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A new study (abstract and free PDF available) authored by several economists at the IMF (International Monetary Fund) reveal an inverse relation between increases in inequality and GDP growth. In what could also be considered a heavy blow to trickle-down economic theory, data analyses show (page 7) that increases of income share on the fifth quintile actually hurt growth, while increases in any other quintile favours growth with the lowest quintile showing the strongest push.
From the abstract:
We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth—that is, when the rich get richer, benefits do not trickle down. This suggests that policies need to be country specific but should focus on raising the income share of the poor, and ensuring there is no hollowing out of the middle class.
Original Submission
(Score: 5, Interesting) by Justin Case on Friday June 19 2015, @11:55AM
Where is it written that growth must occur? I don't know about you but I think the pace is frantic enough already. How about we pause for breath, stop working 90 hour weeks, take a moment to look around and see if there might be anything else worth enjoying on this planet while we're still here?
Oh, and people are different. You can't "fix" that. Inequality will continue until we're all manufactured as perfect clones of each other. What a dull world that would be! But perhaps all those growth-conditioned robots would slave away nonstop...
(Score: 0) by Anonymous Coward on Friday June 19 2015, @12:09PM
Thank you. Anyone who knows anything about physical reality can tell you that infinite growth is impossible. If only more people realised this we might be able to design an economy that's updated to 21st century knowledge.
(Score: 0) by Anonymous Coward on Friday June 19 2015, @10:09PM
Capitalism and debt-based economies are only sustainable so long as there is growth. Admitting that infinite growth is impossible is an admission that capitalism is dying and should be retired.
(Score: 3, Insightful) by MichaelDavidCrawford on Friday June 19 2015, @12:26PM
for over twenty years I've been asking why we need growth to have prosperity.
I regard the 1970s as having been more prosperous than current times.
Yes I Have No Bananas. [gofundme.com]
(Score: 0) by Anonymous Coward on Friday June 19 2015, @08:21PM
The stock market was more or less flat during the 1970s. I recall that the unemployment rate was very high too; these, among others, were some of the reasons that Jimmy Carter lost to Reagan in 1980. What you regard matters little to me.
(Score: 0) by Anonymous Coward on Friday June 19 2015, @10:13PM
Because without growth, the only people who benefit under capitalism are the ones already entrenched and holding all the capital. Without new capital for others to obtain (growth) and without new markets (growth), there will be no new prosperity, just more and growing inequality.
(Score: 4, Insightful) by fadrian on Friday June 19 2015, @12:47PM
Well, you can either have growth or much greater redistribution to bring all the people of the world up to a decent standard of living. Or you can just tell everyone else to FOAD to a greater or lesser degree. Which are you going to pick?
That is all.
(Score: 3, Disagree) by bradley13 on Friday June 19 2015, @03:38PM
"you can either have growth or much greater redistribution to bring all the people of the world up to a decent standard of living"
That's a false choice. In fact, it'd dead wrong, because people just don't work that way.
Your second option is basically a restatement of Karl Marx: "From each according to his ability, to each according to his need". That's what redistribution is, right? Taking from those who produce - and giving to those who don't.
The problem is that darned thing called human nature: If someone is productive, but sees the results of their hard work taken away and given to others, then the motivation to work is going to evaporate. Welfare and disability fraud are already huge problems within any individual country that provides them.
You talk about doing this worldwide - raising everyone up to a decent standard of living. That's a wonderful ideal, but: do you know what happens to aid sent into the third world [soylentnews.org]? Most of it winds up in the wrong pockets - if not sucked off by the aid organizations themselves, then it's stolen by corrupt politicians on the receiving end.
Most people, given the chance, will be greedy and lazy; they need an incentive to work. Take the fruits of their labor, and they stop laboring. Give them a "free" decent standard of living, and that stop laboring. Want to help the poor? Capitalism has done more for worldwide standard of living than any other system [stanford.edu] - precisely because the principles of capitalism let people keep most of their earnings, and a rising tide floats all boats. More productivity - more economic growth - is the best possible way to help the poorest people.
Do note: the perversions that occur through corruption and regulatory capture are counterproductive in any system, including capitalism. That's people being greedy and lazy again, and needs to be stopped.
Everyone is somebody else's weirdo.
(Score: 5, Touché) by Immerman on Friday June 19 2015, @04:52PM
> If someone is productive, but sees the results of their hard work taken away and given to others, then the motivation to work is going to evaporate.
Exactly. If we all bust our asses steadily increasing our productivity, and see our real wages fall while the executives pocket all the profits without contributing any more than they did before getting a 20-fold raise over the last few decades, where's our motive to continue striving?
It's not like the only solution to income inequality is wealth redistribution, it can also be eliminating radical income disparities. This country was doing great back in the days when the difference between the highest and lowest paid employees (CEO and janitors) was typically only a factor of 30, rather than the 600+ that is common today. Why should we allow a select few to pocket all the wealth generated by the rest of us?
(Score: 1) by khallow on Friday June 19 2015, @07:27PM
If we all bust our asses steadily increasing our productivity, and see our real wages fall while the executives pocket all the profits without contributing any more than they did before getting a 20-fold raise over the last few decades, where's our motive to continue striving?
A: It would be even worse, if you didn't strive for what you want. Now, I would think that a decline in effective wages would result in people entertaining other wants than merely working more.
(Score: 3, Insightful) by tathra on Friday June 19 2015, @10:28PM
exactly. wealth redistribution will happen if inequality gets pushed so high the system breaks, except it'll be driven by guillotines and gunpowder rather than governmental intervention. we need to stem inequality before any kind of forced redistribution occurs, be it by the government or mob. taking corporate taxation back to historical levels (pre-reagan) and incentivizing the creation of cooperatives would go a long way to restoring the middle class and preventing the need for forced redistribution. if things continue on as they are, our options will become more and more limited, leaving us with few options, like executing the unemployed (or otherwise letting them starve and die because "its not my problem" and plenty of victim blaming) or implementing a basic income. if cooperatives become the standard, they could probably continue forcing the perverse "work or die" concept on everyone because there would be a healthy enough distribution of capital for there to be enough work for everyone; if capital continues to concentrate and stay hoarded and locked away, corporations will just wither and die because there will be no demand for goods (because already too may people can barely afford the bare necessities), and a market where even established corporations can't survive is certainly not one where new ones can grow.
(Score: 2) by Phoenix666 on Saturday June 20 2015, @09:54AM
I sense "guillotines and gunpowder" is already in motion. it may accrete, or a trigger could cause an eruption. the TPP could be the trigger, or it could be the collapse of the student loan debt bubble. but it's coming. stock up and stay safe, everyone.
Washington DC delenda est.
(Score: 3, Insightful) by Pav on Saturday June 20 2015, @02:38AM
Thomas Piketty has compiled a huge volume of data [wikipedia.org] that strongly suggests that what we call "developed economies" grow slowly because a powerful elite suppresses the rest of the economy. Low growth alone proves these elites don't deserve this wealth/power - if they did GDP wouldn't be sluggish, and society as-a-whole wouldn't be condemned to such stagnant growth and the many other negative consequences [wikipedia.org]. We shouldn't blame them though - if the game is rigged it's human nature to attribute success to inate ability... there's plenty of research [pbs.org] showing such cognitive mistakes are part of all of us. Game theory even has a model showing with mathematical rigour how economic negotiation in an unequal environment works (ie. positive-sum economics in a coercive environment [wikipedia.org]). Interestingly in perpetually poor countries with a well established elite the same low growth model holds true - it's most often countries where elite power isn't strong eg. postwar high-tax USA, recent China, Russia (for a time until Moscow began reasserting control), Lulas Brazil etc... which get to enjoy high growth and a dynamic economy.
(Score: 0) by Anonymous Coward on Friday June 19 2015, @08:31PM
Hence the reason why open source tanked immediately. Why should I bust my ass contributing to open source software when others, who didn't contribute anything, benefit from all the hard work I put into it? It completely saps my motivation when I see stuff like that going on.
But not nearly as huge a problem as big corporations...sorry, I mean, uhhh, job creators...demanding sweetheart government subsidies and tax breaks.
(Score: 0) by Anonymous Coward on Friday June 19 2015, @10:35PM
False analogy. Nobody is directly profiting from your hard work in open source, and when they do sell the open source stuff everyone who contributes to it certainly does throw a shitfit. Why should you work your ass off when somebody who isn't you is profiting from your work while you get nothing?
(Score: 0) by Anonymous Coward on Friday June 19 2015, @11:06PM
Hence the reason why open source tanked immediately. Why should I bust my ass contributing to open source software when others, who didn't contribute anything, benefit from all the hard work I put into it? It completely saps my motivation when I see stuff like that going on.
False analogy. Nobody is directly profiting from your hard work in open source, and when they do sell the open source stuff everyone who contributes to it certainly does throw a shitfit. Why should you work your ass off when somebody who isn't you is profiting from your work while you get nothing?
Different AC here.
WHOOOOOSH!!
(Score: 3, Insightful) by Mr Big in the Pants on Friday June 19 2015, @09:06PM
This entire conversation is about as informed as a uninformed thing with no clue...
"That's what redistribution is, right? Taking from those who produce - and giving to those who don't."
Not necessarily. Redistribution comes in many forms. Also the opposite (wealth concentration) does and COMBATING it is called wealth redistribution.
For example, in the US wealth is being concentrated in the hands of shareholders - most of whom DO NOT PRODUCE. They used their concentrated wealth to capture the proceeds of further growth for themselves - many times to the detriment of those who DO produce.
To combat this you would simply have to return more of the profit to those that are doing the work and this would benefit EVERYONE long term.
I don't see why the concept of inequality harms growth is so hard to take and why it is such a surprise? Has the neoconservative insanity penetrated the mouth breathing consciousness that deeply....oh wait...stupid question.
Let's make it simple:
If most people have less money there is less money for them to buy all the stupid shit that makes the economy churn.
Rich people do not spend like the poor thus there is a LOT less churn when we shovel all the money to them.
QED
(Score: 0) by Anonymous Coward on Friday June 19 2015, @11:46PM
B-b-b-but, those are our job creators! We need them to keep the market for mansions and yachts growing! Think of all the suffering it would cause to the importers of fine champagne and caviar if we rob them so that Joe Sixpack can put food on the table for himself and his family! Next thing you know, Joe Sixpack and his mooching, freeloading kids will be expecting another meal tomorrow! It will never end, I tell ya!
/sarcasm Unfortunately, there are probably some idiots reading and posting comments here who actually believe this.
(Score: 0) by Anonymous Coward on Friday June 19 2015, @11:54PM
> shareholders - most of whom DO NOT PRODUCE
You're right. I don't produce. Well, I did produce to get the money I invest, but now I share my petty wealth so you can have some place to produce. Who do you think finances that building where you work? The furniture? The computer you waste half your day on watching cat videos?
All I ask is a small return on my investment. Many times I don't get it. Many times I end up with less than I started. That's called risk. I like to be compensated for risk too, hoping in the long run to come out ahead. But if there's no chance to earn a return, I won't invest, and you can go back to planting potatoes with your bare hands... on somebody else's land.
(Score: 1, Insightful) by Anonymous Coward on Saturday June 20 2015, @12:35AM
You remind me of the owner of my workplace. He talks just like you. He steals my wages - I'm not exaggerating, he modifies my time sheets because he feels that even though I worked through my meal break (for free, and in violation of the law) and my two ten minute breaks (also in violation of the law), and even though I just worked four hours for free, I'm not doing enough to earn $4 less than minimum wage.
Clearly, I'm just a lazy bludger, stealing from his $10 million yearly profit.
Those safety lights in the stairwell? Nobody needs those on. New equipment that actually works? Why? I can be blamed when it all breaks, and that helps.. well, with something.
As far as being a job creator, well, that's just not true. He makes $10 million a year because he creates those jobs, right? If it weren't for him, nobody would have anything to do, right?
Government funding pays for all of our wages, this "wealth creator" doesn't put a fucking penny up. Who bought all his equipment? The taxpayer. Of course, he bought second hand stuff that just won't last. He's relying on us to generate new ideas for him. Yes, that hour I didn't get paid for? I came up with ideas that will generate nearly half a million dollars in profit, to generate new wealth for him but I got nothing for it. Didn't even get paid for the hour I was labouring when I came up with them.
Well, that's too bad. He wants my ideas, he fucking pays me for each one. If I'm to be his wealth creator then he can give me 20% or just plain go without. Guess which he will choose - pay up or go without? He'll go without.
The loss of wealth is his problem. I've got my ideas on paper and I'm not able to use them because I'm owed about $65k in salary backpayments, so I will fucking well burn them. It'll keep me warm so I will profit from them. If he wants me to prop up his fortune, he can fuck off and die.
The sooner he dies, the better off we will all be.
(Score: 2) by Mr Big in the Pants on Saturday June 20 2015, @07:59PM
If you think the fact that you DID produce is relevant you are missing the point.
CHURN is what keeps an economy going, not historic production. The problem is the amount of wealth that is tied up this way, not that it exists.
I could just as easily say:
The only reason you have a place to put your investment to earn interest is that there are people with enough spending money to purchase the shit that place produces or other associated support industries.
And again we come back to inequality == bad!
It is not rocket science...
(Score: 0) by Anonymous Coward on Sunday June 21 2015, @01:45PM
So you two would rather I not invest the money I earned over my career, because according to you, investors are leeches.
So what do you want me to do with my earnings?
A. Spend them right away, on crap I don't need, so that I can be dependent on government benevolence in my old age? (How's that working out in Greece, BTW?)
B. Men with guns will force me to part with my money. In which case why did I bother to earn it in the first place?
You have to think about the incentives created by your success-hating proposals.
Oh and meanwhile where are the employers of the world going to get the money to buy trucks, lay railroad tracks, build factories and office spaces, and so on... everything you don't bring to the table when you demand a job because you have a right to employment because you breathe?
I suppose the government will provide that too.
So the choices are:
A. I earn money by producing, invest it so you can produce too, and we both gain.
B. I earn money. Men with guns take it. They use it to create infrastructure. You work there. They take your earnings too. Soon we both grow old and have to hope the men with guns haven't squandered all that money they took from us. (Hint: they have, sure as the sun shines.)
(Score: 2) by Mr Big in the Pants on Monday June 22 2015, @03:25AM
You have made your argument increasing both personal and anecdotal and with this post have reached 100% irrelevant and off topic.
This has nothing to do with the money you currently have. Spend it however you will.
This discussion is fruitless and thus I am moving on...
(Score: 2, Interesting) by Gault.Drakkor on Friday June 19 2015, @06:59PM
Hrmm are not growth and distribution orthogonal? Can you not change one without changing the other?
(Score: 1, Insightful) by Anonymous Coward on Friday June 19 2015, @12:59PM
It's the golden rule: he who has the gold, makes the rules.
What do people with lots of gold want? Mostly: more gold. How do you get that? Under the current set of laws and customs: invest in growing companies.
(Score: 2, Interesting) by Anonymous Coward on Friday June 19 2015, @02:20PM
Always with the gold...
Thing about gold is that it had little practical value back in the day, except that it didn't rust into nothing when left exposed to the elements.
This then made it a wonderful material for making tokens.
Said tokens likely started out as weights used to measure up an amount of grain or similar at a market.
And to settle disputes those weights then got certified by some local military power.
(Score: 3, Insightful) by Joe Desertrat on Friday June 19 2015, @06:57PM
What do people with lots of gold want? Mostly: more gold. How do you get that? Under the current set of laws and customs: invest in growing companies.
That's the old and slow way of doing things. It is much faster to buy a company, hype up its profits by gutting the staff, then selling it off just before it crashes due to the lack of ability to perform any longer.
(Score: 1) by Wodan on Friday June 19 2015, @02:10PM
Well, ever since they introduced the 2% inflation target you need to "grow" 2% just to stay where we are.
(Score: 2) by kaszz on Friday June 19 2015, @03:41PM
Must be related to fiat money?
Gold bars tend to not shrink from drying out or such..
(Score: 4, Insightful) by Anonymous Coward on Friday June 19 2015, @02:54PM
Where is it written that growth must occur? I don't know about you but I think the pace is frantic enough already. How about we pause for breath, stop working 90 hour weeks, take a moment to look around and see if there might be anything else worth enjoying on this planet while we're still here?
Where is it written that population growth must occur? Oh, it's not, but it occurs nonetheless. If today we have a twelve inch pie and four people, everyone can get a slice - ok, or not, but humor me... If tomorrow we have a twelve inch pie and eight people, everyone can still get a slice but the average *must* go down if everyone keeps the same relative fraction of pie. If the next day you have a twelve inch pie and one hundred people, well, hopefully you understand everyone's slice is less than a bite. So, growth becomes absolutely necessary to the continuing survival of the race.1
What isn't necessary in the above examples is that one person is able to possess forty percent of the pie (in all three cases above.) One person in a hundred, and they control forty percent of the pie, meaning the other 99% get to share 60% of it. (And the reality is it's still distributed after that - the next 9 percent get, oh, another twenty to thirty percent of it. Leaving the bottom 80 percent of the population fighting for the bottom 30 percent of the pie.
And the fun part is: Even though growth occurs, so that everyone can theoretically still have the same amount of pie when there's one hundred people instead of four, that one lucky person of a hundred still gets a full forty *percent* of the pie (even though they only had twenty five percent of the pie when it was only four people.)
That's both why growth must occur and why trickle down is complete bullshit.
Oh, and people are different. You can't "fix" that. Inequality will continue until we're all manufactured as perfect clones of each other. What a dull world that would be! But perhaps all those growth-conditioned robots would slave away nonstop...
People are different. That has nothing to do with whether or not a person should be entitled to enough crust of the pie to live on, or not.
(Score: 1) by khallow on Friday June 19 2015, @07:30PM
(Score: 1, Insightful) by Anonymous Coward on Friday June 19 2015, @10:07PM
And the obvious problem with your model is that the pie isn't fixed in size. While "trickle down" may be bullshit, I don't see how obsessing over the size of each persons' piece of the pie will help that pie grow larger.
The pie is at any given moment a fixed size. It must grow in size because of population growth. That was my first point, responding to the OP's question about why growth is necessary at all.
The thing is, that growth will occur naturally in any event. It is only because of a compulsory need of some to possess more pie than strictly necessary that drives the scarcity of pie, but I digress.
Pie measurement does not need to come from some grand theory of pie envy. Rather, it is the recognition that literally ten percent of the population controls ninety percent of the pie. And that last ten percent that we ninety percent get to have left to us doesn't seem to be enough to feed everyone else. And yet there's enough pie for all. So yes, I feel entirely justified and entitled to look at that ten percent and demand they slice what we've got right now a little more equitably, because they have NOT historically, that's for damn sure.
Or the population will shrink. The problem is, it won't be that one or ten percent that's pruned.
(Score: 3, Insightful) by tathra on Friday June 19 2015, @11:00PM
it isn't fixed in size, but it does have a definite size at any point in time, and that size can't increase without growth of some sort. the only reason each person's piece of the pie is a big deal is because of how extreme the difference is, with equivalently 1 person holding 80% of the pie and the other 9 having the other 20% between them. not only is it unfair, since only the luck of being born into it allows one to have a larger portion, not hard work and good work ethic, but its also unsustainable. those holding the most didn't achieve it through their own merits or work, so the typical argument of "taking from those who produce" does not apply in any way here. sociopathy is not something society should encourage or enable, especially when acquiescing and allowing those sociopaths to take everything and keep it to themselves makes that society extremely unhealthy and pushes it towards destruction.
(Score: 1) by khallow on Friday June 19 2015, @11:44PM
it isn't fixed in size, but it does have a definite size at any point in time, and that size can't increase without growth of some sort.
I get what the thread was about.
the only reason each person's piece of the pie is a big deal is because of how extreme the difference is, with equivalently 1 person holding 80% of the pie and the other 9 having the other 20% between them. not only is it unfair, since only the luck of being born into it allows one to have a larger portion, not hard work and good work ethic, but its also unsustainable. those holding the most didn't achieve it through their own merits or work, so the typical argument of "taking from those who produce" does not apply in any way here.
There are two things to note. First, what does "unsustainable" mean? It means wealth transfers from those who have, but do not have the competence to keep what they have, to those who do. It's a problem that continually solves itself little by little every day. And I don't see a reason to care about "fairness" when it's just an excuse to take from the more fortunate.
sociopathy is not something society should encourage or enable, especially when acquiescing and allowing those sociopaths to take everything and keep it to themselves makes that society extremely unhealthy and pushes it towards destruction.
Welfare is such a problem both directly in encouraging the growth of a sociopathic underclass and in bribing said underclass to support the machinations of a similarly sociopathic elite class. I'm reminded of the "bread and circuses" of the Roman Empire. The underclasses watched fellow men fight to the death and the ruling elite indulged in their own vices and corruptions.
(Score: 1) by tfried on Friday June 19 2015, @08:05PM
Where is it written that growth must occur?
In essence, we need growth in order to make sure the lowest quintile can somehow get along (without dying, begging, or revolting) despite growing inequality.
Oh, and people are different. You can't "fix" that.
Yes, people are different, but no, that does not mean society will have to accept everything. And in fact where it comes to wealth, the amount of inequality can very easily be "fixed" without chopping off people's heads: using taxes (even though some people equate the latter to the former...). One popular argument against increasing taxes for the rich is trickle-down-theory, and it has just be shown to be wrong (given current levels of inequality).