NB : This page still needs a lot of refactoring. Most of this will go somewhere else. In fact it's a horrible dump.
Q : Sure capitalism leads to inequality. But what's wrong with that if, in absolute terms, everyone is getting better off? It's naive to think that this is a ZeroSumGame.
A : What's wrong is this : wealth equals power. And the degree to which you're wealthy is the degree to which your say counts (your purchasing power is stronger). In a capitalist society, wealth counts so much that relative wealth is highly important for people's sense of self-worth, dignity, psychological wellbeing. In a world of rising inequality, those who lose out in relative wealth suffer real loss of all these.
BradDeLong on social welfare : http://www.j-bradford-delong.net/movable_type/2003_archives/002425.html
Technical stuff on PowerLaws/WealthDistribution
Positive Feedback spirals between disempowerment and ability : http://www.sciencedaily.com/releases/2008/05/080515113259.htm
Start to put someone down and you keep them down ... that's what we all know intuitively ... but economic rationality doesn't account for this.
What I say to libertarians : it's very easy to be blasÃÂ© about the problems of poverty, suffering and inequality when you don't look at, or think about them very much. I challenge any human to spend enough time looking into and understanding the nature of the problems, and depth of the misery etc., to still feel happy about letting long term economic trends solve the problems for these people's descendents. -- PhilJones
Surely we should be careful to look at timescale issues. Yes inequality in UK has (I believe) gotten worse since the 70s rather than better. That is a bad trend. But the longer term trend is that modern societies (prosperous liberal democracies with a social welfare system) are much more equal (both in terms of rights and wealth) than the societies in which our grandfathers live in.
The new poverty divide that has 'recently' caught the world's attention is the massive poverty divide between the richest and poorest people in the world. This is the really significant problem.
As the poorest people in the world are so poor (and have no rights) it's impossible to get poorer. So the fact that the richest people today have gotten richer than before (although not relative to nation states) means that the global divide today is at the greatest its ever been.
This relatively new recognition of the importance of thinking about poverty on a world scale does pose very big political problems that unfortunately won't be solved for a long time. I believe that without a growth in political accountability between nations there wont be the right framework to allow the wealth 'damns' to be slowly undone. Indeed, organisations like the WTO are potentially the right kind of vehicle - potentially.
Of course, there is also another reason why inequality may have to be maintained for a while ... which is that our current technology is so destructive to the planet that we just couldn't all live with the consumption habbits of the middle classes in the west (let alone the rich minority).
When people talk about moving towards a more equal world they usually don't mean that the middle classes of the west should become considerably poorer. Except, of course, the 'extreme' environmentalist who think this is precisely what must happen now or else we'll destroy the planet anyway.
So, I don't think the problems of global absolute poverty (the kind we should all be ashamed of) are interestingly connected with capitalism. Rather it's mostly an issue of nation state based politics and the fact that there are 'failing' nations and no global politcal process to help these nations.
It's also a scale issue. Quite a lot of the shameful poverty occurs in large third world countries: India, China and of course Brazil. In such large countries its all too easy for millions of people to become politically irrelevant ... both in terms of their individual 'power' and in terms of how much other people care about their plight.
The worst kinds of absolute poverty within each of these countries is currently a problem for these countries to sort out .. and indeed capitalism won't do this. That's exactly what social welfare systems are for.
Maybe there is a need for a global social welfare system .. but again .. that would need global accountability. Just imagine how many billions of dollars would flow through such a system ... and how easy it would be to corrupt.
I guess the UN programs are as close as we're going to get for a while, and maybe it's a good start.
*Surely we should be careful to look at timescale issues. Yes inequality in UK has (I believe) gotten worse since the 70s rather than better. That is a bad trend. But the longer term trend is that modern societies (prosperous liberal democracies with a social welfare system) are much more equal (both in terms of rights and wealth) than the societies in which our grandfathers live in. *
Response to this and continued debate with Oli moved to TechnologicalDeterminism
As the poorest people in the world are so poor (and have no rights) it's impossible to get poorer.
I'm not sure that's true. As I understand African countries have being getting poorer in absolute terms such as the number of malnourished people, since the 70s. (But need some evidence for this.)
*When people talk about moving towards a more equal world they usually don't mean that the middle classes of the west should become considerably poorer. *
One thing to remember is that the natural state of capitalism is for TheMiddleClasses to become considerably poorer. (Refactored to that page.)
Response to be continued but I'm at work ...
I think it's dismissive of the truly poor to equate starving with the threat to one's "self-worth, dignity, psychological wellbeing" that comes from only being able to buy 1 pair of Nike-s for each of your kids. --BillSeitz:PoverTy (or, to put it another way, it's hard to "design" to fit an overly-general context-space.)
Bill. Who did?
- well when you accused LibertarIan-s of being "blasÃÂ© about the problems of poverty, suffering and inequality" I think you implied that they are of similar importance. --BillSeitz
I agree we need to make a difference between someone dying of malnutrition and merely not being able to afford the trainers they'd like. One is a case for an emergency humanitarian relief effort, the other allows time for a more leisurely investigation.
But, seriously, "not being able to afford trainers" is a piece of rhetoric designed to obscure the real issues here. Most poverty isn't of the "can't afford trainers" form. It's of the "need to take two jobs and not see your kids three nights a week in order to pay the rent" form. "Can't afford trainers" is just another symptom. )
More discussion on trainers moved to /TrainerDiscussion
Discussion with Zbigniew moved to BlackMarket
See also :
Another (slightly different) moral argument I make about inequality : TheBombInTheShoppingCentre
These should be moved :
Poverty and Witch Killing : http://emlab.berkeley.edu/users/emiguel/miguel_witch.pdf
PaulGraham on GreatHackers - - http://www.paulgraham.com/gh.html - I didn't say in the book that variation in wealth was in itself a good thing. I said in some situations it might be a sign of good things. A throbbing headache is not a good thing, but it can be a sign of a good thing - for example, that you're recovering consciousness after being hit on the head. Variation in wealth can be a sign of variation in productivity. (In a society of one, they're identical.) And that is almost certainly a good thing: if your society has no variation in productivity, it's probably not because everyone is Thomas Edison. It's probably because you have no Thomas Edisons. --BillSeitz
(think this needs refactoring to a couple of pages of it's own)
- ArnoldKling argues (that http://www.techcentralstation.com/102902A.html) that) inequality is increasing but :
** a) the income tax burden on the rich is also increasing
** b) society is more mobile, so no-one born poor needs to stay that way.
:: as far as the second, unless size of the poor is decreasing then all the mobility and churn doesn't make any difference, someone is still down there.
Kling here is very strange : *In fact, most economists who examine the income distribution do so because they worry about how to eliminate poverty, not how to eliminate wealth. In making the argument that disparities between the highest earners and median matter in a society with a prosperous middle class, Krugman is breaking new ground. *
It is not clear how programs to lower the ratio of high income to median income would reduce poverty, unless one can show a "trickle-down" effect. In fact, it could even have perverse results. Some wealthy individuals are turning to venture philanthropy and others are providing assistance to the poor overseas. Krugman would instead redistribute income toward the American middle class.
Surely, far from breaking new ground, the idea that inequality is related to poverty is very old. It's based on the intuition that wealth records a relative difference. As does poverty.
In fact, our main method of recording, money, is a very complex and mixed indicator. Money is meant to increase with the wealth in society. So amount of money, should be some indication of the amount of wealth. But if the creation of new money, outstrips the creation of wealth, there is deflation and money devalues. In this sense, it is not an absolute measure. Equally, the plurality of currencies and can trade them against each other should also alert us that partly the value of money is relative.
In a market, wealth = power. It equals the power to buy. So inequality of wealth also equals an unjust concentration of power. And partly, poverty is a lack of opportunity and freedom caused by being disempowered. Hence, wealth as explicitly represented by money, is partly the same thing as poverty. Part of poverty is simply the constraint on your freedom that occurs due to the existence of agents with far more economic power than you in the market. I stress again, not all of poverty is this, but part is.
To the extent that poverty is this, it should be blindingly obvious how "programs to lower the ratio of high income to median income would reduce poverty". And trickle-down effects have nothing to do with the matter. The alternative appeal, that we should leave the rich alone, because their philanthropy will solve the problem of poverty is one of the oldest right-wing dodges in the book.
Another piece dumped here. Something I was writing on Tribe. It's WorkInProgress
"Agreed and wealth gives you those things. "
Not quite. It's more complicated than that. I agree that things like microwave ovens are not a zero-sum game. By continuously refining and re-inventing the working process (as happens in capitalism) we get to create more microwave ovens and they become more available to everyone.
But economics is the study of how scarce resources get allocated. And I'd suggest that the power to allocate scarce resources is a zero sum game. When there are X amount of resources in the world, the more power that John has to decide how the resource is used, the less that Jane has.
Ultimately, wealth is about having a lot of power to allocate scarce resources, and poverty is about having little power to allocate them. As microwave ovens become cheaper and more accessible to the poor, this isn't a symptom that the poor are gaining more power (or freedom or wealth). It just means that the oven represents a smaller share of the world's resources : economies of scale and new technologies have made production more efficient. But the poor person's command of it is as small as ever.
Right now, quite a large proportion of the world's scarce resources have gone into building efficient capacity to produce and distribute microwave ovens; but the poor individual had very little power over deciding that. A poor person can't say "well, I'd rather we put those resources into cheap robot vaccum cleaners instead of microwaves". He has access to the output of the productive capacity but no freedom to choose how it's directed.
This is different from the rich guy who can choose whether to invest in microwave companies or robot vacuum cleaner companies and has a larger say in how the world's scarce resources get used. And the really rich, of course, don't just take a gamble on which will be more popular, but also invest in advertising and marketing which has an effect on what the poor guy actually thinks he'd like to buy. (If it didn't, they wouldn't waste their resources on advertising. )
Now, I certainly think this inequality of power is unfair. And a better economic system would have mechanisms to try to distribute the decision-making power more equitably. Redistributing the money is one strategy to try to do that. It does work to a lesser extent, but Vlad's right that it doesn't produce a lasting solution. The system itself has a tendency to redistribute unequally.
OK. You can defend the unequal distribution with one of two arguments :
a) that there's some kind of natural justice. The wealthy only got wealthy through having contributed more (worked harder, made smarter decisions). This is simply wrong in some obvious cases (inherited wealth, lottery winners) and I'd argue is wrong in a far wider number (probably the majority) of case. The British are wealthier than most Brazilians largely because of historical reasons, not because their current input to the world economy is greater.
b) that it's good to have concentrations of wealth under the control of individual decision makers because these are more likely to be directed as investments towards increasing productivity. (That's the kind of argument going on here, of course : ) http://paulgraham.com/inequality.html )
It seems to me that argument b) is no different from any other argument calling for the concentration of power in the hands of the few rather than the many. If we give the dear leader the power to ignore the electorate than he'll be more likely to direct the country towards its own good than a set of squabbling self-interested political parties would. If we give the capitalist the right to command huge powers over the allocation of scarce resources then he's more likely to direct them towards increasing productivity than a large, unco-ordinated mass.
I'd suggest that in all such such cases, an egalitarian / democratic guarantee is safer than blind faith in the goodness of power.
See Also :