Does Income Inequality Matter?

theodp is concerned about the following: "Alarmed by Goldman Sachs CEO Lloyd Blankfein's record-setting $53M bonus, Charles Wheelan (aka The Naked Economist) argues that income inequality matters. Wheelan notes that the Gini Coefficient (a measure of income inequality) for the U.S. has been moving away from countries like Japan and Sweden and closer to that of Brazil, where the murder rate is 5X that of NYC and crime is materially impacting GDP."

Comments

Re:I know it impacts worker performance...

[mehtajr]

Try reading that again.

"His bonus reflected the performance of Goldman Sachs (Charts), which reported record net earnings of $9.5 billion, or $370,000 per employee at the world's largest investment bank."

Re:Correlation... causation

[Lumpy]

Bingo!!!

Fun facts....

The rich can afford to have a new house built AWAY from crime and get the benefits of modern insulation and technology so heating and cooling thier home costs less than 1/3rd that of a older home from the 70's or 80's.

The poor (making $20.00 an hour or less) cant afford to build a home or buy a old home in lower crime areas... you just cant afford a $350,000.00+ mortgage when you make a paltry $20.00 a hour. So you are stuck buying a crapshack in the $200,000 range in a questionable neighborhood that you hope is not too bad. Here is the problem. your little 1200 Sq foot crapshack was built in 1955 and has no insulation. so heating it costs you over $200.00 a month during winter months. While the rich guy in his 4800 sq foot home get's away with $180.00 a month keeping it at 72 degrees because he has low E glass, south facing windows, thermal mass, decent insulation etc....

The gap is widening... I realize that I will never EVER be able to afford to build a house, the income gap has widened enough that I will never be able to catch up to the fact that housing is spiraling out of control in price. The depressing fact is that I see my 15 year old and know that she probably will never be a homeowner unless she does somethign stupid and get's one of those unrealistic mortgages, marries a rich guy, or becomes a doctor.

And this is in non-popular metro areas, Only the truely insane tries to buy a home in California near San Diago, LA or Frisco. (Where you have the $500,000.00 Crapshacks)

The rich are not only getting richer but they are dragging lots of things with them.

I am all for a guy that earns his money, but they also need to realize what they are doing to the rest of the world and how they are starting to create animosity.

Rich can not get surprised when they park their BMW 7 series sideways taking up 4 spaces at the local mall and come back finding it keyed.

Being rich is not a problem, it's being rich and an asshole that pushes most of the poor over the edge. It's easy to rob an asshole.

human services

[mangu]

in cultures that have a relatively high average wage and flatter economic pyramid, combined with services including universal health care, countries such as New Zealand, Australia, Sweden, Switzerland, Japan, Norway, the Netherlands, and Canada among many others, there is a significantly lower rate of violence. Granted in all of those countries there are poor and those with fantastically extensive portfolios, but the statistical disparity is not as extensive as it is among countries like Brazil and the US.

You are mixing two entirely different things here: wage level/distribution and human services.

I live in Brazil and the human services here are *excellent*, entirely on par or better than in Sweden, another country where I have lived in the past. On paper, that is.

The Brazilian constitution states that "health is a right of the citizen and a duty of the state". Too bad you either pay for private health insurance or stand in line for three days to get a consultation at a public hospital. The law also guarantees thirty days per year paid vacations for workers and four months paid licence for child bearing. Too bad over 50% of the workers are either unemployed or working "informally", that is without a written contract.

The Brazilian law is very, very generous in distributing benefits to everyone, although in practice only a small minority can get those. Public servants can retire and keep working at the same job, effectively doubling their salaries. Judges salaries start at R$24500/month (about US$11400), which is 70 times the minimum wage and about ten times the starting salary for other university graduates, such as engineers for instance. And you can become a judge right after finishing law school, although there is strong competition for the job, having another judge in the family is a strong factor in getting the employment.

I have lived in four countries: Brazil, Colombia, Sweden, and the USA, so I know a little about the differences between them. I think it's a big mistake when the law tries to give unrealistic benefits to everyone, without regard to how it's going to be paid for. Universal health care is a big mistake, IMHO. Swedes pay dearly in taxes for all the human services they have available, even if, differently from Brazil or Colombia, those services are available to everyone who is entitled to them. In Brazil currently we have the worst possible situation, our entitlements, in theory, are on the same level as in Sweden, our taxes, in practice, are in the same level as in Sweden, and our human services, for most people, are way below those of the USA.

There are a million or so illegal Brazilian immigrants in the USA. Those are people who break the law to get away from a country where universal health care is guaranteed by the Constitution. They do it to move away from a country where the sales tax is up to 35%. Where taxes, in average, are about 42% of total prices. Where import duties are 100% over the price for many products.

In the end, the well-intentioned but misguided effort of legislators to grant so many benefits to everyone is one of the main reasons for the increasing crime rates in Brazil. With such absurd taxes, evasion is rampant and tolerated by officers. This causes widespread corruption and the consequent erosion of authority. When an officer accepts a bribe in exchange for a tax reduction, he is being conditioned to accept bribes for other crimes.

Re:Correlation... causation

[Brickwall]

Yuppie kids or their parents also produce more in a day than people in Brazil produce in a year. Hence, they get paid more. Brazil's economic woes are due to a) their economic policy and b) the fact that their people produce less than the western setup

You don't get out of Mommy's basement much, do you? My wife is from the Philippines - about as poor as Brazil - and I have visited there frequently. Yes, there are people, like my wife's brothers, who run a successful chain of department stores, and who make relatively lots of money. There are also many people, like virtually every politician and government officer, who live on graft, corruption, and crime. For example, we were introduced to the governor of her province, who also runs the meth trade. Police and armed forces officers supplement their incomes by kidnapping and ransoming rich kids. Ever practical, the Chinese, who run much of the trade, form associations that routinely pay local police and army officers protection money so that their children will not be touched.

Although the Philippines has lots of laws to provide services, they don't have the money. One reason is rich businessmen routinely "negotiate" their tax payments with the local official. Such negotiations always include a thick envelope for the official. So when you live in a country where the rich avoid their taxes, where the people who are supposed to uphold the law break it, and the government that is supposed to work for you steals from you, there is going to be a lot of crime because the social contract is routinely betrayed.

Re:Inequality matters - and it's usually good

[Red Flayer]

No. I don't pay my bills with a "proportion of purchasing power". I use cash. More cash buys more in our system, regardless of what proportion it is of the total amount of "purchasing power".

Do you understand the concept of monetary supply and inflation? More cash does NOT buy more in our system; more cash merely dilutes the value of cash. The only way to get more purchasing power (which is a real term, and doesn't need quotes) is to have proportionately more cash in relation to everyone else.

In your example, everyone gets a raise. The company must be doing fairly well. Good for everyone.

No, not good for everyone. It is a zero-sum game. What happens if everyone gets a raise in the system? Goods get more expensive, and that raise is wiped out. If your raise was smaller than the average, it means that you, net, lost income.

Stop trying to trick people. Economics is simple and logical unless you're trying to warp the arguments to support a non-free economic system.

I'm not trying to trick people. I'm explaining the truth. I'm sorry that your narrow understanding of the concepts involved prevents you from truly understanding how the system works. I suggest a couple courses in economics to help you out... and until then, stop trying to mislead people by spouting uninformed nonsense in support of a potentially catastrophic inequitable system.

This has nothing to do with supporting "free" or "non-free" systems... it has to do with explaining how things work. Any judgments about what system is fair is left to each person. The simple truth is that you wrote a factually untrue statement that, while appealing to uninformed common sense, fails to account for macroeconomic truths.

This is why I used simple algebra to demonstrate my point... it's easy to understand.

A final note -- the example I used is not a company, it's a system. There's a difference.