"Time-Lapse Analysis" Instead of Snapshot Shows That 57% of Top 1% in 1996 Weren't There in 2005
From the 2007 study "Income Mobility in the U.S. from 1996 to 2005" from the Department of the Treasury (emphasis mine):
"The mobility of the top 1 percent of the income distribution is also important. More than half (57.4 percent) of the top 1 percent of households in 1996 had dropped to a lower income group by 2005 [MP: dropped into the bottom 99%]. This statistic illustrates that the top income groups as measured by a single year of income (i.e., cross-sectional analysis) often include a large share of individuals or households whose income is only temporarily high. Put differently, more than half of the households in the top 1 percent in 2005 were not there nine years earlier. Thus, while the share of income of the top 1 percent is higher than in prior years, it is not a fixed group of households receiving this larger share of income."
MP: The chart above also shows that almost half (45.6%) of the top 5% in 1996 had moved to a lower income group nine years later in 2005, and roughly 39% of the top 10% in 1996 dropped into a lower income group by 2005. Whether it's the top 1%, top 5% or top 10%, those income groups are not static, closed groups, but snapshots in just one year of the national income distribution, which is constantly changing over time. A large majority of today's 1% won't be there in the future, and weren't there in the past, they are just making a temporary stop in that group.
As mentioned before, income mobility is far more important than income inequality. Empirical evidence provided in this Treasury Department report and supported by other studies shows that there is significant income mobility in the U.S. for all income groups. And yet all we hear about are the snapshot comparisons of income differentials for income groups in different years, which contain completely different people and households from snapshot to snapshot. When you do a "time-lapse" analysis of the same people or households over time, what you find is significant income mobility and that finding deserves more attention.
45 Comments:
In the top 1% bracket, a lot of income comes from investment and business. Such income is highly irregular in nature.
I think few wealthy people declare multi-million dollar incomes year in and year out. They would only declare large incomes on realizing capital gains which they were unable to offset, or one-time liquidity events such as selling a portion of their businesses. In "good" years their incomes might be as low as $50k.
So, income mobility could potentially be a red herring. What we should really be looking at is net worth mobility as a proxy for consumption mobility.
I think net worth mobility is much, much, much lower than income mobility, and this is what people really mean when they talk about income inequality.
On the other hand, consumption inequality is much, much, much lower than income inequality, and nobody seems to notice. People talk about income inequality as if this guy with x100 their income spends x100 their yearly budget, which is very often not the case. If his income is invested and thus converted to net worth, what it represents is the amount of influence this person has over other people, but not his level of consumption/comfort.
In this regard, it is true that net worth inequality (== influence inequality) is humongous. Bill Gates probably exerts millions of times more influence than I am, but definitely not millions of times more consumption. I suspect net worth mobility is also quite low, which is what we should be looking at.
But I do not observe huge consumption inequality around me, and I suspect if somebody were to measure it, it would turn out pretty modest. After all, Warren Buffet drives a $40k car.
Personally, I think the most concerning consumption inequality in this country is definitely not between top 1% and the rest, but between bottom 20% who can't afford health insurance and quality food and the middle class which constitutes the majority of the population.
Artem.
From Krugman--
But if you actually read the CBO report, it already deals with that issue:
Household income measured over a multiyear period is more equally distributed than income measured over one year, although only modestly so. Given the fairly substantial movement of households across income groups over time, it might seem that income measured over a number of years should be significantly more equally distributed than income measured over one year. However, much of the movement of households involves changes in income that are large enough to push households into different income groups but not large enough to greatly affect the overall distribution of income. Multiyear income measures also show the same pattern of increasing inequality over time as is observed in annual measures.
I stand corrected.
But even so, Eric Schmidt surely experienced a sudden burst of income for the period of multiple years as he was exercising his Google stock options. Once the main chunk is done though, his yearly income is probably under a million unless he realizes capital gains (just half a million salary in 2006). But his net worth of over 7 BILLION is a much more stable variable, and he'll probably be a billionaire for the rest of his life.
Multi-million dollar incomes are rarely for life, but surely define your life style for years to come. I think it's even a bit silly to measure income inequality rather than net worth inequality, since at the level of top 1%, it's your net worth, not your income this year, that defines your lifestyle. (And the heart of the issue is about the lifestyle, people are not upset about some numbers on paper, they're upset about haves and have-nots).
My argument is two-fold:
1) Measuring income mobility is a red herring and does not address the issue. Net worth inequality is just as large, and net worth mobility is probably significantly lower.
2) The issue would be much better addressed by demonstrating that consumption (not income or net worth) inequality is rather modest. People should understand that 1% does not consume 50% of the good stuff on this planet, they just have 50% of the power (in a limited sense). It's a much milder form of inequality.
Finally, I will repeat that I'm convinced that the real issue is not 1% vs 99%, but bottom 20% vs the rest. This is where real consumption inequality can be seen with a naked eye.
Don't you think?
Mark J. Perry: A large majority of today's 1% won't be there in the future, and weren't there in the past, they are just making a temporary stop in that group.
So, Michael Moore IS one of the 99%%.
Mark J. Perry: As mentioned before, income mobility is far more important than income inequality.
But you're still not measuring what most people consider important, whether a child born into a poor family has as much chance to succeed as someone born into a family of means. In fact, there is a strong correlation in the U.S. between the relative economic success of parents and children.
In addition to Benjamin's Krugman quote above, a pertinent column, which starts to dig into the top 1%:
"The recent budget office report doesn’t look inside the top 1 percent, but an earlier report, which only went up to 2005, found that almost two-thirds of the rising share of the top percentile in income actually went to the top 0.1 percent — the richest thousandth of Americans, who saw their real incomes rise more than 400 percent over the period from 1979 to 2005...
"But why does this growing concentration of income and wealth in a few hands matter? Part of the answer is that rising inequality has meant a nation in which most families don’t share fully in economic growth. Another part of the answer is that once you realize just how much richer the rich have become, the argument that higher taxes on high incomes should be part of any long-run budget deal becomes a lot more compelling.
"The larger answer, however, is that extreme concentration of income is incompatible with real democracy. Can anyone seriously deny that our political system is being warped by the influence of big money, and that the warping is getting worse as the wealth of a few grows ever larger?"
I'm not sold on the idea that the current idiocy in Washington directly results from a decades-long increase in wealth concentration at the top. It's an interesting idea, though.
"But you're still not measuring what most people consider important, whether a child born into a poor family has as much chance to succeed as someone born into a family of means."
zach-
no, that is what YOU think is important.
most people care about opportunity, not chance. sure, being born rich is an advantage, but equality of opportunity, not outcome is freedom. you seem to favor leveling to make sure the industrious have a harder time and the indolent an easier one.
with 95% of the bottom quintile moving up in 15 years, it seems that the opportunity is certainly there.
Oh yeah, almost forgot Jonathan Chait's great column from yesterday, which can apply across the political spectrum on a great number of issues, but in particular applies to this "argument."
morganovich: most people care about opportunity, not chance. sure, being born rich is an advantage, but equality of opportunity, not outcome is freedom.
That's exactly right. In particular, in the U.S.. there is a stronger correlation between the relative economic status of parents and children at similar points in their lives than in many other developed countries.
morganovich: with 95% of the bottom quintile moving up in 15 years, it seems that the opportunity is certainly there.
We've gone over this several times, so it is not clear why this is still a problem of understanding. If someone is born into a rich family, goes to college, then starts as a junior partner in his parent's firm, that may show the person moving up in relative economic income, but is not what we mean by economic mobility, and is certainly not what we mean by equality of opportunity. For equality of opportunity, you have to have the same chance to rise regardless of the economic status of your parents, that is, based on merit not birth. You could measure the status of the parents compared to the children at their peak earnings. The question is how much correlation is there between the income of the parents and the children, in other words, to what degree is your relative economic status predicted by that of your parents.
zach-
your argument is preposterous in the face of 95% mobility.
sure, a few kids may get ahead by being junior partners at a parents business, but a) many of those would never be in the bottom 20% in the first place and b) they are a tiny fraction of 95%.
only 1 in 20 doesn't make it out.
just how many nepotistic junior partners do you think there are?
stop grandstanding and think for a minute. the claim you are making is a tiny ripple in a huge wave of mobility.
you sound like a bitter class warrior assuming it's an inside track by which others are getting ahead of you. it's a seductive rationalization, but the facts argue otherwise.
"That's exactly right. In particular, in the U.S.. there is a stronger correlation between the relative economic status of parents and children at similar points in their lives than in many other developed countries. "
you make this claim all the time, yet never seem to support it with any actual data. got some?
given how much less wealth variance socialist countries have, i find this very difficult to believe.
europe has very, very low class mobility. if you are poor, you always will be.
if you are rich, same.
if you are middle class, you can never accumulate the wealth or start a small business to get you to the upper classes.
http://www.coyoteblog.com/photos/uncategorized/2007/08/30/study2.gif
here's another way to look at it.
our poor are just as rich as those in europe in absolute terms.
it's just that our rich are richer.
that's a clearly superior situation.
everyone is as well off (and this is at PPP, so healthcare etc is already baked in) yet many are better off.
you are upset that some get ahead.
that's just class envy.
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Zachriel: If someone is born into a rich family, goes to college, then starts as a junior partner in his parent's firm, that may show the person moving up in relative economic income, but is not what we mean by economic mobility, and is certainly not what we mean by equality of opportunity.
Let's expand this argument to those born in America vs. those born in underdeveloped countries. Should we really argue that taxing rich Americans and giving to poor non-Americans is economic justice?
morganovich: sure, a few kids may get ahead by being junior partners at a parents business, but a) many of those would never be in the bottom 20% in the first place and b) they are a tiny fraction of 95%.
95%? According the Treasury, of those in the lowest quintile in 1996, 42% were still there in 2005. 29% moved to the second quintile. Treasury says, "More than 50 percent of taxpayers in the bottom quintile moved to a higher quintile within ten years." It means the data is mixed, and you can't distinguish those who are moving up due to maturity from those who are achieving on merit after being born into a lower economic stratum. That requires an intergenerational study.
morganovich: only 1 in 20 doesn't make it out.
That is not consistent with the citation in the original post.
morganovich: you sound like a bitter class warrior assuming it's an inside track by which others are getting ahead of you. it's a seductive rationalization, but the facts argue otherwise.
Now that you have the facts, do you change your position?
morganovich: you make this claim all the time, yet never seem to support it with any actual data. got some?
We've pointed to an intergenerational study several times, though perhaps in other threads.
http://www.economicmobility.org/assets/pdfs/EMP_InternationalComparisons_ChapterIII.pdf
morganovich: given how much less wealth variance socialist countries have, i find this very difficult to believe.
Some of the most robust markets are in what you call a socialist economy. From a previous discussion.
morganovich: there are a few centers in the US with very, very high success rates, notably oakland where my mother was treated. this is due to some new technology for creating an artificial joint. you will not find that technology in any other country and i know, because we looked into it exhaustively.
Are you thinking of the STAR system, such as used by Jeffrey Mann of Oakland, who led several trials that led to approval by the FDA?
morganovich: europe has very, very low class mobility.
Europe's a big place, but among the countries studied by Isaacs, there is more economic mobility between generations in many European countries.
Sigli: Consider those born into the bottom 20% later make up 20% of the top 5% bracket.
No, in the U.S. only 8% of the lowest 20% make to the top 20%, according to the intergenerational study. The decadal study includes kids working as waiters while working their way through law school, so it doesn't properly reflect "those born into the bottom 20%."
Sigli: Let's expand this argument to those born in America vs. those born in underdeveloped countries. Should we really argue that taxing rich Americans and giving to poor non-Americans is economic justice?
It's hard to discuss policy when there is a weak empirical foundation. (This discussion of the facts of relative economic mobility has been going on for several threads, now.)
are we a nation of individuals?
or of families?
or communities?
or groups?
why don't we just take away every one's children and raise them communally?
who would go for that?
zach-
"95%? According the Treasury, of those in the lowest quintile in 1996, 42% were still there in 2005. 29% moved to the second quintile. Treasury says, "
nope. you are using bad data.
"The authors analyzed University of Michigan Panel Study of Income Dynamics data that tracked more than 50,000 individual families since 1968. Cox and Alms found: Only five percent of families in the bottom income quintile (lowest 20 percent) in 1975 were still there in 1991. Three-quarters of these families had moved into the three highest income quintiles. During the same period, 70 percent of those in the second lowest income quintile moved to a higher quintile, with 25 percent of them moving to the top income quintile. When the Bureau of Census reports, for example, that the poverty rate in 1980 was 15 percent and a decade later still 15 percent, for the most part they are referring to different people.
Cox and Alm's findings were supported by a U.S. Treasury Department study that used an entirely different data base, income tax returns. The U.S. Treasury found that 85.8 percent of tax filers in the bottom income quintile in 1979 had moved on to a higher quintile by 1988 -- 66 percent to second and third quintiles and 15 percent to the top quintile. Income mobility goes in the other direction as well. Of the people who were in the top one percent of income earners in 1979, over half, or 52.7 percent, were gone by 1988. Throughout history and probably in most places today, there are whole classes of people who remain permanently poor or permanently rich, but not in the United States. The percentages of Americans who are permanently poor or rich don't exceed single digits."
so, no, your facts are nonsense.
the report you cite is also nonsense.
if fails to account for family size, which is one of the biggest predictors of income.
all it demonstrates is that people from big families with multiple breadwinners tend to to on to have big families with multiple breadwinners.
http://mjperry.blogspot.com/2011/10/income-inequality-explained-by.html
i'm not sure if the authors are just missing a key issue or being deliberately misleading, but there results do not show what you claim.
"Some of the most robust markets are in what you call a socialist economy. From a previous discussion. "
this doesn't even make sense. i have no idea what you are talking about.
new medicine is developed here because you get paid for it. very little comes from europe because you don't.
and again, your european figures are all tainted by the same household size issues.
you report also calims a huge hike in the US gini coefficient, which is completely untrue.
http://mjperry.blogspot.com/2011/10/more-on-imaginary-hobgoblin-of-income.html
it's been stable since the mid 90's.
the fact they they got that so wrong should make you wonder about their competence and agenda.
http://www.treasury.gov/resource-center/tax-policy/Documents/incomemobilitystudy03-08revise.pdf
according to this, over 5% of the bottom make it to the top in just a decade.
that makes your 8% number look suspiciously low.
also, why should a move all the way from one end to the other be the yardstick?
that's always going to be less common.
that said, i'll bet you it's much less common in europe.
one more important fact about comparing income to europe:
among the rich, it's nothing like an apples to apples comparison.
in the US, global income is taxed. thus, we know about overseas investments.
in the US, it is not. thus, the rich do not report their investment income to governments if (as it mostly is) it is held overseas. nor do they pay taxes on it.
this queers that dataset beyond redemption and masks most of the hereditary wealth.
if i leave an investment portfolio to my kids, it's income shows up in the US. if i lived in europe and had the exact same portfolio, held here in the US through a swiss bank, nope, zero. no income registers.
that fact alone makes these comparisons ridiculous.
finally, the more i think about your argument zach, the more a glaring flaw emerges.
you equate inter-generational wealth correlation with nepotism and living off family connections.
but you have zero evidence that that is true.
more likely, it's the transmission of the characteristics that produce success: education, work ethic, savings rates, etc.
i know very few people who work in the industries their parents do/did.
but if your parents got a good education and worked hard, the likelihood is that you will to. mine certainly instilled it in me.
success comes from education hard work and savings. if you get those instincts from your parents, well then sure, you'll tend to do as they did.
that would seem to argue that, in fact, a more meritocratic system would have higher correlation of parents and children in terms of achievement.
it's well documented that the single most influential variable in a child's educational achievement is how important his parents think it is.
this pretty much stands your whole argument on its head.
Zachriel: No, in the U.S. only 8% of the lowest 20% make to the top 20%
Yes, my calculation was terrible and I came back to delete that post. You seem reasonable so I'll accept your numbers for now.
Still though, with 8% overcoming all odds--and they're not just money based--don't you consider that quite successful?
Zachriel: It's hard to discuss policy when there is a weak empirical foundation.
Fair enough. I give you my word I'm not results driven. For example, I have no qualms with soaking the dead T. Jefferson style if it becomes necessary as determined by me.
However, I find this liberal notion of "generational welfare" is bad to be nothing less than ridiculous. Of course we want better for our children.
How many of the top group left that group because they died?
Morganovich: Income mobility goes in the other direction as well. Of the people who were in the top one percent of income earners in 1979, over half, or 52.7 percent, were gone by 1988.
You don't suppose that's because most of the 1979 top were in their prime earning years and they retired by 1988?
Morganovich: also, why should a move all the way from one end to the other be the yardstick?
Agreed. I was born in the lowest quintile in both income and assets. I will most likely never enter the top in income (my own choice), but I may get there on the asset front. I can't explain to the upper 80% how good it feels to have gone from the bottom to the 3rd quintile. I'm quite satisfied where many I know born above me are unhappy with the "corrupt system" that "forces" them to buy products instead of buying businesses.
I may not go from the bottom to the top, but I will give my children a much better chance at the top than all these complainers in my current bracket. I consider this scenario quite the generational success story of middle America. Please don't screw this up in the name of income equality.
Morganovich,
"..more likely, it's the transmission of the characteristics that produce success: education, work ethic, savings rates, etc."
Exactly. Finish high school, get married, and hold down a steady job
and you have something like a 90% probability of staying out of poverty. On the other hand, "70 percent of long-term prisoners, 60 percent of rapists, and 75 percent of adolescents charged with murder grew up without fathers," according to Heather MacDonald.
MP : "As mentioned before, income mobility is far more important than income inequality."
Assume income is random. Is this still true?
No, the point is that you deeply believe that income is truly "earned", and if you believe that, then nothing else about income distribution will matter to you.
Sean: "Assume income is random. Is this still true?
No, the point is that you deeply believe that income is truly "earned", and if you believe that, then nothing else about income distribution will matter to you."
Not sure what you mean by "random", unless you picture income being sprayed from a giant nozzle onto the heads of nearby wage earners.
As to income being "earned", I don't know what other kind there can be, as income is paid voluntarily to those taking some action, or providing labor in exchange, unless you mean in the social welfare sense.
"Oh yeah, almost forgot Jonathan Chait's great column from yesterday"...
Ahhh yes, fall back on the substanceless ravings of the lunatic libtard Chait...
Chait can't stand the fact that Pethokoukis fleshed out his point of view with the work of others...
While analyses of statistical data have been well debated here, I come away thinking we've gotten lost in the minutiae. Since WWII, America's economic tide rose along with a historic increase in population, fueled by artificially low interest rates (to further stimulate growth) and a government (both parties) that lived beyond its means by throwing massive debt onto the country credit card. This period lasted decades enough that it's easy to think it's a benchmark for "normal times." But that was the largest population blip in history. Very abnormal times, indeed. When the economy expands continuously, opportunity expands with it. When the economy contracts rapidly, as it will continue to do while baby boomers' consumption declines, opportunity contracts along with it.
This article presumes to "show those 'Occupy' people a thing or two" by revealing that people move up and down the economic strata, so there really isn't a closed group of rich people who should be taxed more heavily. But that trivializes a social movement going on in more than 80 countries across the globe right now by pretending it's limited to a bunch of "socialists" who want rich people to pay a lot more taxes, as a way of equalizing wealth.
That's not the argument. It isn't just wealth that has become concentrated; the influence that wealth now has on government has exploded. That's what the protest is about.
It's a fallacy for anyone who has been in the workplace awhile to say all that's necessary to succeed is a good work ethic and a willingness to save "because I did it," and that "these rabble clamoring to tax the rich" are just lazy, looking for a handout. WE succeeded partly because we enjoyed the unprecedented opportunities that coincided with a historic expansion of GDP, one that no one entering the workforce today will find, possibly for decades.
Our economy is contracting more than should correlate with the "baby boom correction" because our government is so deeply in the corporate pocket that trillions have been fraudulently siphoned out of the world economy by "too big to fail" behemoths and others who not only escape prosecution, but get bailed out with tax dollars. William K. Black was the regulator who oversaw over 1000 prosecutions after the relatively small S&L scandal of the late 80s. He told Mike Wallace on national television that we've just experienced a similar financial fraud but on a scale 60X larger - with no prosecutions.
We can argue which subset of past earnings data to mine all day, but that data is not predictive of anything going forward because there has been a tectonic shift. I think if we take a step back we'll see that data acquired during what was a generally expanding economy cannot be expected to hold up under the opposite economic model.
What people occupying Wall Street and LA and Cannes etc. etc. etc. are protesting is that unregulated derivatives and Too Big To Fail and the repeal of Glass Steagall, etc. has led to a tiny subset of people becoming uber-wealthy by creating and exploiting this crisis, blessed by government. And for millions, that has devastated their chances for economic opportunity and upward mobility.
They aren't clamoring to "take money away" from people who've earned it through honest entrepreneurial effort. They want to do away with Crony Capitalism, to restore true Democracy in the place of the corporatocracy we now have which tilts the economic landscape in favor of those with undue influence, and creates hardship for others. If we don't, the past economic mobility cited in this column will continue to decline as markets, interest rates, currencies and job opportunities are increasingly manipulated by those with enough power and influence to do so without consequence.
morganovich: nope. you are using bad data.
It's straight from Treasury, as cited by Mark J. Perry in the original post.
morganovich: Cox and Alm's findings were supported by a U.S. Treasury Department study that used an entirely different data base, income tax returns.
Um, the Treasury study cited in the original post was based on tax returns. In any case, you should have no trouble providing a citation to the 'other' Treasury study, rather than cutting-and-pasting what you found on a website somewhere.
morganovich: new medicine is developed here because you get paid for it. very little comes from europe because you don't.
We were curious about the ankle replacement you had mentioned in a previous thread that your relative got in Oakland. We are familiar with the doctors using the latest technology.
morganovich: that makes your 8% number look suspiciously low.
You can't possibly still be confused on this. The studies measure different things, intragenerational vs intergenerational mobility. The former measures progress of individuals as they age in their careers, while that latter compares the relative economic position of parent and child.
morganovich: it's been stable since the mid 90's.
Yes. The standard Gini Index rose to a high level, when compared to other developed nations, and stayed there. Meanwhile, the top 1% and the top 0.1% continued to grab a larger share of income, which is not captured by a decile Gini dispersion.
morganovich: you equate inter-generational wealth correlation with nepotism and living off family connections.
No. That's just a typical example. Think of legacy admissions to prestigious colleges. It does include intergenerational mobility, too, it's just that you can't separate that aspect of the social situation from the study. More importantly, you can't draw the conclusion made by Mark J. Perry in a previous, related post, which conflated short term mobility with intergenerational mobility.
morganovich: more likely, it's the transmission of the characteristics that produce success: education, work ethic, savings rates, etc.
Yes, absolutely. We've mentioned that several times. If someone's father is a police officer, she may very well follow in his footsteps.
Zachriel: It makes sense that parents would instill their children with the vocational education, work ethic and network of connections that lead to success.
Sigli: Still though, with 8% overcoming all odds--and they're not just money based--don't you consider that quite successful?
It's better than 0%, no doubt.
Sigli: Of course we want better for our children.
We're rather fond of the little hominids ourselves.
Sigli: I consider this scenario quite the generational success story of middle America. Please don't screw this up in the name of income equality.
It's important for overall prosperity for people to be able to achieve through merit. They remain motivated, and are more likely to value what they earn. It's an ideal, though, and some people certainly don't have an equal chance, especially as power and money concentrates more and more at the top.
Ron H: Not sure what you mean by "random", unless you picture income being sprayed from a giant nozzle onto the heads of nearby wage earners.
It's not that difficult of a concept to understand. There is certainly a random element to wealth, either through birth or circumstance. One person may have gold on his land, another nothing clay. The Queen of England certainly earn her position, but inherited it.
"Yes, absolutely. We've mentioned that several times. If someone's father is a police officer, she may very well follow in his footsteps.
Zachriel: It makes sense that parents would instill their children with the vocational education, work ethic and network of connections that lead to success."
then doesn't this defeat your whole argument that there is some sort of problem here?
it indicated that the US is more of a meritocracy.
that's a GOOD thing zach.
you are also totally mixing up your data.
you trot out a greater share for the top 1% like it means something. but if 57% of the 1% drop out every decade, then it just means there is greater potential to succeed (also a good thing) not that there is some sort of entrenched aristocracy.
for that, you need to go to europe.
their wealth concentration and stability is dramatically understated by their statistics. in the EU, you are not taxed on global income. a frenchman with $500 million in hereditary investment holdings in the US through a swiss broker need not report that to the government at all. it's left completely out of the data as a result and there is no plausible way for the french authorities to even compile such a figure.
speaking from a small base, i can tell you that all but one of my european investors inherited their money and that all my us investors made their cash in their own businesses.
if you really think it's easier to get wealthy from nothing in europe than here, i suggest you try it. you'll rapidly find out how wrong you are.
this is why the EU is so poor relative to the US. there are only a couple of countries there that would not be the poorest US state.
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Z: "It's not that difficult of a concept to understand. There is certainly a random element to wealth, either through birth or circumstance. One person may have gold on his land, another nothing clay. The Queen of England certainly earn her position, but inherited it."
Sean's original premise, to which I responded, was this:
"Assume income is random."
Your comment is about wealth. Surely you understand the difference between income and wealth. Are you just not reading carefully?
Also, you might consider proofreading before publishing. While comments on a blog need not be held to very high standards, it's important that your meaning not be lost.
morganovich: then doesn't this defeat your whole argument that there is some sort of problem here?
Our comments have been largely directed towards the evidence.
morganovich: it indicated that the US is more of a meritocracy.
That's certainly not clear from the evidence.
morganovich: but if 57% of the 1% drop out every decade, then it just means there is greater potential to succeed (also a good thing) not that there is some sort of entrenched aristocracy.
Michael Moore is part of the 99%.
People with very high incomes tend to have variable incomes, as well as large accumulations of wealth. Even then, 73% those in the top 1% in 1996 were in the top 5% in 2005.
Ron H: Your comment is about wealth.
It wasn't that hard to parse. Someone with oil on their land has more income and more wealth than someone with clay. The Queen of England has substantial income due to her wealth and position as head of state.
The problem lies with the top .05 percent .... who buy elections and both party politicians and establish ... bad rules which foster extreme leverage and extreme misuse of the monetary system leading to economic dysequilibria with too many, too overvalued of residential units.
2002-2007 created Mortgages have enserfed the wage earners.
How is it that the CEO's of the too big too fail companies, whose leverage was responsible for the pain, continue to be the CEO's and continue to be in the ,01 percentile?
They are above and have bought the law.
I think that American tax system should concentrate on real property rather then on income or profit because real property usually cannot be concealed, so tax fraud or tax evasion is much less possible (and this would be my suggestion to our government, too). I think that America is declining and is in criis basically because its own investors do not invest (enough) in America, but in China, Iindia and other places. Why? Because costs of production are too high in America. And these costs largely come from the high income costs of the managers...the highest one per cent. Their wealth is frozen into real property and this means a lack of liquid capital.
Z: "It wasn't that hard to parse. Someone with oil on their land has more income and more wealth than someone with clay. The Queen of England has substantial income due to her wealth and position as head of state."
Those examples hardly support the idea that "random income" is common, and are outside the scope of the conversation you jumped into.
Sean: Assume income is random.
Ron H: Not sure what you mean by "random", unless you picture income being sprayed from a giant nozzle onto the heads of nearby wage earners.
...
Ron H: Those examples hardly support the idea that "random income" is common, and are outside the scope of the conversation you jumped into.
When presented with a thought-experiment, you indicated confusion over the concept that there could be a random element to wealth.
Some people are born rich. Some people stumble on riches. We didn't say how common it was, only that there was a stochastic element involved.
"It's a fallacy for anyone who has been in the workplace awhile to say all that's necessary to succeed is a good work ethic and a willingness to save "because I did it," and that "these rabble clamoring to tax the rich" are just lazy, looking for a handout"...
They OWS whiners, some are parasites and some are hypocrites...
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Z: "When presented with a thought-experiment, you indicated confusion over the concept that there could be a random element to wealth.
Some people are born rich. Some people stumble on riches. We didn't say how common it was, only that there was a stochastic element involved."
We understand the random elements. What YOU don't understand, being unfamiliar with the extensive history of discussions we have had with Sean, is that we asked for some additional information to help explain the idea that income is random. Sean would understand the request, whereas you didn't.
In addition, you are still confusing income and wealth. Sean would understand the discinction.
Ron H: What YOU don't understand, being unfamiliar with the extensive history of discussions we have had with Sean, is that we asked for some additional information to help explain the idea that income is random.
If Sean had claimed that income was entirely random, then he would be in error. But what he did was pose a hypothetical.
Ron H: In addition, you are still confusing income and wealth.
We're quite aware of the distinction. The Queen of England has great wealth which generates substantial income, and she receives additional financial support as head of state. Most people would call this fortunate circumstance an 'accident' of birth.
Ron H: Sean would understand the discinction.
We await Sean's response.
Z: "If Sean had claimed that income was entirely random, then he would be in error. But what he did was pose a hypothetical. "
Is there a point here that you would like to make?
I think the biggest argument against the "tax the rich" movement is that the income just isn't there to cover the deficit. The fact is that taxing the top 20% of incomes at 100% would still not provide enough revenue to close the deficit.
We need to redirect our thinking toward building real wealth and improving the overall income picture for all levels of income, and that rise in income will provide the tax revenues needed to fund our spending.
The loss in real wealth through transfer of manufacturing to other countries (due to Free Trade policies), and its impact on lowering overall incomes is the real culprit, and the effects of this have been largely masked by deficit spending and borrowing, both by government and individuals.
Sean raises a good point, which is that Mark and others believe that the current distribution is "truly 'earned'," so other considerations aren't as important. However, the hypothetical example of random income is actually not a good point against Mark's belief in mobility, because I'm sure Mark would prefer a random distribution with lots of mobility, say hundreds of thousands of people who randomly get $10k shots of income, as opposed to one where a few people win the lottery and get millions. The real randomness argument is against inequality, not mobility.
And of course it is true that there's an element of chance in income inequality, just like with everything else in life, but that's not the issue: the issue is what do you do about it. And the "solution" of blindly taxing the rich more, even though many of them did earn a significant portion of their wealth, is worse than the problem, because it disincentivizes them to earn that wealth in the first place. Why else are fully a third of the billionaires here in the US? And why else are we the richest large nation on earth? It is much more random to assert that you're going to blindly take another 10-20% off the top from the rich than whatever chance incidents helped some of them to their success.
And ultimately you have to look at where that money's going to go: is it good for a society that 40% of all economic activity is skimmed off the top and redistributed to the politically connected, ie the unions and powerful voting blocs like seniors? For all Unknown and Lammert's clamoring that the rich have bought the govt, it is in fact middle-class voting blocs that have commandeered the govt to bleed the successful, all to pay for their redistributionary boondoggles. The fact that we're focusing on how much the rich earned as opposed to the trillions the govt shits away every year, just goes to show why Obama and the Dems love this "tax the rich" bullshit: it just distracts from the trillions wasted by govt today.
Simple logic works here . If the 535 people running gov't are able to enrich themselves by insider trading, a felony for us, but legal for them, then why would they ever be interested in forming alliances with their constituents? Anyone who can benefit from this type of activity will most likely cosy up to corporations, so that they can become very good "traders" and make "smart" investments with insider knowledge. All that friendship leaves little time to deal with the "people". The 535 are too busy forming "relationships" for their own advancement. Don't kid yourself. It is not about "the poeple" in any way. It is about themselves, and how fast they can find wealth through these affiliations with the corporations. Except of course for Ron Paul & Rand Paul and a few , very few others.
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