What produces great economic inequality?

[Canard DuJour]

Genome-wide analysis identifies molecular systems and 149 genetic loci associated with income

Socioeconomic position (SEP) is a multi-dimensional construct reflecting (and influencing) multiple socio-cultural, physical, and environmental factors. In a sample of 286,301 participants from UK Biobank, we identify 30 (29 previously unreported) independent-loci associated with income. Using a method to meta-analyze data from genetically-correlated traits, we identify an additional 120 income-associated loci. These loci show clear evidence of functionality, with transcriptional differences identified across multiple cortical tissues, and links to GABAergic and serotonergic neurotransmission. By combining our genome wide association study on income with data from eQTL studies and chromatin interactions, 24 genes are prioritized for follow up, 18 of which were previously associated with intelligence. We identify intelligence as one of the likely causal, partly-heritable phenotypes that might bridge the gap between molecular genetic inheritance and phenotypic consequence in terms of income differences. These results indicate that, in modern era Great Britain, genetic effects contribute towards some of the observed socioeconomic inequalities.

RIP the blank slate.

A bit more GABAergic neurotransmission might help you realise that no one's making any blank slate argument.

Rather, inherent smarts make you somewhat more likely to be a winner, but don't make any difference to inequality levels in a pure market distribution, which tend toward absolute due to compounding effects (which humans are so bad at grasping). This holds, even in a blank slate scenario - not that we are in one.

 

[Bomb#20]

Ah, the politics of envy. ...

Trausti, if you don't like getting mugged, does that mean that you envy muggers?

Aaand... there it is: the self-deceiving beating heart of leftist ideology. The mostly subconscious conviction that having more property than others means the property was stolen from others because economics is a zero-sum game.

 

[Harry Bosch]

Inheritance.

A lucky person can become very wealthy from almost nothing; But the probability of getting super-lucky declines very rapidly with lack of inherited wealth.

Most people don't even seem to notice the vast amount of support they get from the wealth of their parents, and are happy to claim to have earned everything they have, while completely ignoring the fact that they spent the critical early decades of their lives subsisting on the wealth into which they were born - and/or ignoring the struggling to overcome its absence necessary for their less fortunate peers.

Inherited wealth is fleeting if you don't have the smarts to maintain it.

Very true. This happens all the time. People make bad decisions. In the banking world, it's called rags to riches to rages again. 60% of all second generation companies fail, 90% of third generation fail.

 

[DBT]

The system is rigged by the rich and powerful to benefit the rich and powerful. Trickle down economics for the rest.

 

[Harry Bosch]

The system is rigged by the rich and powerful to benefit the rich and powerful. Trickle down economics for the rest.

How is it rigged?

 

[lpetrich]

What's missing here is that a big factor is how much one puts towards the future rather than for current use. ...

That's a common presumption among right-wingers, that everybody has an upper-middle-class income or more.

 

[Harry Bosch]

What's missing here is that a big factor is how much one puts towards the future rather than for current use. ...

That's a common presumption among right-wingers, that everybody has an upper-middle-class income or more.

You don't need an upper middle class income. You can have a comfortable life by educating yourself and finding a service that you can provide that people want. But the way to get wealthy (which is a little overrated) is by creating a company by leveraging other people's money.

 

[bilby]

Inheritance.

A lucky person can become very wealthy from almost nothing; But the probability of getting super-lucky declines very rapidly with lack of inherited wealth.

Most people don't even seem to notice the vast amount of support they get from the wealth of their parents, and are happy to claim to have earned everything they have, while completely ignoring the fact that they spent the critical early decades of their lives subsisting on the wealth into which they were born - and/or ignoring the struggling to overcome its absence necessary for their less fortunate peers.

Inherited wealth is fleeting if you don't have the smarts to maintain it.

Very true. This happens all the time. People make bad decisions. In the banking world, it's called rags to riches to rages again. 60% of all second generation companies fail, 90% of third generation fail.

Yet new wealth is comparatively rare. Old wealth - generational wealth that stays with a single family for centuries - is commonplace amongst the wealthy. No family is lucky, generation after generation. No family has only heirs who are extraordinary, or even only heirs who are above average in intelligence. The Duke of Westminster has done bugger all to get rich; And at his level of wealth, it would require the most unimaginably moronic dolt to lose enough to become merely very wealthy indeed.

But discussions about wealth always founder on the definition of 'wealth'. Sure, if I had $10million I would feel rich; And sure, I could ensure poverty for my children by making bad business decisions, or by simply diluting the inheritance amongast a large family. But that's far less likely if I have $10billion. By conflating millionaires with billionaires, it's possible to confuse the issue to the point where nobody can discuss ludicrous wealth, and mere wealth can be dismissed as justly deserved.

 

[Harry Bosch]

Very true. This happens all the time. People make bad decisions. In the banking world, it's called rags to riches to rages again. 60% of all second generation companies fail, 90% of third generation fail.

Yet new wealth is comparatively rare. Old wealth - generational wealth that stays with a single family for centuries - is commonplace amongst the wealthy. No family is lucky, generation after generation. No family has only heirs who are extraordinary, or even only heirs who are above average in intelligence. The Duke of Westminster has done bugger all to get rich; And at his level of wealth, it would require the most unimaginably moronic dolt to lose enough to become merely very wealthy indeed.

But discussions about wealth always founder on the definition of 'wealth'. Sure, if I had $10million I would feel rich; And sure, I could ensure poverty for my children by making bad business decisions, or by simply diluting the inheritance amongast a large family. But that's far less likely if I have $10billion. By conflating millionaires with billionaires, it's possible to confuse the issue to the point where nobody can discuss ludicrous wealth, and mere wealth can be dismissed as justly deserved.

Do you have a source that demonstrates that most new wealth is rare?

 

[Horatio Parker]

One criticism I often see is the over financialization of the economy. I don't remember the exact numbers, but it's something like 15% of GDP in the '50s compared to over 40% now.

 

[Harry Bosch]

One criticism I often see is the over financialization of the economy. I don't remember the exact numbers, but it's something like 15% of GDP in the '50s compared to over 40% now.

That seems like another dubious claim. Not to attack, but do you have a source for this? 40%? That really doesn't seem close to be true.

 

[RVonse]

One criticism I often see is the over financialization of the economy. I don't remember the exact numbers, but it's something like 15% of GDP in the '50s compared to over 40% now.

I have heard this as well. And I agree with it too. Especially when you consider it matches perfectly with the trajectory of the last extreme wealth inequity which took place in the mid to late 1920's. Back during that time, it was legal to borrow money to purchase stock on the market. This time around, we haven't yet allowed that practice again. But we are allowing the banks to speculate with deposits and we are allowing the fed to engineer interest into negative territory. All of this helps to foster higher incomes for the money changers and lower incomes for the producers of labor. Wealth inequality.

There are a lot of people (this forum included) who blame capitalism for wealth inequality but nothing is further from the truth. This is a political problem (created by corruption and the lobbys of government) which has altered the true functioning of capitalism.

 

[Horatio Parker]

One criticism I often see is the over financialization of the economy. I don't remember the exact numbers, but it's something like 15% of GDP in the '50s compared to over 40% now.

That seems like another dubious claim. Not to attack, but do you have a source for this? 40%? That really doesn't seem close to be true.

The last time I went through the trouble of posting a source, you hand waved it away so excuse me for not bothering.

 

[Harry Bosch]

One criticism I often see is the over financialization of the economy. I don't remember the exact numbers, but it's something like 15% of GDP in the '50s compared to over 40% now.

I have heard this as well. And I agree with it too. Especially when you consider it matches perfectly with the trajectory of the last extreme wealth inequity which took place in the mid to late 1920's. Back during that time, it was legal to borrow money to purchase stock on the market. This time around, we haven't yet allowed that practice again. But we are allowing the banks to speculate with deposits and we are allowing the fed to engineer interest into negative territory. All of this helps to foster higher incomes for the money changers and lower incomes for the producers of labor. Wealth inequality.

There are a lot of people (this forum included) who blame capitalism for wealth inequality but nothing is further from the truth. This is a political problem (created by corruption and the lobbys of government) which has altered the true functioning of capitalism.

Well, it was 7.9% in 2012. I have a hard time believing that it is over 40% now.


https://www.investopedia.com/terms/f/financialization.asp

 

[DBT]

The system is rigged by the rich and powerful to benefit the rich and powerful. Trickle down economics for the rest.

How is it rigged?

Rewards, benefits, bonuses, tax breaks, etc. Always plenty of money at the top end of town, even when a company is going bankrupt (GFC) but heaven forbid that an ordinary worker asks for a modest pay rise to make ends meet because the added cost will cause the whole economic system to crash and burn......

 

[Horatio Parker]

The debate on financialization is fuelled by the popular perception that finance is increasingly dominating real activity. While the exact meaning of this statement is hard to pin down, there is ample evidence that financial activity has grown faster than real activity (as measured for example by GDP). To illustrate this Figures 1 to 3 present data for the USA. Figure 1 gives the stock market capitalization and stock market turnover. From 1997 stock market capitalization exceeds GDP, rising from 58% of GDP in 1988 to 163% in 1999 (and flattening out thereafter). The rise of stock market turn over is even more spectacular in the period from 33% in 1988 to 383% in 2008. Figure 2 gives the share of financial profits and profits from abroad to total corporate profits. This share has risen from just above 12% in 1948 to a peak at 53% in 2001. Finally, financialization has come with a dramatic increase in debt levels across different sectors. Figure 3 shows the debt of households, businesses and the financial sector (as a ratio to GDP). While the business sector has increased its debt from 52% of GDP (in 1976) to 77% (2009), household debt has increased from 45% (1976) to 96% (2009), with a clear acceleration in the early 2000s. Most spectacularly, the debt of the financial sector has increased from 16% to 111% (2009).3 The popular perception of the increasing role of finance is clearly substantiated by economic data: activity on financial markets has increased faster than real activity; financial profits make up an increasing share of total profits; and households as well as the financial sector are taking on a lot more debt. The following shall explore some of the changes financialization has brought to these economic sectors.

https://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_201-250/WP240.pdf

 

[J842P]

Inheritance.

A lucky person can become very wealthy from almost nothing; But the probability of getting super-lucky declines very rapidly with lack of inherited wealth.

Most people don't even seem to notice the vast amount of support they get from the wealth of their parents, and are happy to claim to have earned everything they have, while completely ignoring the fact that they spent the critical early decades of their lives subsisting on the wealth into which they were born - and/or ignoring the struggling to overcome its absence necessary for their less fortunate peers.

And to elaborate, having wealthy parents lowers the cost of good decisions and decreases the impact of bad decisions.

 

[Derec]

Yet new wealth is comparatively rare. Old wealth - generational wealth that stays with a single family for centuries - is commonplace amongst the wealthy.

Do you have any evidence for that thesis?

If you look at the list of wealthiest Americans, most of the top 15 like Jeff Bezos or Warren Buffet made the money themselves. Some of it is inherited and further grown - specifically the Kochs and Waltons, but this wealth has not been in those families for centuries. Fred Koch went into business in the 1920 and started Koch Industries in 1940. Sam Walton bought his first store in the 1940s and opened the very first WalMart in 1962.

No family is lucky, generation after generation.

Which is why a lot of generational wealth dissipates over generations.

No family has only heirs who are extraordinary, or even only heirs who are above average in intelligence.

True. And some heirs/branches of the family will do better than others over time. Partly due to luck, partly due to uneven inheritances, but also due to different levels of ability.

The Duke of Westminster has done bugger all to get rich; And at his level of wealth, it would require the most unimaginably moronic dolt to lose enough to become merely very wealthy indeed.

He has inherited a bunch of money, yes. Doesn't mean he doesn't do "bugger all" to grow it though.

And note that Hugh Grosvenor is only one of many present day descendants of the original Duke of Westminster (incidentally also called Hugh Grosvenor) who had 12 children who survived into adulthood throughout the 19th century. Vast majority of his present-day descendants are not billionaires (it's probably only the one) and I would reckon most are not even millionaires. There are lots of decidedly non-rich people with titles in modern day England!

And as far as centuries-old generational wealth is concerned, UK is very different than US anyway, what with the system of aristocracy and everything.
Even proverbially rich US families like the Rockefellers can trace the genesis of their wealth to late 19th century only.

But discussions about wealth always founder on the definition of 'wealth'. Sure, if I had $10million I would feel rich; And sure, I could ensure poverty for my children by making bad business decisions, or by simply diluting the inheritance amongast a large family. But that's far less likely if I have $10billion. By conflating millionaires with billionaires, it's possible to confuse the issue to the point where nobody can discuss ludicrous wealth, and mere wealth can be dismissed as justly deserved.

The title is about "economic inequality" in general, so both of these levels would be relevant. You are right that there is a big difference between a 10 billion and a 10 million dollar fortune. You are also right that it is difficult to squander a 10 billion fortune in a lifetime. But over a number of generations spanning centuries? A completely different ballgame.

 

[Derec]

Linda Tirado: “Why Poor People Stay Poor” at Slate.

This piece is long in excuses and short in any sort of honest self-examination.

Take the truck - even before losing it, why did they have a truck? They do not seem to have jobs where a truck is needed and they do not own a house where ability to haul stuff is often needed.
A truck has higher operating cost (poor gas mileage, more expensive tires etc.) and buying it rather than a comparable car was a want, not a need. Should have gotten a Corolla or something.

Then come the jobs. Why no effort to better oneself. Both she and her husband seem to be content working low-wage jobs.
Then the kids. Why have kids when you can't afford them?

An except from her book Hand to Mouth: Living in Bootstrap America

Well I guess that thanks to that book the author is no longer poor.

about lazy,

The article does not back up your assertion that the rich are "lazy".

useless,

This is not really backing up "useless" either. It talks about bad behavior and lavish spending. But it is one thing to spend when you can afford it, quite another to get that new iPhone every two years or new $200 Nikes every year but then don't have enough money to get your truck (which you don't need) from the impound lot, despite EITC and all the other tax credit low income people get.

So those on the top need not be super geniuses or super Stakhanovites, and that is what we find -- that they are not super geniuses or super Stakhanovites.

Your view seems awfully binary. Either somebody is a "super genius" and "Stakhanivite" or else they are dumb and useless. No middle grounds, no continua.

They found a positive, but only very small relationship between funding and impact (as measured by four indices relating to scientific publications). What’s more, those who received a second grant were not more productive than those who only received a first grant, and impact was generally a decelerating function of funding. The authors suggest that funding strategies that focus more on targeting diversity than “excellence” are likely to be more productive to society.

"Diversity"? I.e. give grants based not on merit, but based on race and gender?

 

[Harry Bosch]

Inheritance.

A lucky person can become very wealthy from almost nothing; But the probability of getting super-lucky declines very rapidly with lack of inherited wealth.

Most people don't even seem to notice the vast amount of support they get from the wealth of their parents, and are happy to claim to have earned everything they have, while completely ignoring the fact that they spent the critical early decades of their lives subsisting on the wealth into which they were born - and/or ignoring the struggling to overcome its absence necessary for their less fortunate peers.

And to elaborate, having wealthy parents lowers the cost of good decisions and decreases the impact of bad decisions.

Lots of assumptions without facts in this thread! And I just don't know. I think that if I had wealthy parents, that might have made me conservative. I don't think that I would have risked losing their money on a startup. I could be in a minority, but I think that not having much makes it easier to risk everything.