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Towards a Transformative Hermeneutics of Income Inequality
Posted by: Jon Henke on Thursday, October 06, 2005

David Cay Johnston (previously discussed here and here) is back and trying again to incite a little class warfare.
After falling for two years, the share of income going to the richest slice of Americans - the top tenth of 1 percent - grew significantly in 2003 while the share going to 99 percent of Americans fell, tax data released yesterday showed.
[...]
Only for those Americans in the top 1 percent, the nearly 1.3 million taxpayers who made at least $327,000, did incomes increase significantly more in 2003 than the rate of inflation. And this increase was concentrated within the top tenth of 1 percent. The income of that group grew by 9.5 percent in 2003 over the previous year while the rest of the top 1 percent had a gain of 3.7 percent.

For the bottom 99 percent of taxpayers, income rose by slightly less than 2 percent, which was below the inflation rate of 2.3 percent.
Johnston writes that "among major world economies, the United States in recent years has had the third-greatest disparity in incomes between the very top and everyone else."

Well, it seems to me that we've been looking at this "inequality" thing all wrong; we've been viewing "wealth" upside down, worrying about the effects of wealth rather than the cause of wealth. I propose a new perspective: we don't have inequality in income—we have inequality in output.

Some of us haven't been producing our share.

While some people use their capital (human, financial or fixed) to create valuable goods and services for society, others contribute little or nothing to economic progress. The result is output inequality.

Frankly, it's time we did something about this inequality. We need output redistribution—a program wherein people are required to maintain a certain basic minimum of output. We could call it a "Living Output" or perhaps "Fair Output".

[continued below the fold]

 
On a practical level, though, consider this piece by Russell Roberts...
If we want the Wal-Marts of the world to pay higher wages, low-skill workers have to acquire more skills, more education, more higher-paying alternatives.
It's almost axiomatic that, as US society becomes wealthier, we become more specialized. And as we become more specialized, we require greater skill, knowledge, etc in order to produce that wealth.

At the end of the day, income inequality is simply a function of the fact that society may produce increasingly valuable output, but we can't force everybody to acquire increasingly specialized/valuable skills and education. So long as the output inequality continues to grow, income inequality will grow.
 
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Correct me if I’m wrong (yeah...like that’s a problem around here!), but aren’t we comparing 1300 earners (the top 0.1%) to millions of earners (the bottom 99%)?


If so, then isn’t it much easier to push a very small group to an extreme average compared to an enormous group which will tend to have extremes on both ends?


Also, are we looking at the same 1300 earners year after year, or are we looking at whoever happens to be in the top 0.1% at that time? Some of them might make big gains temporarily which helps push the group higher. But if they have losses, then don’t they hurt the other group?

 
Written By: JWG
URL: http://
Very insightful. I don’t believe many people look at it from an output perspective. All of this is very easy to understand and accept, but based on the fundamental principle that not every individual has the same value (based on output). It may sound harsh, but let’s face it, some individuals are more valuable to society than others. Once Mr. Johnston and others recognize this, they will understand that income disparity is not a bad thing. Complaining about it makes about as much sense as bemoaning the fact that some students earn As while others earn Ds. It would be impossible to distinguish which students were smart enough to attend top-notch universities were grade disparities abolished. In this respect, what other means does society have to judge the economic value of an individual? How could the economy direct resources where they are best utilized if we are not able to score these resources?
 
Written By: intelrupt
URL: http://
we can’t force everybody to acquire increasingly specialized/valuable skills and education.
Force - incentives work just as well to achieve the same result.

You incentivise Americans to buy American produced sugar, this has resulted in a boom in skilled sugar cutters and cane shovellers. It is achieved by forcing every American to pay a little bit more for their sugar (tariffs) and slash costs with direct subsidy (taxpayer funded). People partake in this profitable industry and train other people with the specialised/valuable skills neccessary to maintain the profit.
 
Written By: Unaha-closp
URL: http://
I couldn’t care less how much money other people have. I’ve never really made a lot of money but I’m just now starting up a business that has the potential to make me a lot of money. And that is what is important. The real question is whether there is the opportunity to make more money and pursue one’s dreams and ambitions and the answer is yes. I keep trying to explain to my liberal friends that the rich for the most part are not burying their money in mason jars in the back yard. They are investing that money, donating it to charities, spending it, and keeping it in banks who then have the capital to provide home, business, auto, education etc loans. Thus the money is constantly flowing. And this flow of money is what makes our society affluent.
 
Written By: phil
URL: http://
I will wager that ALL of the apparent income inequality growth can be eliminated from the data if you factor out the huge yearly increase in poor immigrants. Taking in over a million third world people every year can cause havoc with this type of data.
 
Written By: Kyle N
URL: http://
we can’t force everybody to acquire increasingly specialized/valuable skills and education.
Simply make them an offer they can’t refuse.
It’s been laid out often enough... you learn more, you earn more. THe problem has always been if you learn less, you don’t EARN less... income for the like has always been subsidized.

 
Written By: Bithead
URL: http://bitheads.blogspot.com
You incentivise Americans to buy American produced sugar, this has resulted in a boom in skilled sugar cutters and cane shovellers. It is achieved by forcing every American to pay a little bit more for their sugar (tariffs) and slash costs with direct subsidy (taxpayer funded). People partake in this profitable industry and train other people with the specialised/valuable skills neccessary to maintain the profit.
That was satire, or something, right? I mean: the sugar business? Maybe it’s just me, but I don’t think "incentivising" people to work in an industry that can’t survive without federal government protectionism is a winning plan.
 
Written By: Bitter
URL: http://qando.net/

While some people use their capital (human, financial or fixed) to create valuable goods and services for society, others contribute little or nothing to economic progress. The result is output inequality.

Hmm. Income inequality is something we can measure by comparing income statistics, something available dating back very far. Income is well-defined, for all of the potential sources.

What’s the definition and metric for output? To substantiate such a theory of output equality, as well as measure change over time (to solve the ’problem’ eh?) there needs to be something measurable. It sounds like a huge and contentious pain to come up with a fair definition, but the result would be very interesting.

Frankly, it’s time we did something about this inequality. We need output redistribution—a program wherein people are required to maintain a certain basic minimum of output. We could call it a "Living Output" or perhaps "Fair Output".

Would the minimum be a static value for all people, or measured against one’s potential? Would a billionaire living off a trust fund who decided to be a kindergarten teacher be fulfilling their minimal output obligation equivalently to someone born poor who became a kindergarten teacher?

Would output standards go up as productivity went up (due to innovation, etc)?

How would the output of someone doing unpaid work (a volunteer, a stay-at-home mom raising several children, and so forth) be measured fairly?

Lots of questions.
 
Written By: lb
URL: http://www.obscurity.net/
I have an even better idea than mandatory worker output guidelines. Why not worker camps for underachievers with the sign: work is freedom over the gate? Paris Hilton deserves her mega millions since her output is more valuable than say a school teachers? Too much ivory tower in this particular blog.
 
Written By: TFB
URL: http://
For the bottom 99 percent of taxpayers, income rose by slightly less than 2 percent, which was below the inflation rate of 2.3 percent.
You must also factor in the overall reduction in the cost of living during that time. I saw a 2.5ghz celeron with a flatscreen monitor and 512 MB of Ram advertised at $299 after rebate. Two years ago that might have been 3 times that price.

Do you qando guys have any statistics on this kind of stuff? I heard more than half of Americans statistically recognised as "poor" own homes, and over 2/3 have cars. Is this true?

We’ve come along way from toothless elderly dying of starvation in urban tenements and rural poor taking baths in rain-water-filled pickle barrels, like 99% of america did 100 years ago. hmmm...capitalism and economic growth, Who knew?

 
Written By: Ramen Noodles
URL: http://mooreisfatduhimstoopidilikeanncoulterandchickenfries.ytmnd.com/
People partake in this profitable industry and train other people with the specialised/valuable skills neccessary to maintain the profit.
A lot of Ponzi schemes work on similar models.
What’s the definition and metric for output?
Well, I do have one suggestion. It’s a very complicated system that incorporates a worldwide balance of supply and demand in order to measure precisely what the value of each individuals output is. You see, we could require everybody to work for—and pay—the optimal price they believe they can get.

That would result in the most accurate measure of the value of a persons output. We could call the result "income".
How would the output of someone doing unpaid work (a volunteer, a stay-at-home mom raising several children, and so forth) be measured fairly?
In personal satisfaction.
Paris Hilton deserves her mega millions since her output is more valuable than say a school teachers?
It is. Perhaps it is gauche of me to point it out, but Paris Hilton’s capital (the source of her income, both financial and fixed) benefits quite a lot of people. Perhaps you think that’s nothing, but I bet you pay quite a bit more on a yearly basis for the privelege of borrowing a couple hundred thousand dollars for your mortgage than you pay for a school teacher. If that is so, then you de facto value access to that kind of capital more than you value a school teacher.
 
Written By: Jon Henke
URL: http://www.QandO.net
The plan assumes that financial, fixed and human capital can be traded equally well. Unfortunately today there is limited legal scope to trade human capital. There needs to be a return to the indenture system of the early 19th century whereby an individual could mortgage their future human labour to they could gain a productive advantage. Possibly with them promising some of their offsprings human capital as well - in a purely voluntary fashion of course.
 
Written By: Unaha-closp
URL: http://
Paris Hilton’s capital benefits quite a lot of people
Also, her lavish existence provides jobs in many sectors of the economy.
 
Written By: JWG
URL: http://
Hmm, assuming that Paris Hilton comment was a reaction to my question, I’ll reframe it:

Is there a greater obligation for a Paris Hilton to invest her assets in the most effective manner possible, simply because she such an action has so much potential value for society? If there is a static sense of minimum output, she can just leave her money in a savings account and assume the bank’s utility from her money benefits society sufficiently. If there is a standard relative to one’s potential influence, we might ask more of her than sitting idly and leaving her money any-old-place.

Hence my question, "Would the minimum be a static value for all people, or measured against one’s potential?"

Note that I’m not trying to prove any grand points here (though I guess that makes me the odd man out, in this forum) but rather, to try to further discussion of a potentially viable model for data-gathering and analysis. As much as ’[America suffers from] output inequity’ is a perspective, it’s also a theory. With sufficient resources, it could be empirically validated, refuted, or otherwise revised. Without such resources, it’s just another phrase in a yelling match.

 
Written By: lb
URL: http://www.obscurity.net/
Also, her lavish existence provides jobs in many sectors of the economy.
That’s the part of the equation it seems everyone forgets about. Get mad at the billionaire who has a yacht... and forget about the people that were employed to build that yacht.

In the county where I live in Georgia, some insurance magnate is building a 60,000 square foot palace - some crazy number of rooms, a 9 hole golf course... jeepers, you should see the WALL the dude is building around it. My point is, there has been an ARMY of contractors working over there for 2 years and will be working on it for at least another. Say what you will about how the man came about his money, but he sure is making it possible for a lot of the ’little people’ to earn, save and spend.
 
Written By: meagain
URL: http://
JWG,

"Also, are we looking at the same 1300 earners year after year . . ."

Silence, heretic! The rich are getting richer!
 
Written By: Tim Higgins
URL: http://
Even someone with no skills could end up making above average money if they agreed to do dirty, difficult, or dangerous work. As society gets richer, you can demand more money to clean the sewers, break up the ships, gut fish, or wash dead people.

These don’t require any skill set - just a willingness to do intensely bad work. (must be worse than working at McDonald’s though.)


 
Written By: Harun
URL: http://
"Johnston writes that "among major world economies, the United States in recent years has had the third-greatest disparity in incomes between the very top and everyone else."

To quote a phrase the above statement would be best used, plowed into the ground to inspire turnips.

So what if we have greater income disparity?
Americans below the poverty line have a higher standard of living than the AVERAGE citizens of many EU contries.

Why don’t we look at THAT disparity? ;-)

Only a fool would trade a lower income disparity for a lower standard of living.

But then the Universe does seem to be talented at creating fools
 
Written By: Dan Kauffmam
URL: http://www.angelfire.com/ky/kentuckydan/CommitteesofCorrespondence/
Unfortunately today there is limited legal scope to trade human capital.
Not at all. We have contracts. Should a purchaser wish to buy my human capital (i.e., labor, education, skill), they have merely to make me an offer.
Also, her lavish existence provides jobs in many sectors of the economy.
Actually, that’s precisely the opposite of my point. You’re going back to the "income-based" view of inequality. What we need to look at is output. Her output comes from her financial capital, not from her spending habits.
"Would the minimum be a static value for all people, or measured against one’s potential?"
If we measured it "against one’s potential", we’d be forced to require a particular type of output from each person. That’s....problematic from many perspectives.
 
Written By: Jon Henke
URL: http://www.QandO.net
pedro, the quietest, points this out which is found in the 8th paragraph of the article:
The top 1 percent of taxpayers received almost 17.5 percent of all income and paid a third of all income taxes in 2003, the I.R.S. found. The top tenth of 1 percent received 7.57 percent of reported income and paid more than 15.3 percent of all income taxes.
 
Written By: Ramen Noodles
URL: http://
Paris Hilton has entertained a lot of people, which is more than many teachers accomplish.
 
Written By: Effeminem
URL: http://ethermind.blogspot.com
It seems that property owners are already being incentivized to make their properties as productive as possible. Local governments are using eminent domain to make sure that each and every property is as productive as possible, at least as measured by taxes paid. As recently reported, some residents of a Fla. community north of Palm Beach who are not fulfilling their obligations as citizens to maximize the productivity of their property(the silly fools want to live there) are being asked, politely I am sure, to turn it over to someone who will. Eminent domain will be used only as a last resort. Wash. DC is also going to use eminent domain(as a last resort of course) to obtain property whose economic performance is sub-optimal(as defined by the gov’t., of course).

It is their own fault, of course. If the property owners won’t float a multi-million dollar bond issue and improve their economic output(taxes) by themselves, we will have to do it for them. For the greater good.
 
Written By: timactual
URL: http://
Mr. Henke writes that by simply reporting the latest official IRS statistics on income shares and tax shares I am "trying again to incite a little class warfare."

You know, maybe I should reconsider my whole career.
Here I foolishly thought I had spent my career digging out important facts that, but for me, would not be known regardless of what those facts were.

But clearly I need to go review my life’s work so I can come to appreciate how I have actually been advancing hidden agendas.

Now let’s see, I started on this track back in 1968, when I was 18 years old, and revealed cost overruns at the new Santa Cruz County Courthouse, aka The Grey Elephant. I guess that was really about stirring up resentment of contractors who charged the taxpayers a lot more than they had agreed to.....my first chapter in promoting class warfare.

Then there was the time I spent pouring over the LAPD budget. Over a 10 year period the police halved their spending per murder while maintaining a 100 percent commitment to answering the growing number of false burglar alarms until for each dollar spent investigating murders in LA $1.25 was spent on false burglar alarms. A little hard to find class warfare in there, but perhaps I was really trying to encourage more burglars to switch to murder because while second story work is more lucrative the odds of going to the GrayBar Hotel declined if you made murder your line of work. Surely there could have been no decent reason to dissect how the LAPD used the taxpayers’s money, right Mr. Henke?

Then there was my 1973-76 exposes of Harold Gross, the owner of WJIM-TV, who wrote memos ordering news blackouts on businesses that did not buy ads. He also wrote memos ordering that coverage of politicians who dfied his demands for favors be distorted so that they looked foolish, stupid or dishonest even if they were not. Clearly here my goal must have been to encourage the masses to rise up against those evil news organizations, no doubt an important element in fomenting class warfare.

Then there was the time I hunted down a murderer whom the cops had failed to catch, resulting in freedom for an innocent man (a story undertaken at no small danger to myself). Since the killer was black and set out with two pals to kill the first white man he could to kill I guess my motive here had nothing to do with seeing the innocent set free and the guilty caught (lest others become victims), but entirely to do with encouraging class (or racial) warfare....

Then there were my stories revealed that the IRS and the Justice Department ignored people who were committing felonies, profiting from teaching others how to commit felonies and boasting about their criminal conduct. I am not sure just where class warfare plays in here, but perhaps Mr. Henke can show me what foul and hidden motice I had here....

I wonder, Mr. Henke, if you now realize how sophomoric your assertions are?

You damn the messenger because you dislike the message.

Or would you prefer to suppress these facts because you dislike them?

My piece did not say the data was good or bad. That is for you and others to decide. Opinions vary.

(And the top tenth of one percent is not 1,300 people, as one poster here suggests, but in round numbers 129,000 taxpayers, which equates to about 293,000 people. Perhaops that poster and others ought to try reading what I actually wrote instead of Mr. Henke’s billious commentary).

Reporting what the latest IRS data show is no more stirring up class warfare then reporting who won Miss America is repressing feminists. But in your attacks on me here, Mr. Henke, you are surely of one in spirit with Andrea Dworkin, the radical feminist polemicist who went to her grave promoting the same kind of specious reasoning.
 
Written By: David Cay Johnston
URL: http://
The top 0.1% (one in a thousand) is about 100,000 earners, not 1,300.
 
Written By: sammler
URL: http://stonecity.blogspot.com
Mr. Jonhtson: haven’t you already told us the story about the murderer?
 
Written By: sammler
URL: http://stonecity.blogspot.com
Income disparities are not just due to productivity disparities.

Buy a piece of farmland on the edge of town. Wait for the town to grow. Get rich. This is how some of the earliest fortunes were made in this country. The land would have been there regardless of who bought it. The land is created by God, not land speculators. The enhanced value of that land is created by those who built the town.

Henry George advocated taxing land for this reason. Adam Smith had similar thoughts. In his day, much of the European world’s income went to a parasitic aristocracy.

Another reason the wealthy make so much income is that they have wealth. And you get paid for being wealthy. Our government subsidizes this activity by running high deficits. It discourages competition by having Social Security.

Don’t cry for the rich. They are well subsidized.
 
Written By: Carl
URL: http://www.ReformTheLP.org
Carl
You lost me. Land has been taxed for a long time. Anyone who can afford to sit on a piece of land and pay the taxes on it for 20 years or so is already rich. And what about the opportunity costs?
What activity are you talking about, and how do deficits subsidaize it? I am not sure how social security discourages competition.
 
Written By: timactual
URL: http://
Dan Kauffmam.:
Americans below the poverty line have a higher standard of living than the AVERAGE citizens of many EU contries.
Do you have a source for this? I have heard it before, but I can not find sources.

Tom
 
Written By: tomWright
URL: http://www.wrightwing.net
Do you have a source for this? I have heard it before, but I can not find sources.

Tom


Written By: tomWright
URL: http://www.wrightwing.net
*************************************************
Happy to Provide that information I just happened to have posted those links over on ¡No Pasaràn!

http://www.haloscan.com/comments/nopasa/112885606740881599/#179141

A very good article on the standard of living of Americans below the "poverty line" can be found here.

http://www.heritage.org/Research...fare/ bg1713.cfm

Understanding Poverty in America
by Robert E. Rector and Kirk A. Johnson, Ph.D.
Backgrounder #1713

January 5, 2004 | Executive Summary | Download PDF | Send to a Friend


A study of the US by States compared with EU Nation States here.

http://www.timbro.com/euvsusa/


New study compares GDP and growth:
EU versus USA


If the European Union were a state in the USA it would belong to the poorest group of states. France, Italy, Great Britain and Germany have lower GDP per capita than all but four of the states in the United States. In fact, GDP per capita is lower in the vast majority of the EU-countries (EU 15) than in most of the individual American states. This puts Europeans at a level of prosperity on par with states such as Arkansas, Mississippi and West Virginia. Only the miniscule country of Luxembourg has higher per capita GDP than the average state in the USA. The results of the new study represent a grave critique of European economic policy.

Stark differences become apparent when comparing official economic statistics. Europe lags behind the USA when comparing GDP per capita and GDP growth rates. The current economic debate among EU leaders lacks an understanding of the gravity of the situation in many European countries. Structural reforms of the European economy as well as far reaching welfare reforms are well overdue. The Lisbon process lacks true impetus, nor is it sufficient to improve the economic prospects of the EU.

EU versus USA is written by Dr Fredrik Bergström, President of the Swedish Research Institute of Trade, and Mr Robert Gidehag, until recently Chief Economist of the same institute and now President of the Swedish Taxpayer’s Association.

Download the report (958kB) >>
Dan Kauffman | Email | Homepage | 10.10.05 - 8:55 am |
 
Written By: Dan Kauffman
URL: http://www.angelfire.com/ky/kentuckydan/CommitteesofCorrespondence/
My apologies for the delay, David.
Mr. Henke writes that by simply reporting the latest official IRS statistics on income shares and tax shares I am "trying again to incite a little class warfare."

Yes. It’s my opinion that your single-minded, overt focus on income inequality does more to create social problems than to eliminate them. I also think that focus on income obscures some important social facts. (disparities in education, increased specialization, immigration, etc)
You know, maybe I should reconsider my whole career.
I’m not sure why you would. It sounds like you’ve had a very successful, productive career. In any event, I didn’t refer to any of that.
I wonder, Mr. Henke, if you now realize how sophomoric your assertions are?
Well, you seem entirely focused on the "class warfare" line, which was sort of incidental to the post. I understand you disagree with that, but it’s hardly relevant to the bulk of the post.
Or would you prefer to suppress these facts because you dislike them?
No. I merely think that they are (generally, and not just by you) presented in a fairly leading manner. When the other side of the same coin is presented (as I did in this post), the absurdity of the position becomes more apparent.
 
Written By: Jon Henke
URL: http://www.QandO.net

 
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