financial sector, and a major rise in debt. Inequality could also be behind the Chinese export-oriented model, since solid domestic demand needs a healthy middle class, while a low exchange rate goes hand-in-hand with a low real wage. Of course, the unbalanced pattern of growth had a variety of causes, but we would be foolish to ignore the distribution of wealth.Inequality goes against notions of fairness and solidarity, but it also threatens economic and social stability. This is especially true in poorer countries. Inequality can dampen economic opportunity, by preventing the poor from accessing the financing needed to pursue profitable investments. It can divert people toward unproductive activities. It can make countries more prone to adverse shocks—with fewer people able to dip into savings during bad times, the decline in growth is larger.
source: http://www.imf.org/external/np/speeches/2010/110110.htm

So based upon this...what arguments can be made about current republican policies like the Bush tax cuts, or repealing Obama care? Aren't they counter intuitive and simply exacerbating a problem that has proven to be catastrophic in the past?
Or what kind of rationale is there at this time for policies that will exacerbate income inequality?

and what of the depression of when Reagan took office? Looks like cherry picking some data to me, a simplistic socialist ploy.

and how has France fared better than the rest of the world? They too suffered recession, it's a global economy. Please Mr King of links provide some sources for your claims.

How would we accomplish this magic feat of stripping the rich? You must have noticed that it was Obama and the Democrats that extended the tax cuts for the wealthiest.

If it was in their best interest, why did they wait until after the election?

rickyp wrote:Income inequality has been spreading in a lot of countries, where a small elite group makes an enormous percentage of the nations income.

...

Every society in which a tiny elite has amassed a vastly disproportionate share of the wealth — from 16-century Spain to America in the 1920s — has lost its footing, leading to a either traumatic collapse or an attenuated decline.

On the first point, completely agreed, when compared with post-war western history. Not sure that when compared with a longer time-frame (feudalism or even robber baron industrialization) if this is true.

On the second point, I don't think we know that the two necessarily follow. In 1893 JD Rockerfeller made 93 million dollars in personal income (unadjusted dollars, in an era of no personal income tax). In an era when trusts and monopolies were legal and fashionable the wealth gleaned by a choice few was nearly unimaginable and American ascendancy was still nascent. It can be reasonably argued that it was only with this vast accumulation of capital in the hands of the few that capital intensive industrialization could occur when the public markets of the time were opaque and inefficient.

Some rightists take this argument further and will tell you that you don't want to tax people who are the "job creators" because it is a disincentive to creating jobs. This argument is complete bunk, and if you actually are a "job creator" you know why, though you may not be truthful about it.

The vast differences in wealth and income in America has some bizarre attributes. You have people who struggle to send their kids to college defending people who make tens of millions every year. You have a tax code that taxes individuals who struggle more than those who have vast amounts of wealth, and then you'll have the person who is struggling, getting screwed every day, saying that it's OK, I'll defend your right to completely screw me over.

I'll never understand it: why should money that I worked for be taxed at a much higher rate than money I did no work to get. It's just a crazy system. Why should hedge fund managers be able to pay themselves millions of dividends from their funds and pay 15% tax instead of taking it as wage and salary like everyone else? C R A Z Y. And don't even get me started on modern private equity model of getting rich by wrecking good companies. Absolutely insane.

What you don't want to do is create a disincentive to work. You don't want to create a disincentive to create, think, innovate, which makes sense in theory, but how it gets applied in practice is just becoming a bloodbath where most people are getting screwed.

I can agree with most of the above! Crippling taxes to ANY group (including the ultra wealthy) are not the answer. There needs to be found a middle ground that has not yet been settled upon. The rich should (and usually do) pay more, they have more money so they pay more taxes. But it's not so simple as they find ways to hide earnings while us average Joe's do not have that luxury. I agree the rich need to do more but the crippling percentages suggested by most of my liberal friends does nothing but create tremendous disincentives to make money and hire people and instead create reasons to further hide what they make. The rich are not evil, they are not always pure as the driven snow either, they are like the rest of us (with fatter wallets) socialism exists to a degree in every government but this kill the rich scheme is not the answer.

Geo
On the second point, I don't think we know that the two necessarily follow. In 1893 JD Rockerfeller made 93 million dollars in personal income (unadjusted dollars, in an era of no personal income tax).

And Bill Gates made more in certain years in the late 80s. So?
Income disparity reached its nadir in the US in about 1928. What followed?

rickyp wrote:Geo
And Bill Gates made more in certain years in the late 80s. So?
Income disparity reached its nadir in the US in about 1928. What followed?

Is that right? I don't have any data on this, but I would have guessed that there was probably greater income inequality in the States in the 1890s before the automobile, before the five dollar a day wage from Henry Ford, before unions, before TR broke up the trusts, etc. Even if that weren't true, however, you still can't say the cause of the great depression is income inequality.

I think the more telling point in your post, however, is this: What do you think Bill Gates made in the 80s? Most of his wealth is in appreciated Microsoft stock he's had since he founded the company, which has probably never been declared as income and on which he has never paid any taxes on. Nothing. Not until it gets sold, and when it gets sold he pays 15%, which is the same rate on the wages of someone making 30k a year. (Actually less, if the person making 30k a year is making their money from a job.) Microsoft pays a dividend now, so he's paying 15% income tax on dividends, but still a couple making 75k a year is probably paying a larger percentage of their income in taxes than Bill Gates does. And that is C R A Z Y.

Even if that weren't true, however, you still can't say the cause of the great depression is income inequality

.

No and I shouldn't have implied that... Actually it was a collapse caused by deregulating the financial sector which had allowed a huge unsustainable bubble of debt and false wealth to be created. In other words much the same thing as 2008. But the income disparity in the US now is more than 1928 which was the previous high.

The IMF Speaker I linked you to takes the position that income inequality, where a small elite group holds too much wealth distorts the economy. And thats when the social ills start to unfold society.
We can talk about forms of taxation and their various effects. They are after all "income redistribution". Personnally I think income is income, with the exception of capital gains. I have a philosophical problem with taxing capital gains. I would like to see a VAT on all stock transactions however. It might dampen worthless speculative trading and force companies to create dividends to gain investors.. And in that way I suppose capital gains could be taxed as a part of the strock transaction. ....
Generally rich people in the States aren't paying their way. Historically the highest tax bracket was 93% (in the fifties) and it wasn't till Reagan that taxes really started to peel away from the rich. And thats when the first post war deficits started. And grew. .. Bushes tax cuts in 2000 are the source of half(?) the budget deficit in his period. The unfunded wars the other...
But the isue is, if keeping taxes low for the wealthy doesn't create jobs (see Bush years and tax cuts) and creates income disparity that has been shown to, if not cause, correlate to the decline of societies....why continue to suport them? Surely the role of government is to provide a system that ensures the security of society and if income disparity is as corrosive as the stats show. (Crime, dislocation, health)

Here's something to consider. Mr. Gates is currently rallying like minded billionares to give away their wealth. They are choosing various philanthropic areas and supporting them with most of their accumulated wealth. Good for them.
But the question it begs is, if all they do is accumulate it and then give it away, whats the point? They seem to be motivated to achieve despite having more money then they can spend (or even invest it seems). If they had been taxed of large portions of the wealth as income when it wsa earned, they'd have less to give away today - but govenrment coffers might have been fuller, back in the day. Deficits might have been smaller. Overall financial health of the country might be better.
And, since they have so much money they can now give most of it away.....

I think geojanes made a good point which does a great deal to explain why income inequality is basically the end point of any society. Progress is made mostly through inequality. Or perhaps inequality results from progress, I'm not sure which way is a more apt description. People like Rockefeller wouldn't have been mega rich if they hadn't increased the efficiency of the economy and done a huge amount to make America the leader in the world economy and as a result, the world hegemon. Gates wouldn't be rich if he didn't innovate a revolutionary and paradigm changing new product. To a very large extent they deserve that wealth, because they created it. And without that, the standard of living in the world would be lower.

And mind you, wealth redistribution is all the more egregious because the non-super-rich aren't any worse off than they were; wage increases have basically mirrored cost of living increases. I think there is a much more valid point to be made in defense of wealth redistribution if the rich are profiting at the expense of the poor. The rich are doing what is in their best interest; profiting while giving the poor enough to maintain the status quo.

And as for hedge fund managers and the like... well, they get paid commensurately with how much they make their clients. Its silly to say that because they don't produce anything they don't deserve huge paychecks; they "produce" vast amounts of wealth, admittedly for the wealthy (which is a separate argument to discuss, I suppose), and they take a cut.

Ozymandias wrote:People like Rockefeller wouldn't have been mega rich if they hadn't increased the efficiency of the economy and done a huge amount to make America the leader in the world economy and as a result, the world hegemon.

Hold on a minute. Clearly, the Standard Oil monopoly, which directly led to the Sherman anti-trust act, did NOT make the economy more efficient. Standard Oil developed ruthless tactics to wipe out its competition so that it could charge what it wanted for its products. Competition would have made the economy more efficient, but Standard made sure there was none. The monopoly was good for JD Rockefeller and the shareholders of Standard Oil, not the American economy.

What I was trying to get at though, was what we now call capital markets were opaque in the 1880s and by putting immense wealth in the hands of a few people, those few people could, by themselves, take on capital intensive industrialization. Given a choice, however, open, transparent, and efficient capital markets make for a much more efficient economy.

geo

Given a choice, however, open, transparent, and efficient capital markets make for a much more efficient economy.

Agreed. The whole recent financial collapse was fueled in large part by the trading of derivatives so complex that most people buying them had no real idea about the actual underpinnings...They were neitehr transparent, nor ultimately efficent. Those who traded them and became wealthy were clever, but produced nothing. Those who traded them and lost most everything were left holding the bag....and also never created anything.

ozzy

Progress is made mostly through inequality. Or perhaps inequality results from progress

And where in history can you point to a time where great inequality produced great progress. The feudal dark ages?
Innovation and industry are spurred by societies with a healthy functioning middle class (or merchant class). In periods of great inequality its generally the middle class which shrinks in numbers and import.
The enlightenment and the mercantile periods were all products of the new and burgeoning trading and producing classes.
As Geo rightly points out, a small elite super rich are usually uninterested in changing the status quo that has made them so wealthy. And being super wealthy allows for them to be comfortable in any world... (see feudal dark ages)

ozzy

Gates wouldn't be rich if he didn't innovate a revolutionary and paradigm changing new product.

He also wouldn't be rich if the US government hadn't funded the early development of computers (necessary for both ICBM and the space program). His business was then built upon the governments selection of IBM as the lead innovator, and then IBM chose his operating system...
Besides...Bill didn't decide to create software in order to become wealthy. He did it becasue it intrigued him and because he saw a way to create something important, substantial and intrinsically rewarding. The wealth came as a result of the passion. The passion wasn't driven by the desire for great wealth.
When he began his business the top tax rate was 78%...that didn't seem to stop him from innovating.
And I'm certain that if his income tax rate wasn't cut by george Bush in 2000, he still would have continued to run his company. He might have accumulated several hundred millions less from 2000 to 2008 ....but he'd hardly have noticed. After all, he's now giving most of it away. (His big mission now is polio eradication.)

My point is that you can never sustain a middle class. History shows nothing if not that throgh intelligence, inheritance, and work ethos, wealth will accumulate in the hands of a few. Thus, progress leads to wealth disparity.

And your point about wealth accumulation driving progress in feudal times is an interesting one. In a period where personal wealth and public expenditure were the same, all cultural and scientific growth had to be the resukt of wealthy individuals having disposable wealth, and in theory, the more they had, the more they could devote to non essential investments. The difference today is that govt provides most of that capital, so really, progress isn't because of a middle class, but because government has the excess revenue to throw billions into space flight, defense contracting, disease cures, etc. So progress is best served by what increases governmental wealth and disposable revenue, and if the correllated growth of us national gdp and wealth disparity is any indication, it seems that the rise of the mega rich is leading, if indirectly, to progress in a whole host of human endeavors.

ozzy

My point is that you can never sustain a middle class. History shows nothing if not that throgh intelligence, inheritance, and work ethos, wealth will accumulate in the hands of a few. Thus, progress leads to wealth disparity.

You're absolutely wrong. Maybe re read the link from the first post. When wealth accumulates in the fewest hands, development slows.
There's a reason the dark ages are called the dark ages. Advancement of civilization slowed for hundreds of years.. It may be true that what advancements there were "sponsored" by the few wealthy. However, education,was restricted, science knowledge actually went backwards in Europe, and mans average life span decreased. (from the Greek/Roman periods )
.It was only the arrival of a merchant class and the spreading of wealth through society at large that advancements were made.

ozzy

The difference today is that govt provides most of that capital, so really, progress isn't because of a middle class, but because government has the excess revenue to throw billions into space flight, defense contracting, disease cures, etc

Without an educated, vibrant middle class governments are not held to account. Governments are the tool through which the middle class (and aspiring working and poor) manage the resources of their society for the betterment of society. Rich people don't need governments so much...although they reap the benefits of a comfortable society with a good infrastructure and able labour force and talent pool from which they can find resources for their efforts... But they do not NEED government in the way the middle and lower class does..
Think back again to feudal times. The rich WERE the government.