From the McDonald's article:
"The last federal increase to the minimum wage was in 2009, to $7.25. When adjusted for inflation, the wage was worth $9.07 an hour in 1968, according to the Economic Policy Institute."
That's an over 20% decrease in minimum wage during 40 years of technological progress. Talk about trickle-down-economics.
Economic Fallacies
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LuckyMoneyCat
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BeyondtheWrap
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If I make 10k/yr and you make 1 million, and over a decade, the economy doubles that, I'm making 20k per year, and you 2 million. Well that's not fair! I got a 10k raise, and you made an extra million dollars! Our income inequality grew by 99%!
That is a different definition of income inequality than the one used in the article. The definition they used is not the absolute difference in dollars of the two incomes, but the ratio of the two. In your example, income inequality has not widened because at both times the CEO makes 100 times the low-wage earner.
That is a different definition of income inequality than the one used in the article. The definition they used is not the absolute difference in dollars of the two incomes, but the ratio of the two. In your example, income inequality has not widened because at both times the CEO makes 100 times the low-wage earner.
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RealPerson
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I have been surprised by the "fairness" and "how do we compare to so and so" in this forum. Why do we care how we compare to this or that? Isn't FI/ERE all about taking charge of your own destiny, regardless of peripheral circumstances? Robustness or antifragility does not seem to fit well with a "poor me" or other variations of the victim mindset. Many people on this forum, some with low incomes, have shown in their journals that FI/ERE is very doable in today's circumstances.
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secretwealth
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RealPerson, I agree. I am no Ghandi, MLK or Mother Theresa. No amount of whining on my part will change the world to make it fairer. The saying, "either you are part of the problem or part of the solution," is a false dichotomy that eliminates the middle ground where most of us live as neither problem solver nor cause.
We have the world we have. We can distract ourselves into inaction with constant complaining about how it should be, or we can work with what we've got.
We have the world we have. We can distract ourselves into inaction with constant complaining about how it should be, or we can work with what we've got.
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secretwealth
- Posts: 1948
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That's true. I agree it is not good. As does our god-of-the-month Taleb.
Perhaps your degree of enthusiasm for pointing out the inequity is typical of someone less productive than you. I think some here argue with you in place of their spendthrift sibling or the perpetually-complaining bum on the corner. I know I do.
Perhaps your degree of enthusiasm for pointing out the inequity is typical of someone less productive than you. I think some here argue with you in place of their spendthrift sibling or the perpetually-complaining bum on the corner. I know I do.
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secretwealth
- Posts: 1948
- Joined: Mon Jun 27, 2011 3:31 am
"Perhaps your degree of enthusiasm for pointing out the inequity is typical of someone less productive than you. I think some here argue with you in place of their spendthrift sibling or the perpetually-complaining bum on the corner. I know I do."
Likewise, my degree of enthusiasm comes from thinking about the hedge fund moguls gaming the system, investment bankers getting free government handouts, Realtors and mortgage bankers deluding the unsuspecting public that real estate is a good investment all the time, insurance salesman looking to exploit government mandates, advertising executives earning six figures for convincing the public to buy shit they don't need, and so on.
Since these non-productive entities arguably cause a lot more waste and cost more in welfare, I think they're a much bigger concern than bums on the corner (who also annoy the fuck out of me too--I should mention incidentally that I got very annoyed about a glowing story about unions on NPR this morning; I'm anti-union).
Likewise, my degree of enthusiasm comes from thinking about the hedge fund moguls gaming the system, investment bankers getting free government handouts, Realtors and mortgage bankers deluding the unsuspecting public that real estate is a good investment all the time, insurance salesman looking to exploit government mandates, advertising executives earning six figures for convincing the public to buy shit they don't need, and so on.
Since these non-productive entities arguably cause a lot more waste and cost more in welfare, I think they're a much bigger concern than bums on the corner (who also annoy the fuck out of me too--I should mention incidentally that I got very annoyed about a glowing story about unions on NPR this morning; I'm anti-union).
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RealPerson
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@secretwealth - I totally agree with you on the issue of insider trading and government bailouts. Realtors trying to sell real estate is their job. It is not their job to teach us how to handle our money wisely. Advertising agencies are paid to advertise. They have no obligation to tell us what we should buy for our own good. They are hired to help companies sell stuff. That is capitalism, the very foundation of our economy. Taking it a step further, that truly is the definition of freedom. We all are free to choose and live with the consequences of those choices. With the internet, free education is available for anyone who can walk into a library. Not all of us choose to be educated. Choosing to live ERE-style is a choice we all could make, but few actually do.
Just because money is wasted on corporations, does not mean I agree with money being wasted on welfare. Rather, I prefer to call attention to the waste on both, instead of using one to justify the other. Whether more money is wasted on one vs. the other is impossible to prove. First, we would never agree on what is defined as waste. Secondly, I have no doubt that tons of waste has never seen bright daylight or at least is buried under a massive amount of bureaucracy. Finding it would be a monumental task indeed. Just my 2 cents worth.
Just because money is wasted on corporations, does not mean I agree with money being wasted on welfare. Rather, I prefer to call attention to the waste on both, instead of using one to justify the other. Whether more money is wasted on one vs. the other is impossible to prove. First, we would never agree on what is defined as waste. Secondly, I have no doubt that tons of waste has never seen bright daylight or at least is buried under a massive amount of bureaucracy. Finding it would be a monumental task indeed. Just my 2 cents worth.
"I have been surprised by the "fairness" and "how do we compare to so and so" in this forum. Why do we care how we compare to this or that? Isn't FI/ERE all about taking charge of your own destiny, regardless of peripheral circumstances? Robustness or antifragility does not seem to fit well with a "poor me" or other variations of the victim mindset."
ERE has a lot to do with understanding how the economic system works and breaking free from the limitations of the work-slave consumer role. Part of this is understanding how this system is rigged against the average consumer who is part of an indebted population living paycheck to paycheck in an uncertain labor market, during a recession with high unemployment rates and planned cuts to social services.
Knowing that you're being fleeced and cheated doesn't imply a victim attitude. Quite the opposite. Doing something about your own situation and knowing how bad it is can work very well in synergy.
In fact, one could just as justifiably be surprised about the benefits people see in assuming we lived in a level playing-field meritocracy.
Sure, you have to work with what you got - mainly due to a lack of alternatives. But this works just as fine with a model of the world that takes existing social injustices into account.
ERE has a lot to do with understanding how the economic system works and breaking free from the limitations of the work-slave consumer role. Part of this is understanding how this system is rigged against the average consumer who is part of an indebted population living paycheck to paycheck in an uncertain labor market, during a recession with high unemployment rates and planned cuts to social services.
Knowing that you're being fleeced and cheated doesn't imply a victim attitude. Quite the opposite. Doing something about your own situation and knowing how bad it is can work very well in synergy.
In fact, one could just as justifiably be surprised about the benefits people see in assuming we lived in a level playing-field meritocracy.
Sure, you have to work with what you got - mainly due to a lack of alternatives. But this works just as fine with a model of the world that takes existing social injustices into account.
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secretwealth
- Posts: 1948
- Joined: Mon Jun 27, 2011 3:31 am
I agree with everything Felix said.
I've always been fascinated by and frustrated with people who focus more on welfare fraud than corporate fraud. The psychology behind this selection bias seems to me to be an underlying sense that companies and the wealthy are somehow innately more powerful, more entitled, and different and/or better than the "rest of us." I remember years ago hearing a friend complain about a neighbor who was on food stamps and Section 8 housing and who also had cable t.v. This was 6 months after TARP.
I've always seen welfare fraud--which will never go away, but can be minimized with better administration--as a necessary evil for the peace of mind and security of knowing that if everything truly goes sour in my financial world I will not die on the streets of starvation. That's a nice feeling to have--I have been to places in the world where people do not have that security. It's horrible, not just for the poor, but for the rich as well.
Government bailouts, insider trading, etc. not only treats people inequitably, but also creates moral hazard that encourages more fraud. Yet we have a system that is going more in that direction. Welfare fraud is being worked on (at least ostensibly) by both political parties in the U.S., but neither is seriously attacking the corporate welfare situation. This is a bigger problem than my friend's neighbor using government money to watch reruns of the Simpsons.
I've always been fascinated by and frustrated with people who focus more on welfare fraud than corporate fraud. The psychology behind this selection bias seems to me to be an underlying sense that companies and the wealthy are somehow innately more powerful, more entitled, and different and/or better than the "rest of us." I remember years ago hearing a friend complain about a neighbor who was on food stamps and Section 8 housing and who also had cable t.v. This was 6 months after TARP.
I've always seen welfare fraud--which will never go away, but can be minimized with better administration--as a necessary evil for the peace of mind and security of knowing that if everything truly goes sour in my financial world I will not die on the streets of starvation. That's a nice feeling to have--I have been to places in the world where people do not have that security. It's horrible, not just for the poor, but for the rich as well.
Government bailouts, insider trading, etc. not only treats people inequitably, but also creates moral hazard that encourages more fraud. Yet we have a system that is going more in that direction. Welfare fraud is being worked on (at least ostensibly) by both political parties in the U.S., but neither is seriously attacking the corporate welfare situation. This is a bigger problem than my friend's neighbor using government money to watch reruns of the Simpsons.
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jennypenny
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- Joined: Sun Jul 03, 2011 2:20 pm
I think because it's easier to understand welfare fraud. Corporate/bank fraud is complicated, convoluted, and the fraud is usually systemic rather than individual. It's harder for the average person to envision. Welfare fraud is easy to picture on an individual level because most of us have seen it first hand at some point. The average person is more capable of judging welfare fraud.
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Riggerjack
- Posts: 3199
- Joined: Thu Jul 14, 2011 3:09 am
The world is not cruel, it is indifferent. And that is worse.
When I was poor, there was alot more scamming and stealing and actively fucking over anyone for anything. Not that there's any real moral differences between classes. I've just seen that it is MUCH more frowned upon in the middle class to have an identified victim.
I find it interesting that the service industries are being portrayed as the abusers of the system here. They are all voluntary services. It's not like anyone took a shortcut across the graveyard and was waylaid by a real estate agent.
Which brings me to regulations. Any systemm will be gamed. The simpler it is, the more subject to political gaming, and the more complex, the more safe it is for the gamers. This regulatory safety net is never mentioned by the "reformers" pushing for more regulation.
I find myself wondering if unintended consequences are really unintentional.
When I was poor, there was alot more scamming and stealing and actively fucking over anyone for anything. Not that there's any real moral differences between classes. I've just seen that it is MUCH more frowned upon in the middle class to have an identified victim.
I find it interesting that the service industries are being portrayed as the abusers of the system here. They are all voluntary services. It's not like anyone took a shortcut across the graveyard and was waylaid by a real estate agent.
Which brings me to regulations. Any systemm will be gamed. The simpler it is, the more subject to political gaming, and the more complex, the more safe it is for the gamers. This regulatory safety net is never mentioned by the "reformers" pushing for more regulation.
I find myself wondering if unintended consequences are really unintentional.
@RJack
"I don't have a problem with how much money they make, it's pretty much a lifetime achievement position anyway. You only get there by dedicating your life to that goal. There should be a fine award for the effort.
I believe the biggest lie in America is that corporations act in their own self interest. This is clearly not the case, they act in the perceived best interest of the few at the top. I'm OK with that, except when it results in risky behaviors that cause lasting harm for short term gain. Enron, MCI and others come to mind..."
This has come to be known as the "agent problem" (Taleb carries on about this), because entities only act through humans and humans often have different goals and motivations than the entities they control. The problem is even more compounded in that agents are frequently shielded from liability and, as you point out in some circumstances, even rewarded for it.
What your observation gets you back to is the economic fallacy of assuming that economic entities necessarily behave in a rational manner -- the "rational economic actor" fallacy. Most economic theories are built on this fallacy, which as you have aptly observed, is simply not true where the rubber hits the road. In fact, these large economic entities are fertile grounds for psychopaths. See http://www.youtube.com/watch?v=Jxq7hiHi1cE
There is no good solution to the agent problem, or at least not one that has been agreed upon. Most of them, like the one you proposed, are variations on the "benevolent dictator" theme -- lets have the government make a rule to force economic actors to behave "more rationally" so that they fit more neatly into one's economic belief system about the way things work. In real life, this often just gets you to a different agent problem, where the regulator may be alternately hostile or co-opted by the industry being regulated.
A better solution might be simply to limit the size, breadth and/or lifetime of artificial economic actors (like corporations, banks, trusts, etc.) Prior to the 19th century, such things were few and far between. It would not make them any more rational, but could minimize the potential damage of "too big to fail", etc.
The Glass-Steagall law was of this nature. But it was tossed aside in favor of an economic belief system rooted in the rational actor fallacy.
On a broader note, if you get away from economists and ask historians about economic inequality, they will tell you that it is a natural part of the ebb and flow of human and technological development, but that too much inequality ultimately leads to instability that is either solved by changes in the law or violent revolutions. This has been going on for thousands of years even without the "benefit" of economic theory-based belief systems. See http://windyanabasis.wordpress.com/2011 ... -of-solon/
"I don't have a problem with how much money they make, it's pretty much a lifetime achievement position anyway. You only get there by dedicating your life to that goal. There should be a fine award for the effort.
I believe the biggest lie in America is that corporations act in their own self interest. This is clearly not the case, they act in the perceived best interest of the few at the top. I'm OK with that, except when it results in risky behaviors that cause lasting harm for short term gain. Enron, MCI and others come to mind..."
This has come to be known as the "agent problem" (Taleb carries on about this), because entities only act through humans and humans often have different goals and motivations than the entities they control. The problem is even more compounded in that agents are frequently shielded from liability and, as you point out in some circumstances, even rewarded for it.
What your observation gets you back to is the economic fallacy of assuming that economic entities necessarily behave in a rational manner -- the "rational economic actor" fallacy. Most economic theories are built on this fallacy, which as you have aptly observed, is simply not true where the rubber hits the road. In fact, these large economic entities are fertile grounds for psychopaths. See http://www.youtube.com/watch?v=Jxq7hiHi1cE
There is no good solution to the agent problem, or at least not one that has been agreed upon. Most of them, like the one you proposed, are variations on the "benevolent dictator" theme -- lets have the government make a rule to force economic actors to behave "more rationally" so that they fit more neatly into one's economic belief system about the way things work. In real life, this often just gets you to a different agent problem, where the regulator may be alternately hostile or co-opted by the industry being regulated.
A better solution might be simply to limit the size, breadth and/or lifetime of artificial economic actors (like corporations, banks, trusts, etc.) Prior to the 19th century, such things were few and far between. It would not make them any more rational, but could minimize the potential damage of "too big to fail", etc.
The Glass-Steagall law was of this nature. But it was tossed aside in favor of an economic belief system rooted in the rational actor fallacy.
On a broader note, if you get away from economists and ask historians about economic inequality, they will tell you that it is a natural part of the ebb and flow of human and technological development, but that too much inequality ultimately leads to instability that is either solved by changes in the law or violent revolutions. This has been going on for thousands of years even without the "benefit" of economic theory-based belief systems. See http://windyanabasis.wordpress.com/2011 ... -of-solon/
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RealPerson
- Posts: 875
- Joined: Thu Nov 22, 2012 4:33 pm
"Welfare fraud is being worked on (at least ostensibly) by both political parties in the U.S., but neither is seriously attacking the corporate welfare situation. This is a bigger problem than my friend's neighbor using government money to watch reruns of the Simpsons."
Not sure that either party is tackling anything. Besides, with the White House and Senate in Democratic hands, there isn't much Republicans can accomplish in any event. Leadership in reducing spending can only come from Democrats.
To be honest, I am not worried about my neighbors television habits. The food stamp budget alone for 2011 was 75.7 Billion dollars. That is not counting the many other public assistance programs. We are talking serious money here, even for Washington DC. I have no idea how much is spent on corporations, but I imagine it is a lot also. As law abiding citizens and taxpayers, we get to go to work and foot the bill. That is what I am not okay with.
As far as corporate leadership is concerned, I don't question that is mostly self-serving. When it comes to corporate services or products, I am free to buy those or not. Paying taxes, however, is not a choice.
Not sure that either party is tackling anything. Besides, with the White House and Senate in Democratic hands, there isn't much Republicans can accomplish in any event. Leadership in reducing spending can only come from Democrats.
To be honest, I am not worried about my neighbors television habits. The food stamp budget alone for 2011 was 75.7 Billion dollars. That is not counting the many other public assistance programs. We are talking serious money here, even for Washington DC. I have no idea how much is spent on corporations, but I imagine it is a lot also. As law abiding citizens and taxpayers, we get to go to work and foot the bill. That is what I am not okay with.
As far as corporate leadership is concerned, I don't question that is mostly self-serving. When it comes to corporate services or products, I am free to buy those or not. Paying taxes, however, is not a choice.
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Riggerjack
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- Joined: Thu Jul 14, 2011 3:09 am
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secretwealth
- Posts: 1948
- Joined: Mon Jun 27, 2011 3:31 am
@ Secretwealth- So the real quesiton is, what are you suggesting?
When people start talking about wealth gaps and 1%'ers, almost always what they're really doing is building a moral case for doing something they know is wrong, taking something away from someone which they fairly earned by following "the rules". Hence, extraordinary emotion.
90% of America's millionaires are first generation rich and
most of them did not inherit any, or a significant portion of that wealth. Most never made more than $200,000/yr. (Tom Stanley, Millionaire Mind)
1% income is extremely volatile, but the majority of 1%'ers make between $365-500k. (The fed gov'ts recent compromise to raise taxes only on those making over $450 was instructive) Most of them are households with employment rates over 2.0 with dual income professionals, lawyers, doctors, engineers and sm business owners living in high cost of living areas. And they make it as regular salary and bonus, not as long term cap gains.
In the SF Bay Area, it wouldn't be newsworthy to do a story on a cop and fireman couple in their 30's making $250,000/yr. A pair of people who pick up litter on the Caltrain making $150-200k wouldn't be outside the realm of possibility. It should be obvious we want some income gap between picking up litter and an engineer, I think.
Most of the 1% do not have any political pull, the frequent implication is patently silly. They're just employees. If they did, they wouldn't have just voted themselves the nearly 10% income tax increase (for a CA household making over $450k) they got in the last election. They wouldn't pay, by far, the highest tax rates in the nation, now over 50% in California.
It IS a problem when a society becomes unbalanced. But the most frequently stated solution is to raise taxes above a certain AGI and punish them for doing exactly what their parents and teachers told them- study hard, get an advanced degree and work hard.
Targeted taxes are used as disincentives. I think it's crazy to disincentivize the very behaviors our parents, schools and politicians encourage by applying extraordinary taxes to high productivity and income.
I think we'd all be far better off if we figured out why a group is succeeding more than the others, and see what could be applied outside their cohort, not punish those who, by this measure are winning.
When people start talking about wealth gaps and 1%'ers, almost always what they're really doing is building a moral case for doing something they know is wrong, taking something away from someone which they fairly earned by following "the rules". Hence, extraordinary emotion.
90% of America's millionaires are first generation rich and
most of them did not inherit any, or a significant portion of that wealth. Most never made more than $200,000/yr. (Tom Stanley, Millionaire Mind)
1% income is extremely volatile, but the majority of 1%'ers make between $365-500k. (The fed gov'ts recent compromise to raise taxes only on those making over $450 was instructive) Most of them are households with employment rates over 2.0 with dual income professionals, lawyers, doctors, engineers and sm business owners living in high cost of living areas. And they make it as regular salary and bonus, not as long term cap gains.
In the SF Bay Area, it wouldn't be newsworthy to do a story on a cop and fireman couple in their 30's making $250,000/yr. A pair of people who pick up litter on the Caltrain making $150-200k wouldn't be outside the realm of possibility. It should be obvious we want some income gap between picking up litter and an engineer, I think.
Most of the 1% do not have any political pull, the frequent implication is patently silly. They're just employees. If they did, they wouldn't have just voted themselves the nearly 10% income tax increase (for a CA household making over $450k) they got in the last election. They wouldn't pay, by far, the highest tax rates in the nation, now over 50% in California.
It IS a problem when a society becomes unbalanced. But the most frequently stated solution is to raise taxes above a certain AGI and punish them for doing exactly what their parents and teachers told them- study hard, get an advanced degree and work hard.
Targeted taxes are used as disincentives. I think it's crazy to disincentivize the very behaviors our parents, schools and politicians encourage by applying extraordinary taxes to high productivity and income.
I think we'd all be far better off if we figured out why a group is succeeding more than the others, and see what could be applied outside their cohort, not punish those who, by this measure are winning.
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secretwealth
- Posts: 1948
- Joined: Mon Jun 27, 2011 3:31 am
"When people start talking about wealth gaps and 1%'ers, almost always what they're really doing is building a moral case for doing something they know is wrong, taking something away from someone which they fairly earned by following "the rules". Hence, extraordinary emotion."
Well, since you already have figured out what I'm "really" doing, there's no point in responding, is there?
Well, since you already have figured out what I'm "really" doing, there's no point in responding, is there?