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.
(Score: 5, Informative) by bootsy on Friday June 19 2015, @12:39PM
I guess I should clarify that a bit as the newly rich do tend to and end up broke (sports starts and muscians often do this) but as a rule the really really rich don't tend to spend that much (as a percentage and even outright) and when they do it is usually for an asset that retains value such as gold, artwork, property etc. The poor by contrast spend almost everything they have as a rule and there have been plenty of pieces of research that have backed this up e.g. Joseph Rowntree foundation.
The way that mathematics works is that once you get richer you will keep getting richer as you start to save money by not having to borrow for things and buying in bulk and taking advantage of opportunities where immediate access to funds allows an advantage. Nothing is going to stop this and we will always have inequality due to it, indeed many would consider this healthy.
The harder part is when people start off richer due to their birth. The only way to level the playing field is to have 100 percent inheritance tax and raise everyone in a kibbutz style environment and I suspect that most people won't except this.
(Score: 0) by Anonymous Coward on Friday June 19 2015, @12:46PM
Well I guess you wouldn't need inheritance tax per se. Just count it as income and have a 90% bracket. Also interest should be abolished. That will prevent the accumulation of wealth without productivity to back it, but also will finally get rid of 'fiat' money.
(Score: 2) by githaron on Friday June 19 2015, @01:47PM
I think it would make more sense to have a cap on how much a single individual can inherit from another individual. The problem isn't inequality in general, the problem is severe inequality. Besides if you spend your whole life saving and building up funds, why shouldn't you be allowed to impart some of that to your kids?
(Score: 3, Interesting) by danaris on Friday June 19 2015, @02:47PM
The only way to level the playing field is to have 100 percent inheritance tax and raise everyone in a kibbutz style environment and I suspect that most people won't except this.
But it's not as all-or-nothing as you paint it here. There are a lot of smaller measures we can take that can reduce inequality, including inherited inequality, without completely separating children from their parents(' finances). Higher taxes on the wealthy in general are one of them. Heck, make the inheritance tax 50-75% and that would make a big difference in inherited wealth, so long as it had a good way of accounting for nonliquid assets. I believe (but am not sure, it's been a while since I saw hard numbers) that the inheritance tax was around 90% about 50 years ago, and there wasn't a huge uproar about it then.
These days, though, you talk about inheritance taxes and the right starts screaming about it being a "death tax."
Dan Aris
(Score: 4, Disagree) by GungnirSniper on Friday June 19 2015, @03:34PM
Government confiscation of inheritance is immoral. The simple fact is in a free society inequality will always exist. Those that advocate the use of force to tip the scales are the advocates of tyranny.
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(Score: 2) by monster on Friday June 19 2015, @04:35PM
The same argument could be used against excessive hoarding of riches. Also, why is it inmoral? For many centuries only the older son inherited while the rest didn't receive anything. Having inheritance fairly distributed is quite recent and could also be argued against (like turning a ranch into chunks too small to be profitables, for example), so what makes it ok if it's your older brother who receives everything, but not ok if it's the state who receives a share?
(Score: 2) by GungnirSniper on Friday June 19 2015, @05:21PM
It is immoral because the state has no right to take it. The money has already been taxed as income, be it from capital gains or employment or otherwise. It is particularly immoral to take over half of anyone's wealth, alive or dead.
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(Score: 1, Insightful) by Anonymous Coward on Friday June 19 2015, @05:44PM
I get taxed when I make money and when I spend that same money. Why should I find it immoral if a parent got taxed when they gained control of a pile of money and then their children get taxed with the pile passes to their control? Especially since both parties will expect the government to protect the smooth transfer of said pile of money?
(Score: 1) by khallow on Monday June 22 2015, @03:31PM
Why should I find it immoral if a parent got taxed when they gained control of a pile of money and then their children get taxed with the pile passes to their control?
The grandparent post explained why. Because that wealth is already being taxed. Multiple levels of taxation on the same lawful activity are reasonably considered wrong. The "smooth transfer of said pile of money" is already paid for. And with estate taxes, we actually interfere with that transfer of wealth and make it less smooth.
(Score: 3, Touché) by Anonymous Coward on Friday June 19 2015, @07:38PM
I consider it particularly immoral for someone to suck their thumb and whine about not getting their daddy's money when their sole accomplishment to earn that money is the thumb sucking.
(Score: 0) by Anonymous Coward on Friday June 19 2015, @11:11PM
Not really related to you, but I find it hilarious that the kind of people who say taxation is immoral or theft often claim that the government should own womens' bodies if they have a certain parasitic infection.
(Score: 2) by monster on Monday June 22 2015, @10:08AM
The state has also provided a framework in which the owner gets support to keep the riches and not be deprived of them by someone stronger. That also has a cost.
Also, could you explain a bit why is it inmoral to take something from the dead? They are not needing it anymore and I don't know of any place where the dead can keep the property of anything.
(Score: 2) by GungnirSniper on Monday June 22 2015, @04:59PM
The immorality of confiscation on death should be self-evident. The disregard of the right of inheritance denies nearly a thousand years of law, and for what? To keep the kleptocratic government running?
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(Score: 2) by monster on Tuesday June 23 2015, @06:23AM
The dead can't benefit from their possessions any longer, so no, it's not self-evident why taking a share of their former possessions is inmoral. As for all the years of law, as I have already said, it used to be that only the older son would inherit and the others would receive nothing. Laws can be changed as customs and social conventions also change.
(Score: 2) by GungnirSniper on Tuesday June 23 2015, @02:37PM
So what gives the State the right to take any of it? Even with your scenario, the rich will continue to use legal loopholes to pass on things, and the middle class will get the confiscation penalty. How progressive.
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(Score: 2) by monster on Tuesday June 23 2015, @04:51PM
Since it's society as a whole who decides what is the proper distribution of inheritance, it's also society as a whole who can stablish rules which reserve a share for the common good. Apart from natural rights, the other rights you have are given by society, so it has all the right to stablish taxes. And private property is not a natural right, it depends on the common agreement of your society, so why should the State support your property rights over other people's properties for nothing?
(Score: 2) by GungnirSniper on Tuesday June 23 2015, @07:20PM
Rights are not given by society or any government, and so cannot be lawfully taken by them without extreme circumstances. In England, Lords were only stripped of titles and lands after treason, not because the Crown wanted more money. Putting the greed of the public, or of the Crown, ahead of the right of private property is madness. We have seen where your ideology leads to, which is authoritarianism. In any case, come, take.
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(Score: 2) by monster on Wednesday June 24 2015, @06:58AM
Your opinion has been thoroughly refuted many years ago.
Social contract theories [wikipedia.org].
An example of a philosophical analysis of the nature of the State: "The Leviathan [wikipedia.org]" of Thomas Hobbes.
Another one, "The Social Contract [wikipedia.org]" of Rousseau.
All that, and many more, before taking into account the C-word you fear so much, or its phylosophical grounds. Which, by the way, I don't support, but I guess that because I dispute your assumptions I'm inmediatly labelled a communist. That's the level of this debate...
Also, in England lands, titles and privileges were routinely given and taken back by the king on a whim, usually just using dubious charges and a partial court (The Privy Council) if needed unless the affected ones were military capable of fighting the king, so your argument has less weight than you think. And that's before realizing that Common Law is just one of several possible law frameworks, like Roman Law, and not Gospel.
(Score: 1) by khallow on Friday June 19 2015, @07:18PM
The same argument could be used against excessive hoarding of riches.
I note here that "hoarding" refers to productive investment which helps everyone, just not as much as you'd like. I think we should get past the dishonest use of language first.
(Score: 0) by Anonymous Coward on Friday June 19 2015, @08:57PM
While a large amount of wealth is invested, there is also a large amount that is literally hoarded in assets and offshore accounts. Also, your idea of those investments helping everyone is the same old trickle down theory, so move on to reality please where the parasites justify their existence by trying to make themselves look like saints. The only saving grace is "not as much as you'd like" where you almost admit there is a problem.
Back to the solution, its been pointed out before that progressive tax increases on higher wealth, up to 90%(?) back in the day, allowed for a strong middle class. That is a pretty good solution that's already been shown to work. If you believe that a single person is literally worth millions of times more than another, then I will have to ask you to turn in your humanity badge.
(Score: 1) by khallow on Saturday June 20 2015, @01:48PM
there is also a large amount that is literally hoarded in assets and offshore accounts
Which are then invested by the banks who keep the funds.
lso, your idea of those investments helping everyone is the same old trickle down theory
Just because the effects of "trickle down" have been exaggerated doesn't mean that they don't exist.
its been pointed out before that progressive tax increases on higher wealth, up to 90%(?) back in the day, allowed for a strong middle class
There has never been a 90% tax on the wealthy due to the many tax loopholes of the time. And what allowed for a strong middle class was both the relative ease of employing people and running businesses (a long running US feature since its beginning) combined with a lack of competition from foreign sources. Keep in mind that for decades, the US was one of the few developed world countries which hadn't been devastated by the Second World War. I think it's foolish to confuse the US's temporary advantages of the time with an imaginary high tax rate on the wealthy.
Such a high tax policy now would be epic folly, studied for centuries. The US has far weaker advantages these days than in the past. I think making the US vastly unprofitable for businesses and such would chase away almost all capital from the country. What would be the point of employing US workers when you lose 90% of what you earn from them? Better to take your chances with China or India.
(Score: 1) by khallow on Saturday June 20 2015, @10:36PM
If you believe that a single person is literally worth millions of times more than another, then I will have to ask you to turn in your humanity badge.
I believe some people have negative value due to their actions. So yes, a single person can be worth more than millions of times another. For example, I believe you are worth more than millions of Charles Mansons.
(Score: 2) by monster on Monday June 22 2015, @10:18AM
Hoarding refers to hoarding. If the rich people decide to use the money to run a factory, buy themselves a megayatch or have an olympic pool of gold coins to swim in those are just different uses of the hoarded money. Some may be more positive towards the common good than others, but it's still the same accumulation of economic power nonetheless. With the added fact that a large share of rich people tend to prefer the second option and not the first, which takes away the myth of the "enterprising capitalist".
(Score: 1) by khallow on Monday June 22 2015, @03:27PM
With the added fact that a large share of rich people tend to prefer the second option and not the first, which takes away the myth of the "enterprising capitalist".
Because enterprising capitalists never buy anything nice? It's a silly argument: we need to screw up our society economically because otherwise very rich people might buy really big boats or even flaunt their wealth.
Fortunately, I have a solution here. How about you find a real problem to worry about? Like how to get rid of all the obstacles thrown in the way of employing people?
(Score: 2) by monster on Monday June 22 2015, @03:54PM
It's really irony that you say this just a few comments back, given your current comment:
If you keep raising strawmen at the rate you do in this article, you could have a whole division in little time.
Very nice of you to worry so much about how I misuse my time. But don't worry, I'm not one of the people who took the time to make a study which just by coincidence is at odds with your vision of reality. I guess it's the new motto in the USA: "If the facts don't agree with your theory, ignore the facts"
(Score: 1) by khallow on Monday June 22 2015, @04:22PM
I'm not one of the people who took the time to make a study which just by coincidence is at odds with your vision of reality.
How is the study actually at odds? The conclusions are at odds, but the study itself isn't. They just choose to ignore the common factors (such as being an uncompetitive developed world country in a world subject to globalization) which provide a better explanation.
Speaking of dishonest language, we have you using the term, "hoarding" to mean without distinction any use of money which doesn't involve destroying or giving it away. And how do you measure "excessive hoarding" when you don't consider the use of the wealth in the first place? And then there's the vague concern about "accumulation of economic power". There's all this bizarre economics-like language, but nothing serious to attach that language to. But at least it sounds alarming.
If you keep raising strawmen at the rate you do in this article, you could have a whole division in little time.
Perhaps you should write something less full of straw, if you don't want me to characterize it so easily? You were the one stating coyly that rich people buying megayachts or pools of gold coins somehow magically demonstrates the "myth of the 'enterprising capitalist'" which I gather somehow is supposed to be a devastating rebuttal of Reagonomics (at least the "trickle down" idea which kicked this thread off), but is rather an embarrassing display of juvenile rhetoric. I believe I characterized that accurately: rich people buy toys hence they can't possibly be enterprising capitalists.
(Score: 2) by monster on Monday June 22 2015, @04:49PM
Maybe you didn't read it? I did before submitting, given the controversy it would likely raise here, and the data is clear. Let me quote it again for you: "If the income share of the top 20 percent increases by 1 percentage point, GDP growth is actually 0.08 percentage point lower in the following five years". Maybe you disagree with the next sentence ("suggesting that the benefits do not trickle down") but such disagreement doesn't negate the stated fact.
Let me google the word for you:
Hoarding: To accumulate money, food, or the like, in a hidden or carefully guarded place for preservation, future use, etc.
Do you find dishonest the use of the word? Why? Also, would you agree that we can call "excessive hoarding" to when some people have so much money they couldn't spend it in their lifetimes, even if they tried? Because there are people like that, you know.
As for your language rant, let me introduce you a new word: Synonyms.
(Score: 1) by khallow on Monday June 22 2015, @06:12PM
Hoarding: To accumulate money, food, or the like, in a hidden or carefully guarded place for preservation, future use, etc.
Now, let's look at what you claimed was hoarding: investing, buying a big yacht, and the pool of gold coins. Investing is by definition risky so it fails the definition. Buying large status objects like yachts fails because the rich guy isn't preserving the wealth. Finally, the pool of gold coins might be or it might just be another bling expenditure. Definitions are nice because if you had followed your definition, we wouldn't have bothered with this thread at all and have had more time for cat videos.
(Score: 4, Touché) by DeathMonkey on Friday June 19 2015, @06:19PM
Those that advocate the use of force to tip the scales are the advocates of tyranny.
The use of force to protect that person's inheritance and property from all those poor people is fine, of course.
(Score: 3, Insightful) by Anonymous Coward on Friday June 19 2015, @07:47PM
Government confiscation
Taxation is not confiscation, shame on you for resorting to appealing to the reader's emotions.
of inheritance is immoral.
I disagree. Now that we find ourselves standing on the opposite ends on a nebulous subjective issue such as morality, perhaps we should find a better way to settle the discussion? Maybe if there was some scientific study which demonstrated the impact of wealth inequality...
The simple fact is in a free society inequality will always exist.
True, but that doesn't mean all forms of inequality should be given a free pass. Murder is inevitable in a free society, but we still outlaw it.
Those that advocate the use of force to tip the scales
In what way does anyone advocate the use of force? Are you claiming that enforcing laws are considered force?
are the advocates of tyranny.
Once again, using emotionally charged terms to sway opinion is intellectually dishonest.
(Score: 3, Insightful) by RedBear on Friday June 19 2015, @11:55PM
It's funny to me that conservatives are always screaming that doing anything involving money to help the lower classes is immoral and will somehow make people soulless and helpless, unable to "lift themselves up by their bootstraps" to become prosperous on their own. But then those same exact conservatives turn right around and demand that the government stay out of it when they want to hand down millions or billions of dollars in totally unearned money to their own precious offspring. The hypocrisy in this is extraordinary. If conservatives really believed that people should be forced to become prosperous on their own under all possible circumstances there would be no provision for inheritance in the law. In fact it would be banned, and income left by the deceased would simply be redistributed randomly into the economy.
An economy is an engine, and just like any engine it requires some form of regulation to keep itself chugging along without either dying or exploding. There is absolutely nothing immoral about the state doing what is necessary to keep the economy stable. One of those necessary things is keeping inequality from reaching levels that will trigger economic collapse and revolution. Seems to me that it is extremely immoral to support the idea that rampant, uncontrolled inequality is something we should allow to occur.
It occurred to me quite a few years ago now that this so-called "free society" that the new conservatives keep harping about is really more accurately known by another name: Total anarchy. Stateless, might-makes-right anarchy. Well, anarchy never seems to work very well, and tyranny is pretty awful, but those are NOT our only choices. The idea that we can't possibly do anything to reign in rapidly increasing inequality without falling completely into tyranny is utter nonsense, and very damaging to all citizens of our nation. Both rich and poor. It's been shown over and over again that the rich will be even richer if inequality is kept low and the lower classes have some disposable income to spread around and help lubricate the economic gears.
¯\_ʕ◔.◔ʔ_/¯ LOL. I dunno. I'm just a bear.
... Peace out. Got bear stuff to do. 彡ʕ⌐■.■ʔ
(Score: 5, Interesting) by PizzaRollPlinkett on Friday June 19 2015, @04:01PM
I've made this point before, too, and not a lot of people seem to appreciate this. (Particularly who make public policy. They have no understanding of what being poor means.) Poor people have no margin. Any money they save goes to pay for the NEXT disaster. It's hard to build up surplus money when you exist close to subsistence. The next car repair bill or whatever tends to use up whatever savings you have accumulated, and you're back where you started. You can't not respond to emergencies, since you lose what little you have if you can't, say, work because you have no reliable transportation. (Not everyone lives in large cities with reliable public transportation.) Or if the furnace needs a repair during winter, or pick any emergency. The rich have more margin, and can absorb emergencies better. Then they start accumulating surplus money which can be saved, invested, etc. Once you get to a certain point, you can pay cash for a reliable car instead of taking out a loan to buy a clunker. Getting "over the hump" is what is next to impossible for poor people because there's always another emergency.
Someone I knew used to say that the person dreaded getting a tax refund, because it meant another unexpected emergency expense was coming. That's what life is like for the poor.
(E-mail me if you want a pizza roll!)
(Score: 1) by khallow on Friday June 19 2015, @07:22PM
(Score: 2) by c0lo on Friday June 19 2015, @08:05PM
https://www.youtube.com/watch?v=aoFiw2jMy-0 https://soylentnews.org/~MichaelDavidCrawford
(Score: 1) by khallow on Friday June 19 2015, @08:27PM
(Score: 2) by c0lo on Friday June 19 2015, @08:40PM
https://www.youtube.com/watch?v=aoFiw2jMy-0 https://soylentnews.org/~MichaelDavidCrawford
(Score: 1) by khallow on Friday June 19 2015, @09:46PM
(Score: 0) by Anonymous Coward on Friday June 19 2015, @09:19PM
IOW, you have no experience being poor or experience with the poor.
(Score: 1) by khallow on Saturday June 20 2015, @02:01PM
IOW, you have no experience being poor or experience with the poor.
Which isn't true. But I do have considerable experience with elevating myself from poverty and learning how to save and invest money.
(Score: 3, Touché) by tathra on Friday June 19 2015, @11:22PM
you're claim that people blowing all their money on drugs is unsupported and definitely not as widespread as you're trying to claim. a similar claim to yours is that welfare recipients blow all their money on drugs, yet the facts show [thinkprogress.org] this is not the case. vice-spending increases during tough times, but not to the levels you're suggesting.
(Score: 1) by khallow on Saturday June 20 2015, @01:57PM
you're claim that people blowing all their money on drugs
Alcohol and cigarettes are drugs too.