Queries – the place where I ask questions and ask for answers.
Go watch this video.
Okay, even I don’t watch a video just because someone told me to. If you’ve noticed, I rarely post links to videos, preferring to send people to data sources, even if it is only wikipedia. But this video about wealth disparity in America by politzane is well produced and made me think about our economy in a new way. Nothing said is new but, as a follower of trends and someone who has studied large, complex systems professionally, this video inspired a thought about what comes next.
Large, complex systems tend to be stable because of inertia, but can be driven to extremes at which point they either self-correct or collapse. They rarely safely stabilize at or near a boundary. Pop stars lose their popularity. Forests recover after volcanoes knock down all the trees. The extreme values of CO2 emissions are one of the worries about global climate change. The way this video presented the wealth distribution in America brought to mind those other extreme scenarios.
Polls show the majority of Americans believe there is wealth inequality in America. A return to a more generally acceptable distribution would take years or decades, but a timely reversal would probably be enough to stabilize public opinion. The data show that the trend is for increasing wealth inequality. There are limits to such increases. According to the video, the 1% of the population with the highest net worth have 40% of the nation’s wealth and have increased their income from 9% of the nation’s income in 1976 to 24% in 2012. Extrapolation is abhorrent, and two data points are a poor set, yet I work with what I’ve got. Even if they didn’t increase their net worth percentage, that would suggest they’d make 39% of the income in 2048.
Of course such a simplistic analysis is ridiculous. Then I realized that simplistic was actually conservative. The likely extrapolated rate is greater than what I assumed, otherwise the top 1% would’ve been making -6% in 1940. The constant net worth assumption is easy to challenge too because it is easy to imagine most of that wealth is invested in something that does about or better than inflation. Otherwise the richest 1% is hiring the wrong money managers.
But, what is unsustainable? The absolute limits are 100%, and that’s really only true on a global scale. At some point before 100% there are too few people living well enough to sustain the system, which is a clinical way of describing a human calamity.
That’s why this post is a query. Has anyone already performed such an analysis? It seems like a logical thing for some economics dissertation, or the product of a think tank, or the result of someone who isn’t just pondering this on a Sunday night (that I was supposed to be taking off – having worked myself to uselessness as I struggle to defend against a pending foreclosure.) Do the other analyses show self-correcting mechanisms? Is there a positive path that leads us through to – what?
If you know of any such studies, either supportive, contrary, or from a different perspective, please post them in the comments so we can take this conversation beyond on video.
Trimbathcreative's Blog (Tom Trimbath) 
the graphics are well done and impressive…one thing that must be considered is the deep changes in culture and values that allowed it to happen over the year from 1976 to 2013. Technology, of course, played a big role, but technology is benign (so far!). I’d be interested in knowing more about the demographics of the 1%. Any data on that?
Greetings, Tom,
I enjoyed your blog today (as I always do).
I found the results to be interesting. Clearly there is a significant skew that is growing over time.
I find several things to ponder here.
First, it is useful to scope out the two extremes:
1.”Pure” socialism with equality of results/rewards, not of opportunity or effort
2.Oligarchy where a tiny few have the vast bulk of wealth (read: sub-Saharan Africa – some countries)
1. has never existed and never will. But under the old Soviet Union, was a sort of hybrid where a few political operatives had nice dachas and wealth and everyone else mostly had government subsidized labor. Output was always at the lowest ebb. After all, if a farmer gets no more reward from producing 100 bushels from an acre than from 3, then he will tend towards 3. This is precisely what happened and would happen in any system that doesn’t reward risk taking and provide greater rewards for those who achieve more. In any case, 1. would be true income equality where everyone would be at the lowest level and laziness, sloth and (likely) crime would be the rule of the day.
2. was basically the old feudal system of the Middle Ages. A very few wealthy land owners held all the wealth and virtually all others were relegated to serfdom of eking out some kind of existence by working on the land of the wealthy and powerful. I don’t see that happending in America either.
I believe that the capitalistic system is the best we have and it definitely rewards those who take calculated risks (read: Bill Gates, Steve Jobs, Mark Zuckerberg, Warren Buffett and many others) to find ways to leverage small amounts of capital into increasingly larger ones. In a market-based capitalistic system, those with the most capital will always have the more options than those who have little capital.
There is no system that is perfect. Capitalism definitely has its flaws. In a purely capitalistic society with no government intervention, there would be little or no safety net for those who choose not to take risks in hope of greater rewards. So, those at the bottom of the income scale would have a very difficult life and feel themselves cut off from any options to advance. I believe that circumstance is somewhat existent in Hong Kong where there is a huge wealth disparity.
I always bristle at the term “income inequality” and tire of reading constantly of the Gini coefficient. If income inequality is an undesirable problem to be “solved” then, clearly the solution is the pure socialism where the lazy and slothful get just as much as the hard workers would.
I believe that wealth disparity and so called income inequality are not problems, they are results of any system that rewards those who labor very hard in a smart way, take risks and (sometimes) reap the rewards. Just as muddy shoes are a result of walking outside in a field when it is raining.
What is often overlooked is that the bulk of people who take risks and work hard hoping to get the big payoff – do NOT succeed. This is why the bulk of society do not choose to start businesses or take capital risk: they would rather enjoy some certainty of reward (even if less then they would like) than to “roll the dice” hoping for the bit payoff. Also, creative destruction (read Kodak, RIM and others) is a natural byproduct of a capitalistic system. Just as we like to see success, we should not try to prevent failure with government subsidies or other “remedies”. A failure of one concept generally results in creation of several others that succeed in a new environment.
http://www.SavvyCaddy.com
The unsustainability seems to be a theme, at least one element of it showed up in last night’s Daily Show interview with David Stockman. http://www.thedailyshow.com/watch/mon-april-8-2013/exclusive—david-stockman-extended-interview-pt–1?xrs=share_copy Hmm.
The post was about the US disparity. Here’s the world view. http://youtu.be/DJtOhfpGlZ8
Here’s the UK view. http://youtu.be/aOJ93tAbPP0