Concern over the super-wealthy is almost universally accompanied by worries about the working and middle classes' welfare. In this context, our question isn't really whether wealth -- and the cirumstances that accompany it -- is in the abstract good or bad. After all, with the massive consumer surpluses that you mention, it's awfully hard to make a negative case for wealth in general.

More important is an action-based question: should we do anything, not necessarily to temper the rich but also to help the poor? I'm a bit puzzled that you mentioned the drastically declining marginal utility of money without noting the obvious implication. When we have all this wealth floating about, the accumulation itself doesn't necessarily have negative consequences, but we may be able to achieve a substantial welfare gain by taxing it properly. While I'm all for your argument on the estate tax, I wonder about your position on a strong progressive consumption tax. It doesn't create the same disincentive effect for risk-taking, and in my mind it's a much better to way to achieve the redistributive effects that could drastically increase overall well-being.

Major philanthropies such as the Gates Foundation do not coordinate their spending decisions with U.S. national goals.

Given the miserable implementation of "U.S. national goals" during the last decade or so, this is actually good news, or?

I think you forgot the link between inequality and instability. A lot of economists and others look at Gini coefficients (which measures the distribution of wealth). I believe those countries with Gini coefficients over 6 tend to be unstable. Of course, it's not a perfect measure but it has its uses.

Also, I agree with your comments on the estate tax. It's one thing to tax the person whose ingenuity got them their wealth, it's another to tax their children who were just lucky in being born to the right parents.

Is Bill Gates rich because he is a genius or do you all think he is a genius because he is rich?
I guess it doesn't matter, he is a smart guy with a healthy sense of his own good fortune.

We don't give billions to Bill Gates to incentivize the next Bill Gates, we give billions to someone to keep everyone else working. No one would buy lottery tickets if the paper stopped running stories about winners. A few less Bill Gates stories in the US and people might start thinking the French have something there with their 3 hour lunches and their actually enjoying life.

It is fun to chart income distribution over time. The % of wealth owned by the top 1% is my favorite measure. We are at the same disparity level (40%+) as the country was in the robber-barron era or in 1929.

I really don't understand how paying over $100M for a Klimt painting turns into trickle down. Seems like the assets move between accounts in a block. I'm just glad I got to see the thing before it went to hang in some private mansion.

Has anyone else noticed that there really isn't any space anymore between $29.99 junk-heap version of a thing and $1000 luxury status version of a thing? Trickle up. Sony thinks people have $700 to spend on a video-game machine. Its going to be awhile before I can afford a plasma TV, that's all I know.

"Given the miserable implementation of "U.S. national goals" during the last decade or so,"

I blame the Republicans (After all, they did have total 100% capture of all branches of government for 6 years)

"The disincentive effects of taxing estates are much less than those of income taxation."

Taxing estates disincents people from dying. I support increasing our national average lifespan by raising the estate tax to 100%.

Seriously though, lets say I believe that raising the top income tax rate to 70% (like it was in 1967, when income inequality was at its lowest ever) would somehow stop people from wanting to make their next million. Isn't that a good thing? An incentive spreading method.

You know, the actual inventive process in this country is: a) some researcher invents something because they had a flash of inspiration, b) the company enforces its mandatory assignment clause and perhaps its at-will employment clause against the researcher, c) shareholders make money

Judge Posner does a good deal better this time than last, when he pompously denigrated F.A. von Hayek. Nonetheless, I take issue with all three negative consequences the great judge asserted for concentrated wealth.

1. Most high IQ people steer clear of government service, including teaching, not just for remunerative reasons, which is certainly true to some degree, but more, I believe, for the institutional culture that frustrates excellence and innovativeness.

2. I don't think philanthropic acts, even massive philanthropic acts, or even massive non-philanthropic acts, for that matter, should be constrained to be in concert with national goals. This is the essence of freedom. The consequence may not be seen as good by all, but it's his/her money. It must be a good for him or her to spend it that way.

3. Disproportionate influence in politics. Very true. But again, I don't see it as negative. As a matter of fact, the very idea of one-person-one-vote is the least costly method of instituting democratic participation, but it is not at all fair. I don't think that preference of Bill Gates and that of a chronic welfare recipient should have equal weight on who should be the next governor, or the next president. Through political contributions, those who are more successful, who are usually greater contributors to the society, should have greater influence on who should make our laws and lead our nation. Of course, Judge Posner is arguing in the case of highly concentrated wealth. But even then, all they can do is influence, not decide.

It seems difficult to learn much using MSFT/Gates as an example as much of its success seems a comedy of errors of those around them. Apparently Gates "borrowed" or bought the early DOS from the military in an era when software had no copyright protection and stuff that made computers work were sent around much like Linux today. Xerox had the first "Windows" with Apple doing the same. Not sure what happened at Apple but my guess is that they were so successful at selling their over-priced systems to our naive school administrators that they couldn't see prices falling in the open system world. Then the luck that IBM foolishly opted not to buy him out. And that prices of computing power fell rapidly enough to run the bloated patchwork of DOS/Windows.

IT's clear that MSFT used its early success and bankroll (and was "slow" to release their "calls" to writers of other software) to clobber a number of spreadsheet, word processor programs, along with Netscape that was of interest to what remained of an Anti-Trust division that's usually gassed and put into suspended animation during Republican era which includes the Clinton era for most of these purposes.

Arguably we'd all be far better off were MSFT not holding such a monopoly in which Win98 in its final days of support costs nearly the same as when it was new and we're back to the "lease only" for XP that's reminiscent of the heyday of IBM and perhaps we're stuck with them. But "forever" is a long time and who could or might create a competitive product? They'd have to be big, savvy and tough.

Google comes to mind as they have search, youtube and a ton of cash and Linux is free. How hard or expensive would it be today to create a low cost product and take a big bite out of Windows/operating system? Gates may want to peek out once in a while! Jack

Posner sez: "Consider two individuals: one is a salaried worker with an annual income of $100,000 and good job security, and the other is an entrepreneur with a 10 percent chance of earning $1 million in a given year and a 90 percent chance of earning nothing that year. Their average annual incomes are the same, but a highly progressive tax will make the entrepreneur's expected after-tax income much lower than the salaried worker's."

Probably not. The employee would have much of his income taxed at the top 33% rate with $85,000 subject to his 7.5% share of SS.

The entrepreneur would likely pay himself the same or perhaps much less? and I'd guess much of his million would be in stocks, options or dividends?

If he was confident of his stock price he'd perhaps sell none or very little of it, instead taking a loan against the stock for say, building a nice home and deduct the quite sizable interest payments against his taxable income with the remainder of the loan costs pretty well covered by inflation. If he DID cash in some stock he'd pay about half the employee rate on capital gains and no more on SS than would the employee.

It is "too bad" that he's missed out on the Hummer/Lincoln Navigator deal of writing off up to $100,000 for "business use" of gashogs over 6000GVW the Gov will now only subsidize his cars up to $25,000 ..... each.

Jack

Why all the handwringing about income inequality? This issue is as bogus now as it was in the past when the same story from a hundred or more years ago--think of the income disparity associated with the poor relative to the so-called "robber barons"--no doubt roiled the press rooms of that era's newspapers.
As long as the rich are rich because they legitimately earned it, then who cares if Bill Gates is richer than the "average" worker by a factor of ten thousand or ten billion? Would the Bill & Melinda Gates Foundation, and all the good that it confers on the world (separate and apart from the value and wealth created by Microsfoft's products) exist absent the ability of talented people to amass enormous wealth?
I think that this issue is a thinly disguised attempt at class warfare. As correctly noted by Judge Posner ("...there is very little envy of the rich..."), class warfare will never succeed in America.

(Microsoft's)

Perhaps we're witnessing the rise of a new economic paradigm. The conversion of the "Trickle Down Theory" to the new "Tickle Up Theory" and the rise of the New Gilded Age. Or perhaps it's just the return of the Old Gilded Age that eventually collapsed of it's own internal rot. Whatever the case, there may be more economic truths hidden away in "Kapital" than we care to admit.

Corey's first comment is revealing. He thinks the omnipresence of plasma TVs he can't afford shows inequality. What it actually shows is how expectations rise. He could go buy a 30" tube TV, with a very nice picture, for $300; the same TV ten years ago would have cost $800 (and $800 then is that much more now). But he isn't even looking at those TVs-- because he expects he should be able to have a plasma.

Which brings us to another point. The very rich may drive up the cost of finite things like Klimts, but they subsidize the cost of mass-produced things by paying for their R&D early on. Plasmas are $3000 because richer people paid $10,000 for them in 2001. Cheap cars are safer because bankers and movie stars and doctors paid Mercedes and BMW and Volvo to innovate things that are now standard on Chevys and Hyundais. Soon Wal-Mart will be full of organic food because I overpaid so much for it at Whole Foods and helped sustain the category. (No, I'm not very rich, but well-off enough to pay for WF's produce.) That's trickle-down in action.

It seems to me that the second derivative of the Lorenz curve is important if people take cues from their socioeconomic peers.

A person who is located on a part of the Lorenz curve with high second derivative can see that those people who are just above him in the economic pecking order have significantly greater income than he does, while those who are just below him have significantly less. He may therefore be highly incentivized to seek promotion, move to Wall Street, or do whatever it takes to improve or maintain his position, since the prospect of greatly increased or reduced income is very real to him.

On the other hand, a person who is located on a part of the Lorenz curve with low second derivative sees that his immediate economic superior does not actually make much more money than he does. It may be that everyone he comes into any social contact with has about the same income, and substantial changes in income seem unrealistic, like winning the lottery or a peasant becoming king. Although there may be significant inequality elsewhere in the society, his own socioeconomic neighborhood is in effect an incentive-sucking egalitarian mini-society.

Based on this simple theoretical argument, one might propose that the second derivative of the Lorenz curve should ideally be constant across social strata, in which case the ideal Gini coefficient is 0.33.

For economists who prize inequality as the means and result of properly incentivizing productive behavior: one problem with too much inequality is that you cannot make the Lorenz curve too steeply rising in one place without flattening it elsewhere. If the second derivative is exceptionally high at the upper end of the income spectrum, that may be creating too much relative equality elsewhere.

'Huge personal wealth may play a disproportionate role in political competition.'

Reminding me that Barry Goldwater was once asked if it bothered him that the country was moving toward a position where only a millionaire (JFK, LBJ) could get elected President.

Goldwater replied, 'Not nearly as much as if only the President could become a millionaire.'

I’d argue that the wealth gap will bring down democracy.

1. At some basic level, democracy threatens excellence* (the one who excels can always be outvoted by those who don’t). This plays out over time in more and more wealth re-distribution. The current status is a series of financially-shaky social safety nets where a non-productive person can lead a more or less normal life in comfort. Pictures of the victims of the depression show thin people. A lot different than what we saw in New Orleans.

2. These social safety nets are attracting people from less successful societies by the millions. This demographic tends to vote for additional wealth re-distribution for social services, further threatening excellence.

3. Taxes re-distribute people far more efficiently than they re-distribute income. One percent of the US population pays 34% of the tax burden. If taxes target them to fund social spending, many of these people can re-locate to lower tax Countries who welcome them with open arms. French businesspeople are already leaving (tax rates there can be as high as 90% for a small business owner). Trump is building in Panama. Many well-known people have land in Belize. Costa Rica is very popular. Switching Citizenship is quick and easy.

4. Democratic societies addicted to the social safety net will be reluctant to vote to eliminate or reduce it when massive, and growing, blocks of the voting public do not pay any significant taxes. I'll predict that the $90k cap on Social Security contributions will end soon, then there will be means testing. That will buy the program a few years.

5. The course the West is on is unsustainable. Borrow me a trillion dollars and I’ll show you a good time too. But the checks will, sooner or later, stop showing up in the mail. And that, in my opinion, is how the great experiment will end.

* The word excellence is used hypothetically. The correlation between excellence and wealth is shaky at best, refer to the US Senate.

Bill a few, contrary, comments:

"I’d argue that the wealth gap will bring down democracy."

........ and Jack agrees wholeheartedly.

1. At some basic level, democracy threatens excellence* (the one who excels can always be outvoted by those who don’t). This plays out over time in more and more wealth re-distribution. The current status is a series of financially-shaky social safety nets where a non-productive person can lead a more or less normal life in comfort.

hmmmm, Kinda flies in the face of the widening wage gap? Even after transfer payments? I would FAR rather the min wage be a living wage than to have taxpayers try to fill the gaps left by Walmart and similar. Want to trade? I'll take a living min wage in the range of $15 and hand over the EITC and a whole alphabet soup of transfer programs that fill that wage gap for the working poor. Deal?

Pictures of the victims of the depression show thin people. A lot different than what we saw in New Orleans.

...... today the obesity in low income people is largely due to cheap food being fat food. But??? with the "DOW at record highs" would you define poverty or "doing OK" by a shortage of caloric intake?

2. These social safety nets are attracting people from less successful societies by the millions. This demographic tends to vote for additional wealth re-distribution for social services, further threatening excellence.

hmmmmm, What did you think about the Admin holding the Congressional vote open until midnight-thirty in order to twist a few more arms and threaten the political careers of those not "going along" the BiG Pharma lobbies "deal" that prevents Medicare from doing the same price negotiation as does the VA and which SAVES the VA half what Medicare pays?

........ BTW if you want to find those millions from poorer societies take a drive around new housing developments or anywhere else that cheap labor is employed to do gut-wrenchingly hard work for low pay. You really can't take the wealth of their labors w/o educating their kids and providing some sort of rudimentary health care.

3. Taxes re-distribute people far more efficiently than they re-distribute income. One percent of the US population pays 34% of the tax burden.

........ Indeed! That math fit's kinda nicely with them having 34% of the income. But........ on second thought??? Don't we claim to have progressive income tax system? One in which the share paid by the "Top 1%" would be a higher percentage of their 34% of the nation's income?

If taxes target them to fund social spending, many of these people can re-locate to lower tax Countries who welcome them with open arms.

......... Where can top US earners get away with paying less than 33% income tax? Hong Kong?

French businesspeople are already leaving (tax rates there can be as high as 90% for a small business owner).

...... so your movie is not entitled "American in Paris?"

Trump is building in Panama. Many well-known people have land in Belize. Costa Rica is very popular. Switching Citizenship is quick and easy.

........ Great! More such corporate and rich tax abuse and more than just me will be ready to charge admission to the US market place.

4. Democratic societies addicted to the social safety net will be reluctant to vote to eliminate or reduce it when massive, and growing, blocks of the voting public do not pay any significant taxes.

........ Indeed this IS a risk of democracy and I'd MUCH rather see low end wages raise to a level where ALL could pitch in to balance our deficits. But, so far low income don't seem to vote much at all, while the rich pay K street lobbists to take care of their priorities.

I'll predict that the $90k cap on Social Security contributions will end soon, then there will be means testing. That will buy the program a few years.

........ fairly likely. And given the costs of "war" and a lenghthy nation building occupation, I'd guess the top tax rate will have to go up as well. But then, about the only "justification" given for cutting it to 33% was candidate Bush saying "he felt" that no one should pay more than a third of their income in fed taxes, but with hefty military budgets and soaring DEBT maintenance costs I kinda doubt his "feelings" were actuarily right.

5. The course the West is on is unsustainable. Borrow me a trillion dollars and I’ll show you a good time too. But the checks will, sooner or later, stop showing up in the mail. And that, in my opinion, is how the great experiment will end.

....... Hey! a point of absolute agreement! We tried the same thing for 12 years of Reagan and HW and were left with only a pile of credit card debt and high unemployment after the party. Round two looks even worse. And if cutting our way out is the deal? perhaps it would be fun? to show how the budget might be cut by half a trillion? While assuming DEBT service must be paid, and that the military is still a sacred cow?

* The word excellence is used hypothetically. The correlation between excellence and wealth is shaky at best, refer to the US Senate.

........ Ha! But hey! there you can buy incompents at a million/six pack; hardly enough to rent a medical insurance co. CEO for two days!

Ahhh yes, late stage capitalism, mirroring the pre-Depression Robber Baron era and can man's wisdom save it again? Jack

Corey writes:

We don't give billions to Bill Gates to incentivize the next Bill Gates, we give billions to someone to keep everyone else working.

In fact, we give billions to Bill Gates, because - $200 at a time - we want access to the software that he provides.

To say that "we" (in anything more than the emergent sense) give Bill Gates money "to accomplish" some society goal assumes, by default, that we as individuals and Bill Gates, as an individual, have no rights to our own assetts, and trade them back and forth only with the permission of and/or at the command of "society" (which is to say, government).

We can discuss the beneficial or harmful effects of free people trading with each other, but let's not lose sight of the fact that trade itself is an emergent process which serves to enrich everyone, and any analysis of it comes after the fact.

Jack wrote:

Apparently Gates "borrowed" or bought the early DOS from the military in an era when software had no copyright protection

Huh?

Microsoft licensed QDOS from Seattle Computer Products in 1980.

hi every one ! i was wondering could you tell me all about Malthusian theory please becuase i don't understand it compleatly so would anyone be able to tell me about it ? if so plz write a comment back for me thanks very much !!!

hmmmm, Kinda flies in the face of the widening wage gap? Even after transfer payments? I would FAR rather the min wage be a living wage than to have taxpayers try to fill the gaps left by Walmart and similar. Want to trade? I'll take a living min wage in the range of $15 and hand over the EITC and a whole alphabet soup of transfer programs that fill that wage gap for the working poor. Deal?

Ugh.

Transfer programs (done even halfway competently) are *far* more economically efficient than raising the minimum wage that much. While small changes in the min wage don't seem to have a big effect on unemployment or inflation, a rise to $15/hr is likely to be disastrous for the economy. The reason having a minimum wage a bit over the equilibrium unskilled wage level doesn't cause significant unemployment is because of transaction costs. It's easier to suck up a 10% wage hike, than go through the capital investment and training that lets you get the same productivity out of 10% fewer employees. But the money has to come from somewhere. Profits get cut for a bit, and then at some point, the money starts coming from customers (which may cause inflation), and at some further point it goes toward capital investments that let companies lay off unskilled workers.

A small min wage increase is basicallly a tax on certain relatively well off shareholders and private business owners which gets paid to unskilled and low skilled workers. But with a big increase things start to go haywire and your egalitarian dreams are all undone. The more you try to raise the min wage over that equilibrium level, the more likely and more pronounced the bad side effects.

The only way to pay everybody $15 without merely deflating the currency or driving up unemployment is to have the social capital available for any willing warm body/brain to produce $15/hour+ worth of wealth. We don't have that, and legislation won't make it so.

What can make it so is a lot of innovation. If you look at what was considered a living wage in 1950, and compare a life then on that to a life now at the dem proposed min wage of $7.25/hour (a rate that most economists think would provide very little distortion in most areas of the US), they're pretty comparable. Some things would be worse for our modern minwage earner (housing), some things would be similar (food) and some things would be much better (tech and entertainment). Overall, I'd tend to side on the modern side if anything, but it's a pretty close decision. So we've gotten to the point where almost everybody can have a lifestyle equivalent to what we would have considered a living wage in 1950.

But now, that doesn't look like a living wage. Why? because the bulk of people live better than that now. But you see that this problem never goes away. If we double wealth across the board, those currently commanding $7.50.hr will be making $15 an hour, but the people around the median would be living like the top 10% do today, and all the $15/hour people will start thinking of $30/hr as a "living wage".

There's no limit to it. Unless we're willing to demand a completely egalitarian society, there will always be people who live less well than the median who feel like they are poor. And we know what happens when we try to demand a completely egalitarian society. I'm egalitarian enough to believe it criminal for a wealthy society not to make some provision for the unable or unskilled to at least have basic health and safety (shelter, food etc.), but trying to eliminate relative wealth disparity completely or even mostly looks like a wild goose chase with no end.

I've lived on the equivalent of a modern $9-10/hour (more than min wage but much less than your proposed "living wage". It's not fun, and I didn't have much insurance against catastrophe, and I certainly prefer what I make now, but I didn't seriously worry about whether I'd have a place to sleep, food to eat or water to drink. I couldn't afford anything that americans would consider luxuries, although much of what I could afford *would* be considered luxuries by half the people on the planet.

I had a stereo, a guitar, a car, and a shelf full of interesting books, and once or twice a year I could afford to take a bus to NYC and go to a show or a nice restaurant or maybe take a trip to see relatives or friends across the country. I was able to eat meat and fresh vegetables and take a shower every day. How many people in East Africa live like that? 5%? 1%?

What standard of living are we as a society obligated to provide to those who cannot earn enough? It would take a lot of chutzpah for me to demand more than the proposed new minimum wage of $7.25/hr if I couldn't demonstrate enough skill to command a higher wage without a law. Nobody says I have to live in the generally high-income, high-cost northeast (where btw, there are almost no jobs below $8/hr now anyway), or not have a roomate, etc.

Judge Posner's model of a stable vs. variant cash flow (the 100k/1000k model) is incomplete. It either assumes a one period world or a low discount rate on future earnings, or more precisely it doesn't seem to consider when that is not the case. When the agent decides between a stable income flow or a variant income flow s/he considers the present value based on a given discount rate and expected career lifespan. This is not considered in Judge Posner's model and I believe that that can lead to an erroneous conclusion.

For example, one can quickly show a case using Excel where the present value is greater for the variant cash flow choice even with a higher marginal tax rate. Assume a 10 year career, 30% marginal tax rate for income up to $100k, 50% for income above that. If a single $1000k payoff happens in year 1 and there is a discount rate >8% then the present value is higher for the variant cash flow choice, despite the higher marginal tax rate.

While this is just one example, the discount rate and expected career length are critical to the conclusion but not included in Judge Posner's model. Higher marginal rates alone are not sufficient to induce risk taking.

oops, I meant "risk aversion" at the end there...

you can see the sample spreadsheet here: http://spreadsheets.google.com/pub?key=pQjZNumX4v1xl089aKRyqMA

Lucy, In a nutshell, the Maltusian Theory states that populations increase faster than the available food supply. Hence there will a decrease in the quantity of food per person. Possibly leading to famines.

Never happened. The problem was that T.Malthus's analysis was static in nature i.e. the use of the economists caveat, "caveat emptor- things remain the same". What wasn't taken into account was agricultrual innovation. Such things as mechanization, improved seed stocks, better land management practices, better transport networks, etc. Hope this helps.

Lucy, Whoops! Sometimes my Latin gets the better of me. That caveat, "caveat emptor" ought to be, Ceterus Paribus. The caveat emptor is another econ. market principle known as "buyer beware".

Better tax-based remedial action than French Revolution-style remedial action to level America's income distribution.

Will America's fat cats realize this too late?

Michael........ let's take a look:
Ugh.

Transfer programs (done even halfway competently) are *far* more economically efficient than raising the minimum wage that much.

........ Oh? How so? With a tax buck making the round trip from local to DC and back with a gaggle of fairly well paid 'crats taking bites out of it??

While small changes in the min wage don't seem to have a big effect on unemployment or inflation, a rise to $15/hr is likely to be disastrous for the economy.

........ I wouldn't suggest making such a change in a very short run. But??? If we short-cut the principles of capitalism and allow employers to use a man's labor at but a third the cost of maintaining the most basic living std do you "feel" that such a policy should be extended to paying the employers other costs of production too???

The reason having a minimum wage a bit over the equilibrium unskilled wage level doesn't cause significant unemployment is because of transaction costs.

......... How, do "WE" determine the "equilibrium" wage level? When capitalism simply does not work in the case of generic labor and pricing undifferentiated commodities?? And as we can SEE even in a time of increased productivity, high corporate profits and wage increases in the top quintiles that the "equilibrium" for unskilled labor follows the min wage........ DOWN well below the "costs of production" ie. what it costs to house feed and have basic med care for the "slave?"

It's easier to suck up a 10% wage hike, than go through the capital investment and training that lets you get the same productivity out of 10% fewer employees.

....... well I HOPE not! One of the GREAT spurs to increased productivity has been that of employers creatively trying to avoid the costs of labor. For example w/o computers and were we to clear checks the way we did it in 1970 it would take ALL the working women in America to do the job.

But the money has to come from somewhere. Profits get cut for a bit, and then at some point, the money starts coming from customers (which may cause inflation), and at some further point it goes toward capital investments that let companies lay off unskilled workers.

......... Oh-oh....... I'm suspecting you may be a fully trained "winger". And here's a fairly good test: The lowest TEN percent of earners get but 1.8% of the wage pie while the top 20% get 60%. One clear sign of winger status is that of claiming any dab of wage increase at the 1.8% level would be highly inflationary, break the corp and yadda-doom-yadda, while NO amount of the HUGE increases of the past 20 years at the top does any of these bad things? Would you perhaps fit the mold?

A small min wage increase is basicallly a tax on certain relatively well off shareholders and private business owners which gets paid to unskilled and low skilled workers. But with a big increase things start to go haywire and your egalitarian dreams are all undone. The more you try to raise the min wage over that equilibrium level, the more likely and more pronounced the bad side effects.

hmmmmm and in the same era as the min wage has lost 40% of purchasing power CEO compensation has SOARED by 300% and upper level salaries too have gained far more than inflation. No "bad side effects?"

The only way to pay everybody $15 without merely deflating the currency or driving up unemployment is to have the social capital available for any willing warm body/brain to produce $15/hour+ worth of wealth.

....... yep pretty sure I'm talking to a devout winger. One other clue is that of never opening an econ text..... does that fit? But just HOW did you "decide what the "productivity" of low paid workers is? Case: Grocery store clerks and produce managers etc. made higher real wages BEFORE Walmarts very productivity enhancing model was possible, yet their salaries are far lower, and indeed, about HALF that of competing Costco. Do we "feel" that the now very productive Walmart employee that helps generate the fattest bottom line in history "really are not very productive? after all?? and in fact are so worthless that US taxpayers have to chip in with EITC Medicaid and a host of other subsidies???

We don't have that, and legislation won't make it so.

What can make it so is a lot of innovation.

........ oh? We've HAD tremendous innovation and productivity has been plugging along at 3% or so which SHOULD bring a doubling of the living std every 25 years. But! the fed min of $1.50 25 years ago would buy breakfast, Today? will $5.15 buy even the same?

If you look at what was considered a living wage in 1950, and compare a life then on that to a life now at the dem proposed min wage of $7.25/hour (a rate that most economists think would provide very little distortion in most areas of the US), they're pretty comparable.

...... "comparable" eh? Probably not, but with a doubling of productivity surely those at the bottom should be able to buy TWO breakfasts for their min wage. Unless you "feel" ALL of the productivity gains SHOULD go to the CEO? who's pay went from that of 80 employees in 1980 to over 500 employees today...... and a few at the top?? Seems to me if you ARE a faith based? believer in Voodoo "trickle down" that SOMETHING other that DEBT should trickle. eh?

Some things would be worse for our modern minwage earner (housing), some things would be similar (food) and some things would be much better (tech and entertainment). Overall, I'd tend to side on the modern side if anything, but it's a pretty close decision. So we've gotten to the point where almost everybody can have a lifestyle equivalent to what we would have considered a living wage in 1950.

......... covered above.

But now, that doesn't look like a living wage. Why? because the bulk of people live better than that now. But you see that this problem never goes away. If we double wealth across the board, those currently commanding $7.50.hr will be making $15 an hour, but the people around the median would be living like the top 10% do today, and all the $15/hour people will start thinking of $30/hr as a "living wage".

........ yep. No econ text. Right? Today AVERAGE per capita income is $45,000 ie a 4 person household (two kids) would, on average, have $180,000. (Disclaimer: I'm not an advocate of all making the average) But the MEDIAN HOUSEHOLD income is but $45,000. Now in much of the country a fairly decent, but basic lifestyle could be afforded at $45K. But! remember that median means half are below that amount and I would put forth that below that figure something basic is going to be shorted. Perhaps medicare? And on down to where 38 MILLION live below the poverty line of $10,000 a LOT is going to be sacrificed.

HAD upper and lower simply participated in the productivity gains of the last 25 years while the average wage would be the same, the median would move upwards and FAR fewer would be earning a living wage, including those at min wage. But perhaps, as a winger??? you've been trained to favor helping those several rungs above to increase there share at the expense of those below?

There's no limit to it. Unless we're willing to demand a completely egalitarian society, there will always be people who live less well than the median who feel like they are poor.

......... hey, don't look now but the class warfare took place since 1980 and the lower class took a nasty drubbing. If you did read a bit on econ trends you'd hardly be worrying about "completely egalitarian" as the wage gap widens dramatically EVERY year.

And we know what happens when we try to demand a completely egalitarian society. I'm egalitarian enough to believe it criminal for a wealthy society not to make some provision for the unable or unskilled to at least have basic health and safety (shelter, food etc.),

......... ah yes. You state what ALL, decent, Americans believe: For example there are FEW of us who'd actually let someone die on the street sans medical care, but then? propose a FAR more efficient universal med care system, or that the Min Wage BE quite a major fraction of a living wage and the tap dancing and hem-hawing begins. With....... of course LOTS of help from insurance co hors.

but trying to eliminate relative wealth disparity completely or even mostly looks like a wild goose chase with no end.

........ I'm a believer in using the powerful aspects of capitalism and scarce skills and talents should be rewarded. Here's where it works: when the employees comes in a says "Well we sat down and hammered out a wage package" you're in the zone where it works. When you hear "What are "they" paying?" you're in the region where it does not work and that is why ALL modern economies have a min wage and typically one much higher than that of the US. And.... at the top it does NOT work because the old Yale pals are too close to the honey pot (note 300% CEO pay increases) and that is a major reason why a steeply progressive income tax is justified and necessary.

I've lived on the equivalent of a modern $9-10/hour (more than min wage but much less than your proposed "living wage". It's not fun, and I didn't have much insurance against catastrophe,

....... according to a recent OK study $17 is what it cost to provide those things and I'd guess your experience would confirm? Indeed, and an illness or a motorcycle/skiing accident and you'd have been subsidized by others. Does such a subsidy strike you as being a principle of honest capitalism? Did your employer also skip paying insurance on the vehicles he used? Probably not as there is no means of passing that subsidy on to others.

and I certainly prefer what I make now, but I didn't seriously worry about whether I'd have a place to sleep, food to eat or water to drink. I couldn't afford anything that americans would consider luxuries, although much of what I could afford *would* be considered luxuries by half the people on the planet.

........ well not to get you to think too much, but what do you suppose you contributed to a healthy economy when you have no money to demand and pay for the goods that are in surplus today? And were a whole town filled with ten buck folk, who would pay for schools? parks? polices? bombs? or even your own med care? retirement? disability?

I had a stereo, a guitar, a car, and a shelf full of interesting books, and once or twice a year I could afford to take a bus to NYC and go to a show or a nice restaurant or maybe take a trip to see relatives or friends across the country. I was able to eat meat and fresh vegetables and take a shower every day. How many people in East Africa live like that? 5%? 1%?

........ ummm you lived like that in the richest nation in the world (well almost) where AVERAGE per capita income is $45,000. It's a shame what colonialists have done to Africa, including enslaving its people but that's a discussion for another day.

What standard of living are we as a society obligated to provide to those who cannot earn enough? It would take a lot of chutzpah for me to demand more than the proposed new minimum wage of $7.25/hr if I couldn't demonstrate enough skill to command a higher wage without a law. Nobody says I have to live in the generally high-income,high-cost northeast (where btw, there are almost no jobs below $8/hr now anyway), or not have a roomate, etc.

........ I can only end with pointing out that if the employer does not pay enough for a man's labor to cover a basic life....... who do you think SHOULD subsidize the gap? And if he doesn't "like" to pay the full cost of his delivery truck shall we leave him to pay it or find a substitute? or pass the hat among taxpayers for him?

Jack

one of the principal reasons for growing income and wealth inequality in the u.s. is feminism. dual income households dr. dr., lawyer/ lawyer, banker/banker are now common. previously, the doctor married the nurse who quit to raise the kids, etc. now two bankers marry and hire a nanny or two. the magnitude of the effect is hard to calculate, but about 15% inequality can be explained this way

Fans of Judge Posner may be interested in the debate between Malcolm Gladwell of the New Yorker and myself over, in part, Judge Posner's critique of Gladwell's "Blink."

http://gladwell.typepad.com/gladwellcom/2006/12/more_thoughts_o.html

http://isteve.blogspot.com/2006/12/malcolm-gladwell-just-cant-leave-it.html

Redmund Sum made three claims, one of which seems obviously wrong, and another of which seems out of place.

The two claims are: (a) that "philanthropic acts, even massive philanthropic acts [should not] be constrained to be in concert with national goals" and (b) that "Through political contributions, those who are more successful, who are usually greater contributors to the society, should have greater influence on who should make our laws and lead our nation."

(a) is wrong because certain philanthropic acts can be incompatible with national security -- can, in other words, increase the likelihood that US citizens die or have their rights infringed. To take an extreme example, clearly donations to terrorist groups should be prohibited. Other, more moderate examples, raise "gray area" questions (should a US citizen be permitted to donate money to a foreign regime hostile to the United States, even if that money is slated to aid the citizens living under, not the armed forces of, that regime?). However, only the most radical libertarian would seriously contend that people should be allowed to give financial aid to organizations whose stated purpose is the slaughter of American citizens -- (a) expresses an unsound political principle.

(b) is a more contentious, normative proposition. It is also not incompatible with Posner's concern about the influence wealthy persons have on political candidates. Posner's claim is empirical: along the lines of "sometimes very wealthy people can influence politicians to act in unwise ways, and the more wealthy people are about (and the more wealth they have), the more likely it is that more politicians will act imprudently." Now, if you believe that wealthy people (net) do not influence politicians to act imprudently -- or, perhaps, that politicians will act as imprudently as they always do irrespective of how many wealthy persons are political activists -- then you have a legitimate disagreement with Posner. The normative claim that "those who are more successful should have greater influence on who should make our laws and lead our nation," however, entails neither Posner's claim nor the denial of Posner's claim.

Admittedly, you do suggest that Posner is wrong -- that wealthy people tend to influence politicians to behave prudently as opposed to imprudently -- but you give no explanation of why this is so (no refutation, in other words, of Posner's claim that there is no relation between financial success and political savvy). (b) is out of place.

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Judge Posner is absolutely right when he says that someone being rich does not harm the poor at all; on the contrary, when someone enriches they are greatly helping the poor.

However, it is not, as is commonly thought, by spending the rich man makes of his money that helps society. Were this money distributed differently, it would have been spent on other things, and the net effect to the economy would be zero.

In reality, the wealth of the rich is the consequence of their having helped society. A man´s income is what he is able to offer others.
If a man has got rich on the market, as Bill Gates has, it means that he has been able to satisfy the needs and desires of people in the way the people themselves judged the best.
He managed to use available resources in such a way that they were more efficient in improving people's lives.
Were this not the case, no-one would have bought his products, and he would not have got rich.

Great income, in the free market, means great serving of society's needs (from society's own point of view).
The only condemnable wealth, then, is that which is got from governmental repression and coercion, as for example when the government impairs competiton in a given market sector and thus helps the formation of big corporations.

There is nothing wrong with income inequality when it is the product of the free market. The problem which needs adressing is that of unmerited wealth (acquired with fraud, coercion, governmental aid, etc).

Joel: I'm guessing of course but you seem to fit into that category who A. has never opened an econ text B. are driven by partisan "pop" "conservative" rhetoric. So let's apply a few economic principles to your claims:

Judge Posner is absolutely right when he says that someone being rich does not harm the poor at all; on the contrary, when someone enriches they are greatly helping the poor.

....... hmmm "being rich" presupposes getting rich and your claim would largely be true for Edison, Ford and Jonas Salk. In the case of Walmart it would fit as well for their having "invented" a very productive distribution system.

....It would not fit for Walmart using massive economic power to bid supplier prices down below their costs so that they too have to take bread out of the mouths of their employees in order to "compete".

...... And, it would not fit for Walmart purposely driving their own wages down to the point that taxpayers pick up some $1.5 billion of what should be THEIR wage costs. This act simply enriches Walmart and the Walton heirs at the expense of their near poverty level employees, as well as a forcible taking from taxpayers who put those benefits to the poor in place FOR those having genuine, and hopefully, temporary hard times, and NOT to further enrich the richest company in world history.

However, it is not, as is commonly thought, by spending the rich man makes of his money that helps society. Were this money distributed differently, it would have been spent on other things, and the net effect to the economy would be zero.

......... well, No. Even though some rich try pretty hard to make me wrong, no matter how rich they are they can only drink so much wine, use so many computers, Ipods, CD's etc. Meanwhile at the bottom many are yet to buy their first computer or many other consumer item beyond the barest basics. Now THE main problem of ours (and that of much of the world) is a shortfall of Demand, ie our US economy is running at an estimated 70% of capacity, and in a snapshot could be pictured as being stagnant by "those who have the wallet having bought already, and those who'd like to purchase not having the wallet to buy."

In reality, the wealth of the rich is the consequence of their having helped society. A man´s income is what he is able to offer others.
If a man has got rich on the market, as Bill Gates has, it means that he has been able to satisfy the needs and desires of people in the way the people themselves judged the best.

......... well, "kinda;" the graduating group most likely to make a million before they turn thirty are those headed for "investment banking" or moving tons of money around to accomplish a consolidation of corporations that MAY provide benefit, but most likely simply limit competition and do nothing for the "poor" or cause price increases. Gates has pushed his monopoly power to the very edge, if not beyond our laws against such activities and I could certainly argue that we're stuck thinking his products are the "best" or represent "good value" w/o the benefit of vigorous competition.

He managed to use available resources in such a way that they were more efficient in improving people's lives.
Were this not the case, no-one would have bought his products, and he would not have got rich.

........ what else would you buy?

Great income, in the free market, means great serving of society's needs (from society's own point of view).

....... probably not true. "The Market" ie capitalism itself is NOT a flawlessly perfect engine. That's why EVERY nation has unemployment, a minimum wage law, farm price supports, a progressive income tax and some amount of a "safety net" along with a host of laws about collusion and anti-trust.

The only condemnable wealth, then, is that which is got from governmental repression and coercion, as for example when the government impairs competiton in a given market sector and thus helps the formation of big corporations.

....... well the thread is about inequality and you'll not have to look very far to see how inequality is dramatically enhanced by "rent-seekers" buying econ favors from Congress. Is the number of K-Street lobbyists "earning" upwards of $500/hour about 150,000 today? And have you seen picture of that cute little building in the Caymans where 12,000 of "our" corporations maintain their tax haven HQ's?

There is nothing wrong with income inequality when it is the product of the free market. The problem which needs adressing is that of unmerited wealth (acquired with fraud, coercion, governmental aid, etc).

........ Semi-true but those who have a "faith-based" belief in the perfection of "The Market" comprise the ripest of suckers for enriching those above themselves at the price of having tighten their own belts. Econ is not a religion but a tool of a democratic society. Jack

The Market" ie capitalism itself is NOT a flawlessly perfect engine.

True story. But that's only because we all think the "market" should be accomplishing something, and when it fails to do so, it's "not perfect." But I think it's a little much to expect property rights and freedom of exchange to result in a utopia where everyone is as well off as they want to. The market accomplishes that which can be expected of it, which is that it gives everyone an equal opportunity. [Don't start. Not the market we have. The pure market from the econ textbooks does. And there's no violence there, either.] This doesn't result in outcomes we want mostly because we care about how other people are doing. We don't want people to be desperately poor, so we construct social safety nets. This is not a failure of the market - it's a feature. The slow get eaten. But we care about the slow and we take care of them, and it's only right that we do; it's our moral sense more than anything that makes us human. It's only natural that we want everyone to be a little more "equal" than they would be if things were all left to their own devices, and it's only good that we want that. But we also have to take responsibility for this desire, meaning that if we [as in, society, the electorate, whoever is making this decision] want redistribution of wealth in the name of equality, we better be ready to pay for it. Not by making other private parties do so with a massive minimum wage, but with our own tax money. Less wealth disparity isn't a bad thing, but pawning the costs off to others is simply unfair.

On a related note, when did the cost of production of something become a measure of its value? Value is and always has been subjective - that's why trade isn't a zero-sum game. Jack, you allege that one needs a $17/hr wage to survive. I won't even dispute that, even though I'm getting by on a lot less than that, and I know many who are. What I don't understand is why someone should be compelled to pay that price to labor that doesn't produce that much value in an hour. You say the reason for the low wages for generic labor is the overabundance of generic labor. [As taught by every econ text.] To be blunt, if people are earning so much less than they need to live, why don't they die? Wouldn't that massively lower the number of generic laborers to the point where the wages would rise as a result of the scarcity of generic labor? The fact is that even at minimum wage, Americans are leading some of the best lives in the world. If we want people to make more money [to curb inequality], the key is to improve education and make the labor more valuable, not to compel high compensation of low-value labor. That's what's happening around the world: the Indians and the Chinese are learning technological skills that allow them to "steal" American manufacturing jobs. [Not that I for a second agree with the proposition that Americans are in any sense more entitled to these jobs than the rest of the world.] Of course this drives down wages in manufacturing in the US, but it helps the poor countries converge towards the rich. There is less worldwide inequality in areas in which free trade reigns, and free trade will continue to drive down inequality in every industry in which it is permitted. If any inequality remains, well... some people just work harder. They should do better than someone who is up at 5 AM posting on a blog.

Great rewards for entrepreneurs are fine. But what about wall street i-bankers earning $160k right out of undergrad? Or CEOs earning tens of millions of dollars in salary and perks, often while their companies perform badly, or leave on incredibly rich golden parachutes?

Aren't these examples of broken market mechanisms?

Don't they create the appearance and substance of unfairness? Do you really think the Ibanker is adding $160,000 in value -- or is his salary the result of some kind of bizarre supply problem? Why do you think doctors and laywers are fleeing to Wall Street -- because they're really doing more good there?

Even if the CEO does a reasonably good job, is it really true he wouldn't do it for a much smaller salary, given the enormous prestige and power associated with being a CEO?

Jack, from your reply it became clear to me that you have been reading too many economic textbooks, and have accepted uncritically the confused notions they often present.

First of all you seem to think that demand promotes economic growth. If only the people could buy more, society as a whole would be richer.
This is one of the most dangerous economic fallacies, and once our mind has accepted it it is very hard to free ourselves from its illogical consequences.

Another grave error becomes apparent when you say that the owners of Wal-Mart earn their profit "at the expense of" the workers.

But this analysis disregards the fact that every voluntary transaction is mutually beneficial.
An employer and a worker who have agreed voluntarily to the terms of their contract are always benefited by it. Both sides are getting more than they gave from their own estimation (or else they would not enter the transaction).

Low wages are NOT the outcome of political will or of greedy entrepeneurs. It is the result of the low value of the labour in question.

The high income of the entrepeneur, in the free market, is the result of the very high value of his function.

To distort this artificially by means of coercive action (that is, government action) would only skew the precious information and signals given by market prices, profits and losses (information which cannot be got from any other source).
Furthermore, this change in distribution, even if we disregarded the harm done to incentives and to information, would not promote economic growth.
It is a logical impossibiliy to say that an economy performing poorly due to lack of demand. What keeps societies from being richer than they are is their incapacity to produce more than they do, that is, limitations in supply.

About executives and corporations who get favours from the government, you and I are in complete agreement: this is completely illegitimate on all cases.

Did you know that Wal-Mart recently defended the rise of the minimum wage? This was not done out of charity on the owners' part. Higher minimum wages leave Wal-Mart on a better situation by making life harder for its smaller competitors.

Finally, I assure you that the idea of a "perfect" market, of "perfect competition" and similar abstract concepts are not what I base myself on.
On the contrary, the fact that information is incomplete, imperfect, that valuations cannot be calculated and that the future is uncertain only strenghten the case for the free market rather than justify governmental intervention.

This string started with a comment that "indications that inequality is surging at the very top of the income distribution merits a further look." I gave it a closer look in my textbook "Income and Wealth" and also in today's Wall Street Journal(December 14). The data, culled from a sample of individual income tax returns, are deeply flawed and not confirmed by any alternative series, such as those from the Census Bureau or Survey of Consumer Finances.

Plato and Aristotle agreed that Democracy where everyone could vote would be unsustainable because the lower class is greed, wicked, jealous and would eventually unlawfully seize the possessions of the upper class. It's happening now with estate tax and will get worse.

Plato and Aristotle agreed that Democracy where everyone could vote would be unsustainable because the lower class is greed, wicked, jealous and would eventually unlawfully seize the possessions of the upper class. It's happening now with estate tax and will get worse.

Joel:

Jack, from your reply it became clear to me that you have been reading too many economic textbooks, and have accepted uncritically the confused notions they often present.

........ Deepest apologies for basing my economic views on the principles of econ contained in econ texts, I'll see if I can trade them for .... a bible? or at leasts some of Limbaugh's juicier tidbits at my first opp.

First of all you seem to think that demand promotes economic growth. If only the people could buy more, society as a whole would be richer.
This is one of the most dangerous economic fallacies, and once our mind has accepted it it is very hard to free ourselves from its illogical consequences.

........ Oh? Tell you what you build your cafe on the old road of little demand and I'll take the new road. (I could still screw up though if only one in 100 cars has the price of a burger and the other 99 did not.) You really ought open an econ text sometime, those little supply and DEMAND graphs can be really cute.

Another grave error becomes apparent when you say that the owners of Wal-Mart earn their profit "at the expense of" the workers.

But this analysis disregards the fact that every voluntary transaction is mutually beneficial.
An employer and a worker who have agreed voluntarily to the terms of their contract are always benefited by it. Both sides are getting more than they gave from their own estimation (or else they would not enter the transaction).

.......... or so it's taught in right wing Sunday school. I think, even you, might like reading about generic labor and undifferentiated commodities having little price setting power and the effect of few buyers and many sellers bidding the price down yes...... "below the cost of production". As if THAT flaw was not bad enough by itself we've those pesky Fed Reserve bankers screwing down the money supply EVERY time the "official" unemployment rate drops much below 5%. Ahhh, yes indeedy those unemployed "welfare sucks" are in fact brave frontline soldiers in the "war" against inflation.

........ As for those employing EITHER a delivery truck or an employee NOT paying the costs of operation in a capitalist economy which SHOULD and must direct scarce resources to the efficient operator who'll make the highest and best use of them, WHO do you suppose should subsidize that portion of the costs of operation the employer does not "wish" to pay? Currently in the case of the min wage or "Walmart" worker it is the taxpayer and those who pay higher medical insurance premiums for those who can not pay anything. Are you something of a socialist? Expand the EITC and tap the taxpayer even more???

Justice: I'll certainly keep that in mind but am a bit troubled by the poor allowing the min wage to lose 40% of its purchasing power while CEO pay soared by 300%.

Could it be their having lived so many centuries before capitalism was invented? And Karl Marx? who's rep as an economist was a bit sullied by proposing communism, but appears to be spot on for predicting that capital would bid labor down to the point that revolution (or.... unions, FDR, min wage and work rules) were the only hope for destitute workers.

BTW despite the bleatings of the "death tax" set, the Estate Inheritance Tax was proposed by Republican/Bull Moose Teddy Roosevelt:

"The man of great wealth owes a peculiar obligation to the State because he derives special advantages from the mere existence of government." As Roosevelt further argued in a June 1907 speech: "Most great civilized countries have an income tax and an inheritance tax. In my judgment both should be part of our system of federal taxation." Such taxation, he noted, should "be aimed merely at the inheritance or transmission in their entirety of those fortunes swollen beyond all healthy limits."

and.... "The estate tax, adopted in 1916, was one of the means by which Americans rejected the Old World, with its political and economic monarchies."

........ here is what Bill Gates Sr has to say about it:

http://www.prospect.org/print/V13/11/gates-w.html

Plato and Aristotle agreed that Democracy where everyone could vote would be unsustainable because the lower class is greed, wicked, jealous and would eventually unlawfully seize the possessions of the upper class. It's happening now with estate tax and will get worse.

Haris you get much of it right.....

We don't want people to be desperately poor, so we construct social safety nets.

...... yes! Our humanity and care for all the members of the village or tribe come before blind faith in some abstract economic engine. Indeed, we want to USE the best of capitalist principles as a tool, not BE a tool of capitalism run amok as it did in the last "gilded age".

Not by making other private parties do so with a massive minimum wage, but with our own tax money.

........ a living wage is hardly "massive". And what would you think of a capitalist slave owner who expected his neighbors to pitch in for the housing and health care of his slaves? Or, today, one fellow may make a mint delivery Ipods in a delivery van, while for the grocery it might be only a loss leader..... as a capitalist, I expect BOTH to pay the full costs of owning and operating their vehicles and the same for their employees.

What I don't understand is why someone should be compelled to pay that price to labor that doesn't produce that much value in an hour.

......... he shouldn't. If the value of what is produced is ascertained to be less than a living wage for the employee the employer should figure out whether he can do it A. himself? B. using a machine C. not at all. BTW how did you discern that .... say, the delivery driver didn't produce "that much value in an hour?"

On a related note, when did the cost of production of something become a measure of its value?

........ it hasn't. But! if its value is below the cost of production, you can decide not to provide it, but it would be dishonest of you to expect to get a subsidy from the taxpayer in order to produce it.

Value is and always has been subjective - that's why trade isn't a zero-sum game. Jack, you allege that one needs a $17/hr wage to survive. I won't even dispute that, even though I'm getting by on a lot less than that, and I know many who are.

....... the "alleging" came from an OK study.... one of the lower cost areas in the US. Would I be making a bad bet to bet that you and the others are NOT truly "getting by on a lot less?" but counting on a variety of subsidies? EITC? Or counting on others to cover your medical costs? And..... once again I arrive at the point to ask any capitalist here, "If your employer does not pay you a living wage that covers the most basic std of living WHO should pay the remainder? And.... what sort of economic distortions does that inject into the market?

How 'rich' are we going to get if employers hire 20 men with shovels, pays his $5, leaves the taxpayer holding the bag for $10 or so, instead of paying one man with a ditch digging machine $100? Note the biz guy pays the same in both cases but does not "third party" $200/hour.

Jack

The best way to increase the wealth of the poor is to elliminate Intellectual Monopoly Protection -- get rid of copyrights and patents, which are enforced by gov't action.
The retail cost of a CD with music (or software) should be less than twice the cost of a blank CD.

Digital sharing should be legal.
Less innovation may be one result, but it's not certain to be less -- more research will be done to become famous, and to most quickly spread good ideas.

On taxes, land ownership should be taxed more (a zero-sum issue; I'd suggest $100 000 deductable with 1%/year on all property value above that); and pollution creation (like using gas).

The key for reducing absolute poverty is home ownership -- all workers should be able to buy a home.

There should be another type of company: an Employment Maximizing Company, which constantly increases the number of employees "instead" of making a profit -- but otherwise runs like profit making company. With a bottom line of headcount, upon which its managers get higher quantities of cash.

Judge P,

The second consequence you note is particularly important. Warren Buffett’s decision to donate part of his fortune to nonproliferation efforts is not philanthropic but rather a political in nature. The money will likely be directed and preventing certain states from obtaining nuclear weapons instead of striving to reduce the nuclear stockpiles of the current nuclear powers.

Tom

The best way to increase the wealth of the poor is to elliminate Intellectual Monopoly Protection -- get rid of copyrights and patents, which are enforced by gov't action.

...... but you'd get far less effort. I worked in software before code was protected and while it's true a lot of stuff circulated around in a Linux like manner for free But who would pay a staff of programmers to create games or other software of millions of lines of code?

........ I go part way with you though, with perhaps a shorter protection, or perhaps consider that when a program is not longer supported (as is happening to Win98) or that it's no longer distributed that it become public domain. But then Gates would offer token support for 98 for the next ten years!

The retail cost of a CD with music (or software) should be less than twice the cost of a blank CD.

....... probably wrong. Currently a top artist gets something in the $2 range and the less powerful he is the more promo expense he has to chip in out of that. Though we all "hate" the producer/distributor they DO have costs. While such as Walmart could cherry pick the top 40 and sell for 20% of retail, just try to run a specialty store for less than 40%.

...... but you've a good complaint, currently CD's are in essence price-fixed as the distributor participates in local advertising ONLY if the price is maintained at or above what you see. It seems to me that a lot of their problems would be a lot smaller if CD's were $10 as for making a few copies I think that talks me into buying more, as I figure a copy for a few friends is much like the olden day tradition of taking your records over for others to hear.

Digital sharing should be legal.

....... file sharing would appear to wreck the game, I had a lot of fun while Napster was around looking up oldies and rare jazz stuff much of it most likely out of print or hard to find and the artists mostly long gone. But how would new artists, recording studios et al be compensated?

Less innovation may be one result, but it's not certain to be less -- more research will be done to become famous, and to most quickly spread good ideas.

...... I like to share thoughts and ideas too, as on this blog, but its not what keeps the wolves from the door.

On taxes, land ownership should be taxed more (a zero-sum issue; I'd suggest $100 000 deductable with 1%/year on all property value above that); and pollution creation (like using gas).

....... I'm way with you on shifting a goodly chunk of our income tax onto non-renewable resources and would consider scaling that tax to penalize the dirtier fuels. But! that may well mean tossing a great and flexible fuel like NG into what used to be a huge coal-fired generation plant and runnning out of it sooner. Some tough choices and a lot more research? "Clean coal tech?"

The key for reducing absolute poverty is home ownership -- all workers should be able to buy a home.

......... this one has seemed "a sure thing" from the 70's on, but hasn't always been the case. Much of the "wealth" from homeownership has been due to the decline of the value of the dollar with the "baby boomer" expansion of demand heaped on top combined with a tax policy that makes it a virtually free means of collecting a capital gain. In the 50's home prices didn't change much and renting was a viable option. We "may" see another era like that as, now wealthy middle age boomers hang onto the family home, perhaps have a second home (in part to duck taxes on deductible interest and convert income into a free capital gain) but if as they "downsize" and give up many of these holdings housing may not be in short supply and prices could be flat for a long time.

There should be another type of company: an Employment Maximizing Company, which constantly increases the number of employees "instead" of making a profit -- but otherwise runs like profit making company. With a bottom line of headcount, upon which its managers get higher quantities of cash.

........... Interesting. Other advanced countries try to manage "full employment" But not easy to accomplish. Currently I'd say "our" nationless corpies use their K-street lobbyists to ENSURE there will be a surplus of labor and that, as we've seen the lower 40% of earners have not had the clout to get a raise in a dozen years. (See you at the voting booth!) Jack

A lot of you pretty much beg the question by asserting that Bill Gates "earned" or otherwise deserves "his" money.

How does one person "earn" $40,000,000,000. Walking on water? Being 100,000 times smarter than you? No one person can be so much better or more adept or whatever to "earn" or "deserve" or "merit" $40 Billion.

What has effectively happened is dollar votes have been aggregated to elect Bill Gates president of the "free" market. Not because he earned it but because someone has to do it.

Lots of drinkers of the free market kool-aid this week. People who are afraid of the estate tax are funny. You know you need to pull the silver spoon out when democracy starts to scare you. What's it like to have something that 1) the masses don't think you deserve, and 2) only facism can protect.

Your blog makes some excellent points however you forget to mention that the top 1-2% usually live in the places with the highest cost of living (i.e. New York, San Francisco, Los Angeles). A couple who makes over $300,000 in New York can't even necessarily afford a two or three bedroom apartment. Furthermore, many of those in the lower 1% have astronomical debt from law, medical, and business school. Those who judge the income distribution in this country without factoring in cost of living, debt, and total wealth do so at their peril.

Furthermore, has anyone mentioned that most of those who speak of the income inequality in this country are typically very wealthy or at least upper-middle class? It seems in some cases that the mention of income inequality is done by those who feel guilty about their wealth or how they made their wealth (i.e. people like Soros who makes money when other people lose on currency speculation).

Income inequality is a real problem. However, much like global warming I would be more sympathetic to those advocate for doing something, if they altered their personal life first. Guys like Soros or Buffet should be paying their fair share of taxes and doing more personally to help the poor. In the case of Soros he helps the poor in other countries (but not in this one) but spends a lot more of his time striving to influence global markets and global debates. Buffet, notoriously pays almost little in taxes and his pet cause (controlling population growth) does little for the poor in this country.

What has effectively happened is dollar votes have been aggregated to elect Bill Gates president of the "free" market. Not because he earned it but because someone has to do it.

Lots of drinkers of the free market kool-aid this week. People who are afraid of the estate tax are funny. You know you need to pull the silver spoon out when democracy starts to scare you. What's it like to have something that 1) the masses don't think you deserve, and 2) only facism can protect.
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Ian sez:

Your blog makes some excellent points however you forget to mention that the top 1-2% usually live in the places with the highest cost of living (i.e. New York, San Francisco, Los Angeles). A couple who makes over $300,000 in New York can't even necessarily afford a two or three bedroom apartment.

@@@@@@@@@@@@ Well it takes a million bucks to make top 1%

Here's a link that could put it in perspective:

http://www.allegromedia.com/sugi/taxes/#Head-4.htm

Sorry, it's 1999

Furthermore, many of those in the lower 1% have astronomical debt from law, medical, and business school. Those who judge the income distribution in this country without factoring in cost of living, debt, and total wealth do so at their peril.

Furthermore, has anyone mentioned that most of those who speak of the income inequality in this country are typically very wealthy or at least upper-middle class? It seems in some cases that the mention of income inequality is done by those who feel guilty about their wealth or how they made their wealth (i.e. people like Soros who makes money when other people lose on currency speculation).

@@@@@@@@ hmmm, How do you surmise that 'guilt' is what drives those VERY few who speak out? Have you "heard" the efforts of the Walmart heirs crying more more more and paying lobbyists millions to get rid of the estate tax?

Income inequality is a real problem. However, much like global warming I would be more sympathetic to those advocate for doing something, if they altered their personal life first.

@@@@@@@@ Agreed; it is a REAL problem that is NOT being addressed by "The Market". Not sure what you think the super rich should do volunatarily but I think we've had a glimpse of what many do, do.

Guys like Soros or Buffet should be paying their fair share of taxes and doing more personally to help the poor.

@@@@@@@@ Funny thing is that Buffet who WAS going to be an "Arnie" advisor told Californians that he was cutting a VERY fat hog at their expense due to the Reagan Jarvis Prop 13 being SUCH a benefit to the rich and a scam for those with much less. Arnie didn't bring him around after that.

In the case of Soros he helps the poor in other countries (but not in this one) but spends a lot more of his time striving to influence global markets and global debates.

@@@@@@@@@@@@@@ It's his choice isn't it? And he was not born here and made his first Billion shorting the Brit Pound (when it was in about the same position as is the US buck today)

Buffet, notoriously pays almost little in taxes and his pet cause (controlling population growth) does little for the poor in this country.

@@@@@@@@@@ Yup.... and brags about, and advises that one of his "secrets" is that of picking very carefully and NEVER selling (except REAL dogs for which he can deduct the losses against his steady wins) and it's a "secret" of many of the rich.

@@@@@@@@@@ You don't come out and say so, but perhaps you'd advocate public policy that would slow the rapidly widening wage/wealth gap?

All the casual comments above are unimpressive. I am a child of parents who were children of the Depression. My parents suffered hard, but managed to raise their kids OK. We, the kids, froze our butts off in Midwestern winters, living in an attic converted to a bedroom. It certainly was better than sleeping outside.

It was my privilege to supplement our family's income by delivering the St. Paul Pioneer Press in the morning, and the St. Paul Dispatch in the afternoon, for four years. Delivering a newspaper with a headline that screams "40 below zero," dragging copies along on a sled to loyal customers, was tough but manageable.

So much complaining nowadays comes from people who don't know what it is like to work really hard (meaning you feel like your back will break, and your fingernails accumulate earth beneath them, and bones break occasionally, etc.).

All this complaining about wealth inequality really leads nowhere. The complainers are either too lazy to get off their asses and work, or visualize themselves as some sort of privileged class who need not do so, and can preach to those of us who do work the hard way.

Just to point out I was talking about the top 2% not the top 1% as the top 1% and 2% are both in the same tax bracket, unfairly I might add. It doesn't take a $1 million to be in the top 2%.

Continuing my own train of thought from above... A quadratic Lorenz curve implies a Gini coefficient of 0.33, about that of France or Canada.

However, a Lorenz curve with constant second derivative may not be desirable after all, because at the top end of the income distribution the (constant) reward associated with advancement becomes small compared to the individual's existing income.

If instead we say that the second derivative of the Lorenz curve should everywhere be proportional to the individual's income (i.e. proportional to the first derivative of the curve), then the Lorenz curve should assume the form of an exponential:

L(X) = exp(k X) / (exp(k) - 1) - 1/(exp(k) - 1)

for some choice of growth constant k.

The resulting Gini coefficient is
G = (1 - 2 * (exp(k) - k - 1)/k/(exp(k) - 1))
and can thus be anything depending on the choice of k.

this blog is like candy!!! sorry. expect to see me around from now on.

Jack, you really need to do more research before you post. Just picking an obvious example, you assert:

"That's why EVERY nation has unemployment, a minimum wage law, farm price supports, a progressive income tax and some amount of a "safety net" along with a host of laws about collusion and anti-trust."

Even the most cursory research on your part would have found countries without a minimum wage, countries with a flat income tax, and countries without farm price supports. Your posts are rife with these sorts of errors, I only picked this as an egregious example. I doubt many people take your posts seriously because of these kinds of sloppy errors.

You people need a life ....

Hesse is just jealous becuase Hesse has nothing interesting to say, although I didnt read any of the coments so I dont know how much was actually interesting, but still what a stupid comment. Even dummer than my comment...ha.

Morbo; Thanks..... should have SPELLED OUT "advanced countries" and/or CMA with "most".

I wrote this in regard the KNOWN (to all but the voodoo set) FLAWS inherent in the capitalist model and would have enjoyed it more IF you tried to rip the heart out of my case rather than nipping at my ankles. In short would you rather learn from the main current or nit pick the back eddy?

Also would you like to post a bit about what DOES happen in nations having no safety net? or other adjustments to make capitalism work?

Hesse, I enjoyed both Steppenwolf and Siddhartha in my youth and intend to read some of your later works soon. But what sort of "life" do you advise today?

At late brunch today there were a number of people seemingly mesmerized by a guy shouting about a football game on a blaring TV and though they were in groups didn't talk much or exhibit much Christmas cheer, while down the road a Walmart looked packed with those picking up a few last minute gift items mfg by Chinese slave labor and distributed by and army of employees giving up their Sunday to further enhance Walmart's VERY fat bottom line for $70 for the day or so. What do you like to do?

Jake: It's good that you worked hard in your youth, managed to survive and even prevail, but what are your real thoughts on the subject of massive and growing inequality regardless of how hard folks do work? Do you favor a system in which your children too are mired in nut-grinding hardship with 38 million others living in poverty in this great nation due to the productivity increases failing to "trickle down" much below the $100k a year group?

Richard: Loved the Lorenz curve and math but does your unstated conclusion favor a democracy that is highly dependant upon having a strong and sizable middle class using capitalism as a tool for wealth generation and distribution or us being but tools of a "sacred" econ model that produces $45,000 per capits but leaves 38 million poverty with just $10,000 and 45 million working folks not covered by any health coverage other than showing up, half dead, at the ER? Surely the study of "what will be produced, at what price and for whom" amounts to more than a blackboard full of formulas? Jack

Nelson: Your ideal is interesting and to be sure, by comparison I'm taking "baby steps" from our past policies of "we stole your land by force, but otherwise "fair and square" and screwing Mexico and S-A vigorously and often over the intervening decades, but even bring the focus of the discussion of the "Mexican immigrant problem" below the border and asking that our "diplomats" seek policies beneficial to both is enough to have me labelled "soft on something or other" or "soft in the head" by the fence em off and forget em set.

But! stodgy as it may seem I've reservations as to having no nations and no borders but instead favor a "nations" or groups who can run somewhat differing experiments as we do in the US with different states. For example, I live in Alaska and it takes newcomers quite a while to learn why we might do things differently here, or better example, when our rich salmon fisheries were managed (before statehood) by those in WA DC the resource was wiped out. Today, under Alaskan management it's been restored to the runs of the early 1900's Currently there's a raging controversy over a proposed mining of a huge deposit of copper and gold, but the mining tech used for that type of mine may lay waste to Lake Illiamna (perhaps the largest and best sport fishing Lake in the world) and damage or ruin the huge Bristol Bay Salmon run. I doubt this would turn out well if it were up to a few Congressmen taking 3 day junkets; instead much of the outcome will be decided by those living here, native Alaskans in the region etc.

But more of your post is about the free migration of labor, and I'd agree that where a labor vacuum exists next to a country in labor surplus the vacuum is likely to be filled..... by one means or another.

But! there are concerns here as well. Say one country has sacrificed in some way, say to preserve their rivers, farmlands or the environment in general, while over a century a neighboring nation has laid waste to their natural resources, so when the inevitable famine or disaster strikes them, do they just pack up and move to the "green" country? And try to do the same?

Coming back to the present, fortunately, despite tremendous adversity 99.5% of Mexico's 100 million people chose to stay home each year; they like their country, family and friends. But half of them are under 30 and probably are looking at 30% unemployment in that age group. So the least disruptive policy would seem one that purposely exported some of our labor shortages to Mexico (if need be at the expense of rapidly growing China or India) in hopes of bringing their wages and levels of employment closer to ours.

If we "got it right" 50 or 100 years from now Mexico might play more of a "Canada role" in North America and freedom of choice would seem much easier. Today the problem for both "globalization" and immigration in many parts of the world is simply that the pace is too high.

Haris, also in "free trade" et al it's the pace of change that is far too high and with too many Americans being naively provincial I think we fail to "GET" just how large the labor overhang (unemployed or starving with a "job") is (something like 1.5 billion) and no matter how strong the market of our 5% of the world's population is we can NOT employ (offshore et al) all of them without taking our wages down so far that the living std of the US will be unrecognizable in the very near future.

The economics of "relative advantage" used to speak to the natural advantages one trading nation held over another at similar pay scales not the employment of .50 labor having the "advantage" over the nation of $20 labor.

There are but two choices here (other than ruin) the US has to aggressively find SOMEthing or MANY things to export or adopt policies to dramatically slow our imports. The "free trade" theory is fine but it only works in "the long run" and as Keynes famously said, "In the long run we're all dead". Jack

Here is my take:

http://www.concurringopinions.com/archives/2006/12/fisking_posner.html

I just don't see why Robert H. Frank's many contributions to this debate are ignored by Posner. If we want to understand the problems caused by rising inequality, we should turn to Frank first.

The economics of "relative advantage" used to speak to the natural advantages one trading nation held over another at similar pay scales not the employment of .50 labor having the "advantage" over the nation of $20 labor.

I can only conclude from this paragraph you are economically illiterate.

a) the usual term is comparative advantage

b) you are confusing comparative and absolute advantage

c) there is no reason why a nation with $20 labor cannot compete with a nation with low cost labor. Workers in high wage economies are much more productive

d) comparative advantage is not invalidated by large differences in the cost of labor.

Ben sez:

I can only conclude from this paragraph you are economically illiterate.

JJJJJJJJ Please support your thesis.

a) the usual term is comparative advantage

JJJJJ Indeed that is the correct term.

b) you are confusing comparative and absolute advantage

c) there is no reason why a nation with $20 labor cannot compete with a nation with low cost labor. Workers in high wage economies are much more productive

JJJJJJJJ Hahaahahaa! Great stuff! Let's see, China has a growth rate 4-5 times that of the US, we run a couple hundred Billion in trade deficit with them and about ALL that we do sell them are machine tools and complete factories that will further enhance their ability to "compete" with us.

d) comparative advantage is not invalidated by large differences in the cost of labor.

........ Indeed, but using the .50 (which is high) against the $20 of the US your theory would be true, ONLY where the "increased productivity of the high wage economy" is more than 40 times higher. Would you accept a raging growth in our now $800 Billion trade deficit as Exhibit A that such is not often the case? Oh, high tech? That deficit is now some $5 trillion and next year should add another trillion to that.

Let's see Boeing is over there now.

The Three Dams will soon be creating a surplus of VERY cheap electrical energy.

Aluminum is virtualy a DIRT-cheap mineral turned into a solid by using a LOT of electrical energy.

So, Chinese aluminum should be FAR cheaper than that made in the US with oil cartel energy and far more costly labor.

With the stockpile of aluminum at the ready, would Boeing ship it to Seattle so that $40 guys can build the next generation of planes? Or? would they build the planes there using all those engineers and others that China is wisely producing for $2? $5? and then fly them back?

Do you think we can "make it" selling corn for $2/bushel, arms, fighter jets and the few other areas where we have a temporary? advantage?

Jack

What have wage differences got to do with a trade deficit? Please explain. After all, a number of high wage western economies run trade surpluses.

It is precisely my contention that the productivity of a Western worker is many times that of Chinese. The average American worker produces $81,000 of value added per annum, German $80,000, British $55,000, while a Chinese worker adds only $2,900 value per annum. The ratio of productivities there is about 30 (source: Wolf 2004:175). The relationship between these values and wages is proportionate.

All your talk about cheap electricity and aluminum indicates you are still confusing absolute and comparative advantage.

I have no idea what combination of products will let you "make it". The answer to that question requires an economy-worth of information and it changes every day. I just don't think you've even begun to understand the nature of the problems you think you have all the answers for.

Ben sez:
What have wage differences got to do with a trade deficit?

jjjjjj A lot, and when I was favoring a living min wage and collective bargaining you were the first to warn that we'd not be "globally competitive" though the far higher upper wages and CEO pays seems to be...... "exempt?" from such concern?

Please explain. After all, a number of high wage western economies run trade surpluses.

jjjjj Let's look at them. Are they awash in oil? or have trade policies NOT designed by nation-less corporations?

It is precisely my contention that the productivity of a Western worker is many times that of Chinese. The average American worker produces $81,000 of value added per annum,

jjjjjjj I sure wish you'd trotted out these numbers while claiming that the "productivity" of min wage folk is but $10,000 and unchanged in a decade of productivity increases?

jjjjjjj more seriously if the number were honest we'd not be dealling with a trillion in trade deficits, with econ advisors indicating "the only hope" is that of purposely weakening the dollar, which is a relative drop in our standard of living vs that of the countries whose script is increasing in strength due to their trade surpluses.

German $80,000, British $55,000, while a Chinese worker adds only $2,900 value per annum. The ratio of productivities there is about 30 (source: Wolf 2004:175). The relationship between these values and wages is proportionate.

jjjjjjjjj except the "average" Chinese is growing and selling cheap rice to each other while the export sector is vastly more productive than your numbers would indicate and that by buying chunks of our federal debt and lending us a couple hundred billion of trade deficit dollars so each household can continue to buy $7,500 more abroad than we sell, they artificially prop up the dollar and maintain an extra trading advantage beyond that of slave labor standards and few environmental controls.

All your talk about cheap electricity and aluminum indicates you are still confusing absolute and comparative advantage.

jjjjjjjj Is this a means of ducking a comment on my prediction that they'll end up with much of "our" aluminum production and the products we've held a tech advantage in producing? The most recent Alcoa plant is being built in Iceland to take advantage of a hydropower benefit there, where would you predict the next one will be built?

I have no idea what combination of products will let you "make it". The answer to that question requires an economy-worth of information and it changes every day.

........ Indeed! and we're in a glide path of a trade deficit of 7% of our entire economy. Given that others are gaining (with "our" gracious help and investment) in the more lucrative areas of software, design, engineering, and mfg that are all "more productive" than the textile jobs that left long ago, do you see anything on the horizon that might slow the 20% per year growth of the trade deficit, much less begin to balance out the trillion dollar short fall?

I just don't think you've even begun to understand the nature of the problems you think you have all the answers for.

jjjjjjjj Me? If it's a given that our nationless corps insist on giving China, Japan and India MFN access to our markets while they do not reciprocate, nor adopt civilized work rules and living min wages and environmental standards in their own countries I don't have any answers to how we prosper while remaining fat, dumb, and blissful during the ride down either.

If you do have an understanding of econ principles, just for fun you might run your labor supply and demand graph using a near-infinite supply of labor at all strata from unskilled to engineering, medical, software and computer hardware, and nuclear tech and see what wage you come up with for all but those working on the top floors of "our" nationless corps. Jack, recalling the demise of other civilizations that spent their declining days praying to false gods.

Jack, you haven't explained what wage differences have to do with a trade deficit. "A lot" doesn't help. Please explain.

The rest of your post is one non sequitur after another.

Jack, you're somewhat hogging the thread, but at least you DO respond to everybody.

The 'USA' is not going down in absolute terms; as China and India get richer, the US will also get richer. They MUST have higher growth rates to catch up -- the failure of the EU to even equal the US growth rates (over any recent 5 year period) is why the US is even gaining. But EU 4+ weeks vacation is better living than US 2+ weeks.

Simple Cost-Benefit Analysis of Intellectual Property Rights (=monopoly protection, which is NOT free market) indicates some cost of enforcement, per computer. Meaning the cost goes up with each computer.

I agree that free music/ movies/ software would mean 'less' is produced -- but far more would be consumed/ experienced of both whatever already exists (continually increasing) and the new. And with blogs like this and millions others, there's plenty of new content. With fewer workers 'making money' in those monopoly industries, wages would fall -- mostly for the super rich like Gates or Bono whose income is protected by gov't enforcement of their little monopolies.

The Dems fail to attack gov't support for the super rich -- and you, too, fail (or I missed) documenting how taxpayers subsidize Wal-Mart. But it should certainly stop, such as local gov'ts giving Wal-Mart low-cost land, etc.

As poverty in the world goes down, especially in China and India (first?), the relative importance of the USA will inevitably go down. But these three countries are the ONLY ones over 300 million.

Please consider proposing your own solutions, (or referring to a blog?), and contrasting other solutions to yours, rather than merely objecting/ commenting.

On Mexican immigration: if there's 12 mil. illegals in the US, at least 10 mil. from Mexico: of 100 mil. that's 10%; of some 50 mil. "working age", 10 mil. would be 20% -- so Mexico is failing to provide jobs for too many Mexicans.

Actually, Mexican entrepreneurs are failing, because of terrible Mexican gov't policies. (Including many that might be similar to what Jack wants?) "Mexico" doesn't make decisions, only real people do.

Ben sez:
Jack, you haven't explained what wage differences have to do with a trade deficit. "A lot" doesn't help. Please explain.

jjjjjjj: Ben your theory appears to be that (chest thump and drum roll) that WE can out produce low wage countries despite our far cost of living and higher wages. How about finding out experimentally? This week 50% of Christmas shoppers visited a Walmart. So perhaps go in there, pick up say 50 products at random, see where they were produced and ask yourself why they were produced in a low wage country if we can out produce them with our wage/cola scale.

For the soaring trade deficit itself just look around. Do you have a competing theory as to why we have a trade deficit? Or any predictions as to whether it's likely to change for the better?

As for "non sequiturs" perhaps it's best if you'd either point out any real or imagined logic errors or not make any unsubstantiated comments? Thanks.

Tom sez:

Jack, you're somewhat hogging the thread, but at least you DO respond to everybody.

jjjjj Sorry, I don't mean to hog, but perhaps a conversational style or questioning the positions of others is at least as good as tossing out a drive-by theory and traveling on?

The 'USA' is not going down in absolute terms; as China and India get richer, the US will also get richer.

jjjjjj I'm not sure what to use as an absolute, but have noted the lower half of earners have had next to no improvement in purchasing power in 15 years and for most Americans the costs of such semi-"absolutes" as oil, gold, platinum, travel in the rest of the world, housing have soared in terms of hours worked. I don't see any connection with our becoming wealthy vis a vis China as we continue to run a huge deficit buying consumer goods from them and selling them only factories and machinery to enhance their own productivity.

They MUST have higher growth rates to catch up --

jjjjjj I'm all for the poor of the world enjoying higher growth rates and because they can buy and use tech that has had most of its research costs amortized they should be able to play a good catch up gain. But in regard to our being able to soak up the product of the worlds surplus labor and run growing trade deficits, well, a few guys like Bernanke and Gspn deem it "unsustainable", Something about the emotionless way old Greenie says the word is quite convincing to me.

the failure of the EU to even equal the US growth rates (over any recent 5 year period) is why the US is even gaining. But EU 4+ weeks vacation is better living than US 2+ weeks.

jjjjj It's probably pretty difficult to compare the US with the EU as it absorbs E. Germany, has a population aging even faster than the US and that is declining in numbers. BTW a recent study showed that in terms of hours worked, the French worker is more productive than is the US worker. Given our tremendous advantages in resources if a worn out country like France is even in our rear view mirror it's time to check our act.

Simple Cost-Benefit Analysis of Intellectual Property Rights (=monopoly protection, which is NOT free market) indicates some cost of enforcement, per computer. Meaning the cost goes up with each computer.

I agree that free music/ movies/ software would mean 'less' is produced -- but far more would be consumed/ experienced of both whatever already exists (continually increasing) and the new. And with blogs like this and millions others, there's plenty of new content. With fewer workers 'making money' in those monopoly industries, wages would fall -- mostly for the super rich like Gates or Bono whose income is protected by gov't enforcement of their little monopolies.

jjjjj Both myself and the Clinton era anti-trust division agree that Gates is a beneficiary of monopoly power and is not shy about weilding it as in clobbering Netscape and buying up potential competitors while Bono has excelled in one of the most competitive fields on his talent and energy. I don't begrudge him and U-2 their couple bucks per CD or what they make filling stadiums. Given that scalpers buy up the tickets and sell them much higher it's hard to even make a case that he's charging "what the market will bear"

The Dems fail to attack gov't support for the super rich --

jjjjj agreed. Our "democracy" has fallen prey to an "industry" of "reps" dealling in favors that are not beneficial to the vast majority of the citizenry.

and you, too, fail (or I missed) documenting how taxpayers subsidize Wal-Mart. But it should certainly stop, such as local gov'ts giving Wal-Mart low-cost land, etc.]

jjjjjj Don't get me started!!! It's my contention that with FEW exceptions the employer should pay a min wage that is very close to the cost of a basic living standard, and NOT doing so is to short circuit much of what makes capitalism work ie allocation scarce resources to the most efficient users of those resources. Walmart's bottom line is further fatted by their game of 28 hour "part timers" being eligible for the whole alphabet soup of transfer programs that generous American people meant for those truly down on their luck or working for the most marginal of small business. The taxpayer chips in $1.5 billion subsidising the wage costs of the richest corp in world history, while Costco manages to succeed paying twice the hourly pay of Walmart.

As poverty in the world goes down, especially in China and India (first?), the relative importance of the USA will inevitably go down.

jjjjjjj I'm fine with all those countries coming UP without taking us down and with China @ 10% growth or doubling in just 7 years while the US slogs along at 2% doubling in 35 years or growing just 15% while China doubles it's happening VERY fast. Again it is our soaring trade deficit that is at issue.

Good summation of the problem:
http://www.kansascity.com/mld/kansascity/business/16269774.htm

But these three countries are the ONLY ones over 300 million.

jjjjjjj Our trade deficit is scattered pretty widely and its rare for us to run a surplus these days with any trading partner. Probably best to think of the US being but 5% of the 6 billion people of the world that has a billion plus as surplus labor and most offer no market opps or means of balancing our huge trade deficit

Please consider proposing your own solutions, (or referring to a blog?), and contrasting other solutions to yours, rather than merely objecting/ commenting.

jjjjjjj Well the KC article outlines our problem with China and the problem points to the solution which should include "playing fair" with the value of the yuan, beginning their own "New Deal" of civilized work rules and a living wage, with the world insisting on them cleaning up their environmental policies. (Bit hard to do though with Bush riduculing Kyota and doing zip-nada to slow our consumption/wasting of energy.)

On Mexican immigration: if there's 12 mil. illegals in the US, at least 10 mil. from Mexico: of 100 mil. that's 10%; of some 50 mil. "working age", 10 mil. would be 20% -- so Mexico is failing to provide jobs for too many Mexicans.

jjjjjj exactly! And we'd be wise to watch closely the terrorist uprising in Oaxaca:

http://www.indybay.org/newsitems/2006/08/23/18300044.php

Actually, Mexican entrepreneurs are failing, because of terrible Mexican gov't policies.

jjjjjjj Mexico has some terrible policies but our own NAFTA (along with WTO and China MFN and games) have made things MUCH worse in Mexico with wages actually dropping since NAFTA while unemployment has soared. We COULD, as we've done for a century or so say "terrible Mexican gov't policies." .... yawn, what else is new and continue screwing them but there are far better policies especialy since they are right next door and not in Asia or the M/E.

(Including many that might be similar to what Jack wants?)

jjjjjjj Hardly. While our wage-wealth inequality is nearly as bad as that of Mexico the poverty level is FAR more desparate there and it may be in our hands to decide whether we'd like to try to "fence out" a nation starving in poverty engaging in military revolt or find win-win means of using their surplus labor to partially solve our inability to compete in the global market place. We've a $13 trillion economy, theirs is ONE trillion. We buy some $500 billion worth of stuff from China. Which suggests that were we to divert 10 or 20% of that trade to Mexico it would soak up most of their unemployment.

"Mexico" doesn't make decisions, only real people do.

jjjjjjj Indeed that is true and you may have noticed their vote counting flap and people in the streets over the strong arm results plus Oaxaca, while we're "over there" spending billions like it was water on an "optional" "war". BTW if "it" is about oil, Mexico exports more oil than Iran and Iraq combined. Jack

Jack, I suppose it must feel nice to claim the scientific high ground by challenging me to find experimental proof - but I'm not the one making claims about the relationship between wages and trade deficits. That's you. I'm still waiting for your explanation, which quite plainly doesn't exist. Please stop spouting off.

As for my theory, I don't have the first clue about that relationship. I imagine it is extremely complex.

Non sequiturs. Hmmm. Well in your last post you cite going into Wal Mart and finding most things in there are made elsewhere. But a trade deficit does not follow from some retail chains stocking mainly foreign goods, nor does it say anything about relative productive capacity. Non sequitur. (It probably does say something about comparative advantage.)

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Ben: It's really time for you to put forth SOMETHING. You seem complacently content with the status quo of soaring trade deficits and a nation that does business like China having open access to our market under MFN terms.

Now it IS easy to see how our "mid-ocean" corpies can make profits, almost, regardless of what happens to the living standards of American working folk.

But perhaps if you can't or won't do the things you refuse to tackle in your last post; perhaps you could do something else? For example perhaps write a bit on "What American's might sell in the future to slow the trade deficits".

Perhaps a timeline would be good too. Say "Before our 8% of GDP per year becomes, double digits? triple digits?"

Or "Why much of any exportable work would be done in the US given the massive surplus of labor in far lower cost venues which replicate or even exceed the skills of US workers?"

Or pick a topic of your own that might fit, what appears to be, your assumption that all is just ducky and the we are not selling off the inherited wealth of our nation in favor of over consumption of imported goods at the rate of $7,000/household for current consumption while having no clue as to what we might bring to the world's bazaar.... "someday." Thanks, Jack

Thanks Jack, I'm content to ask you to justify some fraction of the material you are putting on here.

I'm not aware of an example of long term harm from trade deficits when those deficits are the product of private (rather than government) spending. Indeed, trade deficits can persist for decades and are often associated with large economic expansions.

If you can provide either a theory for, or an example of, a nation coming to harm as a result of its people producing a sustained trade deficit then I'll listen. Otherwise, I will remain completely unconcerned about it.

As for your concerns about corporations, I suppose some of your concerns about them have merit, but they must be weighed against the benefits corporations provide. Corporations are responsible for the majority of innovation in the economy. Baumol (2002) argues the main reason capitalism alone produces sustained economic growth is because it is the one arrangement that produces oligopolies, and oligopolies - usually populated by large corporations - are where conditions for innovation are optimal. Innovation is important: it is the reason living standards exceed subsistence.

Corporations have emerged as a dominant form of organization in competition with other forms, which gives me confidence that corporations have strong efficiencies in markets where they are dominant.

The concerns about corporations you raise must be weighed against the tremendous benefits those organizations bring.

Ben

Thanks Jack, I'm content to ask you to justify some fraction of the material you are putting on here.

jjjjj Sorry. If you've specific question that might be OK, but playing any more tennis against a wet blanket won't hold my interest.

I'm not aware of an example of long term harm from trade deficits when those deficits are the product of private (rather than government) spending.

jjjjjjj Reading could make one more aware.

Indeed, trade deficits can persist for decades and are often associated with large economic expansions.

jjjjjj Ha-ha! Ripe! The last time such a case might be made was when we were borrowing in order to build plant and equipment. Today we're 30% or more over capacity, NOT even keeping up with other nations on R&D and borrowing from everyone to finance partying heavily on the cuff.

If you can provide either a theory for, or an example of, a nation coming to harm as a result of its people producing a sustained trade deficit then I'll listen.

jjjjjj Us.

Otherwise, I will remain completely unconcerned about it.

As for your concerns about corporations, I suppose some of your concerns about them have merit, but they must be weighed against the benefits corporations provide.

jjjjjjj They've been weighed and found wanting.

Corporations are responsible for the majority of innovation in the economy.

jjjjjjj Well, No. Unless one counts on them buying up innovators.

Baumol (2002) argues the main reason capitalism alone produces sustained economic growth is because it is the one arrangement that produces oligopolies, and oligopolies - usually populated by large corporations - are where conditions for innovation are optimal. Innovation is important: it is the reason living standards exceed subsistence.

jjjjjjjjj Fiction.

Corporations have emerged as a dominant form of organization in competition with other forms, which gives me confidence that corporations have strong efficiencies in markets where they are dominant.

jjjjj I've not challenged the corporate form though it WOULD be good to remind you and others that a corpy is just a corpy, and NOT a citizen imbued with political rights.

The concerns about corporations you raise must be weighed against the tremendous benefits those organizations bring.

jjjjj Are most of your views equally faith-based and favorable to "our" nationless corps over the welfare of the hard working people of our once great nation?

Jack. It is striking to be accused of not reading enough by somebody who thinks minimum wage and farm price supports are in every country, or who disputes that America's trade deficit has occurred during a large economic expansion.

Are you actually capable of writing a reasoned response or are rhetorical tricks your only game? Simply labeling stuff fiction is useless. Shifting goal posts or raising irrelevant, unrelated points ("30% or more over capacity" or "...citizens imbued with political rights....") is useless. Pretending anyone who disagrees with you is against hard working people is childish.

You want a question. What is the chain of events by which an the average American will be made worse off by the US trade deficit i.e. how does a trade deficit translate to costs for the man on the street? Walk me through step by step the process by which trade deficit translates to problems.

Ben claims:

Jack. It is striking to be accused of not reading enough by somebody who thinks minimum wage and farm price supports are in every country,

....... I'm assuming other first and second world countries. Is that helpful?

or who disputes that America's trade deficit has occurred during a large economic expansion.

jjjj: I guess that would be me. Take a look: Perhaps the graph shows 2.5% GDP growth from 80 - 2000 and a bit worse after that? And what's IN that post 2000 "growth?" Not only the most massive expansion expansion of the size and cost of government, a tripling of energy costs, but borrowing half a trillion more from the future each year to "spur" a doggy that barely creates a breakeven number of jobs of declining wages; but let's pretend it's a "real" 2.5% growth so we can move along. While you're there take note of the growth from 60 - 80 can we agree it's close to 5%??

Whoops, nearly forgot; with our utilization rate at 70% and housing starts dropping from 2.5 million to perhaps 1.3 million who do you suppose is reaching out to borrow from other countries to facilitate investment in additional capacity here?

http://www.newyorkfed.org/research/epr/02v08n1/0205kahn/0205kahn.html

Now take a look at the trade deficits that accompany each era:

http://www.globalpolicy.org/socecon/crisis/tradedeficit/tables/1101tradedeficit.htm

Do you, perhaps? find the volume of that swimming pool sized area combined with the 60 degree angle of descent a "bit troubling?" as do two recent Fed chairmen? I'd rather not project the continuation of the dowward spiral as, I suppose, it could flatten out as happened from 90-97. Perhaps you might post something indicating why any flattening or a turnaround might take place?

Also, do you really think that this once great economic power must reach out and borrow 6% of GDP in order to fund a rather measely 2.5% growth? a significant portion of which is phony?

"Are you actually capable of writing a reasoned response or are rhetorical tricks your only game?"

jjjj sure! And why is it that you did not opt to write a reasoned response to my questions? Is hiding in the hedges and taking a swipe at passersby your game?

Simply labeling stuff fiction is useless.

jjj Sorry, I'd hoped to challenge you to show something on how oligopolies have been so creative and innovative? One of the medical insurance oli's paid their captain $150,000,000 last year; has the been a lot of innovation in medical insurance recently? or in my lifetime? But I DO agree innovation IS important and wonder why R&D spending is falling despite a host of tax bennies?

Shifting goal posts or raising irrelevant, unrelated points ("30% or more over capacity"

jjjjj Sorry, that's 30% is the closest number I have for our unused capacity. I suspect it is low, as, for example were the demand for computers or electronics to soar, Dell, and Intel and others could add their foreign capacity very quickly and it would take very little effort to ship a few million more WinXP's. I'd assume the housing, mortgage and related industries could easily double production as that's what they done in recent years.

or "...citizens imbued with political rights....") is useless. Pretending anyone who disagrees with you is against hard working people is childish.

jjjjjjjj So show me something?

You want a question.

jjjjjjjj No. I want answers to what I asked this time.

What is the chain of events by which an the average American will be made worse off by the US trade deficit i.e. how does a trade deficit translate to costs for the man on the street? Walk me through step by step the process by which trade deficit translates to problems.

jjjjjjj But, do you have your econ text close by?

Thanks, Jack

Jack, as usual your response here is just off-topic.

That's a great bunch of statistics in responding to economic expansion - does it refute that an expansion occurred during a deficit? No. You also conveniently ignore (or, rather, were entirely unaware of) the 8 years before 2000 when a mainly privately-induced trade deficit existed alongside the largest expansion in the US economy in history. Historically, the US economy expands faster, investment rises, unemployment is lower, and poverty falls, under a trade deficit.

Then you challenge whether oligopolies are innovate by pointing out one firm paid their CEO a lot of money. This may have fairness implications but it has nothing whatsoever to do with whether that industry is innovative.

Also, do you really think that this once great economic power must reach out and borrow 6% of GDP in order to fund a rather measely 2.5% growth? a significant portion of which is phony?

Such breathtaking inanity. The US is close to the wealthiest nation on earth, it is growing much faster than most other first world nations, particularly those in Europe, it is the world's only superpower, and yet you take all that for granted and complain that 2.5% is not enough.

Now I will answer your questions. Are these seriously the questions you are berating me for not answering?

Are most of your views equally faith-based and favorable to "our" nationless corps over the welfare of the hard working people of our once great nation?

Gee, good point. Have you stopped beating your wife yet?

But perhaps if you can't or won't do the things you refuse to tackle in your last post; perhaps you could do something else?

Yes.

Say "Before our 8% of GDP per year becomes, double digits? triple digits?"

There is a question mark on the end of your sentence but I don't see the question.

"Why much of any exportable work would be done in the US given the massive surplus of labor in far lower cost venues which replicate or even exceed the skills of US workers?"

Finally. A substantive question. My answer is that US labor is much more productive than in countries with surplus labor, and in fact data shows the ratio of productivities in countries is almost exactly the ratio of wages. Americans are paid 30 times more, they produce 30 times more per hour. See Wolf 2004 (I don't have a page ref on me). As I have pointed out, even countries with absolute disadvantages in all products must by definition have comparative advantage in some.

For the soaring trade deficit itself just look around. Do you have a competing theory as to why we have a trade deficit? Or any predictions as to whether it's likely to change for the better?

Yes. Americans save less than foreigners (particularly in East Asia) and use inwards investment to pay for imports. The trade deficit is mainly the product of the US's attractiveness to foreign investors and exceptionally high savings rates in Asian economies. Some researchers have pointed out this inwards investment is actually a very positive indicator for the US economy's health.

....... I'm assuming other first and second world countries. Is that helpful?

Yes. And convenient.

Now, my question to you. Jack I know you have no idea why or how a trade deficit can harm Americans apart from some vague idea that households that spend more than they earn will get into trouble some day. But that really has little to do with a trade deficit. I also know you can find the answer on google in 5 minutes and pretend like you knew all along. I also know that when you discover how little you know the complaint will suddenly morph into a series of unrelated statistics that poorly disguise your attempt to cover your entirely uninformed earlier comments.

But what the hell, let's have some fun. My question, again: What is the chain of events by which an the average American will be made worse off by the US trade deficit i.e. how does a trade deficit translate to costs for the man on the street?

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