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Wealth inequality and 'explosive compensation processes'

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Wealth inequality and 'explosive compensation processes'

Unread postby Cid_Yama » Fri 16 Jul 2010, 11:55:49

The majority of social scientists believe that income inequality currently poses a problem for American society with Alan Greenspan stating it to be a "very disturbing trend."

In a 2004 poll of 1,000 economists (from the AEA), a majority of polled economists favor "redistribution". A study by the Southern Economic Journal found that "71 percent of American economists believe the distribution of income in the US should be more equal, and 81 percent feel that the redistribution of income is a legitimate role for government." Data from the United States Department of Commerce and Internal Revenue Service indicate that income inequality has been increasing since the 1970s, whereas it had been declining during the mid 20th century. As of 2006, the United States had one of the highest levels of income inequality.

Americans have the highest income inequality in the rich world and over the past 20–30 years Americans have also experienced the greatest increase in income inequality among rich nations. The more detailed the data we can use to observe this change, the more skewed the change appears to be... the majority of large gains are indeed at the top of the distribution.

Many social scientists, such as economists Paul Krugman and Timothy Smeeding and political scientists Larry Bartels and Nathan Kelly, point to public policy and partisan politics as an important cause of inequality. They point out that education, labor force, and demographic changes cannot be the sole cause of the widening gap between the rich and the poor, and that the U.S. is unique in having experienced such a rise in inequality - a trend that, if caused by education, labor force, and demographic factors, would have manifested itself in other developed nations.

Since the 1970s, inequality increased during the 1980s, decreased slightly during the late 1990s and has since continued its overall increasing trend.


Income inequality diminishes growth potential through the erosion of social cohesion, increasing social unrest and social conflict causing uncertainty of property rights. Extreme inequality can effectively reduce access to productivity enhancement measures, or cause such measures to be allocated inefficiently toward those who already have, or can no longer absorb such measures.

High inequality yields high Theil redundancies. High redundancy means low entropy. But this does not necessarily imply that a very high inequality is "good", because very low entropies also can lead to explosive compensation processes.
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The level of injustice and wrong you endure is directly determined by how much you quietly submit to. Even to the point of extinction.
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby Cid_Yama » Fri 16 Jul 2010, 12:24:53

When the Declaration of Independence was unveiled, it reflected just those ideas. The Constitution which followed did likewise, providing the new United States with a republic unlike any that had ever been seen, one that consciously maximized freedom through a social contract, recognized natural rights and laws, and constructed checks and balances to assure its perpetuation.
Many assumed that the system would fail, but it did not.

One of the reasons for its success, however, was that citizens already experienced a general form of egalitarianism that made a democratic republic possible. They could buy into it, and not fear the subversion of an aristocracy. When France went through their own liberation years later, it was quite different. The aristocracy was so distrusted that terrible efforts were made to eliminate them completely — an ill beginning that took years to repair.

Karl Marx later claimed that European capitalism would eventually create such a disparity of haves and have-nots, that the lower classes would rebel against the upper and create an economy based on socialism. No doubt, the French Revolution was on his mind when he wrote this.

Most developed countries in the West were able to avoid this outcome by raising a widespread, basically satisfied working class, who exercised power through elected representatives. This inclusivity easily pushed aside thoughts of rebellion. Capitalism did well in building a path to relative prosperity for most people. Marx's predictions failed, as did future experiments based on his outline of communism, in China and Russia. Ventures into moderate socialism have yet to be adequately evaluated. Liberal democracy's capitalism still reigns supreme.

In today's world, however, things are changing. Wealth disparity has multiplied exponentially in the United States. We now have individuals whose income far exceeds that of any monarch of the past. Despite declarations of equality, they do exert power that average people do not. Like European peasants of long ago, we accept this as just the way things are.

When disparity of wealth becomes excessive, as it is today, it becomes problematic. National policies are shaped to appease wealthy political benefactors that are not necessarily conducive to the public good. Secret deals are negotiated, favors sought and given, corruption becomes the norm. There is nothing new about political corruption. What is new is to what extent and how ingrained it has become.

The Enlightenment Age ideals that free democracies were based on only work when people buy into them. Representative government and free market dynamics do not succeed on their own. People are the ones who make it work — people inspired by high minded ideals and the kind of rationalism that make those ideals viable.

We need to remind ourselves that personal virtue was not mentioned in the Constitution because it was considered a given. When greed overcomes prudence, temperance and humility, capitalism becomes something it was not supposed to be.

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Re: Wealth inequality and 'explosive compensation processes'

Unread postby Newfie » Fri 16 Jul 2010, 14:59:14

I think you are right Cid, this is one of my Wife's pet peeves. But what to do about it?
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby Sixstrings » Fri 16 Jul 2010, 17:50:13

Newfie wrote:I think you are right Cid, this is one of my Wife's pet peeves. But what to do about it?


Well I can think of a couple ways to get rich. One would be getting into the get-rich-quick infomercial business. Another would be go into ministry, preach "The Prosperity Gospel," and rake in millions. Heck, some mega pastors even have their own jet and fleet of Bentleys.

Or, maybe you're just not thinking positively enough. According to "The Secret," if you just imagine millions of dollars in your hands then you'll send out some kind of quantum vibrations that will attract that money to you.

Seriously though, we're living in a new age of robber barons. This will only get worse and worse, and nothing will ever change. We have no real populism anymore, unions are weak or nonexistent, the Tea Party is a sham, globalism is the law of the land, and nobody speaks for the working class.
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby Kristen » Fri 16 Jul 2010, 23:52:16

It seems the reason it is getting worse is because the very rich own every lever of power. They commercialized the "American Dream" and promised material things would bring happiness. The public bought it. They buy these status symbols and look down on those who don't hold the same position. After all, they're living the dream.

Through years of repetition of such a false reality, reality itself has declined for most americans. It's like we have an upper class, and a lower disillusion one.
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby Pops » Sat 17 Jul 2010, 10:05:50

I've often thought about this and it seems to me the big turning point was '69, LBJ and the Civil Rights Act that pushed blue collar, white democrats toward the anti-labor "Goldwater" brand republican party.

LBJ said about the civil rights act, "This will cause us to lose the South for a generation" or something of the sort. What the act did - with the help of the "Southern Strategy" was move poor, white (racist) Democrats to the pro-wealth 'pubs and away from the pro-labor dems.

So what we got was a larger portion of the lower class (swayed by divisive social issues) voting against their own best interest and in favor of pols who talk a righteous game but vote straight line for the rich.

It's really a sad commentary.
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby Newfie » Sat 17 Jul 2010, 17:12:14

Agreed, and your LBJ quote was just about right as I recall.

I get to the point where I really question the effectiveness of democracy. Perhaps it can work at some smaller level but at this scale?

I think Lovelock recently made similar comments.
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby Sixstrings » Sat 17 Jul 2010, 19:32:41

Pops wrote:I've often thought about this and it seems to me the big turning point was '69, LBJ and the Civil Rights Act that pushed blue collar, white democrats toward the anti-labor "Goldwater" brand republican party.

LBJ said about the civil rights act, "This will cause us to lose the South for a generation" or something of the sort. What the act did - with the help of the "Southern Strategy" was move poor, white (racist) Democrats to the pro-wealth 'pubs and away from the pro-labor dems.

So what we got was a larger portion of the lower class (swayed by divisive social issues) voting against their own best interest and in favor of pols who talk a righteous game but vote straight line for the rich.

It's really a sad commentary.


And isn't that what the elites have always done, and continue to do? They divide the poor into factions, and pit them against one another. Just before he was shot, MLK had begun to expand his message to encompass poor whites.
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby MarkJ » Mon 19 Jul 2010, 05:34:56

While most of our family and friends have transitioned from middle class to upper middle class or wealthy, many of our local poor and lower middle class will likely remain poor the rest of their lives.

Most people in these classes lack the technical education, college education, professional licenses, certifications, skills, multiple skills, knowledge and experience necessary to find and keep well paying, full-time, long term jobs and/or to start their own businesses.

Many also lack the business connections and other human networking connections necessary to find jobs.

Many job seekers in these classes can't find good paying unskilled/low-skilled jobs since they lack reliable transportation, they can't pass pre-employment drug screening, background checks, credit checks and aptitude tests, plus they can't pass post-employment probationary periods and engineered labor/safety standards.

Even when the people in the lower classes luck into a good paying job, inheritance etc, most lack the budgeting/spending/saving/investment discipline and knowledge to maintain, or increase money and assets. Due to past debt, child support, court judgements, wage garnishments etc, much of their earnings service this past debt.

Many people in these classes also have spending habits that prevent them from accumulating money and valuable assets. They often spend their small paychecks on cigarettes, beer, scratch-off tickets, lottery tickets, prepaid cellular voice/data/text, cable, broadband, rent-to-own furniture/appliances/electronics, buy-here-pay-here vehicle financing, taxis, take-out, delivery, fast food etc.

We have employees that spend a substantial portion of their paychecks on taxis alone. Others that drive spend more than half of their paychecks on vehicle payments, gas, maintenance, insurance, repairs, registration, inspection etc.


Due to unemployment, under-employment, foreclosure, eviction, tax seizure, repossession etc, many are forced to sell the few semi-valuable assets they own for pennies on the dollar. When they buy them back, they often buy them with high interest financing. When they're laid off, or terminated, the buy-high-sell-low cycle repeats itself.

Since most people in these classes are renters, most of their paychecks go to landlords, plus heat, hot water and electric. Many of my rents have doubled since the 90s, but many of my tenants are making about the same money. After the expense or rent, natural gas, propane, heating oil, kerosene, electric etc, many don't have much money to save, or invest.

Many of the low income credit challenged residents rent older grossly inefficient apartments, so heating and cooling costs are much higher as well.

Property taxes are so high in some regions that many lower income people could barely afford the property taxes, let alone mortgage payments, insurance, maintenance, repairs, electric, heat, hot water, water/sewer etc.
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby americandream » Mon 19 Jul 2010, 05:43:57

The choice is a simple one. It's either capitalism and the profit rationale with all that entails in terms of self interest, or a system which elevates the common good above personal gain.

If one opts for the former, one cannot complain about its natural consequences. What does one expect? Ethical self interest? :lol:
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby Pops » Mon 19 Jul 2010, 07:11:41

I don't think everyone is capable of becoming wealthy and I don't think everyone should be forced to live at the same level. Personally I've never been too interested in being "wealthy" - I've mostly done things I enjoy so the money was secondary.

But as was mentioned before, once things reach the "let them eat cake" stage and whatever "We" there might have been breaks down to "Us" and "Them", it's too late to make any easy changes.
If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen we must live through all time or die by suicide.
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby Crazy_Dad » Mon 19 Jul 2010, 07:40:20

MarkJ wrote:While most of our family and friends have transitioned from middle class to upper middle class or wealthy, many of our local poor and lower middle class will likely remain poor the rest of their lives.

Most people in these classes lack the technical education, college education, professional licenses, certifications, skills, multiple skills, knowledge and experience necessary to find and keep well paying, full-time, long term jobs and/or to start their own businesses.

Many also lack the business connections and other human networking connections necessary to find jobs.

Many job seekers in these classes can't find good paying unskilled/low-skilled jobs since they lack reliable transportation, they can't pass pre-employment drug screening, background checks, credit checks and aptitude tests, plus they can't pass post-employment probationary periods and engineered labor/safety standards.

Even when the people in the lower classes luck into a good paying job, inheritance etc, most lack the budgeting/spending/saving/investment discipline and knowledge to maintain, or increase money and assets. Due to past debt, child support, court judgements, wage garnishments etc, much of their earnings service this past debt.

Many people in these classes also have spending habits that prevent them from accumulating money and valuable assets. They often spend their small paychecks on cigarettes, beer, scratch-off tickets, lottery tickets, prepaid cellular voice/data/text, cable, broadband, rent-to-own furniture/appliances/electronics, buy-here-pay-here vehicle financing, taxis, take-out, delivery, fast food etc.

We have employees that spend a substantial portion of their paychecks on taxis alone. Others that drive spend more than half of their paychecks on vehicle payments, gas, maintenance, insurance, repairs, registration, inspection etc.


Due to unemployment, under-employment, foreclosure, eviction, tax seizure, repossession etc, many are forced to sell the few semi-valuable assets they own for pennies on the dollar. When they buy them back, they often buy them with high interest financing. When they're laid off, or terminated, the buy-high-sell-low cycle repeats itself.

Since most people in these classes are renters, most of their paychecks go to landlords, plus heat, hot water and electric. Many of my rents have doubled since the 90s, but many of my tenants are making about the same money. After the expense or rent, natural gas, propane, heating oil, kerosene, electric etc, many don't have much money to save, or invest.

Many of the low income credit challenged residents rent older grossly inefficient apartments, so heating and cooling costs are much higher as well.

Property taxes are so high in some regions that many lower income people could barely afford the property taxes, let alone mortgage payments, insurance, maintenance, repairs, electric, heat, hot water, water/sewer etc.


Sounds Just like Harry Harrisons "Make Room, Make Room".........
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby MarkJ » Tue 20 Jul 2010, 07:10:18

Many people will never get ahead since they're renters, borrowers and spenders.

Bad news for them, but good news for landlords, lenders and the consumer based economy.
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby AgentR » Tue 20 Jul 2010, 09:31:40

Pops wrote:So what we got was a larger portion of the lower class (swayed by divisive social issues) voting against their own best interest and in favor of pols who talk a righteous game but vote straight line for the rich.


I always take offense when people claim to speak for others and suggest they know what the other's "best interests" are. It would be fair enough to say "voting against their immediate economic interests", maybe. Equating that with "best" suggests a value judgment comparing social, libertarian, religious, and economic interests and asserting that the economic interest is the most important. In reality, different people of the same economic strata will have different orders of importance for those qualities. Myself, I rank economic as a long third; and wouldn't even think twice about voting against that interest if my interests in the two others were measurably advanced.

I also reject the notion that because someone is straight-line pro-wealthy, that they somehow or another lose the ability to support my interests on issues not relating to wealth or economics. Whether the issue is guns, abortion, free speech, or whatever, that rich-guy's vote on that issue may be much more important to Bob the Painter than his vote on financial reform or health insurance. To suggest that anyone has the right to decide what is most important for someone else is obnoxious.
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby AgentR » Tue 20 Jul 2010, 09:53:28

On the topic of wealth inequality and redistribution...

I tend to think a large portion of the problem is a simple result of a general theme of our post- industrial, technological economy. The primary ability of this economy is to be able to focus vast economic power onto the point of a single purpose; whether that is the ability to produce thousands of incredibly sophisticated personal vehicles, or to leverage the work product of hundreds of thousands of people to treat the medical condition of a single individual; its the same focusing action. On the compensation side, the top income (investment and earned) go about their lives with a large portion of that income intimately intertwined with their capacity to produce more income; the investor that bought $500k worth of banking stocks at the panic point a bit back has made millions on the recovery, but those millions aren't then spent on booze and race cars, it mostly remains in play producing even more income. Thats a simplistic example of course; untangling a diligent CEO's total compensation and earnings from the actions and successes of his company could take many pages.

This is in contrast to the media image that we like to invoke when we think "wealth inequality" and "redistribution"; of the rich heir flaunting their status and burning through cash like it was nothing. We don't invoke the multimillionaire who lives in a generic 2500 sq ft home in a subdivision... that he happens to drive a lexus instead of a chevy being about the only indication of something uncommon. And no need to even invoke the ones who drive the beaten up pickup, who when asked why, they'll just look funny and ask, "why? cause it still works.".

Secret to wealth? STOP SPENDING MONEY.

If you want to break the inequality model, you have to break the focusing effect of our economy. I don't think anyone's economic status will be improved by doing so; even if it is easy enough to inconvenience a few of the very wealthy.
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby Ludi » Tue 20 Jul 2010, 12:34:35

Income distribution in the US:

http://www.youtube.com/watch?v=woIkIph5xcU
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby midnight-gamer » Tue 20 Jul 2010, 13:42:36

Income distribution in the US:

http://www.youtube.com/watch?v=woIkIph5xcU


Nice video, the visual aid makes the comparison shocking. I think the argument that the rich should have fewer impediments to wealth accusation is distasteful. I personally, would think it vulgar if I had all that cash while others made due without. But that's just a projection on how I might feel, if my position was reversed with a billionaire.
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby eastbay » Tue 20 Jul 2010, 14:10:53

Thank you for the excellent video, Ludi. Anyone advocating reduced taxed for the wealthy need to understand this imbalance. Anyone arguing against tax hikes on the very wealthy need to see it as well. It shows that we've descended into the most obscene levels of darkness.
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby Pops » Tue 20 Jul 2010, 14:58:09

If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen we must live through all time or die by suicide.
-- Abraham Lincoln
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Re: Wealth inequality and 'explosive compensation processes'

Unread postby Pretorian » Tue 20 Jul 2010, 15:21:20

I like to kick the super-rich as much as anyone else down the street but common already.. You suggest that everyone should have the same shit regradless of personal efforts and abilities? If you hate the rich for being more agile than you, for being smarter, bolder or for having more caring parents than you did.. Dont worry. Taxes, deseases , betrayal and death will get them too, sooner or later. Kings and pawns go to sleep in the same box once the game is over.
Anyway, there is no such thing as equality(of any kind). Does not exist, never have and never will.
If you think that it does, or that it should be, then give me your address and I will consider moving in with you once I am down on my luck. Or perhaps I will send some poor chap over right now.
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