Richard Epstein on Income Inequality in America
HT: Don Boudreaux and Pete Friedlander
CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Friday, October 28, 2011
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- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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51 Comments:
Epstein is the smartest man in America. Great example here. I just wish that it was hammered home how the 1% (top) and 18% (bottom) do not have the same people in them from one period of time to another. Drives me crazy how this point is so often dismissed.
SMARTEST MAN ANYWHERE.
http://www.surveymonkey.com/s/BGNZYP7
Income inequality is a wondeful thing, it has worked wonders in Mexico.
"Income inequality is a wondeful thing, it has worked wonders in Mexico"...
Blame it on the Mexicans...
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I wonder if Epstein has read any history books about the European countries which had large Income Inequalities ??
So let's fit a few more variables in Epstein simplistic the-rich-stimulates-the-poor model:
A) Golden parachutes: execs and board members playing golf with each other and getting $MM to beat down the company: Apotheke, Purcel, ... (there are countless examples, just google "golden parachute CEO"). You want to get rich? Invest your f*%! money.
B) The country is cash stranded. Who pays what? Or should we rather clear Medicair, Medicaid, Public Education, the war in Iraq and the war in Afghanistan from the model?
C) Exponential growth vs. linear growth, that is the rich getting richer and the others losing their competitive power. Or are we in favor of an oligarchic system?
"Golden parachutes: execs and board members playing golf with each other and getting $MM to beat down the company: Apotheke, Purcel, ... (there are countless examples, just google "golden parachute CEO"). You want to get rich? Invest your f*%! money"...
Gee! Yet another whiner crying into his 'jealousy towel' instead of getting one of those high paying gigs for himself...
"I wonder if Epstein has read any history books about the European countries which had large Income Inequalities ??"...
Well Epstein's grasp of reality seems rather strong but I do have questions about your's...
a PBS clip on Carpe Diem? Where's the outrage? Where's the "PBS is a biased, libtard, commie cancer, subsidized by money stolen at gunpoint, it's funding should be eliminated"??? LOL
Good interview although in all the arguments I find the emphasis on Bill Gates is not productive. It's like "not seeing the forest for the tree". We should not care how much Bill, Steve or Warren make. They are the extreme and even if the three of them made 50,000 next year it would not move the needle (income inequality statistics) very much if at all.
Over a period of time items have appeared here that first tried to say that II did not exist, then we got items questionning the data and now we find people who argue that II is actually a good thing!
I'm sure Henry Ford would be considered a national hero by everybody on CP. Even Henry recognized that II was bad for business. That's why he paid his workers more than market wages at the time...so that his workers could afford to buy his cars.
I'm surprised that on a site devoted to economics so many choose to ignore a trend. The trend to greater II is undeniable. We should all be concerned.
I wonder if people can ever see past their ideological or partisan blinders. Confirmation bias.
Horsehockey.
"Over a period of time items have appeared here that first tried to say that II did not exist, then we got items questionning the data and now we find people who argue that II is actually a good thing!"...
Prove that 'income inequality' exists in a free market system...
oh come on Juandos....
income equality would be if everyone made exactly as much as the next guy. Obviously that would never happen... not EVEN in a "pure" socialist state the party officials would be making more.
The issue is not II, it is the degree of II and where it is headed. At a time when 70% of the US economy is consumption a trend towards greater II should be a concern for all, whatever their political stripes.
It's amazing rich people get blamed for problems government created.
Of course, rich people are too busy creating value for society instead of wasting money and playing politics all day.
If a football player has the ability to score 60 touchdowns, while another football player fails to score any touchdowns, how many touchdowns should the referee (i.e. government) take away from the star player and give to the failed player, a fourth, a third, half, more?
"Even Henry recognized that II was bad for business. That's why he paid his workers more than market wages at the time...so that his workers could afford to buy his cars."
That's a nice little lefty story, anyway. In truth, Ford was able to pay more because his innovations increased the productivity of his workers. In the process, he was able to lower costly turnover, and steal the best employees from competitors. In short, he was practicing smart business.
" The country is cash stranded. Who pays what? "
Here's a novel idea. How about we start with the 47% of wage earners who don't pay any net income taxes?
Over the past three years, the federal government overspent by $4 trillion.
That's a lot of money (and it doesn't even include the additional regulations).
How much did rich people make over the past three years?
"At a time when 70% of the US economy is consumption a trend towards greater II should be a concern for all, whatever their political stripes"...
Well t or c do you know the source of this 'alledged income inequality'?
In the free market, one unencumbered by government overreach people are paid what their skills or services are worth and no one forces them to work for less...
Top 1 percent: How much do they earn?
Bankrate.com
July 2011
Highlights
•To make the top 1 percent, a household must have AGI of $343,927 or more.
•The top 1 percent contributed about 37 percent of the taxes paid in 2009.
•Roughly 44 percent of New York City residents made the top 1 percent in 2007.
The 1.4 million Americans in the IRS' top taxpayer category in 2009 (top 1 percentile) reported nearly 17 percent of all the country's taxable income.
From those filers, the IRS collected $318 billion or almost 37 percent of all the individual taxes paid in 2009.
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What state has the highest income equality or least income inequality?
The same state with the highest rate of families headed by married couples.
Utah is the state with the least income inequality and greatest income equality.
Buddy, I noticed much more, and greater, income or wealth inequality in California than in Colorado, although California does much more to "help" the poor.
At this pace this country might become an oligarchy. You have examples out there like the NBA and the NFL: at some point you have to set salary caps, or the competitive system that fosters efficiency and innovation goes down the drain.
The only reason why the MLB survived is because top hitters have only limited playtime p/rotation, as opposed to other sports where the big $$$ is on the field most the time.
We must choose between competitive markets or laissez-faire and not confuse the two.
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RK, we must choose between competitive markets or government monopolies of markets.
Nobody wants government monopoly, but to maintain a competitive system we must control inequality or we will end up like the NBA pre-1984 or the NFL pre 1994.
Government overspending and income inequality are two different things.
RK is comparing the entire United States economy to basketball.
The stupidity of that is astonishing.
RK didn't seem to grasp one of Richard Epstein's most important points - EVERYONE has the chance to make as much as he wants. All you have to do is start a business to compete with existing businesses.
As long as that keeps happening (and it will as long s we are free), this Marxist notion of concentrations wealth in a few monopolies with everyone else living in shit will never happen. It can't happen.
Of course, historically, it has happened - but only in Totalitarian countries where the masses were denied opportunities to compete with state monopolies. Those were nominally communist countries that banged on endlessly about "income equality".
Here's an economics study on salary caps:
THE IMPACT OF SALARY CAPS
IN PROFESSIONAL TEAM SPORTS
Oct 1999
Conclusion
A salary cap improves the competitive balance in a league, it improves the player salary distribution, holding down the excessive top player salaries, it guarantees the club owners of both small and big clubs a reasonable profit rate so that new investments in the industry will not be discouraged. Obviously, most top players won’t like it. The only negative aspect of a salary cap is the departure from the Pareto-optimal point so that total league revenues are decreased.
It seems, more income equality at best results in sub-optimal growth and at worst contracts the economy or eventually leads to economic collapse.
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Methinks, I'm drawing a parallel between financial inequality and the ability to compete in *any* system. About your point "all you need is to to start a business", why don't we close all public schools? What are they good for? That's nothing to do with "opening a business".
Here is a data point that even somebody of your intellectual sophistication should get: from the CIA Facts Workbook, ranking of countries sorted by Gini inequality index:
1. Sweden
2. Norway
3. Austria
...
11. Germany
...
91. Iran
92. Cote d'Ivoire
93. Cameroon
94. USA
95.Uruguay
96.Jamaica
97. Uganda
Inequality harms everyone, even the richest in the rich countries. Watch a recent Ted talk on it here.
U.S. per capita income is over $10,000 a year more than in Western European countries.
And median income:
Median household income
Wikipedia
1 Luxembourg 34,407
2 United States 31,111
3 Norway 31,011
4 Iceland 28,166
5 Australia 26,915
6 Switzerland 26,844
7 Canada 25,363
8 United Kingdom 25,168
9 Ireland 24,677
10 Austria 24,114
11 Netherlands 24,024
12 Sweden 22,889
13 Denmark 22,461
14 Belgium 21,532
15 Germany 21,241
16 Finland 20,875
17 New Zealand 20,679
18 France 19,615
19 Japan 19,432
20 South Korea 19,179
Of course, U.S. income understates U.S. living standards, because Americans live in much bigger houses than Western Europeans, drive bigger autos, consume more goods (U.S. consumption is 70% of GDP, while E.U. consumption is 60% of GDP), etc.
When the rich become richer, the poor become richer.
Poor U.S. immigrants can earn over $50,000 a year with overtime and little education.
Also, I stated before:
In the E.U., the mix of GDP is different than the U.S..
There's more public consumption and less private consumption, some countries have trade surpluses (which add to GDP), and the entire E.U. economy is on the verge of collapse from its bureaucratic weight.
When the government pays a worker $50,000 to redistribute income, that's $50,000 of GDP.
When the government pays a worker $50,000 to produce $20,000 of value to society, that's $50,000 of GDP.
Winston Churchill:
“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”
Well thanks for sharing that leftist stooge Richard Wilkinson and his less than credible UN data jon...
PeakTrader,
Good point, the US has one of the highest per capita income. I'm not discussing capitalism or the current wealth of the nation. I'm questioning how the US competitive model will work *going forward*. I'm all in for capitalism and lean government, but you can't have a healthy competitive model with this level of II. What we are getting instead is an oligarchy.
Capitalism only works when there is a fair amount of competition between the participants.
"but you can't have a healthy competitive model with this level of II. What we are getting instead is an oligarchy."
Wrong on so many levels....
The bottom 20% saw real income grow by 18% since 1979. So what if the top 1% grew real income by 275% as long as everyone is getting wealthier.
The quintiles are incredibly dynamic. Individuals are constantly moving up and down the scale according to their abilities and the freedoms inherent in a system such as ours.
Any "oligarchy" you refer to can only be sustained by the state. When government refuses to allow banks and businesses to fail, and constantly foils attempts at innovation through onerous regulation, consolidation of capital in the hands of those who already control most of it is bound to happen.
Epstein is right on the mark.
You're right mike k, in a normal system banks and businesses do fail. But when wealth has such a high degree of concentration what you get is "too big to fail".
Banks were left failing in 1929-1932, the experiment has already been tried. Same parameters then: high II, large financial institutions, a recession.
The key is to prevent disproportionate wealth concentration from happening.
Mind, I don't think the USA should be up there with Sweden and Norway. But 92 with Uganda and Iran???
"It seems, more income equality at best results in sub-optimal growth and at worst contracts the economy or eventually leads to economic collapse."
**************
Revisionist history ..............
Don Culo: "I wonder if Epstein has read any history books about the European countries which had large Income Inequalities ??"
I would imagine he has, but he may have read them all the way to the end, so he learned that those countries, for the most part, had rigid class structures that prevented social and income mobility.
TC: "Good interview although in all the arguments I find the emphasis on Bill Gates is not productive. It's like "not seeing the forest for the tree". We should not care how much Bill, Steve or Warren make. "
You have missed the point. Gates is an extreme, highly visible example of someone providing tremendous value to others and being rewarded for it. No one cares how much those guys make, except people who think the amounts are unreasonable.
"When the rich become richer, the poor become richer"...
Absolutely PT, I see it everyday here in St. Louis county...
"Poor U.S. immigrants can earn over $50,000 a year with overtime and little education"...
Again totally on the mark PT, I work with a couple of naturalized citizens (one from Mexico and one from Santo Domingo) and they both are testament to your comment...
"I would imagine he has, but he may have read them all the way to the end, so he learned that those countries, for the most part, had rigid class structures that prevented social and income mobility.
**********
Do you think he has also read current history and studied the current economies of most Central and South American countries with large income inequality gap. Or better yet has vistied the rich folks of those countries and talked to their personal security staff.
RK, you want to "prevent disproportionate wealth concentration from happening," but as this chart shows, there's only two ways that concentration occurs. You can either steal from everyone else, that's the crooks in DC, or you can create new tech that makes you rich, which is what happens in San Jose. I completely agree with you that we need to stop the crooks in DC, by cutting govt spending with a chainsaw. I completely disagree that we need to do anything about San Jose, as they earned their wealth and are subject to competitive market pressures already that renders them unlikely to keep it. Oh, and simply having a bunch of billionaires doesn't make the US an oligarchy, you might want to look up the term and read up on the true oligarchs in Russia these days.
Don Culo: "Do you think he has also read current history and studied the current economies of most Central and South American countries with large income inequality gap. Or better yet has vistied the rich folks of those countries and talked to their personal security staff."
That I don't know. You would have to ask him. I suspect, though, from what little I know of him, that he would blame income inequality in those countries on the remnants of feudal systems that allow some to own enormous land holdings worked by peasants who have no property rights to the land they work. This hasn't been the case in the US.
"Income inequality is a wondeful thing, it has worked wonders in Mexico." - Don Culo
See two posts prior to this one.
Why is income inequality bad? Different men of different abilities earn different incomes?
"Even Henry recognized that II was bad for business. That's why he paid his workers more than market wages at the time...so that his workers could afford to buy his cars."
So by that logic, if I work for Boeing it would be wise for my employer to pay me a wage that allows me to afford my own 747. Yea...I'm sure that's why Henry Ford paid his workers at a premium. Pfft!
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