Explanation for 80% of the current inequality

In the 9 part survey article of the issue in Slate magazine, Timothy Noah comes up with a rough estimate of the causes of our current income inequality.

• Race and gender are responsible for none of it, and single parenthood is responsible for virtually none of it.
• Immigration is responsible for 5 percent.
• The imagined uniqueness of computers as a transformative technology is responsible for none of it.
• Tax policy is responsible for 5 percent.
• The decline of organized labor is responsible for 20 percent.
• Trade is responsible for 10 percent.
• Wall Street and corporate board pay packages responsible for 30 percent.
• Various failures in our education system are responsible for 30 percent.

In summary, this article attributes 80% of the inequality to decline of organized labor, Wall Street and corporate over-compensation, and poorly educated workers. So, taxing and/or otherwise regulating Wall Street would only have a small effect on the problem--worth doing something there, but not the whole issue.

More than 1/2 the growth since '76 has gone to top 1%

"Of every dollar of real income growth that was generated between 1976 and 2007, 58 cents went to the top 1 per cent of households."

This seems in line with what I've seen elsewhere and explains why our Income balance is so out of whack, but I haven't found the source yet. I'll update when I do or change to a sourced stat.

Some Random References on Income Inequality

• Highly recommended article from Slate magazine provides a nice overview of the topic: The United States of Inequality
• Book by Robert Reich, Aftershock: The Next Economy and America's Future
• Article from the Cato Institute (Libertarian/Right wing advocacy organization): Thinking Clearly about Economic Inequality (pdf)
  Caveat: I don't agree with this article's assertions. It misrepresents opposing arguments and uses several strange leaps of logic, but it's worth seeing how opponents argue against the of the idea of trying to do something about income inequality.
• Wealth Matters - Studying the Elite, Whether They Like It or Not - NYTimes.com
• Robert Reich, blog post: The Perfect Storm
• Income Inequality: Too Big to Ignore (NYTimes.com)
• Codification system for comparing income inequality across countries: Gini coefficient
• The New Republic: The Morality Of Taxing The Rich
• Reducing Income Inequality: The Next Phase of True Financial Reform (Ray Brescia, Huffington Post)
• Special Report: The haves, the have-nots and the dreamless dead (Reuters, Emily Kaiser)

There has to be enough spending money in the system

It comes down to something very simple: Supply and Demand.

Demand = want + ability to pay
Demand is the driver. If there isn't enough money looking to be spent, that is, if there aren't enough people who want things and have money to spend, you won't have enough demand. It doesn't matter how much money is in the hands of the wealthy to invest and create businesses. Usually people think of demand as "wants" but you also have to have the ability to pay for these wants to actually create economic demand.

Bubble = investment inflation = too much money chasing too few investments
If not enough people can afford the products or services, the wealthy won't invest and the money goes into non-productive investments. Too much money chasing too few investment opportunities will create inflation of the price of the investments, AKA a bubble. Sound familiar? So, if too much of the money is in too few hands, there just isn't enough money in the system to make it work.

People gotta be able to afford your products
Henry Ford saw this back in the 20s. He saw that with mass production, he would be making a lot of cars. In order be successful, he needed lots of people who could buy his cars. He tripled his factory worker's salaries--basically so they could afford his cars. So it's not a new insight, it's just tough to figure out how to achieve the right balance.

Money makes the world go 'round--but not if only a few have most of it
The middle class needs to make enough money to drive the system. We have gone out of balance. This lack of spending money in the system has been a problem for a while, but we stumbled along by making credit easy. We weren't paying people enough, so we made play money readily available. We all know how well that worked out.

Our economy is out of whack
After WWII, the great expansion was driven by large demand because most people had money to spend. The rich were nowhere near as rich as they are now. Before I did some research, I found this hard to believe, myself, but I found that because of high taxes and the strength of labor unions, the top 1% only had about 10% of the income. From the 70s on, the rich kept getting richer, and now the top 1% have over 25% of the income. Somethings gone way out of whack.

Income Inequality. Yawn. But then I did a little reading...

Over the past 15 years, I've read articles discussing Income Inequality in the US. I never felt it had much impact on my life. It seemed to be mostly a moral issue: some people had a huge slice of the pie, everyone else had to fight over what was left, and this inequality was getting bigger. Yup, it's unfair. Some people will want to do something about it, some won't. The topic would bring about a huge political fight and for what?

But I'm beginning to realize that Income Inequality has a profound effect on the health of an economy. Completely separate from the moral issue. I'll look at these points over the next several posts.

Common sense is neither

"Common sense" is not ...

• common--two people can think totally opposing things and both call their ideas "common sense".
• sensible--from my experience, what you think is "common sense" is often wrong once you examine the subject more closely.

Don't be lazy and limit your thinking to what you feel is common sense. Be very careful to examine your opinions, seek out other people's perspectives--especially those who do a lot of thinking on the topic at hand, and keep your mind open. 

COMMON SENSE

What we believe to be
Common Sense
Is neither common nor sensical.
It is a compendium
of our life's experiences.
When next you are faced
with someone who has
'no common sense'
Seize the opportunity to share
your wisdom and experience
and to absorb theirs as well.
Such is the attitude
from which
Mutual Respect
is born. 

The above is just something I found on the Internets here