Why is inequality bad?

By what mechanism does inequality in and of itself increase poverty? Does it go out late at night by itself to make people have children out of wedlock and drop out of high school?

Surely you must understand that po people can’t afford to leave the red state they live in to get an abortion. And po people tend to live in high-stress, danger- and distraction-rich environments that make it hard to succeed in school.

No it’s too busy killing and robbing them.

Don’t forget cutting their hours or laying them off. Inequality is pretty darn busy.

I ran across this video recently, of Robert Reich speaking on the subject of inequality. He gave this speech in 2005, and it’s striking how little the discussion has changed in the last 8 years. I’d kind of assumed that the recent recession had brought inequality to greater prominence, and perhaps it has, but clearly it wasn’t exactly unknown prior to the big economic slowdown starting in 2008.

As to why inequality is bad, Reich addresses that in the last 10 minutes or so of the speech when he talks about what happens when a society spread wide in terms of equality “snaps apart”. Basically it boils down to there being two separate classes of people who do not understand and who mistrust each other. Empathy from one side to the other becomes very difficult. It’s easy to end up with demagogues that stir up one class against what they perceive to be the cause of the rift, to the point where people are loudly (even violently) attacking whatever the demagogue denounces without any real understanding of the real issues involved. Also, a representative democracy is pretty hard to maintain with such a rift; you have to resort to misinformation, rigging the system, and discouraging the “wrong” side from participating.

Hence Fox News and the raft of new voter ID laws.

The IRS is out with a study saying that the income gap between the top 1% and everyone else is the largest now since the Great Depression.

I wonder what it was like before then. My standard image for extreme income inequality is the conditions depicted in Sinclair’s The Jungle, which is about conditions in the Chicago meat-packing plants in 1904. It depicts life with subsistence wages in graphic terms, well beyond what came up in the McDonald’s thread.

I wish i had more time to suss this out but i strongly suspect what we’re seeing is an inevitable slide toward social fragmentation along class lines because of globalization. I don’t believe in the Labor Theory of Value but, clearly, labor has some value and what “post-industrial” really means in real terms is exporting “industrial” to the third world. Not surprisingly, there isn’t enough non-industrial work to go around. (Although one easy fix to this is tax transportation (ie carbon) into space, btw).

In i’m being sarcastic-mode theory, the solution to this is simply give everyone enough tax credits/breaks/handouts to give a very high floor and then let everyone make a living doing Etsy or delivery Etsy; but the government still has to be collect enough money to tax to give enough handouts. Although i guess you can argue we can deficit spend 2x or 3x or GDP forever, and maybe that’s right, though that’s an inverse Pascal’s Wager, imo. Which is fine and easy to do… in a truly globalized world, where tax shelters don’t exist. In our world what that means is that the multinationals escape scot free and the “small-holding” entrepreneurs get nailed to the wall.

In other words, it’s a huge problem but in order to raise enough capital you have to have some segment of society (finance) that is taxable and not so easily convertible to non-taxable shelters. It’s like the current medical cost crises - obviously it has to be a three part solution; fix insurance, fix medical expenses, fix consumers non-preventative use of it. Good luck with that in our institutional dysfunction, conjunction of money and special interests, and used car saleman-quality reps, creeping local and state level corruption, and country full of dunderheads. Similarly it should be easy (relatively) to fix economic inequality, but actually doing so and not having the entire financial class take their ball and go home would be something i’d like to see.

Interesting question. I googled it a bit, but nothing jumped out as a source with good data. The nearest thing I found was this summary of American inequality: a macroeconomic history by Jeffrey G. Williamson and Peter H. Lindert in 1980. The summary doesn’t have numbers but it says this:

Their evidence points conclusively toward an epoch of in-creasing inequality during the four decades before the Civil War. Ironically, inequality in America began to surge during the era of Jacksonian Democracy-the era of the common man-and just when Tocqueville was lauding “the general equality of condition among the people.” The Civil War reduced inequality within regions but increased it between South and North. Although Williamson and Lindert found no evidence of an inequality trend across the rest of the nineteenth century, the trend picks up again in the twentieth century so that, despite the absence of a landed aristocracy, despite the supposed value of the frontier as a “safety valve,” and despite a national commitment to the concept of equality, inequality in America at the time of World War I had reached proportions on a par with inequality in the Old World: in Germany and Great Britain. Although World War I temporarily arrested and reversed the trend toward inequality, by 1929 it was back to prewar levels. And then, as Kuznets found, there occurred a dramatic and pervasive shift toward equalization in income and wealth through World War II. This trend did not reverse itself after the war. Instead, postwar distributions of income have been surprisingly stable, with a slight increase in inequality offset by government policy: progressive taxation and increased transfers to the poor.

That last, of course, describes the situation as the authors saw it in 1980. As any number of the links in this thread have pointed out, income inequality has risen significantly in the last 30-odd years.

Why not? In broad terms, that was Adam Smith’s great contribution to economics, the idea that labor created value. Prior to that, there was sort of a mass delusion that there was a fixed amount of wealth in the world, and if you wanted to be rich, you had to take wealth from other people.

Now, I think it’s clear that not all labor is equally valuable, or that labor is the only source of wealth. A skilled worker produces more wealth per hour than unskilled one. A farmer on good land produces more wealth than an equally skilled farmer on poor land. If your labor is gathering resources or farming, your available resources affect how much wealth you’re producing.

Even so, I’d say that while labor is not the only source of wealth, it does create the vast majority of wealth in modern society. We do a lot of processing of our raw materials, and a lot of work that isn’t ultimately about processing materials into finished goods at all. The “non industrial” work you mentioned, such as software development. Even service related work, work that creates no product, creates wealth. Doctors produce wealth in the sense that they’re increasing the standard of living of their patients.

To put it another way, if you don’t believe that wealth is mostly about labor, where do you think it comes from?

I think you are confused about what the Labor Theory of Value actually is.

The LTV states that all commodities have an intrinsic value, which is essentially based upon the labor which went into producing that commodity.

This is fundamentally flawed. The only value that anything has is not intrinsic. It’s based upon the market conditions. That is, value is based on nothing more than an agreement between the buyer and seller. It is not directly related to any intrinsic quality of the commodity, and it is most definitely not tied to the labor that went into it.

Labor cost is often a good price predictor, but it is not actually a direct analog to the value of a commodity.

The LTV has been shown to be fundamentally flawed. No one subscribes to it in modern economics.

The LTV is an idea presented by folks like Ricardo and Marx… Smith didn’t really present what is considered an LTV, although his ideas created a foundation for Ricardo and Marx. Smith’s description of value, while involving labor, was much more of a market description. That is, Smith didn’t attribute value to a commodity based upon the labor used to produce it. He attributed value to a commodity based upon the labor that it would command from OTHERS in trade for that commodity. This separates it from the LTV which is usually associated with Marx and Ricardo.

Some folks from Oxford have a report out about jobs that are vulnerable to automation (via Slashdot).

Rapid advances in technology have long represented a serious potential threat to many jobs ordinarily performed by people.

A recent report from the Oxford Martin School’s Programme on the Impacts of Future Technology attempts to quantify the extent of that threat. It concludes that 45 percent of American jobs are at high risk of being taken by computers within the next two decades.

The authors believe this takeover will happen in two stages. First, computers will start replacing people in especially vulnerable fields like transportation/logistics, production labor, and administrative support. Jobs in services, sales, and construction may also be lost in this first stage. Then, the rate of replacement will slow down due to bottlenecks in harder-to-automate fields such engineering. This “technological plateau” will be followed by a second wave of computerization, dependent upon the development of good artificial intelligence. This could next put jobs in management, science and engineering, and the arts at risk.

45% is probably high, but let’s say they’re off by half - that’s still one job in every five. That’s almost three times the unemployment rate that has everyone so worried over the last few years. When you automate jobs, the productivity stays but costs go down, meaning additional revenue…which goes to the top end of the economic ladder, absent any external pressure to do otherwise. Those jobs that are left require more skills/education, which the less skilled can’t afford, so there’s a double impact of lost jobs and lost opportunities for those at the low end of the wage pool. More to the top, less to the bottom…wider economic inequality gap.

That report is pure fantasy. They seem to have no concept of how hard the problem of real AI is. What we call AI in games, isn’t. Generally speaking it’s a set of rules, sometimes with mathematical weights, but still not much more complex than a simple flowchart in broad concept. Speculating that AI will threaten jobs that require human-level judgement like management, science and engineering in the next 20 years makes them look like complete idiots. It’s nearly on par with fearmongering over the economic impact of faster than light drives.

Which is not to say I’m one of the Mr. MaGoos that think real AI is impossible, a discussion that computer science people have been having for decades. It’s just that human-level judgement requires enormous processing power, roughly 10,000 to 100,000x what we have today, and we have only the vaguest ideas at this time how to address the software issues. We might have that kind of raw computing power 20-30 years from now, maybe, but it’s somewhat in the “jetpack to work” category at this point.

In the near term, sure, we’re going to see computers reduce the need for some jobs. Web pages are replacing phone orders, for example, but it’s hard to see that as 1/10th the problem they are claiming. “Off by half” is giving them far too much benefit of the doubt.

Let’s assume, for the moment, that we’re going to see some significant shifts in the next 20 years. Will the result really be more inequality, as you’re projecting? Couldn’t you make the same argument about the impact of technology around 1900? That didn’t result in more inequality. I think you’re being overly simplistic in viewing the changes that technology brings. Yes, it eliminates jobs like switchboard operator, but I don’t think we are worse off for that.

If we look at automating jobs using existing technology, then I think it’s safe to say it does contribute to inequality, because all those displaced people just go into the (already over-full) labor pool without any significant change in product/services produced. This is happening all the time, everything from high-tech manufacturing to fewer administrative personnel.

With new technology, who knows? Depends on the technology.

As for how accurate the report is…I know nothing about what they looked at, just thought it was interesting enough to share.

Add a human clarifying the edge cases, about 1 person per 10 or 20 today, Gus…

And the problem is that the entire economy is still based on jobs-for-all, no if’s, no buts.

Just because it didn’t result in inequality 100 years doesn’t mean that it will or won’t result in more inequality today.

I think a system where the economic system is based on nearly everyone being employed, but technological advances render the outfit of many people near-worthless, does need to be readjusted, or bad things will happen.

Time magazine had a similar article the other week (behind a pay-wall, sorry). It painted a similarly gloomy picture, at least for city dwellers where automated cars and trucks might be reasonably expected to make some headway in the next decade or two. But it posited a slightly less-grim future where rather than hordes of laid-off workers starving in the streets, we are forced to transition to different model where “work” is not strictly necessary.

I’m looking toward to when we replace inefficient organic consumption units with rational synthetic consumption units. Think how accurate our economic models can be when we can perfectly predict consumer behavior!

Capitalists would have to accept the fact that their rate of profits won’t keep rising, though.