Tuesday, April 19, 2011

Significant Increases in Income Inequality for MLB

New York Yankees Salaries, 1988 vs. 2011

 Salaries19881988 Salaries in 2011 Dollars     2011
Mean$700,400$1,323,000$6,756,300
Median$480,000$906,700$2,100,000
High$2,000,000$3,778,000$32,000,000
Low$67,000$126,560$414,000
Ratio High/Low29.929.977.3
Gini Coefficient0.4590.636
Share of Payroll
Top 10%28.5%39.2%
Top 20%49.7%61.9%
Top 50%80.1%93.9%

The salary data displayed in the table above for the New York Yankees from 1988 and 2011 are from the USA Today Salaries Database.  By every possible measure (ratio of high:low salary, Gini coefficient, and shares of total payroll going to the  top 10%, 20% and 50% of players) income inequality has increased significantly for the baseball players employed by the New York Yankees between 1988 and 2011, and I suspect these huge increases in income inequality would be the same for other MLB teams, and for all players in MLB as a group.  And yet the typical pro baseball player is doing much better today than in 1988 because the mean and median salaries have increased dramatically, as has the salary of the lowest-paid Yankee, despite the huge increase in income inequality.  

What can we learn from this? 

The lesson from MLB  is that rising income inequality over time, whether it’s in professional sports or in society as a whole, can be a natural and expected outcome of competitive labor markets and the expanded opportunities that come from larger and increasingly competitive global markets. And those same competitive forces that lead to greater income inequality in both the MLB and the overall economy over time also usually help to make all MLB players and all Americans better off year after year, just not at exactly the same rate.

62 Comments:

At 4/19/2011 11:22 PM, Blogger Jason said...

But that's the point - not all Americans are better off. Conservatives should get their head out of the sand on this issue and really lead on it. As long as the middle class is not getting ahead (as happened in the last ten years,) then people who raise the issue of inequality appear to have a valid point.

 
At 4/20/2011 2:50 AM, Blogger : said...

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At 4/20/2011 3:28 AM, OpenID Sprewell said...

While I agree with the broader point of the post, that all are better off, I don't think the underlying mechanism is sustainable. The reason MLB players did so well is that the TV money really exploded with the rise of cable, bringing more exposure and upping all the other revenue streams like merchandising too. However, that same tech brings competitive pressure, look at the rise of alternative sports like the X-games on cable TV. Now extrapolate that out on the internet and the major sports are fucked, new internet sports will soon put them out of business. This is broadly applicable because Katie Couric now makes $15 million/year to read the news and some newspaper cartoonists and columnists make a ton of money: all will be decimated by new internet-based businesses.

 
At 4/20/2011 4:06 AM, Blogger Hydra said...

In 2000 the bottom half of the income ladder controlled 8.7% of the nations financial wealth. By 2007 they controlled only 7%.

The total financial wealth went up during that time and the wealthiest 5% captured more than half of the growth.

 
At 4/20/2011 6:03 AM, OpenID Sprewell said...

Hydra, it's actually the bottom 80%, not the bottom half (p. 44). That raises the question: how much of the financial wealth do you expect the bottom 80% to control? These are people who don't save and don't invest smartly, should they be rewarded for that? Would you rather have 8.7% of $350k, the mean financial wealth in 2001, or 7% of $400k, the mean in 2007? Most would choose the latter. I'll note that the countries that implement the kind of "redistributionist" govt money grabs that people like you usually call for did not grow their overall wealth anywhere near as much during those same decades that the paper studies. I wonder if giving the govt all that power to "redistribute" and otherwise fuck around with the economy had anything to do with their ending up with less than we did. ;)

 
At 4/20/2011 6:25 AM, OpenID Sprewell said...

Whoops, I fucked up, 8.7% of $350k is actually more, should have done the math instead of guesstimating before posting. Still, it's only an 8% downtrend in their wealth and as I mentioned earlier, big changes are coming that are about to shake up the whole game.

 
At 4/20/2011 9:08 AM, Blogger morganovich said...

"In 2000 the bottom half of the income ladder controlled 8.7% of the nations financial wealth. By 2007 they controlled only 7%."

but that's not really the point. the point is "was the 7% in 2007 bigger than the 8.7% in 2000". if overall wealth was up by more than about 20%, then it was.

wealth tends to work like that.

if you have a $1 million house and i have a $10 million house and the real estate market for each goes up 20%, you gain $200k and i gain $2million.

you got only 9% of the gains, but you are still better off.

would you rather get $100k and have me get $500k? then you got 17% of the gains, but in absolute terms, you are worse off that you were getting 9%.

this is a fundamental economic trade off: you either get high growth and less equality, or more equality and less growth. in the long run, growing the pie always outperforms slicing it more evenly.

that's why the US poor as about as well off as the swedish middle class.

http://www.coyoteblog.com/coyote_blog/2007/05/hows_that_welfa.html

 
At 4/20/2011 9:08 AM, Blogger morganovich said...

the US poor are as well off as europe's poor (and far better off on many measures)

http://www.coyoteblog.com/photos/uncategorized/2007/08/30/study2.gif

it's just that our rich are richer.

our poor live in bigger spaces and have more luxuries than the euro middle class.

http://coyote-blog.com/wordpress/wp-content/uploads/2010/01/EUUSAHOUSEHOLDS.jpg

http://mjperry.blogspot.com/2010/01/eu-vs-usa-part-iv.html

that's because over time, growth swamps redistribution in terms of providing well being for everyone, even the poor.

that's why on a per capita GDP basis, germany looks like alabama.

 
At 4/20/2011 9:17 AM, Blogger morganovich said...

jason-

since when is it the job of government to makes sure everyone is getting ahead?

that strikes me as incredibly undesirable.

the job of government is to protect rights and maintain law, order, and security.

succeeding of failing is up to you.

when you get them into the wealth redistribution business and create a governmental role of "success guarantor" you get stagnant economies like europe with far lower income mobility than in the US.

that is not a desirable outcome.

 
At 4/20/2011 9:41 AM, Blogger morganovich said...

jason-

upon reflection, it occurred to me that i may be putting words in your mouth.

if you point was that government has been interfering too much in the economy and creating disaster upon disaster with over regulation, taxation, redistributive programs like the CRA, and monetary policy so loose that only those who time bubbles well are making any money, then i agree with you.

but all that said, i still argue that putting the government in charge of equality of outcomes is and extremely pernicious act that will always do more harm than good.

 
At 4/20/2011 10:04 AM, Blogger MaggotAtBroad&Wall said...

The wonderful Margaret Thatcher sets a British socialist straight when he complains about income inequality when she correctly tells him, "he'd rather the poor be poorer, provided the rich are less rich".

http://www.youtube.com/watch?v=okHGCz6xxiw

 
At 4/20/2011 10:26 AM, Blogger morganovich said...

i miss maggie.

"the problem with socialism is eventually you run out of other people's money".

 
At 4/20/2011 10:57 AM, Blogger Benjamin said...

Still, baseball has been ruined by free agency and the designated hitter.

It is a rare example where free enterprise has contributed to lower product quality and higher prices.

Well--actually, MLB is not free enterprise. It is a series of regional monopolies, subsidized by local governments at taxpayer expense. George Bu$h jr. actually used eminent domain to push landowners off of their propperty, seize it, and turn it into a taxpayer-financed baseball stadium.

Socialize the costs and risks, privatize the gain.

Actualy, once you understand the finances of baseball, ballplayer salaries begin to look spooky, the result of a perverted, cartelized system.

 
At 4/20/2011 12:58 PM, Blogger Hydra said...

that's because over time, growth swamps redistribution in terms of providing well being for everyone, even the poor.

================================

I hope you are right.





Would you rather have 8.7% of $350k, the mean financial wealth in 2001, or 7% of $400k, the mean in 2007?

=================================

In my comment I pointed out that growth went up.


The bottom 50% does not get the mean financial wealth, to begin with, so your argument is flawed, but I accept your point.

But, whatever the total financial wealth was, their share declined from 8.&% to almost a 20% decline. If they contineu a straight line decline, 35 years they will be at zero. If they continue to lose their share at the same rate, then they will be effectively at zero in a hundred years.

Would you rather have 7% of 400k or 0% of 4 million k?.


Obviously, that cannot happen: it is a reductio ad absurdum argument.

Therefore, SOMETHING is going to happen to intervene in this trend.
The rate of redistribution will change, which implies that the argument that growth always swamps redistribution isn't (entirely) correct.

 
At 4/20/2011 1:13 PM, Blogger Mike said...

Weird, I was just thinking about this last night. I think the lesson from this is much more true in the real world than it is in baseball. In baseball, the bar for success is making the playoffs or winning the world series...a team must have a legitimate shot of winning it all to be considered successful.



There are teams that have absolutely no chance, year after year...much of that can be traced back to bad organizations, but when there are single players on the Yankees that make more than the entire Royals payroll, the quality of leadership becomes less important. MLB has taken the approach of having Harlem Globetrotters in some markets and Washington Generals in others - and the attendance and TV ratings have taken a massive dump in the last 2 decades. I honestly can't believe that anybody outside of the big markets wastes their time/money on this sham.



(Side note: here in Houston, they claimed a sellout on opening day. I walked by the ballpark on my way to dinner, an hour after first pitch, and there was NOBODY in the upper deck..10,000 no-shows?)



My point is: In the real world, everybody may be better off year after year at different rates, but the bottom isn't forced to compete with the top, one-on-one, day after day. Real world success is defined by the participant and not by comparison to Bill Gates. The cold, cruel world is more fair than baseball.

 
At 4/20/2011 2:04 PM, Blogger Hydra said...

Hydra, it's actually the bottom 80%, not the bottom half (p. 44). That raises the question: how much of the financial wealth do you expect the bottom 80% to control?

===============================

My data is from a different source.

The bottom 40% control only 0.3% of the financial wealth.

If they (the bottom half) went from 8.7% of the pie to 7% of the (bigger) pie, that sounds like almost 20% reduction.

But you are right: the question is how much bigger is the pie? Even so, they cannot get a smaller and smaller slice forever, and still be ahead.

Financial wealth is essentially the money that you can use to make more wealth. If the bottom 40% control only 0.3% of the financial wealth,then they are already trying to multiply by zero, pretty much.

It is hard to argue that 40% of the population contributes so little to the overall growth in financial wealth. Is 40% of the population essentially worthless in advancing the wealth of the nation? Or is it that the work they do mainly advances the financial wealth of their employers?

 
At 4/20/2011 3:07 PM, Blogger morganovich said...

"But, whatever the total financial wealth was, their share declined from 8.&% to almost a 20% decline. If they contineu a straight line decline, 35 years they will be at zero. If they continue to lose their share at the same rate, then they will be effectively at zero in a hundred years."

your math here is bad.

if you lose 20% share every year FOREVER you will never go to zero. that's not how %'s work.

if you net wealth keeps going up, you are getting richer. you can't spend or live in your "share" you spend and live in your actual wealth.

if gains are as concentrated as you claim, then they are not going to affect prices much, so the "i won't be able to afford stuff" argument is not an issue.

if you are getting richer, how does my getting richer faster impoverish you?

you get 100k, i get a million, but so what? you are still richer. we're not bidding on the same cars or wine or homes. the price of a bentley has no effect on the price of an audi or a ford.

this just sounds like class envy to me.

"those guys are getting richer than i am, they must be cheating. someone should stop them."

what is it you are proposing here?

 
At 4/20/2011 3:16 PM, Blogger morganovich said...

"It is hard to argue that 40% of the population contributes so little to the overall growth in financial wealth. Is 40% of the population essentially worthless in advancing the wealth of the nation? Or is it that the work they do mainly advances the financial wealth of their employers?"

this is not a valid argument.

production and savings are not the same thing.

if i earn $700k a year and spend $750k on a lavish lifestyle, i am not accumulating wealth. but that says nothing about whether or not i am underpaid.

what you are really discovering is that savings rates are low.

if i pay you $100k to work for me and you save zero and the business i run makes $50k and i save 10, then i am getting wealthier and you are not even though you make more money than i do.

 
At 4/20/2011 3:20 PM, Blogger morganovich said...

"But you are right: the question is how much bigger is the pie? Even so, they cannot get a smaller and smaller slice forever, and still be ahead."

this is demonstrably mathematically untrue.

imagine a pie of size 100.

your share is 10. (10%)

let's say the pie grows to 115 and your share is now 11. (9.56%)

no matter how many times you repeat this and no matter how small your share gets, you will still have more pie every time.

so long as the growth of the pie exceeds the shrinkage in your share (as it does in all the examples you have cited) you can do this forever and always be ahead.

 
At 4/21/2011 12:47 AM, Blogger Hydra said...

"But you are right: the question is how much bigger is the pie? Even so, they cannot get a smaller and smaller slice forever, and still be ahead."

===============================

I thought it was obvious I was speaking in per cent.

Start with a pie 100. Your sahre is 8.7 % in 2000. in 2008 the pie has grown 3% a year, and your share of the pie is now 7%.

It does not matter how big the pie gets, your share eventually goes to zero, either linearly (1.7% every eight years) or exponentially (1.7% less than you had eight years previous).


Obviously, that cannot happen, so something is going to have to change concerning our wealth distribution.

It is like spots on a balloon. you blow the ballon up, the spots get farther apart. I get it.

The problem is the spots are not getting farther apart equally, and eventually the balloon has to fail.

What you say is true as long as the rate of growth is greater that the rate of change in inequality, but there is no evidence that has to be true.

It apparently always has been, but does not have to be.

 
At 4/21/2011 3:08 AM, Blogger Ron H. said...

"I thought it was obvious I was speaking in per cent."

But you weren't. Let me try to help you with this just one time. Beyond that, it's pointless.

You should understand that morganovich is VERY good with numbers, whereas you are not. He knows EXACTLY what he is talking about, and you do not. He is patiently trying to explain your errors to you, and you're not getting it, and are embarassing yourself more with each comment.

I will use your example, and try to explain to you what you wrote.

"Start with a pie 100. Your sahre is 8.7 % in 2000. in 2008 the pie has grown 3% a year, and your share of the pie is now 7%."

Perhaps using some actual unit of measure would help. Let's use ounces. If you prefer something else, just retype my words and substitute your preference.

Here we go; just take it slowly so you feel comfortable with it:

In 2000 there is a 100oz pie. your share is 8.7%, or 8.7oz. In 2008 (8 years) the pie has grown at a rate of 3% a year to 126.68oz. OK so far? Your share, as a percentage, has decreased to 7% of the 126.68oz pie, or 8.87oz. this is an approximate 20% decrease in your share of the pie, but you actually have 0.17oz more than you did in 2000. So, although it's a very small amount, you have MORE PIE than you did before.

"It does not matter how big the pie gets, your share eventually goes to zero, either linearly (1.7% every eight years) or exponentially (1.7% less than you had eight years previous)."

No, wrong again. loosing 1.7% of the original pie every 8 years is not linear, it is exponential. This would be an ever larger percentage decrease in total pie share. Thus, between 2000 and 2008 you would lose 20% of your share of the total pie. Between 2008 and 2016 you would lose approximately 24%. Between 2016 and 2024, 32%. At this ever increasing rate of loss, your share would get really small, but could never reach zero.

In your example, I think you really meant to say that your share decreased by 20% with each iteration. That would make more sense.

 
At 4/21/2011 3:12 AM, Blogger Ron H. said...

"Obviously, that cannot happen, so something is going to have to change concerning our wealth distribution."

What needs to change is your understanding of math, especially percentages. That continues to be a stumbling block for you.

 
At 4/21/2011 9:47 AM, Blogger morganovich said...

hdra-

your linear extrapolation is meaningless.

that is not how this sort of math works. you do not appear to understand percentages at all.

if you have 100 and grow by 10%/year for 2 years, you have 121, not 120. conversely, if you have 100 and contract by 10%/year for 2 years, you have 81, not 80.

there is no way to get to zero by losing 10% a year. ever.

go back and read my example from 3.20. it's easily possible to get richer every year and have you % of the overall pie shrink. all it takes if for the rate of growth of the pie to exceed the rate of growth of your wealth (and for both to be positive)

if you get 3% richer every year and the pool of wealth goes up by 5%, you will be richer every year with a lower % of the pie.

there is absolutely nothing about this that even points toward, much less guarantees, some kind of failure.

 
At 4/21/2011 9:51 AM, Blogger morganovich said...

also:

ron-

i think you got the decreasing percentages backwards. a 20% decline becomes less and less meaningful each period.

eg.

100-20% = 80 (loss of 20)
80-20% = 64 (loss of 16) now down 36% from start
64-20% = 51 (loss of 13) now down 49% from start.

the math you laid out works for gains, but not losses.

 
At 4/21/2011 11:19 AM, Blogger Hydra said...

Ok, the pie is bigger, but there are also more people eating it. Growth would have to exceed the decline in percentage of retained income and the percent of population increase in the group.

 
At 4/21/2011 11:35 AM, Blogger morganovich said...

hydra-

you are also looking at this too simplistically.

you can't just break it up into deciles. every time someone turns 16 and gets included in these numbers, he/she tends to join the very bottom. very few people have much wealth as they start work.

this is always going to keep the bottom end anchored at a very low number. how many 23 year olds have much savings?

what matters is that they accumulate them over time. then, at some point, the retire or whatever and begin spending it, sliding them back down again.

it's a lifecycle thing.

42% of the us population is under 30 (with 34% under 25). that group is ALWAYS going to have negligible savings.

you just have not had much time to save money and accumulate wealth before about 30.

 
At 4/21/2011 11:36 AM, Blogger Hydra said...

I used both the linear extrapolation and the declining balance method you describe.

True enough, if you walk halfway to the wall in each iteration, you will never reach the wall. But from a practical stand point you will soon be so close that it makes no difference.

And as the limit of zero is approached on one end, the growth that is required to support your position approaches infinity on the other end.

If I maintain the same personal space as I approach ( or am pushed against) the wall, my space becomes more and more linear, until my "space" approaches zero thickness and infinite length.

This is not a very useful "space".

It is a similar problem for the bottom 40%. They get squeezed and squeezed until there is nothing to work with.

Ultimately that is unacceptable, and SOME kind of wealth transfer will happen. It is only a question of whether it will be voluntary, or not.

 
At 4/21/2011 11:36 AM, Blogger morganovich said...

hydra-

"Growth would have to exceed the decline in percentage of retained income and the percent of population increase in the group."

and it has. so what is your point?

 
At 4/21/2011 11:41 AM, Blogger Hydra said...

I agree with morganovich; govts job is to protect rights, success If failure is up to you.

 
At 4/21/2011 11:42 AM, Blogger morganovich said...

you cannot use linear extrapolation at all in this situation.

this is always going to be percentage based.

if you lose 20% every 10 years, you'd still have 14% of what you started with after 100 years.

your math is way, way off.

further, keep in mind that you are talking about share, not wealth. wealth is increasing in absolute terms for these people.

they were richer after 10 years in absolute terms. they just did not gain as much as some others.

 
At 4/21/2011 11:47 AM, Blogger Hydra said...

And it has.

How do we know that? I tried to find the data, and could not.

The inequality alarmists are careful not to talk about the larger pie. The opposition says it has always been this way, so it is a given. As far as I can see there is no cause and effect, and therefore no reason that this apparent natural law is immutable.

 
At 4/21/2011 11:51 AM, Blogger Hydra said...

With either extrapolation you approach zero.

We cannot tell from this data whether they are losing 1.7% of the total every eight years, or 20% of their previous holdings, so we cannot tell which extrapolation applies.

 
At 4/21/2011 1:18 PM, Blogger Ron H. said...

morganovich

"i think you got the decreasing percentages backwards. a 20% decline becomes less and less meaningful each period.

eg.

100-20% = 80 (loss of 20)
80-20% = 64 (loss of 16) now down 36% from start
64-20% = 51 (loss of 13) now down 49% from start.
"

I agree, and that is how I understand it. I'm sorry if I wasn't clear. I know my comment was rather long & wordy and included generous helpings of snark.

In my last paragraph I recommended using a 20% decrease of his share of the pie for each iteration, which would produce the results you show.

But, using Hydra's numbers, a different picture emerges. Hydra claims - correctly - that his lesser share of the new pie is 1.7% of the total pie. (8.7% - 7.0% = 1.7%) He then claims that he will lose 1.7% of the total pie with each iteration, although he doesn't bother to explain why he believes that to be true. And, it's not clear whether he means 1.7% of the new, larger pie or of the original pie. If the latter, then he is claiming a loss of a fixed number of dollers - or ounces - each time. A strange idea.

If he means 1.7% of the new, larger pie, then this will represent a larger percentage of his share with each iteration. Which I'm hoping is what I showed.

In other words, his share of the pie will shrink at an ever increasing rate, but will never reach zero.

I know I promised Hydra I would only try one time, but I am going to respond again. I just can't help myself. The wrongness of his comments hurts my brain.

 
At 4/21/2011 2:07 PM, Blogger Hydra said...

I stand corrected, Sprewell was right, it is the bottom 80% not the bottom half, which only makes the picture worse.


Hydra claims - correctly - that his lesser share of the new pie is 1.7% of the total pie. (8.7% - 7.0% = 1.7%) He then claims that he will lose 1.7% of the total pie with each iteration, although he doesn't bother to explain why he believes that to be true.

==============================

What I said was that it could be either way: we have no way of knowing from the data that I have.

I'm inclined to believe as you do: that you lose a pecentage of what you have each iteration, not a percentage of the total.

Whichever why we do the decrement, we have no way of know ing that the percentage is even the same, since we do not know what causes it. However the data I have suggests a standard deviation of around .01.


But look, you are getting way too wrapped around the axle on this. You have a gorup of people whose numbers are growing, and whose slice of the pie is declining.

The pie is also growing.

All I am suggesting is that it is POSSIBLE that the pie won't always grow fast enough that the group, and particularly subgroups (Like the bottom 40% or 20%) and individuals in it will always be better off.

Your claim is that they are always better off, history proves it, and they have the rich to thank for their new wealth.

I see your argument, and I'm not yet convinced. I'm not trying to convince you with the counter argument: only to suggest that it might not be totally off the wall.

Look at it this way. There is no guarantee that any individual will succeed. What, then, makes you believe the group will always succeed?

 
At 4/21/2011 2:13 PM, Blogger Ron H. said...

"We cannot tell from this data whether they are losing 1.7% of the total every eight years, or 20% of their previous holdings, so we cannot tell which extrapolation applies."

Before we go further, let me point out that we are discussing YOUR EXAMPLE! this is a world that YOU HAVE CREATED! Everything in it, including all the numbers and percentages are YOURS. Why don't you understand what you have written?

"Let there be PIE!" you shouted, and there was pie. "Let the pie act in this way!" you ordered, and it was so. The only trouble is, that universe doesn't correspond to the one we are all in now.

It gets harder and harder to believe your claims of a background in math.

With every comment you try ever more futily to defend a position that is, at it's base, pure class envy.

We should also agree that, as morganovich pointed out, it is meaningless to claim some profound revelation from a straight line drawn through only 2 data points. You, the math giant, should understand this better.

"I used both the linear extrapolation and the declining balance method you describe.

True enough, if you walk halfway to the wall in each iteration, you will never reach the wall. But from a practical stand point you will soon be so close that it makes no difference.
"

I would expect you to understand this concept before others found it necessary to point it out to you.

"I agree with morganovich; govts job is to protect rights, success If failure is up to you."

Stay on topic. You can't squirm out of this that easily.

"And as the limit of zero is approached on one end, the growth that is required to support your position approaches infinity on the other end."

So what? Actually your own example of 3% growth works well for any meaning amount of time.

"If I maintain the same personal space as I approach ( or am pushed against) the wall, my space becomes more and more linear, until my "space" approaches zero thickness and infinite length."

Well, not really, You may be confusing this with approaching the speed of light, in which case the term you want is "mass", not "length".

"This is not a very useful "space".

It is a similar problem for the bottom 40%. They get squeezed and squeezed until there is nothing to work with.
"

But this just isn't true. As your own example shows, your space ISN'T getting smaller, nor is it getting smaller for the bottom 40%.

"Ultimately that is unacceptable..."

To statists and collectivists such as your self, who promote class warfare, perhaps.

"And SOME kind of wealth transfer will happen. It is only a question of whether it will be voluntary, or not."

But it is already happening. You just don't recognize it. You are promoting equality, not well-being.

 
At 4/21/2011 2:18 PM, Blogger Hydra said...

If he means 1.7% of the new, larger pie, then this will represent a larger percentage of his share with each iteration.

================================

You lost me on that.



Over eight years the group share of the total pie dropped from 8.7% of the original pie to 7% of the new, larger pie. They lost 20% of their original share.

If they continue to lose 1.7% of the pie every eight years, however big the pie is, then in 40 years or so they will be at zero.

If they continue to lose 20% of their previous stake every year, then they will be damn close to zero in a hundred years.

In order for them to continue to be better off a near zero the pie would have to expand to near infinity, and the wealthy will own near everything.


I don't believe that is going to happen: that is crazy thinking. Therefore, either more wealth tranfer will happen, somehow, or else the situation will stagnate, meaning the poor are no longer increasingly better off.

?????

 
At 4/21/2011 2:23 PM, Blogger Hydra said...

You are promoting equality, not well-being.

=============================

Will you get off that? I'm not promoting anything.

I'm just asking a simple question. If 80% of the population continue to get a smaller percentage of the total wealth, what happens when it approaches zero, by whatever progression you choose?


For the bottom 20% it is already near zero, it may even be negative, meaning they cannot survive without various forms of assistance.

 
At 4/21/2011 2:44 PM, Blogger Ron H. said...

"And it has.

How do we know that? I tried to find the data, and could not.
"

So?

"The inequality alarmists are careful not to talk about the larger pie. The opposition says it has always been this way, so it is a given. As far as I can see there is no cause and effect, and therefore no reason that this apparent natural law is immutable."

No one suggests that it's a "given", or "immutable law", only that it has worked that way so far, and while anything's possible in the future, it's hard to understand why anyone would worry now, when there's no reason to believe it will change. Unless, of course, they want to promote class warfare with the flawed argument that "The rich get richer and the poor get poorer."

Your space, and the space of the bottom 40% is NOT getting smaller. You are NOT getting squeezed against the wall.

Here's an example you might understand:

Less than 100 years ago, Edwin Hubble suggested that the known universe was expanding at a phenominal rate, and that objects furthest from Earth were receding at a faster rate than objects that were closer. The rich were getting richer. This in no way implied that the space in the vicinity of Earth was shrinking to allow this to happen, only that closer objects were receding at a slower rate. The poor were not getting poorer, only richer at a slower rate.

So, what's the problem?

To claim that the absolute difference in distance is a problem is nothing more than class envy.

 
At 4/21/2011 4:00 PM, Blogger Ron H. said...

"You lost me on that.

I'm not surprised. That is the crux of the problem you are having. You are confused about percentages, as is often the case.

Step by step here:

"Over eight years the group share of the total pie dropped from 8.7% of the original pie to 7% of the new, larger pie. They lost 20% of their original share."

This is OK except for your terminology. The GROUP share of the pie is 100%. The INDIVIDUAL share decreased from 8.7% to 7%. A 20% decrease in PERCENTAGE. That represents the change in their share AS A PERCENTAGE of the NEW pie, as compared to their share AS A PERCENTAGE of the ORIGINAL pie. You cannot say they have LOST anything, in real terms as a result.

The point, that you refuse to understand, is that in the real world, those at the bottom are BETTER OFF than those at the bottom were earlier. You can choose 8 years, 20 tears, 100 years, or any time frame you wish. They are BETTER OFF now, and will LIKELY be better off in the future, as there's no reason to believe otherwise.

"If they continue to lose 1.7% of the pie every eight years, however big the pie is, then in 40 years or so they will be at zero."

No. I thought you understood this concept of approaching a limit?

You have drawn a line through 2 points, and then you step back and observe that it crosses zero at some point. How about the years after that? Will they have ever more negative wealth? Try to make sense.

You have no reason to suggest that each iteration would result in a 1.7% decrease - of the total pie - of anyone's share, just because that was your first example. Obviously, this would result in an ever more rapid decline in share for an individual.

Lets follow that again, as I already did before, to see where it leads. Remember to keep seperate, in your mind, the percentage of share and the percentage of total pie, as they are entirely different things:

1. 8.7% - 1.7% = 7.0% of share - 20% decrease

2. 7.0% - 1.7% = 5.3% of share - 24% decrease

3. 5.3% - 1.7% = 3.6% of share - 32% decrease

4. 3.6% - 1.7% = 1.9% of share - 47% decrease

5. 1.9% - 1.7% = 0.2% of share - 89% decrease

6. 0.2% - 1.7% = - 1.5% - here we have nonesense. A greater than 100% decrease occured here.

Do you see that your linear calculations don't work?

 
At 4/21/2011 4:47 PM, Blogger Ron H. said...

"I'm inclined to believe as you do: that you lose a pecentage of what you have each iteration, not a percentage of the total."

A percentage of SHARE, not a percentage of what you have in terms of income, or wealth, or ounces of pie.

"However the data I have suggests a standard deviation of around .01."

.01 what? You need to define your terms.

"All I am suggesting is that it is POSSIBLE that the pie won't always grow fast enough that the group, and particularly subgroups (Like the bottom 40% or 20%) and individuals in it will always be better off."

Anything is POSSIBLE.

"Your claim is that they are always better off, history proves it, and they have the rich to thank for their new wealth."

Let me correct your wording slightly:

My claim is that they always HAVE BEEN better off, history supports this view, and they have the rich to thank for it.

"I see your argument, and I'm not yet convinced. I'm not trying to convince you with the counter argument: only to suggest that it might not be totally off the wall."

Your linear extrapolation from 2 data points is totally off the wall.

"Look at it this way. There is no guarantee that any individual will succeed. What, then, makes you believe the group will always succeed?"

I DON'T believe that. There are no guarantees, period. History tells us that over time, more people are far better off in a free market capitalist system, than in any other system we know of, and that redistribution retards this process.

There are, and always will be, some who lose out for various reasons in any society or economic system. Almost always, they have family, friends, or community that will help them, out of natural human compassion.

Taking from the "rich" for their benefit is counterproductive.

 
At 4/21/2011 5:08 PM, Blogger Ron H. said...

"In order for them to continue to be better off a near zero the pie would have to expand to near infinity, and the wealthy will own near everything."

You are confusing wealth with income. The wealthy depend on others to make them and keep them wealthy. If the wealthy own everything, how can others provide them with the new cars they need every year? They aren't going to make those cars for themselves.

As morganovich pointed out, a high earner who consumes more than they earn, is less "wealthy" than a low earner that saves and invests. The savings and investments are the wealth, the income is not. The high earning consumer is, of course, generating income for others, who may then create wealth.


"I don't believe that is going to happen: that is crazy thinking. Therefore, either more wealth tranfer will happen, somehow, or else the situation will stagnate, meaning the poor are no longer increasingly better off."

Your goal should be more income through more production, made possible by more wealth creation. Redistribution is not a desireable goal.

 
At 4/21/2011 8:49 PM, Blogger Hydra said...

On another blog

Groveton said...
There can be no doubt that the wealth gap in the United States has increased dramatically over recent years. It is my opinion that the gap is already unsustainable. Unfortunately, the gap is increasing and shows little sign of narrowing.

As many know, I believe the increased wealth gap is the result of fundamental shifts in America's economic landscape. These shifts include, but are not limited to, technological advances that obviate the need for labor and the ease of shipping American jobs to low cost overseas labor markets.

While taxing the rich would succeed in taking away money from the top of the economic ladder it will not provide meaningful work for those lower on the ladder. Rather, it will further empower a corrupt and incompetent government by providing yet more money to be squandered by lifelong politicos and bureaucrats. In other words, the wealth gap will be lessened by making everybody poorer.

Arguably, money could be taken from the top and simply redistributed to those lower on the ladder. Almost 50% of American households pay no income tax already so this is already a work in progress. My Dad used to say that idle hands are the devil's playthings. I think he was right. What kind of society will exist if a relatively small percent works and generates the wealth while a relatively large percent lives on government hand outs? Not a very good society, I'd say.

So, what options do we have between wholesale wealth redistribution and a society of a few "haves" with many "have nots"? I believe there are a number of options:

1. Aggressively enforce our immigration laws. Illegal immigration of uneducated people increases the supply of those with limited work skills thereby depressing the wages of those at the bottom of the economic ladder. Illegal immigration keeps the poor poor.

2. Encourage collective bargaining. It is imperative that people willing to put in an honest day's work receive an honest day's wage. Creating a societal rung of working poor makes the wealth gap worse and discourages people from seeking employment. Discouraged people make for poor citizens and poor parents.

3. Tax businesses who export jobs to low cost countries. Many of the countries where our jobs are being shipped use various techniques to create uneven playing fields. The Chinese use currency manipulation for example. America's corrupt political elite is one of the only entities in the world willing to sell out its own people in order to curry favor with well heeled special interests. This must end.

4. Reinvent education. I list this last because it is the least important. Our educational system is broken, there is no doubt. However, even even if the system could be fixed tomorrow the impact of that fix would not be felt for years. Additionally, excessive focus on the education system provides a relatively painless alternative to taking the short term actions required to address the wealth gap. Too many use education as a crutch to avoid other, more difficult decisions.

As I've written before - I am open to alternate, practical and timely alternatives to addressing the wealth gap in the United States. So far, I have heard none.

4/21/11 12:25 PM

 
At 4/21/2011 8:56 PM, Blogger Hydra said...

You are confusing wealth with income.

===============================

No, I am not. The data I presented concerns itself with finamcial wealth: net worth minus the value of the home.

80% of the population controls only 7% of that wealth now and it has been growing smaller. When it gets to zero the rich will have everything and the poor will have nothing. Not only the poor,but the poor AND the middle class.

Yet you claim they will be better off because the pie is bigger.

Last I knew, zero times a googleplex is still zero. How will they be better off?

But, as I said, i don;t hink that will happen, so there must be something wrong with your argument. The situation which you argue is normal, perfect, and has been that way for a long time, is evidently about to change.

If that happens, you ae going to need a new theory.

 
At 4/21/2011 9:08 PM, Blogger Hydra said...

History tells us that over time, more people are far better off in a free market capitalist system, than in any other system we know of,


We are not arguing that point. this is a red herring.

and that redistribution retards this process.

whee does history tell us that part? What history tells us is that from 2000 to 2008 the lower 80% of the population that once controlled a whopping 8.7 percent of the national wealth slipped to controlling only 7%. that is 8 data points, not two, and the std deviation among the points is only 0.1, suggesting that a linear extrapolation may be valid, at least in the near term.

That is the history we are discussing, and what it tells us is that is could go to zero.

My question is very simple: if that happens or we come close to that happening, as we are with the bottom 20%, then what happens to your argument?

Ii do not see how your argument can hold in those circumstances.

 
At 4/21/2011 9:15 PM, Blogger Hydra said...

how can others provide them with the new cars they need

=================================

How can OTHER PROVIDE THEM?

I think you just dropped the ball on your own argument.

Those others won't be able to provide for themselves, let alone provide cars to the rich.

Which is precisely the argument redistributionists make: it is not in anybody's interest to have that many people that poor.

Rich people will own the auto plants, and thay can have their robots build their cars. But they are not going to sell any cars to anyone else, because they are broke, or rapidly getting there.


Besides, i thought you said the rich wer the ones holding it all together and sharing their wealth. Now we learn that they are not going to build their cars themselves: that they actuyaloly DEPEND on their workers.

Well fancy that. What a novel idea.

 
At 4/21/2011 9:40 PM, Blogger Hydra said...

"And it has.

How do we know that? I tried to find the data, and could not."

So?

==================================

So you cnnot prove your point and I cannot disprove it.

The bottom 80% lost 20% of their shaer of the welath in eight years. I'll concede there was more total wealth, but neither of us knows how much.

Suppose that the increas in wealth is proprtional to GDP and GDP goes up 3% a year. After eight years it has gone up 24% but the poor lost 20% of that, for a gain of 4%. But in eight years the population has gon up 16%, so the new larger pie also has to be shared with more people, and the net result is each individual is WORSE off, not better, as you claim.

THAT corresponds with my observation of how working class people I know are doing, which is to say less well, not better.

The same is true at the rich end of the spectrum, in 2000 the top 1% was 935,000 tax returns and in 2008 it was 1,040,000.

So a guy worth a million in 2000 is worth 1,240,000 in 2008, plus the 1.7% gained form the lower classes, so he is worth 1,260,000, but he has to share that gain with more people, so his personal gain is only to 1,083,000.

All of this assumes that the population growth is evenly spread among the rich and the poor, but we know that isn't true.




Now, run that exercise again, with another 24% total gain in welath, but now with the top 20% geeting 94.7% and the other 80% getting the other 5.3%.

Etc.

 
At 4/21/2011 9:42 PM, Blogger Hydra said...

"Look at it this way. There is no guarantee that any individual will succeed. What, then, makes you believe the group will always succeed?"

I DON'T believe that.

================================

Well, then that is the end of the argument.

I understood you to say that history shows they will always be better off, and now you say it might not be so.

That was all I said: it might not always be so.

 
At 4/21/2011 9:42 PM, Blogger Hydra said...

"Look at it this way. There is no guarantee that any individual will succeed. What, then, makes you believe the group will always succeed?"

I DON'T believe that.

================================

Well, then that is the end of the argument.

I understood you to say that history shows they will always be better off, and now you say it might not be so.

That was all I said: it might not always be so.

 
At 4/21/2011 9:50 PM, Blogger Hydra said...

a high earner who consumes more than they earn, is less "wealthy" than a low earner that saves and invests.

===============================

Oh come on, now you are just changing the subject. the question is what happens when the bottom 80% is able to retain near zewro of the total net financial wealth.


That rich guy does not conseme a lot more oreos that the poor guy. Certainly not enough to brak him. So after all his actual consumables, water bill, electric bill etc. he still ahs a lot of money left over, so he consumes a fur coat for his wife.

But guess what, that coat still counts as part of his financial wealth: he can unlaod it fairly easily. It might not be a good investment, but it is not a consumble, either.

 
At 4/21/2011 9:52 PM, Blogger Hydra said...

There are, and always will be, some who lose out for various reasons

================================

We are not talking about SOME who lose out. We are talking about 80% of the population who appear to be losing in the aggregate.

 
At 4/21/2011 9:54 PM, Blogger Hydra said...

Let me correct your wording slightly:

My claim is that they always HAVE BEEN better off,

===========================

You are right, I accept the correction.


Do Ii now understand that you agree the current rate of change cannot conitnue in its current direction?

 
At 4/21/2011 10:01 PM, Blogger Hydra said...

"However the data I have suggests a standard deviation of around .01."

.01 what? You need to define your terms.

===============================

You are kidding, right?

 
At 4/21/2011 10:39 PM, Blogger Ron H. said...

"No, I am not. The data I presented concerns itself with finamcial wealth: net worth minus the value of the home."

OK, lets talk about only net worth. You have not responded to any of the points I made in several long comments, and your only claim is that you are not confused. So be it.

You accepted Sprewell's 80% number, but failed to address his contention that perhaps those with low net worth are choosing to be in that condition. If they don't save or invest, what would you expect their net worth to be?

You're aware, I'm sure, that over the years household debt has risen, while savings rates have declined. What effect would that have on net worth, do you think?


Whoever Groveton is, seems to agree with you that there is an alarming wealth gap, and it is unsustainable.

When someone starts with a strong assertion such as: "There can be no doubt that..." I usually ask for some supporting evidence. Did you do that?

He (I'm assuming he) blames this on technological advances, and cheap overseas labor. He doesn't directly attack technology, so I assume he's ok with that part.

He at least understands that taxing the rich is counterproductive, and that direct redistribution probably isn't a good idea. So far so good, but what is his solution?

Well, "reinvent education", whatever that means, as our education system is broke. This is an easy area to find problems in, and as is common with those who point fingers in that direction, he offers no solutions.

His other three suggestions for decreasing the wealth gap, seem to all be ways to make everything more expensive, especially labor. That will make us all better off.

Did I miss anything? Is this your position also?

No one ever explains how someone is better off if they get paid more, but everything costs more.

 
At 4/22/2011 2:02 AM, OpenID Sprewell said...

Non-home financial wealth isn't a gift from the gods, you have to save it and invest it. We're better off if the smarter people in the top 20% invest that money, because they obviously have their shit together better than the bottom 80%. Now I'll be the first to admit that the top 20% makes a lot of dumb decisions too, which is why Wall Street has gone from being about investing to a casino where everybody places their bets, but the top 20% is still going to make marginally better decisions. Redistributing that money just means you now have dumber people with worse impulse control handling it, so it just gets frittered away on consumption, which is why they have no savings in the first place. That means good ideas and entrepreneurs don't get invested in and growth slows down, just as we see in Europe and Japan.

 
At 4/22/2011 10:31 AM, Blogger Ron H. said...

"What history tells us is that from 2000 to 2008 the lower 80% of the population that once controlled a whopping 8.7 percent of the national wealth slipped to controlling only 7%. that is 8 data points, not two, and the std deviation among the points is only 0.1, suggesting that a linear extrapolation may be valid, at least in the near term."

You have presented 2 data points. Where are the other 6? Is counting a problem for you also?

"Rich people will own the auto plants, and thay can have their robots build their cars. But they are not going to sell any cars to anyone else, because they are broke, or rapidly getting there."

This is why the disaster you predict can't happen. You have figured it out for yourself.

"Suppose that the increas in wealth is proprtional to GDP and GDP goes up 3% a year. After eight years it has gone up 24% but the poor lost 20% of that, for a gain of 4%. But in eight years the population has gon up 16%, so the new larger pie also has to be shared with more people, and the net result is each individual is WORSE off, not better, as you claim."

And here we have come full circle. This is your original support for a perceived problem, with different numbers but the same flawed math.

When you have learned to use basic math correctly, come back & try again.

 
At 4/22/2011 1:56 PM, Blogger Hydra said...

What is flawed about approaching zero? That is what recent history suggests we are doing. It does nto matter what the progression is.

The only way the bottom 80% continue to be better off as their share of the wealth appraches zero, is if the growth approaches infinity.

Since most of that goes the wealthy, their wealth soars, the more the poor stagnate.

The perception is wrong, but if you want to know why 80% of the population think they are supporting the rich, well, there you have it.

 
At 4/22/2011 2:06 PM, Blogger Hydra said...

When you have learned to use basic math correctly, come back & try again.

===========================

OK, I oversimplified, should have used the actual GDP rates and compounded them.

Really, should have gone and gotten the actual data.

But is is an example, same as your example above. There is nothing wrong with the math.

As they continue to approach zero, growth will have to go exponential in order for them to maintain their
well being.

We have no history of such growth. In a few years, we will see if the trend continues or not. My prediction is not. My prediction is we will see more redistribution, through economic forces or political ones. My prediction is that people will not work for no gain.

 
At 4/22/2011 2:09 PM, Blogger Hydra said...

But they are not going to sell any cars to anyone else, because they are broke, or rapidly getting there."

This is why the disaster you predict can't happen. You have figured it out for yourself.

=================

Huh?

That is the disaster. You are agreeing that is what will happen and saying htat is why it can;t happen?

 
At 4/22/2011 2:31 PM, Blogger Hydra said...

Redistributing that money just means you now have dumber people with worse impulse control handling it,

======================

Who was it, Astor?

If you divde up all the money on friday night, Monday morning allthe same people willhave it back again.

 
At 4/22/2011 2:34 PM, Blogger Hydra said...

We're better off if the smarter people in the top 20% invest that money

===========

There is that we again.

The evidence says th bottom 80% are losing financial wealth (as a percentage of the whole, yes I get it).

Certainly the wehalty are better off, but "we", Im not so sure.

 
At 4/22/2011 2:37 PM, Blogger Hydra said...

OK, lets talk about only net worth.

======

Net worth is not the same as financial wealth.

 
At 4/22/2011 2:38 PM, Blogger Hydra said...

perhaps those with low net worth are choosing to be in that condition.


===================

You are joking, right?

 

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