This catchy proverb is used often by critics of free markets, but is there any truth to it? Is economic inequality getting worse?
No. In a free market all transactions are voluntary and thus benefit all participants. Therefore the poor actually get richer. As for the size of the gap between "the poor" and "the rich" consider how big the gap between roman senators and slaves was and how big nowadays the gap is between someone on social security and a senator. The gap is actually shrinking. The reason is simple: Rich people spend a bigger part of their income which ultimately gets into the pockets of the poor where it will be invested. Investion raises productivity and thus income, leveling the playing field.
Statement is false. Depending on who you compare, it can be said that the difference in pay is growing wider (CEOs versus burger flippers), but that can also be explained through government regs and economic analysis.
You can basically tell people these two things:
1) The poor are getting wealthier - increasing numbers own goods like automobiles, microwaves, tv's, homes / apartments, and the basic consumer goods that make life better and more hospitable. Furthermore, you can also argue that because of the internet, even the poor have wonderful access to information that even the rich 50 years ago could only dream of accessing.
2) Economic growth is not zero-sum. In a free-market, the rich do not get rich by taking away from the poor. Rather, through trade and production, the whole economic pie grows, and everyone is better off.
Make sure critics understand that what we experience today is not a free-market, and don't be afraid to scrutinize their beliefs with some basic economic principles.
Metus: Rich people spend a bigger part of their income which ultimately gets into the pockets of the poor where it will be invested. Investion raises productivity and thus income, leveling the playing field.
Rich people spend a bigger part of their income which ultimately gets into the pockets of the poor where it will be invested. Investion raises productivity and thus income, leveling the playing field.
Are you sure about that? It seems to me that poor spends a larger portion of their income (on consumption goods), and the rich save/invest more. Certainly the rich spend and invest more money, but as a percentage of their income I believe the poor spend more. Of course you are correct when you say investing raises productivity and income however.
You are right, I made a mistake there. Rich people save a bigger part. In course of investing, money/capital flows to the poor part of the economy since factories will be built and operated and such. The rest of the argument should still stand.
Dustin Jussila: Are you sure about that? It seems to me that poor spends a larger portion of their income (on consumption goods), and the rich save/invest more.
Bingo. Many people say the poor are poor because they are just paid low wages. Like the problems with many Western governments, it's not an income problem, it's a spending problem. Many of the poor spend a far greater portion of their money on consumer goods and comparatively little in savings and investments. Saving and investing is clutch because this provides the capitol necessary for business, industry, and entrepreneurs to increase production, which creates new wealth (and hopefully a nice return for the investor!). If the inverse were true, then I should yank my savings out of the bank and go on a spending spree at the mall. Sounds ridiculous, but that's how many people run their lives.
Agamentus: ...I should yank my savings out of the bank and go on a spending spree at the mall. Sounds ridiculous, but that's how many people run their lives.
...I should yank my savings out of the bank and go on a spending spree at the mall. Sounds ridiculous, but that's how many people run their lives.
Well if Paul Krugman had his way you would be. Certainly the Fed can't be ignored in making savings unpalatable, but lets leave inflation aside for a moment. Are people generally poor because they spend to much money?
Dustin Jussila: Are people generally poor because they spend to much money?
I believe Frederic Bastiat made the argument when he compared two rich men - one who was thrifty with his wealth and another who was frivolous. Obviously, the man who was exercised restraint was better off in the long run. So yes, even a "rich" man can be "poor" by spending all his money.
Of course, poor people are at a disadvantage to rich people simply because of the lack of money to spend / invest, but I still maintain that in principle, it is not how much money you have, but how you use it. Consider the story of millions of immigrants in the history of United States. Many came and were about as poor as one can get, yet through hard work and thrift, they managed to climb the ladder of prosperity. After a few generations, we not only see the creation of the 'middle class,' but also of a society that is considerably more wealthy because of the aggregate increase in prosperity of millions of individuals.
It's all incorrect.
Every physical human being in the bottom 20% of the income range in North America was in the top 20% 15 years later, as per research of US Labor Department and various Federal Reserves in different cities.
Furthermore, while real household income has increased only by ~5% in the past 30 years, real per capita income has increased by 68% in NA. What explains this ambiguity? It turns out that households have reduced in size, OBVIOUSLY.
Economist Thomas Sowell has also reported that you need to earn only $40,000 a year to be in the top 40%, and only $80,000 a year to be in the top 20%. And most people in the top 20% are above 55, and it would even be a shame that the richest in US are earning pretty low for their old age.
Also, most "millionaires" are actually people who sold their houses within that year, and if you sell your house for >$1,000,000, you are already millionaire. You could also be earning $75,000 a year and may sell a house for $950,000 in order to pay back $1,200,000 of loans, especially during recession time, and you'd still be called a millionaire and taxed as such.
So what?
No one’s mentioned inflation yet. The rich can escape inflation by investing in investments which have a high rate of return but require a large amount of starting cash. Transaction costs mean that only the rich can really benefit from the stock market, investment managers, and tax loopholes. When all you have is a few dollars, your only option is to put it in a bank account and let inflation take away your wealth while prices rise.
Most of those "poor" college students at my school have iPhones and buy $3 coffees every morning.
To paraphrase Marc Faber: We're all doomed, but that doesn't mean that we can't make money in the process. Rabbi Lapin: "Let's make bricks!" Stephan Kinsella: "Say you and I both want to make a German chocolate cake."
Exactly. A lot of the 'poverty' in the United States is locally-relative poverty. A ton of the kids at my school complain so much about not being able to afford certain new trendy clothes and not being able to go to the bars each night. I have like 3 white t-shirts and eat pizza for lunch every day, and I'm perfectly content with what I have.
I met someone around my campus whose family actually came into the United States from Cuba, and he said it's so much better being poor in the United States than being upper-class in Cuba.
I will parrot this sentiment.
Dustin:Are you sure about that? It seems to me that poor spends a larger portion of their income (on consumption goods), and the rich save/invest more. Certainly the rich spend and invest more money, but as a percentage of their income I believe the poor spend more. Of course you are correct when you say investing raises productivity and income however.
You're proving the pro-free market point here. If saving/investment raises income and productivity, then everyone gets wealthier as income/productivity rise, not just the rich or the poor. The poor have the most to benefit from increased productivity, as it's the necessities of life that usually benefit the most from productivity increases.
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Good answers all around, but the statement is patently absurd. I wouldn't even bother arguing with someone who would say it -- they wouldn't even understand your rebuttal.
I wanted to make an immodest statement, and say that I was the only one who cited statistics in this thread, to show that no such thing ever happened.
The topic title was "
not, "Is it a good or bad thing that the rich get richer...."
Pardon this moment of frustration, but why do people on this forum sometimes just talk about isolated theory and ignore reality completely? I just demonstrated that no such phenomenon of rich getting richer or poor getting poorer has ever happened in real life, but people instead talk about a vacuum where they assume this premise to be correct. It's like the story of Indian farmers who fight over their ownership of a hypothetical farm that they never owned.
I saw that, but I just find it very implausible. Does that mean the bottom 20% are replaced by other low-income earners after the original 20% start to make more money, or do you mean that the wealth they acquire puts them in what would have been the top 20% 15 years earlier?
I am saying that income is related to age.
A 19 year old will be flipping burgers for minimum wage and a 45 year old will be earning $60,000 a year, and a 60 year old will be earning $100,000 a year. Stock of human capital (knowledge, experience, communication skills, efficiency) increases with age, and younger people are employed in jobs with more
The assumption often is that a person who starts earning in the bottom 20% remains in the bottom 20% for the rest of his life. He does not. There is not a single living person in United States who was part of the poorest a decade ago and still is.
I should add another interesting statistic cited by the great Sowell himself. Per capita consumption in the top 20% is only 33% higher than per capita consumption in the bottom 20% in United States. I say consumption and not income, because the bottom 20% has sources of money other than regular income, especially since 99% of it is people below 25 and with living parents. So you may start off as a person spending $24,000 a year and you end up a person spending $32,000 a year throughout your life, keeping in constant dollars.
Older people have higher medical expenses and children's interest to look after, and for their age, they earn quite modestly, as does most of the population. Much of the people earning high salaries in Wall Street are already old and battered after years of difficult trading, and those salaries only make up for the money and commisions they lost in their youth, apart from the highly thrifty life they would have lived when their income was uncertain. The rich AND young are a tiny negligible part of the population.
But if we want to discuss a society with genuine upward redistribution of wealth, consider Labour Party Britain, where public sector workers always earned more than private sector workers, from borrowings of private capital and taxing of private incomes. During the 1960s, it was preferable for the rich to have a guaranteed life where they went to elite public schools and got placed in elite public positions with little work. That worked out WONDERFULLY in the stagflation years.
Allow me to put forth something that hasn't been mentioned yet: The difference between the "classes" these days is mostly one of tweaks and style, not a fundamental difference. You make profits by producing for the masses. There's simply not as much profit to be gained in producing things exclusively for those with abnormally high incomes to spend, so the best the rich get is higher quality, and higher quantity, of mostly the same things available to the common man.
That's very interesting. I didn't know that. Can you recommend to me any good places to find interesting [legitimate] statistics like these, and perhaps your favorites works by Sowell?
You should look up the Work and Pay sections of Basic Economics and similar sections of Applied Economics.
Thomas Sowell is a neoconservative and an admirer of Bill Buckley and the general NR crowd, but his politics is absent in Basic Economics, and barely surfaces in Applied Economics in which he makes not a few rants about "liberals" in academia.
Just know that Sowell is an expert mainly on demographics, urbanization, housing markets, race, gender, and the workplace. Where he speaks outside his area of expertise, he may be disregarded, like money and banking.