Income Inequality

[downzy]

That red line could start around the early 70's if you look at the chart, around the time the US abandoned the gold standard.

The argument that the growth in inequality is tied to the increase in money supply fails when one considers that other nations have experienced similar increases in the money supply without producing the same increase of inequality found within the U.S.

Japan, Switzerland, and France have all see a similar explosion in their respective money supplies and yet none of those nations saw a rise in their gini coefficients (edit: or I should say, a similar rise in inequality as witnessed in the U.S).

Edited July 14, 2014 by downzy

[magisme]

But when you get free money and casino financial "capitalism" in the same place at the same time.... BOOM!

[downzy]

But when you get free money and casino financial "capitalism" in the same place at the same time.... BOOM!

Yeah, I agree. If governments are going to loosen the means of capital creation, then policy/regulation matters even more.

[downzy]

[Ace Nova]

But when you get free money and casino financial "capitalism" in the same place at the same time.... BOOM!

But when you get free money and casino financial "capitalism" in the same place at the same time.... BOOM!

Yeah, I agree. If governments are going to loosen the means of capital creation, then policy/regulation matters even more.

I understand what both of you are saying but if it wasn't for the increased money supply, there's a good chance some of us would be standing in line for a soup kitchen right now. The system is far from perfect but we should be grateful for what we have.

[DieselDaisy]

The countries with the happiest and healthiest populations in the world tend to be those with the lowest levels of income inequality. The problem is the dominant economic model is based around profound levels of inequality, in the control of a very small, very rich group of people who have become remarkably good at hanging on to more money than a human being could ever possibly need and convincing everyone else that it is in fact their fault they are not in a similar position.

If you have Scandanavia in mind there, you have to pay £20 for a beer! How can these people be happy?

[wasted]

Maybe in a way it is spreading the wealth globally and the rich nations of the west have to lower expectations. But it would be better if those countries became more like the US not the US becoming more like China.

People don't don't like to call it a conspiracy but these things aren't happening by accident. To manufacture goods overseas to sell for more than 10 times they cost to make is not a happy accident.

I'd like the heads if apple to go to Asian factories and live like that for week in the same way I watch see Chelsea Clinton in Iraq.

Maybe in a way it is spreading the wealth globally and the rich nations of the west have to lower expectations. But it would be better if those countries became more like the US not the US becoming more like China.

People don't don't like to call it a conspiracy but these things aren't happening by accident. To manufacture goods overseas to sell for more than 10 times they cost to make is not a happy accident.

I'd like the heads if apple to go to Asian factories and live like that for week in the same way I watch see Chelsea Clinton in Iraq.

[downzy]

But when you get free money and casino financial "capitalism" in the same place at the same time.... BOOM!

But when you get free money and casino financial "capitalism" in the same place at the same time.... BOOM!

Yeah, I agree. If governments are going to loosen the means of capital creation, then policy/regulation matters even more.

I understand what both of you are saying but if it wasn't for the increased money supply, there's a good chance some of us would be standing in line for a soup kitchen right now. The system is far from perfect but we should be grateful for what we have.

I don't disagree with you on that. Increasing the money supply isn't an evil unto itself as others in this thread would argue. The issue for me is how that extra money is allocated. Other nations have enacted policies so that any increase in the money supply doesn't accumulate to the top 1 to 10 percent of the population. Other nations, such as the U.S. and the U.K., have seen their relative levels of inequality rise.

Which is why I go back to my original post: policy matters most.

[foghat43]

Not sure if comparing the US to Japan, Switzerland and France is really apples to apples.

For example...the lower/middle classes in Japan, Switzerland and France haven't had to pay trillions of $ to maintain a global empire and fight unnecessary wars...meanwhile defense contractors and others connected to the military-industrial complex have gotten wealthy...all financed and made possible by the Federal Reserve. Perhaps the relationship between military spending and income inequality has been explored...I don't know. Just a thought. And perhaps this could account for some (not necessarily all) of the discrepancies when comparing the US to other countries that have had similar inflation of the money supply by central banks.

The United States spent more on its military than the next 13 nations combined in 2011.

Edited July 15, 2014 by foghat43

[magisme]

That an increase in the money supply decreases the value of a currency is simple math and an historical invariable over time. Asset bubbles are inflation concentrated. Bonds, stocks and luxury real estate - watch out, because the people that invest in that shit would sooner take your money than lose theirs.

[downzy]

Not sure if comparing the US to Japan, Switzerland and France is really apples to apples.

For example...the lower/middle classes in Japan, Switzerland and France haven't had to pay trillions of $ to maintain a global empire and fight unnecessary wars...meanwhile defense contractors and others connected to the military-industrial complex have gotten wealthy...all financed and made possible by the Federal Reserve. Perhaps the relationship between military spending and income inequality has been explored...I don't know. Just a thought. And perhaps this could account for some (not necessarily all) of the discrepancies when comparing the US to other countries that have had similar inflation of the money supply by central banks.

The United States spent more on its military than the next 13 nations combined in 2011.

Not sure if I buy your assertion that it's America's military expenditures that accounts for growing income inequality.

First, poor and middle-class Americans still pay little in taxes relative to their European counterparts. True, the very poor in Europe and the U.S. likely pay no federal income tax (though most European pay a value-added tax, or sales tax, that many Americans do not pay). Also, fairly certain it wasn't the poor and middle class that were paying for the unfunded wars since the wars were never actually paid for (hence why they're referred to as unfunded).

Second, make no mistake about it, the U.S. military is just one giant jobs program. It's the one form of government spending that most Republicans and conservatives approve of, and since it's mostly kids from the lower-end of the economic spectrum that enlist, they're the ones receiving the financial benefits. In other words, the U.S. military is one form of redistribution that flows below the usual partisan rancour.

Third, U.S. expenditure on its military as a percentage of its GDP has fallen since the mid-80s, right when inequality started to take off. See here:

Finally, and this goes to Magisme's chart, most of the advances in wages for the top 1 percent is mostly linked to the finance industry. With financial profits seeing nearly a four percent rise since the mid-80s due largely to increased deregulation of the industry, that's a lot of money from the world's largest GDP. Five percent of a nearly $16 trillion is $627 billion every single year (for the last four years) accruing to those involved in the finance industry is an insane amount of money. One has to figure that of that $627 billion, it's not being evenly split among most financial employees. By contrast, if you look at this chart:

You'll notice that although the U.S. spends a lot on its military, much of it goes to operations, housing, healthcare, and pay. There's still a lot of money that is directed to procurement, R&D, and modernization, but it's a much smaller figure than what the financial industry is raking in every year. Moreover, considering the employment costs many weapon systems requires (since engineers and scientists don't work for cheap), I'm not sure if the military fat-cats live as large as the hedge fund gurus on Wall Street. If you look at the CEOs of some of the biggest military weapons corporations (Boeing, Lockheed Martin, General Dynamics, Northrop Grumman, etc), most of them make anywhere between $15 and $30 million. Not a bad haul, but those salaries amount to a month's worth of income for some of the hedge fund guys and bank CEOs.

[magisme]

What are the numbers if we add Defense, NSA and Homeland Security? Honest question. I just think that saying military spending is only Department of Defense spending is a bit antiquated.

Good point about military being a jobs program.

[downzy]

That an increase in the money supply decreases the value of a currency is simple math and an historical invariable over time. Asset bubbles are inflation concentrated. Bonds, stocks and luxury real estate - watch out, because the people that invest in that shit would sooner take your money than lose theirs.

Yes, when all things being equal. But that's assuming that demand for a currency remains stable. The supply of a monetary base is only one side of the equation. The demand for US dollars is still relatively high as it's viewed as one of the safest places to park capital. This has allowed the Fed to expand the monetary base without inducing inflation.

[downzy]

What are the numbers if we add Defense, NSA and Homeland Security? Honest question. I just think that saying military spending is only Department of Defense spending is a bit antiquated.

Good point about military being a jobs program.

If you don't include Veterans Affairs, the total price tag comes in around $840 billion. Add in spending for veterans, and you're looking at close to a $1 trillion.

But again, I find it very hard to imagine how one could draw a causal relationship between military/defence spending and inequality (in the sense that spending more on the military has induced greater income inequality). As a percentage of GDP, military spending use to be much higher, when inequality was much lower. In that sense, one could almost argue that as the government has reduced military/defence expenditures relative to GDP we've also seen an increase in income inequality. The U.S. military is one giant redistribution program. Cutting its budget might actually induce greater income inequality.

Edited July 15, 2014 by downzy

[foghat43]

It's also simple to figure out who benefits the most from an increase in the money supply (big banks, Wall Street, the government) and who suffers the most when the value of the currency is decreased (the lower/middle class).

"It is not just that higher incomes can afford the higher prices caused by the Federal Reserve. The system is set up in a way that disadvantages those at the bottom of the income scale. When the Federal Reserve creates money, those well-connected with the political and financial elites receive the newly-created money first, before general price increases have spread through the economy.

It is not a coincidence that economic inequality has increased in recent years, as the Federal Reserve has engaged in unprecedented money creation and bailouts of big banks and Wall Street financial firms. As billionaire investor Donald Trump has said, the Federal Reserve’s quantitative easing policies are a great deal for “people like me.” And former Federal Reserve official Andrew Huszar has called QE “the greatest backdoor Wall Street bailout of all time.” - Ron Paul

[magisme]

That an increase in the money supply decreases the value of a currency is simple math and an historical invariable over time. Asset bubbles are inflation concentrated. Bonds, stocks and luxury real estate - watch out, because the people that invest in that shit would sooner take your money than lose theirs.

Yes, when all things being equal. But that's assuming that demand for a currency remains stable. The supply of a monetary base is only one side of the equation. The demand for US dollars is still relatively high as it's viewed as one of the safest places to park capital. This has allowed the Fed to expand the monetary base without inducing inflation.

That demand for our currency is closely tied our reserve currency status though, which is beginning to show cracks. What the Fed is doing is not so much trading on the current state of the US Dollar, but betting on the future state. IMO it's a bad bet, and everyone will lose when it's unwound, and if it's not unwound the wheels come off the whole operation.

What are the numbers if we add Defense, NSA and Homeland Security? Honest question. I just think that saying military spending is only Department of Defense spending is a bit antiquated.

Good point about military being a jobs program.

If you don't include Veterans Affairs, the total price tag comes in around $840 billion. Add in spending for veterans, and you're looking at close to a $1 trillion.

But again, I find it very hard to imagine how one could draw a causal relationship between military/defence spending and inequality (in the sense that spending more on the military has induced greater income inequality). As a percentage of GDP, military spending use to be much higher, when inequality was much lower. In that sense, one could almost argue that as the government has reduced military/defence expenditures relative to GDP we've also seen an increase in income inequality. The U.S. military is one giant redistribution program. Cutting its budget might actually induce greater income inequality.

Yeah, I wasn't arguing it causes inequality - and I think foghat was posing it as a question rather than stating it - I just didn't know the numbers.

[downzy]

That an increase in the money supply decreases the value of a currency is simple math and an historical invariable over time. Asset bubbles are inflation concentrated. Bonds, stocks and luxury real estate - watch out, because the people that invest in that shit would sooner take your money than lose theirs.

Yes, when all things being equal. But that's assuming that demand for a currency remains stable. The supply of a monetary base is only one side of the equation. The demand for US dollars is still relatively high as it's viewed as one of the safest places to park capital. This has allowed the Fed to expand the monetary base without inducing inflation.

That demand for our currency is closely tied our reserve currency status though, which is beginning to show cracks. What the Fed is doing is not so much trading on the current state of the US Dollar, but betting on the future state. IMO it's a bad bet, and everyone will lose when it's unwound, and if it's not unwound the wheels come off the whole operation.

What are the numbers if we add Defense, NSA and Homeland Security? Honest question. I just think that saying military spending is only Department of Defense spending is a bit antiquated.

Good point about military being a jobs program.

If you don't include Veterans Affairs, the total price tag comes in around $840 billion. Add in spending for veterans, and you're looking at close to a $1 trillion.

But again, I find it very hard to imagine how one could draw a causal relationship between military/defence spending and inequality (in the sense that spending more on the military has induced greater income inequality). As a percentage of GDP, military spending use to be much higher, when inequality was much lower. In that sense, one could almost argue that as the government has reduced military/defence expenditures relative to GDP we've also seen an increase in income inequality. The U.S. military is one giant redistribution program. Cutting its budget might actually induce greater income inequality.

Yeah, I wasn't arguing it causes inequality - and I think foghat was posing it as a question rather than stating it - I just didn't know the numbers.

Yeah, I see your point about whether the U.S. is taking advantage of its currency being the reserve currency used for almost all international transactions.

But there's a lot of misconception around whether QE undertaken by the Fed has actually resulted in a real increase in the money supply (M1+M2). It's not really part of the discussion for this thread, but one of the best articles I've read on this subject can be read here:

http://qz.com/157198/the-federal-reserves-balance-sheet-will-hit-a-mind-boggling-4-trillion-any-day-now/

I highly recommend it to anyone who's curious to know more about how the whole system works. I'm not a finance/economics guy so I don't get how it all works either, but this article does a damn good job in filtering through fact from fiction. It's not a long article, definitely worth the five minutes to read. I've tried to learn as much as I can about the subject, but this Quartz article is a great primer.

Yeah, I didn't mean to sound argumentative in my response to Foghat regarding military spending and inequality (though at this point in the thread it's a natural reaction of mine), but just thinking out loud on the connection between the two.

Edited July 15, 2014 by downzy

[foghat43]

Notice I said it might account for some (not all) of the discrepancies between the US and other countries. And I do think you are underestimating the amount of wealth generated by war. War is big business...

And they may be "unfunded" wars...but paid for by money printed out of thin air (i.e. an indirect tax on the lower/middle classes) and huge amounts of debt for us and future generations.

"Let us not forget the bankers who financed the great war. If anyone had the cream of the profits it was the bankers." - Major General Smedley Butler – the most decorated Marine in American history (from "War is a Racket")

[magisme]

That an increase in the money supply decreases the value of a currency is simple math and an historical invariable over time. Asset bubbles are inflation concentrated. Bonds, stocks and luxury real estate - watch out, because the people that invest in that shit would sooner take your money than lose theirs.

Yes, when all things being equal. But that's assuming that demand for a currency remains stable. The supply of a monetary base is only one side of the equation. The demand for US dollars is still relatively high as it's viewed as one of the safest places to park capital. This has allowed the Fed to expand the monetary base without inducing inflation.

That demand for our currency is closely tied our reserve currency status though, which is beginning to show cracks. What the Fed is doing is not so much trading on the current state of the US Dollar, but betting on the future state. IMO it's a bad bet, and everyone will lose when it's unwound, and if it's not unwound the wheels come off the whole operation.

What are the numbers if we add Defense, NSA and Homeland Security? Honest question. I just think that saying military spending is only Department of Defense spending is a bit antiquated.

Good point about military being a jobs program.

If you don't include Veterans Affairs, the total price tag comes in around $840 billion. Add in spending for veterans, and you're looking at close to a $1 trillion.

But again, I find it very hard to imagine how one could draw a causal relationship between military/defence spending and inequality (in the sense that spending more on the military has induced greater income inequality). As a percentage of GDP, military spending use to be much higher, when inequality was much lower. In that sense, one could almost argue that as the government has reduced military/defence expenditures relative to GDP we've also seen an increase in income inequality. The U.S. military is one giant redistribution program. Cutting its budget might actually induce greater income inequality.

Yeah, I wasn't arguing it causes inequality - and I think foghat was posing it as a question rather than stating it - I just didn't know the numbers.

Yeah, I see your point about whether the U.S. is taking advantage of its currency being the reserve currency used for almost all international transactions.

But there's a lot of misconception around whether QE undertaken by the Fed has actually resulted in a real increase in the money supply (M1+M2). It's not really part of the discussion for this thread, but one of the best articles I've read on this subject can be read here:

http://qz.com/157198/the-federal-reserves-balance-sheet-will-hit-a-mind-boggling-4-trillion-any-day-now/

I highly recommend it to anyone who's curious to know more about how the whole system works. I'm not a finance/economics guy so I don't get how it all works either, but this article does a damn good job in filtering through fact from fiction. It's not a long article, definitely worth the five minutes to read. I've tried to learn as much as I can about the subject, but this Quartz article is a great primer.

Yeah, I didn't mean to sound argumentative in my response to Foghat regarding military spending and inequality (though at this point in the thread it's a natural reaction of mine), but just thinking out loud on the connection between the two.

See, quotes like this (from the article you linked) drive me nuts and make me doubt the writer's understanding of the topic.

Yes, the Fed was able to do some good things. For example, it pushed mortgage rates down to record lows, which helped make it easier for people to refinance. But the programs weren’t a panacea for the economy as a whole.

This is exactly the problem with much of the current thinking around QE and contemporary economics in general. Low mortgage rates are not a good in and of themselves. And bond buying, too. The Fed has flattened the bond curve and essentially soaked up all the bonds of certain durations. And remember, the folks and institutions who buy bonds are doing fine, better than ever. So where do they send their cash when they can't make any money on bonds because rates are artificially low? Well, like I said earlier, take a look at the stock market. Take a look at luxury housing. Full retard. These may be unintended consequences, but they're consequences nonetheless. Misallocation of capital due to excess, free flowing currency leads to bubbles. The US stock market is in an epic bubble right now, which will be denied by everyone in power until it's undeniable - just like it's always been.

[wasted]

I just think the US is bankrupt and not running a profitable show, but with bailouts, borrowed money and wars they can keep an elite or small group of criminals well paid and the country going in a fashion. this isn't a success story anymore. all empires fall, the US will be no different.

[magisme]

I just think the US is bankrupt and not running a profitable show, but with bailouts, borrowed money and wars they can keep an elite or small group of criminals well paid and the country going in a fashion. this isn't a success story anymore. all empires fall, the US will be no different.

One of the things that's really scary is how much denial there is about that simple fact. Tell an American that we won't be on top forever and they look at you like you're a fucking alien.

[wasted]

I just think the US is bankrupt and not running a profitable show, but with bailouts, borrowed money and wars they can keep an elite or small group of criminals well paid and the country going in a fashion. this isn't a success story anymore. all empires fall, the US will be no different.

One of the things that's really scary is how much denial there is about that simple fact. Tell an American that we won't be on top forever and they look at you like you're a fucking alien.

Well they do have a kick ass military but actually I think they are killing themselves from within. The people don't own the land, wealthy individuals do. So the wealth is out of government control, certain family dynasties have the wealth and they seem to be interested in staying wealthy. A lot of them own property around the world and if it gets to bad they can just run to Switezland. They will be like 21sr century czars.

Meanwhile the Chinese are buying more property in the US and I read one thing about how they want to own the infrastructure of certain US states to pay off the money the US owe them.

By 2050 30% of the US population will be Mexican as they try to import people with lower expectations. We are all destined to be the slaves of the elite if we aren't already. We are waking up from the 20th century party with a hangover sponsored by hedonism.

[downzy]

Yes, the Fed was able to do some good things. For example, it pushed mortgage rates down to record lows, which helped make it easier for people to refinance. But the programs weren’t a panacea for the economy as a whole.

This is exactly the problem with much of the current thinking around QE and contemporary economics in general. Low mortgage rates are not a good in and of themselves. And bond buying, too. The Fed has flattened the bond curve and essentially soaked up all the bonds of certain durations. And remember, the folks and institutions who buy bonds are doing fine, better than ever. So where do they send their cash when they can't make any money on bonds because rates are artificially low? Well, like I said earlier, take a look at the stock market. Take a look at luxury housing. Full retard. These may be unintended consequences, but they're consequences nonetheless. Misallocation of capital due to excess, free flowing currency leads to bubbles. The US stock market is in an epic bubble right now, which will be denied by everyone in power until it's undeniable - just like it's always been.

Well, just because the stock market is up doesn't it's in bubble territory. If we look at the historical P/E average for the S&P, you'll see that we're currently above average, but not to the same extent as previous marked bubbles:

Granted, there's different ways to compute P/E and historical averages, but we're nowhere near the heights seen in previous bubbles.

Low mortgages are fine if inflation is tamed. When the economy hit the skids in 2007/2008, had the Fed not acted in reducing bond yields (and thus lowering mortgage rates), the housing market would have further collapsed, further deteriorating the economy. I mean, you're welcome to align yourself with the Austrian school, which says that government should do nothing and let the whole thing crater, but that sort of nihilistic approach harkens to the old Vietnam slogan, "It became necessary to destroy the village to save it." Most mainstream economists would disagree with this assessment, as I think most rational individuals.

If a bubble in luxury real-estate is the one cost of QE, then I think most would be fine with that. Luxury real-estate has little bearing on the economy as a whole, so if the bubble pops it's not going to sink the economy or require massive state intervention.

Remember, higher interest rates are a boon to the mega-rich, since they make a greater percentage of their income from interest than any other socio-economic class:

So when you hear arguments that interest rates are too low despite inflation being almost non-existent (or low on a historical basis), ask where those arguments are coming from and who's making them.

[Graeme]

I just think the US is bankrupt and not running a profitable show, but with bailouts, borrowed money and wars they can keep an elite or small group of criminals well paid and the country going in a fashion. this isn't a success story anymore. all empires fall, the US will be no different.

One of the things that's really scary is how much denial there is about that simple fact. Tell an American that we won't be on top forever and they look at you like you're a fucking alien.

Well they do have a kick ass military but actually I think they are killing themselves from within. The people don't own the land, wealthy individuals do. So the wealth is out of government control, certain family dynasties have the wealth and they seem to be interested in staying wealthy. A lot of them own property around the world and if it gets to bad they can just run to Switezland. They will be like 21sr century czars.

Meanwhile the Chinese are buying more property in the US and I read one thing about how they want to own the infrastructure of certain US states to pay off the money the US owe them.

By 2050 30% of the US population will be Mexican as they try to import people with lower expectations. We are all destined to be the slaves of the elite if we aren't already. We are waking up from the 20th century party with a hangover sponsored by hedonism.

Mexico's a rising star at the moment, It might get to the stage that the U.S. doesn't have the draw on Mexican people it has over the last century because the economy south of the border will have expanded and improved to such an extent.

[magisme]

Kind of complex, but if you can slog through it the takeaway is simple: those with lots of money can fuck with the market and essentially steal from others.

http://www.nanex.net/aqck2/4661.html