I would urge readers to refrain from the kneejerk reaction 'it's happening all over now'. What is happening in the Western world (rise of inequality due to skills being prized higher owing to technological change) is very different to what happened in Russia.
There a band of people connected to the government (first it was party apparatchiks, then friends of Putin) plundered resources owned by the state. And almost all of them have to do with stuff being pulled out of the ground.
It's fascinating that so many of them are ex-KGB. These guys would have been painstakingly vetted for their impeccable ideological purity before being recruited in the first place, let alone promoted. These were the ultimate guardians of the Communist system, and they turned hyper-capitalist overnight. I guess it's like we see in the West when holier-than-thou politicians are enmeshed in a corruption scandal but like everything Russian, executed on a grand scale. Have you seen the size of their novels?!
The prominent communists in the Soviet party had largely been murdered after the Moscow processes, left the country, or been exiled to Siberia, by the mid '30's. To the extent there were any communists left in the party by then, it was people who were too afraid or too weak to stand up to the regime.
To the extent the KGB were selected for ideological purity, they were initially selected for adherence to the ideals of a Stalinist party machine that was mostly concerned with the protection of privilege.
It's totally unsurprising that they "turned hypercapitalist overnight" - you had a group that was built on accepting that using pretty much any means necessary to maintain power and privilege was perfectly ok.
"... vetted for their impeccable ideological purity ..."
Rather, vetted for their impeccable ability to wax lyrical about "ideological purity." I'd suggest that these guys are personalities that learn how to survive in the current climate regardless what that climate happens to be.
Enriching yourself on stolen goods - even when you've enlisted state power to legalise the stealing - isn't very accurately described as capitalism, hyper or otherwise.
Being super-rich in Russia is all about receiving privileges from the regime in exchange for loyalty. Ceasing your loyalty has consequences:
There was a lot of tension between the KGB and the senior party officials in the USSR. In fact, in an interview I watched recently a KGB defector described them as "hating" each other. It's not necessarily true that all KGB operatives would have been die-hard communists, particularly members of Putin's generation - i.e. those that were born and grew up in the USSR rather than actively participating in revolution.
I think they were less vetted for their impeccable ideological purity than filtered out on basis of their ambition and utter pragmatism ("If that is what it takes to become part of the establishment, so be it")
> painstakingly vetted for their impeccable ideological purity
You watch too many Hollywood spy movies :)
> turned hyper-capitalist overnight
What happened in the 90s had little to do with capitalism, though some may argue it did :) It was mass theft of state property (with a fair amount of murder) out in the open among chaos and disarray.
First, there was the gang of "liberals", who heroically put an end to the Soviets and stole what they could on the ruins of the collapsed Empire. Then in 00s with Putin came the KGB gang, who took away the loot from the "liberals" and put private sector under control. They recently ousted the opposing military gang in a big embezzlement scandal. They're the ruling elite at the moment.
He talks how KGB agents after the fall of the Soviet Union were in the best position to get into high power positions, plunder and pillage the best stuff available. They went from supposed devout communists to the most ruthless capitalists.
They (KGB agents) were really a different class of people. They had knowledge and understand of all the details, they were also selected to be the smartest, then trained on top of it.
This is not entirely true. The majority of oligarchs are either related to ex-top soviet officials or some black market thugs who got freedom in post-collapse chaos.
My grandfather was a KGB colonel, in 90s he lost all his savings because of crazy inflation. I cant recall any of his friends i knew who became rich, most of them retired or had to leave and are getting miserable government pension and a letter of appreciation for good service once a year.
As I said the oligarchs are ex gov officials sons or cousins and thugs who spent time in soviet jail for black market trade. Hey, even ukrainian president did a few years in jail for stealing some merchandise, what would you expect.
> The majority of oligarchs are either related to ex-top soviet officials or some black market thugs who got freedom in post-collapse chaos.
Well ex-top soviet officials are sort of in the same category. It certainly wasn't regular citizens like factory workers.
I guess what I was trying to say KGB agents and ex-officials joining it was surprising since they were supposedly the biggest and more devout believers in the system.
If you read that book you'll that Cherkashin also sort of feels a bit nostalgic for those times and decries what has become of the country he served for so many years.
They weren't selected from the smartest, that's a myth. Sure they didn't recruit imbeciles, but any average man with determination and a penchant for servitude could become a KGB officer.
I guess you are right. It seems they were selected based on family ties. I.e. those whose fathers were in the party or worked in the secret police or high ranking army officials.
At some point Cherkashin kind of mentions how he was fairly average and he was sent to the foreign language training academy and how it was at first very hard for him to pick up languages. But they just had very good teachers and eventually he mastered them.
So I guess I should correct it and say they picked what where thought to be "loyal" and "patriotic" people and then they trained them well. So if some got smarter it was often as a result of having to work with the best teachers.
>It's fascinating that so many of them are ex-KGB.
It's not that surprising, really. Positions in the KGB were highly prized, and the organization only took people with high intelligence and demonstrated competence. They really were the best and the brightest the USSR had to offer.
What is happening in the Western world (rise of inequality
due to skills being prized higher owing to technological
change) is very different to what happened in Russia.
We are currently in a period of technological change and - as we see on HackerNews everyday - skills are being prized. Ostensibly we are supposed to be helping the economy. Now it sounds like we're making income inequality worse since we know things that other people don't.
I had no idea what to Google for more information but I found this outdated paper from 1998 in the Quarterly Journal of Economics http://economics.mit.edu/files/3809 We get supply-demand analysis like
the unprecedented increase in the supply of college
graduates during the 1970s may have been causal for both
technological developments and the changes in the
structures of wages in the past two decades
That paper was written in 1998, I wonder if there's more recent discussion on relationship between valuation of skills and wealth inequality.
Reducing equality is not the only measure for helping the economy. Software driven automation has made enormous sections of the economy more productive and there's plenty more to do.
But yes, as comfortable middle class jobs are largely automated away, inequality increases. "Average is over" by Tyler Cowen is largely about this shift. It's not a particularly comfortable read, but I struggle to fault his analysis.
> What is happening in the Western world (rise of inequality due to skills being prized higher owing to technological change) is very different to what happened in Russia.
Is this really the source of inequality in the Western world? Technological change leading to different desired skills seems like something that's been around long before our current inequality troubles. In any event, I thought average wage in the US hasn't risen since the 70s, before the information age. I would guess it's more a combination of several factors, perhaps the college no-college gap, changes in the finance world, and political changes.
This is frightening to social scientists in China who analyze society from a Marxist framework, especially those who have noticed that regional wealth gaps in China are greater than those in Yugoslavia before Yugoslavia disintegrated.
> This is frightening to social scientists in China who analyze society from a Marxist framework, especially those who have noticed that regional wealth gaps in China are greater than those in Yugoslavia before Yugoslavia disintegrated.
I don't see what Yugoslavia has to do with it. Yugoslavia was a very different situation, in that each republic was populated by a different ethnic group, with a history of squabbling.
Slovenia and Croatia were wealthier than the other republics, and they resented the fact that Serbia held the reigns of political and military power in the federation. It is not accidental that these were the first two republics to break away -- and also that they managed to break away successfully. In contrast, Bosnia had a large Serb population, and they weren't about to let go without a fight.
China is different, in that most of the rich provinces have a majority-Chinese population, and most of the poor provinces are also majority-Chinese. The only provinces they're worried about are Xinjiang and Tibet -- and that's an ethnic problem, not an economic problem.
The reason that the Chinese Communist Party is worried about the distribution of wealth is that they don't want a grassroots communist revolution. They know all too well how those things get started ...
China proper has a 2000+ year tradition of unification.
No. China is a divided country today, if you believe the official view of both the P.R.C. and R.O.C. regimes about Taiwan as a territory of China, and China was divided into territories ruled by warlords as recently as my own parents' childhood. There have been many periods of Chinese history when the territory that is now known as the country of China was ruled by multiple, warring regimes, and interregional ethnic tension among nominally "Han" people in China is well known to anyone who speaks Chinese (as I do) or has studied Chinese history (as I have). I referred to Yugoslavia in my comment to which you kindly reply because this is an example that has been pointed out to me by Chinese social scientists. If one accepts a Marxist framework of economic determinism, as many social scientists in China continue to do, the break-up of Yugoslavia was all but inevitable once regional economic disparities became as great as they were in Yugoslavia in the 1990s. But regional economic disparities in China are now greater, and not least in the large swaths of territory that historically have been part of Tibet and eastern Turkestan.
The reason that the Chinese Communist Party is worried about the distribution of wealth is that they don't want a communist revolution, such as the one that originally brought them into power.
Yes, the current leaders of China have violent regime change as well as territorial dissolution to worry about. I'm agreed with you there.
> No. China is a divided country today, if you believe the official view of both the P.R.C. and R.O.C. regimes about Taiwan as a territory of China
> If one accepts a Marxist framework of economic determinism, as many social scientists in China continue to do, the break-up of Yugoslavia was all but inevitable once regional economic disparities became as great as they were in Yugoslavia in the 1990s.
I said "China proper," not "the current borders of China, including Taiwan and Tibet and all the other acquisitions over the years."
I also said that China proper had a "tradition of unification," not "uninterrupted existence as a unified state." They may split apart from time to time, but they keep coming back together.
I find it strange that you keep bringing up the "Marxist framework of economic determinism." The Marxists like to view the world through a narrow lens of economics and class struggle. This is not necessarily wrong -- but it doesn't give them the full picture.
Slovenia and Croatia were not just the richest republics in Yugoslavia. They'd also been ruled by the Habsburgs for 400 years, used the Latin alphabet, and felt a greater affinity towards Western Europe than towards their brother Slavs. And as for economic determinism, why did every other Yugoslav republic also break away? Bosnia and Macedonia are quite close to Serbia in per-capita GDP.
Yes, Yugoslavia had a 4-1 ratio in per-capita GDP among its constituent parts, and so does China. But so does Mexico. So does Brazil. So does India. If those countries haven't broken up, then clearly economics sometimes takes a back seat to other factors, like ethnicity and nationalism.
You don't have to have economics taking a back seat to recognize that per capita income levels are not the only economic statistic. Most likely at a very localized level the issues of nationalism and ethnicity manifest themselves in the graphs of networks of daily commercial and noncommercial interactions.
Other social sciences have valuable insight into the dynamics of breakups, but I don't think it is accurate to think that economics would only be concerning with difference in per capita income of different regions.
Bad comparison because squabbling in China is more like between brothers in that they are trying to gain power over the family, and not trying to break away from it. Chinese Nationalism is probably as strong now as ever, and I think the chances of breakup among the core provinces that aren't already independent are very low.
> But regional economic disparities in China are now greater, and not least in the large swaths of territory that historically have been part of Tibet and eastern Turkestan.
if that's an example of regional tensions, it's a bad one; because there's also ethnic tensions involved. 3 million ethnic Tibetans in Tibet, and about 14 million Uyghurs, Kazakhs and so on in Xinjiang (living with 8 million Han - it's pretty much colonised now) won't overthrow the 1.2 billion Han.
There's so few minorities that China can afford to bribe them a lot (relaxed one child policy, reserved university places, reserved jobs - which partly makes up for the discrimination they face), and send in the troops if necessary. There still is a lot of tension on both sides, but a country the size of China isn't going to let a vast swarth of territory (with all its mineral / petrochemical wealth) go over it.
It would be better to talk about Hukou (social services linked to city of origin). Or maybe regional divides within Han China.
But the divide between rural and city people has often been a bigger deal (to >90% of Chinese) than ethnicity. Farmers starved in the Great Leap. City folk were persecuted in the Cultural Revolution. Farmers now struggle to get their kids educated, while they work the undesirable jobs in cities.
Totally agree. When I lived their in 2005/06, I spent a bunch of time traveling and when I went to Xinjiang, I can only describe what I saw as an occupied country with a thin veneer of unification. Xinjiang has nothing to do with Eastern china. I've heard that Tibet is the same. By land mass, these two areas along constitute a huge portion of China. There have been many migrations into their two provinces by Easterners, who are mostly Han Chinese. Personally, I would describe what's happening in Xiajiang and Tibet as "ethnic cleansing by dilution".
Although it is true that Hans are the majority in all major regions of China, still there are significant ethnic concentrations in regions, e.g. see ethnic autonomous areas listed here (http://en.wikipedia.org/wiki/Autonomous_entities_of_China) other than Tibet and Xinjiang. History shows that large empires with regions of diversity can catastrophically divide up after long periods of being a single entity.
It's not quite that similar. The 400 richest Americans control $2 trillion, or about 3-4% of total U.S. wealth. That means wealth in the U.S. is a lot less concentrated at the top than in Russia. To match Russia (accounting for population), the 200 richest Americans would have to own $19 trillion in assets, the average wealth would have to be about $100 billion and you'd see some trillionaires.
Looking at the net worth of the bottom 40% of the American population doesn't tell you much about the level of oligarchy in American society. You would expect a big chunk of the population to not have much in the way of assets, simply because the trajectory of peoples' lives is to build up assets as they age over time. See: http://en.wikipedia.org/wiki/Wealth_in_the_United_States#Sta.... Indeed, things that are ostensibly good, say more people getting higher education or more job mobility, can push out the time when people settle down, buy a house, and start saving, thus increasing the number of people who don't have substantial assets.
The median family net worth of a household headed by someone under 35 is $10k, while it's over $230k for a household headed by someone aged 55-65. The "bottom 40%" category is also heavily skewed by education, with households headed by non-high school graduates having a median net worth of $30k versus $250k for households headed by college graduates.
The statistics indicate that the "bottom 40%" starts around $40k. How many people under 30 do you know that have a net $40k? With student loans and sky-high rents, I bet lots of silicon valley engineers are in that "bottom 40%" for reasons that have nothing to do with oligarchy.
Yeah, comparing net worth is a terrible way of comparing wealth between individuals. Anyone who is fresh out of college with student loan debt, or who recently bought a house on a mortgage, has negative net worth.
If you're going to compare against collective net worth, then I personally have greater net worth than 25% of America, and the entire American federal government! Woo, I must be rich, right? Well, no, I've just paid off my student debt and don't have a mortgage. On the up side, I don't have any debt. On the down side, I don't have much in the way of equity, while some people with negative net worth have substantially more equity than I do, and if they, say, decided to sell their house and move to an apartment would suddenly have considerably more net worth than I do.
"Net worth" is not wealth. Measuring wealth is a somewhat difficult thing, but net worth is a fairly poor way of measuring it.
Generally buying a house should not by itself give you a negative net worth. Net worth = Assets - Debts, so when you buy a house you generally get an asset of $X (your house) and a Debt of 80% of X (your mortgage). You 20% of equity will simply be a transfer from a cash account into an asset. The act of buying a house will decrease your net worth because of closing costs but it probably won't make you go negative by itself unless you put the closing costs on a credit card.
Sorry, you're right, the value of the house does count towards your net worth.
However, if you already have some student loan debt and the value of your house declines due to the housing crunch, you can easily be in the negative on "net worth", while still having more actual wealth than someone who's at 0.
However it works out, I've seen figures citing 25% of American families as having negative net worth. But I don't think that means that they actually have negative "wealth", nor is it all that useful to point to someone who has 0 net worth and say that they are wealthier than 25% of America combined.
I think you're using "wealth" to mean "assets" which I don't think is a useful number for any of these comparisons. In the example you give where a person has a house which declined in value and some student loans, they do have a negative net worth but they are also worse off than the person with 0 assets and 0 debts.
Having the house that they need to make payments on means that not only do they have 0 or negative net worth, they also have strict cash flow requirements which the person with 0 assets and 0 debts does not have.
I mostly agree with you, but I think you're going a bit too far: Someone living on the street, having no income, would have 0 assets and might have 0 debt (until they need medical attention...).
For someone with a family, struggling to keep the house is certainly better than living on the street. Still, being in a credit crunch could of course lead to that family being evicted, so yes, negative net worth isn't great.
It doesn't have to do with oligarchy in the sense of coordinated corruption (wealth transfers) between rich and politicians, but in my opinion it comes close in terms of unfairness and bad long-term results, and it is still very coordinated between the rich and politicians.
The rich and powerful also profit from a society where people are educated and hard-working. If housing and student debts become such a burden that intelligent people well into child-bearing age (and halfway to retirement) have nearly no wealth and/or assets, while 1% of the populations hold 20% or more of total wealth, there is a problem. This problem will eventually reach this coalition of rich and politicians, but they are too short sighted to do something about it.
It is just so much easier at the moment for politicians to sustain their careers by pandering to a small group of rich people with the same interests then a large group of normal people with various interests. There are lots of reasons for this (right-to-lobby, corporate personhood, winner-take-all), but it's a big bug in the system when the majority feel unrepresented in a democracy. Arguing over whether 100 people or a few thousand control the top 1/3 of wealth only illustrates how big the issue of income inequality is.
> The rich and powerful also profit from a society where people are educated and hard-working.
I agree with "hard-working", but how do rich people benefit from everyone being "educated"? I'm inclined to agree if you bring up STEM or Medicine, but not so much about other fields.
> It is just so much easier at the moment for politicians to sustain their careers by pandering to a small group of rich people with the same interests then a large group of normal people with various interests.
Democrats pander just as much, if not more, to poor people and, in general, welfare recipients. Just look at Obama's recent focus on "redistribution", raising taxes and immigration and healthcare reform.
I'd add that, while you seem to suggest that the rich are behaving irresponsibly by concentrating so much wealth in their hands, the poor IMHO are also irresponsible because many of them are chronic welfare recipients, with no plans of getting off that and also voting for people who promise them more free money. One rich guy getting $1bn from the government is as bad as 100000 people getting $10k each.
Wealth statistics are tricky. As a thought experiment, I have always wondered what the numbers would be if everyone in the country had identical incomes of $50k/year. I have a feeling that 25% would accumulate debts and have zero total wealth. Even with perfectly identical incomes, the "wealthiest" person would have more wealth than the bottom 25% combined.
A recurring observation about wealth distribution is that if everyone's income & wealth were equalized, we'd soon return to the economic disparity & distribution we see now. Poverty/wealth is, on the whole, a consequence of chosen behavior.
I find it odd that those of us who make this observation, and follow it thru to its natural outcomes, are lambasted for the consequential opinions we hold thereon.
> A recurring observation about wealth distribution is that if everyone's income & wealth were equalized, we'd soon return to the economic disparity & distribution we see now. Poverty/wealth is, on the whole, a consequence of chosen behavior.
This is unsubstantiated hand-waving. I agree that you'd see quite a bit of inequality, but you have no evidence that "we'd soon return to the economic disparity & distribution we see now."
> Poverty/wealth is, on the whole, a consequence of chosen behavior.
While "chosen behavior" might be a component of outcomes, there's no good evidence as to how much impact it has on outcomes as compared to other factors. Also, how do you define "chosen behavior?" Are you including IQ? Impulse control? Personality traits? Are any of those "chosen behaviors?"
My personal experience with life is that those three things + parental wealth are a bigger components of outcomes than "chosen behaviors." It's easy to make the "right choices" when they're laid out right there in front of you, and easy to get back on the "right course" when you have those factors, which are the result of the grand lottery of life, on your side.
What is the equilibrium income/wealth distribution in a system where everyone is genetically engineered, taken from their parents at birth and raised and educated in identical conditions? That'd be the scientific way to isolate the impact of "chosen behaviors." I don't know any more than you do, but I bet its a lot narrower than what we "see now."
> I find it odd that those of us who make this observation, and follow it thru to its natural outcomes, are lambasted for the consequential opinions we hold thereon
I don't know your particular opinions, but I'm going to hazard a guess and say you're overstating how much of your process of "follow[ing] it thru to its natural outcomes" is based on analytical logic versus handwaving moralizing.
Interesting indeed, but not all that relevant to my point.
Regarding the first study: it looks at a small wealth shock (bringing people to the median level of wealth at the time), and compares outcomes (occupational status, literacy, education) that were largely irrelevant to the median people of the time. Simply put, why would you expect people winning a median level of wealth in 1832, a time when the median person was a poorly-literate or illiterate, uneducated, farmer, and then expect that the winners would be more educated, more literate, or have an occupation other than farming? Besides all that, it addresses a different point than the one I'm making. It essentially goes toward showing that poor people, given a windfall of wealth, do not invest it in their childrens' education. But whether your parents invested in your education or not is not a "chosen behavior" on your part. It's an external variable you have no control over. To counter my argument, what you need is a study showing either that rich people don't invest more in their children than poor people, or one showing that such investment doesn't matter.
Regarding the second study, I'm not sure what sort of extrapolations you can draw from a data set that consists purely of people who were already in financial trouble. These people probably have impulse control issues. Is that a "chosen behavior?" It's something we can measure in kids that are just a few years old.
If you really want to discern the magnitude of the impact of "chosen behavior" you have to factor out the effects of things that aren't "chosen behaviors."
The bottom line is that you don't choose your parents, and you don't choose the things you inherit from them. You don't choose your IQ, you don't choose the size of your trust fund, you don't choose to learn how to behave in professional society from an early age, you don't choose many personality factors like attentiveness or impulsiveness, etc. These things are not "chosen behaviors."
I've heard that overwhelming majority of those who found gold in various American gold rushes never became rich from it, even if initial find was significant. Success rate (defining as keeping the wealth for a number of years after the find) from the point of finding gold was something below 10%. Can't find the source as it probably was one of the gold rush museums I've visited.
Interestingly enough, most of the guys who made out like bandits were bankers and merchants selling good for prospecting. Nordstrom (the founder of the retail company) was one of them.
> Poverty/wealth is, on the whole, a consequence of chosen behavior.
That's very true, but an equally important factor is compound interest, which tends to amplify what might initially be very small differences in wealth. I once wrote an article (http://arachnoid.com/example/#Compound_Interest_Example) in which, as an example, at age 20 a prudent person invests an inheritance of $20,000 for his retirement at age 60, expecting to withdraw $45.00 each week for walking-around money. In the experiment, if the investor withdrew 38 cents more each week, he ended up flat broke at age 60. If he withdrew 38 cents less, he doubled his money.
Another factor is that being poor is expensive, there's no other way to put it. When a rich person uses a credit card, he gets a free 30-day loan. That service is being paid for by those at the bottom, who have a constant balance on their cards.
A poor person has to buy insurance for his house and car, because they're both on bank loans, and the banks require insurance (and the bank loans sometimes double the cost of the purchases). A rich person can buy things in cash, and then self-insure using his assets to cover accidental losses.
Let's face it -- overall, being poor is a very bad business policy. But the point is that an old adage about the rich getting richer and the poor getting poorer is backed up by simple economics.
I contend the reverse is more often the case: bad [personal] business policy is a primary (though not exclusive) cause of poverty. The smarter you are with money, the easier it is to acquire more of it; likewise the reverse.
Pretty much everyone understands the primary principle: spending > revenue has, on the whole, obvious results. Rectify that. Yes, you can...you must.
> I contend the reverse is more often the case: bad [personal] business policy is a primary (though not exclusive) cause of poverty.
Yes, I agree actually -- I was being a bit ironic in my original post. There's plenty of personal responsibility in poverty, at least in Western, democratic countries. People could take a number of constructive steps to better themselves, like shred their credit cards, don't fall for some of the more obvious economic traps like borrowing money for unnecessary possessions, thinks like that.
And I also completely agree with your other point -- that understanding how money works is critical.
>>> A poor person has to buy insurance for his house and car,
We're doing pretty good here if a poor person is implied to have a house worth insuring (implying either ownership or rental of sufficient value, containing sufficient assets) and a car, and is eligible for bank loans for both. In some countries, a person rich enough to have a house, a car and to qualify for bank loans for both is considered pretty well-to-do.
>>> A rich person can buy things in cash, and then self-insure using his assets to cover accidental losses.
I'm pretty sure most people, not only poor people, use car insurance. It's more convenient and usually (unless you drive exotic or super-expensive cars) cheaper than surety bonds that are usually required, and same with cash deposits (since cash deposited at DMV can't be used for anything else). For businesses having massive fleets, OTOH, it may make sense to self-insure since they get the same risk distribution as insurers, but without the middleman.
>>> overall, being poor is a very bad business policy
It's bad business, but you may have a lot of incentives for it, given that welfare subsidies and services you may get in many US localities pay more than minimum wage job and in some localities more than average wage job.
>>> rich getting richer and the poor getting poorer is backed up by simple economics.
It may be but it definitely is not backed up but what you said. The thing is that statistics that talk about "rich getting richer" makes you assume that same people that were rich 20 years ago got even richer now, and same people that were poor 20 years ago are even poorer now. In fact, nothing in this statistics point to it - what statistics can tell you is that some people were rich 20 years ago, and some different people are rich now, but it usually says nothing about how many of people rich today were rich or poor 20 years ago. It is completely normal for a person to be piss-poor while being a young student and become quite well established when retiring. Usually it comes from working hard and making a number of right choices on the way. Including, yes, saving diligently and having long-term view, which leverages the power of compound interest - but for this you need the right behavior.
> We're doing pretty good here if a poor person is implied to have a house worth insuring ...
Basically I agree, but for many people, buying a house on a mortgage is a modern kind of economic slavery. Young people often don't get the big picture, and sign a mortgage or two before appreciating the meaning of compound interest.
House loan, car loan, a child or two, and your life is over. And there are forces in society who think that's a perfect outcome -- married people with these kinds of obligations have no political power or options -- they're doing all they can just to stay afloat.
>> rich getting richer and the poor getting poorer is backed up by simple economics.
> It may be but it definitely is not backed up but what you said.
But it is. In a mathematical sense and in the long term, the distinction between rich and poor is a delicate balance, teetering on the fulcrum of compound interest. A few bad choices that at the time may seem trivial, like accepting an unfavorable mortgage rate, over time can decide your economic fate.
Also my point about credit cards -- if you run a perpetual balance on a card, you're in essence loaning money to rich people. Over time these and other similar factors cause a widening chasm between rich and poor.
There really is some substance behind this folk saying.
>>> and sign a mortgage or two before appreciating the meaning of compound interest.
Signing a mortgage is not that easy nowdays, you have to show appropriate income. Though yes, basics of economics, finance and statistics should be taught in every school right after arithmetic. There's not many things that are as important in modern world and as widely being ignored.
>>> House loan, car loan, a child or two, and your life is over
I know a lot of people who have houses, cars and children, and their life is far from over. Unless, of course, you understand by "life" the things you did as a freshman in college - but there's more to life than that.
>>> married people with these kinds of obligations have no political power
Married people with obligations have vast political power in any democratic society. That's why we have mortgage interest tax deductions and healthcare tax deductions - try to mess with those and your political ass would be kicked out faster than you can say "my words were taken out of context".
>>> if you run a perpetual balance on a card
If you do it, you constantly make irresponsible behavioral choices. That's the point - it's all about behavior. The chasm doesn't widen by itself - it's because you keep digging!
> overall, being poor is a very bad business policy
>> It's bad business, but you may have a lot of incentives for it, given that welfare subsidies and services you may get in many US localities pay more than minimum wage job and in some localities more than average wage job.
Wait, what? If you have the choice of making more from welfare, than from a job, picking the (hypothetical) better financial option is an incentive for you to stay poor? How's that? If the alternative is to make less doing more work -- surely minimum wage is more of an "incentive" to stay poor?
(Lets not get into the discussion of "rich" welfare receivers and such, I'm just curious how you could see choosing the option to make more money as an incentive to stay poor, vs making less doing something else -- now if the person had the option to get a decent job, then that'd be diffrent?)
> If you have the choice of making more from welfare, than from a job, picking the (hypothetical) better financial option is an incentive for you to stay poor?
It's not an incentive, it's a trap, and it's why AFDC was abandoned. It works like this -- let's say you're on welfare. If it's a typical program you can stay in the program only if you don't make much money the usual way. Once you start making your own money, the welfare ends, often in such a way that you have a smaller income than before your personal income increased. This was true about AFDC and it killed the program -- it was a powerful disincentive to work, or to rise economically. It kept the poor poor -- they had a disincentive to move upward.
Simple: local maximum. If getting off welfare and into work implies immediate income loss, you are incentivized to stay on welfare, even if working would eventually make you better off, with time. If you are more inclined to respond to short term than long term incentives, you are stuck in a local maximum.
But there's no guarantee working would eventually make you better off? You're just taking that as a given. If there aren't any real prospect for higher pay -- then the issue isn't just "getting off welfare".
Better welfare (say free college or other education/training) might make a difference, however.
Now I agree that it would be good if people worked (if they are able) -- but in and off itself that doesn't make them better off.
"The likelihood of leaving low pay decreases
dramatically as tenure in a low-paying job increases. Low-
wage employment could itself decrease future wage growth
if it causes workers to receive less training or skill
development, conveys a negative signal to future employers,
or provides access only or chiefly to weaker labor market
networks. Significant numbers of stagnant low-wage
earners could also be visible because of “sorting,” as those
individuals with lower employment opportunities remain low-
wage workers. The latter finding indicates that, not only is
earnings mobility a reality for a substantial number of initially low earners, but also there is continued poverty within a large subpopulation of workers."
In other words, it's not quite as simple as "work will always win".
Yes, there is no guarantee working would eventually make you better off. Odds are, however, you will work your way up the income ladder beyond what welfare will offer.
You ARE guaranteed an income cap if you choose the welfare route: you CANNOT make more than $X or they'll dock your benefits fast enough that the transition to work is a powerful disincentive to doing so.
> A recurring observation about wealth distribution is that if everyone's income & wealth were equalized, we'd soon return to the economic disparity & distribution we see now. Poverty/wealth is, on the whole, a consequence of chosen behavior.
That's not an "observation", its a claim. Actually, its two separate claims: one a claimed effect of a hypothetical action, and one a claimed mechanism of the claimed effect.
And while I see plenty of reason to suspect that the claimed effect would be true if a point-in-time redistribution occurred, the evidence from, oh, looking around at places that have different observed distributions of wealth and what factors correlate with them is that its not because degree of poverty and wealth are consequences of chosen behavior of individuals, but because the distribution of wealth toward which a society tends are determined largely by the policies (tax, social support, etc.) present in the society on an ongoing basis, such that a point in time redistribution will, over time, be eroded back to the distribution favored by policy (it might, actually, remix who is where on the distribution, but not what the actual distribution looks like over the long term.)
the distribution of wealth toward which a society tends are determined largely by the policies (tax, social support, etc.) present in the society on an ongoing basis, such that a point in time redistribution will, over time, be eroded back to the distribution favored by policy
To put a bit of a finer point on it, it has to do with the things that would not be affected by a point-in-time redistribution of currency: access to education and social connections that affect policy. This returns us to a huge component that GP ignores in attributing poverty to choices: luck. As far as choices go, there is also a huge amount of effort spent in ensuring that the unlucky stay that way.
What about when wealth distribution is done not through simply handing poor people money, but through providing more social programs, mental healthcare, high-quality education, etc. to people most in need of it?
Most people who point out economic inequality would rather like to see long-term social stability programs, not just handing people money until we reach a good wealth curve across the population.
> A recurring observation about wealth distribution is that if everyone's income & wealth were equalized, we'd soon return to the economic disparity & distribution we see now. Poverty/wealth is, on the whole, a consequence of chosen behavior.
Every time I help the poor up close & personal, I observe behaviors which clearly lead to destruction of wealth and/or avoidance of opportunity. No, it's not scientific, but personal anecdotes can be personally persuasive.
The real eye-opener was when I spent an afternoon helping a poor family a variety of ways. I was repairing their couch, a bit puzzled at the damage thereto but continued fixing it; when almost done, the early-teen girls came to me and asked for a large sheet of plastic. "Uh, don't think I have any...what do you need it for?" "We just tore out the screens in the bedroom." I don't know if that means anything to you, but I was startled at the notion that these kids were deliberately destroying their home. I realized, with plenty of confirmation in other poverty-assistance encounters, that much of poverty can be linked directly to ongoing patterns of self-destructive behavior.
Yes, many poor are there as a result of "not their fault" circumstances (abuse, IQ, financial/medical disaster, etc.). But many of them will overcome poverty precisely because, whatever their condition/situation, they still embody self-improving behavior. Yes, they need help/food/money, and I try to provide it as possible.
Now, with those points in mind, it's pretty obvious that if you give everyone the same wealth and income, some will squander it unto poverty, and others will make wise choices - with financial results reflecting their personal choices.
I'm not sure why people have problem with this "observation". I can't pull it out but there is a connection with chaos theory as well. Let's say you equalize everyone's income but after that some people would use their income to start new business, some would buy lottery, some would spend it all out and so on. Outliers would be rare and ultimately the distribution would settle in to Gaussian. The width of the bell shrinking as time passes. For some phenomenons there is upper bound to the shrinkage and for others width might oscillate between extremes.
> if everyone's income & wealth were equalized, we'd soon return to the economic disparity & distribution we see now.
This claim is very america-centric and it does not hold if you look to countries with different social and legal structures. Examples of such countries are Canada, Finland, Norway, Sweden, Denmark, and Germany.
That is not, strictly speaking, an observation but a supposition. An observation is something that you see in reality, and this experiment has not been tried in reality as far as I know (if you've observed such an experiment, I and I'm sure many others would be curious to read the detailed results).
> Poverty/wealth is, on the whole, a consequence of chosen behavior
So the poor can only blame for themselves for their own poverty? really?
This is the common liberal speech so popular in america..
Thats what the 1% tell to other people so they can rule over them, and rise their profit margins using this meek labor force.. but the bad in all this is the 99%, repeating this out loud.. like if it was some sort of inherent truth..
This leads to the conformism of the lower classes, this make them work like a dog for the upper class.. pure and simple
That's why i think if we want to debate if the society is 'fair' or not, we should think about income distribution, not wealth distibution. Even for the majority of the people considered 'rich' (top 1% by income), most of the income is not derived from assets/wealth, but from work. So wealth does not play a big role in living standards of vast majority of Americans, even most rich ones.
Something missing from these discussions is velocity of money. Big income may not mean much if you're burning thru it fast with little to show; reversed, I've known people to amass small fortunes from paltry incomes because they were frugal.
I haven't thought thru it much nor come to conclusions, but do think one's "velocity of money" needs far more consideration.
It's not just that. As there is a (fluent, but still) correlation between money and material goods, it's not the same to be able to save 5% of 20K a year, and 5% of 200K.
One way I like to look at it, is how long would you have to save up to have 20xmedian (net) yearly income in your area in the bank? That is, after subtracting whatever reasonable living expenses, how long would you have to save all that's left to have 20 yearly incomes in savings? Because at that point, barring financial crisis -- you should be able to live off the interests -- at roughly median income.
It's actually a pretty small number -- the point at which you could reasonably retire just on your own savings pretty much indefinitely.
But it's something that is generally impossible to do unless you are "well off" -- and not at the bottom of the pile, so to speak. On the other hand, as soon as you start making "real" money (say 1.2x median income) it becomes almost trivial if you deem it to be a goal worth trying for.
But this is behavioral difference, it has nothing to do with oligarchy or social order. Also, if there is little you can do to get sizable income form assets, why accumulating assets? Burning through big income is fun.
30%, not 40%, according to your article. In the same year (2007), I had just finished my Ph.D. and finished grad school. My income went from about $18k to $50k.
In that year, I had more wealth than the bottom 25% of the American population combined. You probably did too.
25% of the US population has 0 or negative net worth. Combine those and the sum is well south of 0, so if you have a positive net worth, you're worth more than the bottom 25% combined (and then some, because the people with negative net worth would average out some of those positive net worth).
The confusion over this stems from people living comfortable lives, despite negative net worth, because their cash flow satisfies creditors and their expected lifetime net worth (after the debts are finally paid off) is positive.
The statistics are misleading because they view the data as "game over right now", when the matter is ongoing. Someone might have negative worth right now, but that's not taking into account the fact they'll earn a million dollars over the next decade.
it was a stupid study done to score points with specific groups, basically another bash Wal-Mart to appeal to those bobble heads who rally around that sort of stuff. It takes a lot to ignore all the other wealthy individuals and groups to zero in on that family.
Throw out the negative equity people and the numbers were not as bad, use median income and the numbers are better. I doubt the comparisons made in China and Russia are the same as this study you cite was.
Besides, most importantly, the Waltons earned it, most of the wealth locked in China and Russia are either ex political power players or their friends.
Still, when it comes to China and even Russia, what has really changed? The same people ruling and having control of the wealth when they were not "open" markets are basically the same now.
"Besides, most importantly, the Waltons earned it, most of the wealth locked in China and Russia are either ex political power players or their friends."
The distinction here is arbitrary. When we talk about such amount of wealth, I think the verb "to earn" lose some his significance. As a society, I don't believe we should accept that a few persons own such a huge proportion of the wealth (regardless whether they "earned" it, stole it, found it...).
> more wealth than the bottom 40% of the American population combined.
Sounds like a statistic designed to rile people who don't understand the difference between wealth and income. You can be living quite comfortably but with no wealth accumulation (no savings or property). If you're also in debt, your wealth is negative. That bottom 40% probably includes a good number of people making over $100K per year.
If I controlled that much money and was determined to be charitable after accounting for my own personal comfort, I'd love to perform the following experiment, give away $833 to every person in that 41.5% each month for the next 12.5 or so years. IANATL, but at $833 per month you stay just under the $10000 per person you can give each year.
The economic impact of such an act would be a huge direct stimulus to the economy and would change the lives of everyone for the better.
It reminded me of this history of the Congo, particularly the more recent stuff like the 100 Million dollar palace in the remote Jungle with a runway built specifically for Concorde, which was used for shopping trips to Paris:
I understand the problem of rising wealth gap in China, but I missed the part in the articles you linked where it says that a very small and tight group of connected people owns a substantial part of the country.
Obviously guanxi and party membership are unfair and create such inequalities in China, but it seems to me that in Russia the issue is a mafia-like situation, while in China it's more of a system-related issue. (I am not trying to minimize the problem in China, I am just not sure whether they can be compared)
isn't the same story either, but it is familiar to persons who follow news from China that the concentration of wealth at the top of the ruling party clique is very extreme--and unknown in its full extent, for lack of a free press.
I do not read Chinese fluently, but I do follow news from China pretty closely (I lived in China for a couple of years) and I am not denying that top-members of the party are taking advantage of their position (Wen Jiabao as an example). Although I agree with you that we do not know it for sure due to the lack of transparency, the corruption problem in China is similar to the problem we have in other countries like in Brazil, where I live. And in both countries there always the forces "for" and "against" working to put things under the rug or investigate and prosecute, most of the time for political gain (Bo Xilai as one example, and here in Brazil we have other similar cases too).
In Russia it seems that it's a different problem altogether, that is, a mob were able to literally seize part of the country, including the president's cabinet. In Brazil and in China we can say (sometimes cynically) that all politicians are corrupt, but there are opposite forces at play, but to me it seems like in Russia the damage is really catastrophic. (granted that I do not follow Russian politics, so I am not completely sure)
(EDIT: Thanks for sharing the link btw, spot-on criticism from SCMP)
By comparison, the top 400 people in the US have 2.5% of the US's wealth (using Forbes's 2010 numbers of $1.37 trillion for the top 400 households, and the Federal Reserve Board's $54.9 trillion US net worth)
Sorry. I guess my social media button filter is tighter than yours, as I didn't see Like-buttons at all. On top, the introduction on UpWorthy, mentioning the authors reaction when watching the story unfold, added anticipation for watching it.
"All we need to do is wake up and realize that the reality is not what we think it is"
Somehow I don't think a sudden realization is going to make a whole lot of difference. To make any difference we're going to need a complete upheaval of the mechanism and culture of the country. And not just any one country. The entire global financial system is geared to support and further this kind of imbalance.
Here's a fun experiment: Graph what you think wealth distribution should be. Take the derivative to see what you think income should be. Take the derivative again to see what you think your raise should be.
Derivative with respect to what? Time, so we can get money/time as the output? Differentiating a population percentage -> wealth with respect to time doesn't sound particularly informative.
You're right, there's some hand waving. The point is that most people draw ridiculously flat graphs, and if you work backwards to find an income/savings rate that makes the wealth graph, it's not pretty.
The problem with this comparison is that choice of size of the wealthiest share of population (top 110, top 400, top one family, top 20%) greatly influences the outcome of comparison. Why won't we all just refer to good old Gini coefficient and call it a day.
I can't imagine it being true though given this story, my experiences traveling across Siberia, and those of my roommate who is from Russia (he's been in the US for six years). You pretty much have to be a one percenter to get potable tap water (every restaurant charges for water because it's always bottled, never tap).
You are not supposed to drink water off the tap (well, actually you can, if you don't value your kidneys in the long run), you are supposed to filter it through $40 device or boil it, then you can drink it. That's something that everyone does, I don't see this problem, like, at all. I dunno why restaurants charge for water, maybe because they can.
Most people here don't buy bottled water because they don't have a car and/or don't care about water quality and/or don't think bottled water is superior. People use filters to filter tap water or just boil it.
Serving tap water in restaurants doesn't sound right to me. First of all, pipes might be rusty.
It all depends on the quality of tap water - there are locations where tap water is pretty much the same as bottled water, and there are locations where tap water isn't considered drinkable unless boiled beforehand.
Perfect income equality is not an ideal, it's a marxist fraud used as ideological cover while the elites keep the "proletariat" held in intense but semi-equal poverty.
You should not get paid the same thing for different work.
If I work twice as hard as you at the same task, you should not make as much as I do.
Complete income inequality isn't even orthodox Marx - "From each according to his ability, to each according to his need" goes the standard quote by Marx; but that was his study of a specific utopia. (The rest of the cited work in fact goes on to rip its jaws into a transitional programme wrought out of "effective politicking" - pointed stuff.) The official CPSU line was then "To each according to his contribution" in the "transitional" period - through Trotsky and Lenin; so goes the degeneration.
I wonder how long it then took to get to imposed equality.
> If I work twice as hard as you at the same task, you should not make as much as I do.
If you're struggling to program something and I do it easily, you should be compensated for your incompetence?
Work shouldn't be defined by effort but by results -- and that isn't always reasonable to quantify (which would be needed if it was to be the basis of a (fair) reward system).
I agree that "perfect equality" isn't an ideal (in pretty much anything). I do thing equal opportunity is a worthy goal, though.
you just haaaaad to bring up programming skills, didn't you. FINE. but it's not always programming that gets things done. sometimes its the determination in your veins not the dexterity of your mind that counts for the most. remember that.. remember that.
Why use the word "should"? Nobody is entitled to anything in our world. Working hard is not valuable in itself. The only reason it is encouraged is that it has the potential to bring about positive results.
A world where people are rewarded based on how much they "tried" or worked would be highly dysfunctional. There is no moral basis on which to justify rewards without results.
This is what happens when you privatize massive industries without proper processes in place... Most of these people inherited billion dollar businesses when the Soviet Union crumbled.
The irony of this is that lack of 'proper processes' occurred because the new government had to do this ASAP, before the 'red managers' (actual management of properties in question), backed by labour collectives, assume control over the means of production in the country and reverse the 'democratization', privatization and whatever new shiny things reformists intended to do.
isn't that what happened when the IMF tried to transition the former sovjet union to a free market in record time?
also, isn't that why putin is so liked among a large portion of the people, because he brutally stripped away some of these guys wealths?(probably adding some to his own in the process)
Tzar transferring wealth from (and publicly humiliating and stripping them of all the privileges, etc...) non-110%-loyal to him rich people (who built their wealth by "stealing from people" - in Russian mentality there is no other way to build a wealth) to the loyal ones is the national reality show in Russia. People there just love a "strict, yet just tzar".
Most, if not all, of these people are criminals in the past, who'd been given decades in prison if properly investigated, but are now respectable gentlemen.
To my mind,this highlights a flaw in free market theory. Obviously this scenario was not created by market forces. But now that the inequality exists, does anyone seriously believe a perfect free market economy, if implemented in Russia tomorrow, would act to substantially undo the resource distribution issue?
Corruption is the enemy of free market. The article explains that this situation is due to Vladimir Poutine giving away taxpayer money in huge amount for control and loyalty. Doesn't sound like free market.
Those rich are personal friends of Putin or are connected to him. They don't produce any goods, they just exploit Russia's natural wealth. Russian economy survives just because of its oil and gas. It will completely lose its weight when it ran out of its black gold.
Not much. A fraction of Americans have negative net worths. If you have no debts and a nickel in your pocket, you're worth more than all of them put together. It's an oft-used misleading statistic.
Also, if your net worth is -$0.05, you're worth more than all of those with less than you combined! Not only that but as someone with a net worth of -$10k, you too are worth more than the bottom 5% [1] of Americans combined as well. I guess a more interesting metric would be to count people with debt in these combined statistics as having nothing rather than having negative net worth, even if they do.
If you discount households with negative net worth, the Walmart heirs' wealth is still equal to the combined net worth of the bottom 28%, which translates to about 33 million households.
Of course, wealth is not the only statistic we should study, as many households with little wealth may still have decent income. There are many factors to consider, but the simple fact is that a single family owns more than a third of Americans - a powerfully descriptive statistic of wealth inequality.
the Walmart heirs' wealth is still equal to the combined net worth of the bottom 28%, which translates to about 33 million households.
Let's assume the Walmart heirs acquired that money in absolutely the worst possible way: They went out and flat stole it from these 33 million households. If you took it from the Waltons and gave it all back, each of those households would receive a whopping $3,000 on average. Now, that's not nothing, but as a one time "refund" of wealth generated over decades it's not particularly impressive. If your household of four is at the poverty line, it would up your income by about 15% for one year.
And of course they didn't steal it. And I suspect that over only a decade (Walmart has been in business generating that wealth for five), the average low net worth household probably saved much, much more than $3,000 by shopping at Walmart. That's a win-win, and it's how an economy grows.
>>the average low net worth household probably saved much, much more than $3,000 by shopping at Walmart. That's a win-win, and it's how an economy grows.
Dunno, it doesn't seem to be win-winning. Maybe because the pressures exerted by Walmart to get those low-low prices has forced the formerly decently paying manufactoring jobs overseas. So the guy who used to work at a factory now works at McDonalds making 33% of what he made without any decent benefits.
Of course it's a win-win. The money those low net worth households save doesn't disappear: The poor spend most of their income, and as a result, the money that was going to a more inefficiently manufactured product is now being spent on something more economically competitive. A burrito at Chipotle or a pair of sneakers or an Android phone.
Nobody's entitled to a job, but when Walmart trims inefficiencies, it ensures that consumer spending is going towards the products of more efficient producers at their own stores and elsewhere, adding jobs where they can be the most productive.
So you could craft a headline targeting the individual with the highest debt and still say "this greedy scumbag has more money than n% of the population combined", where n is the percent of people who have negative wealth.
He's saying that if you add up a bunch of negative net worths, eventually the sum is going to be very negative, even if each individual number was small. In particular, he's talking about the case where each of those numbers that you add up is individually smaller than your personal debt, but their sum exceeds your personal debt. Therefore, it looks like you are wealthier than all of those people combined (since your worth exceeds the sum of all theirs!).
Not to mention, that by having a negative net worth, you are a part of the bottom X%. But your debt is less than the sum of all debt, by definition. So 100% of Americans have more net worth (individually) than the bottom 5% combined.
So what? Those people are still part of the economy. e.g. if 95% of people had net negative wealth it wouldn't mean that they could be discounted and you'd only look at the remaining 5% for any meaningful view of how the wealth that society produces is distributed.
Much like here. Different country, similar distribution of wealth. This supports an old adage about the difference between Russia and the U.S. -- in Russia, it's dog eat dog. Here, it's the other way around.
20 years of Capitalism is a small amount of time to refute a premise. They need decades more of booms, busts and bubbles till you can see the financial and political results of such socioeconomical imbalances.
What a ridiculous thing to post. Most of these billionaires have epic mining or extraction concessions from the government of Russia, concessions that are the result of political favoritism and crony and nepotism. Many are former KGB who leveraged their political positions to profit off the chaos and rise of the greatest KGB opportunist of all-time: Putin.
These are the exact sort of people you should be attacking if you at all believe in a free-market and capitalist meritocracy.
> Most of these billionaires have epic mining or extraction concessions from the government of Russia, concessions that are the result of political favoritism and crony and nepotism.
The article is pretty terse, and doesn't go into detail on how anyone in particular acquired their wealth. It doesn't enumerate the particular 110 people and attempt to sort the ones who acquired their wealth via illegitimate methods from those who didn't.
It simply implies that there was some unified pool of wealth owned by an abstract aggregation called "Russia", and these 110 people have claimed tremendously disproportionate shares of this wealth, without any substantive evidence being offered that this is what actually happened.
Sure, perhaps the Soviet state controlled most of the wealth within its territory while it existed, but the Soviet state acquired control of that wealth by simply seizing it from its previous owners; can we be absolutely sure that none of those 110 were simply using the corrupt institutions of the subsequent Russian state to reclaim wealth that was properly theirs in the first place?
I'm not making any apologies for the Russian government here; it's entirely possible and quite probable that many people in Russia do indeed manipulate a corrupt political system in order to capture other people's wealth for themselves. What I'm criticizing here is the article, which presumes, without arguing the case, that people owning large amounts of wealth is somehow itself evidence that abuse has occurred, and which implies through its wording that wealth originates, initially unowned, in some kind of aggregation.
Schools need to empower and educate young people as to how to create wealth, and not just how to fit into a predesigned hole the labor market has ready for you.
Until that happens the relatively few people that 'get' wealth creation will always have the biggest slice of the pie.
There a band of people connected to the government (first it was party apparatchiks, then friends of Putin) plundered resources owned by the state. And almost all of them have to do with stuff being pulled out of the ground.