Early Retirement Extreme Forums

All this talk about income inequality, economic fallacies, and changing prices got me thinking deeply about income inequality.
I know from the discussions that some believe that income equality is a bad thing while others believe that income inequality is benign. I don't think it is the income inequality that is is the issue; rather I believe it's how efficient the government provides welfare delivery.
Of the top of my head, I can think of three models of income inequalities among the developed world. I have included the Gini coefficients from the World Bank figures after the countries.
(A) Have high income inequality but ensure that the poorest and most disadvantaged are taking care of. (Hong Kong (53.3) and Sinagporean Model (48.1)).
(B) Have lower income inequality via high progressive taxes but still ensure welfare and social services delivery follow performance and efficiency guidelines (Sweden (25) and Denmark (24)).
(C) The model that does not do a good job of adopting either A or B which leads to the poorest not being taking care of irrespective of the income inequality (United States (45) or Canada (32.6)). While income inequality is not as bad in Canada compared to the USA, Canada's system of welfare delivery (excluding health care and education) is similar to America.
Let me start with a discussion on Model A. Hong Kong and Singapore have the higher Gini coefficients at 53.3 and 48.1, respectively. While the income inequality is higher than the US (45) or Canada (32.6), I believe Hong Kong and Singapore take care of its poor better than US or Canada.
The poor in Hong Kong and Singapore have access to public housing, public health care, and public education and provide it at a lower cost than US or Canada. For example, the 2008 WHO statistics show that Singapore spent 3.3% of its GDP on health care respectively while US and Canada spent 15.2% and 9.8% of its GDP on health care. (I couldn't find the statistic for Hong Kong).
I believe this efficiency is a result of how Hong Kong and Singapore provide welfare delivery. Rather than dole out welfare payments to individuals who must go through a pile of bureaucracy and hoops and hurdles to get welfare payments, Hong Kong and Singapore provide affordable public housing to its people. 50% of the population lives in public housing in Hong Kong while 85% of the population lives in public housing in Singapore.
I think it is more efficient for the government to bulk buy/bulk provide welfare services at an ERE level than to dole out welfare payments in haphazard ways. Public housing ensures that the poor will always have a safe, warm, and comfortable ERE-like place to live. In addition, I think it would take less bureaucracy to set-up a public housing bureau that looks after blocks and blocks of public housing rather than a welfare bureau that doles out money to each individual. In addition, public housing reduces homelessness which reduces cost in health care, policing, and social services. If one has access to public housing, one is less apt to become sick or get harasssed/monitored by the police. In addition, public housing helps to reduce government expenditures on salaries -- ie.) teacher and nurses salaries are very high in Alberta due to a higher cost of living. If teachers and nurses have access to public housing, the government could pay lower salaries (without affecting quality of life) leading to savings and efficiencies for tax payers. I wouldn't mind getting paid less so as long as my housing costs were lower proportionately.
I think the problem that we have in North America is the obsession with individual rights. People should be allowed to spend their money (whether earned or through welfare) as they see fit. Personally, if I were a drug addict, I would blow my welfare cheque on drugs. At least in the Hong Kong/Singapore model, a drug addict would have a safe place to live.
*Funny enough, in the more capitalist city-states (income inequality) like Hong Kong and Singapore, there is more government intervention.
Essentially, Singapore and Hong Kong adopt a barbell approach to the social-economic inequalities in their societies. While there is large inequality, they focus on providing a basic standard of living to their poorest constituents.
Note that I said a BASIC standard of living. Basic living means a small apartment to live in, access to good public transit, basic education, and basic health care. Basic living does not mean a car (Hong Kong and Singapore have very high taxes on automobiles) and welfare handouts to spend on whatever one pleases (i.e.) iPhone, drugs, cable). I think there is an intuitive understanding of human behaviour and psychology in Singapore and Hong Kong that people will blow their welfare support on junk without proper guidance.
In contrast, I believe that Canada and America have troubles following this model because North Americans expect a much higher basic standard of living that Hong Kong and Singapore provides to its people and the reluctance of the North American governments part in taking a more paternalistic role in society.
This post is taking longer than expected, I will have to take some time to explore the (B) and (C) models in a follow-up post. I know C well as I live in Canada but I will need some time to read up on Model B as I have not lived in Sweden or Denmark. Maybe someone else can share their insights about the Swedish/Danish model?
I focused on Model A in this post because I have lived in Hong Kong for 2 years and I think Model A is a good example that income inequality is not necessarily a bad thing. In addition, capitalistic societies can do a good job of providing welfare to its poor.

I have spent time in both HK and Singapore, and work almost daily with colleagues in each at different times. (Right now it's with Singaporeans)
I agree with what you are saying in regards to what makes it work. But I will add a couple more of my own observations from travel there.
I am an engineer, and go there and hang out with engineers. I have conversed with them at length about welfare and equality and such. I know it is considered a barbell society, but there is a big group of engineers/techies there, and they have a pretty solid typical middle class lifestyle with differentiation from the poor- bigger gov't apartment, a car or two, etc. One thing I really notice distinguishes them from Americans is that they have a total belief in allowing people to fail. To be on welfare in Singapore, you are working, you do not get a check to sit at home. If a Sing chooses not to show up for his gov't welfare job, they will let him go homeless and/or starve. I see pretty much unanimous agreement among the Singaporean I've been around that this is fair and just. I honestly don't think Americans are willing to let people fail anymore. I know if you have the same conversation over lunch in the US with a disparate group of colleagues, you certainly won't hear total agreement that it's OK to let people starve, lack healthcare etc.
This kind of leads into something else that I think is poorly addressed by the cheerleaders of the "managed democracy" economies. The Asian city states HK/Sing (now banking centres largely thanks to the Brits), the Scandanavian countries, they're much more homogenous than the US. In Singapore a foreigner cannot even buy a home. They are also small populations, far smaller than the US. A janitor that grew up in the culture he's living in will have a far different set of opportunities than a janitor who immigrated and doesn't speak the local language or understand local customs (and isn't studying to change this).
One final point I'd make is where we are starting. Most of the tax burden in the US is currently on the top few percent of earners. The tax percentage on a dual income engineer household (upper middle, 3%'er, whatever label your politics dictate) in Helsinki is about the same as the same in San Jose. 40-50%. The bigger difference is at the very top, which isn't terribly hard to address politically, people are almost always willing to vote for politicians promising to take from those more wealthy than they and give to them. Raising taxes on from the 40-50% range however, is always inefficient; that's simply bumping the upper boundary on price and people choose to make less, one way or another, at those levels. However, the real political problem is, in the US, the people that need their taxes raised were we to implement a Scandanavian model are the middle-middle and lower middle, people who are paying 0-20% tax rates today.
The US has debt/consumption problems that are going to need resolution one way or another. Pretending this doesn't exist and promising more people more healthcare or housing won't make this unsustainable reality go away. To me, this is my #1 reason I think our last two administrations who have been growing gov't/making more dependent is exactly the wrong direction. People are going to HAVE to go towards self-sufficiency or the system is going to completely fail. When it fails, and I think it will in my lifetime, those relying on government distribution and being taught culturally to look to the government for solutions are going to hurt the most.

I spent some time in Singapore and cycled along East Coast Park and Changi Beach. There were many, many homeless people living in the park.
Seneca hit the nail on the head with Singapore & Hong Kong's "hard bottom" approach. The fact that there is a rock-hard bottom rather than a cushioning safety net causes people to work very hard to keep from falling.

Here's an interesting correlation: Perceived levels of corruption!
http://edition.cnn.com/2012/12/06/busin ... -countries
Singapore #5

Hong Kong #14
Denmark #1

Sweden #4
Canada #9

US #19

@Seneca
When you say "If a Sing chooses not to show up for his gov't welfare job" does that mean Singapore finds _some_ sort of work for anyone who is willing to show up and work? If I'm not misreading this line, that seems as radical a difference from the US welfare system as the broad acceptance of a hard bottom of homelessness and starvation for those totally unwilling to work.

"does that mean Singapore finds _some_ sort of work for anyone who is willing to show up and work?"
Kind of--there are a lot of domestic servants, sex workers, and similar in Hong Kong and Singapore.
If we got rid of minimum wage and had more police corruption, we could let the poor sell their daughters to the wealthy as maids and prostitutes. Then, as they do in Southeast Asia, the girls could send money back to their poor families and we could abolish food stamps and Social Security. Problem solved!

@Maize- Correct. You show up to what is essentially an employment office and the government assigns you jobs. If you want your welfare check, you do what they tell you. It might literally be picking up trash on the highway in 90/90 conditions. If you don't want to do it, no problem. But no money.
Here's a good link for you-
http://www.economist.com/node/15524092
I think they have it totally right. But I don't think it works without both pieces.

@Seneca: Scandinavian countries are also that way.

@ Secretwealth Scandanavian countries are not willing to let you fail like the Sing. So it's not the same.
You would not see sorry shit like this in Singapore-
http://www.thelocal.se/7650/
You actually help me make my point why I believe, if we want a comprehensive safety net, both things Maize brings up are necessary and why the Sing do it right.
Generally the Scandanavian countries do a better job than the US with "workfare".
But they won't let you fail.
Since I'm lazy, please don't be too hard on me for using these labels, but in the US, broadly the democrats/liberals won't let people fail, and the republicans/conservatives don't want to spend the money to build a "workfare" system. So we've ended up with this very short-term minded, crappy system that has led to larger and larger long term deleterious effects like generational welfare and other disaffected groups.

@secretwealth - Things might have changed in the past 13 years since I left Denmark, but I think your statement is an exaggeration.
The dole is means tested (around $2000). Mostly your level of support will depend on what kind of strings your particular case worker will pull for you. After you get on, you don't have to do anything for 6-9 months. After that you enter an "activation"-program. While some of them do indeed have trash pickup or ditch digging projects, these are unpopular and largely populist outliers. In most places you just have to demonstrate that you're actively looking for a job. This involves creating a "job plan" and demonstrating proof of some regular job application activity. Since you only have to demonstrate that you "tried", people can stay in the system for years. Many years.
It's kinda reached a point where low paying jobs are primarily filled with immigrant labor from the poorer EU countries because the Danes are holding out for a job commensurate with their education, e.g. "I have a degree in political science so why would I take a job as an office assistant".
Compounding this is the fact that the dole pays about as much as the lowest paid jobs. Hence, financially it makes sense to not take low paying jobs.
The Gini index is very low, so the difference between someone on the dole and an architect is maybe a factor two after tax. In general people are okay with that except there's a low of grumbling about people abusing the system.

@jacob - that seems pretty similar to me; isn't it the case that if you avoid job training, assigned work, or applying for work, then you are taken off the dole and no longer receive payments? If so, isn't that the same as Singapore, except it just takes longer to get kicked off in Scandinavia. I seem to remember that that was how it worked in Sweden and Finland.
I never understood the libertarian view. I remember seeing countless beggars, street vendors, and similar struggling poor on the streets of Bangkok and it made me appreciate first-world welfare if only on aesthetic grounds alone. I like that I can walk around most major European/American cities without being accosted by countless beggars--surely this is progress.

"I never understood the libertarian view. I remember seeing countless beggars, street vendors, and similar struggling poor on the streets of Bangkok and it made me appreciate first-world welfare if only on aesthetic grounds alone"
Apparently you haven't spent much time in that "first world welfare" capitol, and "sanctuary city" San Francisco...another barbell economy...or much worse, Berkeley.
In an hour in Berkeley you'd see more beggars than I've seen in a few months in Boise. Idaho being the lowest spending state on social programs.

Spent a lot of time in the Bay area. Berkeley and SF have far, far less beggars than Bangkok.

I'm very interested in the concept of citizens having to work for the government to receive welfare. I'm going to try to read more about this. Seneca / anyone -- have any good websites to read? A quick google search doesn't have a lot of obvious results. There are a couple I'm about to read but IDK if they cover this subject.
I've wondered to myself how such a system would work, and why it isn't more common. I also wonder how much it might be vilified by some. ("It's like slavery!")
Another welfare setup which I'd be curious to hear about if it has ever existed is: if the amount of assistance increases with the number of children someone has, as a condition of receiving the welfare, their children are available for adoption by families that can support them without needing assistance. It could be that once an adoption offer is made, the incremental assistance for that child ends and it is up to the parents whether they allow the child to be adopted, or keep the child without any more assistance. (No idea whether something like this would actually work -- if there aren't enough families wanting to adopt it might not work so well. I'd also wonder how much people would freak out about a policy like this)

There are other variables to homelessness than just welfare... It's a complex world after-all.
Rapid urbanization might explain homelessness in Bangkok, while SF/US has already been through that period (likely with many beggars).

"Rapid urbanization might explain homelessness in Bangkok"
...how? And why isn't there a comparable level of homelessness in other countries that experienced rapid urbanization at about the same time?

The how: more people than dwelling space.
The why: I'm going to go out on a limb here and say there are comparable levels in many nations and cities. How about Manila?
Western countries had high levels of homelessness too at one point.

@C40- Sorry dude. I got most of my info from asking lots of questions of locals and then shutting up and listening. I find the Sing to understand their system, and why it works, pretty darn well and remarkably free of the distressing left/right BS you get in the States.
I was surprised to find a link for Maize in a good publication like the Economist without much effort to be honest. I head over there again in Mar, maybe I'll ask around a bit in between Singapore Slings.
@Secretwealth- "Spent a lot of time in the Bay area. Berkeley and SF have far, far less beggars than Bangkok. "
My experience too. You'll notice, I pointed out some of the most beggar filled cities in the US have the highest social nets, and then compared Berkeley to Boise which is about as libertarian as you'll get in a city of size in the US. In other words, your libertarian correlation isn't causation.
There are tons of reasons you see more beggars in Thailand than the US, sheesh. Thailand sure isn't libertarian either.
I had a roommate that moved there for a while. He had to pay local gangs protection money to keep his little bar from having windows busted out and mysterious fires from erupting.
He found it refreshing compared to dealing with insurance companies. The gangs made sure the damage didn't happen, the ins cos don't care about the damage happening, they just try not to pay you when it does. Wait, that's Harry Browne style libertarian I think. LOL
Thailand is interesting, everything is technically illegal and controlled by the government. But the government is so bureaucratic and ineffectual, and the cops so corrupt, it's not a totalitarian state in practice. Odd place...amazing food and diving.

"My experience too. You'll notice, I compared Berkeley to Boise which is about as libertarian as you'll get in a city of size in the US. In other words, your libertarian correlation isn't causation."
I do hope you're joking. Boise and Berkeley don't dictate policy on the national or state level, and without borders the homeless of Idaho can easily migrate to Berkeley where they are more welcome both in a cultural and meteorological sense.
If you could hitchhike from Bangkok to Boise without a passport check along the way, I guarantee Boise would have more bums than potatoes by Friday.

So, if I understand your point. More comprehensive social programs draw in and create more people to use the social programs?
I'd surely agree...and that's perfectly why I hate the United States welfare system. And sing the praises of Singapore's.
I don't hate it because I don't want to pay taxes.
I hate it because I've watched it destroy too many people I know and love. I hate it because I'm watching it weaken large groups of people and assure they'll never be happy.
I'm watching it be used to create an us vs them mentality by politicians to their benefit and that of no other.
In "Shop Class as Soulcraft" Crawford mentions a sort of prickly, aspirational republicanism as the right system. I couldn't say it better myself.